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Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Proposed Rules definitional section of the proposed rule that defined credit union service corporation to be both the entity described at Section 10771 and Section 1075D. In the preamble, the NCUA discussed that the thrust of the comments was that the definition was unduly restrictive and was not legally mandated. In response, the NCUA stated that in light of the mandate in the legislative history by Congressman St Germain that investment authority is to be exercised on a carefully controlled basis by NCUA, the Administration feels justified in tying the two definitions together. 47 The NCUA also stated that it found no substantive difference in an organization which is established primarily to serve the needs of its member credit unions, and whose business relates to the daily operations of the credit unions they serve and an organization providing services which are associated with the routine operations of credit unions. 48 The NCUA also stated that the legislative history indicated that the House committee stands ready to review investment interpretation matters upon request from NCUA should a case be made for a more liberal interpretation of the provisions. 49
The NCUA also noted that the FCU
Act specifically intertwines the lending and investment powers. For instance, section 1077A allows a Federal credit union to invest its funds in loans exclusively to members. 50 Due to the preceding analysis, the NCUA believed that its interpretation of sections 1075D and 1077I were justified. The NCUA
stated that while it may restrict the permissible activities for Federal credit unions in this field, legislative history mandates a rather conservative approach. 51
The NCUA is now considering whether to reconsider this longstanding interpretation. Specifically, the NCUA is considering adopting separate definitions for the types of organizations that an FCU may invest in or lend to, which potentially would expand the types of organizations eligible for FCU
investment. For example, the NCUA
could permit FCUs to invest in organizations that do not primarily serve credit unions or credit union members, but still provide services that relate to the routine operations of FCUs.
Under such an interpretation of the FCU
Act, FCUs could potentially invest in 47 Id.
48 Id.
49 Id.
50 Id.
51 Id.

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companies that broadly serve the financial service community, but do not primarily serve credit unions and their members. For instance, an FCU could form an organization with community banks to create a lending platform that could be used by both the FCUs members and the community banks customers.
The Board notes that the statutory limitations on the amount of investments would remain unchanged.
An FCU is only authorized by the FCU
Act to invest up to one percent of its total paid in and unimpaired capital and surplus in organizations. An FCU that has already invested one percent of its total paid in and unimpaired capital and surplus in CUSOs would not be authorized to invest any additional money. Instead, such an FCU would have to reallocate its investments if it sought to make any investments that were previously prohibited.
The Board invites comments on whether it should reconsider its longstanding interpretation of the lending and investment authorities under the FCU Act. In addition, the Board invites comments on the following specific questions:
1. Do specific provisions and the legislative history of the FCU Act suggest that the NCUA could take a less conservative approach to interpreting the lending and investment authorities?
2. The investment authority under the FCU Act states that Board approval is required before an FCU can make an investment in an organization.
Currently, the regulation provides for this approval through the pre-approved permissible activities list in 712.5. If the Board were to consider permitting investments that are not included in 712.5, should approval be required for each investment to determine if the activities of the organization relate to the routine operations of FCUs? If the Board requires separate notice requirements, should current investments be grandfathered?
3. Please discuss appropriate safety and soundness limitations that the Board should consider if it reinterprets its interpretation. Should the Board impose a requirement that the FCUs ownership interest in the organization not be speculative? For example, should an FCU be permitted to have an investment in an organization that is still developing a product? If the Board reinterprets its interpretation, should the Board impose a separate capital treatment for new investments that are currently prohibited?

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V. Regulatory Procedures 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 defined for purposes of the RFA to include credit unions with assets less than $100 million.52 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 and publishes its certification and a short, explanatory statement in the Federal Register together with the rule.
This proposed rule would not have a significant economic impact on a substantial number of small entities.
The proposed rule imposes no requirement or costs on small entities and only expands the list of permissible activities for CUSOs. The proposed rule would expand the list of activities that are considered complex or high risk for purposes of the CUSO Registry, however, the Board does not expect the additional reporting requirements to entail substantial regulatory burden.
Accordingly, the NCUA certifies that the proposed rule would not have a significant economic impact on a substantial number of small FICUs.
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. 3507d. For purposes of the PRA, a paperwork burden may take the form of a reporting, recordkeeping, or a third-party disclosure requirement, referred to as an information collection.
The NCUA is seeking comments on proposed revisions to the information collection requirements contained 12
CFR part 712, which has been submitted to the Office of Management and Budget OMB for review and approval under OMB control number 31330149. Under the proposed rule, CUSOs would be permitted to originate, purchase, sell, and hold any type of loan permissible for FCUs to originate, purchase, sell, and hold. Accordingly, CUSOs could originate categories of loans previously prohibited under the CUSO rule. The NCUA estimated 60 new CUSOs would enter into an agreement with a FICU
712.3d; which would also require 52 See
E:FRFM26FEP1.SGM

80 FR 57512 Sept. 24, 2015.

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