[Federal Register Volume 79, Number 123 (Thursday, June 26, 2014)]
[Rules and Regulations]
[Pages 36196-36198]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-14885]


=======================================================================
-----------------------------------------------------------------------

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 710

RIN 3133-AE30


Voluntary Liquidation

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The NCUA Board (Board) is issuing a final rule to amend its 
voluntary liquidation regulation to reduce administrative burdens on 
voluntarily liquidating federal credit unions (FCUs) and recognize 
technological advances by: Permitting liquidating FCUs to publish 
required creditor notices in either electronic media or newspapers of 
general circulation; increasing the asset-size threshold for requiring 
multiple creditor notices; requiring that preliminary partial 
distributions to members not exceed the National Credit Union Share 
Insurance Fund (NCUSIF) insurance limit for any member share account; 
specifying when liquidating FCUs must determine member share balances 
for the purposes of distributions; and permitting liquidating FCUs to 
distribute member share payouts either by wire or other electronic 
means or by mail or personal delivery.

DATES: This rule is effective July 28, 2014.

FOR FURTHER INFORMATION CONTACT: Damon Frank and Ian Marenna, Trial 
Attorneys, Office of General Counsel, National Credit Union 
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428 or 
telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION: 

I. Background
II. Summary of Public Comments
III. Final Rule
IV. Regulatory Procedures

I. Background

What changes does this final rule make?

    This final rule amends NCUA's regulation on voluntary liquidations 
by FCUs. The changes modernize the rule and afford greater procedural 
flexibility to voluntarily liquidating FCUs. The final rule adopts the 
proposed changes in the proposed rule on voluntary liquidations issued 
by the Board in February 2014.\1\ Specifically, the final rule raises 
the asset-size thresholds that determine the frequency of required 
creditor notice publication. Further, it allows FCUs to use electronic 
media to meet the publication requirement while also enabling FCUs to 
issue share payouts to members by electronic payment methods. Also, the 
final rule clarifies the existing calculation of pro rata distributions 
to members. Finally, it requires that preliminary pro rata 
distributions to members, which voluntarily liquidating FCUs may issue 
pending the final payout, be limited to the NCUSIF insured amount 
applicable to any given account or accounts. This change does not limit 
the amount of the final distribution in any manner, provided the FCU 
does not enter involuntary liquidation because of insolvency.
---------------------------------------------------------------------------

    \1\ 79 FR 11714 (March 3, 2014).
---------------------------------------------------------------------------

II. Summary of Public Comments

    The public comment period for the proposed rule ended on May 2, 
2014. NCUA received five comment letters. Three of the comments were 
from credit union trade associations, one was sent on behalf of two 
credit union leagues, and one was from an FCU. All five letters 
expressly supported the proposed rule in general. Two comment letters 
from trade associations, however, suggested three identical changes to 
the proposed rule.
    First, these two commenters requested that the final rule require 
NCUA staff to work with credit unions considering liquidation to find 
ways to continue operations or merge with another credit union to 
ensure ongoing member access to credit union services.
    Second, both disagreed with the proposal to raise asset-size 
thresholds that determine whether and how many creditor notices must be 
published by a

[[Page 36197]]

voluntarily liquidating FCU. These commenters stated that liquidation 
is a drastic step and that credit unions considering this option should 
be required to follow all notice and other requirements.
    Third, both requested that the final rule adopt provisions similar 
to the FDIC's liquidation rules to provide members up to $250,000 from 
their accounts and issue a claim against the estate of the closed 
credit union. The commenters stated that it would be inappropriate to 
treat credit union members less favorably than bank customers in a 
liquidation context.
    The Board generally agrees with the rationale the commenters 
offered to support their proposed changes to the rule. As explained in 
detail below, however, the Board believes that the proposed rule and 
the way NCUA administers part 710 in practice already is consistent 
with the commenters' suggested amendments. Therefore, the Board does 
not believe it is necessary to amend the proposed rule to address the 
commenters' concerns.

III. Final Rule

A. Section 710.5(a)(1)

    The final rule will allow voluntarily liquidating FCUs to publish 
any required creditor notice(s) in electronic media. FCUs may continue 
to publish in newspapers of general circulation, as provided by the 
current rule.
    The final rule also increases the asset-size threshold for 
requiring multiple creditor notices from FCUs with assets equal to or 
greater than $5 million to FCUs with assets equal to or greater than 
$50 million, which is NCUA's threshold for defining small credit 
unions. Two commenters did not support these adjustments because they 
believe that credit unions of all sizes should be required to follow 
all notice and other requirements to conduct a voluntary liquidation. 
The Board agrees that liquidation is, as the commenters stated, ``an 
exceptional event'' and one that an FCU should undertake only after 
careful consideration of any alternatives that would provide continuing 
credit union services to its members. NCUA's Voluntary Liquidation 
Manual, which was issued in 1994 to provide detailed procedural 
guidance for this process, expresses the same position. The Board does 
not believe, however, that raising the asset-size thresholds from their 
1993 levels will encourage more voluntary liquidations, disadvantage 
members, or diminish NCUA's oversight of the process.
    The proposed and final rules only affect the asset-size thresholds 
that govern how a voluntarily liquidating FCU must notify its potential 
creditors. Notably, the notice and procedural requirements of part 710, 
including the member vote and notification of the NCUA Regional 
Director, are unchanged.\2\ Likewise, federally insured, state-
chartered credit unions are still required to notify the Regional 
Director of a decision to liquidate, though the remainder of the 
requirements in part 710 apply solely to FCUs.\3\ The final rule does 
not change the requirement that a voluntarily liquidating FCU of any 
size must notify its creditors of the liquidation.\4\ It simply updates 
the asset-size thresholds that determine whether and how frequently the 
notice must be published to reach a broader audience of potential 
creditors.
---------------------------------------------------------------------------

    \2\ 12 CFR 710.2, 710.3.
    \3\ 12 CFR 710.9.
    \4\ 12 CFR 710.5(a).
---------------------------------------------------------------------------

B. Section 710.5(a)(2)

    The amendment to this provision increases the asset-size threshold 
applicable to publication requirements. FCUs with assets equal to or 
greater than $1 million but less than $50 million will be required to 
publish just one notice. As stated in the proposed rule, the final rule 
retains the tiered system for determining publication requirements, 
consistent with inflation since 1993, growth in credit union assets, 
and NCUA's definition of small credit unions. The Board adopts these 
amendments without change for the reasons discussed above.

C. Section 710.5(a)(3)

    This amendment also increases asset-size thresholds applicable to 
the publication requirement. FCUs with assets under $1 million are 
exempted from the publication requirement but still must notify 
creditors, as required by the existing rule. The Board adopts this 
change from the proposed rule for the reasons discussed above.

D. Section 710.6(a)

    The final rule also makes a minor change to the optional, partial 
pro rata distribution process. The current rule permits voluntarily 
liquidating FCUs to make a partial pro rata distribution of assets to 
members before the liquidation is completed. The Regional Director must 
approve the distribution.\5\ The proposed rule limited these 
preliminary distributions to the insured amount available in any 
account. The purpose of this limitation is to protect the NCUSIF in 
case the liquidating FCU becomes insolvent during the process. In that 
event, NCUA would be required to place the FCU into involuntary 
liquidation and apply the liquidation payout priorities and share 
insurance requirements in parts 709 and 745. Any payments of uninsured 
shares before the completion of the voluntary liquidation might 
complicate or disrupt the priorities that apply in an involuntary 
liquidation, which could result in additional cost to the NCUSIF in the 
unusual case in which the FCU becomes insolvent.
---------------------------------------------------------------------------

    \5\ 12 CFR 710.6(a).
---------------------------------------------------------------------------

    The final rule also adds a minor clarification to the proposed 
rule. The proposed rule limited preliminary share distributions to the 
insured amount available in any account. The final rule clarifies that 
multiple accounts held by the same member or members may sometimes be 
aggregated to determine share insurance per part 745 of NCUA's 
regulations. This clarification does not change the current rule for 
calculating share insurance and is intended to reflect more accurately 
how NCUA currently applies share insurance to multiple accounts under 
part 745.
    Two commenters disagreed with the proposed change to this provision 
and requested that NCUA implement a process comparable to the FDIC's 
liquidation process. According to the commenters, in a liquidation, the 
FDIC pays insured amounts up to $250,000 and then provides claims 
against the estate of the closed bank to the depositors for any amounts 
above the insured limit. The commenters stated that credit union 
members should not be treated less favorably than bank customers.
    The Board agrees that credit union members should not be 
disadvantaged and believes that this amendment to the rule does not 
harm their interests in any way. If the voluntarily liquidating FCU 
remains solvent throughout the process, its members receive their full 
account balances, along with any available liquidating dividend. If the 
FCU becomes insolvent, NCUA would place it into involuntary liquidation 
under Section 207(a) of the Federal Credit Union Act and apply the 
payout priorities and procedures in part 709 of NCUA's regulations. 
During this process, members would receive their insured balances and a 
certificate of claim in liquidation for any uninsured balances to allow 
them to share in the proceeds of the involuntary liquidation.\6\ This 
treatment of uninsured balances is the same as the FDIC liquidation 
process that the commenters describe. Whether the FCU

[[Page 36198]]

remains solvent during a voluntary liquidation or not, its members are 
not disadvantaged when compared to bank customers.
---------------------------------------------------------------------------

    \6\ 12 CFR 745.201(b).
---------------------------------------------------------------------------

E. Section 710.6(b)

    The final rule provides greater specificity for the calculation of 
pro rata distributions to members. For purposes of this calculation, a 
voluntarily liquidating FCU will use the date that members approve 
liquidation to compute share balances, subject to adjustment for any 
share drafts that clear after the liquidation date.

F. Section 710.6(c)

    The final rule also allows voluntarily liquidating FCUs to 
distribute member payouts by wire or other means, if approved by the 
member, in addition to the existing option of issuing a check.

IV. Regulatory Procedures

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a regulation may have on a 
substantial number of small entities.\7\ For purposes of this analysis, 
NCUA considers small credit unions to be those having under $50 million 
in assets.\8\ This final rule has no significant economic impact on 
FCUs as going concerns because it solely addresses procedures for 
voluntary liquidation. Also, the final rule increases certain dollar 
thresholds and affords greater flexibility to all FCUs engaging in 
voluntary liquidation. Additionally, the number of FCUs engaging in 
voluntary liquidations is very low. Accordingly, NCUA has determined 
that this rule will not have a significant economic impact on a 
substantial number of small credit unions.
---------------------------------------------------------------------------

    \7\ 5 U.S.C. 603(a).
    \8\ Interpretive Ruling and Policy Statement 03-2, 68 FR 31949 
(May 29, 2003), as amended by Interpretive Ruling and Policy 
Statement 13-1, 78 FR 4032 (Jan. 18, 2013).
---------------------------------------------------------------------------

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency by rule creates a new paperwork burden on regulated 
entities or modifies an existing burden.\9\ For purposes of the PRA, a 
paperwork burden may take the form of either a reporting or a 
recordkeeping requirement, both referred to as information collections. 
This final rule does not impose or expand upon any existing reporting 
or recordkeeping requirements. This final rule will not create new 
paperwork burdens or modify any existing paperwork burdens.
---------------------------------------------------------------------------

    \9\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

C. Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. This final rule applies almost exclusively to 
FCUs and will not have a substantial direct effect on the states, on 
the connection between the national government and the states, or on 
the distribution of power and responsibilities among the various levels 
of government. NCUA has determined that this final rule does not 
constitute a policy that has federalism implications for purposes of 
the executive order.

D. Assessment of Federal Regulations and Policies on Families

    NCUA has determined that this rule will not affect family well-
being within the meaning of Section 654 of the Treasury and General 
Government Appropriations Act, 1999.\10\
---------------------------------------------------------------------------

    \10\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------

List of Subjects in 12 CFR Part 710

    Credit union, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on June 19, 
2014.
Gerard Poliquin,
Secretary of the Board.

    For the reasons discussed above, NCUA amends 12 CFR Part 710 as 
follows:

PART 710--VOLUNTARY LIQUIDATION

0
1. The authority citation for part 710 continues to read as follows:

    Authority:  12 U.S.C. 1766(a), 1786, and 1787.


0
2. In Sec.  710.5, revise paragraphs (a)(1) and (2) and in paragraph 
(a)(3) remove ``$500,000'' and add in its place ``$1 million''.
    The revisions read as follows:


Sec.  710.5  Notice of liquidation to creditors.

    (a) * * *
    (1) Federal credit unions with assets equal to or greater than $50 
million as of the month end prior to the liquidation date shall publish 
the notice once a week in each of three successive weeks, in a 
newspaper of general circulation in each county in which the Federal 
credit union maintains an office or branch for the transaction of 
business on the liquidation date, or through any alternative 
publication through an electronic medium that is reasonably calculated 
to reach the general public in the relevant area or areas. The first 
notice shall be published within seven days of the liquidation date.
    (2) Federal credit unions with assets equal to or greater than $1 
million but less than $50 million as of the month end prior to the 
liquidation date shall publish the notice described in paragraph (a)(1) 
of this section at least once. The notice shall be published within 
seven days of the liquidation date.
* * * * *

0
3. In Sec.  710.6, revise paragraphs (a), (b), and (c) to read as 
follows:


Sec.  710.6  Distribution of assets.

    (a) With the approval of the Regional Director, a partial pro rata 
distribution of the Federal credit union's assets may be made to its 
members from cash funds available on authorization by the board of 
directors or liquidating agent. Payment of a partial distribution may 
exclude member accounts of less than $25.00 and must not exceed the 
insured amount applicable to any account or accounts, as determined 
under part 745 of this chapter.
    (b) After all assets of the Federal credit union have been 
converted to cash or found to be worthless and all loans and debts 
owing to it have been collected or found to be uncollectible and all 
obligations of the Federal credit union have been paid, with the 
exception of shares due its members, the books shall be closed and the 
pro rata distribution to the members shall be computed. The computation 
shall be based on the total amount in each share account as of the 
liquidation date or the date on which all share drafts have cleared, 
whichever is later.
    (c) Payments must be made to members promptly after the pro rata 
distribution has been computed. The Federal credit union may mail a 
check to a member at his or her last known address, deliver the check 
personally to the member, or make the payment by wire or any other 
electronic means approved by a member.
* * * * *
[FR Doc. 2014-14885 Filed 6-25-14; 8:45 am]
BILLING CODE 7535-01-P