[Federal Register Volume 78, Number 247 (Tuesday, December 24, 2013)]
[Proposed Rules]
[Pages 77608-77611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-30560]



12 CFR Part 701

RIN 3133-AE34

Requirements for Contacts with Federal Credit Unions

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.


SUMMARY: The NCUA Board (Board) proposes to amend part 701 of its 
regulations to require examinations and other contacts between NCUA 
staff and staff or officials of a federal credit union (FCU) occur in 
an FCU's business offices or other public location. This does not 
include a private residence. The proposal also would require affected 
FCUs to bring to the meeting site any records or materials NCUA staff 
requests, and to maintain at least one method for members and NCUA 
staff to contact the credit union. These requirements would apply upon 
the effective date of a final rule. Additionally, the proposal would 
require all FCUs to obtain and maintain a business office, not located 
on the premises of a private residence address, no later than two years 
following the effective date of a final rule.

DATES: Comments must be received on or before January 23, 2014.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web site: http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx. Follow the instructions for submitting comments.
     Email: Address to [email protected]. Include ``[Your 
name]--Comments on Notice of Proposed Rulemaking for Part 701'' in the 
email subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Gerard Poliquin, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Public Inspection: You may view all public comments, as submitted, 
on NCUA's Web site at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx, except those we cannot post for technical reasons. NCUA 
will not edit or remove identifying or contact information from the 
public comments submitted. You may inspect paper copies of comments in 
NCUA's law library at 1775 Duke Street, Alexandria, Virginia 22314, by 
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, 
call (703) 518-6546 or send an email to [email protected].

FOR FURTHER INFORMATION CONTACT: Elizabeth Wirick, Staff Attorney, 
Office of General Counsel, at the above address or by telephone: (703) 


I. Background
II. Summary of the Proposed Rule
III. Regulatory Procedures

I. Background

1. NCUA Authority to Regulate Settings of FCU Examinations and Other 
On-Site Contacts, Require Production of Records, and Regulate Operating 
Conditions of FCUs

    The Federal Credit Union Act (Act) requires FCUs to ``make 
financial reports to it [the NCUA Board] as and when it may require'' 
and requires FCUs to make ``books and records accessible to'' NCUA for 
examination purposes.\1\ Likewise, federally insured, state-chartered 
credit unions must make ``reports of condition . . . in such form . . . 
as the Board may require.\2\ Under this authority, the Board requires 
all insured credit unions to file quarterly call reports.\3\

    \1\ 12 U.S.C. 1756.
    \2\ Id. 1782(a)(1).
    \3\ 12 CFR 741.6.

    The Act also requires and authorizes the Board to appoint examiners 
to examine any insured credit union to determine the credit union's 
condition.\4\ NCUA examiners often review and verify the information 
credit unions submit in their call reports through on-site 
examinations. Specialized NCUA staff, such as problem case officers, 
also visit credit unions to address issues identified in the 
examination process.

    \4\ 12 U.S.C. 1784.

    In addition to the Board's statutory responsibilities to obtain 
financial reports and conduct examinations of insured credit unions, 
the Act gives the Board general authority to adopt regulations related 
to the oversight of FCUs. Taken together, these powers give the Board 
the authority to specify the location and other conditions of 
examinations and other on-site contacts with FCUs, as well as to 
require FCUs to conduct business in a commercial setting rather than in 
a home.

2. NCUA Authority To Direct Conditions of Work for NCUA Employees

    The Act grants the Board authority to ``direct employees of the 
Board'' \5\ and ``define their duties.'' \6\ Most of NCUA's 1,260 
employees are credit union examiners who work on-site at credit union 
locations, performing examinations and other types of reviews. By 
requiring that all examinations and other on-site contacts between NCUA 
staff and FCU officials occur in business offices or other public 
locations, the proposal ensures that examinations and other FCU 
contacts occur in a professional and safe setting.

    \5\ Id. 1766(j)(1).
    \6\ Id. 1789(a)(4).

3. Home-Based Credit Unions

    In the early days of credit union organizing, it was common for a 
credit union to operate out of the home of one of its officials. As 
credit unions grew, however, most added offices either at a sponsor's 
location or in another commercial setting. NCUA has identified 
approximately 95 remaining home-based, federally insured credit unions. 
These are credit unions operated out of a home or on the premises of a 
home address, such as in a garage, sunroom, or basement apartment. 
Eighty-one of these are FCUs, with assets ranging from $34,000 to 
$12,000,000. Most of these FCUs are very small; 34 have assets below 
$1,000,000 and 38 have assets between $1,000,000 and $5,000,000.\7\

    \7\ The 14 federally insured, state-chartered, home-based credit 
unions have assets ranging from $115,000 to nearly $11,000,000. The 
state-chartered, home-based credit unions are located in nine states 
as follows: Kansas has five, Utah has two, and Alabama, Illinois, 
Minnesota, Nebraska, Ohio, Pennsylvania, and Vermont each have one.

    More recently, NCUA has encouraged examiners and other staff to 
arrange meetings with officials of home-based FCUs in public places, 
such as libraries or hotel conference rooms. NCUA did not, however, 
prohibit staff from meeting with an FCU official at a private

[[Page 77609]]

home if the official was reluctant to come to another location.
    When an on-site contact occurs at the home of an FCU official, NCUA 
has no way of ensuring the environment is safe for its employees or 
conducive to working efficiently and securely. NCUA staff who have 
conducted on-site contacts in homes have recently raised concerns about 
the conditions they sometimes face. These concerns include: aggressive 
animals; lack of proper seating, lighting, and rest room access; 
interruptions from other residents of the home; exposure to allergens; 
poorly maintained driveways that pose hazards to examiners' vehicles; 
and low clearances or dilapidated stairways to access basement home 
offices. These types of concerns are much less likely to arise in a 
public, non-residential setting. For those home-based credit unions 
located in rural areas, NCUA is also concerned about the potential for 
examiners being isolated in a remote location.
    Recently, NCUA began extensive efforts to encourage home-based 
credit unions to obtain commercial office space. NCUA's Office of Small 
Credit Union Initiatives (OSCUI) has worked with NCUA's Regional 
Offices to identify home-based credit unions. OSCUI then contacted each 
of these credit unions to offer assistance in planning for the credit 
union's long-term viability, including obtaining office space. OSCUI 
also offered grants to support relocation of home-based credit unions 
holding the NCUA Low Income Designation. To date, no home-based credit 
union has taken advantage of these services.

4. Why is NCUA proposing this rule?

    The Board proposes to amend its regulations to require that any 
examinations or other on-site contacts between NCUA staff and FCU 
officials occur at an FCU's business offices or at a mutually agreeable 
public location. This does not include a private residence. No later 
than two years following the effective date of a final rule, the 
proposal would also require all FCUs to obtain and maintain a business 
office, not located in a private residence. The Board is proposing this 
rule because, as discussed above, it is concerned that continuing to 
allow NCUA staff to meet with FCU officials at private residences poses 
safety risks and is not favorable to conducting business in an 
appropriate fashion. In addition, the lack of a business office impedes 
the ability of FCUs to thrive and grow by obtaining new members or 
providing additional services to existing members.
    The proposed rule would also require FCUs to maintain and monitor 
telephone numbers or electronic mail addresses, or both. The Board 
believes another impediment to an FCU's long-term viability is the 
inability of members to contact the FCU. In the recent outreach to 
home-based credit unions, OSCUI staff discovered that many of these 
credit unions lacked a dedicated telephone number with an answering 
system, a monitored electronic mail address, or both. Lacking both 
telephone and electronic mail access is not acceptable for a present-
day financial institution. NCUA staff, FCU members, and potential FCU 
members need a reliable way to reach the FCU by electronic mail or 
telephone, leave messages, and receive prompt replies.
    Operating an FCU out of a private residence also creates 
significant operational risks. The preservation and security of records 
is a critical concern, and NCUA is concerned many home-based FCUs are 
storing records in areas where they are at risk for accidental 
destruction, such as in basements near water heater tanks. Member 
privacy is also at risk if records are stored where other residents of 
the household could access them. Finally, as occurred in a recent 
situation, if an FCU official operating a home-based credit union dies 
or becomes disabled, NCUA can face barriers to accessing the FCU's 
    Further, a home-based FCU that pays rent for its space to the 
residing official creates disincentives for FCU management to procure 
appropriate space. These rental arrangements, by their nature, pose a 
potential conflict of interest for FCU officials.
    The Board also notes that requiring examinations and other contacts 
with NCUA staff to occur in an alternative public location for credit 
unions that lack offices is not an ideal long-term solution. While 
addressing NCUA's concerns about staff safety and working conditions, 
meeting in public locations raises other risks. The main concern is the 
potential for inadvertent violations of privacy laws, or disclosure of 
confidential supervisory information related to the FCU's condition. 
For example, credit union examinations frequently involve discussion of 
the details of particular member loan files, which contain personally 
identifiable information (PII) that can be used to distinguish or trace 
an individual's identity. Likewise, examination contacts focus on the 
FCU's operations and often involve discussions of corrective actions 
the FCU must take. If these discussions occur in the alternative public 
locations, as permitted for the first two years under the proposal, 
NCUA staff and FCU officials must exercise caution that no other 
parties can overhear any PII or confidential supervisory information.
    Having credit union officials move paper files to and from meeting 
locations, as would be required by the proposal if the credit union is 
unable to send records electronically, also entails privacy risks. When 
examiners take possession of an FCU's books and records outside of a 
credit union's office, the potential for inadvertent disclosure of PII 
increases further. As required by the Office of Management and Budget, 
NCUA has adopted guidance for staff regarding privacy responsibilities. 
These instructions require staff to take a variety of steps to 
safeguard PII.\8\ One requirement is that staff taking possession of an 
FCU's records must conduct the contact in a non-public place.\9\ 
Combining this requirement with the proposal's prohibition on meetings 
in residences limits the number of acceptable locations for off-site 

    \8\ NCUA Instruction 01200.15, Rules and Consequences for 
Safeguarding Personally Identifiable Information (Oct. 5, 2007).
    \9\ NCUA Instruction 13500.09, Security of External Party's 
Documentation (Mar. 25, 2008).

    In summary, while conducting contacts in alternative public 
locations, NCUA staff and credit union officials must exercise extreme 
care to avoid violations of privacy laws or revealing confidential 
supervisory information about the credit union. In the longer term, the 
Board has determined to eliminate this risk by requiring all FCUs to 
have an office that will facilitate discussions involving members' PII 
and confidential supervisory information without the risk of 
unauthorized disclosure of this sensitive information.
    The Board emphasizes that it is sensitive to the challenges the 
smallest FCUs face, and wants to ensure the long-term viability of all 
FCUs. Lacking appropriate commercial office space, however, is a 
significant barrier to both long-term viability and effective 
supervision. As noted above, over the past year, NCUA has undertaken 
extensive efforts to assist home-based credit unions, and these efforts 
will continue. OSCUI will offer another round of grants to support 
relocation of home-based credit unions that hold the NCUA Low Income 
Designation in 2014. OSCUI will also produce a Home Relocation Guide 
best practice document and work with all affected FCUs to provide 
guidance on relocation.

[[Page 77610]]

II. Summary of the Proposed Rule

    The proposed rule adds new section 701.40 to part 701 of NCUA's 
regulations. Paragraph (a) requires that any meetings between an FCU 
and NCUA staff occur at an FCU's offices or another alternative public 
location. This paragraph excludes from the definition of ``office,'' 
private homes, as well as separate areas of residential premises. 
Defining ``office'' in this manner will address the many varieties of 
home-based offices, including rooms in homes, separate apartments 
attached to homes, separate buildings on residential premises such as 
garages, and separate apartments within a residential apartment 
building not zoned for retail use. All of these types of locations 
raise similar concerns in terms of working conditions and safety for 
NCUA staff, as well as member accessibility.
    Paragraph (b) specifies that any home-based FCU official that meets 
with NCUA staff at an alternative public location must deliver all 
necessary records to that location. The proposal lists examples of 
acceptable alternative public locations, such as restaurants, hotel 
lobbies or meeting rooms, libraries, and community centers. For FCUs 
that operate from churches or other communal sites such as lodges, the 
church or lodge office would also be an acceptable alternative public 
location under the proposed rule. FCU officials and NCUA staff must, 
however, find a meeting space that complies with NCUA's privacy 
regulations related to the security of records provided to NCUA. Where 
an FCU's records with PII are present and in the possession of NCUA 
staff, the meeting space must be in a separate area, such as a 
conference room in a hotel, library, or community center.
    Subparagraph (c) requires FCUs to maintain and monitor, at a 
minimum, either an electronic mail address or a telephone number.
    The proposed rule applies only to FCUs, not all federally insured 
credit unions. State supervisory authorities may continue to conduct 
their examinations of home-based, state credit unions at any location 
they choose.
    Two years after the final rule's effective date, the proposal would 
revise Sec.  701.40 to prohibit FCUs from operating out of homes. The 
proposal would also prohibit storage of FCU records at residential 
locations and continue to require FCUs to maintain at least one method 
of contact. As permitted in conjunction with the requirement that NCUA 
staff meet with FCU officials at an office or other public location, an 
FCU that operates out of a church office or similar location will be 
deemed in compliance with the requirement to obtain office space. OSCUI 
will consult with affected FCUs to determine if specific situations 
meet the office requirement.
    The proposed rule does not immediately require FCUs to operate out 
of an office location, so that all affected FCUs have time to adapt to 
this change. The delayed effective date for obtaining office space, 
combined with the immediate requirement to meet in public places, 
improves working conditions for NCUA staff in the short term without 
immediately imposing a new requirement on small FCUs. As noted above, 
OSCUI staff will continue to be available to assist affected FCUs as 
they transition to obtaining business office locations, with 
appropriate and secure records storage areas, over the next two years.
    The proposed rule intends to ensure that all FCUs operate in a 
manner consistent with modern-day expectations for insured financial 
institutions. In conjunction with its recent rule requiring all 
federally insured credit unions to file quarterly call reports 
electronically, NCUA provided grants so that all credit unions with 
NCUA's Low Income Designation that lacked computers could obtain them. 
NCUA will make similar efforts to assist home-based FCUs to comply with 
these proposed requirements.

III. Request for Comments

    NCUA requests comments on all aspects of the proposed rule. In 
light of NCUA's concerns about staff safety and working conditions, 
NCUA particularly requests comments about whether the portion of the 
rule requiring home-based credit unions to meet NCUA staff at an 
alternative public location should also apply to state-chartered, 
federally insured credit unions.

IV. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a proposed rule may have on 
a substantial number of small credit unions (primarily those under $50 
million in assets). Although this rule would affect relatively few 
FCUs, NCUA recognizes that all of the affected FCUs are small credit 
unions. As discussed above, NCUA is offering assistance to locate 
suitable meeting space at low or no cost as well as assistance with 
initial relocation expenses. Over the longer term, NCUA will work with 
officials of affected FCUs to provide consulting, training, and 
education and resource support as home-based FCUs transition to 
commercial locations. Accordingly, NCUA certifies this rule will not 
have a significant economic impact on a substantial number of small 
credit unions.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency creates a new paperwork burden on regulated entities or 
modifies an existing burden. 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. The proposed 
change to part 701 simply requires examinations and other meetings with 
NCUA staff to occur in certain authorized locations, and that FCUs 
maintain a functioning telephone number or electronic mail address, or 
both. This proposed rule will not create new paperwork burdens or 
modify any existing paperwork burdens.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. 
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), 
voluntarily complies with the executive order to adhere to fundamental 
federalism principles. Given the minor requirements the rule imposes on 
FCUs only, it will not have substantial direct effects on the states, 
on the relationship between the national government and the states, or 
on the distribution of power and responsibilities among the various 
levels of government. NCUA has determined that this proposed rule does 
not constitute a policy that has federalism implications for purposes 
of the Executive Order.

Treasury and General Government Appropriations Act, 1999

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

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

List of Subjects in 12 CFR Part 701

    Credit unions, Reporting and recordkeeping requirements.

[[Page 77611]]

    By the National Credit Union Administration Board on December 
12, 2013.
Gerard Poliquin,
Secretary of the Board.
    For the reasons set forth above, NCUA proposes to amend 12 CFR part 
701 as follows:


1. The authority citation for part 701 continues to read as follows:

    Authority:  12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759, 
1761a, 1761b, 1766, 1767, 1782, 1784, 1786, 1787, 1789. Section 
701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 is also 
authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601-3610. 
Section 701.35 is also authorized by 42 U.S.C. 4311-4312.

2. Add Sec.  701.40 to part 701 to read as follows:

Sec.  701.40  Examinations and communication requirements.

    (a) Office location. All examinations, on-site contacts, and other 
meetings between a federal credit union and NCUA, where NCUA staff are 
physically present, must be held in a federal credit union's offices or 
at an alternative public location. For purposes of this section, a 
federal credit union's offices do not include an office maintained in a 
home or on the premises of a residential address.
    (b) Alternative public location. For purposes of this section, an 
alternative public location means a place designated by NCUA staff that 
is open and available to the general public and that is generally 
accessible during normal business hours. Alternative public locations 
may include, but are not limited to, restaurants, hotel lobbies or 
meeting rooms, libraries, and community centers. Federal credit union 
officials meeting with NCUA staff at an alternative public location 
must deliver to that location all credit union records required by NCUA 
staff. For contacts where member information protected under federal 
privacy law or regulation is present or discussed, the meeting location 
must allow for necessary safeguards of this information.
    (c) Required communication services. All federal credit unions must 
maintain either an electronic mail address or telephone service, or 
both. The electronic mail address or telephone number must be dedicated 
exclusively for the credit union's business purposes, and authorized 
credit union officials must monitor them regularly.
THE Federal Register], revise Sec.  701.40 to read as follows:

Sec.  701.40  FCU office location and requirements.

    (a) Office location. Federal credit unions must maintain at least 
one office in a building that is accessible to credit union members 
during the federal credit union's normal business hours. Office space 
maintained in a home or on the premises of a residential address does 
not meet this requirement.
    (b) Records. An FCU's records must be stored either at the FCU's 
office location or another commercial location designed for secure 
records storage.
    (c) Required communication services. All federal credit unions must 
maintain either an electronic mail address or telephone service, or 
both. The electronic mail address or telephone number must be dedicated 
exclusively for the credit union's business purposes, and authorized 
credit union officials must monitor them regularly.
[FR Doc. 2013-30560 Filed 12-23-13; 8:45 am]