Temporary Regulatory Relief in Response to COVID-19
| Published date | 21 April 2020 |
| Citation | 85 FR 22010 |
| Record Number | 2020-08434 |
| Section | Rules and Regulations |
| Court | National Credit Union Administration |
Federal Register, Volume 85 Issue 77 (Tuesday, April 21, 2020)
[Federal Register Volume 85, Number 77 (Tuesday, April 21, 2020)]
[Rules and Regulations]
[Pages 22010-22014]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08434]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
RIN 3133-AF15
Temporary Regulatory Relief in Response to COVID-19
AGENCY: National Credit Union Administration (NCUA).
ACTION: Temporary final rule.
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SUMMARY: The NCUA Board (Board) is temporarily modifying certain
regulatory requirements to help ensure that federally insured credit
unions (FICUs) remain operational and liquid during the COVID-19
crisis. Specifically, the Board is temporarily raising the maximum
aggregate amount of loan participations that a FICU may purchase from a
single originating lender to the greater of $5,000,000 or 200 percent
of the FICU's net worth. The Board is also temporarily suspending
limitations on the eligible obligations that a federal credit union
(FCU) may purchase and hold. In addition, given physical distancing
policies implemented in response to the crisis, the Board is tolling
the required timeframes for the occupancy or disposition of properties
not being used for FCU business or that have been abandoned. These
temporary modifications will be in place until December 31, 2020,
unless extended.
DATES: This rule is effective from April 21, 2020 through December 31,
2020.
FOR FURTHER INFORMATION CONTACT: Policy and Analysis: Amanda Parkhill,
Director, Policy Division, Office of Examination and Insurance, at
(703) 518-6360; Legal: Ariel Pereira, Staff Attorney, Office of General
Counsel, at (703) 518-6540; or by mail at: National Credit Union
Administration, 1775 Duke Street, Alexandria, Virginia 22314.
SUPPLEMENTARY INFORMATION:
I. Background
II. Legal Authority
III. Section-by-Section Analysis
IV. Regulatory Procedures
I. Background
The COVID-19 pandemic has created uncertainty for FICUs and their
members. The Board is working with federal and state regulatory
agencies, in addition to FICUs, to assist FICUs in managing their
operations and to facilitate continued assistance to credit union
members and communities impacted by the coronavirus. As part of these
ongoing efforts, the Board is temporarily modifying certain regulatory
requirements to help ensure that FICUs remain operational and liquid
during the COVID-19 crisis. The Board has concluded that the amendments
will provide FICUs with necessary additional flexibility in a manner
consistent with the NCUA's responsibility to maintain the safety and
soundness of the credit union system. The temporary amendments are
effective upon publication and will be in place through the end of
calendar year 2020, unless the Board takes action to extend their
effectiveness.
In general, two of the temporary amendments will expand the
authority of FICUs to purchase loans and participations in loans,
thereby enhancing their ability to meet liquidity needs. Specifically,
the Board is temporarily raising the maximum aggregate amount of loan
participations
[[Page 22011]]
that a FICU may purchase from a single originating lender to the
greater of $5,000,000 or 200 percent of the credit union's net worth.
The Board is also temporarily suspending certain limitations on the
types of eligible obligations that a FICU may purchase and hold. The
third regulatory amendment addresses a requirement that may be
difficult, if not impossible, to meet during the pandemic. Given the
physical distancing policies in effect, the Board is tolling the
required timeframes for the occupancy or disposition of properties not
being used for FCU business or that have been abandoned.
Section III of this preamble discusses the temporary regulatory
amendments in greater detail.
II. Legal Authority
The Board is issuing this temporary final rule pursuant to its
authority under the Federal Credit Union (FCU) Act.\1\ The FCU Act
grants the Board a broad mandate to issue regulations governing both
FCUs and, more generally, all FICUs. For example, section 120 of the
FCU Act is a general grant of regulatory authority and authorizes the
Board to prescribe rules and regulations for the administration of the
act.\2\ Section 209 of the FCU Act is a plenary grant of regulatory
authority to issue rules and regulations necessary or appropriate to
carry out its role as share insurer for all FICUs \3\ Other provisions
of the act confer specific rulemaking authority to address prescribed
issues or circumstances.\4\ Accordingly, the FCU Act grants the Board
broad rulemaking authority to ensure that the credit union industry and
the National Credit Union Share Insurance Fund (NCUSIF) remain safe and
sound.
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\1\ 12 U.S.C. 1751 et al.
\2\ 12 U.S.C. 1766(a).
\3\ 12 U.S.C. 1789.
\4\ An example of a provision of the FCU Act that provides the
Board with specific rulemaking authority is section 207 (12 U.S.C.
1787), which is a specific grant of authority over share insurance
coverage, conservatorships, and liquidations.
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III. Section-by-Section Analysis
A. Aggregate Limit on Loan Participation Purchases (Sec.
701.22(b)(5)(ii))
Section 107(5)(E) of the FCU Act authorizes an FCU to engage in
participation lending with other credit unions, credit union
organizations, or financial organizations in accordance with written
policies of the FCU's board of directors.\5\ The NCUA has implemented
this statutory provision in Sec. 701.22 of its regulations, which
applies to all FICUs. The statute contains no limitation on the amount
of participations that an FCU may purchase from any single originating
lender.
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\5\ 12 U.S.C. 1757(5)(e).
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The regulation limits the aggregate amount of loan participations
that a FICU may purchase from any one originating lender to the greater
of $5,000,000 or 100 percent of the FICU's net worth.\6\ As explained
in the preamble to the final rule that established the limitation, the
purpose of the provision is to mitigate the exposure of FICUs to
concentration risk.\7\ The preamble explained that in prescribing
concentration limits on loan participations, the Board's goal was ``to
strike an appropriate balance between mitigating risk and fostering the
industry's growth and stability.'' \8\
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\6\ 12 CFR 701.22(b)(5)(ii).
\7\ 78 FR 37946 (June 25, 2013).
\8\ Id. at 37951.
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The Board continues to believe that a cap is an important
protection against FICU insolvency. However, consistent with the NCUA's
2018 Regulatory Reform Agenda, the Board also believes that, as
currently formulated, the limitation may be overly prescriptive.\9\
Additional regulatory flexibility is especially warranted during the
present COVID-19 crisis when many FICUs are seeking to maintain
adequate liquidity. Accordingly, the Board believes that temporarily
raising the cap is necessary to strike the balance it sought in
originally promulgating the rule and encourages FICUs to engage in
appropriate due diligence in this context.
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\9\ 83 FR 65926, 65946-65947 (Dec. 21, 2018).
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Under the temporary final rule, the aggregate limit below which a
waiver from the appropriate NCUA regional director is not required will
be raised to the greater of $5,000,000 or 200 percent of the FICU's net
worth. The increase will help safeguard the stability of FICUs during
the crisis, without undue additional risk to the safety and soundness
of the credit union system. Subsequent to the temporary rule's
expiration at the close of December 31, 2020, a FICU must return into
compliance with the current limitation (that is, the greater of
$5,000,000 or 100 percent of its net worth) by either ceasing to
purchase loan participations from the originating lender or requesting
a waiver as provided in the regulation.
B. Purchase, Sale, and Pledge of Eligible Obligations (Sec. 701.23(b))
Section 107(13) of the FCU Act authorizes an FCU, ``in accordance
with rules and regulations prescribed by the Board,'' to purchase,
sell, or pledge all or part of an eligible obligation to one of its own
members.\10\ The NCUA has implemented this authority in its regulations
at Sec. 701.23(b)(1)(i) and Sec. 703.21(b)(2)(i), which provides that
an FCU may purchase an eligible obligation from any source, provided
the FCU is empowered to grant the loan or the loan is refinanced within
60 days following its purchase so that it is a loan the FCU is
empowered to grant.
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\10\ 12 U.S.C. 1757(13).
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The purpose of the refinancing requirement is to help ensure that
loans purchased by an FCU comply with the statutory and regulatory
requirements applicable to loans made by the FCU. Although the Board's
longstanding policy is that all eligible obligations of an FCU, whether
made or purchased, comply with the requirements and goals of the FCU
Act, the explicit statutory language of the FCU Act does not
necessarily compel this. Given the COVID-19 emergency, the Board
believes that the balance weighs in favor of adopting a closer reading
of the text of the statute and suspending the refinancing requirement
for a temporary period to promote the extension of credit and flow of
liquidity in the credit union system generally.
As noted, the FCU Act and Sec. 701.23 generally do not authorize
an FCU to purchase a loan unless the person liable on the loan is a
member of that credit union. The Board's publicly articulated
interpretation since the 1979 rulemaking that implemented section
107(13), is that Congress did not intend section 107(13) to be an
express prohibition on purchases of obligations made to non-members
provided they are authorized by other sections of the FCU Act.\11\
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\11\ 44 FR 27068, 27069 (May 9, 1979).
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The Board's regulations in 12 CFR 701.23 generally require that
purchased eligible obligations be obligations of the purchasing FCU's
members. However, Sec. 701.23(b)(2) provides certain limited
exceptions to the general requirements for well-capitalized FCUs with
composite CAMEL ratings of ``1'' or ``2.'' \12\ The regulations
authorize these FCUs to purchase the eligible obligations of any FICU
or of any liquidating credit union without regard to whether they are
obligations of the purchasing FCU's members. As the Board has
previously noted, these types of purchases could be construed as
[[Page 22012]]
being made under section 107(14) of the FCU Act, which does not impose
a membership requirement, as opposed to under section 107(13).\13\
Section 107(14) authorizes FCUs to ``purchase all or part of the assets
of another credit union and to assume the liabilities of the selling
credit union and those of its members.'' This statutory interpretation
is consistent with the general principle that the more specific
provision or authority applies in favor of the more general provision.
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\12\ Section 701.23 also contains exceptions to the membership
requirement for certain purchases of student loans and real estate
loans that an FCU purchases to complete a pool for sale. The Board
established this exception in the 1979 final rule discussed above.
44 FR 27068 (May 9, 1979).
\13\ Section 107(14) is codified in 12 U.S.C. 1757(14). For the
Board's prior statements on this matter, please refer to 66 FR
58656, 58660 (Nov. 23, 2001); 51 FR15055, 15059 (Mar. 15, 2001), and
76 FR 81421, 81426 (Dec. 28, 2011).
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Although the Board continues to believe that this exception should
generally be limited to FCUs with CAMEL 1 or 2 composite ratings, it
also recognizes the urgent need to support the extension of credit and
facilitate downstream loan purchases as a tool to manage liquidity. The
Board, therefore, is temporarily amending its regulations to authorize
FCUs with CAMEL composite ratings of 1, 2, or 3 to purchase eligible
obligations of FICUs and liquidating credit unions irrespective of
whether the obligation belongs to the purchasing FCU's members.\14\
FCUs may continue to hold obligations purchased pursuant to this
temporary final rule subsequent to the rule's expiration at the close
of December 31, 2020.
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\14\ Generally, credit unions with a CAMEL composite rating
lower than 3 are considered to be in ``troubled condition'' under
the NCUA's regulations. 12 CFR 700.2.
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The Board notes that the restrictions temporarily relieved in Sec.
701.23 do not apply to state-chartered, federally insured credit
unions. Any such restrictions applicable to state-chartered credit
unions would be based on state laws or regulations. The Board also
notes that this temporary final rule does not modify the current
authority of FCUs under Sec. 701.23 to purchase the obligations of a
liquidating credit union without regard to whether the obligations
belong to the purchasing FCU's members.
C. FCU Occupancy and Disposal of Acquired Premises (Sec. 701.36(c))
Section 107(4) of the FCU Act authorizes an FCU to purchase, hold,
and dispose of property necessary or incidental to its operations.\15\
The Board has implemented and interpreted this provision of the FCU Act
in its regulation at 12 CFR 701.36. In general, an FCU may invest in
property only that it intends to use to transact credit union business
or in property that supports its internal operations or serves its
members. Among other provisions, Sec. 701.36: (1) Limits FCU
investments in fixed assets; and (2) establishes occupancy, planning,
and disposal requirements for acquired and abandoned premises.
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\15\ 12 U.S.C. 1757(4).
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The regulation provides that if an FCU acquires premises, including
unimproved land or unimproved real property, it must partially occupy
them ``no later than six years after the date of acquisition,'' subject
to the NCUA granting a waiver.\16\ Further, an FCU must make diligent
efforts to dispose of abandoned premises and any other real property it
does not intend to use in transacting business. Additionally, the FCU
must advertise for sale premises that have been abandoned for four
years.\17\ The specific terms of these requirements do not stem
directly from the FCU Act but instead reflect the Board's judgment in
implementing the general statutory provision.
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\16\ 12 CFR 701.36(c)(1).
\17\ 12 CFR 701.36(c)(2).
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In response to the COVID-19 crisis, many state and localities have
implemented physical distancing measures to arrest the spread of the
disease.\18\ These health-related restrictions on the mobility of
individuals make the changes in occupancy and dispositions required by
Sec. 701.36 extremely difficult. Accordingly, the Board is temporarily
tolling the regulatory mandated timeframes. This temporary change
appropriately reflects the unique circumstances while maintaining
consistency with the statutory provision as interpreted and implemented
by the Board. Any days that fall within the period commencing on April
21, 2020 and concluding at the close of December 31, 2020, shall not be
counted for purposes of determining an FCU's compliance with the
regulatory time periods. This temporary deferral will provide FCUs with
additional flexibility to comply with the prescribed time periods,
while still complying with the statutory and regulatory goals of
ensuring that properties acquired or held by FCUs are used for credit
union business.
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\18\ See, https://www.nytimes.com/interactive/2020/us/coronavirus-stay-at-home-order.html. (``[A] a vast majority of
Americans--nine in 10 United States residents--are now or will soon
be under instructions to stay at home.'')
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Example One: An FCU closed on the purchase of an office building 30
days before April 21, 2020 (that is, the temporary final rule is
published on the 31st day following acquisition). Under the temporary
regulatory amendment, January 1, 2021 would be deemed the 31st day
following acquisition for purposes of calculating the six-year deadline
for partial occupancy.
Example Two: An FCU has an abandoned parcel of land that, under
Sec. 701.36(c)(2), it is required to advertise for sale no later than
November 9, 2020 (i.e., that fourth year anniversary of the date the
parcel was abandoned). Under this temporary final rule, the FCU would
have an additional amount of time to meet this requirement equal to the
number of days between the publication date and January 1, 2021.
IV. Regulatory Procedures
A. Administrative Procedure Act
The Board is issuing the temporary final rule without prior notice
and the opportunity for public comment and the delayed effective date
ordinarily prescribed by the Administrative Procedure Act (APA).\19\
Pursuant to the APA, general notice and the opportunity for public
comment are not required with respect to a rulemaking when an ``agency
for good cause finds (and incorporates the finding and a brief
statement of reasons therefor in the rules issued) that notice and
public procedure thereon are impracticable, unnecessary, or contrary to
the public interest.'' \20\
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\19\ 5 U.S.C. 551 et seq.
\20\ 5 U.S.C. 553(b)(3).
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The Board believes that the public interest is best served by
implementing the temporary final rule immediately upon publication in
the Federal Register. The Board notes that the COVID-19 crisis is
unprecedented. It is a rapidly changing situation and difficult to
anticipate how the disruptions caused by the crisis will manifest
themselves within the financial system and how individual credit unions
may be impacted. Because of the widespread impact of a pandemic and the
speed with which disruptions have transmitted throughout the United
States, the Board believes it is has good cause to determine that
ordinary notice and public procedure are impracticable and that moving
expeditiously in the form of a temporary final rule is in the best of
interests of the public and the FICUs that serve that public. The
temporary regulatory changes are proactive steps that are designed to
alleviate potential liquidity strains and are undertaken with
expedience to ensure the maximum intended effects are in place at the
earliest opportunity.
The Board values public input in its rulemakings and believes that
providing the opportunity for comment enhances
[[Page 22013]]
its regulations. Accordingly, the Board often solicits comments on its
rules even when not required under the APA, such as for the rules it
issues on an interim-final basis. The Board, however, notes that the
provisions in this rule are temporary in nature, and designed
specifically to help credit unions affected by the COVID-19 pandemic.
The amendment made by the temporary final rule will automatically
expire at the close of December 31, 2020, and are limited in number and
scope. For these reasons, the Board finds that there is good cause
consistent with the public interest to issue the rule without advance
notice and comment.
The APA also requires a 30-day delayed effective date, except for
(1) substantive rules which grant or recognize an exemption or relieve
a restriction; (2) interpretative rules and statements of policy; or
(3) as otherwise provided by the agency for good cause.\21\ Because the
rules relieves currently codified limitations and restrictions, the
temporary final rule is exempt from the APA's delayed effective date
requirement. As an alternative basis to make the rule effective without
the 30-day delayed effective date, the Board finds there is good cause
to do so for the same reasons set forth above regarding advance notice
and opportunity for comment.
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\21\ 5 U.S.C. 553(d).
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B. Congressional Review Act
For purposes of the Congressional Review Act,\22\ the Office of
Management and Budget (OMB) makes a determination as to whether a final
rule constitutes a ``major'' rule. If the OMB deems a rule to be a
``major rule,'' the Congressional Review Act generally provides that
the rule may not take effect until at least 60 days following its
publication.
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\22\ 5 U.S.C. 801-808.
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The Congressional Review Act defines a ``major rule'' as any rule
that the Administrator of the Office of Information and Regulatory
Affairs of the OMB finds has resulted in or is likely to result in (A)
an annual effect on the economy of $100,000,000 or more; (B) a major
increase in costs or prices for consumers, individual industries,
Federal, State, or local government agencies or geographic regions, or
(C) significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.\23\
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\23\ 5 U.S.C. 804(2).
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For the same reasons set forth above, the Board is adopting the
temporary final rule without the delayed effective date generally
prescribed under the Congressional Review Act. The delayed effective
date required by the Congressional Review Act does not apply to any
rule for which an agency for good cause finds (and incorporates the
finding and a brief statement of reasons therefor in the rule issued)
that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.\24\ In light of
current market uncertainty, the Board believes that delaying the
effective date of the rule would be contrary to the public interest for
the same reasons discussed above.
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\24\ 5 U.S.C. 808.
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As required by the Congressional Review Act, the Board will submit
the final rule and other appropriate reports to Congress and the
Government Accountability Office for review.
C. 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.\25\ For purposes of the PRA, a
paperwork burden may take the form of a reporting, recordkeeping, or a
third-party disclosure requirement, referred to as an information
collection. The NCUA may not conduct or sponsor, and the respondent is
not required to respond to, an information collection unless it
displays a valid Office of Management and Budget (OMB) control number.
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\25\ 44 U.S.C. 3507(d).
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The impact of this temporary rule on information collection
requirements are estimated as follows:
701.22--OMB No. 3133-0141, Organization and Operation of FCU--Loan
Participations. It is anticipated that there will be no increase in the
number of credit unions currently participating. It is estimated that
these credit unions may see a slight increase in the number of loan
participation agreements. The recordkeeping requirement to retain and
maintain a copy of the agreement is minimal, and would not impact the
recordkeeping burden. Because of the net worth increase, NCUA estimates
that the waiver request on the limits will be reduced by 50 percent,
for an estimated reduction of 20 burden hours. A total burden hours of
3,025 requested.
701.23--OMB No. 3133-0127, Purchase, Sale, and Pledge of Eligible
Obligations. NCUA estimates a minimal increase in the number of
respondents from the suspension of the limitations and in the number of
agreements. The recordkeeping requirement to retain and maintain these
records would increase based on this estimate. Due to the expanded
authority, waivers would not be necessary and appeals to the waivers
are null during this period. An estimated increase of 2,207 burden
hours is due to this change, for a total of 12,747 burden hours
requested.
701.36--OMB No. 3133-0040, Federal Credit Union Occupancy,
Planning, and Disposal of Acquired and Abandoned Premises. The
temporary rule will suspend the time limit assigned to partial
occupancy, disposal of abandoned property, and advertisement of the
sale of abandoned property, that falls on the date of the publication
of this rule through December 31, 2020; not to begin until January 1,
2021. The suspension of time requirements will eliminate the need for a
waiver during this period for a reduction of 305 burden hours; for a
total of 30 burden hours requested.
The cumulative changes of the burden hours associated with these
three information collections requirements total to 1,882. An emergency
request for approval has been submitted to OMB for the revisions to the
information collection requirements under the OMB control numbers
identified above. A separate notice will be published in the Federal
Register soliciting public comments on these revisions.
D. Executive Order 13132, on Federalism
Executive Order 13132 \26\ encourages independent regulatory
agencies to consider the impact of their actions on state and local
interests. The 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. The temporary final 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.
The Board has therefore determined that this rule does not constitute a
policy that has federalism implications for purposes of the executive
order.
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\26\ Executive Order 13132 on Federalism, was signed by former
President Clinton on August 4, 1999, and subsequently published in
the Federal Register on August 10, 1999 (64 FR 43255).
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E. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this temporary final rule will not
affect
[[Page 22014]]
family well-being within the meaning of Section 654 of the Treasury and
General Government Appropriations Act, 1999.\27\
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\27\ Public Law 105-277, 112 Stat. 2681 (1998).
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List of Subjects in 12 CFR Part 701
Aged, Civil rights, Credit, Credit unions, Fair housing,
Individuals with disabilities, Insurance, Mortgages, Reporting and
recordkeeping requirements.
By the National Credit Union Administration Board, this 16th day
of April 2020.
Gerard Poliquin,
Secretary of the Board.
For the reasons discussed above, the NCUA amends part 701 as
follows:
PART 701--ORGANIZATION AND OPERATION OF CREDIT UNIONS
0
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, 1785, 1786, 1787, 1788, 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.
0
2. In Sec. 701.22, add paragraph (e) to read as follows:
Sec. 701.22 Loan participations.
* * * * *
(e) Temporary regulatory relief in response to COVID-19.
Notwithstanding paragraph (b)(1)(ii) of this section, during the period
commencing on April 21, 2020 and concluding on December 31, 2020, the
aggregate amount of loan participations that may be purchased from any
one originating lender shall not exceed the greater of $5,000,000 or
200 percent of the federally insured credit union's net worth.
0
3. In Sec. 701.23, add paragraph (i) to read as follows:
Sec. 701.23 Purchase, sale, and pledge of eligible obligations.
* * * * *
(i) Temporary regulatory relief in response to COVID-19.
Notwithstanding Sec. 701.23(b), during the period commencing on April
21, 2020 and concluding on December 31, 2020, a Federal credit union
may:
(1) Purchase, in whole or in part, and within the limitations of
the board of directors' written purchase policies, any eligible
obligations pursuant to paragraph (b)(1)(i) and (b)(2)(i) of this
section without regard to whether they are loans the credit union is
empowered to grant or are refinancing to ensure the obligations are
ones the purchasing credit union is empowered to grant; and
(2) Purchase and hold the obligations described in Sec.
701.23(b)(2)(i) through (iv) if the Federal credit union's CAMEL
composite rating is ``1,'' ``2,'' or ``3''.
0
4. In Sec. 701.36, add paragraph (c)(3) to read as follows
Sec. 701.36 Federal credit union occupancy and disposal of acquired
and abandoned properties.
* * * * *
(c) * * *
(3) Temporary regulatory relief in response to COVID-19. Any days
that fall within the period commencing on April 21, 2020 and concluding
on December 31, 2020, shall not be counted for purposes of determining
a federal credit union's compliance with the required time periods
described in paragraphs (c)(1) and (2) of this section.
* * * * *
[FR Doc. 2020-08434 Filed 4-20-20; 8:45 am]
BILLING CODE P
