83 FR 24651 - Involuntary Liquidation of Federal Credit Unions and Claims Procedures

NATIONAL CREDIT UNION ADMINISTRATION

Federal Register Volume 83, Issue 104 (May 30, 2018)

The NCUA Board (Board) is amending part 709 of its rules to update and clarify the procedures that apply to claims administration for federally insured credit unions that enter involuntary liquidation. Specifically, the final rule amends the payout priority provision by specifying the conditions that claims in the nature of severance must meet to be allowed as provable claims.

[Federal Register Volume 83, Number 104 (Wednesday, May 30, 2018)]
[Rules and Regulations]
[Pages 24651-24652]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-11588]



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Rules and Regulations
                                                Federal Register
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Federal Register / Vol. 83, No. 104 / Wednesday, May 30, 2018 / Rules 
and Regulations

[[Page 24651]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 709

RIN 3133-AE82


Involuntary Liquidation of Federal Credit Unions and Claims 
Procedures

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The NCUA Board (Board) is amending part 709 of its rules to 
update and clarify the procedures that apply to claims administration 
for federally insured credit unions that enter involuntary liquidation. 
Specifically, the final rule amends the payout priority provision by 
specifying the conditions that claims in the nature of severance must 
meet to be allowed as provable claims.

DATES: The rule is effective June 29, 2018.

FOR FURTHER INFORMATION CONTACT: Ian Marenna, Senior Trial Attorney, at 
1775 Duke Street, Alexandria, Virginia 22314, or telephone: (703) 518-
6540.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 1217 of the Financial Institutions Reform, Recovery and 
Enforcement Act of 1989 (FIRREA) \1\ amended the Federal Credit Union 
Act (FCU Act) by adding Section 207(b), thereby creating a 
comprehensive statutory framework for the liquidation of federally 
insured credit unions.\2\ Section 207(b)(4) authorizes the Board to 
``prescribe regulations regarding the allowance or disallowance of 
claims by the liquidating agent and providing for administrative 
determination of claims and review of such determination.'' \3\ In 
accordance with this authority, the Board adopted part 709 in 1991.\4\
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    \1\ Sec. 1217(a)(3), (4), Public Law 101-73. Sec. 1217(a)(3), 
(4).
    \2\ 12 U.S.C. 1787(b).
    \3\ 12 U.S.C. 1787(b)(4).
    \4\ 56 FR 56925 (Nov. 7, 1991).
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    Under a separate provision of the FCU Act, the Board is authorized 
to prohibit or limit ``golden parachute payments,'' defined to include 
payments that are contingent on the termination of the party's 
employment at the credit union and that are made when the credit union 
is in troubled financial condition.\5\ Part 750 of the NCUA's 
regulations contains explicit limitations on the ability of an 
institution affiliated party to pursue a severance claim with the 
liquidating agent after a credit union has become insolvent and is 
placed in conservatorship or liquidation.\6\
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    \5\ 12 U.S.C. 1786(t)(4); 12 CFR 750.1(d).
    \6\ 12 CFR 750.7.
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    In January 2018, the Board issued a proposed rule and request for 
public comment in which it proposed to clarify how the agency will 
handle severance claims in involuntary liquidations.\7\ Specifically, 
the Board proposed to create an exception to the generally applicable 
bar on severance claims in liquidation that is codified in the NCUA's 
regulation governing golden parachute payments. As reflected in the 
proposed regulatory text, the Board proposed to elaborate on the 
definition of permissible employment-related claims in involuntary 
liquidations to include vacation, sick, and severance pay if the 
payment is supported by an employee handbook or other credit union 
record and is calculable in accordance with a formula or criteria 
available to all employees. This proposed allowance for some severance 
claims, as explained in the proposed rule preamble, is an exception to 
the general rule in part 750 providing that all claims for employee 
welfare benefits are not provable against the liquidating agent for a 
failed insured credit union.
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    \7\ 83 FR 4450 (Jan. 31, 2018).
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    As explained in the next section, after reviewing the six public 
comment letters on the proposed rule, the Board adopts the proposal as 
a final rule without change.

II. Summary of Comments

    The NCUA received six comment letters in response to the proposed 
rule--two from credit union trade organizations, three from credit 
union leagues and associations, and one from a credit union. All 
commenters generally supported the proposed rule's purpose of 
clarifying the relationship between the golden parachute regulation and 
the involuntary liquidation claims procedures. One commenter suggested 
that the Board permit separately-negotiated executive agreements to 
form the basis of allowable severance claims under part 709. The 
commenter expressed concern that excluding such agreements from the 
scope of allowable claims under part 709 could affect credit unions' 
ability to retain executives.
    As the proposed regulatory text indicates, the Board proposed to 
update part 709 to recognize that severance claims meeting specific 
criteria would be allowable in involuntary liquidation despite the 
general bar on such payments in part 750. Although the Board recognizes 
that the specific criteria set forth in the proposed regulatory text 
may be narrower than all payments that may be permissible or subject to 
NCUA approval under part 750, it is important to note that, prior to 
this rulemaking, the regulations provided that all claims for employee 
welfare benefits are not provable against the liquidating agent.
    The proposed rule was designed to allow an exception to the general 
rule in part 750 but not repeal it. The Board is not persuaded that it 
should seek to expand the scope of that exception now. Attracting and 
retaining effective management is an important consideration, but the 
rule change does not negatively affect this interest. Indeed, it 
creates more certainty for severance claims in involuntary liquidations 
and affords the opportunity to all employees to be eligible to claim 
these benefits when the claims are based on the fair, objective factors 
described in the proposed regulatory text. The Board notes that this 
rule only affects involuntary liquidations, which are infrequent, with 
only five occurring in 2017, for example.\8\
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    \8\ See https://www.ncua.gov/services/Pages/closed-credit-unions/2017.aspx.
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    Accordingly, the Board adopts the proposed rule without change.

III. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires the NCUA to prepare an 
analysis to describe any significant

[[Page 24652]]

economic impact a rule may have on a substantial number of small 
entities (primarily those under $100 million in assets). The severance 
provision imposes no new requirements on credit unions. Instead, it 
provides a limited exception to an existing regulation that applies to 
liquidated credit unions. Accordingly, the final rule will not have a 
significant economic impact on a substantial number of small credit 
unions, and therefore, no regulatory flexibility analysis is required.

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. 44 U.S.C. 3507(d). 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. Part 709 only concerns credit unions that have 
failed and imposes no information collection requirements on existing 
credit unions. Accordingly, there are no PRA implications.

Small Business Regulatory Enforcement Fairness Act of 1996

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA) provides generally for congressional review of agency rules. A 
reporting requirement is triggered in instances where the NCUA issues a 
final rule as defined by Section 551 of the Administrative Procedure 
Act. The NCUA does not believe this final rule is a ``major rule'' 
within the meaning of the relevant sections of SBREFA. The NCUA has 
submitted the rule to the Office of Management and Budget for its 
determination in that regard.

Executive Order 13132

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

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

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

List of Subjects in 12 CFR Part 709

    Credit unions, Involuntary liquidation.

    By the National Credit Union Administration Board, on May 24, 
2018.
Gerard Poliquin,
Secretary of the Board.

    For the reasons discussed above, the NCUA Board amends 12 CFR part 
709 as follows:

PART 709--INVOLUNTARY LIQUIDATION OF FEDERAL CREDIT UNIONS AND 
ADJUDICATION OF CREDITOR CLAIMS INVOLVING FEDERALLY INSURED CREDIT 
UNIONS IN LIQUIDATION

0
1. The authority citation for part 709 is revised to read as follows:

    Authority: 12 U.S.C. 1757, 1766, 1767, 1786(h), 1786(t), and 
1787(b)(4), 1788, 1789, 1789a.


0
2. Revise paragraph (b)(2) of Sec.  709.5 to read as follows:


Sec.  709.5   Payout priorities in involuntary liquidation.

* * * * *
    (b) * * *
    (2) Claims for wages and salaries, including vacation, severance, 
and sick leave pay; provided, however, that, in accordance with Sec.  
750.7 of this chapter, no claim for vacation, severance, or sick leave 
pay is provable unless entitlement to the benefit is provided for in 
the credit union employee handbook or other written credit union 
record, is calculable in accordance with an objective formula, and is 
available to all employees who meet applicable eligibility 
requirements, such as minimum length of service, or if such payment is 
required by applicable state or local law;
* * * * *
[FR Doc. 2018-11588 Filed 5-29-18; 8:45 am]
 BILLING CODE 7535-01-P