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Consult the Reader Aids section at the end of this page for phone numbers, online resources, finding aids, reminders, and notice of recently enacted public laws.
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Federal Aviation Administration (FAA), DOT.
Notice of FAA Grant of Exemption No. 10611
This document contains a summary of the agency's decision on a petition for exemption. The purpose of the document is to improve the public's awareness and inform affected operators of the FAA's decision.
The exemption became effective on August 28, 2012.
Frances Shaver, (202) 267–4059, Office of Rulemaking, Federal Aviation Administration, 800 Independence Avenue SW., Washington, DC 20591, or Katie Haley, (202) 493–5708, Office of Rulemaking, ARM–207, Federal Aviation Administration, 800 Independence Avenue SW., Washington, DC 20591.
Availability of the notice of exemption: You can obtain an electronic copy of this document or Exemption No. 10611 by—
1. Searching the Federal eRulemaking Portal at
2. Accessing the Government Printing Office's Web page at
3. Contacting the person identified in the
On August 28, 2012, the FAA granted an exemption in the matter of the petition of Airbus Operations GmbH. The exemption from 14 CFR 121.344(f) and Appendix M is granted to the extent necessary to allow the operators of the Airbus model 318, 319, 320 and 321 airplanes listed in Exemption No. 10611 to temporarily operate these airplanes without complying with the digital flight data recorder sampling rate requirement, subject to the conditions and limitations listed in the exemption. Among other conditions and limitations, each operator of an affected airplane must, within 90 days of issuance of the exemption (August 28, 2012), submit a letter to its principal inspector that, among other things, includes a request to use Exemption No. 10611.
Federal Aviation Administration, DOT.
Final rule; technical amendment; correction.
The FAA is correcting a technical amendment published May 24, 2012 to a final rule published November 15, 2010. The final rule required design approval holders of certain existing airplanes and all applicants for type certificates of future transport category airplanes to establish a limit of validity of the engineering data that supports the structural maintenance program (hereinafter referred to as LOV). It also required that operators of any affected airplane incorporate the LOV into the maintenance program for that airplane. The technical amendment to the final rule was issued to correct errors, but within its publication, it contained inadvertent errors due to pagination in two tables. This document corrects the errors in those tables.
This corrective action becomes effective September 7, 2012.
For technical questions concerning this action, contact Walter Sippel, ANM–115, Airframe/Cabin Safety Branch, Federal Aviation Administration, 1601 Lind Avenue SW., Renton, WA 98057–3356; telephone (425) 227–2774; facsimile (425) 227–1232; email
For legal questions concerning this action, contact Doug Anderson, Office of Regional Counsel, Federal Aviation Administration, 1601 Lind Avenue SW., Renton, WA 98057–3356; telephone (425) 227–2166; facsimile (425) 227–1007; email
On May 24, 2012, the FAA published a technical amendment to a final rule. The technical amendment is entitled “Aging Airplane Program: Widespread Fatigue Damage” (77 FR 30877), which corrected a final rule published November 15, 2010 (75 FR 69746).
In that technical amendment, the FAA intended to correct compliance dates of §§ 26.21, 121.1115, and 129.115 for Airbus A310 and A300–600 series airplanes. Upon publication, however, the technical amendment contained inadvertent errors due to pagination in two of the tables.
Accordingly, FAA amends 14 CFR parts 121 and 129 by making the following technical amendments:
49 U.S.C. 106(g), 40113, 40119, 41706, 44101, 44701–44702, 44705, 44709–44711, 44713, 44716–44717, 44722, 46105.
49 U.S.C. 1372, 40113, 40119, 44101, 44701–44702, 44705, 44709–44711, 44713, 44716–44717, 44722, 44901–44904, 44906, 44912, 46105, Pub. L. 107–71 sec. 104.
Federal Aviation Administration (FAA), DOT.
Final rule.
This rule amends the requirements for siting explosives under a license to operate a launch site. It increases flexibility for launch site operators in site planning for the storage and handling of energetic liquids and explosives.
Effective November 6, 2012.
For information on where to obtain copies of rulemaking documents and other information related to this final rule, see “How To Obtain Additional Information” in the
For technical questions concerning this final rule contact Yvonne Tran, Commercial Space Transportation, Federal Aviation Administration, 800 Independence Avenue SW., Washington, DC 20591; telephone (202) 267–7908; facsimile (202) 267–5463, email
The Commercial Space Launch Act of 1984, as amended and re-codified at 51 United States Code (U.S.C.) Subtitle V—Commercial Space Transportation, ch.509, Commercial Space Launch Activities, 51 U.S.C. 50901–50923 (the Act), authorizes the Department of Transportation (DOT) and thus the FAA, through delegations, to oversee, license, and regulate commercial launch and reentry activities, and the operation of launch and reentry sites as carried out by U.S. citizens or within the United States. 51 U.S.C. 50904, 50905. Authority for this particular rulemaking is derived from 51 U.S.C. 50905, which requires that the FAA issue a license to operate a launch site consistent with public health and safety.
This final rule amends part 420 of Title 14 of the Code of Federal Regulations (14 CFR) Chapter III, updating the FAA's requirements for how to site explosives under a license to operate a launch site.
The FAA is making a number of changes consistent with the goals of Executive Order 13610, Identifying and Reducing Regulatory Burdens, 77 FR 28469 (May 14, 2012). First, the FAA is dispensing with its separation distance requirements at launch sites for storing liquid oxygen, nitrogen tetroxide, hydrogen peroxide in concentrations equal to or below 91 percent, and refined petroleum-1 (RP–1). If these energetic liquids are not within an intraline distance of an incompatible energetic liquid or co-located on a launch vehicle, the FAA is no longer imposing public area separation distances because the current separation requirements for storing these energetic liquids unnecessarily duplicate the requirements of the Occupational Safety and Health Administration. Second, the FAA is decreasing the separation distances required for division 1.1 explosives and liquid propellants with trinitrotoluene (TNT) equivalents of less than or equal to 450 pounds. Although decreased, the revised separation requirements will continue to protect against hazardous fragments, which are defined as having a kinetic energy of 58 foot-pounds, which is a level of kinetic energy capable of causing a fatality. The probability of a person six feet tall and one foot wide being struck by a hazardous fragment at a given separation from a given net explosive weight (NEW) is one percent, which is an equivalent level of safety to today's separation distances. Third, the FAA is reducing the separation distances for the storage and handling of division 1.3 explosives, while maintaining a level of safety equivalent to current requirements. Fourth, the FAA is eliminating its own separation distance requirements for storing liquid oxidizers and Class I, II and III flammable and combustible liquids because they duplicate the requirements of other regulatory regimes. Consistent with the
In 2000, the FAA issued rules governing the storage and handling of explosives as part of its regulations governing the licensing and operation of a launch site.
Since the original rulemaking, the FAA's experience with the requirements has led it to the current changes. At the time it promulgated the original requirements, the FAA anticipated that any new launch sites would have similar siting issues as launch sites devoted to expendable launch vehicles, and, therefore, relied on the siting requirements of the DDESB
The comment period for the NPRM closed on May 17, 2011. The FAA received comments from XCOR Aerospace (XCOR). XCOR's comments support the FAA's acceptance of a separation distance different from the one required by §§ 420.63 through 420.69 if an operator demonstrates an equivalent level of safety. XCOR also supports the FAA's proposal to abandon storage requirements for the types of liquid fuels and oxidizers that are already regulated by OSHA. The FAA also received a number of opposing comments from XCOR. They are discussed below and address the FAA's jurisdiction over explosive hazards, the nature of explosive hazards and whether energetic liquids are all explosives, the interplay between the definition of liquid propellants and aviation fuels, the appropriate license for dealing with explosive hazards and, lastly, stoichiometric ratios, the theoretical ratio of fuel and oxidizer at which the fuel is burned completely.
As an initial matter, the FAA must address XCOR's objection to the FAA's jurisdiction over treating a location where static engine firing takes place as an explosive hazard facility. XCOR at 12.
As it proposed in the NPRM, the FAA is adopting and defining the term “energetic liquids” to mean a liquid, slurry, or gel, consisting of, or containing an explosive, oxidizer, fuel, or combination of the above, that may undergo, contribute to, or cause rapid exothermic decomposition. XCOR opposes the FAA's proposed definition of “energetic liquids” on the grounds that there is no need for the FAA to regulate fuels and oxidizers, as explosives, because, according to XCOR, energetic liquids are not explosives. XCOR at 6.
In 2000, the FAA found it necessary to regulate both explosives and liquid propellants, but did not define the latter. The FAA's use of both terms apparently created the erroneous impression that the FAA only regulated materials that do not require mixing to explode, notwithstanding the FAA's inclusion of liquid propellants in its part 420 requirements. As should be evident from the FAA's requirements for materials other than division 1.1 explosives, the FAA has not so limited itself. “Explosive” is a broad term, and the FAA is using it throughout part 420 as such. Because of past confusion, the FAA is now defining “energetic liquids” to encompass liquid fuels, oxidizers, and liquid propellants.
XCOR believes that if a fuel and oxidizer are not mixed, the FAA's separation requirements for energetic liquids are not necessary. The FAA's requirements, however, are designed to mitigate harm caused by inadvertent mixing. Energetic liquids such as fuels and oxidizers may, when mixed, produce the reactions of and share characteristics with materials that are explosives in the truest technical sense. Explosions are due to the sudden release of energy over a short period of time and may or may not involve chemical reactions.
As proposed, the FAA now defines “liquid propellant” to mean a monopropellant or incompatible energetic liquids co-located for purposes of serving as propellants on a launch vehicle or a related device. In response to XCOR's comment that unmixed fuels and oxidizers do not explode, the FAA is clarifying that the co-location of incompatible energetic liquids makes something a liquid propellant only where the incompatible energetic liquids are housed in tanks connected by piping for purposes of mixing. The stored energy present when incompatible energetic liquids are connected by piping poses a hazard requiring separation distances because, under feasible conditions, the system may fail and cause fire, blast, and flying fragment hazards. It is because of these hazards that organizations such as the NFPA require a minimum separation distance of 20 feet between a liquid fuel and an oxidizer. Obviously, for launch, this is not possible, but the NFPA requirement underscores the importance of separating a fueled launch vehicle from the public. For most liquid fueled launch vehicles, incompatible energetic liquids such as fuels and oxidizers are housed in separate tanks on the vehicle. Pipes lead from each tank to a combustion chamber where combustion takes place to generate thrust. The presence of the piping is designed to ensure mixing in the combustion chamber in order to achieve propulsion. Accordingly, the FAA is revising its definition of liquid propellants from what it proposed to the following: A monopropellant or an incompatible energetic liquid co-located for purposes of serving as propellants on a launch vehicle or a related device where the incompatible energetic liquids are housed in tanks connected by piping for purposes of mixing. This new reference to “connecting piping” should alleviate concerns that the FAA intends the definition of liquid propellants to apply to aircraft or tanker trucks.
XCOR claims that because a launch license will govern incompatible energetic liquids co-located on a launch vehicle, these issues should not be addressed through a site license. XCOR at 3, 8. The FAA does not dispute that the launch license will govern launch. That being said, the launch operator will also have to operate with separation distances in effect. This means the site operator's advance planning attendant to explosive siting will not go to waste. For example, § 417.411, which applies to launch operators, requires safety clear zones that would keep the hazards associated with a launch operator's vehicle from the public during launch processing.
XCOR suggests the FAA take into account launch vehicle design and construction when determining separation distances at a launch site where the launch vehicles may vary in reliability. XCOR at 3, 8. XCOR brings to light an issue that requires clarification. Part 420 addresses a different issue than a launch operator's safety clear zone. Under parts 417 and 437, a launch operator must establish a safety clear zone during pre- and post-flight operations. Part 420 requires there be room for such safety clear zones in the first place. Otherwise, when constructing or establishing a launch site, a site operator may fail to plan for the safety needs and regulatory requirements of its customers. The philosophy underlying the necessity for separation distance requirements is that there must be room for hazardous operations, even those covered by other licenses. Accordingly, the separation distances for the site operator must account for vehicles of varying quality and reliability.
The FAA is amending its definition of “explosive hazard facility” to clarify that it includes locations and facilities at a launch site where solid propellants, liquid propellants or other explosives are stored or handled. XCOR objected to the proposed definition of an “explosive hazard facility” because it includes facilities containing energetic liquids, including liquid oxygen. XCOR at 4. XCOR maintains this conflicts with the FAA proposal that it would no longer require separation distances around liquid oxygen. Although the FAA will no longer require separation distances for many energetic liquids, a site operator must still, in its explosive site plan, identify all explosive hazard facilities where all energetic liquids will be located. The FAA has been regulating liquid oxygen as part of an explosive hazard facility since 2000, characterizing liquid oxygen as a liquid propellant, and will continue to do so under the new rule, while characterizing it as an energetic liquid. However, because the FAA has been attempting to reduce duplicative requirements, the FAA will rely on OSHA's regulations. Therefore, while the FAA will no longer require separation distances around liquid oxygen, OSHA will continue to do so, and for the FAA to fail to recognize that liquid oxygen is an energetic liquid would only create confusion. As discussed in the NPRM, OSHA's requirements are extensive and serve to protect the safety of the public as an ancillary benefit to OSHA's protection of worker safety.
Lastly, XCOR comments that the net explosive weight (NEW) of liquid propellant should not be based on the
This final rule is adopted for the reasons discussed in the NPRM, but with minor changes from what the FAA proposed. The FAA is defining “explosive hazard facility” to mean a facility or location at a launch site where solid propellants, energetic liquids, or other explosives are stored or handled. In the NPRM, the FAA proposed to define this facility as one where, in relevant part, solid explosives were stored or handled. However, this would have created redundancies with the references to “solid explosives” and “other explosives” being references to the same thing; the FAA is accordingly keeping the original reference to solid propellants.
The FAA requires a launch site operator to submit a scaled map that shows the location of all explosive hazard facilities at the launch site, the actual and minimal allowable distances between each explosive hazard facility and all other explosive hazard facilities, each public traffic route, and each public area, including the launch site boundary. The NPRM incorrectly identified the public traffic route as a public area. This is relevant for division 1.1 explosives because the separation distances between an explosive hazard facility and a public traffic route are less than those between an explosive hazard facility and a public area. Likewise, § 420.63(d), which permits a site operator to demonstrate an equivalent level of safety now clarifies that this form of relief applies to separation distances to public traffic routes as well as to public areas. See also § 420.67(a) (separating incompatible energetic liquids from public traffic routes); § 420.69 (separating division 1.1 and 1.3 explosives co-located with liquid propellants from public traffic routes).
The FAA is clarifying its requirement that a launch site operator must separate each explosive hazard facility where the NEW is greater than 450 pounds and less than 501,500 pounds from each public area containing any member of the public in the open by a distance equal to −1133.9 + [389 *ln(NEW)].
The final rule, § 420.65(c)(3), which governs the handling of division 1.1 and 1.3 explosives, now requires each public area containing any member of the public in the open to be separated from an explosive hazard facility by a distance equal to −1133.9 + [389 *ln(NEW)] where the NEW is greater than 450 pounds and less than 501,500 pounds. The NPRM incorrectly
In the NPRM, the FAA stated, in proposed footnote 3 of Table E–3 that a net explosive weight of greater than 500,000 pounds was not allowed for division 1.1 explosives because it was implied in the 2004 DOD Standard. Further investigation has disclosed, however, that the FAA misread the DDESB limitation. The FAA now understands that the limitation meant only that the table's intraline distances could not be used for division 1.1 explosives.
In the interest of greater clarity, the FAA is modifying § 420.65(d)(2), from what it proposed in the NPRM to clarify that when a site operator has quantities of explosives that fall between table entries, the site operator may use a formula provided by the tables to find a separation distance different than the one listed for the specified quantity. For example, if a site operator has 17 pounds of division 1.1 explosives, table E–1 would require a separation distance for a public area of either 506 or 529 feet. However, the site operator may calculate a distance using footnote 1 that falls between these two distances. The FAA's change clarifies that the site operator must use the equation from the same table as the distance the site operator seeks to determine. In other words, the site operator may not use an equation from table 2 to calculate a distance for table 1. Similarly, for paragraph (e)(3), a site operator with existing structures who wants to calculate the maximum quantity of explosives permitted in those structures may not use an equation from another table to calculate for a quantity being calculated.
Section 420.69 now clarifies that a launch site operator may, when determining separation distances for co-location of division 1.1 and 1.3 explosives with liquid propellants, employ a maximum credible event (MCE) assessment under paragraph (e) rather than using the separation distances prescribed by paragraphs (b), (c) and (d). The NPRM incorrectly described the MCE assessment as a requirement rather than an option. An MCE assessment is one way of demonstrating an equivalent level of safety.
Finally, in table E–7 of Appendix E of part 420, the FAA inadvertently transcribed a footnote from the DDESB requirements that the FAA had not intended to propose. Specifically, footnote 3 of table E–7 in the NPRM, would have required sprinklers for Class 4 oxidizers inside a building. This final rule does not incorporate that requirement.
Changes to Federal regulations must undergo several analyses. First, Executive Order 12866 and Executive Order 13563 direct that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96–354) requires agencies to analyze the economic impact of regulatory changes on small
Department of Transportation Order DOT 2100.5 prescribes policies and procedures for simplification, analysis, and review of regulations. If the expected cost impact is so minimal that a proposed or final rule does not warrant a full evaluation, this order permits that a statement to that effect and the basis for it be included in the preamble if a full regulatory evaluation of the cost and benefits is not prepared. Such a determination has been made for this final rule. The reasoning for this determination follows:
In this final rule, the FAA is amending its explosive siting separation requirements. First, the FAA will dispense with separation distances for liquid oxygen, nitrogen tetroxide, and hydrogen peroxide in concentrations equal to or below 91 percent, if not stored within an intraline distance of another incompatible energetic liquid, and if not co-located on a launch vehicle. These are unnecessary because they duplicate the requirements of other regulatory regimes. Second, the FAA is decreasing required separation distances for division 1.1 explosives and liquid propellants with TNT equivalents that are less than or equal to 450 pounds, while maintaining a level of safety equivalent to current requirements. Third, the FAA is reducing separation distances for the storage and handling of division 1.3 explosives, while maintaining an equivalent level of safety to current requirements. Fourth, the FAA is dispensing with the separation distance requirements for storing liquid oxidizers and Class I, II and III flammable and combustible liquids because they duplicate the requirements of other regulatory regimes. The outcome of these changes is expected to be cost relieving. These amendments will allow the launch operator increased flexibility in site planning for the storage and handling of explosives. By encouraging existing launch sites to more effectively use their infrastructure, which could result in the additional co-location of launch sites with existing airports, the rule provides benefits (such as encouraging the development of more launch sites) and is cost relieving. By removing duplications, the amendments make the regulations less burdensome. There may be additional cost savings if the FAA issues fewer waivers as a result of this rule.
Under current part 420, the FAA does not distinguish between public areas that are buildings, where people are sheltered, and those where people are out in the open. This final rule will result in greater distances for some public areas than are required under current rules, but should not result in increased distances for siting buildings. The operational constraints themselves should not increase costs because a launch site operator currently must ensure under § 420.55 that its customers schedule their hazardous operations so as not to harm members of the public. A site operator may incur minimal costs in performing these new calculations and updating its procedures to reflect any changes in distances.
Other provisions will add clarity to the regulations and result in reduced ambiguity and confusion. Included are: dispensing with the hazard groups of tables E–3 through E–6 of appendix E of part 420 as a means of classification; changing the definition of explosive hazard facility, and adding definitions for energetic liquid, liquid propellant and maximum credible event. These provisions are cost neutral. The requirement that the explosive site map be at a scale sufficient to determine compliance with part 420 can be cost relieving because it can avoid time spent reviewing maps that are difficult to read or requesting that an applicant create and submit another map.
The FAA has, therefore, determined this final rule provides cost saving opportunities, is not a “significant regulatory action” as defined in section 3(f) of Executive Order 12866, and is not “significant” as defined in DOT's Regulatory Policies and Procedures.
The Regulatory Flexibility Act of 1980 (Pub. L. 96–354) (RFA) establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation. To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration.” The RFA covers a wide-range of small entities, including small businesses, not-for-profit organizations, and small governmental jurisdictions.
Agencies must perform a review to determine whether a rule will have a significant economic impact on a substantial number of small entities. If the agency determines that it will, the agency must prepare a regulatory flexibility analysis as described in the RFA.
However, if an agency determines that a rule is not expected to have a significant economic impact on a substantial number of small entities, section 605(b) of the RFA provides that the head of the agency may so certify and a regulatory flexibility analysis is not required. The certification must include a statement providing the factual basis for this determination, and the reasoning should be clear.
The final rule will not increase and will likely reduce costs to industry because it provides options to launch sites with regards to explosive siting. It does not require launch site operators to increase the distances between where they have sited explosives and buildings. We did not receive comments regarding the initial regulatory flexibility analysis.
Therefore, as the acting FAA Administrator, I certify that this rule will not have a significant economic impact on a substantial number of small entities.
The Trade Agreements Act of 1979 (Pub. L. 96–39), as amended by the Uruguay Round Agreements Act (Pub. L. 103–465), prohibits Federal agencies from establishing standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. Pursuant to these Acts, the establishment of standards is not considered an unnecessary obstacle to the foreign commerce of the United States, so long as the standard has a legitimate domestic objective, such the protection of safety, and does not operate in a manner that excludes imports that meet this objective. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards. The FAA has assessed the potential effect of this final rule and
Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4) requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (in 1995 dollars) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.” The FAA currently uses an inflation-adjusted value of $143.1 million in lieu of $100 million. This final rule does not contain such a mandate; therefore, the requirements of Title II of the Act do not apply.
The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that the FAA consider the impact of paperwork and other information collection burdens imposed on the public. The map requirement is not an increased burden in collecting information because the FAA already required a map. The FAA has determined that there is no new requirement for information collection associated with this final rule.
In keeping with U.S. obligations under the Convention on International Civil Aviation, it is FAA policy to conform to International Civil Aviation Organization (ICAO) Standards and Recommended Practices to the maximum extent practicable. The FAA has determined that there are no ICAO Standards and Recommended Practices that correspond to these regulations.
FAA Order 1050.1E identifies FAA actions that are categorically excluded from preparation of an environmental assessment or environmental impact statement under the National Environmental Policy Act in the absence of extraordinary circumstances. The FAA has determined this rulemaking action qualifies for the categorical exclusion identified in paragraph 310f and involves no extraordinary circumstances.
The FAA has analyzed this final rule under the principles and criteria of Executive Order 13132, Federalism. The agency determined that this action will not have a substantial direct effect on the States, or the relationship between the Federal Government and the States, or on the distribution of power and responsibilities among the various levels of government, and, therefore, does not have Federalism implications.
The FAA analyzed this final rule under Executive Order 13211, Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use (May 18, 2001). The agency has determined that it is not a “significant energy action” under the executive order and it is not likely to have a significant adverse effect on the supply, distribution, or use of energy.
An electronic copy of a rulemaking document my be obtained by using the Internet—
1. Search the Federal eRulemaking Portal (
2. Visit the FAA's Regulations and Policies Web page at
3. Access the Government Printing Office's Web page at
Copies may also be obtained by sending a request (identified by notice, amendment, or docket number of this rulemaking) to the Federal Aviation Administration, Office of Rulemaking, ARM–1, 800 Independence Avenue SW., Washington, DC 20591, or by calling (202) 267–9680.
Comments received may be viewed by going to
The Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996 requires FAA to comply with small entity requests for information or advice about compliance with statutes and regulations within its jurisdiction. A small entity with questions regarding this document, may contact its local FAA official, or the person listed under the
Launch sites, Reporting and recordkeeping requirements, Space transportation and exploration.
In consideration of the foregoing, the Federal Aviation Administration amends Chapter III of Title 14, Code of Federal Regulations as follows:
51 U.S.C. 50901–50923
(1) A monopropellant on a launch vehicle or related device; or
(2) Incompatible energetic liquids co-located for purposes of serving as propellants on a launch vehicle or a related device where the incompatible energetic liquids are housed in tanks connected by piping for purposes of mixing.
(a) Except as otherwise provided by paragraph (b) of this section, a licensee must ensure the configuration of the launch site follows its explosive site plan, and the licensee's explosive site plan complies with the requirements of §§ 420.65 through 420.70. The explosive site plan must include:
(1) A scaled map that shows the location of all explosive hazard facilities at the launch site and that shows actual and minimal allowable distances between each explosive hazard facility and all other explosive hazard facilities, each public traffic route, and each public area, including the launch site boundary;
(2) A list of the maximum quantity of energetic liquids, solid propellants and other explosives to be located at each explosive hazard facility, including explosive class and division;
(3) A description of each activity to be conducted at each explosive hazard facility; and
(4) An explosive site map using a scale sufficient to show whether distances and structural relationships satisfy the requirements of this part.
(b) A licensee operating a launch site located on a federal launch range does not have to comply with the requirements in §§ 420.65 through 420.70 if the licensee complies with the federal launch range's explosive safety requirements.
(c) For explosive siting issues not addressed by the requirements of §§ 420.65 through 420.70, a launch site operator must clearly and convincingly demonstrate a level of safety equivalent to that otherwise required by this part.
(d) A launch site operator may separate an explosive hazard facility from another explosive hazard facility, public area, or public traffic route by a distance different from one required by this part only if the launch site operator clearly and convincingly demonstrates a level of safety equivalent to that required by this part.
(a)
(1) A launch site operator must determine the maximum total quantity of division 1.1 and 1.3 explosives by class and division, in accordance with 49 CFR part 173, Subpart C, to be located in each explosive hazard facility where division 1.1 and 1.3 explosives will be handled.
(2) When division 1.1 and 1.3 explosives are located in the same explosive hazard facility, the total quantity of explosive must be treated as division 1.1 for determining separation distances; or, a launch site operator may add the net explosive weight of the division 1.3 items to the net explosive weight of division 1.1 items to determine the total quantity of explosives.
(b)
(1) For division 1.1 explosives, the launch site operator must use tables E–1, E–2, and E–3 of appendix E of this part to determine the distance to each public area and public traffic route, and to determine each intraline distance.
(2) For division 1.3 explosives, the launch site operator must use table E–4 of appendix E of this part to determine the distance to each public area and public traffic route, and to determine each intraline distance.
(c)
(1) Employ no less than the public area distance, calculated under paragraph (b) of this section, to separate an explosive hazard facility from each public area, including the launch site boundary.
(2) Employ no less than an intraline distance to separate an explosive hazard facility from all other explosive hazard facilities used by a single customer. For explosive hazard facilities used by different customers a launch site operator must use the greater public area distance to separate the facilities from each other.
(3) Separate each public area containing any member of the public in the open by a distance equal to −1133.9 + [389 *ln(NEW)], where the NEW is greater than 450 pounds and less than 501,500 pounds.
(d)
(e)
(a)
(1) Hydrogen peroxide in concentrations of greater than 91 percent;
(2) Hydrazine;
(3) Liquid hydrogen; or
(4) Any energetic liquid that is:
(i) Incompatible with any of the energetic liquids of paragraph (a)(1) through (3) of this section; and
(ii) Stored within an intraline distance of any of them.
(b)
(1) The quantity of energetic liquid in a tank, drum, cylinder, or other container is the net weight in pounds of the energetic liquid in the container. The determination of quantity must include any energetic liquid in associated piping to any point where positive means exist for:
(i) Interrupting the flow through the pipe, or
(ii) Interrupting a reaction in the pipe in the event of a mishap.
(2) A launch site operator must convert the quantity of each energetic liquid from gallons to pounds using the conversion factors provided in table E–6 of appendix E of this part and the following equation:
Pounds of energetic liquid = gallons × density of energetic liquid (pounds per gallon).
(3) Where two or more containers of compatible energetic liquids are stored in the same explosive hazard facility, the total quantity of energetic liquids is the total quantity of energetic liquids in all containers, unless:
(i) The containers are each separated from each other by the distance required by paragraph (c) of this section; or
(ii) The containers are subdivided by intervening barriers that prevent mixing, such as diking.
(4) Where two or more containers of incompatible energetic liquids are stored within an intraline distance of each other, paragraph (d) of this section applies.
(c)
(1) To determine each intraline, public area, and public traffic route distance, a launch site operator must use the following tables in appendix E of this part:
(i) Table E–7 for hydrogen peroxide in concentrations of greater than 91 percent; and
(ii) Table E–8 for hydrazine and liquid hydrogen.
(2) For liquid hydrogen and hydrazine, a launch site operator must use the “intraline distance to compatible energetic liquids” for the energetic liquid that requires the greater distance under table E–8 of appendix E of this part as the minimum separation distance between compatible energetic liquids.
(d)
(1) If intervening barriers prevent mixing, a launch site operator must separate the incompatible energetic liquids by no less than the intraline distance that tables E–7 and E–8 of appendix E of this part apply to compatible energetic liquids using the quantity or energetic liquid requiring the greater separation distance.
(2) A launch site operator must use the formulas provided in table E–5 of appendix E of this part, to determine the explosive equivalent in pounds of the combined incompatible energetic liquids. A launch site operator must then use the explosive equivalent in pounds requiring the greatest separation distance to determine the minimum separation distance between each explosive hazard facility and all other explosive hazard facilities and each public area and public traffic route as required by tables E–1, E–2 and E–3 of appendix E of this part.
(a)
(b)
(1) The quantity of energetic liquid in a launch or reentry vehicle tank is the net weight in pounds of the energetic liquid. The determination of quantity must include any energetic liquid in associated piping to any point where positive means exist for:
(i) Interrupting the flow through the pipe; or
(ii) Interrupting a reaction in the pipe in the event of a mishap.
(2) A launch site operator must convert each energetic liquid's quantity from gallons to pounds using the conversion factors provided by table E–6 of appendix E of this part and the following equation:
(c)
(1) A launch site operator must use the formulas provided in table E–5 of appendix E of this part, to determine the explosive equivalent in pounds of the combined incompatible energetic liquids; and
(2) A launch site operator must then use the explosive equivalent in pounds to determine the minimum separation distance between each explosive hazard facility and all other explosive hazard facilities and each public area and public traffic route as required by tables E–1, E–2 and E–3 of appendix E of this part. Where two explosive hazard facilities contain different quantities, the launch site operator must use the quantity of liquid propellant requiring the greatest separation distance to determine the minimum separation distance between the two explosive hazard facilities.
(d)
(1) For an explosive equivalent weight from one pound through and including 450 pounds, determine the distance to any public area and public traffic route following table E–1 of appendix E of this part;
(2) For explosive equivalent weight greater than 450 pounds, determine the distance to any public area and public traffic route following table E–2 of appendix E of this part;
(3) Separate each public area containing any member of the public in the open by a distance equal to −1133.9 + [389 *ln(NEW)], where the NEW is greater than 450 pounds and less than 501,500 pounds;
(4) Separate each explosive hazard facility from all other explosive hazard facilities of a single customer using the intraline distance provided by table E–3 of appendix E of this part; and
(5) For explosive hazard facilities used by different customers, use the greater public area distance to separate the facilities from each other.
(a)
(b)
(1) Determine the explosive equivalent weight of the liquid propellants by following § 420.67(c);
(2) Add the explosive equivalent weight of the liquid propellants and the net explosive weight of division 1.1 explosives to determine the combined net explosive weight;
(3) Use the combined net explosive weight to determine the distance to each
(4) Separate each public area containing any member of the public in the open by a distance equal to −1133.9 + [389 *ln(NEW)], where the net explosive weight is greater than 450 pounds and less than 501,500 pounds.
(c)
(1)
(ii) Add to the explosive equivalent weight of the liquid propellants, the net explosive weight of each division 1.3 explosive, treating division 1.3 explosives as division 1.1 explosives;
(iii) Use the combined net explosive weight to determine the minimum separation distance to each public area, public traffic route, and each other explosive hazard facility by following tables E–1, E–2, and E–3 of appendix E of this part; and
(iv) Separate each public area containing any member of the public in the open by a distance equal to -1133.9 + [389 *ln(NEW)], where the net explosive weight is greater than 450 pounds and less than 501,500 pounds.
(2) Method 2. (i) Determine the explosive equivalent weight of each liquid propellant by following § 420.67(c);
(ii) Add to the explosive equivalent weight of the liquid propellants, the net explosive weight of each division 1.3 explosive to determine the combined net explosive weight;
(iii) Use the combined net explosive weight to determine the minimum separation distance to each public area, public traffic route, and each other explosive hazard facility by following tables E–1, E–2, and E–3 of appendix E of this part; and
(iv) Separate each public area containing any member of the public in the open by a distance equal to -1133.9 + [389 *ln(NEW)], where the net explosive weight is greater than 450 pounds and less than 501,500 pounds.
(d)
(1) Determine the explosive equivalent weight of the liquid propellants by following § 420.67(c);
(2) Determine the total explosive quantity of each division 1.1 and 1.3 explosive by following § 420.65(a)(2);
(3) Add the explosive equivalent weight of the liquid propellants to the total explosive quantity of division 1.1 and 1.3 explosives together to determine the combined net explosive weight;
(4) Use the combined net explosive weight to determine the distance to each public area, public traffic route, and each other explosive hazard facility by following tables E–1, E–2, and E–3 of appendix E of this part; and
(5) Separate each public area containing any member of the public in the open by a distance equal to -1133.9 + [389 *ln(NEW)], where the net explosive weight is greater than 450 pounds and less than 501,500 pounds
(e)
(a) This section applies to all measurements of distances performed under §§ 420.63 through 420.69.
(b) A launch site operator must measure each separation distance along straight lines. For large intervening topographical features such as hills, the launch site operator must measure over or around the feature, whichever is the shorter.
(c) A launch site operator must measure each minimum separation distance from the closest hazard source, such as a container, building, segment, or positive cut-off point in piping, in an explosive hazard facility. When measuring, a launch site operator must:
(1) For a public traffic route distance, measure from the nearest side of the public traffic route to the closest point of the hazard source; and
(2) For an intraline distance, measure from the nearest point of one hazard source to the nearest point of the next hazard source. The minimum separation distance must be the distance for the quantity of energetic liquids or net explosive weight that requires the greater distance.
Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD.
Final rule.
In 2010 through 2011, HUD commenced and completed the process of revising regulations applicable to, and closing documents used in, FHA insurance of multifamily rental projects, to reflect current policy and practices in the multifamily mortgage market. This final rule results from a similar process that was initiated in 2011 for revising and updating the regulations governing, and the transactional documents used in, the program for insurance of healthcare facilities under section 232 of the National Housing Act (Section 232 program). HUD's Section 232 program insures mortgage loans to facilitate the construction, substantial rehabilitation, purchase, and refinancing of nursing homes, intermediate care facilities, board and care homes, and assisted-living facilities. This rule revises the Section 232 program regulations to reflect current policy and practices, and improve accountability and strengthen risk management in the Section 232 program.
Kelly Haines, Director, Office of Residential Care Facilities, Office of Healthcare Programs, Office of Housing, Department of Housing and Urban Development, 451 7th Street SW., Room 6264, Washington, DC 20410–8000; telephone number 202–708–0599 (this is not a toll-free number). Persons with hearing or speech impairments may access this number through TTY by calling the toll-free Federal Relay Service at 1–800–877–8339.
Section 232 of the National Housing Act (12 U.S.C. 1715w) (Section 232) authorizes FHA to insure mortgages made by private lenders to finance the development of nursing homes, intermediate care facilities, board and care homes, and assisted living facilities (collectively, residential healthcare facilities). The Section 232 program allows for long-term, fixed-rate financing for new and rehabilitated properties for up to 40 years. Existing properties without rehabilitation can be financed with or without Ginnie Mae®
The maximum amount of the loan for new construction and substantial rehabilitation is equal to 90 percent (95 percent for nonprofit organization sponsors) of the estimated value of physical improvements and major movable equipment. For existing projects, the maximum is 85 percent (90 percent for nonprofit organization sponsors) of the estimated value of the physical improvements and major movable equipment.
As the need for residential care facilities increased, requests to FHA to make mortgage insurance available for such facilities also increased. As with any program growth, updates to regulations are needed to ensure that program requirements are sufficient to meet increased demand, and prevent mortgage defaults that not only impose a risk to the FHA insurance fund but can also jeopardize the safety and stability of Section 232 facilities and their residents. HUD's regulations governing the Section 232 program are primarily codified in 24 CFR part 232.
On May 3, 2012, HUD published a proposed rule at 77 FR 26218, in which it submitted, for public comment, revisions to the Section 232 program regulations. On May 3, 2012, HUD also published a notice at 77 FR 26304, which proposed revisions to the related documents used in the insurance of healthcare facilities under the Section 232 program. In the May 3, 2012, rule, HUD proposed regulatory revisions that would update terminology, require a single asset form of ownership, and reflect current policy and practices used in healthcare facility transactions today. The updates included in the proposed rule also included amendments to HUD's Uniform Financial Reporting Standards to include operators of projects insured or held by HUD as entities that must submit financial reports. In addition, in the May 3, 2012 rule, HUD proposed several revisions to strengthen borrower eligibility requirements, as well as HUD's oversight of the healthcare program and projects.
With respect to proposed revisions to the Section 232 documents, published in the May 3, 2012, notice, HUD will address public comments and advise of any changes through separate publication.
In response to comments, HUD made several changes to the regulatory text proposed by the May 3, 2012, rule. Key changes made at the final rule stage include the following:
This final rule adopts this recommendation. The final rule provides, at § 232.11, that the long-term debt service reserve will be required only in cases where HUD determines a need for such a reserve. HUD anticipates that requiring a long-term debt service reserve will be the exception and not the norm. HUD may require such a reserve when underwriting determines there is an atypical long-term project risk. Atypical long-term risks could occur, for example, in circumstances in which there is an unusually high mortgage amount, or when some other risk mitigant, such as a master lease structure typically used in a portfolio transaction, is unavailable in a particular transaction.
• Provides for flexibility in § 5.801 (uniform financial reporting standards) in the format and manner, as determined by HUD, that financial reports may be submitted to HUD, to the lender or other third party as HUD may direct;
• Adds language to § 200.855, which was inadvertently omitted from the regulatory text but discussed in the preamble to the proposed rule at 77 FR 26222, and that exempted assisted living facilities, board and care facilities and intermediate care facilities from inspections by HUD's Real Estate Assessment Center (REAC) if the State or local government has a reliable inspection system in place.
• In § 207.258, defines, in paragraph (a) the “Eligibility Notice Period,” adds a new paragraph (a)(4) to provide for acknowledgment by HUD of the lender's election either to assign its mortgage or acquire and convey title to HUD, and removes language from the opening clause of paragraph (b)(1)(i), which was added in the update of the multifamily project rental regulations, but is no longer applicable;
• Removes the definition of “mortgaged property” in § 232.9 of the proposed rule, as well as the definition section in new subpart F, § 232.1003 of the proposed rule, because these terms are defined in the transactional documents and HUD agreed with commenters to limit transfer of certain terminology from the transactional documents to the regulations;
• Moves the definition of eligible operator set forth in the proposed rule to a separate regulatory provision at § 232.1003, which establishes the eligibility requirements for operators in the Section 232 program;
• Withdraws the amendments proposed to be made to § 232.251 regarding other applicable regulations, since the final rule addresses this issue in § 232.1.
The public comment period for this rule closed on July 2, 2012, and HUD received 27 public comments through the
This section of the preamble presents significant issues, questions, and suggestions submitted by public commenters, and HUD's responses to these issues, questions, and suggestions.
Several commenters expressed their general support for the rule as improvements that are necessary and beneficial, stating that the rule provided the appropriate balance of risk mitigation while not overly burdening the borrower and operator or substantially altering demand for the program. Commenters also stated that several of the modifications, such as the limitation on REAC inspections and modification of the borrower surplus cash rules, were beneficial.
Notwithstanding the general support for the rule's objectives, one commenter objected to the rule overall, and other commenters offered suggested changes to several of the rule's provisions.
HUD is basing the transition period on the date for which a firm commitment has been issued and not on the date that the application for insurance is received, because significant barriers exist to applying the regulations based on the date for application for insurance. Applications are often less than fully complete when initially received and current program systems lack the capability to determine and memorialize when an application is deemed fully complete. HUD therefore believes that basing the transition period on issuance of the firm commitment is the correct approach.
Commenters stated that several of the proposed regulatory changes would limit program flexibility with respect to process improvements, such as those recently embraced by HUD, in administering the Section 232 programs and achieved through nonrulemaking documents. A commenter also stated that including the debt service reserve in the regulations is not the “best, most innovative, or least burdensome” method for achieving HUD's goals.
The proposed rule offered revisions to the reporting requirements of 24 CFR 5.801 to include operators of projects with mortgages insured or held by HUD under the Section 232 program as entities that must submit financial reports. Under current requirements, financial reports are submitted by borrowers, but not operators of Section 232 insured healthcare facilities. HUD had determined that the audited financial statements of a borrower were not sufficient to assess the financial status of a Section 232 project, because the viability of the project is heavily dependent on the operator's financial performance, and the financial statements of the operator should also be reviewed for an accurate assessment of the project's financial status.
The May 3, 2012, rule proposed to retain the longstanding requirement that owners submit audited financial statements annually and proposed to require operators to submit financial statements quarterly, covering separately the most recent quarter and the fiscal year to date.
The commenter also proposed that the financial reporting requirements set forth in this section should apply only to those projects that are governed by the new Section 232 loan documents and that received a firm commitment on or after the effective date of final regulations. The commenter suggested revised language in 24 CFR 5.802(d)(4) to limit the application of this section. The commenter stated that without this limiting language, the reporting standards would be retroactively applied to operators of existing insured projects that are not currently subject to these financial reporting requirements under the terms of the mortgage loan transaction documents and regulations in effect at the time the loan closed.
Due to the same need for effective financial oversight, HUD also declines to accept the commenter's recommendation to eliminate separate year-end operator quarterly and year-to-date reports when the borrower is also the operator. Operator reports will be submitted in separate systems that allow for more prompt submission than audited reports, and therefore HUD will receive timely and important trend information.
With respect to the commenter's statement that the requirements should be applied only to those projects that are governed by the new Section 232 loan documents and that received a firm commitment on or after the effective date of final regulations, HUD declines to adopt the change. As stated in the preamble to the proposed rule, HUD determined that the financial statements that HUD currently receives are insufficient to assess the financial status of a Section 232 project. The viability of the project is heavily dependent on the operator's financial performance, and this information is not currently part of financial reports on Section 232 projects. HUD is requiring this information to improve the accuracy of its assessment of a project's financial status, and thus the solvency of the fund. Application of these financial reporting requirements to existing facilities is consistent with authority provided in paragraph 3 of most, if not all of the existing operators' regulatory agreements that provide for the Secretary to request financial reports. This rule implements such a request through regulation. Receipt of these reports will significantly improve HUD's ability to manage and maintain the finances of the FHA insurance fund.
The proposed rule would have narrowed and streamlined the scope of Section 232 facilities that are routinely inspected by REAC. In particular, the proposed rule provided that facilities such as assisted living facilities and board and care facilities, and properties that are routinely surveyed pursuant to regulations of the Centers for Medicare and Medicaid Services, would not be subject to routine REAC inspections if the State or local government had a reliable and adequate inspection system in place. The remainder of the Section 232 properties would be inspected only when and if HUD determined, on a case-by-case basis and on the basis of information received, that inspection of such facility is needed to help ensure the protection of residents or the adequate preservation of the project.
Subpart B of the part 207 regulations addresses contract rights and obligations and the rights and duties of the mortgagee under contract of insurance, and HUD determined that certain revisions were necessary as part of its updating of regulations applicable to the Section 232 program.
The proposed rule's revisions to § 207.255, “Defaults for purposes of insurance claim,” included language defining the date of defaults. The proposed rule would have revised § 207.255(a)(4) by clarifying the dates on which certain monetary and other defaults occur.
In the final rule, HUD also specifies that a covenant violation does not become a default for purposes of payment of an insurance claim until the lender has accelerated the debt and the borrower has failed to make that accelerated debt payment. Namely, the regulation now provides that for mortgages insured under Section 232, the date of default shall be considered as: (a) The first date on which the borrower has failed to pay the debt when due as a result of the lender's acceleration of the debt because of the borrower's uncorrected failure to perform a covenant or obligation under the regulatory agreement or security instrument; or (b) the date of the first failure to make a monthly payment, which subsequent payments by the borrower are insufficient to cover when applied to the overdue monthly payments in the order in which they become due.
Section 207(g) of the National Housing Act (12 U.S.C. 1713(g)) provides the authority for payment of a claim for mortgage insurance benefits. Pursuant to that statutory provision, there must be a monetary default in order for the mortgagee to become eligible to receive mortgage insurance benefits. Therefore, the date of default for purposes of payment of a claim, premised on a covenant violation, must be associated with a monetary default. A covenant violation does not become a default for purposes of payment of an insurance claim until the lender has accelerated the debt and the borrower has failed to make that accelerated debt payment. In light of the statutory language and pursuant to HUD's regulation at § 207.255(b), a covenant violation does not become a default until after the mortgagee has accelerated the debt. Accordingly, the date of default referenced in § 207.255(b)(5)(i) should be read to directly correlate to the default referenced in § 207.255(b)(1)(ii); e.g., associated with the acceleration of the debt.
HUD did not propose any revisions to § 207.255 in the May 3, 2012, proposed rule. Despite the fact that HUD did not seek comment on this section, one commenter proposed that HUD modify § 207.255(b)(3) to remove the general reference, and limit it to § 207.255(b)(1).
The May 3, 2012, rule proposed to modify § 207.258, “Insurance claim requirements,” by further clarifying in paragraph (a)(2) the applicability of the lockout and prepayment premium periods. The May 3, 2012, rule also proposed to modify § 207.258(b)(1)(i) by clarifying the time period within which a mortgagee may elect to assign a mortgage insured under section 232 of the Act to the Commissioner.
In its review of the regulations in 24 CFR part 232, HUD noted that the regulations use both the terms “borrower” and “mortgagor.” These terms have the same meaning, and to avoid any misunderstanding that they have different meanings, the May 3, 2012, rule proposed to substitute the term “borrower” for “mortgagor” throughout the part 232 regulations. That said, the healthcare financing and transactional documents for the Section 232 program may sometimes refer to the borrower as the “mortgagor,” “lessor,” and/or the “owner.”
The May 3, 2012, rule proposed to revise the definition of eligible borrower to provide that the borrower shall be a single asset entity, determined acceptable to the Commissioner, and that possesses the power necessary and incidental to be operating the project. The proposed rule also provided that the Commissioner may approve an exception to this single asset requirement in limited circumstances based upon such criteria as specified by the Commissioner.
HUD identified one error in the proposed rule definition. Rather than stating “incidental to operating the project,” HUD intended to state “incidental to owning the project,” and this change should address several of the concerns by commenters about the definition of borrower, as discussed below.
The proposed rule provided that to be eligible for insurance under the Section 232 program, and except with respect to the regulatory provisions applicable to supplemental loans to finance purchase and installation of fire safety equipment (24 CFR part 232, subpart C), the borrower must establish, at final closing and maintain throughout the term of the mortgage, a long-term debt service reserve account.
Commenters stated that the cost of the required extra capital far exceeds the small amount of interest one earns when investing in the loan servicing account, given the cost of capital and the interest earned on the funds deposited. Several commenters stated that this would add incremental costs that would make the program noncompetitive with Fannie Mae, Freddie Mac, and the Rural Housing Service of the U.S. Department of Agriculture (USDA), commercial banks, and finance companies. A commenter further stated that this requirement defeats the purpose of the mortgage insurance premiums (MIP), which is already equivalent to an approximate 15 percent premium on the stated rate of interest. Commenters also stated that the proposal would contribute to adverse selection of FHA borrowers that would deprive FHA of the benefit of MIP payments on higher-quality lower-risk transactions.
Commenters also stated that the debt service reserve would not reduce the number or severity of mortgage insurance claims. Commenters stated that the requirement as proposed would be imposed on all properties whether or not they are well capitalized or are well performing. Commenters further stated that the debt service reserve was unnecessary, in particular, for those projects included in a master lease structure as that structure: (1) Results in all project funds being available to service the debt of a struggling project, and (2) provides a strong incentive to the operator to support the struggling project. The commenters also stated that under conventional loan standards, impositions of a debt service account are limited to under-performing loans.
Commenters further stated that maintaining a minimum balance throughout the life of the loan greatly extends the amount of time a borrower must restrict funds for this purpose.
Commenters stated that debt service reserves should not be required for § 223(a)(7) (refinancing) loans because, in refinancing, the borrower will: (1) Reduce debt service costs, increase the debt service coverage ratio, and increase funding of the reserve for replacement and/or the completion of necessary repairs, and (2) will not have mortgage proceeds available to fund the debt service reserve because they are limited by the amount of the original insured mortgage.
Commenters stated that HUD should modify § 232.11 to state that the long-term debt service reserve would be required at the discretion of HUD.
Several commenters also provided suggestions on how HUD may implement the long-term debt service reserve, if HUD chose to retain this requirement at the final rule stage. These suggestions include the following:
• The lender, not HUD, should recommend the reserve as part of the application for insurance and minimal reserves should be allowed for strong projects.
• The date of establishment of the debt service reserve should be flexible, rather than requiring the reserve to be established by the date of final closing.
• The entire reserve should be mortgageable even if the reserve results in a mortgage over the 80 percent loan-to-value (LTV) created during the conversion to Section 232 program financing. Commenters stated that this is common in the industry as cash secured lending is dollar for dollar and does not affect the collateral position. A commenter stated that HUD should allow the debt service reserve to be included as an eligible cost up to the 85 percent level.
• Flexibility should be allowed in the release of such reserves. Commenters stated that it is difficult for a borrower to agree to “HUD's sole discretion.” Commenters stated that rights must be given to the lender and that the lender can use its discretion on release of reserves. Also, commenters stated that there should be some benchmarks that allow the borrower to tap into the funds such as: (a) A debt service coverage ratio (DSC) that is below 1.0 for some period of time or (b) a certain threshold of capital the borrower must have contributed before the reserve can be tapped.
• Use of the Master Lease agreement should be eliminated or reduced if a longer debt service reserve is established.
• Extend the time that HUD can require a lender to advance mortgage payments from 90 days to 180 days
• Allow borrowers, with lender approval, to consider funding the reserve with letters of credit.
• Establish the reserve in a handbook as opposed to a regulation.
• Remove the “long-term” qualification.
Commenters suggested that alternative strategies would have similar results. These included:
• Require debt service reserve payments under certain events such as a DSC below 1.0 or negative working capital with the reserve to be released and/or suspended upon some threshold of DSC being met.
• Require a debt service reserve payment in the event of a default of the regulatory agreement or of any pertinent loan document.
• Require the servicer to make debt service payments for some period of time before or otherwise extend the time before servicers can assign the mortgage to HUD, which the commenters stated would encourage servicers to implement early warning and workout strategies.
• Build in additional flexibility by, for example, adding language to give HUD the flexibility to allow for a reduction in the minimum balance required to be maintained in the debt service reserve and to allow for the release of funds in the debt service reserve in excess of the required amount.
Because HUD does not intend to require long-term debt service reserves across the board, there is no need to address the issue of refinanced loans. HUD anticipates that the use of a long-term debt service reserve will be rare (unlike the short-term debt service escrow account that has been frequently used in the Section 232 program, and which is not a mortgageable item). HUD envisions that a long-term debt service reserve will be necessary in circumstances in which underwriting indicates an atypical long-term risk. Examples of circumstances in which HUD may require the establishment of a long-term debt service reserve include an atypically high mortgage amount, or if a key risk mitigant (such as a master lease structure typically used in a portfolio transaction) is unavailable.
HUD declines to accept some of the commenters' recommendations, such as waiting to establish the long-term debt service reserve when the need arises, as such an approach would be imposed too late to serve a useful financial purpose. HUD has also determined to retain the “long-term” qualification to distinguish these accounts from short-term escrow accounts. HUD also determined to retain the minimum balance requirement contained in the proposed rule to assure that reserve funds are not diverted and are used for the intended purpose.
Subpart B of the part 232 regulations addresses contract rights and obligations and the rights and duties of the mortgagee under the contract of insurance. The May 3, 2012, rule proposed several changes to the subpart B regulations.
The proposed rule would have added a new § 232.254 to provide that borrowers may, to the extent allowed in their transactional loan documents and applicable law, make and take distributions of mortgaged property under certain conditions. The proposed rule also included a definition of surplus cash.
Although previously, the borrower could take distributions only annually (or, in limited circumstances, semi-annually), the proposed rule would have allowed borrowers to take distributions more frequently, provided that, upon making a calculation of borrower surplus cash, no less frequently than semi-annually, such borrowers can demonstrate positive surplus cash in their semi-annual surplus cash calculation or repay any distributions made during the fiscal period if a negative surplus cash position is shown. HUD included language in the proposed rule to clarify that it does not intend to override existing transactional agreements.
The commenter further stated that when calculating surplus cash, accounts receivable and accounts receivable financing should either: (1) Both be included in the calculation, or (2) both be excluded from the calculation. The commenter stated that the best way to address this issue would be to exclude as a deduction any accounts receivable financing approved by HUD and to exclude accounts receivable from cash. The commenter stated that its proposed approach is the more conservative option as, due to the borrowing base requirements, the accounts receivable will be higher than accounts-receivable financing, so including it in the calculation would create more surplus cash than the method of calculation that HUD proposes. The commenter stated that its proposed approach would also be more consistent with normal and past experience, and has the additional benefit of being easier to administer because it does not require a determination of the age of accounts receivable, whether the accounts receivable are collectable or similar types of information.
A commenter suggested excluding the “amounts payable from escrows held pursuant to the mortgage” from the
The proposed rule would have added a new § 232.256 to require that a borrower may not lease any portion of the project or enter into any agreement with an operator without HUD's prior written consent.
Commenters also stated that if HUD did not accept the suggestion to remove the requirement in its entirety, HUD should consider revisions that would add necessary flexibility to the regulation, such as giving HUD the ability to categorically permit certain types of leases across all projects through “Program Obligations,” a concept expressed in the discussion of HUD's recent May 2011 rule on multifamily rental projects and in the notice advising of document changes to the multifamily rental project documents. Alternatively, commenters suggested that HUD approve project-specific leases on a case by-case basis.
Section 232.903 describes the maximum loan to value limits and the specific items that can be included as mortgageable items.
At the proposed rule stage, HUD defined the following terms in a proposed new § 232.1003: identity of interest, management agent, operator, owner operator, and project. On further consideration, HUD determined that the term “operator” in proposed § 232.1003 established Section 232 eligibility requirements for operators more than simply providing a definition for this term. With respect to the remaining terms, all of which are addressed in the transactional documents, HUD is removing these terms from the regulations, agreeing with commenters that the better location for these terms remains the transactional documents. Therefore, § 232.1003 at this final rule addresses eligible operators only.
Although the final rule removes the definition section for new subpart F of part 232, several comments were submitted on the proposed definitions,
Other commenters stated that the single asset entity operator be recommended but not required. Commenters also recommended that the existing organizational structure remain in place in refinancing, given that such a structure is difficult to unwind.
In reviewing its portfolio of healthcare loans, HUD found that a large number of the operator entities in the Section 232 program are, in fact, single asset entities—for prudent business purposes not necessarily related to FHA-insured financing. The approach of these operator entities is also helpful to HUD's effort to assure that the operator's viability and accountability is not adversely affected by the operation of other businesses (as in the case, for example, of bankruptcy or other litigation). Nevertheless, HUD recognizes that there are operating entities in the industry that successfully operate multiple facilities without facility-specific operating entities. HUD did not intend to impede this practice where it is effective, and therefore, the proposed definition of “operator” also explicitly authorized HUD to approve “a non-single asset entity under such circumstances, terms and conditions determined and specified as acceptable by the Commissioner.”
In § 232.1003 of this final rule, which now only addresses eligible operators, HUD retains this language from the proposed rule and anticipates that in situations in which licensure or other issues make utilizing a separate operating entity problematic, a non-single asset operating entity will be approved.
Other commenters stated that the requirement for operators to be single asset entities is a significant change. They stated that they do not object to the language as proposed, because it provides appropriate flexibility for HUD to approve non-single asset entities. The commenters requested, however, that, prior to issuing further guidance in the form of a handbook or otherwise, there should be a conversation between HUD and the healthcare industry, as there are many situations in which it may not be possible or appropriate to have a single asset operator.
With respect to establishing dialogue with industry on regulatory and transactional document changes in the Section 232 program, HUD has a good record of reaching out to industry for its input, first in the context of updating the multifamily rental project regulations and transactional documents, and now in the updating of the Section 232 program regulations and transactional documents. HUD plans to continue with such outreach.
Proposed new § 232.1005 addressed commingling of funds and directed that an operator must not, without HUD's prior approval, allow funds attributable to an FHA-insured or HUD-held healthcare facility to be commingled with funds attributable to another healthcare facility or business. This section also directed that funds generated by the operation of the healthcare facility are to be deposited into a federally insured bank account in the name of the single asset operator of the facility.
The commenter also suggested removing “single asset” where it appears in this section. The commenter stated that even if the operator is a single asset entity, funds must still be held in an account in the name of the relevant entity, and if HUD waives the single asset entity requirement for either an owner or operator, that waiver should not impact the requirement that project funds be segregated.
Commenters suggested that HUD recognize industry best practices by requiring the lender's underwriter to review the operator's accounting system to ensure that the project has an annual audit with property level accounting. The lender would review the operator's procedures (i.e., monthly bank reconciliations) to ensure the protection and accurate tracking of cash. Commenters also urged HUD to remove the prohibition against comingling operator's funds as interfering with the implementations of the master lease program and accounts receivable financing and use concentration accounts. The commenters recommended that HUD use the control account agreements to stop funds moving into a concentration account if the project is in financial trouble.
Several lender commenters suggested that, as part of the underwriting, the lender or a consultant retained by the lender be required by HUD to perform an analysis of an operator's accounting systems to determine that the systems are sufficiently sophisticated to produce financial statements on a facility-by-facility basis.
A commenter voiced opposition to any working capital requirement, and stressed the importance of looking at an operator's portfolio in the aggregate. Another commenter asked if HUD intended to apply the working capital rules retroactively. A commentator stated that HUD should not impose this requirement at the operator level because doing so would limit the ability to efficiently manage cash at the multiprovider level.
Commenters also stated that establishment of a working capital fund would make operators and owners the targets of litigation, and that owners and operators would therefore need to limit exposure by limiting the amount of cash available to the operating entity as well as to the parent entity.
Commenters further stated that this proposed requirement was not acceptable to any operator subject to a master lease. A commenter stated that there are occasions when a facility will encounter operational issues and could end up in a negative working capital position. The commenter stated several acceptable reasons to have a negative working capital position, namely that the project: (1) Was in turnaround, (2) had decreased occupancy to allow renovations, (3) was new construction and working toward positive capital, and (4) was in compliance with state law, spending significant resources to maximize future reimbursements.
A commenter stated that if the requirement were to be put into place, the current assets, including accounts receivable, and current liabilities, such as accounts payable of the same time period, should be included in the calculation. The commenter further recommended that any current portion of long-term debt that is to be refinanced in the normal course of business be removed from the calculation because inclusion makes it punitive. Another commenter offered recommendations to HUD with respect to working capital, which included the following:
• Establish a “carve out” for any accruals of contingent liabilities or liabilities under appeal (such as malpractice award accruals for civil money penalties under appeal);
• Exclude from the calculation of current assets and current liabilities any payables to ownership for advances and any payables to the management company or affiliates for services rendered;
• Allow the facility to have negative working capital for at least 2 consecutive fiscal quarters before negative impacts are imposed on the borrower or operator; and
• Clarify that healthcare facility working capital relates solely to the operator.
Other commenters stated that the concept of maintaining positive working capital (which was originally in the proposed rule at § 232.1005(c)), was not defined, and absent a definition specifically including accounts receivable (AR) financing loan proceeds as an asset in the working capital calculation, no project with AR financing would ever be in a positive working capital situation.
The proposed rule would have required that goods and services purchased or acquired in connection with the project be reasonable and necessary for the operation or maintenance of the project, and the costs of goods and services incurred by the borrower or operator to not exceed amounts normally paid for such goods or services in the area where the services are rendered or the goods are furnished, except as otherwise approved by HUD.
The proposed rule provided that no principal of the borrower entity may receive a salary or any payment of funds derived from operation of the project, other than from permissible distributions, without HUD's prior approval.
Commenters also suggested alternatives such as allowing the borrower to disclose to HUD, on an annual basis, payments of project funds to principals, and in return be subject to a HUD audit. The commenters stated that, through a sampling audit process, HUD could make a test of reasonableness. Commenters also stated that HUD could develop, with industry participation, standards that must be met if a borrower pays a salary to a principal. For example, the requirement could be revised so that: (1) The borrower can pay salaries and payments to its officers and other employees who do not have a controlling interest in the borrower and to affiliates providing ancillary services; and (2) such salaries and payments will not be deemed a distribution that will be subject to repayment.
This new section, which was § 232.1011 at the proposed rule stage, clarifies and reorganizes the borrower's financial reporting requirements by placing them in part 232 of HUD's regulations. As has long been required, the borrower must submit audited financial statements, prepared and certified in accordance with the requirements of 24 CFR 5.801 and 24 CFR 200.36. The section also requires the operator to provide HUD with
The proposed rule provided that, except as provided in residential agreements in the normal course of business, an operator may not lease or sublease any portion of the project without HUD's prior written approval.
Other commenters suggested that this provision should be removed, as it is handled in the transactional documents. The commenters also suggested revisions to add flexibility to the regulations.
The proposed rule, at § 232.1015 (now § 232.1011 in this final rule), provides that an operator may, with the prior written approval of HUD, execute a management agent agreement setting forth the duties and procedures for managing matters related to the project. The proposed rule also provided that both the management agent and the management agent agreement must be acceptable to HUD and approved in writing by HUD. The proposed rule further provided that an operator may not enter into any agreement that provides for a management agent to have rights to or claims on funds owed to the operator.
Several commenters stated that a management agent should be defined by its responsibilities as someone who: (1) Manages a facility that is not leased; (2) contracts in its own name with the residents; and (3) is the sole entity named on the license for the facility.
HUD recognizes that the scope of contractual responsibilities of management agents varies among facilities, as pointed out in the commenters' recommendations for further details on the definition of a management agent by activity. Notwithstanding this recognition, HUD does not believe it is prudent to attempt to limit the scope of the provision to the criteria suggested. The criteria stated by the commenters suggest that HUD need approve a management agent only when it is essentially functioning as a licensed operator. However, HUD believes that, even when the management agent is not a licensed entity, the scope of responsibilities undertaken have the potential to directly and significantly impact the financial and operational viability of a facility. Although HUD determined that further direction is not needed in regulation, HUD recognizes that operators use a variety of consultants and task-specific contractors. HUD does not anticipate deeming entities with such limited roles and lacking management decision-making authority as “management agents.”
Section 232.1017 in the proposed rule (now § 232.1013 in the final rule) directed, in paragraph (a), that an operator must deposit in a separate segregated account in the project's name all revenue that the operator receives from operating the healthcare facility, and that the account must be with a financial institution whose deposits are insured by an agency of the Federal Government, provided that, in order to minimize risk to the insurance fund, where balances are likely to exceed federal limits on insurance of such deposits, funds must be in depository institutions acceptable to Ginnie Mae.
Paragraph (b) of proposed § 232.1017 provided that operators, whether owner-operators or non-owner-operators, must ensure that the healthcare facility maintains positive working capital at all times.
The following comments submitted in response to proposed § 232.1017, as seen below, raised issues the same or similar to those comments submitted on proposed § 232.254.
A commenter stated that in a typical accounts-receivable financing arrangement involving more than one project, funds received by the operator may be deposited in a lockbox in the name of the AR lender, which is not a separate, segregated account. Therefore, the commenter suggested that flexibility be built into the rule to allow HUD to approve other arrangements with respect to the deposit of funds.
Other commenters stated that HUD should provide a definition of positive working capital that accounts for these timing differences.
A commenter stated that HUD should amend this requirement to state that the operator maintain working capital as HUD may prescribe. The commenter recommended that HUD more comprehensively address the issue of working capital in a handbook.
As noted in a response to earlier comments about working capital, HUD will address working capital for Section 232 projects (including modifications, if any, to the definition as understood through Generally Accepted Accounting Principles (GAAP) as issues arise.
The proposed rule, at § 232.1019 (now § 232.1015 in the final rule) would have required operators, unless HUD determines otherwise, to promptly notify the owner, mortgagee, and HUD of certain matters placing the facility's viable operation, and thus the mortgage security, at substantial risk. These matters include violations of permits and approvals, imposition of civil money penalties, or governmental investigations or inquiries involving fraud. In the proposed rule, HUD determined that, given the responsibilities of servicing lenders with respect to risk mitigation of their residential care facility portfolio, it is appropriate that the lenders are timely provided with the same financial, census, and performance data (of the owner entity, as well as operator entity) that HUD is requiring borrowers and operators to routinely provide to HUD. Accordingly, the proposed rule provided that, concurrently with submitting to HUD financial data and census and performance data, the borrower and operator also provide this data to the servicing lender.
The commenter submitted that delivery of evidence of permit violations should be required only if the permits that are the subject of violations relate to the operation of the facility. Similarly, the commenter stated that notices of a civil money penalty being imposed should be required to be provided to HUD only if the violations that are the subject of the notices relate to the healthcare facility. Otherwise, HUD resources would be unnecessarily expended reviewing violations of permits and civil money penalties unrelated to the operation of the HUD-insured facility.
HUD adopted the commenters' recommendation to limit the transmittal of information related to the facility, since HUD's primary interest is with regard to the facility insured. Additionally, § 232.1015 provides that HUD may determine that certain information shall be exempt from the reporting requirement based on severity level.
As discussed in this preamble, this final rule updates HUD's Section 232 program regulations similar to the 2011 updates that were made to HUD's multifamily rental project regulations and accompanying closing documents. The revisions made by this rule update the Section 232 regulations to reflect existing practices in financing and refinancing healthcare facilities, and to decrease risk to the program due to outdated regulations and the need for greater accountability by healthcare facility operators. Key changes highlighted in the preamble include reducing duplicative physical inspections, extending the time period for the process of assigning the mortgage
The valued benefits from fewer physical inspections and the costs from increased financial reporting, together with the opportunity cost of the debt service reserve fund, where such fund is required, each total less than $1 million. Unvalued benefits include uninterrupted services of healthcare facilities, which otherwise would close due to foreclosure. Transfers from avoided claim payments total $13 million. The total costs, benefits, and transfers of this rule will not in any year exceed the $100 million threshold set by Executive Order 12866 (Regulatory Planning and Review). Therefore, the rule is not economically significant.
The risk mitigation requirements addressed by this rule are necessary due to the combination of two particular risks facing healthcare facilities. First, similar to multifamily residential properties, the owner usually relies on a separate entity to operate the facility. Second, unlike residential or other commercial properties, the value of a poorly maintained and operated facility can decrease dramatically because the building was designed specifically for healthcare use and, if its use for the purpose is jeopardized, it may not retain the mortgaged value at resale due to a lack of alternative uses. Thus, FHA may face more uncertainty when selling foreclosed healthcare properties than foreclosed residential properties. This final rule therefore retains requirements, proposed by the May 3, 2012, rule, that are intended to identify operator deficiencies earlier and ensure that funds are available if financial problems arise.
As noted earlier, this final rule, unlike the proposed rule, will not require all borrowers to establish a long-term debt service reserve fund. Instead, the final rule gives HUD the discretion to impose this requirement when underwriting reflects an atypical long-term project risk. The final rule retains the greater flexibility proposed to be provided to borrowers by the May 3, 2012, rule, in the making of distributions and use of surplus cash.
As did the proposed rule, the final rule requires operators to submit annual and year-to-date financial reports. Currently, the borrower, but not the operator, is required to provide audited financial statements. Although submission of the operator's financial reports is a new requirement, the expense of such reports is mitigated by allowing the operator to submit self-certified, rather than audited statements. Moreover, the required operator financial information is data that operators need to maintain in the normal course of business in order to monitor and manage their own operations effectively. FHA estimates this will require approximately 10,000 employee hours annually to prepare and submit these reports (2,500 respondents, 4 reports per year and 1 hour to generate each report). The median wage of the employees who prepare these reports is approximately $75 per hour. Thus, the total cost of complying with this requirement would be $750,000.
Finally, this rule, as proposed by the May 3, 2012, rule, exempts facilities from FHA physical inspection requirements if they are inspected by State or local agencies, so as to eliminate duplicative inspections. FHA estimates that, as a result, approximately 1,391 inspections would be avoided per year. The estimated cost per inspection totals $475, which would mean a total annual inspection savings of $660,725.
In addition to the valued benefits, this rule also provides benefits that are less easily quantified. As explained above, HUD expects the establishment of the reserve fund, where high risk triggers the need for such a fund, and financial reporting requirements to decrease the number of claims paid. While some troubled facilities may be stabilized and continue operating, at that stage of delinquency, they are often forced to close. Thus, there is a disruption of healthcare services to the community and the imposition of costs to move residents from one facility to another. In smaller communities, there are fewer alternatives for facility residents, and the benefits of avoiding foreclosure are greater as residents may be without needed services for a long period. In larger cities, existing facilities may be able to absorb the additional demand fairly quickly. In both of these cases, however, residents bear costs associated with transferring between facilities. Although the avoided loss or interruption of services is difficult to quantify and varies by city, the avoided loss or interruption of services is an important benefit that this rule is trying to achieve.
The President's Executive Order (EO) 13563, entitled “Improving Regulation and Regulatory Review,” was signed by the President on January 18, 2011, and published on January 21, 2011, at 76 FR 3821. This EO requires executive agencies to analyze regulations that are “outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned.” Section 4 of the EO, entitled “Flexible Approaches,” provides, in relevant part, that where relevant, feasible, and consistent with regulatory objectives, and to the extent permitted by law, each agency shall identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public. As discussed earlier in this preamble, the regulations governing the Section 232 program facilities have not been updated since 1996. HUD submits that the changes by this rule to the Section 232 regulations are consistent with the EO's directions. As previously discussed, the changes in this rule will modernize the Section 232 program, reduce burden by eliminating duplicative physical inspections, providing flexibility to borrowers in the making of distributions and use of surplus cash, and increasing accountability to strengthen the program, thereby helping it ensure that it remains viable for the financing of healthcare facilities.
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601
This rule is directed to creating transparency in HUD's Section 232 program by codifying existing and longstanding provisions imposed on a Section 232 program borrower, and
Approximately 3,343 of the anticipated annual participants in the Section 232 program are small entities, including approximately 2,500 entities involved in nursing homes, 725 entities involved in assisted-living facilities, and 70 other entities. (The total figure exceeds the number of facilities involved, because a single transaction may involve distinct legal entities serving as the operator and owner.) The changes required by this rule do not impose significant economic impacts on these small entities or otherwise adversely disproportionately burden such small entities. The reporting requirements of this rule have been tailored to complement normal business accounting practices. Accordingly, the undersigned certifies that this rule will not have a significant economic impact on a substantial number of small entities.
A Finding of No Significant Impact with respect to the environment for this rule was made at the proposed rule stage in accordance with HUD regulations at 24 CFR part 50, which implement section 102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). That Finding of No Significant Impact remains applicable to this final rule and is available for public inspection between the hours of 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, and 451 Seventh Street SW., Room 10276, Washington, DC 20410–0500. Due to security measures at the HUD Headquarters building, please schedule an appointment to review the finding by calling the Regulations Division at 202–402–3055 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Relay Service at 800–877–8339.
Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either: (1) Imposes substantial direct compliance costs on State and local governments and is not required by statute, or (2) preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This rule will not have federalism implications and would not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive Order.
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531–1538) (UMRA) establishes requirements for federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments, and on the private sector. This rule does not impose any federal mandates on any state, local, or tribal governments, or on the private sector, within the meaning of UMRA.
The information collection requirements contained in this rule were reviewed by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520), and assigned OMB Control Numbers 2502–0427, 2502–0593, and 2502–0551. In accordance with the Paperwork Reduction Act, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information, unless the collection displays a currently valid OMB control number.
The docket file is available for public inspection.
The Catalogue of Federal Domestic Assistance Number for the Mortgage Insurance Nursing Homes, Intermediate Care Facilities, Board and Care Homes and Assisted Living Facilities mortgage insurance programs is 14.129.
Administrative practice and procedure, Aged, Claims, Grant programs—housing and community development, Individuals with disabilities, Intergovernmental relations, Loan programs—housing and community development, Low and moderate income housing, Mortgage insurance, Penalties, Pets, Public housing, Rent subsidies, Reporting and recordkeeping requirements, Social security, Unemployment compensation, Wages.
Administrative practice and procedure, Claims, Equal employment opportunity, Fair housing, Home improvement, Housing standards, Lead poisoning, Loan programs—housing and community development, Mortgage insurance, Organization and functions (Government agencies), Penalties, Reporting and recordkeeping.
Mortgage insurance—nursing homes, Intermediate care facilities, Board and care homes, and Assisted living facilities.
Fire prevention, Health facilities, Loan programs—health, Loan programs—housing and community development, Mortgage insurance, Nursing homes, Reporting and recordkeeping requirements.
Accordingly, parts 5, 200, 207, and 232 of title 24 of the Code of Federal Regulations are amended as follows:
42 U.S.C. 1437a, 1437c, 1437d, 1437f, 1437n, 3535(d), and Sec. 327, Pub. L. 109–115, 119 Stat. 2936.
(a) * * *
(6) Operators of projects with mortgages insured or held by HUD under section 232 of the Act (Mortgage Insurance for Nursing Homes, Intermediate Care Facilities, Board and Care Homes).
(b)
(4) With respect to financial reports relating to properties insured under section 232 of the Act, concurrently with submitting the information to HUD, submitted to the mortgagee in a format and manner prescribed and/or approved by HUD.
(c)
(4) For entities listed in paragraph (a)(6) of this section, the financial information to be submitted to HUD in accordance with paragraph (b) of this section must be submitted to HUD on a quarterly and fiscal-year-to-date basis, within 30 calendar days of the end of each quarterly reporting period, except that the final fiscal-year-end quarter and fiscal-year-to-date reports must be submitted to HUD within 60 calendar days of the end of the fiscal-year-end quarter. HUD may direct that such forms be submitted to the lender or another third party in addition to or in lieu of submission to HUD.
(i) The financial statements submitted by entities listed in paragraph (a)(6) of this section may, at the operator's option, be operator-certified rather than audited, provided, however, if the operator is also the borrower, then that entity's obligation to submit an annual audited financial statement (in addition to its obligation as an operator to submit financial information on a quarterly and year-to-date basis) remains and is not obviated.
(ii) If HUD has reason to believe that a particular operator's operator-certified statements may be unreliable (for example, indicate a likely prohibited use of project funds), or are presented in a manner that is inconsistent with Generally Accepted Accounting Principles, HUD may, on a case-by-case basis, require audited financial statements from the operator. With respect to facilities with FHA-insured or HUD-held Section 232 mortgages, HUD may request more frequent financial statements from the borrower and/or the operator on a case-by-case basis when the circumstances warrant. Nothing in this section limits HUD's ability to obtain further or more frequent information when appropriate pursuant to the applicable regulatory agreement.
(d) * * *
(4) Entities described in paragraph (a)(6) of this section must comply with the requirements of this section with respect to fiscal years commencing on or after the date that is 60 calendar days after the date on which HUD announces, through
12 U.S.C. 1702–1715–z–21; 42 U.S.C. 3535(d).
(c) * * *
(5)(i) For assisted-living facilities, board and care facilities, and intermediate care facilities, the initial inspection required under this subpart will be conducted within the same time restrictions set forth in paragraph (c)(4) of this section, and any further inspections will be conducted at a frequency determined consistent with § 200.857, except that HUD may exempt such facilities from physical inspections under this part if HUD determines that the State or local government has a reliable and adequate inspection system in place, with the results of the inspection being readily and timely available to HUD; and
(ii) For any other Section 232 facilities, the inspection will be conducted only when and if HUD determines, on the basis of information received, such as through a complaint, site inspection, or referral by a State agency, on a case-by-case basis, that inspection of a particular facility is needed to assure protection of the residents or the adequate preservation of the project.
12 U.S.C. 1701z–11(e), 1713, and 1715b; 42 U.S.C. 3535(d).
(b) * * *
(4) Except for mortgages insured under section 232 of the Act, for the purposes of paragraph (b) of this section, the date of default shall be considered as:
(5) For mortgages insured under section 232 of the Act, for purposes of this section, the date of default shall be considered as:
(i) The first date on which the borrower has failed to pay the debt when due as a result of the lender's acceleration of the debt because of the borrower's uncorrected failure to perform a covenant or obligation under the regulatory agreement or security instrument; or
(ii) The date of the first failure to make a monthly payment that subsequent payments by the borrower are insufficient to cover when applied to the overdue monthly payments in the order in which they become due.
The revisions and addition read as follows:
(a)
(i) The request must be made to and approved by HUD prior to the 45th day after the date of eligibility; and
(ii) The approval of an extension shall in no way prejudice the mortgagee's right to file its notice of its intention to file an insurance claim and of its election either to assign the mortgage to the Commissioner or to acquire and convey title to the Commissioner within the 45-day period or any extension prescribed by the Commissioner.
(2) For mortgages funded with the proceeds of state or local bonds, Ginnie Mae mortgage-backed securities, participation certificates, or other bond obligations specified by the Commissioner (such as an agreement under which the insured mortgagee has obtained the mortgage funds from third-party investors and has agreed in writing to repay such investors at a stated interest rate and in accordance with a fixed repayment schedule), any of which contains a lock-out or prepayment premium, in the event of a default during the term of the prepayment lock-out or prepayment premium, and for any mortgage insured under section 232 of the Act, the mortgagee must:
(4)
(b) * * *
(1) * * *
(i) If the mortgagee elects to assign the mortgage to the Commissioner, the mortgagee shall, at any time within 30 calendar days after the date HUD acknowledges the notice of election, file its application for insurance benefits and assign to the Commissioner, in such manner as the Commissioner may require, any applicable credit instrument and the realty and chattel security instruments.
12 U.S.C. 1715b, 1715w; 42 U.S.C. 3535(d).
(a)
(b)
The borrower shall be a single asset entity acceptable to the Commissioner, as may be limited by the applicable section of the Act, and shall possess the powers necessary and incidental to owning the project, except that the Commissioner may approve a non-single asset borrower entity under such circumstances, terms, and conditions determined and specified as acceptable to the Commissioner.
(a) To be eligible for insurance under this part, and except with respect to Supplemental Loans to Finance Purchase and Installation of Fire Safety Equipment (subpart C of this part), if HUD determines the mortgage presents an atypical long-term risk, HUD may require that the borrower establish, at final closing and maintain throughout the term of the mortgage, a long-term debt service reserve account.
(b) The long-term debt service reserve account, if required, may be financed as part of the initial mortgage amount, provided that the maximum mortgage amount as otherwise calculated is not thereby exceeded.
(c) The amount required to be initially placed in the long-term debt service reserve account and the minimum long-term balance to be maintained in that account will be determined during underwriting and separately identified in the firm commitment. Although HUD may, when appropriate to avert a mortgage insurance claim, permit the balance to fall below the required minimum long-term balance, the borrower may not take any distribution of mortgaged property except when both the long-term debt service reserve account is funded at the minimal long-term level and such distribution is otherwise permissible.
Borrower may make and take distributions of mortgaged property, as set forth in the mortgage loan transactional documents, to the extent and as permitted by the law of the applicable jurisdiction, provided that, upon each calculation of borrower surplus cash (as defined by HUD), which calculation shall be made no less frequently than semi-annually, borrower must demonstrate positive surplus cash, or to the extent surplus cash is negative, repay any distributions taken during such calculation period within 30 calendar days unless a longer time period is approved by HUD. Borrower shall be deemed to have taken distributions to the extent that surplus cash is negative unless, in conjunction with the calculation of surplus cash, borrower provides to HUD documentation evidencing, to HUD's reasonable satisfaction, a lesser amount of total distributions. To the extent that the provisions of this section are inconsistent with the provisions in a borrower's existing transactional loan documents, including without limitation any HUD-required regulatory agreement, the provisions of the transactional loan documents shall apply.
Notwithstanding the maximum mortgage limitations set forth in 24 CFR 200.15, a mortgage within the limits set forth in this section shall be eligible for insurance under this subpart.
(c)
(i) The Project shall not have changed ownership subsequent to the date of application, or
(ii) The Project shall have been sold to a purchaser who has an identity of interest with the seller (as defined by the Commissioner).
(2) The cost to refinance the existing indebtedness will consist of the following items, the eligibility and amounts of which must be determined by the Commissioner:
(i) The amount required to pay off the existing indebtedness;
(ii) The amount of the initial deposit for the reserve fund for replacements;
(iii) Reasonable and customary legal, organization, title, and recording expenses, including mortgagee fees under § 200.41;
(iv) The estimated repair costs, if any;
(v) Architect's and engineer's fees, municipal inspection fees, and any other required professional or inspection fees; and
(vi) The amount of any long-term debt service reserve account required by the Commissioner pursuant to § 232.11.
(d)
(1) Purchase price is indicated in the purchase agreement;
(2) An amount for the initial deposit to the reserve fund for replacements;
(3) Reasonable and customary legal, organizational, title, and recording expenses, including mortgagee fees under § 200.41;
(4) The estimated repair cost, if any;
(5) Architect's and engineer's fees, municipal inspection fees, and any other required professional or inspection fees; and
(6) The amount of any long-term debt service reserve account required by the Commissioner pursuant to § 232.11.
This subpart establishes requirements applicable to the operators of healthcare facilities and the facilities under this part.
Operator shall be a single asset entity acceptable to the Commissioner, and shall possess the powers necessary and incidental to operating the healthcare facility, except that the Commissioner may approve a non-single asset entity under such circumstances, terms, and conditions determined and specified as acceptable to the Commissioner. A master tenant under a master lease approved by the Commissioner who has subleased the healthcare facility to an operator is not an Operator.
All accounts deriving from the operation of the property, including operator accounts and including all funds received from any source or derived from the operation of the facility, are project assets subject to control under the insured mortgage loan's transactional documents, including, without limitation, the operator's regulatory agreement. Except as otherwise permitted or approved by HUD, funds generated by the operation of the healthcare facility shall be deposited into a federally insured bank account, provided that an account held in an institution acceptable to Ginnie Mae may have a balance that exceeds the amount to which such insurance is limited. Any of the owner's project-related funds shall be deposited into a federally insured bank account in the name of the borrower provided that an account held in an institution acceptable to Ginnie Mae may have a balance that exceeds the amount to which such insurance is limited.
Goods and services purchased or acquired in connection with the project shall be reasonable and necessary for the operation or maintenance of the project, and the costs of such goods and services incurred by the borrower or operator shall not exceed amounts normally paid for such goods or services in the area where the services are rendered or the goods are furnished, except as otherwise permitted or approved by HUD.
The borrower must provide HUD and lender an audited annual financial report based on an examination of its books and records, in such form and substance required by HUD in accordance with 24 CFR 5.801 and 24 CFR 200.36. Operators must submit financial statements quarterly within 30 calendar days of the date of the end of each fiscal quarter, setting forth both quarterly and fiscal year-to-date information, except that the final fiscal year end quarter must be submitted to HUD and lender within 60 calendar days of the end of the quarter, in accordance with 24 CFR 5.801(c)(4).
(a) An operator or borrower may, with the prior written approval of HUD, execute a management agent agreement setting forth the duties and procedures for matters related to the management of the project. The management agent, each initial management agent agreement with that agent, and any amendments to such management agent agreements deemed material by the Commissioner must be acceptable to HUD and approved in writing by HUD.
(b) An operator or borrower may not enter into any agreement that provides for a management agent to have rights to or claims on funds owed to the operator.
(a)
(b)
(a) HUD and the mortgagee shall be informed of any notification of any failure to comply with governmental requirements including the following:
(1) The licensed operator of a project shall promptly provide HUD and the mortgagee with a copy of any notification that has placed the licensure, a provider funding source, and/or the ability to admit new residents at risk, and any responses to those notices, provided that HUD may determine certain information to be exempt from this requirement based upon severity level. With respect to the requirements of this section:
(i) The operator shall deliver to HUD and the mortgagee electronically, within 2 business days after the date of receipt, unless a longer time period is approved by HUD, copies of any and all notices, reports, surveys, and other correspondence (regardless of form) received by the operator from any governmental authority that includes any statement, finding, or assertion that:
(A) The operator or the project is or may be in violation of (or default under) any of the permits and approvals or any governmental requirements applicable to the operation of the facility;
(B) Any of the permits and approvals is to be terminated, limited in any way, or not renewed;
(C) Any civil money penalty (other than a de minimis amount) is being imposed with respect to the facility; or
(D) The operator or the project is subject to any governmental investigation or inquiry involving fraud.
(ii) The operator shall also deliver to HUD and the mortgagee, simultaneously with delivery to any governmental authority, any and all responses given by or on behalf of the operator to any of the foregoing and shall provide to HUD and the mortgagee, promptly upon request, such additional information relating to any of the foregoing as HUD or the mortgagee may request. The receipt by HUD and/or the mortgagee of notices, reports, surveys, correspondence, and other information shall not in any way impose any obligation or liability on HUD, the mortgagee, or their respective agents, representatives, or designees to take (or refrain from taking) any action; and HUD, the mortgagee, and their respective agents, representatives, and designees shall have no liability for any failure to act thereon or as a result thereof.
(2) The operator shall provide additional and ongoing information as requested by the borrower, mortgagee, or HUD pertaining to matters related to that risk. Controlling documents between or among any of the parties may provide further requirements with respect to such notification and communication.
(b) This section is applicable to all operators as of October 9, 2012.
Coast Guard, DHS.
Notice of enforcement of regulation.
The Coast Guard will enforce the Special Local Regulation, Hydroplane Races within the Captain of the Port Puget Sound Area of Responsibility for the 2012 Fall Championship hydroplane event in Lake Sammamish, WA from 12 p.m. until 5 p.m. each day from September 28, 2012 through September 30, 2012. This action is necessary to restrict vessel movement in the vicinity of the race courses thereby ensuring the safety of participants and spectators during these events. During the enforcement period non-participant vessels are prohibited from entering the designated race areas. Spectator craft entering, exiting or moving within the spectator area must operate at speeds which will create a minimum wake.
The regulations in 33 CFR 100.1308 will be enforced from 12 p.m. until 5 p.m. each day from September 28, 2012 through September 30, 2012.
If you have questions on this notice, call or email Lieutenant Junior Grade Anthony P. LaBoy, Sector Puget Sound Waterways Management Division, Coast Guard; telephone 206–217–6323, email
The Coast Guard is providing notice of enforcement of the Special Local Regulation for Hydroplane Races within the Captain of the Port Puget Sound Area of Responsibility 33 CFR 100.1308. The Lake Sammamish area, 33 CFR 100.1308(a)(3) will be enforced from 12 p.m. until 5 p.m. from September 28, 2012 through September 30, 2012. These regulations can be found in the March 29, 2011 issue of the
Under the provisions of 33 CFR 100.1308, the regulated area shall be closed for the duration of the event to all vessel traffic not participating in the event unless authorized by the event sponsor or Coast Guard Patrol Commander.
When this special local regulation is enforced, non-participant vessels are prohibited from entering the designated race areas unless authorized by the designated on-scene Patrol Commander. Spectator craft may remain in designated spectator areas but must follow the directions of the designated on-scene Patrol Commander. The event sponsor may also function as the designated on-scene Patrol Commander. Spectator craft entering, exiting or moving within the spectator area must operate at speeds which will create a minimum wake.
This notice is issued under authority of 33 CFR 100.1308 and 5 U.S.C. 552(a). In addition to this notice in the
Coast Guard, DHS.
Temporary final rule.
The Coast Guard is establishing a temporary safety zone on Lake Michigan near Chicago, IL. This safety zone is intended to restrict vessels from a portion of Lake Michigan for the Red Bull Flugtag event. This temporary safety zone is necessary to protect event participants, the surrounding public, and vessels from the hazards associated with this event.
This rule will be effective from 11 a.m. to 5 p.m. on September 08, 2012.
Documents mentioned in this preamble are part of docket USCG–2012–0817. To view documents mentioned in this preamble as being available in the docket, go to
If you have questions on this temporary rule, call or email MST1 Joseph McCollum, U.S. Coast Guard Sector Lake Michigan; telephone 414–747–7148, email
The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because doing so would be impracticable and contrary to the public interest. The final details for this event were not known to the Coast Guard until there was insufficient time remaining before the event to publish an NPRM. Thus, delaying the effective date of this rule to wait for a comment period to run would be both impracticable and contrary to the public interest because it would inhibit the Coast Guard's ability to protect spectators and vessels from the hazards associated with an acrobatic event involving human-powered craft, which are discussed further below.
Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the
Between 11:00 a.m. until 5:00 p.m. on September 8, 2012 Red Bull North America will sponsor their Red Bull Flugtag event on the waters of Lake Michigan near North Avenue Beach, Chicago, IL. The Captain of the Port, Sector Lake Michigan, has determined that the Red Bull Flugtag event, which will involve personally-crafted flying machines with human occupants falling from a raised platform into Lake Michigan, will pose a significant risk to public safety and property. Such hazards include drifting debris, collisions between spectators, falling water craft and their human occupants, and the obscuring of persons in need of rescue by spectator water craft.
A temporary safety zone is necessary to ensure safety of life prior to, during, and after the Red Bull Flugtag event. With the aforementioned hazards in mind, the Captain of the Port, Sector Lake Michigan, has determined that this temporary safety zone is necessary to ensure the safety of spectators and vessels during the Red Bull Flugtag event. This zone will be effective and enforced from 11 a.m. to 5 p.m. (local) on September 8, 2012. The safety zone will encompass all waters of Lake Michigan, in the vicinity of North Avenue Beach, Chicago, IL, beginning at 41°54′37″ N, 087°37′33″ W; then north east to 41°54′53″ N, 087°37′12″ W; then south east to 41°54′49″ N, 087°37′08″; W; then south west to 41°54′34″ N, 087°37′29″ W; then back to the point of origin (NAD 83).
Entry into, transiting, or anchoring within the safety zone is prohibited unless authorized by the Captain of the Port, Sector Lake Michigan, or his designated on-scene representative. The Captain of the Port or his designated on-scene representative may be contacted via VHF Channel 16.
We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on numerous statutes or executive orders.
This 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. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS). We conclude that this rule is not a significant regulatory action because we anticipate that it will have minimal impact on the economy, will not interfere with other agencies, will not adversely alter the budget of any grant or loan recipients, and will not raise any novel legal or policy issues. The safety zone created by this rule will be relatively small and enforced for a relatively short time. Also, the safety zone is designed to minimize its impact on navigable waters. Furthermore, the safety zone has been designed to allow vessels to transit around it. Thus, restrictions on vessel movement within that particular area are expected to be minimal. Under certain conditions, moreover, vessels may still transit
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601–612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.
This rule will affect the following entities, some of which might be small entities: The owners or operators of vessels intending to transit or anchor in a portion of Lake Michigan, Chicago, IL on September 8, 2012.
This safety zone will not have a significant economic impact on a substantial number of small entities for the following reasons: This safety zone would be activated, and thus subject to enforcement, for only six hours on September 8, 2012. Traffic may be allowed to pass through the zone with the permission of the Captain of the Port. The Captain of the Port can be reached via VHF channel 16. Before the activation of the zone, we would issue local Broadcast Notice to Mariners.
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 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 the
Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1–888–REG–FAIR (1–888–734–3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.
This rule 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 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 the
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531–1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
This rule will not 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 rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.
We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.
This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.
This action is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use.
This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.
We have analyzed this rule under Department of Homeland Security Management Directive 023–01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321–4370f), and have determined 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 rule involves the establishment of a safety zone and, therefore it is categorically excluded from further review under paragraph 34(g) of Figure 2–1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated under
Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Security measures, Waterways.
For the reasons discussed in the preamble, the Coast Guard amends 33 CFR parts 165 as follows:
33 U.S.C. 1231; 46 U.S.C. Chapters 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05–1, 6.04–1, 6.04–6, and 160.5; Pub. L. 107–295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1.
(a)
(b)
(c)
(2) This safety zone is closed to all vessel traffic, except as may be permitted by the Captain of the Port, Sector Lake Michigan or his designated on-scene representative.
(3) The “on-scene representative” of the Captain of the Port, Sector Lake Michigan is any Coast Guard commissioned, warrant or petty officer who has been designated by the Captain of the Port, Sector Lake Michigan to act on his behalf.
(4) Vessel operators desiring to enter or operate within the safety zone shall contact the Captain of the Port, Sector Lake Michigan or his on-scene representative to obtain permission to do so. The Captain of the Port, Sector Lake Michigan or his on-scene representative may be contacted via VHF Channel 16. Vessel operators given permission to enter or operate in the safety zone must comply with all directions given to them by the Captain of the Port, Sector Lake Michigan, or his on-scene representative.
Coast Guard, DHS.
Temporary final rule.
The Coast Guard is establishing a temporary safety zone on the waters of the Savannah River in Augusta, Georgia during the ESI Ironman 70.3 Augusta Triathlon on Sunday, September 30, 2012. The event will include a 1.1 mile swim on the waters of the Savannah River. The temporary safety zone is necessary for the safety of the race participants, participant vessels, spectators, and the general public during the swim portion of the competition. Persons and vessels are prohibited from entering, transiting through, anchoring in, or remaining within the safety zone unless authorized by the Captain of the Port Savannah or a designated representative.
This rule is effective from 7 a.m. until 11:59 a.m. on September 30, 2012.
Documents mentioned in this preamble are part of docket USCG–2012–0574. To view documents mentioned in this preamble as being available in the docket, go to
If you have questions on this temporary final rule, call or email Marine Science Technician First Class William N. Franklin, Marine Safety Unit Savannah Office of Waterways Management, Coast Guard; telephone 912–652–4353. If you have questions on viewing or submitting material to the docket, call Renee V. Wright, Program Manager, Docket Operations, telephone (202) 366–9826.
On July 10, 2012, the Coast Guard published a notice of proposed rulemaking (NPRM) entitled Safety Zone; ESI Ironman 70.3 Augusta Triathlon, Savannah River, Augusta, GA in the
Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the
(a) The legal basis for the rule is the Coast Guard's authority to establish regulated navigation areas and other limited access areas: 33 U.S.C. 1231; 46 U.S.C. Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05–1, 6.04–1, 6.04–6, 160.5; Public Law 107–295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1.
(b) The purpose of the rule is to ensure the safety of the swimmers, participant vessels, spectators, and the general public during the ESI Ironman 70.3 Augusta Triathlon.
The Coast Guard did not receive any comments to the proposed rule, and no changes were made to the regulatory text.
On Sunday, September 30, 2012, the ESI Ironman 70.3 Augusta Triathlon is scheduled to take place in Augusta, Georgia. This event includes a 1.1 mile swim that will take place on the waters of the Savannah River. The swim starts at the 6th Street Railroad Bridge and finishes at Mile Post 198.
The temporary safety zone will encompass certain waters of the Savannah River in Augusta, Georgia. The temporary safety zone will be enforced from 7 a.m. until 11:59 a.m. on September 30, 2012. Persons and vessels are prohibited from entering, transiting through, anchoring in, or remaining within the safety zone unless authorized by the Captain of the Port Savannah or a designated representative.
Persons and vessels desiring to enter, transit through, anchor in, or remain
We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 of these statutes or executive orders.
This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, 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. The economic impact of this rule is not significant for the following reasons: (1) The safety zone will only be enforced for only five hours; (2) although persons and vessels will not be able to enter, transit through, anchor in, or remain within the safety zone without authorization from the Captain of the Port Savannah or a designated representative, they may operate in the surrounding area during the enforcement period; (3) persons and vessels may still enter, transit through, anchor in, or remain within the safety zone if authorized by the Captain of the Port Savannah or a designated representative; and (4) the Coast Guard will provide advance notification of the safety zone to the local maritime community by Local Notice to Mariners and Broadcast Notice to Mariners.
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601–612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard received no comments from the Small Business Administration on this rule. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.
(1) This rule may affect the following entities, some of which may be small entities: The owners or operators of vessels intending to enter, transit through, anchor in, or remain within that portion of the Savannah River encompassed within the safety zone from 7 a.m. until 11:59 a.m. on September 30, 2012.
(2) For the reasons discussed in the Executive Order 12866 and Executive Order 13563 section above, this rule will not have a significant economic impact on a substantial number of small entities.
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 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 the
Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1–888–REG–FAIR (1–888–734–3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.
This rule 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 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 the
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531–1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
This rule will not 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 rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.
We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.
This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the
This action is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use.
This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.
We have analyzed this rule under Department of Homeland Security Management Directive 023–01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321–4370f), and have determined 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 rule involves the establishment of a temporary safety zone on the waters of the Savannah River that will be enforced for a total of five hours. This rule is categorically excluded from further review under paragraph 34(g) of Figure 2–1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated under
Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Security measures, Waterways.
For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:
33 U.S.C. 1231; 46 U.S.C. Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05–1, 6.04–1, 6.04–6, 160.5; Pub. L. 107–295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1.
(a)
(b)
(c)
(2) Persons and vessels desiring to enter, transit through, anchor in, or remain within the regulated area may contact the Captain of the Port Savannah by telephone at 912–652–4353, or a designated representative via VHF radio on channel 16, to request authorization. If authorization to enter, transit through, anchor in, or remain within the regulated area is granted by the Captain of the Port Savannah or a designated representative, all persons and vessels receiving such authorization must comply with the instructions of the Captain of the Port Savannah or a designated representative.
(3) The Coast Guard will provide notice of the regulated area by Local Notice to Mariners, Broadcast Notice to Mariners, and on-scene designated representatives.
(d)
Coast Guard, DHS.
Notice of enforcement of regulation.
The Coast Guard will enforce the safety zone for the Mukilteo Lighthouse Festival during the date and time noted below. This action is necessary to prevent injury and to protect life and property of the maritime public from the hazards associated with the firework display. During the enforcement period, entry into, transit through, mooring, or anchoring within these zones is prohibited unless authorized by the Captain of the Port, Puget Sound or his Designated Representative.
The regulations in 33 CFR 165.1332 will be enforced from 5 p.m. on September 8, 2012, through 1 a.m. on September 9, 2012.
If you have questions on this notice, call or email ENS Nathaniel P. Clinger, Sector Puget Sound Waterways Management, Coast Guard; telephone 206–217–6045; email
The Coast Guard will enforce the safety zone established for Annual Fireworks Displays within the Captain of the Port, Puget Sound Area of Responsibility in 33 CFR 165.1332 during the dates and times noted below.
The following safety zone will be enforced from 5 p.m. on September 8, 2012 through 1 a.m. on September 9, 2012:
The special requirements listed in 33 CFR 165.1332, which can be found in the
All vessel operators who desire to enter the safety zone must obtain permission from the Captain of the Port or his Designated Representative by contacting either the on-scene patrol craft on VHF Ch 13 or Ch 16 or the Coast Guard Sector Puget Sound Joint Harbor Operations Center (JHOC) via telephone at (206) 217–6002.
The Coast Guard may be assisted by other Federal, State, or local law enforcement agencies in enforcing this regulation.
This notice is issued under authority of 33 CFR 165.1332 and 33 CFR part 165 and 5 U.S.C. 552(a). In addition to this notice, the Coast Guard will provide the maritime community with extensive advanced notification of the safety zone via the Local Notice to Mariners and marine information broadcasts on the day of the events.
The Environmental Protection Agency (EPA).
Final rule.
The EPA is finalizing the designation of two new ocean dredged material disposal (ODMD) sites offshore of Yaquina Bay, Oregon, pursuant to the Marine Protection, Research, and Sanctuaries Act, as amended (MPRSA). On April 5, 2012, the EPA published a proposed rule to designate the sites and opened a public comment period under Docket ID No. EPA–R10–OW–2012–0197. The comment period closed on May 7, 2012. The EPA received several comments on the proposed rule. The EPA's responses are included in section 2.c of this final rule labeled “Response to Comments Received.” The EPA decided to finalize the action to designate the new sites because the new sites are needed to serve the long-term need for a location to dispose of material dredged from the Yaquina River navigation channel, and to provide a location for the disposal of dredged material for persons or entities who have received a permit for such disposal. The newly designated sites are subject to ongoing monitoring and management to ensure continued protection of the marine environment.
The effective date of this final action shall be October 9, 2012.
Bridgette Lohrman, U.S. Environmental Protection Agency, Region 10, Office of Ecosystems, Tribal and Public Affairs, Environmental Review and Sediment Management Unit, Oregon Operations Office, 805 SW Broadway, Suite 500, Portland, Oregon 97205; phone number (503) 326–4006; email:
Persons potentially affected by this action include those who seek or might seek permits or approval by the EPA to dispose of dredged material into ocean waters pursuant to the Marine Protection, Research, and Sanctuaries Act, as amended (MPRSA), 33 U.S.C. 1401 to 1445. The EPA's action would be relevant to persons, including organizations and government bodies seeking to dispose of dredged material in ocean waters offshore of Yaquina Bay, Oregon. Currently, the U.S. Army Corps of Engineers (Corps) would be most affected by this action. Potentially affected categories and persons include:
The Corps historically used the general area offshore of Yaquina Bay for dredged material disposal. In 1977, an Interim ODMD site offshore of Yaquina Bay received an EPA interim designation and was used by the Corps for dredged material disposal after 1977 and prior to 1986 (Figure 1). Because of increased mounding in the Interim Site and its potential adverse effect on navigation safety, the Corps selected an alternate ODMD site, the “Adjusted Site,” under the authority of Section 103 of the MPRSA, with the EPA's concurrence. The Corps began to use this “Adjusted Site” in 1986. By 1990, dredged material had accumulated in the Adjusted Site to an extent that portions of the Site had to be avoided, and careful placement of material was necessary on specific portions of the Adjusted Site. In 2000, the Corps ceased
In October 2000, these disposal sites were authorized for use by the Corps, following the EPA's concurrence, under Section 103 of the MPRSA as selected sites. To provide for sufficient disposal capacity over the long term, on April 5, 2012, the EPA proposed to designate both a Yaquina North Site and a Yaquina South Site under Section 102 of the MPRSA, for the ocean disposal of dredged material offshore of Yaquina Bay. These proposed sites were designed to use the footprints of the Section 103 selected sites. The Yaquina North Site, which had been unavailable once authorization for use under Section 103 of the MPRSA expired at the end of the 2011 dredge season, will be available for use as a designated site upon the effective date of this final action. The Yaquina South Site, which was used for disposal of dredged material for the first time during the 2012 dredging and disposal season since its selection under Section 103 in 2001, will also be available for use as a designated site upon the effective date of this action.
The designation of the two ocean disposal sites for dredged material does not mean that the Corps or the EPA has approved the use of the Sites for open water disposal of dredged material from any specific project. Before any person or entity can dispose dredged material at either of the Sites, the EPA and the Corps must evaluate the project according to the ocean dumping regulatory criteria (40 CFR, part 227) and authorize the disposal. The EPA independently evaluates proposed dumping and has the right to restrict and/or disapprove of the actual disposal of dredged material if the EPA determines that environmental requirements under the MPRSA have not been met.
This action finalizes the designation of two ocean dredged material sites to the north and south, respectively, offshore of Yaquina Bay. The location of the two ocean dredged material disposal sites (Yaquina North and South ODMD Sites, North and South Sites, or Sites) are bounded by the coordinates, listed below, and shown in Figure 1. The designation of these two Sites will allow the EPA to adaptively manage the Sites to maximize their capacity, minimize the potential for mounding and associated safety concerns, and minimize the potential for any long-term adverse effects to the marine environment.
The coordinates for the two Sites are, in North American Datum 83 (NAD 83):
The two Sites are located in approximately 112 to 152 feet of water, and are located to the north and south of the entrance to Yaquina Bay on the central Oregon Coast. The Yaquina North Site is located about 1.7 nautical miles northwest of the entrance to Yaquina Bay and the Yaquina South Site is located about 2.0 nautical miles southwest of the bay's entrance. Both ocean disposal sites are 6,500 feet long by 4,000 feet wide, each about 597 acres in size.
The EPA received several comments on the proposed site designation during the public comment period which closed on May 7, 2012. Two commenters, while finding the proposed site designation to be thorough and inclusive, questioned whether negative effects from the site designation could be adequately controlled. In response to the concern raised by these commenters, the EPA reviewed the Site Management and Monitoring Plan (SMMP) for the Sites to ensure that controls are in place both to prevent negative effects and to correct impacts from negative effects in the unlikely event such effects occurred.
Another commenter suggested that dumping dredged material at the Sites would result in a large amount of pollution in concentrated areas. In response to this comment, the EPA reiterates that material allowed to be disposed of at the Sites is limited to dredged material deemed to be environmentally acceptable for ocean disposal. As discussed in the proposed designation, and further discussed below, dredged material proposed for disposal would be evaluated prior to disposal. Only dredged material without contaminant concentrations at harmful levels would be deemed suitable for ocean disposal.
This commenter also suggested that less dredging in the waterways would create less need for ocean disposal, while another commenter asked the EPA to consider alternate disposal sites and to facilitate additional discussions with local businesses and residents to discuss the impacts of the designation. The EPA appreciates these concerns. While the Corps, rather than the EPA determines the location and amount of dredging necessary to maintain the waterways of the U.S., the EPA determines, with the Corps' input, how best to dispose of material that must be disposed of in the ocean. Part of that analysis includes a balancing of community and ocean user needs. The EPA finds this site designation to be the best balance of those needs at this time. The EPA will continue to evaluate these local community concerns and will use the SMMP to make adjustments as needed to the extent practicable, to help ensure the needs of the users are balanced against the concerns of the local community.
A commenter raised a concern about the site designations on bar conditions across the Yaquina Bay bar during high swell conditions and asked whether any special analysis was warranted. The EPA and the Corps share the commenter's concern that negative effects on bar crossing safety are unacceptable. The SMMP for the designated North and South Sites is designed with safeguards to help prevent disposal at the Sites from causing or contributing to adverse swell conditions. A primary goal of site management is to avoid the creation of persistent mounds that could negatively impact the wave climate. SMMP safeguards include placement strategies and special management conditions and practices to be implemented, such as “uniform placement” of dredged material and annual bathymetric surveys, so as to minimize the potential for mounding that could create or contribute to adverse swell conditions across the sites. Alternating the use of the North and South Sites is an included condition to help ensure minimal impact to the wave climate. Safeguards also include quantity restrictions, and the EPA's annual review of the prior year's dumping and the EPA's review of dump plans for the upcoming year prepared by the Corps. The SMMP sets a threshold condition to require the Corps to re-evaluate disposal impacts on wave climate if bathymetric surveys show elevations at 14 feet above 2001 baseline elevations over more than 30% of the Site. If mounds above this threshold become widespread or persistent, the USACE and the EPA will conduct additional site assessment to determine if site use restrictions, including a change in disposal methodology, or cessation of use, are needed. If necessary, the EPA can direct users to conduct special studies to assess conditions and contributing factors. The EPA is convinced these safeguards combined with the EPA's authority to condition, terminate or restrict site use with cause, are sufficient to address this commenter's concern.
Finally, one commenter asked whether shorebirds in the area would be affected by the site designation. The EPA assessed the potential impact to shorebirds in the Environmental Assessment prepared for the site designation and as part of evaluating the site designation pursuant to the Endangered Species Act. As discussed in the Environmental Assessment and the Biological Assessment, shorebirds are not expected to be affected by the site designation. The U.S. Fish and Wildlife Service (USFWS) concurred with the EPA's finding that the site designation is not likely to adversely affect seabirds because of the presence of abundant suitable foraging habitat and the anticipated temporary nature of minor behavioral changes in flight or foraging during disposal activities at the designated sites. The USFWS concurrence letter is included in the docket for this action.
The Sites are expected to receive sediments dredged by the Corps to maintain the federally authorized navigation project at Yaquina Bay, Oregon and dredged material from other persons who have obtained a permit for the disposal of dredged material at the Sites. All persons using the Sites are required to follow the Site Management and Monitoring Plan (SMMP) for the Sites. The SMMP includes management and monitoring requirements to ensure that disposal activities will not unreasonably degrade or endanger human health, welfare, the marine environment, or economic potentialities. The SMMP for the Yaquina North and South Sites, in addition to the aforementioned, also addresses management of the Sites to ensure adverse mounding does not occur and to ensure that disposal events minimize interference with other uses of ocean waters in the vicinity of the proposed Sites. The SMMP, which was available for public comment as a draft document, has been finalized and the final document may be found in the Docket.
In designating these Sites, the EPA assessed the Sites according to the criteria of the MPRSA, with particular emphasis on the general and specific regulatory criteria of 40 CFR part 228, to determine whether the site designations satisfied those criteria. The EPA's
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The EPA reviewed the potential for the Sites to interfere with navigation,
Based on the EPA's review of modeling, monitoring data, sediment quality, and history of use, no detectable contaminant concentrations or water quality effects, e.g., suspended solids, would be expected to reach any beach or shoreline from disposal activities at the Sites. The primary impact of disposal activities on water quality is expected to be temporary turbidity caused by the physical movement of sediment through the water column. All dredged material proposed for disposal will be evaluated according to the ocean dumping regulations at 40 CFR 227.13 and guidance developed by the EPA and the Corps. In general, dredged material which meets the criteria under 40 CFR 227.13(b) is deemed environmentally acceptable for ocean dumping without further testing. Dredged material which does not meet the criteria of 40 CFR 227.13(b) must be further tested as required by 40 CFR 227.13(c).
Disposal of suitable material meeting the regulatory criteria and deemed environmentally acceptable for ocean dumping will be allowed at the Sites. Most of the dredged material (approximately 95%) to be disposed at the Sites is expected to be sandy material, while a small amount of material (up to 5% of the material) would be classified as fine-grained. Hopper dredges, which are typically used for the Corps' annual navigation dredging, are not capable of removing debris from the dredge site. However, specific projects may utilize a clamshell dredge, in which case there is the potential for the occasional placement of naturally occurring debris at the disposal Sites.
To ensure that site managers can be responsive to the specifics of each dredging season based on dredge schedules, weather, and bathymetry at the Sites, the EPA has decided to designate both the North and South Sites. The footprints of the Sites are designed to maximize their capacity, helping to assure minimal mounding and to minimize any adverse affects to the wave climate. The presence of Yaquina Reef, close to shore at shallow depths, prevents nearshore designation and dredged material disposal in dispersive locations at depths less than 60 feet. The North Site will be the preferred placement area for disposal of dredged material as was the case when the Site was used as a Section 103 selected site. During some periods, disposal may be alternated between the two Sites. The use of the South Site is more dependent upon wind and wave conditions, particularly in April and May when the typical dredge season starts, and for this reason is expected to be used less frequently than the North Site. Effective monitoring of the Sites is necessary and required. The EPA will require annual bathymetric surveys for each Site to track site capacity and to assess the potential for mounding concerns. These surveys will inform the active management of the Sites.
Disposal areas located off of the continental shelf would be at least 20 nautical miles offshore. This distance is well beyond the 4.5 nautical mile haul distance determined to be feasible by the Corps for maintenance of their Yaquina Bay project. Additional disadvantages to off-shelf ocean disposal would be the unknown environmental impacts of disposal on deep-sea, stable, fine-grained benthic communities and the higher cost of monitoring sites in deeper waters and further offshore.
Historic disposal has occurred at or in the vicinity of these Sites receiving final designation. The substrate of the Sites is similar in grain size to the disposal material and the placement avoids the unique habitat features of Yaquina Reef.
The EPA does not anticipate that the geographical position of the Sites, including the depth, bottom topography and distance from the coastline, will unreasonably degrade the marine environment. To help avoid adverse mounding at the Sites, site management will generally include uniform placement, i.e., spreading disposal material throughout the Sites in a manner that will result in a relatively uniform accumulation of disposed material on the bottom over the long-term. Site management will include creating dump plans for each Site where disposal will occur. Dump plans establish cells within the Site to ensure uniform placement. In addition to minimizing mounding, the uniform placement is expected to minimize the thickness of disposal accumulations, which is expected to be less disruptive to benthic communities and aquatic species, such as crabs, that might be present at the Sites during disposal events. Because the Sites are relatively deep, to avoid the nearshore Yaquina Reef, they are not considered dispersive. Material placed in the Sites is not expected to move from the Sites except during large storm events.
The Sites are not located in exclusive breeding, spawning, nursery, feeding or passage areas for adult or juvenile phases of living resources. At and in the immediate vicinity of the Sites, a variety of pelagic and demersal fish species,
The Sites are approximately 2 nautical miles off the beach in water depths greater than 100 feet and beyond the ecologically and economically important Yaquina Reef. Given the depth of these Sites, the material is not expected to disperse from the Sites except during infrequent large storm events. Thus, impacts to beaches or the reef will be avoided. The sand removed from the Newport littoral cell is not expected to affect Newport's beaches because Pacific Northwest beaches tend to respond strongly to storm effects, the episodic nature of which would mask any long-term discrete changes such as disposal at these Sites. Site monitoring and adaptive management are components of the final SMMP to ensure beaches and other amenity areas are not adversely impacted.
Dredged material found suitable for ocean disposal pursuant to the regulatory criteria for dredged material, or characterized by chemical and biological testing and found suitable for disposal into ocean waters, will be the only material allowed to be disposed at the Sites. No material defined as “waste” under the MPRSA will be allowed to be disposed at the Sites. The dredged material to be disposed at the Sites will be predominantly marine sand. Generally, disposal is expected to occur from a hopper dredge, in which case, material will be released just below the surface while the disposal vessel remains under power and slowly transits the disposal location. This method of release is expected to spread material at the Sites to minimize mounding, while minimizing impacts to the benthic community and to aquatic species present at the Sites at the time of a disposal event.
The EPA expects monitoring and surveillance at the Sites to be feasible and readily performed from small, surface vessels. The EPA will ensure monitoring of the sites for physical, biological and chemical attributes. Bathymetric surveys will be conducted annually, contaminant levels in the dredged material will be analyzed prior to dumping, and the benthic infauna and epibenthic organisms will be monitored every 5 years, as funding allows.
Disposal at the Sites will not degrade the existing wave environment within or outside the Sites. The placement of dredged material may have a minor effect on circulation within or outside the site boundaries. Due to the anticipated size of the mound resulting from the accumulated dredged material (10–14 feet high covering 597 acres over 20 years), it is possible the currents in the vicinity of the Sites may begin to be affected. Any potential effect would not be expected to occur until a substantial amount of dredged material has been placed at the site (4–6 million cubic yards). At that time, the EPA plans to re-assess these assumptions and associated potential effects.
The North Site was used for disposal of dredged material from 2001 to 2011. The seafloor elevation at the Site has risen 12 feet in a few locations. Annual bathymetric surveys will continue to be conducted to monitor mounding at the North Site. To date, disposal of dredged material has not changed the benthic infaunal nor epifaunal species expected to inhabit nearshore sandy substrates at this location. The South Site, prior to this designation, was selected by the Corps under their Section 103 authority under the MPRSA and has been used during the current 2012 dredging season. Preferential use of the North Site is expected to resume when this designation becomes effective, but capacity and other factors may result in continued use of the South Site in the future. The final SMMP includes monitoring and adaptive management measures to address potential mounding issues.
The Sites are not expected to interfere with shipping, fishing, recreation or other legitimate uses of the ocean. Commercial and recreational fishing and commercial navigation are the primary activities that may spatially overlap with disposal at the Sites. This overlap is more likely at the South Site given the South Site's proximity to the commercial shipping lane and in more direct alignment with the entrance channel to Yaquina Bay. The likelihood of direct interference with these activities is low, provided there is close communication and coordination among users, vessel traffic control and the U.S. Coast Guard. The EPA is not aware of any plans for mineral extraction, desalination plants, or fish and shellfish culture operations near the Sites at this time. The Sites are not located in areas of special scientific importance. They are located to the south of the Newport Hydrographic line, south of the proposed Northwest National Marine Renewable Energy Center's nearshore test facility, and west of the Yaquina Reef.
The EPA has not identified any potential adverse water quality impacts from the ocean disposal of dredged material at the Sites based on water and sediment quality analyses conducted in the study area of the Sites, and based on past disposal experience at the proposed North Site when it was used as a Section 103 selected site. Benthic grabs and trawl data show the ecology of the area to be that associated with sandy nearshore substrate typical of the Oregon Coast.
Nuisance species, considered as any undesirable organism not previously existing at a location, have not been observed at, or in the vicinity of, the Sites. Material expected to be disposed at the Sites will be uncontaminated marine sands similar to the sediment present at the Sites. Some fine-grained material, finer than natural background, may also be disposed. While this finer-grained material could have the potential to attract nuisance species to the Sites, no such recruitment is known to have taken place at the North Site while the Site was used as a Section 103 selected site. The final SMMP includes benthic infaunal and epifaunal monitoring requirements, which will act to identify any nuisance species and allow the EPA to direct special studies
No significant cultural features have been identified at, or in the vicinity of, the proposed Sites at this time. The EPA coordinated with Oregon's State Historic Preservation Officer and with Tribes in the vicinity of the Sites to identify any cultural features. On July 16, 2012, the State agreed with the EPA that the designation of the North and South Yaquina Sites will have no effect on any known cultural resources. No cultural features or shipwrecks have been observed or documented within the proposed Sites or their immediate vicinity.
Section 102 of the National Environmental Policy Act of 1969, as amended (NEPA), 42 U.S.C. 4321 to 4370f, requires Federal agencies to prepare an Environmental Impact Statement (EIS) for major federal actions significantly affecting the quality of the human environment. NEPA does not apply to the EPA designations of ocean disposal sites under the MPRSA because the courts have exempted the EPA's actions under the MPRSA from the procedural requirements of NEPA through the functional equivalence doctrine. The EPA has, by policy, determined that the preparation of NEPA documents for certain EPA regulatory actions, including actions under the MPRSA, is appropriate. The EPA's “Notice of Policy and Procedures for Voluntary Preparation of NEPA Documents,” (Voluntary NEPA Policy), 63 FR 58045, (October 29, 1998), sets out both the policy and procedures the EPA uses when preparing such environmental review documents. The EPA's primary voluntary NEPA document for designating the Sites was the draft
The EPA prepared an essential fish habitat (EFH) assessment pursuant to Section 305(b), 16 U.S.C. 1855(b)(2), of the Magnuson-Stevens Act, as amended (MSA), 16 U.S.C. 1801 to 1891d, and submitted that assessment to the National Marine Fisheries Service (NMFS) on December 19, 2011. The NMFS reviewed the EPA's EFH assessment and Endangered Species Act (ESA) Biological Assessment and addendum thereto for purposes of the Marine Mammal Protection Act of 1972, as amended (MMPA), 16 U.S.C. 1361 to 1389. The NMFS found that that all potential adverse effects to ESA-listed marine mammals, marine turtles, and designated critical habitat for leatherback sea turtles from the EPA's action to designate the Yaquina North and South Sites are discountable or insignificant. Those findings are documented in the Biological Opinion issued by the NMFS to the EPA on July 10, 2012. With respect to EFH, the NMFS concluded that the disposal of dredged material will adversely affect water quality from increased turbidity in the water column, availability of benthic prey species, and safe passage during disposal. The NMFS provided two EFH Conservation Recommendations to avoid or minimize the effects to EFH mentioned above. The NMFS recommends monitoring how fish interact with the disposal plume and conducting surveys to determine seasonal distribution, abundance, and habitat use of EFH species and their prey at the disposal sites. The EPA will respond in a separate written response to the NMFS' recommendations.
The Coastal Zone Management Act, as amended (CZMA), 16 U.S.C. 1451 to 1465, requires Federal agencies to determine whether their actions will be consistent to the extent practicable with the enforceable policies of approved state programs. The EPA prepared a consistency determination for the Oregon Coastal Management Program (OCMP), the approved state program in Oregon, to meet the requirements of the CZMA and submitted that determination to the Oregon Department of Land Conservation and Development (DLCD) for review on February 17, 2012. The DCLD concurred on May 7, 2012, with the EPA's determination that the designation of the North and South Yaquina ODMD sites is consistent to the maximum extent practicable with the enforceable policies of the OCMP. The DLCD based its concurrence on the information contained in the EPA's consistency determination and supporting materials, and on extensive conversations with the EPA. The Oregon Department of Fish and Wildlife (ODFW) participated in discussions with the EPA and the DLCD concerning the consistency determination and both the ODFW and the DLCD encouraged the EPA to pursue future disposal sites within the littoral zone.
The Endangered Species Act, as amended (ESA), 16 U.S.C. 1531 to 1544, requires Federal agencies to consult with the NMFS and the U.S. Fish and Wildlife Service (USFWS) to ensure that any action authorized, funded, or carried out by the Federal agency is not likely to jeopardize the continued existence of any endangered species or threatened species or result in the destruction or adverse modification of any critical habitat. The EPA prepared a Biological Assessment (BA) to assess the potential effects of designating the two proposed Sites on aquatic and wildlife species and submitted that BA to the NMFS and the USFWS on December 19, 2011. The EPA found that site designation does not have a direct impact on any of the identified ESA species, and also found that indirect impacts associated with reasonably foreseeable future disposal activities had to be considered. These anticipated indirect impacts from disposal included a short-term increase in suspended sediment, short-term disruption in avian foraging behavior, modification of bottom topography, loss of benthic prey species from burial, and loss of pelagic individuals during disposal of material through the water column. The EPA concluded that its action may affect, but is not likely to adversely affect 18 ESA-listed species and is not likely to adversely affect designated critical habitat for southern green sturgeon (
The NMFS issued a Biological Opinion on July 10, 2012. The NMFS considered disposal by the Corps and all other entities as an interrelated action to the EPA's proposed site designation, thus, the effects from future disposals are indirect effects of the EPA's action. The NMFS concluded that the EPA's action is not likely to jeopardize the
The NMFS did not issue an incidental take statement with their Biological Opinion to the EPA. This decision was based upon the following: (1) The adverse effects identified in the Biological Opinion will result from indirect effects of subsequent Federal actions carried out by the Corps and other entities carrying out dredging and disposal; (2) these individual actions are likely to cause take of ESA-listed species, so it is more appropriate to consider exempting take on a case-by-case basis as such actions are proposed in the future; (3) the EPA's action as described in the Biological Opinion does not authorize and will not itself result in disposal of any dredged materials; and (4) the NMFS does not anticipate any take will result from the site designation and adoption of the SMMP. The NMFS further stated that “any further analysis of the effects of disposal of dredged material at the disposal site and issuance of an incidental take statement with reasonable and prudent measures and non-discretionary terms and conditions to minimize take will be prepared when an ESA consultation on a dredging and disposal action is requested.”
The EPA initiated consultation with the State of Oregon's Historic Preservation Officer (SHPO) on February 27, 2012, to address the National Historic Preservation Act, as amended (NHPA), 16 U.S.C. 470 to 470a–2, which requires Federal agencies to take into account the effect of their actions on districts, sites, buildings, structures, or objects, included in, or eligible for inclusion in the National Register. The EPA determined that no historic properties were affected, or would be affected, by designation of the Sites. The EPA did not find any historic properties within the geographic area of the Sites. This determination was based on a review of the National Register of Historic Districts in Oregon, the Oregon National Register list and an assessment of potential cultural resources near the Sites. On July 16, 2012, the State agreed with the EPA that the designation of the North and South Yaquina Sites will have no effect on any known cultural resources.
This rule finalizes the designation of two ocean dredged material disposal sites pursuant to Section 102 of the MPRSA. This action complies with applicable executive orders and statutory provisions as follows:
This action is not a “significant regulatory action” under the terms of Executive Order 12866 (58 FR 51735, October 4, 1993). This action is exempt from review under Executive Order 12866 and Executive Order 13563 (76 FR 3821, January 21, 2011).
The EPA does not reasonably anticipate collection of information from ten or more people based on the historic use of designated sites. Consequently, the action is not subject to the Paperwork Reduction Act.
The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA), 5 U.S.C. 601 et seq., generally requires Federal 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. Small entities include small businesses, small organizations, and small governmental jurisdictions. For purposes of assessing the impacts of this rule on small entities, small entity is defined as: (1) A small business defined by the Small Business Administration's size regulations at 13 CFR part 121; (2) a small governmental jurisdiction that is a government of a city, county, town, school district, or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field. The EPA has determined that this action will not have a significant economic impact on small entities because the rule will only have the effect of regulating the location of sites to be used for the disposal of dredged material in ocean waters. After considering the economic impacts of this proposed rule, I certify that this action will not have a significant economic impact on a substantial number of small entities.
This action contains no Federal mandates under the provisions of Title II of the Unfunded Mandates Reform Act (UMRA) of 1995, 2 U.S.C. 1531 to 1538, for State, local, or tribal governments or the private sector. This action imposes no new enforceable duty on any State, local or tribal governments or the private sector. Therefore, this action is not subject to the requirements of sections 202 or 205 of the UMRA. This action is also not subject to the requirements of section 203 of the UMRA because it contains no regulatory requirements that might significantly or uniquely affect small government entities. Those entities are already subject to existing permitting requirements for the disposal of dredged material in ocean waters.
This action does not have federalism implications. It does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among various levels of government, as specified in Executive Order 13132. Thus, Executive Order 13132 does not apply to this action. In the spirit of Executive Order 13132, and consistent with the EPA policy to promote communications between the EPA and State and local governments, the EPA specifically solicited comment from State and local officials but did not receive comments from State or local officials.
This action does not have tribal implications, as specified in Executive Order 13175 because the designation of the two ocean dredged material disposal Sites will not have a direct effect on 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. Thus, Executive Order 13175 does not apply to this action. Although Executive Order 13175 does not apply to this action the EPA consulted with tribal officials in the development of this action, particularly as the action relates to potential impacts to historic or cultural resources. The EPA specifically solicited comment from tribal officials.
The EPA interprets Executive Order 13045 (62 FR 19885) as applying only to those regulatory actions that concern health or safety risks, such that the analysis required under Section 5–501 of the Executive Order has the potential to influence the regulation. This action is not subject to Executive Order 13045 because it does not establish an environmental standard intended to mitigate health or safety risks. The action concerns the designation of two ocean dredged material disposal sites and only has the effect of providing designated locations to use for ocean disposal of dredged material pursuant to Section 102(c) of the MPRSA.
This action is not subject to Executive Order 13211, “Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355) because it is not a “significant regulatory action” as defined under Executive Order 12866.
Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law 104–113, 12(d) (15 U.S.C. 272), directs the EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus bodies. The NTTAA directs the EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This action includes environmental monitoring and measurement as described in the EPA's SMMP. The EPA will not require the use of specific, prescribed analytic methods for monitoring and managing the designated Sites. The Agency plans to allow the use of any method, whether it constitutes a voluntary consensus standard or not, that meets the monitoring and measurement criteria discussed in the proposed SMMP.
Executive Order 12898 (59 FR 7629) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States. The EPA determined that this rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it does not affect the level of protection provided to human health or the environment. The EPA has assessed the overall protectiveness of designating the disposal Sites against the criteria established pursuant to the MPRSA to ensure that any adverse impact to the environment will be mitigated to the greatest extent practicable.
Congressional Review Act (CRA), 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. The EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the
Environmental protection, Water pollution control.
This action is issued under the authority of Section 102 of the Marine Protection, Research and Sanctuaries Act, as amended, 33 U.S.C. 1401, 1411, 1412.
For the reasons set out in the preamble, the EPA amends chapter I, title 40 of the Code of Federal Register as follows:
33 U.S.C. 1412 and 1418.
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(15) Yaquina Bay, OR—North and South Ocean Dredged Material Disposal Sites
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(ii) South Site.
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National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Final rule; correcting amendment.
This action corrects groundfish regulations that were published in three final rules. The first was published on December 15, 2010, and established various provisions of the trawl rationalization program; the second published on May 11, 2011, and established the 2011–2012 harvest specifications and management measures for groundfish; the third published in December 1, 2011, and made revisions to the trawl program. This rules corrects inadvertent errors that, although they will not modify current fishing practices need to be corrected so that the rule text comports with the intent as expressed in the rules' preambles. This rule includes but is not limited to corrections to coordinates defining depth countours that apply to all fisheries, permit renewal dates, observer requirements, recreational regulations, processor obligations in the MS sector, the forms used to transfer an MS/CV endorsement, and others. Each correction is explained below.
Corrections to regulations at § 660.25(b)(4)(i)(B), 660.140(d)(3)(i)(B) and (e)(3)(i)(B) are effective September 7, 2012. The remaining corrections are effective on September 24, 2012.
Sarah Williams (Northwest Region, NMFS), phone: 206–526–4646; fax: 206–526–6736 and email:
This action corrects regulations that were published in three separate final rules for the Pacific Coast groundfish fisheries managed under 50 CFR 660 subparts C through F in order to correctly reflect Council intent. The final rules that are the subject of this correction are as follows: (1) Trawl Rationalization Program Components final rule (program components rule) published on December 15, 2010, (75 FR 78344); (2) 2011–2012 Biennial Harvest Specifications and Management Measures final rule (2011–2012 specifications rule) published on May 11, 2011, (76 FR 28897); and (3) Trawl Program Improvement and Enhancement final rule (PIE rule) published on December 1, 2011, (76 FR 74725). As published, the three final rules contain inadvertent errors that, although they will not modify current fishing practices need to be corrected so that the rule text comports with the intent as expressed in the rules' preambles. Each correction is explained below grouped together by the final rule that originally published the regulations.
None of these changes will result in any vessel or vessel owner having to modify its behavior in order to comply with the rules. In fact, the fishery already complies with the rules as they were intended to be written. Accordingly, these corrections are just that; they make changes necessary to have the rule text reflect both NMFS' original intent—as expressed in the preambles to the rules—as well as to current fishery practice.
There are four corrections to the Program Components final rule, as follows:
(1) Correct regulations to specify that all commercial vessels processing groundfish at sea carry an observer. During implementation of Amendment 20 to the Pacific Coast Groundfish Fishery Management Plan (PCGFMP), which restructured the entire groundfish regulations, this existing provision, which required observers on all commercial vessel processing at-sea, was inadvertently changed from applying to all commercial fisheries to only applying to the at-sea whiting fisheries. Nonetheless, all commercial fisheries continued to use observers on board. To bring the rules in line with the original intent, this action modifies the observer requirement language to include all vessels that process groundfish at sea. The affected fisheries are as follows: Shorebased IFQ Program (§ 660.140(h)(1)(i)), the limited entry fixed gear fishery (§ 660.216(a)), and the open access fishery (§ 660.316(a)). See 68 FR 53334 (September 10, 2003) for more history on this requirement.
(2) Correct regulations at § 660.150(g)(2)(i)—the Mothership (MS) program—to clarify that processor obligations are to an MS permit and not to the MS vessel. This change is necessary to make the MS regulations consistent with the processor obligation in the MS Coop Program, as defined under “processor obligation” at § 660.111 and specified at § 660.150(c)(7)(i).
(3) Correct language at § 660.114(b), in the third column of the table, which specifies who is required to submit an Economic Data Collection (EDC) form. This change makes the third column of the table consistent with § 660.113(d)(1), and the table now requires owners, lessees, and charterers of a vessel registered to a C/P endorsed limited entry trawl permit to submit an EDC. Vessels subject to this rule, as revised, are already providing the EDCs; this clarification merely corrects the language of the table to make it more clear who needs to submit the EDCs.
(4) Correct language at §§ 660.150(d)(2) and 660.160(d)(2) to specify that if an applicant does not appeal an initial administrative decision (IAD) in the trawl rationalization program within 30 calendar days, that the decision in the IAD becomes the final decision. This correction will make this provision consistent with the limited entry permit regulations at § 660.25(g)(4)(ii) for IADs.
There are four corrections to the PIE rule, as follows:
(1 and 2) Correct language at §§ 660.112 and 660.140 to specify that an observer must be on the vessel while in port unless the observer provides a form to the catch monitor documenting the weight and number of select overfished species (bocaccio, canary rockfish, cowcod, and yelloweye rockfish) retained on board by the vessel during that IFQ trip. The current regulations at § 660.112 and management measures at § 660.140 are unclear on the requirements for
(3) Correct § 660.150(g)(2)(iv)(B) to specify the proper form used to transfer an MS/CV endorsement. A request to change an MS/CV endorsement requires use of a unique form from the Fisheries Permit Office and may not be requested using the change in vessel registration and permit ownership form as currently stated in regulations.
(4) Correct regulations at § 660.150(d)(1)(v) regarding software requirements for electronic fish tickets. Current regulations erroneously state that an operating system such as “Windows 2007” may be used; there is no such operating system so this system is removed.
There are two corrections to the 2011–2012 specifications rule, as follows:
(1) Correct coordinates at § 660.71(b)(25) and (c)(55), which define the 10-fm (18-m) through 40-fm (73-m) depth contour. The coordinates are expressed in degrees latitude and longitude, and define large-scale boundaries utilized in managing the groundfish fishery. These corrections change incorrect and transposed coordinate numbers listed in the final rule; and better defines the intended boundary lines. These corrections do not change the intent or application of the geographic area described in the proposed and final rules that implemented the 2011–2012 harvest specifications and management measures.
(2) Correct language at § 660.360(c)(3) to allow spearfishing for lingcod during the same seasons as all of the other modes of the California recreational fishery, consistent with the Council motion. The 2011–2012 specifications final rule revised all recreational fishing modes to match the season restrictions for the rockfish, cabezon, greenling (RCG) complex in all of the California recreational fishery management areas. However, the change to lingcod seasons for spearfishing, one mode of the California recreational fishery, was mistakenly not revised and was therefore inconsistent with the Council's recommendation and with spearfishing regulations implemented by the California Department of Fish and Game. This correction extends the lingcod season for spearfishers by exempting anglers using only spearfishing gear from lingcod season restrictions. The effects of the change to lingcod seasons and mortality of other Groundfish species, for all California recreational fishery modes including spearfishing, was analyzed in the Final Environmental Impact Statement on the 2011–2012 harvest specifications and management measures.
To be consistent with the FMP provisions for limited entry permit renewal, this correction revises the date by which NMFS will mail permit renewal notices from September 1st to requiring mailing by September 15th each year, and makes corresponding changes to the renewal process for Quota Share (QS) permits/accounts and vessel accounts. This change will allow NMFS' Permits Office to complete any pending transfers (changes in vessel registration or permit ownership) for the start of the September 1 cumulative limit period before sending out permit renewal notices in addition to other benefits discussed below. The following sections are revised:
(1) § 660.25(b)(4)(i)(B) for LE permits.
(2) § 660.140(d)(3)(i)(B) for QS permits/accounts.
(3) § 660.140(e)(3)(i)(B) for vessel accounts.
NMFS notes that this change still gives the affected public adequate time to renew their permits because it still allows 2 weeks advance notice of the October 1-November 30 permit renewal period.
The Assistant Administrator for Fisheries, NOAA (AA) finds good cause under 5 U.S.C. 553(b)(B), to waive the requirement for prior notice and opportunity for additional public comment for this action because notice and comment are unnecessary and contrary to the public interest. This action simply makes corrections to accurately reflect the intent of the rules as expressed in the preamble of the final rules. In the text of those rules, however, NMFS inadvertently omitted various clauses or phrases that the preambles suggested would be included in the text. This action merely codifies NMFS' original intent for these rules. Moreover, because the parties subject to these rules already comply with the provisions as if these changes had already been made, and because the public had prior notice and opportunity to comment on the original rules—including the preambles—when they were issued, NMFS believes that allowing a second round of notice and comment on these rules may only further confuse the mistakes this rule would clarify. Moreover, these corrections are not substantive, because the regulated community has been acting in a manner consistent with the intent of the rules as expressed in their respective preambles. Implementing this rule immediately will allow the updates to come into force prior to the beginning of the next fishing year, thereby ensuring that the rules accurately reflect NMFS' original intent in implementing them.
For the same reasons, pursuant to 5 U.S.C. 553(d), the AA finds good cause to waive the 30-day delay in effective date for this action. However, NMFS will delay the effectiveness of this action for 15 days for all of the corrections listed above except the changes to the permit renewal date. Good cause exists for this waiver, because if these rules do not go into effect prior to thirty days after being printed in the
Because prior notice and opportunity for public comment are not required for this rule by 5 U.S.C. 553, or any other law, the analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601
Fisheries, Fishing, Indian fisheries.
For reasons set out in the preamble, 50 CFR part 660 is amended by making the following corrections:
16 U.S.C. 1801
(d) * * *
(1) * * *
(v) Operating system: Microsoft Windows XP with Service Pack (SP) 2, Windows Server 2003 with SP1, or later operating system such as Windows Vista or Windows 7.
(b) * * *
(4) * * *
(i) * * *
(B) Notification to renew limited entry permits will be issued by SFD prior to September 15 each year to the permit owner's most recent address in the SFD record. The permit owner shall provide SFD with notice of any address change within 15 days of the change.
(b) * * *
(25) 45°46.00′ N. lat., 124°00.54′ W. long.;
(c) * * *
(55) 42°50.00′ N. lat., 124°37.41′ W. long;
(b) * * *
(1) * * *
(xiii) Retain any IFQ species/species group onboard a vessel unless the vessel has observer coverage during the entire trip and observer or catch monitor coverage while in port until all IFQ species from the trip are offloaded. A vessel is exempted from this requirement while remaining docked in port, if the observer makes available to the catch monitor an observer program form reporting the weight and number of bocaccio, yelloweye rockfish, canary rockfish, and cowcod that were retained onboard the vessel during that trip and noting any discrepancy in those species between the vessel operator and observer. A vessel must maintain observer coverage while underway in port. A vessel may deliver IFQ species/species groups to more than one IFQ first receiver, but must maintain observer coverage onboard the vessel during any transit between delivery points. Once transfer of fish begins, all fish aboard the vessel are counted as part of the same landing as defined at § 660.11. Modifying the list of IFQ species to which this exception applies has been designated as a “routine management measure” and may be modified through an inseason action, as specified at § 660.60(c)(1)(iv).
(b)
(d) * * *
(3) * * *
(i) * * *
(B) Notification to renew QS permits will be sent by SFD by September 15 each year to the QS permit owner's most recent address in the SFD record. The QS permit owner shall provide SFD with notice of any address change within 15 days of the change.
(e) * * *
(3) * * *
(i) * * *
(B) Notification to renew vessel accounts will be issued by SFD by September 15 each year to the vessel account owner's most recent address in the SFD record. The vessel account owner shall provide SFD with notice of any address change within 15 days of the change.
(h) * * *
(1) * * *
(i)
(A) Any vessel participating in the Shorebased IFQ Program must carry a NMFS-certified observer during any trip and must maintain observer or catch monitor coverage while in port until all fish from that trip have been offloaded. A vessel is exempted from this requirement while remaining docked in port, if the observer makes available to the catch monitor an observer program form reporting the weight and number of those overfished species identified in § 660.112(b)(1)(xiii) that were retained onboard the vessel during that trip and noting any discrepancy in those species between the vessel operator and observer. If a vessel gets underway in port or delivers fish from an IFQ trip to more than one IFQ first receiver, an observer must remain onboard the vessel while the vessel is underway and during any transit between delivery points.
(B) Any vessel 125 ft (38.1 m) LOA or longer that is engaged in at-sea processing must carry two NMFS-certified observers, and any vessel shorter than 125 ft (38.1 m) LOA that is engaged in at-sea processing must carry one NMFS-certified observer, each day that the vessel is used to take, retain, receive, land, process, or transport groundfish.
(d) * * *
(2)
(g) * * *
(2) * * *
(i)
(iv) * * *
(B)
(d) * * *
(2)
(a)
(2) Any vessel 125 ft (38.1 m) LOA or longer that is engaged in at-sea processing must carry two NMFS-certified observers, and any vessel shorter than 125 ft (38.1 m) LOA that is engaged in at-sea processing must carry one NMFS-certified observer, each day that the vessel is used to take, retain, receive, land, process, or transport groundfish.
(a)
(2) Any vessel 125 ft (38.1 m) LOA or longer that is engaged in at-sea processing must carry two NMFS-certified observers, and any vessel shorter than 125 ft (38.1 m) LOA that is engaged in at-sea processing must carry one NMFS-certified observer, each day that the vessel is used to take, retain, receive, land, process, or transport groundfish.
(c) * * *
(3)
Federal Aviation Administration (FAA), DOT.
Supplemental notice of proposed rulemaking (NPRM); reopening of comment period.
We are revising an earlier proposed airworthiness directive (AD) for certain The Boeing Company Model 737–700, –700C, –800, and –900ER series airplanes, Model 747–400F series airplanes, and Model 767–200 and –300 series airplanes. That NPRM proposed to require an inspection for affected serial numbers of the crew oxygen mask stowage box units; and replacement of the crew oxygen mask stowage box unit with a new crew oxygen mask stowage unit, if necessary. That NPRM was prompted by reports indicating that certain crew oxygen mask stowage box units were possibly delivered with a burr in the inlet fitting. The burr might break loose during test or operation, and might pose an ignition source or cause an inlet valve to jam. This action revises that NPRM by adding a step to identify and label certain crew oxygen mask stowage box units that have already been inspected and reworked by the supplier, and allowing operators to install new or serviceable crew oxygen mask stowage box units. We are proposing this supplemental NPRM to prevent an ignition source, which could result in an oxygen-fed fire; or an inlet valve jam in a crew oxygen mask stowage box unit, which could result in restricted flow of oxygen. Since these actions impose an additional burden over that proposed in the NPRM, we are reopening the comment period to allow the public the chance to comment on these proposed changes.
We must receive comments on this supplemental NPRM by October 22, 2012.
You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods:
•
•
•
•
For Boeing service information identified in this proposed AD, contact Boeing Commercial Airplanes, Attention: Data & Services Management, P.O. Box 3707, MC 2H–65, Seattle, Washington 98124–2207; telephone 206–544–5000, extension 1; fax 206–766–5680; Internet
You may examine the AD docket on the Internet at
Susan L. Monroe, Aerospace Engineer, Cabin Safety and Environmental Systems Branch, ANM–150S, FAA, Seattle Aircraft Certification Office (ACO), 1601 Lind Avenue SW., Renton, Washington 98057–3356; phone: 425–917–6457; fax: 425–917–6590; email
We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the
We will post all comments we receive, without change, to
We issued an NPRM to amend 14 CFR part 39 to include an AD that would apply to certain The Boeing Company Model 737–700, –700C, –800, and –900ER series airplanes, Model 747–400F series airplanes, and Model 767–200 and –300 series airplanes. That NPRM published in the
The NPRM (75 FR 67637, November 3, 2010) referred to the following service information:
• Boeing Alert Service Bulletin 737–35A1121, dated December 14, 2009;
• Boeing Alert Service Bulletin 747–35A2126, dated October 8, 2009;
• Boeing Alert Service Bulletin 767–35A0057, dated October 8, 2009; and
• Intertechnique Service Bulletin MXP1/4–35–175, dated September 11, 2009.
After we issued the NPRM, the service information was revised:
• Boeing Alert Service Bulletin 737–35A1121, Revision 1, dated November 7, 2011;
• Boeing Alert Service Bulletin 747–35A2126, Revision 1, dated September 29, 2011;
• Boeing Alert Service Bulletin 767–35A0057, Revision 1, dated November 17, 2011; and
• Intertechnique Service Bulletin MXP1/4–35–175, Revision 2, dated May 10, 2011.
• Adds a step to identify and label certain crew oxygen mask stowage box units that have already been inspected and reworked by the supplier; and
• Adds a provision to allow operators to install either new or serviceable crew oxygen mask stowage box units.
We gave the public the opportunity to comment on the previous NPRM (75 FR 67637, November 3, 2010). The following presents the comments received on the NPRM and the FAA's response to each comment.
Boeing, Air Line Pilots Association, International (ALPA), and Delta Air Lines (Delta) supported the NPRM (75 FR 67637, November 3, 2010).
ALPA requested that we reduce the compliance time to 12 months instead of 24 months, as proposed in the previous NPRM (75 FR 67637, November 3, 2010). ALPA noted that certain crew oxygen mask stowage box units were possibly delivered with a burr in the inlet fitting, which might break loose during test or operation, and might pose an ignition source or cause an inlet valve to jam, thus prohibiting or restricting the flow of oxygen. ALPA reasoned that there could be a potential serious nature of events involving fire and smoke, and that there is a necessity to ensure functionality of this safety equipment for the flightcrew.
We disagree with the request to revise the compliance time in the supplemental NPRM. The proposed compliance time is in line with the manufacturer's recommended compliance time. Also, in developing the proposed compliance time, we considered safety implications, parts availability, and normal maintenance schedules for timely accomplishment of replacement of the crew oxygen mask stowage box units. Further, operators are permitted to accomplish the requirements of an AD at a time earlier than the specified compliance time. If additional data are presented that would justify a shorter compliance time, we might consider further rulemaking on this issue. We have not changed the supplemental NPRM in this regard.
Japan Airlines (JAL) requested that we revise the previous NPRM (75 FR 67637, November 3, 2010) to include the latest service information. JAL explained that Intertechnique Service Bulletin MXP1/4–35–175, dated September 11, 2009, does not describe how to differentiate parts before and after the actions specified in Intertechnique Service Bulletin MXP1/4–35–175, dated September 11, 2009, have been accomplished, so it is not sufficient for operators to complete Intertechnique Service Bulletin MXP1/4–35175, dated September 11, 2009.
Continental Airlines (Continental) requested that we revise the previous NPRM (75 FR 67637, November 3, 2010) to clarify which crew oxygen mask stowage box units have been inspected, and which crew oxygen mask stowage box units still need to be inspected. Continental explained that some operators might think a placard should be applied to all crew oxygen mask stowage box units after completion of Intertechnique Service Bulletin MXP1/4–35–175, dated September 11, 2009, not only to those crew oxygen mask stowage box units with suspect serial numbers itemized in table 1 of Intertechnique Service Bulletin MXP1/4–35–175, dated September 11, 2009. Continental based this assertion on the assumption that, when a suspect crew oxygen mask stowage box unit is found with the placard already installed, it has already been re-worked and has since been returned to service.
We agree to include the revised service information in the supplemental NPRM. We have explained the revised service information in the “Actions Since Previous NPRM was Issued” section of this supplemental NPRM. The revised service information addresses the issues raised by JAL and Continental. We have revised the paragraphs specifying service information in this supplemental NPRM accordingly.
Continental questioned why Boeing did not release service bulletins for other fleet types using the same part numbers listed in Intertechnique Service Bulletin MXP1/4–35–175, dated September 11, 2009. Continental explained that it has other fleets (for example, Model 737–500, 757–200, and 757–300 airplanes) that have the same crew oxygen mask stowage box unit part numbers, as delivered from Boeing. Continental reasoned that, because crew oxygen mask stowage box units are often swapped from aircraft to aircraft and borrowed from operator to operator, it will not only be inspecting its entire Model 737NG (next generation) fleet, but its other fleet types for these suspect serial numbers.
We find that clarification is necessary. Some airplanes were delivered with the affected part numbers and were not included in the applicability of the supplemental NPRM, because the manufacturing defect occurred in the time period from July 12, 2007, through November 20, 2007. Certain airplanes were not included in the service information because they were delivered prior to the time interval of the defect, thus were not included in the applicability of the supplemental NPRM.
Also, we now understand that the components identified with the manufacturing defect may have been installed on airplanes outside the effectivity of the service information after delivery (e.g., during maintenance activity). We are working to evaluate the associated risk and the need for additional action. We might consider further rulemaking to address our findings. We have not changed the supplemental NPRM in this regard.
Continental stated that, if a later revision of the referenced service information is released, it would request approval of an AMOC because of minor discrepancies found in the original service information. Continental explained that it understood Revision 1 of the service information was going to be released prior to the issuance of any rulemaking, and that it has conveyed the minor discrepancies to Boeing.
As stated previously, we have revised this supplemental NPRM to refer to the revised service information—which addresses the discrepancies identified by Continental.
AVOX Systems Inc. (Avox) requested that we revise the NPRM (75 FR 67637, November 3, 2010) to include certain words, phrases, and deletions as follows:
• Where the NPRM (75 FR 67637, November 3, 2010) proposed to require replacing crew oxygen mask stowage box units, Avox requested specifying these units as `affected.'
• Where the NPRM (75 FR 67637, November 3, 2010) proposed to require replacing with a new crew oxygen mask stowage box unit, Avox requested specifying replacement with a new `or reworked' crew oxygen mask stowage box unit.
• Where the NPRM (75 FR 67637, November 3, 2010) proposed to require replacing with a new crew oxygen mask stowage box unit, Avox requested adding “as required.” Avox explained that, for crew oxygen mask stowage box units located on an airplane, it makes sense that these crew oxygen mask stowage box units should be inspected to determine if the crew oxygen mask stowage box unit is affected by the NPRM. If determined to be affected, the crew oxygen mask stowage box units should be removed and replaced with compliant crew oxygen mask stowage box units.
We partially agree with the request. We agree to designate units as “affected,” throughout the AD because that term adds clarity. We disagree to replace “if necessary” in the preamble of this supplemental NPRM with “as required,” because this phrase does not add clarity. We also disagree to add “or reworked” because we have revised paragraph (g)(1) of this AD to clarify that replacement crew oxygen mask stowage box units must be “new or serviceable.”
Avox requested that we revise the NPRM (75 FR 67637, November 3, 2010) to allow for removed crew oxygen mask stowage box units to be sent to an authorized repair station to be reworked and returned to service.
We partially agree with the request. We note that Intertechnique Service Bulletin MXP1/4–35–175, Revision 2, dated May 10, 2011, provides for return of the crew oxygen mask stowage box units to four authorized Intertechnique locations. However, we have not changed this supplemental NPRM in this regard.
Avox also requested that we revise the NPRM (75 FR 67637, November 3, 2010) to include an inspection and replacement of spare crew oxygen mask stowage box units. Avox explained that, for crew oxygen mask stowage box units located in storage as spares, it makes sense that these crew oxygen mask stowage box units should be inspected to determine if the unit is affected by the NPRM. If determined to be affected, the crew oxygen mask stowage box unit should be removed from storage and sent to an authorized repair station to be reworked and returned to service.
We disagree with the request. Section 39.3 of the Federal Aviation Regulations (14 CFR 39.3) does not permit ADs to be written against parts that are not installed on an airplane. Therefore, paragraph (h) of this supplemental NPRM does not allow an affected spare unit to be installed on any airplane. We have not changed this supplemental NPRM in this regard.
Delta requested that we revise paragraphs (g) and (h) of the NPRM (75 FR 67637, November 3, 2010) to include the option of conducting a review of airplane or component maintenance records, or spare parts purchase records, to demonstrate that an airline does not operate or own any crew oxygen mask stowage box units that were manufactured in the date range listed in the service information in the NPRM. Delta proposed that this action be an acceptable method of compliance in lieu of a visual inspection to show that airplane or spare crew oxygen mask stowage box units are not affected by the NPRM. Delta reasoned that affected crew oxygen mask stowage box unit part numbers can be verified, as required by the NPRM, to be not applicable by a part and serial number inspection or records review, or by review of purchase order records that verify the date of manufacture does not fall in the affected manufacturing date range.
We disagree with the request to include a review of airplane maintenance records or spare parts purchase records. Section 39.3 of the Federal Aviation Regulations (14 CFR 39.3) does not permit ADs to be written against parts that are not installed on an airplane. Therefore, an AD cannot require that operators inspect, repair, or modify a “spare part.” Also, because of the rotability of these parts, a component level record review may not sufficiently address the required action in the supplemental NPRM. As the previous NPRM (75 FR 67637, November 3, 2010) specified, it is still acceptable to conduct a review of airplane maintenance records in lieu of the inspection in paragraph (g) of this supplemental NPRM, if the serial number of the crew oxygen mask stowage box unit can be conclusively determined from that review. Operators may apply for approval of an AMOC for these actions in accordance with the provisions of paragraph (i) of this supplemental NPRM, if sufficient data are submitted to substantiate that the change would provide an acceptable level of safety. We have not changed the supplemental NPRM in this regard.
We are proposing this supplemental NPRM 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. Certain changes described above expand the scope of the original NPRM (75 FR 67637, November 3, 2010). As a result, we have determined that it is necessary to reopen the comment period to provide additional opportunity for the public to comment on this supplemental NPRM.
This supplemental NPRM would require accomplishing the actions specified in the service information described previously.
We estimate that this proposed AD affects 40 airplanes of U.S. registry.
We estimate the following costs to comply with this proposed AD:
We have received no definitive data that would enable us to provide cost estimates for the on-condition actions 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 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.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
1. The authority citation for part 39 continues to read as follows:
49 U.S.C. 106(g), 40113, 44701.
2. The FAA amends § 39.13 by adding the following new airworthiness directive (AD):
We must receive comments by October 22, 2012.
None.
This AD applies to The Boeing Company airplanes, certificated in any category, as identified in paragraphs (c)(1), (c)(2), and (c)(3) of this AD.
(1) Model 737–700, –700C, –800, –900ER series airplanes, as identified in Boeing Alert Service Bulletin 737–35A1121, Revision 1, dated November 7, 2011.
(2) Model 747–400F series airplanes, as identified in Boeing Alert Service Bulletin 747–35A2126, Revision 1, dated September 29, 2011.
(3) Model 767–200 and –300 series airplanes, as identified in Boeing Alert Service Bulletin 767–35A0057, Revision 1, dated November 17, 2011.
Joint Aircraft System Component (JASC)/Air Transport Association (ATA) of America Code 35, Oxygen.
This AD was prompted by reports indicating that certain crew oxygen mask stowage box units were possibly delivered with a burr in the inlet fitting. The burr may break loose during test or operation and might pose an ignition source or cause an inlet valve to jam. We are issuing this AD to prevent an ignition source, which could result in an oxygen-fed fire; or an inlet valve to jam in a crew oxygen mask stowage box unit, which could result in restricted flow of oxygen.
Comply with this AD within the compliance times specified, unless already done.
Within 24 months after the effective date of this AD: Do a general visual inspection to determine if the serial number of the crew oxygen mask stowage box unit is identified in the Appendix of Intertechnique Service Bulletin MXP1/4–35–175, Revision 2, dated May 10, 2011, in accordance with the Accomplishment Instructions of the applicable Boeing alert service bulletin specified in paragraph (c)(1), (c)(2), or (c)(3) of this AD. A review of airplane maintenance records is acceptable in lieu of this inspection if the serial number of the crew oxygen mask stowage box unit can be conclusively determined from that review.
(1) If any crew oxygen mask stowage box unit has a serial number identified in table 1 of the Appendix of Intertechnique Service Bulletin MXP1/4–35–175, Revision 2, dated May 10, 2011: Before further flight, replace the crew oxygen mask stowage box unit with a new or serviceable unit, in accordance with the Accomplishment Instructions of the applicable Boeing alert service bulletin specified in paragraph (c)(1), (c)(2), or (c)(3) of this AD.
(2) If any crew oxygen mask stowage box unit has a serial number identified in table 2 of the Appendix of Intertechnique Service Bulletin MXP1/4–35–175, Revision 2, dated May 10, 2011: Before further flight, add the letter “I” to the end of the serial number (identified as “SER”) on the identification label, in accordance with the Accomplishment Instructions of Intertechnique Service Bulletin MXP1/4–35–175, Revision 2, dated May 10, 2011; and reinstall in accordance with the Accomplishment Instructions of the applicable Boeing alert service bulletin specified in paragraph (c)(1), (c)(2), or (c)(3) of this AD.
(3) If no crew oxygen mask stowage box unit has a serial number identified in the Appendix of Intertechnique Service Bulletin MXP1/4–35–175, Revision 2, dated May 10, 2011: Before further flight, reinstall the crew oxygen mask stowage box unit, in accordance with the Accomplishment Instructions of the applicable Boeing alert service bulletin specified in paragraph (c)(1), (c)(2), or (c)(3) of this AD.
As of the effective date of this AD, no person may install a crew oxygen mask stowage box unit with a serial number listed in the Appendix of Intertechnique Service Bulletin MXP1/4–35–175, Revision 2, dated May 10, 2011, on any airplane.
(1) The Manager, Seattle Aircraft Certification Office (ACO), FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the manager of the ACO, send it to the attention of the person identified in the Related Information section of this AD. Information may be emailed to:
(2) Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/certificate holding district office.
(1) For more information about this AD, contact Susan L. Monroe, Aerospace Engineer, Cabin Safety and Environmental Systems Branch, ANM–150S, FAA, Seattle Aircraft Certification Office (ACO), 1601 Lind
(2) For Boeing service information identified in this AD, contact Boeing Commercial Airplanes, Attention: Data & Services Management, P.O. Box 3707, MC 2H–65, Seattle, Washington 98124–2207; telephone 206–544–5000, extension 1; fax 206–766–5680; Internet
Federal Aviation Administration (FAA), DOT.
Supplemental notice of proposed rulemaking (NPRM); reopening of comment period.
We are revising an earlier proposed airworthiness directive (AD) for certain Airbus Model A330–200, A330–300, A340–200, and A340–300 series airplanes; and Model A340–541 airplanes and Model A340–642 airplanes. That NPRM proposed to require performing a detailed inspection for degradation of the bogie pivot pins and for any cracks and damage of the pivot pin bushes of the main and central landing gear; a magnetic particle inspection of the affected bogie pivot pins for corrosion and base metal cracks; and repairing or replacing bogie pivot pins and pivot pin bushes, if necessary. That NPRM was prompted by reports of cracks in the bogie pivot pin caused by material heating due to friction between the bogie pivot pin and bush, leading to chrome detachment and chrome dragging on the bogie pivot pin. This action revises that NPRM by adding repetitive inspections and expanding the applicability. We are proposing this AD to detect and correct cracks and damage to the main and central landing gear, which could result in the collapse of the landing gear and adversely affect the airplane's continued safe flight and landing. Since these actions impose an additional burden over that proposed in the NPRM, we are reopening the comment period to allow the public the chance to comment on these proposed changes.
We must receive comments on this proposed AD by October 22, 2012.
You may send comments by any of the following methods:
• Federal eRulemaking Portal: Go to
• Fax: (202) 493–2251.
• Mail: U.S. Department of Transportation, Docket Operations, M–30, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE., Washington, DC 20590.
• Hand Delivery: U.S. Department of Transportation, Docket Operations, M–30, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.
For service information identified in this proposed AD, contact Airbus SAS—Airworthiness Office—EAL, 1 Rond Point Maurice Bellonte, 31707 Blagnac Cedex, France; telephone +33 5 61 93 36 96; fax +33 5 61 93 45 80; email
You may examine the AD docket on the Internet at
Vladimir Ulyanov, Aerospace Engineer, International Branch, ANM–116, Transport Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton, Washington 98057–3356; telephone (425) 227–1138; fax (425) 227–1149.
We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the
We will post all comments we receive, without change, to
We proposed to amend 14 CFR part 39 with an earlier NPRM for the specified products, which was published in the
Since that NPRM (77 FR 7007, February 10, 2012) was issued, we have determined that repetitive inspections of the bogie pivot pin are necessary to address the identified unsafe condition, and we have expanded the applicability to include all Airbus Model A330–200, A330–200 Freighter, A330–300, A340–200, and A340–300 series airplanes; and Model A340–541 and Model A340–642 airplanes.
The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA Airworthiness Directive 2012–0053, dated March 30, 2012 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:
During removals of A330/340 Main Landing Gear (MLG) Bogie Beams and A340–500/600 Center Landing Gear (CLG) Bogie Beams, cracks in the bogie pivot pin were found.
Investigations indicated that these findings were the result of material heating, caused by friction between bogie pivot pin and bush, leading to chrome detachment and stress corrosion cracking.
This condition, if not detected and corrected, could lead to collapse of the main or center landing gear, possibly resulting in damage to the aeroplane and/or injury to occupants.
As a precautionary measure, EASA issued AD 2011–0040 to require a one-time [detailed] inspection of the MLG (all types of A330 and A340 aeroplanes) and CLG (A340–500/600 aeroplanes only) to detect degradation or cracking of the bogie pivot pin [and to detect cracks and damage of the bushes], as applicable to aeroplane model, and the reporting of inspections results.
Following issuance of EASA AD 2011–0040, several operators reported finding chrome detachment or chrome dragging on bogie pivot pin. New cases of cracks were also reported. It has been confirmed as well that, due to similar design, the enhanced MLG bogie pivot pin (Airbus modification 54500) could also be affected by this condition.
Prompted by these findings, Airbus have developed an inspection programme consisting of repetitive inspections of the bogie pivot pin and applicable corrective actions.
For the reasons described above, this [EASA] AD, which supersedes EASA AD 2011–0040 and extends the applicability to all A330 and A340 aeroplanes, requires accomplishment of repetitive inspections of the MLG and CLG (for A340–500 and A340–600 aeroplanes) bogie pivot pins and pivot pin bushes, and corrective actions, depending on findings.
Airbus has issued the following service bulletins:
• Airbus Mandatory Service Bulletin A330–32–3240, Revision 02, including Appendices 01 and 02, dated December 2, 2011 (for Model A330–200 series airplanes, Model A330–200 Freighter series airplanes, and Model A330–300 series airplanes).
• Airbus Mandatory Service Bulletin A340–32–4281, Revision 01, including Appendices 01 and 02, dated December 2, 2011 (for Model A340–200 series airplanes and Model A340–300 series airplanes).
• Airbus Mandatory Service Bulletin A340–32–5096, Revision 01, including Appendices 01 and 02, dated December 2, 2011 (for Model A340–541 airplanes and Model A340–642 airplanes).
The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.
We gave the public the opportunity to comment on the original NPRM (77 FR 7007, February 10, 2012). We received no comments on that NPRM or on the determination of the cost to the public.
This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design.
Certain changes described above expand the scope of the earlier NPRM (77 FR 7007, February 10, 2012). As a result, we have determined that it is necessary to reopen the comment period to provide additional opportunity for the public to comment on this proposed AD.
Based on the service information, we estimate that this proposed AD would affect about 29 products of U.S. registry. We also estimate that it would take about 22 work-hours per product to comply with the basic requirements of this proposed AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of the proposed AD on U.S. operators to be $54,230, or $1,870 per product.
In addition, we estimate that any necessary follow-on actions would take about 6 work-hours and require parts costing $21,222, for a cost of $21,732 per product. We have no way of determining the number of products that may need these actions.
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.
We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
We determined that this 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.
We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
1. The authority citation for part 39 continues to read as follows:
49 U.S.C. 106(g), 40113, 44701.
2. The FAA amends § 39.13 by adding the following new AD:
We must receive comments by October 22, 2012.
None.
This AD applies to Airbus Model A330–201, –202, –203, –223, –243, –223F, –243F, –301, –302, –303, –321, –322, –323, –341, –342, and –343 airplanes; Model A340–211, –212, –213, –311, –312, and –313 airplanes; and Model A340–541 and Model A340–642 airplanes; certificated in any category; all manufacturer serial numbers.
Air Transport Association (ATA) of America Code 32, Landing gear.
This AD was prompted by reports of cracks in the bogie pivot pin caused by material heating due to friction between the bogie pivot pin and bush, leading to chrome detachment and chrome dragging on the bogie pivot pin. We are issuing this AD to detect and correct cracks and damage to the main and central landing gear, which could result in the collapse of the landing gear and adversely affect the airplane's continued safe flight and landing.
You are responsible for having the actions required by this AD performed within the compliance times specified, unless the actions have already been done.
Within 26 months after the effective date of this AD or 26 months after the first flight of the airplane, whichever occurs later; but no earlier than 12 months after the first flight of the airplane: Do a detailed inspection for degradation (i.e., loss of chromium plate, loose chromium, sharp edges) of the bogie pivot pins and for any cracks and damage of the pivot pin bushes of the main landing gear, and as applicable, the central landing gear, in accordance with the Accomplishment Instructions of the applicable service bulletin specified in paragraph (g)(1), (g)(2), or (g)(3) of this AD. Repeat the inspection thereafter at intervals not to exceed 26 months. Accomplishment of an overhaul of the landing gear does not substitute the accomplishment of the inspection as required by this paragraph.
(1) Airbus Mandatory Service Bulletin A330–32–3240, Revision 02, including Appendices 01 and 02, dated December 2, 2011 (for Model A330–200 series airplanes, Model A330–200 Freighter series airplanes, and Model A330–300 series airplanes).
(2) Airbus Mandatory Service Bulletin A340–32–4281, Revision 01, including Appendices 01 and 02, dated December 2, 2011 (for Model A340–200 series airplanes and Model A340–300 series airplanes).
(3) Airbus Mandatory Service Bulletin A340–32–5096, Revision 01, including Appendices 01 and 02, dated December 2, 2011 (for Model A340–541 airplanes and Model A340–642 airplanes).
If, during any inspection required by paragraph (g) of this AD, any pivot pin bush is found cracked or damaged: Before further flight, repair or replace the pivot pin bush with a new or serviceable pivot pin bush, in accordance with the Accomplishment Instructions of the applicable service bulletin specified paragraph (h)(1), (h)(2), or (h)(3) of this AD.
(1) Airbus Mandatory Service Bulletin A330–32–3240, Revision 02, including Appendices 01 and 02, dated December 2, 2011 (for Model A330–200 series airplanes, Model A330–200 Freighter series airplanes, and Model A330–300 series airplanes).
(2) Airbus Mandatory Service Bulletin A340–32–4281, Revision 01, including Appendices 01 and 02, dated December 2, 2011 (for Model A340–200 series airplanes and Model A340–300 series airplanes).
(3) Airbus Mandatory Service Bulletin A340–32–5096, Revision 01, including Appendices 01 and 02, dated December 2, 2011 (for Model A340–541 airplanes and Model A340–642 airplanes).
If, during any inspection required by paragraph (g) of this AD, degraded chrome plating on any bogie pivot pin is found: Before further flight, do a non-destructive test (magnetic particle inspection) of the affected bogie pivot pin for corrosion and base metal cracks, in accordance with the Accomplishment Instructions of the applicable service bulletin specified paragraph (i)(1), (i)(2), or (i)(3) of this AD.
(1) Airbus Mandatory Service Bulletin A330–32–3240, Revision 02, including Appendices 01 and 02, dated December 2, 2011 (for Model A330–200 series airplanes, Model A330–200 Freighter series airplanes, and Model A330–300 series airplanes).
(2) Airbus Mandatory Service Bulletin A340–32–4281, Revision 01, including Appendices 01 and 02, dated December 2, 2011 (for Model A340–200 series airplanes and Model A340–300 series airplanes).
(3) Airbus Mandatory Service Bulletin A340–32–5096, Revision 01, including Appendices 01 and 02, dated December 2, 2011 (for Model A340–541 airplanes and Model A340–642 airplanes).
If, during the non-destructive test (magnetic particle inspection) specified in paragraph (i) of this AD, the bogie pivot pin is found corroded or the base metal is cracked: Before further flight, repair or replace the bogie pin with a new or serviceable bogie pin, in accordance with the Accomplishment Instructions of the applicable service bulletin specified paragraph (j)(1), (j)(2), or (j)(3) of this AD.
(1) Airbus Mandatory Service Bulletin A330–32–3240, Revision 02, including Appendices 01 and 02, dated December 2, 2011 (for Model A330–200 series airplanes, Model A330–200 Freighter series airplanes, and Model A330–300 series airplanes).
(2) Airbus Mandatory Service Bulletin A340–32–4281, Revision 01, including Appendices 01 and 02, dated December 2, 2011 (for Model A340–200 series airplanes and Model A340–300 series airplanes).
(3) Airbus Mandatory Service Bulletin A340–32–5096, Revision 01, including Appendices 01 and 02, dated December 2, 2011 (for Model A340–541 airplanes and Model A340–642 airplanes).
Accomplishment of the corrective actions required by paragraphs (h) and (j) does not terminate the repetitive inspections in paragraph (g) of this AD.
Submit a one-time report of the findings (both positive and negative) of the inspections required by paragraphs (g) and (i) of this AD to Airbus, Customer Services Directorate, 1 Rond Point Maurice Bellonte, 31707 Blagnac Cedex France, ATTN: SDC32 Technical Data and Documentation Services; fax (+33) 5 61 93 28 06; email
(1) If the inspection was done on or after the effective date of this AD: Submit the report within 90 days after the inspection.
(2) If the inspection was done before the effective date of this AD: Submit the report within 90 days after the effective date of this AD.
This paragraph provides credit for the actions required by paragraphs (g) through (j) of this AD, if those actions were performed before the effective date of this AD using the service information specified in paragraphs (m)(1) through (m)(4) of this AD, which are not incorporated by reference in this AD.
(1) Airbus Mandatory Service Bulletin A330–32–3240, including Appendix 1, dated December 8, 2010 (for Model A330–200 series airplanes, Model A330–200 Freighter series airplanes, and Model A330–300 series airplanes).
(2) Airbus Mandatory Service Bulletin A330–32–3240, including Appendix 1, Revision 01, dated May 4, 2011 (for Model A330–200 series airplanes, Model A330–200 Freighter series airplanes, and Model A330–300 series airplanes).
(3) Airbus Mandatory Service Bulletin A340–32–4281, including Appendix 1, dated December 8, 2010 (for Airbus Model A340–200 series airplanes and Model A340–300 series airplanes).
(4) Airbus Mandatory Service Bulletin A340–32–5096, including Appendix 1, dated December 8, 2010 (for Model A340–541 airplanes and Model A340–642 airplanes).
The following provisions also apply to this AD:
(1)
(2)
(3)
(1) Refer to MCAI European Aviation Safety Agency Airworthiness Directive 2012–0053, dated March 30, 2012, and the service information specified in paragraphs (o)(1)(i) through (o)(1)(iii) of this AD, for related information.
(i) Airbus Mandatory Service Bulletin A330–32–3240, Revision 02, including Appendices 01 and 02, dated December 2, 2011 (for Model A330–200 series airplanes, Model A330–200 Freighter series airplanes, and Model A330–300 series airplanes).
(ii) Airbus Mandatory Service Bulletin A340–32–4281, Revision 01, including Appendices 01 and 02, dated December 2, 2011 (for Model A340–200 series airplanes and Model A340–300 series airplanes).
(iii) Airbus Mandatory Service Bulletin A340–32–5096, Revision 01, including Appendices 01 and 02, dated December 2, 2011 (for Model A340–541 airplanes and Model A340–642 airplanes).
(2) For service information identified in this AD, contact Airbus SAS—Airworthiness Office—EAL, 1 Rond Point Maurice Bellonte, 31707 Blagnac Cedex, France; telephone +33 5 61 93 36 96; fax +33 5 61 93 45 80; email
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
We propose to adopt a new airworthiness directive (AD) for the Sikorsky Model S–70, S–70A, S–70C, S–70C (M), and S–70C (M1) helicopters with General Electric (GE) T700–GE–401C or T700–GE–701C engines installed. This proposed AD is prompted by a reevaluation of the method for determining the life limit for certain GE engine gas generator turbine (GGT) rotor parts and the determination that these life limits need to be based on low cycle fatigue events instead of hours time-in-service. The proposed actions are intended to establish new fatigue life limits for certain GGT rotor parts to prevent fatigue failure of a GGT rotor part, engine failure, and subsequent loss of control of the helicopter.
We must receive comments on this proposed AD by November 6, 2012.
You may send comments by any of the following methods:
•
•
•
•
For service information identified in this proposed AD, contact Sikorsky Aircraft Corporation, Attn: Manager, Commercial Technical Support, mailstop s581a, 6900 Main Street, Stratford, CT, telephone (800) 562–4409, email address
Michael Davison, Flight Test Engineer, New England Regional Office, FAA, 12 New England Executive Park, Burlington, MA 01803; phone: (781) 238–7156; fax: (781) 238–7170; email:
We invite you to participate in this rulemaking by submitting written comments, data, or views. We also invite comments relating to the economic, environmental, energy, or federalism impacts that might result from adopting the proposals in this document. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. To ensure the docket does not contain duplicate comments, commenters should send only one copy of written comments, or if comments are filed electronically, commenters should submit only one time.
We will file in the docket all comments that we receive, as well as a report summarizing each substantive public contact with FAA personnel concerning this proposed rulemaking. Before acting on this proposal, we will consider all comments we receive on or before the closing date for comments. We will consider comments filed after the comment period has closed if it is
We propose to adopt a new AD for the specified helicopters with GE part-numbered T700–GE–401C or specified T700–GE–701C engines installed. This proposed AD would require establishing a new life limit for certain GGT rotor parts based upon the accumulated low cycle fatigue events of the GGT rotor parts. This proposed AD is prompted by the determination that the affected engines could fail due to fatigue unless the life limits of certain GE engine rotor parts are changed from hours time-in-service to low cycle fatigue events. The GE T700–GE–701C engine is used in the military's UH–60 fleet. Analysis and experience with this engine have caused the military to reduce the life limit of certain GGT rotor parts and to revise their maintenance documentation to reflect these revised life limits. The Sikorsky Model S–70 helicopters are similar to the military's UH–60 fleet, some of which have been certificated by the FAA in the restricted category. The GE T700–GE–701C engine has not been type-certificated by the FAA for civil use, except to the extent that it is a part of a restricted category Model S–70 helicopter.
We are proposing this AD because we evaluated all known relevant information and determined that an unsafe condition exists and is likely to exist or develop on other helicopters of these same type designs.
GE has issued GE T700 Turboshaft Engine Service Bulletin (ESB) 72–0038, dated October 1, 2008, for the T700–GE–701C engine (ESB 72–0038) and GE T700 Turboshaft ESB 72–0041, dated August 21, 2009, for the T700–GE–401C engine (ESB SB 72–041). These ESBs define a “full-cycle event” and a “partial cycle event,” specify a method of calculating the low cycle fatigue (LCF) life limit using formulas and LCF Limit Diagrams, and specify counting LCF events to determine the remaining fatigue life for specified GGT rotor parts. Finally, the ESBs specify removing each life-limited rotor part from service when its newly-established LCF life limit is reached.
This proposed AD would require, before further flight:
• Inserting the LCF limit diagrams into the airworthiness limitation section of the maintenance manual or instructions for continued airworthiness, shown in Figures 2 through 7 (pages 9 through 14) of ESB 72–0041 or Figures 2 through 4 (pages 10 through 12) of ESB 72–0038.
• Obtaining the actual LCF1 and LCF2 count from the engine “history recorder” (HR), and calculating the LCF1 and LCF2 fatigue retirement life for each GGT rotor part.
• Replacing each GGT rotor part that has reached the new fatigue cycle life limit with an airworthy rotor part.
• Calculating the life limit for the GGT rotor part with the hours time-in-service for the part as shown in Table 1 of ESB 72–0041, for those helicopters with the GE T700–GE–401C engine where the number of low cycle fatigue events cannot be determined manually from the HR or by combining both manual and HR counts.
• Before further flight, beginning or continuing to count the full and partial low fatigue cycle events and recording on the component card or equivalent record that count at the end of each day for which the HR is inoperative.
We estimate that this proposed AD would affect 9 helicopters of U.S. registry. We estimate that operators may incur the following costs in order to comply with this AD:
• A minimal amount for work hours and labor costs because these parts are replaced as part of the periodic maintenance on the helicopter;
• A minimal amount of time to calculate the new retirement life;
• $360,000 to replace the GGT rotor parts per helicopter; and
• $3,240,000 to replace the GGT rotor parts for the entire U.S. operator fleet.
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.
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 to the extent that it justifies making a regulatory distinction; 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.
We prepared an economic evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
1. The authority citation for part 39 continues to read as follows:
49 U.S.C. 106(g), 40113, 44701.
2. The FAA amends § 39.13 by adding the following new Airworthiness Directive (AD):
This AD applies to Model S–70, S–70A, S–70C, S–70C (M), and S–70C (M1) helicopters with General Electric (GE) T700–GE–401C or T700–GE–701C part-numbered engines, certificated in any category.
This AD defines the unsafe condition as a critical engine part remaining in service beyond its fatigue life because the current life limit is based on hours time-in-service (TIS) instead of fatigue cycles. This condition could result in fatigue failure of an engine rotor part, engine failure, and subsequent loss of control of the helicopter.
You are responsible for performing each action required by this AD within the specified compliance time unless it has already been accomplished prior to that time.
(1) Before further flight, insert into the airworthiness limitation section of the maintenance manual or instructions for continued airworthiness the low cycle fatigue (LCF) limit diagrams shown in Figures 2 through 7 (pages 9 through 14) of GE T700 Turboshaft Engine Service Bulletin (ESB) No. T700 S/B 72–0041, dated August 21, 2009, for helicopters with the GE T700–GE–401C engine, or Figures 2 through 4 (pages 10 through 12) of GE T700 Turboshaft ESB No. T700 S/B 72–0038, dated October 1, 2008, for helicopters with the GE T700–GE–701C engine. The diagonal line on each diagram represents the new cycle life limit (a combination of full low cycle fatigue events (LCF1) and partial low cycle fatigue events (LCF2) as those terms are defined in the Accomplishment Instructions, paragraphs 3.A.(1) and 3.A.(2) of each ESB) for each gas generator turbine (GGT) rotor part. A combination of LCF1 and LCF2, which results in a number below the diagonal line of the applicable diagram for each engine, indicates that the part has not reached its fatigue life limit.
(2) Before further flight:
(i) Obtain the actual LCF1 and LCF2 count from the engine “history recorder” (HR);
(ii) Calculate the LCF1 and LCF2 fatigue retirement life for each GGT rotor part as follows:
(A) Determine the actual LCF ratio by dividing the total actual LCF2 cycle count obtained from the HR by the total actual LCF1 cycle count obtained from the HR. Add to the actual counts from the HR any actual additional fatigue cycle incurred during any period in which the HR was inoperative.
(B) Determine the LCF1 retirement life by dividing the maximum number of LCF2 events obtained from the applicable diagram for each engine by the sum of the actual LCF ratio obtained by following paragraph (d)(2)(ii)(A) of this AD plus the quotient of the maximum number of LCF2 events from the applicable diagram for each engine divided by the maximum number of LCF1 events from the applicable diagram for each engine.
(C) Determine the LCF2 retirement life by multiplying the actual LCF ratio obtained by following paragraph (d)(2)(ii)(A) of this AD times the LCF1 retirement life determined by following paragraph (d)(2)(ii)(B) of this AD.
(iii) Replace each GGT rotor part that has reached the new fatigue cycle life limit with an airworthy rotor part.
(3) For helicopters with the GE T700–GE–401C engine, if you cannot determine the number of low cycle fatigue events manually from the HR or by combining both manual and HR counts, then the life limit for the GGT rotor part is the hours TIS for the part as shown in Table 1 of ESB No. T700 S/B 72–0041, dated August 21, 2009.
(4) Before further flight, begin or continue to count the full and partial low fatigue cycle events and record on the component card or equivalent record that count at the end of each day for which the HR is inoperative.
Special flight permits will not be issued to allow flight in excess of life limits.
(1) The Manager, Boston Aircraft Certification Office, FAA, may approve AMOCs for this AD. Send your proposal to: Michael Davison, Flight Test Engineer, New England Regional Office, FAA, 12 New England Executive Park, Burlington, MA 01803; phone: (781) 238–7156; fax: (781) 238–7170; email:
(2) For operations conducted under 14 CFR part 119 operating certificate or under 14 CFR part 91, subpart K, we suggest that you notify your principal inspector, or lacking a principal inspector, the manager of the local flight standards district office or certificate holding district office before operating any aircraft complying with this AD through an AMOC.
For service information identified in this AD, contact Sikorsky Aircraft Corporation, Attn: Manager, Commercial Technical Support, mailstop s581a, 6900 Main Street, Stratford, CT, telephone (800) 562–4409, email address
Joint Aircraft Service Component (JASC) Code: 7250: Turbine Section.
Environmental Protection Agency (EPA).
Proposed rule.
EPA is proposing to approve State Implementation Plan (SIP) revisions submitted by the Virginia Department of Environmental Quality (VADEQ). These revisions propose to allow the terms and conditions of various elements of the preconstruction program in Virginia to be combined into a single permit, establish limitations for issuance of Plantwide Applicability Limits (PALs), and provide an exemption to Virginia's New Source Review (NSR) Program for the use of alternate fuels. This action is being taken under the Clean Air Act (CAA).
Written comments must be received on or before October 9, 2012.
Submit your comments, identified by Docket ID Number EPA–R03–OAR–2011–0926 by one of the following methods:
A.
B.
C.
D.
Gerallyn Duke, (215) 814–2084, or by email at
Throughout this document, whenever “we,” “us,” or “our” is used, we mean EPA. On September 27, 2010, VADEQ submitted revisions to its SIP that would allow terms and conditions from multiple preconstruction permits issued to a single stationary source to be combined into a single permit. The SIP revision also establishes state operating permits for major sources as the mechanism for issuing PAL permits. It also provides an exemption in Virginia's Prevention of Significant Deterioration (PSD) and nonattainment NSR programs for the use of alternate fuels, and makes certain minor administrative revisions to the current SIP.
Section 110(a)(2)(C) of the CAA requires SIPs to have a a preconstruction permit program for both major and minor sources. More specifically, SIPs must have the permit programs required under subparts C and D of title I (i.e., PSD and nonattainment NSR) and the SIP must have a minor preconstruction program that assures that the national ambient air quality standards (NAAQS) are achieved. The current Virginia SIP implements these requirements by issuing separate permits under each program. Consequently, a single project at a stationary source may require multiple permits depending on the type and amount of pollutants to be emitted. Virginia has found that maintaining multiple permits for major stationary sources has resulted in a significant workload burden and causes confusion as to where permit conditions reside, leading to compliance issues.
The proposed SIP revisions will allow preconstruction permits for major stationary sources to be combined into one permit with certain restrictions and conditions. Permit terms and conditions at major sources may be combined into one permit at the request of the Virginia State Air Pollution Control Board or by the permittee. Actions to combine permit terms and conditions must include a statement referencing the origin of the term or condition, its effective date and whether it is state and/or federally enforceable. All terms and conditions of contributing permits must be included in the combined permit without change and the combined permit will supercede the contributing permit. Redundant terms and conditions may be removed from the combined permit but the regulatory basis of the removed term or condition must be included. The state may also streamline permit conditions where two or more terms or conditions apply to the same unit and one is substantially more stringent.
On December 31, 2002 (67 FR 80186), EPA published final rule changes to 40 CFR parts 51 and 52 regarding the CAA's PSD and nonattainment NSR programs that are collectively known as NSR Reform. These changes included provisions that would allow major stationary sources to comply with a PAL to avoid having a significant emissions increase that triggers the requirements of the major NSR program. EPA granted limited approval of Virginia's NSR Reform regulations on October 22, 2008 (73 FR 62897). In the current version of the Virginia SIP, PALs may be implemented through a major NSR permit, a minor NSR permit or a state operating permit. This is consistent with the federal rules at 40 CFR 51.165(f)(2)(ix) and 51.166(w)(2)(ix) with respect to the definition of “PAL permit.” All three permitting mechanisms in the Virginia SIP are acceptable means for establishing a PAL. The proposed SIP revision would limit establishing PALs to state operating permits. States have discretion in choosing among the enforceable mechanisms provided in the definition of “PAL permit” and Virginia's selection of a state operating permit is consistent with the options provided in the federal rules.
In 2008, the Virginia General Assembly amended Va. Code Sec. 10.1322.4 to allow exemptions for alternative fuels and raw materials from permit requirements. The proposed SIP revision is intended to ensure that there are no conflicts between the Virginia Code and Federal regulations, including the SIP. On March 24, 2011, the Director of the Air Division at VADEQ issued Air Guidance Memo No. APG–308 which clarified that the exemption from permitting for the use of alternative fuels does not allow a source to bypass NSR for major sources or any other federal law or regulation. This document is included in the docket for this proposed rulemaking action.
The amendments submitted by VADEQ for approval into the SIP were adopted by the State Air Pollution Control Board on June 8, 2009 and became effective on July 23, 2009. They include revisions to the VADEQ regulations at 9VAC5 Chapter 80, Article 8 (Permits for Major Stationary Sources and Major Modifications Locating in Prevention of Significant Deterioration Areas) and Article 9 (Permits for Major Stationary Sources and Modifications Locating in Nonattainment Areas or the Ozone Transport Region). The following regulations under Article 8 are revised: Regulation 5–80–1615 (Definitions), Regulation 5–80–1625 (General), Regulation 5–80–1695 (Exemptions), Regulation 5–80–1925 (Changes to permits), Regulation 5–80–1935 (Administrative permit amendments), Regulation 5–80–1945 (Minor permit amendments), Regulation 5–80–1955 (Significant amendment procedures), and Regulation 5–80–1965 (Reopening for cause). Under Article 9, Regulation 5–80–2010 (Definitions), Regulation 5–80–2020 (General), Regulation 5–80–2140 (Exception), Regulation 5–80–2200
We are proposing approval of Virginia's SIP submission dated September 27, 2010 that consists of the following actions that pertain to Virginia's PSD and nonattainment NSR Programs: (1) Adding provisions to allow the terms and conditions of the various elements of the NSR Program to be combined into a single permit; (2) limiting the issuance of PALs to the state operating permit program; (3) providing certain exemptions from permitting for alternative fuels unless required by federal law or regulation; and (4) making minor administrative amendments.
In 1995, Virginia adopted legislation that provides, subject to certain conditions, for an environmental assessment (audit) “privilege” for voluntary compliance evaluations performed by a regulated entity. The legislation further addresses the relative burden of proof for parties either asserting the privilege or seeking disclosure of documents for which the privilege is claimed. Virginia's legislation also provides, subject to certain conditions, for a penalty waiver for violations of environmental laws when a regulated entity discovers such violations pursuant to a voluntary compliance evaluation and voluntarily discloses such violations to the Commonwealth and takes prompt and appropriate measures to remedy the violations. Virginia's Voluntary Environmental Assessment Privilege Law, Va. Code Sec. 10.1–1198, provides a privilege that protects from disclosure documents and information about the content of those documents that are the product of a voluntary environmental assessment. The Privilege Law does not extend to documents or information: (1) That are generated or developed before the commencement of a voluntary environmental assessment; (2) that are prepared independently of the assessment process; (3) that demonstrate a clear, imminent and substantial danger to the public health or environment; or (4) that are required by law.
On January 12, 1998, the Commonwealth of Virginia Office of the Attorney General provided a legal opinion that states that the Privilege law, Va. Code Sec. 10.1–1198, precludes granting a privilege to documents and information “required by law,” including documents and information “required by law to maintain program delegation, authorization or approval,” since Virginia must “enforce Federally authorized environmental programs in a manner that is no less stringent than their Federal counterparts. * * * ” The opinion concludes that “[r]egarding § 10.1–1198, therefore, documents or other information needed for civil or criminal enforcement under one of these programs could not be privileged because such documents and information are essential to pursuing enforcement in a manner required by Federal law to maintain program delegation, authorization or approval.”
Virginia's Immunity law, Va. Code Sec. 10.1–1199, provides that “[t]o the extent consistent with requirements imposed by Federal law,” any person making a voluntary disclosure of information to a state agency regarding a violation of an environmental statute, regulation, permit, or administrative order is granted immunity from administrative or civil penalty. The Attorney General's January 12, 1998 opinion states that the quoted language renders this statute inapplicable to enforcement of any Federally authorized programs, since “no immunity could be afforded from administrative, civil, or criminal penalties because granting such immunity would not be consistent with Federal law, which is one of the criteria for immunity.”
Therefore, EPA has determined that Virginia's Privilege and Immunity statutes will not preclude the Commonwealth from enforcing its PSD and NSR programs consistent with the Federal requirements. In any event, because EPA has also determined that a state audit privilege and immunity law can affect only state enforcement and cannot have any impact on Federal enforcement authorities, EPA may at any time invoke its authority under the CAA, including, for example, sections 113, 167, 205, 211 or 213, to enforce the requirements or prohibitions of the state plan, independently of any state enforcement effort. In addition, citizen enforcement under section 304 of the CAA is likewise unaffected by this, or any, state audit privilege or immunity law.
Based upon EPA's review of the September 27, 2010 submittal, we find the regulations are consistent with their Federal counterparts. EPA is proposing to approve the Virginia SIP revisions which add provisions to allow the terms and conditions of the various elements of the PSD and nonattainment NSR Programs to be combined into a single permit; limit the issuance of PALs to the state operating permit program; provide exemptions from permitting for alternative fuels; and make minor administrative changes. EPA is soliciting public comments on the issues discussed in this document. These comments will be considered before taking final action.
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely proposes to approve state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this proposed action:
• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4);
• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of Section 12(d) of the National
• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, this proposed rule related to Virginia permits for major stationary sources and major modifications locating in PSD or Nonattainment Areas or the Ozone Transport Region does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the state, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.
Environmental protection, Air pollution control, Carbon monoxide, Intergovernmental relations, Lead, Nitrogen dioxide, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur oxides, Volatile organic compounds.
42 U.S.C. 7401
Environmental Protection Agency (EPA).
Proposed rule.
EPA is proposing to approve a State Implementation Plan (SIP) revision submitted by the Maryland Department of the Environmental (MDE) on April 4, 2012. This revision proposes to defer until July 21, 2014 the application of the Prevention of Significant Deterioration (PSD) permitting requirements to biogenic carbon dioxide (CO
Written comments must be received on or before October 9, 2012.
Submit your comments, identified by Docket ID Number EPA–R03–OAR–2012–0305 by one of the following methods:
A.
B.
C.
D.
Mr. David Talley, (215) 814–2117, or by email at
Throughout this document, whenever “we,” “us,” or “our” is used, we mean EPA. On April 4, 2012, MDE submitted a revision (#12–02) to its State Implementation Plan (SIP) to maintain consistency with Federal greenhouse gas (GHG) permitting requirements under the PSD program.
On June 3, 2010 (effective August 2, 2010), EPA promulgated a final rulemaking, the Tailoring Rule, for the purpose of relieving overwhelming permitting burdens from the regulation of GHG's that would, in the absence of the rule, fall on permitting authorities and sources (75 FR 31514). EPA accomplished this by tailoring the applicability criteria that determine which GHG emission sources become subject to the PSD program of the CAA. In particular, EPA established in the Tailoring Rule a phase-in approach for PSD applicability and established the first two steps of the phase-in for the largest GHG-emitters.
For the first step of the Tailoring Rule, which began on January 2, 2011, PSD requirements apply to major stationary source GHG emissions only if the sources are subject to PSD anyway due to their emissions of non-GHG pollutants. Therefore, in the first step, EPA did not require sources or modifications to evaluate whether they are subject to PSD requirements solely on account of their GHG emissions. Specifically, for PSD, Step 1 requires that as of January 2, 2011, the applicable requirements of PSD, most noticeably the best available control technology
The second step of the Tailoring Rule, which began on July 1, 2011, phased in additional large sources of GHG emissions. New sources that emit, or have the potential to emit (PTE), at least 100,000 tpy CO
Maryland implements its PSD program by incorporating 40 CFR 52.21 by reference, under COMAR 26.11.06.14B(1). This incorporation references a date specific version of the CFR and is updated periodically and submitted to EPA for approval into the SIP. In order to adopt the Tailoring Rule, Maryland's previous update incorporated 40 CFR 52.21 “as published in the 2009 edition, as amended by the `Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule' (75 FR 31514).” EPA approved this revision into the Maryland SIP on August 2, 2012 (77 FR 45949).
On July 20, 2011, EPA promulgated the final “Deferral for CO
The biomass deferral delays until July 21, 2014 the consideration of CO
Biogenic CO
• CO
• CO
• CO
• CO
• CO
• CO
EPA recognizes that use of certain types of biomass can be part of the national strategy to reduce dependence on fossil fuels. Efforts are underway at the Federal, state and regional level to foster the expansion of renewable resources and promote bioenergy projects when they are a way to address climate change, increase domestic alternative energy production, enhance forest management and create related employment opportunities. We believe part of fostering this development is to ensure that those feedstocks with negligible net atmospheric impact not be subject to unnecessary regulation. At the same time, it is important that EPA have time to conduct its detailed examination of the science and technical issues related to accounting for biogenic CO
For stationary sources co-firing fossil fuel and biologically-based fuel, and/or combusting mixed fuels (e.g., tire derived fuels, municipal solid waste (MSW)), the biogenic CO
EPA's final biomass deferral rule is an interim deferral for biogenic CO
Section 52.21(w) of 40 CFR requires that any PSD permit shall remain in effect, unless and until it expires or it is rescinded, under the limited conditions specified in that provision. Thus, a PSD permit that is issued to a source while the deferral was effective need not be reopened or amended if the source is no longer eligible to exclude its biogenic CO
Any future actions to modify, shorten, or make permanent the deferral for biogenic sources are beyond the scope of the biomass deferral action and this proposed approval of the deferral into the Maryland SIP, and will be addressed through subsequent rulemaking. The results of EPA's review of the science related to net atmospheric impacts of biogenic CO
Similar to our approach with the Tailoring Rule, EPA incorporated the biomass deferral into the regulations governing state programs and into the Federal PSD program by amending the definition of “subject to regulation” under 40 CFR sections 51.166 and 52.21 respectively. As discussed above, Maryland implements its PSD program by incorporating section 52.21 by reference. This incorporation references a date specific version of the CFR and is updated periodically and submitted to EPA for approval into the SIP. In order to adopt the Biomass Deferral, Maryland has revised COMAR 26.11.06.14B(1) to incorporate the 2009 version of 40 CFR 52.21 “as amended by” the Tailoring Rule and the Biomass Deferral. Additionally, the definitions of “PSD source” and greenhouse gas” at COMAR 26.11.01.01 and 26.11.02.01 respectively have been revised to incorporate the Biomass Deferral.
EPA's review of this material indicates that it is consistent with Federal regulations. EPA is proposing to approve the Maryland SIP revision incorporating the Biomass Deferral, which was submitted on April 4, 2012. EPA is soliciting public comments on this proposed approval of Maryland's SIP revision request. These comments will be considered before taking final action.
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely proposes to approve state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this proposed action:
• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4);
• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and
• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, this proposed rule relating to the Biomass Deferral and GHG permitting under Maryland's PSD program does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the state, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.
Environmental protection, Air pollution control, Carbon monoxide, Intergovernmental relations, Lead, Nitrogen dioxide, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur oxides, Volatile organic compounds.
42 U.S.C. 7401
Coast Guard, DHS.
Notice of proposed policy change and request for comments.
The Coast Guard is seeking public comment regarding criteria for granting medical waivers to mariners who have anti-tachycardia devices or implantable cardioverter defibrillators (ICDs). Current Coast Guard guidance found in Navigation and Vessel Inspection Circular 04–08,
Comments and related material must either be submitted to our online docket via
You may submit comments identified by docket number USCG–2011–0734 using any one of the following methods:
(1)
(2)
(3)
(4)
To avoid duplication, please use only one of these four methods. See the “Public Participation” portion of the
If you have questions about this notice, call or email Lieutenant Ashley Holm, Mariner Credentialing Program Policy Division (CG–CVC–4), U.S. Coast Guard, telephone 202–372–1128, email
You may submit comments and related material regarding whether this proposed policy change should be incorporated into a final policy on issuing medical waivers to mariners with ICDs. All comments received will be posted, without change, to
To submit your comment online, go to
Coast Guard regulations in 46 CFR 10.215 contain the medical standards that merchant mariners must meet prior to being issued a merchant mariner credential (MMC). In cases where the mariner does not meet the medical standards in 46 CFR 10.215, the Coast Guard may issue a waiver when extenuating circumstances exist that warrant special consideration.
In NVIC 04–08, the Coast Guard states that anti-tachycardia devices and ICDs are generally not waiverable. Since the issuance of NVIC 04–08 on September 15, 2008, a number of mariners have sought and received waivers for anti-tachycardia devices or ICDs in accordance with 46 CFR 10.215(g). However, because NVIC 04–08 does not identify waiver criteria associated with anti-tachycardia devices or ICDs, it has been difficult for Coast Guard personnel to consistently evaluate merchant mariners with anti-tachycardia devices or ICDs and assess whether an applicant's medical condition warrants granting a medical waiver under 46 CFR 10.215(g). Accordingly, the Coast Guard is considering whether to change its policy regarding waivers for anti-tachycardia devices or ICDs, and under what criteria a mariner may be eligible for waiver consideration.
The Coast Guard intends to consider public input as well as the recommendations of the Merchant Mariner Medical Advisory Committee, established under the authority of 46
The Coast Guard specifically requests public comment on the likelihood of an ICD inappropriately firing and whether that shock could potentially incapacitate a merchant mariner. Additionally, the Coast Guard seeks public comment on whether the criteria listed below are appropriate and sufficient to evaluate whether a mariner should be eligible for consideration for a medical waiver under 46 CFR 10.215(g).
Below is a series of 12 questions we are considering as the criteria for granting a medical waiver. A review of the mariner's record should lead the Coast Guard to answer “no” for each question in order for the mariner to be eligible for waiver consideration. We request public comment regarding whether the 12 questions below represent an appropriate and sufficient list of the criteria a mariner should be required to meet in order to be eligible for waiver consideration, or whether we should eliminate or modify any of the questions, or add other questions to the list.
(1) Does the mariner have a diagnosis of a cardiac channelopathy affecting the electrical conduction of the heart (including Brugada syndrome, Long QT syndrome, etc.)?
(2) Does the mariner have a prior history of ventricular fibrillation or episodes of sustained ventricular tachycardia and, if so, did the arrhythmia episode occur greater than three years ago?
(3) Was the ICD or anti-tachycardia device implanted more than three years ago?
(4) Has the ICD fired or has the mariner required anti-tachycardia pacing within the last three years?
(5) Does the mariner's condition present any confounding risk factors for inappropriate shock such as uncontrolled atrial fibrillation?
(6) Is the mariner's ejection fraction greater than 40% with a steady or improving trend?
(7) Does the mariner have a history of any symptomatic or clinically significant heart failure in the past two years?
(8) Does the mariner's record contain any evidence of significant reversible ischemia on myocardial perfusion imaging exercise stress testing?
(9) Has the mariner's exercise capacity been assessed to be greater than or equal to 10 metabolic equivalents (METs)?
(10) Did the mariner provide a written opinion of the treating cardiologist or electrophysiologist that supports a determination that the mariner is at low risk for future arrhythmia, adverse cardiac event or sudden incapacitation based upon objective testing and standard evaluation tools?
(11) Does the mariner have any other medical conditions which may alone, or in combination with an ICD or anti-tachycardia device, affect the mariner's fitness?
(12) Is the mariner applying for an original credential, raise-in-grade, or renewal of an existing credential?
We issue this request for public comments under the authority of 5 U.S.C. 552(a).
National Highway Traffic Safety Administration (NHTSA), DOT.
Notice of Proposed Rulemaking.
This document proposes to increase the maximum civil penalty amounts for violations of motor vehicle safety requirements for the National Traffic and Motor Vehicle Safety Act, as amended, and violations of bumper standards and consumer information provisions. Specifically, this proposes increases in maximum civil penalty amounts for single violations of motor vehicle safety requirements, a series of related violations of school bus and equipment safety requirements, a series of related violations of bumper standards, and a series of related violations of consumer information regarding crashworthiness and damage susceptibility requirements. This action would be taken pursuant to the Federal Civil Monetary Penalty Inflation Adjustment Act of 1990, as amended by the Debt Collection Improvement Act of 1996, which requires us to review and, as warranted, adjust penalties based on inflation at least every four years.
Comments on the proposal are due October 9, 2012.
Proposed effective date: 30 days after date of publication of the final rule in the
You may submit comments to the docket number identified in the heading of this document by any of the following methods:
•
•
•
•
Regardless of how you submit your comments, please note the docket number of this document.
Matthew Weisman, Office of Chief Counsel, NHTSA, telephone (202) 366–5834, facsimile (202) 366–3820, 1200 New Jersey Ave, SE., Washington, DC 20590.
In order to preserve the remedial impact of civil penalties and to foster compliance with the law, the Federal Civil Monetary Penalty Inflation Adjustment Act of 1990 (28 U.S.C. 2461 Notes, Pub. L. 101–410), as amended by the Debt Collection Improvement Act of 1996 (Pub. L. 104–134) (referred to collectively as the “Adjustment Act” or,
NHTSA's initial adjustment of civil penalties under the Adjustment Act was published on February 4, 1997. 62 FR 5167. At that time, we codified the penalties under statutes administered by NHTSA, as adjusted, in 49 CFR part 578, Civil Penalties. Thereafter, we adjusted certain penalties based on the Adjustment Act and codified others based on other laws including the Transportation Recall Enhancement, Accountability, and Documentation Act.
On May 16, 2006, NHTSA last adjusted the maximum civil penalty for a single violation of the Motor Vehicle Safety Act, sections 30112, 30115, 30117 through 30122, 30123, 30125(c), 30127, or 30141 through 30147 of Title 49 of the United States Code or a regulation thereunder, as specified in 49 CFR 578.6(a)(1) from $5,000 to $6,000. 71 FR 28279. At the same time, the agency adjusted the maximum civil penalty for a single violation of the Motor Vehicle Safety Act, section 30166 of Title 49 of the United States Code or a regulation thereunder, to $6,000.
On February 10, 2010, NHTSA last adjusted the maximum civil penalty for a related series of violations of the Motor Vehicle Safety Act as amended involving school buses and school bus equipment, section 30112(a)(1) as it involves school buses and school bus equipment and section 30112(a)(2) of Title 49 of the United States Code, as specified in 49 CFR 578.6(a)(2) from $15,000,000 to $16,650,000. 75 FR 5246.
Also on February 10, 2010, NHTSA last adjusted the maximum civil penalty for a related series of violations of bumper standards, section 32506 of Title 49 of the United States Code, as specified in 49 CFR 578.6(c)(2) from $1,025,000 to $1,175,000. 75 FR 5246. In addition, on February 10, 2010, NHTSA last adjusted the maximum civil penalty for a related series of violations of consumer information requirements regarding crashworthiness and damage susceptibility, section 32308 of Title 49 of the United States Code, as specified in 49 CFR 578.6(d)(1) from $500,000 to $575,000. 75 FR 5246.
We have reviewed the civil penalty amounts in 49 CFR part 578 and propose in this notice to adjust certain penalties under the Adjustment Act.
Under the Adjustment Act, we determine the inflation adjustment for each applicable civil penalty by increasing the maximum civil penalty amount per violation by a cost-of-living adjustment, and then applying a rounding factor. Section 5(b) of the Adjustment Act defines the “cost-of-living” adjustment as:
The percentage (if any) for each civil monetary penalty by which—
(1) The Consumer Price Index for the month of June of the calendar year preceding the adjustment exceeds
(2) The Consumer Price Index for the month of June of the calendar year in which the amount of such civil monetary penalty was last set or adjusted pursuant to law.
Since the proposed adjustment is intended to be effective before December 31, 2012, the “Consumer Price Index [CPI] for the month of June of the calendar year preceding the adjustment” would be the CPI for June 2011. This figure, based on the Adjustment Act's requirement of using the CPI “for all-urban consumers published by the Department of Labor” is 676.162.
Accordingly, the factors that we are using in calculating the proposed increases are 1.11 (676.162/607.8) for a single Motor Vehicle Safety Act violation and 1.04 (676.162/652.926) for a related series of Motor Vehicle Safety Act violations pertaining to school buses or school bus equipment, as well as for a series of related violations of bumper standards, and a series of related violations of consumer information requirements. Using these inflation factors, calculated increases under these adjustments are then subject to a specific rounding formula set forth in Section 5(a) of the Adjustment Act. 28 U.S.C. 2461, Notes. Under that formula:
Any increase shall be rounded to the nearest:
(1) Multiple of $10 in the case of penalties less than or equal to $100;
(2) Multiple of $100 in the case of penalties greater than $100 but less than or equal to $1,000;
(3) Multiple of $1,000 in the case of penalties greater than $1,000 but less than or equal to $10,000;
(4) Multiple of $5,000 in the case of penalties greater than $10,000 but less than or equal to $100,000;
(5) Multiple of $10,000 in the case of penalties greater than $100,000 but less than or equal to $200,000; and
(6) Multiple of $25,000 in the case of penalties greater than $200,000.
The maximum civil penalty for a violation of any of sections 30112, 30115, 30117 through 30122, 30123(a), 30125(c), 30127, or 30141 through 30147 of Title 49 of the United States Code or a regulation prescribed under any of those sections is $6,000, as specified in 49 CFR 578.6(a)(1). The underlying statutory civil penalty provision is 49 U.S.C. 30165(a)(1). Applying the appropriate inflation factor (1.11) to the Adjustment Act calculation raises the $6,000 figure to $6,679, an increase of $679. Under the rounding formula, any increase in a penalty's amount shall be rounded to the nearest multiple of $1,000. In this case, the increase would be $1,000. Accordingly, NHTSA proposes that Section 578.6(a)(1) be amended to increase the maximum civil penalty from $6,000 to $7,000 for each violation.
The maximum civil penalty for a violation of section 30166 of Title 49 of the United States Code or a regulation prescribed under that section is $6,000, as specified in 49 CFR 578.6(a)(3). The underlying statutory civil penalty provision is 49 U.S.C. 30165(a)(3). Applying the appropriate inflation factor (1.11) to the Adjustment Act calculation raises the $6,000 figure to $6,679, an increase of $679. Under the rounding formula, any increase in a penalty's amount shall be rounded to the nearest multiple of $1,000. In this case, the increase would be $1,000. Accordingly, NHTSA proposes that Section 578.6(a)(3) be amended to increase the maximum civil penalty from $6,000 to $7,000 per violation per day.
The maximum civil penalty for a series of related violations of section 30112(a)(1) of Title 49 of the United States Code involving school buses or school bus equipment, or of the prohibition on school system purchases and leases of 15 passenger vans as specified in 30112(a)(2) of Title 49 of the United States Code is $16,650,000, as codified in 49 CFR 578.6(a)(2). The underlying statutory civil penalty provision is 49 U.S.C. 30165(a)(2). Applying the appropriate inflation factor (1.04) to the Adjustment Act calculation raises the $16,650,000 figure to $17,242,531, an increase of $592,531. Applying the rounding rules, which instruct that increases be rounded to the closest $25,000, produces an increase of $600,000. Accordingly, NHTSA proposes that the maximum penalty under Section 578.6(a)(2) be increased to $17,250,000.
The maximum civil penalty for a series of related violations of bumper prohibitions, section 32506(a) of Title 49 of the United States Code, is $1,175,000 as specified in 49 CFR 578.6(c).
The underlying statutory civil penalty provision is 49 U.S.C. 32507. Applying the appropriate inflation factor (1.04) to the Adjustment Act calculation raises the $1,175,000 figure to $1,216,815, an increase of $41,815. Applying the rounding rules, which instruct that increases be rounded to the closest $25,000, produces an increase of $50,000. Accordingly, NHTSA proposes that the maximum penalty under Section 578.6(c)(2) be increased to $1,225,000.
The maximum civil penalty for a series of related violations of consumer information provisions regarding crashworthiness and damage susceptibility, section 32308(a) of Title 49 of the United States Code, is $575,000 as specified in 49 CFR 578.6(d)(1). Applying the appropriate inflation factor (1.04) to the Adjustment Act calculation raises the $575,000 figure to $595,462, an increase of $20,462. Applying the rounding rules, which instruct that increases be rounded to the closest $25,000, produces an increase of $25,000. Accordingly, NHTSA proposes that the maximum penalty under Section 578.6(a)(d)(1) be increased to $600,000.
The Agency's regulations provide that the maximum penalty is $37,500 per vehicle or engine. 49 CFR 535.9(b)(3). Consistent with the approach of codifying the penalties under statutes administered by NHTSA in Part 578, NHTSA will codify this amount in a new subsection (i) of 49 CFR 578.6.
The amendments would be effective 30 days after publication of the final rule in the
Your comments must be written and in English. To ensure that your comments are correctly filed in the Docket, please include the docket number of this document in your comments.
Your comments must not be more than 15 pages long (49 CFR 553.21). NHTSA established this limit to encourage you to write your primary comments in a concise fashion. However, you may attach necessary additional documents to your comments. There is no limit on the length of the attachments.
Please submit your comments to the docket electronically by logging onto
If you wish to submit any information under a claim of confidentiality, you should submit the following to the Chief Counsel (NCC–110) at the address given at the beginning of this document under the heading
We will consider all comments that Docket Management receives before the close of business on the comment closing date indicated at the beginning of this notice under
You may read the comments received by Docket Management at the address and times given near the beginning of this document under
You may also see the comments on the Internet. To read the comments on the Internet, take the following steps:
(1) Go to the Docket Management System (DMS) Web page of the Department of Transportation (
(2) On that page, click on “search.”
(3) On the next page (
(4) After typing the docket number, click on “search.”
(5) The next page contains docket summary information for the docket you selected. Click on the comments you wish to see.
You may download the comments. The comments are imaged documents, in either TIFF or PDF format. Please note that even after the comment closing date, we will continue to file relevant information in the Docket as it becomes available. Further, some people may submit late comments. Accordingly, we
We have considered the impact of this rulemaking action under Executive Order 12866 and the Department of Transportation's regulatory policies and procedures. This rulemaking document was not reviewed under Executive Order 12866, “Regulatory Planning and Review.” This action is limited to the proposed adoption of adjustments of civil penalties under statutes that the agency enforces, and has been determined to be not “significant” under the Department of Transportation's regulatory policies and procedures and the policies of the Office of Management and Budget.
We have also considered the impacts of this notice under the Regulatory Flexibility Act. I certify that a final rule based on this proposal will not have a significant economic impact on a substantial number of small entities. The following provides the factual basis for this certification under 5 U.S.C. 605(b). The proposed amendments almost entirely potentially affect manufacturers of motor vehicles and motor vehicle equipment.
The Small Business Administration's regulations define a small business in part as a business entity “which operates primarily within the United States.” 13 CFR 121.105(a). SBA's size standards were previously organized according to Standard Industrial Classification (“SIC”) Codes. SIC Code 336211 “Motor Vehicle Body Manufacturing” applied a small business size standard of 1,000 employees or fewer. SBA now uses size standards based on the North American Industry Classification System (“NAICS”), Subsector 336—Transportation Equipment Manufacturing, which provides a small business size standard of 1,000 employees or fewer for automobile manufacturing businesses. Other motor vehicle-related industries have lower size requirements that range between 500 and 750 employees.
Many small businesses are subject to the penalty provisions of 49 U.S.C. Chapter 301 (Motor Vehicle Safety Act) and therefore may be affected by the adjustments that this NPRM proposes to make. For example, based on comprehensive reporting pursuant to the early warning reporting (EWR) rule under the Motor Vehicle Safety Act, 49 CFR part 579, of the more than 60 light vehicle manufacturers reporting, over half are small businesses. Also, there are other, relatively low production vehicle manufacturers that are not subject to comprehensive EWR reporting. Furthermore, there are about 70 registered importers. Equipment manufacturers (including importers), entities selling motor vehicles and motor vehicle equipment, and motor vehicle repair businesses are also subject to penalties under 49 U.S.C. 30165.
As noted throughout this preamble, this proposed rule would only increase the maximum penalty amounts that the agency could obtain for a single violation and a related series of violations of various provisions of the Motor Vehicle Safety Act, as well as for a series of related violations of bumper standards, and a series of related violations of consumer information requirements for violations. Under the Motor Vehicle Safety Act, the penalty provision requires the agency to take into account the size of a business when determining the appropriate penalty in an individual case.
Since this regulation would not establish penalty amounts, this proposal will not have a significant economic impact on small businesses.
Small organizations and governmental jurisdictions would not be significantly affected as the price of motor vehicles and equipment ought not change as the result of this proposed rule. As explained above, this action is limited to the proposed adoption of a statutory directive, and has been determined to be not “significant” under the Department of Transportation's regulatory policies and procedures.
Executive Order 13132 requires NHTSA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Under Executive Order 13132, the agency may not issue a regulation with Federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, the agency consults with State and local governments, or the agency consults with State and local officials early in the process of developing the proposed regulation.
This proposed rule would not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. The reason is that this proposed rule would generally apply to motor vehicle and motor vehicle equipment manufacturers (including importers), entities that sell motor vehicles and equipment and motor vehicle repair businesses. It would have very limited applicability to States or local governments, as where they purchase or lease 15 passenger vans used for certain school purposes or activities, which vans do not comply with federal motor vehicle safety standards for school buses and multifunction school activity buses. Thus, the requirements of Section 6 of the Executive Order do not apply.
The Unfunded Mandates Reform Act of 1995, Public Law 104–4, requires agencies to prepare a written assessment of the cost, benefits and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of more than $100 million annually. Because this rule will not have a $100 million effect, no
This proposed rule does not have a retroactive or preemptive effect. Judicial review of a rule based on this proposal may be obtained pursuant to 5 U.S.C. 702. That section does not require that a petition for reconsideration be filed prior to seeking judicial review.
In accordance with the Paperwork Reduction Act of 1980, we state that there are no requirements for information collection associated with this rulemaking action.
Please note that anyone is able to search the electronic form of all 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 DOT's complete Privacy Act Statement in the
Imports, Motor vehicle safety, Motor vehicles, Rubber and Rubber Products, Tires, Penalties.
In consideration of the foregoing, 49 CFR part 578 would be amended as set forth below.
1. The authority citation for 49 CFR Part 578 is revised to read as follows:
Pub. L. 101–410, Pub. L. 104–134, Pub. L. 109–59, 49 U.S.C. 30165, 30170, 30505, 32308, 32309, 32507, 32709, 32710, 32902, 32912, and 33115; delegation of authority at 49 CFR 1.81, 1.95.
2. Section 578.6 is amended by revising paragraphs (a)(1), (a)(2), (a)(3), (c)(2), and (d)(1) and adding a new paragraph (i) to read as follows:
(a)
(2)
(i) Violates section 30112(a)(1) of Title 49 United States Code by the manufacture, sale, offer for sale, introduction or delivery for introduction into interstate commerce, or importation of a school bus or school bus equipment (as those terms are defined in 49 U.S.C. 30125(a)): or
(ii) violates section 30112(a)(2) of Title 49 United States Code, shall be subject to a civil penalty of not more than $11,000 for each violation. A separate violation occurs for each motor vehicle or item of motor vehicle equipment and for each failure or refusal to allow or perform an act required by this section. The maximum penalty under this paragraph for a related series of violations is $17,250,000.
(3)
(c) * * *
(2) The maximum civil penalty under this paragraph (c) for a related series of violations is $1,225,000.
(d)
(i)
Forest Service, USDA.
Notice of meeting.
The Bridger-Teton Resource Advisory Committee will meet in Cokeville, Wyoming. The Committee is authorized under the Secure Rural Schools and Community Self-Determination Act (Pub. L. 112–141) (the Act) and operates in compliance with the Federal Advisory Committee Act. The purpose of the Committee is to improve collaborative relationships and to provide advice and recommendations to the Forest Service concerning projects and funding consistent with the Title II of the Act. The meeting is open to the public. The purpose of the meeting is to review and recommend projects authorized under Title II of the Act.
The meeting will be held Monday September 17, 2012 at 6 p.m.
The meeting will be held at the Cokeville Town Hall, in the Town Council Conference Room. The Town Hall is located at 110 Pine St, Cokeville WY 83114. Written comments may be submitted as described under Supplementary Information. All comments, including names and addresses when provided, are placed in the record and are available for public inspection and copying. The public may inspect comments received at the Greys River Ranger District Office, 671 N Washington St, Afton WY 83110. Please call ahead to 307.886.5300 to facilitate entry into the building to view comments.
Adam Mendonca, Greys River District Ranger, Bridger-Teton National Forest; 307.886.5310 or
The meeting is open to the public. The following business will be conducted: (1) Discuss proposed projects. (2) Vote on proposed projects. (3) Public comment. Anyone who would like to bring related matters to the attention of the Committee may file written statements with the Committee staff before the meeting. Written comments must be sent to Greys River Ranger District Office, 671 N Washington St, Afton WY 83110, or by email to
Natural Resources Conservation Service (NRCS), U.S. Department of Agriculture.
Notice of availability of proposed changes in the Virginia NRCS State Technical Guide for review and comment.
It has been determined by the NRCS State Conservationist for Virginia that changes must be made in the NRCS State Technical Guide specifically in the following practice standards: Nutrient Management (590) and Feed Management (592). These practices will be used to plan and install conservation practices.
Comments will be received for a 30-day period commencing with this date of publication.
John A. Bricker, State Conservationist, Natural Resources Conservation Service (NRCS), 1606 Santa Rosa Road, Suite 209, Richmond, Virginia 23229–5014; Telephone number (804) 287–1691 or
Copies of the practice standards will be made available upon written request to the address shown above or on the Virginia NRCS Web site:
Section 343 of the Federal Agriculture Improvement and Reform Act of 1996 states that revisions made after enactment of the law to NRCS State technical guides used to carry out highly erodible land and wetland provisions of the law shall be made available for public review and comment. For the next 30 days, the NRCS in Virginia will receive comments relative to the proposed changes. Following that period, a determination will be made by the NRCS in Virginia regarding disposition of those comments and a final determination of change will be made to the subject standards.
Bureau of the Census, Department of Commerce.
Notice of request for nominations.
The Secretary of Commerce is requesting nominations of individuals
Please submit nominations by October 9, 2012.
Please submit nominations to B.K. Atrostic, Designated Federal Official for Federal Economic Statistics Advisory Committee, U.S. Census Bureau, Room 2K267, 4600 Silver Hill Road, Washington, DC 20233. Nominations also may be submitted via fax at 301–763–5935, or by email to
B.K. Atrostic, Designated Federal Official for Federal Economic Statistics Advisory Committee, U.S. Census Bureau, Room 2K267, 4600 Silver Hill Road, Washington, DC 20233., telephone (301) 763–6442.
The Committee was established in accordance with the Federal Advisory Committee Act (as amended, Title 5, United States Code, Appendix 2). The following provides information about the committee, membership, and the nomination process:
1. The Federal Economic Statistics Advisory Committee (the “Committee”) is administratively housed at the Economics and Statistics Administration (ESA), U.S. Department of Commerce. The Committee advises Directors of ESA's two statistical agencies, the Bureau of Economic Analysis (BEA) and the Census Bureau (Census), and the Commissioner of the Department of Labor's Bureau of Labor Statistics (BLS) (“the agencies”) on statistical methodology and other technical matters related to the collection, tabulation, and analysis of federal economic statistics.
2. The Committee functions solely as an advisory committee to the senior officials of BEA, Census and BLS in consultation with the Committee chairperson.
3. Important aspects of the Committee's responsibilities include, but are not limited to:
a. Recommending research to address important technical problems arising in federal economic statistics.
b. Identifying areas in which better coordination of the agencies' activities would be beneficial.
c. Establishing relationships with professional associations with an interest in federal economic statistics.
d. Coordinating, in its identification of agenda items, with other existing academic advisory committees chartered to provide agency-specific advice, for the purpose of avoiding duplication of effort.
4. The Committee reports to the Under Secretary for Economic Affairs who, as head of ESA, coordinates and collaborates with the agencies.
1. The Committee consists of approximately fourteen members who serve at the pleasure of the Secretary of Commerce.
2. Members are nominated by the Department of Commerce, in consultation with the agencies, under the coordination of the Under Secretary for Economic Affairs, and appointed by the Secretary.
3. Committee members are economists, statisticians, survey methodologists, and behavioral scientists, and are chosen to achieve a balanced membership across those disciplines.
4. Members shall be prominent experts in their fields, and recognized for their scientific and professional achievements and objectivity.
a. Members serve as Special Government Employees (SGEs) and are subject to ethics rules applicable to SGEs.
b. Members serve three-year terms. Members may be reappointed to any number of additional three-year terms.
c. Should a committee member be unable to complete a three-year term, a new member may be selected to complete that term for the duration of the time remaining or begin a new term of three years.
d. The agencies, by consensus agreement, shall appoint the chairperson annually from the committee membership. Chairpersons shall be permitted to succeed themselves.
1. Members of the Committee will not be compensated for their services, but will be reimbursed for travel expenses upon request.
2. The Committee meets approximately twice a year, budget permitting. Special meetings may be called when appropriate.
1. Nominations are requested as described above.
2. Nominees must be economists, statisticians, survey methodologists, and behavioral scientists and will be chosen to achieve a balanced membership across those disciplines. Nominees must be prominent experts in their fields, and recognized for their scientific and professional achievements and objectivity. Such knowledge and expertise are needed to advise the agencies on statistical methodology and other technical matters related to the collection, tabulation, and analysis of federal economic statistics.
3. Individuals, groups, and/or organizations may submit nominations on behalf of an individual candidate. A summary of the candidate's qualifications (résumé or curriculum vitae) must be included along with the nomination letter. Nominees must be able to actively participate in the tasks of the Committee, including, but not limited to regular meeting attendance, committee meeting discussant responsibilities, and review of materials, as well as participation in conference calls, webinars, working groups, and special committee activities.
4. The Department of Commerce is committed to equal opportunity in the workplace and seeks diverse Committee membership.
Economic Development Administration, Department of Commerce.
Notice and opportunity for public comment.
Pursuant to Section 251 of the Trade Act of 1974, as amended (19 U.S.C. 2341
Any party having a substantial interest in these proceedings may request a public hearing on the matter. A written request for a hearing must be submitted to the Trade Adjustment Assistance for Firms Division, Room 7106, Economic Development Administration, U.S. Department of Commerce, Washington, DC 20230, no later than ten (10) calendar days following publication of this notice.
Please follow the requirements set forth in EDA's regulations at 13 CFR 315.9 for procedures to request a public hearing. The Catalog of Federal Domestic Assistance official number and title for the program under which these petitions are submitted is 11.313, Trade Adjustment Assistance for Firms.
Economic Development Administration, U.S. Department of Commerce.
Notice of an open meeting.
The National Advisory Council on Innovation and Entrepreneurship will hold a meeting on Tuesday, September 11, 2012. The open meeting will be held from 10 a.m.–2 p.m. and will be open to the public via conference call. The meeting will take place at the U.S. Department of Commerce, 1401 Constitution Avenue NW., Washington, DC 20230. The Council was chartered on November 10, 2009 to advise the Secretary of Commerce on matter related to innovation and entrepreneurship in the United States.
September 11, 2012.
U.S. Department of Commerce, 1401 Constitution Avenue NW., Washington, DC 20230. Please specify if any specific requests for participation two business days in advance. Last minute requests will be accepted, but may be impossible to complete.
The purpose of the meeting is to discuss the latest initiatives by the Administration and the Secretary of Commerce on the issues of innovation, entrepreneurship and commercialization. The meeting will also discuss efforts by the U.S. Department of Commerce around manufacturing, exports and investment. Specific topics for discussion include manufacturing, investment, exports, innovation commercialization, entrepreneurship, federal programs for commercialization and technology transfer. The final agenda will be posted on the U.S. Department of Commerce Web site at
Nish Acharya, Office of Innovation and Entrepreneurship, Room 7019, 1401 Constitution Avenue, Washington, DC 20230; telephone: 202–482–4068; fax: 202–273–4781. Please reference “NACIE September 11, 2012” in the subject line of your fax.
The Port of Portland, grantee of FTZ 45, submitted a notification of proposed production activity within Subzone 45G, at the facility of Shimadzu USA Manufacturing, Inc. (Shimadzu), located in Canby, Oregon. Subzone status was approved for Shimadzu's Canby facility on August 8, 2012 (S–52–2012, 77 FR 48127, 8/13/2012).
The notification was processed in accordance with the regulations of the FTZ Board (15 CFR part 400), including notice in the
Pursuant to its authority under the Foreign-Trade Zones Act of June 18, 1934, as amended (19 U.S.C. 81a–81u), the Foreign-
The application to reorganize FTZ 151 under the alternative site framework is approved, subject to the FTZ Act and the Board's regulations, including Section 400.13, to the Board's standard 2,000-acre activation limit for the zone, and to a five-year ASF sunset provision for magnet sites that would terminate authority for Site 3 if not activated by August 31, 2017.
Bureau of Industry and Security, Commerce.
Request for comments.
The Bureau of Industry and Security (BIS) is requesting public comments on the effectiveness of its licensing procedures as defined in the Export Administration Regulations for the export of agricultural commodities to Cuba. BIS will include a description of these comments in its biennial report to the Congress, as required by the Trade Sanctions Reform and Export Enhancement Act of 2000 (22 U.S.C. 7201
Comments must be received by October 9, 2012.
Comments may be submitted to the Federal eRulemaking portal (
Tracy L. Patts, Office of Nonproliferation and Treaty Compliance, Telephone: (202) 482–4252. Additional information on BIS procedures and our previous biennial report under the Trade Sanctions Reform and Export Enhancement Act, as amended, is available at
Pursuant to section 906(a) of the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA) (22 U.S.C. 7205(a)), the Bureau of Industry and Security (BIS) authorizes exports of agricultural commodities, as defined in part 772 of the Export Administration Regulations (EAR), to Cuba. Requirements and procedures associated with such authorization are set forth in § 740.18 of the EAR (15 CFR 740.18). These are the only licensing procedures in the EAR currently in effect pursuant to the requirements of section 906(a) of TSRA.
Under the provisions of section 906(c) of TSRA (22 U.S.C. 7205(c)), BIS must submit a biennial report to the Congress on the operation of the licensing system implemented pursuant to section 906(a) for the preceding two-year period. This report must include the number and types of licenses applied for, the number and types of licenses approved, the average amount of time elapsed from the date of filing of a license application until the date of its approval, the extent to which the licensing procedures were effectively implemented, and a description of comments received from interested parties during a 30-day public comment period about the effectiveness of the licensing procedures. BIS is currently preparing a biennial report on the operation of the licensing system for the two-year period from October 1, 2010 through September 30, 2012.
By this notice, BIS requests public comments on the effectiveness of the licensing procedures for the export of agricultural commodities to Cuba set forth under § 740.18 of the EAR. Parties submitting comments are asked to be as specific as possible. All comments received by the close of the comment period will be considered by BIS in developing the report to Congress.
All comments must be in writing and will be available for public inspection and copying. Any information that the commenter does not wish to be made available to the public should not be submitted to BIS.
Bureau of Industry and Security, Commerce.
Request for comments.
In developing its report to Congress, BIS is seeking public comments on the effect of existing foreign policy-based export controls in the Export Administration Regulations. BIS is requesting public comments to conduct consultations with U.S. industries. Section 6 of the Export Administration Act (EAA) requires BIS to consult with industry on the effect of such controls and to report the results of the consultations to Congress. Comments from all interested persons are welcome. All comments will be made available for public inspection
Comments must be received by October 9, 2012.
Comments on this rule may be submitted to the Federal e-Rulemaking portal (
Foreign Policy Division, Office of Nonproliferation Controls and Treaty Compliance, Bureau of Industry and Security, telephone 202–482–4252. Copies of the current Annual Foreign Policy Report to the Congress are available at
Foreign policy-based controls in the Export Administration Regulations (EAR) are implemented pursuant to section 6 of the Export Administration Act of 1979, as amended, (50 U.S.C. app. sections 2401–2420 (2000)) (EAA). The current foreign policy-based export controls maintained by the Bureau of Industry and Security (BIS) are set forth in the EAR (15 CFR parts 730–774), including in parts 742 (CCL Based Controls), 744 (End-User and End-Use Based Controls) and 746 (Embargoes and Other Special Controls). These controls apply to a range of countries, items, activities and persons, including:
• Entities acting contrary to the national security or foreign policy interests of the United States (§ 744.11);
• Certain general purpose microprocessors for “military end-uses” and “military end-users” (§ 744.17);
• Significant items (SI);
• Hot section technology for the development, production, or overhaul of commercial aircraft engines, components, and systems (§ 742.14);
• Encryption items (§ 742.15);
• Crime control and detection items (§ 742.7);
• Specially designed implements of torture (§ 742.11);
• Certain firearms and related items based on the Organization of American States Model Regulations for the Control of the International Movement of Firearms, their Parts and Components and Munitions included within the Inter-American Convention Against the Illicit Manufacturing of and Trafficking in Firearms, Ammunition, Explosives, and Other Related Materials (§ 742.17);
• Regional stability items (§ 742.6);
• Equipment and related technical data used in the design, development, production, or use of certain rocket systems and unmanned air vehicles (§§ 742.5 and 744.3);
• Chemical precursors and biological agents, associated equipment, technical data, and software related to the production of chemical and biological agents (§§ 742.2 and 744.4) and various chemicals included on the list of those chemicals controlled pursuant to the Chemical Weapons Convention (§ 742.18);
• Communication intercepting devices, software and technology (§ 742.13);
• Nuclear propulsion (§ 744.5);
• Aircraft and vessels (§ 744.7);
• Restrictions on exports and reexports to certain persons designated as proliferators of weapons of mass destruction (§ 744.8);
• Certain cameras to be used by military end-users or incorporated into a military commodity (§ 744.9);
• Countries designated as Supporters of Acts of International Terrorism (§§ 742.8, 742.9, 742.10, 742.19, 746.2, 746.4, 746.7, and 746.9);
• Certain entities in Russia (§ 744.10);
• Individual terrorists and terrorist organizations (§§ 744.12, 744.13 and 744.14);
• Certain persons designated by Executive Order 13315 (“Blocking Property of the Former Iraqi Regime, Its Senior Officials and Their Family Members”) (§ 744.18);
• Certain sanctioned entities (§ 744.20); and
• Embargoed countries (Part 746).
In addition, the EAR impose foreign policy-based export controls on certain nuclear-related commodities, technology, end-uses and end-users (§§ 742.3 and 744.2), in part, implementing section 309(c) of the Nuclear Non Proliferation Act (42 U.S.C. 2139a).
Under the provisions of section 6 of the EAA, export controls maintained for foreign policy purposes require annual extension. Section 6 of the EAA requires a report to Congress when foreign policy-based export controls are extended. The EAA expired on August 20, 2001. Executive Order 13222 of August 17, 2001 (3 CFR, 2001 Comp., p. 783 (2002)), which has been extended by successive Presidential Notices, the most recent being that of August 15, 2012 (77 FR 49699 (Aug. 16, 2012)), continues the EAR and, to the extent permitted by law, the provisions of the EAA, in effect under the International Emergency Economic Powers Act (50 U.S.C. 1701–1706 (2000)). The Department of Commerce, as appropriate, follows the provisions of section 6 of the EAA by reviewing its foreign policy-based export controls, conducting consultations with industry through public comments on such controls, and preparing a report to be submitted to Congress. In January 2012, the Secretary of Commerce, on the recommendation of the Secretary of State, extended for one year all foreign policy-based export controls then in effect. BIS is now soliciting public comment on the effects of extending the existing foreign policy-based export controls from January 2013 to January 2014. Among the criteria considered in determining whether to extend U.S. foreign policy-based export controls are the following:
1. The likelihood that such controls will achieve their intended foreign policy purposes, in light of other factors, including the availability from other countries of the goods, software or technology proposed for such controls;
2. Whether the foreign policy objective of such controls can be achieved through negotiations or other alternative means;
3. The compatibility of the controls with the foreign policy objectives of the United States and with overall U.S. policy toward the country subject to the controls;
4. Whether the reaction of other countries to the extension of such controls is not likely to render the controls ineffective in achieving the intended foreign policy objective or be counterproductive to U.S. foreign policy interests;
5. The comparative benefits to U.S. foreign policy objectives versus the effect of the controls on the export performance of the United States, the competitive position of the United
6. The ability of the United States to effectively enforce the controls.
BIS is particularly interested in receiving comments on the economic impact of proliferation controls. BIS is also interested in industry information relating to the following:
1. Information on the effect of foreign policy-based export controls on sales of U.S. products to third countries (
2. Information on controls maintained by U.S. trade partners. For example, to what extent do U.S. trade partners have similar controls on goods and technology on a worldwide basis or to specific destinations?
3. Information on licensing policies or practices by our foreign trade partners that are similar to U.S. foreign policy based export controls, including license review criteria, use of conditions, and requirements for pre- and post-shipment verifications (preferably supported by examples of approvals, denials and foreign regulations).
4. Suggestions for bringing foreign policy-based export controls more into line with multilateral practice.
5. Comments or suggestions to make multilateral controls more effective.
6. Information that illustrates the effect of foreign policy-based export controls on trade or acquisitions by intended targets of the controls.
7. Data or other information on the effect of foreign policy-based export controls on overall trade at the level of individual industrial sectors.
8. Suggestions for measuring the effect of foreign policy-based export controls on trade.
9. Information on the use of foreign policy-based export controls on targeted countries, entities, or individuals. BIS is also interested in comments relating generally to the extension or revision of existing foreign policy-based export controls.
Parties submitting comments are asked to be as specific as possible. All comments received before the close of the comment period will be considered by BIS in reviewing the controls and in developing the report to Congress. All comments received in response to this notice will be displayed on BIS's Freedom of Information Act (FOIA) Web site at
Pursuant to Section 6(c) of the Educational, Scientific and Cultural Materials Importation Act of 1966 (Pub. L. 89–651, as amended by Pub. L. 106–36; 80 Stat. 897; 15 CFR part 301), we invite comments on the question of whether instruments of equivalent scientific value, for the purposes for which the instruments shown below are intended to be used, are being manufactured in the United States.
Comments must comply with 15 CFR 301.5(a)(3) and (4) of the regulations and be postmarked on or before September 27, 2012. Address written comments to Statutory Import Programs Staff, Room 3720, U.S. Department of Commerce, Washington, DC 20230. Applications may be examined between 8:30 a.m. and 5:00 p.m. at the U.S. Department of Commerce in Room 3720.
Pursuant to Section 6(c) of the Educational, Scientific and Cultural Materials Importation Act of 1966 (Pub. L. 89–651, as amended by Pub. L. 106–36; 80 Stat. 897; 15 CFR part 301), we invite comments on the question of whether instruments of equivalent scientific value, for the purposes for which the instruments shown below are intended to be used, are being manufactured in the United States.
Comments must comply with 15 CFR 301.5(a)(3) and (4) of the regulations and be postmarked on or before September 27, 2012. Address written comments to Statutory Import Programs Staff, Room 3720, U.S. Department of Commerce, Washington, DC 20230. Applications may be examined between 8:30 a.m. and 5:00 p.m. at the U.S. Department of Commerce in Room 3720.
International Trade Administration, Department of Commerce.
Notice.
The United States Department of Commerce, International Trade Administration, U.S. and Foreign Commercial Service (CS) is publishing this supplement to the Notice of the Executive-Led Indonesia Vietnam Infrastructure Business Development Mission Statement, 77 FR, No. 131, July 9, 2012, to amend the Notice to revise the dates of the application deadline from August 31, 2012 to the new deadline of September 21, 2012.
Amendments to Revise the Dates and Provide for Selection of Applicants on a Rolling Basis:
Recruitment for this Mission began in July 2012. Due to summer holidays, it has been determined that an additional time is needed to allow for additional recruitment and marketing in support of the mission. Applications will now be accepted through September 21, 2012 (and after that date if space remains and scheduling constraints permit), interested U.S. infrastructure firms and trade organizations which have not already submitted an application are encouraged to do so.
1. For the reasons stated above, the
Mission recruitment will be conducted in an open and public manner, including publication in the
Jennifer Andberg, Office of Business Liaison, Phone: 202–482–1360; Fax: 202–482–4054, Email:
Import Administration, International Trade Administration, Department of Commerce.
In response to requests for an administrative review by two respondent parties, Maquilacero S.A. de C.V. (Maquilacero) and Regiomontana de Perfiles y Tubos S.A. de C.V. (Regiopytsa), the Department of Commerce (the Department) is conducting an administrative review of the antidumping duty order on light-walled rectangular pipe and tube (LWR pipe and tube) from Mexico. For these preliminary results, we have found that neither company sold subject merchandise at less than normal value during the period of review, which covers August 1, 2010, through July 31, 2011. If these preliminary results are adopted in our final results of administrative review, we will issue appropriate assessment instructions to U.S. Customs and Border Protection (CBP).
Dena Crossland (Maquilacero) or Edythe Artman (Regiopytsa), AD/CVD Operations, Office 7, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482–3362 or (202) 482–3931, respectively.
The Department published a notice of opportunity to request an administrative review of the order on LWR pipe and tube from Mexico on August 1, 2011.
Both Maquilacero and Regiopytsa submitted responses to the Department's antidumping questionnaire and responses to subsequent requests for additional information. The petitioner filed no comments on these responses.
On May 10, 2012, the Department published a notice extending the time limit for issuing the preliminary results of review by 120 days.
The period of review is August 1, 2010, through July 31, 2011.
The merchandise that is the subject of the order is certain welded carbon-quality light-walled steel pipe and tube, of rectangular (including square) cross section, having a wall thickness of less than 4 mm.
The term carbon-quality steel includes both carbon steel and alloy steel which contains only small amounts of alloying elements. Specifically, the term carbon-quality includes products in which none of the elements listed below exceeds the quantity by weight respectively indicated: 1.80 percent of manganese, or 2.25 percent of silicon, or 1.00 percent of copper, or 0.50 percent of aluminum, or 1.25 percent of chromium, or 0.30 percent of cobalt, or 0.40 percent of lead, or 1.25 percent of nickel, or 0.30 percent of tungsten, or 0.10 percent of molybdenum, or 0.10 percent of niobium, or 0.15 percent vanadium, or 0.15 percent of zirconium. The description of carbon-quality is intended to identify carbon-quality products within the scope. The welded carbon-quality rectangular pipe and tube subject to the order is currently classified under the Harmonized Tariff Schedule of the United States (HTSUS) subheadings 7306.61.50.00 and 7306.61.70.60. While HTSUS subheadings are provided for convenience and customs purposes, our written description of the scope of the order is dispositive.
Under section 771(33)(E) of the Tariff Act of 1930, as amended (the Act), if one party owns, directly or indirectly, five percent or more of another party, such parties are considered to be affiliated for purposes of the antidumping law. Furthermore, pursuant to 19 CFR 351.403, the Department may require a respondent to report the downstream sales of its affiliated customer to the first unaffiliated customer if: (1) The respondent's sales to all affiliated customers account for five percent or more of the respondent's total sales of foreign-like product in the comparison market, and (2) those sales to the affiliated customer are determined to have not been made at arm's-length.
In past segments of this proceeding, the Department found that Maquilacero should report the downstream sales of an affiliated home-market customer pursuant to section 771(33)(E) of the Act.
Regiopytsa also reported sales to an affiliated home-market reseller during the period of review but, as the value of the sales constituted less than five percent of Regiopytsa's total home-market sales during the period, we did not request that Regiopytsa report the downstream sales of this affiliate.
To determine if sales of subject merchandise were made in the United States at less than fair value (LTFV), we compared the price of U.S. sales to normal value, as described in the “U.S. Price” and “Normal Value” sections of this notice. For these preliminary results, the Department applied the methodology for calculation of a weighted-average dumping margin recently adopted in
In accordance with section 771(16) of the Act, we considered all products covered by the description in the “Scope of the Order” section above and that were produced by Maquilacero and Regiopytsa and sold in the home market during the period of review, to be foreign like product for purposes of determining appropriate product comparisons to subject merchandise sold in the United States. We relied on the following six product characteristics to identify identical subject merchandise and foreign like product: (1) Steel input type; (2) whether the product was metallic-coated or not; (3) whether the product was painted or not; (4) product perimeter; (5) wall thickness; and (6) shape. Where there were no sales of identical merchandise in the home market to compare to subject merchandise sold in the United States, we compared the U.S. sales to home-market sales of the most-similar, foreign like product on the basis of the reported product characteristics and instructions provided in our antidumping questionnaire.
In accordance with section 773(a)(1)(B) of the Act and to the extent practicable, we determine normal value based on sales made in the home market at the same level of trade as the export price or the constructed export price. The normal-value level of trade is based on the starting prices of sales in the home market or, when normal value is based on constructed value, those of the sales from which we derived selling, general, and administrative expenses and profit.
To determine if home-market sales are made at a different level of trade than export-price sales, we examine stages in the marketing process and the selling functions performed along the chain of distribution between the producer and the unaffiliated customer.
In response to section A of the antidumping questionnaire and in supplemental responses to the questionnaire, Maquilacero reported one level of trade with one channel of distribution for its export-price sales. Based on our analysis of the selling functions performed by Maquilacero on its sales to the United States, we
For the home market, Maquilacero identified two channels of distribution in its section A response as follows: (1) Direct sales made by Maquilacero, and (2) indirect sales made by its affiliated reseller to the first unaffiliated customer. Maquilacero reported that the sales in both channels were made at one level of trade. Based on our analysis of all of Maquilacero's home-market selling functions, we found that the sales made in both channels of distribution were made at one level of trade, the normal-value level of trade.
We then compared the selling functions performed for the sales at the normal-value level of trade to those performed for sales at the export-price level of trade. Based on this analysis, we preliminarily determined that the starting price of Maquilacero's home-market sales and its export price represented different stages in the marketing process and were thus at different levels of trade. However, because Maquilacero only sold at one level of trade in the home market, there is no basis on which to determine if there was a pattern of consistent price differences between two levels of trade in that market. Furthermore, there is no other record evidence on which to base a level-of-trade adjustment. Therefore, although the normal-value level of trade differed from the export-price level of trade, we are unable to make a level-of-trade adjustment to normal value for Maquilacero.
In its initial and supplemental responses to section A, Regiopytsa reported one channel of distribution for its home-market sales made to two types of customers (
In the U.S. market, Regiopytsa reported one level of trade for which there was one channel of distribution to two types of customers (
Next we compared the selling functions associated with the sales at the normal-value level of trade to those associated with the export-price level of trade and, based on our analysis of record evidence, we found that the degree and number of selling functions provided by Regiopytsa for its customers in the home market was greater than the degree to which it provided some of those selling functions to U.S. customers. However, as with Maquilacero, we were unable to calculate a level-of-trade adjustment because we found only one level of trade in Regiopytsa's home market and there is no other record evidence on which to base an adjustment. Therefore, for these preliminary results, we matched the export-price sales to home-market sales without making a level-of-trade adjustment to normal value.
The Department will normally use invoice date, as recorded in the exporter's or producer's records kept in the ordinary course of business, as the date of sale, but may use a date other than the invoice date if it better reflects the date on which the material terms of sale are established.
Section 772(a) of the Act defines export price as “the price at which the subject merchandise is first sold (or agreed to be sold) before the date of importation by the producer or exporter of subject merchandise outside of the United States to an unaffiliated purchaser in the United States or to an unaffiliated purchaser for exportation to the United States, as adjusted under subsection (c).”
For purposes of these preliminary results, we calculated the U.S. price as the export price for Maquilacero and Regiopytsa in accordance with section 772(a) of the Act, because the merchandise was sold, prior to importation by the producer, outside of the United States to the first unaffiliated purchaser in the United States. For each company, we calculated export price based on the packed price that was charged to the first unaffiliated U.S. customer. We made deductions for movement expenses, where appropriate, in accordance with section 772(c)(2)(A) of the Act, including deductions for foreign inland freight (plant/warehouse to the border), U.S. inland freight (border to the unaffiliated customer), country of manufacture inland insurance, and brokerage and handling. We also made adjustments, where appropriate, for imputed credit, certain direct selling expenses (including commissions), and billing adjustments.
To determine if there was a sufficient volume of sales of LWR pipe and tube in the home market during the period of review to serve as a viable basis for calculating normal value, we compared Maquilacero and Regiopytsa's quantity of home-market sales of the foreign like product to the quantity of each company's respective U.S. sales of the subject merchandise, in accordance with section 773(a) of the Act. Because both Maquilacero and Regiopytsa's aggregate quantity of home-market sales of the foreign like product was greater than five percent of their aggregate quantity of U.S. sales for subject merchandise, we determined that the home market was viable for comparison purposes for both companies, pursuant to section 773(a)(1)(B) of the Act.
Sales to affiliated customers in the home market that were not made at
Both respondents have had home-market sales disregarded in prior reviews on the basis that they had sales priced below the cost of production (COP), which were made within an extended period of time, in substantial quantities, and at prices which permitted the recovery of all costs within a reasonable period of time.
Based on a review of the cost information provided, neither company appeared to experience significant changes in its cost of manufacturing (COM) throughout the period of review. Thus, we followed our normal methodology of calculating a review-period, weighted-average cost for each product. We relied on the COP information provided by Maquilacero and Regiopytsa except, in accordance with section 773(f)(2) of the Act, we made an adjustment to Maquilacero's affiliated-party-supplied labor costs to reflect the higher of the transfer price or COP. Because the record did not provide market prices for these services in the market under consideration, we used the COP of the affiliate as a proxy for the amount representing the value of labor costs usually reflected in the market under consideration.
On a product-specific basis, we compared the adjusted, weighted-average COP figures to the prices of home-market sales of the foreign like product in order to determine if these sales were made at prices below the COP. The prices were exclusive of any applicable movement charges, packing expenses, warranty expenses, or indirect selling expenses. In determining whether to disregard home-market sales made at prices below their COP, we examined if such sales were made within an extended period of time, in substantial quantities, and at prices which permitted the recovery of all costs within a reasonable period of time.
We found that, for certain products for Maquilacero and Regiopytsa, more than 20 percent of the home-market sales were made at prices below the COP and that these below-cost sales were made within an extended period of time and in substantial quantities. In addition, the sales were made at prices that did not permit the recovery of costs within a reasonable period of time. Thus, for both Maquilacero and Regiopytsa, in accordance with section 773(b)(1) of the Act, we disregarded these below-cost sales, and used only the remaining sales of the same product as the basis for determining normal value.
We calculated the weighted-average normal value based on prices to unaffiliated customers and those to affiliated customers that passed the arm's-length test.
For more detailed information on the calculation of normal value,
The Department's preferred source for daily exchange rates is the Federal Reserve Bank.
As a result of our review, we preliminarily determine the following weighted-average dumping margins exist for the period August 1, 2010, through July 31, 2011:
The Department will disclose the calculations we used in our analysis to interested parties to this review within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b). An interested party may request a hearing within 30 days of publication of these preliminary results.
Parties are reminded that any requests or other submissions must be filed electronically using Import Administration's Antidumping and Countervailing Duty Centralized Electronic Service System, in compliance with the procedures set forth in
The Department intends to issue the final results of this administrative review, including the results of our analysis of the issues in any such argument or at a hearing, within 120 days of the date of publication of this notice.
Upon completion of this administrative review, the Department shall determine, and CBP shall assess, antidumping duties on all appropriate entries. If either Maquilacero's or Regiopytsa's weighted-average dumping margin is above
The Department clarified its “automatic assessment” regulation on May 6, 2003.
In accordance with 19 CFR 356.8(a), the Department intends to issue assessment instructions to CBP on or after 41 days following the publication of the final results of this review.
The following cash-deposit requirements will be effective, upon completion of the final results of this administrative review, for all shipments of LWR pipe and tube from Mexico entered or withdrawn from warehouse, for consumption, on or after the date of publication of the final results of review, as provided by section 751(a)(1) of the Act: (1) The cash-deposit rates for the companies covered by this review (
This notice serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of
These preliminary results are issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; reopening of public comment period.
We, NMFS, published a notice on May 16, 2012, announcing that the Proposed Endangered Species Act (ESA) Recovery Plan for Lower Columbia River Chinook Salmon, Lower Columbia River Coho Salmon, Columbia River Chum Salmon, and Lower Columbia River Steelhead (Proposed Plan) was available for public review and comment. Comments were due by July 16, 2012. We have decided to reopen the public comment period for an additional 30 days.
We will consider and address, as appropriate, all substantive comments received during this reopened comment period. Comments received during the previous comment period will also be considered and need not be resubmitted. New comments must be received no later than 5 p.m. Pacific daylight time on October 9, 2012.
Please send written comments and materials to Dr. Scott Rumsey, National Marine Fisheries Service, 1201 NE Lloyd Boulevard, Suite 1100, Portland, OR 97232. Comments may also be submitted by email to:
Dr. Scott Rumsey, Salmon Recovery Branch Chief, Protected Resources Division, at (503) 872–2791, or
On May 16, 2012, we published a notice announcing that the Proposed Plan was available for public review and comment (77 FR 28855). Comments were due by July 16, 2012. On June 22, 2012, we received a letter from the Pacific Fisheries Management Council (Council) requesting an extension of the public comment period. The Council noted that the comment period precluded the opportunity for their advisory bodies and staff to review the Proposed Plan and develop comments for approval at the September 2012 Council meeting. The Council is a valued partner in planning and implementing recovery for West Coast salmon and steelhead. To afford the Council sufficient opportunity to review the Proposed Plan and provide comments through their typical processes, we are reopening the comment period for 30 days. New comments will be due by October 9, 2012.
For background information on the development, content, and expected use of the Plan, please refer to the original notice of availability for public comment (77 FR 28855; May 16, 2012) or our Web site at
We are soliciting written comments on the Proposed Plan. All substantive comments received by the date specified above will be considered and incorporated, as appropriate, prior to our decision whether to approve the plan. We will issue a news release announcing the adoption and availability of a final plan. We will post on the Northwest Region Web site (
16 U.S.C. 1531
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of loan repayment.
NMFS issues this notice to inform interested parties that the California Dungeness crab sub-loan in the fishing capacity reduction program for the Pacific Coast Groundfish Fishery has been repaid. Therefore, buyback fee collections on California Dungeness crab will cease for all landings after June 30, 2012.
Comments must be submitted on or before 5 p.m. EST September 24, 2012.
Send comments about this notice to Paul Marx, Chief, Financial Services Division, NMFS, Attn: California Dungeness Crab Buyback, 1315 East-West Highway, Silver Spring, MD 20910 (see
Michael A. Sturtevant at (301) 427–8799, fax (301) 713–1306, or
On November 16, 2004, NMFS published a
The California Dungeness crab sub-loan of the Pacific Coast Groundfish Capacity Reduction (Buyback) loan in the amount of $2,334,334.20 will be repaid in full upon receipt of buyback fees on landings through June 30, 2012. NMFS has received $3,446,217.69 to repay the principal and interest on this sub-loan since fee collection began September 8, 2005. Buyback fees in the California Dungeness crab fishery increased rapidly in December 2011 through March 2012 which reduced the $1 million balance on the loan in a short period of time resulting in early loan repayment. Therefore, these buyback loan fees will no longer be collected in the California Dungeness crab fishery.
Based on buyback fees received to date, landings after June 30, 2012 will not be subject to the buyback fee. Buyback fees not yet forwarded to NMFS for California Dungeness crab landings through June 30, 2012 should be forwarded to NMFS immediately. Any overpayment of buyback fees submitted to NMFS will be refunded on a pro-rata basis to the fish buyers/processors based upon best available fish ticket landings data. The fish buyers/processors should return excess buyback fees collected to the harvesters, including buyback fees collected but not yet remitted to NMFS for landings after June 30, 2012. Any discrepancies in fees owed and fees paid must be resolved immediately. After the sub-loan is closed, no further adjustments to fees paid and fees received can be made. Fish dealers whose fees for 2012 were not yet due as they have accumulated less than $100 in fees should forward their fees at this time for landings through June 30, 2012.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of a public meeting.
The Scientific and Statistical Committee (SSC) of the Mid-Atlantic Fishery Management Council (Council) will hold meetings.
The SSC will meet Wednesday and Thursday, September 26–27, 2012 beginning at 9 a.m. on September 26 and conclude by 3 p.m. on September 27.
The meeting will be held at the Admiral Fell Inn, 888 South Broadway, Baltimore, MD 21231 telephone: (410) 539–2000.
Christopher M. Moore Ph.D., Executive Director, Mid-Atlantic Fishery Management Council, 800 N. State Street, Suite 201, Dover, DE 19901; telephone: (302) 526–5255.
The primary issues for the SSC meeting include: Developing 2013–17 ABC recommendations for the Council for spiny dogfish; considerations for setting multi-year ABC specifications; ABC/OY control rule frameworks and ecosystem approaches to fishery management; presentation on forage species considerations; review and update Council five-year research priority plan, as appropriate; and address Council's request to clarify the SSC's 2012 butterfish ABC recommendations if necessary.
Although non-emergency issues not contained in this agenda may come before this group for discussion, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Fishery Conservation and Management Act, provided the public has been notified of the Council's intent to take final action to address the emergency.
The meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to M. Jan Saunders at the Mid-Atlantic Council Office, (302) 526–5251, at least 5 days prior to the meeting date.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of a public meeting.
The New England Fishery Management Council (Council) will hold a three-day meeting on September 25–27, 2012 to consider actions affecting New England fisheries in the exclusive economic zone (EEZ).
The meeting will be held on Tuesday, Wednesday and Thursday, September 25–27, starting at 9 a.m. on Tuesday, at 8:30 a.m. on Wednesday and 8 a.m. on Thursday.
The meeting will be held at the Radisson Hotel Plymouth Harbor, 180 Water Street, Plymouth, MA 02360; telephone: (508) 747–4900; fax: (508) 746–2609; or online at
Paul J. Howard, Executive Director, New England Fishery Management Council; telephone: (978) 465–0492.
Following introductions and any announcements, the annual election of Council officers will take place once all newly appointed members have been sworn in by the NOAA Fisheries Regional Administrator/Northeast Region. Brief reports will then be provided by the NEFMC Chairman and Executive Director, the Northeast Fisheries Science Center and Mid-Atlantic Fishery Management Council liaisons, NOAA General Counsel, representatives of the Atlantic States Marine Fisheries Commission, and staff from the regional Vessel Monitoring Systems Operations and NOAA Law Enforcement offices. The Council also will receive an update about Northeast Regional Ocean Council activities. The new Coast Guard First District Commander will provide his perspective on fisheries issues, and following a lunch break, the Northeast Fisheries Science Center (NEFSC)
The Council will receive a report from the NEFSC summarizing the findings of the 54th Stock Assessment Workshop/Stock Assessment Review Committee meetings. The species addressed were Atlantic herring, and Southern New England/Mid-Atlantic yellowtail flounder. The Council's Scientific and Statistical Committee will report on its acceptable biological catch recommendations for groundfish stocks for fishing years 2013–15, Atlantic herring for 2013–15 and sea scallops for 2013–14. The Herring Committee will address the recent court decision about Amendment 4 to the Atlantic Herring FMP and ask the Council to consider actions to address the court order. Discussion also will cover initial development of Atlantic herring fishery specifications for the upcoming fishing years 2013–15, including possible action to maintain the 2012 specifications through 2013 and develop a separate package for 2014–16. The Scallop Committee will report later in the day about management measures proposed for Atlantic Sea Scallop FMP Framework Adjustment 24/Groundfish FMP Framework Adjustment 49. Framework 24 is an action to set fishery specifications for fishing years 2013 and 2014, but includes other measures: a possible modification of the Georges Bank access area seasonal closures; measures to address yellowtail flounder bycatch in the limited access general category (LAGC) fishery; the potential allowance of quota transfer during the year for LAGC individual fishery quota vessels; and measures to expand the observer set-aside program to include LAGC scallop vessels in open areas. At the end of the day, the Council will hear about the 2012 assessments for the transboundary stocks of Eastern Georges Bank cod and haddock, and Georges Bank yellowtail flounder. The day will conclude with consideration and approval of fishing year 2013 quotas for these same stocks.
The Council may approve a small mesh multispecies control date for the red hake, silver hake and offshore hake fisheries. This issue will be followed by a lengthy Groundfish Committee report on a range of issues including: the development of Framework 48 to the Northeast Multispecies (Groundfish) FMP, an action that may include fishing year 2013–15 overfishing levels and acceptable biological catches for a number of stocks managed through this FMP; the creation of a Southern New England/Mid-Atlantic windowpane flounder sub-annual catch limit (sub-ACL) for the sea scallop fishery; adjustments to the Southern New England/Mid-Atlantic and Georges Bank yellowtail flounder sub-ACLs for the scallop fishery; sector monitoring issues; adjustments to recreational fishing measures if necessary; and consideration of other adjustments to the groundfish management measures. As part of this action, the Council also will consider recommendations for allowing increased access to the groundfish closed areas to mitigate expected low acceptable biological catches for groundfish stocks in fishing year 2013.
During the afternoon session on Thursday the Habitat Committee will request that the Council consider splitting the deep-sea coral alternatives off from the Omnibus EFH Amendment 2, and possibly initiating development of a coral-focused omnibus amendment. The Council also may endorse a Memorandum of Understanding related to deep-sea corals, and will review the draft adverse effects minimization alternatives under development in Omnibus EFH Amendment 2. The day will conclude with an initial discussion of the Council's 2013 management priorities.
Although other non-emergency issues not contained in this agenda may come before this Council for discussion, those issues may not be the subjects of formal action during this meeting. Council action will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Act, provided that the public has been notified of the Council's intent to take final action to address the emergency.
This meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Paul J. Howard (see
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of a public meeting.
Members of the Pacific Fishery Management Council's (Pacific Council) Scientific and Statistical Committee Subcommittee on Coastal Pelagic Species (SSC Subcommittee) will hold a meeting that is open to the public.
The meeting will be held Tuesday, October 2, 2012 through Wednesday, October 3, 2012. Business will begin each day at 8:30 a.m. and conclude at 5 p.m. or until business for the day is completed.
The meeting will be held in the Large Conference Room of the Southwest Fisheries Science Center's Torrey Pines Court Facility, 3333 North Torrey Pines Court, La Jolla, CA 92037.
Kerry Griffin, Staff Officer; telephone: (503) 820–2280.
The primary purpose of the meeting is to review the updated Pacific sardine stock assessment for 2012. The results of the assessment update will be used to establish management measures and
Although non-emergency issues not contained in this agenda may come before this group for discussion, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Fishery Conservation and Management Act, provided the public has been notified of the Council's intent to take final action to address the emergency.
This meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Mr. Kris Kleinschmidt at (503) 820–2280 at least 5 days prior to the meeting date.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; issuance of permit.
Notice is hereby given that a permit has been issued to Robert A. Garrott, Ecology Department, Montana State University, 310 Lewis Hall, Bozeman, MT 59717 to conduct research on Weddell seals (
The permit and related documents are available for review upon written request or by appointment in the following offices:
Permits and Conservation Division, Office of Protected Resources, NMFS, 1315 East-West Highway, Room 13705, Silver Spring, MD 20910; phone (301) 427–8401; fax (301) 713–0376; and
Southwest Region, NMFS, 501 West Ocean Blvd., Suite 4200, Long Beach, CA 90802–4213; phone (562) 980–4001; fax (562) 980–4018.
Colette Cairns or Tammy Adams, (301) 427–8401.
On May 31, 2012, notice was published in the
The permit holder is authorized to continue long-term studies of the Weddell seal population in the Erebus Bay, McMurdo Sound, Ross Sea and White Island areas of Antarctica. Up to 425 adults and 700 pups will be captured annually. Animals will be weighed, tissue sampled, flipper tagged, and released. A subset of 200 pups annually will have a small temperature logging tag attached. The permit holder is authorized to opportunistically collect, import, and export Weddell seal parts and carcasses. Annually, up to 2,000 Weddell, 50 crabeater (
In compliance with the National Environmental Policy Act of 1969 (42 U.S.C. 4321
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Issuance of permit.
Notice is hereby given that Entergy Nuclear Operations Inc., 450 Broadway, Suite 3, Buchanan, NY 10511 [Responsible Party: John Ventosa], has been issued a permit to take shortnose sturgeon (
The permit and related documents are available for review upon written request or by appointment in the following offices:
• Permits, Conservation and Education Division, Office of Protected Resources, NMFS, 1315 East-West Highway, Room 13705, Silver Spring, MD 20910; phone (301) 427–8401; fax (301) 713–0376; and
• Northeast Region, NMFS, 55 Great Republic Drive, Gloucester, MA 01930; phone (978) 281–9328; fax (978) 281–9394.
Malcolm Mohead or Colette Cairns, (301) 427–8401.
On April 11, 2012, notice was published in the
The Permit Holder is issued a five-year permit to study shortnose sturgeon and Atlantic sturgeon in the Hudson River Estuary from New York Harbor (RKM 0) to Troy Dam (RKM 245). The research will monitor abundance and distribution of the sturgeon species through the Hudson River Biological Monitoring Program (HRBMP), focusing on fish identification, mark and recapture, and enumeration of sturgeon in defined Hudson River regions and at various depth strata. Researchers are authorized to non-lethally capture, handle, measure, weigh, scan for tags, insert passive integrated transponder and dart tags, photograph, tissue sample, and release up to 82 shortnose sturgeon and 82 Atlantic sturgeon annually. Additionally, researchers are permitted to lethally collect up to 40 shortnose sturgeon and up to 40 Atlantic sturgeon early life stages annually. The permit would be valid for five years from the date of issuance.
Issuance of this permit, as required by the ESA, was based on a finding that such permit (1) was applied for in good
Committee for Purchase From People Who Are Blind or Severely Disabled.
Additions to the Procurement List.
This action adds services to the Procurement List that will be provided by nonprofit agencies employing persons who are blind or have other severe disabilities.
Committee for Purchase From People Who Are Blind or Severely Disabled, Jefferson Plaza 2, Suite 10800, 1421 Jefferson Davis Highway, Arlington, Virginia, 22202–3259.
Patricia Briscoe, Telephone: (703) 603–7740, Fax: (703) 603–0655, or email
On 7/9/2012 (77 FR 40344–40345), the Committee for Purchase From People Who Are Blind or Severely Disabled published notice of proposed additions to the Procurement List.
After consideration of the material presented to it concerning capability of qualified nonprofit agencies to provide the services and impact of the additions on the current or most recent contractors, the Committee has determined that the services listed below are suitable for procurement by the Federal Government under 41 U.S.C. 8501–8506 and 41 CFR 51–2.4.
I certify that the following action will not have a significant impact on a substantial number of small entities. The major factors considered for this certification were:
1. The action will not result in any additional reporting, recordkeeping or other compliance requirements for small entities other than the small organizations that will provide the services to the Government.
2. The action will result in authorizing small entities to provide the services to the Government.
3. There are no known regulatory alternatives which would accomplish the objectives of the Javits-Wagner-O'Day Act (41 U.S.C. 8501–8506) in connection with the services proposed for addition to the Procurement List.
Accordingly, the following services are added to the Procurement List:
Department of the Navy, DoD.
Notice.
Pursuant to section 102(2)(c) of the National Environmental Policy Act of 1969 and regulations implemented by the Council on Environmental Quality (40 Code of Federal Regulations parts 1500–1508), the Department of the Navy (DoN) has prepared and filed with the U.S. Environmental Protection Agency a Draft Environmental Impact Statement (EIS) that evaluates the potential environmental effects associated with ongoing and proposed DoN and Oregon National Guard training and testing activities at Naval Weapons Systems Training Facility (NWSTF) Boardman, Oregon to include establishment of new associated Special Use Airspace (SUA). The National Guard Bureau and Federal Aviation Administration are cooperating agencies for this EIS.
NWSTF Boardman is the principal regional training range for aviation units located at Naval Air Station Whidbey Island and is used for training by Oregon National Guard units located throughout the state of Oregon. NWSTF Boardman also supports training requirements of the U.S. Air Force Reserve, and SUA activities for Department of Defense (DoD) contractors for unmanned aerial system testing and training of DoD personnel.
With the filing of the Draft EIS, the DoN is initiating a 60-day public comment period and has scheduled two public meetings to receive comments on the Draft EIS. This notice announces the dates and locations of the public meetings for the Draft EIS and provides supplementary information.
The 60-day Draft EIS public review period will begin September 7, 2012, and end on November 6, 2012. The DoN will hold two public meetings to inform the public about the proposed action and the alternatives under consideration, and to provide an opportunity for the public to comment on the proposed action, alternatives, and the adequacy and accuracy of the analysis in the Draft EIS. Each of the public meetings will include an open house information session, with informational poster stations staffed by DoN and Oregon National Guard representatives, followed by a short presentation and oral comment opportunity. Federal, state, and local agencies and officials, and interested groups and individuals are encouraged to provide comments in person at any of the public meetings or in writing during the public comment period.
The public meetings will be held at each location between 5:00 p.m. and 8:00 p.m. on the following dates:
1. Tuesday, September 25, 2012, Hermiston Conference Center Great Room, 415 South Highway 395, Hermiston, Oregon 97838.
2. Wednesday, September 26, 2012, Port of Morrow Conference Center Riverfront Room, 2 Marine Drive, Boardman, Oregon 97818.
Attendees will be able to submit oral and written comments during the public meetings. Oral testimony from the public will be recorded by a court reporter. In the interest of available time, and to ensure all who wish to give an oral statement have the opportunity to do so, each speaker's comments will
Public meeting details will be announced in local newspapers. Additional information is available on the project Web site at
Naval Facilities Engineering Command, Northwest, Attention: Ms. Amy Burt—NWSTF Boardman EIS Project Manager, 1101 Tautog Circle, Suite 203, Silverdale, Washington 98315–1101.
A Notice of Intent to prepare this Draft EIS was published in the
The DoN's proposed action involves construction and operation of new range facilities and changes in existing training and testing activities at NWSTF Boardman. In general, the proposed action would increase the types of training and testing activities and the number of training events conducted at NWSTF Boardman; accommodate force structure changes; and provide enhancements to training facilities and activities at NWSTF Boardman and its associated SUA.
To comply with federal mandates, the DoN proposes to maintain and enhance current levels of military readiness through improvement of training at NWSTF Boardman, accommodate possible future increases in training, and maintenance of the long-term viability of NWSTF Boardman as a military training and testing area. The proposed action is needed to provide a training environment consisting of ranges, training areas, and range instrumentation with the capacity and capabilities to fully support required training tasks for military units and personnel utilizing NWSTF Boardman.
The Draft EIS includes analysis of the potential environmental impacts of three alternatives, including the No Action Alternative and two action alternatives. The No Action Alternative constitutes the current level of baseline training and testing activities. Alternative 1 includes all current training and testing activities; the establishment and use of an additional Military Operations Area to the northeast of existing NWSTF Boardman SUA; an increase in existing training activities; new training activities; and range enhancements and facilities to meet DoN and Oregon National Guard training requirements. Alternative 2 includes all elements of Alternative 1 and the implementation of additional range enhancements, including the addition of a second (western) convoy live-fire range, a new range operations control center, and three mortar training positions.
Mitigation measures for potential effects to biological resources are being coordinated through appropriate Federal agencies. There are no Federally-listed species under the Endangered Species Act present at NWSTF Boardman, however, the DoN is conferencing with the U.S. Fish and Wildlife Service, as appropriate, for potential impacts to the candidate species, Washington ground squirrel (Urocitellus washingtoni).
The Draft EIS was distributed to Federal, state, and local agencies, elected officials, and other interested individuals and organizations. Copies of the Draft EIS are also available for public review at the following public libraries:
1. Multnomah County Central Library, 801 Southwest 10th Avenue, Portland, Oregon 97205.
2. Boardman Branch of the Oregon Trail Library District, 200 South Main Street, Boardman, Oregon 97818.
3. Heppner Branch of the Oregon Trail Library District, 444 North Main Street, Heppner, Oregon 97836.
4. Central Branch of the Salem Public Library, 585 Liberty Street Southeast, Salem, Oregon 97301.
5. West Salem Branch of the Salem Public Library, 395 Glen Creek Road Northwest, Salem, Oregon 97304.
6. Stafford Hansell Government Center, 915 Southeast Columbia Drive, Hermiston, Oregon 97838.
Copies of the Draft EIS are also available for electronic viewing at
77 FR 48970, August 15, 2012.
Session I: 1 p.m.–5 p.m., October 2, 2012; Session II: 6:30 p.m.–9 p.m., October 2, 2012.
The Defense Nuclear Facilities Safety Board (Board) published a notice in the
Debra Richardson, Deputy General Manager, Defense Nuclear Facilities Safety Board, 625 Indiana Avenue NW.,
U.S. Department of Energy.
Notice and request for comments.
The Department of Energy (DOE), pursuant to the Paperwork Reduction Act of 1995, intends to extend for three years, an information collection request with the Office of Management and Budget (OMB). Comments are invited on: (a) Whether the extended collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology.
Comments regarding this proposed information collection must be received on or before November 6, 2012. If you anticipate difficulty in submitting comments within that period, contact the person listed below as soon as possible.
Written comments may be sent to Jacqueline D. Rogers, U.S. Department of Energy, Office of Health, Safety and Security, HS–11, 1000 Independence Avenue SW., Washington, DC 20585, by fax at 202–586–8548, or by email at:
Requests for additional information or copies of the information collection instrument and instructions should be directed to Jacqueline D. Rogers, U.S. Department of Energy, Office of Health, Safety and Security, HS–11, 1000 Independence Avenue SW., Washington, DC 20585, or by fax at 202–586–8548, or by email at
This information collection request contains: (1)
Atomic Energy Act of 1954, 42 U.S.C. 2201, and the Department of Energy Organization Act, 42 U.S.C. 7191 and 7254.
Office of Fossil Energy, DOE.
Notice of application.
The Office of Fossil Energy (FE) of the Department of Energy (DOE) gives notice of receipt of an application (Application) filed on July 16, 2012, by LNG Development Company, LLC (d/b/a Oregon LNG), requesting long-term, multi-contract authorization to export up to 9.6 million tons per annum (mtpa) of liquefied natural gas (LNG), the equivalent of 456.25 billion cubic feet (Bcf) of natural gas per year or 1.3 Bcf per day (Bcf/d), over a 25-year period, commencing on the earlier of the date of first export or eight years from the date the requested authorization is granted. The LNG would be exported from the proposed LNG terminal to be located in Warrenton, Oregon, in Clatsop county, to any country (1) With which the United States does not have a free trade agreement (FTA) requiring national treatment for trade in natural gas, (2) which has developed or in the future develops the capacity to import LNG via ocean-going carrier, and (3) with which trade is not prohibited by U.S. law or policy. The LNG will be produced from natural gas imported from Canada into the United States, and to a lesser extent, domestically produced natural gas. Oregon LNG is requesting this authorization to export LNG both on its own behalf and as agent for other parties who hold title to the LNG at the point of export. The Application was filed under section 3 of the Natural Gas Act (NGA). Protests, motions to intervene, notices of intervention, and written comments are invited.
Protests, motions to intervene or notices of intervention, as applicable, requests for additional procedures, and written comments are to be filed using procedures detailed in the
U.S. Department of Energy (FE–34), Office of Natural Gas Regulatory Activities, Office of Fossil Energy, P.O. Box 44375, Washington, DC 20026–4375.
U.S. Department of Energy (FE–34), Office of Natural Gas Regulatory Activities, Office of Fossil Energy, Forrestal Building, Room 3E–042, 1000 Independence Avenue SW., Washington, DC 20585.
Oregon LNG is a Delaware limited liability company with its principal place of business in Warrenton, Oregon, and headquarters in Vancouver, Washington.
Oregon LNG states that the Oregon LNG Export Project (Project) is proposed to export primarily Canadian-sourced natural gas imported into the United States and to a lesser extent supplies of natural gas that may be domestically produced. Oregon LNG states the Project will convert Oregon LNG's pending import receiving terminal and pipeline (Oregon Pipeline) into a bidirectional LNG terminal and pipeline. The Oregon Pipeline is being developed by Oregon LNG's affiliate, Oregon Pipeline Company, LLC. Oregon LNG states that the Project will interconnect with the multi-legged system of Williams Northwest Pipeline Company, connecting Pacific Northwest demand centers with British Columbian and Rockies supplies. However, Oregon LNG asserts it does not expect that the gas feedstock for the Project will be derived to any significant degree from Rockies supply given that the market modeling commissioned by Oregon LNG demonstrates that Canadian supply is the economically preferred resource for the Project.
Oregon LNG states that unlike the multiple pending applications to export domestically produced LNG to non-FTA countries, this Application involves a request for authorization to export LNG produced primarily from Canadian natural gas resources. Oregon LNG further states that in this regard, this Application is akin to applications for authorization to export previously imported LNG, which DOE/FE has expeditiously granted.
In the instant application, Oregon LNG seeks long-term, multi-contract authorization to export up to 9.6 mtpa of natural gas produced in Canada, and to a lesser extent, domestically produced natural gas, as LNG (the equivalent of 456.25 Bcf per year, or 1.3 Bcf/d of natural gas), for a period of 25 years beginning on the earlier of the date of first export or eight years from the date the authorization is granted by DOE/FE. Oregon LNG requests that such long-term authorization provide for export from its LNG terminal to be located in Warrenton, Oregon, in Clatsop County, to any country with which the United States does not have an FTA requiring national treatment for trade in natural gas, which has developed or in the future develops the capacity to import LNG via ocean-going carrier, and with which trade is not prohibited by U.S. law or policy.
Oregon LNG requests authorization to export LNG acting on its own behalf or as agent for others. At present, Oregon LNG does not contemplate entering into any long-term gas supply or long-term export contracts in conjunction with the LNG export authorization requested herein. Rather, Oregon LNG will enter into capacity use arrangements with potential Project participants or third-party customers. Accordingly, Oregon LNG is not submitting transaction-specific information such as long-term supply agreements and long-term export agreements, as required by Section 590.202(b) of the DOE regulations, at this time. Instead, Oregon LNG requests that DOE/FE adhere to the precedent set forth in
Oregon LNG states that the Project has been proposed due to the improved outlook for North American natural gas production, owing to drilling productivity gains that enabled rapid growth in supplies from unconventional, and particularly shale, gas-bearing formations in the United States and Canada. Oregon LNG states that improvements in drilling and extraction technologies have coincided with rapid diffusion in the natural gas industry's understanding of the unconventional resource base and best practices in drilling and resource development. Oregon LNG states that these changes have rendered obsolete once prominent fears of declining future domestic natural gas production.
According to Oregon LNG, the Project offers various benefits to the public, including the much needed expansion of market scope and access for North American natural gas producers at times when neither U.S. nor Canadian gas prices support continued production. Oregon LNG states that the North American supply glut has depressed domestic natural gas prices to historic lows (below $2.00 per MMbtu) not experienced since 1999.
Oregon LNG states that the influx of labor needed to complete the Project will have a major positive impact on the region's economy. In its letter of support, the United Brotherhood of Carpenters and Joiners of America points out that regional unemployment in the construction sector has hovered around 17 percent, which is twice the rate of general unemployment. Oregon LNG states that from 2014 unitl the anticipated completion date in 2018, the construction phase will create an average of 3,054 direct-employment, new construction jobs for the Project.
Oregon LNG states that the economic impact of a construction project goes well beyond the direct costs of construction. If the Project requires sheet metal from a local producer, for example, an indirect impact will be felt by the hiring of new workers at the manufacturer. The regional indirect impact of the construction phase of the Project is estimated at $2.79 billion and the average, indirect employment impact spread over the anticipated 5-year period involving construction efforts is estimated at 2,579 jobs.
Oregon LNG states that its exports will result in a net improvement in the balance of trade for the U.S. even after deducting gas imports from Canada. If approved, the export authorization is projected to reduce the U.S. trade deficit by $4.5 billion per year over a 25-year period for an estimated total of $112.5 billion of net deficit reduction over the life of the Project.
Further details can be found in the Application, which has been posted at
Oregon LNG states that the potential environment impacts of the Project will be reviewed by the Federal Energy Regulatory Commission (FERC) under
The Application will be reviewed pursuant to section 3 of the NGA, as amended, and the authority contained in DOE Delegation Order No. 00–002.00L (April 29, 2011) and DOE Redelegation Order No. 00–002.04E (April 29, 2011). In reviewing this LNG export Application, DOE will consider any issues required by law or policy. To the extent determined to be relevant or appropriate, these issues will include the impact of LNG exports associated with this Application, and the cumulative impact of any other application(s) previously approved, on domestic need for the gas proposed for export, adequacy of domestic natural gas supply, U.S. energy security, and any other issues, including the impact on the U.S. economy (GDP), consumers, and industry, job creation, U.S. balance of trade, international considerations, and whether the arrangement is consistent with DOE's policy of promoting competition in the marketplace by allowing commercial parties to freely negotiate their own trade arrangements. Parties that may oppose this Application should comment in their responses on these issues, as well as any other issues deemed relevant to the Application.
NEPA requires DOE to give appropriate consideration to the environmental effects of its proposed decisions. No final decision will be issued in this proceeding until DOE has met its environmental responsibilities.
Due to the complexity of the issues raised by the Applicants, interested persons will be provided 60 days from the date of publication of this Notice in which to submit comments, protests, motions to intervene, notices of intervention, or motions for additional procedures.
In response to this notice, any person may file a protest, comments, or a motion to intervene or notice of intervention, as applicable. Any person wishing to become a party to the proceeding must file a motion to intervene or notice of intervention, as applicable. The filing of comments or a protest with respect to the Application will not serve to make the commenter or protestant a party to the proceeding, although protests and comments received from persons who are not parties will be considered in determining the appropriate action to be taken on the Application. All protests, comments, motions to intervene or notices of intervention must meet the requirements specified by the regulations in 10 CFR part 590.
Filings may be submitted using one of the following methods: (1) emailing the filing to
A decisional record on the Application will be developed through responses to this notice by parties, including the parties' written comments and replies thereto. Additional procedures will be used as necessary to achieve a complete understanding of the facts and issues. A party seeking intervention may request that additional procedures be provided, such as additional written comments, an oral presentation, a conference, or trial-type hearing. Any request to file additional written comments should explain why they are necessary. Any request for an oral presentation should identify the substantial question of fact, law, or policy at issue, show that it is material and relevant to a decision in the proceeding, and demonstrate why an oral presentation is needed. Any request for a conference should demonstrate why the conference would materially advance the proceeding. Any request for a trial-type hearing must show that there are factual issues genuinely in dispute that are relevant and material to a decision and that a trial-type hearing is necessary for a full and true disclosure of the facts.
If an additional procedure is scheduled, notice will be provided to all parties. If no party requests additional procedures, a final Opinion and Order may be issued based on the official record, including the Application and responses filed by parties pursuant to this notice, in accordance with 10 CFR 590.316.
The Application filed by Oregon LNG is available for inspection and copying in the Office of Natural Gas Regulatory Activities docket room, Room 3E–042, 1000 Independence Avenue SW., Washington, DC 20585. The docket room is open between the hours of 8 a.m. and 4:30 p.m., Monday through Friday, except Federal holidays. The Application and any filed protests, motions to intervene or notice of interventions, and comments will also be available electronically by going to the following DOE/FE Web address:
Office of the General Counsel, Department of Energy.
Notice of intent to grant exclusive patent license.
Notice is hereby given to an intent to grant to Radiation Detection Technologies, Inc., of Manhattan, Kansas, an exclusive license to practice the inventions described in U.S. Patent No. 6,545,281, entitled “Pocked Surface Neutron Detector”. The invention is owned by the United States of America, as represented by the U.S. Department of Energy (DOE).
Written comments or nonexclusive license applications are to be received at the address listed below no later than October 9, 2012.
Office of the Assistant General Counsel for Technology Transfer and Intellectual Property, U.S. Department of Energy, 1000 Independence Ave. SW., Washington, DC 20585.
John T. Lucas, Office of the Assistant General Counsel for Technology Transfer and Intellectual Property, U.S. Department of Energy, Forrestal Building, Room 6F–
35 U.S.C. 209 provides federal agencies with authority to grant exclusive licenses in federally-owned inventions, if, among other things, the agency finds that the public will be served by the granting of the license. The statute requires that no exclusive license may be granted unless public notice of the intent to grant the license has been provided, and the agency has considered all comments received in response to that public notice, before the end of the comment period.
Radiation Detection Technologies, Inc., of Manhattan, Kansas has applied for an exclusive license to practice the inventions embodied in U.S. Patent No. 6,545,281 and has plans for commercialization of the inventions.
The exclusive license will be subject to a license and other rights retained by the U.S. Government, and other terms and conditions to be negotiated. DOE intends to negotiate to grant the license, unless, within 30 days of this notice, the Assistant General Counsel for Technology Transfer and Intellectual Property, Department of Energy, Washington, DC 20585, receives in writing any of the following, together with supporting documents:
(i) A statement from any person setting forth reason why it would not be in the best interests of the United States to grant the proposed license; or
(ii) An application for a nonexclusive license to the invention in which applicant states that it already has brought the invention to practical application or is likely to bring the invention to practical application expeditiously.
The Department will review all timely written responses to this notice, and will proceed with negotiating the license if, after consideration of written responses to this notice, a finding is made that the license is in the public interest.
Department of Energy, Office of the Secretary.
Notice of renewal.
Pursuant to Section 14(a)(2)(A) of the Federal Advisory Committee Act, (Pub. L. 92–463), and in accordance with Title 41 of the Code of Federal Regulations, Section 102–3.65(a), and following consultation with the Committee Management Secretariat, General Services Administration, notice is hereby given that the Secretary of Energy Advisory Board (SEAB) will be renewed for a two-year period beginning on August 30, 2012.
The Committee will provide advice and recommendations to the Secretary of Energy on a range of energy-related issues.
Additionally, the renewal of the SEAB has been determined to be essential to conduct business of the Department of Energy and to be in the public interest in connection with the performance of duties imposed upon the Department of Energy, by law and agreement. The Committee will continue to operate in accordance with the provisions of the Federal Advisory Committee Act, adhering to the rules and regulations in implementation of that Act.
Amy Bodette, Designated Federal Officer at (202) 586–0383.
Office of Science, Department of Energy.
Notice of open meeting.
This notice announces a meeting of the Biological and Environmental Research Advisory Committee (BERAC). The Federal Advisory Committee Act (Pub. L. 92–463, 86 Stat. 770) requires that public notice of these meetings be announced in the
Monday, October 15, 2012, 9:00 a.m. to 5:00 p.m. and Tuesday, October 16, 2012, 8:30 a.m. to 12:00 p.m.
Gaithersburg Marriott Washingtonian Center, 9751 Washingtonian Boulevard, Gaithersburg, MD 20878.
Dr. David Thomassen, Designated Federal Officer, BERAC, U.S. Department of Energy, Office of Science, Office of Biological and Environmental Research, SC–23/Germantown Building, 1000 Independence Avenue SW., Washington, DC 20585–1290. Phone (301) 903–9817; fax (301) 903–5051 or email:
• Report from the Office of Biological and Environmental Research
• News from the Biological Systems Science and Climate and Environmental Sciences Divisions
• Discussion of charge on the development and use of new tools mentioned in the BERAC “Long Term Vision” report
• Updates on the Bioenergy Research Centers and the Program for Climate Model Diagnosis and Intercomparison
• Workshop updates
• New Business
• Public Comment
Department of Energy, Office of Science.
Notice of open teleconference.
This notice announces a teleconference of the Biological and Environmental Research Advisory Committee (BERAC). The Federal Advisory Committee Act (Pub. L. 92–463, 86 Stat. 770) requires that public notice of these meetings be announced in the
Thursday, September 27, 2012; 11 a.m. to 1 p.m. (EDT)
Participants may contact Ms. Joanne Corcoran by September 25, 2012 at email:
Dr. David Thomassen, Designated Federal Officer, BERAC, U.S. Department of Energy, Office of Science, Office of Biological and Environmental Research, SC–23/Germantown Building, 1000 Independence Avenue SW., Washington, DC 20585–1290. Phone (301) 903–9817; fax (301) 903–5051 or email:
• Discussion of the final edits to the BERAC report based on the charge letter dated, September 14, 2011, (
Department of Energy, Energy Efficiency and Renewable Energy.
Notice of open meeting.
This notice announces a live open meeting of the State Energy Advisory Board (STEAB). The Federal Advisory Committee Act (Pub. L. 92–463; 86 Stat.770) requires that public notice of these meetings be announced in the
October 9, 2012; 9 a.m. to 5 p.m.
Hyatt Place Long Island/East End, 451 East Main Street, Riverhead, NY 11901.
Gil Sperling, STEAB Designated Federal Officer, U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, 1000 Independence Ave SW., Washington DC 20585. Telephone: (202) 287–1644.
Office of Fossil Energy, Department of Energy (DOE).
Notice of orders.
The Office of Fossil Energy (FE) of the Department of Energy gives notice that during July 2012, it issued Orders granting applications to import and export natural gas and vacating prior authority. These Orders are summarized in the attached appendix and may be found on the FE web site at
Take notice that the following hydroelectric application has been filed with the Commission and is available for public inspection.
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All documents may be filed electronically via the Internet. See 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site
The Commission's Rules of Practice require all intervenors filing documents with the Commission to serve a copy of that document on each person on the official service list for the project. Further, if an intervenor files comments or documents with the Commission relating to the merits of an issue that may affect the responsibilities of a particular resource agency, they must also serve a copy of the document on that resource agency.
k. This application has been accepted, but is not ready for environmental analysis at this time.
l. The proposed project would utilize the Corps' existing William Bacon Oliver Lock and Dam, and would consist of the following new facilities: (1) A forebay; (2) an intake structure; (3) a powerhouse containing two generating units with a total capacity of 11.72 megawatts (MW); (4) a 150-foot-long, 68-foot-wide tailrace; (5) a proposed 1.7-mile-long, 25 kilovolt (kV) transmission line; (6) a switchyard; and (7) appurtenant facilities. The proposed project would have an average annual generation of 42.6 GWh, and operate in a run-of-river mode utilizing surplus water from the William Bacon Oliver Lock and Dam, as directed by the Corps.
m. A copy of the application is available for review at the Commission in the Public Reference Room or may be viewed on the Commission's Web site at
You may also register online at
n. Anyone may submit a protest or a motion to intervene in accordance with the requirements of Rules of Practice and Procedure, 18 CFR 385.210, 385.211, and 385.214. In determining the appropriate action to take, the Commission will consider all protests filed, but only those who file a motion to intervene in accordance with the Commission's Rules may become a party to the proceeding. Any protests or motions to intervene must be received on, or before, the specified deadline date for the particular application.
All filings must: (1) Bear in all capital letters the title “PROTEST” or “MOTION TO INTERVENE;” (2) set forth in the heading the name of the applicant and the project number of the application to which the filing responds; (3) furnish the name, address, and telephone number of the person protesting or intervening; and (4) otherwise comply with the requirements of 18 CFR 385.2001 through 385.2005. Agencies may obtain copies of the application directly from the applicant. A copy of any protest or motion to
o. Procedural schedule and final amendments: The application will be processed according to the following Hydro Licensing Schedule. Revisions to the schedule will be made as appropriate.
Final amendments to the application must be filed with the Commission no later than 30 days from the issuance date of the notice of ready for environmental analysis.
n. Any qualified applicant desiring to file a competing application must submit to the Commission, on or before the specified intervention deadline date, a competing development application, or a notice of intent to file such an application. Submission of a timely notice of intent allows an interested person to file the competing development application no later than 120 days after the specified intervention deadline date. Applications for preliminary permits will not be accepted in response to this notice.
A notice of intent must specify the exact name, business address, and telephone number of the prospective applicant, and must include an unequivocal statement of intent to submit a development application. A notice of intent must be served on the applicant(s) named in this public notice.
Take notice that the following hydroelectric application has been filed with the Commission and is available for public inspection.
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Comments, protests, and interventions may be filed electronically via the Internet in lieu of paper; see 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site at
The Commission's Rules of Practice and Procedure require all intervenors filing documents with the Commission to serve a copy of that document on each person in the official service list for the project. Further, if an intervenor files comments or documents with the Commission relating to the merits of an issue that may affect the responsibilities of a particular resource agency, they must also serve a copy of the document on that resource agency.
l.
m. This filing is available for review and reproduction at the Commission in the Public Reference Room, Room 2A, 888 First Street NE., Washington, DC 20426. The filing may also be viewed on the Web at
n. Development Application—Any qualified applicant desiring to file a competing application must submit to the Commission, on or before the specified deadline date for the particular application, a competing development application, or a notice of intent to file such an application. Submission of a timely notice of intent allows an interested person to file the competing development application no later than 120 days after the specified deadline date for the particular application. Applications for preliminary permits will not be accepted in response to this notice.
p. Protests or Motions to Intervene—Anyone may submit a protest or a motion to intervene in accordance with the requirements of Rules of Practice and Procedure, 18 CFR 385.210, 385.211, and 385.214. In determining the appropriate action to take, the Commission will consider all protests filed, but only those who file a motion to intervene in accordance with the Commission's Rules may become a party to the proceeding. Any protests or motions to intervene must be received on or before the specified deadline date for the particular application.
q. All filings must (1) bear in all capital letters the title “PROTEST”, “MOTION TO INTERVENE”, “COMMENTS”, “REPLY COMMENTS”, “RECOMMENDATIONS”, “TERMS AND CONDITIONS”, or “PRESCRIPTIONS”; (2) set forth in the heading, the name of the applicant and the project number of the application to which the filing responds; (3) furnish the name, address, and telephone number of the person protesting or intervening; and (4) otherwise comply with the requirements of 18 CFR 385.2001 through 385.2005. All comments, recommendations, terms and conditions, or prescriptions must set
Take notice that the following hydroelectric application has been filed with the Commission and is available for public inspection.
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j. Deadline for filing comments, motions to intervene, and protests, is September 17, 2012.
All documents may be filed electronically via the Internet. See, 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's web site at
Please include the project number (P–943–117) on any comments, motions, or recommendations filed.
k.
l.
m. Individuals desiring to be included on the Commission's mailing list should so indicate by writing to the Secretary of the Commission.
n.
o.
Take notice that the following hydroelectric application has been filed with the Commission and is available for public inspection.
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b.
c.
d.
e.
f.
g.
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All documents may be filed electronically via the Internet. See 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site
The Commission's Rules of Practice require all intervenors filing documents with the Commission to serve a copy of that document on each person on the official service list for the project. Further, if an intervenor files comments or documents with the Commission relating to the merits of an issue that may affect the responsibilities of a particular resource agency, they must also serve a copy of the document on that resource agency.
k. This application has been accepted, but is not ready for environmental analysis at this time.
l. The proposed project would utilize the Corps' existing Barren River Lake Dam, and would consist of the following new facilities: (1) An upper intake structure with a center elevation of 533 feet mean sea level (msl) and a lower intake structure with a center elevation of 507.5 feet msl, each equipped with trashracks having 2-inch clear spacing; (2) two 220-foot-long penstocks, connecting the intakes to a 50-foot-diameter, 100-foot-long gate shaft; (3) a 50-by-60-foot gate house; (4) a 850-foot-long power tunnel and a 14-foot-diameter, 950-foot-long penstock, leading to; (5) a 100-foot-long, 65-foot-wide powerhouse containing one vertical Kaplan turbine unit with a total capacity of 6.8 megawatts (MW); (6) a 12-foot-diameter regulating bypass valve connected to the west side of the powerhouse; (7) a 110-foot-long, 80-foot-wide tailrace; (8) a tailwater aeration system; (9) a proposed 0.6-mile-long, 12.5 kilovolt (kV) transmission line; (10) a switchyard; (11) two access roads leading to the gatehouse and powerhouse; and (12) appurtenant facilities. The proposed project would have an average annual generation of 25.8 GWh, and operate in a run-of-release mode utilizing surplus water from the Barren River Lake Dam, as directed by the Corps.
m. A copy of the application is available for review at the Commission in the Public Reference Room or may be viewed on the Commission's Web site at
You may also register online at
n. Anyone may submit a protest or a motion to intervene in accordance with the requirements of Rules of Practice and Procedure, 18 CFR 385.210, 385.211, and 385.214. In determining the appropriate action to take, the Commission will consider all protests filed, but only those who file a motion to intervene in accordance with the Commission's Rules may become a party to the proceeding. Any protests or motions to intervene must be received on, or before, the specified deadline date for the particular application.
o.
Final amendments to the application must be filed with the Commission no later than 30 days from the issuance date of the notice of ready for environmental analysis.
p. Any qualified applicant desiring to file a competing application must submit to the Commission, on or before the specified intervention deadline date, a competing development application, or a notice of intent to file such an application. Submission of a timely notice of intent allows an interested person to file the competing development application no later than 120 days after the specified intervention
A notice of intent must specify the exact name, business address, and telephone number of the prospective applicant, and must include an unequivocal statement of intent to submit a development application. A notice of intent must be served on the applicant(s) named in this public notice.
Take notice that the following hydroelectric application has been filed with the Commission and is available for public inspection.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
All documents may be filed electronically via the Internet. See 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site
The Commission's Rules of Practice require all intervenors filing documents with the Commission to serve a copy of that document on each person on the official service list for the project. Further, if an intervenor files comments or documents with the Commission relating to the merits of an issue that may affect the responsibilities of a particular resource agency, they must also serve a copy of the document on that resource agency.
k. This application has been accepted for filing, but is not ready for environmental analysis at this time.
l. The proposed Freedom Falls Hydroelectric Project would consist of: (1) An existing 90-foot-long, 12-foot-high concrete-capped stone masonry dam with a 25-foot-long, 10-foot-high spillway with two vertical lift sluice gates and a crest elevation of 452.5 feet mean sea level (msl); (2) an existing 1.6-acre impoundment with a normal maximum water surface elevation of 453.0 feet msl; (3) a new intake structure equipped with an 8-foot-high, 5-foot-wide trashrack that would be modified to have 1-inch clear bar spacing, and a 3-foot-high, 4.75-foot-wide slide gate; (4) a new downstream American eel passage facility and working platform; (5) a new 60-foot-long, 30-inch-diameter steel penstock leading to; (6) an existing 20-foot-wide, by 30-foot-long generating room containing a new 38.3 kilowatt turbine-generator unit; (7) a new 20-foot-long, 5-foot-wide tailrace; (8) a new 30-foot-long, 110-volt transmission line; and (9) appurtenant facilities. The proposed project is estimated to generate an average of 66,000 kilowatt-hours annually.
m. Due to the project works already existing and the limited scope of proposed rehabilitation of the project site described above, the applicant's close coordination with federal and state agencies during the preparation of the application, completed studies during pre-filing consultation, and agency recommended preliminary terms and conditions, we intend to waive scoping and expedite the exemption process. Based on a review of the application, resource agency consultation letters including the preliminary 30(c) terms and conditions, and comments filed to date, Commission staff intends to prepare a single environmental assessment (EA). Commission staff determined that the issues that need to be addressed in its EA have been adequately identified during the pre-filing period, which included a public meeting and site visit, and no new issues are likely to be identified through additional scoping. The EA will consider assessing the potential effects of project construction and operation on geology and soils, aquatic, terrestrial, threatened and endangered species, recreation and land use, aesthetic, and cultural and historic resources.
n. A copy of the application is available for review at the Commission in the Public Reference Room or may be viewed on the Commission's Web site at
You may also register online at
o. Any qualified applicant desiring to file a competing application must submit to the Commission, on or before the specified intervention deadline date, a competing development application, or a notice of intent to file such an application. Submission of a timely notice of intent allows an interested person to file the competing development application no later than 120 days after the specified intervention deadline date. Applications for preliminary permits will not be accepted in response to this notice.
A notice of intent must specify the exact name, business address, and telephone number of the prospective applicant, and must include an unequivocal statement of intent to submit a development application. A notice of intent must be served on the applicant(s) named in this public notice.
Anyone may submit a protest or a motion to intervene in accordance with the requirements of Rules of Practice and Procedure, 18 CFR 385.210, 385.211, and 385.214. In determining the appropriate action to take, the Commission will consider all protests filed, but only those who file a motion to intervene in accordance with the Commission's Rules may become a party to the proceeding. Any protests or
All filings must (1) bear in all capital letters the title “PROTEST”, “MOTION TO INTERVENE,” “NOTICE OF INTENT TO FILE COMPETING APPLICATION,” or “COMPETING APPLICATION;” (2) set forth in the heading the name of the applicant and the project number of the application to which the filing responds; (3) furnish the name, address, and telephone number of the person protesting or intervening; and (4) otherwise comply with the requirements of 18 CFR 385.2001 through 385.2005. Agencies may obtain copies of the application directly from the applicant. A copy of any protest or motion to intervene must be served upon each representative of the applicant specified in the particular application.
Take notice that on August 16, 2012, Florida Gas Transmission Company, LLC (FGT), 5051 Westheimer Road, Houston, Texas 77056, filed an application pursuant to sections 7(b) and 7(c) of the Natural Gas Act and parts 157 of the Commission's to: (1) Replace approximately 1,618 feet of 36-inch diameter pipeline used to render transportation services under Subpart G of Part 284 of the Commission's regulations, 18 CFR part 284 (2012); and (2) the issuance of a certificate of public convenience and necessity to construct, modify, and operate pipeline, and ancillary facilities to replace the abandoned facilities (I–595 Replacement Project). The purpose of the I–595 Replacement Project is designed to resolve direct conflicts with the Florida Department of Transportation's construction of a mechanically stabilized earth wall and other encroachments in FGT's easement along State Road 91 in Broward County, Florida by the Florida Department of Transportation/Florida Turnpike Enterprise (FDOT/FTE), which is part of the I–595 Express Corridor Improvements Project (FDOT/FTE Project), all as more fully set forth in the application which is on file with the Commission and open to public inspection. The total estimated cost for the proposed I–595 Replacement Project is approximately $24.7 million. The filing may also be viewed on the web at
Any questions regarding this application should be directed to Stephen Veatch, Senior Director of Certificates & Tariffs, Florida Gas Transmission Company, LLC, 5051 Westheimer Road, Houston, Texas, 77056, or call (713) 989–2024, or fax (713) 989–1176, or by email
On January 11, 2012, the Commission staff granted the Applicants' request to utilize the Pre-Filing Process and assigned Docket No. PF12–5–000 to staff activities involved the I–595 Replacement Project. Now as of the filing the August 16, 2012 application, the Pre-Filing Process for this project has ended. From this time forward, this proceeding will be conducted in Docket No. CP12–501–000, as noted in the caption of this Notice.
Pursuant to section 157.9 of the Commission's rules, 18 CFR 157.9, within 90 days of this Notice the Commission staff will either: Complete its environmental assessment (EA) and place it into the Commission's public record (eLibrary) for this proceeding; or issue a Notice of Schedule for Environmental Review. If a Notice of Schedule for Environmental Review is issued, it will indicate, among other milestones, the anticipated date for the Commission staff's issuance of the final environmental impact statement (FEIS) or EA for this proposal. The filing of the EA in the Commission's public record for this proceeding or the issuance of a Notice of Schedule for Environmental Review will serve to notify federal and state agencies of the timing for the completion of all necessary reviews, and the subsequent need to complete all federal authorizations within 90 days of the date of issuance of the Commission staff's FEIS or EA.
There are two ways to become involved in the Commission's review of this project. First, any person wishing to obtain legal status by becoming a party to the proceedings for this project should, on or before the comment date stated below file with the Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, a motion to intervene in accordance with the requirements of the Commission's Rules of Practice and Procedure (18 CFR 385.214 or 385.211) and the Regulations under the NGA (18 CFR 157.10). A person obtaining party status will be placed on the service list maintained by the Secretary of the Commission and will receive copies of all documents filed by the applicant and by all other parties. A party must submit 7 copies of filings made in the proceeding with the Commission and must mail a copy to the applicant and to every other party. Only parties to the proceeding can ask for court review of Commission orders in the proceeding.
However, a person does not have to intervene in order to have comments considered. The second way to participate is by filing with the Secretary of the Commission, as soon as possible, an original and two copies of comments in support of or in opposition to this project. The Commission will consider these comments in determining the appropriate action to be taken, but the filing of a comment alone will not serve to make the filer a party to the proceeding. The Commission's rules require that persons filing comments in opposition to the project provide copies of their protests only to the party or parties directly involved in the protest.
Persons who wish to comment only on the environmental review of this project should submit an original and two copies of their comments to the Secretary of the Commission. Environmental commentors will be placed on the Commission's environmental mailing list, will receive copies of the environmental documents, and will be notified of meetings associated with the Commission's environmental review process. Environmental commentors will not be required to serve copies of filed documents on all other parties. However, the non-party commentors will not receive copies of all documents filed by other parties or issued by the Commission (except for the mailing of environmental documents issued by the Commission) and will not have the right to seek court review of the Commission's final order.
The Commission strongly encourages electronic filings of comments, protests and interventions in lieu of paper using the “eFiling” link at
The staff of the Federal Energy Regulatory Commission (FERC or Commission) will prepare an environmental assessment (EA) that will discuss the environmental impacts of the Virginia Southside Expansion Project (Project) involving construction and operation of facilities by Transcontinental Gas Pipe Line Company, LLC (Transco) in Pittsylvania, Halifax, Charlotte, Mecklenburg, and Brunswick Counties, Virginia. The Commission will use this EA in its decision-making process to determine whether the Project is in the public convenience and necessity.
This notice announces the opening of the scoping process the Commission will use to gather input from the public and interested agencies on the Project. Your input will help the Commission staff determine what issues they need to evaluate in the EA. Please note that the scoping period will close on October 1, 2012.
You may submit comments in written form or verbally. Further details on how to submit written comments are in the Public Participation section of this notice. In lieu of or in addition to sending written comments, the Commission invites you to attend the FERC public scoping meetings scheduled for the Project as follows:
The public meetings are designed to provide you with more detailed information and another opportunity to offer your comments on the planned project. Transco representatives will be present one hour before each meeting to describe their proposal, present maps, and answer questions. Interested groups and individuals are encouraged to attend the meetings and to present comments on the issues they believe should be addressed in the EA. A transcript of each meeting will be made so that your comments will be accurately recorded.
This notice is being sent to the Commission's current environmental mailing list for this Project. State and local government representatives should notify their constituents of this planned Project and encourage them to comment on their areas of concern. If you are a landowner receiving this notice, a pipeline company representative may contact you about the acquisition of an easement to construct, operate, and maintain the planned facilities. The company would seek to negotiate a mutually acceptable agreement. However, if the Commission approves the Project, that approval conveys with it the right of eminent domain. Therefore, if easement negotiations fail to produce an agreement, the pipeline company could initiate condemnation proceedings where compensation would be determined in accordance with state law.
A fact sheet prepared by the FERC entitled “An Interstate Natural Gas Facility On My Land? What Do I Need To Know?” is available for viewing on the FERC Web site (
Transco plans to expand its existing South Virginia Lateral by constructing 98.6 miles of new 24-inch-diameter pipeline to provide additional natural gas transportation to markets in southern Virginia and northern North Carolina. The planned Project would provide an additional 250,000 dekatherms per day (dt/day) of natural gas transportation capability from Transco's pooling point
The Project would include construction and operation of the following facilities:
• Approximately 91.4 miles of new 24-inch-diameter natural gas pipeline collocated with the existing South Virginia Lateral in Pittsylvania, Halifax, Charlotte, Mecklenburg, and Brunswick Counties, Virginia;
• Approximately 7.2 miles of new 24-inch-diameter greenfield natural gas pipeline located in Brunswick County, Virginia;
• One new compressor station in Pittsylvania County, Virginia;
• Line heaters at the terminus of the Brunswick Lateral;
• Modifications to valves and meter stations at 12 facilities along the existing South Virginia Lateral;
• Modifications to existing Compressor Station 205 to allow bi-directional flow on Transco's mainline in Mercer County, New Jersey; and
• Other appurtenant and ancillary facilities.
The general location of the Project facilities is shown in Appendix 1.
Transco plans to initiate construction of the Project in the third quarter of 2014 and complete construction during the third quarter of 2015. The construction schedule would be driven by the need to complete construction of the Project by the planned time for initial operation of the Virginia Electric and Power Company proposed 1,300-megawatt power station, which is not under the jurisdiction of the FERC.
Construction of the planned facilities would disturb about 2,040 acres of land for the pipeline and aboveground facilities. Following construction, Transco would maintain about 140 acres for permanent operation of the Project's facilities; the remaining acreage would be restored and revert to former uses.
The National Environmental Policy Act (NEPA) requires the Commission to take into account the environmental impacts that could result from an action whenever it considers the issuance of a Certificate of Public Convenience and Necessity. NEPA also requires us
In the EA we will discuss impacts that could occur as a result of the construction and operation of the planned Project under these general headings:
• Geology and soils;
• Water resources;
• Wetlands and vegetation;
• Fish and wildlife;
• Threatened and endangered species;
• Land use, recreation, and visual resources;
• Air quality and noise;
• Cultural resources;
• Socioeconomics;
• Reliability and safety; and
• Cumulative environmental impacts.
We will also evaluate possible alternatives to the planned Project or portions of the Project, and make recommendations on how to lessen or avoid impacts on the various resource areas.
Although no formal application has been filed, we have already initiated our NEPA review under the Commission's pre-filing process. The purpose of the pre-filing process is to encourage early involvement of interested stakeholders and to identify and resolve issues before the FERC receives an application. As part of our pre-filing review, we have begun to contact federal and state agencies to discuss their involvement in the scoping process and the preparation of the EA.
Our independent analysis of the issues will be presented in the EA. The EA will be placed in the public record and, depending on the comments received during the scoping process, may be published and distributed to the public. A comment period will be allotted if the EA is published for review. We will consider all comments on the EA before we make our recommendations to the Commission. To ensure your comments are considered, please carefully follow the instructions in the Public Participation section beginning on page 6.
With this notice, we are asking agencies with jurisdiction by law and/or special expertise with respect to the environmental issues related to this Project to formally cooperate with us in the preparation of the EA.
In accordance with the Advisory Council on Historic Preservation's implementing regulations for section 106 of the National Historic Preservation Act, we are using this notice to initiate consultation with the Virginia Department of Historic Resources, and to solicit their views and those of other government agencies, interested Indian tribes, and the public on the Project's potential effects on historic properties.
We have already identified several issues that we think deserve attention based on a preliminary review of the planned facilities and the environmental information provided by Transco. This preliminary list of issues may change based on your comments and our analysis:
• Potential impacts on perennial and intermittent waterbodies, including waterbodies with federal and/or state designations/protections;
• Evaluation of temporary and permanent impacts on wetlands and the development of appropriate mitigation;
• Potential impacts to fish and wildlife habitat, including potential impacts to federally and state-listed threatened and endangered species;
• Potential effects on prime farmland and erodible soils;
• Potential visual effects of the aboveground facilities on surrounding areas;
• Potential impacts and potential benefits of construction workforce on local housing, infrastructure, public services, and economy; and
• Impacts on air quality and noise associated with construction and operation of the Project.
You can make a difference by providing us with your specific comments or concerns about the Project. Your comments should focus on the potential environmental effects, reasonable alternatives, and measures to avoid or lessen environmental impacts. The more specific your comments, the more useful they will be. To ensure that your comments are timely and properly recorded, please send your comments so that the Commission receives them in Washington, DC, on or before October 1, 2012. This is not your only public input opportunity; please refer to the Environmental Review Process flow chart in Appendix 2.
For your convenience, there are three methods you can use to submit your comments to the Commission. In all instances, please reference the Project docket number (PF12–15–000) with your submission. The Commission encourages electronic filing of comments and has expert staff available to assist you at (202) 502–8258 or
(1) You can file your comments electronically using the eComment feature located on the Commission's Web site (
(2) You can file your comments electronically using the eFiling feature located on the Commission's Web site (
(3) You can file a paper copy of your comments by mailing them to the following address: Kimberly D. Bose, Secretary, Federal Energy Regulatory Commission, 888 First Street NE., Room 1A, Washington, DC 20426.
The environmental mailing list includes Federal, State, and local government representatives and agencies; elected officials; environmental and public interest groups; Native American Tribes; other interested parties; and local libraries and newspapers. This list also includes all affected landowners (as defined in the Commission's regulations) who are potential right-of-way grantors, whose property may be used temporarily for Project purposes, or who own homes within certain distances of aboveground facilities, and anyone who submits comments on the Project. We will update the environmental mailing list as the analysis proceeds to ensure that we send the information related to this environmental review to all individuals, organizations, and government entities interested in and/or potentially affected by the planned Project.
Copies of the completed EA will be sent to the environmental mailing list for public review and comment. If you would prefer to receive a paper copy of the document instead of the CD version or would like to remove your name from the mailing list, please return the attached Information Request (Appendix 3).
Once Transco files its application with the Commission, you may want to become an “intervenor,” which is an official party to the Commission's proceeding. Intervenors play a more formal role in the process and are able to file briefs, appear at hearings, and be heard by the courts if they choose to appeal the Commission's final ruling. An intervenor formally participates in the proceeding by filing a request to intervene. Instructions for becoming an intervenor are in the User's Guide under the “e-filing” link on the Commission's Web site. Please note that the Commission will not accept requests for intervenor status at this time. You must wait until the Commission receives a formal application for the Project.
Additional information about the Project is available from the Commission's Office of External Affairs, at (866) 208–FERC, or on the FERC Web site (
In addition, the Commission offers a free service called eSubscription which allows you to keep track of all formal issuances and submittals in specific dockets. This can reduce the amount of time you spend researching proceedings by automatically providing you with notification of these filings, document summaries, and direct links to the documents. Go to
Finally, public meetings or site visits will be posted on the Commission's calendar located at
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l. With this notice, we are designating PSNH as the Commission's non-federal representative for carrying out informal consultation, pursuant to section 7 of the Endangered Species Act and section 106 of the National Historic Preservation Act.
m. PSNH filed with the Commission a Pre-Application Document (PAD; including a proposed process plan and schedule), pursuant to 18 CFR 5.6 of the Commission's regulations.
n. A copy of the PAD is available for review at the Commission in the Public Reference Room or may be viewed on the Commission's Web site (
Register online at
o. With this notice, we are soliciting comments on the PAD and Commission's staff Scoping Document 1 (SD1), as well as study requests. All comments on the PAD and SD1, and study requests should be sent to the address above in paragraph h. In addition, all comments on the PAD and SD1, study requests, requests for cooperating agency status, and all communications to and from Commission staff related to the merits of the potential application must be filed with the Commission. Documents may be filed electronically via the Internet.
All filings with the Commission must include on the first page, the project name (Eastman Falls Hydroelectric Project) and number (P–2457–038), and bear the appropriate heading: “Comments on Pre-Application Document,” “Study Requests,” “Comments on Scoping Document 1,” “Request for Cooperating Agency Status,” or “Communications to and from Commission Staff.” Any individual or entity interested in submitting study requests, commenting on the PAD or SD1, and any agency requesting cooperating status must do so by October 30, 2012.
p. Although our current intent is to prepare an environmental assessment (EA), there is the possibility that an Environmental Impact Statement (EIS) will be required. Nevertheless, this meeting will satisfy the NEPA scoping requirements, irrespective of whether an EA or EIS is issued by the Commission.
Commission staff will hold two scoping meetings in the vicinity of the project at the time and place noted below. The daytime meeting will focus on resource agency, Indian tribes, and non-governmental organization concerns, while the evening meeting is primarily for receiving input from the public. We invite all interested individuals, organizations, and agencies to attend one or both of the meetings, and to assist staff in identifying particular study needs, as well as the scope of environmental issues to be addressed in the environmental document. The times and locations of these meetings are as follows:
Date: Wednesday, September 19, 2012.
Time: 1:00 p.m. (EST).
Location: Franklin City Hall Opera House, 316 Central Street, Franklin, NH, 03235.
Phone: (603) 934–1901.
Date: Wednesday, September 19, 2012.
Time: 7:00 p.m. (EST).
Location: Franklin City Hall Opera House, 316 Central Street, Franklin, NH, 03235.
Phone: (603) 934–1901.
Scoping Document 1 (SD1), which outlines the subject areas to be addressed in the environmental document, was mailed to the individuals and entities on the Commission's mailing list. Copies of SD1 will be available at the scoping meetings, or may be viewed on the web at
The potential applicant and Commission staff will conduct a site visit of the project on Tuesday, September 18, 2012, starting at 11:00 a.m. All participants should meet at the Eastman Falls dam, located at 215 North Main Street, Franklin, NH 03235. All participants are responsible for their own transportation. Anyone with questions about the site visit should contact Mr. Curtis Mooney at (603) 744–5841 (ext. 5841) or curtis.mooney@nu.com on or before September 12, 2012.
At the scoping meetings, staff will: (1) Initiate scoping of the issues; (2) review and discuss existing conditions and resource management objectives; (3) review and discuss existing information and identify preliminary information and study needs; (4) review and discuss the process plan and schedule for pre-filing activity that incorporates the time frames provided for in Part 5 of the Commission's regulations and, to the extent possible, maximizes coordination of federal, state, and tribal permitting and certification processes; and (5) discuss the appropriateness of any federal or state agency or Indian tribe acting as a cooperating agency for development of an environmental document.
Meeting participants should come prepared to discuss their issues and/or concerns. Please review the PAD in preparation for the scoping meetings. Directions on how to obtain a copy of the PAD and SD1 are included in item n. of this document.
The meetings will be recorded by a stenographer and will be placed in the public records of the project.
The Federal Energy Regulatory Commission (Commission) hereby gives notice that members of the Commission and/or Commission staff may attend the following meeting:
Western Electricity Coordinating Council Board of Directors Strategic Planning Session, 155 North 400 West, Suite 200, Salt Lake City, Utah 84013.
Further information regarding this meeting may be found at:
On March 30, 2012, North Star Hydro Services CA, LLC, Oklahoma, filed an application for a preliminary permit, pursuant to section 4(f) of the Federal Power Act (FPA), proposing to study the feasibility of the Prosser Creek Dam Hydropower Project (project) to be located on Prosser Creek, a tributary of the Truckee River, near the town of Truckee, Nevada County, California. The project would affect federal lands and facilities administered by the Bureau of Reclamation (Bureau). The sole purpose of a preliminary permit, if issued, is to grant the permit holder priority to file a license application during the permit term. A preliminary permit does not authorize the permit holder to perform any land-disturbing activities or otherwise enter upon lands or waters owned by others without the owners' express permission.
The proposed project would utilize the existing facilities that include: the Bureau's 163-foot-high, earthfill, Prosser Creek dam; and a double 95-foot-high by 530-foot-long concrete primary outlet structure. No modifications would be made to the existing intake structure.
The proposed project would include: (1) Two Kaplan turbines generating 3.5 megawatts; (2) a 46-foot-wide by 120-foot-long by 30-foot-high powerhouse with an attached 75-foot-long by 24-foot-wide control room/cable gallery; (3) a 50- to 75-foot-long tailrace; and (4) a 69-kilovolt transmission line interconnecting to an existing transmission line 0.5 mile from the project site. The annual energy output would be approximately 3.8 gigawatthours.
Deadline for filing comments, motions to intervene, competing applications (without notices of intent), or notices of intent to file competing applications: 60 days from the issuance of this notice. Competing applications and notices of intent must meet the requirements of 18 CFR 4.36. Comments, motions to intervene, notices of intent, and competing applications may be filed electronically via the Internet. See 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site
More information about this project, including a copy of the application, can be viewed or printed on the “eLibrary” link of Commission's Web site at
On March 30, 2012, North Star Hydro Services CA, LLC, Oklahoma, filed an application for a preliminary permit, pursuant to section 4(f) of the Federal Power Act (FPA), proposing to study the feasibility of the Boca Dam Hydropower Project (project) to be located on Little Truckee River, a tributary of the Truckee River, near the town of Truckee, Nevada County, California. The project would affect federal lands and facilities administered by the Bureau of Reclamation (Bureau). The sole purpose of a preliminary permit, if issued, is to grant the permit holder priority to file a license application during the permit term. A preliminary permit does not authorize the permit holder to perform any land-disturbing activities or otherwise enter upon lands or waters owned by others without the owners' express permission.
The proposed project would utilize existing facilities that include: the Bureau's 93-foot-high, earthfill, Boca dam; and double 50 inch, 530-feet-long steel pipes, serving as the primary outlet structure. No modifications would be made to the existing intake structure.
The proposed project would include: (1) One Kaplan turbine generating 1.7 megawatts; (2) an 86-foot-wide by 80-foot-long by 30-foot-high powerhouse with an attached 22-foot-wide by 80-foot-long control/office room; (3) an 80- to 125- foot-long tailrace; and (4) a 69-kilovolt transmission line interconnecting to an existing transmission line 0.25 mile southeast from the project site. The annual energy output would be approximately 4.6 gigawatthours.
Deadline for filing comments, motions to intervene, competing applications (without notices of intent), or notices of intent to file competing applications: 60 days from the issuance of this notice. Competing applications and notices of intent must meet the requirements of 18 CFR 4.36. Comments, motions to intervene, notices of intent, and competing applications may be filed electronically via the Internet. See 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site
More information about this project, including a copy of the application, can be viewed or printed on the “eLibrary” link of Commission's Web site at
Section 309(a) of the Clean Air Act requires that EPA make public its comments on EISs issued by other Federal agencies. EPA's comment letters on EISs are available at:
Starting October 1, 2012, EPA will not accept paper copies or CDs of EISs for filing purposes; all submissions on or after October 1, 2012 must be made through e-NEPA.
While this system eliminates the need to submit paper or CD copies to EPA to meet filing requirements, electronic submission does not change requirements for distribution of EISs for public review and comment. To begin using e-NEPA, you must first register with EPA's electronic reporting site—
Federal Communications Commission.
Notice.
The Commission announces the next meeting date, time, and agenda of its Consumer Advisory Committee (Committee). The purpose of the Committee is to make recommendations to the Commission regarding matters within the jurisdiction of the Commission and to facilitate the participation of all consumers in proceedings before the Commission.
The next meeting of the Committee will take place on Friday, September 21, 2012, 2:00 p.m. to 4:00 p.m., in the Commission's Meeting Room, TW–C305.
Federal Communications Commission, 445 12th Street SW., Washington, DC 20554.
Scott Marshall, Consumer and Governmental Affairs Bureau, (202) 418–2809 (voice or TTY), or email
This is a summary of the Commission's document DA 12–1400 released August 24, 2012, announcing the agenda, date and time of the Committee's next meeting.
At its September 21, 2012 meeting, it is expected that the Committee will consider one recommendation from its Broadband Working Group regarding broadband adoption; two recommendations from the Committee's Consumer Empowerment Group regarding text spamming and third-party wireless shutdowns; two recommendations from the Universal Service Working Group regarding Lifeline outreach and affordable calling from prisons; and one recommendation from the Consumer Complaints Task Force regarding the Commission's telephone IVR and web complaint systems. The Committee may also consider other recommendations from its working groups, and may also receive briefings from FCC staff and outside speakers on matters of interest to the Committee. A limited amount of time will be available on the agenda for questions and comments from the public. Meetings of the Committee are also broadcast live with open captioning over the Internet from the FCC Live Web page at
The public may ask questions of presenters via email at
The meeting is open to the public and the site is fully accessible to people using wheelchairs or other mobility aids. Sign language interpreters, open captioning, assistive listening devices, and Braille copies of the agenda and handouts will be provided on site.
Other reasonable accommodations for people with disabilities are available upon request. The request should include a detailed description of the accommodation needed and contact information. Please provide as much advance notice as possible; last minute requests will be accepted, but may be impossible to fill. Send an email to
Federal Communications Commission.
The notificants listed below have applied under the Change in Bank Control Act (12 U.S.C. 1817(j)) and § 225.41 of the Board's Regulation Y (12 CFR 225.41) to acquire shares of a bank or bank holding company. The factors that are considered in acting on the notices are set forth in paragraph 7 of the Act (12 U.S.C. 1817(j)(7)).
The notices are available for immediate inspection at the Federal Reserve Bank indicated. The notices also will be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing to the Reserve Bank indicated for that notice or to the offices of the Board of Governors. Comments must be received not later than September 24, 2012.
A. Federal Reserve Bank of Minneapolis (Jacqueline G. King, Community Affairs Officer), 90 Hennepin Avenue, Minneapolis, Minnesota 55480–0291:
1.
Pursuant to the Federal Advisory Committee Act, the Department of Health and Human Services (HHS) announces the following advisory committee meeting.
The agenda for the morning of the second day will consist of a review of the final action items discussed on the first day; and reports from the Subcommittees. After lunch, the Committee will be briefed on de-identification methods for Open Health data. Once the full Committee adjourns, NCVHS's Working Group on Data Access and Use will convene to discuss anticipated work products and logistical plans. Further information will be provided on the NCVHS Web site at
The times shown above are for the full Committee meeting. Subcommittee breakout sessions are scheduled for late in the afternoon on the first day and in the morning prior to the full Committee meeting on the second day. Agendas for these breakout sessions will be posted on the NCVHS Web site (URL below) when available.
Should you require reasonable accommodation, please contact the CDC Office of Equal Employment Opportunity on (301) 458–4EEO (4336) as soon as possible.
Office for Human Research Protections, Office of the Assistant Secretary for Health, Office of the Secretary, Department of Health and Human Services.
Notice.
42 U.S.C. 217a, Section 222 of the Public Health Service Act, as amended. The Committee is governed by the provisions of Public Law 92–463, as amended (5 U.S.C. appendix 2), which sets forth standards for the formation and use of advisory committees.
The Office for Human Research Protections (OHRP), a program office in the Office of the Assistant Secretary for Health, Department of Health and Human Services (HHS), is seeking nominations of qualified candidates to be considered for appointment as members of the Secretary's Advisory Committee on Human Research Protections (SACHRP). SACHRP provides advice and recommendations to the Secretary, HHS, and the Assistant Secretary for Health on matters pertaining to the continuance and improvement of functions within the authority of HHS directed toward protections for human subjects in research. SACHRP was established by the Secretary, HHS, on October 1, 2002. OHRP is seeking nominations of qualified candidates to fill two positions on the Committee membership that will be vacated during the 2013 calendar year.
Nominations for membership on the Committee must be received no later than October 9, 2012.
Nominations should be mailed or delivered to Dr. Jerry Menikoff, Director, Office for Human Research Protections, Department of Health and Human Services, 1101 Wootton Parkway, Suite 200; Rockville, MD 20852. Nominations will not be accepted by email or by facsimile.
Julia Gorey, Executive Director, SACHRP, Office for Human Research Protections, 1101 Wootton Parkway, Suite 200, Rockville, MD 20852, telephone: 240–453–8141. A copy of the Committee charter and list of the current members can be obtained by contacting Ms. Gorey, accessing the SACHRP Web site at
The Committee provides advice on matters pertaining to the continuance and improvement of functions within the authority of HHS directed toward protections for human subjects in research. Specifically, the Committee provides advice relating to the responsible conduct of research involving human subjects with particular emphasis on special populations such as neonates and children, prisoners, the decisionally impaired, pregnant women, embryos and fetuses, individuals and populations in international studies, investigator conflicts of interest and populations in which there are individually identifiable samples, data or information.
In addition, the Committee is responsible for reviewing selected ongoing work and planned activities of the OHRP and other offices/agencies within HHS responsible for human subjects protection. These evaluations may include, but are not limited to, a review of assurance systems, the application of minimal research risk standards, the granting of waivers, education programs sponsored by OHRP, and the ongoing monitoring and oversight of institutional review boards and the institutions that sponsor research.
The individuals selected for appointment to the Committee can be invited to serve a term of up to four years. Committee members receive a stipend and reimbursement for per diem and any travel expenses incurred for attending Committee meetings and/or conducting other business in the interest of the Committee. Interested applicants may self-nominate.
Nominations should be typewritten. The following information should be included in the package of material submitted for each individual being
The Department makes every effort to ensure that the membership of HHS Federal advisory committees is fairly balanced in terms of points of view represented and the committee's function. Every effort is made to ensure that individuals from a broad representation of geographic areas, women and men, ethnic and minority groups, and the disabled are given consideration for membership on HHS Federal advisory committees. Appointment to this Committee shall be made without discrimination on the basis of age, race, ethnicity, gender, sexual orientation, disability, and cultural, religious, or socioeconomic status.
Individuals who are selected to be considered for appointment will be required to provide detailed information regarding their financial holdings, consultancies, and research grants or contracts. Disclosure of this information is necessary in order to determine if the selected candidate is involved in any activity that may pose a potential conflict with the official duties to be performed as a member of SACHRP.
Centers for Medicare & Medicaid Services, HHS.
In compliance with the requirement of section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, the Centers for Medicare & Medicaid Services (CMS) is publishing the following summary of proposed collections for public comment. Interested persons are invited to send comments regarding this burden estimate or any other aspect of this collection of information, including any of the following subjects: (1) The necessity and utility of the proposed information collection for the proper performance of the agency's functions; (2) the accuracy of the estimated burden; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) the use of automated collection techniques or other forms of information technology to minimize the information collection burden.
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Section 1852(g)(1)(B) of the Social Security Act (SSA) requires Medicare health plans to provide enrollees with a written notice in understandable language that explains the plan's reasons for denying a request for a service or payment for a service the enrollee has already received. The written notice must also include a description of the applicable appeals processes. Regulatory authority for this notice is set forth in Subpart M of Part 422 at 42 CFR 422.568, 422.572, 417.600(b), and 417.840.
Section 1932 of the Social Security Act (SSA) sets forth requirements for Medicaid managed care plans, including beneficiary protections related to appealing a denial of coverage or payment. The Medicaid managed care appeals regulations are set forth in Subpart F of Part 438 of Title 42 of the CFR. Rules on the content of the written denial notice can be found at 42 CFR 438.404.
This notice combines the existing Notice of Denial of Medicare Coverage with the Notice of Denial of Payment and includes optional language to be used in cases where a Medicare health plan enrollee also receives full Medicaid benefits that are being managed by the Medicare health plan.
To obtain copies of the supporting statement and any related forms for the proposed paperwork collections referenced above, access CMS' Web Site address at
In commenting on the proposed information collections please reference the document identifier or OMB control number. To be assured consideration, comments and recommendations must be submitted in one of the following ways by
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Health Resources and Services Administration (HRSA), Department of Health and Human Services (HHS).
Notice of Noncompetitive Replacement of the Award to Southwest Virginia Community Health Systems, Virginia.
HRSA will be transferring the American Recovery and Reinvestment Act (ARRA) (section 330 of the Public Health Service Act) Health Information Technology Implementation for Health Center Controlled Networks (HCCN) funds originally awarded to Southwest Virginia Community Health Systems (SVCHS), to support the implementation of a HCCN in the state of Virginia to enhance the quality and efficiency of primary and preventive care as a safety net through the effective use of Health Information Technology (HIT).
Section 330 of the Public Health Service Act, 42 U.S.C. 245b.
The former grantee, SVCHS, relinquished the grant due to financial and organizational challenges. In the effort to preserve the opportunity to advance information technology resources of Virginia's medically underserved communities, HCHC has demonstrated capacity to fulfill the expectations of the original grant award and plans to work closely with the Community Care Network of Virginia (CCNV), to complete the grant project and to plan for a smooth transition of the grant. HCHC has been a HRSA funded health center since 2008 and is a well-established organization with sound fiscal and grants management operations. The transfer of these funds will ensure full implementation of the grant, which will enhance the state of Virginia's ability to improve the quality and efficiency of primary and preventive care as a safety net through the effective use of health information technology.
In order to ensure a timely implementation of an HCCN in the state of Virginia as originally awarded, this replacement award will not be competed.
Ms. Suma Nair via phone at (301) 443–7587, or via email at
Under the provisions of Section 3507(a)(1)(D) of the Paperwork Reduction Act of 1995, the National Institute on Drug Abuse (NIDA), the National Institutes of Health (NIH) has submitted to the Office of Management and Budget (OMB) a request to review and approve the information collection listed below. This proposed information collection was previously published in the
The Office of Policy, DHS.
Notice of partially closed Federal Advisory Committee meeting.
The Homeland Security Advisory Council (HSAC) will meet in person and members of the public may participate by conference call on September 25, 2012. The two-day meeting will be partially closed to the public.
The HSAC will meet on Monday, September 24, 2012, from 1 p.m. to 4:45 p.m. EDT. This portion of the meeting will be closed. On Tuesday, September 25, 2012, the HSAC will meet from 8 a.m. to 9:45 a.m. in closed session. The meeting will be open to the public from 10 a.m. to 11:15 a.m. and then meet in closed session from 11:15 a.m. to 12:45 p.m.
Written comments must be submitted and received by September 21, 2012. Comments must be identified by Docket No. DHS–2012–0055 and may be submitted by one of the following methods:
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Becca Sharp, Executive Director, at
Notice of this meeting is given under the Federal Advisory Committee Act, 5 U.S.C. App.
The HSAC provides organizationally independent, strategic, timely, specific and actionable advice and recommendations for the consideration of the Secretary of the Department of Homeland Security on matters related to homeland security. The Council is comprised of leaders of local law enforcement, first responders, state and local government, the private sector, and academia.
The HSAC will meet in open session on Tuesday, September 25, 2012, from 10 a.m. to 11:15 a.m. to receive a briefing from the Chief of Staff of the U.S. Citizenship and Immigration Service on its deferred action for the childhood arrivals program. The HSAC will also receive a report from the Sustainability and Efficiency Task Force, review and discuss the task forces' report, and formulate recommendations for the Department.
The HSAC will meet in closed session on Monday, September 24 from 1 p.m. to 4:45 p.m. and Tuesday, September 25 from 8 a.m. to 9:45 a.m., and from 11:15 a.m. to 12:45 p.m. In the closed sessions, the HSAC will receive sensitive operational briefings and updates from senior DHS leadership on the following issues: The strategic implementation plan to counter violent extremism domestically; the current threat environment; evolving threats in cyber security; Transportation Security Administration operations; DHS transition planning; and U.S. Coast Guard counterterrorism efforts around the world.
The HSAC will receive briefings on domestic and international threats to the homeland from DHS Intelligence and Analysis and other senior leadership, and a briefing on the Transportation Security Administration's (TSA) airport security program that will include lessons learned, and screening techniques associated with airport security. Specifically, there will be material presented regarding the latest viable threats against the United States, and how DHS and other Federal agencies plan to address those threats. Under 5 U.S.C. 552b(c)(7)(E), disclosure of that information could reveal investigative techniques and procedures not generally available to the public, allowing those with interests against the United States to circumvent the law. Additionally, under 5 U.S.C. 552b(c)(9)(B), disclosure of these techniques and procedures could frustrate the successful implementation of protective measures designed to keep our country safe.
Members will also be provided a briefing from the U.S. Coast Guard on counterterrorism efforts being made around the world, operational overview of the Department's transition planning efforts focused on national security, and the current strategic implementation plan of the Counter Violent Extremism Domestically. Providing this information to the public would provide terrorists with a road map regarding the Department's plan to counter their actions, and thus, allow them to take different actions to avoid counterterrorism efforts. Under 5 U.S.C. 552b(c)(9)(B), disclosure of this plan could frustrate the successful implementation of measures designed to counter terrorist acts and likely to significantly frustrate implementation of a proposed agency action. Lastly, members will receive a briefing on evolving threats in cyber security. This will include lessons learned and potential vulnerabilities of infrastructure assets, as well as potential methods to improve the Federal response to a cyber attack. Disclosure of this information would be a road map to those who wish to attack our infrastructure, and hence, would certainly frustrate the successful implementation of preventive and counter measures to protect our cyber and physical infrastructure. Therefore, this portion of the meeting is required to be closed under U.S.C. 552b(c)(9)(B).
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the State of Mississippi (FEMA–4081–DR), dated August 29, 2012, and related determinations.
Peggy Miller, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW., Washington, DC 20472, (202) 646–3886.
The notice of a major disaster declaration for the State of Mississippi is hereby amended to include the following areas among those areas determined to have been adversely affected by the event declared a major disaster by the President in his declaration of August 29, 2012.
Adams, Claiborne, Franklin, Jefferson, Kemper, Leake, Neshoba, Newton, Noxubee, Scott, Simpson, Smith, Warren, and Winston Counties and the Mississippi Band of Choctaw Indians for debris removal and emergency protective measures (Categories A and B), including direct federal assistance, under the Public Assistance program.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the State of Louisiana (FEMA–4080–DR), dated August 29, 2012, and related determinations.
Peggy Miller, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW., Washington, DC 20472, (202) 646–3886.
The notice of a major disaster declaration for the State of Louisiana is hereby amended to include the following areas among those areas determined to have been adversely affected by the event declared a major disaster by the President in his declaration of August 29, 2012.
The parishes of Caldwell, Catahoula, Claiborne, Concordia, East Carroll, Evangeline, Jackson, Lafayette, La Salle, Lincoln, Madison, Richland, St. Landry, Tensas, Union, West Carroll, and West Feliciana for debris removal and emergency protective measures (Categories A and B), including direct federal assistance, under the Public Assistance program.
The parishes of Beauregard, Bossier, and Caddo for emergency protective measures (Category B), including direct federal assistance, under the Public Assistance program.
Federal Emergency Management Agency, DHS.
Notice.
This is a notice of the Presidential declaration of a major disaster for the State of Mississippi (FEMA–4081–DR), dated August 29, 2012, and related determinations.
Peggy Miller, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW., Washington, DC 20472, (202) 646–3886.
Notice is hereby given that, in a letter dated August 29, 2012, the President issued a major disaster declaration under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121
I have determined that the damage in certain areas of the State of Mississippi resulting from Hurricane Isaac beginning on August 26, 2012, and continuing, is of sufficient severity and magnitude to warrant a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121
In order to provide Federal assistance, you are hereby authorized to allocate from funds available for these purposes such amounts as you find necessary for Federal disaster assistance and administrative expenses.
You are authorized to provide assistance for debris removal and emergency protective measures (Categories A and B), including direct Federal assistance, under the Public Assistance program in the designated areas and Hazard Mitigation throughout the State.
Consistent with the requirement that Federal assistance is supplemental, any Federal funds provided under the Stafford Act for Public Assistance and Hazard Mitigation will be limited to 75 percent of the total eligible costs.
Further, you are authorized to make changes to this declaration for the approved assistance to the extent allowable under the Stafford Act.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, Terry L. Quarles, of FEMA is appointed to act as the Federal Coordinating Officer for this major disaster.
The following areas of the State of Mississippi have been designated as adversely affected by this major disaster:
Amite, Attala, Carroll, Clarke, Copiah, Covington, Forrest, George, Greene, Grenada, Hancock, Harrison, Hinds, Holmes, Jackson, Jasper, Jefferson Davis, Jones, Lamar, Lauderdale, Lawrence, Lincoln, Madison, Marion, Montgomery, Pearl River, Perry, Pike, Rankin, Stone, Walthall, Wayne, Wilkinson, and Yazoo Counties for debris removal and emergency protective measures (Categories A and B), including direct federal assistance, under the Public Assistance program.
All counties within the State of Mississippi are eligible to apply for assistance under the Hazard Mitigation Grant Program.
Federal Emergency Management Agency, DHS.
Notice.
This is a notice of the Presidential declaration of a major disaster for the State of Louisiana (FEMA–4080–DR), dated August 29, 2012, and related determinations.
Peggy Miller, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW., Washington, DC 20472, (202) 646–3886.
Notice is hereby given that, in a letter dated August 29, 2012, the President issued a major disaster declaration under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121
I have determined that the damage in certain areas of the State of Louisiana resulting from Hurricane Isaac beginning on August 26, 2012, and continuing, is of sufficient severity and magnitude to warrant a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121
In order to provide Federal assistance, you are hereby authorized to allocate from funds available for these purposes such amounts as you find necessary for Federal disaster assistance and administrative expenses.
You are authorized to provide assistance for debris removal and emergency protective measures (Categories A and B), including direct federal assistance, under the Public Assistance program, in the designated areas and Hazard Mitigation throughout the State.
Consistent with the requirement that Federal assistance is supplemental, any Federal funds provided under the Stafford Act for Public Assistance and Hazard Mitigation will be limited to 75 percent of the total eligible costs.
Further, you are authorized to make changes to this declaration for the approved assistance to the extent allowable under the Stafford Act.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, Gerard M. Stolar, of FEMA is appointed to act as the Federal Coordinating Officer for this major disaster.
The following areas of the State of Louisiana have been designated as adversely affected by this major disaster:
Acadia, Allen, Ascension, Assumption, Avoyelles, Cameron, East Baton Rouge, East Feliciana, Franklin, Iberia, Iberville, Jefferson, Jefferson Davis, Lafourche, Livingston, Morehouse, Natchitoches, Orleans, Ouachita, Plaquemines, Pointe Coupee, Rapides, St. Bernard, St. Charles, St. Helena, St. James, St. John the Baptist, St. Martin, St. Mary, St. Tammany, Tangipahoa, Terrebonne, Vermilion, Washington, and West Baton Rouge Parishes for debris removal and emergency protective measures (Categories A and B), including direct federal assistance, under the Public Assistance.
All parishes within the State of Louisiana are eligible to apply for assistance under the Hazard Mitigation Grant Program.
30-Day Notice.
The Department of Homeland Security (DHS), U.S. Citizenship and Immigration Services (USCIS) will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995. The information collection notice was previously published in the
The purpose of this notice is to allow an additional 30 days for public comments. Comments are encouraged and will be accepted until October 9, 2012. This process is conducted in accordance with 5 CFR 1320.10.
Written comments and/or suggestions regarding the item(s) contained in this notice, especially regarding the estimated public burden and associated response time, should be directed to DHS, and to the OMB USCIS Desk Officer. Comments may be submitted to: DHS, USCIS, Office of Policy and Strategy, Chief, Regulatory Coordination Division, 20 Massachusetts Avenue NW., Washington, DC 20529–2020. Comments may also be submitted to DHS via email at
All submissions received must include the agency name, OMB Control Number and Docket ID. Regardless of the method used for submitting comments or material, all submissions will be posted, without change, to the Federal eRulemaking Portal at
The address listed in this notice should only be used to submit comments concerning this information collection. Please do not submit requests for individual case status inquiries to this address. If you are seeking information about the status of your individual case, please check “My Case Status” online at:
Written comments and suggestions from the public and affected agencies
(1) Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
(2) Evaluate the accuracy of the agencies estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
(3) Enhance the quality, utility, and clarity of the information to be collected; and
(4) Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
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If you need a copy of the information collection instrument with supplementary documents, or need additional information, please visit
Office of the Assistant Secretary for Community Planning and Development, HUD.
Notice.
This Notice identifies unutilized, underutilized, excess, and surplus Federal property reviewed by HUD for suitability for possible use to assist the homeless.
Juanita Perry, Department of Housing and Urban Development, 451 Seventh Street SW., Room 7262, Washington, DC 20410; telephone (202) 708–1234; TTY number for the hearing- and speech-impaired (202) 708–2565, (these telephone numbers are not toll-free), or call the toll-free Title V information line at 800–927–7588.
In accordance with the December 12, 1988 court order in
Bureau of Land Management, Interior.
Notice of availability.
In accordance with the National Environmental Policy Act of 1969, as amended, and the Federal Land Policy and Management Act of 1976, as amended, the Bureau of Land Management (BLM) has prepared a Draft Resource Management Plan (RMP) Amendment and a Draft Environmental Impact Statement (EIS) for the White River Field Office (WRFO) and by this notice is announcing the opening of the comment period.
To ensure that comments will be considered, the BLM must receive written comments on the Draft RMP Amendment/Draft EIS within 90 days following the date the Environmental Protection Agency publishes this notice in the
You may submit comments related to the WRFO Oil and Gas Development Draft RMP Amendment/Draft EIS by any of the following methods:
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Copies of the WRFO Oil and Gas Development Draft RMP Amendment/Draft EIS are available in the WRFO at the above address or on the WRFO Web site at:
For further information contact Heather Sauls, Planning and Environmental Coordinator, telephone 970–878–3855; see address above; email
The BLM prepared the WRFO Oil and Gas Development Draft RMP Amendment/Draft EIS to evaluate and amend, as necessary, the current management decisions for oil and natural gas resources within the WRFO planning area. The current management decisions for oil and natural gas resources are described in the
The Draft RMP Amendment/Draft EIS addresses public lands and resources managed by the WRFO. The WRFO planning area includes approximately 2.7 million acres of BLM, National Park Service, U.S. Forest Service, State, and private lands. It is located in northwestern Colorado, primarily in Rio Blanco County, with additional tracts located in Moffat and Garfield counties. Within the WRFO planning area, the BLM administers approximately 1.5 million surface acres and 2.2 million acres of Federal oil and natural gas mineral (subsurface) estate. Surface management decisions made as a result of this Draft RMP Amendment/Draft EIS will apply only to the BLM-administered lands in the WRFO planning area.
The WRFO has determined that an amendment to the current RMP is necessary to address an unanticipated increase in the rate of oil and natural gas development. The
The Draft RMP Amendment/Draft EIS evaluates four alternatives in detail, including the No Action Alternative (Alternative A) and three action alternatives (Alternatives B, C and D). The BLM identified Alternative C as the preferred alternative. However, it is important to note that identification of a preferred alternative does not constitute a commitment or decision in principle, and there is no requirement to select the preferred alternative in the Record of Decision. Various parts of separate alternatives analyzed in the draft can also be “mixed and matched” to develop a complete alternative in the final EIS. Alternative A would retain the current management goals, objectives, and direction specified in the
The BLM used public scoping comments to help identify planning issues to direct the formulation of alternatives and to frame the scope of analysis in the Draft RMP Amendment/Draft EIS. The BLM also used the scoping process to introduce the public to preliminary planning criteria, which set limits on the scope of the Draft RMP Amendment/Draft EIS.
Major issues considered in the Draft RMP Amendment/Draft EIS include air and water quality, biological resources, wild horse and rangeland management, fire management, special designations, cultural and paleontological resources, American Indian concerns, recreation management, social and economic values, utility corridors, roads and travel management, and visual resource management among others. The Draft RMP Amendment/Draft EIS details a range of possible mitigation measures to reduce impacts to Greater Sage-Grouse and their habitat. In addition, the BLM Colorado Northwest District is preparing a Greater Sage-Grouse EIS that may result in a subsequent WRFO RMP amendment prescribing additional protections for the Greater Sage-Grouse.
Please note that public comments and information submitted including names, street addresses, and email addresses of persons who submit comments will be available for public review and disclosure at the above address during regular business hours (8:00 a.m. to 4:00 p.m.), Monday through Friday, except holidays.
Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire Comment—including your personal identifying information—may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so.
40 CFR 1506.6, 40 CFR 1506.10, 43 CFR 1610.2
Bureau of Land Management, Interior.
Notice of availability.
In accordance with the National Environmental Policy Act of 1969, as amended, and the Federal Land Policy and Management Act of 1976, as amended, the Bureau of Land Management (BLM) has prepared a Proposed Recreation Area Management Plan (RAMP) and California Desert Conservation Area (CDCA) Plan Amendment/Final Environmental Impact Statement (EIS), for the Imperial Sand Dunes Recreation Area (ISDRA), and by this notice is announcing its availability.
BLM planning regulations provide that any person who meets the conditions as described in the regulations may protest the BLM's Proposed RAMP and CDCA Plan Amendment/Final EIS. A person who meets the conditions and files a protest must file the protest within 30 days of the date that the Environmental Protection Agency publishes its Notice of Availability in the
Copies of the Proposed Imperial Sand Dunes RAMP and CDCA Plan Amendment/Final EIS have been sent to affected Federal, State, and local government agencies; Native American Tribes; and to other stakeholders. Copies of the Proposed Imperial Sand Dunes RAMP and CDCA Plan Amendment/Final EIS are available for public inspection at the BLM El Centro Field Office, 1661 South Fourth Street, El Centro, CA 92243. Interested persons may also review the Proposed Imperial Sand Dunes RAMP and CDCA Plan Amendment/Final EIS on the Internet at
Regular Mail: BLM Director (210), Attention: Brenda Hudgens-Williams, P.O. Box 71383, Washington, DC 20024–1383.
Overnight Mail: BLM Director (210), Attention: Brenda Hudgens-Williams, 20 M Street SE., Room 2134LM, Washington, DC 20003.
If an appeal is taken, the notice of appeal must be filed in the BLM El Centro Field Office, 1661 South Fourth Street, El Centro, CA 92243, within 30 days of the decision.
For further information, contact Greg Hill, Project Manager, BLM El Centro Field Office, 1661 South Fourth, El Centro, CA 92243; by phone at 760–337–4400; or by email at
The Imperial Sand Dunes Recreation Area (ISDRA) and surrounding lands included in the planning area encompass approximately 215,000 acres of public lands managed by the BLM. The planning area is located in the southeastern portion of Imperial County, California. The 2005 Record of Decision for the 2003 RAMP was vacated by a U.S. District Court in September 2006. Portions of the biological opinion for the Peirson's milkvetch were also remanded to the Fish and Wildlife Service. The 2012 RAMP addresses this issue as well as others in the planning area.
The primary activities in the ISDRA include off-highway vehicle use and camping. The Proposed Imperial Sand Dunes RAMP and CDCA Plan Amendment/Final EIS has been developed through a collaborative planning process and considers eight alternatives. Issues addressed in the Proposed Imperial Sand Dunes RAMP and CDCA Plan Amendment/Final EIS include: Recreation; transportation and public access; wildlife and botany (i.e. Peirson's milkvetch); cultural resources and paleontology; renewable energy; air and water resources; geology and soils; mineral resources; socioeconomics; public health and safety; and visual resources. The Proposed Imperial Sand Dunes RAMP and CDCA Plan Amendment/Final EIS includes strategies for protecting and preserving the recreational, biological, cultural, geological, educational, and scenic values for which the recreation area was established.
Eight alternatives were analyzed in the Proposed RAMP/Plan Amendment and FEIS. The “no action” alternative represents current management of the ISDRA. Seven additional “action” alternatives present reasonable, yet varying, management scenarios. The alternatives range from emphasizing maintenance of the naturalness of the ISDRA (by restricting some recreation uses) to emphasizing continued recreation uses, while still protecting the resources and values for which the area was established. The range of alternatives in the Proposed Imperial Sand Dunes RAMP and CDCA Plan Amendment/Final EIS evaluates planning decisions brought forward from current BLM planning documents, including the California Desert Conservation Area Plan (1980) as amended.
Comments on the Draft RAMP/Plan Amendment and EIS received from the public and internal BLM review were considered and incorporated as appropriate into the proposed plan. Public comments resulted in a variety of clarifications and modifications throughout the Proposed Imperial Sand Dunes RAMP and CDCA Plan Amendment/Final EIS. Public comments resulted in the addition of clarifying text, but did not significantly change the proposed land use plan decisions analyzed in the alternatives. Revisions made between the Draft RAMP/Plan Amendment and Draft EIS and the Proposed RAMP/Plan Amendment and FEIS include: Quantification of some management goals and objectives; clarification of multiple-use classes and visual resource management; consideration of lands with wilderness characteristics; modifications to alternatives regarding camping in the Dunebuggy Flats area; and modifications to implementation-level decisions to correctly categorize them as plan-level decisions or implementation actions.
The Proposed Imperial Sand Dunes RAMP and CDCA Plan Amendment/Final EIS also considers changes to Areas of Critical Environmental Concern (ACEC); the Plank Road, East Mesa, and North Algodones Dunes ACECs. The preferred alternative would retain the existing 416 acre Plank Road ACEC; reduce the East Mesa ACEC from 6,454 acres to 5,799 acres; and eliminate the North Algodones Dunes ACEC in order to remove conflicting management prescriptions between this ACEC and the North Algodones Dunes Wilderness.
Instructions for filing a protest with the Director of the BLM regarding the Proposed Imperial Sand Dunes RAMP and CDCA Plan Amendment/Final EIS may be found in the “Dear Reader” Letter of the Proposed Imperial Sand Dunes RAMP and CDCA Plan Amendment/Final EIS and at 43 CFR 1610.5–2. Email and faxed protests will not be accepted unless the protesting party also provides the original letter by
All protests, including the follow-up letter to emails or faxes, must be in writing and mailed to the appropriate address, as set forth in the
Before including your phone number, email address, or other personal identifying information in your protest, you should be aware that your entire protest—including your personal identifying information—may be made publicly available at any time. While you can ask us in your protest to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so.
40 CFR 1506.6, 40 CFR 1506.10, 43 CFR 1610.2, 43 CFR 1610.5
Bureau of Land Management, Interior.
Notice of Filing of Plats of Survey; Arizona.
The plats of survey of the described lands were officially filed in the Arizona State Office, Bureau of Land Management, Phoenix, Arizona, on the dates indicated.
The plat representing the survey of the west and north boundaries and a portion of the subdivisional lines, Township 3 South, Range 21 East, accepted August 20, 2012, and officially filed August 23, 2012, for Group 1090, Arizona.
This plat was prepared at the request of the Bureau of Indian Affairs, Western Regional Office.
The plat representing the dependent resurvey of portions of the south and east boundaries and portions of the subdivisional lines and the survey of portions of the east and north boundaries and portions of the subdivisional lines, Township 4 South, Range 21 East, accepted August 20, 2012, and officially filed August 23, 2012, for Group 1090, Arizona.
This plat was prepared at the request of the Bureau of Indian Affairs, Western Regional Office.
The plat representing the dependent resurvey of a portion of the east boundary of the San Carlos Indian Reservation and the survey of the west boundary, a portion of the north boundary and a portion of the subdivisional lines, Township 3 South, Range 22 East, accepted August 20, 2012, and officially filed August 23, 2012, for Group 1090, Arizona.
This plat was prepared at the request of the Bureau of Indian Affairs, Western Regional Office.
The plat representing the dependent resurvey of a portion of the east boundary of the San Carlos Indian Reservation, and the dependent resurvey of a portion of the south boundary and a portion of the subdivisional lines and a survey of a portion of the north boundary and a portion of the subdivisional lines, Township 4 South, Range 22 East, accepted August 20, 2012, and officially filed August 23, 2012, for Group 1090, Arizona.
This plat was prepared at the request of the Bureau of Indian Affairs, Western Regional Office.
A person or party who wishes to protest against any of these surveys must file a written protest with the Arizona State Director, Bureau of Land Management, stating that they wish to protest.
A statement of reasons for a protest may be filed with the notice of protest to the State Director, or the statement of reasons must be filed with the State Director within thirty (30) days after the protest is filed.
These plats will be available for inspection in the Arizona State Office, Bureau of Land Management, One North Central Avenue, Suite 800, Phoenix, Arizona 85004–4427. Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339 to contact the above individual during normal business hours. The FIRS is available 24 hours a day, 7 days a week, to leave a message or question with the above individual. You will receive a reply during normal business hours.
Bureau of Land Management, Interior.
Notice of Public Meeting.
In accordance with the Federal Land Policy and Management Act and the Federal Advisory Committee Act of 1972, the U.S. Department of the Interior, Bureau of Land Management (BLM), Las Cruces District Resource Advisory Council (RAC), will meet as indicated below.
The meeting date is September 19, 2012, at the BLM Las Cruces District Office, 1800 Marquess Street, Las Cruces, NM 88005, from 7 a.m.–4 p.m. The public may send written comments to the RAC at the above address.
Rena Gutierrez, BLM Las Cruces District, 1800 Marquess Street, Las Cruces, NM 88005, 575–525–4338. Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8229 to contact the above individual during normal business hours. The FIRS is available 24 hours a day, 7 days a week, to leave a message or question with the above individual. You will receive a reply during normal business hours.
The 10-member RAC advises the Secretary of the Interior, through the BLM, on a variety of planning and management issues associated with public land management in New Mexico. Planned agenda items include opening remarks from the District Manager, Prehistoric Trackways National Monument tour and briefing, Membership Update and Elections. A half-hour public comment period during which the public may address the Council will begin at 2:30 p.m. on September 19, 2012. All RAC meetings are open to the public. Depending on the number of individuals wishing to comment and
Bureau of Land Management, Interior.
Notice.
Under the provisions of the Mineral Leasing Act of 1920, as amended, the Bureau of Land Management (BLM) received a petition for reinstatement from Source Energy, LLC, for competitive oil and gas lease WYW164771 for land in Park County, Wyoming. The petition was filed on time and was accompanied by all the rentals due since the date the lease terminated under the law.
Bureau of Land Management, Julie L. Weaver, Chief, Fluid Minerals Adjudication, at 307–775–6176. Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339 to contact the above individual during normal business hours. The FIRS is available 24 hours a day, 7 days a week, to leave a message or question with the above individual. You will receive a reply during normal business hours.
The lessee has agreed to the amended lease terms for rentals and royalties at rates of $10 per acre, or fraction thereof, per year and 16
Bureau of Land Management, Interior
Notice.
Under the provisions of the Mineral Leasing Act of 1920, as amended, the Bureau of Land Management (BLM) received a petition for reinstatement from Ellwood Exploration, LLC, for competitive oil and gas lease WYW179119 for land in Niobraba County, Wyoming. The petition was filed on time and was accompanied by all the rentals due since the date the lease terminated under the law.
Bureau of Land Management, Julie L. Weaver, Chief, Fluid Minerals Adjudication, at 307–775–6176. Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339 to contact the above individual during normal business hours. The FIRS is available 24 hours a day, 7 days a week, to leave a message or question with the above individual. You will receive a reply during normal business hours.
The lessee has agreed to the amended lease terms for rentals and royalties at rates of $10 per acre, or fraction thereof, per year and 16
Nominations for the following properties being considered for listing or related actions in the National Register were received by the National Park Service before August 11, 2012. Pursuant to section 60.13 of 36 CFR Part 60, written comments are being accepted concerning the significance of the nominated properties under the National Register criteria for evaluation. Comments may be forwarded by United States Postal Service, to the National Register of Historic Places, National Park Service, 1849 C St. NW., MS 2280, Washington, DC 20240; by all other carriers, National Register of Historic Places, National Park Service, 1201 Eye St. NW., 8th floor, Washington, DC 20005; or by fax, 202–371–6447. Written or faxed comments should be submitted by September 24, 2012. Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so.
A request for removal has been made for the following resources:
Notice.
The Department of Labor (DOL) is submitting the Employment and Training Administration (ETA sponsored information collection request (ICR) extension titled, “Veterans Retraining Assistance Program,” to the Office of Management and Budget (OMB) for review and approval for use in accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501 et seq.).
Submit comments on or before October 9, 2012.
A copy of this ICR with applicable supporting documentation; including a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained from the RegInfo.gov Web site,
Submit comments about this request to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for DOL–ETA, Office of Management and Budget, Room 10235, 725 17th Street, NW., Washington, DC 20503, Telephone: 202–395–6929/Fax: 202–395–6881 (these are not toll-free numbers), email:
Contact Michel Smyth by telephone at 202–693–4129 (this is not a toll-free number) or by email at
44 U.S.C. 3507(a)(1)(D).
Information covered by this ICR supports implementation of the Veterans Retraining Assistance Program authorized in section 211 of the VOW to Hire Heroes Act of 2011 (Pub. L. 112–56). This benefit directs the Department of Veterans Affairs (VA), in cooperation with the DOL, to pay for up to 12 months of a training program in a high demand occupation for unemployed eligible veterans between the ages of 35 and 60 as determined by the DOL and VA. The program is to serve up to 45,000 veterans in fiscal year 2012 and up to 54,000 veterans from October 1, 2012, through March 31, 2014. The Act requires DOL to be the initial point of intake and to conduct preliminary eligibility determinations prior to linking applicants to the VA Application for VA Educational Benefits approved under OMB Control Number 2900–0154.
This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by the OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information if the collection of information does not display a valid Control Number.
Interested parties are encouraged to send comments to the OMB, Office of Information and Regulatory Affairs at the address shown in the
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
Notice.
The Department of Labor (DOL) is submitting the Mine Safety and Health Administration (MSHA) sponsored information collection request (ICR) revision titled, “Roof Control Plans for Underground Coal Mines,” to the Office of Management and Budget (OMB) for review and approval for use in accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501 et seq.).
Submit comments on or before October 9, 2012.
A copy of this ICR with applicable supporting documentation; including a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained from the RegInfo.gov Web site,
Submit comments about this request to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for DOL–MSHA, Office of Management and Budget, Room 10235, 725 17th Street NW., Washington, DC 20503, Telephone: 202–395–6929/Fax: 202–395–6881 (these are not toll-free numbers), email:
Michel Smyth by telephone at 202–693–4129 (this is not a toll-free number) or by email at
44 U.S.C. 3507(a)(1)(D).
In order to prevent occupational injuries resulting from falls of roofs, faces, and ribs, which are a leading cause of injuries and death in underground coal mines, regulations 30 CFR 75.215 and 75.220 to 75.223 make it mandatory for all underground coal mine operators to develop and submit roof control plans to the MSHA for evaluation and approval. These plans are evaluated to determine if they are adequate for prevailing mining conditions.
This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by the OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information if the collection of information does not display a valid Control Number.
Interested parties are encouraged to send comments to the OMB, Office of Information and Regulatory Affairs at the address shown in the
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
Employment and Training Administration (ETA), Department of Labor.
Notice.
Comment Request for Regular Extension of approval (with revisions) for the National Farmworker Jobs Program (NFJP) information collection forms: the Grant Plan Narrative, the Budget Information Summary (BIS), ETA Form 9093, the Program Planning Summary (PPS), ETA Form 9094, the Program Status Summary (PSS), ETA Form 9095; the Workforce Investment Act Standardized Participant Record (WIASPR), and the Housing Assistance Summary (HAS), ETA Form 9164.
The Department of Labor (Department), as part of its continuing effort to reduce paperwork and respondent burden, conducts a preclearance consultation program to provide the general public and Federal agencies with an opportunity to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act of 1995 [44 U.S.C. 3506(c)(A)]. This program helps to ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed.
Currently, ETA is soliciting comments concerning the collection of data supporting the NFJP (expires December 31, 2012). A copy of the proposed information collection request (ICR) can be obtained by contacting the office listed below in the addresses section of this notice.
Written comments must be submitted to the office listed in the addresses section below on or before November 6, 2012.
Submit written comments to: Amy Young, Employment and Training Administration, Office of Workforce Investment, 200 Constitution Avenue NW., Room C–4510, Washington, DC 20210. Telephone number: 202–693–3045 (this is not a toll-free number). Individuals with hearing or speech impairments may access the telephone number above via TTY by calling the toll-free Federal Information Relay Service at 1–877–889–5627 (TTY/TDD). Fax: 202–693–3015. Email:
Under the Information Collection Review process, each grantee receiving NFJP funds for employment and training activities is required to submit the following:
• The BIS (ETA–9093) is submitted as part of the annual grant plan, and is used to collect information on how grant funds will be spent during the program year.
• The PPS (ETA–9094) is submitted as part of the annual grant plan, and is used to project the number of participants and the array of services to be provided for the program year.
• The PSS (ETA–9095) is submitted each quarter and is used to collect data on actual participant numbers and services. ETA has added a short section to Form 9095 to collect narrative information on grant activities.
• The WIASPR is submitted each quarter and collects individual participant records containing demographic, service, and outcome data on individuals who exit the program. Data from the WIASPR are used by ETA to calculate the common performance measures for entered employment, retention, and earnings.
• The HAS (ETA–9164), is a new quarterly reporting form for grantees receiving NFJP funds for housing assistance activities. This report will collect data on the number of individuals and families served and narrative information on grant activities.
• All NFJP grantees are required by regulation to submit a grant plan narrative covering the two-year grant period cycle. The grant plan narrative is a comprehensive service delivery plan and a projection of participant services and expenditures. ETA provides guidance to the grantees regarding the content of the annual plan narrative and submission requirements.
The Department of Labor is particularly interested in comments which:
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submissions of responses.
Comments submitted in response to this comment request will be summarized and/or included in the request for Office of Management and Budget approval of the information collection request; they will also become a matter of public record.
Nuclear Regulatory Commission (NRC).
Japan Lessons-Learned Project Directorate interim staff guidance; issuance.
The U.S. Nuclear Regulatory Commission (NRC or the Commission) is issuing the Final Japan Lessons-Learned Project Directorate Interim Staff Guidance (JLD–ISG), JLD–ISG–2012–01, “Compliance with Order EA–12–049, Order Modifying Licenses with Regard to Requirements for Mitigation Strategies for Beyond-Design-Basis External Events,” Agencywide Documents Access and Management System (ADAMS) Accession No. ML12229A174. This JLD–ISG provides guidance and clarification to assist nuclear power reactor applicants and licensees with the identification of measures needed to comply with requirements to mitigate challenges to key safety functions. These requirements are contained in Order EA–12–049, “Order Modifying Licenses with Regard to Requirements for Mitigation Strategies for Beyond-Design-Basis External Events,” (ADAMS Accession No. ML12054A736).
You may access information and comment submissions related to this document, which the NRC possesses and are publically available, by searching on
• Federal Rulemaking Web site: Go to
• NRC's Agencywide Documents Access and Management System (ADAMS): You may access publicly-available documents online in the NRC Library at
• NRC's PDR: You may examine and purchase copies of public documents at the NRC's PDR, Room O1–F21, One White Flint North, 11555 Rockville Pike, Rockville, MD 20852 NRC's Interim Staff Guidance Web Site: Go to
Mr. Steven D. Bloom, Japan Lessons-Learned Project Directorate, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001; telephone: 301–415–2431; email:
Interim staff guidance (ISG), Final Japan Lessons-Learned Project Directorate Interim Staff Guidance (JLD–ISG), JLD–ISG–2012–01,
The NRC issued Order EA–12–049 following the NRC staff's evaluation of the earthquake and tsunami, and resulting nuclear accident, at the Fukushima Dai-ichi nuclear power plant in March 2011. Order EA–12–049 requires all licensees and construction permit (CP) holders to develop a three-phase approach for mitigating beyond-design-basis external events. The initial phase requires the use of installed equipment and resources to maintain or restore core cooling, containment, and SFP cooling. The transition phase requires providing sufficient, portable,
Numerous public meetings were held to solicit stakeholder input on the proposed requirement for mitigation strategies prior to issuance of Order EA–12–049. Following issuance of Order EA–12–049, several more public meetings were held with representatives from the NEI task force and public stakeholders to discuss development of the guidance for compliance with Order EA–12–049. On June 7, 2012 (77 FR 33779), the NRC requested public comments on draft JLD–ISG–12–01. The staff received comments from eight stakeholders which were considered in the development of the final JLD–ISG–12–01. The questions, comments and staff resolutions of those comments are contained in “JLD–ISG–2012–01, Comment Resolution Rev.1” which can be found in ADAMS as Accession No. ML12229A253.
This ISG does not constitute backfitting as defined in 10 CFR 50.109 (the Backfit Rule) and is not otherwise inconsistent with the issue finality provisions in Part 52, “Licenses, Certifications, and Approvals for Nuclear Power Plants,” of 10 CFR. This ISG provides guidance on an acceptable method for implementing the requirements contained in Order EA–12–049, which was issued as ensuring adequate protection under the provisions of the backfit rule. Applicants and licensees may voluntarily use the guidance in JLD–ISG–2012–01 to demonstrate compliance with Order EA–12–049. Methods or solutions that differ from those described in this ISG may be deemed acceptable if they provide sufficient basis and information for the NRC staff to verify that the proposed alternative demonstrates compliance with Order EA–12–049.
This interim staff guidance is a rule as designated in the Congressional Review Act (5 U.S.C. 801–808). OMB has found that this is a major rule in accordance with the Congressional Review Act.
For the Nuclear Regulatory Commission.
Nuclear Regulatory Commission (NRC).
Japan Lessons-Learned Project Directorate interim staff guidance; issuance.
The U.S. Nuclear Regulatory Commission (NRC or the Commission) is issuing the Final Japan Lessons-Learned Project Directorate Interim Staff Guidance (JLD–ISG), JLD–ISG–2012–02, “Compliance with Order EA–12–050, Order Modifying Licenses With Regard to Reliable Hardened Containment Vents” (Agencywide Documents Access and Management System (ADAMS) Accession No. ML12229A475). This JLD–ISG provides guidance and clarification to assist nuclear power reactors applicants and licensees with the identification of measures needed to comply with requirements to mitigate challenges to key safety functions. These requirements are contained in Order EA–12–050, “Order Modifying Licenses with Regard to Reliable Hardened Containment Vents” (ADAMS Accession No. ML12054A696).
You may access information and comment submissions related to this document, which the NRC possesses and are publically available, by searching on
•
•
•
•
Mr. Robert J. Fretz, Japan Lessons-Learned Project Directorate, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001; telephone: 301–415–1980; email:
JLD–ISG–2012–02 is being issued to describe methods acceptable to the NRC staff for complying with Order EA–12–050, “Order Modifying Licenses with Regard to Reliable Hardened Containment Vents (Effective Immediately)” (Order EA–12–050), issued March 12, 2012. The ISG is not a substitute for the requirements in Order EA–12–050, and compliance with this ISG not required.
The NRC issued Order EA–12–050 following the NRC staff's evaluation of the earthquake and tsunami, and resulting nuclear accident, at the Fukushima Dai-ichi nuclear power plant in March 2011. Order EA–12–050 requires licensees to implement requirements relating to reliable hardened venting systems at boiler water reactor (BWR) facilities with Mark I and Mark II containment designs. Order EA–12–050 also specified that the NRC staff would issue final interim staff guidance in August 2012 to provide additional information on acceptable approaches for complying with the Order.
Numerous public meetings were held to receive stakeholder input on the proposed requirements for reliable hardened vents prior to issuance of Order EA–12–050. Following issuance of the Order, additional public meetings were held with representatives from the BWR Owners' Group and public stakeholders to discuss development of the guidance for compliance with Order EA–12–050. On June 7, 2012 (77 FR 33777), the NRC requested public comments on draft JLD–ISG–12–02. The
This ISG does not constitute backfitting as defined in Title 10 of the
This interim staff guidance is a rule as designated in the Congressional Review Act (5 U.S.C. 801–808). OMB has found that this is not a major rule in accordance with the Congressional Review Act.
For the Nuclear Regulatory Commission.
Nuclear Regulatory Commission (NRC).
Japan Lessons-Learned Project Directorate Interim Staff Guidance; issuance.
The U.S. Nuclear Regulatory Commission (NRC or the Commission) is issuing the Final Japan Lessons-Learned Project Directorate (JLD) Interim Staff Guidance (ISG), JLD–ISG–2012–03, “Compliance with Order EA–12–051, Order Modifying Licenses with Regard to Reliable Spent Fuel Pool Instrumentation” (Agencywide Documents Access and Management System (ADAMS) Accession No. ML12221A339). This JLD–ISG provides guidance and clarification to assist nuclear power reactors applicants and licensees with the identification of measures needed to comply with requirements to install enhanced spent fuel pool monitoring capability. These requirements are contained in Order EA–12–051, “Order Modifying Licenses with Regard to Reliable Spent Fuel Pool Instrumentation,” (ADAMS Accession No. ML12054A679).
You may access information and comment submissions related to this document, which the NRC possesses and are publicly available, by searching on
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•
•
•
Mrs. Lisa M. Regner, Japan Lessons-Learned Project Directorate, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001; telephone: 301–415–1906; email:
JLD–ISG–2012–03 is being issued to describe to the public methods acceptable to the Nuclear Regulatory Commission (NRC) staff for complying with Order EA–12–051, “Order Modifying Licenses With Regard to Reliable Spent Fuel Pool Instrumentation (Effective Immediately)” (Order EA–12–051), issued March 12, 2012. This ISG endorses with clarifications and exceptions, the methodologies described in the industry guidance document, Nuclear Energy Institute (NEI) 12–02,
The NRC issued Order EA–12–051 following the NRC staff's evaluation of the earthquake and tsunami, and resulting nuclear accident, at the Fukushima Dai-ichi nuclear power plant in March 2011. Order EA–12–051 requires all licensees and construction permit (CP) holders to provide safety enhancements in the form of reliable spent fuel pool instrumentation for beyond-design-basis external events. Order EA–12–051 also specified that the NRC staff would issue final interim staff guidance in August 2012 to provide additional details on an acceptable approach for complying with Order EA–12–051.
Numerous public meetings were held to receive stakeholder input on the proposed requirement for spent fuel pool instrumentation enhancements prior to issuance of Order EA–12–051. Following issuance of Order EA–12–051, several more public meetings were held with representatives from the NEI task force and public stakeholders to discuss development of the guidance for
This ISG does not constitute backfitting as defined in 10 CFR 50.109 (the Backfit Rule) and is not otherwise inconsistent with the issue finality provisions in Part 52, “Licenses, Certifications, and Approvals for Nuclear Power Plants,” of 10 CFR. This ISG provides guidance on an acceptable method for implementing the requirements contained in Order EA–12–051, which was issued under an administrative exemption to the backfit rule and the issue finality requirements in 10 CFR 52.63 and 10 CFR Part 52, Appendix D, Paragraph VIII. Applicants and licensees may voluntarily use the guidance in JLD–ISG–2012–03 to demonstrate compliance with Order EA–12–051. Methods or solutions that differ from those described in this ISG may be deemed acceptable if they provide sufficient basis and information for the NRC staff to verify that the proposed alternative demonstrates compliance with Order EA–12–051.
This interim staff guidance is a rule as designated in the Congressional Review Act (5 U.S.C. 801–808). OMB has found that this is not a major rule in accordance with the Congressional Review Act.
For the Nuclear Regulatory Commission.
Office of Personnel Management.
Scheduling of Council Meeting.
The Hispanic Council on Federal Employment (HCFE) will hold a meeting on Friday, September 21, 2012, at the time and location shown below. The Council is an advisory committee composed of representatives from Hispanic organizations and senior government officials. Along with its other responsibilities, the Council shall advise the Director of the Office of Personnel Management on matters involving the recruitment, hiring, and advancement of Hispanics in the Federal workforce. The Council is co-chaired by the Chief of Staff of the Office of Personnel Management and the Assistant Secretary for Human Resources and Administration at the Department of Veterans Affairs.
The meeting is open to the public. Please contact the Office of Personnel Management at the address shown below if you wish to present material to the Council at the meeting. The manner and time prescribed for presentations may be limited, depending upon the number of parties that express interest in presenting information.
September, 21st 2012, from 2:00–4:00 p.m.
Veronica E. Villalobos, Director for the Office of Diversity and Inclusion, Office of Personnel Management, 1900 E St. NW., Suite 5H35, Washington, DC 20415. Phone (202) 606–0040 FAX (202) 606–2183 or email at
Postal Regulatory Commission.
Notice.
The Commission is noticing a recently-filed Postal Service request to add Express Mail, Priority Mail & First-Class Package Service Contract 1 to the competitive product list. This notice addresses procedural steps associated with this filing.
Submit comments electronically via the Commission's Filing Online system at
Stephen L. Sharfman, General Counsel at 202–789–6820.
In accordance with 39 U.S.C. 3642 and 39 CFR 3020.30
The Postal Service contemporaneously filed a redacted contract related to the proposed new product under 39 U.S.C. 3632(b)(3) and 39 CFR 3015.5.
• Attachment A—a redacted copy of Governors' Decision No. 11–6, authorizing the new product;
• Attachment B—a redacted copy of the contract;
• Attachment C—proposed changes to the Mail Classification Schedule competitive product list with the addition underlined;
• Attachment D—a Statement of Supporting Justification as required by 39 CFR 3020.32;
• Attachment E—a certification of compliance with 39 U.S.C. 3633(a); and
• Attachment F—an application for non-public treatment of materials to maintain redacted portions of the
In the Statement of Supporting Justification, Dennis R. Nicoski, Manager, Field Sales Strategy and Contracts, asserts that the contract will cover its attributable costs, make a positive contribution to covering institutional costs, and increase contribution toward the requisite 5.5 percent of the Postal Service's total institutional costs.
The Postal Service filed much of the supporting materials, including the related contract, under seal.
The Commission establishes Docket Nos. MC2012–46 and CP2012–55 to consider the Request pertaining to the proposed Express Mail, Priority Mail & First-Class Package Service Contract 1 product and the related contract, respectively.
Interested persons may submit comments on whether the Postal Service's filings in the captioned dockets are consistent with the policies of 39 U.S.C. 3632, 3633, or 3642, 39 CFR 3015.5, and 39 CFR part 3020, subpart B. Comments are due no later than September 10, 2012. The public portions of these filings can be accessed via the Commission's Web site (
The Commission appoints Natalie Rea Ward to serve as Public Representative in these dockets.
1. The Commission establishes Docket Nos. MC2012–46 and CP2012–55 to consider the matters raised in each docket.
2. Pursuant to 39 U.S.C. 505, Natalie Rea Ward is appointed to serve as an officer of the Commission (Public Representative) to represent the interests of the general public in these proceedings.
3. Comments by interested persons in these proceedings are due no later than September 10, 2012.
4. The Secretary shall arrange for publication of this order in the
By the Commission.
Postal Service
Notice.
The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule's Competitive Products List.
Elizabeth A. Reed, 202–268–3179.
The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on August 30, 2012, it filed with the Postal Regulatory Commission a
The following is a notice of applications for deregistration under section 8(f) of the Investment Company Act of 1940 for the month of August 2012. A copy of each application may be obtained via the Commission's Web site by searching for the file number, or for an applicant using the Company name box, at
Diane L. Titus at (202) 551–6810, SEC, Division of Investment Management, Office of Investment Company Regulation, 100 F Street NE., Washington, DC 20549–8010.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
Securities and Exchange Commission (“Commission”).
Notice of application for an order under sections 6(c) and 17(b) of the Investment Company Act of 1940 (the “Act”) for an exemption from section 17(a) of the Act.
Secretary, U.S. Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. Applicants: the DWS Funds and DIMA, 345 Park Avenue, New York, NY 10154; DBSI, 60 Wall Street, New York, NY 10005.
Christine Y. Greenlees, Senior Counsel, (202) 551–6879 or Mary Kay Frech, Branch Chief, (202) 551–6821 (Office of Investment Company Regulation, Division of Investment Management).
The following is a summary of the application. The complete application may be obtained via the Commission's Web site by searching for the file number, or an applicant using the Company name box, at
1. The DWS Funds are each a Massachusetts business trust (or, in the case of Cash Reserve Fund Inc., a Maryland corporation), each is registered under the Act as an open-end management investment company, and each has one or more series that operate as money market funds subject to rule 2a–7 under the Act (“Rule 2a–7”). In addition to the DWS Funds and their series that operate as money market funds subject to Rule 2a–7, relief is requested for any other existing or future funds registered under the Act that operate as money market funds subject to Rule 2a–7 under the Act and are advised or subadvised by an Adviser (as defined below). All such investment companies and their series that operate as money market funds subject to Rule 2a–7 under the Act, including DWS Funds and their series, are referred to individually as a “Money Market Portfolio” and collectively as the “Money Market Portfolios.” Any Money Market Portfolios not existing as of the date of the application or that currently
2. DIMA, a Delaware corporation and wholly owned subsidiary of Deutsche Bank Americas Holding Corporation, a wholly owned subsidiary of Taunus Corporation, which is a wholly owned subsidiary of Deutsche Bank A.G. (“DB”), is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Each Money Market Portfolio has an investment advisory agreement with DIMA, pursuant to which DIMA provides investment advisory and management services. In addition to DIMA, applicants request relief for any other existing or future investment adviser registered under the Advisers Act which acts as investment adviser or sub-adviser to a DWS Fund and which controls, is controlled by, or is under common control (as defined in section 2(a)(9) of the Act) with DIMA (individually, a “Future Adviser” and collectively, the “Future Advisers”). DIMA and the Future Advisers are referred to individually as an “Adviser” and collectively as the “Advisers.”
3. DBSI, a Delaware corporation and wholly owned subsidiary of DB U.S. Financial Markets Holding Corporation, a wholly owned subsidiary of Taunus Corporation, which, as noted above, is a wholly owned subsidiary of DB, is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended (the “1934 Act”).
4. Applicants state that DBSI and the Adviser are functionally independent of each other and operate as completely separate entities under the umbrella of DB. While each of these corporations is under common control, DBSI and the Adviser have their own separate officers and employees, are separately capitalized, and maintain their own books and records, except for one dual officer as more fully discussed in the application. In addition, the Adviser and DBSI operate on different sides of appropriate information barriers with respect to portfolio management activities and investment banking activities, and maintain physically separate offices.
5. Investment management decisions for the Money Market Portfolios are determined solely by the Adviser. The portfolio managers and other employees that are responsible for portfolio management for registered investment companies are employed solely by the Adviser (and not DBSI) and have lines of reporting responsibility solely within the Adviser. The compensation of persons assigned to the Adviser will not depend on the volume or nature of trades effected by the Adviser for the Money Market Portfolios with DBSI under the requested exemption, except to the extent that such trades may affect the profits and losses of DB and its subsidiaries as a whole.
6. Each Money Market Portfolio and Future Money Market Portfolio, consistent with its stated investment objectives and practices, may invest in Money Market Instruments. Practically all trading in Taxable Money Market Instruments takes place in over-the-counter markets consisting of groups of dealers that are primarily major securities firms or large commercial banks. Taxable Money Market Instruments are generally traded in lots of $1,000,000 or more on a net basis and do not normally involve either brokerage commissions or transfer taxes. The cost of portfolio transactions to the Money Market Portfolios consists primarily of dealer or underwriter spreads. Spreads vary among Money Market Instruments but generally spread levels are in the range of 1 to 5 basis points (.01% to .05%). In the Money Market Portfolios' experience, there is not a great deal of variation in the spreads quoted by the various dealers, except during turbulent market conditions.
7. The money market consists of elaborate communications networks among dealer firms, principal issuers of Taxable Money Market Instruments and principal institutional buyers of such instruments. Because the money market is a dealer market rather than an auction market, there is not a single obtainable price for a given instrument that generally prevails at any given time. A dealer acts either as “agent” on behalf of issuer clients or as “principal” for its own account. In either capacity, a dealer posts rates throughout its internal and external distribution networks that are intended to reflect “market clearing price levels,” as determined by the dealer. Only customers of dealers seeking to purchase Money Market Instruments have access to these postings.
8. Because of the variety of types of Taxable Money Market Instruments, the money market tends to be somewhat segmented. The markets for the various types of instruments will vary in terms of price, volatility, liquidity and availability. Although the rates for the different types of instruments tend to fluctuate closely together, there may be significant differences in yield among the various types of instruments, and even within a particular instrument category, depending upon the maturity date and the credit quality of the issuer. Moreover, from time to time segmenting exists within Money Market Instruments with the same maturity date and rating. The segmenting is based on such factors as whether the issuer is an industrial or financial company, whether the issuer is domestic or foreign and whether the securities are asset-backed or unsecured. Because dealers tend to specialize in certain types of Taxable Money Market Instruments, the particular needs of a potential buyer or seller in terms of type of security, maturity or credit quality may limit the number of dealers who can provide optimum pricing and execution. Hence, with respect to any given type of instrument, there may be only a few dealers that have the instrument available and can be in a position to quote an acceptable price.
9. DBSI is one of the world's largest dealers in Taxable Money Market Instruments, ranking among the top firms in each of the major markets and product areas, as more fully discussed in the application. For the calendar year ended 2011, DBSI ranked seventh in terms of market share in commercial paper, conducting business with 51% of
10. Applicants state that in recent years mergers and acquisitions in the investment banking and commercial banking industries have caused dealers that were formerly independent and competing with one another to combine their operations. As a result, there is a substantially smaller number of major dealers who are active in the money market than was the case a decade ago. Applicants also state that the reduction in the number of participants has generally decreased the liquidity available in the market, since fewer dealers will make a market in any particular security. Applicants further state that, as the number of dealers with whom the Money Market Portfolios can transact business has decreased, it has become even more important for the Money Market Portfolios to have access to all of the major dealers in Money Market Instruments in order to diversify each Money Market Portfolio's investments, to maintain portfolio liquidity, and to increase opportunities for obtaining best price and execution with respect to portfolio trades. In addition, applicants state that, given the relative significance of DBSI in the market for Money Market Instruments in which the Money Market Portfolios invest, not having access to DBSI may place the Money Market Portfolios at a competitive disadvantage.
11. Subject to the general oversight of the board of directors/trustees of each DWS Fund (each a “Board”), the Adviser is responsible for portfolio decisions and executing transactions in Money Market Instruments. The Money Market Portfolios have no obligation to deal with any dealer or group of dealers in the execution of their portfolio transactions. When placing orders, the Adviser must attempt to obtain the best net price and the most favorable execution of its orders. In doing so, it takes into account such factors as price, the size, type and difficulty of the transaction involved and the dealer's general execution and operational facilities. For repurchase agreements in particular, the Adviser places great emphasis on the creditworthiness of the counterparty.
1. Applicants request an order pursuant to sections 6(c) and 17(b) of the Act exempting certain transactions from the provisions of section 17(a) of the Act to permit DBSI, acting as principal, to sell Taxable Money Market Instruments to, or purchase Taxable Money Market Instruments from, the Money Market Portfolios, and to engage in repurchase agreement transactions with the Money Market Portfolios, subject to the conditions set forth below.
2. Section 17(a) of the Act generally prohibits an affiliated person or principal underwriter of a registered investment company, or any affiliated person of such a person, acting as principal, from selling to or purchasing from such registered company, or any company controlled by such registered company, any security or other property. Because DBSI and the Adviser are under common control of DB, DBSI and the Adviser are affiliated persons of each other within the meaning of section 2(a)(3)(C) of the Act. Accordingly, DBSI could be deemed to be an affiliated person of an affiliated person of the Money Market Portfolios, because the Adviser, as the investment adviser of the Money Market Portfolios, could be deemed to be an affiliated person of the Money Market Portfolios under section 2(a)(3)(E) of the Act. Thus, section 17(a) would prohibit the Money Market Portfolios from selling or purchasing Taxable Money Market Instruments to or from DBSI to the extent DBSI is deemed an affiliated person of an affiliated person of the Money Market Portfolios.
3. Section 17(b) of the Act provides that the Commission, upon application, may exempt a transaction from the provisions of section 17(a) if evidence establishes that the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair, and do not involve overreaching on the part of any person concerned, and that the proposed transaction is consistent with the policy of the registered investment company concerned and with the general purposes of the Act. Section 6(c) of the Act provides that the Commission may conditionally or unconditionally exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from any provision or provisions of the Act or of any rule or regulation thereunder, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act.
4. Applicants contend that the rationale behind the proposed order is based upon the reduction in the number of participants in the money market, the growing and significant role played in the money market by DBSI and the growing investment requirements of the Money Market Portfolios. In particular, applicants note the following:
(a) With over $59.15 billion invested in Money Market Instruments as of June 30, 2012, the Money Market Portfolios are major buyers and sellers in the money market with a strong need for access to large quantities of high quality Money Market Instruments. Applicants believe that access to a major dealer, such as DBSI, would increase the Money Market Portfolios' ability to obtain suitable portfolio securities.
(b) The policy of the Money Market Portfolios of investing in securities with short maturities and repurchase agreements, combined with the active portfolio management techniques employed by the Adviser, results in high portfolio activity and the need to make numerous purchases and sales of Money Market Instruments. This high portfolio activity likewise emphasizes the importance of increasing opportunities to obtain suitable portfolio securities and best price and execution.
(c) The money market, including the market for repurchase agreements, is highly competitive and maintaining a dealer as prominent as DBSI in the pool of dealers with which the Money Market Portfolios could conduct principal transactions may provide the Money Market Portfolios with improved opportunities to purchase and sell Money Market Instruments, including Money Market Instruments not available from any other source.
(d) DBSI is such a major factor in the money market that removing DBSI from the dealers with which the Money Market Portfolios may conduct principal transactions may indirectly deprive the Money Market Portfolios of obtaining best price and execution even when the Money Market Portfolios trade with unaffiliated dealers.
5. Applicants believe that the requested order will provide the Money Market Portfolios with broader and more complete access to the money market, which is necessary to carry out the policies and objectives of each of the Money Market Portfolios in seeking the best price, execution and quality in all portfolio transactions. In addition, applicants respectfully submit that the requested relief will provide the Money Market Portfolios with important information sources in the money market, to the direct benefit of the investors in the Money Market Portfolios. Applicants believe that the transactions contemplated by the application are identical to those in which they are currently engaged except for the proposed participation of DBSI, and that such transactions are consistent with the policies of the Money Market Portfolios as recited in their registration statements and reports filed under the Act. Applicants also submit that the procedures to be followed with respect to transactions with DBSI are structured in such a way as to ensure that the transactions will be, in all instances, reasonable and fair, will not involve overreaching on the part of any person concerned, and that the requested exemption is appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act.
Applicants agree that the order granting the requested relief will be subject to the following conditions:
1.
(a) No Money Market Portfolio shall make portfolio purchases pursuant to the exemption that would result directly or indirectly in the Money Market Portfolio investing pursuant to the exemption more than 2% of its
(b) The exemption shall not apply to an
(c) The exemption shall not apply to any instrument, other than a repurchase agreement, issued by DB or any affiliated person thereof or to any instrument subject to a
2.
3.
4.
5.
6.
7.
(a) The Adviser will maintain offices physically separate from those of DBSI.
(b) The compensation of persons assigned to the Adviser (
(c) DBSI will not share any of its respective profits or losses on such transactions with the Adviser, except to the extent that such profits and losses affect the general firm-wide compensation of DB and its subsidiaries as a whole.
(d) Personnel assigned to the Adviser's investment advisory operations on behalf of the Money Market Portfolios will be exclusively devoted to the business and affairs of the Adviser. Personnel assigned to DBSI will not participate in the decision-making process for the Adviser or otherwise seek to influence the Adviser other than in the normal course of sales and dealer activities of the same nature as are simultaneously being carried out with respect to nonaffiliated institutional clients. The Adviser, on the one hand, and DBSI, on the other, may nonetheless maintain affiliations other than with respect to the Money Market Portfolios, and in addition with respect to the Money Market Portfolios as follows:
(i) Adviser personnel may rely on research, including credit analysis and reports prepared internally by various subsidiaries and divisions of DBSI.
(ii) Certain senior executives of DB that have responsibility for overseeing operations of various divisions, subsidiaries and affiliates of DB are not precluded from exercising those functions over the Adviser because they oversee DBSI as well, provided that such persons shall not have any involvement with respect to proposed transactions pursuant to the exemption and will not in any way attempt to influence or control the placing by the Money Market Portfolios or the Adviser of orders in respect of
8.
(a) Each Money Market Portfolio shall maintain an itemized daily record of all purchases and sales of securities pursuant to the exemption, showing for each transaction: (i) The name and quantity of securities; (ii) the unit purchase or sale price; (iii) the time and date of the transaction; and (iv) whether the security was a
(b) Each Money Market Portfolio shall maintain records sufficient to verify compliance with the volume limitations contained in condition 5 above. DBSI will provide the Money Market Portfolios with all records and information necessary to implement this requirement.
(c) Each Money Market Portfolio shall maintain a ledger or other record showing, on a daily basis, the percentage of the Money Market Portfolio's
(d) Each Money Market Portfolio shall maintain records sufficient to verify compliance with the repurchase agreement requirements contained in condition 4 above.
The records required by this condition 8 will be maintained and preserved in the same manner as records required under rule 31a–1(b)(1) under the Act.
9.
10.
11.
12.
For the Commission, by the Division of Investment Management, under delegated authority.
The Commission collects fees under various provisions of the securities laws. Section 6(b) of the Securities Act of 1933 (“Securities Act”) requires the Commission to collect fees from issuers on the registration of securities.
The Investor and Capital Markets Fee Relief Act of 2002 (“Fee Relief Act”)
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)
Section 6(b)(2) of the Securities Act, as amended by the Dodd-Frank Act, requires the Commission to make an annual adjustment to the fee rate applicable under Section 6(b).
Section 6(b)(2) sets forth the method for determining the annual adjustment to the fee rate under Section 6(b) for fiscal year 2013. Specifically, the Commission must adjust the fee rate under Section 6(b) to a “rate that, when applied to the baseline estimate of the aggregate maximum offering prices for [fiscal year 2013], is reasonably likely to produce aggregate fee collections under [Section 6(b)] that are equal to the target fee collection amount for [fiscal year 2013].” That is, the adjusted rate is determined by dividing the “target fee collection amount” for fiscal year 2013 by the “baseline estimate of the aggregate maximum offering prices” for fiscal year 2013.
Section 6(b)(6)(A) specifies that the “target fee collection amount” for fiscal year 2013 is $455,000,000. Section 6(b)(6)(B) defines the “baseline estimate of the aggregate maximum offering price” for fiscal year 2013 as “the baseline estimate of the aggregate maximum offering price at which securities are proposed to be offered pursuant to registration statements filed with the Commission during [fiscal year 2013] as determined by the Commission, after consultation with the Congressional Budget Office and the Office of Management and Budget * * * .”
To make the baseline estimate of the aggregate maximum offering price for fiscal year 2013, the Commission used a methodology similar to that developed in consultation with the Congressional Budget Office (“CBO”) and Office of Management and Budget (“OMB”) to project the aggregate offering price for purposes of the fiscal year 2012 annual adjustment.
The fiscal year 2013 annual adjustments to the fee rates applicable under Section 6(b) of the Securities Act and Sections 13(e) and 14(g) of the
Accordingly, pursuant to Section 6(b) of the Securities Act and Sections 13(e) and 14(g) of the Exchange Act,
By the Commission.
With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress has, among other things, established a target amount of monies to be collected from fees charged to issuers based on the value of their registrations. This appendix provides the formula for determining such fees, which the Commission adjusts annually. Congress has mandated that the Commission determine these fees based on the “aggregate maximum offering prices,” which measures the aggregate dollar amount of securities registered with the Commission over the course of the year. In order to maximize the likelihood that the amount of monies targeted by Congress will be collected, the fee rate must be set to reflect projected aggregate maximum offering prices. As a percentage, the fee rate equals the ratio of the target amounts of monies to the projected aggregate maximum offering prices.
For 2013, the Commission has estimated the aggregate maximum offering prices by projecting forward the trend established in the previous decade. More specifically, an ARIMA model was used to forecast the value of the aggregate maximum offering prices for months subsequent to July 2012, the last month for which the Commission has data on the aggregate maximum offering prices.
The following sections describe this process in detail.
First, calculate the aggregate maximum offering prices (AMOP) for each month in the sample (July 2002–July 2012). Next, calculate the percentage change in the AMOP from month to month.
Model the monthly percentage change in AMOP as a first order moving average process. The moving average approach allows one to model the effect that an exceptionally high (or low) observation of AMOP tends to be followed by a more “typical” value of AMOP.
Use the estimated moving average model to forecast the monthly percent change in AMOP. These percent changes can then be applied to obtain forecasts of the total dollar value of registrations. The following is a more formal (mathematical) description of the procedure:
1. Begin with the monthly data for AMOP. The sample spans ten years, from July 2002 to July 2012.
2. Divide each month's AMOP (column C) by the number of trading days in that month (column B) to obtain the average daily AMOP (AAMOP, column D).
3. For each month t, the natural logarithm of AAMOP is reported in column E.
4. Calculate the change in log(AAMOP) from the previous month as Δ
5. Estimate the first order moving average model Δ
6. For the month of August 2012 forecast Δ
7. Calculate forecasts of log(AAMOP). For example, the forecast of log(AAMOP) for October 2012 is given by FLAAMOP
8. Under the assumption that e
9. For October 2012, this gives a forecast AAMOP of $13.0 billion (Column I), and a forecast AMOP of $299.4 billion (Column J).
10. Iterate this process through September 2013 to obtain a baseline estimate of the aggregate maximum offering prices for fiscal year 2013 of $3,336,846,226,098.
1. Using the data from Table A, estimate the aggregate maximum offering prices between 10/1/12 and 9/30/13 to be $3,336,846,226,098.
2. The rate necessary to collect the target $455,000,000 in fee revenues set by Congress is then calculated as: $455,000,000 ÷ $3,336,846,226,098= 0.000136356.
3. Round the result to the seventh decimal point, yielding a rate of 0.0001364 (or $136.40 per million).
It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of eHydrogen Solutions, Inc. (EHYD) because of questions concerning the adequacy of publicly available information about the company.
It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of ChromoCure, Inc. (KKUR) because of questions concerning the adequacy of publicly available information about the company.
The Commission is of the opinion that the public interest and the protection of investors require a suspension of trading in the securities of the above-listed companies.
By the Commission.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange proposes to offer a new Exchange market data product, Edge Routed Liquidity Report (“Edge Routed Liquidity Report” or the “Service”) to Members
In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B and C below, of the most significant aspects of such statements.
The purpose of the proposed rule change is to begin offering Edge Routed Liquidity Report, a data feed that contains historical order information for orders routed to away destinations by the Exchange. Edge Routed Liquidity Report will be a data feed product that provides routed order information to Subscribers on the morning of the following trading day (T + 1), including: Limit price, routed quantity, symbol, side (bid/offer), time of routing, and the National Best Bid and Offer (NBBO) at the time of routing.
The Exchange will make Edge Routed Liquidity Report available to all Subscribers via subscription through secure Internet connections. Edge Routed Liquidity Report will be offered as either a standard report (the “Standard Report”) or a premium report (the “Premium Report”). Both the Standard Report and the Premium Report will provide Subscribers with a view of all marketable orders that are routed to away destinations by the Exchange. However, the Premium Report will also identify the routing destination as either directed to a destination that is not an exchange (“Non-Exchange Destination”) or directed to another exchange. For orders that are routed to a Non-Exchange Destination, the Premium Report will indicate the nature of any liquidity the originating routing strategy seeks.
Purchasers of Edge Routed Liquidity Report will be able to elect to obtain data on a rolling thirty (30) day subscription or a calendar month request for as many months as desired.
The Exchange is proposing to charge Subscribers a fee in the amount of $500.00/month for a rolling thirty (30) day Standard Report and $500.00/month for a calendar month request. With respect to the Premium Report, the Exchange is proposing to charge Subscribers a fee in the amount of $1,500.00/month for a rolling thirty (30) day Premium Report and $1,500.00/month for a calendar month request. Edge Routed Liquidity Report will be provided to Subscribers for internal use only, and thus, no redistribution will be permitted. Edge Routed Liquidity Report can be used by market participants to improve their trading and order routing strategies by being able to discern missed trading opportunities if a Member had been present on the EDGA book.
Edge Routed Liquidity Report will provide an indication of the quantity/quality of the order flow that Members of the Exchange could have interacted with if they had additional posted liquidity on the Exchange's book. The purpose of Edge Routed Liquidity Report is to allow Subscribers to identify missed opportunities so that they can make the necessary trading system changes to better interact with missed liquidity. By making the Edge Routed Liquidity Report data available, the Exchange enhances market transparency and fosters competition among orders and markets.
Historical data can be used for a variety of purposes, such as to support financial market research and analysis as well as back-testing of new trading strategies to gauge effectiveness. The
The Exchange intends to implement the proposed rule change on or about September 4, 2012 and will announce its availability via an information circular to be posted on the Exchange's Web site.
The proposed rule change is consistent with the requirements of the Act
Indeed, the Exchange believes that the proposed change is consistent with Section 6(b)(4) of the Act
Furthermore, as the Service will be provided in multiple packages, the Exchange intends to allow the purchase of such access in the manner that best meets the needs of, and is most cost efficient for, each respective Subscriber. The fees for Edge Routed Liquidity Report are uniform except with respect to reasonable distinctions with respect to Standard Report and the Premium Report. The Exchange proposes charging more for the Premium Report than for the Standard Report because of the additional features provided on the Premium Report, as described above. The fees reflect the differing offerings that a Subscriber may choose and are reasonable in light of the benefits of market transparency and additional information to aid Subscribers in developing or modifying their trading strategies.
The revenue generated by Edge Routed Liquidity Report will pay for the development, marketing, technical infrastructure and operating costs of the Service, an important tool for market participants to use for purposes of analysis, research and testing. Profits generated above these costs will help offset the costs that the Exchange incurs in operating and regulating a highly efficient and reliable platform for the trading of U.S. equities. This increased revenue stream will allow the Exchange to offer an innovative Service at a reasonable rate, consistent with other self-regulatory organizations (“SROs”) who provide similar types of historical market data products.
The Exchange believes that the proposed rule change is also consistent with the objectives of Section 6(b)(5) of the Act,
The Exchange is not required by the Act in the first instance to make the Service available. The Exchange chooses to make the Service available as proposed in order to improve market quality, to attract order flow, and to increase market transparency. Once this filing becomes effective, the Exchange will be required to continue making the Service available until such time as the Exchange changes its rule.
In adopting Regulation NMS, the Commission granted SROs and broker-dealers (“BDs”) increased authority and flexibility to offer new and unique market data services to the public. The Commission believed this authority would expand the amount of data available to market participants, and also spur innovation and competition for the provision of market data. Edge Routed Liquidity Report appears to be precisely the sort of market data service that the Commission envisioned when it adopted Regulation NMS.
By removing unnecessary regulatory restrictions on the ability of exchanges to sell their own data, Regulation NMS advanced the goals of the Act and the principles reflected in its legislative history. If the free market should determine whether proprietary data is sold to BDs at all, it follows that the price at which such data is sold should be set by the market as well.
The recent decision of the United States Court of Appeals for the District of Columbia Circuit in
The Court in NetCoalition, while upholding the Commission's conclusion that competitive forces may be relied upon to establish the fairness of prices, nevertheless concluded that the record in that case did not adequately support the Commission's conclusions as to the competitive nature of the market for NYSEArca's data product at issue in that case. The Exchange believes that there is substantial evidence of competition in the marketplace for data that was not in the record in the NetCoalition case, and that the Commission is entitled to rely upon such evidence in concluding that the fees established in this filing are the product of competition, and therefore in accordance with the relevant statutory standards.
The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended.
There is significant competition for the provision of market data to market participants, as well as competition for the orders that generate that data. In introducing the proposed Service, the Exchange would be providing an additional market data product to those already offered by other market centers.
The Service is purely optional and can be used by Subscribers who see value in the format in which the Service presents historical data. Given this, the Exchange does not believe that the Service will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from its Members or other interested parties.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
At any time within 60 days of the filing of the proposed rule change, the
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange proposes to offer a new Exchange market data product, Edge Routed Liquidity Report (“Edge Routed Liquidity Report” or the “Service”) to Members
In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B and C below, of the most significant aspects of such statements.
The purpose of the proposed rule change is to begin offering Edge Routed Liquidity Report, a data feed that contains historical order information for orders routed to away destinations by the Exchange. Edge Routed Liquidity Report will be a data feed product that provides routed order information to Subscribers on the morning of the following trading day (T + 1), including: Limit price, routed quantity, symbol, side (bid/offer), time of routing, and the National Best Bid and Offer (NBBO) at the time of routing.
The Exchange will make Edge Routed Liquidity Report available to all Subscribers via subscription through secure Internet connections. Edge Routed Liquidity Report will be offered as either a standard report (the “Standard Report”) or a premium report (the “Premium Report”). Both the Standard Report and the Premium Report will provide Subscribers with a view of all marketable orders that are routed to away destinations by the Exchange. However, the Premium Report will also identify the routing destination as either directed to a destination that is not an exchange (“Non-Exchange Destination”) or directed to another exchange. For orders that are routed to a Non-Exchange Destination, the Premium Report will indicate the nature of any liquidity the originating routing strategy seeks.
Purchasers of Edge Routed Liquidity Report will be able to elect to obtain data on a rolling thirty (30) day subscription or a calendar month request for as many months as desired.
The Exchange is proposing to charge Subscribers a fee in the amount of $500.00/month for a rolling thirty (30) day Standard Report and $500.00/month for a calendar month request. With respect to the Premium Report, the Exchange is proposing to charge Subscribers a fee in the amount of $1,500.00/month for a rolling thirty (30) day Premium Report and $1,500.00/month for a calendar month request.
Edge Routed Liquidity Report will provide an indication of the quantity/quality of the order flow that Members of the Exchange could have interacted with if they had additional posted liquidity on the Exchange's book. The purpose of Edge Routed Liquidity Report is to allow Subscribers to identify missed opportunities so that they can make the necessary trading system changes to better interact with missed liquidity. By making the Edge Routed Liquidity Report data available, the Exchange enhances market transparency and fosters competition among orders and markets.
Historical data can be used for a variety of purposes, such as to support financial market research and analysis as well as back-testing of new trading strategies to gauge effectiveness. The Exchange notes that various historical data products are offered by the Exchange and other market centers as discussed below.
The Exchange intends to implement the proposed rule change on or about September 4, 2012 and will announce its availability via an information circular to be posted on the Exchange's Web site.
The proposed rule change is consistent with the requirements of the Act
Indeed, the Exchange believes that the proposed change is consistent with Section 6(b)(4) of the Act
Furthermore, as the Service will be provided in multiple packages, the Exchange intends to allow the purchase of such access in the manner that best meets the needs of, and is most cost efficient for, each respective Subscriber. The fees for Edge Routed Liquidity Report are uniform except with respect to reasonable distinctions with respect to Standard Report and the Premium Report. The Exchange proposes charging more for the Premium Report than for the Standard Report because of the additional features provided on the Premium Report, as described above. The fees reflect the differing offerings that a Subscriber may choose and are reasonable in light of the benefits of market transparency and additional information to aid Subscribers in developing or modifying their trading strategies.
The revenue generated by Edge Routed Liquidity Report will pay for the development, marketing, technical infrastructure and operating costs of the Service, an important tool for market participants to use for purposes of analysis, research and testing. Profits generated above these costs will help offset the costs that the Exchange incurs in operating and regulating a highly efficient and reliable platform for the trading of U.S. equities. This increased revenue stream will allow the Exchange to offer an innovative Service at a reasonable rate, consistent with other self-regulatory organizations (“SROs”) who provide similar types of historical market data products.
The Exchange believes that the proposed rule change is also consistent with the objectives of Section 6(b)(5) of the Act,
The Exchange is not required by the Act in the first instance to make the Service available. The Exchange chooses to make the Service available as proposed in order to improve market quality, to attract order flow, and to increase market transparency. Once this filing becomes effective, the Exchange will be required to continue making the Service available until such time as the Exchange changes its rule.
In adopting Regulation NMS, the Commission granted SROs and broker-dealers (“BDs”) increased authority and flexibility to offer new and unique market data services to the public. The Commission believed this authority would expand the amount of data available to market participants, and also spur innovation and competition for the provision of market data. Edge Routed Liquidity Report appears to be precisely the sort of market data service that the Commission envisioned when it adopted Regulation NMS.
By removing unnecessary regulatory restrictions on the ability of exchanges to sell their own data, Regulation NMS advanced the goals of the Act and the principles reflected in its legislative history. If the free market should determine whether proprietary data is sold to BDs at all, it follows that the price at which such data is sold should be set by the market as well.
The recent decision of the United States Court of Appeals for the District of Columbia Circuit in
The Court in NetCoalition, while upholding the Commission's conclusion that competitive forces may be relied upon to establish the fairness of prices, nevertheless concluded that the record in that case did not adequately support the Commission's conclusions as to the competitive nature of the market for NYSEArca's data product at issue in that case. The Exchange believes that there is substantial evidence of competition in the marketplace for data that was not in the record in the NetCoalition case, and that the Commission is entitled to rely upon such evidence in concluding that the fees established in this filing are the product of competition, and therefore in accordance with the relevant statutory standards.
The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended.
There is significant competition for the provision of market data to market participants, as well as competition for the orders that generate that data. In introducing the proposed Service, the Exchange would be providing an additional market data product to those already offered by other market centers.
The Service is purely optional and can be used by Subscribers who see value in the format in which the Service presents historical data. Given this, the Exchange does not believe that the Service will result in any burden on competition that is not necessary or
The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from its Members or other interested parties.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to amend the NYSE Amex Options Fee Schedule (“Fee Schedule”) to change the number of Amex Trading Permits (“ATP”) required by NYSE Amex Market Makers based on the number of options in their appointment. The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
NYSE MKT proposes to amend the Fee Schedule to change the number of Amex Trading Permits (“ATP”) required by NYSE Amex Market Makers based on the number of options in their electronic appointment.
Currently, NYSE Amex Options Market Makers are free to apply to have any number of option classes in their trading appointment, subject to the following schedule:
(1) Market Makers with one ATP may have up to 100 option issues included in their electronic appointment;
(2) Market Makers with two ATPs may have up to 250 option issues included in their electronic appointment;
(3) Market Makers with three ATPs may have up to 750 option issues included in their electronic appointment; and
(4) Market Makers with four ATPs may have all option issues traded on the Exchange included in their electronic appointment.
Under the proposal, NYSE Amex Options Market Makers (which include Floor Market Makers) will be free to apply to have any number of option classes in their electronic trading appointment, subject to the following schedule:
One ATP = 60 issues, plus the bottom 45% of issues traded on the Exchange by volume;
Two ATPs = 150 issues, plus the bottom 45% of issues traded on the Exchange by volume;
Three ATPs = 500 issues, plus the bottom 45% of issues traded on the Exchange by volume;
Four ATPs = 1,100 issues, plus the bottom 45% of issues traded on the Exchange by volume; and
Five ATPs = All issues traded on the Exchange.
The “bottom 45%” of issues traded on the Exchange refers to the least actively traded issues on the Exchange, ranked by industry volume, as reported by the OCC for each issue during the calendar quarter. Each calendar quarter, with a one-month lag, the Exchange will publish on its Web site a list of the bottom 45% of issues traded by industry volume. For example, based on industry volume for April, May, and June 2012, the Exchange will rank all options traded on the Exchange as of the last day of that period, which will then become the bottom 45% of issues for the period beginning August 1, 2012. As of June 30, 2012, there were 2,196 options traded on the Exchange, so the bottom 45% would total 988 options for that period. The Exchange will recalculate this list using industry volumes for July, August, and September 2012 for the period beginning November 1, 2012, and so on. Any newly listed issues will automatically become part of the bottom 45% until the next evaluation period, at which time they may or may not remain part of the bottom 45% list depending upon their trading volumes and resultant rank among all issues traded on the Exchange.
The proposed rule change is effective upon filing and will not become operative until 30 days after the date of this filing, or such shorter time as the Commission may designate. The Exchange has requested that the Commission waive all or a portion of the 30-day operative delay period so that it may implement the proposed change on September 1, 2012. If the Commission does not waive all or a portion of the 30-day operative delay period, the proposed changes will be implemented on October 1, 2012.
The Exchange believes that the proposed rule change is consistent with the provisions of Section 6(b)
In making the proposed changes, the Exchange's objective is to better align the Fee Schedule with the level of activity on the Exchange while properly incenting Market Makers to quote in a broad range of options, including less liquid and active names, to promote transparency and price discovery in those names, which will benefit all Exchange participants and the public interest.
The proposal to change the number of ATPs required for a certain number of appointments will promote just and equitable principles of trade and will remove impediments to and perfect the mechanisms of a free and open market for the following reasons. First, the proposed rule change allows Market Makers affordable access to all issues traded on the Exchange when viewed in light of the cost for a market maker on at least two other exchanges to obtain a sufficient number of trading permits or rights to quote a similar number of names. For example, on the International Securities Exchange (“ISE”), a Competitive Market Maker (“CMM”) is required to have nine CMM Trading Rights in order to quote all issues on the ISE.
A further comparison may be made with the Chicago Board Options Exchange (“CBOE”) and the trading permit costs for a market maker to create an assignment there. CBOE has a sliding scale for Trading Permit Holders (“TPHs”) who are acting as market makers. The sliding scale is $5,500 per month for permits one to 10, $4,000 per month for permits 11 to 20, and $2,500 for permits 21 and higher. The discounted permit rates of $4,000 and $2,500 are only available to TPHs who commit to a full year of that number of permits. In configuring an appointment on CBOE, a market maker incurs an appointment cost for each option in its appointment based on various tiers.
The Exchange further notes that by virtue of the limited number of CMM Trading Rights available for sale or lease on ISE and the Class Quoting Limit (“CQL”)
In designing the proposal, the Exchange wanted to encourage market making in less liquid and active option issues. This is beneficial to all Exchange participants and market participants generally. Under the proposal, the first ATP permits an NYSE Amex Options Market Maker to create an appointment for submitting quotes electronically that will consist of 60 options of its choosing, plus the bottom 45% of options traded on the Exchange. As of June 30, 2012, there were 2,196 options on the Exchange, which means that the bottom 45% consists of 988 options. Under the proposal, this means that a NYSE Amex Options Market Maker with one ATP will be able to create an assignment consisting of 1,048 options, far greater than the 100 options permitted under the current Fee Schedule. The proposal increases the total number of ATPs required to quote all options on the Exchange from four to five and increases the monthly cost for an NYSE Amex Options Market Maker from $23,000 to $26,000 per month. Again, viewed in light of the costs to establish a similar assignment on at least two other exchanges, the proposed rule change is just, equitable, and removes impediments to a free and open market, particularly since the proposal is designed to encourage greater quoting in less liquid names that will benefit the marketplace through increased price discovery. The proposal is consistent with just and equitable principles of trade since it will apply to all NYSE Amex Options Market Makers equally.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b–4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange proposes to adopt a Designated Primary Market-Maker (“DPM”) program. The text of the proposed rule change is available on the Exchange's Web site (
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
The proposed rule change proposes to adopt a DPM program.
The proposed
Proposed
(1) Adequacy of capital;
(2) operational capacity;
(3) trading experience of and observance of generally accepted standards of conduct by the applicant and its associated persons;
(4) regulatory history of and history of adherence to Exchange Rules by the applicant and its associated persons; and
(5) willingness and ability of the applicant and its associated persons to promote the Exchange as a marketplace.
The following are some examples of the many ways in which the Exchange may consider these factors:
• In considering adequacy of capital of an applicant, the Exchange may look at whether the applicant meets the financial requirements set forth in proposed Rule 8.18 and whether it otherwise has the resources to meet the heightened responsibilities.
• In considering operational capacity of an applicant, the Exchange may look to criteria such as the number of Market-Makers or personnel and the ability to process order flow in determining whether it would be able to satisfy the DPM obligations in an efficient manner.
• In considering trading experience of and observance of generally accepted standards of conduct by the applicant and its associated persons, the Exchange may look at the applicant's and its associated persons' history at the Exchange or in the industry, the trading volume of the applicant and its associated persons, and market performance reviews in determining whether the applicant would be able to meet the DPM market performance standards.
• In considering the regulatory history of and history of adherence to Exchange Rules by the applicant and its associated persons, the Exchange may look to whether the applicant or its associated persons have been found to have violated Exchange rules or have been subject to any enforcement proceedings in determining whether the applicant and its associated persons would comply with obligations imposed by the DPM Rules and other Rules of the Exchange, as well as federal securities laws and regulations.
• In considering willingness and ability of the applicant and its associated persons to promote the Exchange as a marketplace, the Exchange may look at whether the applicant has engaged (or how it intends to engage) in activities such as assisting in meeting and educating market participants, maintaining communications with Participants in order to be responsive to suggestions and complaints, and responding to suggestions and complaints in determining whether the applicant could bring order flow to the Exchange.
These are the primary factors that the Exchange believes are necessary for it to consider when determining whether a DPM applicant is able to meet the DPM obligations, responsibilities, and market performance standards imposed by the proposed DPM Rules. Given that the Exchange may limit the number of approved DPMs, it is important that the Exchange can reasonably determine that the Participants it approves to act as DPMs will increase liquidity and quote competitively in order to attract order flow as intended by the proposed DPM program.
Each applicant for approval as a DPM will have an opportunity to present any matter that it wishes the Exchange to consider in conjunction with the approval decision. The Exchange may require that a presentation be solely or partially in writing, and may require the submission of additional information from the applicant or its associated persons. Formal rules of evidence will not apply to these proceedings. This opportunity will allow a DPM applicant to ensure that the Exchange considers all information that the DPM applicant deems relevant, in addition to the standard information described by the factors above that the Exchange reviews. The Exchange believes the presentation of this information, in addition to the information requested by the Exchange, will result in fair and fully informed decisions by the Exchange during the DPM approval process.
In selecting an applicant for approval as a DPM, the Exchange may place one or more conditions on the approval, including but not limited to conditions concerning the capital or operations of or persons associated with the DPM applicant, and the number or type of securities that may be allocated to the applicant. Depending on the circumstances surrounding a specific DPM applicant, the Exchange believes it is necessary to have the ability to impose conditions on the specific DPM approval in addition to the obligations otherwise imposed by the DPM Rules as an additional means to ensure that the DPM applicant is able to adequately perform the DPM functions.
Each DPM will retain its approval to act as a DPM for one year, unless the Exchange relieves the DPM of its approval and obligations to act as a DPM or earlier terminates the DPM's approval to act as a DPM pursuant to proposed Rule 8.20. After each one-year term, a DPM may file an application with the Exchange to renew its approval to act as a DPM on forms prescribed by the Exchange, which renewal application the Exchange may approve or disapprove in its sole discretion in the same manner and based on the same factors set forth in proposed Rule 8.14(b) through (d), and any other factors the Exchange deems relevant (including an evaluation of the extent to which the DPM has satisfied its obligations under proposed Rule 8.17). Because the proposed rule change provides that the Exchange will determine the appropriate number of approved DPMs in a class, the Exchange believes that having temporary DPM appointments will provide all Participants with regular opportunities to be selected as DPMs by the Exchange rather than allow certain Participants to have perpetual DPM appointments.
If the Exchange terminates or otherwise limits its approval for a Participant to act as a DPM, the Exchange may do one or both of the following: (1) Approve a DPM on an interim basis, pending the final approval of a new DPM; and (2) allocate on an interim basis to another DPM(s) the securities that were allocated to the affected DPM, pending a final allocation of the securities pursuant to proposed Rule 8.15 (as described below). Neither an interim approval nor allocation will be viewed as a prejudgment with respect to the final approval or allocation. Interim approvals and allocations will provide uninterrupted DPM quoting in appointed classes and prevent any reduced liquidity in those classes that could otherwise result from a termination, condition, or limit on a DPM's approval or allocation.
Proposed Rule 8.14(g) provides that DPM appointments may not be sold, assigned, or otherwise transferred without prior written approval of the Exchange. This provision clarifies that only the Exchange may authorize a firm to act as a DPM, which will allow the Exchange to ensure that a Participant is qualified to adequately perform DPM functions and fulfill its obligations and responsibilities as a DPM under the proposed DPM Rules.
Proposed
Proposed Rule 8.15(b) describes the criteria that the Exchange may consider in making allocation determinations.
• In considering performance, the Exchange may look at the market performance ranking of the applicable DPMs, as established by market performance reviews that are conducted by the Exchange.
• In considering volume, the Exchange may look at the anticipated trading volume of the security and the trading volume attributable to the applicable DPMs in determining which DPMs would be best able to handle the additional volume.
• In considering capacity, operational factors, and efficiency, the Exchange may look to criteria such as the number of Market-Makers or DPM personnel, the ability to process order flow, and the amount of DPM capital in determining which DPMs would be best able to handle additional securities.
• In considering marketing performance commitments, the Exchange may look at the pledges a DPM has made with respect to how narrow its bid-ask spreads will be and the number of contracts for which it will honor its disseminated market quotations beyond what is required by Exchange Rules.
• In considering competitiveness, the Exchange may look at percentage of volume attributable to a DPM in allocated securities that are multiply listed.
• In considering the environment in which the security will be traded, the Exchange may seek a proportionate distribution of securities between the Market-Maker system and the DPM system and across different DPMs.
• In considering expressed preferences of issuers, the Exchange may consider the views of the issuer of a security traded on the Exchange with respect to the allocation of that security or to the licensor of an index on which an index option is based with respect to the allocation of that index option.
• The Exchange may consider the recommendation of any Exchange committees, particularly those that evaluate DPM market performance.
Proposed Rule 8.15(c) provides that the Exchange may remove an allocation and reallocate the applicable security during a DPM's term if the DPM fails to adhere to any market performance commitments made by the DPM in connection with receiving the allocation. The Exchange typically requests that DPMs make market performance commitments as part of their applications to receive allocations of particular securities. As described above, these commitments may relate to pledges to keep bid-ask spreads within a particular width or to make disseminated quotes firm for a designated number of contracts beyond what is required by Exchange Rules. Proposed Rule 8.15(c) permits the Exchange to remove an allocation if these commitments are not met, which the Exchange believes will incentive [sic] DPMs to abide by these commitments. The Exchange believes these types of commitments will be instrumental in causing DPMs to quote more competitively.
Proposed Rule 8.15(c) also provides that the Exchange may change an allocation determination if it concludes that doing so is in the best interests of the Exchange based on operational factors or efficiency. For example, if, due to market conditions, trading volume in a security greatly increased over a very short time frame and the DPM allocated that security could not handle the additional order flow, the Exchange may deem it necessary to reallocate the security to another DPM with the capacity to do so. This provision will allow the Exchange to ensure that there is sufficient liquidity during trading hours in the allocated option classes.
Proposed Rule 8.15(d) provides that prior to taking any action to remove an allocation, the Exchange will generally give the DPM prior notice of the contemplated action and an opportunity to be heard concerning the action. The only exception to this requirement would be in those unusual situations when expeditious action is required due to extreme market volatility or some other situation requiring emergency action. Specifically, except when expeditious action is required, proposed Rule 8.15(d) requires that prior to taking any action to remove an allocation, the Exchange must notify the DPM involved of the reasons the Exchange is considering taking the contemplated action, and will either convene one or more informal meetings with the DPM to discuss the matter, or provide the DPM with the opportunity to submit a written statement to the Exchange concerning the matter. Due to the informal nature of the meetings provided for under proposed Rule 8.15(d) and in order to encourage constructive communication between the Exchange and the affected DPM at those meetings, ordinarily neither counsel for the Exchange nor counsel for the DPM will be invited to attend these meetings and no verbatim record of the meetings will be kept.
As with any decision made by the Exchange, any person adversely affected by a decision made by the Exchange to remove an allocation may appeal the decision to the Exchange under Chapter 19 of the Exchange Rules. The appeal procedures in Chapter 19 provide for the right to a formal hearing concerning any such decision and for the right to be accompanied, represented, and advised by counsel at all stages of the proceeding. In addition, any decision of the Exchange's Appeals Committee may be appealed to the Board of Directors pursuant to CBOE Rule 19.5 (which is incorporated into the Exchange Rules). The Exchange believes these hearing and appeal procedures will provide DPMs with appropriate due process with respect to decisions made regarding their DPM allocations and will promote a fair and fully informed decision-making process.
Proposed Rule 8.15(e) provides that the allocation of a security to a DPM does not convey ownership rights in the allocation or in the order flow associated with the allocation. Proposed Rule 8.15(e) is intended to make clear that DPMs may not buy, sell, or otherwise transfer an allocation and that, instead, the Exchange has the sole authority to determine allocations. As discussed above, DPM appointments may only be transferred with Exchange approval pursuant to proposed Rule 8.14(g).
Proposed Rule 8.15(f) provides that in allocating and reallocating securities to DPMs, the Exchange will act in accordance with any limitation or restriction on the allocation of securities that is established pursuant to another Exchange Rule. For example, the Exchange may take remedial action against a DPM for failure to satisfy minimum market performance standards, and such action may involve a restriction related to the allocation of securities to that DPM. Similarly, the Exchange may place restrictions on a DPM's ability to receive or retain allocations of securities pursuant to various provisions of these proposed Rules, including as a condition of appointment as a DPM (proposed Rule 8.14(d)), due to failure to perform DPM functions (proposed Rule 8.20(a)(2)), or due to a material financial or operational change (proposed Rule 8.20)(a)(1)). Proposed Rule 8.15(f) is intended to make clear that the
Proposed Rule 8.15, Interpretation and Policy .01 generally provides that the Exchange may reallocate a security at the end of a DPM's one-year term, in the event that the security is removed pursuant to another Exchange Rule from the DPM to which the security has been allocated, or in the event that for some other reason the DPM to which the security has been allocated no longer retains the allocation. For example, at the end of a DPM's term, the Exchange may allocate the security to the same DPM again (if the DPM applied for its appointment to be renewed and the Exchange approved the renewal application), to another DPM, or to no DPM. As another example, as described above, the Exchange may take remedial actions against DPMs in specified circumstances, including the removal of an allocation. Proposed Rule 8.15, Interpretation and Policy .01 is intended to clarify that in the event the Exchange removes an allocation pursuant to Exchange Rules, the Exchange will reallocate the security pursuant to proposed Rule 8.15. The only exception to this provision is that the Exchange is authorized pursuant to proposed Rule 8.14(f) to allocate to an interim DPM on a temporary basis a security that is removed from another DPM until the Exchange has made a final allocation of the security. As with several other proposed Rules, this provision is intended allow the Exchange to ensure that there is sufficient liquidity in allocated classes despite changing circumstances.
Proposed Rule 8.16 allows the Exchange to establish (1) restrictions applicable to all DPMs on the concentration of securities allocable to a single DPM and to affiliated DPMs and (2) minimum eligibility standards applicable to all DPMs, which must be satisfied in order for a DPM to receive allocations of securities, including but not limited to standards relating to adequacy of capital and operational capacity (including number of personnel). Among the reasons for granting the Exchange the authority to limit the concentration of securities allocable to a single DPM and to affiliated DPMs is to promote competition in the Exchange's market and to help ensure that no DPM or group of affiliated DPMs is allocated such a large number of securities that it would be difficult for the Exchange to quickly reallocate those securities to other DPMs or Market-Makers in the event that for some reason the DPM or group of affiliated DPMs were no longer able to perform in that capacity. Among the reasons for granting the Exchange the authority to establish minimum eligibility standards for DPMs to receive allocations of securities is to help ensure that a DPM has the financial and operational ability to handle additional allocations of securities and meet its DPM obligations with respect to those securities. Similarly, the Exchange may utilize this proposed Rule to establish specific minimum market performance standards that must be satisfied by DPMs in order to receive allocations of securities so that a DPM that is not performing adequately with respect to the securities that have already been allocated to the DPM is not allocated additional securities.
Proposed Rule 8.17 describes the obligations of a DPM. Proposed Rule 8.17(a) includes the general obligation with respect to each of its allocated securities to fulfill all of the obligations of a Market-Maker under Exchange Rules in addition to the requirements set forth in this proposed Rule.
(1) To provide continuous quotes in at least the lesser of 99% of the non-adjusted option series (as defined in Rule 8.5(a)(1)) or 100% of the non-adjusted option series minus one call-put pair of each option class allocated to it, with the term “call-put pair” referring to one call and one put that cover the same underlying instrument and have the same expiration date and exercise price, and assure that its disseminated market quotations are accurate;
(2) to assure that each of its displayed market quotations are for the number of contracts required by Rule 8.6(a), “Market-Maker Firm Quotes”;
(3) to segregate in a manner prescribed by the Exchange (a) all transactions consummated by the DPM in securities allocated to the DPM and (b) any other transactions consummated by or on behalf of the DPM that are related to the DPM's DPM business;
(4) to not initiate a transaction for the DPM's own account that would result in putting into effect any stop or stop limit order that may be in the Book
(5) to ensure that a trading rotation is initiated promptly following the opening of the underlying security (or promptly after 8:30 a.m. Central Time in an index class) in accordance with Rule 6.11 in 100% of the series of each allocated class by entering opening quotes as necessary.
Proposed Rule 8.17(b) provides that a DPM may not represent discretionary orders as an agent in its allocated classes.
Proposed Rule 8.17(c) lists additional obligations of a DPM, including that a DPM must:
(1) Resolve disputes relating to transactions in the securities allocated to the DPM, subject to Exchange official review, upon the request of any party to the dispute;
(2) make competitive markets on the Exchange and otherwise promote the Exchange in a manner that is likely to enhance the ability of the Exchange to compete successfully for order flow in the classes it trades;
(3) promptly inform the Exchange of any material change in the financial or operational condition of the DPM;
(4) supervise all persons associated with the DPM to assure compliance with the Exchange Rules;
(5) segregate in a manner prescribed by the Exchange the DPM's business and activities as a DPM from the DPM's other business and activities;
(6) continue to act as a DPM and to fulfill all of the DPM's obligations as a DPM until its DPM appointment has lapsed, the Exchange relieves the DPM
Proposed Rule 8.17(d) provides that each person associated with a DPM will be obligated to comply with the provisions of proposed Rule 8.17(a) through (c) when acting on behalf of the DPM.
Proposed Rule 8.17(e) provides that each DPM must hold the number of Trading Permits as may be necessary based on the aggregate “registration cost” for the classes allocated to the DPM. Each Trading Permit held by the DPM has a registration cost of 1.0.
In the event a Participant approved as a DPM is also approved to act as a Market-Maker and has excess Trading Permit capacity above the aggregate registration cost for the classes allocated to it as the DPM, the Participant may utilize the excess Trading Permit capacity to quote in an appropriate number of classes in the capacity of a Market-Maker. For example, if the DPM has been allocated a number of option classes with an aggregate registration cost of 1.6, the Participant could request an appointment as a Market-Maker in any combination of option classes whose aggregate registration cost does not exceed 0.40. The Participant will not function as a DPM in any of these additional classes. In the event the Participant utilizes any excess Trading Permit capacity to quote in some additional classes as a Market-Maker, it must comply with the provisions of Rule 8.2.
Rule 8.17, Interpretation and Policy .01 clarifies that willingness of a DPM to promote the Exchange as a marketplace includes assisting in meeting and educating Participants (and taking the time for travel related thereto), maintaining communications with Participants in order to be responsive to suggestions and complaints, responding to suggestions and complaints, and other like activities.
The Exchange believes that these obligations will result in additional liquidity and competitive quoting in the allocated classes on C2's market, which could ultimately lead to additional order flow directed to the Exchange. The Exchange believes that these obligations will strengthen its market and are reasonable given the benefits conferred upon DPMs in exchange for these heightened obligations in the form of a participation entitlement, as discussed further below.
Proposed Rule 8.18 requires each DPM to maintain net liquidating equity in its DPM account of not less than $100,000. It also requires each DPM to maintain net capital sufficient to comply with the requirements of Rule 15c3–1 under the Act and requires each DPM that is a Clearing Participant
Rule 6.12 sets forth how the System prioritizes orders for execution purposes. Rule 6.12(a)(3) provides that the Exchange may prioritize orders using a price-time priority with primary priority for public customers and secondary priority for certain trade participation rights. Proposed Rule 8.19 grants to DPMs a trade participation right. Proposed Rule 8.19(a) gives the Exchange authority to determine the appropriate participation right for DPMs by providing that the Exchange, subject to review by the Exchange Board of Directors, may establish from time to time a participation entitlement formula that is applicable to all DPMs.
Proposed Rule 8.19(b)(1) provides that: (1) A DPM will be entitled to a participation entitlement only if quoting at the best bid or offer disseminated on the Exchange (“BBO”); (2) a DPM may not be allocated a total quantity greater than the quantity that the DPM is quoting at the BBO; and (3) the participation entitlement is based on the number of contracts remaining after all public customer orders in the Book at the BBO have been satisfied.
Proposed Rule 8.19(b)(2) provides that the collective DPM participation entitlement shall be: 50% when there is one Market-Maker also quoting at the BBO and 40% when there are two or more Market-Makers also quoting at the BBO. If only the DPM is quoting at the BBO (with no Market-Makers quoting at the BBO), the participation entitlement will not be applicable and the allocation procedures under Rule 6.12 will apply.
Proposed Rule 8.19(b)(3) provides that a DPM will not receive its participation entitlement in trades for which a Preferred Market-Maker (“PMM”) already received a participation entitlement pursuant to Rule 8.13, based on the priority determination made by the Exchange under Rule 6.12. This provision clarifies that only one trade participation right may be applied to the same trade (see the discussion of the proposed rule change to Rule 6.12(a) below). For example, if the Exchange has activated both a PMM participation right and DPM participation right in a class and determines under Rule 6.12 that a PMM has higher priority than a DPM, and a PMM receives its participation entitlement for a trade, then a DPM may not receive its participation entitlement for that trade.
Proposed Rule 8.19, Interpretation and Policy .01 provides that the Exchange may also establish a lower
The Exchange believes that DPMs will play an important role in providing additional liquidity and more price competition because of the obligations imposed on DPMs by the proposed Rules, as discussed above. The Exchange also believes that the proposed participation entitlement, which DPMs may receive only when quoting at the best price, is an appropriate reward for DPMs' satisfaction of their DPM obligations, particularly given the overall benefit to the Exchange's market and customers that the additional DPM liquidity will create. Further, the Exchange believes that the limited percentage of the participation entitlement still provides other market participants with opportunities to be allocated a significant number of contracts in trades in which a DPM receives its participation entitlement. Similarly, the Exchange believes it is appropriate to only allow a PMM or DPM to receive its participation entitlement for a trade to further ensure that these opportunities are available to other market participants in classes with a DPM or PMM. While the Exchange believes that DPMs will add liquidity to the benefit of the market and customers, it is still important for all market participations to engage in price competition on the Exchange. This participation entitlement is part of the Exchange's careful balancing of the rewards and obligations of all types of Exchange Participants, which is part of the overall market structure designed to encourage vigorous price competition among Market-Makers, while still maximizing the benefits or price competition resulting from the entry of customer and non-customer orders, while encouraging Participants to provide market depth.
Proposed Rule 8.20 governs the termination, conditioning, and limiting of approval to act as a DPM. Rule 8.20(a) provides that the Exchange may terminate, place conditions upon, or limit a Participant's approval to act as a DPM if the Participant: (1) Incurs a material financial or operational; (2) fails to comply with any requirements under Exchange Rules regarding DPM obligations and responsibilities; or (3) is no longer eligible to act as DPM or be allocated a particular security or securities. Proposed Rule 8.20(a) also provides that before the Exchange may take any action to terminate, condition, or otherwise limit a Participant's approval to act as a DPM, the Participant will be given notice of such possible action and an opportunity to present any matter that it wishes the Exchange to consider in determining whether to take such action. These proceedings will be conducted in the same manner as the Exchange proceedings concerning DPM approvals described above.
Proposed Rule 8.20(b) provides an exception to this provision, which grants authority to the Exchange to immediately terminate, condition, or otherwise limit a Participant's approval to act as a DPM if the DPM incurs a material financial or operational warranting immediate action or if the DPM fails to comply with any of the financial requirements applicable to DPMs.
In addition, proposed Rule 8.20(c) provides that limiting a Participant's approval to act as a DPM may include, among other things, limiting or withdrawing a DPM's participation entitlement and withdrawing a DPM's right to act as DPM in one or more of its allocated securities.
As discussed above, it is important for the Exchange to have the sole authority to approve a Participant to act as a DPM (and allocate securities to a DPM) to ensure that the Participant is able to satisfy DPM obligations and perform DPM functions. Similarly, the Exchange needs authority to terminate, condition, or limit a DPM's approval when necessary to incentive DPMs to meet their DPM obligations and responsibilities in order to continue to receive the corresponding DPM benefits provided for in the proposed DPM Rules. In addition, if any of the circumstances set forth in proposed Rule 8.20(a) occurs, the Exchange's authority to terminate, condition, or limit a DPM's approval, and appoint another DPM if necessary (in the interim or permanently as discussed above), is essential to provide for uninterrupted DPM quoting in appointed classes and prevent any reduced liquidity in the DPM's allocated class that could otherwise result under these circumstances.
Proposed Rule 8.20(d) provides that if a Participant's approval to act as a DPM is terminated, conditioned, or otherwise limited by the Exchange pursuant to proposed Rule 8.20, the Participant may appeal that decision to the Appeals Committee under Chapter 19. Additionally, as is described above, these appeal procedures provide for the right to a formal Appeals Committee hearing concerning any such decision, and the decision of the Appeals Committee may be appealed to the Board of Directors. The advanced notice and appeal procedures are intended to ensure that DPMs receive appropriate due process with respect to their approvals to act as DPMs, as discussed above.
Proposed Rule 8.21 provides that a DPM must maintain information barriers that are reasonably designed to prevent the misuse of material, non-public information with any affiliates that may conduct a brokerage business in option classes allocated to the DPM or act as a specialist or market-maker in any security underlying options allocated to the DPM, and otherwise comply with the requirements of CBOE Rule 4.18 (which is incorporated into the Exchange Rules) regarding the misuse of material non-public information. A DPM must provide its information barriers to the Exchange and obtain prior written approval. This provision is meant to prevent a Participant's non-DPM businesses from obtaining any benefits as a result of the Participant's status as a DPM.
The proposed rule change amends Rule 6.12 to ensure that the Exchange's order execution and priority rule contemplates a participation entitlement for DPMs. The proposed rule change provides that both PMMs and DPMs may be granted participation rights up to the applicable participation right percentage designated in Rule 8.13 and 8.19, respectively. The Exchange may activate more than one trade participation right for an option class (including at different priority sequences), however in no case may more than one trade participation right be applied on the same trade.
The proposed rule change also amends Rule 6.12 to add paragraph (b)(2), which will provide for an additional priority overlay for small orders that can be applied to each of the three matching algorithms. If the small order priority overlay is in effect for an option class,
• Orders for five contracts or fewer will be executed first by the DPM that is appointed to the option class; provided, however, that, on a quarterly basis, the Exchange will evaluate what percentage of the volume executed on the Exchange (excluding volume resulting from the execution of orders in C2's Automated Improvement Mechanism (“AIM”)—see Rule 6.51) is comprised of orders for five contracts or fewer executed by DPMs, and will reduce the size of the orders included in this provision if this percentage is over 40%.
• This procedure will only apply to the allocation of executions among non-customer orders and Market-Maker quotes existing in the Book at the time the Exchange receives the order. No market participant will be allocated any portion of an execution unless it has an existing interest at the execution price. Moreover, no market participant will be able to execute a greater number of contracts than is associated with the price of its existing interest. As a result, the small order preference contained in this allocation procedure will not be a guarantee; the DPM (1) must be quoting at the execution price to receive an allocation of any size, and (2) cannot execute a greater number of contracts than the size that is associated with its quote.
• If a PMM is not quoting at a price equal to the national best bid or offer (the “NBBO”) at the time a preferred order is received, the allocation procedure for small orders described above will be applied to the execution of the preferred order (i.e., it will be executed first by the DPM). If a PMM is quoting at the NBBO at the time the preferred order is received, the allocation procedure in place for all other sized orders in the class will be applied to the execution of the preferred order, except that any Market Turner status will not apply (e.g., if the default matching algorithm is price-time with a public customer and participation entitlement overlay, the order will execute first against any public customer orders, then the PMM would receive its participation entitlement, then the remaining balance would be allocated on a price-time basis).
• The small order priority overlay will only be applicable to automatic executions and will not be applicable to any auctions.
Lastly, like the existing priority overlays, the small order priority overlay is optional. The Exchange will announce all determinations under this Rule by Regulatory Circular.
As described above, the Exchange believes that because DPMs will have unique obligations to the C2 market,
C2 considered this small order priority overlay as part of its balancing of DPM obligations and benefits described above and believes this priority overlay, which includes participation rights for DPMs only when they are quoting at the best price, helps strike an appropriate balance of these obligations and benefits.
The proposed rule change amends Rule 1.1 to define the term “BBO” as the best bid or offer disseminated on the Exchange. The Exchange proposes to include this definition to clarify its meaning in the Exchange Rules because the term is used throughout the proposed DPM Rules as well as other Exchange Rules.
The proposed rule change also amends Rule 17.50(g)(14) to add DPM quoting obligations to the Exchange's Minor Rule Violation Plan (“MRVP”) provision regarding C2 Market-Maker quoting obligations. This will allow the Exchange to impose sanctions upon DPMs for failing to meet their quoting obligations pursuant to the MRVP, as it does for Market-Makers and PMMs. C2 believes these violations are suitable for inclusion in the MRVP because they are generally technical in nature, allowing C2 to carry out its regulatory responsibilities more quickly and efficiently with respect to Market-Maker quoting obligations. For violations of DPM's quoting obligations, the Exchange may assess fines ranging from $2,000 to $4,000 for a first offense and $4,000 to $5,000 for a second offense, and may assess a fine of $5,000 or refer to C2's Business Conduct Committee any subsequent offenses. The Exchange notes that these fine amounts are the same as the amounts currently imposed on Market-Makers for violations of their quoting obligations under the MRVP.
C2 will maintain internal guidelines that dictate the sanctions that will be imposed for a particular violation (based on the degree of the violation). As with all other violations in C2's MRVP, C2
The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.
In particular, the Exchange believes that adopting a DPM program will protect investors and the public interest, because it will help generate greater order flow for the Exchange in appointed classes and provide additional incentives for DPMs to trade with that order flow, which in turn adds depth and liquidity to C2's market and ultimately benefits all market participants. The Exchange believes this deeper liquidity will make C2 more competitive with other markets that trade those classes, which will also help remove impediments to and perfect the mechanism for a free and open market.
Additionally, the Exchange believes that adopting a DPM program will promote just and equitable principles of trade, as it will require DPMs to assist in the maintenance of a fair and orderly market, as reasonably practicable, and maintain net capital consistent with federal requirements for market-makers. These proposed Rules impose many obligations on DPMs, including continuous two-sided quoting obligations, which will ensure that DPMs provide significant liquidity in their allocated classes to the benefit of all C2 market participants, and operational capacity requirements, which will ensure that DPMs are capable of carrying out their obligations, as well as eligibility requirements and market performance standards. The proposed Rules also allow the Exchange to impose conditions on DPMs or their allocations to further ensure that DPMs are providing appropriate depth and liquidity in their allocated classes.
In light of these obligations, the Exchange also proposed to provide DPMs with the benefit of a participation entitlement that may receive higher priority for trades than other Participants, subject to the requirements set forth in proposed Rule 8.19(b)(1), as well as a small order priority overlay, subject to the requirements set forth in proposed Rule 6.12(b)(2). While these trade priorities may reduce the number of contracts that other Participants may execute in trades in which the DPM participation entitlement, or small order priority overlay is applied, the Exchange believes this fact is outweighed by the benefit of the additional liquidity and more competitive pricing that DPMs will provide to the market in their appointed classes, ultimately resulting in a net benefit to Exchange customers. These trade priorities are part of the balancing of C2's overall market structure, which is designed to encourage vigorous price competition between Market-Makers on the Exchange, as well as maximize the benefits of price competition resulting from the entry of customer and non-customer orders, while encouraging Participants to provide market depth. Therefore, the Exchange believes the obligations proposed to be imposed on DPMs are offset by the benefits proposed to be conferred upon DPMs.
In addition, the Exchange believes that the approval and allocation procedures and policies will ensure that Participants are approved to act as DPMs and securities traded on the Exchange are allocated in an equitable manner, and that all DPMs will have a fair opportunity for approvals and allocations based on established criteria and procedures. The proposed rules that give the Exchange the authority to terminate, limit, or condition DPM approvals or reallocate securities will allow the Exchange to ensure that its market maintains an uninterrupted high level of liquidity for customers in allocated classes, even when unusual or changing market circumstances exist. Further, the Exchange believes that the advanced notice provisions and appeal procedures that the proposed rules put in place for all determinations made by the Exchange with respect to DPM approvals and allocations, including termination and reallocation decisions, are reasonable procedures that will create a fair and equitable decision-making process with respect to DPMs.
The Exchange believes the proposed rule change to add violations of DPM quoting obligation to C2's MRVP will strengthen C2's ability to carry out its regulatory responsibilities as a self-regulatory organization pursuant to the Act and reinforce its surveillance and enforcement functions.
The Exchange believes that adding the definition of BBO to the Rules protects investors and the public interest, as it clarifies the meaning of this term, which is used throughout the proposed DPM Rules and other Exchange Rules, for investors.
Finally, the Exchange believes that the proposed rule change is consistent with the requirements of the Act because, as the Exchange notes above, the proposed requirements for DPMs are based primarily on existing requirements for DPMs on another exchange (CBOE).
C2 does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
The Exchange neither solicited nor received comments on the proposed rule change.
Within 45 days of the date of publication of this notice in the
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule change should be disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Federal Railroad Administration (FRA), U.S. Department of Transportation (DOT).
Notice of intent to extend the formal comment period for scoping to October 19, 2012.
FRA is issuing this Notice of Intent (Notice) to advise the public and Federal, state, and local agencies of the extension of the formal comment period for the NEC FUTURE program scoping process. The Notice of Intent to prepare a Tier 1 Environmental Impact Statement (EIS) to evaluate potential passenger rail improvements between Washington, DC, New York City, and Boston, MA was published in the
Comment period extended from Friday, September 14, 2012 to Friday, October 19, 2012.
Interested parties are encouraged to comment on-line at the NEC FUTURE Web site (
FRA is leading the planning and environmental evaluation of the Northeast Corridor (NEC) in close coordination with the involved states, Northeast Corridor Infrastructure and Operations Advisory Commission (NEC Commission), Amtrak, and other stakeholders. The purpose of the NEC FUTURE program is to define current and future markets for improved rail service and capacity on the NEC, develop an integrated passenger rail transportation solution to incrementally meet those needs, and create a regional planning framework to engage stakeholders throughout the region in the development of the program.
The materials that were presented at the Scoping meetings held from August 13th to August 22nd, including a narrated PowerPoint presentation and display boards, will be available on the NEC FUTURE Web site (
Federal Transit Administration, DOT.
Notice of meeting.
This notice announces a public meeting of the Transit Rail Advisory Committee for Safety (TRACS). TRACS is a Federal Advisory Committee established by the Secretary of Transportation in accordance with the Federal Advisory Committee Act to provide information, advice, and recommendations to the Secretary and the Federal Transit Administrator on matters relating to the safety of public transportation systems.
The TRACS meeting will be held on September 20, 2012, from 8:30 a.m. to 5 p.m., and September 21, 2012, from 8:30 a.m. to 12:00 p.m. Contact Iyon Rosario (see contact information below) by September 13, 2012, if you wish to be added to the visitor's list to gain access to the Washington Navy Yard Conference Center.
The meeting will be held at the Washington Navy Yard Conference Center (Navy Yard), Building 211, 1454 Parsons Avenue SE., Washington, DC 20374. Attendees who are on the visitor's/security list can access all three gates (6th St, 9th St, 11th St) by presenting a photo ID to gain entrance to the Navy Yard. The gate in closest
This notice is provided in accordance with the Federal Advisory Committee Act (Pub. L. 92–463, 5 U.S.C. App. 2). As noted above, TRACS is a Federal Advisory Committee established to provide information, advice, and recommendations to the Secretary of Transportation and the Administrator of the Federal Transit Administration (FTA) on matters relating to the safety of public transportation systems. TRACS is composed of 24 members representing a broad base of expertise necessary to discharge its responsibilities. The first meeting of TRACS was held on September 9–10, 2010, the second meeting of TRACS was held on April 27–28, 2011, and the third meeting of TRACS was held on February 23–24, 2012. The tentative agenda for the fourth meeting of TRACS is set forth below:
As previously noted, this meeting will be open to the public; however, the Navy Yard is a secured facility and persons wishing to attend must contact Iyon Rosario, Office of Safety and Security, Federal Transit Administration, (202) 366–2010; or at
National Advisory Council public meeting.
The Maritime Administration announces that the Marine Transportation System National Advisory Council (MTSNAC) will hold a meeting to discuss preliminary recommendations that have been developed by the Shipbuilding Subcommittee to support increased efficiency in vessel financing mechanisms and provide adequate ship capacity for marine highway services.
The meeting will be held on Friday, September 21, 2012, from 11:00 a.m.–1:00 p.m. (EDT).
The meeting will be conducted in a webinar format. To access the webinar, please contact Richard Lolich at the Maritime Administration as indicated below.
Richard Lolich, (202) 366–0704; Maritime Administration, MAR–540, Room W21–310, 1200 New Jersey Ave. SE., Washington, DC 20590–0001;
5 U.S.C. App 2, Sec. 9(a)(2); 41 CFR 101–6. 1005; DOT Order 1120.3B.
Maritime Administration, Department of Transportation.
Notice.
As authorized by 46 U.S.C. 12121, the Secretary of Transportation, as represented by the Maritime Administration (MARAD), is authorized to grant waivers of the U.S.-build requirement of the coastwise laws under certain circumstances. A request for such a waiver has been received by MARAD. The vessel, and a brief description of the proposed service, is listed below.
Submit comments on or before October 9, 2012.
Comments should refer to docket number MARAD–2012–0086. Written comments may be submitted by hand or by mail to the Docket Clerk, U.S. Department of Transportation, Docket Operations, M–30, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE., Washington, DC 20590. You may also send comments electronically via the Internet at
Linda Williams, U.S. Department of Transportation, Maritime Administration, 1200 New Jersey Avenue SE., Room W23–453, Washington, DC 20590. Telephone 202–366–0903, Email
As described by the applicant the intended service of the vessel SOTITO is:
The complete application is given in DOT docket MARAD–2012–0086 at
Anyone is able to search the electronic form of all 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 DOT's complete Privacy Act Statement in the
By Order of the Maritime Administrator.
National Highway Traffic Safety Administration, Department of Transportation.
Grant of Petitions.
This document announces decisions by NHTSA that certain motor vehicles not originally manufactured to comply with all applicable Federal Motor Vehicle Safety Standards (FMVSS) are eligible for importation into the United States because they are substantially similar to vehicles originally manufactured for sale in the United States and certified by their manufacturers as complying with the safety standards, and they are capable of being readily altered to conform to the standards or because they have safety features that comply with, or are capable of being altered to comply with, all applicable FMVSS.
These decisions became effective on the dates specified in Annex A.
George Stevens, Office of Vehicle Safety Compliance, NHTSA (202–366–5308).
Under 49 U.S.C. 30141(a)(1)(A), a motor vehicle that was not originally manufactured to conform to all applicable FMVSS shall be refused admission into the United States unless NHTSA has decided that the motor vehicle is substantially similar to a motor vehicle originally manufactured for importation into and/or sale in the United States, certified under 49 U.S.C. 30115, and of the same model year as the model of the motor vehicle to be compared, and is capable of being readily altered to conform to all applicable FMVSS.
Where there is no substantially similar U.S.-certified motor vehicle, 49 U.S.C. 30141(a)(1)(B) permits a nonconforming motor vehicle to be admitted into the United States if its safety features comply with, or are capable of being altered to comply with, all applicable FMVSS based on destructive test data or such other evidence as NHTSA decides to be adequate.
Petitions for eligibility decisions may be submitted by either manufacturers or importers who have registered with NHTSA pursuant to 49 CFR Part 592. As specified in 49 CFR 593.7, NHTSA publishes notice in the
NHTSA received petitions from registered importers to decide whether the vehicles listed in Annex A to this notice are eligible for importation into the United States. To afford an opportunity for public comment, NHTSA published notice of these petitions as specified in Annex A. The reader is referred to those notices for a thorough description of the petitions.
49 U.S.C. 30141(a)(1)(A), (a)(1)(B) and (b)(1); 49 CFR 593.8; delegations of authority at 49 CFR 1.50 and 501.8.
Because there are no substantially similar U.S.-certified version Right-Hand Drive 2000–2003 Jeep Wrangler Multi-Purpose Passenger Vehicles the petitioner sought import eligibility under 49 U.S.C. 30141(a)(1)(B).
Because there are no substantially similar U.S.-certified version 2005 Ifor Williams LM85G Trailers the petitioner sought import eligibility under 49 U.S.C. 30141(a)(1)(B).
Because there are no substantially similar U.S.-certified version 1987–1994 ALPINA Burkard Bovensiepen GmbH B11 Sedan Model Passenger Cars the petitioner sought import eligibility under 49 U.S.C. 30141(a)(1)(B).
Union Pacific Railroad Company (UP) has filed a verified notice of exemption under: (1) 49 CFR 1180.2(d)(1) to acquire and operate over San Pedro Railroad Operating Company, LLC's (SPROC) line segments between MP 1040.15 at Curtiss, Ariz., and MP 1041.32 near Curtiss (Parcel 1), and between MP 1071.16 and MP 1084 at Naco, Ariz. (Parcel 2), and to acquire all of SPROC's property rights, including SPROC's freight operating easement, in a line segment between MP 1041.32 and MP 1071.16 (Parcel 3),
The earliest this transaction may be consummated is September 22, 2012, the effective date of the exemption (30 days after the exemption was filed).
According to UP, the purpose of assuming the rail operations over Parcels 1, 2, and 3, and acquiring the overhead trackage rights over the Leased Line is to maintain continuity of railroad service on the Curtiss Branch Line and preserve the Curtiss Branch Line for future and improved railroad service. UP states that acquiring the overhead trackage rights over the Leased Line would also provide the connection necessary for UP to serve and operate the southern portion of the Curtiss Branch Line.
In support of the exemption filed under § 1180.2(d)(1), UP states the Board previously granted SPROC the authority to abandon Parcels 1, 2, and 3, and that UP's acquisition of, and authority to operate over, those portions would not constitute a major market extension for UP because: (1) The Curtiss Branch Line does not extend to the international border with Mexico; (2) the Curtiss Branch Line is not in or near any major commercial markets or rail routes; (3) except for the Leased Line, the entire Curtiss Branch Line was approved for abandonment by the Board; and (4) UP currently retains real property ownership of the majority of the right-of-way that makes up the Curtiss Branch Line. In support of the exemption filed under § 1180.2(d)(7), the overhead trackage rights sought by UP over the Leased Line are based on a written agreement and such rights were neither filed nor sought by UP in a responsive application in a rail consolidation proceeding.
The acquisition exemption is subject to the conditions for the protection of railroad employees in
If the notice contains false or misleading information, the exemption is void
An original and 10 copies of all pleadings, referring to Docket No. FD 35666, must be filed with the Surface Transportation Board, 395 E Street SW., Washington, DC 20423–0001. In addition, a copy of each pleading must be served on Mack H. Shumate, Jr., Union Pacific Railroad Company, Law Department, 101 North Wacker Drive, Room 1920, Chicago, IL 60606.
Board decisions and notices are available on our Web site at
By the Board, Richard Armstrong, Acting Director, Office of Proceedings.
The Department of Veterans Affairs (VA) gives notice under Public Law 92–463 (Federal Advisory Committee Act) that the Advisory Committee on Disability Compensation will meet on September 17–18, 2012, at the Veterans Health Administration National Conference Center, 2011 Crystal Drive, Suite 150A, Arlington, Virginia. The sessions will begin at 8:30 a.m. and end at 4 p.m. each day. The meeting is open to the public.
The purpose of the Committee is to advise the Secretary of Veterans Affairs on the maintenance and periodic readjustment of the VA Schedule for Rating Disabilities. The Committee is to assemble and review relevant information relating to the nature and character of disabilities arising during service in the Armed Forces, provide an ongoing assessment of the effectiveness of the rating schedule, and give advice on the most appropriate means of responding to the needs of Veterans relating to disability compensation.
The Committee will receive briefings on issues related to compensation for Veterans with service-connected disabilities and other VA benefits programs. Time will be allocated for receiving public comments in the afternoon. Public comments will be limited to three minutes each. Individuals wishing to make oral statements before the Committee will be accommodated on a first-come, first-served basis. Individuals who speak are invited to submit 1–2 page summaries of their comments at the time of the meeting for inclusion in the official meeting record.
The public may submit written statements for the Committee's review to Sarah Fusina, Esq., Designated Federal Officer, Department of Veterans Affairs, Veterans Benefits Administration, Compensation Service, Regulation Staff (211D), 810 Vermont Avenue NW., Washington, DC 20420 or email at
By direction of the Secretary.
Department of Veterans Affairs.
Notice.
Section 17.101 of Title 38 of the Code of Federal Regulations sets forth the Department of Veterans Affairs (VA) medical regulations concerning “Reasonable Charges” for medical care or services provided or furnished by VA to a veteran:
The regulations include methodologies for establishing billed amounts for the following types of charges: Acute inpatient facility charges; skilled nursing facility/sub-acute inpatient facility charges; partial hospitalization facility charges; outpatient facility charges; physician and other professional charges, including professional charges for anesthesia services and dental services; pathology and laboratory charges; observation care facility charges; ambulance and other emergency transportation charges; and charges for durable medical equipment, drugs, injectables, and other medical services, items, and supplies identified by Healthcare Common Procedure Coding System (HCPCS) Level II codes. The regulations also provide that data for calculating actual charge amounts at individual VA facilities based on these methodologies will either be published in a notice in the
When charges for medical care or services provided or furnished at VA expense by either VA or non-VA providers have not been established under other provisions of the regulations, the method for determining VA's charges is set forth at 38 CFR 17.101(a)(8).
Romona Greene, Chief Business Office (10NB6), Veterans Health Administration, Department of Veterans Affairs, 810 Vermont Avenue NW., Washington, DC 20420, (202) 461–1595. (This is not a toll free number.)
Of the charge types listed in the
Based on the methodologies set forth in 38 CFR 17.101(b), this document provides an update to acute inpatient charges that were based on 2012 Medicare severity diagnosis related groups (MS–DRGs). Acute inpatient facility charges by MS–DRGs are set forth in Table A and are posted on the Internet site of the VHA Chief Business Office, currently at
Also, this document provides for an updated all-inclusive per diem charge for skilled nursing facility/sub-acute inpatient facility charge using the methodologies set forth in 38 CFR 17.101(c), and it is adjusted by a geographic area factor based on the location where the care is provided (See Table “N” Acute Inpatient and Table “O” SNF geographic factors found on the Web site under “Reasonable Charges Data Tables”). The skilled nursing facility/sub-acute inpatient facility per diem charge is set forth in Table B and is posted on the Internet site of the VHA Chief Business Office, currently at
The charges in this update for acute inpatient facility and skilled nursing facility/sub-acute inpatient facility services are effective October 1, 2012.
In this update, we are retaining the table designations used for acute inpatient facility charges by MS–DRGs which is posted on the Internet site of the VHA Chief Business Office, currently at
The list of data sources presented in Supplementary Table 1 will be posted on the Internet site of the VHA Chief Business Office, currently at
We have also updated the list of VA medical facility locations. As a reminder, in Supplementary Table 3 posted on the internet site of the VHA Chief Business Office, currently at
Consistent with VA's regulations, the updated data tables and supplementary tables containing the changes described in this notice will be posted on the Internet site of the VHA Chief Business Office, “Reasonable Charges (Rates) Information” page currently at
Bureau of Consumer Financial Protection.
Proposed rule with request for public comment.
The Bureau of Consumer Financial Protection is publishing for public comment a proposed rule amending Regulation Z (Truth in Lending) to implement amendments to the Truth in Lending Act (TILA) made by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The proposal would implement statutory changes made by the Dodd-Frank Act to Regulation Z's current loan originator compensation provisions, including a new additional restriction on the imposition of any upfront discount points, origination points, or fees on consumers under certain circumstances. In addition, the proposal implements additional requirements imposed by the Dodd-Frank Act concerning proper qualification and registration or licensing for loan originators. The proposal also implements Dodd-Frank Act restrictions on mandatory arbitration and the financing of certain credit insurance premiums. Finally, the proposal provides additional guidance and clarification under the existing regulation's provisions restricting loan originator compensation practices, including guidance on the application of those provisions to certain profit-sharing plans and the appropriate analysis of payments to loan originators based on factors that are not terms but that may act as proxies for a transaction's terms.
Comments must be received on or before October 16, 2012, except for comments on the Paperwork Reduction Act analysis in part IX of this document, which must be received on or before November 6, 2012.
You may submit comments, identified by Docket No. CFPB–2012–0037 or RIN 3170–AA13, by any of the following methods:
•
•
All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or Social Security numbers, should not be included. Comments will not be edited to remove any identifying or contact information.
Daniel C. Brown and Michael G. Silver, Counsels; Krista P. Ayoub and R. Colgate Selden, Senior Counsels; Paul Mondor, Senior Counsel & Special Advisor; Charles Honig, Managing Counsel: Office of Regulations, at (202) 435–7700.
The mortgage market crisis focused attention on the critical role that loan officers and mortgage brokers play in the loan origination process. Because consumers generally take out only a few home loans over the course of their lives, they often rely heavily on loan officers and brokers to guide them. But prior to the crisis, training and qualification standards for loan originators varied widely, and compensation was frequently structured to give loan originators strong incentives to steer consumers into more expensive loans. Often, consumers paid loan originators an upfront fee without realizing that their creditors also were paying the loan originators commissions that increased with the price of the loan.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
The Bureau is also proposing rules to implement a new Dodd-Frank Act requirement that appears to be designed to address broader consumer confusion about the relationship between certain upfront charges and loan interest rates. Specifically, for mortgage loans in which a brokerage firm or creditor pays a loan originator a transaction-specific commission, the Dodd-Frank Act would ban the imposition on consumers of discount points, origination points, or other upfront origination fees that are retained by the creditor, broker, or an affiliate of either. Although bona fide upfront payments to independent appraisers or other third parties would still be permitted, the Act would require creditors in the vast majority of transactions in today's market to restructure their current pricing practices.
However, the Bureau is proposing to use its exception authority under the Dodd-Frank Act to allow creditors to continue making available loans with points and/or fees, so long as they also make available a comparable, alternative loan, as described below. The Bureau believes this approach would benefit consumers and industry alike. Making both options available would make it easier for consumers to evaluate different pricing options, while preserving their ability to make some upfront payments if they want to reduce their periodic payments over time. And the proposed approach would promote stability in the mortgage market, which would otherwise face radical restructuring of its existing pricing structures and practices to comply with the new Dodd-Frank Act requirement.
The proposed rule would generally require that, before a creditor or mortgage broker may impose upfront points and/or fees on a consumer in a closed-end mortgage transaction, the creditor must make available to the consumer a comparable, alternative loan with no upfront discount points, origination points, or origination fees that are retained by the creditor, broker, or an affiliate of either (a “zero-zero alternative”). The requirement would not be triggered by charges that are passed on to independent third parties that are not affiliated with the creditor or mortgage broker. The requirement
In transactions that do not involve a mortgage broker, the proposed rule would provide a safe harbor if, any time prior to application that the creditor provides a consumer an individualized quote for a loan that includes upfront points and/or fees, the creditor also provides a quote for a zero-zero alternative. In transactions that involve mortgage brokers, the proposed rule would provide a safe harbor under which creditors provide mortgage brokers with the pricing for all of their zero-zero alternatives. Mortgage brokers then would provide quotes to consumers for the zero-zero alternatives when presenting different loan options to consumers.
The Bureau is seeking comment on a number of related issues, including:
• Whether the Bureau should adopt as proposed a “bona fide” requirement to ensure that consumers receive value in return for paying upfront points and/or fees and, if so, the relative merits of several alternatives on the details of such a requirement;
• Whether additional adjustments to the proposal concerning the treatment of affiliate fees would make it easier for consumers to compare offers between two or more creditors;
• Whether to take a different approach concerning situations in which a consumer does not qualify for the zero-zero alternative; and
• Whether to require information about zero-zero alternatives to be provided not just in connection with informal quotes, but also in advertising and at the time that consumers are provided disclosures within three days after application.
The proposal would adjust existing rules governing compensation to loan officers and mortgage brokers in connection with closed-end mortgage transactions to account for the Dodd-Frank Act and to provide greater clarity and flexibility. Specifically, the proposal would:
• Continue the general ban on paying or receiving commissions or other loan originator compensation based on the terms of the transaction (other than loan amount), with some refinements:
○ The proposal would allow reductions in loan originator compensation to cover unanticipated increases in closing costs from non-affiliated third parties under certain circumstances.
○ The proposal would clarify when a factor used as a basis for compensation is prohibited as a “proxy” for a transaction term.
• Clarify and revise restrictions on pooled compensation, profit-sharing, and bonus plans for loan originators, depending on the potential incentives to steer consumers to different transaction terms.
○ The proposal would permit employers to make contributions from general profits derived from mortgage activity to 401(k) plans, employee stock plans, and other “qualified plans” under tax and employment law.
○ The proposal would permit employers to pay bonuses or make contributions to non-qualified profit-sharing or retirement plans from general profits derived from mortgage activity if either (1) the loan originator affected has originated five or fewer mortgage transactions during the last 12 months; or (2) the company's mortgage business revenues are limited. The Bureau is proposing two alternatives, 25 percent or 50 percent of total revenues, as the applicable test.
○ Even though contributions and bonuses could be funded from general mortgage profits, the amounts of such contributions and bonuses could not be based on the terms of the transactions that the individual had originated.
• Continue the general ban on loan originators being compensated by both consumers and other parties, with some refinements:
○ The proposal would allow mortgage brokerage firms that are paid by the consumer to pay their individual brokers a commission, so long as the commission is not based on the terms of the transaction.
○ The proposal would clarify that certain funds contributed toward closing costs by sellers, home builders, home-improvement contractors, or similar parties, when used to compensate a loan originator, are considered payments made directly to the loan originator by the consumer.
The proposal would implement a Dodd-Frank Act provision requiring both individual loan originators and their employers to be “qualified” and to include their license or registration numbers on certain specified loan documents.
• Where a loan originator is not already required to be licensed under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), the proposal would require his or her employer to ensure that the loan originator meets character, fitness, and criminal background check standards that are equivalent to SAFE Act requirements and receives training commensurate with the loan originator's duties.
• Employers would be required to ensure that their loan originator employees are licensed or registered under the SAFE Act where applicable.
• Employers and the individual loan originators that are primarily responsible for a particular transaction would be required to list their license or registration numbers on certain key loan documents.
The proposal would implement certain other Dodd-Frank Act requirements applicable to both closed-end and open-end mortgage credit:
• The proposal would ban general agreements requiring consumers to submit any disputes that may arise to mandatory arbitration rather than filing suit in court.
• The proposal would generally ban the financing of premiums for credit insurance.
• In the preamble below, the Bureau describes rule text that may be included in the final rule to implement a Dodd-Frank Act requirement that the Bureau require depository institutions to establish and maintain procedures to assure and monitor compliance with many of the requirements described above and the registration procedures established under the SAFE Act.
The mortgage market is the single largest market for consumer financial products and services in the United States, with approximately $10.3 trillion in loans outstanding.
The expansion in the market was driven, in part, by an era of low interest rates and rising house prices. Interest rates dropped significantly—by more than 20 percent—from 2000 through
Growth in the mortgage loan market was particularly pronounced in what are known as “subprime” and “Alt-A” products. Subprime products were sold primarily to borrowers with poor or no credit history, although there is evidence that some borrowers who would have qualified for “prime” loans were steered into subprime loans as well.
So long as housing prices were continuing to increase, it was relatively easy for borrowers to refinance their loans to avoid interest rate resets and other adjustments. When housing prices began to decline in 2005, refinancing became more difficult and delinquency rates on these subprime and Alt-A products increased dramatically.
Four years later, the United States continues to grapple with the fallout. Home prices are down 35 percent from the peak nationally, as the national market appears at or near its bottom.
Nevertheless, even with the economic downturn, approximately $1.28 trillion in mortgage loans were originated in 2011.
Consumers must go through a mortgage origination process to obtain a mortgage loan. There are many actors involved in a mortgage origination. In addition to the creditor and the consumer, a transaction may involve a mortgage broker, settlement agent, appraiser, multiple insurance providers, local government clerks and tax offices, and others. Purchase money loans involve additional parties such as sellers and real estate agents. These third parties typically charge fees or commissions for the services they provide.
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Both loan officers and mortgage brokers generally help consumers determine what kind of loan best suits their needs, and will take their
Mortgage loan pricing is an extremely complex process that involves a series of trade-offs for both the consumer and the creditor between upfront and long-term payments. Some of the costs that borrowers pay to close the loan—such as third-party appraisal fees, title insurance, taxes, etc.—are independent of the other terms of the loan. But costs that are paid to the creditor, broker, or affiliates of either company often vary in connection with the interest rate because the consumer can choose whether to pay more money up front (through discount points, origination points, or origination fees) or over time (through the interest rate, which drives monthly payments). Borrowers face a complex set of decisions around whether to pay upfront charges to reduce the interest rate they would otherwise pay and, if so, how much to pay in such charges to receive a specific rate reduction.
Thus, from the consumer's perspective, loan pricing depends on several elements:
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In practice, both discount points and origination points or fees are revenue to the lender and/or loan originator, and that revenue is fungible. The existence of two types of fees and the many names lenders use for origination fees—some of which may appear to be more negotiable than others—has the potential to confuse consumers.
Determining the appropriate trade-off between payments now and payments later requires a consumer to have a clear sense of how long he or she expects to stay in the home and in the particular loan. If the consumer plans to stay in the home for a number of years without refinancing, paying points to obtain a lower rate may make sense because the consumer will save more in monthly payments than he or she pays up front in discount points. If the consumer expects to move or refinance within a few years, however, then agreeing to pay a higher rate on the loan to reduce out of pocket expenses at closing may make sense because the consumer will save more up front than he or she will pay in increased monthly payments before moving or refinancing. There is a breakeven moment in time where the present value of a reduction/increase to the rate just equals the corresponding upfront points/credits. If the consumer moves or refinances earlier (in the case of discount points) or later (in the case of creditor rebates) than the breakeven moment, then the consumer will lose money compared to a consumer that neither paid discount points nor received creditor rebates.
The creditor's assessment of pricing—and in particular what different combinations of points, fees, and interest rates it is willing to offer particular consumers—is also driven by the trade-off between upfront and long-term payments. Creditors in general would prefer to receive as much money as possible up front, because having to wait for payments to come in over the life of the loan increases the level of risk. If consumers ultimately pay off a loan earlier than expected or cannot pay off a loan due to financial distress, the creditors will not earn the overall expected return on the loan.
One mechanism that has developed to manage this risk is the creation of the secondary market, which allows creditors to sell off their loans to investors, recoup the capital they have invested in the loans and recycle that capital into new loans. The investors then benefit from the payment streams over time, as well as bearing the risk of early payment or default. And the creditor can go on to make additional money from additional loans. Thus, although some banks and credit unions hold some loans in portfolio over time, many creditors prefer not to hold loans until maturity.
When a creditor sells a loan into the secondary market, the creditor is exchanging an asset (the loan) that
Secondary market mortgage prices are typically quoted as a multiple of the principal loan amount and are specific to a given interest rate. For illustrative purposes, at some point in time, a loan with an interest rate of 3.5 percent might earn 102.5 in the secondary market. This means that for every $100 in initial loan principal amount, the secondary market buyer will pay $102.50. Of that amount, $100 is to cover the principal amount and $2.50 is revenue to the creditor in exchange for the rights to the future interest payments on the loan.
In some cases, secondary market prices can actually be less than the principal amount of the loan. A price of 98.75, for example, means that for every $100 in principal, the selling creditor receives only $98.75. This represents a loss of $1.25 per $100 of principal just on the sale of the loan, before the creditor takes its expenses into account. This usually happens when the interest rate on the loan is below prevailing interest rates. But so long as discount points or other origination charges can cover the shortfall, the creditor will still make its expected return on the loan. The same style of pricing is used when correspondent lenders sell loans to acquiring creditors.
Discount points are also valuable to creditors (and secondary market investors) for another reason: Because payment of discount points signals the consumer's expectations about how long he or she expects to stay in the loan, they make prepayment risk easier to predict. The more discount points a consumer pays, the longer the consumer likely expects to keep the loan in place. This fact mitigates a creditor's or investor's uncertainty about how long interest payments can be expected to continue, which facilitates assigning a present value to the loan's yield and, therefore, setting the loan's price.
Prior to 2010, compensation for individual loan officers and mortgage brokers was also often calculated and paid as a premium above every $100 in principal. This was typically called a “yield spread premium.” The loan originator might keep the entire yield spread premium as a commission, or he or she might provide some of the yield spread premium to the borrower as a credit against closing costs.
While this system was in place, it was common for loan originator commissions to mirror secondary market pricing closely. The “price” that the creditor quoted to its brokers and loan officers was somewhat lower than the price that the creditor expected to receive from the secondary market—the creditor kept the difference as corporate revenue. However, the underlying mechanics of the secondary market flowed through to the loan originator's compensation. The higher the interest rate on the loan or the more in upfront charges the consumer pays to the creditor (or both), the greater the yield spread premium available to the loan originator. This created a situation in which the loan originator had a financial incentive to steer consumers into the highest interest rate possible or to impose on the consumer additional upfront charges payable to the creditor.
In a perfectly competitive and transparent market, competition would ensure that this incentive would be countered by the need to compete with other loan originators to offer attractive loan terms to consumers. However, the mortgage origination market is neither always perfectly competitive nor always transparent, and consumers (who take out a mortgage only a few times in their lives) may be uninformed about how prices work and what terms they can expect.
In the aftermath of the mortgage crisis, regulators and lawmakers began focusing on concerns about the steering of consumers into less favorable loan terms than those for which they otherwise qualified. Both the Board of Governors of the Federal Reserve System (Board) and the Department of Housing and Urban Development (HUD) had explored the use of disclosures to inform consumers about loan originator compensation practices. HUD did adopt a new disclosure regime under the Real Estate Settlement Procedures Act (RESPA), in a 2008 final rule, which addressed among other matters the
The Board in 2009 proposed new rules addressing in a more substantive fashion loan originator compensation practices.
Most notably, the Board's 2010 Loan Originator Final Rule substantially restricted the use of yield spread premiums. Under the current regulations, creditors may not base a loan originator's compensation on the transaction's terms or conditions, other than the mortgage loan amount. In addition, the rule prohibits “dual compensation,” in which a loan originator is paid compensation by both the consumer and the creditor (or any other person).
Congress enacted the Truth in Lending Act (TILA) based on findings that the informed use of credit resulting from consumers' awareness of the cost of credit would enhance economic stability and would strengthen competition among consumer credit providers. 15 U.S.C. 1601(a). One of the purposes of TILA is to provide meaningful disclosure of credit terms to enable consumers to compare credit terms available in the marketplace more readily and avoid the uninformed use of credit.
On August 26, 2009, as discussed above, the Board published proposed amendments to Regulation Z to include new limits on loan originator compensation for all closed-end mortgages (Board's 2009 Loan Originator Proposal). 74 FR 43232 (Aug. 26, 2009). The Board considered, among other changes, prohibiting certain payments to a mortgage broker or loan officer based on the transaction's terms or conditions, prohibiting dual compensation as described above, and prohibiting a mortgage broker or loan officer from “steering” consumers to transactions not in their interest, to increase mortgage broker or loan officer compensation. The Board issued the 2009 Loan Originator Proposal using its authority to prohibit acts or practices in the mortgage market that the Board found to be unfair, deceptive, or (in the case of refinancings) abusive under TILA section 129(
On September 24, 2010, the Board issued the 2010 Loan Originator Final Rule, which finalized the 2009 Loan Originator Proposal and included the above prohibitions. 75 FR 58509 (Sept. 24, 2010). The Board acknowledged, however, that further rulemaking would be required to address certain issues and adjustments made by the Dodd-Frank Act, which was signed on July 21, 2010.
The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) generally prohibits an individual from engaging in the business of a loan originator without first obtaining, and maintaining annually, a unique identifier from the Nationwide Mortgage Licensing System and Registry (NMLSR) and either a registration as a registered loan originator or a license and registration as a State-licensed loan originator. 12 U.S.C. 5103. Loan originators who are employees of depository institutions are generally subject to the registration requirement, which is implemented by the Bureau's Regulation G, 12 CFR part 1007. Other loan originators are generally subject to the State licensing requirement, which is implemented by the Bureau's Regulation H, 12 CFR part 1008, and by State law.
Effective July 21, 2011, the Dodd-Frank Act transferred rulemaking authority for TILA and the SAFE Act, among other laws, to the Bureau.
In addition, the Dodd-Frank Act generally codified, but in some cases imposed new or different requirements than, the Board's 2009 Loan Originator Proposal. Shortly after the legislation, the Board adopted the 2010 Loan Originator Final Rule, which prohibits loan originator compensation based on transactions' terms or conditions and compensation from both the consumer and another person, as discussed above. Those regulatory provisions were consistent with some aspects of the Dodd-Frank Act. In addition, the Dodd-Frank Act generally prohibits any person from requiring consumers to pay any upfront discount points, origination points, or fees, however denominated, where a mortgage originator is being paid transaction-specific compensation by any person other than the consumer (subject to the Bureau's express authority to make an exemption from the prohibition of such upfront charges if the Bureau finds such an exemption to be in the interest of consumers and the public).
In addition to this proposal, the Bureau currently is engaged in six other rulemakings relating to mortgage credit to implement requirements of the Dodd-Frank Act:
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The Bureau regards the foregoing rulemakings as components of a single, comprehensive undertaking; each of them affects aspects of the mortgage industry and its regulation that 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 comprehensive regulatory scheme for mortgage credit that achieves the statutory purposes set forth by Congress, while avoiding unnecessary burdens on industry.
Thus, the Bureau intends that the rulemakings listed above function collectively as a whole. In this context, each rulemaking may raise concerns that might appear unaddressed if that rulemaking were viewed in isolation. The Bureau intends, however, to address issues raised by its mortgage rulemakings through whichever rulemaking is most appropriate, in the Bureau's judgment, for addressing each specific issue. In some cases, the Bureau expects that one rulemaking may raise an issue and yet may not be the rulemaking that is most appropriate for
The Bureau conducted extensive outreach in developing the provisions in this proposed rule. Bureau staff met with and held in-depth conference calls with large and small bank and non-bank mortgage creditors, mortgage brokers, trade associations, secondary market participants, consumer groups, non-profit organizations, and State regulators. Discussions covered existing business models and compensation practices and the impact of the existing Loan Originator Rule. They also covered the Dodd-Frank Act provisions and the impact on consumers, loan originators, lenders, and secondary market participants of various options for implementing the statutory provisions. The Bureau developed several of the proposed clarifications of existing regulatory requirements in response to compliance inquiries and with input from industry participants.
In May 2012, the Bureau convened a Small Business Review Panel with the Chief Counsel for Advocacy of the Small Business Administration (SBA) and the Administrator of the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget (OMB).
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In addition, the Bureau held roundtable meetings with other Federal banking and housing regulators, consumer advocacy groups, and industry representatives regarding the Small Business Review Panel Outline. At the Bureau's request, many of the participants provided feedback, which the Bureau has considered in preparing this proposal.
The Bureau is issuing this proposed rule pursuant to its authority under TILA and the Dodd-Frank Act. On July 21, 2011, section 1061 of the Dodd-Frank Act transferred to the Bureau the “consumer financial protection functions” previously vested in certain other Federal agencies, including the Board. 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.” 12 U.S.C. 5581(a)(1). TILA and title X of the Dodd-Frank Act are Federal consumer financial laws. Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14) (defining “Federal consumer financial law” to include the “enumerated consumer laws” and the provisions of title X of the Dodd-Frank Act); Dodd-Frank Act section 1002(12), 12 U.S.C. 5481(12) (defining “enumerated consumer laws” to include TILA). Accordingly, the Bureau has authority to issue regulations pursuant to TILA, as well as title X of the Dodd-Frank Act.
As amended by the Dodd-Frank Act, TILA section 105(a), 15 U.S.C. 1604(a), directs the Bureau to prescribe regulations to carry out the purposes of TILA, and provides that such regulations may contain additional requirements, classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for all or any class of transactions, that the Bureau judges are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance. The purpose of TILA is “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit.” TILA section 102(a); 15 U.S.C. 1601(a). These stated purposes are tied to Congress's finding that “economic stabilization would be enhanced and the competition among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit.” TILA section 102(a). Thus, strengthened competition among financial institutions is a goal of TILA, achieved through the effectuation of TILA's purposes. In addition, TILA section 129B(a)(2) establishes a purpose of TILA sections 129B and 129C to “assure consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive or abusive.” 15 U.S.C. 1639b(a)(2).
Historically, TILA section 105(a) has served as a broad source of authority for rules that promote the informed use of credit through required disclosures and substantive regulation of certain practices. However, Dodd-Frank Act section 1100A clarified the Bureau's section 105(a) authority by amending that section to provide express authority to prescribe regulations that contain “additional requirements” that the Bureau finds are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance. This amendment clarified the authority to exercise TILA section 105(a) to prescribe requirements beyond those specifically listed in the statute that meet the standards outlined in section 105(a). The Dodd-Frank Act also clarified the Bureau's rulemaking authority over certain high-cost mortgages pursuant to section 105(a). As
For the reasons discussed in this notice, the Bureau is proposing regulations to carry out TILA's purposes and is proposing such additional requirements, adjustments, and exceptions as, in the Bureau's judgment, are necessary and proper to carry out the purposes of TILA, prevent circumvention or evasion thereof, or to facilitate compliance. In developing these aspects of the proposal pursuant to its authority under TILA section 105(a), the Bureau has considered the purposes of TILA, including ensuring meaningful disclosures, facilitating consumers' ability to compare credit terms, and helping consumers avoid the uninformed use of credit, as well as ensuring consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deception or abusive. In developing this proposal and using its authority under TILA section 105(a), the Bureau also has considered the findings of TILA, including strengthening competition among financial institutions and promoting economic stabilization.
Dodd-Frank Act section 1403 amended TILA section 129B by imposing two limitations on loan originator compensation to reduce or eliminate steering incentives for residential mortgage loans.
HOEPA amended TILA by adding, in new section 129, a broad mandate to prohibit certain acts and practices in the mortgage industry. In particular, TILA section 129(p)(2), as re-designated by Dodd-Frank Act section 1433(a), requires the Bureau to prohibit, by regulation or order, acts or practices in connection with mortgage loans that the Bureau finds to be unfair, deceptive, or designed to evade the provisions of HOEPA. 15 U.S.C. 1639(p)(2). Likewise, TILA requires the Bureau to prohibit, by regulation or order, acts or practices in connection with the refinancing of mortgage loans that the Bureau finds to be associated with abusive lending practices, or that are otherwise not in the interest of the consumer.
The authority granted to the Bureau under TILA section 129(p)(2) is broad. It reaches mortgage loans with rates and fees that do not meet HOEPA's rate or fee trigger in TILA section 103(bb), 15 U.S.C. 1602(bb), as well as mortgage loans not covered under that section. TILA section 129(p)(2) is not limited to acts or practices by creditors, or to loan terms or lending practices.
Dodd-Frank Act section 1405(a) amended TILA to add new section 129B(e), 15 U.S.C. 1639b(e). That section provides for the Bureau to prohibit or condition terms, acts, or practices relating to residential mortgage loans on a variety of bases, including when the Bureau finds the terms, acts, or practices are not in the interest of the consumer. In developing proposed rules under TILA section 129B(e), the Bureau has considered all of the bases for its authority set forth in that section.
Dodd-Frank Act section 1414(d) amended TILA to add new section 129C(d), 15 U.S.C. 1639c(d). That section prohibits the financing of certain single-premium credit insurance products. As discussed more fully in the section-by-section analysis below, the Bureau is proposing to implement this prohibition in new § 1026.36(i).
Dodd-Frank Act section 1414(e) amended TILA to add new section 129C(e), 15 U.S.C. 1639c(e). That section restricts mandatory arbitration agreements in residential mortgage loan transactions. As discussed more fully in the section-by-section analysis below, the Bureau is proposing to implement these restrictions in new § 1026.36(h).
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). As discussed above, TILA and title X of the Dodd-Frank Act are Federal consumer financial laws. Accordingly, the Bureau proposes to exercise its authority under Dodd-Frank Act section 1022(b) to prescribe rules under TILA that carry out the purposes and prevent evasion of TILA.
This proposal implements new TILA sections 129B(b)(1), (c)(1), and (c)(2) and 129C(d) and (e), as added by sections 1402, 1403, 1414(d) and (e) of the Dodd-Frank Act.
Current § 1026.25 requires creditors to retain evidence of compliance with Regulation Z. The Bureau proposes to add § 1026.25(c)(2) and (3) to establish record retention requirements for compliance with § 1026.36(d). Proposed § 1026.25(c)(2): (1) Extends the time period for retention by creditors of compensation-related records from two years to three years; (2) requires loan originator organizations (
Current comment 25(a)–5 clarifies the nature of the record retention requirements under § 1026.25 as applied to Regulation Z's loan originator compensation provisions. The comment provides that for each transaction subject to the loan originator compensation provisions in § 1026.36(d)(1), a creditor should maintain records of the compensation it provided to the loan originator for the transaction as well as the compensation agreement in effect on the date the interest rate was set for the transaction. The comment also states that where a loan originator is a mortgage broker, a disclosure of compensation or other broker agreement required by applicable State law that complies with § 1026.25 would be presumed to be a record of the amount actually paid to the loan originator in connection with the transaction.
The Bureau is proposing new § 1026.25(c)(2), which sets forth certain new record retention requirements for loan originators as discussed below. New comments 25(c)(2)–1 and –2 are being proposed to accompany proposed § 1026.25(c)(2), and those comments incorporate substantially the same guidance as existing comment 25(a)–5. Therefore, the Bureau proposes to delete existing comment 25(a)–5.
TILA does not contain requirements to retain specific records, but § 1026.25 requires creditors to retain evidence of compliance with TILA for two years after the date disclosures are required to be made or action is required to be taken. Section 1404 of the Dodd-Frank Act amended TILA section 129B to provide a cause of action against any mortgage originator for failure to comply with the requirements of TILA section 129B and any of its implementing regulations. 15 U.S.C. 1639b(d). Section 1416(b) of the Dodd-Frank Act amended section 130(e) of TILA to extend the statute of limitations for a civil action alleging a violation of TILA section 129B (along with sections 129 and 129C) to three years beginning on the date of the occurrence of the violation.
Consequently, the Bureau proposes § 1026.25(c)(2), which makes two changes to the current record retention provisions. First, a creditor must maintain records sufficient to evidence the compensation it pays to a loan originator organization or the creditor's individual loan originators, and the governing compensation agreement, for three years after the date of payment. Second, a loan originator organization must maintain for three years records of the compensation (1) it receives from a creditor, a consumer, or another person, and (2) it pays to its individual loan originators. The loan originator organization must maintain records sufficient to evidence the compensation agreement that governs those receipts or payments, for three years after the date of the receipts or payments. The Bureau proposes these changes pursuant to its authority under section 105(a) of TILA to prevent circumvention or evasion of TILA by requiring records that can be used to establish compliance. The Bureau believes these proposed modifications will ensure records associated with loan originator compensation are retained for a time period commensurate with the statute of limitations for causes of action under TILA section 130 and are readily available for examination, which is necessary to prevent circumvention of and to facilitate compliance with TILA.
However, the Bureau invites public comment on whether a record retention period of five years, rather than three years, would be appropriate. The Bureau believes that relevant actions and compensation practices that must be evidenced in retained records may in some cases occur prior to the beginning of the three-year period of enforceability that applies to a particular transaction. In addition, the running of the three-year period may be tolled (
The Bureau believes that it is necessary to extend the record retention requirements to loan originator organizations, thus requiring both creditors and loan originator organizations to retain evidence of compliance with the requirements of
The Bureau recognizes that extending the record retention requirement for creditors from two years for specific information related to loan originator compensation, as currently provided in Regulation Z, to three years may result in some increase in costs for creditors. The Bureau believes, however, that creditors should be able to use existing recordkeeping systems to maintain the records for an additional year at minimal cost. Similarly, although loan originator organizations may incur some costs to establish and maintain recordkeeping systems, loan originator organizations may be able to use existing recordkeeping systems that they maintain for other purposes at minimal cost. During the Small Business Review Panel process, the small entity representatives were asked about their current record retention practices and the potential impact of the proposed enhanced record retention requirements. Of the few small entity representatives who gave feedback on the issue, one creditor small entity representative stated that it maintained detailed records of compensation paid to all of its employees and that a regulator already reviews its compensation plans regularly, and another creditor small entity representative reported that it did not believe the proposed record retention requirement would require it to change its current practices.
Applying the current two-year record retention period to information specified in proposed § 1026.25(c) could adversely affect the ability of consumers to bring actions under TILA. The extension also would serve to reduce litigation risk and maintain consistency between creditors and loan originator organizations. The Bureau therefore believes it is appropriate to expand the time period for record retention to effectuate the three-year statute of limitations period established by Congress for actions against loan originators under section 129B of TILA.
The proposed recordkeeping requirements do not apply to individual loan originators. Although section 129B(d) of TILA, as amended by the Dodd-Frank Act, permits consumers to bring actions against mortgage originators (which include individual loan originators), the Bureau believes that applying the proposed record retention requirements of § 1026.25 to individual loan originators is unnecessary. Under the proposed record retention requirements, loan originator organizations and creditors must retain certain records regarding all of their individual loan originator employees. Applying the same record retention requirements to the individual loan originator employees themselves would be duplicative. In addition, such a requirement may not be feasible in all cases, because individual loan originators may not have access to the types of records required to be retained under § 1026.25, particularly after they cease to be employed by the creditor or loan originator organization. An individual loan originator who is a sole proprietor, however, is responsible for compliance with provisions that apply to the proprietorship (which is a loan originator organization) and, as a result, is responsible for compliance with the proposed record retention requirements. Similarly, an individual who is a creditor is subject to the requirements that apply to creditors.
As discussed above, proposed § 1026.25(c)(2) makes two changes to the current record retention provisions. First, proposed § 1026.25(c)(2)(i) requires a creditor to maintain records sufficient to evidence all compensation it pays to a loan originator organization or the creditor's individual loan originators, and a copy of the governing compensation agreement. Second, proposed § 1026.25(c)(2)(ii) requires a loan originator organization to maintain records of all compensation that it receives from a creditor, a consumer, or another person or that it pays to its individual loan originators; it also requires the loan originator organization to maintain a copy of the compensation agreement that governs those receipts or payments.
Proposed comment 25(c)(2)–1.i clarifies that, under proposed § 1026.25(c)(2), records are sufficient to evidence that compensation was paid and received if they demonstrate facts enumerated in the comment. The comment gives examples of the types of records that, depending on the facts and circumstances, may be sufficient to evidence compliance. Proposed comment 25(c)(2)–1.ii clarifies that the compensation agreement, evidence of which must to be retained under 1026.25(c)(2), is any agreement, written or oral, or course of conduct that establishes a compensation arrangement between the parties. Proposed comment 25(c)(2)–1.iii provides an example where the expiration of the three-year retention period varies depending on when multiple payments of compensation are made. Proposed comment 25(c)(2)–2 provides an example of retention of records sufficient to evidence payment of compensation.
Proposed § 1026.25(c)(3) requires creditors to retain records pertaining to compliance with the provisions of § 1026.36(d)(2)(ii), regarding the payment of discount points and origination points or fees (see the section-by-section analysis to proposed § 1026.36(d)(2)(ii), below, for further discussion of these proposed requirements). Specifically, it provides that, for each transaction subject to proposed § 1026.36(d)(2)(ii), the creditor must maintain records sufficient to evidence that the creditor has made available to the consumer the comparable, alternative loan that does not include discount points and origination points or fees as required by § 1026.36(d)(2)(ii)(A) or if such a loan was not made available to the consumer, a good-faith determination that the consumer was unlikely to qualify for such a loan. The creditor must also maintain records to evidence compliance with the “bona fide” requirements under proposed § 1026.36(d)(2)(ii)(C) (
As discussed above, this proposed rule would implement new TILA sections 129B(b)(1), (c)(1) and (c)(2) and 129C(d) and (e), as added by sections 1402, 1403, and 1414(d) and (e) of the Dodd-Frank Act. TILA section 103(cc), which was added by section 1401 of the Dodd-Frank Act, contains definitions for “mortgage originator” and “residential mortgage loan.” These definitions are relevant to the implementation of loan originator compensation restrictions, limitations on discount points and origination points or fees, and loan originator qualification provisions under this proposal. The statutory definitions largely parallel the existing regulation's coverage, in terms of both persons and transactions subject to its requirements. As discussed below, the Bureau is seeking to retain the existing regulatory terms, to maximize continuity, while adjusting as necessary to reflect statutory differences, to reflect the fact that they now relate to more than just loan originator compensation limitations, and to facilitate the additional interpretation and clarification being proposed under existing rules.
Current § 1026.36 uses the term “loan originator.” Dodd-Frank Act amendments to TILA being addressed in this proposed rulemaking use the term “mortgage originator” as defined in TILA section 103(cc)(2). The Bureau does not propose to change the existing terminology in § 1026.36, although the Bureau is proposing certain clarifying amendments to the definition and its commentary. As discussed in more detail below, the Bureau believes that the definition of “loan originator” set forth in existing § 1026.36(a)(1) is consistent with the definition of “mortgage originator” in TILA section 103(cc) as amended by the Dodd-Frank Act. The Bureau also believes that the term “loan originator” has been in wide use since first adopted by the Board in 2010. Any changes to the “loan originator” terminology could require stakeholders to make equivalent revisions in many aspects of their operations, including in policies and procedures, compliance materials, and software and training. In addition, for the reasons discussed below, the Bureau is proposing two new definitions, in proposed § 1026.36(a)(1)(ii) and (iii), to establish the terms “loan originator organization” and “individual loan originator.”
The Bureau also proposes to add new § 1026.36(a)(3) to define compensation. The proposal transfers guidance on the meaning of the term “compensation” in current comment 36(d)(1)– to § 1026.36(a)(3). Other guidance regarding the term “compensation” in comment 36(d)(1)–1 is proposed to be transferred to new comment 36(a)–5 and revised.
The Bureau is proposing to re-designate § 1026.36(a)(1) as § 1026.36(a)(1)(i) and to make certain amendments to it and its commentary, as discussed below, to reflect new TILA section 103(cc)(2). TILA section 103(cc)(2)(A) defines “mortgage originator” to mean: “any person who, for direct or indirect compensation or gain, or in the expectation of direct or indirect compensation or gain—(i) takes a residential mortgage loan application; (ii) assists a consumer in obtaining or applying to obtain a residential mortgage loan; or (iii) offers or negotiates terms of a residential mortgage loan.” TILA section 103(cc)(2)(B) further defines a mortgage originator as including “any person who represents to the public, through advertising or other means of communicating or providing information (including the use of business cards, stationery, brochures, signs, rate lists, or other promotional items), that such person can or will provide any of the services or perform any of the activities described in subparagraph A.” TILA section 103(cc)(2)(C) through (G) provides certain exclusions from the general definition of mortgage originator, as discussed below.
In current § 1026.36(a)(1), the term “loan originator” means “with respect to a particular transaction, a person who for compensation or other monetary gain, or in expectation of compensation or other monetary gain, arranges, negotiates, or otherwise obtains an extension of consumer credit for another person.” The Bureau broadly interprets the phrase “arranges, negotiates, or otherwise obtains an extension of consumer credit for another person” in the definition of “loan originator.”
The meaning of the term “arranges” is very broad,
These statutory refinements to the phrase, “assists a consumer in obtaining or applying to obtain a residential mortgage loan,” suggest that minor actions,
Nevertheless, the Bureau proposes to add “takes an application” and “offers,” as used in the definition of “mortgage originator” in TILA section 103(cc)(2)(A), to the definition of “loan originator” in current § 1026.36(a). The Bureau believes that, even though the definition of “loan originator” in current § 1026.36(a) includes the meaning of these terms, expressly stating them clarifies that the definition
TILA section 103(cc)(2) defines “mortgage originator” to include a person who “takes a residential mortgage loan application” and “assists a consumer in obtaining or applying to obtain a residential mortgage loan.” TILA section 103(cc)(4) provides that a person “assists a consumer in obtaining or applying to obtain a residential mortgage loan” by taking actions such as “advising on residential mortgage loan terms (including rates, fees, and other costs), preparing residential mortgage loan packages, or collecting information on behalf of the consumer with regard to a residential mortgage loan.” The Bureau proposes comment 36(a)–1.i.A to provide further guidance on the existing phrase “arranges, negotiates, or otherwise obtains,” as used in § 1026.36(a)(1), to clarify the phrase's applicability in light of these statutory provisions. Specifically, the Bureau proposes to clarify in comment 36(a)–1.i.A that “takes an application, arranges, offers, negotiates, or otherwise obtains an extension of consumer credit for another person” includes “assists a consumer in obtaining or applying for consumer credit by advising on credit terms (including rates, fees, and other costs), preparing application packages (such as a loan or pre-approval application or supporting documentation), or collecting information on behalf of the consumer to submit to a loan originator or creditor, and includes a person who advertises or communicates to the public that such person can or will provide any of these services or activities.”
TILA section 103(cc)(2)(A)(ii) provides that a mortgage originator includes a person who “assists a consumer in obtaining or applying to obtain a residential mortgage loan.” TILA section 103(cc)(4) defines this phrase to include persons “advising on residential mortgage loan terms (including rates, fees, and other costs).” Thus, this section applies to persons advising on credit terms (including rates, fees, and other costs) advertised or offered by that person on its own behalf or for another person. The Bureau believes that the definition of “mortgage originator” does not include bona fide third-party advisors such as accountants, attorneys, registered financial advisors, certain housing counselors, or others who do not receive or are paid no compensation for originating consumer credit transactions. Should these persons receive payments or compensation from loan originators, creditors, or their affiliates in connection with a consumer credit transaction, however, they could be considered loan originators.
TILA section 103(cc)(2)(B) provides that a mortgage originator “includes any person who represents to the public, through advertising or other means of communicating or providing information (including the use of business cards, stationery, brochures, signs, rate lists, or other promotional items), that such person can or will provide any of the services or perform any of the activities described in subparagraph (A).” The Bureau believes the current definition of “loan originator” in § 1026.36(a) includes persons who in expectation of compensation or other monetary gain communicate or advertise loan origination activities or services to the public.
The Bureau therefore proposes to amend comment 36(a)–1.i.A to clarify that a loan originator “includes a person who in expectation of compensation or other monetary gain advertises or communicates to the public that such person can or will provide any of these [loan origination] services or activities.” The Bureau notes that the phrase “advertises or communicates to the public” is very broad and includes, but is not limited to, the use of business cards, stationery, brochures, signs, rate lists, or other promotional items listed in TILA section 103(cc)(2)(B) if these items advertise or communicate to the public that a person can or will provide loan origination services or activities. The Bureau believes this clarification furthers TILA's goal in section 129B(a)(2) of ensuring that responsible, affordable credit remains available to consumers. The Bureau also invites comment on this clarification to the definition of loan originator.
The definition of “mortgage originator” in TILA section 103(cc)(2)(C)(ii) also expressly excludes certain employees of manufactured home retailers. The definition of “loan originator” in current § 1026.36(a)(1) does not address such employees. The Bureau proposes to implement the new statutory exclusion by revising the definition of “loan originator” in § 1026.36(a)(1) to exclude employees of a manufactured home retailer who assist a consumer in obtaining or applying to obtain consumer credit, provided such employees do not take a consumer credit application, offer or negotiate terms of a consumer credit transaction, or advise a consumer on credit terms (including rates, fees, and other costs).
Current § 1026.36(a) includes in the definition of loan originator only creditors that do not finance the transaction at consummation out of the creditor's own resources, including, for example, drawing on a bona fide warehouse line of credit, or out of deposits held by the creditor (table-funded creditors). TILA section 129B(b), as added by section 1402 of the Dodd-Frank Act, imposes new qualification and loan document unique identifier requirements that apply under certain circumstances to all creditors, including non-table-funded creditors, which are not loan originators for other purposes. Section 1401 of the Dodd-Frank Act amended TILA to add section 103(cc)(2)(F), which provides that the definition of “mortgage originator” expressly excludes creditors (other than creditors in table-funded transactions) for purposes of section 129B(c)(1), (2), and (4). Those provisions contain restrictions on steering activities and rules of construction for the statute. Thus, the term “mortgage originator” includes creditors for purposes of other TILA provisions that use the term, such as section 129B(b), as added by section 1402 of the Dodd-Frank Act. Section 129B(b) imposes on mortgage originators new qualification and loan document unique identifier requirements, discussed below under § 1026.36(f) and (g). The Bureau therefore proposes to amend the definition of loan originator in § 1026.36(a)(1)(i) to include creditors (other than creditors in table-funded transactions) for purposes of those provisions only.
The Bureau also proposes to make technical amendments to comment 36(a)–1.ii on table funding to clarify the applicability of TILA section 129B(b)'s new requirements to all creditors. Non-table-funded creditors are included in the definition of loan originator only for the purposes of § 1026.36(f) and (g). The proposed revisions additionally clarify the applicability of § 1026.36 to table-funded creditors.
TILA section 103(cc)(2)(G) defines “mortgage originator” not to include “a servicer or servicer employees, agents and contractors, including but not limited to those who offer or negotiate terms of a residential mortgage loan for purposes of renegotiating, modifying, replacing or subordinating principal of existing mortgages where borrowers are behind in their payments, in default or have a reasonable likelihood of being in default or falling behind.” The term “servicer” is defined by TILA section 103(cc)(7) as having the same meaning as “servicer” “in section 6(i)(2) of the Real Estate Settlement Procedures Act of 1974 [RESPA] (12 U.S.C. 2605(i)(2)).”
RESPA defines the term “servicer” as “the person responsible for servicing of a loan (including the person who makes or holds a loan if such person also services the loan).”
Current comment 36(a)–1.iii provides that the definition of “loan originator” does not “apply to a loan servicer when the servicer modifies an existing loan on behalf of the current owner of the loan. The rule only applies to extensions of consumer credit and does not apply if a modification of an existing obligation's terms does not constitute a refinancing under § 1026.20(a).” The Bureau proposes to amend comment 36(a)–1.iii to clarify how the definition of loan originator applies to servicers and to implement the Dodd-Frank Act's definition of mortgage originator.
The Bureau believes the exception in TILA section 103(cc)(2)(G) narrowly applies to servicers, servicer employees, agents and contractors only when engaging in limited servicing activities with respect to a particular transaction after consummation, including loan modifications that do not constitute a refinancing. The Bureau does not believe, however, that the statutory exclusion was intended to shield from coverage companies that intend to act as servicers on loans when they engage in loan origination activities prior to consummation or servicers of existing loans that refinance such loans. The Bureau believes that exempting such companies merely because of the general status of “servicer” with respect to some loans would not reflect Congress's intended statutory scheme.
The Bureau's interpretation rests on analyzing the two distinct parts of the statute. Under TILA section 103(cc)(2)(G), the definition of “mortgage originator” does not include: (1) “a servicer” or (2) “servicer employees, agents and contractors, including but not limited to those who offer or negotiate terms of a residential mortgage loan for purposes of renegotiating, modifying, replacing and subordinating principal of existing mortgages where borrowers are behind in their payments, in default or have a reasonable likelihood of being in default or falling behind.” Under a textual analysis of this provision in combination with the definition of “servicer” under RESPA in 12 U.S.C. 2605(i)(2), which is referenced by TILA section 103(cc)(7), a servicer that is responsible for servicing a loan or that makes a loan
The Bureau believes this interpretation of the statute is the most consistent with the definition of “mortgage originator” in TILA section 103(cc)(2). A person cannot be a servicer until after consummation of a transaction. A person taking an application, assisting a consumer in obtaining or applying to obtain a loan, or offering or negotiating terms of a loan, or funding the transaction prior to and through the time of consummation, is a mortgage originator or creditor (depending upon the person's role). Thus, a person that funds a loan from the person's own resources or a table-funded creditor is subject to the appropriate provisions in TILA section 103(cc)(2)(F) for creditors until the person becomes responsible for servicing the loan after consummation. The Bureau believes this interpretation is also consistent with the definition of “loan originator” in current § 1026.36(a) and comment 36(a)–1.iii. If a loan modification by the servicer constitutes a refinancing under § 1026.20(a), the servicer is considered a creditor until after consummation of the refinancing when responsibility for servicing the refinanced loan arises.
The Bureau believes the second part of the statutory provision applies to individuals (
The Bureau interprets the phrase “including but not limited to those who offer or negotiate terms of a residential mortgage loan for purposes of renegotiating, modifying, replacing and subordinating principal of existing mortgages where borrowers are behind in their payments, in default or have a reasonable likelihood of being in default or falling behind” to be an example of the types of activities the individuals are permitted to engage in that satisfy the purposes of TILA section 103(cc)(2)(G). However, the Bureau believes that “renegotiating, modifying, replacing and subordinating principal of existing mortgages” or any other related activities that occur must not be a refinancing, as defined in § 1026.20(a), for the purposes of TILA section 103(cc)(2)(G). Under the Bureau's view, a servicer may modify an existing loan in several ways without being considered a loan originator. A formal satisfaction of the existing obligation and replacement by a new obligation is a refinancing. But, short of that, a
The Bureau interprets the term “replacing” in TILA section 103(cc)(2)(G) not to include refinancings of consumer credit. The term “replacing” is not defined in TILA or Regulation Z, but the Bureau believes the term “replacing” in this context means replacing existing debt without also satisfying the original obligation. For example, a first- and second-lien loan may be “replaced” by a single, new loan with a reduced interest rate and principal amount, the proceeds of which do not satisfy the full obligation of the prior loans. In such a situation, the agreement for the new loan may stipulate that the consumer is responsible for the remaining outstanding balances of the prior loans if the consumer refinances or defaults on the replacement loan within a stated period of time. This is conceptually distinct from a refinancing as described in § 1026.20(a), which refers to situations where an existing “obligation
The ability to repay provisions of TILA section 129C, which were added by section 1411 of the Dodd-Frank Act, make numerous references to certain “refinancings” for exemptions from the income verification requirement of section 129C. TILA section 128A, as added by section 1419 of the Dodd-Frank Act, contains a disclosure requirement that includes a “refinancing” as an alternative for consumers of hybrid adjustable rate mortgages to pursue before the interest rate adjustment or reset after the fixed introductory period ends. Moreover, TILA's text prior to Dodd-Frank Act amendments contained the term “refinancing” in numerous provisions. For example, TILA section 106(f)(2)(B) provides finance charge tolerance requirements specific to a “refinancing,” TILA section 125(e)(2) exempts certain “refinancings” from right of rescission disclosure requirements, and TILA section 128(a)(11) requires disclosure of whether the borrower is entitled to a rebate upon “refinancing” an obligation in full that involves a precomputed finance charge. For these reasons the Bureau believes that, if Congress intended for “replacing” to include or mean a “refinancing” of consumer credit, Congress would have used the existing term, “refinancing,” as Congress did for sections 1411 and 1419 of the Dodd-Frank Act and in prior TILA legislation. Instead, without any additional guidance from Congress, the Bureau defers to the current definition of “refinancing” in § 1026.20(a), where part of the definition of “refinancing” requires both replacement and satisfaction of the original obligation as separate and distinct elements of the defined term.
Furthermore, the above interpretation of “replacing” better accords with the surrounding statutory text, which provides that servicers include persons offering or negotiating a residential mortgage loan for the purposes of “renegotiating, modifying, replacing or subordinating principal of existing mortgages where borrowers are behind in their payments, in default or have a reasonable likelihood of being in default or falling behind.” Taken as a whole, this text applies to distressed consumers for whom replacing and fully satisfying the existing obligation(s) is not an option. The situation covered by the text is distinct from a refinancing in which a consumer would simply use the proceeds from the refinancing to satisfy an existing loan or existing loans.
The Bureau believes this interpretation gives full effect to the exclusionary language as Congress intended, to avoid undesirable impacts on servicers' willingness to modify existing loans to benefit distressed consumers, without undermining the new protections generally afforded by TILA section 129B. A broader interpretation that excludes servicers and their employees, agents, and contractors from those protections solely by virtue of their coincidental status as servicers is not the best reading of the statute as a whole and likely would frustrate rather than further congressional intent.
Indeed, if persons are not included in the definition of mortgage originator when making but prior to servicing a loan or based on a person's status as a servicer under the definition of “servicer,” at least two-thirds of mortgage lenders (and their originator employees) nationwide could be excluded from the definition of “mortgage originator” in TILA section 103(cc)(2)(G). Many, if not all, of the top ten mortgage lenders by volume either hold and service loans they originated in portfolio or retain servicing rights for the loans they originate and sell into the secondary market.
The Bureau believes this result would be not only contrary to the statutory text but also contrary to Congress's stated intent in section 1402 of the Dodd-Frank Act to ensure that responsible, affordable mortgage credit remains available to consumers by regulating practices related to residential mortgage loan origination. For example, based on the top ten mortgage lenders by origination and servicing volume alone, as much as 61 percent of the nation's loan originators could not only be excluded from prohibitions on dual compensation and compensation based on loan terms but also from the new qualification requirements added by the Dodd-Frank Act.
The Bureau proposes to amend comment 36(a)–1.iii to reflect the Bureau's interpretation of the statutory text, to facilitate compliance, and to prevent circumvention. The Bureau interprets the statement in existing comment 36(a)–1.iii that the “definition of `loan originator' does not apply to a loan servicer when the servicer modifies an existing loan on behalf of the current owner of the loan” as consistent with the definition of mortgage originator as it relates to servicers in TILA section 103(cc)(2)(G). Proposed comment 36(a)–1.iii thus clarifies that the TILA section 103(cc)(2)(G) definition of “loan originator” includes a servicer or a servicer's employees, agents, and contractors when offering or negotiating terms of a particular existing loan obligation on behalf of the current owner for purposes of renegotiating, modifying, replacing, or subordinating principal of such a debt where the borrower(s) is not current, in default, or has a reasonable likelihood of becoming in default or not current. The Bureau proposes to amend comment 36(a)–1.iii to clarify that § 1026.36 “only applies to
TILA section 103(cc)(2)(D) states that the definition of “mortgage originator” does not “include a person or entity that only performs real estate brokerage activities and is licensed or registered in accordance with applicable State law, unless such person or entity is compensated by a lender, a mortgage broker, or other mortgage originator or by any agent of such lender, mortgage broker, or other mortgage originator.” Thus, the statute provides that real estate brokers are not included in the definition of “mortgage originator” if they: (1) Only perform real estate brokerage activities, (2) are licensed or registered under applicable State law to perform such activities, and (3) do not receive compensation from loan originators, creditors, or their agents. Therefore, a real estate broker that performs loan originator activities or services as defined by proposed § 1026.36(a) is a loan originator for the purposes of § 1026.36.
The Bureau believes the text of TILA section 103(cc)(2)(D) related to payments to a real estate broker “by a lender, a mortgage broker, or other mortgage originator or by any agent of such lender, mortgage broker, or other mortgage originator” is directed at payments by such persons in connection with the origination of a particular consumer credit transaction secured by a dwelling. Each of the three core elements in the definition of mortgage originator in TILA section 103(cc)(2)(A) describes activities related to a residential mortgage loan.
For example, assume XYZ Bank pays a real estate broker for a broker price opinion in connection with a pending modification or default of a mortgage loan for consumer A. In an unrelated transaction, consumer B compensates the same real estate broker for assisting consumer B with finding and negotiating the purchase of a home. Consumer B also obtains credit from XYZ Bank to purchase the home. This real estate broker is not a loan originator under these facts. Proposed comment 36(a)–1.iv clarifies this point. The proposed comment also clarifies that a payment is not from a creditor, a mortgage broker, other mortgage originator, or an agent of such persons if the payment is made on behalf of the consumer to pay the real estate broker for real estate brokerage activities performed for the consumer.
The Bureau notes that the definition of “mortgage originator” in the statute does not “include a person or entity that only performs real estate brokerage activities and is licensed or registered in accordance with applicable State law.” The Bureau believes that, if applicable State law defines real estate brokerage activities to include activities that fall within the definition of loan originator in § 1026.36(a), the real estate broker is a loan originator when engaged in such activities subject to § 1026.36 and is not a real estate broker under TILA section 103(cc)(2)(D). The Bureau invites comment on this proposed clarification of the meaning of “loan originator” for real estate brokers.
TILA section 103(cc)(2)(E) provides that the term “mortgage originator” does not include:
This provision must be read in conjunction with the existing exceptions in Regulation Z (§ 1026.2(a)(17)(v)), which provide that the definition of creditor: (1) Does not include persons that extend credit secured by a dwelling (other than high-cost mortgages) five or fewer times in the preceding calendar year and (2) does not include a person who extends no more than one high-cost mortgage (subject to § 1026.32) in any 12-month period. Based on the definition of mortgage originator as described above and the exception for creditor together, the Bureau believes that persons, estates, or trusts are not included in the definition of “mortgage originator” when engaged in such described activities. That is, any person, estate, or trust who otherwise would be a mortgage originator under the statutory definition on the basis of engaging in activities other than those described above is a mortgage originator. Thus, only persons whose activity is financing sales of their own properties as described above are excluded under TILA section 103(cc)(2)(E). A person who finances sales of property, if such financing is subject to a finance charge or payable in more than four installments, generally is a creditor under § 1026.2(a)(17)(i) (except where excluded by virtue of the person's annual transaction volume).
Moreover, TILA section 103(cc)(2)(F) provides that the definition of mortgage originator does not include creditors (other than creditors in table-funded transactions), except for purposes of TILA section 129B(c)(1), (2), and (4). Thus, those creditors that are not included in the definition of mortgage
The proposed definition of loan originator, however, would not include seller financers who finance three or fewer sales in any 12-month period without extending high-cost mortgage financing. The proposed definition of the term loan originator includes “a
Section 1026.2(a)(17)(v) excludes from the definition of creditor persons that extend credit secured by a dwelling (other than high-cost mortgages) five or fewer times in the preceding calendar year. This has two implications. First, if a person's activity is limited to financing sales of three or fewer properties in any 12-month period by making extensions of credit that are not high-cost mortgages, the person cannot exceed the five-loan threshold in § 1026.2(a)(17)(v) to be deemed a creditor and therefore be subject to any provision of Regulation Z, including § 1026.36. Second, a person who finances the sale of no more than one property in any 12-month period by making an extension of one high-cost mortgage also is not a creditor under § 1026.2(a)(17)(v). Thus, this person is not a creditor for the purposes of being included in the definition of “mortgage originator” as described by TILA section 103(cc)(2)(F). This person also is not subject to Regulation Z, including § 1026.36.
Given all of the foregoing, the only persons that are not included in the definition of mortgage originator as provided in TILA section 103(cc)(2)(E), but are creditors for the purposes of Regulation Z, are persons, estates, or trusts that finance the sale of their own properties by extending high-cost mortgages either twice or three times in a calendar year. Thus, such persons are not subject to § 1026.36(f) and (g) because, they are not a loan originator and thus also are not subject to the other provisions of § 1026.36. Nevertheless, to reflect this interpretation that a narrow category of persons are not included in the definition of loan originator in § 1026.36(a), the Bureau is proposing new comment 36(a)–1.v.
Proposed comment 36(a)–1.v tracks the criteria set forth in TILA section 103(cc)(2)(E). The comment provides that the definition of “loan originator” does not include a natural person, estate, or trust that finances the sale of three or fewer properties in any 12-month period owned by such natural person, estate, or trust where each property serves as a security for the credit transaction. It further states that the natural person, estate, or trust also must not have constructed or acted as a contractor for the construction of the dwelling in its ordinary course of business. The natural person, estate, or trust must additionally determine in good faith and document that the buyer has a reasonable ability to repay the credit transaction. Finally, the proposed comment states that the credit transaction must be fully amortizing, have a fixed rate or an adjustable rate that adjusts only after five or more years, and be subject to reasonable annual and lifetime limitations on interest rate increases.
The Bureau also is proposing to include further guidance in the comment as to how a person may satisfy the requirement to determine in good faith that the buyer has a reasonable ability to repay the credit transaction. The comment would provide that the natural person, estate, or trust makes such a good faith determination by complying with the requirements of § 1026.43. This refers to the requirements applicable generally to credit extensions secured by a dwelling, as proposed by the Board in its 2011 ATR Proposal. Those requirements implement TILA section 129C, and the language of section 129C(a)(1) parallels in almost identical language the ability to repay requirement in TILA section 103(cc)(2)(E). Any creditor seeking to rely on proposed comment 36(a)–1.v to avoid inclusion in the definition of loan originator (
TILA section 103(cc)(2)(C) defines “mortgage originator” to exclude persons who are not otherwise described by the three core elements of the mortgage originator definition or communicate to the public or advertise they can perform or provide the services described in those elements and who perform purely administrative or clerical tasks on behalf of mortgage originators. Existing comment 36(a)–4 clarifies that managers, administrative staff, and similar individuals who are employed by a creditor or loan originator but do not arrange, negotiate, or otherwise obtain an extension of credit for a consumer, or whose compensation is not based on whether any particular loan is originated, are not loan originators. The Bureau believes the existing comment is largely consistent with TILA section 103(cc)(2)(C)'s treatment of administrative and clerical tasks.
The Bureau proposes a minor technical revision to comment 36(a)–4, however, to implement the exclusion from “mortgage originator” in TILA section 103(cc)(2)C), by including “clerical” staff. The proposed revisions would also clarify that producing managers who also meet the definition of a loan originator would be considered a loan originator. Producing managers generally are managers of an organization (including branch managers and senior executives) that in addition to their management duties also originate loans. Thus, compensation received by producing managers would be subject to the restrictions of § 1026.36. Non-producing managers (
Certain provisions of TILA section 129B, such as the qualification and loan document unique identifier requirements, as well as certain new guidance in the Bureau's proposal, necessitate a distinction between loan originators that are natural persons and those that are organizations. The Bureau therefore proposes to establish the distinction by creating new definitions for “individual loan originator” and
The Bureau proposes to revise comment 36(a)–1.i.B to clarify that the term “loan originator organization” is a loan originator other than a natural person, including but not limited to a trust, sole proprietorship, partnership, limited liability partnership, limited partnership, limited liability company, corporation, bank, thrift, finance company, or a credit union. The Bureau understands that States have recognized many new business forms over the past 10 to 15 years. The Bureau believes that the additional examples should help to facilitate compliance with § 1026.36 by clarifying the types of persons that fall within the definition of “loan originator organization.” The Bureau invites comment on whether other examples would be helpful for these purposes.
Existing § 1026.36(a)(2) defines “mortgage broker” as “any loan originator that is not an employee of the creditor.” As noted elsewhere, under this proposal the meaning of loan originator is expanded for purposes of § 1026.36(f) and (g) to include all creditors. The Bureau is therefore proposing a conforming amendment to exclude such creditors from the definition of “mortgage broker” even though for certain purposes such creditors are loan originators. Proposed § 1026.36(a)(2) provides that a mortgage broker is “any loan originator that is not a creditor or the creditor's employee.”
The Bureau proposes to define the term “compensation” in new § 1026.36(a)(3) to include “salaries, commissions, and any financial or similar incentive provided to a loan originator for originating loans.” Sections 1401 and 1403 of the Dodd-Frank Act contain multiple references to the term “compensation” but do not define the term. The current rule does not define the term in regulatory text. Existing comment 36(d)(1)–1, however, provides guidance on the meaning of compensation. The Bureau's proposal reflects the basic principle of that guidance in proposed § 1026.36(a)(3). The further guidance in comment 36(d)(1)–1 would be transferred to new comment 36(a)–5.
The Bureau proposes to add comment 36(a)–5.iii (re-designated from comment 36(d)(1)–1.iii and essentially the same as that comment, except as noted below) to be consistent with provisions set forth in TILA section 129B(c)(2), as added by section 1403 of the Dodd-Frank Act. Specifically, TILA section 129B(c)(2)(A) provides that, for any residential mortgage loan, a mortgage originator generally may not receive from any person other than the consumer any origination fee or charge except bona fide third-party charges not retained by the creditor, the mortgage originator, or an affiliate of either. Likewise, no person, other than the consumer, who knows or has reason to know that a consumer has directly compensated or will directly compensate a mortgage originator, may pay a mortgage originator any origination fee or charge except bona fide third-party charges as described above. In addition, section TILA 129B(c)(2)(B) provides that a mortgage originator may receive an origination fee or charge from a person other than the consumer if, among other things, the mortgage originator does not receive any compensation directly from the consumer. As discussed in more detail in the section-by-section analysis to proposed § 1026.36(d)(2)(ii), the Bureau interprets “origination fee or charge” to mean compensation that is paid in connection with the transaction, such as commissions that are specific to, and paid solely in connection with, the transaction.
Nonetheless, TILA section 129B(c)(2) does not appear to prevent a mortgage originator from receiving payments from a person other than the consumer for bona fide third-party charges not retained by the creditor, mortgage originator, or an affiliate of either, even if the mortgage originator also receives loan originator compensation directly from the consumer. For example, assume that a mortgage originator receives compensation directly from a consumer in a transaction. TILA section 129B(c)(2) does not restrict the mortgage originator from receiving payment from a person other than the consumer (
Consistent with TILA section 129B(c)(2) and pursuant to the Bureau's authority under TILA section 105(a) to effectuate the purposes of TILA and facilitate compliance with TILA, the Bureau proposes to retain in new comment 36(a)–5.iii essentially the same guidance as set forth in current comment 36(d)(1)–1.iii. Thus, the new comment clarifies that the term “compensation” as used in § 1026.36(d) and (e) does not include amounts a loan originator receives as payment for bona fide and reasonable charges, such as title insurance or appraisals, where those amounts are not retained by the loan originator but are paid to a third party that is not the creditor, its affiliate, or the affiliate of the loan originator. Accordingly, under proposed § 1026.36(d)(2)(i) and comment 36(a)–5.iii, a loan originator that receives compensation directly from a consumer would not be restricted from receiving a payment from a person other than the consumer for such bona fide and reasonable charges. In addition, a loan originator would not be deemed to be receiving compensation directly from a consumer for purposes of § 1026.36(d)(2) where the originator imposes such a bona fide and reasonable third-party charge on the consumer.
Proposed comment 36(a)–5.iii also recognizes that, in some cases, amounts received for payment for such third-party charges may exceed the actual charge because, for example, the originator cannot determine with accuracy what the actual charge will be before consummation when the charge is imposed on the consumer. In such a case, under proposed comment 36(a)–5.iii, the difference retained by the originator would not be deemed compensation if the third-party charge collected from a person other than the consumer was bona fide and reasonable, and also complies with State and other applicable law. On the other hand, if the originator marks up a third-party charge and retains the difference between the actual charge and the marked-up charge, the amount retained is compensation for purposes of § 1026.36(d) and (e). This guidance parallels that in existing comment 36(d)(1)–1.
Proposed comment 36(a)–5.iii, like current comment 36(d)(1)–1.iii, contains two illustrations. The illustrations in proposed comment 36(a)–5.iii.A and B are similar to the ones contained in current comment 36(d)(1)–1.iii.A and B except that the illustrations are amended to clarify that the charges described in those illustrations are not paid to the creditor, its affiliates, or the affiliate of the loan originator. The proposed illustrations also simplify the current illustrations.
The first illustration, in proposed comment 36(a)–5.iii.A, assumes a loan originator will receive compensation directly from either a consumer or a creditor. The illustration further assumes the loan originator uses average charge pricing in accordance with Regulation X
The Bureau solicits comment on proposed comment 36(a)–5.iii. Specifically, the Bureau requests comment on whether the term “compensation” should exclude payment from the consumer or from a person other than the consumer to the loan originator, as opposed to a third party, for certain services that unambiguously relate to ancillary services rather than core loan origination services, such as title insurance or appraisal, if the loan originator, creditor or the affiliates of either performs those services, so long as the amount paid for those services is bona fide and reasonable. The Bureau further solicits comment on how such ancillary services might be described clearly enough to distinguish them from the core origination charges that would not be excluded under such a provision.
The Bureau also proposes new comment 36(a)–5.iv to clarify that the definition of compensation for purposes of § 1026.36(d) and (e) includes stocks, stock options, and equity interests that are provided to individual loan originators and that, as a result, the provision of stocks, stock options, or equity interests to individual loan originators is subject to the restrictions in § 1026.36(d) and (e). The proposed comment further clarifies that bona fide returns or dividends paid on stocks or other equity holdings, including those paid to loan originators who own such stock or equity interests, are not considered compensation for purposes of § 1026.36(d) and (e). The comment explains that: (1) Bona fide returns or dividends are those returns and dividends that are paid pursuant to documented ownership or equity interests allocated according to capital contributions and where the payments are not mere subterfuges for the payment of compensation based on loan terms and (2) bona fide ownership or equity interests are ownership or equity interests not allocated based on the terms of a loan originator's transactions. The comment gives an example of a limited liability company (LLC) loan originator organization that allocates its members' respective equity interests based on the member's transaction terms; in that instance, the distributions are not bona fide and, thus, are considered compensation for purposes of § 1026.36(d) and (e). The Bureau believes the clarification provided by proposed comment 36(a)–5.iv is necessary to distinguish legitimate returns on ownership from returns on ownership in companies that manipulate business ownership structures as a means to circumvent the restrictions on compensation in § 1026.36(d) and (e).
The Bureau invites comment on comment 36(a)–5.iv as proposed and on whether other forms of corporate structure or returns on ownership interest should be specifically addressed in the definition of “compensation.” The Bureau also seeks comment generally on other methods of providing incentives to loan originators that the Bureau should consider specifically addressing in the proposed guidance on the definition of “compensation.”
Section 1026.36(d)(1)(i), which was added to Regulation Z by the Board's 2010 Loan Originator Final Rule, provides that, in connection with a consumer credit transaction secured by a dwelling, “no loan originator shall receive and no person shall pay to a loan originator, directly or indirectly, compensation in an amount that is based on any of the transaction's terms or conditions.” Section 1026.36(d)(1)(ii) states that the amount of credit extended is not deemed to be a transaction term or condition, provided compensation received by or paid to a loan originator, directly or indirectly, is based on a fixed percentage of the amount of credit extended; the provision also states that such compensation may be subject to a minimum or maximum dollar amount. Section 1026.36(d)(1)(iii) provides that § 1026.36(d)(1)(i) does not apply to any transaction subject to § 1026.36(d)(2) (
In adopting its 2010 Loan Originator Final Rule, the Board noted that “compensation payments based on a loan's terms or conditions create incentives for loan originators to provide consumers loans with higher interest rates or other less favorable terms, such as prepayment penalties,” citing “substantial evidence that compensation based on loan rate or other terms is commonplace throughout the mortgage industry, as reflected in Federal agency settlement orders, congressional hearings, studies, and public proceedings.” 75 FR 58520. Among the Board's stated concerns was: “Creditor payments to brokers based on the interest rate give brokers an incentive to provide consumers loans with higher interest rates. Large numbers of consumers are simply not aware this incentive exists.”
Since the Board's 2010 Loan Originator Final Rule was promulgated, the Board and the Bureau (following the transfer of authority over TILA to the Bureau under the Dodd-Frank Act) have received numerous interpretive questions about the provisions of § 1026.36(d)(1). First, questions have arisen about the application of the Board's rule to payments that are based on factors that may be “proxies” for loan terms. The Bureau understands there has been considerable uncertainty on this issue. Furthermore, mortgage creditors and others have raised questions about whether § 1026.36(d)(1) prohibits the pooling of compensation and sharing in such pooled compensation by loan originators that are compensated differently and originate loans with different terms.
The Board and the Bureau also have received a number of questions about
As discussed earlier, section 1403 of the Dodd-Frank Act added new TILA section 129B(c). This new statutory provision builds on, but in some cases imposes new or different requirements than, the current Regulation Z provisions established by the Board's 2010 Loan Originator Final Rule. Under TILA section 129B(c)(1), for any residential mortgage loan, no mortgage originator shall receive from any person and no person shall pay to a mortgage originator, directly or indirectly, compensation that varies based on the terms of the loan (other than the amount of the principal). 12 U.S.C. 1639b(c)(1). Further, TILA section 129B(c)(4)(A) provides that nothing in section 129B(c) of TILA permits yield spread premiums or other similar compensation that would, for any residential mortgage loan, permit the total amount of direct and indirect compensation from all sources permitted to a mortgage originator to vary based on the terms of the loan (other than the amount of the principal). 12 U.S.C. 1639b(c)(4)(A).
Although the language in section 1403 of the Dodd-Frank Act amending TILA and addressing mortgage originator compensation that varies based on terms of the transaction generally mirrors the current regulatory text and commentary of § 1026.36(d)(1), the statutory and regulatory provisions differ in several respects. First, unlike § 1026.36(d)(1)(iii), the statute does not contain an exception to the general prohibition on compensation varying based on loan terms for transactions where the mortgage originator receives compensation directly from the consumer. Second, while § 1026.36(d)(1) prohibits compensation that is based on a transaction's “terms or conditions,” TILA section 129B(c)(1) refers only to compensation that varies based on “terms.” Finally, § 1026.36(d)(1)(i) provides that the loan originator may not receive and no person shall pay compensation in an amount “that is based on” any of the transaction's terms or conditions, whereas TILA section 129B(c)(1) prohibits compensation that “varies based on” the terms of the loan.
In view of the differences in the statutory and regulatory provisions prohibiting loan originator compensation based on transaction terms and the interpretive questions that have arisen with regard to the current regulations noted above, the Bureau is proposing revisions to § 1026.36(d)(1) and its commentary to harmonize the regulatory provisions with the language added to TILA by the Dodd-Frank Act. Moreover, the Bureau is proposing certain revisions to § 1026.36(d)(1) and its commentary to address the interpretive issues that have arisen under the current regulations.
As noted previously, § 1026.36(d)(1)(i) provides that, in connection with a consumer credit transaction secured by a dwelling, “no loan originator shall receive and no person shall pay to a loan originator, directly or indirectly, compensation in an amount that is based on any of the transaction's terms or conditions.” The Dodd-Frank Act section 1403 amendments, which added TILA section 129B(c), limits restrictions on mortgage originator compensation to “terms of the loan” only. Current § 1026.36(d)(1)(i) and commentary provide that a loan originator may not receive and no person may pay to a loan originator compensation that is based on any of the “transaction's terms or conditions.”
The Bureau proposes to retain the word “transaction,” rather than use the statutory term “loan,” to preserve consistency within Regulation Z. The Bureau makes this proposal pursuant to its authority under TILA section 105(a) to prescribe regulations that provide for such adjustments and exceptions for all or any class of transactions, that the Bureau judges are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance. The Bureau believes that “transaction” and “loan,” as that term is used in TILA section 129B(c), have consistent meanings and, therefore, that preserving the use of “transaction” in § 1026.36(d)(1)(i) will facilitate compliance for creditors by avoiding the need to contend with a distinct, but duplicative, defined term.
On the other hand, the Bureau proposes to revise the phrase “terms or conditions” to delete the word
TILA section 129B(c)(1) prohibits a mortgage originator from receiving, and any person from paying a mortgage originator, “compensation that
The Bureau believes that compensation to loan originators violates the prohibition if the amount of the compensation is based on the terms of the transaction (that is, a violation does not require a showing of any person's subjective intent to relate the amount of the payment to a particular loan term). Proposed new comment 36(d)(1)–1.i clarifies these points. The Bureau is proposing new comment 36(d)(1)–1 in place of existing comment 36(d)(1)–1, which is being moved to comment 36(a)–5, as discussed above.
The proposed comment also clarifies that a difference between the amount of compensation paid and the amount that would have been paid for different terms might be shown by a comparison of different transactions with different terms made by the same loan originator, but a violation does not require a comparison of multiple transactions.
The Bureau also proposes revisions to § 1026.36(d)(1) and comment 36(d)(1)–2 to provide guidance for determining whether a factor is a proxy for a transaction's term and also provide examples. As stated above, § 1026.36(d)(1)(i) provides that, in connection with a consumer credit transaction secured by a dwelling, no loan originator shall receive and no person shall pay to a loan originator, directly or indirectly, compensation in an amount that is based on any of the transaction's terms or conditions. Existing comment 36(d)(1)–2 further elaborates on the prohibition by stating:
The rule also prohibits compensation based on a factor that is a proxy for a transaction's terms or conditions. For example, a consumer's credit score or similar representation of credit risk, such as the consumer's debt-to-income ratio, is not one of the transaction's terms or conditions. However, if a loan originator's compensation varies in whole or in part with a factor that serves as a proxy for loan terms or conditions, then the originator's compensation is based on a transaction's terms or conditions.
Since the Board's 2010 Loan Originator Final Rule was promulgated, the Board and the Bureau have received numerous inquiries on whether particular loan originator payment structures are based on factors that are proxies for loan terms. Small Entity Representatives (SERs) on the Small Business Review Panel also urged the Bureau to use this rulemaking to clarify when a factor used to determine compensation for a loan originator is a proxy for a loan term. The Bureau does not believe that any departure from the approach to proxies in current comment 36(d)(1)–2 is necessitated by the Dodd-Frank Act. The Bureau also believes that current § 1026.36(d)(1)(i) prohibits compensation based on a factor that is a proxy for a transaction's terms. However, the Bureau understands there has been considerable uncertainty on this issue and proposes clarifications in § 1026.36(d)(1)(i) and comment 36(d)(1)–2.i to help creditors and loan originators determine whether a factor on which compensation would be based is a proxy for a transaction's terms.
The proposal clarifies in § 1026.36(d)(1)(i), rather than commentary only, that compensation based on a proxy for a transaction's terms is prohibited. The proposed clarification in § 1026.36(d)(1)(i) and comment 36(d)(1)–2.i also provides that a factor (that is not itself a term of a transaction originated by the loan originator) is a proxy for the transaction's terms if: (i) The factor substantially correlates with a term or terms of the transaction and (ii) the loan originator can, directly or indirectly, add, drop, or change the factor when originating the transaction.
Both conditions must be satisfied for a factor to be considered a proxy for a transaction's terms. If a factor does not “substantially” correlate with a term of a transaction originated by the loan originator, the factor is not a proxy for a transaction's terms. The Bureau proposes to use the term “substantially” but invites comment on whether this term is sufficiently clear and, if not, what other terms should be considered. The Bureau also seeks comment on how correlation to a term should be determined.
If the factor does substantially correlate with a term of a transaction originated by the loan originator, then the factor must be analyzed under the second condition, whether the loan originator can, directly or indirectly, add, drop, or change the factor when originating the transaction. The Bureau believes that, where a loan originator has no or minimal ability directly or indirectly to add, drop, or change a factor, that factor cannot be a proxy for the transaction's terms because such a factor cannot be the basis for incentives to steer consumers inappropriately. For example, loan originators cannot change a property's location, thus property location cannot be a proxy for a transaction's terms. Arguably, a loan originator could indirectly change the property location by steering a consumer to choose a property in a particular location. However, the ability for loan originators to steer consumers to a particular property location with such frequency to serve as an incentive for steering consumers is minimal. In proposed comment 36(d)(1)–2.i, the Bureau provides three new examples to illustrate use of the proposed proxy standard and to facilitate compliance with the rule.
The Bureau also proposes to delete the current proxy example in the comment that identifies credit scores as a proxy for a transaction's terms. The Bureau believes the current credit score proxy example is confusing and created uncertainty for creditors and loan originators depending on their
The Bureau proposes to add comment 36(d)(1)–2.i.A which provides an example of compensation based on a loan originator's employment tenure. This factor likely has little (if any) correlation to loan terms. This example illustrates how, if a factor that compensation is based on has little to no correlation to a transaction's term or terms, it is not a proxy for a transaction's terms.
Proposed comment 36(d)(1)–2.i.B provides an example illustrating how a loan originator's compensation varies based on whether a loan is held in portfolio or sold into the secondary market. In this case, the example assumes a loan is held in portfolio or sold into the secondary market depending in large part on whether the loan is a five-year balloon loan or a thirty-year loan. Thus, whether a loan is held in portfolio or sold into the secondary market substantially correlates with the transaction's terms. The loan originator in the example may be able to change the factor indirectly by steering the consumer to choose the five-year loan or the thirty-year loan. Thus, whether a loan is held in portfolio or sold into the secondary market is a proxy for a transaction's terms under these particular facts and circumstances.
Proposed comment 36(d)(1)–2.i.C illustrates an example where compensation is based on the geographic location of the property securing a refinancing. The loan originator is paid a higher commission for refinancings secured by property in State A than in State B. Even if refinancings secured by property in State A have lower interest rates than loans secured by property in State B, the property's location substantially correlates with loan terms. However, the loan originator cannot change the presence or absence of the factor (
Other proposed revisions to comment 36(d)(1)–2 include clarifying that the rule does not prohibit compensating loan originators differently on different transactions, provided such differences in compensation are not based on a transaction's terms or a proxy for a transaction's terms. The Bureau also proposes to delete “conditions” from the comment where applicable and the existing guidance that the loan-to-value ratio is not a term of the transaction to conform to the proposed amendment discussed above concerning the prohibition on compensation based on the transaction's “terms.”
The Bureau believes that the proposed changes and the addition of new commentary should reduce uncertainty and help simplify application of the prohibition on compensation based on the transaction's terms. The Bureau has learned through outreach, however, that a number of creditors pay loan originators the same commission regardless of loan product or type. Many of these institutions have expressed concerns about revising the proxy guidance. They argue that unscrupulous loan originators will attempt to use any specific proxy guidance to justify compensation schemes that violate the principles of the rule. The Bureau therefore solicits comment on the proposal, alternatives the Bureau should consider, or whether any action to revise the proxy concept and analysis is helpful and appropriate.
Comment 36(d)(1)–2 provides examples of compensation that is based on transaction terms or conditions. Mortgage creditors and others have raised questions about whether loan originators that are compensated differently and originate loans with different terms are prohibited under § 1026.36(d)(1) from pooling their compensation and sharing in that compensation pool. For example, assume that Loan Originator A receives a commission of two percent of the loan amount for each loan that he or she originates and originates loans that generally have higher interest rates than the loans that Loan Originator B originates. In addition, assume Loan Originator B receives a commission of one percent of the loan amount for each loan that he or she originates and originates loans that generally have lower interest rates than the loans originated by Loan Originator A. The Bureau proposes to revise comment 36(d)(1)–2 to make clear that, where loan originators are compensated differently and they each originate loans with different terms, § 1026.36(d)(1) does not permit the pooling of compensation so that the loan originators share in that pooled compensation. In this example, proposed comment 36(d)(1)–2.ii clarifies that the compensation of the two loan originators may not be pooled so that the loan originators share in that pooled compensation. The Bureau believes that this type of pooling is prohibited by § 1026.36(d)(1) because each loan originator is being paid based on loan terms, with each loan originator receiving compensation based on the terms of the loans made by the loan originators collectively. This type of pooling arrangement could provide an incentive for the loan originators participating in the pooling arrangement to steer some consumers to loan originators that originate loan with less favorable terms (for example, that have a higher interest rate), to maximize their compensation.
Comment 36(d)(1)–4 clarifies that § 1026.36(d)(1) does not limit the creditor's ability to offer certain loan terms. Specifically, comment 36(d)(1)–4 makes clear that § 1026.36(d)(1) does not limit a creditor's ability to offer a higher interest rate as a means for the consumer to finance the payment of the loan originator's compensation or other costs that the consumer would otherwise pay (for example, in cash or by increasing the loan amount to finance such costs). Thus, a creditor is not prohibited by § 1026.36(d)(1) from charging a higher interest rate to a consumer who will pay some or none of the costs of the transaction directly, or offering the consumer a lower rate if the consumer pays more of the costs directly. For example, a creditor may charge an interest rate of 6.0 percent where the consumer pays some or all of the transaction costs but may charge an interest rate of 6.5 percent where the consumer pays none of those costs (subject to the requirements of proposed § 1026.36(d)(2)(ii), discussed below). Section 1026.36(d)(1) also does not limit a creditor from offering or providing different loan terms to the consumer based on the creditor's assessment of credit and other risks (such as where the creditor uses risk-based pricing to set the interest rate for consumers). Finally, a creditor is not prohibited under § 1026.36(d)(1) from charging consumers interest rates that include an interest rate premium to recoup the loan originator's compensation through increased interest paid by the consumer (such as by adding a 0.25 percentage point to the interest rate on each loan). This guidance recognizes that creditors that pay a loan originator's compensation generally recoup that cost through a higher interest rate charged to the consumer.
As discussed in the section-by-section analysis to proposed § 1026.36(d)(2)(ii), for transactions subject to proposed § 1026.36(d)(2)(ii), a creditor, a loan originator organization, or affiliates of either may not impose on the consumer any discount points and origination points or fees unless the creditor complies with § 1026.36(d)(2)(ii)(A). As discussed below, proposed § 1026.36(d)(2)(ii)(A) requires, as a prerequisite to a creditor, loan originator organization, or affiliates of either imposing any discount points and origination points or fees on a consumer in a transaction, that the creditor also make available to the consumer a comparable, alternative loan that does not include discount points and origination points or fees, unless the consumer is unlikely to qualify for such a loan. Because of these restrictions in proposed § 1026.36(d)(2)(ii), the Bureau proposes to revise comment 36(d)(1)–4 to clarify that charging different interest rates, such as in accordance with risk-based pricing policies, relates only to § 1026.36(d)(1) and is not intended to override the restrictions in proposed § 1026.36(d)(2)(ii).
Based on numerous inquiries received, the Bureau considered proposing commentary language addressing whether there are any circumstances under which point banks are permissible under § 1026.36(d). The Bureau received and considered the views of SERs participating in the Small Business Review Panel process as well as the views expressed by other stakeholders during outreach. Based on those views and the Bureau's own considerations, the Bureau believes that there are no circumstances under which point banks are permissible, and they therefore continue to be prohibited.
Point banks operate as follows: Each time a loan originator closes a transaction, the creditor contributes some agreed upon, small percentage of that transaction's principal amount (for example, 0.15 percent, or 15 “basis points”) into the loan originator's point bank account. This account is not actually a deposit account with the creditor or any depository institution but is only a continuously maintained accounting balance of basis points credited for originations and amounts debited when “spent” by the loan originator. The loan originator may spend any amount up to the current balance in the point bank to obtain pricing concessions from the creditor on the consumer's behalf for any transaction. For example, the loan originator may pay discount points to the creditor from the loan originator's point bank to obtain a lower rate for the consumer.
Payments to point banks serve as a form of loan originator compensation because they enable additional transactions to be consummated and loan originators to receive compensation on these transactions. Accordingly, they are a financial incentive to the loan originator and, therefore, compensation as proposed § 1026.36(a)(3) defines that term. To the extent such payments are based on the transaction's terms or a factor that operates as a proxy for the transaction's terms, they violate § 1026.36(d)(1) directly. Even if the contribution to a loan originator's point bank for a given transaction is not based on the transaction's terms (or a proxy therefor), the loan originator's subsequent spending of amounts from the point bank on other transactions violates § 1026.36(d)(1) as an impermissible pricing concession pursuant to comment 36(d)(1)–5, discussed below. The Bureau believes that even a point bank whose funds are reserved for use in the unique circumstances described in proposed new comment 36(d)(1)–7 where pricing concessions would be permitted, discussed below, cannot be legitimate because the criteria set forth in comment 36(d)(1)–7 limit such concessions to unusual and infrequent cases of unforeseen increases in closing costs; by definition, a point bank contemplates routine use, which is contrary to the premises of comment 36(d)(1)–7.
The Bureau's decision not to propose to allow point banks was also informed by the uniformly negative view of SERs participating in the Small Business Review Panel process and negative views expressed by many other stakeholders in further outreach. The SERs listed a number of concerns, including the risk that points bank would create incentives for loan originators to upcharge some consumers to create flexibility for themselves to provide concessions to other consumers; the possibility that point banks would permit loan officers to treat consumers differently, which could lead to fair lending concerns; and the prospect of mortgage brokers steering consumers to the lender that provided them with the greatest point bank contributions. For the reasons stated above, the Bureau is not proposing to provide guidance describing circumstances under which point banks are permissible under § 1026.36(d).
The Bureau proposes two revisions to the § 1026.36(d)(1) commentary addressing loan originator pricing concessions. Comment 36(d)(1)–5 discusses the effect of modifying loan terms on loan originator compensation. The existing comment provides that a creditor and loan originator may not agree to set the originator's compensation at a certain level and then subsequently lower it in selective cases (such as where the consumer is offered a reduced rate to meet a quote from another creditor),
The Bureau proposes to delete existing comment 36(d)(1)–7, which clarifies that the prohibition in § 1026.36(d)(1) does not apply to transactions in which any loan originator receives compensation directly from the consumer (
In its place, the Bureau proposes to include a new comment 36(d)(1)–7 addressing a discrete issue related to pricing concessions. The proposed comment provides that, notwithstanding comment 36(d)(1)–5, § 1026.36(d)(1) does not prohibit loan originators from decreasing their compensation to cover unanticipated increases in non-affiliated third-party closing costs that result in the actual amounts of such closing costs exceeding limits imposed by applicable law (
The Bureau believes that such concessions, when made in response to unforeseen events outside the loan originator's control to comply with otherwise applicable legal requirements, do not raise concerns about the potential for steering consumers to different loan terms. That is, if the excess closing cost is truly unanticipated and results in the loan originator having to take less compensation to cure the violation of applicable law, no steering issues are present because the loan originator's compensation is being decreased after-the-fact. Thus, a loan originator's reduced compensation in such cases is not in fact based on the transaction's terms and does not violate § 1026.36(d)(1). This further clarification effectuates the purposes of, and facilitates compliance with, TILA section 129B(c)(1) and § 1026.36(d)(1)(i) because, without it, creditors and loan originators might incorrectly conclude that such concessions being borne by a loan originator would violate those provisions, or they could face unnecessary uncertainty with regard to compliance with these provisions and other laws, such as Regulation X's tolerance requirements.
Under the proposed comment, a loan originator cannot make a pricing concession where the loan originator knows or reasonably is expected to know the amount of the third-party closing costs in advance. If a loan originator makes repeated pricing concessions for the same categories of closing costs across multiple transactions, based on a series of purportedly unanticipated expenses, the Bureau believes proposed comment 36(d)(1)–7 does not apply because the loan originator is reasonably expected to know the closing costs across multiple transactions. In that instance, the pricing concessions would raise the same concerns that resulted in the guidance under current comment 36(d)(1)–5 that pricing concessions are not permissible under § 1026.36(d)(1)(i) (
The Bureau solicits comment on whether this interpretation is appropriate, too narrow, or creates a risk of undermining the principal prohibition of compensation based on a transaction's terms.
Section 1026.36(d)(1)(i) prohibits payment of an individual loan originator's compensation that is directly or indirectly based on the terms of “the transaction.” The Bureau believes that “transaction” necessarily includes multiple transactions by a single individual loan originator because the payment of compensation is not always tied to a single transaction. Current comment 36(d)(1)–3 lists several examples of compensation methods not based on transaction terms that take into account multiple transactions, including compensation based on overall loan volume and the long-term performance of the individual loan originator's loans. Moreover, multiple transactions by definition comprise the individual transactions. Thus, the Bureau believes that the singular word “transaction” in § 1026.36(d)(1)(i) includes multiple transactions by a single individual loan originator. To avoid any possible uncertainty, however, the Bureau proposes to clarify, as part of proposed comment 36(d)(1)–1.ii, that § 1026.36(d)(1)(i) prohibits compensation based on the terms of multiple transactions by an individual loan originator.
As noted above, current § 1026.36(d)(1)(i) prohibits payment of an individual loan originator's compensation that is “directly or indirectly” based on the terms of “the transaction,” and TILA (as amended by the Dodd-Frank Act) similarly prohibits compensation that “directly or indirectly” varies based on the terms of “the loan.” However, the current regulation and its commentary do not expressly address whether a person may pay compensation by considering the terms of multiple transactions subject to § 1026.36(d) of multiple individual loan originators employed by the person during the time period for which the compensation is being paid. Compensation in the form of a bonus, for example, may be based indirectly on the terms of multiple individual loan originators' transactions. For example, assume that a creditor employs six individual loan originators and offers loans at a minimum rate of 6.0 percent and a maximum rate of 8.0 percent (unrelated to risk-based pricing). Assuming relatively constant loan volume and amounts of credit extended and relatively static market rates, if the six individual loan originators' aggregate transactions in a given calendar year average a rate of 7.5 percent rather than 7.0 percent, creating a higher interest rate spread over the creditor's minimum acceptable rate of 6.0 percent, the creditor will generate higher amounts of interest revenue if the loans are held in portfolio and increased proceeds from secondary market purchasers if the loans are sold. Assume that the increased revenues lead to higher profits for the creditor (
Because neither TILA (as amended by the Dodd-Frank Act) nor the current regulations expressly addresses the payment of compensation that is based on the terms of multiple loan originators' transactions, numerous questions have been posed regarding the applicability of the current regulation to qualified plans and profit-sharing and retirement plans that are not qualified plans. In CFPB Bulletin 2012–2, the Bureau stated that it was permissible to pay contributions to qualified plans if the contributions to the qualified plans are derived from profits generated by mortgage loan originations but did not address how the rules applied to non-qualified plans. CFPB Bulletin 2012–2 stated further that guidance on the payment of compensation out of profits generated by mortgage loan originations would be forthcoming. The proposed rule reflects the Bureau's views on this issue.
The Bureau believes that compensation that directly or indirectly is based on the terms of multiple transactions subject to § 1026.36(d) of multiple individual loan originators poses the same fundamental problems that the Dodd-Frank Act and the current regulation address with regard to the individual loan originator's transactions. A profit-sharing plan, bonus pool, or profit pool set aside out of a portion of a creditor or loan originator organization's profits, from which bonuses are paid or contributions to qualified or non-qualified plans are
In view of such matters, the framing of compensation restrictions in current § 1026.36(d)(1)(i) in terms of “the transaction” permits an interpretation that could undermine the purpose of the rule. The prohibition in current § 1026.36(d)(1)(i) means that a creditor or loan originator organization cannot differentially distribute compensation among individual loan originators based on each individual loan originator's transaction terms. Because the current regulation does not expressly address compensation based on the terms of multiple individual loan originators' transactions, however, creditors and loan originator organizations could establish compensation policies that evade the intent of § 1026.36(d)(1)(i). For example, creditors and loan originator organizations could restructure their compensation policies to pay a higher percentage of the individual loan originator's compensation through bonuses under profit-sharing plans rather than through salary, commissions, or other forms of compensation that are not based on aggregate transaction terms of multiple individual loan originators.
Through outreach with creditors and loan originator organizations, the Bureau is aware that their bonus structures take a multitude of forms, including payment of so-called “top-down” and “bottom-up” bonuses. In a top-down process, management determines the size of a bonus pool for the firm as a whole at or near the end of the performance year, splits the bonus pool into sub-pools for each line of business, and then allocates the sub-pools to individual employees in a manner related to their individual performance. In contrast, a bottom-up bonus is paid following the firm's assessment of each employee's performance and assignment of an incentive compensation award, with the firm's total amount of incentive compensation for the year being the sum of the individual incentive compensation awards. For many large banks, the processes are a mixture of top-down and bottom-up, but the emphasis can differ markedly.
In light of the foregoing, the Bureau is proposing a new comment 36(d)(1)–1.ii to clarify that the prohibition on payment and receipt of compensation based on the transaction's terms under § 1026.36(d)(1)(i) covers compensation that directly or indirectly is based on the terms of multiple transactions subject to § 1026.36(d) of multiple individual loan originators employed by the person. Proposed comment 36(d)(1)–1.ii also gives examples illustrating the application of this guidance. Proposed comment 36(d)(1)–2.iii.C provides further clarification on these issues. The Bureau believes this approach is necessary to implement the statutory provisions and is appropriate to address the potential incentives to steer consumers to different loan terms that are present with profit-sharing plans and to prevent circumvention or evasion of the statute.
The Bureau believes this proposed clarification sets a bright-line standard with regard to compensating individual loan originators through bonuses and contributions to qualified or non-qualified plans based on the terms of multiple loan transactions by multiple individual loan originators. As discussed below, the Bureau believes it is appropriate to create additional rules to take into account circumstances where any potential incentives are sufficiently attenuated to permit such compensation. Specifically, the Bureau's proposal would permit employer contributions made to qualified plans in which individual loan originators participate, pursuant to § 1026.36(d)(1)(iii), discussed below. The proposal also would permit payment of bonuses under profit-sharing plans and contributions to non-qualified defined benefit and contribution plans even if the compensation is directly or indirectly based on the terms of multiple individual loan originators' transactions where: (1) The revenues of the mortgage business do not predominate with respect to the total revenues of the person or business unit to which the profit-sharing plan applies, as applicable (pursuant to proposed § 1026.36(d)(1)(iii)(B)(
The Bureau recognizes that the potential incentives to steer consumers to different loan terms that are inherent in profit-sharing plans may vary based on many factors, including the organizational structure, size, diversity of business lines, and compensation arrangements. In certain circumstances, a particular combination of factors may substantially mitigate the potential steering incentives arising from profit-sharing plans. For example, the incentive of individual loan originators to upcharge likely diminishes as the total number of individual loan originators contributing to the profit pool increases. That is, the incentives may be mitigated because: (1) Each individual loan originator's efforts will have increasingly less impact on compensation paid under profit-sharing plans; and (2) the ability of an individual loan originator to coordinate efforts with the other individual loan originators will decrease.
The Bureau is further cognizant of the burdens that restrictions on compensation may impose on creditors, loan originator organizations, and individual loan originators. The Bureau believes that, when paid for legitimate reasons, bonuses and contributions to defined contribution and benefit plans can be useful and important inducements for individual loan originators to perform well. Profit-sharing plans, moreover, are a means for individual loan originators to become invested in the success of the organization as a whole. The Bureau solicits comment on whether the proposed restrictions on bonuses and other compensation paid under profit-sharing plans and contributions to defined contribution and benefit plans accomplish the Bureau's objectives without unduly restricting compensation approaches that address legitimate business needs.
Current comment 36(d)(1)–1
As discussed above, § 1026.36(d)(1)(i) provides that a loan originator may not receive and a person may not pay to a loan originator, directly or indirectly, compensation in an amount that is based on any of the transaction's terms or conditions. Section 1026.36(d)(1)(ii) provides that the amount of credit extended is not deemed to be a transaction term or condition, provided compensation is based on a fixed percentage of the amount of credit extended. Such compensation may be subject to a minimum or maximum dollar amount.
For the foregoing reasons, pursuant to its authority under TILA section 105(a) to facilitate compliance with TILA, the Bureau proposes to retain the phrase “amount of credit extended” in § 1026.36(d)(1)(ii) instead of replacing it with the statutory phrase “amount of the principal.” The Bureau believes that using the same phrase that is in the current regulatory language will ease compliance burden without diminishing the consumer protection afforded by § 1026.36(d) in any foreseeable way. Creditors already have developed familiarity with the term “amount of credit extended” in complying with the current regulation. The Bureau solicits comment on these beliefs and this proposal to keep the existing regulatory language in place.
The Bureau believes that permitting creditors to set a minimum and maximum dollar amount is consistent with, and therefore furthers the purposes of, the statutory provision allowing compensation based on a percentage of the principal amount, consistent with TILA section 105(a). As noted above, the Bureau believes the purpose of excluding the principal amount from the “terms” on which compensation may not be based is to accommodate common industry practice. The Bureau also believes that, for some creditors, setting a maximum and minimum dollar amount also is common and appropriate because, without such limits, loan originators may be unwilling to originate very small loans and could receive unreasonably large commissions on very large loans. The Bureau therefore believes that, consistent with TILA section 105(a), permitting creditors to set minimum and maximum commission amounts may facilitate compliance and also may benefit consumers by ensuring that loan originators have sufficient incentives to originate particularly small loans.
In addition, comment 36(d)(1)–9 provides that § 1026.36(d)(1) does not prohibit an arrangement under which a loan originator is compensated based on a percentage of the amount of credit extended, provided the percentage is fixed and does not vary with the amount of credit extended. However, compensation that is based on a fixed percentage of the amount of credit extended may be subject to a minimum and/or maximum dollar amount, as long as the minimum and maximum dollar amounts do not vary with each credit transaction. For example, a creditor may offer a loan originator one percent of the amount of credit extended for all loans the originator arranges for the creditor, but not less than $1,000 or greater than $5,000 for each loan. On the other hand, as comment 36(d)(1)–9 clarifies, a creditor may not compensate a loan originator one percent of the amount of credit extended for loans of $300,000 or more, two percent of the amount of credit extended for loans between $200,000 and $300,000, and three percent of the amount of credit extended for loans of $200,000 or less. For the same reasons discussed above, consistent with TILA section 105(a), the Bureau believes this guidance is consistent with and furthers the statutory purposes and therefore proposes to retain it. To the extent a creditor seeks to avoid disincentives to originate small loans and unreasonably high compensation amounts on larger loans, the Bureau believes the ability to set minimum and maximum dollar amounts meets such goals.
Reverse mortgage creditors have requested guidance on whether the “maximum claim amount” or the “initial principal limit” is the “amount of credit extended” in the context of closed-end reverse mortgages. The Bureau believes that the “initial principal limit” most closely resembles the amount of credit extended on a traditional, “forward” mortgage. Thus, consistent with Dodd-Frank Act section 1403 and pursuant to its authority under TILA section 105(a) to facilitate compliance with TILA, the Bureau proposes to add comment 36(d)(1)–10 to provide that, for closed-end reverse mortgage loans, the “amount of credit extended” for purposes of § 1036.36(d)(1) means the maximum proceeds available to the consumer under the loan, which is the “initial principal limit.”
As discussed above, § 1026.36(d)(1)(i) currently provides that no loan originator may receive and no person may pay to a loan originator compensation based on any of the transaction's terms or conditions. Section 1026.36(d)(1)(iii), however, currently provides that the prohibition in § 1026.36(d)(1)(i) does not apply to transactions in which a loan originator received compensation directly from the consumer and no other person provides compensation to a loan originator in connection with that transaction. Thus, even though, in accordance with § 1026.36(d)(2), a loan originator organization that receives compensation from a consumer may not split that compensation with its individual loan originator, current § 1026.36(d)(1) does not prohibit a consumer's payment of compensation to the loan originator organization from being based on the transaction's terms or conditions.
TILA section 129B(c)(1), which was added by section 1403 of the Dodd-Frank Act, provides that mortgage originators may not receive (and no person may pay to mortgage originators), directly or indirectly, compensation that varies based on the terms of the loan (other than the amount of principal). 12 U.S.C. 1639b(c)(1). Thus, TILA section 129B(c)(1) imposes a ban on compensation that varies based on loan terms even in transactions where the mortgage originator receives compensation directly from the consumer. For example, under the amendment, even if the only compensation that a loan originator receives comes directly from the consumer, that compensation may not vary based on the loan terms.
Consistent with TILA section 129B(c)(1), the Bureau proposes to delete existing § 1026.36(d)(1)(iii) and a related sentence in existing comment
The Bureau proposes a new § 1026.36(d)(1)(iii), which permits in limited circumstances the payment of compensation that directly or indirectly is based on the terms of transactions subject to § 1026.36(d) of multiple individual loan originators.
Based on these considerations, proposed § 1026.36(d)(1)(iii) permits a person to compensate an individual loan originator through a contribution to a qualified defined contribution or benefit plan in which an individual loan originator employee participates, provided that the contribution is not directly or indirectly based on the terms of that individual loan originator's transactions subject to § 1026.36(d). Proposed comment 36(d)(1)–2.iii.E clarifies the types of plans that are considered qualified plans for purposes of § 1026.36(d)(1)(iii) (
Proposed comment 36(d)(1)–2.iii.B clarifies the meaning of defined benefit plan and defined contribution plan as such terms are used in § 1026.36(d)(1)(iii). The proposed comment cross-references proposed comments 36(d)(1)–2.iii.E and –2.iii.G for guidance on the distinction between qualified and non-qualified plans and the relevance of such distinction to the provisions of proposed § 1026.36(d)(1)(iii).
The Bureau solicits comment on whether any other types of retirement plan, profit-sharing plan, or other defined benefit or contribution plans should be treated similarly to qualified plans for purposes of permitting contributions to such plans, even if the compensation relates directly or indirectly to the transaction terms of multiple individual loan originators. For example, the Bureau understands that some non-qualified pension plans limit distribution of funds to participating employees until their separation of service from their employer, which would seem to present more limited incentives to steer consumers to different loan terms.
Proposed comment 36(d)(1)–2.iii.A provides guidance on the definition of profit-sharing plan as that term is used in proposed § 1026.36(d)(1)(iii). The proposed comment clarifies that for purposes of the rule, profit-sharing plans include so-called “bonus plans,” “bonus pools,” or “profit pools” from which a person or the business unit, as applicable, pays individual loan originators employed by the person (as well as other employees, if it so elects) bonuses or other compensation with reference to the profitability of the person or business unit, as applicable (
Proposed comment 36(d)(1)–2.iii.C clarifies that the compensation addressed in proposed § 1026.36(d)(1)(iii) directly or indirectly is based on the terms of transactions of multiple individual loan originators when the compensation, or its amount, results from or is otherwise related to the terms of multiple transactions subject to § 1026.36(d). The proposed comment provides that if a creditor does not permit its individual loan originator employees to deviate from the creditor's pre-established loan terms, such as the interest rate offered, then the creditor's payment of a bonus at the end of a calendar year to an individual loan originator under a profit-sharing plan is not related to the transaction terms of multiple individual loan originators. The proposed comment also clarifies that if a loan originator organization whose revenues are derived exclusively from fees paid by the creditors that fund its originations (
Proposed comment 36(d)(1)–2.iii.D clarifies that, under proposed
Proposed § 1026.36(d)(1)(iii)(A) prohibits payment of compensation to an individual loan originator that directly or indirectly is based on the terms of that individual loan originator's transaction or transactions. This language is intended to underscore the fact that a person cannot pay compensation to an individual loan originator based on the terms of that individual loan originator's transactions regardless of whether the compensation is of the type that is permitted in limited circumstances under § 1026.36(d)(1)(iii)(B). Proposed comment 36(d)(1)–2.iii.F clarifies the provision by giving an example and cross-referencing proposed comment 36(d)(1)–1 for further guidance on determining whether compensation is “based on” transaction terms.
Proposed § 1026.36(d)(1)(iii)(B)(
The Bureau also acknowledges the difficulty of establishing a direct nexus between the multiple individual loan originators' actions that may adversely affect consumers and the payment and receipt of bonuses or other compensation that directly or indirectly is based on the terms of those individual loan originators' transactions. Creditors and loan originator organizations use a variety of revenue and profitability measures, and each organization presumably employs methods of compensation that are tailored to fit their business needs. Therefore, a regulatory approach that addresses the potential steering incentives created by compensation methods that reward individual loan originators based on the collective terms of multiple transactions of multiple individual loan originators must be flexible enough to take such factors into account.
With these considerations in mind, the Bureau believes that proposed § 1026.36(d)(1)(iii)(B)(
The proposed revenue test is intended as a bright-line rule to distinguish methods of compensation where there is a substantial risk of consumers being steered to different loan terms from compensation methods where steering potential is sufficiently attenuated. The proposed bright-line rule recognizes the intertwined relationship among the person's revenues, profitability, and payment of compensation to its individual loan originators. The aggregate loan terms of multiple transactions at a creditor or loan originator organization within a given time period generally affect the revenues of that creditor or loan originator organization during that period. The creditor or loan originator organization's revenues during that period, in turn, generally affect the profitability of the person during that period. And the profitability of the creditor or loan originator organization presumably relates to—if not determines—the amount of compensation available for the profit-sharing plan, bonus pool, or profit pool and distributed to individual loan originators in the form of bonuses or contributions to defined benefit or contribution plans. In other words, the Bureau is treating revenue as a proxy for profitability, and profitability as a proxy for transaction terms in the aggregate.
Furthermore, the Bureau is proposing a threshold of 50 percent because if more than 50 percent of the person's total revenues are derived from the person's mortgage business, the mortgage business revenues are predominant, at which point the attendant steering incentives seem most
The Bureau recognizes, however, that a bright-line rule with a threshold set at 50 percent of total revenue may not be commensurate in all cases with steering incentives in light of the differing sizes, organizational structures, and compensation structures of the persons affected by the proposed rule. Even if the mortgage business does not predominate the overall generation of revenues, the revenues may be sufficiently high that, in view of other facts and circumstances, the connection between the mortgage-business revenue generated and the compensation paid to individual loan originators may not be sufficiently attenuated, and thus still present a steering risk. Therefore, the Bureau is proposing an alternative approach that includes the same regulatory text and commentary language but contains a stricter threshold amount of 25 percent for purposes of the revenue test under § 1026.36(d)(1)(iii)(B)(
The Bureau is also aware of the potential differential effects the provisions of § 1026.36(d)(1)(iii)(B)(
Proposed comment 36(d)(1)–2.iii.G clarifies various aspects of the revenue test. Proposed comment 36(d)(1)–2.iii.G.
Proposed comment 36(d)(1)–2.iii.G.
Section 1026.36(d)(1)(iii)(B)(
The Bureau recognizes that some of the creditors and loan originator organizations subject to this proposed rule may have numerous business organizations set up under common ownership, and the determination of profitability (which, in turn, relates to compensation decisions) may be made at a different level than by the management of the individual loan originators' business unit. Moreover, the nature of the ownership hierarchy, both horizontal and vertical, and the level of proximity within the organization among the individual loan originators, the employees of the other business units, and the compensation decision-makers all may serve to reduce or enhance the prevalence of steering incentives depending on the circumstances. In general, the Bureau believes that the revenues of the business organization or unit whose profits are used as reference for compensation decisions—whether the person, a business unit within the person, or an affiliate of the person—should be the business organization or unit whose revenues are evaluated for purposes of proposed § 1026.36(d)(1)(iii)(B)(
Section 1026.36(d)(1)(iii)(B)(
The Bureau recognizes that, for purposes of proposed § 1026.36(d)(1)(iii)(B)(
The Bureau recognizes that concerns about individual loan originators steering consumers to different loan terms may vary depending on the proportion of an individual loan originator's total compensation that is attributable to payments permitted under § 1026.36(d)(1)(iii)(B)(
The Bureau recognizes that the bright-line standard in proposed § 1026.36(d)(1)(iii)(B)(
Consequently, the Bureau solicits comment on whether it should include an additional provision under § 1026.36(d)(1)(iii)(B) that would permit bonuses under a profit-sharing plan or contributions to non-qualified defined benefit or contribution plans where the compensation bears an insubstantial relationship to the terms of transactions subject to § 1026.36(d) of multiple individual loan originators. This test would look to whether the aggregate loan terms of multiple individual loan originators is only one factor or variable among multiple significant factors or variables taken into account in the compensation decision and does not affect the outcome of the compensation decision to a substantial degree. For example, if a creditor pays a year-end bonus based on formula that includes ten different factors, all of which are permissible under § 1026.36(d)(1) (
Proposed § 1026.36(d)(1)(iii)(B)(
The intent of proposed § 1026.36(d)(1)(iii)(B)(
The Bureau solicits comment on the number of individual loan originators who will be affected by the exception and whether, in light of such number, the de minimis test is necessary. The Bureau also solicits comment on the appropriate number of originations that should constitute the de minimis standard, over what time period the transactions should be measured, and whether this standard should be intertwined with the potential total compensation test on which the Bureau is soliciting comment, discussed in the section-by-section analysis to proposed § 1026.36(d)(1)(iii)(B)(
Proposed comment 36(d)(1)–2.iii.I.1 and –2.iii.I.2 illustrates the effect of proposed § 1026.36(d)(1)(iii)(A) and (B) on a company that has mortgage and credit card businesses and harmonizes through examples the concepts discussed in other proposed comments to § 1026.36(d)(1)(iii).
Section 1026.36(d)(2) currently provides that if any loan originator receives compensation directly from a consumer in a consumer credit transaction secured by a dwelling: (1) No loan originator may receive compensation from another person in connection with the transaction; and (2) no person who knows or has reason to know of the consumer-paid compensation to the loan originator (other than the consumer) may pay any compensation to a loan originator in connection with the transaction.
Comment 36(d)(2)–1 currently provides that the restrictions imposed under § 1026.36(d)(2) relate only to payments, such as commissions, that are specific to and paid solely in connection with the transaction in which the consumer has paid compensation directly to a loan originator. Thus, the phrase “in connection with the transaction” as used in § 1026.36(d)(2) does not include salary or hourly wages that are not tied to a specific transaction.
Thus, under current § 1026.36(d)(2), a loan originator that receives compensation directly from the consumer may not receive compensation in connection with the transaction (
Section 1403 of the Dodd-Frank Act added TILA section 129B. 12 U.S.C. 1639b. TILA section 129B(c)(2)(A) states that, for any mortgage loan, a mortgage originator generally may not receive from any person other than the consumer any origination fee or charge except bona fide third-party charges not retained by the creditor, mortgage originator, or an affiliate of either. Likewise, no person, other than the consumer, who knows or has reason to know that a consumer has directly compensated or will directly compensate a mortgage originator, may pay a mortgage originator any origination fee or charge except bona fide third-party charges as described above. Notwithstanding this general prohibition on payments of any origination fee or charge to a mortgage originator by a person other than the consumer, TILA section 129B(c)(2)(B) provides that a mortgage originator may receive from a person other than the consumer an origination fee or charge, and a person other than the consumer may pay a mortgage originator an origination fee or charge, if: (1) The mortgage originator does not receive any compensation directly from the consumer; and (2) “the consumer does not make an upfront payment of discount points, origination points, or fees, however denominated (other than bona fide third party charges not retained by the mortgage originator, creditor, or an affiliate of the creditor or originator).” TILA section 129B(c)(2)(B) also provides the Bureau authority to waive or create exemptions from this prohibition on consumers paying upfront discount points, origination points or fees where doing so is in the interest of consumers and the public.
As explained in more detail below, while the statute is structured differently and uses different terminology than existing § 1026.36(d)(2), the restrictions on dual compensation set forth in existing § 1026.36(d)(2) generally are consistent with the restrictions on dual compensation set forth in TILA section 129B(c)(2). Nonetheless, the Bureau proposes several changes to existing § 1026.36(d)(2) (re-designated as § 1026.36(d)(2)(i)) to provide additional guidance and flexibility to loan originators. For example, as explained in more detail below, in response to questions, the Bureau proposes to provide additional guidance on whether compensation to a loan originator paid on the borrower's behalf by a person other than a creditor or its affiliates, such as a non-creditor seller, home builder, home improvement contractor or real estate broker or agent, is considered compensation received directly from a consumer for purposes of § 1026.36(d)(2)(i). Specifically, the Bureau proposes to add § 1026.36(d)(2)(i)(B) and comment 36(d)(2)–2.iii to clarify that such payments to a loan originator are considered compensation received directly from the consumer for purposes of § 1026.36(d)(2) if they are made pursuant to an agreement between the borrower and the person other than the creditor or its affiliates.
In addition, currently, § 1026.36(d)(2) prohibits a loan originator organization that receives compensation directly from a consumer in connection with a transaction from paying compensation in connection with that transaction to individual loan originators (such as its employee brokers), although the organization could pay compensation that is not tied to the transaction (such as salary or hourly wages) to individual loan originators. As explained in more detail below, the Bureau proposes to revise § 1026.36(d)(2) (re-designated as § 1026.36(d)(2)(i)) to provide that, if a loan originator organization receives compensation directly from a consumer in connection with a transaction, the loan originator organization may pay compensation in connection with the transaction to individual loan originators and the individual loan originators may receive compensation from the loan originator organization. As explained in more detail below, the Bureau believes that allowing loan originator organizations to pay compensation in connection with a transaction to individual loan originators, even if the loan originator organization has received compensation directly from the consumer in that transaction, is consistent with the statutory purpose of ensuring that a loan originator organization is not compensated by both the consumer and the creditor for the same transaction because whether and how the loan originator organization splits its compensation with its individual loan originators does not affect the total amount of compensation paid by the consumer (directly or indirectly).
As discussed in more detail below, the Bureau also believes that the original purpose of the restriction in current § 1026.36(d)(2) is addressed separately by other revisions pursuant to the Dodd-Frank Act. Under current § 1026.36(d)(1)(iii), compensation paid directly by a consumer to a loan originator could be based on loan terms and conditions. Consequently, individual loan originators could have incentives to steer a consumer into a transaction where the consumer compensates the loan originator organization directly, resulting in greater compensation to the loan originator organization than it could receive if compensated by the creditor subject to the restrictions of § 1026.36(d)(1). The Dodd-Frank Act prohibits compensation based on loan terms, even when a consumer is paying compensation directly to a mortgage originator. Thus, if an individual loan originator receives compensation in connection with the transaction from the loan originator organization (where the loan originator organization receives compensation directly from the consumer), the amount of the compensation paid by the consumer to the loan originator organization, and the amount of the compensation paid by the loan originator organization to the individual loan originator, cannot be based on loan terms.
In addition, with this proposed revision, more loan originator organizations may be willing to structure transactions where consumers pay loan originator compensation directly. The Bureau believes that this result may enhance the interests of consumers and the public by giving consumers greater flexibility in structuring the payment of loan originator compensation.
The Bureau's proposal on restrictions related to dual compensation as set forth in proposed § 1026.36(d)(2)(i) are discussed in more detail below.
Existing comment 36(d)(2)–2 references Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA), and provides that a yield spread premium paid by a creditor to the loan originator may be characterized on the RESPA disclosures as a “credit” that will be applied to reduce the consumer's settlement charges, including origination fees. Existing comment 36(d)(2)–2 clarifies that a yield spread premium disclosed in this manner is not considered to be received by the loan originator directly from the consumer for purposes of § 1026.36(d)(2). The Bureau proposes to move this guidance to proposed comment 36(d)(2)(i)–2.ii and revise it. The Bureau proposes to revise the guidance in proposed comment 36(d)(2)(i)–2.ii recognizing that § 1026.36 prohibits yield spread premiums and overages. Yield spread premiums and overages were additional sums (premiums or bonuses) paid to mortgage brokers and loan officers, respectively, for selling consumers an interest rate that is higher than the minimum rate the creditor would be willing to offer a particular consumer based on the creditor's specific underwriting criteria (
“Rebates,” “credits,” or “lender credits” on the other hand are paid by the creditor for the interest rate chosen by the consumer or on behalf of the consumer to reduce the consumer's settlement costs. Comment 36(d)(2)–2 (re-designated as proposed comment 36(d)(2)(i)–2.ii) would be revised to use the term “rebates” and “credits,” instead of yield spread premiums. Rebates are disclosed as “credits” under the current Regulation X disclosure regime.
The Bureau also proposes to add § 1026.36(d)(2)(i)(B) and comment 36(d)(2)(i)–2.iii to provide additional guidance on the phrase “compensation directly from the consumer” as used in new TILA section 129B(c)(2)(B), as added by section 1403 of the Dodd-Frank Act, and § 1026.36(d)(2) (as re-designated proposed § 1026.36(d)(2)(i)). Mortgage creditors and other industry representatives have raised questions about whether payments to a loan originator on behalf of the borrower by a person other than the creditor are considered compensation received directly from a consumer for purposes of § 1026.36(d)(2). For example, non-creditor sellers, home builders, home improvement contractors, or real estate brokers or agents may agree to pay some or all of the consumer's closing costs. Some of this payment may be used to compensate a loan originator. In proposed § 1026.36(d)(2)(i)(B), the Bureau proposes to interpret the phrase “compensation directly from the consumer” as used in new TILA section 129B(c)(2)(B) and proposed § 1026.36(d)(2)(i) to include payments to a loan originator made pursuant to an agreement between the consumer and a person other than the creditor or its affiliates. Proposed comment 36(d)(2)(i)–2.iii clarifies that whether there is an agreement between the parties will depend on State law.
The Bureau believes that arrangements where a person other than a creditor or its affiliate pays compensation to a loan originator on behalf of the borrower do not raise the same concerns as when that compensation is being paid by the creditor or its affiliates. The Bureau believes that one of the primary goals of section 1403 of the Dodd-Frank Act is to restrict a loan originator from receiving compensation both directly from a consumer and from the creditor or its affiliates, which more easily may occur without the consumer's knowledge. Allowing loan originators to receive compensation from both the consumer and the creditor can create inherent conflicts of interest of which consumers may not be aware. When a loan originator organization charges the consumer a direct fee for arranging the consumer's mortgage loan, this charge may lead the consumer to infer that the broker accepts the consumer-paid fee to represent the consumer's financial interests. Consumers also may reasonably believe that the fee they pay is the originator's sole compensation. This may lead reasonable consumers erroneously to believe that loan originators are working on their behalf, and are under a legal or ethical obligation to help them obtain the most favorable loan terms and conditions. Consumers may regard loan originators as “trusted advisors” or “hired experts,” and consequently rely on originators' advice. Consumers who regard loan originators in this manner may be less likely to shop or negotiate to assure themselves that they are being offered competitive mortgage terms.
The Bureau believes, however, that the statutory goals discussed above are facilitated by proposed § 1026.36(d)(2)(i)(B) and comment 36(d)(2)(i)–2.iii. Under the proposal, a payment by a person other than a creditor or its affiliates is considered received directly from the consumer for purposes of § 1026.36(d)(2) only if the payment is made pursuant to an agreement between the consumer and that person. Thus, if there is an agreement, presumably the consumer will be aware of the payment. In addition, because this payment would be considered compensation directly received from the consumer, the consumer is the only other person in the transaction that could pay compensation in connection with the transaction to the loan originator. For example, the creditor or its affiliates could not pay compensation in connection with the transaction to the loan originator.
In addition, the Bureau believes that proposed § 1026.36(d)(2)(i)(B) and comment 36(d)(2)(i)–2.iii help prevent circumvention of the dual compensation provisions. If payments by persons other than the creditor or its affiliates were not deemed to be compensation directly from the consumer, a loan originator could arrange for the consumer to pay compensation to such a person and for that person to pay the compensation to the loan originator. Because this payment would not be deemed to be coming directly from the consumer, the loan originator could receive compensation from a creditor and this other person, circumventing the dual compensation rules.
Under proposed § 1026.36(d)(2)(i)(B) and comment 36(d)(2)(i)–2.iii, payment of loan originator compensation by an affiliate of the creditor, including a seller, home builder, home improvement contractor, etc., to a loan originator is not deemed to be made directly by the consumer for purposes of § 1026.36(d)(2) (re-designated as proposed § 1026.36(d)(2)(i)), even if the payment is made pursuant to an agreement between the borrower and the affiliate. That is, for example, if a home builder is an affiliate of a creditor, proposed § 1026.36(d)(2)(i) prohibits this person from paying compensation in connection with a transaction if a consumer pays compensation to the loan originator in connection with the transaction. This proposal is consistent with current § 1026.36(d)(3), which states that for purposes of § 1026.36(d) affiliates must be treated as a single “person.” In addition, considering payments of compensation to a loan originator by an affiliate of the creditor to be payments directly made by the consumer may allow creditors to circumvent the restrictions in proposed § 1026.36(d)(2)(i). A creditor could provide compensation to the loan originator indirectly by structuring the arrangement such that the creditor pays the affiliate and the affiliate pays the loan originator.
Except as provided below, the Bureau proposes to retain the prohibition described above in current § 1026.36(d)(2) (re-designated as § 1026.36(d)(2)(i)), as consistent with the restriction on dual compensation set forth in TILA section 129B(c)(2). Specifically, TILA section 129B(c)(2)(A) provides that for any mortgage loan, a mortgage originator generally may not receive from any person other than the consumer any origination fee or charge except bona fide third-party charges not retained by the creditor, the mortgage originator, or an affiliate of either. Likewise, no person, other than the consumer, who knows or has reason to know that a consumer has directly compensated or will directly compensate a mortgage originator, may pay a mortgage originator any origination fee or charge except bona fide third party charges as described above. In addition, section 129B(c)(2)(B) provides that a mortgage originator may receive an origination fee or charge from a person other than the consumer if, among other things, the mortgage originator does not receive any compensation directly from the consumer.
Pursuant to its authority under TILA section 105(a) to effectuate the purposes of TILA and facilitate compliance with TILA, the Bureau interprets “origination fee or charge” to mean compensation that is paid “in connection with the transaction,” such as commissions, that are specific to, and paid solely in connection with, the transaction. The Bureau believes that, if Congress intended the prohibitions on dual compensation to apply to salary or hourly wages that are not tied to a specific transaction, Congress would have used the term “compensation” in TILA section 129B(c)(2), as it did in TILA section 129B(c)(1) that prohibits compensation based on loan terms. Thus, like current § 1026.36(d)(2), TILA section 129B(c)(2) prohibits a mortgage originator that receives compensation directly from the consumer in a closed-end consumer credit transaction secured by a dwelling from receiving compensation, directly or indirectly, from any person other than the consumer in connection with the transaction.
Nonetheless, TILA section 129B(c)(2) does not restrict a mortgage originator from receiving payments from a person other than the consumer for bona fide third-party charges not retained by the creditor, mortgage originator, or an affiliate of the creditor or mortgage originator, even if the mortgage originator receives compensation directly from the consumer. For example, assume that a loan originator receives compensation directly from a consumer in a transaction. TILA section 129B(c)(2) does not restrict the loan originator from receiving payment from a person other than the consumer (
Consistent with TILA section 129B(c)(2) and pursuant to the Bureau's authority under TILA section 105(a) to effectuate the purposes of TILA and facilitate compliance with TILA, as discussed in more detail in the section-by-section analysis to proposed § 1026.36(a), the Bureau proposes to amend comment 36(d)(1)–1.iii (re-designated as proposed comment 36(a)–5.iii) to clarify that the term “compensation” does not include amounts a loan originator receives as payment for bona fide and reasonable charges, such as credit reports, where those amounts are not retained by the loan originator but are paid to a third party that is not the creditor, its affiliate, or the affiliate of the loan originator. Thus, under proposed § 1026.36(d)(2)(i) and comment 36(a)–5.iii, a loan originator that receives compensation directly from a consumer could receive a payment from a person other than the consumer for bona fide and reasonable charges where those amounts are not retained by the loan originator but are paid to a third party that is not the creditor, its affiliate, or the affiliate of the loan originator. For example, assume a loan originator receives compensation directly from a consumer in a transaction. Further assume the loan originator charges the consumer $25 for a credit report provided by a third party that is not the creditor, its affiliates or the affiliate of the loan originator, and this fee is bona fide and reasonable. Assume also that the $25 for the credit report is paid by the creditor with proceeds from a rebate. The loan originator in that transaction is not prohibited by proposed § 1026.36(d)(2)(i) from receiving the $25 from the creditor, even though the consumer paid compensation to the loan originator in the transaction.
In addition, a loan originator that receives compensation in connection with a transaction from a person other than the consumer could receive a payment from the consumer for a bona fide and reasonable charge where the amount of that charge is not retained by the loan originator but is paid to a third party that is not the creditor, its affiliate, or the affiliate of the loan originator. For example, assume a loan originator receives compensation in connection with a transaction from a creditor. Further assume the loan originator charges the consumer $25 for a credit report provided by a third party that is not the creditor, its affiliates or the affiliate of the loan originator, and this fee is bona fide and reasonable. Assume the $25 for the credit report is paid by the consumer. The loan originator in that transaction is not prohibited by proposed § 1026.36(d)(2)(i) from receiving the $25 from the consumer, even though the creditor paid compensation to the loan originator in connection with the transaction.
As discussed in more detail in the section-by-section analysis to proposed § 1026.36(a), proposed comment 36(a)–5.iii also recognizes that, in some cases, amounts received for payment for such third-party charges may exceed the
TILA section 129B(c)(2), which was added by section 1403 of the Dodd-Frank Act, generally is consistent with the above prohibition in current § 1026.36(d)(2) (re-designated as proposed § 1026.36(d)(2)(i)). 12 U.S.C. 1639b(c)(2). TILA section 129B(c)(2)(B) prohibits a loan originator organization that receives compensation directly from a consumer in a transaction from paying compensation tied to the transaction (such as a commission) to individual loan originators. Specifically, TILA section 129B(c)(2)(B) provides that a mortgage originator may receive from a person other than the consumer an origination fee or charge, and a person other than the consumer may pay a mortgage originator an origination fee or charge, if: (1) The mortgage originator does not receive any compensation directly from the consumer; and (2) “the consumer does not make an upfront payment of discount points, origination points, or fees, however denominated (other than bona fide third party charges not retained by the mortgage originator, creditor, or an affiliate of the creditor or originator).” The individual loan originator is the one that is receiving compensation from a person other than the consumer, namely the loan originator organization. Thus, TILA section 129B(c)(2)(B) permits the individual loan originator to receive compensation tied to the transaction from the loan originator organization if (1) the individual loan originator does not receive any compensation directly from the consumer and (2) the consumer does not make an upfront payment of discount points, origination points, or fees, however denominated (other than bona fide third party charges not retained by the individual loan originator, creditor, or an affiliate of the creditor or originator). The individual loan originator is not deemed to be receiving compensation in connection with the transaction from a consumer simply because the loan originator organization is receiving compensation from the consumer in connection with the transaction. The loan originator organization and the individual loan originator are separate persons. Nonetheless, the consumer is making “an upfront payment of discount points, origination points, or fees” in the transaction when it pays the loan originator organization compensation. The payment of the origination point or fee by the consumer to the loan originator organization is not a bona fide third-party charge under TILA section 129B(c)(2)(B)(ii). Thus, because the loan originator organization has received an upfront payment of origination points or fees from the consumer in the transaction, unless the Bureau exercises its exemption authority as discussed in more detail below, no loan originator (including an individual loan originator) may receive compensation tied to the transaction from a person other than the consumer.
Nonetheless, TILA section 129B(c)(2)(B) also provides the Bureau authority to waive or create exemptions from this prohibition on consumers paying upfront discount points, origination points or fees, where doing so is in the interest of consumers and the public. Pursuant to this waiver/exemption authority, the Bureau proposes to add § 1026.36(d)(2)(i)(C) to provide that, if a loan originator organization receives compensation directly from a consumer in connection with a transaction, the loan originator entity may pay compensation to individual loan originators, and the individual loan originators may receive compensation from the loan originator organization. The Bureau also proposes to amend comment 36(d)(2)–1 (re-designated as proposed comment 36(d)(2)(i)–1) to be consistent with proposed § 1026.36(d)(2)(i)(C). For the reasons discussed below, the Bureau believes that it is in the interest of consumers and the public to allow a loan originator organization to pay individual loan originators compensation in connection with the transaction, even when the loan originator organization has received compensation in connection with the transaction directly from the consumer.
The Bureau believes that the risk of harm to consumers that the current restriction was intended to address is likely no longer present, in light of new TILA provision 129B(c)(1). Under current § 1026.36(d)(1)(iii), compensation paid directly by a consumer to a loan originator could be based on loan terms and conditions. Thus, if a loan originator organization were allowed to pay an individual loan originator that works for the organization a commission in connection with a transaction, the individual loan originator could possibly steer the consumer into a loan with terms and conditions that would produce greater compensation to the loan originator organization, and the individual loan originator, because of this steering, could receive greater compensation if he or she were allowed to receive compensation in connection with the transaction. However, the risk is now expressly addressed by the Dodd-Frank Act. Specifically, TILA section 129B(c)(1), as added by section 1403 of the Dodd-Frank Act, prohibits compensation based on loan terms, even when a consumer is paying compensation directly to a mortgage originator. 12 U.S.C. 1639b(c)(1). Thus, pursuant to TILA section 129B(c)(1), and under proposed § 1026.36(d)(1), even if an individual loan originator is
The Bureau believes that it is in the interest of consumers and the public to allow loan originator organizations to pay compensation in connection with the transaction to individual loan originators, even when the loan originator organization is receiving compensation directly from the consumer. As discussed above, the Bureau believes the risk of the harm to the consumer that the restriction was intended to address has been remedied by the statutory amendment prohibiting even compensation that is paid by the consumer from being based on the transaction's terms. With that protection in place, allowing this type of compensation to the individual loan originator no longer presents the same risk to the consumer of being steered into a transaction involving direct compensation from the consumer because both the loan originator organization and the individual loan originator can realize greater compensation. In addition, with this proposed revision, more loan originator organizations may be willing to structure transactions where consumers pay loan originator compensation directly. The Bureau believes that this result will enhance the interests of consumers and the public by giving consumers greater flexibility in structuring the payment of loan originator compensation. In a transaction where the consumer pays compensation directly to the loan originator, the amount of the compensation may be more transparent to the consumer. In addition, in these transactions, the consumer may have more flexibility to choose the pricing of the loan. Subject to proposed § 1026.36(d)(2)(ii), as discussed in more detail below, in transactions where the consumer pays compensation directly to the loan originator, the consumer would know the amount of the loan originator compensation and could pay all of that compensation upfront, rather than the creditor determining the compensation and recovering the cost of that compensation from the consumer through the rate, or a combination of the rate and upfront origination points or fees.
As discussed above, under current § 1026.36(d)(2), a person other than the consumer (
Also, if a creditor is paying compensation in connection with a transaction to a loan originator organization or to individual loan originators that work for the creditor, as described above, current § 1026.36(d)(2) does not prohibit the creditor from collecting discount points or origination points or fees from the consumer in the transaction. For example, current § 1026.36(d)(2) does not limit a creditor's ability to charge the consumer origination points or fees which the consumer would pay in cash or out of the loan proceeds at or before closing as a means for the creditor to collect the loan originator's compensation or other costs. In addition, current § 1026.36(d)(2) does not limit a creditor's ability to offer a lower interest rate in a transaction in exchange for the consumer paying discount points.
New TILA section 129B(c)(2), which was added by section 1403 of the Dodd-Frank Act, restricts the ability of a creditor, the mortgage originator, or the affiliates of either to collect from the consumer upfront discount points, origination points, or fees in a transaction. 12 U.S.C. 1639b(c)(2). Specifically, TILA section 129B(c)(2)(B) provides that a mortgage originator may receive from a person other than the consumer an origination fee or charge, and a person other than the consumer may pay a mortgage originator an origination fee or charge, if: (1) the mortgage originator does not receive any compensation directly from the consumer; and (2) “the consumer does not make an upfront payment of discount points, origination points, or fees, however denominated (other than bona fide third party charges not retained by the mortgage originator, creditor, or an affiliate of the creditor or originator).” TILA section 129B(c)(2)(B)(ii) also provides the Bureau authority to waive or create exemptions from this prohibition on consumers paying upfront discount points, origination points, or fees, where doing so is in the interest of consumers and the public interest.
As discussed in more detail in the section-by-section analysis to proposed § 1026.36(d)(2)(i), the Bureau interprets the phrase “origination fee or charge” as used in new TILA section 129B(c)(2) more narrowly than compensation as used in TILA section 129B(c)(1) and to mean compensation that is paid “in connection with the transaction,” such as commissions, that are specific to, and paid solely in connection with, the transaction. Thus, under TILA section 129B(c)(2), for a transaction involving a loan originator organization, a creditor may pay compensation in connection with a transaction (
In addition, the Bureau proposes to use its exemption authority in TILA section 129B(c)(2)(B)(ii) to permit a loan originator organization to pay compensation in connection with a transaction to individual loan originators, even if the loan originator organization received compensation directly from the consumer. Assume a transaction where a loan originator organization receives compensation directly from the consumer. As discussed in more detail in the section-by-section analysis to proposed § 1026.36(d)(2)(i), TILA section 129B(c)(2) prohibits the loan originator organization from paying compensation tied to a transaction (such as commission) to an individual loan originator unless: (1) The individual loan originator does not receive compensation directly from the consumer; and (2) the consumer does not make an upfront payment of discount points, origination points, or fees, however denominated (other than bona fide third party charges not retained by the individual loan originator, creditor, or an affiliate of the creditor or originator). An individual loan originator is not deemed to be receiving compensation in connection with a transaction from a consumer simply because the loan originator organization is receiving compensation from the consumer in connection with the transaction. The loan originator organization and the individual loan originator are separate persons. Nonetheless, the consumer makes “an upfront payment of discount points, origination points, or fees” in the transaction when the loan originator organization is paid compensation by the consumer. The payment of the origination points or fees by the consumer to the loan originator organization is not considered a bona fide third-party charge under TILA section 129B(c)(2)(B)(ii). Thus, because the loan originator organization has received an upfront payment of origination points or fees from the consumer in the transaction, unless the Bureau exercises its exemption authority, no loan originator (including an individual loan originator) could receive compensation tied to the transaction from a person other than the consumer.
Likewise, under TILA section 129B(c)(2), for a transaction not involving a loan originator organization, unless the Bureau exercises its exemption authority, a creditor may pay compensation in connection with a transaction to individual loan originators, such as the creditor's employees, only if: (1) These individual loan originators do not receive compensation directly from the consumer, which they are generally prohibited from doing by the creditor pursuant to safety and soundness regulation; and (2) the consumer does not make an upfront payment of discount points, origination points, or fees as discussed above. As a result, under TILA section 129B(c)(2), if a consumer pays discount points, origination points, or fees to a creditor, the creditor cannot pay compensation in connection with the transaction (
To summarize, the prohibition in TILA section 129B(c)(2)(B)(ii) on the consumer paying upfront discount points, origination points, or fees in a transaction generally applies in three scenarios: (1) The creditor pays compensation in connection with the transaction (
The Bureau is proposing to implement the statutory provisions addressing the prohibition on the upfront payment by the consumer of discount points, origination points, or fees as set forth in TILA section 129B(c)(2)(B)(ii) by using its exemption authority provided in that same section. Specifically, the Bureau proposes to use its exemption authority set forth in TILA section 129B(c)(2)(B)(ii), which provides the Bureau authority to waive or create exemptions from the prohibition on consumers' paying upfront discount points, origination points, or fees, where doing so is in the interest of consumers and the public.
As discussed in more detail below, the Bureau proposes in new § 1026.36(d)(2)(ii)(A) restrictions on discount points and origination points or fees in a closed-end consumer credit transaction secured by a dwelling, if any loan originator will receive from any person other than the consumer compensation in connection with the transaction. Specifically, in these transactions, a creditor or loan originator organization may not impose on the consumer any discount points and origination points or fees in connection with the transaction unless the creditor makes available to the consumer a comparable, alternative loan that does not include discount points and origination points or fees; the creditor need not make available the
Under the proposal, a creditor would not be required to provide all consumers the option of a comparable, alternative loan that does not include discount points and origination points or fees. If the creditor determines that a consumer is unlikely to qualify for a comparable, alternative loan that does not include discount points and origination points or fees, the creditor is not required to make such a loan available to the consumer.
The Bureau notes that under § 1026.36(d)(3), affiliates are treated as a single “person.” Thus, affiliates of the creditor and the loan originator organization also could not impose on the consumer any discount points and origination points or fees in connection with the transaction unless the creditor makes available to the consumer a comparable, alternative loan that does not include discount points and origination points or fees, except that the creditor need not make available the alternative, comparable loan if the consumer is unlikely to qualify for such a loan.
The proposal also provides that no discount points and origination points or fees may be imposed on the consumer in connection with a transaction subject to proposed § 1026.36(d)(2)(ii)(A) unless there is a bona fide reduction in the interest rate compared to the interest rate for the comparable, alternative loan that does not include discount points and origination points or fees required to be made available to the consumer under § 1026.36(d)(2)(ii)(A). In addition, for any rebate paid by the creditor that will be applied to reduce the consumer's settlement charges, the creditor must provide a bona fide rebate in return for an increase in the interest rate compared to the interest rate for the loan that does not include discount points and origination points or fees required to be made available to the consumer under § 1026.36(d)(2)(ii)(A). As discussed in more detail below, the Bureau has evaluated three primary types of approaches to implement a requirement that the trade-off be “bona fide.”
As described in more detail below, the Bureau proposes in new § 1026.36(d)(2)(ii)(B) to define the term “discount points and origination points or fees” for purposes of § 1026.36(d) and (e) to include all items that would be included in the finance charge under § 1026.4(a) and (b), and any fees described in § 1026.4(a)(2) notwithstanding that those fees may not be included in the finance charge under § 1026.4(a)(2), that are payable at or before consummation by the consumer to a creditor or a loan originator organization, except for: (1) Interest, including per-diem interest; (2) any bona fide and reasonable third-party charges not retained by the creditor or loan originator organization; and (3) seller's points and premiums for property insurance that are excluded from the finance charge under § 1026.4(c)(5), and (d)(2), respectively. Under the proposal, the phrase “payable at or before consummation by the consumer to a creditor or a loan originator organization” would include amounts paid by the consumer in cash at or before closing or financed and paid out of the loan proceeds.
The Bureau notes that the proposal does not contain two potential restrictions that were discussed as part of the Small Business Review Panel process. First, the proposal does not contain a provision that would ban origination points and prevent origination fees from varying based on loan size. By and large, SERs were strongly opposed to the requirement that origination fees do not vary with the size of loan. SERs' opposition to the flat fee requirement was based on the view that the costs of origination varied for loans with different characteristics, such as geography and loan type, and GSE-imposed loan level pricing adjustments vary by loan size. In addition, SERs stated that the imposition of the flat fee requirement would disproportionately harm small lenders and would be regressive because borrowers with smaller loan amounts would be charged more than they are typically charged currently. The Bureau believes that the provisions set forth in this proposal accomplish a similar purpose as the flat fee requirement, namely to ensure that consumers are in the position to shop and receive value for origination points or fees, but does so in a way to minimize adverse consequences for industry and consumers that the flat fee requirement might entail.
Second, the proposal does not contain a provision that would “sunset” the proposed exemptions from the statutory restrictions on consumers' upfront payment of discount points, origination points, or fees. As detailed in the Small Business Review Panel Report, the Bureau had considered a sunset provision whereby, after a specified period (
SERs generally preferred the Bureau to follow its Dodd-Frank-Act requirement to review the impact of whatever regulation is adopted after five years instead of adopting an automatic sunset. The SERs believed an automatic sunset could be disruptive to the market.
To minimize potential disruption to the market, the Bureau is not proposing the “sunset” provision. The Bureau believes that the review it must conduct within five years of the rule's effective date pursuant to section 1022(d) of the Dodd-Frank Act is the appropriate method to continue to assess the impact of the rule. If the Bureau finds through this review that changes in the rule may be needed, the Bureau could make changes to the rule with notice and comment as appropriate. Nonetheless, the Bureau solicits comment on whether such as “sunset” provision would be beneficial.
The Bureau believes that the proposal may benefit consumers and the public by providing consumers the flexibility to decide whether to pay discount points and origination points or fees. The Bureau believes that permitting creditors to offer consumers the option to choose to pay discount points and origination points or fees may benefit consumers by giving them additional options in choosing a loan product that fits their needs.
Some mortgage consumers may want the lowest rate possible on their loans. In addition, some mortgage customers may prefer to lower the future monthly payment on the loan below some threshold amount, and paying discount points and origination points or fees would allow consumers to achieve this lower monthly payment by reducing the interest rate. In addition, some consumers may need to pay discount points and origination points or fees to reduce the monthly payment on the loan so that they can qualify for the loan. Without the ability to pay discount points and origination points or fees to reduce the monthly payment, the interest rate and the monthly payments on the loan that does not include discount points and origination points or fees may be too high for the consumer to qualify for the loan.
A consumer could achieve a lower monthly payment by making a bigger down payment and thus reducing the loan amount. Nonetheless, it may be difficult for consumers to use this option to reduce significantly the monthly payment because it might take a significant increase in the down payment to achieve the desired reduction in the monthly payment. In other words, if the consumer took the same money that he or she would pay in discount points and origination points or fees and made a bigger down payment to reduce the loan amount, the consumer may not gain as large of a reduction in the monthly payment as if the consumer used that money to pay discount points and origination points or fees to reduce the interest rate. Some consumers may also obtain a tax benefit by paying discount points that applying such funds to a down payment would not achieve.
Having the option to pay discount points and origination points or fees also allows consumers to determine whether they can best lower the overall costs of the mortgage loan by paying discount points and origination points or fees upfront in exchange for a lower interest rate. There will be a specific point in the timeline of the loan where the money spent to buy down the interest rate will be equal to the money saved by making reduced loan payments resulting from the lower interest rate on the loan. Selling the property or refinancing prior to this break-even point will result in a net financial loss for the consumer, while keeping the loan for longer than this break-even point will result in a net financial savings for the consumer. The longer a consumer keeps the same credit extension in place, the more the money spent on the discount points and origination points or fees will pay off. The Bureau believes consumers will be benefited by retaining the option to make these evaluations based upon their assessment of the costs and benefits, as well as their future plans.
On the other hand, some consumers may prefer not to pay discount points and origination points or fees. For example, some consumers may not have the cash to pay discount points and origination points or fees before or at closing, and may wish not to finance such fees or have insufficient equity available to do so. In addition, some consumers may contemplate selling the home or refinancing the mortgage within a short period of time and may believe that it is not in their best interests to pay discount points and origination points or fees upfront in exchange for a lower interest rate.
The Bureau is proposing to structure the use of its exemption authority to leverage the benefits that would arise if creditors were limited to making loans that do not include discount points and origination points or fees while preserving consumers' ability to choose another loan when appropriate. Through the proposal, the Bureau hopes to advance two objectives to address the problems in the current mortgage market that the Bureau believes the prohibition on discount points and origination points or fees was designed to address: (1) To facilitate consumer shopping by enhancing the ability of consumers to make comparisons using loans that do not include discount points and origination points or fees available from different creditors as a basis for comparison; and (2) to enhance consumer decisionmaking by facilitating a consumer's ability to understand and make meaningful trade-offs on loans available from a particular creditor of paying discount points and origination points or fees in exchange for a higher interest rate. In addition, the Bureau is considering whether to adopt additional safeguards to ensure consumers who make upfront payments of discount points and origination points or fees receive value in return.
The quote for the loan that does not include discount points and origination points or fees would need to be given only if the quote for the loan that includes discount points and origination points or fees is given prior to when the consumer receives the Good Faith Estimate (required under RESPA). The requirement to provide a quote for a loan that does not include discount points or origination points or fees would also not apply to any disclosures required by TILA or RESPA on loans that include discount points or origination points or fees. The Bureau believes that consumers generally ask for, and are provided, quotes from creditors prior to application. However, as discussed below, the Bureau is inviting comments as to whether the requirement to provide an alternative quote should apply in conjunction with the Loan Estimate, as proposed in the TILA–RESPA Integration Proposal.
Under the proposal, a creditor using this safe harbor is required to provide information about the loan that does not include discount points and origination points or fees only when the information about the loan that includes discount points or origination points or fees is specific to the consumer. Advertisements would not be subject to this requirement.
In addition, in a transaction that involves a loan originator organization, the creditor generally would be deemed to have made available the loan that does not include discount points and origination points or fees if the creditor communicates to the loan originator organization the pricing for all loans that do not include discount points and origination points or fees. Separately, mortgage brokers are prohibited under § 1026.36(e) from steering consumers into a loan solely to maximize the broker's commission. The rule sets forth a safe harbor for complying with provisions prohibiting steering if the broker presents to the consumer three loan options that are specified in the rule. One of these loan options is the loan with the lowest total dollar amount for discount points and origination points or fees. Thus, mortgage brokers that are using the safe harbor must present to the consumer the loan with the lowest interest rate that does not include discount points and origination points or fees. The Bureau believes that most mortgage brokers are using the safe harbor to comply with the provision prohibiting steering, so most consumers in transactions that involve mortgage brokers would be informed of the loan with the lowest interest rate that does not include discount points and origination points or fees.
As discussed above, under the proposal, a creditor is not required to make available a comparable, alternative loan if the consumer is unlikely to qualify for that loan. The Bureau solicits comment on whether consumers should be informed that they were not given information about a comparable, alternative loan because they were unlikely to qualify for that loan. For example, in transactions that do not involve a loan originator organization, should creditors be required either to make the comparable, alternative loan available to the consumer if the consumer likely qualifies for that loan or to inform consumers that the creditor is not making the comparable, alternative loan available because the consumer is unlikely to qualify for that loan? In transactions that involve a loan originator organization, should a loan originator organization using the safe harbor under § 1026.36(e) be required to disclose to a consumer that the loan originator organization did not present a loan that does not include discount points and origination points or fees because the consumer was unlikely to qualify for that loan from the creditors with whom the loan originator organization regularly does business? The Bureau specifically requests comment on whether it is useful to consumers to be informed that they were unlikely to qualify for the comparable, alternative loan.
The Bureau recognizes that creditors who do not wish to make loans that do not include discount points and origination points or fees available to particular consumers could possibly manipulate their underwriting standards so that those consumers do not qualify for such a loan. To prevent this practice, the Bureau is considering safeguards designed to prohibit creditors from changing their qualification standards, such as loan-to-value ratios and credit score requirements, solely for the purpose of disqualifying consumers from receiving loans that does not include discount points and origination points or fees. This alternative would make clear that creditors must make available the loan that does not include discount points and origination points or fees unless, as a result of the increased monthly payment resulting from the higher interest rate on the loan that does not include discount points and origination points or fees, the consumer cannot satisfy the creditor's underwriting rules. The Bureau invites comments on whether there is a risk that, absent such a requirement, some creditors might manipulate their underwriting standards and whether the Bureau should adopt a rule against doing so.
The Bureau recognizes, however, that even if underwriting standards could not be manipulated, creditors who do not want to make loans that do not include discount points and origination points or fees could set the interest rates high for certain consumers, which could increase the monthly payment on those loans to be high so that those consumers cannot satisfy the creditor's underwriting rules. Thus, the Bureau is considering another alternative, whereby a creditor would be able to make available a loan that includes discount points and origination points or fees only when the consumer also qualifies for a comparable, alternative loan that does not include discount points and origination points or fees. A potential advantage of this alternative is that it would effectively limit creditors' opportunity to manipulate their underwriting standards or charge above-market interest rates to prevent particular consumers from qualifying for a loan that does not include discount points and origination points or fees.
On the other hand, the Bureau is concerned that adoption of such an alternative may impact access to credit.
The Bureau specifically requests comment on credit availability issues of adopting such an alternative. For example, in some cases, a consumer may not qualify for the loan that does not include discount points and origination points or fees because the loan has a higher interest rate and the monthly payments on that loan will be too high for the consumer to qualify based on the debt-to-income ratio and other underwriting standards used by the creditor. The Bureau recognizes that this may be true even if the interest rate the creditor charges on the loan that does not include discount points and origination points or fees is a competitive market rate, and the creditor does not change its underwriting standards purposefully to prevent consumers from qualifying for the loan. The Bureau requests comment on how common it would be for this to occur, in which scenarios it would be more likely to occur, and what types of consumers would likely be affected.
In addition, in industry outreach meetings, some creditors expressed concern that the interest rate (and corresponding APR) that a creditor may need to charge a less-creditworthy consumer for a loan that does not include discount points and origination points or fees to make the loan profitable to the creditor could exceed the APR threshold set forth in the rules under § 1026.32 for high-cost mortgages (“high-cost mortgage rules”) and could make that loan a high-cost mortgage. These creditors also pointed out that there are State laws that have restrictions similar to the high-cost mortgage rules. Many creditors generally do not want to make loans that would be subject to the high-cost mortgage rules or similar State laws. If the alternative were adopted where a consumer must qualify for the comparable, alternative loan that does not include discount points and origination points or fees, the consumer could not obtain this specific type of loan from the creditor even though the creditor would be willing to make the consumer a comparable, alternative loan that includes discount points and origination points or fees because this loan would not trigger the high-cost mortgage rules or similar State laws. The Bureau does not currently have sufficient data to model the impact of the requirement for a creditor to make available a comparable, alternative loan that does not include discount points and origination points or fees on triggering the high-cost mortgage rules or similar State laws or to model the impact on credit availability to the extent that such rules or laws are triggered. The Bureau seeks data and comment on the potential triggering of the high-cost mortgage rule or similar State laws, the potential impact on credit availability, and potential modifications to the requirement to mitigate these effects.
Moreover, the Bureau is aware that certain State loan programs that permit creditors to charge origination points on the loans do not permit the option of charging a higher interest rate in lieu of charging the origination points. The Bureau requests additional comment on these types of State loan programs, how they work, how prevalent they are, the types of consumers these programs typically serve; and how common it is for creditors under these programs not to have the option of charging a higher interest rate.
Also, in outreach meetings, some creditors mentioned that, while creditors that sell loans in the secondary market typically can recover their origination costs through the premium paid through the sale of the loan for the higher interest rate, creditors that hold loans in portfolio do not have that option and would be required to recover the origination costs through a higher interest rate if the creditor cannot charge an upfront origination fee. Consumers with loan products with higher rates are more likely to refinance those loan products and thus a creditor that holds those loans in portfolio would have to use another approach to recover the costs to originate those loans. Thus, creditors that plan to hold a loan in portfolio may be more reluctant to make available to a consumer a loan that does not include discount points and origination points or fees. This may particularly affect small or specialty creditors that may be more likely to hold a sizable number of loans in portfolio. The Bureau requests comment on whether creditors currently make portfolio loans that do not include discount points and origination points or fees, and if so, how creditors typically manage the risk that such consumers will refinance the loans or sell the homes and repay the loans prior to the origination costs being recovered.
In addition, in outreach with industry, some creditors raised concerns that, even for creditors that sell loans into the secondary market, it may not possible for creditors in all cases to make available to all consumers a loan that does not include discount points and origination points or fees. These creditors indicated that in some cases it is possible that the premium paid in the secondary market for a loan will not be sufficient for the creditor to cover origination and other costs and to realize a profit. These creditors indicated that this may occur more often for smaller loans, or riskier loans (such as where the consumer's credit score is low and the loan-to-value ratio on the loan is high). These creditors indicated that the interest rates on these types of loans would likely be high, and the secondary market may not pay sufficient premiums for those loans even though they have a higher interest rate because secondary market investors would be concerned about prepayment risk. These creditors indicated that in these situations, creditors may not make loans that include discount points and origination points or fees available to consumers because they would be unwilling to make available, as required, a comparable, alternative loan that does not include discount points and origination points or fees.
The Bureau requests comment, however, on: (1) The circumstances, either currently or in the past, where creditors are unable to make available to consumers loans that do not include discount points and origination points or fees because the premiums received by the creditor on those loans are not sufficient to sell the loan into the secondary market, and (2) the characteristics of the types of loans and consumers affected in these circumstances. In addition, the Bureau requests comment on whether the secondary market is likely to adjust to create new securities to disperse risk, including prepayment risk, if the volume of loans with higher interest rates increases because more consumers are offered the option, and actually choose, not to pay discount points and origination points or fees.
The Bureau also solicits comment on whether, if the alternative were adopted where a consumer must qualify for the comparable, alternative loan that does not include discount points and origination points or fees, creditors should be required to inform a consumer that he or she is not being offered a loan that includes discount points and origination points or fees because the consumer does not qualify for the comparable, alternative loan that does not include discount points and origination points or fees.
Thus, the Bureau solicits comment on whether the advertising rules in § 1026.24(d) should be revised to enable consumers to make comparisons using loans that does not include discount points and origination points or fees made available by different creditors as a basis for comparison. Currently, under § 1026.24(d), if an advertisement includes a “trigger term,” the advertisement must contain certain other information described in § 1026.24(d). The “trigger terms” set forth in § 1026.24(d)(1) are: (1) The amount or percentage of any downpayment; (2) the number of payments or period of repayment; (3) the amount of any payment; and (4) the amount of any finance charge (which includes the interest rate). Currently, under § 1024(d)(2), if one or more of these trigger terms are set forth in such an advertisement, the following information (“triggered terms”) must also be contained in the advertisement: (1) The amount or percentage of the downpayment; (2) the terms of repayment, which reflect the repayment obligations over the full terms of the loan, including any balloon payment; and (3) the “annual percentage rate,” using that term and, if the rate may be increased after consummation, that fact.
The Bureau solicits comment on whether the creditor in such an advertisement that contains the interest rate for a loan that includes discount points and origination points or fees also must contain the following information for the comparable, alternative loan that does not include discount points and origination points or fees: (1) The interest rate; and (2) the amount or percentage of the downpayment; (3) the terms of repayment, which reflect the repayment obligations over the full terms of the loan, including any balloon payment; and (4) the “annual percentage rate,” using that term and, if the rate may be increased after consummation, that fact. The Bureau solicits comment on whether this information about the loan that does not include discount points and origination points or fees must be equally prominent in the advertisement as the information about the loan that includes discount points and origination points or fees. The Bureau expects that the other rules set forth in § 1026.24 (such as the special rules applicable to catalog advertisements, and radio and television advertisements) would apply to this additional information about the loan that does not include discount points and origination points or fees, as applicable, in the same way that it applies to the information that is provided for the loan that includes discount points and origination points or fees. For example, in radio and television advertisements where the creditor discloses an interest rate for a loan that includes discount points and origination points or fees, a creditor is given the option (1) to comply with the rules in § 1026.24(d), as described above; or (2) to state the “annual percentage rate,” using that term and, if the rate may be increased after consummation, that fact and to list a toll-free telephone number that may be used by consumers to obtain additional cost information. See § 1026.24(g). The Bureau expects that a similar alternative method of disclosure would apply to the information that must be provided for the comparable, alternative loan that does not include discount points and origination points or fees.
The Bureau solicits comment on whether § 1026.24 should be revised, as discussed above, to require that a creditor that provides in an advertisement the interest rate for a loan that includes discount points and origination points or fees to include in such advertisement certain information for a comparable, alternative loan that does not include discount points and origination points or fees. The Bureau specifically solicits comment on whether this information would be useful to consumers that are interested in loans that do not include discount points and origination points or fees to compare such loans available from different creditors.
Consumers may find it easier to compare the loan pricing on loans that do not include discount points and origination points or fees available from different creditors because most of the cost of the loans would be incorporated into the interest rate. A consumer could compare the interest rates on such loans available from different creditors, without having to consider a variety of different discount points and origination points or fees that might be charged on each loan.
The Bureau recognizes that new TILA section 129B(c)(2)(B)(ii), and this
The Bureau potentially could address this inconsistent treatment of third-party charges by providing that certain third-party charges are always excluded from discount points and origination points or fees, even when they are payable to an affiliate of the creditor or a loan originator organization. Nonetheless, even if payments for certain services were consistently excluded from the definition of discount points and origination points or fees, the consumer still may need to consider the amount of such closing costs in comparing alternative transactions. Consistently excluding certain services from the definition of discount points and origination points or fees may make it easier for a consumer to compare the interest rates on loan products available from different creditors if (1) the total amount of the closing costs that are not incorporated into the interest rate generally remains similar among different creditors; or (2) consumers have the ability to hold these costs constant by shopping for these services.
The Bureau requests comment on the scope of the definition of discount points and origination points or fees.
The Bureau also requests comment on ways to revise the definition of discount points and origination points or fees to facilitate consumers' ability to compare alternative loans that do not include discount points and origination points or fees from different creditors. In particular, the Bureau solicits comment on whether it should exempt from the definition of discount points and origination points or fees any fees imposed for lender's title insurance, regardless of whether this service is provided by the creditor, the loan originator organization, or the affiliates of either or is provided by an unaffiliated third party, so long as the fees are bona fide and reasonable. The Bureau understands that the cost of lender's title insurance can be a significant portion of a mortgage loan's total closing costs. Thus, excluding this cost from being incorporated into the rate for the loan that does not include discount points and origination points or fees, regardless of what party provides the service, may help produce interest rates that are more comparable across different creditors. In addition, the Bureau believes that, because the cost of lender's title insurance often is regulated by the States, the cost may remain constant from creditor to creditor. Accordingly, excluding lender's title coverage from the definition of discount points and origination points or fees in all cases may increase the ease with which consumers can shop among multiple creditors using the interest rate that does not include discount points and origination points or fees as a means of comparison. The Bureau also solicits comment on whether this same reasoning may be applicable for other types of insurance, assuming those costs also generally are regulated by the States.
The Bureau also recognizes that there may be other services that might be performed either by the creditor, the loan originator organization, or affiliates of either, or by an unaffiliated third party. For example, such services may include appraisal, credit reporting, property inspections, and others. The Bureau requests comment on whether continuing to treat these services differently for purposes of the definition of discount points and origination points or fees depending on what party provides those services would hinder consumers' ability to shop among multiple creditors using the interest rate on loans that do not include discount points and origination points or fees.
Alternatively, the Bureau solicits comment on whether fees for all services provided by an affiliate of a creditor or loan originator organization should be excluded from the definition of discount points and origination points or fees. The Bureau solicits comment on whether excluding affiliate fees consistent with the exclusion for third-party fees would facilitate consumers' ability to shop using the interest rates on loans that do not include discount points and origination points or fees. The Bureau remains concerned, however, that such an exclusion for affiliates fees could be used by creditors to circumvent the prohibition in proposed § 1026.36(d)(2)(ii). For example, creditors could have affiliates perform certain services that are typically performed by the creditor (subject to RESPA restrictions), and exclude fees for those services under this exception. This would permit such a creditor to make available to consumers an interest rate for a loan that does not include discount points or origination points or fees, as defined, but still impose up front through its affiliate some or all of the costs that, in light of the purpose of proposed § 1026.36(d)(2)(ii), more properly should be included in the interest rate.
As a third alternative, the Bureau solicits comment on whether it should exclude certain services that unambiguously relate to ancillary services, such as credit reports, appraisals, and property inspections, rather than core loan origination services, even if the creditor, loan originator organization, or an affiliate of either performs those services, so long as the amount paid for those services is bona fide and reasonable. The core loan origination services that could not be excluded would be ones that specifically relate to the origination of a mortgage loan and typically are provided by the creditor or the loan originator organization, possibly clarified further by reference to the meaning of “loan originator” in proposed § 1026.36(a)(3). The Bureau requests comment on whether such an approach is likely to improve the ease with which consumers can compare loans that does not include discount points and origination points or fees from different creditors, by ensuring that the types of fees incorporated into the interest rate for the loans that does not include discount points and origination points or fees generally remain constant across different creditors. The Bureau further solicits comment on how such ancillary
Consumer groups have raised concerns that consumers' ability to choose to pay discount points and origination points or fees may not actually be beneficial to consumers because they do not understand trade-offs between upfront discount points and origination points or fees and paying a higher interest rate. Furthermore, even if consumers understand such trade-offs, they may not be able to determine whether discount points and origination points or fees paid up front result in a reasonably proportionate interest rate reduction. There is also concern that creditors may present multiple permutations and, because of their complexity and opaqueness, consumers may not be easily able to make such evaluations.
Consumer testing conducted by the Bureau on closed-end mortgage disclosures suggests that some consumers do understand that there is a trade-off between paying upfront discount points and origination points or fees and paying a higher interest rate. Specifically, as discussed in part II.E above, the Bureau is proposing to combine certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under TILA and RESPA. As discussed in the supplementary information to that proposed rule, the Bureau conducted extensive consumer testing on these proposed disclosure forms. Through this consumer testing, the Bureau specifically examined how the required disclosures should work together on the integrated disclosure to maximize consumer understanding. As part of the consumer testing, the Bureau looked at how consumers would make trade-offs between the interest rate and closing costs. For example, in one round of testing, participants compared two adjustable rate loans with different closing costs. One loan had a 2.75 percent initial interest rate that adjusted every year after Year 5 with $11,448 in closing costs; the other loan had an 3.5 percent initial interest rate that adjusted every year after Year 5 with $3,254 in closing costs. In subsequent rounds of testing, the Bureau tested forms that presented interest only loans; various adjustable rate loans; balloon payments; bi-weekly payment loans; loans with escrow accounts, partial escrow accounts, and no escrow accounts; different closing costs; and different amounts of cash to close.
Significantly, in this testing, participants were able to make multi-factored trade-offs between the interest rate and monthly payments and the cash needed to close based on their personal situations. Many participants were aware of the trade-off between the cash to close and the interest rate and corresponding monthly loan payment. When they chose the higher interest rate, they understood it would result in a higher monthly payment. They made this choice however, because they knew they did not have access to the needed cash to close. Conversely, other participants were willing to pay the higher closing costs to lower the monthly payment. Even with increasingly complicated decisions, participants continued to be able to use the disclosures to make certain multi-factored trade-offs and gave rational and personal explanations of their choices.
Thus, the Bureau believes that providing information to consumers about the comparable, alternative loan that does not include discount points and origination points or fees so that consumers can compare these loans to loans that include such points or fees and have lower interest rates facilitates consumers' ability to choose the trade-off that best fits their needs. As discussed above, for retail transactions, a creditor will be deemed to be making the loan available if, any time the creditor provides a quote specific to the consumer for a loan that includes discount points and origination points or fees, the creditor also provides a quote for a comparable, alternative loan that does not include those discount points and origination points or fees (unless the consumer is unlikely to qualify for the loan). The interest rate on the loan that does not include discount points and origination points or fees provides a baseline interest rate for the consumer. By having the interest rate on this loan as the baseline, consumers may better understand the trade-off that the creditor is providing to the consumer for paying discount points and origination points or fees in exchange for a lower interest rate.
In addition, to further achieve the goal of enhancing consumer understanding of the trade-offs of making upfront payments in return for a reduced interest rate, the Bureau is also considering and solicits comment on whether there should be a requirement after application that a creditor disclose to a consumer a loan that does not include discount points and origination points or fees. As discussed in part II.E above, the Bureau issued a proposal to combine certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under TILA and RESPA. Under that proposal, the Bureau proposed to require creditors to provide a “Loan Estimate” not later than the third business day after the creditor receives the consumer's application.
The Bureau solicits comment on whether it would be useful for the consumer if, at the time a creditor first provides a Loan Estimate for a loan that includes discount points and origination points or fees, the creditor also were required to provide either a complete Loan Estimate, or just the first page of the Loan Estimate, for a comparable, alternative loan that does not include discount points and origination points or fees. Thus, if the Loan Estimate the creditor initially provides to the consumer not later than the third business day after the creditor receives the consumer's application describes a loan that includes discount points and origination points or fee, the creditor also would be required to disclose a second Loan Estimate (or at least the first page of the Loan Estimate) at that time to the consumer that describes the comparable, alternative loan that does not include discount points and origination points or fees. The Bureau specifically solicits comment on whether receiving this second Loan Estimate from the same creditor would be helpful to the consumer in understanding the trade-off
The Bureau expects that, if this alternative were adopted, it would not become effective until the rules mandating the Loan Estimate are finalized. Until the Loan Estimate is finalized, creditors are required to provide two different disclosure forms to consumers applying for a mortgage, namely the mortgage loan disclosures required under TILA and the GFE required under RESPA. The Bureau believes that it would create information overload for consumers to receive two disclosure forms for the loan that includes discount points and origination points or fees, and two disclosure forms for the comparable, alternative loan that does not include discount points and origination points or fees.
Proposed § 1026.36(d)(2)(ii)(C) provides that no discount points and origination points or fees may be imposed on the consumer in connection with a transaction subject to proposed § 1026.36(d)(2)(ii)(A) unless there is a bona fide reduction in the interest rate compared to the interest rate for the comparable, alternative loan that does not include discount points and origination points or fees required to be made available to the consumer under § 1026.36(d)(2)(ii)(A). In addition, for any rebate paid by the creditor that will be applied to reduce the consumer's settlement charges, the creditor must provide a bona fide rebate in return for an increase in the interest rate compared to the interest rate for the loan that does not include discount points and origination points or fees required to be made available to the consumer under § 1026.36(d)(2)(ii)(A). As discussed in more detail below, the Bureau has evaluated three primary types of approaches to implement a requirement that the trade-off be “bona fide.”
The Bureau solicits comment on whether the Bureau should adopt a “bona fide” requirement to help ensure that all consumers receive a competitive market trade-off between the interest rate and the payment of discount points and origination points or fees or whether, alternatively, market forces are sufficient to ensure that consumers generally receive such competitive trade-offs. As discussed above, the requirement to make available a loan that does not include discount points and origination points or fees informs consumers of the baseline interest rates on the loans that do not include discount points and origination points or fees so that consumers can make informed decisions on the trade-offs presented by creditors. In addition, as discussed above, consumer testing conducted by the Bureau on closed-end mortgage disclosures suggests that some consumers do understand aspects of the trade-off between paying upfront discount points and origination points or fees and paying a higher interest rate. The Bureau believes that, in general, creditors will need to incorporate competitive pricing into their pricing policies to attract consumers that do understand this trade-off and shop for the best pricing. Nonetheless, the Bureau recognizes that there will be some consumers who are less sophisticated in terms of understanding the trade-off, and creditors may be able to present those consumers less competitive pricing than what is in the creditor's pricing policy. Thus, the Bureau solicits comment on whether a “bona fide” requirement is necessary to ensure that all consumers receive a competitive market trade-off between the interest rate and the payment of discount points and origination points or fees.
In addition, the Bureau seeks comment on how it might structure such a “bona fide” requirement, if one is appropriate. In considering this issue, the Bureau has evaluated the following three primary types of approaches to structuring the bona fide trade-off requirements: (1) A pricing-policy approach; (2) a minimum rate reduction approach; and (3) a market-based benchmark approach.
• First, the creditor would be required to establish a pricing policy that sets forth the amount of discount points and origination points or fees that each consumer would pay or the amount of the “rebate” that each consumer would receive, as applicable, for each interest rate on each loan product available to the consumer. The term “rebate” refers to an amount contributed by the creditor to pay some or all of the consumer's transaction costs, generally resulting from the consumer's agreeing to accept a “premium” (above par) interest rate.
• Second, the creditor would be allowed to change its pricing policy periodically, but may not do so to provide less favorable pricing for the purpose of a consumer's particular transaction. The term “pricing” would mean the interest rate applicable to a loan and the corresponding discount points and origination points or fees a consumer would pay or the amount of the rebate that the consumer would receive, as applicable, for the interest rate applicable to the loan.
• Third, at the time the interest rate on the transaction is set (or “locked”), the pricing offered to the consumer must be no less favorable than the pricing established by the creditor's current pricing policy.
• Fourth, at the time the interest rate on the transaction is set, the interest rate offered to the consumer in return for paying discount points and origination points or fees must be lower than the interest rate for the loan that does not include discount points and origination points or fees.
Under such an approach, a creditor would not be required to charge all consumers the same amount of discount points and origination points or fees or provide all consumers the same amount of rebate, as applicable, at each interest rate for each loan product. A creditor's pricing policy could still set forth specific pricing adjustments for determining the amount of discount points and origination points or fees or the amount of the rebate, as applicable, for consumers at each rate for each loan, based on factors such as the consumer's risk profile (such as the consumer's credit score) and the characteristics of the loan or the property securing the loan (such as the loan-to-value ratio, or whether the property will be owner-occupied). The pricing adjustments, however, would need to be set forth with specificity in the pricing policy. These pricing adjustments could be changed periodically, for example, for market or other reasons, but may not be changed to provide less favorable pricing for the purpose of a consumer's particular transaction.
Also, under such an approach, creditors would still be allowed to provide more favorable pricing to a particular consumer than the pricing set forth in the creditor's current pricing policy. This would preserve consumers' ability to negotiate better pricing with creditors. For example, upon receiving a rate quote from a creditor, a consumer could inform the creditor that a competitor is offering a lower rate for the consumer paying the same amount of discount points and origination points or fees. The creditor could agree to match the lower rate under this approach.
The Bureau recognizes that, with this flexibility, a creditor could potentially circumvent the purpose of this approach by setting forth less competitive pricing in its pricing policy but then regularly departing from the policy to provide more favorable pricing to particular consumers, especially more sophisticated consumers. On the other hand, the Bureau believes that several factors could militate against a creditor doing this. Processing frequent exceptions to the pricing policy may be inefficient for a creditor; expose creditors to risks, such as potential violations of fair lending laws; and would call into question whether the creditor has complied with the requirement under this approach to set forth its pricing policy. In addition, competition may discipline creditors to offer competitive rates. The Bureau specifically requests comment on whether such an approach should be adopted, as well as on its advantages and disadvantages. The Bureau also requests comment specifically on the burdens this approach would create for creditors to retain records necessary to document the pricing policy applicable to each consumer's transaction.
However, the Bureau is concerned that mandating such a minimum reduction in the interest rate for each point paid could unduly constrict pricing of mortgage products. The Bureau understands that creditors often use the dollar amount of the premium that the creditor expects to receive from the secondary market for a loan at a particular rate as a factor in its determination of the reduction in the interest rate given for each point paid. The Bureau understands that these premiums do not move in a linear manner. Thus, depending on the premiums that are paid by the secondary market for each interest rate, the amount of reduction in the interest rate may be .125 of a percentage point for the first point paid, but may be .25 of a percentage point for the second point paid. In addition, the amount of reduction in the interest rate for each point paid by the consumer in discount points and origination points or fees also could vary for a number of other reasons, such as by product type (
In the Board's 2011 Ability to Repay (ATR) Proposal, the Board proposed a definition of “bona fide discount points” for use in determining whether a loan is a “qualified mortgage.” Under the 2011 ATR Proposal, a creditor can make a “qualified mortgage,” which provides the creditor with protections against potential liability under the general ability-to-repay standard set forth in that proposal.
The 2011 ATR Proposal provided exceptions to the calculation of points and fees for certain bona fide discount points, which were defined as “any percent of the loan amount” paid by the consumer that reduces the interest rate or time-price differential applicable to the mortgage loan by an amount based on a calculation that: (1) Is consistent with established industry practices for determining the amount of reduction in the interest rate or time-price differential appropriate for the amount of discount points paid by the consumer; and (2) accounts for the amount of compensation that the creditor can reasonably expect to receive from secondary market investors in return for the mortgage loan.
As discussed by the Board in its 2011 ATR Proposal, the value of a rate reduction in a particular mortgage transaction on the secondary market is based on many complex factors, which interact in a variety of complex ways.
• The product type, such as whether the loan is a fixed-rate or adjustable-rate mortgage, or has a 30-year term or a 15-year term.
• How much the mortgage-backed securities (MBS) market is willing to pay for a loan at that interest rate and the liquidity of an MBS with loans at that rate.
• How much the secondary market is willing to pay for excess interest on the loan that is available for capitalization outside of the MBS market.
• The amount of the guaranty fee required to be paid by the creditor to the investor.
Another variation of the market-based approach would be to measure whether a trade-off is bona fide through reference to regularly obtained, robust, and reliable data on the trade-offs currently being afforded, possibly by conducting a survey of actual market terms. According to this variation, the trade-off available from a particular creditor would be measured against this benchmark to determine whether it is deemed competitive for purposes of this rule. At present, the Bureau knows of no existing survey or other source of such data and, therefore, assumes that pursuing such an approach would require that the Bureau establish such a survey or other source of data for these purposes.
The Bureau is concerned that it may be difficult to effectively implement this variation of the market-based approach in a manner that adequately accounts for the impacts of all the factors that affect the value that the secondary market places on a rate reduction for a particular transaction. In addition, the Bureau recognizes that a determination whether a creditor is providing a competitive market trade-off in the interest rate on a loan that is based on actual market trade-offs in the recent past might not be reflective of future trade-offs, given that the MBS market varies frequently.
The Bureau requests comment on the feasibility of using this variation of a market-based benchmark to determine whether a creditor is providing a competitive market trade-off in the interest rate on a loan that includes discount points and origination points or fees compared to industry standards. More generally, the Bureau solicits comment on whether any market-based benchmark should be pursued in this rulemaking and, if so, how it should be structured.
As discussed in more detail above, the Bureau proposes in new § 1026.36(d)(2)(ii)(A) restrictions on discount points and origination points or fees in a closed-end consumer credit transaction secured by a dwelling, if any loan originator will receive from any person other than the consumer compensation in connection with the transaction. Specifically, in these transactions, a creditor or loan originator organization may not impose on the consumer any discount points and origination points or fees in connection with the transaction unless the creditor makes available to the consumer a comparable, alternative loan that does not include discount points and origination points or fees; the creditor need not make available the alternative, comparable loan, however, if the consumer is unlikely to qualify for such a loan.
Proposed comment 36(d)(2)(ii)–1.iii clarifies the relationship of proposed § 1026.36(d)(2)(ii) to the provisions prohibiting dual compensation in proposed § 1026.36(d)(2)(i). This proposed comment clarifies that § 1026.36(d)(2)(ii) does not override any of the prohibitions on dual compensation set forth in § 1026.36(d)(2)(i). For example, § 1026.36(d)(2)(ii) does not permit a loan originator organization to receive compensation in connection with a transaction both from a consumer and from a person other than the consumer.
Proposed comment 36(d)(2)(ii)(A)–1.i.B clarifies that a creditor using this safe harbor is required to provide information about the loan that does not include discount points and origination points or fees only when the information about the loan that includes discount points or origination points or fees is specific to the consumer. Advertisements would be excluded from this requirement.
Under this safe harbor, proposed comment 36(d)(2)(ii)(A)–1.i.C clarifies that “comparable, alternative loan” means that the two loans for which estimates are provided as discussed above have the same terms and conditions, other than the interest rate, any terms that change solely as a result of the change in the interest rate (such the amount of regular periodic payments), and the amount of any discount points and origination points or fees. The Bureau believes that, for a consumer to compare loans meaningfully and usefully, it is important that the only terms and conditions that are different between the loan that includes discount points and origination points or fees and the loan that does not include discount points and origination points or fees are: (1) The interest rates applicable to the loans; (2) any terms that change solely as a result of the change in the interest rate (such the amount of regular periodic payments); and (3) the fact that one loan includes discount points and origination points or fees and the other loan does not. Proposed comment 36(d)(2)(ii)(A)–4 provides guidance on the meaning of “regular periodic payment” and indicates that this term means payments of principal and interest (or interest only, depending on the loan features) specified under the terms of the loan contract that are due from the consumer for two or more unit periods in succession. The Bureau believes that limiting the differences between the two loans will allow consumers to focus consumer choice on core loan terms and help consumers understand better the trade-off between the two loans in terms of paying discount points and origination points or fees in exchange for a lower interest rate. In addition, proposed comment 36(d)(2)(ii)(A)–1.i.C clarifies that a creditor using this safe harbor must provide the estimate for the loan that does not include discount points and origination points or fees in the same manner (
Also, as clarified by proposed comment 36(d)(2)(ii)(A)–1.i.E, a creditor using this safe harbor must disclose estimates of the interest rate, the regular periodic payments, the total amount of the discount points and origination points or fees, and the total amount of the closing costs for the loan that does not include discount points and origination points or fees only if the creditor disclosed estimates for those types of information for the loan that includes discount points and origination points or fees. For example, if a creditor provides estimates of the interest rate and monthly payments for a loan that includes discount points and origination points or fees, the creditor using the safe harbor must provide estimates of the interest rate and monthly payments for the loan that does not includes discount points and origination points or fees, such as saying “your estimated interest rate and monthly payments on this loan product where you will not pay discount points and origination points or fees to the creditor or its affiliates is [x] percent, and $[xx] per month.” On the other hand, if the creditor provides an estimate of only the interest rate for the loan that includes discount points and origination points or fees and does not provide an estimate of the regular periodic payments for that loan, the creditor using the safe harbor is required only to provide an estimate of the interest rate for the loan that does not include discount points and origination points or fees and is not required to provide an estimate of the regular periodic payments for the loan without discount points and origination points or fees.
Proposed comment 36(d)(2)(ii)(A)–1.ii would specify guidance for transactions that involve a loan originator organization. In this case, a creditor will be deemed to have made available to the consumer a comparable, alternative loan that does not include discount points and origination points or fees if the creditor communicates to the loan originator organization the pricing for all loans that do not include discount points and origination points or fees. Separately, mortgage brokers are prohibited under § 1026.36(e) from steering consumers into a loan just to maximize the broker's commission. The rule sets forth a safe harbor for complying with provisions prohibiting steering if the broker presents to the consumer three loan options that are specified in the rule. One of these loan options is the loan with the lowest total dollar amount for discount points and origination points or fees. Thus, mortgage brokers that are using the safe harbor must present to the consumer the loan with the lowest interest rate that
The Bureau solicits comments generally on the safe harbor approaches set forth in proposed comment 36(d)(2)(ii)(A)–1, and specifically on the effectiveness of these approaches to ensure that consumers are informed of the options to obtain loans that do not include discount points and origination points or fees. As discussed in more detail above, the Bureau specifically requests comment on whether there should be a requirement after application that a creditor disclose to a consumer a loan that does not include discount points and origination points or fees. The Bureau specifically solicits comment on whether it would be useful for the consumer if, at the time a creditor first provides a Loan Estimate for a loan that includes discount points and origination points or fees, the creditor also were required to provide either a complete Loan Estimate, or just the first page of the Loan Estimate, for a comparable, alternative loan that does not include discount points and origination points or fees.
In addition, as discussed in more detail above, through the proposal, the Bureau intends to facilitate consumer shopping by enhancing the ability of consumers to make comparisons using loans that do not include discount points and origination points or fees available from different creditors as a basis for comparison. Nonetheless, the Bureau is concerned that by the time a consumer receives a quote from a particular creditor for a loan that does not include discount points and origination points or fees, the consumer may have already completed his or her shopping in comparing loans from different creditors. Thus, as discussed in more detail above, the Bureau specifically solicits comment on whether the advertising rules in § 1026.24 should be revised to enable consumers to make comparisons using loans that do not include discount points and origination points or fees available from different creditors as a basis for comparison.
Under proposed § 1026.36(d)(2)(ii)(B), the term “discount points and origination points or fees” for purposes of § 1026.36(d) and (e) means all items that would be included in the finance charge under § 1026.4(a) and (b) and any fees described in § 1026.4(a)(2) notwithstanding that those fees may not be included in the finance charge under § 1026.4(a)(2) that are payable at or before consummation by the consumer to a creditor or a loan originator organization, except for (1) interest, including any per-diem interest, or the time-price differential; (2) any bona fide and reasonable third-party charges not retained by the creditor or loan originator organization; and (3) seller's points and premiums for property insurance that are excluded from the finance charge under § 1026.4(c)(5), (c)(7)(v) and (d)(2). Proposed comment 36(d)(2)(ii)(B)–4 provides that, for purposes of § 1026.36(d)(2)(ii)(B), the phrase “payable at or before consummation by the consumer to a creditor or a loan originator organization” includes amounts paid by the consumer in cash at or before closing or financed as part of the transaction and paid out of the loan proceeds. The Bureau notes that § 1026.36(d)(3) provides that for purposes of § 1026.36(d), affiliates must be treated as a single person. Thus, for purposes of the definition of discount points and origination points or fees, charges that are payable by a consumer to a creditor's affiliate or the affiliate of a loan originator organization are deemed to be payable to the creditor or loan originator organization, respectively.
The Bureau believes the definition of discount points and origination points or fees is consistent with the description of the discount points, origination points, or fees referenced in the statutory ban in TILA section 129B(c)(2)(B)(ii), which was added by section 1403 of the Dodd-Frank Act. 12 U.S.C. 1639b(c)(2)(B)(ii). Specifically, TILA section 129B(c)(2)(B)(ii) uses the phrase “upfront payment of discount points, origination points, or fees, however denominated (other than bona fide third party charges not retained by the mortgage originator, creditor, or an affiliate of the creditor or originator).” The Bureau interprets the phrase “upfront payment of discount points, origination points, or fees, however denominated” generally to mean finance charges (except for interest) that are imposed in connection with the mortgage transaction that are payable at or before consummation by the consumer. The Bureau believes that Congress did not intend to cover charges that are payable by the consumer in comparable cash real estate transactions, such as real estate broker fees, where these charges are imposed regardless of whether the consumer engages in a credit transaction. The provision prohibiting consumers from paying upfront discount points and origination points or fees amends TILA, which generally regulates credit transactions, and not the underlying real estate transactions that are in connection with the extensions of credit.
The proposed definition of discount points and origination points or fees also includes an exception for any bona fide and reasonable third-party charges not retained by the creditor, loan originator organization, or any affiliate of either, consistent with TILA section 129B(c)(2)(B)(ii). The Bureau believes that this exception for bona fide and reasonable third-party charges means that Congress presumptively intended to include such third-party charges in the definition of “discount points, origination points, or fees” where they are retained by the creditor, mortgage originator, or affiliates of either. In addition, the exception for fees that are not “retained” by the creditor is consistent with the current comment 36(d)(1)–7 (re-designated as proposed comment 36(d)(2)(i)–2.i) and the Bureau's position that the definition of “discount points, origination points, or fees” includes upfront payments when the consumer either pays in cash or finances these payments from loan
Proposed comment 36(d)(2)(ii)(B)–1 provides guidance generally on the definition of discount points and origination points or fees as set forth in proposed § 1026.36(d)(2)(ii)(B). This proposed comment clarifies that, for purposes of proposed § 1026.36(d)(2)(ii)(B), “items included in the finance charge under § 1026.4(a) and (b)” means those items included under § 1026.4(a) and (b), without reference to any other provisions of § 1026.4. Nonetheless, proposed § 1026.36(d)(2)(ii)(B)(
The proposed definition of discount points and origination points or fees also excludes any bona fide and reasonable third-party charges not retained by the creditor or loan originator organization. Proposed comment 36(d)(2)(B)–2 provides guidance on this exception. Specifically, proposed comment 36(d)(2)(B)–2 notes that § 1026.36(d)(2)(ii)(B) generally includes any fees described in § 1026.4(a)(2) notwithstanding that those fees may not be included in the finance charge under § 1026.4(a)(2). Section 1026.4(a)(2) discusses fees charged by a “third party” that conducts the loan closing. For purposes of § 1026.4(a)(2), the term “third party” includes affiliates of the creditor or the loan originator organization. Nonetheless, for purposes of the definition of discount points and origination points or fees, the term “third party” does not include affiliates of the creditor or the loan originator. Thus, fees described in § 1026.4(a)(2) would be included in the definition of discount points and origination points or fees if they are charged by affiliates of the creditor or the loan originator. Nonetheless, fees described in § 1026.4(a)(2) would not be included in such definition if they are charged by a third party that is not an affiliate of the creditor or any loan originator organization, pursuant to the exception in § 1026.36(d)(2)(ii)(B)(
The proposed comment also recognizes that, in some cases, amounts received for payment for third-party charges may exceed the actual charge because, for example, the creditor cannot determine with accuracy what the actual charge will be before consummation. In such a case, the difference retained by the creditor or loan originator organization is not deemed to fall within the definition of discount points and origination points or fees if the third-party charge imposed on the consumer was bona fide and reasonable, and also complies with State and other applicable law. On the other hand, if the creditor or loan originator organization marks up a third-party charge (a practice known as “upcharging”), and the creditor or loan originator organization retains the difference between the actual charge and the marked-up charge, the amount retained falls within the definition of discount points and origination points or fees.
Proposed comment 36(d)(2)(ii)(B)–2 provides two illustrations for this guidance. The first illustration assumes that the creditor charges the consumer a $400 application fee that includes $50 for a credit report and $350 for an appraisal that will be conducted by a third party that is not the affiliate of the creditor or the loan originator organization. Assume that $50 is the amount the creditor pays for the credit report to a third party that is not affiliated with the creditor or with the loan originator organization. At the time the creditor imposes the application fee on the consumer, the creditor is uncertain of the cost of the appraisal because the appraiser charges between $300 and $350 for appraisals. Later, the cost for the appraisal is determined to be $300 for this consumer's transaction. Assume, however, that the creditor uses average charge pricing in accordance with Regulation X. In this case, the $50 difference between the $400 application fee imposed on the consumer and the actual $350 cost for the credit report and appraisal is not deemed to fall within the definition of discount points and origination points or fees, even though the $50 is retained by the creditor. The second illustration specifies that, using the same example as described above, the $50 difference would fall within the definition of discount points and origination points or fees if the appraisers from whom the creditor chooses charge fees between $250 and $300.
Proposed comment 36(d)(2)(ii)(B)–3 provides that, if at the time a creditor must comply with the requirements in proposed § 1026.36(d)(2)(ii) the creditor does not know whether a particular charge will be paid to its affiliate or an affiliate of the loan originator organization or will be paid to a third-party that is not the creditor's affiliate or an affiliate of the loan originator organization, the creditor must assume that the charge will be paid to its affiliates or an affiliate of the loan originator organization, as applicable,
The Bureau solicits comment generally on the proposed definition of discount points and origination points or fees. As discussed in more detail above, the Bureau requests comment on the scope of the definition of discount points and origination points or fees and its impact on the ease with which consumers can compare loans that do not include discount points and origination points or fees from different creditors.
Proposed § 1026.36(d)(2)(ii)(C) provides that no discount points and origination points or fees may be imposed on the consumer in connection with a transaction subject to proposed § 1026.36(d)(2)(ii)(A) unless there is a bona fide reduction in the interest rate compared to the interest rate for the comparable, alternative loan that does not include discount points and origination points or fees required to be made available to the consumer under § 1026.36(d)(2)(ii)(A). In addition, for any rebate paid by the creditor that will be applied to reduce the consumer's settlement charges, the creditor must provide a bona fide rebate in return for an increase in the interest rate compared to the interest rate for the loan that does not include discount points and origination points or fees required to be made available to the consumer under § 1026.36(d)(2)(ii)(A). As discussed in detail above, the Bureau is seeking comment on whether such a bona fide requirement is necessary and, if so, what form the requirement should take.
Section 1026.36(e)(1) provides that a loan originator may not direct or “steer” a consumer to consummate a transaction based on the fact that the originator will receive greater compensation from the creditor in that transaction than in other transactions the originator offered or could have offered to the consumer, unless the consummated transaction is in the consumer's interest. Section 1026.36(e)(2) provides a safe harbor that loan originators may use to comply with the prohibition set forth in § 1026.36(e)(1). Specifically, § 1026.36(e)(2) provides that a transaction does not violate § 1026.36(e)(1) if the consumer is presented with loan options that meet certain conditions set forth in § 1026.36(e)(3) for each type of transaction in which the consumer expressed an interest. The term “type of transaction” refers to whether: (1) A loan has an annual percentage rate that cannot increase after consummation; (2) a loan has an annual percentage rate that may increase after consummation; or (3) a loan is a reverse mortgage.
As set forth in § 1026.36(e)(3), in order for a loan originator to qualify for the safe harbor in § 1026.36(e)(2), the loan originator must obtain loan options from a significant number of the creditors with which the originator regularly does business and must present the consumer with the following loan options for each type of transaction in which the consumer expressed an interest: (1) The loan with the lowest interest rate; (2) the loan with the lowest total dollar amount for origination points or fees and discount points; and (3) a loan with the lowest interest rate without negative amortization, a prepayment penalty, a balloon payment in the first seven years of the loan term, shared equity, or shared appreciation, or, in the case of a reverse mortgage, a loan without a prepayment penalty, shared equity, or shared appreciation. In accordance with current § 1026.36(e)(3)(ii), the loan originator must have a good faith belief that the options presented to the consumer as discussed above are loans for which the consumer likely qualifies.
In addition, the Bureau proposes to amend 1026.36(e)(3)(C) to address the situation where two or more loans have the same total dollar amount of discount points and origination points or fees. This situation is likely to occur in transactions that are subject to proposed § 1026.36(d)(2)(ii). As discussed above, proposed § 1026.36(d)(2)(ii)(A) requires, as a prerequisite to a creditor, loan originator organization, or affiliate of either imposing any discount points and origination points or fees on a consumer in a transaction, that the creditor also make available to the consumer a comparable, alternative loan that does not include discount points and origination points or fees, unless the consumer is unlikely to qualify for such a loan. For transactions that involve a loan originator organization, a creditor will be deemed to have made available to the consumer a comparable, alternative loan that does not include discount points and origination points or fees if the creditor communicates to the loan originator organization the pricing for all loans that do not include discount points and origination points or fees, unless the consumer is unlikely to qualify for such a loan.
Proposed § 1026.36(e)(3)(C) provides that with respect to the loan with the lowest total dollar amount of discount points and origination points or fees, if two or more loans have the same total dollar amount of discount points and origination points or fees, the creditor must disclose the loan with the lowest interest rate that has the lowest total dollar amount of discount points and origination points or fees for which the consumer likely qualifies. For example, for transactions that are subject to proposed § 1026.36(d)(2)(ii), the loan originator must disclose the loan with the lowest rate that does not include discount points and origination points or fees for which the consumer likely qualifies. This proposed guidance will help ensure that loan originators are not steering consumers into loans to maximize the originator's compensation.
Section 1402(a)(2) of the Dodd-Frank Act added TILA section 129B, which imposes new requirements for mortgage originators, including requirements for them to be licensed, registered, and qualified, and to include their identification numbers on loan documents. 15 U.S.C. 1639b.
TILA section 129B(b)(1)(A) authorizes the Bureau to issue regulations requiring mortgage originators to be registered and licensed in compliance with State and Federal law, including the SAFE Act, 12 U.S.C. 5101. TILA section 129B(b)(1)(A) also authorizes the Bureau's regulations to require mortgage originators to be “qualified.” As discussed in the section-section analysis of § 1026.36(a)(1), above, for purposes of TILA section 129B(b) the term “mortgage originator” includes natural persons and organizations. Moreover, for purposes of TILA section 129B(b), the term includes creditors, notwithstanding that the definition in TILA section 103(cc)(2) excludes creditors for certain other purposes.
The SAFE Act imposes licensing and registration requirements on individuals. Under the SAFE Act, loan originators who are employees of a depository institution or a Federally regulated subsidiary of a depository institution are subject to registration, and other loan originators are generally required to obtain a State license. Regulation H, 12 CFR part 1008, which implements SAFE Act standards applicable to State licensing, provides that a State is not required to impose licensing requirements on loan originators who are employees of a bona fide non-profit organization. 12 CFR 1008.103(e)(7). Individuals who are subject to SAFE Act registration or State licensing are required to obtain a unique identification number from the NMLSR, which is a system and database for registering, licensing, and tracking loan originators.
SAFE Act licensing is implemented by States. To grant an individual a SAFE Act-compliant loan originator license, the State must determine that the individual has never had a loan originator license revoked; has not been convicted of enumerated felonies within specified timeframes; has demonstrated financial responsibility, character, and fitness; has completed eight hours of pre-licensing classes that have been approved by the NMLSR; has passed a written test approved by the NMLSR; and has met net worth or surety bond requirements. Licensed loan originators must take eight hours of continuing education classes approved by the NMLSR and must renew their licenses annually. Some States impose additional or higher minimum standards for licensing of individual mortgage loan originators under their SAFE Act-compliant licensing regimes. Separately from their SAFE Act-compliant licensing regimes, most States also require licensing or registration of loan originator organizations.
SAFE Act registration generally requires depository institution employee loan originators to submit to the NMLSR identifying information and information about their employment history and certain criminal convictions, civil judicial actions and findings, and adverse regulatory actions. The employee must also submit fingerprints to the NMLSR and authorize the NMLSR and the employing depository institution to obtain a criminal background check and information related to certain findings and sanctions against the employee by a court or government agency. Regulation G, 12 CFR part 1007, which implements SAFE Act registration requirements, imposes an obligation on the employing depository institution to have and follow policies to ensure compliance with the SAFE Act. The policies must also provide for the depository institution to review employee criminal background reports and to take appropriate action consistent with Federal law. 12 CFR 1007.104(h).
Proposed § 1026.36(f) implements, as applicable, TILA section 129B(b)(1)(A)'s mortgage originator licensing, registration, and qualification requirements by requiring a loan originator for a consumer credit transaction to meet the requirements described above. Proposed § 1026.36(f) tracks the TILA requirement that mortgage originators comply with State and Federal licensing and registration requirements, including those of the SAFE Act. Proposed comment 36(f)–1 notes that the definition of loan originator includes individuals and organizations and, for purposes of § 1026.36(f), includes creditors. Comment 36(f)–2 clarifies that § 1026.36(f) does not affect the scope of individuals and organizations that are subject to State and Federal licensing and registration requirements. The remainder of § 1026.36(f) sets forth standards that loan originator organizations must meet to comply with the TILA requirement that they be qualified, as discussed below. Section 1026.36(f) clarifies that the requirements do not apply to government agencies and State housing finance agencies, employees of which are not required to be licensed under the SAFE Act. This differentiation is made pursuant to the Bureau's authority under TILA section 105(a) to effectuate the purposes of TILA, which as provided in TILA section 129B(a)(2) include assuring that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive, or abusive. The Bureau does not believe that it is proper to apply the proposed qualification requirements to these individuals, because such agencies directly regulate and control the manner of all of their loan origination activities, thereby providing consumers adequate protection from these types of harm.
Proposed § 1026.36(f)(1) requires loan originator organizations to comply with applicable State law requirements for legal existence and foreign qualification, meaning the requirements that govern the legal creation of the organization and the authority of the organization to transact business in another State. Proposed comment 36(f)(1)–1 states, by way of example, that the provision encompasses requirements for incorporation or other type of formation and for maintaining an agent for service of process. This requirement would help ensure that consumers are able to seek remedies against loan originator organizations that fail to comply with requirements for legal formation and, when applicable, for operating as foreign businesses.
Proposed § 1026.36(f)(2) requires loan originator organizations to ensure that their individual loan originators are in compliance with SAFE Act licensing and registration requirements. Proposed comment 36(f)(2)–1 notes that the loan
Proposed § 1026.36(f)(3) provides actions that a loan originator organization must take for its individual loan originators who are not required to be licensed, and are not licensed, pursuant to the SAFE Act and State SAFE Act implementing laws. Individual loan originators who are not required to be licensed generally include employees of depository institutions and organizations that a State has determined to be bona fide non-profit organizations, in accordance with criteria in Regulation H. 12 CFR 1008.103(e)(7).
The proposed requirements in § 1026.36(f)(3)(ii) apply to unlicensed individual loan originators two of the core standards that apply to individuals who are subject to SAFE Act State licensing requirements: the criminal background standards and the financial responsibility, character, and general fitness standards. Proposed § 1026.36(f)(3)(iii) also requires loan originator organizations to provide periodic training to these individual loan originators, a requirement that is analogous to but, as discussed below, more flexible than the continuing education requirement that applies to individuals who have SAFE Act-compliant State licenses.
The SAFE Act's application of the less stringent registration standards to employees of depository institutions, as well as Regulation H's provision for States to exempt from State licensing employees of bona fide non-profit organizations, are based in part on an assumption that these institutions carry out basic screening of and provide basic training to their employee loan originators to comply with prudential regulatory requirements or to ensure a minimum level of protection of and service to their borrowers. The proposed requirements in § 1026.36(f)(3) would help ensure that all individual loan originators meet core standards of integrity and competence, regardless of the type of loan originator organization for which they work.
The proposal does not require employers of unlicensed loan originator individuals to obtain the covered information and make the required determinations on a periodic basis. Instead, such employers would be required to obtain the information and make the determinations under the criminal, financial responsibility, character, and general fitness standards before an individual acts as a loan originator in a covered consumer credit transaction. However, the Bureau invites public comment on whether such determinations should be required on a periodic basis or whether the employer of an unlicensed loan originator should be required to make subsequent determinations only when it obtains information that indicates the individual may no longer meet the applicable standards.
The Bureau is not proposing to apply to employees of depository institutions and bona fide non-profit organizations the more detailed requirements to pass a standardized test and to be covered by a surety bond that apply to individuals seeking a SAFE Act-compliant State license. The Bureau has not found evidence that consumers who obtain mortgage loans from depository institutions and bona fide non-profit organizations face risks that are not adequately addressed through existing safeguards and proposed safeguards in this proposed rule. However, the Bureau will continue to monitor the market to consider whether additional measures are warranted.
Proposed § 1026.36(f)(3)(i) provides that the loan originator organization must obtain, for each individual loan originator who is not licensed under the SAFE Act, a State and national criminal background check, a credit report from a nationwide consumer reporting agency in compliance, where applicable, with the requirements of section 604(b) of the Fair Credit Reporting Act (15 U.S.C. 1681b), and information about any administrative, civil, or criminal findings by any court or government agency. Proposed comment 36(f)(3)(i)–1 clarifies that loan originator organizations that do not have access to this information in the NMLSR (generally, bona fide non-profit organizations) could satisfy the requirement by obtaining a criminal background check from a law enforcement agency or commercial service. Such a loan originator organization could satisfy the requirement to obtain information about administrative, civil, or criminal determinations by requiring the individual to provide it with this information. The Bureau notes that the information in the NMLSR about administrative, civil, or criminal determinations about an individual is generally supplied to the NMLSR by the individual, rather than by a third party. The Bureau invites public comment on whether loan originator organizations that do not have access to this information in the NMLSR should be permitted to satisfy the requirement by requiring the individual loan originator to provide it directly to the loan originator organization or if, instead, there are other means of obtaining the information that are more reliable or efficient.
Proposed § 1026.36(f)(3)(ii) specifies the standards that a loan originator organization must apply in reviewing the information it is required to obtain. The standards are the same as those that State agencies must apply in determining whether to grant an individual a SAFE Act-compliant loan originator license. Proposed comment 36(f)(3)(ii)–1 clarifies that the scope of the required review includes the information required to be obtained under § 1026.36(f)(3)(i) as well information the loan originator organization has obtained or would obtain as part of its customary hiring and personnel management practices, including information from application forms, candidate interviews, and reference checks.
First, under proposed § 1026.36(f)(3)(ii)(A), a loan originator organization must determine that the individual loan originator has not been convicted (or pleaded guilty or
Second, under proposed § 1026.36(f)(3)(ii)(B), a loan originator organization must determine that the individual loan originator has demonstrated financial responsibility, character, and general fitness to warrant a determination that the individual loan originator will operate honestly, fairly, and efficiently. This standard is identical to the standard that State agencies apply to applicants for SAFE Act-compliant loan originator licenses, except that it does not include the requirement to determine that the individual's financial responsibility, character, and general fitness “such as to command the confidence of the community.” The Bureau believes that responsible depository institutions and bona fide non-profit organizations already apply similar standards when hiring or transferring any individual into a loan originator position. The proposed requirement formalizes this practice and ensures that the determination considers reasonably available, relevant information so that, as with the case of the proposed criminal background standards, consumers can be confident that all individual loan originators meet common minimum qualification standards for financial responsibility, character, and general fitness. Proposed comment 36(f)(3)(ii)(B)–1 clarifies that the review and assessment need not include consideration of an individual's credit score but must include consideration of whether any of the information indicates dishonesty or a pattern of irresponsible use of credit or of disregard of financial obligations. As an example, the comment states that conduct revealed in a criminal background report may show dishonest conduct, even if the conduct did not result in a disqualifying felony conviction. It also distinguishes delinquent debts that arise from extravagant spending from those that arise, for example, from medical expenses. The Bureau's view is that an individual with a history of dishonesty or a pattern of irresponsible use of credit or of disregard of financial obligations should not be in a position to interact with or influence consumers in the loan origination process, during which consumers must decide whether to assume a significant financial obligation and determine which of any presented mortgage options is appropriate for them.
The Bureau recognizes that, even with guidance in the proposed comment, any standard for financial responsibility, character, and general fitness inherently includes a subjective component. During the Small Business Review Panel process, some SERs expressed concern that the proposed standard could lead to uncertainty whether a loan originator organization was meeting the standard. The proposed standard excludes the phrase “such as to command the confidence of the community” to reduce the potential for this uncertainty. Nonetheless, in light of the civil liability imposed under TILA, the Bureau invites public comment on how to address this concern while also ensuring that the loan originator organization's review of information is sufficient to protect consumers. For example, if a loan originator organization reviews the required information and documents a rational explanation for why relevant negative information does not show that the standard is violated, should the provision provide a presumption that the loan originator organization has complied with the requirement?
In addition to the screening requirements discussed above, proposed § 1026.36(f)(3)(iii) requires loan originator organizations to provide periodic training to its individual loan originators who are not licensed under the SAFE Act. The training must cover the Federal and State law requirements that apply to the individual loan originator's loan origination activities. The proposed requirement is analogous to, but more flexible than, the continuing education requirement that applies to loan originators who are subject to SAFE Act licensing. Whereas the SAFE Act requires licensed individuals to take eight hours of preapproved classes every year, the proposed requirement is intended to be flexible to accommodate the wide range of loan origination activities in which covered loan originator organizations engage and for which covered individuals are responsible. For example, the training provision applies to a large depository institution providing complex mortgage loan products as well as a non-profit organization providing only basic home purchase assistance loans secured by a second lien on a dwelling. The proposed provision also recognizes that covered individuals already possess a wide range of knowledge and skill levels. Accordingly, it would require loan originator organizations to provide training to close any gap in the individual loan originator's knowledge of Federal and State law requirements that apply to the individual's loan origination activities.
The proposed requirement also differs from the analogous SAFE Act requirement in that it does not include a requirement to provide training on “ethical standards,” beyond those that amount to State or Federal legal requirements. In light of the civil liability imposed under TILA, the Bureau invites public comment on whether there exist loan originator ethical standards that are sufficiently concrete and widely applicable such that loan originator organizations would be able to determine what subject matter must be included in the required training, if the Bureau were to include ethical standards in the training requirement.
Proposed comment 36(f)(3)(iii)–1 includes explanations of the training requirement and also describes the flexibility available under § 1026.36(f)(3)(iii) regarding how the required training is delivered. It clarifies that training may be delivered by the loan originator organization or any other party through online or other technologies. In addition, it states that training that a Federal, State, or other government agency or housing finance agency has approved or deemed sufficient for an individual to originate loans under a program sponsored or regulated by that agency is presumptively sufficient to meet the proposed requirement. It further states that training approved by the NMLSR to meet the continuing education requirement applicable to licensed loan originators is sufficient to meet the proposed requirement to the extent that the training covers the types of loans the individual loan originator originates and applicable Federal and State laws and regulations. The proposed comment recognizes that many loan originator organizations already provide training to their individual loan originators to comply with requirements of prudential regulators, funding agencies, or their own operating procedures. Thus, the proposed comment clarifies that § 1026.36(f)(3)(iii) does not require training that is duplicative of training that loan originator organizations are already providing if that training meets the standard in § 1026.36(f)(3)(iii). These clarifications are intended to respond to questions that SERs raised
TILA section 129B(b)(1)(A), which was added by Dodd-Frank Act section 1402(b), authorizes the Bureau to issue regulations requiring mortgage originators to include on all loan documents any unique identifier issued by the NMLSR (also referred to as an NMLSR ID). Individuals who are subject to SAFE Act registration or State licensing are required to obtain an NMLSR ID, and many organizations also obtain NMLSR IDs pursuant to State or other requirements. Proposed § 1026.36(g) incorporates the requirement that mortgage originators must include their NMLSR ID on loan documents while providing several clarifications. The Bureau believes that the purpose of the statutory requirement is not only to permit consumers to look up the loan originator's record on the consumer access Web site of the NMLSR (
Proposed § 1026.36(g)(1)(i) and (ii) provides that loan originators must include both their NMLSR IDs and their names on loan documents, because without the associated names, a consumer may not understand whom or what the NMLSR ID number serves to identify. Having the loan originator's name may help consumers understand that they have the opportunity to assess the risks associated with a particular loan originator in connection with the transaction, which in turn promotes the informed use of credit (consistent with TILA section 105(a)'s provision for additional requirements that are necessary or proper to effectuate the purposes of TILA or to facilitate compliance with TILA). These provisions also clarify, consistent with the statutory requirement that mortgage originators include “any” NMLSR ID, that the requirement applies if the organization or individual loan originator has ever been issued an NMLSR ID. Proposed § 1026.36(g)(1) also provides that the NMLSR IDs must be included each time any of these documents are provided to a consumer or presented to a consumer for signature. Proposed comment 36(g)(1)–1 notes that for purposes of § 1026.36(g), creditors are not excluded from the definition of “loan originator.” Proposed comment 36(g)(1)–2 clarifies that the requirement applies regardless of whether the organization or individual loan originator is required to obtain an NMLSR ID under the SAFE Act or otherwise. Proposed § 1026.36(g)(1)(ii) recognizes that there may be transactions in which more than one individual meets the definition of a loan originator and clarifies that the individual loan originator whose NMLSR ID must be included is the individual with primary responsibility for the transaction at the time the loan document is issued.
In its 2012 TILA–RESPA Integration Proposal, the Bureau is proposing to integrate TILA and RESPA mortgage disclosure documents, in accordance with section 1032(f) of the Dodd-Frank Act, 12 U.S.C. 5532(f). That separate rulemaking also addresses inclusion of NMLSR IDs on the integrated disclosures it proposes, as well as the possibility that in some circumstances more than one individual may meet the criteria for whose NMLSR ID must be included. To ensure harmonization between the two rules, proposed comment 36(g)(1)(ii)–1 states that under these circumstances, an individual loan originator may comply with the requirement in § 1026.36(g)(1)(ii) by complying with the applicable provision governing disclosure of NMLSR IDs in rules issued by the Bureau pursuant to Dodd-Frank Act section 1032(f).
Proposed § 1026.36(g)(2) identifies the documents that must include loan originators' NMLSR IDs as the application, the disclosure provided under section 5(c) of the Real Estate Settlement Procedures Act of 1974 (RESPA), the disclosure provided under TILA section 128, the note or loan contract, the security instrument, and the disclosure provided to comply with section 4 of RESPA. Proposed comment 36(g)(2)–1 clarifies that the NMLSR ID must be included on any amendment, rider, or addendum to the note or loan contract or security instrument. These clarifications are provided in response to concerns that SERs expressed in the Small Business Review Panel process that the statutory reference to “all loan documents” would lead to uncertainty as to what is or is not considered a “loan document.” The proposed scope of the requirement's coverage is intended to ensure that loan originators' NMLSR IDs are included on documents that include the terms or prospective terms of the transaction or borrower information that the loan originator may use to identify loan terms that are potentially available or appropriate for the consumer. To the extent that any document not listed in § 1026.36(g)(2) is arguably a “loan document,” differentiation as to which documents must include loan originators' NMLSR IDs is consistent with TILA section 105(a), which allows the Bureau to make exceptions that are necessary or proper to effectuate the purposes of TILA or to facilitate compliance with TILA.
A final rule implementing the proposed requirements to include NMLSR IDs on loan documents may be issued, and may generally become effective, prior to the effective date of a final rule implementing the Bureau's 2012 TILA–RESPA Integration Proposal. If so, then the requirement to include the NMLSR ID would apply to the current Good Faith Estimate, Settlement Statement, and TILA disclosure until the issuance of the integrated disclosures. The Bureau recognizes that such a sequence of events might cause loan originator organizations to have to incur the cost of adjusting their systems and procedures to accommodate the NMLSR IDs on the current disclosures, even though those disclosures will be replaced in the future by the integrated disclosures. Accordingly, the Bureau invites public comment on whether the effective date of the provisions regarding inclusion of the NMLSR IDs on the RESPA and TILA disclosures should be delayed until the date that the integrated disclosures are issued.
Proposed § 1026.36(g)(3) defines “NMLSR identification number” as a number assigned by the NMLSR to facilitate electronic tracking of loan originators and uniform identification of, and public access to, the employment history of, and the publicly adjudicated disciplinary and enforcement actions against, loan originators. The definition is consistent with the definition of “unique identifier” in section 1503(12) of the SAFE Act, 12 U.S.C. 5102(12).
Section 1414 of the Dodd-Frank Act added TILA section 129C(e), which prohibits certain transactions secured by a dwelling from requiring arbitration or any other non-judicial procedure as the method for resolving disputes arising from the transaction. The same provision provides that a consumer and creditor or their assignees may nonetheless agree, after a dispute arises, to use arbitration or other non-judicial
Dodd-Frank Act section 1414 added TILA section 129C(d), which generally prohibits a creditor from financing any premiums or fees for credit insurance in connection with certain transactions secured by a dwelling. The same provision provides that the prohibition does not apply to credit insurance for which premiums or fees are calculated and paid in full on a monthly basis. The prohibition applies to credit life, credit disability, credit unemployment, credit property insurance, and other similar products. It does not apply, however, to credit unemployment insurance for which the premiums are reasonable, the creditor receives no compensation, and the premiums are paid pursuant to another insurance contract and not to the creditor's affiliate. Proposed § 1026.36(i) codifies these statutory provisions. Rather than repeating Dodd-Frank Act section 1414's list of covered credit insurance products, it cross-references the existing description of insurance products in § 1026.4(d)(1) and (3). The Bureau does not intend any substantive change to the statutory provision's scope of coverage. The Bureau believes that these provisions are straightforward enough that they require no further clarification. The Bureau requests comment, however, on whether any issues raised by the provision require clarification and, if so, how they should be clarified. The Bureau also solicits comment on when the provision should become effective, for example, 30 days following publication of the final rule, or at a later time.
The Bureau proposes to transfer § 1026.36(f) to new § 1026.36(j). Moving the section accommodates new § 1026.36(f), (g), (h) and (i). The Bureau also proposes to amend § 1026.36(j) to reflect the scope of coverage for the proposals implementing TILA sections 129B (except for (c)(3)) and 129C(d) and (e), as added by sections 1402, 1403, 1414(d) and (e) of the Dodd-Frank Act as discussed further below.
The Bureau proposes to implement the scope of products covered in TILA section 129C(d) and (e) (the new arbitration and single-premium credit insurance provisions proposed in § 1026.36(h) and (i)) by amending § 1026.36(j) to state that § 1026.36(h) and (i) applies both to HELOCs subject to § 1026.40 and closed–end consumer credit transactions, secured by the consumer's principal dwelling. The Bureau further proposes to implement the scope of coverage in TILA section 129B(b) (the new qualification, document identification and compliance procedure requirements proposed in new § 1026.36(f) and (g)) by amending § 1026.36(j) to include § 1026.36(f) and (g) with the coverage applicable to § 1026.36(d) and (e). That is, § 1026.36(d), (e), (f) and (g) applies to closed-end consumer credit transactions secured by a dwelling (as opposed to the consumer's principal dwelling). The Bureau does not propose amending the scope of transactions covered by § 1026.36(d) and (e).
The Bureau also proposes to make technical revisions to comment 36–1 reflecting these scope-of-coverage amendments proposed in § 1026.36(j). The Bureau relies on its interpretive authority under TILA section 105(a) to the extent there is ambiguity in TILA sections 129B (except for (c)(3)) and 129C(d) and (e), as added by sections 1402, 1403, 1414(d) and (e) of the Dodd-Frank Act, regarding which provisions apply to different types of transactions.
The definition of “mortgage originator” in TILA section 103(cc)(2) applies to activities related to a “residential mortgage loan” only. TILA section 103(cc)(5) defines “residential mortgage loan” as:
The Bureau believes the definition of “dwelling” in § 1026.2(a)(19) is consistent with TILA section 103(cc)(5)'s use of the term in the definition of “residential mortgage loan.” Section 1026.2(a)(19) defines “dwelling” to mean “a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.” The Bureau interprets the term “dwelling” to also include dwellings in various stages of construction. Construction loans are often secured by dwellings in this fashion. Indeed, draws to fund construction are usually released in phases as the dwelling comes into existence and secures the draws. Thus, a construction loan secured by an improvement through various stages of construction that will be used as a residence is secured by a “dwelling.” The Bureau proposes to maintain this definition of dwelling.
Section 1400(c)(1) of the Dodd-Frank Act mandates that the Bureau prescribe implementing regulations in final form by January, 21, 2013 (
The Bureau recognizes the importance of the changes to be made by the Bureau's final rule for consumer protection and the need to put these changes into place for consumers. For example, mandating that creditors make available a loan without discount points and origination points or fees may help ensure that consumers can shop effectively among different creditors and get a reasonable value for discount points and origination points or fees. In addition, an individual loan originator who has been properly screened and trained to present the type of loan that the individual loan originator sells is a clear benefit to consumers. The Bureau believes consumers should have the benefit of the Dodd-Frank Act's additional protections and requirements as soon as practical.
The Bureau also recognizes, however, that loan originators and creditors will need time to make systems changes and to retrain their staff to address the Dodd-Frank Act provisions implemented through the Bureau's final rule, including the requirement to make available in certain circumstances a loan without discount points and origination points or fees. Moreover, certain creditors and loan originator organizations will need to conduct training and screening for individual loan originators. The Bureau further recognizes that mortgage creditors and loan originators will need to make changes to address a number of other requirements relating to other Dodd-Frank Act provisions, some of which, unlike the requirements set out in the proposed rule text for this rulemaking, are required by the Dodd-Frank Act to take effect within one year after issuance of final implementing rules. The Bureau believes that ensuring that industry has sufficient time to make the necessary changes ultimately will benefit consumers through better industry compliance.
The Bureau expects to issue a final rule under this proposal by January 21, 2013 because the statutory provisions it implements otherwise will take effect automatically on that date. The Bureau also expects to issue several other final rules by January 21, 2013 to implement other provisions of title XIV of the Dodd-Frank Act. The Bureau solicits comment on an appropriate implementation period for the final rule, in light of the competing considerations discussed above. The Bureau is especially mindful, however, of the importance of affording consumers the benefits of the additional protections in this proposal as soon as practical and therefore seeks detailed comment, and supporting information, on the nature and length of implementation processes that this rulemaking will necessitate.
As noted above, this proposal does not contain specific proposed rule text to implement TILA section 129B(b)(2). That section provides that the Bureau “shall prescribe regulations requiring depository institutions to establish and maintain procedures reasonably designed to assure and monitor the compliance of such depository institutions, and subsidiaries of such institutions, and the employees of such institutions or subsidiaries with the requirements of this section and the registration procedures established under section 1507 of the [SAFE Act].” 15 U.S.C. 1639b(b)(2). Nonetheless, the Bureau may adopt such rule text at the same time as the final rule under this proposal. Accordingly, it is describing the rule text it is considering in detail and invites interested parties to provide comment.
Regulations to implement TILA section 129B(b)(2) are required by title XIV. Accordingly, under Dodd-Frank Act section 1400(c)(1), the Bureau must prescribe those regulations no later than January 21, 2013, and those regulations must take effect no later than one year after they are issued. The Bureau notes, however, that TILA section 129B(b)(2) has no practical effect on depository institutions in the absence of implementing regulations because the statute imposes no requirement directly on any person other than the Bureau itself (to make regulations requiring depository institutions to adopt the referenced procedures).
If the Bureau were to make the substantive requirements of this rulemaking implementing TILA section 129B effective more than one year after issuance of the final rule and also were to adopt regulations requiring depository institutions to establish the referenced procedures (which must take effect within one year of their issuance), depository institutions might appear to be required to establish and maintain procedures to ensure compliance with substantive regulatory requirements that have not yet taken effect.
On the other hand, if the Bureau were to make the substantive requirements of this rulemaking implementing TILA section 129B effective one year or less after issuance, the Bureau could require depository institutions simultaneously to establish and maintain procedures to ensure compliance with those substantive requirements without creating the incongruity discussed above. The Bureau is aware that depository institutions generally establish and maintain procedures to ensure compliance with all regulatory requirements to which they are subject, as a matter of standard compliance practice. Thus, the Bureau believes that regulations implementing TILA section 129B(b)(2), when adopted by the Bureau, will impose a relatively routine and familiar obligation on depository institutions and therefore could consist of a straightforward rule paralleling the statutory language.
Specifically, the Bureau expects that such a rule would require depository institutions to establish and maintain procedures reasonably designed to assure and monitor the compliance of themselves, their subsidiaries, and the employees of both with the requirements of § 1026.36(d), (e), (f), and (g). The rule would provide further that the required procedures must be appropriate to the nature, size, complexity, and scope of the mortgage credit activities of the depository institution and its subsidiaries. Finally, consistent with the definitions in
The Bureau notes that the definitions in section 2(18) of the Dodd-Frank Act should not necessarily determine the meanings of the ambiguous terms in TILA section 129B(b)(2). The Dodd-Frank Act definitions apply, “[a]s used in this Act,” not necessarily as used in another statute, TILA, being amended by the Dodd-Frank Act. In addition, the Dodd-Frank Act definitions do not apply if “the context otherwise requires.” One of the substantive requirements to which TILA section 129B(b)(2) applies concerns the registration procedures under section 1507 of the SAFE Act. The SAFE Act provides that, for purposes of the SAFE Act: “The term `depository institution' has the same meaning as in [12 U.S.C. 1813], and includes any credit union.” 12 U.S.C. 5102(2). It may therefore be appropriate in this context to apply the SAFE Act definition of “depository institution” either as an interpretation of TILA section 129B(b)(2) or as an exercise of the Bureau's authority under TILA section 105(a). Applying the SAFE Act definition in this way could facilitate compliance by aligning the definition of “depository institution” applicable to the procedures requirement under TILA section 129B(b)(2) with the definition of “depository institution” applicable under the SAFE Act. Applying the SAFE Act definition in this way also could be necessary or proper to effectuate the purpose stated in TILA section 129B(a)(2) of assuring that consumers are offered and receive residential mortgage loans that are not unfair, deceptive, or abusive.
The Bureau also notes that Regulation G, which implements the SAFE Act, contains a requirement that all covered financial institutions (including banks, savings associations, Farm Credit System institutions, and certain subsidiaries) adopt and follow certain policies and procedures related to SAFE Act requirements. 12 CFR 1007.104. Accordingly, a regulation implementing TILA section 129B(b)(2) to require procedures could also apply to credit unions, as well as Farm Credit System institutions, as an exercise of the Bureau's authority under TILA section 105(a). Extending the TILA section 129B(b)(2) procedures requirement in this way may facilitate compliance by aligning the scope of the entities subject to the TILA and SAFE Act procedures requirements. Further, such an extension may be necessary or proper to effectuate the purpose stated in TILA section 129B(a)(2) of assuring that consumers are offered and receive residential mortgage loans that are not unfair, deceptive, or abusive.
The Bureau further notes that under Regulation G only certain subsidiaries (those that are “covered financial institutions”) are required by 12 CFR 1007.104 to adopt and follow written policies and procedures designed to assure compliance with Regulation G. Accordingly, it may be appropriate to apply the duty to assure and monitor compliance of subsidiaries and their employees under TILA section 129B(b)(2) only to subsidiaries that are covered financial institutions under Regulation G. Exercising TILA 105(a) authority to make an adjustment or exception in this way may facilitate compliance by aligning the scope of the subsidiaries covered by the TILA and SAFE Act procedures requirements.
Finally, extending the scope of a regulation requiring procedures even further, to apply to other loan originators that are not covered financial institutions under Regulation G (such as independent mortgage companies), would help ensure consistent consumer protections and a level playing field. Exercising TILA section 105(a) authority in this way may be necessary or proper to effectuate the purpose stated in TILA section 129B(a)(2) of assuring that consumers are offered and receive residential mortgage loans that are not unfair, deceptive, or abusive.
The Bureau therefore solicits comment on whether a regulation requiring procedures to comply with TILA section 129B also should apply only to depository institutions as defined in section 3 of the FDIA, or also to credit unions, other covered financial institutions subject to Regulation G, or any other loan originators such as independent mortgage companies. Additionally, the Bureau solicits comment on whether it should apply the duty to assure and monitor compliance of subsidiaries and their employees only with respect to subsidiaries that are covered financial institutions under Regulation G. With respect to all of the foregoing, the Bureau also solicits comment on whether any of the potential exercises of TILA section 105(a) authority should apply with respect to procedures concerning only SAFE Act registration, or with respect to procedures for all the duty of care requirements in TILA section 129B(b)(1), or with respect to procedures for all the requirements of TILA section 129B, including those added by section 1402 of the Dodd-Frank Act.
The Bureau also recognizes that a depository institution's failure to establish and maintain the required procedures under the implementing regulation would constitute a violation of TILA, thus potentially resulting in significant civil liability risk to depository institutions under TILA section 130. 15 U.S.C. 1640. The Bureau anticipates concerns on the part of depository institutions regarding their ability to avoid such liability risk and therefore seeks comment on the appropriateness of establishing a safe harbor that would demonstrate compliance with the rule requiring procedures. For example, such a safe harbor might provide that a depository institution is presumed to have met the requirement for procedures if it, its subsidiaries, and the employees of it and its subsidiaries do not engage in a pattern or practice of violating § 1026.36(d), (e), (f), or (g).
The Bureau may adopt such a rule requiring procedures at the same time as the final rule under this proposal. If the effective date of the substantive requirements in that final rule is more than one year after issuance, the Bureau could adopt the requirement for procedures but clarify that having no procedures satisfies the procedures requirement until such time as the rule's substantive requirements to which the procedures must relate take effect. Alternatively, the Bureau could refrain from issuing the rule requiring procedures until such time as it can take effect at the same time as the substantive requirements without the need for such a clarification. The Bureau solicits comment, however, on whether the requirement for procedures is straightforward enough to allow implementation by a regulation such as that described above. Alternatively, the Bureau seeks comment on whether the regulation prescribed under TILA section 129B(b)(2) should contain any specific guidance on the necessary procedures beyond that described above.
In developing the proposed rule, the Bureau has considered potential benefits, costs, and impacts, and has consulted or offered to consult with the prudential regulators, the Department of Housing and Urban Development (HUD), and the Federal Trade Commission (FTC) regarding consistency with any prudential,
In this rulemaking, the Bureau proposes to amend Regulation Z to implement amendments to TILA made by the Dodd-Frank Act. The proposed amendments to Regulation Z implement Dodd-Frank Act sections 1402 (new duties of mortgage originators concerning proper qualification, registration, and related requirements), 1403 (limitations on loan originator compensation to reduce steering incentives for residential mortgage loans), and 1414(d) and (e) (restrictions on the financing of single-premium credit insurance products and mandatory arbitration agreements in residential mortgage loan transactions).
As discussed in part II above, in 2010, the Board and Congress acted to address concerns that certain loan originator compensation arrangements could be difficult for consumers to understand and had the potential to create incentives to steer consumers to transactions with different terms, such as higher interest rates. The proposed rule would continue the protections provided in the Loan Originator Final Rule and implement the additional provisions Congress included in the Dodd-Frank Act that, as described above, to further improve the transparency of mortgage loan originations, enhance consumers' ability to understand loan terms, and afford additional protections to consumers.
The analysis below considers the benefits, costs, and impacts of the following major proposed provisions:
1. New restrictions on discount points and origination points or fees in closed-end consumer credit transactions secured by a dwelling where any person other than the consumer will compensate a loan originator in connection with the transaction. Specifically, in these transactions, a creditor or loan originator organization may not impose on the consumer any upfront discount points and origination points or fees in connection with the transaction unless the creditor makes available to the consumer a comparable, alternative loan that does not include discount points and origination points and fees, unless the consumer is unlikely to qualify for such a loan. The term “comparable, alternative loan” would mean that the two loans have the same terms and conditions, other than the interest rate, any terms that change solely as a result of the change in the interest rate (such as the amount of the regular periodic payments), and the amount of any discount points and origination points or fees.
2. Clarification of the applicability of the prohibition on payment and receipt of loan originator compensation based on the transaction's terms to employer contributions to qualified profit-sharing and other defined contribution or benefit plans in which individual loan originators participate, and to payment of bonuses under a profit-sharing plan or a contribution to a non-qualified plan.
3. New requirements for loan originators, including requirements related to their licensing, registration, and qualifications, and a requirement to include their identification numbers and names on loan documents.
With respect to each major proposed provision, the analysis considers the benefits and costs to consumers and covered persons. The analysis also addresses certain alternative provisions that were considered by the Bureau in the development of the proposed rule.
The data with which to quantify the potential benefits, costs, and impacts of the proposed rule are generally limited. For example, a lack of data regarding the specific distribution of loan products offered to consumers limits the precise estimation of the benefits of increased consumer choice. In light of these data limitations, the analysis below provides a mainly qualitative discussion of the benefits, costs, and impacts of the proposed rule. General economic principles, together with the limited data that are available, provide insight into these benefits, costs, and impacts. Wherever possible, the Bureau has made quantitative estimates based on these principles and the data available.
The Bureau requests comments on the analysis of the potential benefits, costs, and impacts of the proposed rule.
The amendments to TILA in sections 1402, 1403, and 1414(d) and (e) of the Dodd-Frank Act take effect automatically on January 21, 2013, unless final rules implementing those requirements are issued on or before that date and provide for a different effective date.
In some instances, the provisions of the proposed rule would provide substantial benefits compared to allowing the TILA amendments to take effect automatically, by providing exemptions to certain statutory provisions. In particular, the Dodd-Frank Act prohibits consumer payment of upfront points and fees in all loan transactions where someone other than the consumer pays a loan originator compensation tied to the transaction (
In other instances, the provisions of the proposed rule would implement the statute more directly. Thus, many costs and benefits of the provisions of the proposed rule would arise largely or entirely from the Dodd-Frank Act and not from the Bureau's proposed provisions. In these cases, the benefits of the proposed rule derive from providing additional clarification of certain elements of the statute. The proposed rule would reduce the compliance burdens on covered persons by, for example, reducing costs for attorneys and compliance officers as well as potential costs of over-compliance and unnecessary litigation. Moreover, the costs that these provisions would impose beyond those imposed by the Dodd-Frank Act itself are likely to be minimal.
Section 1022 of the Dodd-Frank Act permits the Bureau to consider the benefits, costs, and impacts of the proposed rule relative to the most appropriate baseline. This consideration can encompass an assessment of the benefits, costs, and impacts of the proposed rule solely compared to the state of the world in which the statute takes effect without implementing regulations. For the provisions of the proposed rule where the Bureau is using its exemption authority with respect to an otherwise self-effectuating statute, the Bureau believes that the benefits, costs, and impacts are best measured against such a post-statutory baseline. For the provisions that largely implement the statute or clarify ambiguity in the statute or existing regulations, a pre-statute baseline is used to discuss the benefits, costs and impacts of the proposed rule.
Additionally, the provisions of the proposed rule and commentary that clarify or provide additional guidance on provisions of the Loan Originator Final Rule should not impose additional costs or require changes to the business practices, systems, and operations of covered persons, and in particular those of small entities, beyond those that would already have occurred in order to comply with the current rule.
The proposed rule applies to loan originators and table-funded creditors (
The Dodd-Frank Act prohibits consumer payment of upfront points and fees in all residential mortgage loan transactions (as defined in the Dodd-Frank Act) except those where no one other than the consumer pays a loan originator compensation tied to the transaction (
In retail transactions, a creditor will be deemed to be making available the comparable, alternative loan that does not include discount points and origination points or fees if, any time prior to a loan application, a creditor that gives a quote specific to the consumer for a loan that includes discount points and origination points or fees also provides a quote for a comparable, alternative loan that does not include those points and fees. (Making available the comparable, alternative loan is not necessary if the consumer is unlikely to qualify for such a loan.)
In transactions that involve mortgage brokers, a creditor will be deemed to be making available the comparable, alternative loan that does not include discount points and origination points or fees if the creditor provides mortgage brokers with the pricing for all of the creditor's comparable, alternative loans that do not include those points and fees. Mortgage brokers then would provide quotes to consumers for the loans that do not include discount points and origination points or fees when presenting different loan options to consumers.
Because the Bureau is using its exemption authority with respect to the otherwise self-effectuating provisions regarding points and fees, the analysis measures the benefits, costs, and impacts of this provision of the proposed rule relative to the enactment of the statute alone,
In any mortgage transaction, the consumer has the option to prepay the loan and exit the existing contract. This option to repay has some inherent value to the consumer and imposes a cost on the creditor.
In many instances, creditors or loan originators will charge consumers an origination point or fee. This upfront payment is meant to cover the labor and material costs the originator incurs from processing the loan. Here too, the loan originator could offer the consumer a loan with a higher interest rate in order to recover the creditor's costs. In this sense, discount points and origination points or fees are similar; from the consumer's perspective, they are various upfront charges the consumer may pay where the possibility may exist to trade some or all of this payment in exchange for a higher interest rate.
By permitting discount points under certain circumstances, the Bureau's proposed rule offers all consumers greater choice over the terms of the coupon payments on their loan and a choice between paying discount points or a higher rate for the purchase of the prepayment option embedded in the loan.
Greater choice over loan terms and greater choice over how to pay for the prepayment option should, under normal circumstances, increase the
The choice over the means by which consumers compensate creditors for the prepayment option is of particular potential benefit to consumers who currently enjoy high liquidity but who either face prospects of diminished liquidity in the future or are more sensitive to the risk posed by a high variance in their future income or wealth. Examples of such consumers include retiring or older individuals wishing to secure their future housing, individuals who are otherwise predisposed to use their wealth for a one-time payment, consumers with relocation funds available, and consumers offered certain rebates by developers or other sellers.
Relative to permitting the statutory provision to go into effect unaltered, the Bureau's proposed rule regarding upfront points and fees also provides the potential for an additional benefit to consumers when adverse selection in the mortgage market compounds the costs of uncertainty over early repayment. Consumers who buy discount points credibly signal to creditors that the expected maturity of their loans is longer than those loans taken out by consumers not purchasing points. Credible signaling by an individual consumer in this circumstance would result in the consumer being offered a rate below that obtained by purchasing discount points in a more efficient market. When creditors confirm the relationship between individual purchases of discount points and the rapidity of individual prepayment, they respond by offering a lower average rate on each class of mortgages over which creditors have discretion in pricing.
If having to understand and decide among loans with different points and fees combinations imposes a burden on some consumers, the existence of the increased choice made available by this provision may itself be a cost.
The ability to charge discount points and origination points or fees is a substantial benefit to loan originators and remains so even under the Bureau's requirement that, as a prerequisite for any such charge, creditors make available a comparable, alternative loan that does not include discount points and origination points or fees (except where the consumer is unlikely to qualify for the loan).
First, the conditional permission to charge discount points and origination points or fees allows creditors to increase their returns on mortgage funding by offering different loan terms to consumers having different preferences and posing different risks.
Second, creditors have the option to share risk with consumers. As noted above, discount points are one way for creditors to recoup some portion of the implicit value of the prepayment option from consumers and the primary means by which a creditor can hedge losses from potential consumer prepayment. The proposed rule's allowance of the payment of points in circumstances other than the limited circumstances permitted under the Dodd-Frank Act preserves the ability of creditors to share a loan's prepayment risk, created by the prepayment option embedded in the loan, with consumers. Regardless of whether discount points are actually exchanged in any particular mortgage transaction, the ability to offer such points to consumers is a valuable option to the creditor.
A third benefit for creditors arises since adverse selection exists in the mortgage market, which compounds the risks borne from early repayment. Allowing consumers to purchase discount points, at least in part, allows them to signal to the creditor that they expect to make payments on their loan for a longer period than other consumers who choose not to purchase such points. Creditors gain from that information and will respond to such differences in behavior.
Both creditors, and by the preceding analysis, consumers benefit from the role of discount points as a credible signal and, consequently, the economic efficiency of the mortgage markets is enhanced.
The Bureau is proposing to require that before a creditor or loan originator organization may impose discount points and origination points or fees on a consumer where someone other than the consumer pays a loan originator transaction-specific compensation, the creditor must make available to the consumer a comparable, alternative loan that does not include discount points and origination points or fees. (Making available the comparable, alternative loan is not necessary if the consumer is unlikely to qualify for such a loan.)
In transactions that do not involve a mortgage broker, the proposed rule would provide a safe harbor if, any time prior to application that the creditor provides a consumer an individualized quote for a loan that includes discount points and origination points or fees, the creditor also provides a quote for a comparable, alternative loan that does not include such points or fees. In transactions that involve mortgage brokers, the proposed rule would provide a safe harbor under which creditors provide mortgage brokers with the pricing for all of their comparable, alternative loans that do not include discount points and origination points or fees. Mortgage brokers then would provide quotes to consumers for the loans that do not include discount points and origination points or fees when presenting different loan options to consumers.
Relative to the post-statute baseline, this provision on its own has no or very limited effect on the market. As described, in the absence of the proposed rule, virtually the only mortgage transactions allowed would be loans without any upfront discount points, or origination points and fees; under the proposed rule, creditors are required in most instances to make these loans available. Any differences that arise in prices, quantities or product mix available in the market that are attributable to changes in the legal environment, therefore arise from the exemption allowing discount points, and origination points and fees, rather than from this requirement.
Nevertheless, the Bureau has chosen to discuss the benefits, costs and impacts from mandating that creditors make available the comparable, alternative loan (except where a consumer is unlikely to qualify for such a loan). With the Bureau's exemption authority, one alternative could be to completely eliminate the Dodd-Frank Act's prohibitions and allow the payment of upfront points and fees with no restrictions. (The Bureau has chosen not to present that alternative.) The following analysis discusses the benefits, costs and impacts of the current proposed rule relative to the alternative (which would mirror the status quo) where no such requirement for a comparable, alternative loan would be in place.
Eliminating the prohibition on upfront points and fees creates greater choice for consumers over the means by which the consumer may compensate the creditor in exchange for the prepayment option in the mortgage. The preceding analysis discussed that greater choice should, under normal circumstances, create an
Consumer choice is further expanded by the requirement that a creditor or loan originator organization generally make available the comparable, alternative loan to a consumer as a prerequisite to the creditor or loan originator organization imposing discount points and origination points or fees on the consumer in a transaction. In particular, the ability to choose this loan may be of particular benefit to those consumers having a relatively lower ability to accurately interpret loan terms. The simpler loan terms may help these consumers understand the total cost of the loan and select the mortgage most suited to them.
Consumers may also benefit from the proposed rule if the greater prevalence of comparable, alternative loans and their rates makes terms of mortgage loans clearer and more observable for all mortgage products. A creditor's communication regarding its rate on a particular comparable, alternative loan may act as a benchmark or “focal point” for the purpose of comparing rates on all additional mortgage products available from this creditor. Such a focal point may anchor the consumer's assessment of the relative costs of each type of mortgage product available from that creditor. The comparable, alternative loan, as a result, conveys to consumers information about the value of discount points and origination points or fees on all other products offered by a given creditor and, under certain circumstances, across all creditors.
The magnitude of the benefits to consumers from having the rate on comparable, alternative loans available as a benchmark would depend, in part, on the volume of transactions in such mortgages.
The Bureau believes that transactions without discount points and origination points or fees will be at a sufficiently high level to make the information conveyed by its average rate of significant value to consumers. This belief is founded on two factors. First, loans that do not include discount points and origination points or fees are currently offered and transacted in volumes comparable to several other types of mortgage loans. Second, the Bureau's proposed rule would give consumers certainty that this mortgage is generally available from virtually any creditor. Since current transactions volumes in this mortgage are comparable to those of many other mortgage products, this certainty about its universal availability, combined with its simplicity, should cause a level of consumer demand for the comparable, alternative mortgage sufficiently high to ensure sufficient transaction volumes.
Providing a useful means by which to compare rates also provides a potentially significant additional benefit to consumers.
Under the proposal, a creditor generally must make available a comparable, alternative loan to a consumer as a prerequisite to the creditor or loan originator organization imposing any discount points and origination points or fees on the consumer in a transaction (unless the consumer is unlikely to qualify for the comparable, alternative loan.) The proposed requirement would, in theory, have the potential to impose finance-related costs on creditors, particularly those whose size may preclude them from accessing either the secondary mortgage market or hedging (derivatives) markets.
The Bureau has considered whether future economic conditions could conceivably occur in which secondary market investors have no or low demand for comparable, alternative loans, rendering these products illiquid. In these circumstances, the volume of originations of such mortgages would drastically decrease with a concurrent rise in rates on the comparable, alternative loans, and a potential for increased exposure to credit and prepayment risk borne by creditors with limited asset diversification. Illiquidity in financial markets as a whole could inflict severe effects on creditors with portfolios consisting primarily of comparable, alternative loans. However, several factors mitigate the likelihood of
Another potential concern of creditors, closely related to the issues of liquidity discussed above, is the possibility that the rates on comparable, alternative loans could reach certain discrete thresholds such as the cutoff for higher-rate mortgages or the threshold rate that triggers HOEPA coverage. In such cases, creditors may face a limited ability to sell these loans. To the extent that creditors hold these new loans in portfolio, they will face some additional risk.
In considering the benefits, costs, and impacts, the Bureau notes that neither the alternative of allowing points and fees without restriction nor the elimination of all points and fees would on balance provide benefits to all consumers as a group. As a consequence, any conclusion about the comparative benefits and costs to consumers must be based on a comparison of two mutually exclusive classes of consumers: (1) Those who benefit more from the adoption of an unrestricted points and fees proposal, relative to the prohibition of all points and fees; and (2) those who benefit more from the elimination of all points and fees offers. Both groups should benefit from the current proposed rule where a creditor who wishes to make available to a consumer a menu of loans with terms including points and/or fees generally must also make available to this consumer the comparable, alternative loan that does not include discount points and origination points or fees. The costs of the proposed rule should be minimal assuming the likely scenario that a sufficiently efficient market for comparable, alternative loans (in the presence of other types of mortgage products) would exist and that the potential costs of making available the comparable, alternative loan is not be too high for a significant proportion of creditors.
Compensation rules, which restrict the means by which a loan originator receives compensation, are a practical way to mitigate potential harm to consumers arising from the opportunities for moral hazard on the part of loan originators.
The Dodd-Frank Act generally mirrors the current rule's general prohibition on compensating an individual loan originator based on the terms of a “transaction.” Although the statute and the current rule are clear that an individual loan originator cannot be compensated differently based on the terms of his or her transactions, they do not expressly address whether the individual loan originator may be compensated based on the terms of multiple transactions, taken in the aggregate, of multiple loan originators employed by the same creditor or loan originator organization.
Through its outreach and the inquiries the Board and the Bureau have received about the application of the current regulation to qualified and non-qualified plans,
The proposed rule and commentary would address this confusion by clarifying the scope of the compensation restrictions in current § 1026.36(d)(1)(i). In so clarifying the compensation restrictions, the proposed rule treats different types of compensation structures differently based on an analysis of the potential steering incentives created by the particular structure. The proposed rule would permit employers to make contributions to qualified plans (which, as explained in the proposed commentary, include defined benefit and contribution plans that satisfy the qualification requirements of IRC section 401(a) or certain other IRC sections), even if the contributions were made out of mortgage business profits. The proposed rule also would permit bonuses under non-qualified profit-sharing plans, profit pools, and bonus pools and employer contributions to non-qualified defined benefit and contribution plans if: (1) The mortgage business revenue component of the total revenues of the company or business unit to which the profit-sharing plan applies, as applicable, is below a certain threshold, even if the payments or contributions were made out of mortgage business profits (the Bureau is proposing
Compensation in the form of bonuses paid under profit-sharing plans and employer contributions to qualified and non-qualified defined benefit and contribution plans is normally based on the profitability of the firm.
As described above, considering the benefits, costs and impacts of this provision requires the understanding of current industry practice against which to measure any changes. As discussed, the Bureau believes, based on outreach to and inquiries received from industry, that confusion exists about the application of the current regulation to compensation in the form of bonuses paid under profit-sharing plans, bonus pools, and employer contributions to qualified and non-qualified plans. In light of this confusion, the Bureau believes that industry practice likely varies and therefore any determination of the costs and benefit of the proposed rule depend critically on assumptions about current firm practices.
Firms that currently offer incentive-based compensation arrangements for individual loan originators that would continue to be allowed under the proposed rule should incur neither costs nor benefits from the proposed rule. Notably, the proposed rule would clarify that employer contributions to qualified plans in which individual loan originators participate are permitted under the current rule.
Firms that did not change their compensation practices in response to the current rule and that currently offer compensation arrangements that would be prohibited under the proposed rule would incur costs. These include costs from changing internal accounting practices, re-negotiating the remuneration terms in the contracts of existing employees and any other industry practice related to these methods of compensation. For these firms, the prohibition on compensation based on transaction terms may contribute to adverse selection among individual loan originators, a possible lower average quality of individual loan originators in such a firm, higher retention costs, and possibly lower profits.
The proposed rule would benefit most consumers by clarifying the current regulation to address, and mitigate, the steering incentives inherent in the nature of profit-sharing plans and other types of compensation that are directly or indirectly based on the terms of multiple transactions of multiple individual loan originators. Limiting such incentive-based compensation for many firms limits the potential for steering consumers into more expensive loans. The Bureau's approach permits bonuses under profit-sharing plans, contributions to qualified plans, and contributions to non-qualified plans only where the steering incentives are sufficiently attenuated (
Section 1402 of Dodd-Frank amends TILA to impose a duty on loan originators to be “qualified” and, where applicable, registered or licensed as a loan originator under State law and the Federal SAFE Act. Employees of depositories, certain of their subsidiaries, and nonprofit organizations currently do not have to meet the SAFE Act standards that apply to licensing, such as taking pre-licensure classes, passing a test, meeting
Consumers will inevitably make subjective evaluations of the expertise of any loan originators with whom they consult. A consumer's knowledge that all originators possess a minimal level of such expertise would be of significant assistance to the accuracy of that evaluation and to the consumer's confidence in the originator with whom they initially begin negotiations. Consumers, who are generally considered to prefer certainty, will benefit to the extent that the current provisions increase such consumer confidence. Consumers incur no new direct costs created by the current proposal; any increases that originators may pass on to consumers will be de minimis.
The increased requirements for institutions that employ individuals not licensed under the SAFE Act would further assure that the individual loan originators in their employ satisfy those levels of expertise and standards of probity as specified in the current proposed rule.
In addition, relative to current market conditions, the proposed rule would create a more level “playing field” between non-banking institutions and depository and non-profit institutions with regard to the enhanced training requirements and background checks that would be required of the latter institutions. This may help mitigate any possible adverse selection in the market for individual originators, in which non-banking institutions employ and retain only the most qualified individuals while those of more modest expertise seek employment by depository and non-profit institutions.
For depository institutions, the enhanced requirements related to findings from a criminal background check may cause certain loan originators to no longer be able to work at these institutions. It also slightly limits the pool of employees from which to hire, relative to the pool from which they can hire under existing requirements. Following an initial transition period where firms will have to perform the background check on current employees, these costs should be minimal. Similarly, the additional credit check for current loan originators at depository institutions, and the ongoing requirement will result in some minimal increased costs. Non-banking institutions not currently subject to the SAFE Act will have to incur the costs of both the criminal background check and the credit check.
Covered persons would have to incur some costs in reviewing the proposed rule and adapting their business practices to any new requirements. The Bureau notes that many of the provisions of the current rule do not require significant changes to current practice and therefore these costs should be minimal for most covered persons.
The Bureau has considered whether the proposed rule would lead to a potential reduction in access to consumer financial products and services. The Bureau notes that many of the provisions of the current rule do not require significant changes to current consumer financial products or providers' practices. Firms will not have to incur substantial operational costs. As result, the Bureau does not anticipate any material impact on consumer access to mortgage credit.
Overall, the impact on smaller creditors of the Bureau's proposed rule would depend on several factors, the most important of which involve: (1) The ability of such creditors to manage any additional risk or loss of return the requirement generally to make available a comparable, alternative loan potentially imposes on the overall risk and return of their current portfolios; (2) the effects of the requirements on their return to equity and capital costs relative to larger competitors; and (3) their ability to recover, in a timely matter, any costs of processing loans. As previously discussed, the additional risk to the portfolios of any but the smallest creditors, from the requirement to make available the comparable, alternative loan (unless the consumer is unlikely to qualify), is likely to be small for the same reasons that apply to the portfolio risk of larger institutions and other investors.
Certain circumstances could, however, create a greater potential for adverse effects on small creditors, relative to their larger rivals, from originating large volumes of comparable, alternative loans. These circumstances occur if the financial capacity of the small creditor affects both its cost of raising capital and its ability to hedge risk. Should such an institution be unable effectively to hedge prepayment and credit risk with larger rivals or through the markets (
Under the proposed rule, smaller creditors may originate and hold more loans that do not include discount points and origination points or fees. These creditors may have fewer funds available from origination revenues to fund loan origination operations and, if they are unable to easily borrow, the general requirement to make available the comparable, alternative loan may result in greater costs. In all the cases described, however, these costs would necessarily be considerably smaller than those that they would suffer, for similar reasons, under the Dodd-Frank Act prohibition against the origination of mortgages with upfront discount points and origination points or fees under most circumstances.
Consumers in rural areas are unlikely to experience benefits or costs from the proposed rule that are different from those benefits and costs experienced by consumers in general. Consumers in rural areas who obtain mortgage loans from mid-size to large creditors would experience virtually the same costs and benefits as do any others who use such creditors. Those consumers in rural areas who obtain mortgages from small local banks and credit unions may face slightly different benefit and costs. As noted above, the provisions of the proposed rule conditionally allowing upfront points and fees may expose some consumers to the risk that a more informed creditor will use these terms to its advantage. This may be less likely to occur in cases of smaller, more local creditors.
To the extent that the requirement that a creditor generally must make available a make available comparable, alternative loans as a prerequisite to the creditor or loan originator organization imposing discount points and origination points or fees on consumers would raise the cost of credit, these impacts are most likely at smaller creditors. Rural consumers using such creditors may face these marginally increased costs. However, these effects would derive from the provisions of the Dodd-Frank Act if they were permitted to go into effect; if anything, the proposed rule would alleviate burden from small creditors by permitting them to make available loans with discount points and origination points or fees, subject to certain conditions.
The Bureau will further consider the benefits, costs and impacts of the proposed provisions and additional alternatives before finalizing the proposed rule. As noted above, there are a number of areas where additional information would allow the Bureau to better estimate the benefits, costs, and impacts of this proposed rule and more fully inform the rulemaking. The Bureau asks interested parties to provide comment or data on various aspects of the proposed rule, as detailed in the section-by-section analysis. The most significant of these include information or data addressing:
• The potential impact on all types of loan originators of the proposed restrictions on the methods by which a loan originator is remunerated in a transaction;
• The potential impact on mortgage lenders, including depository and non-depository institutions, of the requirement that all creditors must make available a comparable, alternative mortgage loan to a consumer that does not include discount points and origination points and fees, unless the consumer is unlikely to qualify for such a loan.
To supplement the information discussed in in this preamble and any information that the Bureau may receive from commenters, the Bureau is currently working to gather additional data that may be relevant to this and other mortgage related rulemakings. These data may include additional data from the NMLSR and the NMLSR Mortgage Call Report, loan file extracts from various creditors, and data from the pilot phases of the National Mortgage Database. The Bureau expects that each of these datasets will be confidential. This section now describes each dataset in turn.
First, as the sole system supporting licensure/registration of mortgage companies for 53 agencies for States and territories and mortgage loan originators under the SAFE Act, NMLSR contains basic identifying information for non-depository mortgage loan origination companies. Firms that hold a State license or registration through NMLSR are required to complete either a standard or expanded Mortgage Call Report (MCR). The Standard MCR includes data on each firm's residential mortgage loan activity including applications, closed loans, individual mortgage loan originator activity, line of credit, and other data repurchase information by state. It also includes financial information at the company level. The expanded report collects more detailed information in each of these areas for those firms that sell to Fannie Mae or Freddie Mac.
Second, the Bureau is working to obtain a random selection of loan-level data from a handful of creditors. The Bureau intends to request loan file data from creditors of various sizes and geographic locations to construct a representative dataset. In particular, the Bureau will request a random sample of “GFEs” and “HUD–1” forms from loan files for closed-end mortgage loans. These forms include data on some or all loan characteristics including settlement charges, origination charges, appraisal fees, flood certifications, mortgage insurance premiums, homeowner's insurance, title charges, balloon payment, prepayment penalties, origination charges, and credit charges or points. Through conversations with industry, the Bureau believes that such loan files exist in standard electronic formats allowing for the creation of a representative sample for analysis.
Third, the Bureau may also use data from the pilot phases of the National Mortgage Database (NMDB) to refine its proposals and/or its assessments of the benefits costs and impacts of these proposals. The NMDB is a comprehensive database, currently under development, of loan-level information on first lien single-family mortgages. It is designed to be a nationally representative sample (one percent) and contains data derived from credit reporting agency data and other administrative sources along with data from surveys of mortgage borrowers. The first two pilot phases, conducted over the past two years, vetted the data-development process, successfully pretested the survey component and produced a prototype dataset. The initial pilot phases validated that credit repository data are both accurate and comprehensive and that the survey component yields a representative sample and a sufficient response rate. A third pilot is currently being conducted with the survey being mailed to holders of five thousand newly originated mortgages sampled from the prototype NMDB. Based on the 2011 pilot, a response rate of 50 percent or higher is expected. These survey data will be combined with the credit repository information of non-respondents and then de-identified. Credit repository data will be used to minimize non-response bias, and attempts will be made to impute missing values. The data from the third pilot will not be made public. However, to the extent possible, the data may be analyzed to assist the Bureau in its regulatory activities and these analyses will be made publicly available.
The survey data from the pilots may be used by the Bureau to analyze borrowers' shopping behavior regarding mortgages. For instance, the Bureau may calculate the number of borrowers who use brokers, the number of lenders contacted by borrowers, how often and with what patterns potential borrowers switch lenders, and other behaviors. Questions may also assess borrowers' understanding of their loan terms and the various charges involved with origination. Tabulations of the survey data for various populations and simple regression techniques may be used to help the Bureau with its analysis.
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), as amended by SBREFA, requires each agency to consider the potential impact of its regulations on small entities, including small businesses, small not-for-profit organizations, and small governmental units. 5 U.S.C. 601
The Bureau has not certified that the proposed rule would not have a significant economic impact on a substantial number of small entities within the meaning of the RFA. Accordingly, the Bureau convened and chaired a Small Business Review Panel to consider the impact of the proposed rule on small entities that would be subject to that rule and to obtain feedback from representatives of such small entities. The Small Business Review Panel for this rulemaking is discussed below in part VIII.A.
The Bureau is publishing an IRFA. Among other things, the IRFA estimates the number of small entities that will be subject to the proposed rule and describes the impact of that rule on those entities. The IRFA for this rulemaking is set forth below in part VIII.B.
Under section 609(b) of the RFA, as amended by SBREFA and the Dodd-Frank Act, the Bureau seeks, prior to conducting the IRFA, information from representatives of small entities that may potentially be affected by its proposed rules to assess the potential impacts of that rule on such small entities. 5 U.S.C. 609(b). Section 609(b) sets forth a series of procedural steps with regard to obtaining this information. The Bureau first notifies
In May 2012, the Bureau provided the Chief Counsel with the formal notification and other information required under section 609(b)(1) of the RFA. To obtain feedback from SERs to inform the Small Business Review Panel pursuant to sections 609(b)(2) and 609(b)(4) of the RFA, the Bureau, in consultation with the Chief Counsel, identified 6 categories of small entities that may be subject to the proposed rule for purposes of the IRFA: Commercial banks, savings institutions, credit unions, mortgage brokers, real estate credit entities (non-depository lenders), and certain non-profit organizations. Section 3 of the IRFA, in part VIII.B.3, below, describes in greater detail the Bureau's analysis of the number and types of entities that may be affected by the proposed rule. Having identified the categories of small entities that may be subject to the proposed rule for purposes of an IRFA, the Bureau then, in consultation with the Chief Counsel, selected 17 SERs to participate in the Small Business Review Panel process. As described in chapter 7 of the Small Business Review Panel Report, described below, the SERs selected by the Bureau in consultation with the Chief Counsel included representatives from each of the categories identified by the Bureau and comprised a diverse group of individuals with regard to geography and type of locality (
On May 9, 2012, the Bureau convened the Small Business Review Panel pursuant to section 609(b)(3) of the RFA. Afterwards, to collect the advice and recommendations of the SERs under section 609(b)(4) of the RFA, the Small Business Review Panel held an outreach meeting/teleconference with the SERs on May 23, 2012. To help the SERs prepare for the outreach meeting beforehand, the Small Business Review Panel circulated briefing materials prepared in connection with section 609(b)(4) of the RFA that summarized the proposals under consideration at that time, posed discussion issues, and provided information about the SBREFA process generally.
On July 11, 2012,
In preparing this proposed rule and the IRFA, the Bureau has carefully considered the feedback from the SERs participating in the Small Business Review Panel process and the findings and recommendations in the Small Business Review Panel Report. The section-by-section analysis of the proposed rule in part V, above, and the IRFA discuss this feedback and the specific findings and recommendations of the Small Business Review Panel, as applicable. The Small Business Review Panel process provided the Small Business Review Panel and the Bureau with an opportunity to identify and explore opportunities to minimize the burden of the rule on small entities while achieving the rule's purposes. It is important to note, however, that the Small Business Review Panel prepared the Small Business Review Panel Report at a preliminary stage of the proposal's development and that the Small Business Review Panel Report—in particular, the Small Business Review Panel's findings and recommendations—should be considered in that light. Also, any options identified in the Small Business Review Panel Report for reducing the
Under RFA section 603(a), an IRFA “shall describe the impact of the proposed rule on small entities.” 5 U.S.C. 603(a). Section 603(b) of the RFA sets forth the required elements of the IRFA. Section 603(b)(1) requires the IRFA to contain a description of the reasons why action by the agency is being considered. 5 U.S.C. 603(b)(1). Section 603(b)(2) requires a succinct statement of the objectives of, and the legal basis for, the proposed rule. 5 U.S.C. 603(b)(2). The IRFA further must contain a description of and, where feasible, an estimate of the number of small entities to which the proposed rule will apply. 5 U.S.C. 603(b)(3). Section 603(b)(4) requires a description of the projected reporting, recordkeeping, and other compliance requirements of the proposed rule, including an estimate of the classes of small entities that will be subject to the requirement and the types of professional skills necessary for the preparation of the report or record. 5 U.S.C. 603(b)(4). In addition, the Bureau must identify, to the extent practicable, all relevant Federal rules which may duplicate, overlap, or conflict with the proposed rule. 5 U.S.C. 603(b)(5). The Bureau, further, must describe any significant alternatives to the proposed rule that accomplish the stated objectives of applicable statutes and that minimize any significant economic impact of the proposed rule on small entities. 5 U.S.C. 603(b)(6). Finally, as amended by the Dodd-Frank Act, RFA section 603(d) requires that the IRFA include a description of any projected increase in the cost of credit for small entities, a description of any significant alternatives to the proposed rule which accomplish the stated objectives of applicable statutes and that minimize any increase in the cost of credit for small entities (if such an increase in the cost of credit is projected), and a description of the advice and recommendations of representatives of small entities relating to the cost of credit issues. 5 U.S.C. 603(d)(1); Dodd-Frank Act section 1100G(d)(1).
As discussed in the Background, part II above, in the wake of the financial crisis, the Board in 2010 issued the Loan Originator Final Rule, which has been transferred to the Bureau. The Loan Originator Final Rule addressed many concerns regarding the lack of transparency, consumer confusion, and steering incentives created by certain residential loan originator compensation structures. The Dodd-Frank Act included a number of provisions that substantially paralleled, but also added further provisions to, the Loan Originator Final Rule. The Board noted in adopting the Loan Originator Final Rule that the Dodd-Frank Act would necessitate further rulemaking to implement the additional provisions of the legislation not reflected by the regulation. These provisions are new TILA sections 129B(b)(1) (requiring each mortgage originator to be qualified and include unique identification numbers on loan documents), (c)(1) and (c)(2) (prohibiting steering incentives including prohibiting mortgage originators from receiving compensation that varies based on loan terms and from receiving origination charges or fees from persons other than the consumer except in certain circumstances), and 129C(d) and (e) (prohibiting financing of single-premium credit insurance and providing restrictions on mandatory arbitration agreements), as added by sections 1402, 1403, 1414(d) and (e) of the Dodd-Frank Act. The Bureau is also proposing to clarify certain provisions of the existing Loan Originator Final Rule to provide additional guidance and reduce uncertainty. The Bureau is also soliciting comment on implementing the requirement in TILA section 129B(b)(2), as added by section 1402 of the Dodd-Frank Act, that it prescribe regulations requiring certain entities to establish and maintain certain procedures, a requirement that may be included in the final rule.
The Dodd-Frank Act and TILA authorize the Bureau to adopt implementing regulations for the statutory provisions provided by sections 1402, 1403, and 1414(d) and (e) of the Dodd-Frank Act. The Bureau is using this authority to propose regulations in order to provide creditors and loan originators with clarity about their statutory obligations under these provisions. The Bureau is also proposing to adjust or provide exemptions to the statutory requirements, including the obligations of small entities, in certain circumstances. The Bureau is taking this action in order to ease burden when doing so would not sacrifice adequate protection of consumers.
The new statutory requirements relating to qualification and compensation take effect automatically on January 21, 2013, as written in the statute, unless final rules are issued on or prior to that date that provide for a later effective date.
The objectives of this rulemaking are: (1) To revise current § 1026.36 and commentary to implement substantive requirements in new TILA sections 129B(b), (c)(1), and (c)(2) and 129C(d) and (e), as added by sections 1402, 1403, and 1414(d) and (e) of the Dodd-Frank Act; (2) to clarify ambiguities between current § 1026.36 and the new TILA amendments; (3) to adjust existing rules governing compensation to individual loan originators to account for Dodd-Frank Act amendments to TILA; and (4) to provide greater clarity, guidance, and flexibility on several issues.
To address consumer confusion over the relationship between certain upfront loan charges and loan interest rates, the proposal would require that, in certain circumstances, before the creditor or loan originator organization may impose upfront discount points, origination points, or originations fees on a consumer, the creditor must make available to the consumer a comparable, alternative loan that does not include discount points and origination points or fees that are retained by the creditor, loan originator organization, or an affiliate of either. (Making available the comparable, alternative loan is not necessary if the consumer is unlikely to qualify for such a loan.) The proposed use of the Bureau's exception authority under TILA section 129B(c)(2)(B)(ii) to allow creditors and loan originator organization to impose discount points and origination points or fees provided that the creditor makes available a comparable, alternative loan, as described above, will implement TILA section 129B(c)(2)(B) and make it easier for consumers to understand terms and evaluate pricing options while preserving their ability to make and receive the benefit of some upfront payments of points and fees. In addition to reducing consumer confusion, the proposal would also avoid a radical restructuring of existing mortgage market pricing structures that may
The proposal would also implement certain other Dodd-Frank Act requirements applicable to both closed-end and open-end mortgage credit. Specifically, the proposed provisions would codify TILA section 129C(d), which creates prohibitions on financing of premiums for single-premium credit insurance. The proposed provisions would also implement TILA section 129C(e), which restricts agreements requiring consumers to submit any disputes that may arise to mandatory arbitration, thereby preserving consumers' ability to seek redress through the court system after a dispute arises. The proposal also solicits comment on implementing TILA section 129B(b)(2), which requires the Bureau to prescribe regulations requiring depository institutions to establish and monitor compliance of such depository institutions, the subsidiaries of such institutions, and the employees of both with the requirements of TILA section 129B and the registration procedures established under section 1507 of the SAFE Act.
In addition to creating new substantive requirements, the Dodd-Frank Act extended previous efforts by lawmakers and regulators to strengthen loan originator qualification requirements and regulate industry compensation practices. New TILA section 129B(b) imposes a duty on loan originators to be “qualified” and, where applicable, registered or licensed as a loan originator under State law and the Federal SAFE Act and to include unique identification numbers on loan documents. The proposal would implement this section and expand consumer protections by requiring entities whose individual loan originators are not subject to SAFE Act licensing requirements, including depositories and bona fide nonprofit loan originator entities, to: (1) Ensure that their individual loan originators meet character and fitness and criminal background standards equivalent to the licensing standards that the SAFE Act applies to employees of non-bank loan originators; and (2) provide appropriate training to their individual loan originators commensurate with the mortgage origination activities of the individual.
Furthermore, the proposal would adjust existing rules governing compensation to individual loan originations in connection with closed-end mortgage transactions to account for Dodd-Frank Act amendments to TILA and provide greater clarity and flexibility. Specifically, the proposed provisions would preserve, with some refinements, the prohibition on the payment or receipt of commissions or other loan originator compensation based on the terms of the transaction (other than loan amount) and on loan originators being compensated simultaneously by both consumers and other parties in the same transaction. To further reduce potential steering incentives for loan originators created by certain compensation arrangements, the proposed rule would also clarify and revise restrictions on pooled compensation, profit-sharing, and bonus plans for loan originators, depending on the potential for incentives to steer consumers to different transaction terms.
Finally, the proposal would make two changes to the current record retention provisions of § 1026.25 of TILA. The proposed provisions would: (1) Require a creditor to maintain records of the compensation paid to a loan originator organization or the creditor's individual loan originators, and the governing compensation agreement, for three years after the date of payment; and (2) require a loan originator organization to maintain records of the compensation it receives from a creditor, a consumer, or another person and that it pays to its individual loan originators, as well as the compensation agreement that governs those receipts or payments, for three years after the date of the receipts or payments. In addition, creditors would be required to make and maintain, for three years, records to show that they made available to a consumer a comparable, alternative loan when required by the proposed rule and complied with the requirement that where discount points and origination points or fees are charged, there be a bona fide reduction in the interest rate compared to the interest rate for the comparable, alternative loan. By ensuring that records associated with loan originator compensation are retained for a time period commensurate with the statute of limitations for causes of action under TILA section 130 and are readily available for examination, these proposed modifications to the existing recordkeeping provisions will prevent circumvention or evasion of TILA and facilitate compliance.
The legal basis for the proposed rule is discussed in detail in the legal authority analysis in part IV and in the section-by-section analysis in part V, above.
For purposes of assessing the impacts of the proposals under consideration on small entities, “small entities” are defined in the RFA to include small businesses, small non-profit organizations, and small government jurisdictions. 5 U.S.C. 601(6). A “small business” is determined by application of SBA regulations and reference to the North American Industry Classification System (“NAICS”) classifications and size standards.
During the Small Business Review Panel process, the Bureau identified six categories of small entities that may be subject to the proposed rule for purposes of the RFA:
• Commercial banks (NAICS 522110);
• Savings institutions (NAICS 522120);
• Credit unions (NAICS 522130);
• Firms providing real estate credit (NAICS 522292);
• Mortgage brokers (NAICS 522310); and
• Small non-profit organizations.
Commercial banks, savings institutions, and credit unions are small businesses if they have $175 million or less in assets. Firms providing real estate credit and mortgage brokers are small businesses if their average annual receipts do not exceed $7 million.
A small non-profit organization is any not-for-profit enterprise that is independently owned and operated and is not dominant in its field. Small non-profit organizations engaged in loan origination typically perform a number of activities directed at increasing the supply of affordable housing in their communities. Some small non-profit organizations originate mortgage loans for low and moderate-income individuals while others purchase loans originated by local community development lenders.
The following table provides the Bureau's estimated number of affected and small entities by NAICS Code and engagement in loan origination:
The proposed rule does not impose new reporting requirements.
Regulation Z currently requires creditors to create and maintain records to demonstrate their compliance with provisions that apply to the compensation paid to or received by a loan originator. As discussed above in part V, the proposed rule would require creditors to retain these records for a three-year period, rather than for a two-year period as currently required. The Bureau is soliciting comment on extending the record retention period to five years. The proposed rule would apply the same requirement to organizations when they act as a loan originator in a transaction, even if they do not act as a creditor in the transaction. The proposed recordkeeping requirements, however, would not apply to individual loan originators. In addition, creditors would be required to make and maintain records for three years to show that they made available to a consumer a comparable, alternative loan when required by this proposed rule and complied with the requirement that where discount points and origination points or fees are charged, there be bona fide reduction in the interest rate compared to the interest rate for the comparable, alternative loan. The Bureau is also soliciting comment on extending this record retention period to five years.
As discussed in the section-by-section analysis, the Bureau recognizes that extending the record retention requirement for creditors from two years for specific information related to loan originator compensation and discount points and origination points and fees, as currently provided in Regulation Z, to three years may result in some increase in costs for creditors. The Bureau believes, however, that creditors should be able to use existing recordkeeping systems to maintain the records for an additional year at minimal cost. Similarly, although loan originator organizations may incur some costs to establish and maintain recordkeeping systems, loan originator organizations may be able to use existing recordkeeping systems that they maintain for other purposes at minimal cost. During the Small Business Review Panel process, the SERs were asked about their current record retention practices and the potential impact of the proposed enhanced record retention requirements. Of the few SERs who provided feedback on the issue, one creditor stated that it maintained detailed records of compensation paid to all of its employees and that a regulator already reviews its compensation plans regularly, and another creditor reported that it did not believe the proposed record retention requirement would require it to change its current practices. Therefore, the Bureau does not believe that the record retention requirements will create undue burden for small entity creditors and loan originator organizations.
The proposal contains both specific proposed provisions with regulatory or commentary language (proposed provisions) as well as requests for comment on modifications where regulatory or commentary language was not specifically included (additional proposed modifications). The possible compliance costs for small entities from each major component of the proposed rule are presented below. In most cases, the Bureau presents these costs against a pre-statute baseline. As noted above in the section 1022(b)(2) analysis in part VII above, provisions where the Bureau has used its exemption authority are discussed relative to the statutory provisions (a post-statute baseline). The analysis below considers the benefits, costs, and impacts of the following major proposed provisions on small entities:
The Dodd-Frank Act prohibits consumer payment of upfront points and fees in all residential mortgage loan transactions (as defined in the Dodd-Frank Act) except those where no one other than the consumer pays a loan originator compensation tied to the transaction (
The Bureau is proposing two safe harbors for how a creditor may comply with the requirement to make available a comparable, alternative loan (unless the consumer is unlikely to qualify for the loan). In transactions that do not involve a mortgage broker, a creditor will be deemed to have made available a comparable, alternative loan to a consumer if, any time prior to application that the creditor provides to the consumer an individualized quote for a loan that includes discount points and origination points or fees, the creditor also provides a quote for the comparable, alternative loan. In transactions that involve mortgage brokers, a creditor will be deemed to have made a comparable, alternative loan available to consumers if it provides to mortgage brokers the pricing for all of its comparable, alternative loans that do not include discount points and origination points or fees. Mortgage brokers then will provide quotes to consumers for loans that do not include discount points and origination points or fees when presenting different loan options to consumers. The requirement would not apply where the consumer is unlikely to qualify for the comparable, alternative loan.
The Bureau is also seeking comment on a number of related issues, including whether the Bureau should adopt a “bona fide” requirement to ensure that consumers receive value in return for paying discount points and origination points or fees, and different options for structuring such a requirement; whether additional adjustments to the proposal concerning the treatment of affiliate fees would make it easier for consumers to compare offers between two or more creditors; whether to take a different approach concerning situations in which a consumer does not qualify for a comparable, alternative loan that does not include discount points and origination points or fees; and whether to require information about a comparable, alternative loan be provided not just in connection with informal quotes, but also in advertising and at the time that consumers are provided disclosures three days after application. These issues are described in more detail in the section-by-section analysis, above.
Moreover, the ability of small creditors to charge discount points in exchange for lower interest rates would accommodate those consumers who prefer to pay more at settlement in exchange for lower monthly interest charges and could produce a greater volume of available credit in residential mortgage markets. Preserving this ability would potentially allow a wider access to homeownership, which would benefit consumers, creditors, loan originator organizations, and individual loan originators. The ability to charge origination fees up front also would allow small creditors to recover fixed costs at the time they are incurred rather than over time through increased interest payments or through the secondary market prices. And, similarly, preserving the flexibility for affiliates of creditors and loan originator organizations to charge fees upfront should allow for these firms to charge directly for their services. This means that creditors and loan originator organizations may be less likely to divest such entities than if the Dodd-Frank Act mandate takes effect as written.
The requirement that creditors must generally make available loans that do not include discount points and origination points or fees (unless the consumer is unlikely to qualify for such a loan) would impose some restrictions on small creditors and loan originator organizations. As discussed in part VII, this requirement may impose costs on smaller entities with more limited access to the secondary market or to affordable hedging opportunities. There may be instances where a consumer's choice of the comparable, alternative loan from a small creditor increases that firm's financial risk; however for the reasons discussed, the Bureau believes such instances would be rare. The Bureau seeks comment on the costs to small entities from this requirement.
The proposed rule also solicits comment on whether the Bureau should adopt a “bona fide” requirement to ensure that consumers receive value in return for paying discount points and origination points or fees, and different options for structuring such a requirements. To the extent the final rule imposes a bona fide requirement that departs from current market pricing practices, this condition may restrict small entities' flexibility in pricing. Implementing a requirement that the payment of discount points and origination points or fees be bona fide may also impose additional compliance and monitoring costs. Small creditors may already need to determine and monitor when discount points are bona fide for the purposes of the Bureau's forthcoming ATR rulemaking; and to the extent that the definitions of bona fide discount points in the ATR context and bona fide discount points and origination points or fees are similar, the additional costs would be reduced. Regarding compliance, the proposal seeks comments on market based approaches or approaches based on firms' own pricing policies; in either case, compliance would likely entail increased records retention.
Moreover, the Bureau is soliciting comment on whether to require information about the comparable, alternative loan to be provided not just in connection with informal quotes, but also in advertising and after application by providing a Loan Estimate, or the first page of the Loan Estimate, which is the integrated disclosures under TILA and RESPA proposed by the Bureau in the TILA–RESPA Integration Proposal.
Changes to the advertising rules under Regulation Z are unlikely to raise specific costs of compliance for small entities, apart from those costs associated with learning about and adjusting to any new regulations. The
The proposed rule clarifies and revises restrictions on pooled compensation, profit-sharing, and bonus plans for loan originators, depending on the potential incentives to steer consumers to different transaction terms. As discussed in the section-by-section analysis to proposed 1026.36(d)(1)(iii), the proposal regarding bonus plans would permit employers to make contributions from general profits derived from mortgage activity to 401(k) plans, employee stock option plans, and other “qualified plans” under section 401(a) of the IRC and ERISA, as applicable, and also would permit employers to pay bonuses or make contributions to non-qualified profit-sharing or retirement plans from general profits derived from mortgage activity if: (1) The loan originator affected has originated five or fewer mortgage transactions during the last 12 months; or (2) the company's mortgage business revenues are limited (the Bureau is seeking comment on whether 50 percent or 25 percent of total revenues would be an appropriate test for such limitation, and on other related issues). The Bureau is also proposing, to permit compensation funded by general profits derived from mortgage activity in the form of bonuses and other payments under profit-sharing plans and contributions to non-qualified defined benefit or contribution plans where an individual loan originator is the loan originator for five or fewer transactions within the 12-month period preceding the payment of the compensation. Even though contributions and bonuses could be funded from general mortgage profits, the amounts paid to individual loan originators could not be based on the terms of the transactions that the individual had originated.
With respect to the proposal to permit bonuses under profit-sharing plans and contributions to non-qualified retirement plans where the revenues of the mortgage business do not exceed a certain percentage of the total revenues of the organization (or, as applicable, the business until to which the profit-sharing plan applies), for small depository institutions and credit unions (defined as those institutions with assets under $175 million), regulatory data from 2010 indicate that at the higher threshold of 50 percent of total revenue, roughly 2 percent of small commercial banks (about 75 banks) and 3 percent of small credit unions (about 200 credit unions) would remain subject to the proposed restrictions. Using a lower threshold of 25 percent of revenue, roughly 28 percent of small commercial banks and 22 percent of small credit unions would be subject to the proposed restrictions. The numbers are larger and more significant for small savings institutions whose primary business focus is on residential mortgages. At the higher threshold, 59 percent of these firms would be restricted from paying bonuses based on mortgage-related profits to their individual loan originators.
Firms that did not change their compensation practices in response to the current rule and the Dodd-Frank Act and, thus, currently offer compensation arrangements that would be prohibited under the proposed rule, will incur costs. These include costs from changing internal accounting practices, renegotiating the remuneration terms in the contracts of existing employees, and any other industry practice related to these methods of compensation. For these firms, the prohibition on compensation based on transaction terms may contribute to adverse selection among individual loan originators, a possible lower average quality of individual loan originators in such a firm, and higher retention costs. The discrete nature of the threshold also implies that some loan originators may now suffer the disadvantage of facing competitors with fewer restrictions on compensation. These potential differential effects may be greater for small entities. The Bureau seeks comments and data on the current compensation practices of those firms at or above the thresholds.
During the Small Business Review Panel process, a SER stated that there should be no threshold limit because any limit would disadvantage small businesses that originate only mortgages. In response to this and other SERs feedback, the Small Business Review Panel recommended that the Bureau seek public comment on the ramifications for small businesses and other businesses of setting the revenue limit at 50 percent of company revenue or at other levels. The Small Business Review Panel also recommended that the Bureau solicit comment on the treatment of qualified and non-qualified plans and whether treating qualified plans differently than non-qualified plans would adversely affect small lenders and brokerages relative to large lenders and brokerage. While the Bureau expects that for some small entities, the de minimis exception should address some of the concerns expressed by the SERs through the Small Business Review Panel process, the Bureau is seeking comment on these issues.
The proposal would implement a Dodd-Frank Act provision requiring both individual loan originators and their employers to be “qualified” and to include their license or registration numbers on loan documents. Where an individual loan originator is not already required to be licensed under the SAFE Act, the proposal would require his or her employer to ensure that the individual loan originator meets character, fitness, and criminal background check standards that are equivalent to SAFE Act requirements and receives training commensurate with the individual loan originator's duties. Employers would be required to ensure that their individual loan originator employees are licensed or registered under the SAFE Act where applicable. Employers and the individual loan originators that are primarily responsible for a particular transaction would be required to list their license or registration numbers on key loan documents along with their names.
For any entity that adopted screening and training requirements in the first instance, the Bureau estimates the costs to include the cost of a criminal background check and the time involved in checking employment and character references of an applicant. The time and cost required to provide occasional, appropriate training to individual loan originators will vary greatly depending on the lending activities of the entity and the skill and experience level of the individual loan originators; however, the Bureau anticipates that the training that many non-profit and depository individual loan originator employees already receive will be adequate to meet the proposed requirement. The Bureau expects that in no case would the training needed to satisfy the proposed requirement be more comprehensive, time-consuming, or costly than the online training approved by the NMLSR to satisfy the continuing education requirement imposed under the SAFE Act on those individuals who are subject to state licensing.
The requirement to include the NMLSR unique identifiers and names of loan originators on loan documents may impose some additional costs relative to current practice. However, this may be mitigated by the fact that the Federal Housing Finance Agency already requires the NMLSR numerical identifier of individual loan originators and loan originator organizations to be included on all loan applications for Fannie Mae and Freddie Mac loans.
These proposed provisions would preserve the current prohibition on the payment or receipt of commissions or other loan originator compensation based on the terms of the transaction (other than loan amount) and on loan originators being compensated simultaneously by both consumers and other parties in the same transaction. The proposal would, however, revise the Loan Originator Final Rule to provide that if a loan originator organization receives compensation directly from a consumer in connection with a transaction, the loan originator organization may pay compensation in connection with the transaction (
In addition, the proposed rule would allow reductions in loan originator compensation in a limited set of circumstances where there are unanticipated increases in closing costs from non-affiliated third parties in a violation of applicable law (such as a tolerance violation under Regulation X). The proposed rule would also provide additional guidance on determining whether a factor used as a basis for compensation is prohibited as a “proxy” for a transaction term.
These provisions will provide greater flexibility, relative to the statutory provisions of the Dodd-Frank Act, for firms needing to comply with the regulations. This greater clarity and flexibility should lower any costs of compliance for small entities by, for example, reducing costs for attorneys and compliance officers as well as potential costs of over-compliance and unnecessary litigation. These provisions of the proposed rule would therefore reduce the compliance burdens on small entities. The Bureau seeks comments on the specific impacts these provisions may have for small entities.
Section 603(b)(4) of the RFA requires an estimate of the classes of small entities that will be subject to the requirements. The classes of small entities that will be subject to the reporting, recordkeeping, and compliance requirements of the proposed rule are the same classes of small entities that are identified above in part VIII.
Section 603(b)(4) of the RFA also requires an estimate of the type of professional skills necessary for the preparation of the reports or records. The Bureau anticipates that the professional skills required for compliance with the proposed rule are the same or similar to those required in the ordinary course of business of the small entities affected by the proposed rule. Compliance by the small entities that will be affected by the proposed rule will require continued performance of the basic functions that they perform today.
The proposal contains restrictions on loan originator compensation practices, prerequisites to the making of a mortgage transaction with discount points and origination points or fees under most circumstances, requirements for loan originators to be qualified and licensed or registered, and restrictions on mandatory arbitration and the financing of certain credit insurance premiums. The Bureau has identified certain other Federal rules that relate in some fashion to these areas and has considered to what extent they may duplicate, overlap, or conflict with this proposal. Each of these is discussed below.
The Bureau's Regulation X, 12 CFR part 1024, implements RESPA. The regulation requires, among other things, the disclosure to consumers pursuant to RESPA of real estate settlement costs. The settlement costs required to be disclosed under Regulation X include discount points and origination charges.
The Bureau's Regulations G, 12 CFR part 1007, and H, 12 CFR part 1008,
In the section-by-section analysis to § 1026.36(d)(1)(i), above, the Bureau notes the Interagency Guidance on incentive compensation. 75 FR 36395 (Jun. 17, 2010). As discussed there, the Interagency Guidance was issued to help ensure that incentive compensation policies at large depository institutions do not encourage imprudent risk-taking and are consistent with the safety and soundness of the institutions. As also noted above, however, the Bureau's proposed rule does not affect the Interagency Guidance on loan origination compensation. While certain compensation practices may violate either the Interagency Guidance or this proposal but not the other, no practice is mandated by one and also prohibited by the other. Accordingly, the Bureau believes that this proposal does not conflict with the Interagency Guidance. The Bureau also believes that there is no duplication or overlap between the two.
In addition to existing Federal rules, the Bureau is also in the process of several other rulemakings relating to mortgage credit to implement requirements of the Dodd-Frank Act. These other rulemakings are discussed in part II.E, above. As noted there, the Bureau is coordinating carefully the development of those proposals and final rules. Among those that include provisions potentially intersecting with this proposal are the TILA–RESPA Integration, HOEPA, and ATR rulemakings.
• Under the TILA–RESPA Integration Proposal, the integrated disclosures must include an NMLSR ID, which parallels proposed § 1026.36(g)(1)(ii) in this notice. The Bureau has sought to avoid duplication, overlap, or conflict in this regard through proposed comment 36(g)(1)(ii)–1, which states that an individual loan originator may comply with the requirement in § 1026.36(g)(1)(ii) by complying with the applicable provision governing disclosure of NMLSR IDs in rules issued by the Bureau under the TILA–RESPA Integration rulemaking.
The ATR and HOEPA rulemakings both involve the concept of bona fide discount points. As discussed in the section-by-section analysis to proposed § 1026.36(d)(2)(ii)(C), this proposal includes an analogous concept in providing that no discount points and origination points or fees may be imposed on the consumer in certain transactions unless there is a bona fide reduction in the interest rate. The same discussion refers to the 2011 ATR Proposal and notes the parallel, while also recognizing that the two contexts may not necessarily call for an identical definition of “bona fide” given the differences between the purposes and scope of the requirements. The Bureau intends to coordinate carefully between this rulemaking and the ATR and HOEPA rulemakings with respect to any definitions of bona fide for their respective purposes, to ensure that they create no duplication, overlap, or conflict.
The Dodd-Frank Act prohibits consumers from making an “upfront payment of discount points, origination points, or fees” to a loan originator, creditor, or their affiliates in all retail and wholesale loan originations where the loan originator is compensated by creditors or brokerage firms. During the Small Business Review Panel process, one proposal the Bureau presented to the SERs for consideration concerned the nature of permissible origination fees. Specifically the Bureau asked the SERs to provide feedback on the proposal that consumers could, at the time of origination, remit to the loan originator, creditor, or their affiliates payment for bona fide or third-party charges connected with this origination, if these fees were independent of the size of the loan as well as its terms.
This condition reflected the Bureau's belief that the actual costs incurred in originating a loan, whether in the wholesale or retail market, did not vary materially with the size of the initial loan balance. Under such constant costs, the requirement that fees not vary with the balance would benefit consumers in two distinct ways. First, it would likely improve market efficiency by requiring fees to consumers to mirror the actual costs of loan origination, precisely as they would in a competitive market, and consequently lower consumer costs. Second, it would eliminate an potential source of misinterpretation by consumers by essentially precluding originators from using the term “points” when referring to both origination points (charges to the borrower for originating the loan) and discount points (charges to the borrower that are exchanged for future interest payments).
Industry, through both the Small Business Review Panel process and outreach, and consumer groups raised concerns with this proposal. SERs, in particular, raised objections focusing on the potential that the requirement would disadvantage smaller creditors. SERs and others also raised objections to the validity of the assumption of constant origination costs.
Several SERs participating in Small Business Review Panel and participants in outreach calls asserted that, contrary to the Bureau's supposition, the economic costs of origination do vary with the loan balance and related loan characteristics. Two robust examples were cited in support of this assertion. The first involved GSE-imposed loan level pricing adjustments based on loan balance, which are incurred in the sale of mortgages to the secondary market. The second involved loans subsidized through the provision of an FHA or VA-funded financial guarantee against default by the primary borrower. More extensive services are required to originate such a loan, including efforts expended on consumer qualification and on certification of the terms of the guarantee per dollar of initial loan balance, than are required on a conventional loan.
In addition, certain costs of hedging risk, incurred by creditors during and after origination vary with loan size. The most common example of this is the cost to the creditor of buying various forms of derivative securities to hedge the financial risks of newly-originated mortgage loans, the costs of which do vary with loan size and are incurred by creditors merely warehousing such loans for resale and those intending to hold these mortgages in portfolio.
In response to the feedback it obtained from the SERs during the Small Business Review Panel process, as well as feedback obtained through
Section 603(d) of the RFA requires the Bureau to consult with small entities regarding the potential impact of the proposed rule on the cost of credit for small entities and related matters. 5 U.S.C. 603(d). To satisfy this statutory requirement, the Bureau notified the Chief Counsel on May 9, 2012, that the Bureau would collect the advice and recommendations of the same SERs identified in consultation with the Chief Counsel during the Small Business Review Panel process concerning any projected impact of the proposed rule on the cost of credit for small entities.
The Bureau had no evidence at the time of the Small Business Review Panel Outreach Meeting that the proposals then under consideration would result in an increase in the cost of business credit for small entities under any plausible economic conditions. The proposals under consideration at the time applied to consumer credit transactions secured by a mortgage, deed of trust, or other security interest on a residential dwelling or a residential real property that includes a dwelling, and the proposals would not apply to loans obtained primarily for business purposes.
At the Small Business Review Panel Outreach Meeting, the Bureau specifically asked the SERs a series of questions regarding any potential increase in the cost of business credit. Specifically, the SERs were asked if they believed any of the proposals under consideration would impact the cost of credit for small entities and, if so, in what ways and whether there were any alternatives to the proposals being considered that could minimize such costs while accomplishing the statutory objectives addressed by the proposal.
Based on the feedback obtained from SERs at the Small Business Review Panel Outreach Meeting, the Bureau currently has no evidence that the proposed rule would result in an increase in the cost of credit for small business entities. In order to further evaluate this question, the Bureau solicits comment on whether the proposed rule would have any impact on the cost of credit for small entities.
The Bureau's collection of information requirements contained in this proposal, and identified as such, will be 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. 3501
This proposed rule would amend 12 CFR part 1026 (Regulation Z). Regulation Z currently contains collections of information approved by OMB, and the Bureau's OMB control number is 3170–0015 (Truth in Lending Act (Regulation Z) 12 CFR part 1026). As described below, the proposed rule would amend the collections of information currently in Regulation Z.
The title of this information collection is: Loan Originator Compensation. The frequency of response is on-occasion. The information collection requirements in this proposed rule are required to provide benefits for consumers and would be mandatory.
Under the proposal, the Bureau would account for the paperwork burden associated with Regulation Z for the following respondents pursuant to its administrative enforcement authority: insured depository institutions with more than $10 billion in total assets, their depository institution affiliates, and certain non-depository loan originator organizations. The Bureau and the FTC generally both have enforcement authority over non-depository institutions for Regulation Z. 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 total paperwork burden for the institutions for which they have administrative enforcement 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 approximately 22,400 institutions subject to the proposal, including Bureau respondents,
The aggregate estimates of total burdens presented in this part IX are based on estimated costs that are averages across respondents. 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.
Regulation Z currently requires creditors to create and maintain records to demonstrate their compliance with Regulation Z provisions regarding compensation paid to or received by a loan originator. As discussed above in part V, the proposed rule would require creditors to retain these records for a three-year period, rather than for a two-year period as currently required. The proposed rule would apply the same requirement to organizations when they act as a loan originator in a transaction, even if they do not act as a creditor in the transaction. In addition, creditors would be required to make and maintain records for three years to show that they made available to a consumer a comparable, alternative mortgage loan when required by this proposed rule and complied with the requirement that where discount points and origination points or fees are charged, there be bona fide reduction in the interest rate compared to the interest rate for the comparable, alternative loan.
For the requirement extending the record retention requirement for creditors from two years, as currently provided in Regulation Z, to three years, the Bureau assumes that there is not additional marginal cost. For most, if not all firms, the required records are in electronic form. The Bureau believes that, as a consequence, all creditors should be able to use their existing recordkeeping systems to maintain the required documentation for mortgage origination records for one additional year at a negligible cost of investing in new storage facilities.
Loan originator organizations, but not creditors, will incur costs from the new requirement to retain records related to compensation. For the requirement that organizations retain records related to compensation on loan transactions, these firms will need to build the requisite reporting regimes. At some firms this may require the integration of information technology systems; for others simple reports can be generated from existing core systems.
For the 8,051 Bureau respondents that are non-depository loan originator organizations but not creditors, the one-time burden is estimated to be roughly 162,800 hours to review the regulation and establish the requisite systems to retain compensation information. The Bureau estimates the requirement for these Bureau respondents to retain documentation of compensation arrangements is assumed to require 64,400 ongoing burden hours annually. The Bureau has allocated to itself one-half of this burden.
The proposal would require a creditor to retain records that it made available to a consumer, when required, a comparable, alternative loan that does not include discount points and origination points or fees, or that it made a good-faith determination that a consumer is unlikely to qualify for it. The Bureau believes that there is no additional cost or burden associated with this requirement because it believes that most, if not all creditors, already keep records of quotes of loan terms that they make to individual consumers as a matter of usual and customary practice. The Bureau believes that, as a consequence, all creditors should be able to use their existing recordkeeping systems to maintain the required documentation. The Bureau seeks public comment on how creditors currently keep track of quotes they have made to particular consumers and any additional costs from the requirement to track compliance with the requirements regarding the comparable, alternative loan.
To the extent loan originator organizations employ or retain the services of individual loan originators who are not required to be licensed under the SAFE Act, and who are not so licensed, the loan originator organizations would be required to obtain a criminal background check and credit report for the individual loan originators. Loan originator organizations would also be required to obtain from the NMLSR or individual loan originator information about any findings against such individual loan originator by a government jurisdiction. In general, the loan originator organizations that would be subject to this requirement are depository institutions (including credit unions) and non-profit organizations whose loan originators are not subject to State licensing because the State has determined the organization to be a bona fide non-profit organization. The burden of obtaining this information may be different for a depository institution than it is for a non-profit organization because depository institutions already obtain criminal background checks for their loan originators to comply with Regulation G and have access to information about findings against such individual loan originator by a government jurisdiction through the NMLSR.
Both depository institutions and non-profit organizations will incur one-time costs related to obtaining credit reports for all existing loan originators and ongoing costs for all future loan originators that are hired or transfer into this function. For the estimated 2,843 Bureau respondents, which include depository institutions over $10 billion, their depository affiliates, and one-half the estimated burdens for the non-profit non-depository organizations, this one time estimated burden would be 2,950 hours and the estimated on going burden would be 150 hours.
Depository institutions already obtain criminal background checks for each of their individual loan originators through the NMLSR for purposes of complying with Regulation G. A criminal background check provided by the NMLSR to the depository institution is sufficient to meet the requirement to obtain a criminal background check in this proposed rule. Accordingly, the Bureau believes they will not incur any additional burden.
Non-depository loan originator organizations that do not have access to information about criminal history in the NMLSR, including bona fide non-profit organizations, could satisfy the latter requirements by obtaining a national criminal background check.
Depository institutions already obtain and have access to information about government jurisdiction findings against their individual loan originators through the NMLSR. Such information is sufficient to meet the requirement to obtain a criminal background check in this proposed rule. Accordingly, the Bureau does not believe they will incur significant additional burden.
The information for employees of non-profit organizations is generally not in the NMLSR. Accordingly, under the proposed rule a non-profit organization would have to obtain this information using individual statements concerning any prior administrative, civil, or criminal findings. For the assumed 1,000 loan originators who are employees of bona-fide non-profit organizations, the Bureau estimates that no more than 10 percent have any such findings by a governmental jurisdiction to describe. The one-time burden is estimated to be 20 hours, and the annual burden to obtain the information from new hires is estimated to be one hour.
Comments are specifically requested concerning: (1) 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; (2) the accuracy of the estimated burden associated with the proposed collections of information; (3) how to enhance the quality, utility, and clarity of the information to be collected; and (4) 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 to
Advertising, Consumer protection, Credit, Credit unions, Mortgages, National banks, Reporting and recordkeeping requirements, Savings associations, Truth in lending.
Certain conventions have been used to highlight the proposed revisions. New language is shown inside bold arrows, and language that would be removed is shown inside bold brackets.
For the reasons set forth in the preamble, the Bureau proposes to amend Regulation Z, 12 CFR part 1026, as set forth below:
1. The authority citation for part 1026 continues to read as follows:
12 U.S.C. 5512, 5581; 15 U.S.C. 1601
2. Section 1026.25 is amended by adding paragraph (c) to read as follows:
▸(c)
(1) [Reserved]
(2)
(i) A creditor must maintain records sufficient to evidence all compensation it pays to a loan originator organization (as defined in § 1026.36(a)(1)(iii)) or the creditor's individual loan originator (as defined in § 1026.36(a)(1)(ii)) and the compensation agreement that governs those payments for three years after the date of payment.
(ii) A loan originator organization must maintain records sufficient to evidence all compensation it receives from a creditor, a consumer, or another person, all compensation it pays to the loan originator organization's individual loan originators, and the compensation agreement that governs those receipts or payments for three years after the date of each receipt or payment.
(3)
(i) The creditor has made available to the consumer a comparable, alternative loan that does not include discount points and origination points or fees as required by § 1026.36(d)(2)(ii)(A) or, if such a loan was not made available to the consumer, a good-faith determination that the consumer was unlikely to qualify for such a loan; and
(ii) Compliance with the “bona fide” requirements under § 1026.36(d)(2)(ii)(C).◂
3. Section 1026.36 is amended by:
a. Revising the section heading;
b. Revising paragraphs (a), (d)(1), (d)(2), and (e)(3)(i)(C);
c. Re-designating paragraph (f) as paragraph (j);
d. Adding new paragraph (f) and paragraphs (g), (h), and (i); and
e. Revising newly re-designated paragraph (j),
The revisions and additions read as follows:
(a)
(ii) An “individual loan originator” is a natural person who meets the definition of “loan originator” in paragraph (a)(1)(i) of this section.
(iii) A “loan originator organization” is any loan originator, as defined in paragraph (a)(1)(i) of this section, that is not an individual loan originator◂.
(2)
▸(3)
(d)
(ii) For purposes of this paragraph (d)(1), the amount of credit extended is not deemed to be a transaction term [or condition], provided compensation received by or paid to a loan originator, directly or indirectly, is based on a fixed percentage of the amount of credit extended; however, such compensation may be subject to a minimum or maximum dollar amount.
[(iii) This paragraph (d)(1) shall not apply to any transaction in which paragraph (d)(2) of this section applies.]
▸(iii) Notwithstanding paragraph (d)(1)(i) of this section, an individual loan originator may receive, and a person may pay to an individual loan originator, compensation in the form of a contribution to a defined contribution plan or defined benefit plan that is a qualified plan and in which the individual loan originator participates, provided that the contribution is not directly or indirectly based on the terms of that individual loan originator's transactions subject to paragraph (d) of this section. In addition, notwithstanding paragraph (d)(1)(i) of this section, an individual loan originator may receive, and a person may pay, compensation in the form of a bonus or other payment under a profit-sharing plan sponsored by the person or a contribution to a defined benefit plan or defined contribution plan in which the individual loan originator participates that is not a qualified plan, even if the compensation directly or indirectly is based on the terms of the transactions subject to paragraph (d) of this section of multiple individual loan originators employed by the person during the time period for which the compensation is paid to the individual loan originator, provided that:
(A) The compensation paid to an individual loan originator is not directly or indirectly based on the terms of that individual loan originator's transactions subject to paragraph (d) of this section; and
(B) At least one of the following conditions is satisfied:
(
(
(
(2)
(▸
(▸
▸(B) Compensation directly from a consumer includes payments to a loan originator made pursuant to an agreement between the consumer and a person other than the creditor or its affiliates.
(C)
(ii)
(B) The term “discount points and origination points or fees” for purposes of this paragraph (d) and paragraph (e) of this section means all items that would be included in the finance charge under § 1026.4(a) and (b), and any fees described in § 1026.4(a)(2) notwithstanding that those fees may not be included in the finance charge under § 1026.4(a)(2), that are payable at or before consummation by the consumer in connection with the transaction to a creditor or a loan originator organization, other than:
(
(
(
(C) No discount points and origination points or fees may be imposed on the consumer in connection with a transaction subject to paragraph (d)(2)(ii)(A) of this section unless there is a bona fide reduction in the interest rate compared to the interest rate for the comparable, alternative loan that does not include discount points and origination points or fees required to be made available to the consumer under paragraph (d)(2)(ii)(A) of this section. For any rebate paid by the creditor that will be applied to reduce the consumer's settlement charges, the creditor must provide a bona fide rebate in return for an increase in the interest rate compared to the interest rate for the comparable, alternative loan that does not include discount points and origination points or fees required to be made available to the consumer under paragraph (d)(2)(ii)(A) of this section.◂
(e). * * *
(3) * * *
(i) * * *
(C) The loan with the lowest total dollar amount ▸of discount points and origination points or fees. If two or more loans have the same total dollar amount of discount points and origination points or fees, the loan originator must present the loan with the lowest interest rate that has the lowest total dollar amount of discount points and origination points or fees.◂[for origination points or fees and discount points.]
▸(f)
(1) Comply with all applicable State law requirements for legal existence and foreign qualification;
(2) Ensure that its individual loan originators are licensed or registered to the extent the individual is required to be licensed or registered under the SAFE Act, its implementing regulations, and State SAFE Act implementing law; and
(3) For each of its individuals who is not required to be licensed and is not licensed as a loan originator pursuant to § 1008.103 of this chapter or State SAFE Act implementing law:
(i) Obtain:
(A) A State and national criminal background check through the Nationwide Mortgage Licensing System and Registry (NMLSR) or, in the case of an individual loan originator who is not a registered loan originator under the NMLSR, a State and national criminal background check from a law enforcement agency or commercial service;
(B) A credit report from a consumer reporting agency described in section 603(p) of the Fair Credit Reporting Act (15 U.S.C. 1681a(p)) secured, where applicable, in compliance with the requirements of section 604(b) of the Fair Credit Reporting Act (15 U.S.C. 1681b(b); and
(C) Information from the NMLSR about any administrative, civil, or criminal findings by any government jurisdiction or, in the case of an individual loan originator who is not a registered loan originator under the NMLSR, such information from the individual loan originator;
(ii) Determine, on the basis of the information obtained pursuant to paragraph (f)(3)(i) of this section and any other information reasonably available to the loan originator organization, that the individual loan originator:
(A) Has not been convicted of, or pleaded guilty or
(B) Has demonstrated financial responsibility, character, and general fitness such as to command the confidence of the community and to warrant a determination that the individual loan originator will operate honestly, fairly, and efficiently; and
(iii) Provide periodic training covering Federal and State law requirements that apply to the individual loan originator's loan origination activities.
(g)
(i) Its name and NMLSR identification number (NMLSR ID), if the NMLSR has provided it an NMLSR ID; and
(ii) The name of the individual loan originator with primary responsibility for the origination and, if the NMLSR has provided such person an NMLSR ID, that NMLSR ID.
(2) The loan documents that must include the names and NMLSR IDs pursuant to paragraph (g)(1) of this section are:
(i) The credit application;
(ii) The disclosure provided under section 5(c) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2604(c));
(iii) The disclosure provided under section 128 of the Truth in Lending Act (15 U.S.C. 1638);
(iv) The note or loan contract;
(v) The security instrument; and
(vi) The disclosure provided to comply with section 4 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2603).
(3) For purposes of this § 1026.36, NMLSR identification number means a number assigned by the Nationwide Mortgage Licensing System and Registry to facilitate electronic tracking of loan originators and uniform identification of, and public access to, the employment history of, and the publicly adjudicated disciplinary and enforcement actions against, loan originators.
(h)
(2)
(i)
(2) In this paragraph (i), “credit insurance”:
(i) Includes insurance described in § 1026.4(d)(1) and (3) of this part, whether or not such insurance is voluntary; but
(ii) Excludes credit unemployment insurance for which the unemployment insurance premiums are reasonable, the creditor receives no direct or indirect compensation in connection with the unemployment insurance premiums, and the unemployment insurance premiums are paid pursuant to another insurance contract and not paid to an affiliate of the creditor.◂
(▸j◂[f]) This section does not apply to a home-equity line of credit subject to § 1026.40▸, except that § 1026.36(h) and (i) applies to such credit when secured by the consumer's principal dwelling◂. Section 1026.36(d)▸,◂[and] (e)▸, (f), (g), (h), and (i)◂ does not apply to a loan that is secured by a consumer's interest in a timeshare plan described in 11 U.S.C. 101(53D).
4. Supplement I to part 1026 is amended as follows:
a. Under
i.
ii. New heading
b. Under
i. The heading is revised to read
ii. Paragraph 1 is revised;
iii.
iv.
v.
vi.
vii.
viii. New heading
ix. New heading
x. New heading
xi. New heading
xii. New heading
xiii. New heading
xiv. New heading
xv. New heading
xvi. New headings
xvii. New heading
xviii. New heading
[5.
▸
1.
i.
ii.
iii.
2. An example of § 1026.25(c)(2) as applied to a loan originator organization is as follows: Assume a loan originator organization originates only loans where the loan originator organization derives revenues exclusively from fees paid by creditors that fund its originations (
1.
1.
B. The◂[the] term “loan originator” ▸also◂ includes employees of a creditor as well as employees of a mortgage broker that satisfy this definition. In addition, the definition of loan originator expressly includes any creditor that satisfies the definition of loan originator but makes use of “table funding” by a third party. See comment 36(a)–1.ii [below] discussing table funding. Although consumers may sometimes arrange, negotiate, or otherwise obtain extensions of consumer credit on their own behalf, in such cases they do not do so for another person or for compensation or other monetary gain, and therefore are not loan originators [under this section]. ▸A “loan originator organization” is a loan originator that is an organization such as a trust, sole proprietorship, partnership, limited liability partnership, limited partnership, limited liability company, corporation, bank, thrift, finance company, or a credit union. An “individual loan originator” is limited to a natural person.◂ (Under § 1026.2(a)(22), the term “person” means a natural person or an organization.)
ii.
iii.
▸iv.
v.
4.
5.
A. An annual or other periodic bonus; or
B. Awards of merchandise, services, trips, or similar prizes.
ii.
iii.
A. Assume a loan originator receives compensation directly from either a consumer or a creditor. Further assume the loan originator uses average charge pricing under Regulation X to charge the consumer $25 for a credit report provided by a third party that is not the creditor, its affiliate or the affiliate of the loan originator. At the time the loan originator imposes the credit report fee on the consumer, the loan originator is uncertain of the cost of the credit report because the cost of a credit report from the consumer reporting agency is paid in a monthly bill and varies from between $15 and $35 depending on how many credit reports the originator obtains that month. Assume the $25 for the credit report is paid by the consumer or is paid by the creditor with proceeds from a rebate. Later, at the end of the month, the cost for the credit report is determined to be $15 for this consumer's transaction. In this case, the $10 difference between the $25 credit report fee imposed on the consumer and the actual $15 cost for the credit report is not deemed compensation for purposes of § 1026.36(d) and (e), even though the $10 is retained by the loan originator.
B. Using the same example in comment 36(a)–5.iii.A above, the $10 difference would be compensation for purposes of § 1026.36(d) and (e) if the price for a credit report varies between $10 and $15.
iv.
1.
1. ▸
ii. The prohibition on payment and receipt of compensation based on transaction “terms” under § 1026.36(d)(1)(i) encompasses compensation that directly or indirectly is based on the terms of a single transaction of a single individual loan originator or the terms of multiple transactions of the individual loan originator within the time period for which the compensation is paid, where such transactions are subject to § 1026.36(d). The prohibition also covers compensation in the form of a bonus or other payment under a profit-sharing plan sponsored by the person or a contribution to a qualified or non-qualified defined contribution or benefit plan in which the individual loan originator participates, if the compensation directly or indirectly is based on the terms of the transactions of multiple individual loan originators employed by the person within the time period for which the compensation is paid, although such compensation may be permissible under § 1026.36(d)(1)(iii). For further clarity on the definitions of qualified plans, profit-sharing plans, the time period in which compensation is paid, and the other terms used in this comment 36(d)(1)–1.ii, see comment 36(d)(1)–2.iii.
A. For example, assume that a creditor employs six individual loan originators and offers loans at a minimum interest rate of 6.0 percent and a maximum rate of 8.0 percent (unrelated to risk-based pricing). Assuming relatively constant loan volume and amounts of credit extended and relatively static market rates, if the individual loan originators' aggregate transactions in a given calendar year average 7.5 percent rather than 7.0 percent, creating a higher interest rate spread over the creditor's minimum acceptable rate of 6.0 percent, the creditor will generate higher amounts of interest revenue if the loans are held in portfolio and increased proceeds from secondary market purchasers if the loans are sold. Assume that the increased revenues lead to higher profits for the creditor (
B. Assume that an individual loan originator's employment contract with a creditor guarantees a quarterly bonus in a specified amount conditioned upon the individual loan originator meeting certain performance benchmarks (
[
A. An annual or other periodic bonus; or
B. Awards of merchandise, services, trips, or similar prizes.
ii.
iii.
A. Assume a loan originator charges the consumer a $400 application fee that includes $50 for a credit report and $350 for an appraisal. Assume that $50 is the amount the creditor pays for the credit report. At the time the loan originator imposes the application fee on the consumer, the loan originator is uncertain of the cost of the appraisal because the originator may choose from appraisers that charge between $300 and $350 for appraisals. Later, the cost for the appraisal is determined to be $300 for this consumer's transaction. In this case, the $50 difference between the $400 application fee imposed on the consumer and the actual $350 cost for the credit report and appraisal is not deemed compensation for purposes of § 1026.36(d) and (e), even though the $50 is retained by the loan originator.
B. Using the same example in comment 36(d)(1)–1.iii.A above, the $50 difference would be compensation for purposes of § 1026.36(d) and (e) if the appraisers from whom the originator chooses charge fees between $250 and $300.]
2.
▸i.◂ For example, the rule prohibits compensation to a loan originator for a transaction based on that transaction's interest rate, annual percentage rate, [loan-to-value ratio,] or the existence of a prepayment penalty. The rule also prohibits compensation ▸to a loan originator that is◂ based on a factor that is a proxy for a transaction's terms [or conditions]. ▸If the loan originator's compensation is based in whole or in part on a factor that is a proxy for a transaction's terms, then the loan originator's compensation is based on a transaction's terms. A factor (that is not itself a term of a transaction originated by the loan originator) is a proxy for the transaction's terms if the factor substantially correlates with a term or terms of the transaction and the loan originator can, directly or indirectly, add, drop, or change the factor when originating the transaction. ◂For example[,]▸:
A. No proxy exists if compensation is not substantially correlated with a difference in a transaction's terms. Assume a creditor pays loan originator employees with less than three years of employment with the creditor a commission of 0.75 percent of the total loan amount, loan originator employees with three through five years of employment 1.25 percent of the loan amount, and loan originator employees with more than five years of employment 1.5 percent of the total loan amount. For this creditor, there is no substantial correlation between whether loans are originated by a loan originator with less than three years of employment, three through five years of employment, or more than five years of employment with any term of the creditor's transactions. Thus, payment of compensation in this circumstance based on tenure is not a proxy for a transaction's terms.
B. ◂[A consumer's credit score or similar representation of credit risk, such as the consumer's debt-to-income ratio, is not one of the transaction's terms conditions. To illustrate, assume that consumer A and consumer B receive loans from the same loan originator and the same creditor. Consumer A has a credit score of 650, and consumer B has a credit score of 800. Consumer A's loan has a 7 percent interest rate, and consumer B's loan has a 6
▸Assume a creditor pays a loan originator differently based on whether a loan the person originates will be held
C. Assume a loan originator organization pays its individual loan originators different commissions for loans based on the location of the home. The loan originator organization pays its individual loan originators 1 percent of the loan amount for originating refinancings in State A and 2 percent of the loan amount for originating refinancings in State B. For this organization loan originator, on average, loans for refinancings in State A have substantially lower interest rates than loans for refinancings in State B even if a loan originator, however, cannot influence whether the refinancing of a particular loan is for a home located in State A or State B. In this instance, whether a refinancing is originated in State A or State B is not a proxy for the transaction's terms.
ii.
iii.
A.
B.
C.
D.
E.
F.
G.
G.
H.
I.
I.
3.
i. The loan originator's overall loan volume (
ii. The long-term performance of the originator's loans.
iii. An hourly rate of pay to compensate the originator for the actual number of hours worked.
iv. Whether the consumer is an existing customer of the creditor or a new customer.
v. A payment that is fixed in advance for every loan the originator arranges for the creditor (
vi. The percentage of applications submitted by the loan originator to the creditor that results in consummated transactions.
vii. The quality of the loan originator's loan files (
viii. A legitimate business expense, such as fixed overhead costs.
ix. Compensation that is based on the amount of credit extended, as permitted by § 1026.36(d)(1)(ii).
4.
5.
6.
▸7.
8.
▸10.
▸
1.
2.
ii. ◂
▸iii. Section 1026.36(d)(2)(i)(B) provides that compensation directly from a consumer includes payments to a loan originator made pursuant to an agreement between the consumer and a person other than the creditor or its affiliates. Compensation to a loan originator is sometimes paid on the borrower's behalf by a person other than a creditor or its affiliates, such as a non-creditor seller, home builder, home improvement contractor or real estate broker or agent. Such payments to a loan originator are considered compensation received directly from the consumer for purposes of § 1026.36(d)(2) if they are made pursuant to an agreement between the consumer and the person other than the creditor or its affiliates. State law will determine if there is an agreement between the parties.
1.
A. For transactions that do not involve a loan originator organization, the creditor pays compensation in connection with the transaction (
B. The creditor pays a loan originator organization compensation in connection with a transaction, regardless of how the loan originator organization pays compensation to individual loan originators that work for the organization; and
C. The loan originator organization receives compensation directly from the consumer in a transaction and the loan originator organization pays individual loan originators that work for the organization compensation in connection with the transaction.
ii.
A. For transactions that do not involve a loan originator organization, the creditor pays individual loan originators that work for the creditor only in the form of a salary, hourly wage, or other compensation that is not tied to the particular transaction; and
B. For transactions that involve a loan origination organization, the loan originator organization receives compensation directly from the consumer and pays individual loan originators that work for the organization only in the form of a salary, hourly wage, or other compensation that is not tied to the particular transaction.
iii.
2.
3.
1.
A. Any time the creditor provides any oral or written estimate of the interest rate, the regular periodic payments, the total amount of discount points and origination points or fees, or the total amount of closing costs specific to a consumer for a transaction that includes discount points and origination points or fees, the creditor also provides an estimate of those same types of information for a comparable, alternative loan that does not include discount points and origination points or fees, unless a creditor determines that a consumer is unlikely to qualify for such a loan. A creditor using this safe harbor is required to provide the estimate for the loan that does not include discount points and origination points or fees only if the estimate for the loan that includes discount points and origination points or fees is received by the consumer prior to the estimated disclosures required within three business days after application pursuant to the Bureau's regulations implementing the Real Estate Settlement Procedures Act (RESPA);
B. A creditor using the safe harbor described in comment 36(d)(1)(ii)–1.i.A is required to provide information about the loan that does not include discount points and origination points or fees only when the information about the loan that includes discount points or origination points or fees is specific to the consumer. Advertisements are not subject to this requirement.
C. For purposes of § 1026.36(d)(2)(ii)(A) and this comment, “comparable, alternative loan” means that the two loans for which estimates are provided as discussed in comment 36(d)(2)(ii)(A)–1.i.A have the same terms and conditions, other than the interest rate, any terms that change solely as a result of the change in the interest rate (such the amount of regular periodic payments), and the amount of any discount points and origination points or fees. If a creditor determines that the consumer is unlikely to qualify for such a loan that does not include discount points and origination points or fees, the creditor is not required to make the loan available to the consumer.
D. A creditor using this safe harbor must provide the estimate for the loan that does not include discount points and origination points or fees in the same manner (
E. A creditor using this safe harbor must disclose estimates of the interest rate, regular periodic payments, the total amount of the discount points and origination points or fees, and the total amount of the closing costs for the loan that does not include discount points and origination points or fees only if the creditor disclosed estimates for those types of information for the loan that includes discount points and origination points or fees. For example, if a creditor provides estimates of the interest rate and monthly payments for a loan that includes discount points and origination points or fees, the creditor using the safe harbor must provide estimates of the interest rate and monthly payments for the loan that does not include discount points and origination points or fees, such as saying “your estimated interest rate and monthly payments on this loan product where you will not pay discount points and origination points or fees to the creditor or its affiliates is [x] percent, and $[x] per month.” On the other hand, if the creditor provides an estimate of only the interest rate for the loan that includes discount points and origination points or fees and does not provide an estimate of the regular periodic payments for that loan, the creditor using the safe harbor is required only to provide an estimate of the interest rate for the loan that does not include discount points and origination points or fees and is not required to provide an estimate of the regular periodic payments for the loan that does not include discount points and origination points or fees.
ii. For transactions that include a loan originator organization, a creditor will be deemed to have made available to the consumer a comparable, alternative loan that does not include discount points and origination points or fees if the creditor communicates to the loan originator organization the pricing for all loans that do not include discount points and origination points or fees, unless the consumer is unlikely to qualify for such a loan.
2.
3.
4.
1.
2.
i. Assume a creditor charges the consumer a $400 application fee that includes $50 for a credit report and $350 for an appraisal that will be conducted by a third party that is not the affiliate of the creditor or the loan originator organization. Assume that $50 is the amount the creditor pays for the credit report to a third party that is not affiliated with the creditor or with the loan originator organization. At the time the creditor imposes the application fee on the consumer, the creditor is uncertain of the cost of the appraisal because the appraiser charges between $300 and $350 for appraisals. Later, the cost for the appraisal is determined to be $300 for this consumer's transaction. Assume, however, that the creditor uses average charge pricing in accordance with Regulation X. In this case, the $50 difference between the $400 application fee imposed on the consumer and the actual $350 cost for the credit report and appraisal is not deemed to fall within the definition of discount points and origination points or fees, even though the $50 is retained by the creditor.
ii. Using the same example as in comment 36(d)(2)(ii)(B)–2.i above, the $50 difference would fall within the definition of discount points and origination points or fees if the appraiser charge fees between $250 and $300.
3.
4.
3.
i. If the interest rate varies based on changes to an index, the originator shall use the fully-indexed rate that would be in effect at consummation without regard to any initial discount or premium.
ii. For a step-rate loan, the originator shall use the highest rate that would apply during the first five years.
1.
2.
1.
1.
1.
1.
1.
1.
1.
1.
2.
1.
1.
Federal Railroad Administration (FRA), Department of Transportation (DOT).
Notice of proposed rulemaking (NPRM).
FRA proposes to require commuter and intercity passenger railroads to develop and implement a system safety program (SSP) to improve the safety of their operations. An SSP would be a structured program with proactive processes and procedures developed and implemented by commuter and intercity passenger railroads to identify and mitigate or eliminate hazards and the resulting risks on each railroad's system. A railroad would have a substantial amount of flexibility to tailor an SSP to its specific operations. An SSP would be implemented by a written SSP plan and submitted to FRA for review and approval. A railroad's compliance with its SSP would be audited by FRA.
Written comments must be received by November 6, 2012. Comments received after that date will be considered to the extent possible without incurring additional expense or delay.
FRA anticipates being able to resolve this rulemaking without a public, oral hearing. However, if FRA receives a specific request for a public, oral hearing prior to October 9, 2012, one will be scheduled and FRA will publish a supplemental notice in the
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Daniel Knote, Staff Director, Passenger Rail Division, U.S. Department of Transportation, Federal Railroad Administration, Office of Railroad Safety, Mail Stop 25, West Building 3rd Floor, 1200 New Jersey Avenue SE., Washington, DC 20590 (telephone: 631–965–1827),
This proposal would require commuter and intercity passenger railroads to develop and implement a system safety program (SSP). An SSP is a structured program with proactive processes and procedures developed and implemented by commuter and intercity passenger railroads (passenger railroads) to identify and mitigate or eliminate hazards and the resulting risks on the railroad's system. An SSP encourages a railroad and its employees to work together to proactively identify hazards and to jointly determine what, if any, action to take to mitigate or eliminate the resulting risks. The proposed rule would provide each railroad with a substantial amount of flexibility to tailor its SSP to its specific operations. FRA is proposing the SSP rule as part of its efforts to continuously improve rail safety and to satisfy the statutory mandate contained in sections 103 and 109 of the Rail Safety Improvement Act of 2008 (RSIA), Public Law 110–432, Division A, 122 Stat. 4848
Section 103 of RSIA directs the Secretary of Transportation (Secretary) to issue a regulation requiring certain railroads, including passenger railroads, to develop, submit to the Secretary for review and approval, and implement a railroad safety risk reduction program. The proposed rule would implement this safety risk mandate for passenger railroads. Section 109 of RSIA authorizes the Secretary to issue a regulation protecting from discovery and admissibility into evidence in litigation documents generated for the purpose of developing, implementing, or evaluating a SSP. The proposed rule would implement section 109 with respect to the system safety program covered by part 270 and a railroad safety
An SSP would be implemented by a written system safety program plan (SSP plan). The proposed regulation sets forth various elements that a railroad's SSP plan would be required to contain to properly implement an SSP. The main components of an SSP would be the risk-based hazard management program and risk-based hazard analysis. A properly implemented risk-based hazard management program and risk-based hazard analysis would identify the hazards and resulting risks on the railroad's system, develop methods to mitigate or eliminate, if practicable, these hazards and risks, and set forth a plan to implement these methods. As part of its risk-based hazard analysis, a railroad would consider various technologies that may mitigate or eliminate the identified hazards and risks, as well as consider the role of fatigue in creating hazards and risks.
As part of its SSP plan, a railroad would also be required to describe the various procedures, processes, and programs it has in place that support the goals of the SSP. These procedures, processes, and programs include, but are not limited to, the following: a maintenance, inspection, and, repair program; rules compliance and procedures review(s); SSP employee/contractor training; and a public safety outreach program. Since most of these are procedures, processes, and programs railroads should already have in place, the railroads would most likely only have to identify and describe such procedures, processes, and programs to comply with the regulation.
An SSP can be successful only if a railroad engages in a robust assessment of the hazards and resulting risks on its system. However, a railroad may be reluctant to reveal such hazards and risks if there is the possibility that such information may be used against it in a court proceeding for damages. Congress directed FRA to conduct a study to determine if it was in the public interest to withhold certain information, including the railroad's assessment of its safety risks and its statement of mitigation measures, from discovery and admission into evidence in proceedings for damages involving personal injury and wrongful death.
An SSP will affect almost all facets of a railroad's operations. To ensure that all employees directly affected by an SSP have an opportunity to provide input on the development, implementation, and evaluation of a railroad's SSP, a railroad would be required to consult in good faith and use its best efforts to reach agreement with all of its directly affected employees on the contents of the SSP plan and amendments to the plan. In an appendix, the proposed rule provides guidance regarding what constitutes “good faith” and “best efforts.”
FRA anticipates the rule would become effective 60 days after the publication of the final rule. However, by statute, the protection of certain information from discovery, admission into evidence, or use for other purposes in a proceeding for damages will not become applicable until one year after the publication of the final rule. A railroad would be required to submit its SSP plan to FRA for review not more than 90 days after the applicability date of the discovery protections, i.e., 395 days after the effective date of the final rule, or not less than 90 days prior to commencing operations, whichever is later. Within 90 days of receipt of the SSP plan, or within 90 days of receipt of an SSP plan submitted prior to the commencement of railroad operations, FRA would review the plan and determine if it meets all the requirements set forth in the regulation. If, during the review, FRA determines that the railroad's SSP plan does not comply with the requirements, FRA would notify the railroad of the specific points in which the plan is deficient. The railroad would then have 60 days to correct these deficient points and resubmit the plan to FRA. Whenever a railroad amends its SSP, it would be required to submit an amended SSP plan to FRA for approval and provide a cover letter describing the amendments. A similar approval process and timeline would apply whenever a railroad amends its SSP.
A railroad's submission of its SSP plan to FRA would not be FRA's first interaction with the railroad. FRA plans on working with the railroad throughout the development of its SSP to help the railroad properly tailor the program to its specific operation. To this end, shortly after publication of the final rule, FRA would publish a guidance manual to assist a railroad in the development, implementation, and evaluation of its SSP.
Most of the passenger railroads affected by this proposal already participate in the American Public Transportation Association (APTA) System Safety Program, which also has a triennial audit program. FRA currently provides technical assistance to new passenger railroads for the development and implementation of system safety programs and conduct of preliminary hazard analyses in the design phase. Thus, the economic impact of the proposed rule is generally incremental in nature for documentation of existing information and inclusion of certain elements not already addressed by railroads in their programs. Total estimated twenty-year costs associated with implementation of the proposed rule, for existing passenger railroads, range from $1.8 million (discounted at 7%) to $2.5 million (discounted at 3%).
FRA believes that there will be new, startup, passenger railroads, that will be formed during the twenty-year analysis period. FRA is aware of two passenger railroads that intend to commence operations in the near future. FRA assumed that one of these railroads would begin developing its SSP in Year 2, and that the other would begin developing its SSP in Year 3. FRA further assumed that one additional passenger railroad would be formed and develop its SSP every other year after that, in Years 5, 7, 9, 11, 13, 15, 17 and 19. Total estimated twenty-year costs associated with implementation of the proposed rule, for startup passenger railroads, range from $270 thousand (discounted at 7%) to $437 thousand (discounted at 3%).
Total estimated twenty-year costs associated with implementation of the proposed rule, for existing passenger
Properly implemented SSPs are successful in optimizing the returns on railroad safety investments. Railroads can use them to proactively identify potential hazards and resulting risks at an early stage, thus minimizing associated casualties and property damage or avoiding them altogether. Railroads can also use them to identify a wide array of potential safety issues and solutions, which in turn allows them to simultaneously evaluate various alternatives for improving overall safety with available resources. This results in more cost effective investments. In addition, system safety planning helps railroads maintain safety gains over time. Without an SSP plan railroads could adopt countermeasures to safety problems that become less effective over time as the focus shifts to other issues. With SSP plans, those safety gains are likely to continue for longer time periods. SSP plans can also be instrumental in addressing casualties resulting from hazards that are not well-addressed through conventional safety programs, such as slips, trips and falls, or risks that occur because safety equipment is not used correctly, or routinely.
During the course of daily operations, hazards are continually discovered. Railroads must decide which hazards to address and how to do so with the limited resources available. Without a SSP plan in place, the decision process might become arbitrary. In the absence of the protections provided by the NPRM against discovery in legal proceedings for damages, railroads might also be reluctant to keep detailed records of known hazards. With a SSP plan in place, railroads are able to identify and implement the most cost effective measures to reduce casualties.
Railroad operations and maintenance activities have inherent safety critical elements. Thus, every capital expenditure is likely to have a safety component, whether for equipment, right-of-way, signaling or infrastructure. SSPs can increase the safety return on any investment related to the operation and maintenance of the railroad. FRA believes a very conservative estimate of all safety-related expenditures by all passenger railroads affected by the NPRM is $11.6 billion per year. In the first twenty years of the proposed rule, SSP plans can result in improved cost effectiveness of investments totaling between $92 billion (discounted at 7%) and $139 billion (discounted at 3%). Through anecdotal evidence, FRA is aware of situations where railroads unknowingly introduced hazards because they did not conduct hazard analyses. If the cost to remedy such situations is $100,000 on average and five remedies are avoided per year, railroads can save $500,000 per year and the proposed rule would be justified. FRA believes that it is reasonable to expect higher savings when considering there are 30 existing passenger rail operators impacted. The impact on the effectiveness of investments by startup railroads would likely be greater than for existing railroads, as more of their expenses are for new infrastructure or other systems that can have safety designed in from the start at little or no marginal cost.
Another way to look at the benefits that might accrue from implementing the proposed rule is based on potential accident prevention. Between 2001 and 2010, on average, passenger railroads had an average of 3,723.2 accidents, resulting in 207 fatalities, 3,543 other casualties, and $21.1 million in damage to railroad track and equipment each year. Total quantified twenty-year accident costs total between $24 billion (discounted at 7%) and $36 billion (discounted at 3%). Of course, these accidents also resulted in damage to other property, delays to both railroads and highway users, emergency response and clean-up costs, and other costs not quantified in this analysis. FRA estimated the accident reduction benefits necessary for the NPRM benefits to at least equal the implementation costs and found that a reduction of approximately 0.007% would suffice. FRA believes that such risk reduction is more than attainable.
FRA also believes that the SSP Plans will identify numerous unnecessary risks that are avoidable at no additional cost but simply through the selection of the most appropriate safety measure to address a hazard. For instance, railroads may mitigate or eliminate hazards that cause or contribute to slips, trips and falls, such as through measures that ensure the proper use of safety equipment. FRA believes that railroads will make additional investments to mitigate or eliminate many risks identified through the SSPs. FRA cannot reasonably predict the kinds of measures that may be adopted or the additional costs and benefits that will result from these. Nonetheless, FRA believes that such measures will not be undertaken unless the benefits exceed the costs and the funding is available.
In conclusion, FRA is confident that the accident reduction and cost effectiveness benefits together would justify the $2.0 million (discounted at 7%) to $3.0 million (discounted at 3%) implementation cost over the first twenty years of the proposed rule.
Railroads operate in a dynamic, fast-paced environment that at one time posed extreme safety risks. Through concerted efforts by railroads, labor organizations, the U.S. DOT, and many other entities, railroad safety has vastly improved. But even though FRA has issued safety regulations and guidance that address many aspects of railroad operations, gaps in safety exist, and hazards and risks may arise from these gaps. FRA believes that railroads are in an excellent position to identify some of these gaps and take the necessary action to mitigate or eliminate the arising hazards and resulting risks. Rather than prescribing the specific actions the railroads need to take, FRA believes it would be more effective to allow the railroads to use their knowledge of their unique operating environment to identify the gaps and determine the best methods to mitigate or eliminate the hazards and resulting risks. An SSP would provide a railroad with the tools to systematically and continuously evaluate its system to identify the hazards and risks that result from gaps in safety and to mitigate or eliminate these hazards and risks.
There are many programs that are similar to the SSP proposed by this part. Most notably, the Federal Aviation Administration (FAA) has published an NPRM proposing to require each certificate holder operating under 14 CFR part 121 to develop and implement a safety management system (SMS). 75 FR 68224, Nov. 5, 2010; and 76 FR 5296, Jan. 31, 2011. An SMS “is a comprehensive, process-oriented approach to managing safety throughout the organization.” 75 FR 68224, Nov. 5, 2010. An SMS includes: “an organization-wide safety policy; formal methods for identifying hazards, controlling, and continually assessing risk; and promotion of safety culture.”
The U.S. Department of Defense (DoD) has also set forth guidelines for a System Safety Program. In July 1969, DoD published “System Safety Program Plan Requirements” (MIL–STD–882). MIL–STD–882 is DoD's standard practice for system safety, with the most recent version, MIL–STD–882E, published on May 11, 2012. DoD,
System safety is not a new concept to FRA. On February 20, 1996, in response to New Jersey Transit (NJT) and Maryland Rail Commuter Service accidents in early 1996, FRA issued Emergency Order No. 20, Notice No. 1 (EO 20). 61 FR 6876, Feb. 22, 1996. EO 20 required, among other things, commuter and intercity passenger railroads to promptly develop an interim system safety plan addressing the safety of operations that permit passengers to occupy the leading car in a train. In particular, EO 20 required “railroads operating scheduled intercity or commuter rail service to conduct an analysis of their operations and file with FRA an interim safety plan indicating the manner in which risk of a collision involving a cab car is addressed.”
On June 24, 1996, the chairman of APTA's Commuter Railroad Committee sent a letter to FRA to announce that APTA commuter railroads were in compliance with the requirements of EO 20 and agreed to adopt additional safety measures, including comprehensive system safety plans. These comprehensive system safety plans were broader in scope than the interim plans had been and were modeled after the Federal Transit Administration's (FTA) part 659 system safety plans, which were being successfully used by rapid transit authorities and include a triennial audit process.
In January of 2005, in Glendale, CA, a Southern California Regional Rail Authority (Metrolink) commuter train derailed after striking an abandon vehicle left on the tracks. The derailment caused the Metrolink train to collide with the trains on both sides of it, a Union Pacific Railroad Company (UP) freight train and another Metrolink train and resulted in the death of 11 people. After this incident, FRA developed a Collision Hazard Analysis Guide to assist in conducting collision hazard assessments. The Collision Hazard Analysis Guide supports APTA's Manual for the Development of System Safety Program Plans for Commuter Railroads by providing a “step-by-step procedure on how to perform hazard analysis and how to develop effective mitigation strategies that will improve passenger rail safety.” FRA,
FRA has codified certain discrete aspects of system safety planning in the Passenger Train Emergency Preparedness regulations, issued in May 1998, and the Passenger Equipment Safety Standards, issued in May 1999, but comprehensive system safety planning has remained the province of the individual passenger railroads. A majority of commuter railroads still participate in the system safety program established in 1997 by APTA. The latest version of APTA's Manual for the Development of System Safety Program Plans for Commuter Railroads was published on May 15, 2006. As mentioned previously, the Manual for the Development of System Safety Program Plans for Commuter Railroads was developed jointly with FRA, and FRA participates in the audits of the railroad's system safety plans based on this guide. From this experience, FRA has gained substantial knowledge regarding the best methods to develop, implement, and evaluate an SSP. Many components of the proposed rule are modeled after elements in APTA's Manual for the Development of System Safety Program Plans for Commuter Railroads.
In 1991, Congress required FTA to establish a program that required State-conducted oversight of the safety and security of rail fixed guideway systems that were not regulated by FRA.
FTA's part 659 program applies only to rapid transit systems or portions thereof not subject to FRA's regulations. 49 CFR 659.3 and 659.5. Therefore, the requirements of FTA's part 659 would not overlap with any of the requirements proposed in this SSP regulation. However, as mentioned previously, APTA's Manual for the Development of System Safety Program Plans for Commuter Railroads is based on FTA's part 659, so many of the elements in APTA's system safety program are based on FTA's part 659 program. FRA has always maintained a close working relationship with FTA and the implementation of the part 659 program and proposes to use many of the same concepts from the part 659 program in the SSP rule. FRA has noted where the elements in the proposed SSP rule are directly from or are based on elements from FTA's part 659.
FRA believes that in addition to process and technology innovations, human factors-based solutions can make
FRA also implemented the Clear Signal for Action (CSA) program, another human factors-based solution shown to improve safety. The CSA Program includes: (1) Voluntary, anonymous labor peer-to-peer feedback in the work environment on risky behaviors and conditions; (2) labor Steering Committee root cause analysis and the development of behavior and condition-related corrective actions; (3) Steering Committee implementation of behavior-related corrective actions; (4) joint labor-management Barrier Removal Team refining condition-related corrective actions and implementation; (5) tracking the results of the change; and (6) reporting the results of change to employees. Anonymous labor peer to peer feedback on risky behaviors and conditions, root cause analysis and cooperation between labor and management in corrective actions are the most innovative of these characteristics for the railroad industry. FRA considers the CSA program ready for broad implementation across the industry with three demonstration pilots completed demonstrating its applicability in diverse railroad work settings. One setting was with Amtrak baggage handlers; a second was with UP yard crews; and a third was with UP road crews. Currently FRA is funding the development of low cost program materials to aid in its distribution starting with passenger rail. Coplen, M. Ranney, J. & Zuschlag, M.,
The C3RS and CSA program embody many of the concepts and principles found in an SSP: proactive identification of hazards and risks, analysis of those hazards and risks, and implementing the appropriate action to eliminate or mitigate the hazards and risks. While FRA does not intend to require any railroad to implement a C3RS or CSA program as part of their SSP, FRA does believe that these types of programs would prove useful in the development of an SSP and encourages railroads to include such programs as part of their SSP. FRA seeks comment on the extent these programs might be useful in the development of an SSP or as a component of an SSP.
In March 1996, FRA established the Railroad Safety Advisory Committee (RSAC), which provides a forum for collaborative rulemaking and program development. RSAC includes representatives from all of the agency's major stakeholder groups, including railroads, labor organizations, suppliers and manufacturers, and other interested parties.
An alphabetical list of RSAC members includes the following:
• American Association of Private Railroad Car Owners (AAPRCO);
• American Association of State Highway and Transportation Officials (AASHTO);
• American Chemistry Council;
• American Petroleum Institute;
• American Public Transportation Association (APTA);
• American Short Line and Regional Railroad Association (ASLRRA);
• American Train Dispatchers Association;
• Amtrak;
• Association of American Railroads (AAR);
• Association of Railway Museums;
• Association of State Rail Safety Managers;
• Brotherhood of Locomotive Engineers and Trainmen (BLET);
• Brotherhood of Maintenance of Way Employees Division (BMWED);
• Brotherhood of Railroad Signalmen (BRS);
• Chlorine Institute;
• FTA;*
• Fertilizer Institute;
• High Speed Ground Transportation Association;
• Institute of Makers of Explosives;
• International Association of Machinists and Aerospace Workers;
• International Brotherhood of Electrical Workers;
• Labor Council for Latin American Advancement;*
• League of Railway Industry Women;*
• National Association of Railroad Passengers (NARP);
• National Association of Railway Business Women;*
• National Conference of Firemen & Oilers;
• National Railroad Construction and Maintenance Association (NRCMA);
• National Transportation Safety Board (NTSB);*
• Railway Supply Institute (RSI);
• Safe Travel America (STA);
• Secretaria de Comunicaciones y Transporte;*
• Sheet Metal Workers International Association (SMWIA);
• Tourist Railway Association Inc.;
• Transport Canada;*
• Transport Workers Union of America (TWU);
• Transportation Communications International Union/BRC (TCIU);
• Transportation Security Administration (TSA); and
• United Transportation Union (UTU).
*Indicates associate, non-voting membership.
When appropriate, FRA assigns a task to RSAC, and after consideration and debate, RSAC may accept or reject the task. If accepted, RSAC establishes a working group that possesses the appropriate expertise and representation of interests to develop recommendations to FRA for action on the task. These recommendations are developed by consensus. The working group may establish one or more task forces or other task groups to develop facts and options on a particular aspect of a given task. The task force, or other task group, reports to the working group. If a working group comes to consensus on recommendations for action, the package is presented to the full RSAC for a vote. If the proposal is accepted by
The RSAC established the Passenger Safety Working Group to handle the task of reviewing passenger equipment safety needs and programs. The Passenger Safety Working Group recommends consideration of specific actions that could be useful in advancing the safety of rail passenger service and develop recommendations for the full RSAC to consider. Members of the Passenger Safety Working Group, in addition to FRA, include the following:
• AAR, including members from BNSF Railway Company, CSX Transportation, Inc., and UP;
• AAPRCO;
• AASHTO;
• Amtrak;
• APTA, including members from Bombardier, Inc., Herzog Transit Services, Inc., Interfleet Technology, Inc. (Interfleet, formerly LDK Engineering, Inc.), Long Island Rail Road, Maryland Transit Administration, Metrolink, Metro-North Commuter Railroad Company, Northeast Illinois Regional Commuter Railroad Corporation, and Southeastern Pennsylvania Transportation Authority;
• ASLRRA;
• BLET;
• BRS;
• FTA;
• NARP;
• NTSB;
• RSI;
• SMWIA;
• STA;
• TCIU/BRC;
• TSA;
• TWU; and
• UTU.
In 2006, the General Passenger Safety Task Force was established under the Passenger Safety Working Group to focus on door securement, passenger safety in train stations, and system safety plans. Members of the General Passenger Safety Task Force, in addition to FRA, include the following:
• AAR, including members from BNSF, CSXT, Norfolk Southern Railway Co., and UP;
• AASHTO;
• Amtrak;
• APTA, including members from Alaska Railroad Corporation, Peninsula Corridor Joint Powers Board (Caltrain), LIRR, Massachusetts Bay Commuter Railroad Company, Metro-North, MTA, NJT, New Mexico Rail Runner Express, Port Authority Trans-Hudson, SEPTA, Metrolink, and Utah Transit Authority;
• ASLRRA;
• ATDA;
• BLET;
• FTA;
• NARP;
• NRCMA;
• NTSB;
• Transport Canada; and
• UTU.
The General Passenger Safety Task Force was formed from the membership of the Passenger Safety Working Group and held its first meeting in February 2007 and the second meeting in April 2007 in conjunction with Passenger Safety Working Group. At the April 2007 meeting, the decision was made to create a System Safety Task Group to focus on the core elements and features of a system safety regulation and to draft language to recommend to the full RSAC for a system safety regulation.
The System Safety Task Group was formed from the membership of the General Passenger Safety Task Force and first met as an independent group in June 2008 in Baltimore, MD. Additional meetings were held on December 2–4, 2008 in Cambridge, MA, August 25–27, 2009 in Washington, DC, October 6–8, 2009 in Orlando, FL, March 16–17, 2010 in Washington, DC, February 1–2, 2012 in Cambridge, MA, and March 8, 2012 by teleconference. The System Safety Task Group produced recommended draft language for a system safety regulation, but work on this language was delayed until completion of the study to determine whether it was in the public interest to withhold from discovery or admission into evidence in a Federal or State court proceeding for damages involving personal injury or wrongful death against a carrier any information (including a railroad's analysis of its safety risks and its statement of the mitigation measures with which it will address those risks) compiled or collected for the purpose of evaluating, planning, or implementing a risk reduction program.
On May 2, 2012, the General Passenger Safety Task Force formally voted to unanimously accept the system safety regulation language recommended by the System Safety Task Group. On May 10, 2012, the Passenger Safety Working Group voted to unanimously accept the system safety regulation language recommended by the General Passenger Safety Task Force. On May 21, 2012, the RSAC unanimously voted to accept the system safety regulation language recommended by the Passenger Safety Working Group. Thus, the Passenger Safety Working Group's recommendation was adopted by the full RSAC as a formal recommendation to FRA.
The proposed rule incorporates the majority of RSAC's recommendations. FRA decided not to incorporate certain recommendations because they were unnecessary or duplicative and their exclusion would not have a substantive effect on the rule. The proposed rule also contains elements that were not part of RSAC's recommendations. The majority of these elements are added to provide clarity and to conform with
The proposed SSP rule would implement sections 103 and 109 RSIA as they apply to railroad carriers that provide intercity rail passenger or commuter rail passenger transportation (passenger railroads).
(1) Class 1 railroads;
(2) Railroad carriers with inadequate safety performance, as determined by the Secretary; and
(3) Railroad carriers that provide intercity rail passenger or commuter rail passenger transportation (passenger railroads).
This proposed SSP rule would implement this railroad safety risk reduction mandate (and the other specific safety risk reduction program requirements found in section 103) for passenger railroads. The SSP rule is a risk reduction program in that it would require a passenger railroad to assess and manage risk and to develop proactive hazard management methods to promote safety improvement. The proposed rule contains provisions that, while not explicitly required by the RSIA safety risk reduction program mandate, are necessary to properly implement the mandate and are consistent with the intent behind the mandate. Further, as mentioned previously, many of the elements in the proposed rule are modeled after APTA's Manual for the Development of System Safety Program Plans for Commuter Railroads. The majority of railroads, therefore, will have already implemented those elements. The proposed rule would also implement section 109 of the RSIA, which addresses the protection of information in railroad safety risk analyses and will be discussed later in this NPRM.
FRA is currently developing, also with the assistance of the RSAC, a separate risk reduction rule that would implement the requirements of sections 103 and 109 of the RSIA for Class I freight railroads and railroads with inadequate safety performance. Although passenger railroads could be subject to the requirements of this second risk reduction rule, the rule would specify that passenger railroads that are in compliance with the SSP rule be deemed in compliance with the risk reduction rule. Establishing separate safety risk reduction rules for passenger and freight railroads will allow those rules to account for the significant differences between passenger and freight operations. For example, passenger operations generate risks uniquely associated with the passengers that utilize their services. The proposed SSP rule can be specifically tailored to these types of risks, which are not independently generated by freight railroads.
Section 109 of the RSIA (codified at 49 U.S.C. 20118–20119) authorizes FRA to issue a rule protecting risk analysis information generated by railroads. These provisions would apply to information generated by passenger railroads pursuant to the proposed system safety rulemaking and to any railroad safety risk reduction programs required by FRA for Class I railroads and railroads with inadequate safety performance.
In section 109 of the RSIA (codified at 49 U.S.C. 20118–20119), Congress determined that for risk reduction programs to be effective, the risk analyses must be shielded from production in response to Freedom of Information Act (FOIA) requests.
Section 109(a) of RSIA specifically provides that a record obtained by FRA pursuant to a provision, regulation, or order related to a risk reduction program or pilot program is exempt from disclosure under FOIA. The term “record” includes, but is not limited to, “a railroad carrier's analysis of its safety risks and its statement of the mitigation measures it has identified with which to address those risks.”
Railroad system safety records in FRA's possession, therefore, are generally exempt from mandatory disclosure under FOIA. The RSIA, however, establishes two exceptions to this prohibition on FOIA disclosure. The first exception permits disclosure when it is necessary to enforce or carry out any Federal law. The second exception permits disclosure when a record is comprised of facts otherwise available to the public and when FRA, in its discretion, has determined that disclosure would be consistent with the confidentiality needed for a risk reduction program or pilot program.
The RSIA also addressed the disclosure and use of risk analysis information in litigation. Section 109 directed FRA to conduct a study to determine whether it was in the public interest to withhold from discovery or admission into evidence in a Federal or State court proceeding for damages involving personal injury or wrongful death against a carrier any information (including a railroad's analysis of its safety risks and its statement of the mitigation measures with which it will address those risks) compiled or collected for the purpose of evaluating, planning, or implementing a risk reduction program.
FRA contracted with a law firm, Baker Botts L.L.P., to conduct the study on FRA's behalf. Various documents related to the study are available for review in public docket number FRA–2011–0025, which can be accessed online at
On October 21, 2011, the contracted law firm produced a final report on the study.
In response to the final study report, this NPRM is proposing to protect any information compiled or collected solely for the purpose of developing, implementing or evaluating an SSP from discovery, admission into evidence, or consideration for other purposes in a Federal or State court proceeding for damages involving personal injury, wrongful death, and property damage. The information protected would include a railroad's identification of its safety hazards, analysis of its safety risks, and its statement of the mitigation measures with which it would address those risks and could be in the following forms: Plans, reports, documents, surveys, schedules, lists, or data. (Similar protection will be proposed for railroad safety risk reduction programs required by FRA for Class I railroads and railroads with inadequate safety performance). Additional specifics regarding this proposal will be discussed in the section-by-section analysis of this NPRM.
FRA has been working with railroads for many years to implement many of the principles and elements that the SSP rule contains. From this experience, FRA has learned the best practices and the pitfalls of implementing an SSP. Since each railroad operation is unique, the best practices for each railroad will be different. Therefore, rather than setting forth specific requirements that may be applicable for one railroad, but unworkable for another, FRA will set forth general requirements of a SSP in the rule and allow each railroad the flexibility to tailor those requirements to their specific operations. To this end, FRA plans on providing the railroads with a guidance manual that will assist in the development, implementation, and evaluation of their SSPs. This guidance manual (“Guide”) will provide the railroads with the most efficient and effective methods to implement their SSPs. Regarding most aspects of an SSP, a railroad will be able to refer to this Guide for assistance in implementing its SSP. FRA expects to publish the Guide shortly after the publication of the final rule in this proceeding. FTA has published a similar document regarding implementation of its part 659 program.
FRA proposes to add a new part 270 to chapter 49 of the CFR. Part 270 would satisfy the RSIA requirements regarding safety risk reduction programs for railroads providing intercity rail passenger or commuter rail passenger service. 49 U.S.C. 20156. It will also protect certain information compiled or collected pursuant to a safety risk reduction program from admission into evidence or discovery during court proceedings for damages. 49 U.S.C. 20119.
Paragraph (a) states that the purpose of the proposed rule is to improve railroad safety through structured, proactive processes and procedures developed and implemented by railroads. The proposed rule would require a railroad to establish a program that systematically evaluates railroad safety hazards on its system and manages those risks in order to reduce the numbers and rates of railroad accidents, incidents, injuries, and fatalities.
Paragraph (b) states that the proposed rule prescribes minimum Federal safety standards for the preparation, adoption, and implementation of railroad system safety programs. The proposed rule would not restrict railroads from adopting and enforcing additional or more stringent requirements not inconsistent with this part.
Paragraph (c) states that the proposed rule provides for the protection of information generated solely for the purpose of developing, implementing, or evaluating a system safety program under this part or a railroad safety risk reduction program required by this chapter for Class I railroads and railroads with inadequate safety performance.
The RSIA mandates that FRA require each railroad carrier that is a Class I railroad, a railroad carrier that has inadequate safety performance, or a railroad that provides intercity rail passenger or commuter rail passenger transportation to establish a railroad safety risk reduction program. 49 U.S.C. 20156(a)(1). This proposed rule sets forth the requirements related to a railroad safety risk reduction program for a railroad that provides intercity rail passenger or commuter rail passenger transportation. Safety risk reduction programs for Class I railroads and railroads with inadequate safety performance will be addressed in the separate Risk Reduction Program rulemaking proceeding.
Paragraph (a) proposes that this rule apply to railroads that operate intercity or commuter passenger train service on the general railroad system of transportation and railroads that provide commuter or other short-haul rail passenger train service in a metropolitan or suburban area (as described by 49 U.S.C. 20102(2)), including public authorities operating passenger train service. A public authority that indirectly provides passenger train service by contracting out the actual operation to another railroad or independent contractor would be regulated by FRA as a railroad under the provisions of the proposed rule. Although the public authority would ultimately be responsible for the development and implementation of an SSP (along with all related recordkeeping requirements), the railroad or other independent contractor that operates the authority's passenger
FRA proposes to except certain railroads from the proposed rule's applicability. The first exception, proposed in paragraph (b)(1), covers rapid transit operations in an urban area that are not connected to the general railroad system of transportation. This paragraph is intended merely to clarify the circumstances under which rapid transit operations are not subject to FRA jurisdiction under this part. It should be noted, however, that some rapid transit type operations, given their links to the general system, are within FRA's jurisdiction and FRA specifically intends for part 270 to apply to those rapid transit type operations.
Paragraph (b)(2) proposes an exemption for operations commonly described as tourist, scenic, historic, or excursion service whether on or off the general railroad system. Tourist, scenic, historic, or excursion rail operations is defined by proposed § 270.5 and this exemption is consistent with FRA's other regulations concerning passenger operations.
Paragraph (b)(3) makes clear that the requirements of the proposed rule would not apply to the operation of private passenger train cars, including business or office cars and circus train cars. While FRA believes that a private passenger car operation should be held to the same basic level of safety as other passenger train operations, such operations were not specifically identified in the statutory mandate and FRA is taking into account the burden that would be imposed by requiring private passenger car owners and operators to conform to the requirements of this part. Private passenger cars are often hauled by host railroads such as Amtrak and commuter railroads, and these hosts often impose their own safety requirements on the operation of the private passenger cars. Pursuant to this proposal, these host railroads would already be required to have SSPs in place to protect the safety of their own passengers; the private car passengers would presumably benefit from these programs even without the rule directly covering private car owners or operators. In the case of non-revenue passengers, including employees and guests of railroads that are transported in business and office cars, as well as persons traveling on circus trains, the railroads would be expected to provide for their safety in accordance with existing safety operating procedures and protocols relating to normal freight train operations.
Finally, paragraph (b)(4) proposes an exception from the requirements of this part for railroads that operate only on track inside an installation that is not part of the general railroad system of transportation (i.e., plant railroads, as defined in § 270.5). Plant railroads are typified by operations such as those in steel mills that do not go beyond the plant's boundaries and that do not involve the switching of rail cars for entities other than themselves.
Section 103(a)(4) of RSIA allows a railroad carrier that is not required to submit a railroad safety risk reduction program to voluntarily submit such a program. 49 U.S.C. 20156(a)(4). If the railroad voluntary submits a program, it shall comply with the requirements set forth in RSIA and is subject to approval by the Secretary.
This proposed section contains a set of definitions that clarify the meaning of important terms as they are used in the rule. The proposed definitions are carefully worded in an attempt to minimize the potential for misinterpretation of the rule. Many of the proposed definitions are based on definitions in FTA's part 659 and APTA's system safety program. FRA requests comment and input regarding the terms defined in this section and specifically whether other terms should be defined.
“Administrator” refers to Federal Railroad Administrator or his or her delegate.
“Configuration management” means the process a railroad would use to ensure that the configurations of all property, equipment and system design elements are properly documented.
“FRA” means the Federal Railroad Administration.
“Fully implemented” means that all the elements of the railroad's SSP plan required by this part are established and applied to the safety management of the railroad. A railroad's SSP is considered “fully implemented” when all of the elements described in the railroad's SSP plan are properly established and effectively applied to the safety management of the railroad.
“Hazard” means any real or potential condition, as identified in the railroad's risk-based hazard analysis under § 270.103(r), that can cause injury, illness, or death; damage to or loss of a system; or damage to equipment, property, or the environment. This definition is based on the existing definition of the term contained in FTA's part 659. 49 CFR 659.5.
“Passenger” means a person, excluding an on-duty employee, who is on board, boarding, or alighting from a rail vehicle for the purpose of travel. This definition is modeled after the definition of “passenger” contained in FTA's regulations at part 659, which “means a person who is on board, boarding, or alighting from a rail transit vehicle for the purpose of travel.” 49 CFR 659.5. FRA has added the phrase “excluding an on-duty employee” to the proposed definition to clarify that, if a person is engaging in these activities (on board, boarding, or alighting) and they are an off-duty railroad employee, that person is considered a passenger for the purposes of this rule.
“Person” means an entity of any type covered under 1 U.S.C. 1, including, but not limited to, the following: a railroad; a manager, supervisor, official, or other employee or agent of a railroad; any owner, manufacturer, lessor, or lessee of railroad equipment, track, or facilities; any independent contractor or subcontractor providing goods or services to a railroad; and any employee of such owner, manufacturer, lessor, lessee, or independent contractor or subcontractor.
“Plant railroad” means a type of operation that has traditionally been excluded from the application of FRA regulations because it is not part of the
The proposed definition would clarify that when an entity operates a locomotive to move rail cars in service for other entities, rather than solely for its own purposes or industrial processes, the services become public in nature. Such public services represent the interchange of goods, which characterizes operation on the general system. As a result, even if a plant railroad moves rail cars for entities other than itself solely on its property, the rail operations will likely be subject to FRA's safety jurisdiction because those rail operations bring plant trackage into the general system.
The proposed definition of the term “plant railroad” is consistent with FRA's longstanding policy that it will exercise its safety jurisdiction over a rail operation that moves rail cars for entities other than itself because those movements bring the track over which the entity is operating into the general system.
“Positive train control system” means a system designed to prevent train-to-train collisions, overspeed derailments, incursions into established work zone limits, and the movement of a train through a switch left in the wrong position, as described in subpart I of 49 CFR part 236.
“Rail vehicle” means railroad rolling stock, including, but not limited to, passenger and maintenance vehicles.
“Railroad” means: (1) Any form of non-highway ground transportation that runs on rails or electromagnetic guideways, including—
(i) Commuter or other short-haul rail passenger service in a metropolitan or suburban area and commuter railroad service that was operated by the Consolidated Rail Corporation on January 1, 1979; and
(ii) High speed ground transportation systems that connect metropolitan areas, without regard to whether those systems use new technologies not associated with traditional railroads, but does not include rapid transit operations in an urban area that are not connected to the general railroad system of transportation; and
(2) A person or organization that provides railroad transportation, whether directly or by contracting out operation of the railroad to another person.
The definition of “railroad” is based upon 49 U.S.C. 20102(1) and (2), and encompasses any person providing railroad transportation directly or indirectly, including a commuter rail authority that provides railroad transportation by contracting out the operation of the railroad to another person, as well as any form of non-highway ground transportation that runs on rails or electromagnetic guideways, but excludes urban rapid transit not connected to the general system.
“Risk” means the combination of the probability (or frequency of occurrence) and the consequence (or severity) of a hazard.
“System Safety” means the application of management and engineering principles and techniques to optimize all aspects of safety, within the constraints of operational effectiveness, time, and cost, throughout all phases of the system life cycle. By specifying that system safety operates within certain constraints, this definition is intended to clarify that there may be hazards on the railroad's system that a railroad may not be capable of fully mitigating or eliminating. Rather, the railroad would monitor the hazard and at some point, if feasible, employ methods to mitigate or eliminate that hazard and resulting risk.
The definition for “Tourist, scenic, historic, or excursion operations that are not part of the general railroad system of transportation” means railroad operations that carry passengers, often using antiquated equipment, with the conveyance of the passengers to a particular destination not being the principal purpose. Train movements of new passenger equipment for demonstration purposes are not tourist, scenic, historic, or excursion operations. This definitions is consistent with FRA's other regulations concerning passenger operations.
RSAC recommended including definitions for the following terms: contractor, FTA, hazard analysis, improvement plan, individual investigation, passenger operations, passenger railroad, railroad property, risk-based hazard management, safety, safety certification, safety culture, safety-related services, safety-related employee, sponsoring railroad, system safety program, and system safety program plan. FRA determined that these definitions did not provide any additional clarity and were unnecessary. FRA seeks comments regarding whether any of these definitions or any other definitions should be added to the final rule.
This section explains the process for requesting a waiver from a provision of the proposed rule. FRA has historically entertained waiver petitions from parties affected by an FRA regulation. In reviewing such requests, FRA conducts investigations to determine if a deviation from the general regulatory criteria is in the public interest and can be made without compromising or diminishing railroad safety.
The rules governing the FRA waiver process are found in 49 CFR part 211. In general, these rules state that after a petition for a waiver is received by FRA, a notice of the waiver request is published in the
This section contains provisions regarding the proposed penalties for failure to comply with the rule and the responsibility for compliance.
Paragraph (a) identifies the civil penalties that FRA may impose upon any person that violates or causes a violation any requirement of this part. These penalties are authorized by 49 U.S.C. 20156(h), 21301, 21302, and 21304. The penalty provision parallels penalty provisions included in numerous other safety regulations issued by FRA. Essentially, any person who violates any requirement of this part or causes the violation of any such requirement would be subject to a civil penalty of at least $650 and not more than $25,000 per violation. Civil penalties may be assessed against individuals only for willful violations. Where a grossly negligent violation or a pattern of repeated violations creates an imminent hazard of death or injury to persons, or causes death or injury, a penalty not to exceed $105,000 per violation may be assessed. In addition, each day a violation continues constitutes a separate offense. Maximum penalties of $25,000 and $105,000 are required by the Federal Civil Penalties Inflation Adjustment Act of 1990, Public Law 101–410, 28 U.S.C. 2461, note, as amended by the Debt Collection Improvement Act of 1996, Public Law 104–134, 110 Stat. 1321–373, which requires each agency to regularly adjust certain civil monetary penalties in an effort to maintain their remedial impact and promote compliance with the law. Furthermore, a person may be subject to criminal penalties under 49 U.S.C. 21311 for knowingly and willfully falsifying reports required by these regulations. FRA believes that the inclusion of penalty provisions for failure to comply with the regulations is important in ensuring that compliance is achieved. Even though this proposed rule does not include a schedule of civil penalties, the final rule would contain such a schedule.
Proposed paragraph (b) is intended to make clear that any person, including but not limited to a railroad, contractor or subcontractor for a railroad, or a local or State governmental entity that performs any function covered by this part, must perform that function in accordance with the requirements of this part.
This section sets forth the general requirements of the rule. Each railroad subject to part 270 (i.e., each passenger railroad) would be required to establish and fully implement an SSP that systematically evaluates railroad safety hazards on its system and manages the resulting risks to reduce the number and rates of railroad accidents, incidents, injuries, and fatalities. The main components of a railroad's SSP would be the risk-based hazard management program and risk-based hazard analysis that would be designed to proactively identify risks and mitigate or eliminate the resulting risks from those hazards. The risk-based hazard management program and risk-based hazard analysis requirements are set forth in § 270.103(q) and (r).
To properly implement an SSP, a railroad would be required to set forth an SSP plan, as required by § 270.103. The SSP plan would be a document or a series/collection of documents that contain all of the elements required by this part. A railroad's SSP plan can reference documents and does not have to make unnecessary duplication of these documents to include in the plan. The SSP plan shall be designed to support the railroad's SSP.
Proposed paragraph (b) would require that a railroad's SSP be designed so that it promotes a positive safety culture. Safety culture may be defined as the shared values, actions and behaviors that demonstrate commitment to safety over competing goals and demands. U.S. DOT, Safety Council Research Paper,
This section proposes to implement section 103(g)(1) of RSIA, which states that a railroad required to establish an SSP must “consult with, employ good faith and use its best efforts to reach agreement with, all of its directly affected employees, including any non-profit employee labor organization representing a class or craft of directly affected employees of the railroad carrier, on the contents of the safety risk reduction program.” 49 U.S.C. 20156(g)(1). This section would also implement section 103(g)(2) of RSIA, which further provides that if a “railroad carrier and its directly affected employees, including any nonprofit employee labor organization representing a class or craft of directly affected employees of the railroad carrier, cannot reach consensus on the proposed contents of the plan, then directly affected employees and such organizations may file a statement with the Secretary explaining their views on the plan on which consensus was not reached.” 49 U.S.C. 20156(g)(2). The RSIA requires FRA to consider these views during review and approval of a railroad's SSP plan.
RSAC did not provide recommended language for this section. Rather, FRA worked with the System Safety Task Group to receive input regarding how the consultation process should be addressed, with the understanding that the language would be provided in this NPRM for review and comment. Therefore, FRA seeks comment on the approach proposed in this rule regarding the consultation requirement set forth in section 103(g) of RSIA.
Paragraph (a)(1) of this section proposes to implement section 103(g)(1) of RSIA by requiring a railroad to consult with its directly affected employees on the contents of its SSP plan. As part of that consultation, a railroad must utilize good faith and best efforts to reach agreement with its directly affected employees on the contents of its plan.
Proposed paragraph (a)(2) specifies that the term directly affected employees includes any non-profit employee labor organization representing a class or craft of the railroad's directly affected employees. This section makes it clear that a railroad that consults with a non-profit employee labor organization is considered to have consulted with the directly affected employees represented by that organization.
Proposed paragraph (a)(3) requires a railroad to meet with its directly
Proposed paragraph (a)(4) directs readers to appendix B of this part for additional guidance on how a railroad might comply with the consultation requirements of this section. This appendix is discussed later in this preamble.
Paragraph (b) proposes to require a railroad to submit, together with its SSP plan, a consultation statement. The purpose of this consultation statement would be twofold: (1) To help FRA determine whether the railroad has complied with § 270.102(a) by, in good faith, consulting and using its best efforts to reach agreement with its directly affected employees on the contents of its SSP plan; and (2) to ensure that the directly affected employees with which the railroad has consulted were aware of the railroad's submission of its SSP plan to FRA for review. The consultation statement must contain specific information described in proposed paragraphs (b)(1) through (b)(4) of this section.
Paragraph (b)(1) proposes to require that the consultation statement contain a detailed description of the process the railroad utilized to consult with its directly affected employees. This description should contain information such as (but not limited to) the following: (1) How many meetings the railroad held with its directly affected employees; (2) what materials the railroad provided its directly affected employees regarding the draft SSP plan; and (3) how input from directly affected employees was received and handled during the consultation process.
If the railroad is unable to reach agreement with its directly affected employees on the contents of its SSP plan, paragraph (b)(2) proposes to require that the consultation statement identify any areas of non-agreement and provide the railroad's explanation for why it believed agreement was not reached. A railroad could specify, in this portion of the statement, whether it was able to reach agreement on the contents of its SSP plan with certain directly affected employees, but not others.
If the SSP plan would affect a provision of a collective bargaining agreement between the railroad and a non-profit employee labor organization, paragraph (b)(3) would require the consultation statement to identify any such provision and explain how the railroad's SSP plan would affect it.
Under proposed paragraph (b)(4), the consultation statement must include a service list containing the names and contact information for the international/national president and general chairperson of any non-profit employee labor organization representing directly affected employees; any labor representative who participated in the consultation process; and any directly affected employee who significantly participated in the consultation process independently of a non-profit labor organization. This paragraph would also require a railroad (at the same time it submits its proposed SSP plan and consultation statement to FRA) to provide individuals identified in the service list a copy of the SSP plan and consultation statement. This service list would help FRA determine whether the railroad had complied with the § 270.102(a) requirement to consult with its directly affected employees. Requiring the railroad to provide individuals identified in the service list with a copy of its submitted plan and consultation statement would also notify those individuals that they now have 60 days under § 270.102(c)(2) (discussed below) to submit a statement to FRA if they are not able to come to reach agreement with the railroad on the contents of the SSP plan.
Proposed paragraph (c)(1) would implement section 103(g)(2) of RSIA by providing that, if a railroad and its directly affected employees cannot reach agreement on the proposed contents of an SSP plan, then a directly affected employee may file a statement with the FRA Associate Administrator for Railroad Safety/Chief Safety Officer explaining his or her views on the plan on which agreement was not reached.
Proposed paragraph (c)(2) specifies that a railroad's directly affected employees have 60 days following the railroad's submission of its proposed SSP plan to submit the statement described in paragraph (c)(1) of this section. FRA believes 60 days would provide directly affected employees sufficient time to review a railroad's proposed SSP plan and to draft and submit to FRA a statement if they were not able to come to agreement with the railroad on the contents of that plan. In order to provide directly affected employees the opportunity to submit a statement, FRA would not approve or disapprove a railroad's proposed SSP plan before the conclusion of this 60-day period.
Proposed paragraph (d) would require that a railroad's SSP plan include a description of the process the railroad will use to consult with its directly affected employees on any substantive amendments to the railroad's SSP plan. As with its initial SSP plan, a railroad must use good faith and best efforts to reach agreement with directly affected employees on any substantive amendments to that plan. Requiring a railroad to detail that process in its plan would facilitate the consultation by establishing a known path to be followed. A railroad that did not follow this process when substantively amending its SSP plan could then be subject to penalties for failing to comply with the provisions of its plan. This requirement would not apply to non-substantive amendments (e.g., amendments updating names and addresses of railroad personnel). If a railroad is uncertain as to whether a proposed amendment is substantive or non-substantive, it could contact FRA for guidance.
As mentioned previously, a railroad would be required to create a written SSP plan to fully implement and support its SSP. Proposed § 270.103 sets forth all of the required elements of the railroad's SSP plan.
Paragraph (a) proposes that a railroad's SSP plan must contain the minimum elements set forth in § 270.103. As provided in § 270.201, a railroad's SSP plan must be submitted to and approved by the FRA Associate Administrator for Railroad Safety/Chief Safety Officer. The FRA Associate Administrator for Railroad Safety/Chief Safety Officer approval of the SSP plan would be considered approval of the railroad's SSP as required by RSIA.
In certain scenarios, a railroad providing passenger service will not be
In proposed paragraph (b), each SSP plan would have a policy statement that endorses the railroad's SSP. This policy statement should define, as clearly as possible, the railroad's authority for the establishment and implementation of the SSP. The policy statement would be required to be signed by the chief official of the railroad. This signature would indicate that the top level of management at the railroad endorses the SSP.
Paragraph (c) proposes to require a railroad to set forth a statement in its SSP plan that describes the purpose and scope of the railroad's SSP. The statement would be required to have, at a minimum, three elements.
First, the statement would describe the safety philosophy and safety culture of the railroad. Proposed § 270.101(b) requires a railroad to design its SSP so that it promotes and supports a positive safety culture. In order for the railroad to properly design its SSP so that it complies promotes and supports a positive safety culture, it would first need to define what exactly is its safety culture and philosophy. Once its safety culture is defined, the railroad would have to describe how it measures the success of its safety culture pursuant to paragraph (v) of this section.
Second, the railroad shall describe the railroad's management's responsibilities within the SSP. This description would make clear who within the railroad's management are responsible for which aspects of the SSP.
Finally, the railroad would be required to describe how host railroads, contractors, shared track/corridor operators, and any other entity or person that provides significant safety-related services would, as appropriate, support and participate in the railroad's SSP. It is essential that these entities have defined roles in the railroad's program. As addressed in proposed § 270.103(a)(2), each railroad that hosts passenger train service for a railroad subject to this part would need to communicate with the railroad that provides or operates such passenger service and coordinate the portions of the SSP plan applicable to the railroad hosting the passenger train service. This section requires the railroad that provides passenger service to describe how it plans on satisfying § 270.103(a)(2).
Proposed paragraph (d) addresses the importance of goals in an SSP. The central goal of an SSP is to manage risks to reduce the number and rates of railroad accidents, incidents, injuries, and fatalities. FRA believes one way to achieve this central goal is for a railroad to set forth goals that are designed in such a way that when the railroad achieves these goals, the central goal is achieved as well. APTA's Manual for the Development of System Safety Program Plans for Commuter Railroads served as the model for the guidelines set forth in paragraph (d).
Paragraph (d) would require a railroad to include as part of its SSP plan a statement that defines the system safety goals. The statement would also describe the clear strategies on how these goals will be achieved. By setting forth the strategies by which it will achieve the goals, the railroad would have the opportunity to provide its vision on how it would ultimately reduce the numbers and rates of railroad accidents, incidents, injuries and fatalities. The statement would also describe what the railroad's management's responsibilities are to achieve the system safety goals. By stating the railroad management's responsibilities to achieve the stated goals, the railroad and FRA would know who, and at what level within management, is responsible for ensuring that the stated goals are achieved.
Rather than setting forth specific requirements that these goals must satisfy, FRA proposes general requirements. This would allow railroads the flexibility to establish goals specific to their operations. The general parameters of these goals are that they should be—
• Long-term so that they are relevant to the railroad's SSP throughout the life of the railroad. This does not mean that goals cannot have relevance in the short-term. Rather, goals must have significance beyond the short-term and continue to contribute to the SSP.
• Meaningful so that they are not so broad that they cannot be attributed to specific aspects of the railroad's operations. The desired results must be specific and must have a meaningful impact on safety.
• Measurable so that they are designed in such a way that it is easily determined whether each goal is achieved or at least progress is being made to achieve the goal.
• Consistent with the overall goal(s) of the SSP, in that they must be focused on the identification of hazards and the elimination or mitigation of the resulting risks.
Proposed paragraph (e) requires a railroad to set forth a statement in its SSP plan describing the characteristics of the railroad system. Generally, this description should be sufficient to allow persons who are not familiar with the railroad's operations and railroad operations in general to understand the railroad's system and its basic operations. Specifically, this statement would describe the following:
• The history of the railroad, including when and how the railroad was established, the history of service delivery, and the major milestones in the railroad's history;
• The railroad operations (including any host operations), including the role, responsibilities, and organization of the railroad operating departments;
• The physical characteristics of the railroad, including the number miles of track the railroad operates, the number of stations the railroad services, the number and types of grade crossings the railroad operates over, and on which segments the railroad shares track with other railroads;
• The scope of the service the railroad provides, including the number of passengers, the number of routes, and the days and hours when service is
• The maintenance activities performed by the railroad, including the role, responsibilities, and organization of the railroad's various maintenance departments and the type of maintenance required by the railroad's operations and facilities;
• Identification of the railroad's physical plant, including the size, location, and function of the railroad's physical assets, such as maintenance facilities, offices, stations, vehicles, signals, and structures for all modes; and
• Any other aspects of the railroad pertinent to the railroad's operations.
Proposed paragraph (e)(2) would also require a railroad to identify in its SSP plan the entities and persons that provide significant safety-related services. The term “significant safety-related services” is intended to be understood broadly to give a railroad the flexibility to evaluate the services other entities provide to the railroad and the degree that these services are safety-related. FRA recognizes that not all railroad operations are the same; thus, not all entities and persons that provide significant safety-related services to a railroad will be the same. During its review of a railroad's SSP plan, FRA would determine whether the entities and persons the railroad has described as providing or utilizing significant safety-related services sufficiently describe such services. FRA would work with the railroad to make the determination. FRA seeks comment on whether to require a railroad to identify entities that not only provide significant safety-related services but also utilize significant safety-related services. A railroad would have significant discretion to identify which entities utilize significant safety-related services.
Paragraph (f) proposes to require a railroad to set forth a statement in its SSP plan that describes the management/organizational structure of the railroad. This statement would include: a chart or other visual representation of the organizational structure of the railroad; a description of how the safety responsibilities are distributed within the railroad organization; clear identification of the lines of authority used by the railroad to manage safety issues; and a description of the relationships and individual responsibilities in an SSP between the railroad, host railroad(s), contract operator(s), shared track/corridor operator(s), and other entities that provide significant safety-related services. Under paragraph (f)(1), the chart or other visual representation of the organizational structure of the railroad would not need to be overly detailed. Rather, it must identify the divisions within the railroad, the key management positions within each division, and titles of the officials in those positions.
When identifying the divisions within a railroad under paragraph (f)(2), it is important for the railroad to identify how the safety responsibilities are distributed within these divisions. A railroad may have one division that handles safety matters or there may be multiple divisions and each division has separate and distinct responsibilities for handling safety matters. Regardless how the railroad distributes the responsibility to manage safety issues, it is important that the railroad identifies and describes how safety is being managed on its system.
Under paragraph (f)(3), the railroad would also need to clearly identify which of the management positions within the division(s) are responsible for managing the safety issues within the railroad. Identification of these lines of authority would allow FRA to determine who within the organization and at what level is responsible for managing the safety issues. While FRA recognizes that safety is everybody's responsibility within the railroad organization, the management personnel responsible for managing the safety issues would need to be identified.
Paragraph (f)(4) would require the railroad to describe the relationship and responsibilities between it and certain other entities and persons. These entities include: host railroads, contract operators, shared track/corridor operators, and other entities or persons that provide significant safety-related services. Describing the relationship and responsibilities between the railroad and the host railroads, contract operators, and shared track/corridor operators should be relatively easy because the railroads most likely have entered into contracts with these entities that outline this information. Regarding the relationships and responsibilities between the railroad and other entities or persons that provide significant safety-related services that must be identified under paragraph (e)(2) of this section, the rule would provide the railroads the flexibility to determine who provides significant safety-related services. FRA intends to provide such flexibility in paragraph (f)(4) when a railroad must identify the relationships among these entities or persons. The description should be detailed enough so that FRA can understand the basis of the relationship and the responsibilities of each entity or person based on that relationship.
Paragraph (f)(4) would also require the railroad to describe the roles and responsibilities in the railroad's SSP for each host railroad, contract operator, shared track/corridor operator, and other entity or person that provides significant safety-related services. The railroad would simply have to provide a statement detailing what the roles of these entities specifically are in the railroad's SSP. Since these entities play a key role in the safe operation of the railroad, they would, presumably, have a role in the railroad's SSP.
Proposed paragraph (g) requires a railroad's SSP plan to include a plan that describes how the railroad intends to implement its SSP. This is a general requirement and FRA does not expect the railroad to provide a discussion of how it would implement every single aspect of its SSP. Rather, the implementation plan must, at a minimum, describe roles and responsibilities of each position or job function (including those held by employees, contractors who provide significant safety-related services, and other entities or persons that provide significant safety-related services) that has significant responsibilities to implement the SSP. The plan must also identify the milestones necessary to be reached to properly implement the SSP. The positions or job functions that would be described are those that are responsible for implementing the major elements of the SSP, to the extent that the individuals filling these positions/job functions have clear and concrete roles and responsibilities. Every single individual who participates in the railroad's SSP does not need to be described in the implementation plan; rather, it is only those individuals who have significant responsibilities for implementing the railroad's SSP. The phrase “significant responsibilities” is intended to be broadly understood to provide the railroads the flexibility to determine, based on their individual operations, what may be considered “significant responsibilities.”
In its SSP plan a railroad would also set forth the milestones that should be reached so that it properly implements its SSP. Aside from requiring the SSP be fully implemented within 36 months of approval, FRA does not provide specific milestones that the railroad must achieve. Each railroad's SSP would be different; therefore, the milestones that must be achieved to properly implement an SSP would be different. A railroad would have the flexibility to determine, based on its own SSP and instead of
Proposed paragraph (h)(1) requires a railroad's SSP plan to identify and describe the processes and procedures used for maintenance and repair of its infrastructure and equipment directly affecting railroad safety. The phrase “infrastructure and equipment directly affecting railroad safety” is intended to be broadly understood in order to provide the railroad the opportunity to take a realistic survey of its particular operations and make the determination of which infrastructure and equipment directly affects the safety of that railroad. However, as guidance, a list of the types of infrastructure and equipment that are considered to directly affect railroad safety is provided. This list includes: fixed facilities and equipment, rolling stock, signal and train control systems, track and right-of-way, and traction power distribution systems. Once the railroad has determined what infrastructure and equipment directly affect railroad safety, it would then identify and describe the processes and procedures used for the maintenance and repair of that infrastructure and equipment. This section would not require the railroad to establish processes and procedures for maintenance and repair, however, because the railroad most certainly should already have such a process in place. The safety of a railroad's operations depends greatly upon the condition of its infrastructure and equipment. Therefore, these maintenance and repair processes and procedures should and are expected to already be in place.
Under proposed paragraph (h)(2), each description of the process used for maintenance and repair of infrastructure and equipment directly affecting safety would also include the processes and procedures used to conduct testing and inspections of the infrastructure and equipment. Multiple FRA regulations require a railroad to conduct testing and inspection of infrastructure and equipment and, in paragraph (h)(2), FRA is interested in the processes and procedures that the railroad has developed to meet these regulatory standards. For example, pursuant to part 234, a railroad must inspect, test, and repair warning systems at grade crossings. Under proposed paragraph (h)(2), the railroad would describe the internal procedures it developed to educate its employees on the proper way to conduct the inspection, testing and repair of grade crossing warning systems. Typically, railroads have a manual or manuals that describing the maintenance and testing procedures and processes used to conduct testing and inspections of the infrastructure and equipment. In most cases, simply referencing the current processes and procedures in the SSP plan would satisfy this paragraph, rather than providing the entire manual(s). If FRA reviews a manual, FRA would determine if the manual is current, if it is readily available to the employees who are performing the functions it addresses, and if these employees are trained on it.
While FRA is always concerned with the safety of railroad employees performing their duties, employee safety in maintenance and servicing areas generally falls within the jurisdiction of the United States Department of Labor's Occupational Safety and Health Administration (OSHA). It is not FRA's intent in this rule to displace OSHA's jurisdiction with regard to the safety of employees while performing inspections, tests, and maintenance, except where FRA has already addressed workplace safety issues, such as blue signal protection in 49 CFR part 218. In other rules, FRA has included a provision that makes it clear that FRA does not intend to displace OSHA's jurisdiction over certain subject matters.
Proposed paragraph (i) requires a railroad's SSP plan to set forth a statement describing both the railroad's processes and procedures for developing, maintaining, and ensuring compliance with the railroad's rules and procedures directly affecting railroad safety and the railroad's processes for complying with railroad safety laws and regulations. This statement would describe how the railroad not only develops, maintains, and complies with its own safety rules, but also how the railroad complies with applicable safety laws and regulations. The statement would include identification of the railroad's operating and safety rules and procedures that are subject to review under Chapter II, Subtitle B of Title 49 of the Code of Federal Regulations, i.e., all of FRA's railroad safety regulations.
The railroad would identify the techniques used to assess the compliance of its employees with applicable railroad safety laws and regulations and the railroad's operating and safety rules and maintenance procedures. Both Federal railroad safety laws and regulations and railroad operating and safety rules and maintenance procedures are effective at increasing the safety of the railroad's operations only if the railroad and its employees comply with such rules and procedures. By ensuring compliance with such rules and procedures, the overall safety of the railroad is improved.
The railroad would also identify the techniques used to assess the effectiveness of the railroad's supervision relating to the compliance with applicable railroad safety laws and regulations and the railroad's operating and safety rules and maintenance procedures. If the railroad's supervision relating to compliance with these rules and procedures is effective, the employees' compliance should also be effective, thus improving the overall safety of the railroad.
Paragraph (j) proposes to require that a railroad's SSP plan describe the railroad's plan on how the necessary employees will be trained on the SSP. This SSP training plan would describe the procedures in which employees who are responsible for implementing and supporting the program, contractors who provide significant safety-related services, and any other entity or person that provides significant safety-related services would be trained on the railroad's SSP. A railroad's SSP can be successful only if those who are responsible for implementing and supporting the program understand the requirements and goals of the program. To this end, a railroad would train those responsible for implementing and supporting the railroad's SSP on the elements of the program so that they have the knowledge and skills to fulfill their responsibilities under the program.
For each position or job function that has been identified under proposed paragraph (g)(1) as having significant responsibility for implementing a railroad's SSP, the railroad's training plan would describe the frequency and the content of the training on the SSP that the position receives. If the railroad does not identify a position or job function under paragraph (g)(1) as having significant responsibilities to implement the SSP but the position or job function is safety related or has a significant impact on safety, personnel
A railroad could conduct its SSP training by interactive computer-based training, video conferencing, formal classroom training, or some combination of all three. Paragraph (j) is not intended to limit the forms of training; rather, it is intended to provide the railroads the flexibility to conduct training using methods other than traditional classroom training. SSP training could also be combined with a railroad's regular safety or rules training and in some cases SSP training could be included in field “tool box” safety training sessions. The railroad would describe the process it would use to maintain and update the SSP training records. The railroad would also describe the process that it would use to ensure that it is complying with the requirements of the training plans as required by this part.
Proposed paragraph (k) requires that a railroad's SSP plan describe the processes used by the railroad to manage emergencies that may arise within its system. Part of this description should include the processes the railroad uses to comply with the applicable emergency equipment standards contained in part 238 of this chapter and the passenger train emergency preparedness requirements contained in part 239 of this chapter.
Proposed paragraph (l) requires that the railroad's SSP plan describe the programs that it has established that protect the safety of its employees and contractors. The railroad would describe: (1) The processes that have been established to help ensure the safety of employees and contractors while working on or in close proximity to the railroad's property as described pursuant to paragraph (e) of this section; (2) processes to help ensure that employees and contractors understand the requirements established by the railroad pursuant to paragraph (g)(1) of this section; and (3) fitness-for-duty programs, including standards for the control of alcohol and drug use contained in part 219 of this chapter, fatigue management programs under this part, and medical monitoring programs.
Employees and contractors of the railroad are exposed to many hazards and risks while on railroad property. A railroad's SSP would be required to take into consideration the safety of these persons and the programs and processes it has already in place to address the hazards they face and resulting risks. While FRA is always concerned with the safety of employees in performing their duties, employee safety in maintenance and servicing areas generally falls within the jurisdiction of OSHA. As discussed earlier, it is not FRA's intent in this rule to displace OSHA's jurisdiction with regard to the safety of employees while performing inspections, tests, and maintenance, except where FRA has already addressed workplace safety issues, such as for blue signal protection. As noted, in other rules, FRA has included a provision that makes it clear that FRA does not intend to displace OSHA's jurisdiction over certain subject matters. FRA seeks comment whether such a clarifying statement is necessary for any such subject matter that this proposed part may affect.
Proposed paragraph (m) requires that a railroad's SSP plan describe the railroad's public safety outreach program that provides safety information to the railroad's passengers and the general public. A safety outreach program provides the necessary safety information to the railroad's passengers and to the public at large so that they minimize their exposure to the hazards and resulting risks on the railroad. A railroad's passengers would potentially play an important role in the success of the railroad's SSP. The more information passengers have regarding the railroad's safety programs, the more they would contribute to the success of the railroad's SSP.
Proposed paragraph (n) requires that a railroad's SSP plan to describe the processes that the railroad uses to receive notification of accidents, investigate and report those accidents, and develop, implement, and track any corrective actions found necessary to address the investigations' finding. These processes should already be in place because they are necessary to comply with the requirements of part 225 of this chapter. Accidents can reveal hazards and risks on the railroad's system, which the railroad can then address as part of its SSP.
Proposed paragraph (o) requires a railroad's SSP plan to describe the processes that the railroad has or would put in place to collect, maintain, analyze, and distribute safety data in support of the SSP. These processes are important because they will provide the railroad with the information necessary to determine the effectiveness of its SSP.
Proposed paragraph (p) requires a railroad's SSP plan to describe the process it employs to address safety concerns and hazards during the safety-related contract procurement process. This applies to safety-related contracts so that the railroad can ensure that safety concerns and hazards that may result from the procurement are addressed as necessary.
The main components of an SSP are the risk-based hazard management program and the risk-based hazard analysis. The railroad would use the risk-based hazard management program to describe the various methods, processes, and procedures it will employ to properly and effectively identify, analyze, and mitigate or eliminate hazards and resulting risks. The risk-based hazard analysis is where the railroad will actually identify, analyze and determine the specific actions it will take to mitigate or eliminate hazards and the resulting risks. Paragraphs (q) and (r) set forth the proposed elements of the railroad's risk-based hazard management program and risk-based hazard analysis. Both of these proposed paragraphs implement sections 103(c) through (f) of RSIA. 49 U.S.C. 20156(c)–(f).
The risk-based hazard management program will be a fully implemented program within the railroad's SSP. Proposed paragraph (q) requires a railroad to describe various methods, processes, and procedures that, when implemented, will identify, analyze, and mitigate or eliminate hazards and the resulting risks on the railroad's system. Proposed paragraph (q) embodies FRA's intent to provide railroads with the flexibility to tailor its SSP to its specific operations. Paragraph (q) does not set forth rigid requirements of a risk-based hazard management program. Rather, more general guidelines are provided and the railroad is able to apply these general guidelines to its specific operations.
Paragraph (q)(1) would require a railroad to identify the positions within the railroad who will be responsible for administering the risk-based hazard management program. These positions would be responsible for developing and implementing the risk-based hazard management program. Rather than identifying the specific individuals, the
Paragraph (q)(2) would require a railroad to identify the stakeholders who will participate in the hazard management program. This means the railroad will identify all of the entities who will be affected and may play a role in the risk-based hazard management program.
Paragraph (q)(3) would require the railroad to identify the structure and participants in any hazard management teams or safety committees that the railroad may establish to support the risk-based hazard management program. By establishing these teams or committees, the railroad can extensively analyze hazards and risks and thoroughly consider the specific actions to effectively mitigate or eliminate the hazards and risks.
Paragraph (q)(4) would require the railroad to describe the process for setting goals for the risk-based hazard management program and how the performance against the goals will be performed. Similar to the SSP, establishing clear and concise goals will play an important role in the success of a railroad's risk-based hazard management program. The goals should be tailored so that the central goal of the risk-based hazard management program is supported.
Paragraph (q)(5) would require the railroad to describe the process used in the risk-based hazard analysis to identify hazards on the railroad's system. The railroad would determine the methods it would use in the risk-based hazard analysis in proposed paragraph (r) of this section, to identify hazards on various aspects of its system. This would be the railroad's opportunity to consider any new or novel techniques or methods to identify hazards that best suit that railroad's operations. FRA plans on working with railroads, along with providing guidance, to explore the various methods and techniques it may use.
Paragraph (q)(6) would require the railroad to describe the processes or procedures that will be used in the risk-based hazard analysis to analyze hazards and support the risk-based hazard management program. In proposed paragraph (q)(5), the railroad would describe the process it will use to identify hazards, in proposed paragraph (q)(6), the railroad will describe the processes and procedures it will use to analyze the identified hazard. By analyzing the hazards, the railroad gains the necessary knowledge to effectively identify the resulting risk.
Paragraph (q)(7) would require the railroad to describe the methods used in the risk-based hazard analysis to determine the severity and frequency of the hazard and the resulting risk. A railroad will want to identify the most severe hazards with the greatest amount of risk so that it may prioritize the mitigation or elimination of that hazard and risk. By developing a method that would effectively identify the severity and frequency of hazards and the resulting risks, the railroad will be able to effectively prioritize the mitigation or elimination of the hazard and resulting risks.
Paragraph (q)(8) would require a railroad to describe the methods used in the risk-based hazard analysis to identify actions that mitigate or eliminate hazards and corresponding risks. Here the railroad would identify the methods or techniques it will use to determine which actions it would need to take to mitigate or eliminate the identified hazards and risks. As with identifying the hazards and resulting risks, this would be the railroad's opportunity to consider any new or novel methods to mitigate or eliminate hazards and the resulting risks that best suits that railroad's operations. FRA recognizes that not all hazards and resulting risks can be eliminated or even mitigated, due to costs, feasibility, or other reasons. However, FRA would expect the railroads to consider all reasonable actions that may mitigate or eliminate hazards and the resulting risks and to implement those actions that are best suited for that railroad's operations.
Paragraph (q)(9) would require the railroad to describe how decisions affecting the safety of the rail system will be made relative to the risk-based hazard management program. Railroads make numerous decisions every day that affect the safety of the rail system. Paragraph (q)(9) would require a railroad to describe how those decisions will be made when they relate to the risk-based hazard management program.
Paragraph (q)(10) would require the railroad to describe the methods used in the risk-based hazard management program to support continuous safety improvement throughout the life of the rail system. As with the SSP, the railroad will describe the methods that it has implemented as part of the risk-based hazard management program that will support continuous safety improvement.
Paragraph (q)(11) would require the railroad to describe the methods used to maintain records of the identified hazards and risks throughout the life of the rail system. In this proposed paragraph the railroad will describe how it plans to maintain the records of the results of the risk-based hazard analysis. While the railroad will not provide these records in its SSP plan submission to FRA, the railroad would be required to make the results of the risk-based hazard analysis available upon request to representatives of FRA pursuant to proposed § 270.201(a)(2).
Once FRA has approved a railroad's SSP plan pursuant to proposed § 270.201(b), the railroad would be required to conduct a risk-based hazard analysis. Proposed paragraph (r)(1) is the RSIA-mandated “risk analysis” that a railroad must conduct. As discussed earlier, RSIA requires a railroad, as part of its development of a railroad safety risk reduction program (e.g., an SSP), to “identify and analyze the aspects of its railroad, including operating rules and practices, infrastructure, equipment, employee levels and schedules, safety culture, management structure, employee training, and other matters, including those not covered by railroad safety regulations or other Federal regulations, that impact railroad safety.” 49 U.S.C. 20156(c). Proposed paragraph (r)(1) follows the language of RSIA; however, in the list of the aspects of the railroad system that must be analyzed, paragraph (r)(1) does not include “safety culture.” Safety culture, which proposed paragraph (c)(1) of this section would require the railroad to describe, is not something that a railroad can necessarily “identify and analyze” as readily as the other aspects listed. A railroad would have to describe how it measures the success of its safety culture pursuant to § 270.103(v). Proposed paragraph (r)(1) would also require the railroad to analyze any new technology identified in proposed paragraph (t) of this section. Absent safety culture and including new technology, paragraph (r)(1) would require a railroad to analyze: operating rules and practices, infrastructure, equipment, employee levels and schedules, management structure, employee training, employee fatigue as identified in paragraph (s) of this section, new technology as identified in paragraph (t) of this section, and other aspects that have an impact on railroad safety not covered by railroad safety regulations or other Federal regulations. The railroad's operating rules and practices, infrastructure, equipment, employee levels and schedules, management structure, and employee training, would already be identified by the railroad pursuant to this part and would be part of the SSP plan so the
Once the railroad has analyzed the various aspects of its operations and identified hazards and the resulting risks, the railroad would be required to manage these risks. This proposed requirement is derived directly from RSIA, which requires a railroad, as part of its SSP, to have a risk mitigation plan that mitigates the aspects that increase risks to railroad safety and enhances the aspects that decrease the risks to railroad safety. 49 U.S.C. 20156(d). In proposed paragraph (r)(2), the railroad will use the methods described in proposed paragraph (q)(8) to identify and implement specific actions to mitigate or eliminate the hazards and risks identified by proposed paragraph (r)(1).
A risk-based hazard analysis is not a one-time event. The railroad operates in a dynamic environment and certain changes in that environment may expose new hazards and risks that a previous risk-based hazard analysis did not identify. Proposed paragraph (r)(3) identifies the changes that FRA believes are significant enough to require that a railroad conduct a new risk-based hazard analysis. A railroad would be required to conduct a risk-based hazard analysis when there are significant operational changes, system extensions, system modifications, or other circumstances that have a direct impact on railroad safety.
As part of its SSP plan, paragraph (s) would require a railroad to set forth a technology implementation plan.
FRA is not proposing a specific formula that a railroad must use to determine whether it should implement any of the technology analyzed in the technology analysis. Rather, the railroad would consider the safety impact, feasibility, and the cost and benefits of these technologies and based on the railroad's specific operations, decide whether to implement any of the technologies. Technology has proved to be an invaluable tool to manage hazards across all modes of transportation, and a robust SSP would certainly include risk mitigation technology.
If a railroad decides to implement any of the technologies identified in the technology analysis, the railroad would be required to set forth a prioritized implementation schedule for the development, adoption, implementation, and maintenance of those technologies over a 10-year period. By establishing this implementation schedule, the railroad would be able to describe its plan on how it would apply technology on its system to mitigate or eliminate the identified hazards and resulting risks.
Paragraph (s)(3) would state that, except as required by 49 CFR part 236, subpart I (Positive Train Control Systems), if a railroad decides to implement a PTC system as part of its technology implementation plan, the railroad shall set forth and comply with a schedule that would implement the system no later than December 31, 2018, as required by the RSIA. See 49 U.S.C. 20156(e)(4)(B). However, this paragraph would not, in itself, require a railroad to implement a PTC system. In addition, FRA specifically seeks public comment on whether a railroad electing to implement a PTC system would find it difficult to meet the December 31, 2018 implementation deadline. If so, what measures could be taken to assist a railroad struggling to meet the deadline and achieve the safety purposes of the statute?
As part of its SSP, RSIA requires a railroad to establish a fatigue management plan. 49 U.S.C. 20156(d)(2). Section 103(f) of RSIA sets forth the various requirements of a fatigue management plan. 49 U.S.C. 20156(f). On December 8, 2011, RSAC voted to establish a Fatigue Management Plans Working Group (FMP Working Group). The purpose of the group is to provide “advice regarding the development of implementing regulations for Fatigue Management Plans and their deployment under the Rail Safety Improvement Act of 2008”.
Proposed paragraph (u) sets forth the proposed requirements for ensuring that safety issues are addressed whenever there are certain changes to the railroad's operations. Paragraph (u)(1) proposes to require each railroad to establish and set forth a statement in its SSP plan that describes the processes and procedures used by the railroad to manage significant operational changes, system extensions, system modifications, or other circumstances that will have a direct impact on railroad safety. Since these changes have a direct impact on safety, it is important that the railroad has a process that manages these changes so that safety is not compromised. The term “significant changes that will have a direct impact on railroad safety” is intended to be broadly understood; however, the other changes listed (significant operational changes, system extensions, system modifications) are the type of changes that would necessitate a process/procedure to properly manage them.
Proposed paragraph (u)(2) would require each railroad to establish in its SSP plan a configuration management
Proposed paragraph (u)(3) requires a railroad to establish and describe in its SSP plan the process it uses to certify that safety concerns and hazards are adequately addressed prior to the initiation of operations and major projects to extend, rehabilitate, or modify an existing system or repair vehicles and equipment. By certifying that safety concerns have been addressed before the railroad initiates operations and major projects to extend, rehabilitate, or modify an existing system or replace vehicles and equipment, the railroad minimizes the negative impact on safety that any of these activities may have.
As discussed previously, an SSP can only be effective at mitigating or eliminating hazards and risks if the railroad has a robust and positive safety culture. Pursuant to proposed § 270.101(b), a railroad would design its SSP so that it promotes and supports a positive safety culture, pursuant to proposed § 270.103(c)(1), a railroad will identify in its SSP plan its safety culture, and pursuant to proposed § 270.103(v) a railroad will describe in its SSP plan how it measures the success of its safety culture. A railroad cannot have a robust safety culture unless it actively promotes it and determines whether it is successful.
As discussed in the Background section, FRA's Study concluded that it is in the public interest to protect certain information generated by railroads from discovery or admission into evidence in litigation. Section 109 of RSIA provides FRA with the authority to promulgate a regulation if FRA determines that it is in the public interest, including public safety and the legal rights of persons injured in railroad accidents, to prescribe a rule that addresses the results of the Study.
Following the issuance of the Study, the RSAC met and reached consensus on recommendations for this rulemaking, including a recommendation on the discovery and admissibility issue. RSAC recommended that FRA issue a rule that would protect documents generated solely for the purpose of developing, implementing, or evaluating an SSP from (1) discovery, or admissibility into evidence, or considered for other purposes in a Federal or State court proceeding for damages involving property damage, personal injury, or wrongful death; and (2) State discovery rules and sunshine laws which could be used to require the disclosure of such information.
In § 270.105, Discovery and admission as evidence of certain information, FRA proposes discovery and admissibility protections that are based on the Study's results and the RSAC recommendations. FRA modeled this proposed section after 23 U.S.C. 409. In section 409, Congress enacted statutory protections for certain information compiled or collected pursuant to Federal highway safety or construction programs.
Section 409 was enacted by Congress in response to concerns raised by the States that compliance with the Federal road hazard reporting requirements could reveal certain information that would increase the State's risk of liability. Without confidentiality protections, States feared that their “efforts to identify roads eligible for aid under the Program would increase the risk of liability for accidents that took place at hazardous locations before improvements could be made.”
The constitutionality and validity of section 409 has been affirmed by the Supreme Court of the United States.
The Court held that section 409 protects information actually compiled or collected by any government entity for the purpose of participating in a Federal highway program, but does not protect information that was originally compiled or collected for purposes unrelated to the Federal highway program, even if the information was at some point used for the Federal highway program.
A comparison of the text of section 409 with section 109, which was added to the U.S. Code by the RSIA, shows that Congress used similar language in both provisions. Given the similar language and concept of the two statutes, and the Supreme Court's expressed acknowledgement of the constitutionality of section 409, FRA views section 409 as an appropriate model for proposed § 270.105.
FRA proposes that under certain circumstances information (including plans, reports, documents, surveys, schedules, lists, or data) would not be subject to discovery, admitted into evidence, or considered for other purposes in a Federal or State court proceeding for damages. This information may not be used in such litigation for any purpose when it is compiled or collected solely for the purpose of developing, implementing, or evaluating an SSP, including the railroad's analysis of its safety risks conducted pursuant to proposed § 270.103(r)(1) and its identification of the mitigation measures with which it would address those risks pursuant to proposed § 270.103(r)(2). Proposed § 270.105(a) applies to information that may not be in the Federal government's
The RSIA identifies reports, surveys, schedules, lists, and data as the forms of information that should be included as part of FRA's Study. 49 U.S.C. 20119(a). However, FRA does not necessarily view this as an exclusive list. In the statute, Congress directed FRA to consider the need for protecting information that includes a railroad's analysis of its safety risks and its statement of the mitigation measures with which it would address those risks. Therefore, FRA deems it necessary to include “documents” and “plans” in this proposed provision to effectuate Congress's directive in section 109 of RSIA. Notwithstanding, FRA does not propose protecting all documents plans that are part of an SSP. Rather, as proposed in § 270.105(a), the document has to be “compiled or collected solely for purpose of developing, implementing, or evaluating a System Safety Program under this part.” The meaning of “compiled or collected solely for purpose of developing, implementing, or evaluating a System Safety Program under this part” is discussed below.
As discussed previously, the proposed regulation would require a railroad to implement its SSP through an SSP plan. While the railroad will not provide in the SSP plan that it submits to FRA the results of the risk-based hazard analysis and the specific elimination or mitigation measures it will be implementing, its own SSP plan may contain this information while it's in possession of the railroad. Therefore, to adequately protect this type of information, the term “plan” is added to cover a railroad's SSP Plan and any elimination or mitigation plans.
It is important to note that these proposed protections will only extend to plans, reports, documents, surveys, schedules, lists, or data that are “compiled or collected solely for purpose of developing, implementing, or evaluating a System Safety Program.” The term “compiled and collected” is taken directly from the RSIA. FRA recognizes that railroads may be reluctant to compile or collect extensive and detailed information regarding the safety hazards and resulting risks on their system if this information could potentially be used against them in litigation. The term “compiles” refers to information that was generated by the railroad for the purposes of an SSP; whereas the term “collected” refers to information that was not necessarily generated for the purposes of the SSP, but was assembled in a collection for use by the SSP. It is important to note that the collection is protected; however, each separate piece of information that was not originally compiled for use by the SSP remains subject to discovery and admission into evidence subject to any other applicable provision of law or regulation.
The information has to be compiled or collected solely for the purpose of developing, implementing, or evaluating an SSP. The use of the term “solely” means that the original purpose of compiling or collecting the information was exclusively for the railroad's SSP. A railroad cannot compile or collect the information for one purpose and then try to use proposed paragraph (a) to protect that information because it simply uses that information for its SSP. The railroad's original and primary purpose of compiling or collecting the information must be for developing, implementing, or evaluating its SSP in order for the protections to be extended to that information. Further, if the railroad is required by another provision of law or regulation to collect the information, the protections of proposed paragraph (a) do not extend to that information because it is not being compiled or collected solely for the purpose of developing, implementing, or evaluating an SSP.
The information must be compiled or collected solely for the purpose of developing, implementing, or evaluating an SSP. These three terms are taken directly from RSIA. They cover the necessary uses of the information compiled or collected solely for the SSP. To develop an SSP, a railroad will need to conduct a risk-based hazard analysis to evaluate and identify the safety hazards and resulting risks on its system. This type of information is essential and is information that a railroad does not necessarily already have. In order for the railroad to conduct a robust risk-based hazard analysis to develop its SSP, the protections from discovery and admissibility are extended to the SSP development stage. Based on the information generated by the risk-based hazard analysis, the railroad would implement measures to mitigate or eliminate the risks identified. To properly implement these measures, the railroad will need the information regarding the hazards and risks on the railroads system identified during the development stage. Therefore, the protection of this information is extended to the implementation stage. Finally, the railroad would be required to evaluate whether the measures it implements to mitigate or eliminate the hazards and risks identified by the risk-based hazard analysis are effective. To do so, it will need to review the information developed by the risk-based hazard analysis and the methods it used to implement the elimination/mitigation measures. The use of this information in the evaluation of the railroad's SSP is protected.
The information covered by this proposed section shall not be subject to discovery, admitted into evidence, or considered for other purposes in a Federal or State court proceeding that involves a claim for damages involving personal injury, wrongful death, or property damage. The protections apply to discovery, admission into evidence, or consideration for other purposes. The first two situations come directly from RSIA; however, FRA determined that for the protections to be effective they must also apply to any other situation where a litigant might try to use the information in a Federal or State court proceeding that involves a claim for damages involving personal injury, wrongful death, or property damage. For example, under proposed § 270.105, a litigant would be prohibited from admitting into evidence a railroad's risk-based hazard analysis; however, without the additional language, the railroad's risk-based hazard analysis could be used by a party for the purpose of refreshing the recollection of a witness or by an expert witness to support an opinion. The additional language, “or considered for other purposes,” ensures that the protected information remains out of a proceeding completely. The protections would be useless if a litigant is able to use the information in the proceeding for another purpose. To encourage railroads to perform the necessary vigorous risk analysis and to implement truly effective elimination or mitigation measures, the protections should be extended to any use in a proceeding.
FRA further notes that this proposed section applies to Federal or State court proceedings that involve a claim for damages involving personal injury, wrongful death, or property damage. This means, for example, if a proceeding has a claim for personal injury and a claim for property damage, the protections are extended to that entire proceeding; therefore a litigant cannot use any of the information protected by this section as it applies to either the personal injury or property damage claim. Section 109 of RSIA required the Study to consider proceedings that involve a claim for damages involving personal injury or wrongful death; however, in order to effectuate
Proposed paragraph (b) would ensure that the proposed protections set forth in paragraph (a) do not extend to information compiled or collected for a purpose other than that specifically identified in paragraph (a). This type of information shall continue to be discoverable and admissible into evidence if it was discoverable and admissible prior to the existence of this section. This includes information compiled or collected for a purpose other than that specifically identified in paragraph (a) that either: (1) Existed prior to the effective date of this part; (2) existed prior to the effective date of this part and continues to be compiled or collected; or (3) is compiled and collected after the effective date of this part. Proposed paragraph (b) affirms the intent behind the use of the term “solely” in paragraph (a), in that a railroad could not compile or collect information for a different purpose and then expect to use paragraph (a) to protect that information just because the information is also used in its SSP. If the information was originally compiled or collected for a purpose unrelated to the railroad's SSP, then it is unprotected and would continue to be unprotected.
Examples of the types of information that proposed paragraph (b) applies to may be records related to prior incidents/accidents and reports prepared in the normal course of business (such as inspection reports). Generally, this type of information is often discoverable, may be admissible in Federal and State proceedings, and should remain discoverable and admissible where it is relevant and not unduly prejudicial to a party after the implementation of this part. However, FRA recognizes that evidentiary decisions are based on the facts of each particular case; therefore, FRA does not intend this to be a definitive and authoritative list. Rather, FRA merely provides these as examples of the types of information that paragraph (a) is not intended to protect.
Proposed paragraph (c) clarifies that a litigant cannot rely on State discovery rules, evidentiary rules, or sunshine laws that could be used to require the disclosure of information that is protected by paragraph (a). This provision is necessary to ensure the effectiveness of the Federal protections established in paragraph (a) in situations where there is a conflict with State discovery rules or sunshine laws. The concept that Federal law takes precedence where there is a direct conflict between State and Federal law should not be controversial as it derives from the constitutional principal that “the Laws of the United States * * * shall be the supreme Law of the Land.” U.S. Const., Art. VI. Additionally, FRA notes that 49 U.S.C. 20106 is applicable to this section, as FRA's Study concluded that a rule “limiting the use of information collected as part of a railroad safety risk reduction program in discovery or litigation” furthers the public interest by “ensuring safety through effective railroad safety risk reduction program plans.”
As discussed in the Background section, FRA is currently developing, with the assistance of the RSAC, a separate risk reduction rule that would implement the requirements of sections 103 and 109 of the RSIA for Class I freight railroads and railroads with an inadequate safety performance. Section 109 of RSIA mandates that the effective date of a rule prescribed pursuant to that section must be one year after the publication of that rule. Therefore, proposed § 270.105 will not become effective until one year after the publication of the final rule for this proposed part. FRA believes that the public interest considerations for the protections in § 270.105 are the same for the forthcoming risk reduction rule for the Class I freight railroads and railroads with an inadequate safety performance. Therefore, FRA intends that proposed paragraph (d) extend the protections and the exceptions to those protections to the forthcoming risk reduction rule. The effect of this proposal is that the protections for the forthcoming risk reduction rule will be applicable one year after the publication of the final rule for this proposed part and not the final rule for the risk reduction rule. FRA seeks comments regarding this approach.
RSIA requires a railroad to submit its SSP, including any of the required plans, to the Administrator (as delegate of the Secretary) for review and approval. 49 U.S.C. 20156(a)(1)(B). Subpart C, Review, Approval, and Retention of System Safety Program Plans, addresses these RSIA requirements.
This proposed section sets forth the requirements for the filing of an SSP plan and FRA's approval process.
Proposed paragraph (a)(1) requires that each railroad required to establish and fully implement an SSP submit one copy of its SSP plan to the FRA Associate Administrator for Railroad Safety/Chief Safety Officer no later than 395 days after the effective date of the final rule or not less than 90 days prior to commencing operations, whichever is later. FRA seeks comment on whether electronic submission of an SSP plan
The railroad would not include the results of its risk-based hazard analysis in its SSP plan that it submits to FRA pursuant to proposed paragraph (a)(1) of this section. The SSP plan should only include the methods used to conduct its risk-based hazard analysis as described in proposed paragraph (q). However, since the risk-based hazard analysis is a vital element of an SSP, FRA would work with the railroads to ensure that this analysis is robust and addresses all the necessary aspects of the railroad's operations. To achieve this goal, FRA, its representatives, and States participating under part 212 of this chapter would have access to the railroad's risk-based hazard analysis pursuant to proposed paragraph (a)(2).
As part of its submission, the railroad will provide certain additional information. Primarily, under paragraph (a)(3), the SSP plan submission shall include the signature, name, title, address, and telephone number of the chief official responsible for safety and who bears primary managerial authority for implementing the SSP for the submitting railroad. The SSP plan shall also include the contact information for the primary person managing the SSP and the senior representatives of contract operators, shared track/corridor operators, and others who provide significant safety-related services. The contact information for the primary person managing the SSP is necessary so that FRA knows who to contact regarding any issues with the railroad's SSP. The contact information for the senior representatives of contract operators, shared track/corridor operators, and others who provide significant safety-related services is necessary so that FRA is aware of which entities will be involved in implementing and supporting the railroad's SSP.
Proposed paragraph (a)(4) references the requirements of proposed § 270.102(b), which generally requires a railroad to submit with its SSP plan a consultation statement describing how it consulted with its directly affected employees on the contents of its SSP. When the railroad provides the consultation statement to FRA, proposed § 270.102(b)(4) also requires that the railroad provide a copy of the statement to certain directly affected employees identified in a service list. The directly affected employees can then file a statement within 60 days after the railroad filed its consultation statement, as discussed in proposed § 270.102(c)(1).
Under paragraph (a)(5), the chief official responsible for safety and who bears primary managerial authority for implementing the railroad's SSP shall certify that the contents of the railroad's SSP plan are accurate and that the railroad will implement the contents of the program as approved by § 270.201(b).
Paragraph (b) sets forth the proposed FRA approval process for a railroad's SSP plan. Within 90 days of receipt of an SSP plan, or within 90 days of receipt of each SSP plan submitted prior to the commencement of railroad operations, FRA will review the proposed SSP plan to determine if the elements prescribed in this part are sufficiently addressed in the railroad's submission. This review will also consider any statement submitted by directly affected employees pursuant to proposed § 270.102. This process will involve continuous communication between FRA and the railroad. As with drafting the plan, FRA intends to work with the railroads when reviewing the plan. Furthermore, FRA plans on issuing a guide that will provide additional guidance on this process.
Once FRA determines whether a railroad's SSP plan complies with the requirements of this part, FRA will notify, in writing, the primary contact person of each affected railroad whether the railroad's SSP plan is approved or not. If FRA does not approve a plan, it will inform the railroad of the specific points in which the plan is deficient. FRA will also provide the notification to each individual identified in the service list accompanying the consultation statement required under proposed § 270.102(b). Once the railroad has received notification that the plan is not approved and the specific points in which the plan is deficient, the railroad has 60 days to correct all of the deficiencies and resubmit the plan to FRA.
Proposed paragraph (c) addresses the process a railroad will follow whenever it amends its SSP. When a railroad amends its SSP plan it shall submit the amended SSP plan to FRA not less than 60 days prior to the proposed effective date of the amendment(s). The railroad shall file the amended SSP plan with a cover letter outlining the proposed changes to the original, approved SSP plan. The cover letter should provide enough information so that FRA knows what is being added or removed from the original approved SSP. The railroad would also be required to follow the process it described pursuant to proposed § 270.102(d) regarding the consultation with directly affected employees concerning the amendment to the SSP plan. The railroad would describe in the cover letter the process it used to consult the directly affected employees on the amendments.
FRA recognizes that some amendments may be safety-critical and that the railroad may not be able to submit the amended SSP plan to FRA 60 days prior to the proposed effective date of the amendments. In these instances, the railroad shall submit the amended SSP plan to FRA as soon as possible. The railroad shall provide an explanation why the amendment is safety critical and describe the effects of the amendment.
FRA will review the proposed amended SSP plan within 45 days of receipt. FRA will then notify the primary contact person whether the proposed SSP plan has been approved by FRA. If the amended plan is not approved, FRA will provide the specific points in which the proposed amendment to the plan is deficient. If FRA does not notify the railroad whether the amended plan is approved or not by the proposed effective date of the amendment(s) to the plan, the railroad may implement the amendment(s) to the plan, subject to FRA's decision. If a proposed amendment to the SSP plan is not approved by FRA, the affected railroad shall correct any deficiencies identified by FRA. The railroad shall provide FRA with a corrected copy of the amended SSP plan no later than 60 days following receipt of FRA's written notice that any proposed amendment was not approved.
Paragraph (d) proposes to allow FRA to reopen consideration of a plan or amendment after initial approval of the plan or amendment. An example of a type of situation in which FRA may reopen review is if FRA determines that the railroad is not complying with its plan/amendment or information has been made available that was not available when FRA originally reviewed the plan or amendment. The determination of whether to reopen consideration will be made solely within FRA's discretion on made on a case-by-case basis.
This section sets forth the proposed requirements related to a railroad's retention of its SSP plan. A railroad will be required to retain at its system and various division headquarters a copy of its SSP plan and a copy of any amendments to the plan. The railroad must make the plan and any amendments available to representatives of FRA and States participating under part 212 of this chapter for inspection
Subpart D sets forth the proposed requirements related to a railroad's internal SSP assessment and FRA's external audit of the railroad's SSP.
To determine whether an SSP is successful, it will need to be evaluated by both the railroad and FRA on a periodic basis. This proposed section sets forth the general requirement that a railroad's SSP and its implementation will be assessed internally by the railroad and audited externally by the FRA or FRA's designee.
This section sets forth the proposed requirements related to the railroad's internal SSP assessment. Once FRA approves a railroad's SSP plan, the railroad shall conduct an annual assessment the extent to which: (1) The SSP is fully implemented; (2) the railroad's compliance with the implemented elements of the approved SSP plan; and (3) the railroad has achieved the goals set forth in proposed § 270.103(d). This internal assessment is intended to provide the railroad with an overall survey of the progress of its SSP implementation and the areas in which improvement is necessary.
As part of its SSP plan, the railroad will describe the processes used to: (1) Conduct internal SSP assessments; (2) report the findings of the internal SSP assessments internally; (3) develop, track, and review recommendations as a result of the internal SSP assessments; (4) develop improvement plans based on the internal SSP assessments that, at a minimum, identify who is responsible for carrying out the necessary tasks to address assessment findings and specify a schedule of target dates with milestones to implement the improvements that address the assessment findings; (5) manage revisions and updates to the SSP plan based on the internal SSP assessments; and (6) comply with the reporting requirements set forth in proposed § 270.201. By describing these processes, the railroad will detail how it plans to assess its SSP and how it will improve it if necessary. Since this is an internal assessment, a railroad will tailor the processes to its specific operations, and FRA will work with the railroad to determine the best method to internally measure the success of the railroad's SSP.
Within 60 days of completing its internal assessment, the railroad will submit a copy of its internal assessment report. This report will include the SSP assessment and the status of internal assessment findings and improvement plans. The railroad will also outline the specific improvement plans for achieving full implementation of its SSP and the milestones it has set forth. The railroad's chief official responsible for safety shall certify the results of the railroad's internal SSP plan assessment.
This section sets forth the proposed process FRA will utilize when it conducts audits of a railroad's SSP. These audits will evaluate the railroad's compliance with the elements required by this part in the railroad's approved SSP plan. Because the railroad's SSP plan and any amendments would have already been approved by FRA pursuant to proposed § 270.201(b) and (c), this section is intended to permit FRA to focus on the extent to which the railroad is complying with its own plan.
Similar to the SSP plan review process, FRA does not intend the audit to be conducted in a vacuum. Rather, during the audit, FRA will maintain communication with the railroad and attempt to resolve any issues before completion of the audit. Once the audit is completed, FRA will provide the railroad with written notification of the audit results. These results will identify any areas where the railroad is not properly complying with its SSP, any areas that need to be addressed by the SSP but are not, or any other areas in which FRA believes the railroad and its plan are not in compliance with this part.
If the results of the audit require the railroad to take any corrective action, the railroad is provided 60 days to submit an improvement plan, for FRA approval, to address the audit findings. The improvement plan will identify who is responsible for carrying out the necessary tasks to address the audit findings and specify target dates and milestones to implement the improvements that address the audit findings. Specification of milestones is important because it will allow the railroad to determine the appropriate progress of the improvements while allowing FRA to gauge the railroad's compliance with its improvement plan.
If FRA does not approve a railroad's improvement plan, FRA will notify the railroad of the specific deficiencies in the improvement plan. The railroad will then amend the improvement plan to correct the deficiencies identified by FRA and provide FRA a copy of the amended improvement plan no later than 30 days after the railroad received notice from FRA that its improvement plan was not approved. This process is similar to the process provided when FRA does not initially approve a railroad's SSP. The railroad shall provide a report to FRA and States participating under part 212 of this chapter for review upon request regarding the status of the implementation of the improvements set forth in the improvement plan established pursuant to paragraph (b)(1) of this section.
Appendix B would contain guidance on how a railroad could comply with § 270.102, which states that a railroad must in good faith consult with and use its best efforts to reach agreement with all of its directly affected employees on the contents of the SSP plan. The appendix begins with a general discussion of the terms “good faith” and “best efforts,” explaining that they are separate terms and that each has a specific and distinct meaning. For example, the good faith obligation is concerned with a railroad's state of mind during the consultation process, and the best efforts obligation is concerned with the specific efforts made by the railroad in an attempt to reach agreement with its directly affected employees. The appendix also explains that FRA will determine a railroad's compliance with the § 270.102 requirements on a case-by-case basis and outlines the potential consequences for a railroad that fails to consult with its directly affected employees in good faith and using best efforts.
The appendix also contains specific guidance on the process a railroad may use to consult with its directly affected employees. This guidance would not establish prescriptive requirements with which a railroad must comply, but would provide a road map for how a railroad may conduct the consultation process. The guidance also distinguishes between employees who are represented by a non-profit employee labor organization and employees who are not, as the processes a railroad may use to consult with represented and non-represented employees could differ significantly. Overall, however, the appendix stresses that there are many compliant ways in which a railroad may choose to consult with its directly affected employees and
This NPRM has been evaluated in accordance with existing policies and procedures, and determined to be non-significant under both Executive Orders 12866 and 13563 and DOT policies and procedures. 44 FR 11034, Feb. 26, 1979. FRA has prepared and placed in the docket a regulatory impact analysis (RIA) addressing the economic impact of this NPRM.
This NPRM directly responds to the Congressional mandate in section 103 of RSIA that FRA, by delegation from the Secretary, require each railroad that provides intercity rail passenger or commuter rail passenger transportation to establish a railroad safety risk reduction program. 49 U.S.C. 20156(a)(1). The proposal also implements section 109 of RSIA which authorizes FRA, by delegation from the Secretary, to issue a regulation protecting from discovery and admissibility into evidence in litigation documents generated for the purpose of developing, implementing, or evaluating a SSP. FRA believes that all of the requirements of the proposed rule are directly or implicitly required by RSIA and will promote railroad safety.
Most of the passenger railroads affected by this proposal already participate in APTA's system safety program and are currently participating in the APTA audit program. Railroads that are still negotiating contracts or not participating directly with APTA have developed, or are in the process of developing an APTA system safety program. There is one railroad that does not currently have or is developing an APTA system safety program, a small event commuter railroad in Iowa. That railroad has a very simple system, and FRA believes that the costs to develop its SSP pursuant to the proposed rule will be relatively low. Since the majority of intercity passenger or commuter railroads already have APTA system safety programs, there will not be a significant burden for these railroads to implement the regulatory requirements set forth in this proposed rule. Thus, the economic impact of the proposed rule is generally incremental in nature for documentation of existing information and inclusion of certain elements not already addressed by railroads in their programs. Regarding new start intercity passenger or commuter railroads, FRA currently and will continue to provide technical assistance to these types of railroads for the development and implementation of system safety programs and conduct of preliminary hazard analyses in the design phase leading to operations implementation.
For purposes of this analysis, FRA has analyzed the impact on the 30 existing passenger and railroads and projected costs for startup railroads. Total estimated twenty-year costs associated with implementation of the proposed rule, for existing passenger railroads, range from $1.8 million (discounted at 7%) to $2.5 million (discounted at 3%).
FRA believes that there will be new, startup, passenger railroads, that will be formed during the twenty-year analysis period. FRA is aware of two passenger railroads that intend to commence operations in the near future. FRA assumed that one of these railroads would begin developing its SSP in Year 2, and that the other would begin developing its SSP in Year 3. FRA further assumed that one additional passenger railroad would be formed and begin developing its SSP every other year after that, in Years 5, 7, 9, 11, 13, 15, 17 and 19. Total estimated twenty-year costs associated with implementation of the proposed rule, for startup passenger railroads, range from $270 thousand (discounted at 7%) to $437 thousand (discounted at 3%).
Total estimated twenty-year costs associated with implementation of the proposed rule, for existing passenger railroads and startup passenger railroads, range from $2.0 million (discounted at 7%) to $3.0 million (discounted at 3%).
Properly implemented SSPs are successful in optimizing the returns on railroad safety investments. Railroads can use them to proactively identify potential hazards and resulting risks at an early stage thus minimizing associated casualties and property damage or avoiding them altogether. Railroads can also use them to identify a wide array of potential safety issues and solutions, which in turn allows them to simultaneously evaluate various alternatives for improving overall safety with resources available. This results in more cost effective investments. In addition, system safety planning helps railroads maintain safety gains over time. Without an SSP plan to guide them, railroads could adopt countermeasures to safety problems that become less effective over time as the focus shifts to other issues. With SSP plans, those safety gains are likely to continue for longer time periods. SSP plans can also be instrumental in reducing casualties resulting from hazards that are not well addressed through conventional safety programs, such as slips, trips and falls, or risks that occur because safety equipment is not used correctly, or routinely.
During the course of daily operations, hazards are routinely discovered. Railroads must decide which hazards to address and how, with the limited resources available for this purpose. Without an SSP plan in place, the decision process might become arbitrary. In the absence of the protections against discovery in legal proceedings for damages provided by the proposed rule, railroads might also be reluctant to keep detailed records of known hazards. With an SSP plan in place, railroads are able to identify and implement the most cost-effective measures to reduce casualties.
It is difficult, if not impossible, to completely segregate railroad expenses that go to enhance safety from other expenses. Railroad operations and maintenance activities have inherent safety-critical elements. Thus, every capital expenditure is likely to have a safety component, whether for equipment, right-of-way, signal or infrastructure. SSPs can increase the safety return on any investment related to the operation and maintenance of the railroad. FRA believes a very conservative estimate of all safety-related expenditures by all passenger
Anecdotally, FRA is aware of a situation where noise walls had to be relocated after they were installed, because the walls were placed where they blocked sight lines for both motorists and train crews at a highway-rail grade crossing. If it cost $100,000 to move such a wall; if railroads avoided moving just five such walls per year or implementing other similar corrective actions, for a total savings of $500,000 per year, the rule would pay for itself. FRA believes that it is reasonable to expect far more savings in total when considering there are 30 existing passenger rail operators impacted. The impact on the effectiveness of investments by startup railroads would likely be greater than for existing railroads, as more of their expenses are for new infrastructure or other systems that can have safety designed in from the start at little or no marginal cost.
Another way to look at the benefits that might accrue from SSPs is to look at total passenger operation related accident costs. Over the time period 2001–2010, on average passenger railroads had 3,723.2 accidents per year. These accidents resulted in 207 fatalities; 3,543 other casualties; and $21.1 million in damage to railroad track and equipment. Of course, these accidents also caused damage to other property, delays on both railroads and highways, response costs and many other costs. In other analyses, FRA has found that the total societal cost of a serious accident is at least 2.33 times the fatality costs.
Again, FRA has relevant anecdotal evidence that accident reduction benefits are achievable. One railroad installed track switches near an overhead highway bridge, yet the cost of locating the switches at a safer location would have been negligible. Derailments are much more likely at switch points than at most other locations on tracks. If a train were to derail into a bridge, as happened in Eschede Germany on June 3, 1998, the results would be catastrophic, on the order of the passenger accident occurring at Chatsworth, CA, on September 12, 2008. FRA estimates that the total societal cost of the Chatsworth accident was at least $380 million. If the probability of such a severe accident were reduced by 2 percent per year, the benefit, $7.6 million per year, would pay for the proposed rule many times over. FRA believes that an SSP will identify many of these avoidable risks at no cost. Again, the impact on the potential accidents of startup railroads can be greater, because those startup railroads can build safety in from the start, using their SSPs.
FRA analyzed the percentage of the potential accident reduction benefit pools that would have to be saved in order for the proposed rule to have accident reduction benefits at least equal to costs. The results are presented in the Table 2 below, which represents the percentage improvements in investment efficiency or accident costs for existing passenger railroads that would be necessary for this proposal to break even based on the estimated costs. FRA believes that such savings are more than attainable.
Further, FRA believes that an SSP can result in cost savings as a result of avoiding casualties from other types of accidents and incidents. Some of the basic hazards and resulting risks that an SSP can assist in mitigating or eliminating include ones that may be the cause of or contribute to slips, trips and falls. The potential risks of such hazards include falling from a bridge or scaffold because the required safety equipment was not worn, or slipping, falling or stumbling due to irregular surfaces, or because of oil, grease, or other slippery substance. Included here would also be the avoidance of injuries that could be caused by not wearing or improperly using safety equipment while performing regular maintenance tasks or operating power equipment. There are also potential risks that passengers, employees and others could also be exposed to due to holes or irregular surfaces on platforms or stairs. FRA believes that railroads will mitigate or eliminate many of these hazards and resulting risks through an SSP, but the process of eliminating or mitigating these risks will require additional costs, and it is impossible at present to estimate precisely the kinds of measures that may be adopted and their costs as well as benefits. Nonetheless, FRA believes that such measures will not be undertaken unless the benefits exceed the costs and the funding is available.
In conclusion, FRA is confident that the accident reduction and cost effectiveness benefits together would justify the $2.0 million (discounted at 7%) to $3.0 million (discounted at 3%)
The Regulatory Flexibility Act of 1980 (5 U.S.C. 601
FRA estimates that the total cost for the proposed rule will be $4.1 million (undiscounted)—$2.0 million (discounted at 7 percent), or $3.0 million (discounted at 3 percent), for the railroad industry over a 20-year period. Based on information currently available, FRA estimates that 1 percent of the total railroad costs associated with implementing the proposed rule would be borne by small entities. FRA generally uses conservative assumptions in its costing of rules.
There are two railroads that would be considered small entities for purposes of this analysis, and together they comprise about 7 percent of the railroads impacted directly by this proposed regulation. Thus, a substantial number of small entities in this sector may be impacted. In order to get a better understanding of the total costs for the railroad industry (which forms the basis for the estimates in this IRFA), or more cost detail on any specific requirement, please see the Regulatory Impact Analysis (RIA) that FRA has placed in the docket for this rulemaking.
In accordance with the Regulatory Flexibility Act, an IRFA must contain:
• A description of the reasons why action by the agency is being considered.
• A succinct statement of the objectives of, and the legal basis for, the proposed rule.
• A description—and, where feasible, an estimate of the number—of small entities to which the proposed rule will apply.
• A description of the projected reporting, recordkeeping, and other compliance requirements of the proposed rule, including an estimate of the classes of small entities that will be subject to the requirement and the type of professional skills necessary for preparation of the report or record.
• Identification, to the extent practicable, of all relevant Federal rules that may duplicate, overlap, or conflict with the proposed rule.
FRA has proposed part 270 in order to comply with sections 103 and 109 of RSIA. RSIA mandates that FRA, by delegation from the Secretary, shall require each railroad that provides intercity rail passenger or commuter rail passenger transportation to establish a railroad safety risk reduction program. 49 U.S.C. 20156(a)(1). This proposed rule sets forth the requirements for a safety risk reduction program for a railroad that provides intercity rail passenger or commuter rail passenger transportation.
The purpose of this proposed rule is to improve railroad safety through structured, proactive processes and procedures developed and implemented by railroad operators. The proposed rule will require a railroad to establish a program that systematically evaluates railroad safety hazards on its system and manages those risks in order to reduce the numbers and rates of railroad accidents, incidents, injuries, and fatalities.
The proposed rule prescribes minimum Federal safety standards for the preparation, adoption, and implementation of railroad system safety programs. The proposed rule does not restrict railroads from adopting and enforcing additional or more stringent requirements not inconsistent with this part.
FRA proposes to add part 270 to title 49 of the Code of Federal Regulations. Part 270 will satisfy the RSIA requirement of a railroad safety risk reduction program for a railroad providing intercity rail passenger or commuter rail passenger service. 49 U.S.C. 20156(a)(1). It will also include protection from admission or discovery of certain information generated solely for the purpose of developing, implementing, or evaluating a system safety program under part 270, or a railroad safety risk reduction program required by FRA for Class I railroads, railroads with inadequate safety performance, or any other railroad. 49 U.S.C. 20119.
The “universe” of the entities considered in an IRFA generally includes only those small entities that can reasonably expect to be directly regulated by this proposed action. Small passenger railroads are the only types of small entities that may be affected directly by this proposed rule.
“Small entity” is defined in 5 U.S.C. 601(3) as having the same meaning as “small business concern” under section 3 of the Small Business Act. This includes any small business concern that is independently owned and operated, and is not dominant in its field of operation. Section 601(4) likewise includes within the definition of “small entities” not-for-profit enterprises that are independently owned and operated, and are not dominant in their field of operation.
The U.S. Small Business Administration (SBA) stipulates in its size standards that the largest a railroad business firm that is “for profit” may be and still be classified as a “small entity” is 1,500 employees for “Line Haul Operating Railroads” and 500 employees for “Switching and Terminal Establishments.” Additionally, 5 U.S.C. 601(5) defines as “small entities” governments of cities, counties, towns, townships, villages, school districts, or special districts with populations less than 50,000.
Federal agencies may adopt their own size standards for small entities in consultation with SBA and in conjunction with public comment. Pursuant to that authority, FRA has published a final statement of agency policy that formally establishes “small entities” or “small businesses” as being railroads, contractors, and hazardous materials shippers that meet the revenue requirements of a Class III railroad as set forth in 49 CFR 1201.1–1, which is $20 million or less in inflation-adjusted annual revenues, and commuter railroads or small governmental jurisdictions that serve populations of 50,000 or less.
Commuter and intercity passenger railroads would have to comply with all provisions of Part 270; however, the amount of effort to comply with the proposed rule is commensurate with the size of the entity.
There are two intercity passenger railroads, Amtrak and the Alaska Railroad. Neither can be considered a small entity. Amtrak is a Class I railroad and the Alaska Railroad is a Class II railroad. The Alaska Railroad is owned by the State of Alaska, which has a population well in excess of 50,000.
There are 28 commuter or other short-haul passenger railroad operations in the U.S. Most of these railroads are part of larger transit organizations that receive Federal funds and serve major metropolitan areas with populations greater than 50,000. However, two of these railroads do not fall in this category and are considered small entities: Saratoga & North Creek Railway (SNC), and the Hawkeye Express, which is operated by the Iowa Northern Railway Company (IANR). All other passenger railroad operations in the United States are part of larger governmental entities whose service jurisdictions exceed 50,000 in population.
In 2011 Hawkeye Express transported approximately 5,000 passengers per game over a 7-mile round-trip distance to and from University of Iowa (University) football games. Iowa Northern has approximately 100 employees and is primarily a freight operation totaling 184,385 freight train miles in 2010. The service is on a contractual arrangement with the University, a State of Iowa institution. (The population of Iowa City, Iowa, is approximately 69,000.) Iowa Northern owns and operates the 6 bi-level passenger cars used for this small passenger operation which runs on average 7 days over a calendar year. FRA expects that any costs imposed on the railroad by this regulation will likely be passed on to the University as part of the transportation cost, and requests comment on this assumption.
SNC began operation in the summer of 2011 and currently provides daily rail service over a 57-mile line between Saratoga Springs and North Creek, New York. The SNC, a Class III railroad, is a limited liability company, wholly owned by San Luis & Rio Grande Railroad (SLRG). SLRG is a Class III rail carrier and a subsidiary of Permian Basin Railways, Inc. (Permian), which in turn is owned by Iowa Pacific Holdings, LLC (IPH). The SNC primarily transports visitors to Saratoga Springs, tourists seeking to sightsee along the Hudson River, and travelers connecting to and from Amtrak service. The railroad operates year round, with standard coach passenger trains. Additional service activity includes seasonal ski trains, and specials such as “Thomas The Train.” This railroad operates under a five-year contract with the local government, and is restarting freight operations as well. The railroad has about 25 employees. SNC has already developed and is starting to utilize an SSP plan which follows the APTA model of SSP plan features and processes.
FRA has assisted and plans to continue to assist “new start” passenger railroads, including small business entities, in the development of their SSPs, starting at the design and planning phase through implementation. FRA will also provide guidance to those railroads so that the scope and content of their SSPs is proportionate to their size and nature of their operation.
The cost burden to the two small entities will be considerably less on average than that of the other 28 railroads. FRA estimates impacts on these two railroads could range on average between $1,375 and $3,150 per annum to comply with the regulation, depending on the existing level of compliance and discount rate (or $14,568 to $62,382 over 20 years per entity, again depending on the existing level of compliance and discount rate.)
Since one of these railroads provides service under contract to a State institution, it may be able to pass some or all of the compliance cost on to that institution. The small entity itself may not be significantly impacted. As indicated above, FRA will assist an entity like the Hawkeye Express in preparing its program and plan if it is not already preparing an SSP. FRA envisions the SSP plan of such an entity as a very concise and brief document. FRA seeks comment on these findings and conclusions.
Some passenger railroads use contractors to perform many different functions on their railroads. For some of these railroads, contractors perform safety-related functions, such as operating trains. For the purpose of assessing the impact of an SSP, contractors fall into two groups; larger contractors who perform primary operating and maintenance functions for the passenger railroads and smaller contractors who perform ancillary functions to the primary operations. Larger contractors are typically large private companies such as Herzog, or part of an international conglomerate such as Keolis or Veolia, with substantial multidisciplinary workforces, and are able to perform most all operating functions the passenger railroad requires. Smaller contractors may perform duties such as snow clearing on station platforms, brush clearing, painting stations, etc.
Safety related policy, work rules, guidelines, and regulations are imparted to the small contractors today as part of their contractual obligations and qualification to work on the passenger railroad property. FRA sees minimal additional burden to imparting the same type of information under each passenger railroad's SSP. A very small administrative burden may result.
No provisions of the proposed rule would directly require any contractors (small or large) to do anything unless they are also intercity passenger or commuter railroads.
FRA seeks comment on these findings and conclusions.
There are reporting, recordkeeping, and compliance costs associated with the proposed regulation. This NPRM proposes what almost all passenger railroads have for the most part been doing voluntarily for some time. FRA believes that the added burden due to these proposed requirements is marginal. The total 20-year cost of this proposed rulemaking is $4.1 million (undiscounted), of which FRA estimates 2.9 percent or less will be attributable to small entities. FRA estimates that the approximate total burden for small railroads for the 20-year period could range between $33,384 and $120,217, depending on discount rates and extent of costs relative to larger railroads. FRA believes this would not be a substantial burden. For a thorough presentation of cost estimates, please refer to the RIA, which has been placed in the docket for this rulemaking. FRA expects that most of the skills necessary to comply with
The following section outlines potential additional burden on small railroads for each subpart of the proposed rule:
The policy, purpose, and definitions outlined in subpart A do not impose any direct burdens on small railroads.
This subpart of the proposed rule will have a more or less proportional effect on small and large entities. This portion of the proposed rule will create approximately 36 percent of the total burden for small entities. The proposed requirements in this subpart describe what must be developed and placed in the SSP plan to properly implement the SSP. More specifically it requires the development of the risk-based hazard analysis and risk-based hazard management program, technology plans, and fatigue management plans.
This subpart of the proposed rule will create approximately 14 percent of the total burden for small entities. This activity is for the initial delivery and review of the SSP plan, as well as delivery of any ongoing amendments.
This subpart of the proposed rule will create approximately 50 percent of the total burden for small entities. This is for the ongoing cost for the small railroads to perform an internal assessment and report on internal audits on an annual basis as well as host an external audit by FRA or its designees every three years.
RSIA mandates that FRA, as delegated by Secretary, require each railroad carrier that provides intercity rail passenger or commuter rail passenger transportation develop a railroad safety risk reduction program. FRA has no discretion with respect to applicability. All but one passenger railroad currently voluntarily has such programs in place. Thus, for most of these railroads the additional burden would likely only stem from describing such procedures, processes, and programs required by the proposed regulation. FRA estimates one of these railroads would have to develop a program to comply with the proposed regulation. However, the burden for this one railroad would be mitigated because FRA specialists would provide assistance in the development of the program.
The small railroad segment of the passenger railroad industry essentially faces no intra-modal competition. The two railroads under consideration would only be competing with individual automobile traffic and serve in large part as a service offering to get drivers out of their automobiles and off congested roadways. One of the two entities provides a service at a sporting event to assist attendees to travel to the stadium from distant parking lots. The other small entity provides passenger train service to tourist and other destinations. FRA is not aware of any bus service that currently exists that competes with either of these railroads. FRA requests comments and input on current or planned future existence of any such service or competition.
The railroad industry has several significant barriers to entry, such as the need to own the right-of-way and the high capital expenditure needed to purchase a fleet, track, and equipment. As such, small railroads usually have monopolies over the small and segmented markets in which they operate. Thus, while this rule may have an economic impact on all passenger railroads, it should not have an impact on the intra-modal competitive position of small railroads.
FRA is not aware of any relevant Federal rules that may duplicate, overlap, or conflict with the proposed rule; the proposed regulation in fact supports most other safety regulations for railroad operations.
The FTA first implemented requirements similar to an SSP in 49 CFR part 659 in 1995. However, FTA's part 659 program applies only to rapid transit systems or portions thereof not subject to FRA's rules. 49 CFR 659.3 and 659.5. Therefore, the requirements of FTA's part 659 would not overlap with any of the requirements proposed in this SSP regulation. However, APTA's Manual for the Development of System Safety Program Plans for Commuter Railroads is based on FTA's part 659, so many of the elements in APTA's system safety program are based on FTA's part 659 program. FRA has always had a close working relationship with FTA and the implementation of the part 659 program and proposes to use many of the same concepts from the 659 program in this SSP rulemaking. FRA has noted where the elements in the proposed SSP rule are directly from or are based on elements from FTA's part 659.
FRA invites all interested parties to submit data and information regarding the potential economic impact on small entities that would result from the adoption of the proposals in this NPRM. FRA will consider all comments received in the public comment process when making a final determination regarding the economic impact on small entities.
Executive Order 13132, “Federalism” (64 FR 43255, Aug. 10, 1999), requires FRA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” are defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Under Executive Order 13132, the agency may not issue a regulation with federalism implications that imposes substantial direct compliance costs and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments or the agency consults with State and local government officials early in the process of developing the regulation. Where a regulation has federalism implications and preempts State law, the agency seeks to consult with State and local officials in the process of developing the regulation.
This NPRM has been analyzed in accordance with the principles and criteria contained in Executive Order 13132. FRA has determined that the proposed rule will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. In addition, FRA has determined that this proposed rule will not impose substantial direct compliance costs on State and local governments. Therefore, the consultation and funding requirements of Executive Order 13132 do not apply.
This NPRM proposes to add part 270, System Safety Program. FRA is not aware of any State having regulations similar to proposed part 270. However, FRA notes that this part could have preemptive effect by the operation of law under a provision of the former Federal Railroad Safety Act of 1970, repealed and codified at 49 U.S.C. 20106 (Sec. 20106). Sec. 20106 provides that States may not adopt or continue in effect any law, regulation, or order related to railroad safety or security that covers the subject matter of a regulation prescribed or order issued by the Secretary of Transportation (with respect to railroad safety matters) or the Secretary of Homeland Security (with respect to railroad security matters), except when the State law, regulation, or order qualifies under the “essentially local safety or security hazard” exception to Sec. 20106. In addition, as previously discussed, 49 U.S.C. 20119(b) authorizes FRA to issue a rule governing the discovery and use of risk analysis information in litigation.
In sum, FRA has analyzed this proposed rule in accordance with the principles and criteria contained in Executive Order 13132. As explained above, FRA has determined that this proposed rule has no federalism implications, other than the possible preemption of State laws under 49 U.S.C. 20106 and 20119. Accordingly, FRA has determined that preparation of a federalism summary impact statement for this proposed rule is not required.
The Trade Agreement Act of 1979 prohibits Federal agencies from engaging in any standards or related activities that create unnecessary obstacles to the foreign commerce of the United States. Legitimate domestic objectives, such as safety, are not considered unnecessary obstacles. The statute also requires consideration of international standards and where appropriate, that they be the basis for U.S. standards. This rulemaking is purely domestic in nature and is not expected to affect trade opportunities for U.S. firms doing business overseas or for foreign firms doing business in the United States.
The information collection requirements in this proposed rule have been submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501
All estimates include the time for reviewing instructions; searching existing data sources; gathering or maintaining the needed data; and reviewing the information. Pursuant to 44 U.S.C. 3506(c)(2)(B), FRA solicits comments concerning the following issues: whether these information collection requirements are necessary for the proper performance of the functions of FRA, including whether the information has practical utility; the accuracy of FRA's estimates of the burden of the information collection requirements; the quality, utility, and clarity of the information to be collected; and whether the burden of collection of information on those who are to respond, including through the use of automated collection techniques or other forms of information technology, may be minimized. For information or a copy of the paperwork package submitted to OMB, contact Mr. Robert Brogan, Information Clearance Officer, at 202–493–6292, or Ms. Kimberly Toone, Records Management Officer, at 202–493–6132.
Organizations and individuals desiring to submit comments on the collection of information requirements should direct them to Mr. Robert Brogan or Ms. Kimberly Toone, Federal Railroad Administration, 1200 New Jersey Avenue SE., 3rd Floor, Washington, DC 20590. Comments may also be submitted via email to Mr. Brogan or Ms. Toone at the following address:
OMB is required to make a decision concerning the collection of information requirements contained in this proposed rule between 30 and 60 days after publication of this document in the
FRA is not authorized to impose a penalty on persons for violating information collection requirements which do not display a current OMB control number, if required. FRA intends to obtain current OMB control numbers for any new information collection requirements resulting from this rulemaking action prior to the effective date of the final rule. The OMB control number, when assigned, will be announced by separate notice in the
FRA has evaluated this proposed rule in accordance with its “Procedures for Considering Environmental Impacts” (FRA's Procedures) (64 FR 28545, May 26, 1999) as required by the National Environmental Policy Act (42 U.S.C. 4321
In accordance with section 4(c) and (e) of FRA's Procedures, the agency has further concluded that no extraordinary circumstances exist with respect to this regulation that might trigger the need for a more detailed environmental review. As a result, FRA finds that this proposed rule is not a major Federal action significantly affecting the quality of the human environment.
Pursuant to section 201 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4, 2 U.S.C. 1531), each Federal agency “shall, unless otherwise prohibited by law, assess the effects of Federal regulatory actions on State, local, and tribal governments, and the private sector (other than to the extent that such regulations incorporate requirements specifically set forth in law).” Section 202 of the Act (2 U.S.C. 1532) further requires that “before promulgating any general notice of proposed rulemaking that is likely to result in the promulgation of any rule that includes any Federal mandate that may result in expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any 1 year, and before promulgating any final rule for which a general notice of proposed rulemaking was published, the agency shall prepare a written statement” detailing the effect on State, local, and tribal governments and the private sector. For the year 2010, this monetary amount of $100,000,000 has been adjusted to $143,100,000 to account for inflation. This proposed rule would not result in the expenditure of more than $143,100,000 by the public sector in any one year, and thus preparation of such a statement is not required.
Executive Order 13211 requires Federal agencies to prepare a Statement of Energy Effects for any “significant energy action.” 66 FR 28355, May 22, 2001. Under the Executive Order, a “significant energy action” is defined as any action by an agency (normally published in the
Interested parties should be aware that anyone is able to search the electronic form of all comments
Penalties; Railroad safety; Reporting and recordkeeping requirements; and System safety.
In consideration of the foregoing, FRA proposes to add part 270 to Chapter II, Subtitle B of Title 49, Code of Federal Regulations, to read as follows:
49 U.S.C. 20103, 20106–20107, 20118–20119, 20156, 21301, 21304, 21311; 28 U.S.C. 2461, note; and 49 CFR 1.49.
(a) The purpose of this part is to improve railroad safety through structured, proactive processes and procedures developed and implemented by railroads. This part requires certain railroads to establish a system safety program that systematically evaluates railroad safety hazards on their systems and manages those risks in order to reduce the numbers and rates of railroad accidents, incidents, injuries, and fatalities.
(b) This part prescribes minimum Federal safety standards for the preparation, adoption, and implementation of railroad system safety programs. This part does not restrict railroads from adopting and enforcing additional or more stringent requirements not inconsistent with this part.
(c) This part prescribes the protection of information generated solely for the purpose of developing, implementing, or evaluating a system safety program under this part or a railroad safety risk reduction program required by this chapter for Class I railroads and railroads with inadequate safety performance.
(a) Except as provided in paragraph (b) of this section, this part applies to all—
(1) Railroads that operate intercity or commuter passenger train service on the general railroad system of transportation; and
(2) Railroads that provide commuter or other short-haul rail passenger train service in a metropolitan or suburban area (as described by 49 U.S.C. 20102(2)), including public authorities operating passenger train service.
(b) This part does not apply to:
(1) Rapid transit operations in an urban area that are not connected to the general railroad system of transportation;
(2) Tourist, scenic, historic, or excursion operations, whether on or off the general railroad system of transportation;
(3) Operation of private cars, including business/office cars and circus trains; or
(4) Railroads that operate only on track inside an installation that is not part of the general railroad system of transportation (i.e., plant railroads, as defined in § 270.5).
As used in this part—
(1) Any form of non-highway ground transportation that runs on rails or electromagnetic guideways, including—
(i) Commuter or other short-haul rail passenger service in a metropolitan or suburban area and commuter railroad service that was operated by the Consolidated Rail Corporation on January 1, 1979; and
(ii) High speed ground transportation systems that connect metropolitan areas, without regard to whether those systems use new technologies not associated with traditional railroads, but does not include rapid transit operations in an urban area that are not connected to the general railroad system of transportation; and
(2) A person or organization that provides railroad transportation, whether directly or by contracting out operation of the railroad to another person.
(a) A person subject to a requirement of this part may petition the Administrator for a waiver of compliance with such requirement. The filing of such a petition does not affect that person's responsibility for compliance with that requirement while the petition is being considered.
(b) Each petition for a waiver under this section shall be filed in the manner and contain the information required by part 211 of this chapter.
(c) If the Administrator finds that a waiver of compliance is in the public interest and is consistent with railroad safety, the Administrator may grant the waiver subject to any conditions the Administrator deems necessary.
(a) Any person who violates any requirement of this part or causes the violation of any such requirement is subject to a civil penalty of at least $650 and not more than $25,000 per violation, except that: Penalties may be assessed against individuals only for willful violations, and, where a grossly negligent violation or a pattern of repeated violation has created an imminent hazard of death or injury to persons, or has caused death or injury, a penalty not to exceed $105,000 per violation may be assessed. Each day a violation continues shall constitute a separate offense. Any person who knowingly and willfully falsifies a record or report required by this part may be subject to criminal penalties under 49 U.S.C. 21311 (formerly codified in 45 U.S.C. 438(e)). Appendix A contains a schedule of civil penalty amounts used in connection with this part.
(b) Although the requirements of this part are stated in terms of the duty of a railroad, when any person, including a contractor or subcontractor to a railroad, performs any function covered by this part, that person (whether or not a railroad) shall perform that function in accordance with this part.
(a) Each railroad subject to this part shall establish and fully implement a system safety program that continually and systematically evaluates railroad safety hazards on its system and manages the resulting risks to reduce the number and rates of railroad accidents, incidents, injuries, and fatalities. A system safety program shall include a risk-based hazard management program and risk-based hazard analysis designed to proactively identify hazards and mitigate the resulting risks. The system safety program shall be fully implemented and supported by a written SSP plan described in § 270.103.
(b) A railroad's SSP shall be designed so that it promotes and supports a positive safety culture at the railroad.
(a)
(2) For purposes of this part, the term directly affected employees includes any non-profit employee labor organization representing a class or craft of directly affected employees of the railroad. A railroad that consults with such a non-profit employee labor organization is considered to have consulted with the directly affected employees represented by that organization.
(3) A railroad shall meet no later than (180 days after the effective date of the final rule) with its directly affected employees to discuss the consultation process. The railroad shall notify the directly affected employees of this meeting no less than 60 days before it is scheduled.
(4) Appendix B to this part contains guidance on how a railroad might comply with the requirements of this section.
(b)
(1) A detailed description of the process the railroad utilized to consult with its directly affected employees;
(2) If the railroad was not able to reach agreement with its directly affected employees on the contents of its SSP plan, identification of any known areas of non-agreement and an explanation why it believes agreement was not reached;
(3) If the SSP plan would affect a provision of a collective bargaining agreement between the railroad and a non-profit employee labor organization, identification of any such provision and an explanation how the SSP plan would affect it; and
(4) A service list containing the names and contact information for the international/national president and general chairperson of any non-profit employee labor organization representing a class or craft of the railroad's directly affected employees; any labor organization representative who participated in the consultation process; and any directly affected employee who significantly participated in the consultation process independently of a non-profit employee labor organization. When a railroad submits its SSP plan and consultation statement to FRA, it must also send a copy of these documents to all individuals identified in the service list.
(c)
(2) A railroad's directly affected employees have 60 days following the railroad's submission of a proposed SSP plan to submit the statement described in paragraph (c)(1) of this section.
(d)
(a)
(2) Each railroad subject to this part shall communicate with each railroad that hosts passenger train service for that railroad and coordinate the portions of the SSP plan applicable to the railroad hosting the passenger train service.
(b)
(1) Define the railroad's authority for establishment and implementation of the system safety program; and
(2) Be signed by the chief official at the railroad.
(c)
(1) The safety philosophy and safety culture of the railroad;
(2) The railroad's management responsibilities within the system safety program; and
(3) How host railroads, contractor operators, shared track/corridor operators, contractors who provide significant safety-related services, and any other entity or person that provides significant safety-related services as identified by the railroad pursuant to paragraph (e)(2) of this section will, as appropriate, support and participate in the railroad's system safety program.
(d)
(1) Long-term;
(2) Meaningful;
(3) Measurable; and
(4) Focused on the identification of hazards and the mitigation or elimination of the resulting risks.
(e)
(2) Each railroad shall identify the persons that provide significant safety-related services to the railroad.
(f)
(1) A chart or other visual representation of the organizational structure of the railroad;
(2) A description of how safety responsibilities are distributed within the railroad organization;
(3) Clear identification of the lines of authority used by the railroad to manage safety issues; and
(4) A description of the relationships and responsibilities between the railroad, host railroads, contract operators, shared track/corridor operators, and other entities or persons that provide significant safety-related services. The statement shall set forth the roles and responsibilities in the railroad's system safety program for each host railroad, contract operator, shared track/corridor operator, or other entity or person that provides significant safety-related services.
(g)
(1) Roles and responsibilities of each position or job function that has significant responsibility for implementing the system safety program, including those held by employees, contractors who provide significant safety-related services, and other entities or persons that provide significant safety-related services; and
(2) Milestones necessary to be reached to fully implement the program.
(h)
(2) Each description of the processes and procedures used for maintenance and repair of infrastructure and equipment directly affecting safety shall include the processes and procedures used to conduct testing and inspections of the infrastructure and equipment.
(i)
(1) Identification of the railroad's operating and safety rules and procedures that are subject to review under this chapter;
(2) Techniques used to assess the compliance of the railroad's employees with the railroad's operating and safety rules and maintenance procedures, and applicable FRA regulations; and
(3) Techniques used to assess the effectiveness of the railroad's supervision relating to the compliance with the railroad's operating and safety rules and maintenance procedures, and applicable railroad safety laws and regulations.
(j)
(2) For each position or job function identified pursuant to paragraph (g)(1) of this section, the training plan shall describe the frequency and content of the system safety program training the position receives.
(3) If a position or job function is not identified under paragraph (g)(1) of this section as having significant responsibilities to implement and support the system safety program but the position or job function is safety related or has a significant impact on safety, personnel in those positions or performing those job functions shall receive training in basic system safety concepts and the system safety implications of their position or job function.
(4) Training under this subpart may be conducted by interactive computer-based training, video conferencing, or formal classroom training.
(5) The system safety program training plan shall set forth the process used to maintain and update the necessary training records required by this part.
(6) The system safety program training plan shall set forth the process used by the railroad to ensure that it is complying with the training requirements set forth in the training plan.
(k)
(l)
(1) Processes that help ensure the safety of employees and contractors while working on or in close proximity to the railroad's property as described in paragraph (e) of this section;
(2) Processes that help ensure the employees and contractors understand the requirements established by the railroad pursuant to paragraph (g)(1) of this section; and
(3) Fitness-for-duty programs, including standards for the control of alcohol and drug use contained in part 219 of this chapter, fatigue management programs established by this part, and medical monitoring programs.
(m)
(n)
(o)
(p)
(q)
(1) The identity of the individual(s) responsible for administering the risk-based hazard management program;
(2) The identities of stakeholders who will participate in the risk-based hazard management program;
(3) The structure and participants in any hazard management teams or safety committees that a railroad may establish to support the risk-based hazard management program;
(4) The process for setting goals for the risk-based hazard management program and how performance against the goals will be reported;
(5) The processes used in the risk-based hazard analysis to identify hazards on the railroad's system;
(6) The processes or procedures that will be used in the risk-based hazard analysis to analyze hazards and support the risk-based hazard management program;
(7) The methods used in the risk-based hazard analysis to determine the severity and frequency of hazards and to calculate the resulting risk;
(8) The methods used in the risk-based hazard analysis to identify actions that mitigate or eliminate hazards and corresponding risks.
(9) How decisions affecting safety of the rail system will be made relative to the risk-based hazard management program;
(10) The methods used in the risk-based hazard management program to support continuous safety improvement throughout the life of the rail system.
(11) The method used to maintain records of identified hazards and risks and mitigations throughout the life of the rail system.
(r)
(2) A risk-based hazard analysis shall identify and implement specific actions using the methods described in paragraph (q)(8) of this section that will mitigate or eliminate the hazards and resulting risks identified by paragraph (r)(1) of this section.
(3) A railroad shall also conduct a risk-based hazard analysis pursuant to paragraphs (r)(1) and (2) of this section when there are significant operational changes, system extensions, system modifications, or other circumstances that have a direct impact on railroad safety.
(s)
(2) A railroad shall establish a technology implementation plan as part of its SSP plan that contains the results of the technology analysis conducted pursuant to paragraph (s)(1) of this section. If a railroad decides to implement any of the technologies identified in the technology analysis based on the technology's safety impact, feasibility, or costs and benefits, the technology implementation plan shall describe the railroad's plan and a prioritized implementation schedule for the development, adoption, implementation and maintenance of those technologies over a 10-year period.
(3) Except as required by subpart I of part 236 of this chapter, if a railroad decides to implement positive train control systems as part of its technology implementation plan, the railroad shall set forth and comply with a schedule for implementation of the positive train control system no later than December 31, 2018.
(t)
(u)
(2)
(i) State who within the railroad has authority to make configuration changes;
(ii) Establish processes to make configuration changes to the railroad's system; and
(iii) Establish processes to ensure that all departments of the railroad affected by the configuration changes are formally notified and approve of the change.
(3)
(v)
(a) Any information (including plans, reports, documents, surveys, schedules, lists, or data) compiled or collected solely for the purpose of developing, implementing, or evaluating a system safety program under this part, including a railroad carrier's analysis of its safety risks conducted pursuant to § 270.103(r)(1) and its statement of the mitigation measures with which it would address those risks created pursuant to § 270.103(r)(2), shall not be subject to discovery, admitted into evidence, or considered for other purposes in a Federal or State court proceedings for damages involving personal injury, wrongful death, or property damage.
(b) This section does not affect the discovery, admissibility, or consideration for other purposes of information (including plans, reports, documents, surveys, schedules, lists, or data) compiled or collected for a purpose other than that specifically identified in paragraph (a) of this section. Such information shall continue to be discoverable and admissible into evidence if it was discoverable and admissible prior to the existence of this section. This includes such information that either:
(1) Existed prior to (365 days from the publication of the final rule);
(2) Existed prior to (365 days from the publication of the final rule) and that continues to be compiled or collected; or
(3) Is compiled or collected after (365 days from the publication of the final rule).
(c) State discovery rules and sunshine laws that could be used to require the disclosure of information protected by paragraph (a) of this section are preempted.
(d) Paragraphs (a) through (c) of this section shall apply to any railroad safety risk reduction programs required by this chapter for Class I railroads, railroads with inadequate safety performance, or any other railroad.
(a)
(2) The railroad shall not include in its SSP plan the risk-based hazard analysis conducted pursuant to § 270.103(r). The railroad shall make the results of any risk-based hazard analysis available upon request to representatives of FRA and States participating under part 212 of this chapter.
(3) The SSP plan shall include the signature, name, title, address, and telephone number of the chief safety officer who bears primary managerial authority for implementing the program for the submitting railroad. The system safety plan shall also include the name and contact information for:
(i) The primary person responsible for managing the system safety program, and
(ii) The senior representatives of host railroads, contract operators, shared track/corridor operators, and others who provide significant safety-related services.
(4) As required by § 270.102(b), each railroad must submit with its SSP plan a consultation statement describing how it consulted with its directly affected employees on the contents of its system safety program. Directly affected employees may also file a statement in accordance with § 270.102(c).
(5) The chief official responsible for safety and who bears primary managerial authority for implementing the program for the submitting railroad shall certify that the contents of the SSP plan are accurate and that the railroad
(b)
(2) FRA will notify the primary contact person of each affected railroad in writing whether the proposed plan has been approved by FRA, and if not approved, the specific points in which the plan is deficient. FRA will also provide this notification to each individual identified in the service list accompanying the consultation statement required under § 270.102(b).
(3) If a proposed system safety plan is not approved by FRA, the affected railroad shall amend the proposed plan to correct all deficiencies identified by FRA and provide FRA with a corrected copy of the SSP plan not later than 60 days following receipt of FRA's written notice that the proposed SSP plan was not approved.
(c)
(ii) If the amendment(s) is safety-critical and the railroad is unable to submit the amended SSP plan to FRA 60 days prior to the proposed effective date of the amendment(s), the railroad shall submit the amended SSP plan to FRA as soon as possible thereafter.
(2)(i) FRA will review the proposed amended SSP plan within 45 days of receipt. FRA will then notify the primary contact person of each affected railroad whether the proposed amended plan has been approved by FRA, and if not approved, the specific points in which the proposed amendment(s) to the SSP plan is deficient.
(ii) If FRA has not notified the railroad by the proposed effective date of the amendment(s) whether the proposed amended plan has been approved or not, the railroad may implement the amendment(s), subject to FRA's decision.
(iii) If a proposed SSP amendment is not approved by FRA, the affected railroad shall correct all deficiencies identified by FRA. The railroad shall provide FRA with a corrected copy of the amended SSP plan no later than 60 days following receipt of FRA's written notice that the proposed amendment was not approved.
(d)
Each railroad to which this part applies shall retain at its system headquarters and at any division headquarters, one copy of the SSP plan required by this part and one copy of each subsequent amendment to that plan. These records shall be made available to representatives of FRA and States participating under part 212 of this chapter for inspection and copying during normal business hours.
The system safety program and its implementation shall be assessed internally by the railroad and audited externally by the FRA or FRA's designee.
(a) Following FRA's initial approval of the railroad's SSP plan pursuant to § 270.201, the railroad shall annually conduct an assessment of the extent to which:
(1) The system safety program is fully implemented;
(2) The railroad is in compliance with the implemented elements of the approved system safety program; and
(3) The railroad has achieved the goals set forth in § 270.103(d).
(b) As part of its system safety plan, the railroad shall set forth a statement describing the processes used to:
(1) Conduct internal system safety program assessments;
(2) Internally report the findings of the internal system safety program assessments;
(3) Develop, track, and review recommendations as a result of the internal system safety program assessment;
(4) Develop improvement plans based on the internal system safety program assessments. Improvement plans shall, at a minimum, identify who is responsible for carrying out the necessary tasks to address assessment findings and specify a schedule of target dates with milestones to implement the improvements that address the assessment findings;
(5) Manage revisions and updates to the SSP plan based on the internal system safety program assessments; and
(6) Comply with the reporting requirements set forth in § 270.201.
(c)(1) Within 60 days of completing its internal SSP plan assessment pursuant to paragraph (a) of this section, the railroad shall:
(i) Submit to FRA a copy of the railroad's internal assessment report that includes a system safety program assessment and the status of internal assessment findings and improvement plans; and
(ii) Outline the specific improvement plans for achieving full implementation of the SSP plan, as well as achieving the goals of the plan.
(2) The railroad's chief official responsible for safety shall certify the results of the railroad's internal SSP plan assessment.
(a) FRA may conduct, or cause to be conducted, external audits of a railroad's system safety program. Each audit will evaluate the railroad's compliance with the elements required by this part in the railroad's approved SSP plan. FRA shall provide the railroad written notification of the results of any audit.
(b)(1) Within 60 days of FRA's written notification of the results of the audit, the railroad shall submit to FRA for approval, if necessary, improvement plans to address all audit findings. Improvement plans submitted shall, at a minimum, identify who is responsible for carrying out the necessary tasks to address audit findings and specify target dates and milestones to implement the improvements that address the audit findings.
(2) If FRA does not approve the railroad's improvement plan, FRA will notify the railroad of the specific deficiencies in the improvement plan. The affected railroad shall amend the proposed plan to correct the deficiencies identified by FRA and provide FRA with a corrected copy of the improvement plan no later than 30 days following receipt of FRA's written notice that the proposed plan was not approved.
(3) Upon request, the railroad shall provide to FRA and States participating under part 212 of this chapter for review
A railroad required to develop a system safety program under this part must in good faith consult with and use its best efforts to reach agreement with its directly affected employees on the contents of the SSP plan.
“Good faith” and “best efforts” are not interchangeable terms representing a vague standard for the § 270.102 consultation process. Rather, each term has a specific and distinct meaning. When consulting with directly affected employees, therefore, a railroad must independently meet the standards for both the good faith and best efforts obligations. A railroad that does not meet the standard for one or the other will not be in compliance with the consultation requirements of § 270.102.
The good faith obligation requires a railroad to consult with employees in a manner that is honest, fair, and reasonable, and to genuinely pursue agreement on the contents of an SSP plan. If a railroad consults with its employees merely in a perfunctory manner, without genuinely pursuing agreement, it will not have met the good faith requirement. A railroad may also fail to meet its good faith obligation if it merely attempts to use the SSP plan to unilaterally modify a provision of a collective bargaining agreement between the railroad and a non-profit employee labor organization.
On the other hand, “best efforts” establishes a higher standard than that imposed by the good faith obligation, and describes the diligent attempts that a railroad must pursue to reach agreement with its employees on the contents of its system safety program. While the good faith obligation is concerned with the railroad's state of mind during the consultation process, the best efforts obligation is concerned with the specific efforts made by the railroad in an attempt to reach agreement. This would include considerations such as whether a railroad had held sufficient meetings with its employees, or whether the railroad had made an effort to respond to feedback provided by employees during the consultation process. For example, a railroad would not meet the best efforts obligation if it did not initiate the consultation process in a timely manner, and thereby failed to provide employees sufficient time to engage in the consultation process. A railroad may, however, wish to hold off substantive consultations regarding the contents of its SSP until one year after the effective date of the rule in order to ensure that information generated as part of the process is protected from discovery and admissibility into evidence under § 270.105 of the rule. Generally, best efforts are measured by the measures that a reasonable person in the same circumstances and of the same nature as the acting party would take. Therefore, the standard imposed by the best efforts obligation may vary with different railroads, depending on a railroad's size, resources, and number of employees.
When reviewing SSP plans, FRA will determine on a case-by-case basis whether a railroad has met its § 270.102 good faith and best efforts obligations. This determination will be based upon the consultation statement submitted by the railroad pursuant to § 270.102(b) and any statements submitted by employees pursuant to § 270.102(c). If FRA finds that these statements do not provide sufficient information to determine whether a railroad used good faith and best efforts to reach agreement, FRA may investigate further and contact the railroad or its employees to request additional information. If FRA determines that a railroad did not use good faith and best efforts, FRA may disapprove the SSP plan submitted by the railroad and direct the railroad to comply with the consultation requirements of § 270.102. Pursuant to § 270.201(b)(3), if FRA does not approve the SSP plan, the railroad will have 60 days, following receipt of FRA's written notice that the plan was not approved, to correct any deficiency identified. In such cases, the identified deficiency would be that the railroad did not use good faith and best efforts to consult and reach agreement with its directly affected employees. If a railroad then does not submit to FRA within 60 days a SSP plan meeting the consultation requirements of § 270.102, the railroad could be subject to penalties for failure to comply with § 270.201(b)(3).
Because the standard imposed by the best efforts obligation will vary depending upon the railroad, there may be countless ways for various railroads to comply with the consultation requirements of § 270.102. Therefore, FRA believes it is important to maintain a flexible approach to the § 270.102 consultation requirements, in order to give a railroad and its directly affected employees the freedom to consult in a manner best suited to their specific circumstances.
FRA is nevertheless providing guidance in this appendix as to how a railroad may proceed when consulting (utilizing good faith and best efforts) with employees in an attempt to reach agreement on the contents of an SSP plan. FRA believes this guidance may be useful as a starting point for railroads that are uncertain about how to comply with the § 270.102 consultation requirements. This guidance distinguishes between employees who are represented by a non-profit employee labor organization and employees who are not, as the processes a railroad may use to consult with represented and non-represented employees could differ significantly.
This guidance does not establish prescriptive requirements with which a railroad must comply, but merely outlines a consultation process a railroad may choose to follow. A railroad's consultation statement could indicate that the railroad followed the guidance in this appendix as evidence that it utilized good faith and best efforts to reach agreement with its employees on the contents of a SSP plan.
As provided in § 270.102(a)(2), a railroad consulting with the representatives of a non-profit employee labor organization on the contents of a SSP plan will be considered to have consulted with the directly affected employees represented by that organization.
A railroad could utilize the following process as a roadmap for using good faith and best efforts when consulting with represented employees in an attempt to reach agreement on the contents of an SSP plan.
• Pursuant to § 270.102(a)(3), a railroad must meet with representatives from a non-profit employee labor organization (representing a class or craft of the railroad's directly affected employees) within 180 days of the effective date of the final rule to begin the process of consulting on the contents of the railroad's SSP plan. A railroad must provide notice at least 60 days before the scheduled meeting.
• During the time between the initial meeting and the applicability date of § 270.105 the parties may meet to discuss administrative details of the consultation process as necessary.
• Within 60 after the applicability date of § 270.105 a railroad should have a meeting with the directed affected employees to discuss substantive issues with the SSP.
• Within 90 days after the applicability date of § 270.105, a railroad would file its SSP plan with FRA.
• As provided by § 270.102(c), if agreement on the contents of a SSP plan could not be reached, a labor organization (representing a class or craft of the railroad's directly affected employees) could file a statement with the FRA Associate Administrator for Railroad Safety/Chief Safety Officer explaining its views on the plan on which agreement was not reached.
FRA recognizes that some (or all) of a railroad's directly affected employees may not be represented by a non-profit employee labor organization. For such non-represented employees, the consultation process described for represented employees may not be appropriate or sufficient. For example, FRA believes that a railroad with non-represented employees must make a concerted effort to ensure that its non-
• Within 60 days of the effective date of the final rule, a railroad should notify non-represented employees that—
(1) The railroad is required to consult in good faith with, and use its best efforts to reach agreement with, all directly affected employees on the proposed contents of its SSP plan;
(2) Non-represented employees are invited to participate in the consultation process (and include instructions on how to engage in this process); and
(3) If a railroad is unable to reach agreement with its directly affected employees on the contents of the proposed SSP plan, an employee may file a statement with the FRA Associate Administrator for Railroad Safety/Chief Safety Officer explaining his or her views on the plan on which agreement was not reached.
• This initial notification (and all subsequent communications, as necessary or appropriate) could be provided to non-represented employees in the following ways:
(1) Electronically, such as by email or an announcement on the railroad's Web site;
(2) By posting the notification in a location easily accessible and visible to non- represented employees; or
(3) By providing all non-represented employees a hard copy of the notification. A railroad could use any or all of these methods of communication, so long as the notification complies with the railroad's obligation to utilize best efforts in the consultation process.
• Following the initial notification (and before the railroad submits its SSP plan to FRA), a railroad should provide non-represented employees a draft proposal of its SSP plan. This draft proposal should solicit additional input from non-represented employees, and the railroad should provide non-represented employees 60 days to submit comments to the railroad on the draft.
• Following this 60-day comment period and any changes to the draft SSP plan made as a result, the railroad should submit the proposed SSP plan to FRA, as required by this part.
• As provided by § 270.102(c), if agreement on the contents of an SSP plan cannot be reached, then a non-represented employee may file a statement with the FRA Associate Administrator for Railroad Safety/Chief Safety Officer explaining his or her views on the plan on which agreement was not reached.