In response to the recent mortgage crisis, Congress amended the Equal Credit Opportunity Act (ECOA) to require creditors to automatically provide applicants with a copy of appraisal reports and valuations prepared in connection with certain mortgage loans. The Consumer Financial Protection Bureau (Bureau) is now proposing a rule to implement those changes, which were enacted in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).1 Specifically, the proposed rule would amend the regulations implementing ECOA to:

• Cover applications for credit to be secured by a first lien on a dwelling.

• Require creditors to notify applicants within three business days of receiving an application of their right to receive a copy of written appraisals and valuations developed.

• Require creditors to provide applicants a copy of all written appraisals and valuations promptly after receiving an appraisal or valuation, but in no case later than three business days prior to consummation of the mortgage.

• Permit applicants to waive the timing requirement to receive copies three days prior to consummation. However, applicants who waive the timing requirement must still be given a copy of all written appraisals and valuations at or prior to closing.

• Prohibit creditors from charging additional fees for providing a copy of written appraisals and valuations, but permit creditors to charge applicants a reasonable fee to reimburse the creditor for the cost of the appraisal or valuation unless otherwise required by law.

The ECOA2 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, age (provided the applicant has the capacity to contract), because all or part of an applicant's income derives from public assistance, or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. ECOA applies to all credit—commercial as well as consumer—without regard to the nature or type of the credit or the creditor.

Historically, section 701(e) of ECOA has provided that a credit applicant has the right to request copies of appraisal reports used in connection with his or her application for mortgage credit. The right to request copies of appraisals was added to ECOA in December 1991 as part of the Federal Deposit Insurance Corporation Improvement Act (FDICIA).3 The Senate report on FDICIA suggests that one purpose of ECOA section 701(e) was to make it easier for loan applicants to determine whether aloan was denied due to a discriminatory appraisal.4

With the enactment of the Dodd-Frank Act,5 general rulemaking authority for ECOA transferred from the Board of Governors of the Federal Reserve System (Board) to the Bureau on July 21, 2011. Pursuant to the Dodd-Frank Act and ECOA, as amended, the Bureau published for public comment an interim final rule establishing a new Regulation B, 12 CFR part 1002, implementing ECOA (except with respect to persons excluded from the Bureau's rulemaking authority by section 1029 of the Dodd-Frank Act). 76 FR 79442 (Dec. 21, 2011). This rule did not impose any new substantive obligations but did make technical and conforming changes to reflect the transfer of authority and certain other changes made by the Dodd-Frank Act. The Bureau's Regulation B took effect on December 30, 2011.

Congress enacted the Dodd-Frank Act after a cycle of unprecedented expansion and contraction in the mortgage market sparked the most severe U.S. recession since the Great Depression.6 The Dodd-Frank Act created the Bureau and consolidated various rulemaking and supervisory authorities in the new agency, including the authority to implement ECOA.7 At the same time, Congress imposed new statutory requirements governing mortgage practices with the intent to restrict the practices that contributed to the crisis and provide additional protections to consumers.

Sections 1471 through 1474 of the Dodd-Frank Act established a number of new requirements for appraisal activities, including requirements relating to appraisal independence, appraisals for higher-risk mortgages, regulation of appraisal management companies, automated valuation models, and providing copies of appraisals and valuations.8 Many of the Dodd-Frank Act appraisal provisions are required to be implemented through joint rulemakings involving several federal agencies. The amendment to ECOA section 701(e), however, does not require a joint rulemaking. As discussed below, the amendments to section 701(e) overlap with the notice and copy requirements of a Dodd-Frank Act amendment to the Truth in Lending Act (TILA) applicable to higher-risk mortgage loans. The Dodd-Frank Act amendment to TILA, which adds section 129H, is required to be implemented through joint rulemaking. See TILA section 129H(b)(4)(A); 15 U.S.C. 1639h(b)(4)(A).

Section 1474 of the Dodd-Frank Act9 amended ECOA section 701(e) to require that creditors provide copies of appraisals and valuations to loan applicants at no additional cost and without requiring applicants to affirmatively request such copies. Amended ECOA section 701(e) generally provides that:

• A creditor shall furnish to an applicant a copy of any and all written appraisals and valuations developed in connection with the applicant's application for a loan that is or would be secured by a first lien on a dwelling. The appraisal documentation must be provided promptly, and in no case later than three days prior to closing of the loan, whether the creditor grants or denies the applicant's request for credit or the application is incomplete or withdrawn. However, the applicant may waive the timing requirement that such appraisals or valuations be provided three days prior to closing, except where otherwise required by law.

• The creditor shall provide a copy of each written appraisal or valuation at no additional cost to the applicant, though the creditor may impose a reasonable fee on the applicant to reimburse the creditor for the cost of the appraisal.

• At the time of application, the creditor shall notify applicants in writing of the right to receive a copy of each written appraisal and valuation under ECOA section 701(e).

Amended ECOA section 701(e)(6) defines the term “valuation” as including “any estimate of the value of a dwelling developed in connection with a creditor's decision to provide credit, including those values developed pursuant to a policy of a government sponsored enterprise or by an automated valuation model, a broker price opinion, or other methodology or mechanism.”

On the same day that this proposal is released by the Bureau, the Bureau is also releasing a proposal to implement section 1471 of the Dodd-Frank Act, which added new appraisal requirements for higher-risk mortgages that are subject to joint implementation by the Board, Bureau, Federal Deposit Insurance Corporation (FDIC), Federal Housing Finance Agency (FHFA), National Credit Union Administration (NCUA), and Office of the Comptroller of the Currency, Treasury (OCC). This provision, which is codified in new TILA section 129H(d), contains disclosure requirements that are similar to ECOA section 701(e) in that creditors must provide consumers, at least three days prior to closing, a copy of any appraisal prepared in connection with a higher-risk mortgage. 15 U.S.C. 1639h(c). Creditors must also provide consumers, at the time of the initial mortgage application, a statement that any appraisal prepared for the mortgage is for the creditor's sole use and that the consumer may choose to have a separate appraisal conducted at his or her own expense.Id.1639h(d). Section 1471 of the Dodd-Frank Act defines the term “higher-risk mortgage” generally as a residential mortgage loan, other than a reverse mortgage, that is secured by a principal dwelling with an annual percentage rate (APR) that exceeds the average prime offer rate (APOR) for a comparable transaction by a specified percentage.Id.1639h(f).

In addition to this proposal and the higher-risk mortgage rulemaking discussed above, the Bureau currently is engaged in six other rulemakings relating to mortgage credit to implement requirements of the Dodd-Frank Act:

•TILA-RESPA Integration:On July 9, 2012, the Bureau released a proposed rule and forms combining the TILA mortgage loan disclosures with the Good Faith Estimate (GFE) and settlement statement required under RESPA pursuant to Dodd-Frank Act section 1032(f) as well as sections 4(a) of RESPA and 105(b) of TILA, as amended by Dodd-Frank Act sections 1098 and 1100A, respectively (2012TILA-RESPA Proposal).10 12 U.S.C. 2603(a); 15 U.S.C. 1604(b).

•HOEPA:On the same day that the Bureau released the 2012 TILA-RESPA Proposal, the Bureau also released a proposal to implement Dodd-Frank Act requirements expanding protections for “high-cost” mortgage loans under HOEPA, pursuant to TILA sections 103(bb) and 129, as amended by Dodd-Frank Act sections 1431 through 1433 (2012 HOEPA Proposal).11 15 U.S.C. 1602(bb) and 1639.

•Servicing:The Bureau is in the process of developing a proposal to implement Dodd-Frank Act requirements regarding force-placed insurance, error resolution, and payment crediting, as well as forms for mortgage loan periodic statements and “hybrid” adjustable-rate mortgage reset disclosures, pursuant to sections 6 of RESPA and 128, 128A, 129F, and 129G of TILA, as amended or established by Dodd-Frank Act sections 1418, 1420, 1463, and 1464. The Bureau has publicly stated that in connection with the servicing rulemaking the Bureau is considering proposing rules on reasonable information management, early intervention for troubled and delinquent borrowers, and continuity of contact, pursuant to the Bureau's authority to carry out the consumer protection purposes of RESPA in section 6 of RESPA, as amended by Dodd-Frank Act section 1463. 12 U.S.C. 2605; 15 U.S.C. 1638, 1638a, 1639f, and 1639g.

•Loan Originator Compensation:The Bureau is in the process of developing a proposal to implement provisions of the Dodd-Frank Act requiring certain creditors and mortgage loan originators to meet duty of care qualifications and prohibiting mortgage loan originators, creditors, and the affiliates of both from receiving compensation in various forms (including based on the terms of the transaction) and from sources other than the consumer, with specified exceptions, pursuant to TILA section 129B as established by Dodd-Frank Act sections 1402 and 1403. 15 U.S.C. 1639b.

•Ability to Repay:The Bureau is in the process of finalizing a proposal issued by the Board to implement provisions of the Dodd-Frank Act requiring creditors to determine that a consumer can repay a mortgage loan and establishing standards for compliance, such as by making a “qualified mortgage,” pursuant to TILA section 129C as established by Dodd-Frank Act sections 1411 and 1412 (Ability to Repay Rulemaking). 15 U.S.C. 1639c.

•Escrows:The Bureau is in the process of finalizing a proposal issued by the Board to implement provisions of the Dodd-Frank Act requiring certain escrow account disclosures and exempting from the higher-priced mortgage loan escrow requirement loans made by certain small creditors, among other provisions, pursuant to TILA section 129D as established by Dodd-Frank Act sections 1461 and 1462 (Escrows Rulemaking). 15 U.S.C. 1639d.

With the exception of the requirements being implemented in the TILA-RESPA proposal, the Dodd-Frank Act requirements referenced above generally will take effect on January 21, 2013, unless final rules implementing those requirements are issued on or before that date and provide for a different effective date. To provide an orderly, coordinated, and efficient comment process, the Bureau is generally setting the deadlines for comments on this and other proposed mortgage rules based on the date the proposal is issued, instead of the date the notice is published in theFederal Register. Because the precise date of publication cannot be predicted in advance, this method will allow interested parties that intend to comment on multiple proposals to plan accordingly and will ensure that the Bureau receives comments with sufficient time remaining to issue final rules by January 21, 2013. However, consistent with the requirements of the Paperwork Reduction Act, the comment period for the proposed analysis under that Act will end 60 days after publication of this notice in theFederal Register.

The Bureau regards the foregoing rulemakings as components of a larger undertaking; many of them intersect with one or more of the others. Accordingly, the Bureau is coordinating carefully the development of the proposals and final rules identified above. Each rulemaking will adopt new regulatory provisions to implement the various Dodd-Frank Act mandates described above. In addition, each of them may include other provisions the Bureau considers necessary or appropriate to ensure that the overall undertaking is accomplished efficiently and that it ultimately yields a regulatory scheme for mortgage credit that achieves the statutory purposes set forth by Congress, while avoiding unnecessary burdens on industry.

Thus, many of the rulemakings listed above involve issues that extend across two or more rulemakings. In this context, each rulemaking may raise concerns that might appear unaddressed if that rulemaking were viewed in isolation. For efficiency's sake, however, the Bureau is publishing and soliciting comment on proposed answers to certain issues raised by two or more of its mortgage rulemakings in whichever rulemaking is most appropriate, in the Bureau's judgment, for addressing each specific issue. Accordingly, the Bureau urges the public to review this and the other mortgage proposals identified above, including those previously published by the Board, together. Such a review will ensure a more complete understanding of the Bureau's overall approach and will foster more comprehensive and informed public comment on the Bureau's several proposals, including provisions that may have some relation to more than one rulemaking but are being proposed for comment in only one of them.

The Bureau has conducted consumer testing relating to implementation of ECOA section 701(e) requirements in conjunction with the 2012 TILA-RESPA Proposal. A more detailed discussion of the Bureau's overall testing and form design can be found in the reportKnow Before You Owe: Evolution of the Integrated TILA-RESPA Disclosures,which is available on the Bureau's Web site.12

In January 2011, the Bureau contracted with a communication, design, consumer testing, and research firm, Kleimann Communication Group, Inc. (Kleimann), which specializes in consumer financial disclosures. The Bureau and Kleimann developed a plan to conduct qualitative usability testing, consisting of one-on-one cognitive interviews, over several iterations of prototype integrated disclosure forms. Between January and May 2011, the Bureau and Kleimann worked collaboratively on developing a qualitative testing plan, and several prototype integrated forms for the disclosure to be provided in connection with a consumer's application (i.e.,a form integrating the RESPA good faith estimate and the early TILA disclosure).13 The qualitative testingplan developed by the Bureau and Kleimann was unique with respect to qualitative testing performed by other federal agencies in that the Bureau planned to conduct qualitative testing with industry participants as well as consumers. Each round of qualitative testing included at least two industry participants, including lenders from several different types of depository (including credit unions) and non-depository institutions, mortgage brokers, and closing agents.

In addition, the Bureau launched an initiative to obtain public feedback on each round of prototype disclosures at the same time it conducted the qualitative testing of the prototypes, which it titled “Know Before You Owe.”14 This initiative consisted of publishing and obtaining feedback on the prototype designs through an interactive tool on the Bureau's Web site or through posting the prototypes to the Bureau's blog on its Web site and providing an opportunity for the public to email feedback directly to the Bureau.

From May to October 2011, Kleimann and the Bureau conducted a series of five rounds of qualitative testing on revised iterations of integrated disclosure prototype forms. This testing was conducted in five different cities across different U.S. Census regions and divisions: Baltimore, Maryland; Los Angeles, California; Chicago, Illinois; Springfield, Massachusetts; and Albuquerque, New Mexico. After each round, Kleimann analyzed and reported to the Bureau on the results of the testing. Based on these results and feedback received from the Bureau's Know Before You Owe public outreach project, the Bureau revised the prototype disclosure forms for the next round of testing.

As part of the larger Know Before You Owe public outreach project, the Bureau tested two versions of the new appraisal-related disclosures required by both TILA section 129H and ECOA section 701(e).15 The Bureau believed that it was important to test both appraisal-related disclosures together in order to determine how best to provide these two overlapping but separate disclosures in a manner that would minimize consumer confusion and improve consumer comprehension. Testing showed that consumers tended to find the TILA and ECOA disclosures confusing when they were given together using, in both cases, the specific language set forth in the statute.16 Consumer comprehension improved when the Bureau developed a slightly longer plain language disclosure that was designed to incorporate the elements of both statutes. Based on the results of that testing, the Bureau has developed the following appraisal disclosure language: “We may order an appraisal to determine the property's value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.”

The Bureau is issuing this proposed rule pursuant to its authority under ECOA, and the Dodd-Frank Act. On July 21, 2011, section 1061 of the Dodd-Frank Act transferred to the Bureau all of the “consumer financial protection functions” previously vested in certain other Federal agencies, including the Board.17 The term “consumer financial protection function” is defined to include “all authority to prescribe rules or issue orders or guidelines pursuant to any Federal consumer financial law, including performing appropriate functions to promulgate and review such rules, orders, and guidelines.”18 ECOA and title X of the Dodd-Frank Act are Federal consumer financial laws.19 Accordingly, the Bureau has authority to issue regulations pursuant to ECOA, as well as title X of the Dodd-Frank Act.

Section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to prescribe rules “as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof[.]” 12 U.S.C. 5512(b)(1). Section 1022(b)(2) of the Dodd-Frank Act prescribes certain standards for rulemaking that the Bureau must follow in exercising its authority under section 1022(b)(1). 12 U.S.C. 5512(b)(2).

Section 1405(b) of the Dodd-Frank Act provides that, “[n]otwithstanding any other provision of [title XIV of the Dodd-Frank Act], in order to improve consumer awareness and understanding of transactions involving residential mortgage loans through the use of disclosures, the [Bureau] may, by rule, exempt from or modify disclosure requirements, in whole or in part, for any class of residential mortgage loans if the [Bureau] determines that such exemption or modification is in the interest of consumers and in the public interest.” 15 U.S.C. 1601 note. Section 1401 of the Dodd-Frank Act, which amended TILA section 103(cc), 15 U.S.C. 1602(cc), generally defines residential mortgage loan as any consumer credit transaction that is secured by a mortgage on a dwelling or on residential real property that includes a dwelling other than an open-end credit plan or an extension of credit secured by a consumer's interest in a timeshare plan. Notably, the authority granted by section 1405(b) applies to “disclosure requirements” generally, and is not limited to a specific statute or statutes.

Section 703(a) of ECOA authorizes the Bureau to prescribe regulations to carry out the purposes of ECOA. Section 703(a) further states that such regulations may provide for such adjustments and exceptions for any class of transactions, that in the judgment of the Bureau are necessary or proper to effectuate the purposes of ECOA, to prevent circumvention or evasion thereof, or to facilitate or substantiate compliance. 15 U.S.C. 1691b(a). Pursuant to this authority, the Bureau proposes to implement the amended ECOA appraisal provision. 15 U.S.C 1691(e). The proposed rule would amend existing § 1002.14 of Regulation B.

This proposal would implement amendments made by the Dodd-Frank Act to ECOA that require, among other things, that creditors provide applicants with free copies of any and all written appraisals and valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling. The Bureau is proposing to implement these new requirements through amendments to existing § 1002.14 of Regulation B.

Currently, § 1002.14(a) of Regulation B sets forth the general requirement thata creditor shall provide a copy of the appraisal report used in connection with an application for credit that is to be secured by a lien on a dwelling. Section 1002.14(a) states that a creditor must comply with either § 1002.14(a)(1), which provides for routine delivery of copies of appraisal reports to an applicant, or § 1002.14(a)(2), which sets forth rules for providing copies of appraisal reports upon request (for creditors that do not choose to routinely provide appraisal reports to applicants). As discussed in more detail below, the Bureau is proposing to amend § 1002.14(a) to implement changes to the appraisal delivery requirements set forth in the Dodd-Frank Act. Because the Dodd-Frank Act amendments to ECOA section 701(e) eliminate the option for a creditor to provide copies of appraisals or valuations only upon written request, the Bureau is proposing to renumber portions of proposed § 1002.14(a) for clarity.

As discussed in more detail below, proposed § 1002.14(a)(1) would set forth the general requirement to provide copies of written appraisals and valuations to applicants for credit to be secured by a first lien on a dwelling, and would set forth the timing and waiver requirements for providing such copies. Proposed § 1002.14(a)(2) would require that a creditor provide a written disclosure of the applicant's right to receive a copy of such written appraisals and valuations. Proposed § 1002.14(a)(3) would prohibit creditors from charging the applicant for providing a copy of written appraisals and valuations, but would permit creditors to require applicants to pay a reasonable fee to reimburse the creditor for appraisals and valuations. Proposed § 1002.14(a)(4) would clarify that the requirements of § 1002.14(a)(1) apply regardless of whether credit is extended or denied, or if the application is incomplete or withdrawn. Proposed § 1002.14(a)(5) would allow for the copies required by § 1002.14(a)(1) to be provided in electronic form. As is discussed in more detail below, proposed § 1002.14(b) would define certain terms used in proposed § 1002.14(a).

Current comment 14(a)(2)(i)-1 addresses the notice requirements if the application subject to § 1002.14 involves more than one applicant. The Bureau is proposing to renumber current comment 14(a)(2)(i)-1 as proposed comment 14(a)-1, and to make a conforming change so that the comment accurately refers to the disclosure about copies of written appraisals and valuations rather than to a notice about the appraisal report. In addition, the proposed comment would be amended to clarify that the comment also applies to the requirement to provide copies of written appraisals and valuations. Accordingly, the proposed comment would clarify that if there is more than one applicant, the notice about the written appraisals and valuations, and the copies of written appraisals and valuations, need only be given to one applicant, but it must be given to the primary applicant where one is readily apparent.

Consistent with ECOA section 701(e)(1), proposed § 1002.14(a)(1) would require a creditor to provide an applicant a copy of all written appraisals and valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. The scope of proposed § 1002.14(a)(1) differs in several important respects from current § 1002.14(a). First, consistent with new ECOA section 701(e)(1), the proposed amendments to § 1002.14(a)(1) would broaden scope of the current requirement to provide copies of “an appraisal report” to include “all written appraisals and valuations developed.” Thus, more types of documents developed to value properties would be covered.

At the same time, the amendments made to ECOA section 701(e)(1) also narrow the types of transactions that are covered by subsection (e). Specifically, the proposed rule would apply to applications for credit to be secured by a first lien on a dwelling. In contrast, current § 1002.14(a) applies to applications for credit secured by a first lien or a subordinate lien on a dwelling. Accordingly, proposed § 1002.14(a)(1) would also add the word “first” to § 1002.14(a) to narrow the scope of the proposed rule to cover only loans secured by a first lien on a dwelling, consistent with the Dodd-Frank Act amendments to section 701(e) of ECOA.

Current comments 14(a)-1 and 14(a)-2 clarify the applicability of the appraisal delivery requirements to credit for business purposes and renewals. The proposal would generally retain comments 14(a)-1 and 14(a)-2 (renumbered as comments 14(a)(1)-1 and 14(a)(1)-2), with several conforming and technical changes. Specifically, proposed comment 14(a)(1)-1 would include an updated cross-reference to the definition of “dwelling” that, as discussed below, is proposed to be moved to § 1002.14(b)(2). In addition, proposed comment 14(a)(1)-1 would be narrowed to cover only loans secured by a first lien on a dwelling, consistent with proposed § 1002.14(a)(1). Thus, proposed comment 14(a)(1)-1 would provide that § 1002.14(a)(1) covers applications for credit to be secured by a first lien on a dwelling, as that term is defined in § 1002.14(b)(2), whether the credit is business credit (see§ 1002.2(g)) or consumer credit (see§ 1002.2(h)).

Proposed comment 14(a)(1)-2 would generally be consistent with current comment 14(a)-2. However, proposed comment 14(a)(1)-2 would use the statutory term “developed” provided in new ECOA section 701(e)(1) in place of the term “obtained” throughout the comment. Thus, proposed comment 14(a)(1)-2 would provide that § 1002.14(a)(1) applies when an applicant requests the renewal of an existing extension of credit and the creditor develops a new written appraisal or valuation. In addition, the proposed comment would also provide that § 1002.14(a) does not apply when a creditor uses the appraisals or valuations that were previously developed in connection with the prior extension of credit in order to evaluate the renewal request.

The Bureau requests comment on whether additional guidance is needed on the application of the requirements of proposed § 1002.14(a)(1) in the case of renewals for consumer or business purpose transactions.

The Bureau is proposing to adopt a new comment 14(a)(1)-3 that would clarify that for purposes of § 1002.14, a “written” appraisal or valuation includes, without limitation, an appraisal or valuation received or developed by the creditor: in paper form (hard copy); electronically, such as by CD or email; or by any other similar media. In addition, the proposed comment clarifies that creditors should look to § 1002.14(a)(5) regarding the provision of copies of appraisals and valuations to applicants via electronic means. The Bureau believes that its proposed interpretation of the term “written” best serves the purposes of the statute, because consumers would receive free copies of appraisals and valuations regardless of whether the creditor receives, prepares or stores these materials in paper or electronic form.

Proposed § 1002.14(a)(1) would clarify that a creditor must provide a copy of each written appraisal or valuation subject to § 1002.14(a)(1) promptly (generally within 30 days of receipt by the creditor), but not later than three business days prior toconsummation of the transaction, whichever is first to occur. This aspect of the proposal implements ECOA section 701(e)(1), which requires that creditors provide the copies of each written appraisal or valuation promptly, but in no case later than three days prior to the closing of the loan. The statute does not define the term “promptly.” However, current § 1002.14(a)(2)(ii) states that “promptly” means generally within 30 days. For consistency with existing § 1002.14(a)(2)(ii), under proposed § 1002.14(a)(1) the provision of a copy of written appraisals and valuations will generally be considered prompt if the written appraisals and valuations are provided within 30 days of receipt thereof by the creditor. Thus, under the proposed rule a creditor would be required to provide a copy of all appraisals and valuations within 30 days of receipt or three days prior to consummation of the transaction, whichever is first to occur.

In addition, for clarity and to be consistent with other similar regulatory requirements under TILA and RESPA, the proposed rule would use the term “consummation” in place of the statutory term “closing” and clarify that the statutory term “days” means “business days.”

ECOA section 701(e)(2) provides that an applicant may waive the three-day requirement provided in ECOA section 701(e)(1), except where otherwise required in law. The Bureau believes that the “3 day requirement” referenced in the statute refers to the timing requirement to provide a copy of an appraisal or valuation three business days prior to closing, as opposed to the general requirement to provide copies of all appraisals and valuations. Specifically, the Bureau believes that a creditor is required to provide a copy of an appraisal or valuation developed promptly (generally within 30 days) even if the application is denied, incomplete, withdrawn, or the applicant waives the three day requirement. In addition, because creditors who order or conduct an appraisal or valuation require it to be completed before consummation of the transaction, the Bureau believes that a creditor should always be required to provide an applicant a copy of written appraisals and valuations by the date of consummation of the transaction. Accordingly, proposed § 1002.14(a)(1) provides that, notwithstanding the other requirements in § 1002.14(a)(1), an applicant may waive the timing requirement to receive a copy of an appraisal or valuation three business days prior to consummation and agree to receive the copy at or before consummation, except as otherwise prohibited by law.

Proposed comment 14(a)(1)-4 would clarify that § 1002.14(a)(1) permits the applicant to waive the timing requirement that written appraisals and valuations be provided no later than three business days prior to consummation if the creditor provides the copy at or before consummation, except as otherwise provided by law. In addition, the proposed comment would provide that an applicant's waiver is effective under § 1002.14(a)(1) if the applicant provides the creditor an affirmative oral or written statement waiving the 3-day timing requirement. Finally, the proposed comment would provide that if there is more than one applicant for credit in the transaction, any applicant may provide the statement.

Section 1474 of the Dodd-Frank Act amended ECOA section 701(e) to mandate that copies of appraisals and valuations be provided regardless of whether the consumer affirmatively requests such copies. Accordingly, for consistency with the statute, the Bureau is proposing to delete current § 1002.14(a)(1) and (a)(2), which permit creditors to choose between the “routine delivery” and “delivery upon request” methods of complying with the requirements of § 1002.14.

The Board's 1993 Final Rule on Providing Appraisal Reports (1993 Final Rule) provided an exemption from the appraisal delivery requirements in § 1002.14 for credit unions.See58 FR 65657, 65660 (Dec. 16, 1993). In the 1993 Final Rule the Board cited to the legislative history of the 1991 ECOA amendments as the basis for the exemption for credit unions. The reasoning behind this exemption appears to have been that credit unions were already required to comply with substantially similar requirements under the regulations of the National Credit Union Administration (NCUA).20 The Board also cited to a section of the legislative history noting that Congress intended no change to the NCUA's regulations in adding the requirement to provide appraisals in ECOA.21

Under 12 CFR 701.31(c)(5), Federal credit unions are still required to make available to any requesting member/applicant a copy of the appraisal used in connection with that member's real estate-related loan application. However, the Dodd-Frank Act amendments to ECOA section 701(e) substantially alter the requirements on creditors to provide appraisals. Specifically, section 1474 of the Dodd-Frank Act expanded the scope of the requirements of ECOA section 701(e) to require creditors to provide copies of all valuations, and to eliminate the need for applicants to request copies. In addition, neither section 1474 of the Dodd-Frank Act nor the legislative history refers to an exception for credit unions subject to, and complying with, the provisions of the NCUA regulations relating to making appraisals available upon request. Accordingly, as proposed, § 1002.14 would delete the exemption for credit unions in current § 1002.14(b).

The Bureau requests comment on the removal of this exemption and whether there are additional factors the Bureau should take into consideration relating to the application of proposed § 1002.14 to credit unions.

Consistent with ECOA section 701(e)(5), proposed § 1002.14(a)(2) provides that for applications subject to § 1002.14(a)(1), a creditor shall provide an applicant with a written disclosure, not later than the third business day after the creditor receives an application, of the applicant's right to receive a copy of all written appraisals and valuations developed in connection with such application.

Title XIV of the Dodd-Frank Act added two new appraisal related disclosure requirements for consumers. New section 701(e)(5) of ECOA, which is implemented in this proposed rule provides: “At the time of application, the creditor shall notify an applicant in writing of the right to receive a copy of each written appraisal and valuation under this subsection.” 15 U.S.C. 1691(e)(5). Similarly, section 129H(d) of TILA provides:

The Bureau believes that Congress intended the ECOA and TILA disclosures to work together to provide consumers a better understanding of their rights in the appraisal process. Accordingly, the Bureau is proposing to exercise its authority under section 703(a) of ECOA and section 1405(b) of the Dodd-Frank Act to amend form C-9 in Regulation B to include the language developed to satisfy the new appraisal-related disclosure requirements of both ECOA and TILA. The proposed sample disclosure language differs from the express statutory language provided in section 701(e)(5). However, based on the results of the testing described above, the Bureau believes that the additional explanatory text is necessary to promote consumer comprehension and to reduce any confusion associated with the TILA appraisal notification that will also have to be given to applicants for higher-risk mortgage loans. The Bureau believes this approach will also reduce compliance burden for industry by allowing a single disclosure to satisfy both statutory requirements. Accordingly, the Bureau believes that the proposed sample notice language developed to satisfy the disclosure requirements of both TILA and ECOA serves the interests of consumers, the public, and creditors. The Bureau requests comment on the proposed language and whether additional changes should be made to the text of the notification to further enhance consumer comprehension.

In addition, the Bureau notes that the model language in proposed Form C-9 refers only to appraisals, while proposed § 1002.14(a)(2) refers to “all written appraisals and valuations.” The Bureau solicits comment on what, if any, adjustments or clarifications to Form C-9 would be appropriate for creditors that perform valuations rather than, or in addition to, appraisals.

ECOA section 701(e)(5) requires creditors to notify applicants in writing, at the time of application, of the right to receive a copy of each written appraisal and valuation. The Bureau proposes to interpret the phrase “at the time of application” to require creditors to provide the ECOA appraisal disclosure no later than three business days after receiving an application. Proposed § 1002.14(a)(2) would require creditors to notify applicants in writing, not later than the third business day after a creditor receives such application, of the right to receive a copy of all written appraisals and valuations developed in connection with such application.

This approach is consistent with the disclosure requirements of TILA and RESPA.22 Currently, creditors are required to provide disclosures under TILA and RESPA no later than the third business day after receiving a consumer's written application.23 The Bureau has also proposed as part of the 2012 TILA-RESPA Proposal that the ECOA disclosure be provided as part of the Loan Estimate disclosure to be delivered not later than the third business day after application, to eliminate the need for a separate disclosure.24

The Bureau believes this approach is warranted because providing the disclosure to applicants at the same time as other similar disclosures—and possibly as part of a broader integrated disclosure document—would allow consumers to read the notification in context with other important information that must be delivered not later than the third business day after the creditor receives the application. Such an approach could reduce the number of pieces of paper that consumers receive and facilitate compliance by creditors.

The Bureau requests comment on whether providing the disclosure at some other time would be more beneficial to consumers, and how the disclosure should be provided where an application is submitted by phone, fax or electronically. For example, the Bureau solicits comment on whether it would be appropriate to require that creditors provide the disclosure at the same time the application is received, or even as part of the application.

The Bureau also seeks comment on the effective date if the Bureau were to finalize the proposal to include the new appraisal disclosure in the TILA-RESPA Loan Estimate. Because the 2012 TILA-RESPA Proposal likely will not be finalized on the same timeline as this proposal, creditors would likely have to revise their current ECOA disclosures to reflect the new language and distribute the disclosures as standalone forms until such time as the TILA-RESPA integrated disclosures must be provided. The Bureau believes that the burden involved would be modest since the forms are currently typically provided as standalone documents and do not require complicated dynamic systems programming to generate. The Bureau believes it is important for consumers to begin receiving information about their rights under ECOA with respect to receiving copies of appraisals. The Bureau therefore is not proposing to delay implementation of the disclosure requirement, as it is with some other mortgage-related disclosures required by the Dodd-Frank Act that the Bureau is proposing to implement as part of the integrated TILA-RESPA forms.25 The Bureau seeks comment on the burden and time involved in implementing the proposed revisions to the ECOA notice.

Consistent with ECOA sections 701(e)(3) and 701(e)(4), the proposed rule would remove current comment 14(a)(2)(ii)-1, which permits creditors to charge photocopy and postage costs incurred in providing a copy to the applicant. ECOA sections 701(e)(3) and 701(e)(4) address creditors' ability to charge certain fees relating to appraisals and valuations. Section 701(e)(3) affirms that creditors may require applicants to pay reasonable fees to reimburse the creditor for the cost of the appraisal, except where otherwise required in law. Section 701(e)(4) provides that notwithstanding this ability, however, creditors shall provide a copy of each written appraisal or valuation at no additional cost to the applicant.

The Bureau interprets the two provisions to permit creditors to chargeapplicants reasonable fees to reimburse the creditor for costs of the appraisal or valuation itself, but not for photocopying, postage, or similar costs associated with providing one written copy to the applicant. Accordingly, proposed § 1002.14(a)(3) generally implements sections 701(e)(3) and 701(e)(4), and provides additional details for clarity.

In addition, the proposed regulation affirms that creditors may impose fees to reimburse the costs of both valuations and appraisals. Although ECOA section 701(e)(3) does not expressly refer to valuations, the reference to both appraisals and valuations in 701(e)(4) regarding the provision of copies creates ambiguity as to congressional intent. The Bureau believes that there is both consumer and industry benefit to affirming that creditors may charge reasonable fees for reimbursement for all types of property valuations. Absent such clarification, the statutory language might be read as implicitly forbidding creditors from charging reimbursement fees for obtaining valuations, such as broker-price opinions or automated valuation models. The Bureau does not believe that Congress intended such a result, which could create an incentive for creditors to favor full appraisals over less costly forms of valuation that may be equally appropriate in particular circumstances.26 Such a result would impose needless costs on loan applicants.

To the extent necessary, the Bureau relies on the authority provided in ECOA section 703(a) to provide adjustments and exceptions for any class of transactions in proposing to interpret section 701(e)(3) of ECOA as permitting creditors to charge applicants a reasonable fee to reimburse the creditor for the cost of developing an appraisal or valuation, except as otherwise provided by law. Such an adjustment effectuates the purposes of ECOA by permitting creditors to charge applicants for less costly forms of valuations that may be utilized in certain low dollar value transactions, and then pass those savings on to loan applicants. For example, the Federal banking agencies do not require federally insured financial institutions to obtain an appraisal in low risk real estate-related financial transactions in which the transaction value is $250,000 or less.27

Proposed comment 14(a)(3)-1 would provide examples of the specific types of charges that are prohibited under the regulation, such as photocopying fees and postage for mailing a copy of written appraisals or valuations.

Proposed comment 14(a)(3)-2 would clarify that § 1002.14(a)(3) does not prohibit creditors from imposing fees that are reasonably designed to reimburse the creditor for costs incurred in connection with obtaining actual appraisal or valuation services, so long they are not increased to cover the costs of providing documentation under § 1002.14. The Bureau does not read ECOA section 701(e)(3) as an attempt to create a proscriptive rate regime for all valuation-related activities. The Bureau notes that where Congress believed direct regulation of the amount of fees in connection with appraisal activities was required, it specified standards in the Dodd-Frank Act.SeeDodd-Frank Act section 1472 (requiring under TILA, with regard to residential mortgage loans, that creditors and their agents pay independent appraisers fees that are “reasonable and customary” for the market area where the property is located, and specifying various sources for determining whether fees meet the standard). The Bureau does not believe that Congress intended ECOA section 701, which focuses on the provision of documentation to loan applicants rather than the substantive performance of appraisal and valuation services, to function in such a manner. Accordingly, the Bureau believes that sections 701(e)(3) and 701(e)(4) are simply designed to prevent direct or indirect upcharging related to the documentation provision that is the focus of the statute.

To further clarify the statutory language stating that creditors' ability to seek reimbursement for the cost of the appraisal does not apply “where otherwise required in law,” proposed comment 14(a)(3)-2 also notes that other sources of law may separately prohibit creditors from charging fees to reimburse the costs of appraisals, and are not overridden by section 701(e)(3). For instance, section 1471 of the Dodd-Frank Act requires creditors to obtain a second interior appraisal in connection with certain higher-risk mortgage loans, but prohibits creditors from charging applicants for the cost of the second appraisal. TILA section 129H(b)(2)(B); 15 U.S.C. 1639h(b)(2)(B).

The Bureau requests comment on the proposed text and whether additional guidance is needed to comply with the requirements of proposed § 1002.14(a)(3).

Consistent with ECOA section 701(e)(1), proposed § 1002.14(a)(4) would provide that the requirements of § 1002.14(a)(1) apply whether credit is extended or denied or if the application is incomplete or withdrawn. This language would expand on the language in current § 1002.14(a)(1), which already requires that creditors using the routine delivery option of compliance provide copies of appraisal reports “whether credit is granted or denied or the application is withdrawn.” Specifically, under the proposed rule creditors would also be required to provide copies of appraisals and valuations in situations where an applicant provides only an incomplete application.

Section 1002.4(d)(2) of Regulation B currently provides that the disclosures required to be provided in writing by this part may be provided to the applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001et seq.). The Bureau believes that it is appropriate to allow creditors to provide applicants with copies of written appraisals and valuations in electronic form if the applicant consents to receiving the copies in such form. Accordingly, proposed § 1002.14(a)(5) would provide that the copies of written appraisals and valuations required by § 1002.14(a)(1) may be provided to the applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the E-Sign Act.

Proposed § 1002.14(b) would set forth three definitions, discussed below. The Bureau requests comment on whether there are additional terms that should be defined for purposes of this rule, and how best to define those terms in a manner consistent with ECOA section 701(e).

As discussed above, for clarity and to be consistent with other similar regulatory requirements under TILA and RESPA, proposed § 1002.14(a)(1) would use the term “consummation” in place of the statutory term “closing.” In addition, the proposed rule would define the term “consummation” in a manner that mirrors the definition of the term provided in § 1026.2(a)(13) of Regulation Z. 12 CFR 1026.2(a)(13). Accordingly, proposed § 1002.14(b)(1) would define the term “consummation” as the time that a consumer becomes contractually obligated on a credit transaction.

Proposed comment 14(b)(1)-1 would clarify that when a contractual obligation on the consumer's part is created is a matter to be determined under applicable law; § 1002.14 does not make this determination. A contractual commitment agreement, for example, that under applicable law binds the consumer to the credit terms would be consummation. Consummation, however, does not occur merely because the consumer has made some financial investment in the transaction (for example, by paying a nonrefundable fee) unless, of course, applicable law holds otherwise.

Proposed comment 14(b)(1)-2 would clarify that consummation does not occur when the consumer becomes contractually committed to a sale transaction, unless the consumer also becomes legally obligated to accept a particular credit arrangement.

Proposed § 1002-1.14(b)(2) would retain the definition of the term “dwelling” in current § 1002.14(c). Specifically, proposed § 1002.14(b)(2) would define the term “dwelling” as a residential structure that contains one to four units whether or not that structure is attached to real property. Proposed paragraph (b)(2) further provides that the term “dwelling” includes, but is not limited to, an individual condominium or cooperative unit, and a mobile or other manufactured home.

Consistent with ECOA section 701(e)(6), proposed § 1002.14(b)(3) defines “valuation” as any estimate of the value of a dwelling developed in connection with a creditor's decision to provide credit. The commentary to the proposed rule would include the list of examples provided in ECOA section 701(e)(6).

Proposed comment 14(b)(3)-1 would amend current comment 14(c)-1 to provide the following examples of valuations:

• A report prepared by an appraiser (whether or not certified and licensed), including written comments and other documents submitted to the creditor in support of the person's estimate or opinion of the property's value.

• A document prepared by the creditor's staff that assigns value to the property, if a third-party appraisal report has not been used.

• An internal review document reflecting that the creditor's valuation is different from a valuation in a third party's appraisal report (or different from valuations that are publicly available or valuations such as manufacturers' invoices for mobile homes).

• Values developed pursuant to a methodology or mechanism required by a government sponsored enterprise, including written comments and other documents submitted to the creditor in support of the estimate of the property's value.

• Values developed by an automated valuation model, including written comments and other documents submitted to the creditor in support of the estimate of the property's value.

• A broker price opinion prepared by a real estate broker, agent, or sales person, including written comments and other documents submitted to the creditor in support of the estimate of the property's value.

The Bureau requests comment on whether this list should include other examples of valuations. In addition, the Bureau requests comments on whether additional clarification is needed about what types of information would not constitute a valuation for purposes of § 1002.14.

The Bureau understands that many documents prepared in the course of a mortgage transaction may contain information regarding the value of a dwelling, but are not themselves a written appraisal or valuation. The Bureau does not believe that consumers would benefit from being given duplicative information concerning written appraisals and valuations. Additionally, it is important for creditors to be able to easily distinguish between documents that must be provided to applicants and those that are not required to be provided. Accordingly, proposed comment 14(b)(3)-2 would amend current comment 14(c)-2 to clarify that not all documents that discuss or restate a valuation of an applicant's property constitute “written appraisals and valuations” for purposes § 1002.14(a)(1). In addition, the proposed comment would provide the following list of examples of documents that discuss the valuation of the applicant's property but nonetheless are not “written appraisals and valuations:”

• Internal documents, that merely restate the estimated value of the dwelling contained in a written appraisal or valuation being provided to the applicant.

• Governmental agency statements of appraised value that are publically available.

• Valuations lists that are publically available (such as published sales prices or mortgage amounts, tax assessments, and retail price ranges) and valuations such as manufacturers' invoices for mobile homes.

The Bureau requests comment on whether this list of examples is too broad or whether additional examples should be included and why.

In developing the proposed rule, the Bureau has considered potential benefits, costs, and impacts to consumers and covered persons,28 and has consulted or offered to consult with the Federal banking agencies, FHFA, the Department of Housing and Urban Development, and the Federal Trade Commission, including regarding consistency with any prudential, market, or systemic objectives administered by such agencies.

The proposed rule would amend Regulation B, which implements the Equal Credit Opportunity Act, and the official interpretation to the regulation, which interprets the requirements of Regulation B. The proposed revisions to Regulation B would implement an Equal Credit Opportunity Act amendment concerning appraisals and other valuations that was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In general, the proposed revisions to Regulation B would require creditors to provide free copies of all written appraisals and valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling. The proposal also would require creditors to notify applicants in writing of the right to receive a copy of each written appraisal or valuation at no additional cost.

Section 1022 permits the Bureau to consider the benefits, costs, and impacts of the proposed rule solely compared to the state of the world in which the statute takes effect without an implementing regulation. To provide the public better information about the benefits and costs of the statute, however, the Bureau has chosen to consider the benefits, costs, and impacts of the major provisions of the proposed rule against a pre-statutory baseline (i.e.,the benefits, costs, and impacts of the relevant provisions of the Dodd-Frank Act and the regulation combined).29

The Bureau has relied on a variety of data sources to analyze the potential benefits, costs, and impacts of the proposed rule. However, in some instances, the requisite data are not available or quite limited. Data with which to quantify the benefits of the proposed rule are particularly limited. As a result, portions of this analysis provide a qualitative discussion of the benefits, costs, and impacts of the proposed rule, relying instead in part on general economic principles to provide insight into these benefits, costs, and impacts.

The primary source of data used in this analysis comes from data collected under the Home Mortgage Disclosure Act (HMDA).30 Because the latest wave of complete data available is for loans made in calendar year 2010, the empirical analysis generally uses the 2010 market as the baseline. Data from fourth quarter 2010 bank and thrift Call Reports,31 fourth quarter 2010 credit union call reports from the National Credit Union Administration (NCUA), and de-identified data from the National Mortgage Licensing System (NMLS) Mortgage Call Reports (MCR)32 for the first and second quarter of 2011 were also used to identify financial institutions and their characteristics. The unit of observation in this analysis is the entity: if there are multiple subsidiaries of a parent company then their originations are summed and revenues are total revenues for all subsidiaries. The Bureau seeks comment on the use of these data sources, the appropriateness to this purpose, and alternative or additional sources of information.

Consumers.Since the proposed rule requires creditors to deliver copies of valuations, including appraisals, to consumers and creditors are explicitly prohibited from charging consumers for these copies, consumers do not bear any direct costs from the proposed rule. The provision of the free copy of the valuation provides consumers with details about the valuation and the condition of the property. Although most consumers receive much of this information from a home inspection and although the appraisal is done for the creditor, each valuation provides the consumer with another independent evaluation. This detailed information may be particularly valuable to the consumer when the appraised value is less than the buyer's offer.33

The proposed rule would change the process of obtaining a copy from one where the consumer must request one to one where the copy is given as the default. This would likely result in more consumers obtaining copies of their valuations since, despite low transaction costs, there is evidence that default rules can have significant effects on outcomes in various settings.34 Consumers who previously may have requested copies of valuations in the absence of the amendment save the time and effort required to make requests.

Individual consumers engage in real estate transactions infrequently, so developing the expertise to value real estate is costly and consumers often rely on experts, such as real estate agents, and list prices to make price determinations. These methods may not lead a consumer to an accurate valuation of a property. For example, there is evidence that real estate agents sell their own homes for significantly more than other houses, which suggests that sellers may not be able to accurately price the homes that they are selling.35 Other research, this time in a laboratory setting, provides evidence that individuals are sensitive to anchor values when estimating home prices.36 In such cases, an independent signal of the value of the home should benefit the consumer. Having a professional valuation as a point of reference may help consumers gain a more accurate understanding of the home's value and improve overall market efficiency, relative to the case where the knowledge of true valuations is more limited.37

Covered Persons.In the context of the proposed rule, “covered persons” includes depository institutions such as banks, credit unions, and thrifts, as well as non-depository lenders such as independent mortgage banks. The Bureau estimates that of the roughly 15,000 depository institutions, just fewer than 12,000 originate mortgage loans. Another 2,500 non-depository institutions engage in real estate credit, based on data from the NMLS MCR. Theproposed rule codifies the common practice of sending copies of all written appraisals to consumers who obtain loans secured by a first lien on a dwelling. In outreach calls to industry, all respondents reported providing copies of appraisals to borrowers as a matter of course if a loan is originated.38 In addition, the proposed rule requires that copies of appraisals and valuations be sent in the event that an application is received but does not result in a loan being originated. Note that while the proposed rule prohibits creditors from charging consumers for these copies, the cost of compliance is offset in part by the costs saved by no longer having to respond to consumer requests for copies. Because responding to a request involves querying a loan file, finding the appraisal, and then going through the process of sending copies of valuations to the consumer, the cost of responding to a single consumer request may be higher than the cost of routinely providing a copy of valuations for a given loan.

Under the proposed rule, covered persons would incur the paperwork costs, for a set of applications and originations, of replicating and sending (either electronically or physically) copies of the appraisals and valuations.39 Based on outreach to industry the Bureau assumes that appraisals and copies of other valuations are currently sent to consumers for 100% of first lien transactions that result in an origination and that copies of appraisals and valuations conducted for applications that do not result in a loan are not sent to consumers. As a result, the paperwork costs result from those applications that do not result in originations. The Bureau also believes that a second appraisal is conducted, and is sent, for any property with a loan size equal to or above $600,000. Further, appraisals are considered to be of inadequate quality 10% of the time, necessitating a second appraisal.

To measure these paperwork costs, counts of originations and applications for reporting depository institutions and credit unions are obtained from the HMDA data; for non-HMDA reporters, counts are imputed using accepted statistical techniques that allow estimates based on the data available in Call reports.40 Different techniques are used to extrapolate from the applications and originations data available in HMDA for reporting IMBs to the broader set of all IMBs.

Covered persons would also incur some costs in reviewing the proposed rule and in training the relevant employees.41 To estimate these costs, the number of loan officers who may require training is estimated based on the application or origination estimates.

The total costs from the proposed rule are approximately $14 million or just under $1.70 for each loan originated. The bulk of these costs arise from the paperwork requirements; roughly ten percent results from the one-time review and training costs.

Since the proposed rule, which largely codifies existing practice, is limited to relatively low cost clerical tasks and does not require the creditor to obtain any additional goods or services, the proposed rule is not likely to have an appreciable impact on the cost of credit for consumers or on loan volumes.

For smaller depository institutions, those with total assets of $10 billion or less, the proposed rule is estimated to cost $4.6 million. Because of their smaller size, fixed training and reviewing costs are spread over fewer applications and originations and as a result, the average cost would increase slightly; for each loan these institutions originate, the cost is estimated to be roughly $1.80.

The Bureau does not anticipate that the proposed rule would have a unique impact on consumers in rural areas.

In addition to the comment solicited elsewhere in this proposed rule, the Bureau requests commenters to submit data and to provide suggestions for additional data to assess the issues discussed above and other potential benefits, costs, and impacts of the proposed rule. The Bureau also requests comment on the use of the data described above. Further, the Bureau seeks information or data on the proposed rule's potential impact on consumers in rural areas as compared to consumers in urban areas. The Bureau also seeks information or data on the potential impact of the proposed rule on depository institutions and credit unions with total assets of $10 billion or less as described in Dodd-Frank Act section 1026 as compared to depository institutions and credit unions with assets that exceed this threshold and their affiliates.

The Regulatory Flexibility Act (RFA) generally requires an agency to conduct an initial regulatory flexibility analysis (IRFA) and a final regulatory flexibility analysis (FRFA) of any rule subject to notice-and-comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities.43 The Bureau also is subject to certain additional procedures under the RFA involving theconvening of a panel to consult with small business representatives prior to proposing a rule for which an IRFA is required.44 An IRFA is not required for this proposal because the proposal, if adopted, would not have a significant economic impact on a substantial number of small entities.

The proposed rule would amend Regulation B, which implements the Equal Credit Opportunity Act, and the official interpretation to the regulation, which interprets the requirements of Regulation B. The proposed revisions to Regulation B would implement an Equal Credit Opportunity Act amendment concerning appraisals and other valuations that was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In general, the proposed revisions to Regulation B would require creditors to provide free copies of all written appraisals and valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling. The proposal also would require creditors to notify applicants in writing of the right to receive a copy of each written appraisal or valuation at no additional cost.

The empirical approach to calculating the impact the proposed regulation has on small entities subject to its requirements utilizes the same data and methodology outlined in the previous section. The analysis that follows focuses on the economic impact of the proposed rule, relative to a pre-statute baseline, for small depository institutions, credit unions and non-depository independent mortgage banks (IMBs).

The Small Business Administration classifies commercial banks, savings institutions, credit unions, and other depository institutions as small if they have assets less than $175 million, and classifies other real estate credit firms as small if they have less than $7 million in annual revenues.45 All institutions that extend real estate credit secured by a first lien on a dwelling are affected by the proposed rule. As shown below, the vast majority of small banks, thrifts, credit unions, and independent mortgage banks originate such loans.

Of the roughly 17,747 depository institutions, credit unions, and IMBs, 13,106 are below the relevant small entity thresholds. Of these, 9,807 are estimated to have originated mortgage loans in 2010. The Bureau has loan counts for credit unions and HMDA-reporting DIs and IMBs. For IMBs, the Bureau only has data on revenues for 560 of 2515 institutions. In order to estimate the number of these institutions that have less than $7 million in revenues the Bureau uses an accepted statistical techniques (“nearest neighbor matching”) to impute revenues from the MCR.

Although most depository institutions, credit unions, and IMBs are affected by the proposed rule, the burden estimates below show that the proposed rule does not have a significant impact on a substantial number of small entities,. As discussed above, the economic impacts include preparing and sending copies of appraisals and other valuations and the costs of reviewing the rule and training employees.

Consistent with the assumptions in the analysis of the previous section, the Bureau believes, based on its outreach, that currently it is routine business practice for appraisals to be sent to consumers for all first lien transactions that result in an origination and that copies of appraisals and valuations conducted for applications that do not result in a loan are not sent to consumers. The Bureau also believes that a second appraisal is typically conducted, and is sent, for any property with a loan size equal to or above $600,000. Further, appraisals are considered to be of inadequate quality 10% of the time, necessitating a second appraisal.46

Under these assumptions, the total costs for small depository institutions and credit unions of providing copies of the appraisals or valuations and any one-time costs for reviewing the regulation and training employees are estimated to be roughly $2.70 per loan originated. For small IMBs, the costs are estimated to be just under $2.00 per loan originated. In both cases, the higher average costs reflect the greater importance of the fixed costs of training for smaller institutions as one-time costs are spread over fewer mortgage originations at these entities. Nevertheless, across all small entities, the costs of the rule amount to a smallfaction of a percent of the revenue or profits from origination activity.47

Accordingly, the undersigned certifies that this proposal, if adopted, would not have a significant economic impact on a substantial number of small entities. The Bureau requests comment on the analysis above and requests any relevant data.

The Bureau's information collection requirements contained in this proposed rule, and identified as such, have been submitted to the Office of Management and Budget (OMB) for review under section 3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501et seq.) (Paperwork Reduction Act or PRA). Under the PRA, the Bureau may not conduct or sponsor, and a person is not required to respond to, an information collection unless the information collection displays a valid OMB control number.

The title of this information collection is ECOA Appraisal Proposal. The frequency of response is on-occasion. The proposed rule would amend 12 CFR Part 1002, Equal Credit Opportunity (Regulation B). Regulation B currently contains collections of information approved by OMB. The Bureau's OMB control number for Regulation B is 3170-0013 (Equal Credit Opportunity Act (Regulation B) 12 CFR 1002). As described below, the proposed rule would amend the collections of information currently in Regulation B.

The information collection in the proposed rule would be required to provide benefits for consumers and would be mandatory. Because the Bureau does not collect any information under the proposed rule, no issue of confidentiality arises. The likely respondents would be certain businesses, for-profit institutions, and nonprofit institutions that are creditors under Regulation B.

Under the proposed rule, the Bureau generally would account for the paperwork burden for the following respondents pursuant to its enforcement/supervisory authority: insured depository institutions with more than $10 billion in total assets, their depository institution affiliates, and certain non-depository institutions. The Bureau and the FTC generally both have enforcement authority over non-depository institutions subject to Regulation B. Accordingly, the Bureau has allocated to itself half of its estimated burden to non-depository institutions. Other Federal agencies, including the FTC, are responsible for estimating and reporting to OMB the paperwork burden for the institutions for which they have enforcement/supervision authority. They may, but are not required to, use the Bureau's burden estimation methodology.

Using the Bureau's burden estimation methodology, the total estimated burden for the roughly 14,000 creditors subject to the proposed rule, including Bureau respondents, would be approximately 173,000 hours of ongoing burden annually and 20,000 hours in one-time burden. Since creditors already provide consumers copies of appraisals if a loan closes, the Bureau assumes that there are no required software or information technology upgrades associated with implementing the rule, because all of the actions required by the rule are already practiced by the affected institutions. The Bureau expects that the amount of time required to implement each of the proposed changes for a given institution may vary based on the size, complexity, and practices of the respondent.

The information collection requirements in the proposed rule would be the provision of certain appraisals and other valuations to consumers. Under the proposed rule, copies of all appraisals and other valuations conducted in connection with an application for a loan to be secured by a first lien must be furnished to applicants free of charge within 3 days of application, and these copies may be delivered physically or electronically. Currently, ECOA requires that free copies be provided upon request. From outreach, the Bureau learned that it is customary to send consumers a copy of all valuations if the loan closes, but firms differed in their practices of sending out copies of valuations for loans that did not close.48 Therefore, the Bureau considers the incremental paperwork burden the cost of reviewing the rule, staff training, and the cost of sending out copies of appraisals and other valuations to consumers who apply for loans that do not close, but reach the stage where an appraisal or other valuation is conducted.

The total annualized on-going burden for the depository institutions and credit unions with more than $10 billion in assets (including their depository affiliates) that originate mortgage loans is estimated to be roughly 74,500 hours and the annualized ongoing burden for all non-depository institutions that originate mortgage loans is estimated to be 47,800 hours. These respondents are estimated to incur an additional 5,800 hours and 4,600 hours in one-time burden, respectively. As discussed previously, for purposes of the PRA analysis under this proposed rule, the Bureau would assume roughly 23,900 on-going burden hours and 2,300 one-time hours for the non-depository institutions.49

Comments are specifically requested concerning: (i) Whether the proposed collections of information are necessary for the proper performance of the functions of the Bureau, including whether the information will have practical utility; (ii) the accuracy of the estimated burden associated with the proposed collections of information; (iii) how to enhance the quality, utility, and clarity of the information to be collected; and (iv) how to minimize the burden of complying with the proposed collections of information, including the application of automated collection techniques or other forms of information technology. All comments will become a matter of public record. Comments on the collection of information requirements should be sent to the Office of Management and Budget (OMB), Attention: Desk Officer for the Consumer Financial Protection Bureau, Office of Information and Regulatory Affairs, Washington, DC 20503, or by the Internet tohttp://oira_submission@omb.eop.gov,with copies to the Bureau at the Consumer Financial Protection Bureau (Attention: PRA Office), 1700 G Street NW., Washington, DC 20552, or by the Internet toCFPB_Public_PRA@cfpb.gov.

Certain conventions have been used to highlight the proposed changes to the text of the regulation and official interpretation. New language is shown inside ▸bold-faced arrows◂, whilelanguage that would be deleted is set off with [bold-faced brackets].

For the reasons set forth in the preamble, the Bureau of Consumer Financial Protection proposes to amend 12 CFR part 1002 and the Official Interpretations, as follows:

The Electronic Fund Transfer Act (EFTA), as amended by the Credit Card Accountability and Responsibility and Disclosure Act of 2009, and as implemented by the Bureau's Regulation E, authorizes the Bureau to consider and address requests received to determine whether any inconsistency exists between the EFTA and State law “relating to,” among other things, “expiration dates of gift certificates, store gift cards, or general-use prepaid cards.”1 Regulation E provides that State law is inconsistent with the requirements of the EFTA and Regulation E if, among other things, the State law “requires or permitsa practice or act prohibited by the federal law.”2 If the State law is inconsistent, Federal law will preempt the State law only to the extent of the inconsistency.3 Furthermore, Federal law will not preempt a State law if the State law affords consumers greater protection than the Federal law.4 The EFTA and Regulation E provide that the Bureau shall make a preemption determination upon its own motion, or upon the request of any State, financial institution, or other interested party.5

The Bureau has received three requests for determinations as to whether provisions in the EFTA and Regulation E relating to gift card expiration dates preempt unclaimed property law provisions in Maine, Tennessee, and New Jersey relating to gift cards.6 The New Jersey request has been rendered moot by a subsequent change in State law.7 Therefore, the Bureau intends to issue a final determination in response only to the Maine and Tennessee requests after further considering the relevant provisions of Federal and State law as set forth below, as well as any comments received in response to this notice.8

Regulation E, which implements the EFTA, generally prohibits any person from selling or issuing a gift certificate, store gift card, or general-use prepaid card with an expiration date unless, among other things, the expiration date for the underlying funds is at least the later of (i) five years after the date the card was issued (or, in the case of a reloadable card, five years after the date that funds were last loaded onto the card) or (ii) the card's expiration date, if any.9 In addition, under the EFTA and Regulation E, such a card generally may not expire unless the terms of expiration are disclosed on the card.10

General.States' unclaimed property laws set forth specific periods of time after which custody of particular categories of unclaimed personal property transfers from the entity holding that property to the State for safekeeping. In some States, unclaimed gift cards are one such category of property. The Supreme Court has articulated rules of priority that determine which State is entitled to claim unclaimed intangible property. Such property is transferred presumptively to the State of the last known address of the property owner. If that State does not provide for the transfer of the category of property at issue, or if the property owner's address is unknown, then custody is transferred to the State of incorporation of the entity that is obligated to make payment on the property.11 The Bureau understands that, when the address of a gift card owner (i.e.,the gift card recipient) is unknown, unclaimed gift card funds typically transfer to the State of incorporation of the entity that issued the gift card.

Maine's Unclaimed Property Statute.Section 1953 of Maine's Uniform Unclaimed Property Act (the Maine Act) provides that a gift obligation or stored-value card is presumed abandoned two years after December 31 of the year in which the obligation arose or the most recent transaction involving the obligation or stored-value card occurred, whichever is later, including the initial issuance and any subsequent addition of value to the obligation or stored-value card.12 A business (e.g.,a gift card issuer) that has issued gift cards that Maine presumes to be abandoned as of the end of a calendar year must reportand transfer the gift card funds to Maine by May 1 of the following year.13 Maine thereafter assumes custody of and responsibility for the unclaimed gift cards, and the Maine Act states that the gift card issuer is relieved of all liability arising thereafter with respect to the property.14 A business that has transferred unclaimed gift card funds to Maine may elect to make payment to the apparent owner of the card (i.e.,may honor the gift card) and may request reimbursement by filing an affidavit with the State.15 The Bureau understands that, if an issuer were to decline to honor the gift card, the consumer could attempt to reclaim his or her property by submitting an unclaimed property claim form to the Office of the State Treasurer of Maine. To properly submit an effective claim, the consumer would need to determine that Maine is the appropriate State to contact, which might not be obvious if the consumer lives and uses the card in another State. Based on outreach, the Bureau understands that Maine collects approximately $2.6 million per year in funds relating to unclaimed gift cards.

Tennessee's Unclaimed Property Statute.Section 66-29-135 of Tennessee's Uniform Disposition of Unclaimed (Personal) Property Act (the Tennessee Act) provides that a “gift certificate”16 issued in the ordinary course of an issuer's business is presumed abandoned if it remains unclaimed by the owner upon the earlier of: (1) The expiration date of the certificate; or (2) two years from the date the certificate was issued.17 A gift certificate is exempt from the Tennessee Act if the issuer of the certificate does not impose a dormancy charge and when the gift certificate (1) conspicuously states that the gift certificate does not expire; (2) bears no expiration date; or (3) states that any expiration date is not applicable in Tennessee.18 An issuer of gift certificates that Tennessee presumes to be abandoned as of the end of a calendar year must report and transfer the gift certificate funds to Tennessee by May 1 of the following year.19 Tennessee thereafter assumes custody and responsibility for the unclaimed gift certificates, and the issuer is relieved of all liability arising thereafter with respect to the property.20 A business that has transferred unclaimed gift certificate funds to Tennessee may elect to honor the gift certificate and may request reimbursement by filing a request with the State.21 The Bureau understands that, if an issuer were to decline to honor the gift certificate, the consumer could attempt to reclaim the funds by submitting an unclaimed property claim form to the Tennessee Department of Treasury. As is true for Maine, to properly submit an effective claim, the consumer would need to determine that Tennessee is the appropriate State to contact, which might not be obvious if the consumer lives and uses the gift certificate in another State. The Bureau does not have precise data concerning the amount of money that Tennessee collects each year in funds relating to unclaimed gift certificates. Given the limited card types that appear to be subject to Tennessee's law, however, the Bureau believes that the amount is likely to be relatively small.

Pursuant to the EFTA, the Bureau intends to consider and address the requests received to determine whether the application of Maine's and Tennessee's unclaimed property statutes to gift cards is inconsistent with the EFTA and Regulation E. In making its determination, the Bureau will consider whether Maine's and Tennessee's statutes may afford consumers greater protection than Federal law. The Bureau invites interested persons to submit comment on all or any aspects of this notice.

Maine's and Tennessee's laws presume gift cards to be “abandoned” and release businesses from the obligation to honor the gift cards during a time period when, pursuant to Federal law, consumers should be able to use the cards. The Bureau seeks public comment on whether there is any inconsistency between these provisions of state law and the expiration date provisions of the EFTA and Regulation E and, if so, on the nature of the inconsistency. As a related matter, the Bureau solicits public comment on whether and how gift card issuers can comply with both Federal and State law, for example by honoring unclaimed cards and requesting reimbursement from Maine or Tennessee.

The Bureau further seeks comment on whether Maine's and Tennessee's unclaimed property statutes as applied to gift cards afford consumers greater protection than Federal law. For example, the Bureau notes that, once the funds corresponding to a consumer's unclaimed gift card transfer to Maine or Tennessee, those funds presumably are protected from the risk of loss in the event that an issuer later files for bankruptcy. Unclaimed gift cards that have transferred to Maine or Tennessee also should be protected from any inactivity fees that might otherwise be assessed on an unused card, to the extent permitted by Federal or State law.22 Finally, a consumer would have an indefinite opportunity to attempt to reclaim his or her unclaimed gift card funds from the State and, if successful, might be entitled to receive cash from the State, rather than the right to obtain merchandise.

On the other hand, if unclaimed gift card funds were transferred to Maine or Tennessee after two years of non-use, and if issuers were not required to honor the card, then a consumer mightonly be able to redeem his or her property by submitting an unclaimed property claim form to the State. At a minimum, a consumer first would need to determine that the card should still have been usable, and then would need to determine which State to contact to reclaim funds corresponding to the unclaimed gift card. As discussed above, when an issuer has no record of the gift card owner's name, unused funds for the card will transfer to the State of incorporation of the gift card issuer. Thus, for example, a consumer who purchases and uses in New York a gift card that was issued by a company incorporated in Maine or Tennessee may be required to contact Maine or Tennessee, rather than New York, to attempt to claim funds that have transferred to the State. It is not clear, however, how the consumer would know to do this. In addition, the consumer would be required to spend time and perhaps money completing and submitting any required claim form(s), as well as to wait perhaps several weeks or months to receive his or her property. Finally, the Bureau understands that Maine's and Tennessee's existing processes for claiming unclaimed property generally rely on property owners' names and addresses. It may be difficult for gift card owners to locate and successfully claim their property under those processes, particularly if gift card issuers do not know, and thus do not report to the State, the names of the consumers who own the unclaimed cards (i.e.,the gift card recipients).

The Bureau notes that at least one judicial decision has weighed the relative benefits to consumers of the EFTA and Regulation E and States' unclaimed property laws as applied to gift cards. In January 2012, the U.S. Court of Appeals for the Third Circuit upheld a decision by the U.S. District Court for the District of New Jersey that declined to preliminarily enjoin the application to gift cards of New Jersey's unclaimed property law, which at the time presumed gift cards abandoned after two years of non-use.23 The District Court concluded, and the Third Circuit agreed, that the plaintiffs were unlikely to prove that Federal law preempted New Jersey's unclaimed gift card law. The Third Circuit identified certain benefits of New Jersey's law that, in the court's view, weighed in favor of a conclusion that New Jersey's law was more protective of consumers than the EFTA and Regulation E.24 Specifically, once New Jersey received unclaimed gift card funds, it would have held them for consumers indefinitely (i.e.,not merely for the minimum five years required under Federal law). In addition, a consumer who submitted a successful claim for his or her funds would have received cash back from the State, as opposed to a card solely redeemable for goods or services.25 The Bureau notes that the court reached its conclusion in the absence of any specific guidance or determination from the Board of Governors of the Federal Reserve System or from the Bureau.

As noted, the Bureau invites public comment on all or any aspects of this notice, including on the application of Maine's and Tennessee's unclaimed property laws to gift cards, on the nature of any inconsistency between those laws and the expiration date provisions of the EFTA and Regulation E, and on whether Maine's and Tennessee's laws afford consumers greater protection than Federal law. After the close of the comment period, the Bureau will analyze any comments received, conduct any further analysis that may be required, and will publish a notice of final action in theFederal Register.

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under theADDRESSESsection. Include “Docket No. FAA-2012-0855; Directorate Identifier 2011-NM-136-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed 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 proposed AD.

On March 31, 2000, we issued AD 2000-07-06, Amendment 39-11660 (65 FR 19302, April 11, 2000), for Model 737-100, -200, -200C, -300, -400, and -500 series airplanes. That AD requires repetitive inspections to detect cracking of the lower corners of the door frame and cross beam of the forward cargo door, and corrective actions, if necessary. That AD also requires eventual modification of the outboard radius of the lower corners of the door frame and reinforcement of the cross beam of the forward cargo door, which would constitute terminating action for the repetitive inspections. That AD resulted from reports indicating that fatigue cracks were detected in the lower corners of the door frame and cross beam of the forward cargo door. We issued that AD to prevent fatigue cracking of the lower corners of the door frame and cross beam of the forward cargo door, which could result in rapid depressurization of the airplane.

Since we issued AD 2000-07-06, Amendment 39-11660 (65 FR 19302, April 11, 2000), we have received additional reports of fatigue cracking in the radius of the lower frames and in the Web of the number 5 lower cross beam of the forward cargo door. One report was of a rapid loss of cabin pressure during descent, as a result of a door crack. Other reports indicated improper nesting when installing the aft reinforcement angle during accomplishment of the modification specified in Boeing Service Bulletin 737-52-1100, Revision 2, dated March 31, 1994; and Boeing Alert Service Bulletin 737-52A1100, Revision 3, dated July 20, 2000.

We reviewed Boeing Alert Service Bulletin 737-52A1100, Revision 5, dated February 14, 2011; and Boeing Special Attention Service Bulletin 737-52-1149, dated December 11, 2003. For information on the procedures and compliance times, see this service information athttp://www.regulations.gov.

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

This proposed AD would retain all of the requirements of AD 2000-07-06, Amendment 39-11660 (65 FR 19302, April 11, 2000). This proposed AD would also require accomplishing the actions specified in the service information described previously, except as discussed under “Differences Between the Proposed AD and the Service Information.” Related investigative actions include inspecting the number 4 cross beam on the forward cargo door for cracking if cracking is found on the number 5 cross beam, a one-time high frequency eddy current inspection for cracking of the lower corner frame, and a one-time inspection of the reinforcement angle. Corrective actions include the following: Installing a preventive modification, replacing the frame and repairing any cracking, repairing or replacing the number 5 cross beam, and replacing the reinforcement angle.

The compliance times required by AD 2000-07-06, Amendment 39-11660 (65 FR 19302, April 11, 2000), are specified in flight cycles on the airplane. However, the compliance times in the new actions specified in the revised service information are specified in door flight cycles, which are flight cycles accumulated on the forward cargo doors. These doors are interchangeable between airplanes and they are often interchanged. Since the unsafe condition stems from the total flight cycles accumulated on the door and not on the airplane itself, this proposed AD will specify door flight cycles for the new compliance times.

We have changed all references to a “detailed visual inspection” in the retained requirements of the existing AD to a “detailed inspection” in this proposed AD.

Boeing Commercial Airplanes has received an ODA. We have revised the retained requirements of the existing AD to delegate the authority to approve an alternative method of compliance for any repair required by this proposed AD to the Boeing Commercial Airplanes ODA rather than a Designated Engineering Representative (DER).

We have included Note 2 of the restated requirements of AD 2000-07-06, Amendment 39-11660 (65 FR 19302, April 11, 2000), in paragraph (h) of this proposed AD. Note 3 of the restated requirements of AD 2000-07-06 is no longer applicable and has been removed from this proposed AD. These changes do not add any additional burden on the public with regard to the restated requirements of the existing AD.

We have added Boeing Alert Service Bulletin 737-52A1100, Revision 5, dated February 14, 2011, to paragraph (i)(2) of this AD as the source of service information for accomplishing the preventive modification and the reinforcement modification.

Boeing Alert Service Bulletin 737-52A1100, Revision 5, dated February 14, 2011, specifies to contact the manufacturer for instructions on how to repair certain conditions, but this proposed AD would require repairing those conditions in one of the following ways:

• In accordance with a method that we approve; or

• Using data that meet the certification basis of the airplane, and that have been approved by the Boeing Commercial Airplanes Organization Designation Authorization (ODA) whom we have authorized to make those findings.

This proposed AD would retain all requirements of AD 2000-07-06, Amendment 39-11660 (65 FR 19302, April 11, 2000). Since AD 2000-07-06 was issued, the AD format has been revised, and certain paragraphs have been rearranged. As a result, the corresponding paragraph identifiers have changed in this proposed AD, as listed in the following table:

Since issuance of AD 2000-07-06, Amendment 39-11660 (65 FR 19302, April 11, 2000), we have increased the labor rate used in the Costs of Compliance from $80 per work-hour to $85 per work-hour. The Costs of Compliance information, below, reflects this increase in the specified labor rate.

We estimate that this proposed AD affects 581 airplanes of U.S. registry.

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

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

We have received no definitive data that would enable us to provide cost estimates for the on-condition repairs/replacements specified in 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.

We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would 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 the proposed regulation:

(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),

(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 proposes to amend 14 CFR part 39 as follows:

We invite you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under theADDRESSESsection. Include “Docket No. FAA-2012-0856; Directorate Identifier 2012-NM-093-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed 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 proposed AD.

We have received reports of burned BMS 8-39 urethane foam insulation on two Model 767-200 series airplanes. The airplane manufacturer has also notified us that certain Model 747, 767, and 777 airplanes were assembled with seals throughout various areas of the airplane (including flight deck and cargo compartments) made of BMS 8-39 urethane foam. The fire retardants in BMS 8-39 urethane foam are mixed into, but are not chemically connected with, the remaining components of the foam. The fire-retardant properties of BMS 8-39 urethane foam deteriorate with age (5 to 10 years). This, along with dust, dirt, and other carbon particulate contamination of the urethane foam, adds an available fuel source for a potential fire. Once ignited, the deteriorated foam emits noxious smoke, does not self-extinguish, and drips droplets of liquefied urethane, which can further propagate a fire. Deteriorated BMS 8-39 urethane foam seals in a cargo compartment also compromise the Halon retention and smoke/fire-blocking capabilities of the cargo compartment. These conditions, if not corrected, could result in failure of urethane seals to maintain sufficient Halon concentrations in the cargo compartments to extinguish or contain fire or smoke, and could result in penetration of fire or smoke in areas of the airplane that are difficult to access for fire and smoke detection or suppression.

We issued the following ADs to require reworking certain air distribution ducts in the environmental control system (ECS) wrapped with BMS 8-39 or Aeronautical Materials Specifications (AMS) 3570 urethane foam insulation. These ADs resulted from reports from the airplane manufacturer that airplanes were assembled with duct assemblies in the ECS wrapped with BMS 8-39 urethane foam insulation, a material with fire-retardant properties that deteriorate with age, and reports of duct assemblies in the ECS with burned BMS 8-39 urethane foam insulation. We issued these ADs to prevent a potential electrical arc from igniting the BMS 8-39 urethane foam insulation on the duct assemblies of the ECS, which could propagate a small fire and lead to a larger fire that might spread throughout the airplane through the ECS.

• AD 2008-02-16, Amendment 39-15346 (73 FR 4061, January 24, 2008), applicable to certain Model 767-200 and 767-300 series airplanes.

• AD 2010-14-01, Amendment 39-16344 (75 FR 38007, July 1, 2010), applicable to certain Model 747-100, 747-100B, 747-100B SUD, 747-200B, 747-200C, 747-200F, 747-300, 747-400, 747-400F, 747SR, and 747SP series airplanes.

• AD 2012-02-09, Amendment 39-16932 (77 FR 5996, February 7, 2012), for certain Model 737-100, -200, -200C, and -300 series airplanes.

We reviewed the following Boeing service bulletins:

• For Model 747-100, 747-100B, 747-100B SUD, 747-200B, 747-200F, 747-300, 747-400, 747-400D, 747-400F, 747SR, and 747SP series airplanes: Boeing Special Attention Service Bulletin 747-25-3381, Revision 1, dated May 17, 2012. This service bulletin describes procedures for replacing BMS 8-39 urethane foam seals with either BMS 8-371 insulation foam or BMS 1-68 silicone foam rubber seals. (The required actions depend on requirements for use and location of the BMS 8-39 urethane foam in the airplane.) Procedures for the replacement include, for some airplanes, doing a general visualinspection of the airplane sidewalls for air baffles, and of the BMS 8-39 urethane foam for penetrations (e.g.,wire penetrations). The replacement is to be done in the following areas of the airplane (depending on airplane configuration):

• Main deck system tube/wire foam seals (left/right sidewalls)

• Main deck foam air seal (left/right sidewalls)

• Main deck air baffle foam (left/right sidewalls)

• Main deck ceiling panel foam strip

• Forward and aft cargo system tube/wire foam seal

• Flight deck overheard electrical equipment panel/structure and overhead drip-shield foam

• E1/E2 rack wire integration unit cover assemblies

• For Model 767-200, -300, -300F, and -400ER series airplanes: Boeing Special Attention Service Bulletin 767-25-0381, dated August 19, 2010. This service bulletin describes procedures for doing a general visual inspection for BMS 8-39 urethane foam for certain airplanes, covering the BMS 8-39 foam with cargo liner joint sealing tape in certain areas, replacing certain BMS 8-39 foam pads with Nomex felt in certain areas, and replacing BMS 8-39 urethane foam seals with either BMS 8-371 insulation foam or BMS 1-68 silicone foam rubber seals. (The required actions depend on requirements for use and location of the BMS 8-39 urethane foam in the airplane.) The actions are to be done in the following areas of the airplane (depending on airplane configuration):

• Forward and aft cargo compartments

• Flight deck

• Crown area (foam pad to be replaced with Nomex felt)

• Over wing escape hatch (corner seals)

• For Model 777-200, -200LR, -300, and -300ER series airplanes: Boeing Special Attention Service Bulletin 777-25-0362, dated August 19, 2010. This service bulletin describes procedures for replacing BMS 8-39 urethane foam seals with BMS 1-68 silicone foam rubber seals in the forward and aft cargo compartments of the airplane.

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

This proposed AD would require accomplishing the actions specified in the service information described previously.

We estimate that this proposed AD affects 694 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.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would 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 proposed regulation:

(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),

(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 proposes to amend 14 CFR part 39 as follows:

We invite you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under theADDRESSESsection. Include “Docket No. FAA-2012-0857; Directorate Identifier 2011-NM-244-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed 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 proposed AD.

We received a report of an aft drain mast found loose on a Model 737-400 series airplane with approximately 30,500 total flight cycles. Further investigation revealed the fuselage skin and surrounding back-up structure were cracked. An 8-inch crack common to the fuselage skin was hidden under the drain mast. The crack was likely caused by incorrect installation of the drain mast. A drain mast that is not installed correctly can cause cracks in the fuselage skin and the internal support structure. The skin cracks cannot be seen because they are hidden by the drain mast. This condition, if not corrected, could result in uncontrolled decompression of the airplane.

We reviewed Boeing Alert Service Bulletin 737-53A1318, dated October 31, 2011.

For airplanes identified as Group 1 in Boeing Alert Service Bulletin 737-53A1318, dated October 31, 2011, this service bulletin describes procedures for doing a detailed inspection for cracking and corrosion of the channel and fillers adjacent to the drain mast bolts, an inspection to determine the location of the bonding strap, a measurement of the washers under the drain mast bolts, and related investigative actions and repair if necessary. Related investigative actions include removing the drain mast and doing a high frequency eddy current (HFEC) and detailed inspection for cracking and corrosion of the skin, channel, and fillers. This service bulletin also specifies contacting Boeing for repair instructions and doing the repair.

For airplanes identified as Group 2 in Boeing Alert Service Bulletin 737-53A1318, dated October 31, 2011, this service bulletin specifies contacting Boeing for inspection and repair instructions and doing the actions.

The compliance time for the inspection is within 120 days, and before further flight for the repair.

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

This proposed AD would require accomplishing the actions specified in the service information described previously, except as discussed under “Differences Between the Proposed AD and the Service Information.”

Boeing Alert Service Bulletin 737-53A1318, dated October 31, 2011, specifies to contact the manufacturer for instructions on how to inspect and repair certain conditions, but this proposed AD would require that those actions be accomplished in one of the following ways:

• In accordance with a method that we approve; or

• Using data that meet the certification basis of the airplane, and that have been approved by the Boeing Commercial Airplanes Organization Designation Authorization (ODA) whom we have authorized to make those findings.

We estimate that this proposed AD affects 612 airplanes of U.S. registry.

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

We estimate the following costs to do certain necessary conditional actions that would be required based on the results of the proposed inspection. We have no way of determining the number of aircraft that might need these actions:

We have received no definitive data that would enable us to provide a cost estimate for the repair specified in 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.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would 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 proposed regulation:

(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),

(3) Will not affect intrastate aviation in, 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 proposes to amend 14 CFR part 39 as follows:

On June 4, 2012, the FAA published a NPRM to modify Class D airspace, and Class E airspace extending upward from 700 feet above the surface at Lewiston-Nez Perce County Airport, Lewiston, ID (77 FR 32921). Also the geographic coordinates of the airport and navigation aids would be adjusted in the respective Class D and Class E airspace areas. The comment period closed July 19, 2012. The FAA received one comment from the National Business Aviation Association (NBAA).

The NBAA recommended making the Class E airspace area extending upward from 1,200 feet above the surface larger by lowering some of the adjacent Class E airspace, which begins from between 10,000 Mean Sea Level (MSL) and 14,500 MSL, for aircraft safety. The FAA found merit in this comment, and, therefore, proposes the additional Class E airspace area, extending upward from 1,200 feet above the surface, be made larger. The FAA seeks comments on this SNPRM.

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal.

Communications should identify both docket numbers (FAA Docket No. FAA 2012-0384 and Airspace Docket No. 12-ANM-9) and be submitted in triplicate to the Docket Management System (seeADDRESSESsection for address and phone number). You may also submit comments through the Internet athttp://www.regulations.gov.

Commenters wishing the FAA to acknowledge receipt of their comments on this action must submit with those comments a self-addressed stamped postcard on which the following statement is made: “Comments to FAA Docket No. FAA-2012-0384 and Airspace Docket No. 12-ANM-9”. The postcard will be date/time stamped and returned to the commenter.

All communications received on or before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this action may be changed in light of comments received. All comments submitted will be available for examination in the public docket both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

An electronic copy of this document may be downloaded through the Internet athttp://www.regulations.gov. Recently published rulemaking documents can also be accessed through the FAA's web page athttp://www.faa.gov/airports_airtraffic/air_traffic/publications/airspace_amendments/.

You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Office (see theADDRESSESsection for the address and phone number) between 9:00 a.m. and 5:00 p.m., Monday through Friday, except federal holidays. An informal docket may also be examined during normal business hours at the Northwest Mountain Regional Office of the Federal Aviation Administration, Air Traffic Organization, Western Service Center, Operations Support Group, 1601 Lind Avenue SW., Renton, WA 98057.

Persons interested in being placed on a mailing list for future NPRMs should contact the FAA's Office of Rulemaking, (202) 267-9677, for a copy of Advisory Circular No. 11-2A, Notice of Proposed Rulemaking Distribution System, which describes the application procedure.

The FAA is proposing an amendment to Title 14 Code of Federal Regulations (14 CFR) Part 71 by further increasing the Class E airspace area extending upward from 1,200 feet above the surface at Lewiston-Nez Perce County Airport, Lewiston, ID, to accommodate aircraft using RNAV (GPS) standard instrument approach procedures at the airport. As stated in the NPRM, the geographic coordinates of the airport, the Nez Perce VOR/DME, and the Lewiston-Nez Perce ILS Localizer navigation aids, would be updated to coincide with the FAA's aeronautical database for the respective Class D airspace and Class E airspace areas. This action would enhance the safety and management of IFR operations at the airport.

Class D and E airspace designations are published in paragraphs 5000, 6002, 6004 and 6005, respectively, of FAA Order 7400.9V, dated August 9, 2011, and effective September 15, 2011, which is incorporated by reference in 14 CFR 71.1. The Class D and E airspace designation listed in this document will be published subsequently in this Order.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this proposed regulation; (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); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this proposed rule, when promulgated, would not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, Section 106, describes the authority for the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of the airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it would modify controlled airspace at Lewiston-Nez Perce County Airport, Lewiston, ID.

This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1E, “Environmental Impacts: Policies and Procedures” prior to any FAA final regulatory action.

Accordingly, pursuant to the authority delegated to me, the Federal Aviation Administration proposes to amend 14 CFR Part 71 as follows:

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal.

Communications should identify both docket numbers (FAA Docket No. FAA 2012-0648 and Airspace Docket No. 12-ANM-19) and be submitted in triplicate to the Docket Management System (seeADDRESSESsection for address and phone number). You may also submit comments through the Internet athttp://www.regulations.gov.

Commenters wishing the FAA to acknowledge receipt of their comments on this action must submit with those comments a self-addressed stamped postcard on which the following statement is made: “Comments to FAA Docket No. FAA-2012-0648 and Airspace Docket No. 12-ANM-19”. The postcard will be date/time stamped and returned to the commenter.

All communications received on or before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this action may be changed in light of comments received. All comments submitted will be available for examination in the public docket both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

An electronic copy of this document may be downloaded through the Internet athttp://www.regulations.gov. Recently published rulemaking documents can also be accessed through the FAA's web page athttp://www.faa.gov/airports_airtraffic/air_traffic/publications/airspace_amendments/.

You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Office (see theADDRESSESsection for the address and phone number) between 9:00 a.m. and 5:00 p.m., Monday through Friday, except federal holidays. An informal docket may also be examined during normal business hours at the Northwest Mountain Regional Office of the Federal Aviation Administration, Air Traffic Organization, Western Service Center, Operations Support Group, 1601 Lind Avenue SW., Renton, WA 98057.

Persons interested in being placed on a mailing list for future NPRMs should contact the FAA's Office of Rulemaking, (202) 267-9677, for a copy of Advisory Circular No. 11-2A, Notice of Proposed Rulemaking Distribution System, which describes the application procedure.

The FAA is proposing an amendment to Title 14 Code of Federal Regulations (14 CFR) Part 71 by modifying Class E surface airspace and Class E airspace extending upward from 700 feet above the surface at Pullman/Moscow Regional Airport, Pullman, WA. Controlled airspace is necessary to accommodate aircraft using the RNAV (GPS) standard instrument approach procedures at Pullman/Moscow Regional Airport, Pullman, WA. This action would enhance the safety and management of aircraft operations at the airport. Also, for clarity, the Pullman VHF Omni-Directional Radio Range/Distance Measuring Equipment (VOR/DME) would be removed from the regulatory text.

Class E airspace designations are published in paragraph 6002 and 6005, respectively, of FAA Order 7400.9V, dated August 9, 2011, and effective September 15, 2011, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designation listed in this document will be published subsequently in this Order.

The FAA has determined this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this proposed regulation; (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); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified this proposed rule, when promulgated, would not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, Section 106, describes the authority for the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of the airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it would modify controlled airspace at Pullman/Moscow Regional Airport, Pullman, WA.

This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1E, “Environmental Impacts: Policies and Procedures” prior to any FAA final regulatory action.

Accordingly, pursuant to the authority delegated to me, the Federal Aviation Administration proposes to amend 14 CFR Part 71 as follows:

The FAA sought comments on the proposed transition of the U.S. National Airspace System (NAS) navigation infrastructure to enable PBN as part of the NextGen. The FAA plans to transition from defining airways, routes and procedures using VOR and other legacy NAVAIDs, to a NAS based on RNAV everywhere and Required Navigation Performance (RNP) where beneficial. RNAV and RNP capabilities will primarily be enabled by the Global Positioning System (GPS) and the Wide Area Augmentation System (WAAS). The FAA plans to retain an optimized network of Distance Measuring Equipment (DME) facilities and a Minimum Operational Network (MON) of VOR facilities to ensure safety and support continued operations in high and low altitude en route airspace over the Conterminous United States (CONUS) and in terminal airspace at the Core 30 airports. The FAA is also conducting research on non-GPS based Alternate Positioning, Navigation and Timing (APNT) solutions that would enable further reduction of VORs below that of the MON.

In addition, the FAA plans to satisfy any new requirements for Category I (CAT I) instrument landing operations with WAAS Localizer Performance with Vertical guidance (LPV) procedures. A network of existing Instrument Landing Systems (ILSs) will be sustained to provide alternative approach and landing capabilities to support continued recovery and dispatch of aircraft during GPS outages.

This transition is consistent with the FAA's NextGen Implementation Plan (NGIP), NAS Enterprise Architecture (NASEA), and other documentation. More information is available on theFAA's NextGen Web site athttp://www.faa.gov/nextgenand the NASEA Web site athttps://nasea.faa.gov.

The FAA received 330 comments on the FRN. Commenters include aircraft manufacturers, airline operators, individuals, and associations representing users, airports and several federal, state and local government organizations. Most comments were supportive of the evolution of the NAS to an RNAV based system, but a significant number of commenters were concerned about reliance on GPS and WAAS related to possible impacts of interference or disruption, as well as the requirements and costs of avionics. A number of commenters were concerned about loss of approach services at specific airports in the event of discontinuation of service from specific VOR facilities. A substantial number of the comments (185) received were from individuals concerned about noise and environmental impact in the New York metropolitan area. Some reflected concerns about aircraft emissions and flight paths used by helicopters. These comments have been forwarded to the FAA Eastern Region for action.

The FAA has reviewed all the comments received in response to the FRN and plans to proceed with the strategy as outlined in the FRN. The FAA is developing an initial VOR MON Plan, which will be publicly available when it is sufficiently matured. Development of this Plan will harmonize with development of a national Concept of Operations (CONOPS) supporting navigation and positioning in the NAS as it evolves from conventional navigation to PBN. When completed, this CONOPS will also be publicly available.

As part of the coordination process, the FAA plans to develop a schedule showing the requisite activities associated with the discontinuance of VOR services. These activities will include timely notification for individual facilities and airspace and procedure redesign.

Comment #1:Several commenters (International Air Traffic Association (IATA), Boeing Commercial Airplanes, National Association of State Aviation Officials (NASAO), Aircraft Owners and Pilots Association (AOPA), Department of Defense (DoD), and Airlines For America (A4A)) expressed interest in being included in the working group that the FRN indicated would be formed to complete the details of VOR discontinuance. Some airlines commented that they would like to be consulted on the policy.

FAA Response:The FAA will convene a working group that will engage aviation industry stakeholders and other members of the public for input once the Program has reached a sufficient level of maturity conducive to working group.

Comment #2:NASAO commented that planning the transition to NextGen PBN well in advance would be beneficial to the FAA and the state government aviation agencies.

FAA Response:The FAA's VOR MON plan is proceeding to support transition to NextGen PBN in accordance with the NASEA. The NGIP, FRN and NASEA, all publicly available via FAA Web sites, are integral to the transition of the NAS to PBN operations.

Comment #3:The Nebraska Department of Aviation (DoA) recommended that VORs remain available as a viable means for air navigation while the services to support NextGen PBN be provided for users that can obtain benefits from them during a transition.

FAA Response:The VOR MON will remain in place during the PBN transition.

Comment #4:Nebraska state-owned VORs, similar to the FAA inventory of Second Generation VORs, are maintained by the State, who reports there have been no problems with support cost or availability of parts.

FAA Response:VOR facilities not owned or operated by the FAA are not being considered for discontinuance.

Comment #5:Operators that fly outside the United States desired clarification on the GNSS reference to be used.

FAA Response:The FRN used the terms GPS and WAAS, the specific U.S. implementations of the GNSS and Space Based Augmentation System (SBAS) described in ICAO Annex 10. Other countries have, or are building systems that implement these standards, such as Europe's GNSS (Galileo) and SBAS (European Geostationary Navigation Overlay Service (EGNOS)). Since the U.S. does not make regulatory determinations on navigation systems allowed in other countries, the U.S. cannot authorize use of GPS in other countries. The FAA is responsible for determining which services are adequate for operations in the U.S. NAS, and has, to date, only approved the use of the U.S. GPS and WAAS, and Russia's Globalnaya Navigatsionnaya Sputnikovaya Sistema (GLONASS) on a supplemental basis. The U.S. is working with other GNSS providers to assure that their signals may be used to improve performance in the U.S. when those signals become available. Plans for navigation services will continue to use specific references (e.g., GPS and WAAS) and policies will be updated as additional constellations are approved for use in the U.S. The ability of avionics to use different GNSS constellations and services depends both on the authorized equipment available for specific aircraft and the type of systems the operators decided with which to equip their aircrafts. It also depends on what avionics manufacturers decide to develop. FAA's plans for navigation services will continue to use the “GPS” and “WAAS” terms so that it is clear that the U.S. is referring to U.S. systems/services for the U.S. NAS. Text describing this reasoning will be included in future documents to help ensure clarity.

Comment #6:Some users stated that they either will not equip with GPS avionics or will not be flying in airspace that requires ADS-B. The Nebraska DoA stated that many pilots and users do not plan to equip aircraft with GPS and that instructors will still require students to learn VOR navigation.

FAA Response:Pilots may continue to use VORs that remain in the MON or fly under Visual Flight Rules (VFR) in non-ADS-B airspace. Instructors will still teach VOR navigation.

Comment #7:Operators and some aircraft and equipment manufacturers stated that they did not intend to equip with WAAS because (1) WAAS service is not provided in many parts of the world outside the United States, and (2) many air carrier aircraft are equipped with avionics that allow at least RNAV, if not some level of RNP, and they do not believe WAAS provides benefits commensurate with the added complexity and cost involved with equipage.

FAA Response:WAAS avionics (Technical Standard Order (TSO)-C145/146) with suitable other avionics, such as Flight Management Systems (FMS) support LPV and Lateral Navigation/Vertical Navigation (LNAV/VNAV) terminal procedures and lower minima instrument approaches that are not available to users equipped with non-augmented GPS (TSO-C129 and C196) avionics. Pilots may continue to use non-augmented GPS or other RNAV capabilities as described in FAA advisory circulars AC 90-100, AC 90-101, AC 90-105, AC 90-107 and other directives.

Comment #8:Federal Express stated that the FRN described implementation of PBN based on GPS and WAASbacked up by a minimum network of VORs and DMEs, which it stated would require equipage of aircraft with avionics that is not offered by major airline airframe manufacturers.

FAA Response:While the FAA intends to reduce the VOR infrastructure to a MON, it will maintain an optimized DME network to support RNAV operations throughout the NAS. In the NextGen timeframe, an optimized DME network could be used to support APNT.

Comment #9:The DoD was concerned about discontinuation of service from all types of ground based navigation aids. The concept and planning described in the FRN does not contemplate discontinuation of service from all ground based navigation aids. It describes the considerations for determining the discontinuation of service by VOR ground based navigation aids. Where the VOR functionality is collocated with DME or DME and UHF azimuth equipment (which is the Tactical Air Navigation or TACAN), the FRN only addresses the VOR service and not these other services.

FAA Response:The MON described in the FRN is a network of VORs only, and does not include TACAN. Retention of DMEs and the DME function provided via TACAN is desirable because of the large proportion of the air carrier fleet that uses DME/DME or DME/DME/Inertial Reference Unit (IRU) for RNAV. Any national discontinuation of DME or TACAN service is separate from the VOR MON, not a part of this activity, and not contemplated in the near future.

Comment #10:Some organizations (IATA, United Air Lines, FedEx, Honeywell, Thales, and A4A) expressed concern about the future of ILSs and other vertically guided approaches, in particular at 14 CFR Part 139 airports serving air carriers.

FAA Response:The FAA has no current plans to remove ILSs, but most new vertically guided approach requirements using Facilities and Equipment funding will be fulfilled with LPV approaches. ILS can continue to be approved under Airport Improvement Program (AIP) funding. While LPVs will receive increasing emphasis for projects funded under the AIP, the needs of users for ILS equipment will be considered in the determination of the types of approach navigation installed under the AIP. It is envisioned that many air carrier runways at major airports will continue to be supported by ILS (in addition to LPV). Additionally, the FAA plans to continue to develop LNAV/VNAV approaches, which can be flown by GPS-equipped aircraft with barometric vertical navigation and by WAAS-equipped aircraft to qualified runways used by air carrier aircraft. RNP approaches will be developed where beneficial, and GLS approaches will be developed as appropriate at airports with access to GBAS equipment.

The FAA's NextGen Alternate PNT (APNT) program ensures that alternate PNT services will be available to support flight operations, maintain safety, minimize economic impacts from GPS outages within the NAS and support air transportation's timing needs. APNT will be an alternative for all users. Avionics equipage is a major consideration. APNT requirements will be met with the optimum use of existing avionics. The current plan is for APNT equipage to be optional.

Comment #11:The airline industry voiced support for an increase in DME to provide additional coverage for DME-DME navigation provided by modern Flight Management Systems (FMS).

FAA Response:The FAA concurs. Current planning is for implementation of the new DME sites beginning in 2014. The FAA goal is to have complete DME-DME coverage enroute at FL 180 and above throughout CONUS and in the terminal area of large airports in the CONUS.

Comment #12:The airline industry was concerned about a statement in the FRN that seemed to indicate that WAAS was required for ADS-B.

FAA Response:WAAS is not required for ADS-B. Other methods of meeting the performance requirements are being investigated. ADS-B implementation in international operations will require use of regionally or globally available services.

Comment #13:IATA stated implementation of any new technology should be driven by coordinated operational requirements of stakeholders. The International Civil Aviation Organization PBN Manual (Document 9613) was cited by IATA in describing the steps that must be followed in implementing PBN, and states the FAA may not have followed the described process. IATA then related the plan described in the FRN to the ADS-B Out regulations at 14 CFR 91.225 and 91.227 and the implied SBAS mandate and provides comments on the implementation and the requirements that it states are very different from European requirements to obtain the same performance with simpler equipage. IATA states they do not support use of any SBAS systems such as WAAS and desires to be consulted on revision of the VOR MON and alternate positioning, navigation and timing and systems, such as eLORAN, Galileo and others. IATA does not support the use of LPV approaches as a universal solution and requires an adequate number of precision approaches be maintained to provide capacity without GNSS. IATA states GBAS and Baro VNAV approaches should be published to complement LPV approaches at airports used by international carriers. IATA does not want PBN levels to be specified that require augmentation unless they are operationally required.

FAA Response:FAA will engage stakeholders via the working group in implementing the MON. PBN transition strategy is currently being developed within the FAA. The FAA will not mandate WAAS. PBN can be achieved by multiple means, such as DME/DME and ILS. GBAS is currently in the Research & Development phase.

Comment #14:Boeing Commercial Airplanes was concerned about the interpretation text for the operational requirements for two independent systems (reference 14 CFR 121.349, 125.203, 129.17 and 135.165). Specifically, they questioned the statement that the requirements for a second navigation system apply to the entire set of equipment needed to achieve the navigation capability, not just the individual components. They are concerned that this statement could be interpreted as requiring dual independent navigation computers. Additionally, they state that existing, certified multi-sensor navigation systems under AC 20-130A can meet the proposed policy requirements.

FAA Response:The text does not imply the need for dual independent navigation computers. The text instead emphasizes the need for independence of the navigation systems and their components to ensure that there will be no potential single point of failure or event that could cause the loss of the ability to navigate along the intended route or proceed safely to a suitable diversion airport. The interpretation of this requirement as applied to an aircraft approved for multi-sensor navigation and equipped with a single FMS is that the aircraft must maintain an ability to navigate or proceed safely in the event that any one component of the navigation system fails, including the FMS. Retaining an FMS-independent VOR capability would satisfy the requirement, even as the NAS is transitioned to the MON. This interpretation corresponds to the advisory wording in AC 20-130A.

Comment #15:The Maryland Aviation Administration (MAA) expressed concern about current GPS equipage rates.

FAA Response:Though approximately 19 percent of all general aviation aircraft are equipped with aviation-qualified GPS, most aircraft that actually file IFR flight plans are typically equipped with GPS. Specifically, more than 72% of aircraft that filed at least two IFR flight plans in 2011 filed with an equipment code indicating they had IFR GPS receivers on board. Of aircraft that filed more than 100 IFR flight plans in a year the rate was above 97%. While it may be the case that a significant number of aircraft flying VFR are not equipped with GPS, the purpose of the VOR system is to provide navigation for aircraft flying IFR, not VFR. VFR traffic is permitted to use hand-held and non-IFR certified GPS equipment for situational awareness as an aid to navigation and often use pilotage and dead reckoning navigation. While the VORs retained in the MON will support VFR aircraft operations, their purpose is clearly to support those aircraft operating under IFR.

Comment #16:Two commenters (the Nebraska DoA and Thales) were concerned over the impact that a reduction in VORs would have on training and training requirements.

FAA Response:The current training standards for the FAA emphasize VORs as the primary navigation source. The transition to NextGen will require that the FAA shift emphasis from VOR navigation to satellite-based navigation by changing training syllabi and the PTS. However, some emphasis will need to remain on VOR and ILS to ensure that pilots can navigate using these systems in the event of a GPS outage. These considerations will be included in the FAA's plan for discontinuance of VORs. Additionally, transfer of FAA-owned VORs not selected to be in the MON to operation under non-Federal ownership for training may be considered on a case-by-case basis.

Comment #17:The Nebraska DoA and Thales were also concerned with airport infrastructure requirements resulting from development of RNAV or RNP approaches.

FAA Response:FAA airport infrastructure requirements resulting from instrument approaches are published in FAA Advisory Circular 150/5300-13. Because airport infrastructure upgrades may be required for the attainment of lowest instrument approach minima, collaboration with local and state officials will be accomplished during the approach development process. For example, development of an LPV approach could not be accomplished if the required runway length were not available. However, if a decision was made in collaboration with local and state officials, to extend the runway, then an LPV could be reconsidered.

Comment #18:United Air Lines and GE Aviation expressed concern on the use of GPS approach capability by air carriers at alternate airports.

FAA Response:Current FAA policy allows operators of aircraft equipped with WAAS to plan for RNAV (GPS) approaches to the LNAV line of minima at their alternate. Furthermore, the FAA is currently investigating what requirements will be necessary to allow un-augmented GPS (TSO-C129/-C129a, TSO-C196/-C196a) equipped aircraft to plan for RNAV (GPS) or RNAV (RNP) approaches at alternate airports.

Comment #19:Several commenters expressed concern that the navigation transition strategy as outlined in the FRN is indirectly requiring certain types of equipage, specifically GPS or WAAS equipage.

FAA Response:The FAA is committed to the use of performance-based operations in the NAS. They remain the optimal way to both enable technological advances while maintaining safety, efficiency and consistency. Therefore, it is not the intention of the FAA to limit operational approvals to specific technologies or to force retrofit navigation solutions on current operators with legacy equipment. VOR navigation will continue to be a viable option for airspace users for the near future. Once the FAA completes implementation of the VOR MON, VOR navigation will still serve the NAS, albeit in a less robust fashion than today. Early publication of transition considerations and planning will allow users to consider long-term equipage strategies for their aircraft. Operators are encouraged to continue to seek approvals for the use of navigation equipment that was emphasized in the FRN, e.g. DME/DME/IRU, GPS, and WAAS. The FAA will continue to work with industry to advance new technologies not yet matured, e.g., GBAS and APNT. Additionally, the FAA will continue to work with our international partners on global strategies for multi-constellation/multi-frequency GNSS solutions.

Comment #20:AOPA and the National Business Aviation Association (NBAA) both expressed support for direct routing and avoiding excessive implementation of additional T and Q routes.

FAA Response:In the NextGen environment, T and Q routes increase capacity and efficiency while maintaining safety by minimizing impact to air traffic control. T and Q routes allow controllers to safely manage air traffic during peak periods and to ensure predictable transitions between busy traffic areas. T and Q routes overlaid on existing airways defined by VORs could mitigate potential impacts to the discontinuance of VOR navigation services.

Comment #21:Comments from military and general aviation expressed interest in participating in VOR discontinuation planning.

FAA Response:As stated in the FRN, “The FAA will convene a working group that will develop a candidate list of VORs for discontinuance using relevant operational, safety, cost and economic criteria. As part of the process, this working group will engage aviation industry stakeholders and other members of the public for input.” Detailed planning for the implementation of the MON is still under development. As the program planning process is further developed, the FAA will solicit input from government and industry stakeholders before the VORs selected for the MON are finalized.

Comment #22:Several commenters (MAA, Boeing Commercial Airplanes, United Air Lines, AOPA, Thales and DoD) indicated that an overall plan is necessary and requested more detail on the MON. MAA commented that without a national plan for discontinuation, the removal of specific VORs from service might be premature. They believed that several VORs in Maryland are currently planned for discontinuance and they suggested that the discontinuation of specific facilities should be considered on both a regional and national level using analysis to identify costs and benefits in a more holistic manner to make the consideration of facilities objective and consistent.

FAA Response:The FAA has not developed a final list of VORs that will be included in the MON. The FAA is developing objective criteria, which will be applied consistently both nationally and regionally to help identify those VOR facilities that will remain operational. A specific overall national CONOPS and discontinuance plan are being developed to support this effort. The draft CONOPS and draft discontinuance plan will be presented to stakeholders, and the FAA willengage stakeholders in the discontinuance process.

Comment #23:Military and airline industry commenters expressed concern with the FAA plan to establish the VOR MON by January 1, 2020.

FAA Response:This date coincides with the January 1, 2020 mandate for ADS-B equipage. Once aircraft are equipped with ADS-B, it is assumed that they will be equipped with GPS as well, since currently GPS is the only known position source that can satisfy the NIC/NAC/SIL requirements of ADS-B. At that time, the VOR MON will serve as the required GPS backup for non DME-DME equipped aircraft in the event of a GPS outage. By January 1, 2020, the VOR MON will provide sufficient VOR coverage to enable aircraft to fly VOR-to-VOR either through the GPS outage or to a safe landing.

Comment #24:A number of operators, service providers and equipment manufacturers were concerned about the level of reliance on GPS expressed in the FRN in light of possible interference with the GPS service. Interference on a regular basis from government testing and training was specifically identified, as was possible widespread interference from licensed operators as well as unintentional interference from a variety of human and natural sources. There remains a concern among users that GPS is susceptible to interference and VORs should remain as a cost effective reliable means of navigation.

FAA Response:U.S. National policy recognizes the vulnerability of GPS signals, from both human and natural sources, and requires operations reliant on GPS position, navigation, and timing (PNT) for safety, security, or significant economic benefit to have sufficient backups in place. The FAA has operated and will continue to operate GPS-independent systems to fulfill this requirement, such as ILS, DME, and VOR. As the NAS transitions to NextGen, there is also a requirement to move from conventional facility based navigation to point-to-point navigation using PBN, a role that the airways supported by VORs cannot support. The FAA will continue to operate a subset of the current VOR facilities in a MON to support those aircraft not equipped with GPS-independent RNAV capability, while developing an RNAV-capable APNT system to fulfill this role in the future. DoD Interference with GPS: The FAA recognizes the need for DoD elements as part of their mission to operate and conduct training in a GPS-denied environment. Both the FAA and DoD are committed to working together to ensure that the DoD mission will not impact the FAA's mission to operate a safe and efficient NAS. DoD GPS interference testing is fully coordinated with the FAA and prior to testing, the FAA issues a Notice to Airmen (NOTAM) that describes the potential extent of interference and the timeframe in which it might occur. During testing the FAA maintains direct communications with DoD at all times and can have tests suspended in the event of any impact to NAS operations. Today, aircraft with non-GPS RNAV avionics are not impacted by this interference, and in the future, all APNT-equipped aircraft will similarly be unaffected.

Comment #25:Comments were received relative to several specific VORs with reasons for their specific retention. In the case of the Wichita, KS VOR (ICT), it was stated that the facility is needed for testing and airworthiness demonstration of new manufactured aircraft by a number of companies in the area.

FAA Response:While a VOR signal is necessary for this activity, it is not necessary that the service be provided by a FAA owned VOR, whose purpose under the MON will be to ensure safe operations in the event of a GPS outage. A non-Federal VOR, owned by an airport authority, state instrumentality or private entity could also perform this function. In cases where individuals/organizations have an interest in maintaining a specific VOR service, the VOR could be transferred to and operated under agreement with the FAA as a non-federal facility.

Comment #26:Thales expressed a concern over how the VOR MON will support non-GPS aircraft and GPS aircraft during GPS interference if a key MON VOR is down for maintenance.

FAA Response:In determining the VORs that will make up the MON, consideration will be given to the availability and continuity of navigation service expected from each facility. The VOR MON's purpose, a non-PBN backup in the event of a GPS outage, will be considered in making this determination. An element of this consideration will be the availability of non-GPS dependent surveillance services that would allow air traffic to provide services in the event of both a GPS and individual VOR service outage. Additionally, the equipage rate of IFR traffic with IFR GPS is significant and expected to be near 100% as we approach the year 2020 ADS-B mandate. While possible to fly IFR using the VOR MON, the increased distance of the VOR-only route as compared to using RNAV navigation will likely be highly undesirable. This will further drive GPS equipage.

Comment #27:The DoD stated concern on the cost of transition versus benefits for their fleet of aircraft.

FAA Response:The NAS' transition to NextGen is a national priority, in which the FAA plays an important role in concert with other Federal agencies and the aviation community. The transition to PBN as enabling capability for NextGen is a key part of the NGIP. Additionally, the considerations of the military in transitioning a 14,600 aircraft fleet and operating practices to RNAV/RNP stated in comments to the public docket appear to include the notion that TACAN services from VORTAC facilities will be terminated when VOR service is discontinued. This is not the case. The military also desires the FAA to retain VOR and TACAN service for specific enroute and terminal locations and procedures as the military aircraft fleet equipage and operating procedures evolve.

The FAA notes that there is historic precedent for the transition to a single national system—specifically the establishment of VORs and associated airways, DME, and ILS in the 1950s. At that time the military did not want to equip with VOR or ILS in tactical aircraft due to weight and space constraints, stating that Non-Directional Beacons (NDB) and four course ranges for enroute navigation and ground controlled approach (GCA) for landing was sufficient pending implementation of TACAN. The military also wanted to evolve to use TACAN because of weight/size and operational advantages over VOR and to include their implementation of DME, rather than the civil DME standard. The civil community, particularly airlines, wanted VOR for improved accuracy and usability over four course ranges and NDBs with ILS for approaches. In the end the NDBs and four course ranges were retained until military aircraft and operating practices transitioned to TACAN, the military DME standard was adopted for all DMEs and ILS was standardized for approaches, though the military continued GCA approaches, particularly for tactical aircraft.

The transition to RNAV/RNP may be undertaken economically for military aviation by retaining TACAN as a system, discontinuing only specific facilities on an individual basis; incorporating military use considerations for identifying VOR service for discontinuation in enroute and terminal environments; designating special use airspace and other military usage features with RNAV references as well as TACAN or VOR rho/theta anddistance references; and retaining ILS at current sites with installation of new ILSs by military where needed in lieu of LP and LPV.

We encourage you to participate in this rulemaking by submitting comments and related materials. All comments received will be posted without change tohttp://www.regulations.govand will include any personal information you have provided.

If you submit a comment, please include the docket number for this rulemaking, indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation. You may submit your comments and material online athttp://www.regulations.gov,or by fax, mail, or hand delivery, but please use only one of these means. If you submit a comment online, it will be considered received by the Coast Guard when you successfully transmit the comment. If you fax, hand deliver, or mail your comment, it will be considered as having been received by the Coast Guard when it is received at the Docket Management Facility. We recommend that you include your name and a mailing address, an email address, or a telephone number in the body of your document so that we can contact you if we have questions regarding your submission.

To submit your comment online, go tohttp://www.regulations.gov,type the docket number (USCG-2012-0741) in the “SEARCH” box and click “SEARCH.” Click on “Submit a Comment” on the line associated with this rulemaking.

If you submit your comments by mail or hand delivery, submit them in an unbound format, no larger than 81/2by 11 inches, suitable for copying and electronic filing. If you submit comments by mail and would like to know that they reached the Facility, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period and may change the rule based on your comments.

To view comments, as well as documents mentioned in this preamble as being available in the docket, go tohttp://www.regulations.gov,type the docket number (USCG-2012-0741) in the “SEARCH” box and click “SEARCH.” Click on Open Docket Folder on the line associated with this rulemaking. You may also visit the Docket Management Facility in Room W12-140 on the ground floor of the Department of Transportation West Building, 1200 New Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.

Anyone can search the electronic form of comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review a Privacy Act notice regarding our public dockets in the January 17, 2008, issue of theFederal Register(73 FR 3316).

We do not now plan to hold a public meeting. But you may submit a request for one, using one of the methods specified underADDRESSES. Please explain why you believe a public meeting would be beneficial. If we determine that one would aid this rulemaking, we will hold one at a time and place announced by a later notice in theFederal Register.

The North Carolina Department of Transportation has awarded a contract to American Bridge Company of Virginia Beach, Virginia to perform bridge maintenance on the U.S. 421 Fixed Bridge crossing the Atlantic Intracoastal Waterway, mile 295.6, at Carolina Beach, North Carolina. The contract provides for cleaning, painting, and steel repair to commence on December 20, 2012 with a completion date of October 31, 2013. The contractor will utilize a 40 foot by 60 foot sectional barge as a work platform and for equipment staging. The Coast Guard believes that a safety zone is needed to provide a safety buffer to transiting vessels as bridge repairs present potential hazards to mariners and property due to reduction of horizontal clearance.

As a result of the potential hazards, the Coast Guard proposes to establish a temporary safety zone that would encompass the waters directly under the U.S. 421 Fixed Bridge crossing the Atlantic Intracoastal Waterway, mile 295.6, at Carolina Beach, North Carolina (34°03′21″ N, 077°53′58″ W). The safety zone would be in effect from 8 a.m.December 20, 2012 through 8 p.m. October 31, 2013. During this period the Coast Guard would require a one hour notification to the work supervisor for passage through the U.S. 421 Fixed Bridge along the Atlantic Intracoastal Waterway, mile 295.6, Carolina Beach, North Carolina. The bridge notification requirement would apply during the maintenance period for vessels requiring a horizontal clearance of greater than 60 feet.

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

This proposed rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Executive Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders. This rule does not restrict traffic from transiting the designated portion of the Atlantic Intracoastal Waterway, it imposes a one hour notification to ensure the waterway is clear of impediment to allow passage to vessels requiring a horizontal clearance of greater than 60 feet.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered the impact of this proposed rule on small entities. The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule will not have a significant economic impact on a substantial number of small entities. This proposed rule would affect the following entities, some of which may be small entities: The owners or operators of commercial tug and barge companies, recreational and commercial fishing vessels intending to transit the specified portion of Atlantic Intracoastal Waterway from 8 a.m. December 20, 2012 through 8 p.m. October 31, 2013.

This safety zone would not have a significant economic impact on a substantial number of small entities for the following reasons. Although the safety zone will apply to this section of the Atlantic Intracoastal Waterway, vessel traffic will be able to request passage by providing a one hour advanced notification to the work supervisor. Before the effective period, the Coast Guard will issue maritime advisories widely available to the users of the waterway.

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment (seeADDRESSES) explaining why you think it qualifies and how and to what degree this rule would economically affect it.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in theFOR FURTHER INFORMATION CONTACT, above. The Coast Guard will not retaliate against small entities that question or complain about this proposed rule or any policy or action of the Coast Guard.

This proposed rule will not call for a 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 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. We have analyzed this proposed rule under that Order and determined that this rule does not have implications for federalism.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in theFOR FURTHER INFORMATION CONTACTsection to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

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 proposed rule would not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

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

This proposed 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 proposed rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children.

This proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would 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.

This proposed rule is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use 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 notrequire a Statement of Energy Effects under Executive Order 13211.

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

We have analyzed this proposed 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 made a preliminary determination that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This proposed rule involves the establishment of a temporary safety zone. This rule is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. A preliminary environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated underADDRESSES. We seek any comments or information that may lead to the discovery of a significant environmental impact from this proposed rule.

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 165 as follows:

For additional information see the direct final rule which is published in the Rules Section of thisFederal Register. A detailed rationale for the approval is set forth in the direct final rule. If no adverse comments are received in response to this rule, no further activity is contemplated. If EPA receives adverse comments, the direct final rule will be withdrawn and all public comments received will be addressed in a subsequent final rule based on this proposed rule. EPA will not institute a second comment period on this document. Any parties interested in commenting on this document should do so at this time.

This proposed amendment to part 102-37 of the Federal Management Regulation (41 CFR part 102-37) adds as potential recipients of Federal surplus property those organizations whose membership comprises substantially of veterans, as authorized by Public Law 111-338, codified at 40 U.S.C. 549(c)(3)(B)(x). This proposed amendment also adds two new subparts to part 102-37. The first proposed subpart updates and clarifies policy for Federal agencies and donation program customers regarding the use of SF 97,The United States Government Certificate to Obtain Title to a Vehicle.This proposed amendment clarifies that the SF 97 itself is not a motor vehicle registration or title; rather, it is only evidence of ownership required for the owner to obtain title to a vehicle. The second proposed subpart clarifies policy for Federal agencies, State Agencies for Surplus Property (SASPs), and donation program customers for insuring donated surplus property for liability or loss. This proposed amendment also contains administrative and minor clarifying changes. One of these administrative changes proposes to remove the policies on how SASPs screen for property at Federal facilities and how SASPs obtain authorizations for screening at these facilities. These sections are deleted as being outdated and unnecessarily prescriptive. Whereas SASP property screeners were previously required to apply to GSA to obtain screening authorization, under the proposed amendment, SASPs no longer need to coordinate with GSA, but instead must coordinate the on-site visit and screening with the individual holding agency or organization. Information related to screening is provided in amended section 102-37.175 and in non-regulatory guidance published by GSA.

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This proposed rule is not a significant regulatory action, and therefore, was not subject to review under Section 6(b) of Executive Order 12866, Regulatory Planning and Review, dated September 30, 1993. This proposed rule is not a major rule under 5 U.S.C. 804.

This proposed rule will not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601,et seq.This proposed rule is also exempt from theAdministrative Procedure Act per 5 U.S.C. 553(a)(2) because it applies to agency management and public property. However, this proposed rule is being published to provide transparency in the promulgation of Federal policies.

The Paperwork Reduction Act does not apply because the proposed changes to the FMR do not impose information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501,et seq.

This proposed rule is exempt from Congressional review under 5 U.S.C. 801 since it does not substantially affect the rights or obligations of non-agency parties.

For the reasons set forth in the preamble, GSA proposes to amend 41 CFR part 102-37 as set forth below:

Interested persons are invited to participate in this rulemaking by submitting comments and related materials. Comments and related materials should be organized by HSAR Part, and indicate the specific section that is being commented on. All comments received will be posted without change tohttp://www.regulations.gov,including any personal information provided.See ADDRESSESabove for information on how to submit comments. If you submit comments by mail, please submit them in an unbound format, no larger than 81/2by 11 inches, suitable for copying and electronic filing. You may submit comments either by mail or via the internet as identified in theADDRESSESsection above; but to avoid duplication, DHS requests that you submit comments and materials by only one method. If you would like DHS to acknowledge receipt of comments submitted by mail, please enclose a self-addressed, stamped postcard or envelope. DHS will consider all comments and material received during the comment period.

Viewing comments and documents: To view comments and read background documents related to this rulemaking, go tohttp://www.regulations.gov,which contains relevant instructions under the FAQs tab on the home page.

This proposed rule augments two existing Federal Acquisition Regulation (FAR) policies to create a consistent approach within DHS for awarding Time and Materials/Labor Hours (T&M/LH) contracts. Those two augmenting policies include the requirement for separate labor hour rates for T&M/LH subcontractors and the requirement for consistent practices for contractor labor hour records and labor hour billing.

The first of the two existing FAR policies provides the option to require separate labor hour rates for each subcontractor under a T&M/LH contract, in addition to the labor hour rates established for the prime contractor.SeeFAR 16.601(e). The current FAR policy authorizes an agency either to permit individual contracting officers to decide if separate labor hour rates are necessary or to establish an agency procedure making separate rates mandatory. This rule proposes to establish a DHS-wide procedure to make the FAR option for consistent use of separate rates mandatory for DHS T&M/LH contracts.

Federal Acquisition Regulation (FAR) 16.601(e) further authorizes agencies to amend the solicitation provision at FAR 52.216-29, Time-and-Materials/Labor-Hour (T&M/LH) Proposal Requirements-Non-commercial Item Acquisitions With Adequate Price Competition, to require offerors to submit offers that include separate labor hour rates for subcontractors and affiliates. The purpose of requiring offers to include such separate rates is to ensure the resulting contract or order will have individual labor hour rate schedules for each individual subcontractor and affiliate of the prime contractor and not contain only a single set of rates applicable to the prime contractor and all subcontractors.

The second of the two augmenting Homeland Security Acquisition Regulation (HSAR) policies that are included in this proposed rule refines long-established FAR policies on consistency between contractor recordkeeping and contractor proposal and billing practices. The proposed rule establishes policies furthering those existing FAR policies so that DHS contractors will identify their method of accounting for labor hours incurred and agree to a price adjustment if their billing practices under a T&M/LH contract they enter into with DHS results in overbilling because they had not billed consistently with their recordkeeping practices. To minimize the burden of identifying the method of recordkeeping used by a contractor, the proposed rule includes a solicitation provision in which each offeror will check one of two blocks to designate which of the two types of methods its recordkeeping system uses, record only the number of hours in a standard work period (such as a 40 hour workweek) or record all hours worked in a work period. This will apply only to hours incurred by employees who are exempt from the Fair Labor Standards Act (FLSA).

Contractors with a T&M/LH contract would be required to substantiate the number of hours billed in order to support payment of a voucher. There would be no mandatory requirement that a contractor use one method or the other; that would be the contractor's choice. However, the contractor must consistently follow its chosen practice.

The proposed rule would revise 48 CFR part 3016, Types of Contracts and part 3052, Solicitation Provisions and Contract Clauses.

Fixed hourly rates—FAR 16.601(e)(1) allows for three approaches in structuring solicitations for T&M/LH contracts and orders and allows agencies to make mandatory one of the three approaches identified in the solicitation provision at FAR 52.216-29(c). The proposed rule would make the procedure at FAR 52.216-29(c)(1), separate rates for each labor category, mandatory for DHS T&M/LH contracts and orders. The proposed rule provides procedures applicable to solicitations and awards for T&M/LH contracts and orders for non-commercial items using adequate price competition. The proposed rule would require offerors to propose separate, individual labor hour rates for each category of labor to be performed by the prime contractor, each subcontractor, and other divisions or subsidiaries or affiliates of the prime contractor under common control. The procedure would apply only to T&M/LH actions for non-commercial items to be awarded using adequate price competition.

The purpose of these procedures is to ensure appropriate labor hour rates are paid under T&M/LH contracts and orders. The procedures are intended to eliminate unintentional windfall payments to the prime contractor that might otherwise result from work performed by lower labor rate subcontracts or affiliates that is billed at a higher prime contractor labor hour rate.

Recording and billing hours under T&M/LH contracts and orders—The proposed rule would require all offerors seeking a T&M/LH contract or order to include a description of their method and their subcontractors' methods of accounting for uncompensated overtime performed by employees who are exempt from the Fair Labor Standards Act (FLSA). It also includes a requirement that billings and payments under the resulting contracts or orders be made consistent with that description. The procedure would apply to all T&M/LH contracts and orders that exceed the Simplified Acquisition Threshold (SAT).

The purpose of this procedure is to eliminate potential disputes regarding the hours that can be billed under T&M/LH contracts by clearly stating in the contract whether the contractor and each subcontractor will be reimbursed based on recording and billing for only the number of hours worked not in excess of a standard number of hours in a standard work period (such as a 40 hour workweek) or recording all hours worked. This procedure will ensure that billings and payments under T&M/LH contracts do not result in an unintendedwindfall to the contractor by ensuring that the contractor does not bill the Government for all hours worked when its established practices are to record only the number of hours in a standard work period (such as a 40 hour workweek).

This proposed rule is not a significant regulatory action under section 3(f) of Executive Order 12866, as supplemented by Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders. This proposed rule is not a major rule under 5 U.S.C. 804.

Under the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), we have considered whether this proposed 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.

This proposed rule, if made final, may impact a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601,et seq.,and DHS has thus prepared an initial regulatory flexibility analysis consistent with 5 U.S.C. 604 as follows:

This proposed rule augments two existing Federal Acquisition Regulation (FAR) policies to create a consistent approach within DHS for awarding Time and Materials/Labor Hours (T&M/LH) contracts. Those two augmenting policies include the requirement for separate labor hour rates for T&M/LH subcontractors and the requirement for consistent practices for contractor labor hour records and labor hour billing.

The first of the two existing FAR policies provides the option to require separate labor hour rates for each subcontractor under a T&M/LH contract, in addition to the labor hour rates established for the prime contractor.SeeFAR 16.601(e). The current FAR policy authorizes an agency either to permit individual contracting officers to decide if separate labor hour rates are necessary or to establish an agency procedure making separate rates mandatory. This rule proposes to establish a DHS-wide procedure to make the FAR option for consistent use of separate rates mandatory for DHS T&M/LH contracts.

Federal Acquisition Regulation (FAR) 16.601(e) further authorizes agencies to amend the solicitation provision at FAR 52.216-29, Time-and-Materials/Labor-Hour (T&M/LH) Proposal Requirements-Non-commercial Item Acquisitions With Adequate Price Competition, to require offerors to submit offers that include separate labor hour rates for subcontractors and affiliates. The purpose of requiring offers to include such separate rates is to ensure the resulting contract or order will have individual labor hour rate schedules for each individual subcontractor and affiliate of the prime contractor and not contain only a single set of rates applicable to the prime contractor and all subcontractors.

The second of the two augmenting Homeland Security Acquisition Regulation (HSAR) policies that are included in this proposed rule refines long-established FAR policies on consistency between contractor recordkeeping and contractor proposal and billing practices. The proposed rule establishes policies furthering those existing FAR policies so that DHS contractors will identify their method of accounting for labor hours incurred and agree to a price adjustment if their billing practices under a T&M/LH contract they enter into with DHS results in overbilling because they had not billed consistently with their recordkeeping practices.

This proposed rule would establish the DHS procedure to make the FAR option for consistent use of separate rates mandatory for DHS T&M/LH contracts. It would also establish a requirement that a contractor must consistently follow its method of record keeping for labor hours billed to a DHS contract. The legal bases for this rule are 5 U.S.C. 301-302, 41 U.S.C. 1707, 41 U.S.C. 1702, 48 CFR part 1, subpart 1.3, and DHS Delegation Number 0702.

This proposed rule would apply to all entities seeking a DHS contract or order that would be either a Time and Material or a Labor Hour type of contract. DHS believes that this proposed rule is not likely to have a significant economic impact on a substantial number of small entities because the rule does not require contractors or subcontractors to make any substantial changes in their normal business practices nor take any substantial actions under a contract beyond previously existing government requirements.

Below are tables showing information on FY 2010 DHS awards, based on data contained in the Federal Procurement Data System, which would have been subject to this proposed rule had it been in effect at the time. These tables give a view into the numbers of entities that would be impacted by this proposed rule if the amount of contracting done by DHS is consistent with the amount performed during FY 2010.

Section 342 of the Dodd-Frank Act, 12 U.S.C. 5452, establishes an Office of Minority and Women Inclusion (OMWI) in each of certain agencies, including the Departmental Offices of the Department of the Treasury. Section 342(c)(2) provides that covered agencies shall require contractors to provide a written statement that the “contractor shall ensure, to the maximum extent possible, the fair inclusion of women and minorities in the workforce of the contractor, and as applicable, subcontractors.” This rule will implement the statement required by the Dodd-Frank Act through a contract clause.

The proposed contact clause, which is similar to those adopted by other OMWI agencies, requires that a contractor make good faith efforts to include minorities and women in its workforce. This standard is derived from section 342(c)(3) of the Dodd-Frank Act, which provides for remedies, including termination, against a contractor who fails to make good faith efforts to include minorities and women in its workforce. Treasury interprets “good faith efforts” to mean efforts consistent with the Equal Protection Clause of the Constitution and Title VII of the Civil Rights Act of 1964, such as the identification and elimination of employment barriers, the widespread publication of employment opportunities, and other forms of outreach to minorities and women.

Section 342 applies to “all contracts * * * for services of any kind,” but the section does not define the term “contract.” Treasury proposes to apply the clause to all service contracts above the simplified acquisition threshold. As noted above, section 342 applies to Treasury Departmental Offices (DO). DO does not currently include an office responsible for operational procurement; acquisitions in support of DO are performed primarily by the Internal Revenue Service Office of Treasury Procurement Services. The clause will be included in all contracts in support of requirements originating from DO, regardless of the Treasury component performing the acquisition.

Because this proposed rule relates to public contracts, it is exempt from the requirements of 5 U.S.C. 553. However, it is being published for public comment pursuant to 41 U.S.C. 1707.

The Regulatory Flexibility Act (5 U.S.C. 601et seq.) generally requires agencies to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute; unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. It is hereby certified that this rule will not have a significant economic impact on a substantial number of small entities and thus no initial regulatory flexibility analysis is required.

First, this rule will not affect a substantial number of small entities. While this rule will affect all contracts for services above the simplified acquisition threshold ($150,000), it will not affect a substantial number of small entities because it will only apply to those entities that actually contract with Departmental Offices. In fiscal year 2011, DO contracted with 370 small businesses.

Additionally, the rule's economic impact is not expected to be significant. The rule satisfies the statutory requirement that contractors affirm a commitment to the fair inclusion of minorities and women in the workforce, but does so in a way that minimizes burden on contractors. The rule provides maximum flexibility for contractors in implementing the statutory requirement because it does not impose any specific requirements on contractor hiring. Further, most contractors are already subject to and have implemented other FAR requirements that will satisfy this rule's requirements. Essentially all contracts to which this requirement applies are subject to FAR Clause 52.222-26, Equal Opportunity, which requires, among other things, that contractors complete the EEO Form 1 containing workforce demographic data. Thus, contractors are already required to compile and retain much of the data required by this clause. Further, contractors with over 50 employees are required by Department of Labor regulations to develop affirmative action plans; development of and compliance with such a plan would normally satisfy the requirements of the clause.

Notwithstanding the certification that this rule, if finalized, would not have a significant economic impact on a substantial number of small entities, the Department invites comments on the rule's impact on small entities.

This proposed rule is not a “significant regulatory action” for the purposes of Executive Order 12866.

The information collections contained in the notice of proposed rulemaking have been previously approved by the Office of Management and Budget (OMB) and assigned control number 1505-0080. Under the Paperwork Reduction Act (44 U.S.C. chapter 35), an agency may not conduct or sponsor and a person is not required to respond to a collection of information unless it displays a valid OMB control number.

For the reasons set forth in the preamble, the Department proposes to amend 48 CFR Chapter 10 as follows: