81_FR_24819 81 FR 24738 - Federal Credit Union Occupancy, Planning, and Disposal of Acquired and Abandoned Premises; Incidental Powers

81 FR 24738 - Federal Credit Union Occupancy, Planning, and Disposal of Acquired and Abandoned Premises; Incidental Powers

NATIONAL CREDIT UNION ADMINISTRATION

Federal Register Volume 81, Issue 81 (April 27, 2016)

Page Range24738-24742
FR Document2016-09867

As part of NCUA's Regulatory Modernization Initiative, the NCUA Board (Board) is issuing for public comment a proposed rule to amend its regulation governing federal credit union (FCU) occupancy, planning, and disposal of acquired and abandoned premises, and its regulation regarding incidental powers. To provide regulatory relief to FCUs, the proposal eliminates a requirement in the current occupancy rule (formerly known as the fixed assets rule) that an FCU must plan for, and eventually achieve, full occupancy of acquired premises. The proposal generally retains the current regulatory timeframes for partial occupancy. However, it modifies the definition of ``partially occupy'' to mean occupation and use, on a full-time basis, of at least fifty percent of the premises by the FCU, or by a combination of the FCU and a credit union service organization (CUSO) in which the FCU has a controlling interest in accordance with Generally Accepted Accounting Principles (GAAP). The proposal also amends the excess capacity provision in NCUA's incidental powers rule to clarify that an FCU may lease or sell excess capacity in its facilities, but it need not anticipate that such excess capacity will be fully occupied by the FCU in the future. However, the sale or lease of excess capacity in equipment or services, including employee-sharing and data processing for third parties, continues to be limited to circumstances where an FCU reasonably anticipates that such excess capacity will be taken up by the future expansion of services to members.

Federal Register, Volume 81 Issue 81 (Wednesday, April 27, 2016)
[Federal Register Volume 81, Number 81 (Wednesday, April 27, 2016)]
[Proposed Rules]
[Pages 24738-24742]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-09867]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 701 and 721

RIN 3133-AE54


Federal Credit Union Occupancy, Planning, and Disposal of 
Acquired and Abandoned Premises; Incidental Powers

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

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SUMMARY: As part of NCUA's Regulatory Modernization Initiative, the 
NCUA Board (Board) is issuing for public comment a proposed rule to 
amend its regulation governing federal credit union (FCU) occupancy, 
planning, and disposal of acquired and abandoned premises, and its 
regulation regarding incidental powers. To provide regulatory relief to 
FCUs, the proposal eliminates a requirement in the current occupancy 
rule (formerly known as the fixed assets rule) that an FCU must plan 
for, and eventually achieve, full occupancy of acquired premises.
    The proposal generally retains the current regulatory timeframes 
for partial occupancy. However, it modifies the definition of 
``partially occupy'' to mean occupation and use, on a full-time basis, 
of at least fifty percent of the premises by the FCU, or by a 
combination of the FCU and a credit union service organization (CUSO) 
in which the FCU has a controlling interest in accordance with 
Generally Accepted Accounting Principles (GAAP).
    The proposal also amends the excess capacity provision in NCUA's 
incidental powers rule to clarify that an FCU may lease or sell excess 
capacity in its facilities, but it need not anticipate that such excess 
capacity will be fully occupied by the FCU in the future. However, the 
sale or lease of excess capacity in equipment or services, including 
employee-sharing and data processing for third parties, continues to be 
limited to circumstances where an FCU reasonably anticipates that such 
excess capacity will be taken up by the future expansion of services to 
members.

DATES: Comments must be received on or before June 27, 2016.

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: https://www.ncua.gov/regulation-supervision/Pages/rules/proposed.aspx. Follow the instructions for 
submitting comments.
     Email: Address to [email protected]. Include ``[Your 
name] Comments on Notice of Proposed Rulemaking for Parts 701 and 721, 
FCU Occupancy, Planning, and Disposal of Acquired and Abandoned 
Premises; Incidental Powers'' 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.

[[Page 24739]]

     Hand Delivery/Courier: Same as mail address.
    Public Inspection: You may view all public comments on NCUA's Web 
site at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as 
submitted, except for those we cannot post for technical reasons. NCUA 
will not edit or remove any 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: 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
II. Summary of the Proposed Rule
III. Regulatory Procedures

I. Background

    Section 107(4) of 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 occupancy rule (formerly 
referred to as the fixed assets rule) interprets and implements this 
provision of the FCU Act by establishing occupancy, planning, and 
disposal requirements for acquired and abandoned premises. The rule 
also prohibits certain transactions to avoid conflicts of interest in 
the acquisition or lease of FCU premises.\2\
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    \1\ 12 U.S.C. 1757(4).
    \2\ 12 CFR 701.36.
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    Over the past several years, the Board has proposed and adopted 
several regulatory amendments to modernize Sec.  701.36.\3\ Most 
recently, in July 2015, the Board approved a final rule to eliminate 
the five percent aggregate limit on investments in fixed assets for 
FCUs with $1,000,000 or more in assets and to streamline the partial 
occupancy requirements. Public comment in response to these recent 
amendments has been generally supportive of the Board's ongoing efforts 
to provide regulatory relief to FCUs in this area. However, commenters 
have continued to ask for more regulatory relief to provide FCUs with 
greater flexibility in the management of property necessary or 
incidental to FCU operations. In particular, commenters have strongly 
advocated the elimination of regulatory occupancy requirements, 
especially the requirement for full occupancy.
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    \3\ 78 FR 57250 (Sept. 18, 2013); 79 FR 46727 (Aug. 11, 2014); 
80 FR 16595 (Mar. 30, 2015); 80 FR 45844 (Aug. 3, 2015).
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    In general, commenters have maintained that the FCU Act does not 
expressly mandate specific timeframes for occupancy or otherwise 
prescribe occupancy requirements for FCU premises. Thus, commenters 
have urged the Board to liberalize NCUA's occupancy rules.\4\ For 
example, commenters have said that NCUA should not set a specific time 
period for full occupancy; that FCU boards and management should 
determine the best timeframe in which to fully develop property; and 
that the full occupancy requirement should be eliminated entirely.\5\ 
Commenters have also suggested that NCUA should replace the ``full'' 
occupancy requirement with a ``significant'' or ``substantial'' 
occupancy requirement, defined as fifty-one percent occupancy.\6\
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    \4\ 80 FR 45844 (Aug. 3, 2015).
    \5\ 80 FR 16595, 16599 (Mar. 30, 2015).
    \6\ Id.
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    In addition, commenters urging NCUA to reconsider its position on 
full occupancy have indicated that 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.\7\ Commenters 
have argued that prescriptive occupancy requirements reduce access to 
commercial space and limit an FCU's ability to acquire space in the 
most cost-effective manner. As an example, commenters have noted that 
some local zoning or mixed-use ordinances, city entitlements, or other 
use requirements may require a portion of the property to be dedicated 
to retail business.\8\ Commenters have also posited that generating 
long-term income from FCU premises would generate value for the FCU's 
membership.\9\
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    \7\ 80 FR 45844 (Aug. 3, 2015).
    \8\ 80 FR 16595, 16599 (Mar. 30, 2015).
    \9\ Id.
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    The Board has carefully considered the numerous comments received 
on this subject since at least 2013.\10\ The Board also has 
reconsidered the regulatory position that the limited authority for 
FCUs to invest in property granted by Section 107(4) of the FCU Act 
means that an FCU may not hold real property indefinitely without fully 
occupying the premises. Accordingly, as discussed in more detail below, 
the Board is proposing to eliminate from the current occupancy rule the 
requirement that an FCU must plan for, and eventually achieve, full 
occupancy of its premises. The proposal generally retains the current 
regulatory timeframes for partial occupancy and the related waiver 
provisions, including those finalized in July 2015.\11\ However, the 
current definition of ``partially occupy'' is modified in the proposal 
to reflect that an FCU need not fully occupy premises, but the FCU (or 
a combination of the FCU and a CUSO in which the FCU has a controlling 
interest in accordance with GAAP) must utilize at least fifty percent 
of the premises on a full-time basis within the required timeframe to 
achieve partial occupancy. For consistency, the proposal also amends 
the excess capacity provision in the incidental powers rule and makes 
technical and conforming amendments \12\ to reflect the proposed policy 
change regarding full occupancy for FCU premises.
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    \10\ In fact, requests for relief from the full occupancy 
requirement date back to at least 2004. See 69 FR 58039, 58041 
(Sept. 29, 2004) (``Several commenters believe NCUA should reduce or 
eliminate the rule's requirements for both partial and full 
occupation, but particularly for full occupation. These commenters 
contend it is difficult for a credit union to obtain a building or 
lease space that is a perfect fit for the credit union's current and 
near term plans and the rule's occupation requirements restrict 
credit union growth and may be anticompetitive. One commenter cites 
the perceived difficulty rural and low-income credit unions have in 
finding appropriate office space, and another cites the perceived 
difficulty a continuing credit union in a merger has in balancing 
reduced staffing needs with the buildings it inherits in a 
merger.'')
    \11\ 80 FR 45844 (Aug. 3, 2015).
    \12\ For example, the proposed rule generally removes references 
to ``future expansion'' and other language that implies an FCU must 
plan for and achieve full occupancy of its premises.
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    The proposed rule is discussed in greater detail below.

II. Summary of the Proposed Rule

A. Occupancy rule

    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.\13\ For purposes of the rule, 
``premises'' means any office, branch office, suboffice, service 
center, parking lot, other facility, or real estate where the FCU 
transacts or will transact business.\14\ The current rule does not set 
a specific time period within which an

[[Page 24740]]

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 six years after the date 
of acquisition, regardless of whether the premises are improved or 
unimproved.\15\ 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.\16\
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    \13\ 12 CFR 701.36(c)(1). Under the current rule, 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.
    \14\ 12 CFR 701.36(b).
    \15\ 12 CFR 701.36(c)(2).
    \16\ 12 CFR 701.36(b).
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    The occupancy requirements in the current rule have a statutory 
basis, but full occupancy of FCU premises is not expressly or 
specifically mandated by statute. Section 107(4) of the FCU Act 
authorizes an FCU to purchase, hold, and dispose of property necessary 
or incidental to its operations.\17\ NCUA has long held that the 
limited authority granted by this provision means that an FCU may not 
hold, or lease to unrelated third parties, real property indefinitely 
without fully occupying the premises.\18\
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    \17\ 12 U.S.C. 1757(4) (emphasis added).
    \18\ 69 FR 58039, 58041 (Sept. 29, 2004).
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    After further consideration, however, the Board believes the 
language in Section 107(4) of the FCU Act supports an interpretation 
that provides FCUs' with more flexibility to acquire and hold real 
property. Accordingly, the Board has reconsidered its current approach 
of ensuring that FCU investment in and use of real property is 
consistent with the FCU Act by requiring FCUs to fully occupy premises. 
Section 107(4) neither explicitly mentions nor expressly requires full 
occupancy of FCU property. Accordingly, the Board proposes to eliminate 
the full occupancy and related planning requirements in the current 
occupancy rule. Specifically, the proposed rule deletes the requirement 
in current Sec.  701.36(c)(1) that, if an FCU acquires premises for 
future expansion 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.
    While this proposed change represents a departure from the Board's 
previous interpretation of Section 107(4), it is both reasonable and 
consistent with the requirements of the FCU Act. The United States 
Supreme Court has emphasized that an ``initial agency interpretation is 
not instantly carved in stone,'' and ``to engage in informed 
rulemaking, [an agency] must consider varying interpretations and the 
wisdom of its policy on a continuing basis,'' indicating that an agency 
may change its interpretive position on the statutes it 
administers.\19\ In light of the continuing requests from commenters 
for relief from the full occupancy requirement, the proposed change is 
required to avoid unnecessarily imposing undue hardship on FCUs that 
may have difficulty realizing their growth potential and member service 
strategies under the current rule.
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    \19\ Chevron v. Natural Resources Defense Council, 467 U.S. 837, 
863-864 (1984). The Supreme Court has also found that an agency is 
entitled to Chevron deference if it reverses an earlier 
interpretation. See e.g., Rust v. Sullivan, 500 U.S. 173 (1991); 
National Cable & Telecommunications Ass'n v. Brand X Internet 
Services, 545 U.S. 967 (2005).
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    The Board emphasizes, however, that it maintains its current view 
that 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 generally support its purpose of providing 
financial services to its members. The statute is clear that any 
property acquired or held by an FCU must be ``necessary or incidental 
to its operations.'' \20\ NCUA has stated consistently 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\
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    \20\ 12 U.S.C. 1757(4).
    \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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    Although the Board's position on full occupancy has evolved, it 
continues to read the FCU Act as requiring that an FCU may purchase or 
hold property only for a permissible purpose or activity; that is, to 
support the FCU's provision of financial services to its members. As 
the Board noted in the preamble to the July 2015 final rule, the 
requirement for an FCU to partially occupy its acquired premises within 
a specified timeframe is intended to function as a reasonable safeguard 
against speculative real estate investments or other real estate 
activities that are not permitted for FCUs under the FCU Act.\22\ 
Making speculative investments in real property exceeds an FCU's 
authority and can lead to safety and soundness problems. Making 
speculative investments in real property increases an FCU's exposure to 
market factors unrelated to financial services. As well, managing 
unoccupied real property or commercial leases creates operational risk 
exposures which are significantly different from those related to 
managing authorized financial services permissible for FCUs. By 
maintaining the requirement that FCUs must partially occupy real 
property, NCUA reduces the opportunity for speculative investment and 
helps FCUs align their real property investment decisions with the 
operational needs of the FCU and its members.
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    \22\ 80 FR 45844 (Aug. 3, 2015).
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    Requiring an FCU to fully occupy its acquired premises may, under 
certain circumstances: (1) Hinder its ability to obtain cost-effective 
office space necessary to serve its members; (2) restrict its growth; 
or (3) place it at a competitive disadvantage. However, without a 
reasonable occupancy requirement, there is little to inhibit an FCU 
from: (1) Speculating on real property with the sole intent of 
realizing a profit from its future sale; (2) acting as a property 
developer or full-time landlord; or (3) otherwise venturing into real 
estate activities that are beyond the scope of its authority under 
Section 107(4). Accordingly, the Board has determined that an FCU must 
at least partially occupy each of its acquired real property. For both 
legal and safety and soundness reasons, the proposed rule retains the 
requirement that an FCU premises, including unimproved property, must 
be partially occupied within six years from the date of its 
acquisition. An FCU may apply for a waiver if it is not able to achieve 
partial occupancy of its premises within six years.\23\
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    \23\ 12 CFR 701.36(c)(2).
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    Under the current rule, ``partially occupy'' means occupation, on a 
full-time basis, of a portion of the premises that is: (1) Consistent 
with the FCU's usage plan for the premises; (2) significant enough that 
the FCU is deriving practical utility from the occupied portion 
relative to the scope of the usage plan; and (3) sufficient to show 
that the FCU will fully occupy the premises within a reasonable 
time.\24\ The Board proposes to modify the current definition of 
``partial occupancy'' to eliminate references to the current 
requirement to plan for full occupancy (usage plan) and the need to 
show that the FCU will fully occupy the premises. Additionally, the 
Board proposes to amend that definition to

[[Page 24741]]

emphasize that at least fifty percent of FCU premises must be occupied 
and used, on a full-time basis, by the FCU or a combination of the FCU 
and a CUSO in which the FCU has a controlling interest in accordance 
with GAAP.\25\ Occupancy of FCU premises with third-party vendors or 
CUSOs in which the FCU does not maintain a controlling interest will 
not count towards the fifty percent partial occupancy requirement 
because these entities operate at the direction of other owners and may 
not be obligated to primarily support the FCU that acquired the 
premises or to primarily serve that FCU's members. The proposed 
definition, which incorporates elements from the current rule's 
definition of full occupancy,\26\ will ensure that any property 
acquired or held by an FCU is primarily utilized for a purpose that is 
necessary or incidental to its operations, as required by the FCU Act.
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    \24\ 12 CFR 701.36(b).
    \25\ FASB Accounting Standards Update (ASU) 805 defines 
controlling interest as ``the ability of an entity to direct the 
policies and management that guide the ongoing activities of another 
entity so as to increase its benefits and limit its losses from that 
other entity's activities.'' More generally, controlling interest is 
majority interest or any other ownership interest which entitles the 
owner to direct the activities of the CUSO.
    \26\ 12 CFR 701.36(c)(1).
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B. Incidental powers.

    The Board recognizes that in planning for future expansion, FCUs 
should be permitted to sell or lease their excess capacity as a matter 
of good business practice.\27\ The incidental powers rule permits an 
FCU to sell or lease its excess capacity with respect to its property 
and services.\28\ Under that rule, excess capacity refers to the excess 
use or capacity remaining in FCU facilities, equipment, or 
services.\29\ An FCU's sale or lease of excess capacity, for example, 
may involve leasing excess office space, sharing employees, or using 
data processing systems to process information for third parties.\30\ 
However, while an FCU has the authority under the rule to obtain income 
by selling or leasing excess capacity in its facilities, equipment, or 
services to third parties, that authority is subject to the following 
conditions: (1) The facilities, equipment, or services must have been 
acquired by an FCU, in good faith, for the purpose of providing 
financial services to its members; and (2) the FCU must reasonably 
anticipate that the excess capacity will be taken up by the future 
expansion of services to its members.\31\
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    \27\ 66 FR 40845, 40851 (Aug. 6, 2001).
    \28\ The incidental powers rule defines an incidental powers 
activity as one that is necessary or requisite to enable an FCU to 
carry on effectively the business for which it is incorporated. An 
activity meets the definition of an incidental powers activity if 
it: (1) Is convenient or useful in carrying out the mission or 
business of credit unions consistent with the FCU Act; (2) is the 
functional equivalent or logical outgrowth of activities that are 
part of the mission or business of credit unions; and (3) involves 
risks similar in nature to those already assumed as part of the 
business of credit unions. 12 CFR 721.2.
    \29\ 12 CFR 721.3(e).
    \30\ Id.
    \31\ Id.
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    To conform to the above proposed amendments to the occupancy rule, 
the Board proposes to amend the incidental powers rule regarding the 
sale or lease of excess capacity by removing the condition that excess 
capacity in FCU facilities must eventually be fully occupied by the 
FCU. The Board continues to believe, however, that the sale or lease of 
excess capacity in equipment or services, including employee-sharing 
and data processing for third parties, should be limited to 
circumstances where an FCU reasonably anticipates that the excess 
capacity will be taken up by the future expansion of services to its 
members.
    In adopting the excess capacity provision in the incidental powers 
rule, the Board reasoned in 2001 that ``[t]he sale of excess capacity 
offers FCUs the opportunity to provide financial services to its 
members, even though member demand for the services does not initially 
meet the FCU's capacity.'' \32\ However, the Board also noted:
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    \32\ 66 FR 40845, 40851 (Aug. 6, 2001).

    NCUA has consistently held the position that an FCU has limited 
authority in the leasing of fixed assets and the sale of excess data 
processing capacity. FCUs are not in the business of providing 
others with data processing capacity or any other service that is 
not within their express or incidental powers; rather, they are 
cooperative financial institutions organized to provide financial 
services to their members.\33\
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    \33\ Id.

    While the Board has reconsidered its position with respect to 
requiring full occupancy of FCU facilities, the Board maintains its 
view that FCUs are not, and should not be, in the business of providing 
third parties with data processing capacity or other equipment or 
services outside their express or incidental powers. Accordingly, under 
this proposal, an FCU's authority to sell or lease excess capacity in 
equipment and services continues to be conditioned on the FCU's 
reasonable anticipation that its members will eventually fully utilize 
the excess capacity.

III. Regulatory Procedures

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires that, in 
connection with a notice of proposed rulemaking, an agency prepare and 
make available for public comment an initial regulatory flexibility 
analysis that describes the impact of a proposed 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 $100 
million) and publishes its certification and a short, explanatory 
statement in the Federal Register together with the rule. The proposed 
rule would provide regulatory relief by eliminating the need to develop 
a plan for full occupancy. However, FCUs currently have limited 
flexibility to purchase real estate with excess capacity. NCUA 
certifies that the proposed 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.\34\ 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 rule provides regulatory relief to FCUs by eliminating the 
requirement that, if an FCU does not fully occupy premises acquired for 
future expansion within one year, it must have a board resolution in 
place by the end of that year with definitive plans for full 
occupation. The proposed rule does not impose new paperwork burdens. 
The proposed rule would relieve FCUs from the current requirement to 
have a board-approved plan for full occupation of its premises.
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    \34\ 44 U.S.C. 3507(d); 5 CFR part 1320.
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    According to NCUA estimates, approximately 15 FCUs are required to 
develop a plan for full occupation premises each year. Accordingly, the 
reduction to existing paperwork burdens that would result from the 
proposal is analyzed below:
    Estimate of the reduced burden by eliminating the full occupancy 
planning requirement.
    Estimated FCUs: 15.
    Frequency of waiver request: Annual.

[[Page 24742]]

    Reduced hour burden: 15 hours.
    15 FCUs x 15 hours = 225 hours reduced burden.
    In accordance with the requirements of the PRA, NCUA intends to 
obtain a modification of its OMB Control Number, 3133-0040, to support 
these changes. NCUA is submitting a copy of the proposed rule to OMB, 
along with an application for a modification of the OMB Control Number.
    The PRA and OMB regulations require that the public be provided an 
opportunity to comment on the paperwork requirements, including an 
agency's estimate of the burden of the paperwork requirements. The 
Board invites comment on: (1) Whether the paperwork requirements are 
necessary; (2) the accuracy of NCUA's estimates on the burden of the 
paperwork requirements; (3) ways to enhance the quality, utility, and 
clarity of the paperwork requirements; and (4) ways to minimize the 
burden of the paperwork requirements.
    Comments should be sent to the NCUA Contact and the OMB Reviewer 
listed below:
    NCUA Contact: Dawn Wolfgang, National Credit Union Administration, 
1775 Duke Street, Alexandria, Virginia 22314-3428, Fax No. 703-837-
2861, Email: [email protected].
    OMB Contact: Office of Management and Budget, ATTN: Desk Officer 
for the National Credit Union Administration, Office of Information and 
Regulatory Affairs, Washington, DC 20503.

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 occupancy and incidental 
powers regulations apply only to FCUs, the proposed rule would not have 
a substantial direct effect on the states, on the relationship between 
the national government and the states, or on the distribution of power 
and responsibilities among the various levels of government. As such, 
NCUA has determined that this rule does not constitute a policy that 
has federalism implications for purposes of the executive order.

D. Assessment of Federal Regulations and Policies on Families

    NCUA has determined that this rule will not affect family well-
being within the meaning of Section 654 of the Treasury and General 
Government Appropriations Act of 1999.\35\
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    \35\ Public Law 105-277, 112 Stat. 2681 (1998).
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List of Subjects

12 CFR Part 701

    Credit unions, Reporting and recordkeeping requirements.

12 CFR Part 721

    Credit unions, functions, implied powers.

    By the National Credit Union Administration Board, on April 21, 
2016.
Gerard Poliquin,
Secretary of the Board.
    For the reasons stated above, NCUA proposes to amend 12 CFR parts 
701 and 721 as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

0
1. The authority for part 701 continues to read as follows:

    Authority: 12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782, 
1787, 1789; Title V, Pub. L. 109-351, 120 Stat. 1966.

0
2. Amend the title of Sec.  701.36 and amend Sec. Sec.  701.36(a) and 
(b) to read as follows:


Sec.  701.36  Federal credit union occupancy 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 and disposal requirements for acquired and abandoned 
premises, and by prohibiting certain transactions. This section applies 
only to federal credit unions.
    (b) * * *
    Abandoned premises means premises previously used to transact 
credit union business but no longer used for that purpose. It also 
means premises originally acquired to transact future credit union 
business but no longer intended for that purpose.
* * * * *
    Partially occupy means occupation and use, on a full-time basis, of 
at least fifty percent of each of the premises by the federal credit 
union, or the federal credit union and a credit union service 
organization in which the federal credit union has a controlling 
interest in accordance with Generally Accepted Accounting Principles 
(GAAP).
* * * * *
0
3. Remove Sec.  701.36(c)(1); redesignate Sec.  701.36(c)(2) as Sec.  
701.36(c)(1) and amend it to read as follows:
    (c) Premises not currently used to transact credit union business. 
(1) If a federal credit union acquires premises, including unimproved 
land or unimproved real property, it must partially occupy each of 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.
0
4. Redesignate Sec.  701.36(c)(3) as Sec.  701.36(c)(2).

PART 721--INCIDENTAL POWERS

0
5. The authority for part 721 continues to read as follows:

    Authority:  12 U.S.C. 1757(17), 1766 and 1789.

0
6. Amend Sec.  721.3 to read as follows:


Sec.  721.3  What categories of activities are preapproved as 
incidental powers necessary or requisite to carry on a credit union's 
business?

* * * * *
    (a) * * *
    (b) * * *
    (c) * * *
    (d) * * *
    (e) Excess capacity. Excess capacity is the excess use or capacity 
remaining in facilities, equipment, or services that you properly 
invested in or established, in good faith, with the intent of serving 
your members or supporting your business operations. You may sell or 
lease the excess capacity in facilities, such as office space and other 
premises. You may sell or lease the excess capacity in equipment or 
services, such as employees and data processing, if you reasonably 
anticipate that the excess capacity will be taken up by the future 
expansion of services to your members.
* * * * *
[FR Doc. 2016-09867 Filed 4-26-16; 8:45 am]
 BILLING CODE 7535-01-P



                                                    24738                  Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

                                                                                                            DEPARTMENT OF AGRICULTURE                              Board (Board) is issuing for public
                                                        *       *        *        *        *                                                                       comment a proposed rule to amend its
                                                                NORTH CAROLINA                              Agricultural Marketing Service                         regulation governing federal credit
                                                                                                                                                                   union (FCU) occupancy, planning, and
                                                                     Asheville
                                                                                                            7 CFR Part 205                                         disposal of acquired and abandoned
                                                                    Survey Area                                                                                    premises, and its regulation regarding
                                                    North Carolina:                                         [Doc. No. AMS–NOP–15–0052; NOP–15–
                                                                                                            12PR]                                                  incidental powers. To provide
                                                        Buscombe                                                                                                   regulatory relief to FCUs, the proposal
                                                        Haywood                                             RIN 0581–AD43                                          eliminates a requirement in the current
                                                        Henderson
                                                                                                                                                                   occupancy rule (formerly known as the
                                                        Madison                                             National Organic Program (NOP);
                                                                                                                                                                   fixed assets rule) that an FCU must plan
                                                        Transylvania                                        Sunset 2016 Amendments to the
                                                                                                                                                                   for, and eventually achieve, full
                                                      Area of Application. Survey area plus:                National List; Correction
                                                                                                                                                                   occupancy of acquired premises.
                                                    North Carolina:                                         AGENCY:  Agricultural Marketing Service,                  The proposal generally retains the
                                                        Alexander                                           USDA.                                                  current regulatory timeframes for partial
                                                        Avery                                               ACTION: Proposed rule; correction.                     occupancy. However, it modifies the
                                                        Burke                                                                                                      definition of ‘‘partially occupy’’ to mean
                                                        Caldwell                                            SUMMARY:  This document contains a                     occupation and use, on a full-time basis,
                                                        Catawba                                             correction to the proposed rule which                  of at least fifty percent of the premises
                                                        Cherokee                                            was published on December 16, 2015                     by the FCU, or by a combination of the
                                                        Clay                                                (80 FR 78150). In the proposed rule, the               FCU and a credit union service
                                                        Graham                                              Regulatory Information Number (RIN)                    organization (CUSO) in which the FCU
                                                        Jackson                                             appears as RIN 0581–AD39. This                         has a controlling interest in accordance
                                                        McDowell                                            number is incorrect. The correct number                with Generally Accepted Accounting
                                                        Macon                                               is 0581–AD43. This document corrects                   Principles (GAAP).
                                                        Mitchell                                            the proposed rule.                                        The proposal also amends the excess
                                                        Polk                                                                                                       capacity provision in NCUA’s incidental
                                                                                                            DATES: April 27, 2016.
                                                        Rutherford                                                                                                 powers rule to clarify that an FCU may
                                                        Swain                                               FOR FURTHER INFORMATION CONTACT:
                                                                                                            Valerie Frances, Standards Division,                   lease or sell excess capacity in its
                                                        Yancey                                                                                                     facilities, but it need not anticipate that
                                                                                                            email: valerie.frances@ams.usda.gov.
                                                                                                            Telephone: (202) 720–3252; Fax: (202)                  such excess capacity will be fully
                                                    *          *           *          *            *                                                               occupied by the FCU in the future.
                                                                                                            260–9151.
                                                                                                                                                                   However, the sale or lease of excess
                                                                       Charlotte                            Correction                                             capacity in equipment or services,
                                                                      Survey Area                                                                                  including employee-sharing and data
                                                                                                              In proposed rule FR Doc. 2015–31380,
                                                    North Carolina:                                                                                                processing for third parties, continues to
                                                                                                            beginning at page 78150 of the issue of
                                                        Cabarrus                                                                                                   be limited to circumstances where an
                                                                                                            December 16, 2015, make the following
                                                        Gaston                                                                                                     FCU reasonably anticipates that such
                                                        Mecklenburg
                                                                                                            corrections:
                                                                                                              On page 78150, in the first column in                excess capacity will be taken up by the
                                                        Rowan
                                                                                                            the heading and the first line of the                  future expansion of services to
                                                        Union
                                                                                                            second column under the ADDRESSES                      members.
                                                       Area of Application. Survey area plus:               caption, correct the RIN to read ‘‘0581–               DATES:  Comments must be received on
                                                    North Carolina:                                         AD43’’.                                                or before June 27, 2016.
                                                        Anson
                                                                                                              Dated: April 22, 2016.                               ADDRESSES: You may submit comments
                                                        Cleveland
                                                        Iredell                                             Elanor Starmer,                                        by any of the following methods (Please
                                                        Lincoln                                             Administrator, Agricultural Marketing                  send comments by one method only):
                                                        Stanly                                              Service.                                                  • Federal eRulemaking Portal: http://
                                                        Wilkes                                              [FR Doc. 2016–09838 Filed 4–26–16; 8:45 am]            www.regulations.gov. Follow the
                                                    South Carolina:                                         BILLING CODE P                                         instructions for submitting comments.
                                                        Chester                                                                                                       • NCUA Web site: https://
                                                        Chesterfield                                                                                               www.ncua.gov/regulation-supervision/
                                                        Lancaster                                           NATIONAL CREDIT UNION                                  Pages/rules/proposed.aspx. Follow the
                                                        York                                                ADMINISTRATION                                         instructions for submitting comments.
                                                                                                                                                                      • Email: Address to regcomments@
                                                    *          *           *          *            *        12 CFR Parts 701 and 721                               ncua.gov. Include ‘‘[Your name]
                                                                                                                                                                   Comments on Notice of Proposed
                                                                                                            RIN 3133–AE54                                          Rulemaking for Parts 701 and 721, FCU
                                                    [FR Doc. 2016–09701 Filed 4–26–16; 8:45 am]
                                                                                                                                                                   Occupancy, Planning, and Disposal of
                                                    BILLING CODE 6325–39–P                                  Federal Credit Union Occupancy,
                                                                                                                                                                   Acquired and Abandoned Premises;
                                                                                                            Planning, and Disposal of Acquired
                                                                                                                                                                   Incidental Powers’’ in the email subject
jstallworth on DSK7TPTVN1PROD with PROPOSALS




                                                                                                            and Abandoned Premises; Incidental
                                                                                                                                                                   line.
                                                                                                            Powers
                                                                                                                                                                      • Fax: (703) 518–6319. Use the
                                                                                                            AGENCY:  National Credit Union                         subject line described above for email.
                                                                                                            Administration (NCUA).                                    • Mail: Address to Gerard Poliquin,
                                                                                                            ACTION: Proposed rule.                                 Secretary of the Board, National Credit
                                                                                                                                                                   Union Administration, 1775 Duke
                                                                                                            SUMMARY: As part of NCUA’s Regulatory                  Street, Alexandria, Virginia 22314–
                                                                                                            Modernization Initiative, the NCUA                     3428.


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                                                                           Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules                                                         24739

                                                       • Hand Delivery/Courier: Same as                     or incidental to FCU operations. In                        Board also has reconsidered the
                                                    mail address.                                           particular, commenters have strongly                       regulatory position that the limited
                                                       Public Inspection: You may view all                  advocated the elimination of regulatory                    authority for FCUs to invest in property
                                                    public comments on NCUA’s Web site                      occupancy requirements, especially the                     granted by Section 107(4) of the FCU
                                                    at http://www.ncua.gov/Legal/Regs/                      requirement for full occupancy.                            Act means that an FCU may not hold
                                                    Pages/PropRegs.aspx as submitted,                          In general, commenters have                             real property indefinitely without fully
                                                    except for those we cannot post for                     maintained that the FCU Act does not                       occupying the premises. Accordingly, as
                                                    technical reasons. NCUA will not edit or                expressly mandate specific timeframes                      discussed in more detail below, the
                                                    remove any identifying or contact                       for occupancy or otherwise prescribe                       Board is proposing to eliminate from the
                                                    information from the public comments                    occupancy requirements for FCU                             current occupancy rule the requirement
                                                    submitted. You may inspect paper                        premises. Thus, commenters have urged                      that an FCU must plan for, and
                                                    copies of comments in NCUA’s law                        the Board to liberalize NCUA’s                             eventually achieve, full occupancy of its
                                                    library at 1775 Duke Street, Alexandria,                occupancy rules.4 For example,                             premises. The proposal generally retains
                                                    Virginia 22314, by appointment                          commenters have said that NCUA                             the current regulatory timeframes for
                                                    weekdays between 9 a.m. and 3 p.m. To                   should not set a specific time period for                  partial occupancy and the related
                                                    make an appointment, call (703) 518–                    full occupancy; that FCU boards and                        waiver provisions, including those
                                                    6546 or send an email to OGCMail@                       management should determine the best                       finalized in July 2015.11 However, the
                                                    ncua.gov.                                               timeframe in which to fully develop                        current definition of ‘‘partially occupy’’
                                                    FOR FURTHER INFORMATION CONTACT:                        property; and that the full occupancy                      is modified in the proposal to reflect
                                                    Pamela Yu, Senior Staff Attorney, Office                requirement should be eliminated                           that an FCU need not fully occupy
                                                    of General Counsel, at the above address                entirely.5 Commenters have also                            premises, but the FCU (or a combination
                                                    or telephone (703) 518–6540, or Jacob                   suggested that NCUA should replace the                     of the FCU and a CUSO in which the
                                                    McCall, Program Officer, Office of                      ‘‘full’’ occupancy requirement with a                      FCU has a controlling interest in
                                                    Examination and Insurance, at the above                 ‘‘significant’’ or ‘‘substantial’’                         accordance with GAAP) must utilize at
                                                    address or telephone (703) 518–6360.                    occupancy requirement, defined as fifty-                   least fifty percent of the premises on a
                                                                                                            one percent occupancy.6                                    full-time basis within the required
                                                    SUPPLEMENTARY INFORMATION:
                                                                                                               In addition, commenters urging                          timeframe to achieve partial occupancy.
                                                    I. Background                                           NCUA to reconsider its position on full
                                                    II. Summary of the Proposed Rule                                                                                   For consistency, the proposal also
                                                                                                            occupancy have indicated that it                           amends the excess capacity provision in
                                                    III. Regulatory Procedures                              oftentimes makes sense for a credit                        the incidental powers rule and makes
                                                    I. Background                                           union to own a building and lease out                      technical and conforming
                                                       Section 107(4) of the Federal Credit                 part or all of the building to help offset                 amendments 12 to reflect the proposed
                                                    Union Act (FCU Act) authorizes an FCU                   the cost of property ownership.7                           policy change regarding full occupancy
                                                    to purchase, hold, and dispose of                       Commenters have argued that                                for FCU premises.
                                                    property necessary or incidental to its                 prescriptive occupancy requirements                           The proposed rule is discussed in
                                                    operations.1 NCUA’s occupancy rule                      reduce access to commercial space and                      greater detail below.
                                                    (formerly referred to as the fixed assets               limit an FCU’s ability to acquire space
                                                                                                            in the most cost-effective manner. As an                   II. Summary of the Proposed Rule
                                                    rule) interprets and implements this
                                                    provision of the FCU Act by establishing                example, commenters have noted that                        A. Occupancy rule
                                                    occupancy, planning, and disposal                       some local zoning or mixed-use
                                                                                                            ordinances, city entitlements, or other                       Under the current rule, if an FCU
                                                    requirements for acquired and                                                                                      acquires premises for future expansion
                                                    abandoned premises. The rule also                       use requirements may require a portion
                                                                                                            of the property to be dedicated to retail                  and does not fully occupy them within
                                                    prohibits certain transactions to avoid                                                                            one year, it must have an FCU board
                                                    conflicts of interest in the acquisition or             business.8 Commenters have also
                                                                                                            posited that generating long-term                          resolution in place by the end of that
                                                    lease of FCU premises.2                                                                                            year with definitive plans for full
                                                       Over the past several years, the Board               income from FCU premises would
                                                                                                            generate value for the FCU’s                               occupation.13 For purposes of the rule,
                                                    has proposed and adopted several                                                                                   ‘‘premises’’ means any office, branch
                                                    regulatory amendments to modernize                      membership.9
                                                                                                               The Board has carefully considered                      office, suboffice, service center, parking
                                                    § 701.36.3 Most recently, in July 2015,                                                                            lot, other facility, or real estate where
                                                    the Board approved a final rule to                      the numerous comments received on
                                                                                                            this subject since at least 2013.10 The                    the FCU transacts or will transact
                                                    eliminate the five percent aggregate                                                                               business.14 The current rule does not set
                                                    limit on investments in fixed assets for                  4 80                                                     a specific time period within which an
                                                                                                                      FR 45844 (Aug. 3, 2015).
                                                    FCUs with $1,000,000 or more in assets                    5 80    FR 16595, 16599 (Mar. 30, 2015).
                                                    and to streamline the partial occupancy                   6 Id.                                                    appropriate office space, and another cites the
                                                    requirements. Public comment in                           7 80   FR 45844 (Aug. 3, 2015).                          perceived difficulty a continuing credit union in a
                                                    response to these recent amendments                        8 80 FR 16595, 16599 (Mar. 30, 2015).                   merger has in balancing reduced staffing needs with
                                                    has been generally supportive of the                       9 Id.                                                   the buildings it inherits in a merger.’’)
                                                                                                                                                                          11 80 FR 45844 (Aug. 3, 2015).
                                                    Board’s ongoing efforts to provide                         10 In fact, requests for relief from the full
                                                                                                                                                                          12 For example, the proposed rule generally
                                                    regulatory relief to FCUs in this area.                 occupancy requirement date back to at least 2004.
                                                                                                            See 69 FR 58039, 58041 (Sept. 29, 2004) (‘‘Several         removes references to ‘‘future expansion’’ and other
                                                    However, commenters have continued                      commenters believe NCUA should reduce or                   language that implies an FCU must plan for and
jstallworth on DSK7TPTVN1PROD with PROPOSALS




                                                    to ask for more regulatory relief to                    eliminate the rule’s requirements for both partial         achieve full occupancy of its premises.
                                                                                                                                                                          13 12 CFR 701.36(c)(1). Under the current rule, the
                                                    provide FCUs with greater flexibility in                and full occupation, but particularly for full
                                                                                                            occupation. These commenters contend it is                 reasonableness of an FCU’s plan for full occupation
                                                    the management of property necessary                                                                               is evaluated through the examination process and
                                                                                                            difficult for a credit union to obtain a building or
                                                                                                            lease space that is a perfect fit for the credit union’s   based upon such factors as the defensibility of
                                                      1 12 U.S.C. 1757(4).                                  current and near term plans and the rule’s                 projection assumptions, the operational and
                                                      2 12 CFR 701.36.                                                                                                 financial feasibility of the plan, and the overall
                                                                                                            occupation requirements restrict credit union
                                                      3 78 FR 57250 (Sept. 18, 2013); 79 FR 46727 (Aug.     growth and may be anticompetitive. One                     suitability of the plan relative to the FCU’s field of
                                                    11, 2014); 80 FR 16595 (Mar. 30, 2015); 80 FR 45844     commenter cites the perceived difficulty rural and         membership.
                                                    (Aug. 3, 2015).                                         low-income credit unions have in finding                      14 12 CFR 701.36(b).




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                                                    24740                  Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

                                                    FCU must achieve full occupation of                     basis,’’ indicating that an agency may                    to safety and soundness problems.
                                                    premises acquired for future expansion.                 change its interpretive position on the                   Making speculative investments in real
                                                    However, partial occupancy of the                       statutes it administers.19 In light of the                property increases an FCU’s exposure to
                                                    premises is required within a reasonable                continuing requests from commenters                       market factors unrelated to financial
                                                    period, but no later than six years after               for relief from the full occupancy                        services. As well, managing unoccupied
                                                    the date of acquisition, regardless of                  requirement, the proposed change is                       real property or commercial leases
                                                    whether the premises are improved or                    required to avoid unnecessarily                           creates operational risk exposures
                                                    unimproved.15 Partial occupancy must                    imposing undue hardship on FCUs that                      which are significantly different from
                                                    be sufficient to show, among other                      may have difficulty realizing their                       those related to managing authorized
                                                    things, that the FCU will fully occupy                  growth potential and member service                       financial services permissible for FCUs.
                                                    the premises within a reasonable time                   strategies under the current rule.                        By maintaining the requirement that
                                                    and consistent with its plan for the                       The Board emphasizes, however, that                    FCUs must partially occupy real
                                                    premises.16                                             it maintains its current view that there                  property, NCUA reduces the
                                                       The occupancy requirements in the                    is no authority in the FCU Act for an                     opportunity for speculative investment
                                                    current rule have a statutory basis, but                FCU to invest in real estate for                          and helps FCUs align their real property
                                                    full occupancy of FCU premises is not                   speculative purposes or to otherwise                      investment decisions with the
                                                    expressly or specifically mandated by                   engage in real estate activities that do                  operational needs of the FCU and its
                                                    statute. Section 107(4) of the FCU Act                  not generally support its purpose of                      members.
                                                    authorizes an FCU to purchase, hold,                    providing financial services to its                          Requiring an FCU to fully occupy its
                                                    and dispose of property necessary or                    members. The statute is clear that any                    acquired premises may, under certain
                                                    incidental to its operations.17 NCUA has                property acquired or held by an FCU                       circumstances: (1) Hinder its ability to
                                                    long held that the limited authority                    must be ‘‘necessary or incidental to its                  obtain cost-effective office space
                                                    granted by this provision means that an                 operations.’’ 20 NCUA has stated                          necessary to serve its members; (2)
                                                    FCU may not hold, or lease to unrelated                 consistently that an FCU may only                         restrict its growth; or (3) place it at a
                                                    third parties, real property indefinitely               invest in property it intends to use to                   competitive disadvantage. However,
                                                    without fully occupying the premises.18                 transact credit union business or in                      without a reasonable occupancy
                                                       After further consideration, however,                property that supports its internal                       requirement, there is little to inhibit an
                                                    the Board believes the language in                      operations or member services.21                          FCU from: (1) Speculating on real
                                                    Section 107(4) of the FCU Act supports                     Although the Board’s position on full                  property with the sole intent of realizing
                                                    an interpretation that provides FCUs’                   occupancy has evolved, it continues to                    a profit from its future sale; (2) acting as
                                                    with more flexibility to acquire and                    read the FCU Act as requiring that an                     a property developer or full-time
                                                    hold real property. Accordingly, the                    FCU may purchase or hold property                         landlord; or (3) otherwise venturing into
                                                    Board has reconsidered its current                      only for a permissible purpose or                         real estate activities that are beyond the
                                                    approach of ensuring that FCU                           activity; that is, to support the FCU’s                   scope of its authority under Section
                                                    investment in and use of real property                  provision of financial services to its                    107(4). Accordingly, the Board has
                                                    is consistent with the FCU Act by                       members. As the Board noted in the                        determined that an FCU must at least
                                                    requiring FCUs to fully occupy                          preamble to the July 2015 final rule, the                 partially occupy each of its acquired
                                                    premises. Section 107(4) neither                        requirement for an FCU to partially                       real property. For both legal and safety
                                                    explicitly mentions nor expressly                       occupy its acquired premises within a                     and soundness reasons, the proposed
                                                    requires full occupancy of FCU                          specified timeframe is intended to                        rule retains the requirement that an FCU
                                                    property. Accordingly, the Board                        function as a reasonable safeguard                        premises, including unimproved
                                                    proposes to eliminate the full                          against speculative real estate                           property, must be partially occupied
                                                    occupancy and related planning                          investments or other real estate                          within six years from the date of its
                                                    requirements in the current occupancy                   activities that are not permitted for                     acquisition. An FCU may apply for a
                                                    rule. Specifically, the proposed rule                   FCUs under the FCU Act.22 Making                          waiver if it is not able to achieve partial
                                                    deletes the requirement in current                      speculative investments in real property                  occupancy of its premises within six
                                                    § 701.36(c)(1) that, if an FCU acquires                 exceeds an FCU’s authority and can lead                   years.23
                                                    premises for future expansion and does                                                                               Under the current rule, ‘‘partially
                                                    not fully occupy them within one year,                     19 Chevron v. Natural Resources Defense Council,       occupy’’ means occupation, on a full-
                                                    it must have a board resolution in place                467 U.S. 837, 863–864 (1984). The Supreme Court           time basis, of a portion of the premises
                                                    by the end of that year with definitive                 has also found that an agency is entitled to Chevron      that is: (1) Consistent with the FCU’s
                                                                                                            deference if it reverses an earlier interpretation. See   usage plan for the premises; (2)
                                                    plans for full occupation.                              e.g., Rust v. Sullivan, 500 U.S. 173 (1991); National
                                                       While this proposed change                           Cable & Telecommunications Ass’n v. Brand X               significant enough that the FCU is
                                                    represents a departure from the Board’s                 Internet Services, 545 U.S. 967 (2005).                   deriving practical utility from the
                                                    previous interpretation of Section                         20 12 U.S.C. 1757(4).                                  occupied portion relative to the scope of
                                                    107(4), it is both reasonable and                          21 See 43 FR 58176, 58178 (Dec. 13, 1978) (‘‘Part
                                                                                                                                                                      the usage plan; and (3) sufficient to
                                                                                                            107(4) of the Federal Credit Union Act provides that      show that the FCU will fully occupy the
                                                    consistent with the requirements of the                 a credit union may purchase, hold, and dispose of
                                                    FCU Act. The United States Supreme                      property necessary or incidental to its operations.       premises within a reasonable time.24
                                                    Court has emphasized that an ‘‘initial                  Retaining a piece of property whose only purpose          The Board proposes to modify the
                                                    agency interpretation is not instantly                  is to provide office space to other entities is clearly   current definition of ‘‘partial
                                                                                                            not necessary or incidental to the Federal credit         occupancy’’ to eliminate references to
jstallworth on DSK7TPTVN1PROD with PROPOSALS




                                                    carved in stone,’’ and ‘‘to engage in                   union’s operations. Further, investing in, or
                                                    informed rulemaking, [an agency] must                   holding, property with the intent of realizing a          the current requirement to plan for full
                                                    consider varying interpretations and the                profit from appreciation at a future sale is also         occupancy (usage plan) and the need to
                                                    wisdom of its policy on a continuing                    outside the powers of a Federal credit union.’’); 69      show that the FCU will fully occupy the
                                                                                                            FR 58039, 58041 (Sept. 29, 2004) (‘‘Federal credit        premises. Additionally, the Board
                                                                                                            unions are chartered for the purpose of providing
                                                      15 12 CFR 701.36(c)(2).                               financial services to their members and it is not         proposes to amend that definition to
                                                      16 12 CFR 701.36(b).                                  permissible for them to engage in real estate
                                                      17 12 U.S.C. 1757(4) (emphasis added).                activities that do not support that purpose.’’)            23 12   CFR 701.36(c)(2).
                                                      18 69 FR 58039, 58041 (Sept. 29, 2004).                  22 80 FR 45844 (Aug. 3, 2015).                          24 12   CFR 701.36(b).



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                                                                            Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules                                                       24741

                                                    emphasize that at least fifty percent of                  services to third parties, that authority               III. Regulatory Procedures
                                                    FCU premises must be occupied and                         is subject to the following conditions:
                                                                                                                                                                      A. Regulatory Flexibility Act
                                                    used, on a full-time basis, by the FCU                    (1) The facilities, equipment, or services
                                                    or a combination of the FCU and a                         must have been acquired by an FCU, in                      The Regulatory Flexibility Act (RFA)
                                                    CUSO in which the FCU has a                               good faith, for the purpose of providing                generally requires that, in connection
                                                    controlling interest in accordance with                   financial services to its members; and                  with a notice of proposed rulemaking,
                                                    GAAP.25 Occupancy of FCU premises                         (2) the FCU must reasonably anticipate                  an agency prepare and make available
                                                    with third-party vendors or CUSOs in                      that the excess capacity will be taken up               for public comment an initial regulatory
                                                    which the FCU does not maintain a                         by the future expansion of services to its              flexibility analysis that describes the
                                                    controlling interest will not count                       members.31                                              impact of a proposed rule on small
                                                    towards the fifty percent partial                                                                                 entities. A regulatory flexibility analysis
                                                                                                                 To conform to the above proposed                     is not required, however, if the agency
                                                    occupancy requirement because these                       amendments to the occupancy rule, the
                                                    entities operate at the direction of other                                                                        certifies that the rule will not have a
                                                                                                              Board proposes to amend the incidental                  significant economic impact on a
                                                    owners and may not be obligated to                        powers rule regarding the sale or lease
                                                    primarily support the FCU that acquired                                                                           substantial number of small entities
                                                                                                              of excess capacity by removing the                      (defined for purposes of the RFA to
                                                    the premises or to primarily serve that                   condition that excess capacity in FCU
                                                    FCU’s members. The proposed                                                                                       include credit unions with assets less
                                                                                                              facilities must eventually be fully                     than $100 million) and publishes its
                                                    definition, which incorporates elements                   occupied by the FCU. The Board
                                                    from the current rule’s definition of full                                                                        certification and a short, explanatory
                                                                                                              continues to believe, however, that the                 statement in the Federal Register
                                                    occupancy,26 will ensure that any                         sale or lease of excess capacity in
                                                    property acquired or held by an FCU is                                                                            together with the rule. The proposed
                                                                                                              equipment or services, including                        rule would provide regulatory relief by
                                                    primarily utilized for a purpose that is                  employee-sharing and data processing
                                                    necessary or incidental to its operations,                                                                        eliminating the need to develop a plan
                                                                                                              for third parties, should be limited to                 for full occupancy. However, FCUs
                                                    as required by the FCU Act.                               circumstances where an FCU reasonably                   currently have limited flexibility to
                                                    B. Incidental powers.                                     anticipates that the excess capacity will               purchase real estate with excess
                                                      The Board recognizes that in planning                   be taken up by the future expansion of                  capacity. NCUA certifies that the
                                                    for future expansion, FCUs should be                      services to its members.                                proposed rule will not have a significant
                                                    permitted to sell or lease their excess                      In adopting the excess capacity                      economic impact on a substantial
                                                    capacity as a matter of good business                     provision in the incidental powers rule,                number of small credit unions.
                                                    practice.27 The incidental powers rule                    the Board reasoned in 2001 that ‘‘[t]he
                                                                                                              sale of excess capacity offers FCUs the                 B. Paperwork Reduction Act
                                                    permits an FCU to sell or lease its excess
                                                    capacity with respect to its property and                 opportunity to provide financial                           The Paperwork Reduction Act of 1995
                                                    services.28 Under that rule, excess                       services to its members, even though                    (PRA) applies to rulemakings in which
                                                    capacity refers to the excess use or                      member demand for the services does                     an agency by rule creates a new
                                                    capacity remaining in FCU facilities,                     not initially meet the FCU’s                            paperwork burden on regulated entities
                                                    equipment, or services.29 An FCU’s sale                   capacity.’’ 32 However, the Board also                  or modifies an existing burden.34 For
                                                    or lease of excess capacity, for example,                 noted:                                                  purposes of the PRA, a paperwork
                                                    may involve leasing excess office space,                     NCUA has consistently held the position
                                                                                                                                                                      burden may take the form of either a
                                                    sharing employees, or using data                          that an FCU has limited authority in the                reporting or a recordkeeping
                                                    processing systems to process                             leasing of fixed assets and the sale of excess          requirement, both referred to as
                                                    information for third parties.30                          data processing capacity. FCUs are not in the           information collections. The proposed
                                                    However, while an FCU has the                             business of providing others with data                  rule provides regulatory relief to FCUs
                                                    authority under the rule to obtain                        processing capacity or any other service that           by eliminating the requirement that, if
                                                    income by selling or leasing excess                       is not within their express or incidental               an FCU does not fully occupy premises
                                                    capacity in its facilities, equipment, or                 powers; rather, they are cooperative financial          acquired for future expansion within
                                                                                                              institutions organized to provide financial             one year, it must have a board
                                                      25 FASB Accounting Standards Update (ASU) 805           services to their members.33                            resolution in place by the end of that
                                                    defines controlling interest as ‘‘the ability of an                                                               year with definitive plans for full
                                                    entity to direct the policies and management that           While the Board has reconsidered its                  occupation. The proposed rule does not
                                                    guide the ongoing activities of another entity so as      position with respect to requiring full
                                                    to increase its benefits and limit its losses from that                                                           impose new paperwork burdens. The
                                                    other entity’s activities.’’ More generally,
                                                                                                              occupancy of FCU facilities, the Board                  proposed rule would relieve FCUs from
                                                    controlling interest is majority interest or any other    maintains its view that FCUs are not,                   the current requirement to have a board-
                                                    ownership interest which entitles the owner to            and should not be, in the business of                   approved plan for full occupation of its
                                                    direct the activities of the CUSO.                        providing third parties with data
                                                      26 12 CFR 701.36(c)(1).
                                                                                                                                                                      premises.
                                                      27 66 FR 40845, 40851 (Aug. 6, 2001).
                                                                                                              processing capacity or other equipment                     According to NCUA estimates,
                                                      28 The incidental powers rule defines an
                                                                                                              or services outside their express or                    approximately 15 FCUs are required to
                                                    incidental powers activity as one that is necessary       incidental powers. Accordingly, under                   develop a plan for full occupation
                                                    or requisite to enable an FCU to carry on effectively     this proposal, an FCU’s authority to sell               premises each year. Accordingly, the
                                                    the business for which it is incorporated. An             or lease excess capacity in equipment                   reduction to existing paperwork
                                                    activity meets the definition of an incidental            and services continues to be
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                                                    powers activity if it: (1) Is convenient or useful in                                                             burdens that would result from the
                                                    carrying out the mission or business of credit            conditioned on the FCU’s reasonable                     proposal is analyzed below:
                                                    unions consistent with the FCU Act; (2) is the            anticipation that its members will                         Estimate of the reduced burden by
                                                    functional equivalent or logical outgrowth of             eventually fully utilize the excess                     eliminating the full occupancy planning
                                                    activities that are part of the mission or business of    capacity.
                                                    credit unions; and (3) involves risks similar in
                                                                                                                                                                      requirement.
                                                    nature to those already assumed as part of the                                                                       Estimated FCUs: 15.
                                                    business of credit unions. 12 CFR 721.2.                   31 Id.                                                    Frequency of waiver request: Annual.
                                                      29 12 CFR 721.3(e).                                      32 66    FR 40845, 40851 (Aug. 6, 2001).
                                                      30 Id.                                                   33 Id.                                                  34 44   U.S.C. 3507(d); 5 CFR part 1320.



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                                                    24742                  Federal Register / Vol. 81, No. 81 / Wednesday, April 27, 2016 / Proposed Rules

                                                       Reduced hour burden: 15 hours.                       Treasury and General Government                           ■ 3. Remove § 701.36(c)(1); redesignate
                                                       15 FCUs × 15 hours = 225 hours                       Appropriations Act of 1999.35                             § 701.36(c)(2) as § 701.36(c)(1) and
                                                    reduced burden.                                                                                                   amend it to read as follows:
                                                                                                            List of Subjects
                                                       In accordance with the requirements                                                                               (c) Premises not currently used to
                                                    of the PRA, NCUA intends to obtain a                    12 CFR Part 701                                           transact credit union business. (1) If a
                                                    modification of its OMB Control                           Credit unions, Reporting and                            federal credit union acquires premises,
                                                    Number, 3133–0040, to support these                     recordkeeping requirements.                               including unimproved land or
                                                    changes. NCUA is submitting a copy of
                                                                                                            12 CFR Part 721                                           unimproved real property, it must
                                                    the proposed rule to OMB, along with
                                                                                                                                                                      partially occupy each of them within a
                                                    an application for a modification of the                  Credit unions, functions, implied
                                                    OMB Control Number.                                                                                               reasonable period, but no later than six
                                                                                                            powers.
                                                       The PRA and OMB regulations                                                                                    years after the date of acquisition.
                                                                                                              By the National Credit Union                            NCUA may waive the partial occupation
                                                    require that the public be provided an                  Administration Board, on April 21, 2016.
                                                    opportunity to comment on the                                                                                     requirements. To seek a waiver, a
                                                                                                            Gerard Poliquin,                                          federal credit union must submit a
                                                    paperwork requirements, including an
                                                                                                            Secretary of the Board.                                   written request to its Regional Office
                                                    agency’s estimate of the burden of the
                                                                                                              For the reasons stated above, NCUA                      and fully explain why it needs the
                                                    paperwork requirements. The Board
                                                                                                            proposes to amend 12 CFR parts 701                        waiver. The Regional Director will
                                                    invites comment on: (1) Whether the
                                                                                                            and 721 as follows:                                       provide the federal credit union a
                                                    paperwork requirements are necessary;
                                                    (2) the accuracy of NCUA’s estimates on                 PART 701—ORGANIZATION AND                                 written response, either approving or
                                                    the burden of the paperwork                             OPERATION OF FEDERAL CREDIT                               disapproving the request. The Regional
                                                    requirements; (3) ways to enhance the                   UNIONS                                                    Director’s decision will be based on
                                                    quality, utility, and clarity of the                                                                              safety and soundness considerations.
                                                    paperwork requirements; and (4) ways                    ■ 1. The authority for part 701                           ■ 4. Redesignate § 701.36(c)(3) as
                                                    to minimize the burden of the                           continues to read as follows:                             § 701.36(c)(2).
                                                    paperwork requirements.                                   Authority: 12 U.S.C. 1752(5), 1757, 1765,
                                                       Comments should be sent to the                       1766, 1781, 1782, 1787, 1789; Title V, Pub.               PART 721—INCIDENTAL POWERS
                                                    NCUA Contact and the OMB Reviewer                       L. 109–351, 120 Stat. 1966.
                                                    listed below:                                           ■ 2. Amend the title of § 701.36 and                      ■ 5. The authority for part 721
                                                       NCUA Contact: Dawn Wolfgang,                         amend §§ 701.36(a) and (b) to read as                     continues to read as follows:
                                                    National Credit Union Administration,                   follows:                                                    Authority: 12 U.S.C. 1757(17), 1766 and
                                                    1775 Duke Street, Alexandria, Virginia
                                                                                                                                                                      1789.
                                                    22314–3428, Fax No. 703–837–2861,                       § 701.36 Federal credit union occupancy
                                                    Email: OCIOPRA@ncua.gov.                                and disposal of acquired and abandoned                    ■   6. Amend § 721.3 to read as follows:
                                                       OMB Contact: Office of Management                    premises.
                                                    and Budget, ATTN: Desk Officer for the                     (a) Scope. Section 107(4) of the                       § 721.3 What categories of activities are
                                                    National Credit Union Administration,                   Federal Credit Union Act (12 U.S.C.                       preapproved as incidental powers
                                                    Office of Information and Regulatory                    1757(4)) authorizes a federal credit                      necessary or requisite to carry on a credit
                                                    Affairs, Washington, DC 20503.                          union to purchase, hold, and dispose of                   union’s business?
                                                                                                            property necessary or incidental to its                   *      *     *    *    *
                                                    C. Executive Order 13132                                operations. This section interprets and                     (a) * * *
                                                      Executive Order 13132 encourages                      implements that provision by
                                                    independent regulatory agencies to                      establishing occupancy and disposal                         (b) * * *
                                                    consider the impact of their actions on                 requirements for acquired and                               (c) * * *
                                                    state and local interests. NCUA, an                     abandoned premises, and by prohibiting                      (d) * * *
                                                    independent regulatory agency, as                       certain transactions. This section
                                                    defined in 44 U.S.C. 3502(5), voluntarily               applies only to federal credit unions.                      (e) Excess capacity. Excess capacity is
                                                    complies with the executive order to                       (b) * * *                                              the excess use or capacity remaining in
                                                    adhere to fundamental federalism                           Abandoned premises means premises                      facilities, equipment, or services that
                                                    principles. Because the occupancy and                   previously used to transact credit union                  you properly invested in or established,
                                                    incidental powers regulations apply                     business but no longer used for that                      in good faith, with the intent of serving
                                                    only to FCUs, the proposed rule would                   purpose. It also means premises                           your members or supporting your
                                                    not have a substantial direct effect on                 originally acquired to transact future                    business operations. You may sell or
                                                    the states, on the relationship between                 credit union business but no longer                       lease the excess capacity in facilities,
                                                    the national government and the states,                 intended for that purpose.                                such as office space and other premises.
                                                    or on the distribution of power and                     *      *     *    *    *                                  You may sell or lease the excess
                                                    responsibilities among the various                         Partially occupy means occupation                      capacity in equipment or services, such
                                                    levels of government. As such, NCUA                     and use, on a full-time basis, of at least                as employees and data processing, if
                                                    has determined that this rule does not                  fifty percent of each of the premises by                  you reasonably anticipate that the
                                                    constitute a policy that has federalism                 the federal credit union, or the federal                  excess capacity will be taken up by the
jstallworth on DSK7TPTVN1PROD with PROPOSALS




                                                    implications for purposes of the                        credit union and a credit union service                   future expansion of services to your
                                                    executive order.                                        organization in which the federal credit                  members.
                                                                                                            union has a controlling interest in
                                                    D. Assessment of Federal Regulations                                                                              *      *     *    *    *
                                                                                                            accordance with Generally Accepted
                                                    and Policies on Families                                                                                          [FR Doc. 2016–09867 Filed 4–26–16; 8:45 am]
                                                                                                            Accounting Principles (GAAP).
                                                      NCUA has determined that this rule                                                                              BILLING CODE 7535–01–P
                                                                                                            *      *     *    *    *
                                                    will not affect family well-being within
                                                    the meaning of Section 654 of the                           35 Public   Law 105–277, 112 Stat. 2681 (1998).



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Document Created: 2018-02-07 13:56:02
Document Modified: 2018-02-07 13:56:02
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionProposed Rules
ActionProposed rule.
DatesComments must be received on or before June 27, 2016.
ContactPamela Yu, Senior Staff Attorney,
FR Citation81 FR 24738 
RIN Number3133-AE54
CFR Citation12 CFR 701
12 CFR 721
CFR AssociatedCredit Unions; Reporting and Recordkeeping Requirements; Functions and Implied Powers

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