80 FR 45844 - Federal Credit Union Ownership of Fixed Assets

NATIONAL CREDIT UNION ADMINISTRATION

Federal Register Volume 80, Issue 148 (August 3, 2015)

The NCUA Board (Board) is amending its regulation governing federal credit union (FCU) ownership of fixed assets. To provide regulatory relief to FCUs, the final rule eliminates a provision in the current fixed assets rule that established a five percent aggregate limit on investments in fixed assets for FCUs with $1,000,000 or more in assets. With this elimination, provisions regarding waivers from the aggregate limit are no longer relevant, so the final rule also eliminates those provisions. Instead of applying the prescriptive aggregate limit provided by regulation in the current fixed assets rule, under the final rule, NCUA will oversee FCU ownership of fixed assets through the supervisory process and guidance. The final rule also makes conforming amendments to the scope and definitions sections of the current fixed assets rule to reflect this modified approach, and it revises the title of Sec. 701.36 to more accurately reflect this amended scope and applicability. In addition, the final rule simplifies the current fixed assets rule's partial occupancy requirements for FCU premises acquired for future expansion by establishing a single six-year time period for partial occupancy of all premises and by removing the 30-month requirement for partial occupancy waiver requests.

[Federal Register Volume 80, Number 148 (Monday, August 3, 2015)]
[Rules and Regulations]
[Pages 45844-45851]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-18642]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AE39


Federal Credit Union Ownership of Fixed Assets

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The NCUA Board (Board) is amending its regulation governing 
federal credit union (FCU) ownership of fixed assets. To provide 
regulatory relief to FCUs, the final rule eliminates a provision in the 
current fixed assets rule that established a five percent aggregate 
limit on investments in fixed assets for FCUs with $1,000,000 or more 
in assets. With this elimination, provisions regarding waivers from the 
aggregate limit are no longer relevant, so the final rule also 
eliminates those provisions. Instead of applying the prescriptive 
aggregate limit provided by regulation in the current fixed assets 
rule, under the final rule, NCUA will oversee FCU

[[Page 45845]]

ownership of fixed assets through the supervisory process and guidance.
    The final rule also makes conforming amendments to the scope and 
definitions sections of the current fixed assets rule to reflect this 
modified approach, and it revises the title of Sec.  701.36 to more 
accurately reflect this amended scope and applicability. In addition, 
the final rule simplifies the current fixed assets rule's partial 
occupancy requirements for FCU premises acquired for future expansion 
by establishing a single six-year time period for partial occupancy of 
all premises and by removing the 30-month requirement for partial 
occupancy waiver requests.

DATES: This rule is effective October 2, 2015.

FOR FURTHER INFORMATION CONTACT: Pamela Yu, Senior Staff Attorney, 
Office of General Counsel, at the above address or telephone (703) 518-
6540, or Jacob McCall, Program Officer, Office of Examination and 
Insurance, at the above address or telephone (703) 518-6360.

SUPPLEMENTARY INFORMATION:

I. Background
    A. 2013 Rule
    B. July 2014 Proposal
    C. March 2015 Proposal
II. Public Comments on the March 2015 Proposal
III. Final Rule
IV. Regulatory Procedures

I. Background

    The Federal Credit Union Act (FCU Act) authorizes an FCU to 
purchase, hold, and dispose of property necessary or incidental to its 
operations.\1\ NCUA's fixed assets rule interprets and implements this 
provision of the FCU Act.\2\ NCUA's current fixed assets rule: (1) 
limits FCU investments in fixed assets; (2) establishes occupancy, 
planning, and disposal requirements for acquired and abandoned 
premises; and (3) prohibits certain transactions.\3\ Under the current 
rule, fixed assets are defined as premises, furniture, fixtures, and 
equipment, including any office, branch office, suboffice, service 
center, parking lot, facility, real estate where a credit union 
transacts or will transact business, office furnishings, office 
machines, computer hardware and software, automated terminals, and 
heating and cooling equipment.\4\
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    \1\ 12 U.S.C. 1757(4).
    \2\ 12 CFR 701.36.
    \3\ Id.
    \4\ 12 CFR 701.36(c).
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A. 2013 Rule

    The Board has a policy of continually reviewing NCUA's regulations 
to update, clarify, and simplify existing regulations and eliminate 
redundant and unnecessary provisions. To carry out this policy, NCUA 
identifies one-third of its existing regulations for review each year 
and provides notice of this review so the public may comment. In 2012, 
NCUA reviewed its fixed assets rule as part of this process. As a 
result of that review, in March 2013, the Board issued proposed 
amendments to the fixed assets rule to make it easier for FCUs to 
understand it.\5\ The proposed amendments did not make any substantive 
changes to the regulatory requirements. Rather, they only clarified the 
rule and improved its overall organization, structure, and readability.
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    \5\ 78 FR 17136 (Mar. 20, 2013).
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    In response to the Board's request for public comment on the March 
2013 proposal, several commenters offered suggestions for substantive 
changes to the fixed assets rule, such as increasing or eliminating the 
aggregate limit on fixed assets, changing the current waiver process, 
and extending the time frames for occupying premises acquired for 
future expansion. These comments, however, were beyond the scope of the 
March 2013 proposal, which only reorganized and clarified the rule. 
Accordingly, in September 2013, the Board adopted the March 2013 
proposal as final without change except for one minor modification.\6\ 
In finalizing that rule, however, the Board indicated it would take the 
commenters' substantive suggestions into consideration if it were to 
make subsequent amendments to NCUA's fixed assets rule.
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    \6\ 78 FR 57250 (Sept. 18, 2013).
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B. July 2014 Proposal

    In July 2014, the Board issued a proposed rule to provide 
regulatory relief to FCUs and to allow FCUs greater autonomy in 
managing their fixed assets.\7\ These amendments reflected some of the 
public comments received on the March 2013 proposal. Specifically, in 
the July 2014 proposal, the Board proposed to allow an FCU to exceed 
the five percent aggregate limit,\8\ without the need for a waiver, 
provided the FCU implemented a fixed assets management (FAM) program 
that demonstrated appropriate pre-acquisition analysis to ensure the 
FCU could afford any impact on earnings and net worth levels resulting 
from the purchase of fixed assets. Under the July 2014 proposal, an 
FCU's FAM program would have been subject to supervisory scrutiny and 
would have had to provide for close ongoing oversight of fixed assets 
levels and their effect on the FCU's financial performance. It also 
would have had to include a written policy that set an FCU board-
established limit on the aggregate amount of the FCU's fixed assets. In 
the July 2014 proposal, the Board also proposed to simplify the partial 
occupancy requirement for premises acquired for future expansion by 
establishing a single five-year time period for partial occupancy of 
any premises acquired for future expansion, including improved and 
unimproved property, and by removing the current fixed assets rule's 
30-month time limit for submitting a partial occupancy waiver request.
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    \7\ 79 FR 46727 (Aug. 11, 2014).
    \8\ The five percent aggregate limit on fixed assets is measured 
in comparison to the FCU's shares and retained earnings.
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    The public comment period for the July 2014 proposal closed on 
October 10, 2014, and NCUA received thirty-six comments on the 
proposal. While commenters generally supported the Board's efforts to 
provide regulatory relief from the requirements concerning FCU fixed 
assets, most commenters advocated for more relief or suggested 
alternative approaches to achieving that objective.
    For example, a significant number of commenters suggested that the 
July 2014 proposal did not provide sufficient regulatory relief and 
that the five percent aggregate limit should be eliminated. These 
commenters noted that the aggregate limit is not statutorily mandated 
by the FCU Act and, thus, FCUs should be allowed to independently 
manage their own fixed assets without a strict regulatory limit. 
Several commenters argued further that FCUs should be permitted to 
manage their own fixed assets without the additional requirements.
    In addition, a large percentage of commenters opposed the proposed 
FAM program requirement. Commenters argued that it would be unnecessary 
or overly burdensome, and it would impose additional burdens that FCUs 
are not already subject to under the current rule. For example, one 
commenter argued that the July 2014 proposal simply shuffled regulatory 
burden, rather than providing meaningful regulatory relief. Several 
other commenters proffered a similar argument that the additional 
requirements imposed after assets are acquired would increase FCUs' 
compliance responsibilities and costs, mitigating any flexibility 
gained under the proposal.
    The July 2014 proposal also would have simplified the partial 
occupancy requirement for premises acquired for future expansion. 
Virtually all commenters that provided feedback on the proposed 
amendments to the partial

[[Page 45846]]

occupancy requirement supported the overall concept of streamlining or 
improving this aspect of the fixed assets rule. However, most 
commenters requested additional relief beyond that proposed. For 
example, a number of commenters suggested that the time period for 
partial occupancy should be extended. Commenters also recommended that 
regulatory timeframes for occupancy should be eliminated entirely.
    After careful consideration of the public comments, particularly 
those relating to the fixed assets aggregate limit, the Board 
determined that additional regulatory relief beyond what was provided 
in the July 2014 proposal was warranted. Therefore, the Board did not 
adopt the July 2014 proposal, including any FAM program requirements. 
The Board concluded upon further review that oversight of the purchase 
of FCU investments in fixed assets can be effectively achieved through 
supervisory guidance and the examination process, rather than through 
prescriptive regulatory limitations. Accordingly, in March 2015, the 
Board issued a new proposal to eliminate the five percent aggregate 
limit on fixed assets.

C. March 2015 Proposal

    In March 2015, largely because of the public comments received in 
response to the July 2014 proposal, the Board issued a new proposal to 
address commenters' requests for additional regulatory relief from the 
aggregate limit on fixed assets.\9\ The Board also incorporated into 
the March 2015 proposal partial occupancy requirements similar to those 
from the July 2014 proposal, but with one modification to the proposed 
single time period for partial occupancy, to provide even more 
regulatory relief to FCUs.
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    \9\ 80 FR 16595 (Mar. 30, 2015).
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    Specifically, in March 2015, the Board proposed to eliminate the 
five percent aggregate limit on FCU investments in fixed assets. It 
also proposed to eliminate the related provisions governing waivers of 
the aggregate limit because those provisions would no longer be 
relevant in the absence of a prescriptive aggregate limit.
    In addition, in the March 2015 proposal, the Board proposed to 
incorporate, with one change, the proposed amendments in the July 2014 
proposal relating to the partial occupancy requirements for FCU 
premises acquired for future expansion. Specifically, the Board 
proposed to require an FCU to partially occupy any premises acquired 
for future expansion, regardless of whether the premises are improved 
or unimproved property, within six years from the date of the FCU's 
acquisition of those premises. In the July 2014 proposal, the Board 
proposed to require partial occupancy within a uniform five-year time 
period. However, in response to public comments, the March 2015 
proposal revised it to six years rather than five years for partial 
occupancy, which would retain the current fixed assets rule's time 
period for unimproved land or unimproved real property and extend the 
current rule's time period for improved premises by three years. The 
March 2015 proposal also reissued, without change, the amendment in the 
July 2014 proposal to eliminate the current requirement for an FCU that 
wishes to apply for a waiver of the partial occupancy requirement to do 
so within 30 months of acquisition of the property acquired for future 
expansion.

II. Public Comments on the March 2015 Proposal

    The public comment period for the March 2015 proposal ended on 
April 29, 2015. NCUA received sixteen comments on the proposed rule: 
two from credit union trade associations, four from state credit union 
leagues, seven from FCUs, and three from FISCUs. Most commenters were 
generally supportive of the proposal and the Board's continuing efforts 
to provide regulatory relief in this area. Four commenters supported 
the proposal without stipulation, but eight commenters asked for more 
relief and flexibility or expressed concern about one or more aspects 
of the proposal. None of the commenters opposed the proposal entirely. 
However, one commenter indicated that it could not support the rule 
without first evaluating any related supervisory guidance.
    The substantive comments on the key aspects of the March 2015 
proposal are discussed in more detail below.

A. Removal of the 5% Aggregate Limit

    Section 701.36(c) of the current fixed assets rule establishes an 
aggregate limit on investments in fixed assets for FCUs with $1,000,000 
or more in assets. For an FCU meeting this asset threshold, the 
aggregate of all its investments in fixed assets is limited to five 
percent of its shares and retained earnings, unless NCUA grants a 
waiver establishing a higher limit.\10\ The March 2015 proposal 
eliminated this provision. It also eliminated the provisions in the 
current fixed assets rule relating to waivers from the aggregate limit.
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    \10\ 12 CFR 701.36(c).
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    Eleven commenters expressed support for eliminating the five 
percent aggregate limit. Of those, two commenters also supported the 
reissuance of the proposal without the FAM program requirements that 
were included in the July 2014 proposal. One commenter asserted that 
NCUA should not impose an aggregate limit on FCU investments in fixed 
assets because it is not required by the FCU Act. Two commenters noted 
that the five percent aggregate limit is outdated and the removal of 
the limitation is long overdue. One commenter indicated that the 
current one-size-fits-all rule is very restrictive and may disadvantage 
credit unions in higher cost areas because credit unions located in 
areas with higher property costs can reach the cap much more easily and 
quickly. The same commenter posited that the latest proposed approach 
is preferable to the current rule because the individuality of each 
credit union can be incorporated into the supervisory evaluation 
process through examiner judgment.
    Two commenters noted that the removal of the five percent limit 
will allow credit unions to make the business decisions necessary to 
thrive, and to accomplish their growth strategies and meet the needs of 
their members. Another commenter stated that the proposed amendment 
will allow credit unions more flexibility in finding the greatest value 
for their members. A different commenter said the change will increase 
a credit union's flexibility in the management and ownership of its 
fixed assets. One commenter said that the removal of the aggregate 
limit represents significant reform that provides FCUs with flexibility 
to meet their business or operational needs and the needs of members.
    One commenter generally supported the concept of moving oversight 
of fixed assets from the regulatory process to the supervisory process, 
but expressed concern that the proposal simply shifts the same 
requirements from regulatory oversight to supervisory oversight.
    In view of the generally positive comments received on this aspect 
of the March 2015 proposal, the Board is adopting, without change, the 
amendment to remove the five percent aggregate limit. As discussed in 
the preamble to the March 2015 proposal, the objective of the fixed 
assets rule is to place reasonable limits on the risk associated with 
excessive or speculative

[[Page 45847]]

acquisition of fixed assets.\11\ The Board continues to believe this 
objective can be effectively achieved through the supervisory process 
as opposed to a regulatory limit.\12\ Accordingly, the final rule 
eliminates the five percent aggregate limit on FCU investments in fixed 
assets. It also eliminates the related provisions governing waivers of 
the aggregate limit because those provisions are no longer necessary in 
the absence of a prescriptive regulatory limit.
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    \11\ See 43 FR 26317 (June 19, 1978) (``This regulation is 
intended to ensure that the officials of FCUs have considered all 
relevant factors prior to committing large sums of members' funds to 
the acquisition of fixed assets.''); 49 FR 50365, 50366 (Dec. 28, 
1984) (``The intent of the regulation is to prevent, or at least 
curb, excessive investments in fixed assets and the related costs 
and expenses that may be beyond the financial capability of the 
credit union.''); 54 FR 18466, 18467 (May 1, 1989) (``[T]he purpose 
of the regulation is to provide some control on the potential risk 
of excess investment and/or commitment to invest substantial sums in 
fixed assets.'').
    \12\ See 80 FR 16595, 16601 (Mar. 30, 2015).
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    The Board emphasizes, however, that NCUA's supervisory expectations 
remain high. As noted in the March 2015 proposal, the Board cautions 
that the elimination of the aggregate limit should not be interpreted 
as an invitation for FCUs to make excessive, speculative, or otherwise 
irresponsible investments in fixed assets. This final rule reflects the 
Board's recognition that relief from the prescriptive limit on fixed 
assets is appropriate, but FCU investments in fixed assets are, and 
will continue to be, subject to supervisory review. If an FCU has an 
elevated level of fixed assets, NCUA will maintain close oversight to 
ensure the FCU conducts prudent planning and analysis with respect to 
fixed assets acquisitions, can afford any such acquisitions, and 
properly manages any ongoing risk to its earnings and capital.
Supervisory Guidance and Review
    Most commenters generally supported the overall concept of 
overseeing FCU ownership of fixed assets through the supervisory 
process and guidance, instead of applying a prescriptive aggregate 
limit provided by regulation. One commenter noted that the supervisory 
examination process works well in the majority of cases. Another 
commenter said the proposed approach is rational because investments in 
fixed assets present little safety and soundness risk.
    A number of other commenters, however, expressed concern about the 
oversight of FCU fixed assets through supervisory guidance and review. 
One commenter argued that a credit union's purchase of a fixed asset 
should not be left to an individual examiner's interpretation of what 
should be acquired by the credit union. One commenter encouraged the 
agency to adopt guidance that clearly articulates the criteria that an 
examiner will use to determine if a credit union's investments in fixed 
assets are safe and sound. Another commenter suggested that when a 
credit union maintains a well-capitalized net worth ratio and positive 
earnings, and produces a sound business plan, NCUA should not intervene 
or second guess the credit union's decisions. Another commenter stated 
generally that supervisory guidance and the examination process should 
allow a credit union flexibility to manage its own operations and not 
subject it to micro-management and the rigid scrutiny of examiners. A 
different commenter stated that fixed assets acquisitions must be 
evaluated within the context of the individual strategies of each 
credit union and examiners should be trained accordingly.
    In addition, six commenters requested that any guidance governing 
investments in fixed assets be issued for public comment. One commenter 
said the Board should re-issue for public comment a new proposal that 
includes proposed supervisory guidance as an appendix to the proposed 
rule. One commenter asked that guidance be provided before any final 
rule is adopted. Another commenter suggested that guidance should be 
issued in conjunction with the final rule. One commenter simply urged 
that guidance be timely issued.
    While the Board appreciates the value in affording the opportunity 
for public comment, the Board does not believe that formal notice-and-
comment procedures for the final rule's companion guidance are required 
or necessary in this circumstance. As noted above, the Board has 
already formally solicited public comment on the subject of fixed 
assets in 2013, 2014, and 2015, and virtually all of the amendments 
contained in this final rule are in response to the comments received. 
Further, the amendments are intended to grant significant regulatory 
relief to FCUs, and a fourth notice-and-comment process on this subject 
would only further delay their implementation.
    The Board notes that supervisory guidance does not require notice 
and comment rulemaking under the Administrative Procedure Act (APA), 
and thus, it does not have the force and effect of law or 
regulation.\13\ The purpose of supervisory guidance and other 
interpretive rules is generally ``to advise the public of the agency's 
construction of the statutes and rules that it administers.'' \14\ 
Supervisory guidance regarding FCU ownership of fixed assets is not 
intended to supplant FCUs' business decisions or to impose rigid and 
prescriptive requirements on FCUs in the management of their 
investments in fixed assets. Rather, the guidance will provide 
examiners and credit unions with clear information about NCUA's 
supervisory expectations with respect to the final rule, and establish 
a consistent framework for the exam and supervision process for the 
review of credit union management of fixed assets.
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    \13\ Section 4(b)(A) of the APA provides that, unless another 
statute states otherwise, the notice-and-comment requirement does 
not apply to ``interpretative rules, general statements of policy, 
or rules of agency organization, procedure, or practice.'' 5 U.S.C. 
553(b)(A). The term ``interpretative rule,'' or ``interpretive 
rule,'' is not defined by the APA, but the United States Supreme 
Court has noted that the critical feature of interpretive rules is 
that they are ``issued by an agency to advise the public of the 
agency's construction of the statutes and rules which it 
administers.'' Perez v. Mortgage Bankers Ass'n, 135 S. Ct. 1199, 
1203-04, 191 L. Ed. 2d 186 (2015) (citing, Shalala v. Guernsey 
Memorial Hospital, 514 U.S. 87, 99, 115 S. Ct. 1232, 131 L.Ed.2d 106 
(1995)).
    \14\ Id.
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    The Board recognizes that clear and timely supervisory guidance is 
important to the effective implementation of this final rule. Thus, 
before this final rule takes effect, NCUA will issue updated 
supervisory guidance to examiners that will be shared with FCUs. The 
guidance will reflect current supervisory expectations \15\ that 
require an FCU to demonstrate appropriate due diligence, ongoing board 
and management oversight,\16\ and prudent financial analysis to ensure 
the FCU can afford any impact on earnings and net worth levels caused 
by its purchase of fixed assets. The guidance will ensure examiners 
effectively identify any risks to safety and soundness due to an FCU's 
excessive investment in fixed assets. It will focus on evaluating the 
quality of an FCU's fixed assets management relative to its planning 
for fixed assets acquisitions and controlling the related financial 
risks. The guidance will also focus on evaluating an FCU's quality of 
earnings and capital relative to its projected performance under both 
baseline (expected) and stressed scenarios. The Board notes that the 
evaluation of fixed assets is not a current baseline review requirement 
for

[[Page 45848]]

any examinations, and is only expected if examiners identify a material 
safety and soundness concern. In general, if an FCU can demonstrate an 
ability to afford and manage its fixed assets, the level of fixed 
assets will not be a supervisory concern.
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    \15\ See NCUA Examiner's Guide, Chapter 8.
    \16\ The credit union's board needs to approve plans for any 
investment in fixed assets that will materially affect the credit 
union's earnings. Credit union management should only purchase fixed 
assets in compliance with policy approved by the credit union's 
board.
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Appeals
    Two commenters recommended that the final rule include a formal 
appeals process to allow credit unions the opportunity to defend fixed 
assets investment decisions that are challenged through supervision.
    The Board emphasizes that it is not NCUA's goal to second guess an 
FCU's reasonable business decisions, and NCUA anticipates that open 
communications between an FCU and its examiner should resolve most 
kinds of fixed assets disputes about which commenters have raised 
concern. Nevertheless, as with any other regulation, an FCU that fails 
to comply with the requirements of this final rule may be subject to 
commensurate supervisory action. The Board notes that all rights and 
procedures generally available to an FCU in appealing an NCUA 
administrative or enforcement action are likewise available to an FCU 
under this final rule.

B. Partial Occupancy

    Most commenters were supportive of the overall concept of 
streamlining or improving the fixed assets rule's partial occupancy 
requirement. A number of commenters, however, asked for additional 
relief beyond that proposed.
Uniform 6-Year Partial Occupancy Timeframe
    Under the current rule, if an FCU acquires premises for future 
expansion and does not fully occupy them within one year, it must have 
an FCU board resolution in place by the end of that year with 
definitive plans for full occupation.\17\ The current rule does not set 
a specific time period within which an FCU must achieve full occupation 
of premises acquired for future expansion. However, partial occupancy 
of the premises is required within a reasonable period, but no later 
than three years after the date of acquisition of improved property, or 
six years if the premises are unimproved land or unimproved real 
property.\18\ Partial occupancy must be sufficient to show, among other 
things, that the FCU will fully occupy the premises within a reasonable 
time and consistent with its plan for the premises.\19\ In the March 
2015 proposal, the Board proposed to simplify the occupancy 
requirements in the fixed assets rule by establishing a single time 
period of six years from the date of acquisition for partial occupancy 
of any premises acquired for future expansion, regardless of whether 
the premises are improved or unimproved.
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    \17\ 12 CFR 701.36(d)(1). The reasonableness of an FCU's plan 
for full occupation is evaluated through the examination process and 
based upon such factors as the defensibility of projection 
assumptions, the operational and financial feasibility of the plan, 
and the overall suitability of the plan relative to the FCU's field 
of membership.
    \18\ 12 CFR 701.36(d)(2).
    \19\ 12 CFR 701.36(b).
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    Three commenters agreed with the proposal to establish a single, 
uniform six-year time period for partial occupancy. One commenter, 
however, suggested that six years is too short a timeframe to achieve 
partial occupancy. Another commenter agreed that partial occupancy 
within six years may be appropriate in some instances, but disagreed 
that it should be mandated by regulation. Two commenters suggested that 
the rule should allow for up to ten years for partial occupancy. One 
commenter noted generally that allowing a longer timeframe for partial 
occupancy would reduce the need for waivers. One commenter said the 
proposed six-year timeframe is an improvement over the current rule, 
but preferred that the regulatory occupancy timeframes be removed 
altogether.
    Six commenters suggested that the partial occupancy requirement 
should be eliminated entirely. Of those, four commenters observed that 
the FCU Act does not require a specific timeframe for occupancy or 
otherwise prescribe occupancy requirements for permissible real estate 
holdings. One commenter posited that NCUA has the statutory authority 
to provide greater flexibility in the partial occupancy requirements of 
the fixed assets rule.
    As discussed in the preambles to the July 2014 and the March 2015 
proposals, the FCU Act authorizes an FCU to purchase, hold, and dispose 
of property necessary or incidental to its operations.\20\ NCUA has 
interpreted this provision to mean that an FCU may only invest in 
property it intends to use to transact credit union business or in 
property that supports its internal operations or member services.\21\ 
There is no authority in the FCU Act for an FCU to invest in real 
estate for speculative purposes or to otherwise engage in real estate 
activities that do not support its purpose of providing financial 
services to its members.
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    \20\ 12 U.S.C. 1757(4) (emphasis added).
    \21\ See 43 FR 58176, 58178 (Dec. 13, 1978) (``Part 107(4) of 
the Federal Credit Union Act provides that a credit union may 
purchase, hold, and dispose of property necessary or incidental to 
its operations. Retaining a piece of property whose only purpose is 
to provide office space to other entities is clearly not necessary 
or incidental to the Federal credit union's operations. Further, 
investing in, or holding, property with the intent of realizing a 
profit from appreciation at a future sale is also outside the powers 
of a Federal credit union.''); 69 FR 58039, 58041 (Sept. 29, 2004) 
(``Federal credit unions are chartered for the purpose of providing 
financial services to their members and it is not permissible for 
them to engage in real estate activities that do not support that 
purpose.'')
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    As noted above, the purpose of the fixed assets rule is to place 
reasonable controls on the risk associated with excess or speculative 
acquisition of fixed assets. The Board believes that, while partial 
occupancy is not expressly mandated by the FCU Act, the requirement for 
an FCU to partially occupy premises acquired for future expansion 
within a specified timeframe functions as a reasonable safeguard 
against speculative real estate investments or other impermissible real 
estate activities that are not permitted for FCUs under the FCU Act. 
Further, the Board maintains that a single six-year time period for 
partial occupancy will simplify and improve the rule, and the final 
rule adopts this amendment without modification. The final rule 
therefore retains the current time period for unimproved land or 
unimproved real property, and extends the current time period for 
improved premises by three years.
    The Board emphasizes that the elimination of the 30-month 
requirement for partial occupancy waiver requests, which is discussed 
below, will allow an FCU additional leeway to apply for a waiver, as 
needed, if it is not able to achieve partial occupancy of premises 
within six years.
30-Month Waiver Deadline
    Under the current rule, an FCU must submit its request for a waiver 
from the partial occupancy requirement within 30 months after the 
property is acquired. In the March 2015 proposal, the Board proposed to 
eliminate the 30-month requirement and allow FCUs to apply for a waiver 
beyond that time frame as appropriate. Four commenters provided 
feedback on the proposal to eliminate the 30-month timeframe for 
requesting a waiver of the partial occupancy requirement, and all were 
supportive of it. One commenter noted that the current 30-month waiver 
deadline does not allow FCUs the necessary flexibility to react to 
unanticipated business developments. The same commenter indicated that 
delays often occur outside the 30-month waiver timeframe and FCUs are 
left without options, causing greater hardship for an FCU already 
facing a

[[Page 45849]]

business set-back in the development of its unimproved property.
    In light of the unanimous support from commenters on this aspect of 
the proposal, the Board is adopting, without change, the proposal to 
eliminate the 30-month timeframe for requesting a waiver of the partial 
occupancy requirement.

C. Additional Comments

Full Occupancy
    As mentioned above, the current rule does not set a specific time 
period within which an FCU must achieve full occupancy of premises 
acquired for future expansion. However, if an FCU acquires such 
premises and does not fully occupy them within one year, it must have a 
board resolution in place by the end of that year with definitive plans 
for full occupation.\22\ Further, partial occupancy of the premises is 
required within a set timeframe and must be sufficient to show, among 
other things, that the FCU will fully occupy the premises within a 
reasonable time and consistent with its plan for the premises.\23\ The 
Board requested and received public comment on this topic in connection 
with the July 2014 proposal. The Board did not propose to amend the 
full occupancy requirement in the March 2015 proposal, but several 
commenters provided comment on this subject.
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    \22\ 12 CFR 701.36(d)(1).
    \23\ Id.
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    One commenter stated that the FCU Act includes no express occupancy 
mandate on FCU property that supports the purpose of providing 
financial services to credit union members. Accordingly, the commenter 
believed that NCUA's interpretation of Section 107(4) of the FCU Act is 
unnecessarily restrictive, and the Board should eliminate the occupancy 
requirements from the rule. In support of this contention, the same 
commenter suggested that removing occupancy restrictions would allow 
FCUs to better compete with other financial institutions.
    Another commenter stated generally that NCUA should reconsider its 
position on full occupancy because it oftentimes makes sense for a 
credit union to own a building and lease out part or all of the 
building to help offset the cost of property ownership.
    The Board appreciates the additional comments on the full occupancy 
requirement and is carefully considering commenters' continued requests 
for relief in this area. The Board may address the full occupancy 
requirement in a future proposed rulemaking.
Small Credit Union Exemption
    One commenter suggested NCUA review the small credit union 
exemption in the current fixed assets rule in order to provide 
additional regulatory relief to FCUs. This commenter asserted that the 
fixed assets rule does not apply to credit unions with less than $1 
million in assets, and observed that NCUA has not adjusted the 
exemption amount in a number of years.
    The Board clarifies, however, that the current exemption for FCUs 
with less than $1 million in assets \24\ does not exempt those FCUs 
from the entirety of the fixed assets rule. Rather, the exemption 
applies only to the five percent aggregate limit on FCU ownership of 
fixed assets, which is eliminated in this final rule. Thus, the small 
credit union exemption to that limit is rendered moot and likewise 
eliminated.
---------------------------------------------------------------------------

    \24\ 12 CFR 701.36(c).
---------------------------------------------------------------------------

III. Final Rule

    After careful consideration of all the public comments, the Board 
is generally adopting the March 2015 proposed rule as final without 
change.
    In summary, this final rule amends the current fixed assets rule 
by: (1) Eliminating the five percent aggregate limit on fixed assets 
for FCUs with $1,000,000 or more in assets, as well as the provisions 
relating to waivers from that aggregate limit; (2) establishing a 
single time period of six years from the date of acquisition of real 
property for an FCU to partially occupy any premises acquired for 
future expansion, regardless of whether the premises are improved or 
unimproved property; and (3) eliminating the requirement that an FCU 
applying for a waiver of the partial occupancy requirement do so within 
30 months of acquisition of any property acquired for future expansion.
    In addition, the final rule makes conforming and technical 
amendments to the scope, definitions, and other sections of the fixed 
assets rule to reflect these changes, and it amends the title of Sec.  
701.36 to more accurately reflect its amended scope and applicability.

A. Existing Waivers or Enforcement Constraints

    Because the final rule eliminates the five percent aggregate limit 
on fixed assets and the provisions relating to waivers from that 
aggregate limit, any waiver previously approved by NCUA concerning this 
aspect of the rule is rendered moot upon the effective date of this 
final rule. However, any constraints imposed on an FCU in connection 
with its investments in fixed assets, such as may be contained in a 
Letter of Understanding and Agreement, Document of Resolution, Regional 
Director Letter, Preliminary Warning Letter, or formal enforcement 
action, will remain intact. Thus, any particular enforcement measure to 
which an FCU is uniquely subject takes precedence over the more general 
application of the regulation. A constraint may take the form of a 
limitation or other condition that is actually imposed as part of a 
waiver. In such cases, the constraint will survive the adoption of this 
final rule.

IV. Regulatory Procedures

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires that, in 
connection with a rulemaking, an agency prepare and make available for 
public comment a regulatory flexibility analysis that describes the 
impact of a rule on small entities. A regulatory flexibility analysis 
is not required, however, if the agency certifies that the rule will 
not have a significant economic impact on a substantial number of small 
entities (defined for purposes of the RFA to include credit unions with 
assets less than $50 million) and publishes its certification and a 
short, explanatory statement in the Federal Register together with the 
rule. This rule will provide regulatory relief by allowing FCUs to 
manage their investments in fixed assets without having to prepare and 
submit a waiver request to exceed the five percent aggregate limit. 
Regulatory relief will also be achieved by extending the time period 
from three to six years for a FCU to partially occupy improved premises 
acquired for future expansion and by eliminating the requirement to 
submit a waiver request within 30 months after the property is 
acquired. This will reduce the number of credit unions needing to 
request an occupancy waiver. This rule will result in no additional 
costs to FCUs. NCUA certifies that this final rule will not have a 
significant economic impact on a substantial number of small credit 
unions.

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.\25\ For purposes of the PRA, a 
paperwork burden may take the form of either a reporting or a 
recordkeeping

[[Page 45850]]

requirement, both referred to as information collections. The final 
rule provides regulatory relief to FCUs by eliminating the requirement 
that, for an FCU with $1,000,000 or more in assets, the aggregate of 
all its investments in fixed assets must not exceed five percent of its 
shares and retained earnings, unless it obtains a waiver from NCUA. The 
final rule does not impose new paperwork burdens. However, the final 
rule will relieve FCUs from the current requirement to obtain a waiver 
to exceed the five percent aggregate limit on investments in fixed 
assets.
---------------------------------------------------------------------------

    \25\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------

    According to NCUA records, as of September 30, 2014, there were 
3,707 FCUs with assets over $1,000,000 and subject to the five percent 
aggregate limit on fixed assets. Of those, approximately 150 FCUs would 
prepare and file a new waiver request to exceed the five percent 
aggregate limit. This effort, which is estimated to create 15 hours 
burden per waiver, would no longer be required under the final rule. 
Accordingly, the reduction to existing paperwork burdens that would 
result from the final rule is analyzed below:
Estimate of the Reduced Burden by Eliminating the Waiver Requirement
    Estimated FCUs which will no longer be required to prepare a waiver 
request and file a waiver request: 150.
    Frequency of waiver request: Annual.
    Reduced hour burden: 15.
    150 FCUs x 15 hours = 2250 hours annual reduced burden.
    In accordance with the requirements of the PRA, NCUA submitted a 
copy of the rule to the Office of Management and Budget for its review 
and approval.

C. 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. Because the fixed assets rule 
applies only to FCUs, and not to state-chartered credit unions, this 
final rule will 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. As such, 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 final rule will not affect family 
well-being within the meaning of Section 654 of the Treasury and 
General Government Appropriations Act of 1999.\26\
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    \26\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------

E. Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA) provides generally for congressional review of agency rules. A 
reporting requirement is triggered in instances where NCUA issues a 
final rule as defined by Section 551 of the APA. NCUA does not believe 
this final rule is a ``major rule'' within the meaning of the relevant 
sections of SBREFA because it will provide regulatory relief to give 
FCUs greater autonomy in managing their investments in fixed assets. 
The elimination of the aggregate limit on fixed assets and the 
extension of the occupancy requirement will significantly reduce the 
number of FCUs needing to prepare a waiver request. NCUA has submitted 
the rule to the Office of Management and Budget for its determination 
in that regard.

List of Subjects in 12 CFR Part 701

    Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board, on July 23, 
2015.
Gerard Poliquin,
Secretary of the Board.

    For the reasons stated above, NCUA amends 12 CFR part 701 as 
follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL 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, 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.


0
2. Amend Sec.  701.36 as follows:
0
a. Revise the section heading and paragraph (a).
0
b. In paragraph (b) remove the following definitions: ``fixed assets'', 
``furniture, fixtures, and equipment'', ``investments in fixed 
assets'', ``retained earnings'', and ``shares''.
0
c. Remove paragraph (c).
0
d. Redesignate paragraph (d) as (c).
0
e. Revise newly redesignated paragraph (c)(2).
0
f. Redesignate paragraph (e) as (d).
0
g. Revise newly redesignated paragraphs (d)(2) and (4).
    The revisions read as follows:


Sec.  701.36  Federal credit union occupancy, planning, and disposal of 
acquired and abandoned premises.

    (a) Scope. Section 107(4) of the Federal Credit Union Act (12 
U.S.C. 1757(4)) authorizes a federal credit union to purchase, hold, 
and dispose of property necessary or incidental to its operations. This 
section interprets and implements that provision by establishing 
occupancy, planning, and disposal requirements for acquired and 
abandoned premises, and by prohibiting certain transactions. This 
section applies only to federal credit unions.
* * * * *
    (c) * * *
    (2) If a federal credit union acquires premises for future 
expansion, including unimproved land or unimproved real property, it 
must partially occupy them within a reasonable period, but no later 
than six years after the date of acquisition. NCUA may waive the 
partial occupation requirements. To seek a waiver, a federal credit 
union must submit a written request to its Regional Office and fully 
explain why it needs the waiver. The Regional Director will provide the 
federal credit union a written response, either approving or 
disapproving the request. The Regional Director's decision will be 
based on safety and soundness considerations.
* * * * *
    (d) * * *
    (2) A federal credit union must not lease for one year or longer 
premises from any of its employees if the employee is directly involved 
in acquiring premises, unless the federal credit union's board of 
directors determines the employee's involvement is not a conflict of 
interest.
* * * * *
    (4) To seek a waiver from any of the prohibitions in this paragraph 
(d), a federal credit union must submit a written request to its 
Regional Office and fully explain why it needs the waiver. Within 45 
days of the receipt of the waiver request or all necessary 
documentation, whichever is later, the Regional Director will provide 
the federal credit union a written response, either approving or 
disapproving its request. The Regional Director's decision will be 
based on safety and soundness considerations and a

[[Page 45851]]

determination as to whether a conflict of interest exists.
[FR Doc. 2015-18642 Filed 7-31-15; 8:45 am]
 BILLING CODE 7535-01-P