Notice2023-14201
Request for Comment Regarding National Credit Union Administration Operating Fee Schedule Methodology
Primary source
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Published
July 6, 2023
Issuing agencies
National Credit Union Administration
Abstract
The NCUA Board (Board) is requesting comment on changes to the methodology it uses to determine how it apportions operating fees charged to Federal credit unions (FCUs). The Board uses operating fees to fund part of the NCUA's annual budget. In this notice, the Board proposes to change the exemption threshold below which Federal Credit Unions would not be required to pay the operating fee and proposes to establish a process to update the exemption threshold in future years based on the credit union system's annual asset growth.
Full Text
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<title>Federal Register, Volume 88 Issue 128 (Thursday, July 6, 2023)</title>
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<body><pre>[Federal Register Volume 88, Number 128 (Thursday, July 6, 2023)]
[Notices]
[Pages 43149-43152]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-14201]
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NATIONAL CREDIT UNION ADMINISTRATION
[NCUA-2023-0072]
Request for Comment Regarding National Credit Union
Administration Operating Fee Schedule Methodology
AGENCY: National Credit Union Administration (NCUA).
ACTION: Notice and request for comment.
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SUMMARY: The NCUA Board (Board) is requesting comment on changes to the
methodology it uses to determine how it apportions operating fees
charged to Federal credit unions (FCUs). The Board uses operating fees
to fund part of the NCUA's annual budget. In this notice, the Board
proposes to change the exemption threshold below which Federal Credit
Unions would not be required to pay the operating fee and proposes to
establish a process to update the exemption threshold in future years
based on the credit union system's annual asset growth.
DATES: Comments must be received on or before August 7, 2023.
ADDRESSES: You may submit comments by any of the following methods
(Please send comments by one method only):
<bullet> Federal eRulemaking Portal: <a href="https://www.regulations.gov/">https://www.regulations.gov/</a>.
Follow the instructions for submitting comments for Docket Number NCUA-
2023-0072.
<bullet> NCUA website: <a href="https://www.ncua.gov/regulation-supervision/rulemakings-proposals-comment">https://www.ncua.gov/regulation-supervision/rulemakings-proposals-comment</a>. Follow the instructions for submitting
comments.
<bullet> USPS/Hand Delivery/Courier: Address to Melane Conyers-
Ausbrooks, Secretary of the Board, National Credit Union
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.
<bullet> Public Inspection: You may view all public comments on the
Federal eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, as
submitted, except for those we cannot post for technical reasons. The
NCUA will not edit or remove any identifying or contact information
from the public comments submitted. If you are unable to access public
comments on the internet, you may contact the NCUA for alternative
access by calling (703) 518-6540 or emailing <a href="/cdn-cgi/l/email-protection#fab5bdb9b79b9396ba94998f9bd49d958c"><span class="__cf_email__" data-cfemail="c28d85818fa3abae82aca1b7a3eca5adb4">[email protected]</span></a>.
FOR FURTHER INFORMATION CONTACT: James Holm, Supervisory Budget
Analyst, Office of the Chief Financial Officer, at (703) 518-6570.
SUPPLEMENTARY INFORMATION:
I. Legal Background
The NCUA charters, regulates, and insures deposits in FCUs and
insures deposits in federally insured State-chartered credit unions
(FISCUs). To cover expenses related to its tasks, the Board adopts a
biennial budget in the fall of each year. The Federal Credit Union Act
(FCU Act) provides two primary sources to fund the budget: (1)
requisitions from the National Credit Union Share Insurance Fund,
referred to as the overhead transfer rate (OTR); \1\ and (2) operating
fees charged to FCUs.\2\
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\1\ See, e.g., 12 U.S.C. 1783(a) (making the Share Insurance
Fund available ``for such administrative and other expenses incurred
in carrying out the purpose of [Title II of the FCU Act] as [the
Board] may determine to be proper.'').
\2\ 12 U.S.C. 1755(a) (``In accordance with rules prescribed by
the Board, each [FCU] shall pay to the [NCUA] an annual operating
fee which may be composed of one or more charges identified as to
the function or functions for which assessed.'') and 12 U.S.C.
1766(j)(3). Other sources of income for the operating budget include
interest income, funds from publication sales, parking fee income,
and rental income.
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With regard to the operating fee, the FCU Act requires each FCU to,
``in accordance with rules prescribed by the Board, . . . pay to the
[NCUA] an annual operating fee which may be composed of one or more
charges identified as to the function or functions for which
assessed.'' \3\ The fee must ``be determined according to a schedule,
or schedules, or other method determined by the Board to be
appropriate, which gives due consideration to the expenses of the
[NCUA] in carrying out its responsibilities under the [FCU Act] and to
the ability of [FCUs] to pay the fee.'' \4\ The statute requires the
Board to, among other things, ``determine the periods for
[[Page 43150]]
which the fee shall be assessed and the date or dates for the payment
of the fee or increments thereof.'' \5\
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\3\ 12 U.S.C. 1755(a).
\4\ 12 U.S.C. 1755(b).
\5\ Id.
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Accordingly, the FCU Act imposes three requirements on the Board
related to assessing an operating fee on FCUs: (1) the fee must be
assessed according to a schedule or schedules, or other method that the
Board determines to be appropriate, which gives due consideration to
NCUA's responsibilities in carrying out the FCU Act and the ability of
FCUs to pay the fee; (2) the Board must determine the period for which
the fee will be assessed and the due date for payment; and (3) the
Board must deposit collected fees into the Treasury to defray the
Board's expenses in carrying out the FCU Act. Once collected, operating
fees, ``may be expended by the Board to defray the expenses incurred in
carrying out the provisions of [the FCU Act,] including the examination
and supervision of [FCUs].'' \6\
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\6\ 12 U.S.C. 1755(d).
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The NCUA's regulations govern certain of the operating fee
processes.\7\ The regulation establishes: (i) the basis for charging
operating fees; (ii) a notice process; (iii) rules for new charters,
conversions, mergers, and liquidations; and (iv) administrative fees
and interest for late payment, among other principles and processes.\8\
Certain aspects of and adjustments to the operating fee process, such
as changes to which FCUs are exempt from operating fees or the
multipliers used to determine fees applicable to FCUs that fall within
designated asset tiers, are usually not published in the Federal
Register. Instead, in November 2015, the Board delegated authority to
the NCUA's Chief Financial Officer to administer the Board-approved
operating fee methodology and to set the operating fees as calculated
per the approved methodology during each annual budget cycle beginning
with 2016. Although it is not required to do so under the
Administrative Procedure Act,\9\ in January 2016, the Board published
its methodology in the Federal Register and requested public comment on
the same.\10\ The Board provided notice of several revisions to the
operating fee in July 2020 and adopted a final operating fee rule in
December 2020.
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\7\ 12 CFR 701.6.
\8\ Id.
\9\ 5 U.S.C. 551 et seq.
\10\ 81 FR 4674 (Jan. 27, 2016).
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The Board first proposed its operating fee methodology in 1979,
after Congress passed the Financial Institutions Regulatory and
Interest Rate Control Act of 1978.\11\ This legislation permitted the
Board to consolidate previously separate chartering, supervision, and
examination fees into a single operating fee, charged ``in accordance
with schedules, and for time periods, as determined by the Board, in an
amount necessary to offset the expenses of the Administration at a rate
consistent with a credit union's ability to pay.'' \12\ In combination
with a proposed change to section 701.6 of the NCUA's regulations in
1979, the Board proposed an initial fee schedule in the Federal
Register, including rates for 12 asset tiers.\13\ It later published a
final rule in the Federal Register, which included a finalized fee
schedule for 1979.\14\
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\11\ 44 FR 11785 (Mar. 2, 1979).
\12\ Id. at 11786.
\13\ Id. at 11787.
\14\ 44 FR 27379 (May 10, 1979).
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On four additional occasions prior to the July 2020 notice, the
Board had requested comments on potential changes to the operating fee
schedule through a Federal Register notice, independent of any changes
to 12 CFR 701.6. First, in 1990, the Board provided notice to the
public that it was considering consolidating the operating fee schedule
from 14 asset tiers to two asset tiers, retaining an exemption for FCUs
with total assets of less than $50,000, and implementing a $100 minimum
fee.\15\ Second, in 1992, the Board requested comments on a plan to
limit operating fees to the first $1 billion of each FCU's assets.\16\
Third, in 1995, the Board requested comments on a plan to restructure
the operating fee schedule for natural person FCUs and to exempt FCUs
with assets of $500,000 or less based on concern about small FCUs'
ability to pay the fees.\17\ The Board also requested comments on
imposing a minimum fee of $100 on all natural person FCUs with assets
over $500,000 but less than or equal to $750,000.\18\
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\15\ 55 FR 29857 (July 23, 1990).
\16\ 57 FR 34152 (Aug. 3, 1992).
\17\ 60 FR 32925 (June 26, 1995).
\18\ Id.
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In 2016, the Board published an updated methodology in detail in
the Federal Register and solicited comment. The Board made no changes
in response to comments on the methodology published in 2016 and
delegated authority to the NCUA Chief Financial Officer to apply the
published methodology. In 2020, the Board adopted three revisions to
the methodology: (1) including the budget for capital projects within
the total annual budget subject to the OTR; (2) including projected
miscellaneous revenues within the total annual budget subject to the
OTR; and (3) for purposes of determining the annual adjustment to the
rate tier thresholds, comparing the average of total system assets
reported in Call Reports for the four quarters available at the time
the Board approves the budget to the average of total system assets in
Call Reports for the four quarters of the respective previous years.
Since that time, the Chief Financial Officer has applied the published
operating fee methodology and explained its application in the NCUA's
annual budget documents.
In general, the Board has not used Federal Register notices in
connection with annual adjustments to the asset tiers and rates of the
operating fee schedule. Instead, the Board has opted to adopt such
changes at its open meetings. As recently as 2012, for example, the
Board increased the asset threshold used to exempt FCUs from operating
fees from $500,000 to $1 million at an open meeting, without requesting
advance comment in the Federal Register.\19\ While the Board has varied
its practice with respect to operating fee schedule changes, it has
done so within the FCU Act's broad directive that the operating fee
schedule should be as ``determined by the Board to be appropriate,''
subject to its consideration of its expenses and the ability of FCUs to
pay.\20\ In addition, the NCUA's regulation on operating fee processes
includes a standing invitation for written comments from FCUs on
existing operating fee schedules.\21\ Each year the Board also invites
comments on the draft NCUA budget, which includes a detailed
explanation of how the operating fee is calculated and how changes to
the operating fee rates are determined based on application of the
published methodology.
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\19\ Board Action Memorandum on 2013 Operating Fee (Nov. 15,
2012).
\20\ 12 U.S.C. 1755(b).
\21\ 12 CFR 701.6(c).
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II. Methodology for Determining the Aggregate Operating Fee Amount
The Board adopts an annual budget in the fall of each year, which
includes an operating budget for the costs of day-to-day operations
such as employee compensation, travel and training expenses, support
purchased through contracts, and other miscellaneous administrative
expenses. The annual budget also includes a capital budget for the
estimated spending on critical projects, such as for computer hardware
and software, and for investments in agency-owned real property and
equipment. The annual budget provides
[[Page 43151]]
the resources required to execute the goals and objectives as outlined
in the NCUA's strategic plan.\22\
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\22\ Additional information on the NCUA budget may be found at:
<a href="http://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx">http://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx</a>.
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Adjustments to the Budget. When calculating the aggregate annual
operating fee requirements, the Board adds together the operating
budget and capital budget to determine the total annual budget required
for the agency's operations and investments.\23\ The Board then
subtracts from the total annual budget its estimate for miscellaneous
revenues that the agency will collect during the year, such as rent
collected from other Federal agencies that share NCUA facilities and
parking fee revenues. The NCUA owns a share of the parking garage
underneath the complex of buildings that includes the agency's Central
Office, and the NCUA receives its share of the revenue collected from
fees charged to those who park in the garage.
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\23\ The NCUA Board considers a separate budget for
administrative activities related solely to the NCUA's insurance
program, which are financed directly from the National Credit Union
Share Insurance Fund. In addition, the operations of the Central
Liquidity Facility are considered by the Central Liquidity Facility
Board, which is an instrumentality of the United States within the
NCUA and managed by the Board, and has a separate budget funded from
its own resources.
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Overhead Transfer Rate: As discussed previously, the FCU Act
authorizes the NCUA to expend funds from the National Credit Union
Share Insurance Fund for administrative and other expenses related to
Federal share insurance.\24\ The transfer from the National Credit
Union Share Insurance Fund covers the expenses associated with
insurance-related functions of the NCUA's operations. The OTR is one of
the funding sources for the budget, but the OTR does not affect the
amount of the annual budget. The Board approves the annual budget
separately and without regard to the OTR. The OTR is applied to actual
expenses incurred each month, and the OTR share of monthly expenses is
transferred from the National Credit Union Share Insurance Fund to the
NCUA's Operating Fund. The estimated annual OTR is subtracted from the
total annual budget, net of miscellaneous revenues, to determine the
portion of the annual budget financed by the operating fee.
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\24\ 12 U.S.C. 1783(a).
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Interest Income and Other Adjustments: The Board reduces the
portion of the annual budget financed by the operating fee by its
estimate of interest income and by other adjustments in order to
compute the net level of collections required to finance the agency's
programs. Interest income reduces the required operating fees by
providing an additional source of funds to cover regulatory (i.e., non-
insurance) related aspects of operating the NCUA. The NCUA collects
interest income by investing balances of operating fee collections in
short-term Treasury securities because the collected funds are not
immediately required to pay expenses. Other adjustments made by the
Board include an estimate of prior-years' operating fee collections
that are unlikely to be spent and that therefore reduce the need for
new operating fee collections.
Operating Fee Requirements. The result of adjusting the total
annual budget by the OTR share, interest income, and other adjustments
is the net budget subject to the operating fee and payable by both
natural person and corporate FCUs. The natural person FCU operating
fees are determined by deducting the corporate FCU operating fees from
the total budget operating fee requirements.
The corporate credit union fee schedule was established in 1979 and
has changed little over the years. Corporate FCUs hold assets of
natural person credit unions, which are already assessed under the
natural person operating fees for those members that are FCUs.
Assessing corporate FCUs at the same rate would, effectively, assess
the same assets twice for natural person FCU members of corporate FCUs.
Raising operating fee assessments for corporate FCUs would result in
higher expenses for corporate FCUs. Corporate FCUs would need to pass
the higher expenses to natural person credit unions in the form of
higher fees and lower investment yields. The corporate FCU operating
fee schedule is a method of charging corporate FCUs a supervisory fee
to defray costs and is now published annually in the budget.
III. Methodology for Determining the Operating Fee Schedule
The Board delegated authority to the Chief Financial Officer to
administer the methodology approved by the Board for calculating the
operating fees charged to natural person FCUs and to set the operating
fee schedule as calculated per the approved methodology, beginning in
2016. After determining the operating fee requirements for natural
person FCUs, the Chief Financial Officer creates the natural person FCU
operating fee schedule for the upcoming year. The FCU operating fee
schedule is published annually in the budget.
The current fee schedule for natural person FCUs uses three asset
tiers. A different assessment rate is applied to each tier, and the
threshold for each tier is adjusted annually to reflect growth of the
credit union system. Currently, FCUs with $1 million or less in assets
pay no operating fee.
There are two steps used to determine adjustments to the operating
fee schedule for the upcoming year: (1) updating the prior-year asset
tier thresholds using the computed rate of natural person FCU asset
growth; and (2) updating the prior-year assessment rates for each asset
tier by determining the average assessment rate adjustment.
Updating prior year asset levels. The first step in determining the
new operating fee schedule is to adjust the threshold for each asset
tier from the prior year by comparing the average of total system
assets reported in Call Reports for the four quarters available at the
time the Board approves the budget to the average of total system
assets in Call Reports for the four quarters of the respective previous
years. The tier thresholds are adjusted annually in this manner to
preserve the same relative relationship of the scale to the applicable
asset base.
Updating the prior year's assessment rates. After updating the
prior-year asset tier thresholds, the next step is to project operating
fees using the updated asset tier thresholds and the prior-year
assessment rates charged for each tier. The percentage difference
between the projected operating fee collections using the prior-year
assessment rates and the total operating fee collections required to
support the budget is the average rate adjustment.
The average rate adjustment is used to amend the prior-year's
assessment rates for each asset tier either upwards or downwards. If
the projected amount of operating fees is less than the required
budgeted amount, then the assessment rates for each asset tier are
adjusted upwards. If the projected amount is more than the required
budgeted amount, the assessment rates for each asset tier are adjusted
downwards.
The resulting new operating fee schedule and due date are
communicated through a Letter to Federal Credit Unions and posted
online to <a href="http://NCUA.gov">NCUA.gov</a> within 30 days of Board approval of the annual
budget. The Board also makes available on the NCUA website an online
operating fee calculator for FCUs to estimate their individual
operating fees for the upcoming year. No later than March of each year,
natural person FCUs with assets greater than $1 million will receive an
invoice for their operating fee. Operating fees are based on the
average of the assets reported for the
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previous four quarters available when the Board approves the budget.
The NCUA combines operating fee and capitalization deposit adjustments
into a single invoice normally due in April. As required by the FCU
Act, the NCUA will deposit the collected fees in the United States
Treasury.\25\
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\25\ 12 U.S.C. 1755(d); <a href="https://www.ncua.gov/files/agenda-items/AG20191212Item1b.pdf">https://www.ncua.gov/files/agenda-items/AG20191212Item1b.pdf</a>, pages 57 to 64.
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IV. Change to Operating Fee Methodology and Request for Comment
The Board seeks comment on a change to the exemption level below
which FCUs are not charged an operating fee and invites comment on
other aspects of the operating fee methodology, as described below.
1. Threshold for Exemption From Paying an Operating Fee
Currently, FCUs reporting average assets of $1,000,000 or less
during the preceding four calendar quarters are exempt from paying an
operating fee, because the Board considered and determined that such
credit unions do not have the ability to pay the fee. The $1,000,000
average asset exemption level has been in place since 2012 and has not
been adjusted since that time. In the intervening 11 years, average
assets across FCUs have approximately doubled. To account for this
growth in the size of the credit union system, the Board is proposing
to raise the average asset exemption level for FCUs to $2,000,000 and
to adjust the exemption threshold annually in future years by the
computed rate of asset growth in the credit union system. This
inflationary adjustment would be included in the operating fee
calculation presented in the annual draft NCUA budget published by the
Chief Financial Officer pursuant to 12 U.S.C. 1789(b). The NCUA would
adjust the exemption threshold by the percentage by which average
quarterly assets reported for the credit union system for the most-
current four quarters have increased compared to the previous four
quarters, using the Call report data available at the time the NCUA
budget is published. For example, when the Board approved the 2023-2024
operating budget in December 2022, the average credit union system
assets for the four most-current quarters (i.e., the third and fourth
quarters of 2021 and the first two quarters of 2022) were 8.5 percent
higher than the previous four quarters (i.e., the third and fourth
quarter of 2020 and the first two quarters of 2021). This increase in
assets can be expressed as an inflation multiplier (1.085 in the
example given) and applied to the exemption threshold to determine the
adjusted level.
The Board believes that this change would appropriately maintain
its current policy of exempting the smallest natural person credit
unions from paying the operating fee based on those institutions'
inability to pay such a fee.
2. Other Aspects of the Operating Fee Methodology
The Board has not substantially modified the current three-tier
operating fee schedule since 1993. The current operating fee schedule
is regressive; that is, credit unions with a larger amount of total
assets pay a lower marginal rate on those assets above the threshold
levels for the lower tiers. Given growth and consolidation in the
credit union system, the Board is interested in whether such an
approach is an equitable method for allocating the operating fee. There
is a potentially wide range of approaches for assessing the operating
fee. For example, the Board could adopt a single, flat-rate operating
fee for all credit unions with total assets that exceed a standard
exemption threshold. Overall, a flat-rate operating fee would shift
fees away from relatively smaller credit unions to relatively larger
ones, making the operating fee schedule less regressive. The Board
could also make the operating fee schedule less regressive by
increasing the rates for the second and third tiers on the schedule.
Alternatively, adjusting the rates upward for the first and second
tiers of the current operating fee would create a more regressive
schedule. The Board is interested in receiving public comments on
whether or how it should consider modifying the operating fee schedule
and what specific aspects and conditions of the credit union system it
should evaluate when making such decisions.
The Board is also interested in specific suggestions that would
increase the equitable distribution of the operating fee across FCUs.
Because the operating fee methodology allocates the non-OTR portion of
the NCUA budget to all FCUs subject to it, changes to the methodology
do not lower total operating fee collections but instead shift the fees
to those FCUs required to pay it. The Board is interested in
understanding how any proposals to change the methodology can be
justified as fair and equitable not only for those FCUs whose operating
fee would decrease, but also for those FCUs whose operating fees would
increase and therefore bear a greater fee burden compared to the
current methodology.
Authority: 12 U.S.C. 1755.
By the National Credit Union Administration Board on June 29,
2023.
Melane Conyers-Ausbrooks,
Secretary of the Board.
[FR Doc. 2023-14201 Filed 7-5-23; 8:45 am]
BILLING CODE 7535-01-P
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