issue-1996-05-02•Federal Register final rules — 1996-05-02
Federal Register final rules — 1996-05-02
issue-1996-05-02Federal Register final rules — 1996-05-02Regulation
Published Federal Register documents, not public-inspection drafts. The GPO XML/text rendition is a research aid; the linked complete official PDF retains the printed layout and all graphics. Graphics are retained in that PDF and are not independently reproduced in this text rendition. Publication does not establish that every provision remains legally in force.
FR Doc. 96-9796 Radio Broadcasting Services; Beverly Hills, Chiefland, Holiday, Micanopy, Sarasota, FL
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Page 19558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9796]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 73
[MM Docket No. 92-195; RM-7091, RM-7146, RM-8123, RM-8124]
Radio Broadcasting Services; Beverly Hills, Chiefland, Holiday,
Micanopy, Sarasota, FL
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: This document dismisses an Application for Review filed by
Dickerson Broadcasting, Inc. directed to an earlier action denying its
Petition for Reconsideration. See 58 FR 17349 (April 2,1993). Dickerson
contended that the Class 3C FM channel at Beverly Hills was allotted
without adequate notice. With this action, the proceeding is
terminated.
EFFECTIVE DATE: May 2, 1996.
FOR FURTHER INFORMATION CONTACT: Robert Hayne, Mass Media Bureau, (202)
776-1654.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Memorandum Opinion and Order, MM Docket No. 92-195, adopted March 21,
1996, and released April 16, 1996. The full text of this decision is
available for inspection and copying during normal business hours in
the FCC Dockets Branch (Room 230), 1919 M Street, NW., Washington, DC.
The complete text of this decision may also be purchased from the
Commission's copy contractor, International Transcription Service,
(202) 857-3800, 2100 M Street, NW., Washington, DC 20037.
List of Subjects in 47 CFR Part 73
Radio broadcasting.
Federal Communications Commission.
Douglas W. Webbink,
Chief, Policy and Rules Division, Mass Media Bureau.
[FR Doc. 96-9796 Filed 5-01-96; 8:45 am]
BILLING CODE 6712-01-F
Complete official Federal Register PDF
FR Doc. 96-10989 Revision of User Fees for 1996 Crop Cotton Classification Services to Growers
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19511-19512]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10989]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 28
[CN-96-001]
Revision of User Fees for 1996 Crop Cotton Classification
Services to Growers
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.
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SUMMARY: The Agricultural Marketing Service (AMS) is reducing user fees
for cotton producers for 1996 crop cotton classification services under
the Cotton Statistics and Estimates Act in accordance with the formula
provided in the Uniform Cotton Classing Fees Act of 1987. The 1995 user
fee for the classification service was $1.60 per bale. This final rule
will reduce the fee for the 1996 crop to $1.50 per bale. The reduced
fee is due to increased efficiency in classing operations, and it is
sufficient to recover the costs of providing classification services,
including costs for administration, supervision, and development and
maintenance of standards.
EFFECTIVE DATE: July 1, 1996.
FOR FURTHER INFORMATION CONTACT: Lee Cliburn, 202-720-2145.
SUPPLEMENTARY INFORMATION: A proposed rule detailing the revisions was
published in the Federal Register on February 29, 1996, (61 FR 7756). A
30-day comment period was provided for interested persons to respond to
the proposed rule; no comments were received.
This final rule has been determined to be not significant for
purposes of Executive Order 12866, and therefore it has not been
reviewed by the Office of Management and Budget (OMB).
This final rule has been reviewed under Executive Order 12778,
Civil Justice Reform. It is not intended to have retroactive effect.
This rule would not preempt any state or local laws, regulations, or
policies unless they present an irreconcilable conflict with this rule.
There are no administrative procedures which must be exhausted prior to
any judicial challenge to the provisions of this rule.
The Administrator, Agricultural Marketing Service (AMS), has
considered the economic impact of this final rule on small entities
pursuant to the requirements set forth in the Regulatory Flexibility
Act (RFA) (5 U.S.C. 601 et seq.).
The purpose of the RFA is to fit regulatory actions to the scale of
businesses subject to such actions in order that small businesses will
not be disproportionately burdened. There are about 40,000 cotton
growers who voluntarily submit their cotton for the classification
service. The majority of the growers are small businesses under the
criteria established by the Small Business Administration. The
Administrator of AMS has certified that this action will not have a
significant economic impact on a substantial number of small entities
as defined in the RFA because:
(1) the fee reduction reflects a decrease in the cost-per-unit
currently borne by those entities utilizing the services;
(2) the cost reduction will not affect competition in the
marketplace; and
(3) the use of classification services is voluntary.
In compliance with OMB regulations (5 CFR part 1320) which
implement the Paperwork Reduction Act (PRA) (44 U.S.C. 3501 et seq.),
the information collection requirements contained in the provisions
amended by this final rule have been previously approved by OMB and
were assigned OMB control number 0581-0009.
The changes will be made effective July 1, 1996, as provided by the
Cotton Statistics and Estimates Act.
Fees for Classification Under the Cotton Statistics and Estimates Act
of 1927
The user fee charged to cotton producers for High Volume Instrument
(HVI) classification services under the Cotton Statistics and Estimates
Act (7 U.S.C. 473a) was $1.60 per bale during the 1995 harvest season
as determined by using the formula provided in the Uniform Cotton
Classing Fees Act of 1987, as amended by Public Law 102-237. The fees
cover salaries, cost of equipment and supplies, and other overhead
costs, including costs for administration, supervision, development,
and maintenance of cotton standards.
This final rule establishes the user fee charged to producers for
HVI classification at $1.50 per bale during the 1996 harvest season.
Public Law 102-237 amended the formula in the Uniform Cotton
Classing Fees Act of 1987 for establishing the producer's
classification fee so that the
[[Page 19512]]
producer's fee is based on the prevailing method of classification
requested by producers during the previous year. HVI classing was the
prevailing method of cotton classification requested by producers in
1995. Therefore, the 1996 producer's user fee for classification
service is based on the 1995 base fee for HVI classification.
The fee was calculated by applying the formula specified in the
Uniform Cotton Classing Fees Act of 1987, as amended by Public Law 102-
237. The 1995 base fee for HVI classification exclusive of adjustments,
as provided by the Act, was $2.01 per bale. A 1.4 percent, or three
cents per bale increase due to the implicit price deflator of the gross
domestic product added to the $2.01 results in a 1996 base fee of $2.04
per bale. The formula in the Act provides for the use of the percentage
change in the implicit price deflator of the gross national product (as
indexed for the most recent 12-month period for which statistics are
available). However, this has been replaced by the gross domestic
product by the Department of Commerce as a more appropriate measure for
the short-term monitoring and analysis of the U.S. economy.
The number of bales to be classed by the United States Department
of Agriculture from the 1996 crop is estimated at 19,024,000. The 1996
base fee was decreased 15 percent based on the estimated number of
bales to be classed (one percent for every 100,000 bales or portion
thereof above the base of 12,500,000, limited to a maximum adjustment
of 15 percent). This percentage factor amounts to a 31 cents per bale
reduction and was subtracted from the 1996 base fee of $2.04 per bale,
resulting in a fee of $1.73 per bale.
Assuming a fee of $1.73 per bale, the projected operating reserve
would be 36.9 percent. The Act specifies that the Secretary shall not
establish a fee which, when combined with other sources of revenue,
will result in a projected operating reserve of more than 25 percent.
Accordingly, the fee of $1.73 must be reduced by 23 cents per bale, to
$1.50 per bale, to provide an ending accumulated operating reserve for
the fiscal year of 25 percent of the projected cost of operating the
program. This establishes the 1996 season fee at $1.50 per bale.
Accordingly, Sec. 28.909, paragraph (b) is revised to reflect the
reduction in the HVI classification fees.
As provided for in the Uniform Cotton Classing Fees Act of 1987, as
amended, a five cent per bale discount will continue to be applied to
voluntary centralized billing and collecting agents as specified in
Sec. 28.909(c).
Growers or their designated agents will continue to incur no
additional fees if only one method of receiving classification data is
requested. The fee for each additional method of receiving
classification data in Sec. 28.910(a) will remain at five cents per
bale, and it will be applicable even if the same method was requested.
Since the Cotton Division will no longer accept returned diskettes to
eliminate the possibility of computer virus infection, the cost of
computer tapes or diskettes not returned will no longer be billed
separately to the requestor. The fee in Sec. 28.910(b) for an owner
receiving classification data from the central database will remain at
five cents per bale, but a minimum charge of $5.00 for services
provided per monthly billing period will be assessed. The provisions of
Sec. 28.910 concerning the fee for new classification memoranda issued
from the central database for the business convenience of an owner
without reclassification of the cotton will remain the same.
The fee for review classification in Sec. 28.911 will be reduced
from $1.60 per bale to $1.50 per bale.
The fee for returning samples after classification in Sec. 28.911
will remain at 40 cents per sample.
List of Subjects in 7 CFR Part 28
Administrative practice and procedures, Cotton, Cotton samples,
Grades, Market news, Reporting and recordkeeping requirements,
Standards, Staples, Testing, Warehouses.
For the reasons set forth in the preamble, 7 CFR Part 28 is amended
as follows:
PART 28--[AMENDED]
1. The authority citation for Part 28 is revised to read as
follows:
Authority: 7 U.S.C. 471-476.
2. In Sec. 28.909, paragraph (b) is revised to read as follows:
Sec. 28.909 Costs.
* * * * *
(b) The cost of High Volume Instrument (HVI) cotton classification
service to producers is $1.50 per bale.
* * * * *
3. Section 28.910 is amended by revising the undesignated text
immediately following paragraph (a)(4) and adding a sentence at the end
of paragraph (b) to read as follows:
Sec. 28.910 Classification of samples and issuance of classification
data.
(a) * * *
(4) ***
If the issuance of data to growers or to their agents is made by
more than one method, the fee for each bale issued by each additional
method shall be five cents. If provided as additional method of data
transfer, the minimum fee for each tape or diskette issued shall be
$10.00.
(b) * * * The minimum charge assessed for services obtained from
the central database shall be $5.00 per monthly billing period.
* * * * *
4. In Sec. 28.911, the last sentence of paragraph (a) is revised to
read as follows:
Sec. 28.911 Review classification.
(a) * * * The fee for review classification is $1.50 per bale.
* * * * *
Dated: April 29, 1996.
Lon Hatamiya,
Administrator.
[FR Doc. 96-10989 Filed 5-1-96; 8:45 am]
BILLING CODE 3410-02-P
Complete official Federal Register PDF
FR Doc. 96-10972 Establishment of Class E Airspace; Bigfork, MN
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19541-19542]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10972]
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DEPARTMENT OF TRANSPORTATION
14 CFR Part 71
[Airspace Docket No. 95-AGL-20]
Establishment of Class E Airspace; Bigfork, MN
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Final rule.
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SUMMARY: This action establishes Class E airspace at Bigfork Municipal
Airport, Bigfork, MN, to accommodate a Nondirectional Radio Beacon
(NDB) instrument approach procedure for Runway 15. Controlled airspace
extending upward from 700 to 1200 feet above ground level (AGL) is
needed for aircraft executing the approach.
EFFECTIVE DATE: 0901 UTC, August 15, 1996.
FOR FURTHER INFORMATION CONTACT:
John A. Clayborn, Air Traffic Division, Operations Branch, AGL-530,
Federal Aviation Administration, 2300 East Devon Avenue, Des Plaines,
Illinois 60018, telephone (847) 294-7568.
SUPPLEMENTARY INFORMATION:
History
On Wednesday, December 13, 1995, the FAA proposed to amend part 71
of the Federal Aviation Regulations (14 CFR part 71) to establish Class
E5 airspace at Bigfork Municipal Airport, Bigfork, MN (60 FR 63993).
The proposal was to add controlled airspace extending upward from 700
to 1200 feet AGL for Instrument Flight Rules (IFR) operations in
controlled airspace during portions of the terminal operation and while
transiting between the enroute and terminal environments.
Interested parties were invited to participate in this rulemaking
proceeding by submitting written comments on the proposal to the FAA.
No comments objecting to the proposal were received. Class E airspace
designations for areas extending upward from 700 feet or more above the
surface of the earth are published in paragraph 6005 of FAA Order
7400.9C dated August 17, 1995, and effective September 16, 1995, which
is incorporated by reference in 14 CFR 71.1. The Class E airspace
designation listed in this document will be published subsequently in
the Order.
The Rule
This amendment to part 71 of the Federal Aviation Regulations (14
CFR part 71) establishes Class E airspace at Bigfork Municipal Airport,
Bigfork, MN, to accommodate a nondirectional Radio Beacon (NDB)
instrument approach procedure to Runway 15. Controlled airspace
extending upward from 700 to 1200 feet AGL is needed for aircraft
executing the approach. The area will be depicted on appropriate
aeronautical charts.
The FAA has determined that this regulation only involves an
established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
Therefore, this regulation--(1) is not a ``significant regulatory
action'' under Executive Order 12866; (2) is not
[[Page 19542]]
a ``significant rule'' under DOT Regulatory Policies and Procedures (44
FR 11034; February 26, 1979); and (3) does not warrant preparation of a
Regulatory Evaluation as the anticipated impact is so minimal. Since
this is a routine matter that will only affect air traffic procedures
and air navigation, it is certified that this rule will not have a
significant economic impact on a substantial number of small entities
under the criteria of the Regulatory Flexibility Act.
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference, Navigation (air).
Adoption of the Amendment
In consideration of the foregoing, the Federal Aviation
Administration amends 14 CFR part 71 as follows:
PART 71--[AMENDED]
1. The authority citation for part 71 continues to read as follows:
Authority: 49 U.S.C. 106(g), 40103, 40113, 40120; E.O. 10854, 24
FR 9565, 3 CFR, 1959-1963 Comp., p. 389; 14 CFR 11.69.
Sec. 71.1 [Amended]
2. The incorporation by reference in 14 CFR 71.1 of the Federal
Aviation Administration Order 7400.9C, Airspace Designations and
Reporting Points, dated August 17, 1995, and effective September 16,
1995, is amended as follows:
Paragraph 6005 Class E airspace areas extending upward from 700
feet or more above the surface of the earth.
* * * * *
AGL MN E5 Bigforks, MN [New]
(Lat. 47 deg.46'45'' N, long. 93 deg.39'01'' W)
That airspace extending upward from 700 feet above the surface
within a 7-mile radius of the Bigfork Municipal Airport.
* * * * *
Issued in Des Plains, Illinois on April 17, 1996.
Maureen Woods,
Acting Manager, Air Traffic Division.
[FR Doc. 96-10972 Filed 5-1-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-10971 Amendment of Class E Airspace; Jackson, CA
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Page 19542]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10971]
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DEPARTMENT OF TRANSPORTATION
14 CFR Part 71
[Airspace Docket No. 96-AWP-7]
Amendment of Class E Airspace; Jackson, CA
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Final rule.
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SUMMARY: This action amends the Class E airspace area at Jackson, CA.
The development of a Global Positioning System (GPS) Standard
Instrument Approach Procedure (SIAP) to Runway (RWY) 1 has made this
action necessary. The intended effect of this action is to provide
adequate controlled airspace for Instrument Flight Rules (IFR)
operations at Westover Field Amador County, Jackson, CA.
EFFECTIVE DATE: 0901 UTC August 15, 1996.
FOR FURTHER INFORMATION CONTACT:
William Buck, Airspace Specialist, System Management Branch, AWP-530,
Air Traffic Division, Western-Pacific Region, Federal Aviation
Administration, 15000 Aviation Boulevard, Lawndale, California 90261,
telephone (310) 725-6556.
SUPPLEMENTARY INFORMATION:
History
On March 11, 1996, the FAA proposed to amend part 71 of the Federal
Aviation Regulations (14 CFR part 71) by amending the Class E airspace
area at Jackson, CA (61 FR 9657). This action will provide adequate
controlled airspace for Instrument Flight Rules (IFR) operations at
Westover Field Amador County, Jackson, CA.
Interested parties were invited to participate in this rulemaking
proceedings by submitting written comments on the proposal to the FAA.
No comments to the proposal were received. Class E airspace
designations are published in paragraph 6005 of FAA Order 7400.9C dated
August 17, 1995, and effective September 16, 1995, which is
incorporated by reference in 14 CFR 71.1. The Class E airspace
designations listed in this document will be published subsequently in
this Order.
The Rule
This amendment to part 71 of the Federal Aviation Regulations (14
CFR part 71) amends the Class E airspace area at Jackson, CA. The
development of a GPS SIAP at Westover Field Amador County has made this
action necessary. The intended effect of this action is to provide
adequate Class E airspace for aircraft executing the GPS RWY 1 SIAP at
Westover Field Amador County, Jackson, CA.
The FAA has determined that this regulation only involves an
established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
Therefore, this regulation--(1) is not a ``significant regulatory
action'' under Executive Order 12866; (2) is not a ``significant rule''
under DOT Regulatory Policies and Procedures (44 FR 10034; February 26,
1979); and (3) does not warrant preparation of a Regulatory Evaluation
as the anticipated impact is so minimal. Since this is a routine matter
that will only affect air traffic procedures and air navigation, it is
certified that this rule would not have a significant economic impact
on a substantial number of small entities under the criteria of the
Regulatory Flexibility Act.
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference, Navigation (air).
Adoption of the Amendment
In consideration of the foregoing, the Federal Aviation
Administration amends 14 CFR part 71 a follows:
PART 71--[AMENDED]
1. The authority citation for 14 CFR part 71 continues to read as
follows:
Authority: 49 U.S.C. 106(g), 40103, 40113, 40120; E.O. 10854, 24
FR 9565, 3 CFR, 1959-1963 Comp., p. 389; 14 CFR 11.69.
Sec. 71.1 [Amended]
2. The incorporation by reference in 14 CFR 71.1 of the Federal
Aviation Administration Order 7400.9C, Airspace Designations and
Reporting Points, dated August 17, 1995, and effective September 16,
1995, is amended as follows:
Paragraph 6005 Class E airspace areas extending upward from 700
feet or more above the surface of the earth.
* * * * *
AWP CA E5 Jackson, CA [Revised]
Jackson, Westover Field Amador County, CA
(Lat. 38 deg.22'36'' N, long. 120 deg.47'38'' W)
That airspace extending upward from 700 feet above the surface
within a 6.3-mile radius of Westover Field Amador County.
* * * * *
Issued in Los Angeles, California, on April 18, 1996.
Harvey R. Riebel,
Acting Manager, Air Traffic Division, Western-Pacific Region.
[FR Doc. 96-10971 Filed 5-1-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-10941 Seaway Regulations and Rules: Miscellaneous Amendments
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19548-19552]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10941]
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DEPARTMENT OF TRANSPORTATION
Saint Lawrence Seaway Development Corporation
33 CFR Part 401
RIN 2135-AA00
Seaway Regulations and Rules: Miscellaneous Amendments
AGENCY: Saint Lawrence Seaway Development Corporation, DOT.
ACTION: Final rule.
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SUMMARY: The Saint Lawrence Seaway Development Corporation and the St.
Lawrence Seaway Authority of Canada publish joint Seaway Regulations.
As a result of discussions with the Authority, it has been determined
that a number of existing regulations need to be amended for
clarification or simplification. In addition, several substantive
changes are being made, specifically: changing the maximum allowable
beam from 23.16 m (76 feet) to 23.8 m (78 feet), with certain,
practical conditions applied; reducing the security deposit for certain
vessels; requiring permanent fenders, with a phase-in period; and
reducing some of the system's speed limits. The first two of these are
intended to encourage increased usage of the Seaway, the third is
intended to increase the safety for both the Corporation's and the
Authority's locks and the vessels transiting, and the fourth is
intended to increase both safety and environmental protection.
DATES: This rule is effective on June 3, 1996.
FOR FURTHER INFORMATION CONTACT:
Marc C. Owen, Chief Counsel, Saint Lawrence Seaway Development
Corporation, 400 Seventh Street, S.W., Washington, D.C. 20590, (202)
366-6823.
SUPPLEMENTARY INFORMATION: As a result of discussions with the Saint
Lawrence Seaway Authority of Canada, the Saint Lawrence Seaway
Development Corporation is amending the Seaway Regulations and Rules in
33 CFR Part 401 as described in the following summary.
Section 401.3, ``Maximum vessel dimensions'', is amended by
revising paragraph (a), removing paragraph (d)(1), and adding a new
paragraph (e) to change the maximum allowable beam from 23.16 m (76
feet) to 23.8 m (78 feet)
[[Page 19549]]
and simplify the approval process for vessels exceeding 23.2 m., with
practical conditions applied for such things as vessel configuration
and weather conditions.
Section 401.6, ``Markings'', is amended by revising paragraphs (a)
and (b) to round off the length requirements from 19.8 m to 20.0 m and
from 117 m to 110 m, respectively, for simplification and consistency
with the international collision regulations. To alleviate safety
problems caused by portable fender usage, Sec. 401.7, ``Fenders'', is
revised to require, as a rule, permanent fenders of a specified type,
with only occasional deployment of portable fenders allowed on a single
transit basis, with a phase-in period until the beginning of the 1997
navigation season to ease transition. One comment suggested the
elimination of permanent fenders because they can catch the lock gates
and, at certain vessel drafts, can dig into the wooden fenders on the
lock approach walls. The Corporation and the Authority are not adopting
this suggestion. Permanent fenders are being required to avoid the
situation where mooring wires may be crushed between the vessel's side
and the lock wall, to prevent steel contact on vessels with hazardous
cargo stored in side tanks, and, occasionally for certain vessels, to
protect specific structures or provide adequate clearance off bascule
bridges. The Authority and the Corporation review vessel plans to
ensure that fenders are located as high on the hull as possible, have a
maximum size stipulated, and are adequately tapered. If these plans are
provided and concurred in before construction or retrofitting, the type
of problem suggested by the comment should be avoided.
Section 401.9, ``Radiotelegraph equipment'', is amended by revising
paragraph (a) to round off the length requirement for self-propelled
vessels from 19.8 m to 20.0 m for simplification.
Section 401.10, ``Mooring lines'', is amended by revising
paragraphs (B) and (c) to allow routinely synthetic lines since vessels
now use them routinely and safely worldwide.
Section 401.13, ``Hand lines'', is amended by revising paragraph
(b) to require hand lines to have a diameter of between 12 and 20 mm
and a minimum length of 35 m with uniform thickness throughout to avoid
jamming on the car haulers and bollards that has occurred because of
splicing of uneven pieces.
Section 401.26, ``Security for tolls'', is amended by revising
paragraph (d) to reduce the security required where a number of
vessels, for each of which a preclearance application has been
approved, are owned or controlled by the same individual or company and
have the same representative. Security for tolls for these vessels is
not required if every toll account received in the preceding five years
has been paid within forty-five days after the vessel enters the
Seaway.
Section 401.42, ``Passing hand lines'', is amended by revising
paragraph (a)(1) to change ``linesmen'' to ``linehandlers'' for gender
neutrality.
Section 401.43, ``Mooring table'', is amended by deleting the
unnecessary references to specific locations for simplification.
Section 401.45, ``Emergency procedure'', is amended to requiring
the Master to be responsible for giving the signal in an emergency upon
entering the locks to make the practice consistent in both Canadian and
U.S. locks and, for safety purposes, by requiring mooring lines to be
put out as quickly as possible.
Section 401.52, ``Limited of approach to a bridge'', is amended by
revising paragraph (b) to change ``Caughnawaga'' to Kahnawake'', as it
is now commonly known.
Section 401.64, ``Calling in'', is amended by revising paragraph
(e) to make the master solely responsible because it is his or her, not
the pilot's responsibility.
Section 401.65, ``Communication--ports, docks, and anchorages'', is
amended by revising paragraph (a)(1) to round off 0.87 of a nautical
mile to 1 nautical mile for simplification and by removing that part of
paragraph (c) that refers to dangerous cargo reporting and placing its
substance in Sec. 401.66, which is a more appropriate location.
Section 401.66, ``Applicable laws'', is amended by redesignating
the current text as paragraph (a) and adding a new paragraph (b), which
is the text removed from Sec. 401.65(c) amended to change the dangerous
cargo reporting and filing requirements to reflect the practice
instituted by the Canadian Authority under Seaway Notice No. 2 of 1993.
Section 401.71, ``Signals--explosive or hazardous cargo vessels'',
is amended by deleting paragraph (b) and revising current paragraph (a)
to combine the requirements for explosive and hazardous vessels into
one to be consistent with the international collision regulations.
Section 401.72, ``Reporting--explosive and hazardous cargo
vessels'', is amended by adding new paragraphs (e), (f), (g), and (h)
to require certain information on load plans concerning dangerous cargo
to ensure enhanced safety, reflecting the practice instituted by the
Authority under Seaway Notice No. 2 of 1993. In response to a comment
received by the Authority, the reference to ``IMO'' in subsection
(e)(1) is changed to ``IMDG'', which is the correct designation for the
International Dangerous Goods Code.
Subsection (g) is also changed in response to a comment received by
the Authority. This change covers the situation where an actual
Material Safety Data sheet for a cargo carried by a vessel is not on
file with a Seaway Traffic Control Center, but the vessel carries
sufficient information for its preparation. Either form of compliance
will allow the vessel to continue transit through the system.
Section 401.75, ``Payment of tolls'', is amended to provide that
every toll invoice shall be paid in Canadian or American funds within
forty-five days after the vessel enters the Seaway and any adjustment
of the amount payable shall be provided for in a subsequent invoice,
which is consistent with the new policy on reduced security in revised
Sec. 401.26(d). To be consistent with the text of the Canadian version
of these joint regulations, this revised Sec. 401.75 text is
redesignated as paragraph (a) and the current Sec. 401.77 is
redesignated as paragraph (b) of Sec. 401.75 and revised by making non-
substantive editorial changes.
Section 401.84, ``Reporting of impairment or other hazard by
vessels transiting within the Seaway'', is amended by revising
paragraph (c) to reflect that the reporting requirements cover the
equipment listed in Schedule I as well.
Section 401.89, ``Transit refused'', is amended by revising
paragraph (a)(1) to transit refusal may be based upon the equipment
requirements in Schedule I as well when transiting Canadian waters.
Section 401.91, ``Removal of obstructions'', is amended to remove
the words ``take such action * * * as the Corporation or the Authority
deem necessary'' as superfluous.
Section 401.94, ``Keeping copy of regulations'', is amended to
require that, in addition to a copy of the Regulations, a copy of the
vessel's latest Ship Inspection Report, and Seaway Notices for the
navigation year shall be kept on board each vessel, which reflects the
routine requirement for this documentation for inspection and reference
purposes.
Schedule I, ``VESSELS TRANSITING U.S. WATERS'', is amended by
revising paragraph (d)(3) to require, for each vessel with a fixed
propeller, a table of shaft revolutions per minute, for a
representative range of speeds, and a notice showing any critical range
of revolutions at which the engine
[[Page 19550]]
designers recommend that the engine not be operated on a continuous
basis because this information is necessary for officers or pilots
having conduct of the vessel.
It was proposed to amend Schedule II, ``Table of Speeds'', by
revising item 4 to reduce the allowable speeds in the area covered, by
revising item 6 to reduce the allowable speeds in the area covered and
include the areas that have been covered by items 7 through 10 under
item 6's allowable speed limits to eliminate varying speed areas,
reduce speeding violations, and reduce vessel wake damages. Items 7
through 10 were to be removed and items 11 through 15 renumbered
accordingly. Two comments, both from pilots, objected on the basis that
it would increase transit time and thus increase pilot fatigue and
stress, resulting in a decrease in the safety margin. They also stated
that proffering wake damage as a basis for the change in all areas was
unfounded. The Corporation and the Authority agree only in part. The
Table of Speeds will now be amended as follows. The speed limit from
Eisenhower to Iroquois Lock will be set at 11.5 knots. Presently, the
limits for this section are divided into four separate speed zones:
11.5 knots from Eisenhower to Richard's Point Light #55 (5.34 nautical
miles); 13.0 knots from Richards Point Light #55 to Doran Shoal Buoy 84
(9.08 nautical miles); 11.5 knots from Doran Shoal Buoy 84 to Ogden
Island Buoy 99 (4.24 nautical miles); and 13.0 knots from Ogden Island
Buoy 99 to Iroquois Lock (3.54 nautical miles). The speed limit between
Richards Point and Doran Shoal will be reduced to 11.5 knots. This
increases transit time by 5.5 minutes, not allowing for the time
required to speed up or slow down in the original 13.0 knot zone. The
speed limit from Buoy 99 to Iroquois Lock will be changed to 11.5
knots, which will have a negligible effect on transit time. This is a
short area where a ship must be checked down before unbound entry into
the lock or starting from rest while downbound in the lock with
checking down required before entering the reduced speed area. The 11.5
knot speed zone presently in effect from \1/2\ mile east of Buoy 162 to
Light 186 will be extended to include the area between McNair Island
Light 137 to Light 186. This extends the 11.5 knot zone eastward by
8.32 nautical miles and increases transit time by 5 minutes. The
section from Iroquois Lock to McNair Island would remain at 13.0 knots.
This change results in a lower speed limit for the Brockville Narrows,
for which there have been numerous complaints and significant safety
concerns because of large ship wakes in close proximity to pleasure and
tour boats. Overall, these changes increase transit time in the Snell
Lock to Cape Vincent pilotage area by only 10.5 minutes, which should
have no real effect on pilot stress and fatigue, while reducing safety
and wake concerns in the Brockville Narrows, Mariatown, and Wilson Hill
areas. The change from the original proposal is that, instead of
maintaining an 11.5 knot limit from Eisenhower Lock to Light 186, a
13.0 knot zone will be retained through the Prescott anchorage, where
traditionally vessels have the opportunity to overtake. The Corporation
and the Authority believe that these changes are prudent and are
justified by experience and observation. Speed limits traditionally are
set to protect the shoreline, Seaway channels, and the boating public
from damage or injury. Wake complaints are logged and vessel speed spot
checks are made from shore positions, with the draw down and surge of
each observed vessel measured and recorded. The Authority alone carried
out approximately 875 speed checks in 1995. Speed limits are the best
tool for controlling damaging wake by setting a standard for the
navigation team on each vessel to follow.
Appendix I, ``Vessel Dimensions'', is amended by revising the
second undesignated paragraph after paragraph (b) to round off ``23.16
m'' to ``23.2 m'' for simplication and conformity with the amendment to
Sec. 401.3.
There are some minor editorial changes to conform with the SLSA
version approved under the Canadian regulatory review process that do
not have any substantive impact, such as changing the word ``upon'' to
``on'' in Sec. 401.3(e)(1).
Regulatory Evaluation
This final rule inolves a foreign affairs function of the United
States, and therefore, Executive Order 12866 does not apply. This final
rule has also been evaluated under the Department of Transportation's
Regulatory Policies and Procedures and the proposed regulation is not
considered significant under those procedures and its economic impact
is expected to be so minimal that a full economic evalaution is not
warranted.
Regulatory Flexibility Act Determination
The Saint Lawrence Seaway Development Corporation certifies that
this final rule will not have a significant economic impact on a
substantial number of small entities. The St. Lawrence Seaway
Regulations and Rules primarily relate to the activities of commercial
users of the Seaway, the vast majority of whom are foreign vessel
operators. Therefore, any resulting costs will be borne mostly by
foreign vessels.
Environmental Impact
This final rule does not require an environmental impact statement
under the National Environmental Policy Act (49 U.S.C. 4321, et seq.)
because it is not a major federal action significantly affecting the
quality of human environment.
Federalism
The Corporation has analyzed this final rule under the principles
and criteria in Executive Order 12612 and has determined that this
final rule does not have sufficient federalism implicaitons to warrant
the preparation of a Federalism Assessment.
List of Subjects in 33 CFR Part 401
Hazardous materials transportation, Navigation (water), Radio
reporting and record keeping requirements, Vessels, Waterways.
Accordingly, the Saint Lawerence Seaway Development Corporation
amends Part 401--Seaway Regulations and Rules (33 Part 401) as follows:
PART 401--[AMENDED]
1. The authority citation for Part 401 continues to read as
follows:
Authority: 68 Stat. 93-96 (33 U.S.C. 981-990), as amended; Sec.
104, Pub. L. 92-340, 86 Stat. 424 (49 CFR 1.50a) (37 FR 21943),
unless otherwise noted.
2. Section 401.3 is amended by revising paragraphs (a) and (d) and
by adding a new paragraph (e) to read as follows:
Sec. 401.3 Maximum vessel dimensions.
(a) Subject to paragraph (e) of this section, no vessel of more
than 222.5 m in overall length or 23.8 m in extreme breadth shall
transit.
* * * * *
(d) No vessel's hull or superstructure when alongside a lock wall
shall extend beyond the limits of the lock wall, as illustrated in
Appendix I of this Part.
(e) A vessel having a beam width in excess of 23.2 m and having
dimensions that do not exceed the limits set out in the block diagram
in Appendix I of this Part:
(1) Shall, on application to the Authority, be considered for
transit after review of the vessels drawings; and
(2) If accepted, shall transit in accordance with directions issued
by the Authority or Corporation.
[[Page 19551]]
3. Section 401.6 is amended by revising paragraphs (a) and (b) to
read as follows:
Sec. 401.6 Markings.
(a) Vessels of more than 20.0 m in overall length shall be
correctly and distinctly marked and equipped with draft markings on
both sides at the bow and stern.
(b) In addition to the markings required by paragraph (a) of this
section, vessels of more than 110 m in overall length shall be marked
on both sides with midship draft markings.
* * * * *
4. Section 401.7 is revised to read as follows:
Sec. 401.7 Fenders.
(a) Where any structural part of a vessel protrudes so as to
endanger Seaway installations, the vessel shall be equipped with
fenders--
(1) That are made of steel, hardwood, or teflon or a combination of
two or all of these materials, are of a thickness not exceeding 15
centimeters, with well tapered ends, and are located along the hull,
close to the main deck level; and
(2) That by no later than the beginning of the 1997 navigation
season are permanently attached to the vessel, except that portable
fenders, other than rope hawsers, are allowed for a single transit
basis if the portable fenders are--
(i) Made of a material that will float; and
(ii) Securely fastened and suspended from the vessel in a
horizontal position by a steel cable or a fiber rope in such a way that
they can be raised or lowered in a manner that does not damage Seaway
installations.
5. Section 401.9 is amended by revising paragraph (a) to read as
follows:
Sec. 401.9 Radiotelephone equipment.
(a) Self-propelled vessels, other than pleasure craft of less than
20.0 m in overall length, shall be equipped with VHF (very high
frequency) radiotelephone equipment.
* * * * *
6. Section 401.10 is amended by revising paragraphs (b) and (c) to
read as follows:
Sec. 401.10 Mooring lines.
* * * * *
(b) Unless otherwise permitted by an officer, only wire rope
mooring lines with a breaking strength that complies with the minimum
specifications set out in the table in this section shall be used for
securing a vessel in lock chambers.
(c) Synthetic lines may be used for mooring at approach walls, tie-
up walls and docks within the Seaway.
* * * * *
7. Section 401.13 is amended by revising paragraph (b) to read as
follows:
Sec. 401.13 Hand lines.
* * * * *
(b) Be of uniform thickness and have a diameter of not less than 12
mm and not more than 20 mm and a minimum length of 35 m.
8. Section 401.26 is amended by revising paragraph (d) to read as
follows: Security for tolls.
* * * * *
(d) Notwithstanding paragraph (c) of this section, where a number
of vessels, for each of which a preclearance has been given, are owned
or controlled by the same individual or company and have the same
representative, the security for tolls is not required if the
individual, company, or representative has paid every toll invoice
received in the preceding five years within the period set out in
Sec. 401.75.
* * * * *
Sec. 401.42 [Amended]
9. Paragraphs (a) (1) and (2) of section 401.42 are amended by
removing the word ``linesmen'' and adding, in its place, the word
``linehandlers''.
10. Section 401.43 is amended by revising the introductory text as
follows:
Sec. 401.43 Mooring table.
Unless otherwise directed by an officer, vessels passing through
the locks shall moor at the side of the tie-up wall or lock as shown in
the table to this section.
* * * * *
11. Section 401.45 is revised to read as follows:
Sec. 401.45 Emergency procedure.
When the speed of a vessel entering a lock chamber has to be
checked in an emergency, a signal consisting of five blasts on a horn
shall be given by the master and all mooring lines shall be put out as
quickly as possible.
Sec. 401.52 [Amended]
12. Paragraph (b) of section 401.52 is amended by removing the word
``Caughnawaga'' and adding, in its place, the word ``Kahnawake''.
Sec. 401.64 [Amended]
13. Paragraph (e) of section 401.64 is amended by removing the
words ``or pilot''.
14. Section 401.65 is amended by revising paragraphs (a) (1) and
(2) and paragraph (c) to read as follows:
Sec. 401.65 Communication--ports, docks and anchorages.
(a) * * *
(1) For the lake ports of Toronto and Hamilton, 1 nautical mile
outside the harbor limits; and
(2) For other lake ports, when crossing the harbor entrance.
* * * * *
(c) Every vessel departing from a port, dock or anchorage, shall
report to the appropriate Seaway station its destination and the
expected time of arrival at the next check point.
15. Section 401.66 is amended by redesignating the current text as
paragraph (a) and adding a new paragraph (b) to read as follows:
Sec. 401.66 Applicable laws.
* * * * *
(b) Every vessel carrying dangerous cargo, as described in
Secs. 401.66 through 401.73, and all tankers carrying liquid cargo in
bulk, shall file with the Corporation and the Authority a copy of the
current load plan as described in Sec. 401.72(e).
16. Section 401.71 is revised to read as follows:
Sec. 401.71 Signals--explosive or hazardous cargo vessels.
An explosive or hazardous cargo vessel shall display at the
masthead or at an equivalent conspicuous position a ``B'' flag.
17. Section 401.72 is amended by adding new paragraphs (e), (f),
(g), and (h) to read as follows:
Sec. 401.72 Reporting--explosive and hazardous cargo vessels.
* * * * *
(e) Every vessel carrying dangerous cargo, as defined in
Sec. 401.66, and all tankers carrying liquid cargo in bulk shall,
before transiting any part of the Seaway, file with the Corporation and
the Authority a copy of the current load plan that includes the
following information:
(1) The name of the cargo, its IMO class and UN number as set out
in the IMDG Code, if applicable, or, if the cargo is not classed by the
IMO and does not have a UN number, the words ``NOT CLASSED'';
(2) The weight in metric tonnes and the stowage location of each
commodity;
(3) The approximate weight in metric tonnes or the approximate
volume in cubic meters in each hold or tank;
(4) The flashpoint of the cargo, if applicable; and
(5) The estimated date of entry into the Seaway and the date and
time that the load plan was last issued or amended.
(f) For tankers, the information required under this section 401.72
shall
[[Page 19552]]
be detailed on a plan showing the general layout of the tanks, and, if
a tanker is so fitted, a midship cross-section showing double bottom
tanks and ballast side tanks.
(g) If a Material Safety Data Sheet (MSDS) on a hazardous cargo
that a vessel is carrying is not available in a Seaway Traffic Control
Center, the vessel shall provide information enabling the preparation
of an MSDS.
(h) Every vessel shall submit its load plan to the nearest Seaway
Traffic Control Center and, if there are subsequent changes in stowage
including loading and discharging during a transit, the vessel shall
submit an updated plan before departing from any port between St.
Lambert and Long Point.
18. Section 401.75 is revised to read as follows:
Sec. 401.75 Payment of tolls.
(a) Every toll invoice shall be paid in Canadian or American funds,
as indicated on the invoice, within forty-five days after the vessel
enters the Seaway, and any adjustment of the amount payable shall be
provided for in a subsequent invoice.
(b) Tolls, established by agreement between Canada and the United
States and known as the St. Lawrence Seaway Tariff of Tolls, shall be
paid by pleasure craft in Canadian or American funds for the transit of
each Seaway lock.
Sec. 401.77 [Removed and Reserved]
19. Section 401.77 is removed and reserved.
20. Section 401.84 is amended by revising paragraph (c) to read as
follows:
Sec. 401.84 Reporting of impairment or other hazard by vessels
transiting within the Seaway.
* * * * *
(c) Any malfunction on the vessel of equipment required by
Secs. 401.5 to 401.21 and subsections (e) through (j) of Schedule I of
subpart A of this Part;
* * * * *
21. Section 401.89 is amended by revising paragraph (a)(1) to read
as follows:
Sec. 401.89 Transit refused.
(a) An officer may refuse to allow a vessel to transit when,
(1) The vessel is not equipped in accordance with Secs. 401.6 to
401.21 and subsections (e) to (j) of Schedule I of subpart A of this
part when transiting the Canadian waters of the Seaway;
* * * * *
22. Section 401.91 is revised to read as follows:
Sec. 401.91 Removal of obstructions.
The Corporation or the Authority may, at the owner's expense, move
any vessel, cargo, or thing that obstructs or hinders transit on any
part of the Seaway.
23. Section 401.94 is revised to read as follows:
Sec. 401.94 Keeping copy of regulations.
A copy of these Regulations (subpart A of Part 401), a copy of the
vessel's latest Ship Inspection Report, and Seaway Notices for the
current navigation year shall be kept on board every vessel in transit.
24. Schedule I to subpart A, part 401 is amended by revising
paragraph (d)(3) to read as follows:
Schedule I--Vessels Transiting U.S. Waters
(d) * * *
(3) For each vessel with a fixed propeller, a table of shaft
revolutions per minute, for a representative range of speeds, and a
notice showing any critical range of revolutions at which the engine
designers recommend that the engine not be operated on a continuous
basis.
* * * * *
25. Schedule II to subpart A, part 401 is revised to read as
follows:
Schedule II.--Table of Speeds \1\
----------------------------------------------------------------------------------------------------------------
Maximum speed over the bottom, knots
From-- To-- ------------------------------------------------------------
Col. III Col. IV
----------------------------------------------------------------------------------------------------------------
1. Upper Entrance, South Shore Lake St. Louis, 10.5......................... 10.5.
Canal. Buoy A13.
2. Lake St. Louis, Buoy A13.... Lower Entrance, 16........................... 16.
Lower Beauharnois
Lock.
3. Upper Entrance, Upper Lake St. Francis, 9 upb; 10.5 dnb.............. 9 upb; 10.5 dnb.
Beauharnois Lock. Buoy D3.
4. Lake St. Francis, Buoy D3... Lake St. Francis, 12........................... 12.
Buoy D49.
5. Lake St. Francis, Buoy D49.. Snell Lock........ 8.5 upb; 10.5 dnb............ 8 upb; 10.5 dnb.
6. Eisenhower Lock............. Iroquois Lock..... 11.5......................... 10.5.
7. Iroquois Lock............... McNair Island, Lt. 13........................... 10.5.
137.
8. McNair Island, Lt. 137...... Deer Island, Lt. 11.5......................... 10.5.
186.
9. Deer Island, Lt. 186........ Bartlett Point, 8.5 upb; 10.5 dnb............ 8 upb; 10.5 dnb.
Lt. 227...
10. Bartlett Point, Lt. 227.... Tibbetts Point.... 13........................... 10.5.
11. Junction of Canadian Middle Open Waters 9.5.......................... 9.5.
Channel and Main Channel between Wolfe and
abreast of Ironsides Island. Howe Islands
through the said
Middle Channel.
12. Port Robinson.............. Ramey's Bend 8............................ 8.
through the
Welland Bypass.
13. All other canals........... .................. 6............................ 6.
----------------------------------------------------------------------------------------------------------------
\1\ Maximum speeds at which a vessel may travel in identified areas in both normal and high water conditions are
set forth in this schedule. The Corporation and the Authority will, from time to time, designate the set of
speed limits which is in effect.
26. Appendix I to subpart A, part 401 is amended by revising the
first sentence of the second undesignated paragraph after paragraph (b)
to read as follows:
Appendix I--Vessel Dimensions
* * * * *
The limits in the block diagram are based on vessels with a
maximum allowable beam of 23.2 m. * * *
* * * * *
Issued at Washington, DC on April 25, 1996.
Saint Lawrence Seaway Development Corporation
Gail C. McDonald,
Administrator.
[FR Doc. 96-10941 Filed 5-1-96; 8:45 am]
BILLING CODE 4910-61-M
Complete official Federal Register PDF
FR Doc. 96-10893 GRAS Status of Propylene Glycol; Exclusion of Use in Cat Food
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19542-19544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10893]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Food and Drug Administration
21 CFR Parts 500, 582, and 589
[Docket No. 94G-0239]
GRAS Status of Propylene Glycol; Exclusion of Use in Cat Food
AGENCY: Food and Drug Administration, HHS.
[[Page 19543]]
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Food and Drug Administration (FDA) is amending the animal
drug regulations to exclude from generally recognized as safe (GRAS)
status the use of propylene glycol (PG) in or on cat food. This final
action is based on FDA's review of currently available information
which has raised significant questions about the safety of this use.
Semimoist pet foods containing PG were not in existence when the GRAS
status of PG for use in animal feeds was established, thus the agency's
prior GRAS determination does not apply to the newly intended uses of
PG.
EFFECTIVE DATE: June 3, 1996.
FOR FURTHER INFORMATION CONTACT: David A. Dzanis, Center for Veterinary
Medicine (HFV-222), Food and Drug Administration, 7500 Standish Pl.,
Rockville, MD 20855, 301-827-0169.
SUPPLEMENTARY INFORMATION:
I. Background
In the Federal Register of May 10, 1995 (60 FR 24808), FDA issued a
proposed rule to amend the animal drug regulations to exclude from GRAS
status the use of PG in or on cat food. In the proposed rule of May 10,
1995, the regulatory history of PG was reviewed as well as the last 13
years of scientific literature on the safety of PG in cat food. FDA
concluded that there are significant questions about the safety of PG
in cat food. FDA also concluded that PG is not GRAS as an ingredient of
cat food, and the use is not subject to a prior sanction. When used in
or on cat food, PG is deemed to be a food additive, subject to section
409 of the Federal Food, Drug, and Cosmetic Act (the act) (21 U.S.C.
348), and its use in cat food must be in accordance with a published
food additive regulation. Comments by the public on the proposed rule
were requested to be submitted by July 24, 1995.
II. Comments on the Proposed Rule
In response to publication of the proposed rule to amend the GRAS
status of PG to exclude its use in cat foods, three parties submitted
comments: Two manufacturers of PG, and one pet food industry
association. One party offered unconditional support of the proposed
rule. The other two parties offered comments to amend the proposed rule
to allow for limited use of PG.
1. One comment argued for the need for PG as a carrier for
antioxidants added to cat food. Antioxidants are needed to prevent
oxidation of unsaturated fats and other components of cat foods, which
could adversely affect nutritional and organoleptic properties of the
products. The amount of PG in the finished food stemming from such use
was estimated to be 0.0009 to 0.007 percent (9 to 70 milligrams per
kilogram (mg/kg).
FDA agrees that the judicious use of antioxidants serves a vital
role in preserving the freshness and quality of cat foods. FDA has
previously reviewed data relative to the use of PG as an antioxidant
carrier and estimates the ``worst case'' inclusion level in the
finished food to be less than 0.02 percent (200 mg/kg) on a dry matter
basis. In such cases, PG would no longer serve any technical or
functional effect in the finished food and would be present at
insignificant levels. Regardless, no argument was made that PG was
unique in its ability to serve as an antioxidant carrier, or that a
suitable substitute for PG was unavailable or impractical.
2. Two comments argued that an establishment of an adequate safety
margin below the known ``no-observed-effect-level'' (NOEL) for cats and
kittens should allow for limited use of PG. The most conservative known
NOEL for growing kittens is 0.135 percent (1,350 mg/kg), well below the
expected levels of inclusion resulting from its use as an antioxidant
carrier. Thus, establishment of an acceptable daily intake level at
some level below the NOEL should allow for safe use of PG in cat foods.
FDA agrees that the estimated level of PG in cat foods resulting
from its use as an antioxidant carrier appears to offer an adequate
margin of safety relative to the known NOEL. Thus, FDA's primary
regulatory concern at this time is limited to cat foods containing PG
at levels exceeding 0.02 percent. However, FDA does not believe that a
specific level of PG for inclusion in cat food can be based solely on
the existing NOEL. This is because the NOEL was determined on the basis
of the presence or absence of Heinz bodies in a study performed in
1979, and it has not been subject to reassessment using the more
sensitive methods available today to evaluate possible adverse effects.
The more current studies using more specific indicators of red blood
cell damage did not look at effects near the existing NOEL, nor did
they establish an NOEL in and of themselves. Also, although data are
known on the effects of PG on adult cats and growing kittens, there are
no data on the potential effects of PG on other life stages of cats.
For example, the possible congenital effects stemming from the feeding
of PG to pregnant cats has not been adequately assessed.
III. Conclusion
The proposed rule has not been changed as a result of received
comments. Therefore, the final rule provides that PG for use in cat
food is not GRAS and is a food additive subject to section 409 of the
act.
IV. Environmental Impact
The agency has carefully considered the potential environmental
effects of this action. FDA has concluded that the action will not have
a significant impact on the human environment, and that an
environmental impact statement is not required. The agency's finding of
no significant impact and the evidence supporting that finding,
contained in an environmental assessment, may be seen in the Dockets
Management Branch (HFA-305), Food and Drug Administration, 12420
Parklawn Dr., rm. 1-23, Rockville, MD 20857, between 9 a.m. and 4 p.m.,
Monday through Friday.
V. Analysis of Impacts
FDA has examined the impacts of the final rule under Executive
Order 12866 and the Regulatory Flexibility Act (Pub. L. 96-354).
Executive Order 12866 directs agencies to assess all costs and benefits
of available regulatory alternatives and, when regulation is necessary,
to select regulatory approaches that maximize net benefits (including
potential economic, environmental, public health and safety, and other
advantages; distributive impacts; and equity). The agency believes that
this final rule is consistent with the regulatory philosophy and
principles identified in the Executive Order. In addition, this final
rule is not a significant regulatory action as defined by the Executive
Order and so is not subject to review under the Executive Order.
This assessment analyzes the economic effects of this rule to
exclude from GRAS status the use of PG in or on cat food. PG is used as
a humectant, plasticizer, and microbiological preservative in semimoist
cat food. Semimoist cat foods containing PG did not exist when the GRAS
status for its use in animal feeds was established, and this GRAS
determination does not apply to the newly intended use of PG. Currently
available information on the effects of PG demonstrates serious
concerns about its safety in cats.
FDA requested that pet food manufacturers discontinue the use of PG
as an ingredient in semimoist cat foods in 1992. The majority of
manufacturers in the industry have complied with this request. Agency
experts estimate that
[[Page 19544]]
PG is currently used in at most 5 percent of semimoist cat foods and at
most 10 percent of cat snacks, which are similar in texture and content
to semimoist foods. These usage rates continue to decline.
FDA estimates of 1993 sales of semimoist cat foods and snacks to
U.S. households are $85 million and $53 million, respectively (Neilsen
Marketing Research data). Those sales representing semimoist cat foods
and cat snacks which contain PG are approximately $9,550 million (5
percent of $85 million plus 10 percent of $53 million). The effect of
this rule would be to replace these sales with other cat foods and cat
snacks not containing PG. Most of the industry has already substituted
glycerin for PG in semimoist foods and snacks. It is likely that the
remaining portion of the industry would make the substitution of
glycerin for PG rather than surrender their share of the semimoist cat
food and cat snack market. The cost of this substitution to the
production process is expected to be small.
Purchases of PG by semimoist cat food and cat snack manufacturers
represent a very small percentage of total PG sales, estimated at less
than 1 percent. Demand for semimoist cat foods has declined
considerably since 1987. Although demand for cat snacks continues to
grow, its sales are still a small part of the total pet food industry.
Thus, the effect of this final rule on PG manufacturers would also be
small. The effects of this final rule on small businesses would not be
substantial. Although more small sized companies are involved in
manufacturing cat snack foods than in semimoist foods, their costs of
compliance would not be significant.
The Regulatory Flexibility Act requires agencies to analyze
regulatory options that would minimize any significant impact of a rule
on small entities. For the above reasons, the agency certifies that
this rule will not have a significant economic impact on a substantial
number of small entities. Therefore, under the Regulatory Flexibility
Act, no further analysis is required.
VI. Federalism
FDA has analyzed this rule in accordance with the principles and
criteria set forth in Executive Order 12612 and has determined that
this rule does not warrant the preparation of a Federalism Assessment.
List of Subjects
21 CFR Part 500
Animal drugs, Animal feeds, Cancer, Labeling, Polychlorinated
biphenyls (PCB's).
21 CFR Parts 582 and 589
Animal feeds, Animal foods, Food additives.
Therefore, under the Federal Food, Drug, and Cosmetic Act and under
authority delegated to the Commissioner of Food and Drugs, 21 CFR parts
500, 582, and 589 are amended as follows:
PART 500--GENERAL
1. The authority citation for 21 CFR part 500 continues to read as
follows:
Authority: Secs. 201, 301, 402, 403, 409, 501, 502, 503, 512,
701 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321, 331,
342, 343, 348, 351, 352, 353, 360b, 371).
2. New Sec. 500.50 is added to subpart B to read as follows:
Sec. 500.50 Propylene glycol in or on cat food.
The Food and Drug Administration has determined that propylene
glycol in or on cat food is not generally recognized as safe and is a
food additive subject to section 409 of the Federal Food, Drug, and
Cosmetic Act (the act). The Food and Drug Administration also has
determined that this use of propylene glycol is not prior sanctioned.
PART 582--SUBSTANCES GENERALLY RECOGNIZED AS SAFE
3. The authority citation for 21 CFR part 582 continues to read as
follows:
Authority: Secs. 201, 402, 409, 701 of the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 321, 342, 348, 371).
4. Section 582.1666 is amended by revising paragraph (b) to read as
follows:
Sec. 582.1666 Propylene glycol.
* * * * *
(b) Conditions of use. This substance is generally recognized as
safe (except in cat food) when used in accordance with good
manufacturing or feeding practice.
PART 589--SUBSTANCES PROHIBITED FROM USE IN ANIMAL FOOD OR FEED
5. The authority citation for 21 CFR part 589 continues to read as
follows:
Authority: Secs. 201, 402, 409, 701, of the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 321, 342, 348, 371).
6. New Sec. 589.1001 is added to subpart B to read as follows:
Sec. 589.1001 Propylene glycol in or on cat food.
The Food and Drug Administration has determined that propylene
glycol in or on cat food has not been shown by adequate scientific data
to be safe for use. Use of propylene glycol in or on cat food causes
the feed to be adulterated and in violation of the Federal Food, Drug,
and Cosmetic Act (the act), in the absence of a regulation providing
for its safe use as a food additive under section 409 of the act,
unless it is subject to an effective notice of claimed investigational
exemption for a food additive under Sec. 570.17 of this chapter, or
unless the substance is intended for use as a new animal drug and is
subject to an approved application under section 512 of the act or an
effective notice of claimed investigational exemption for a new animal
drug under part 511 of this chapter.
Dated: April 23, 1996.
William K. Hubbard,
Associate Commissioner for Policy Coordination.
[FR Doc. 96-10893 Filed 5-1-96; 8:45 am]
BILLING CODE 4160-01-F
Complete official Federal Register PDF
FR Doc. 96-10888 Disposition of Federal Records
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19552-19555]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10888]
=======================================================================
-----------------------------------------------------------------------
NATIONAL ARCHIVES AND RECORDS ADMINISTRATION
36 CFR Part 1228
RIN 3095-AA65
Disposition of Federal Records
AGENCY: National Archives and Records Administration (NARA).
ACTION: Final rule.
-----------------------------------------------------------------------
[[Page 19553]]
SUMMARY: NARA is amending its regulations to require reimbursement for
certain records maintained in Federal records centers that have
exceeded the authorized disposal date. NARA has clarified in this final
rule that the requirement will not apply to records whose disposition
is stayed pending NARA action on a previously submitted record
schedule. NARA is taking this action because the Federal records
centers have a serious shortage of storage space and can no longer
absorb the cost of storing records beyond their scheduled disposal
date. NARA is also updating the addresses of the Federal records
centers.
EFFECTIVE DATE: The final rule is effective June 3, 1996.
FOR FURTHER INFORMATION CONTACT: Debra Leahy at 301-713-7210.
SUPPLEMENTARY INFORMATION: On September 26, 1995, NARA published a
notice of proposed rulemaking at 60 FR 49532. The 60-day comment period
ended on November 27, 1995, but NARA considered all written comments
received by December 4, 1995, in developing this final rule. Eight
comments, all from Federal agencies, were received. The following major
points were raised:
Agencies should not be required to pay for extended storage when
the hold on disposal is not under the control of the agency. Five
agencies stated that, in most cases, extended retention requirements
are levied by another office of the Federal Government in anticipation
of litigation, to meet a court order, or to resolve an issue with the
Government Accounting Office. One agency suggested that any storage
fees should be imposed on the organization that requested the hold on
disposal.
It is not NARA's intent to impose a burden on agencies. NARA
believes that the reimbursement plan is a reasonable solution that will
benefit both the agencies and the Federal records centers. In the past,
NARA has absorbed the cost of storing temporary records that have
exceeded their authorized disposition date. However, because of the
continued growth of records in this category, NARA can no longer pay
for the space needed to store such records. Without reimbursement, NARA
will be forced, in the near future, to return the records to the
agencies for further retention.
Like the agencies, NARA has no means of projecting when a court-
ordered or GAO disposal suspension will occur or how many records will
be affected. In some cases, entire record groups have been placed under
disposal suspension. Legal custody of temporary records remains with
the agency even though the records are stored in a Federal records
center. Therefore, NARA must request reimbursement from the legal
custodian of the records rather than from the imposer of the disposal
suspension. NARA recommends that agencies work with their attorneys and
records officials, the Department of Justice attorneys and GAO
officials when applicable, to narrow the scope of records required for
litigations and audits.
Three agencies pointed out circumstances where NARA has rescinded
disposal authority pending re-appraisal of potentially permanent
records; where an SF 115, Request for Disposition Authority, had been
submitted to NARA to approve a change in the scheduled disposition;
where unscheduled records accepted for accessioning into a Federal
Records Center (FRC) required screening to separate permanent from
disposable records; and where an agency must work with NARA to
reconcile conflicting mandated retention periods for contractor-
generated records. NARA has never intended to require reimbursement for
continued storage of records where the disposition of the records is
contingent on NARA action. We have clarified Sec. 1228.54(g) on this
point.
We have also modified Sec. 1228.54 (g) to provide that NARA will
waive fees for extended storage when the administrative cost to NARA
for the agreement and billing would exceed the fees expected to be
received. For the remainder of FY 1996, the threshold for waiving fees
will be $100 based on the agency's total records center holdings
subject to the fee. NARA will bill the headquarters office rather than
individual offices or units.
One agency noted that occasionally, when NARA sends a destruction
notice, an agency will discover that records were retired to the FRC
under the wrong disposal authority and that the correct retention
period is longer. There will be no charge for the extended storage
period for correction of this error.
Removal of records from FRC space. If agencies do not wish to
reimburse NARA for continued storage of records for the extended
retention period, the proposed rule would require agencies to remove
the records within 60 days. One agency recommended that Sec. 1228.54(g)
be amended to require removal within 90 days from the date of
notification to ensure that agencies had sufficient time to effect the
arrangements for removal. NARA has adopted this comment.
Another agency commented that it would be more costly for agencies
to store returned records in their office space and that NARA
discourages agency records centers in another section of Part 1228 by
requiring agencies to obtain NARA approval to establish agency records
centers. NARA recognizes the agency's argument that FRC storage space
is generally more economical than storage in agency office space. The
purpose of the cited regulatory requirement is to ensure that agencies
comply with the records storage standards NARA imposes on itself to
protect the records and that the agency centers are as cost-effective
as FRC's. This regulatory provision is based on 44 U.S.C. which
requires NARA approval of agency-operated records centers.
Billing procedures. Two agencies asked for clarification of billing
procedures.
The billing procedure will be specified in the reimbursable
agreement that the agency and NARA will sign. NARA anticipates billing
agencies quarterly, based on the volume of retained holdings in the FRC
system on the last day of the quarter. Data for fourth quarter billing
will be cut off on August 31 of each year. Agencies may negotiate
alternate arrangements with the Office of Federal Records Centers that
will better serve the agency and NARA.
Effective date. Five agencies stated that the proposed January 1,
1996, effective date did not give agencies adequate lead time to budget
for the unplanned expenditure. Three of these agencies recommended a
delay in the effective date until FY 1997. Since agencies have already
submitted their FY 1997 budgets to OMB, NARA does not believe that a
delay to October 1, 1996, will materially affect the agencies' ability
to budget payments for extended storage fees. Moreover, as explained
previously, NARA cannot continue to absorb the cost we incur for the
extended storage of otherwise disposable records in FRC space. To
provide agencies time to enter into a reimbursable agreement with NARA
or to plan for the removal of affected records, we have revised the
effective date to June 3, 1996, in response to these comments.
Other comments. One agency pointed out that the list of
administrative purposes that justify a temporary extension were stated
differently in the proposed Secs. 1228.32(b) and 1228.54(g) and that a
reference in Sec. 1228.54(a) to paragraph (g) in that section should be
changed to Sec. 1228.32(b). We have made both of these changes.
Section 1228.54(a) also refers to a procedure specified in
Sec. 1228.164 for obtaining a temporary extension in
[[Page 19554]]
retention period for a single accession. We have clarified
Sec. 1228.164(c) to provide that agencies may use this procedure to
extend the retention period for an individual accession for no longer
than 6 months. Normally agencies request an extension under
Sec. 1228.164(c) to allow time for a review of the records, to request
a series level retention period change from the NARA Office of Records
Administration (NIR), or to withdraw the records from the records
center. No charge would accrue to the agency for extended records
storage under this provision; however the extension will not be
renewed.
The same agency commented that NARA needs to know about proposed
temporary extensions of records retention periods only when the records
are stored in an FRC and recommended that this clarification be added
to Sec. 1228.32(b). We have not adopted this comment because it is
incorrect. A retention period that is specified in a NARA-approved
agency records schedule or in a General Records Schedule is mandatory
by law; the agency may not retain temporary records beyond that date
without NARA approval whether the records are located in agency space,
FRC space, or other space.
Addresses of Federal records centers. In this final rule, we are
also updating or correcting the addresses of the Federal records
centers listed in Sec. 1228.150, and adding the Pittsfield, MA, Federal
records center. The introductory paragraph to this section is
unchanged.
This rule is a significant regulatory action under E.O. 12866 of
September 30, 1993 and has been reviewed by OMB. As required by the
Regulatory Flexibility Act, it is hereby certified that this rule will
not have a significant impact on small entities.
List of Subjects in 36 CFR Part 1228
Archives and records.
For the reasons set forth in the preamble, 36 CFR part 1228 is
amended as follows:
PART 1228--DISPOSITION OF FEDERAL RECORDS
1. The authority citation for part 1228 continues to read as
follows:
Authority: 44 U.S.C. chs 21, 29, and 33.
2. Section 1228.32 is revised to read as follows:
Sec. 1228.32 Request to change disposition authority.
(a) Agencies desiring to change the approved retention period of a
series or system of records shall submit an SF 115. Disposition
authorities contained in approved SF 115 are automatically superseded
by approval of a later SF 115 applicable to the same records unless the
later SF 115 specified an effective date. Agencies submitting revised
schedules shall indicate on the SF 115 the relevant schedule and item
numbers to be superseded, the citation to the current printed records
disposition schedule, if any, and/or the General Records Schedules and
item numbers that cover the records.
(b) Agencies proposing to change the retention period of a series
or system of records shall submit with the SF 115 an explanation and
justification for the change. The need to retain records longer than
the retention period specified in the disposition instructions on an
approved SF 115 for purposes of audit, court order, investigation,
litigation, study, or any other administrative purpose that justifies
the temporary extension of the retention period shall be governed by
the procedures set forth in Sec. 1228.54. Agencies shall not submit an
SF 115 to change the retention period in such cases.
3. Section 1228.54 is amended by revising paragraphs (a) and (g)
and adding paragraph (h) to read as follows:
Sec. 1228.54 Temporary extension of retention periods.
(a) Approved agency records schedules and the General Records
Schedules are mandatory (44 U.S.C. 3303a). Except as specified in
Sec. 1228.32(b), records series or systems approved for destruction
shall not be maintained longer without the prior written approval of
the National Archives and Records Administration (NIR). However,
extended retention of an individual shipment of records to a Federal
Records Center for a period up to 6 months is governed by procedures in
Sec. 1228.164(c).
* * * * *
(g) Except when NARA agrees to continue to store and service
records on a reimbursable basis or waives the requirements of this
paragraph under a condition specified in paragraph (h) of this section,
agencies shall remove from Federal records centers at the agency's
expense records that, because of audit, court order, investigation,
litigation, study, or any other administrative reason the agency wishes
to retain longer than the scheduled retention period for the records.
The removal of records must be accomplished within 90 days of the date
of the notification from the Federal records center that the retention
period has expired. Agencies that wish to establish an agreement or
inquire about their records should write to NARA, Office of Federal
Records Centers (NC), 8601 Adelphi Road, College Park, MD 20740-6001.
(h) NARA will waive the requirements specified in paragraph (g) of
this section when:
(1) The temporary extension of retention period has been imposed by
NARA, for instance when NARA plans to reappraise the archival value of
records or when NARA is working on a new or revised General Records
Schedule item;
(2) The agency has submitted an SF 115, Request for Disposition
Authority, to NARA to request a change in the scheduled disposition of
a series of records;
(2) NARA and the agency mutually agree that temporary extension is
required to meet exceptional records management situations such as a
NARA-agency screening project to separate permanent from disposable
records or application of a new records disposition schedule to
previously unscheduled records; or
(3) The administrative cost to NARA to implement a reimbursable
agreement would exceed the reimbursement received.
4. In Sec. 1228.150, the table set forth at the end of the section
is revised to read as follows:
Sec. 1228.150 Authority.
* * * * *
------------------------------------------------------------------------
Area served Federal records center
------------------------------------------------------------------------
District of Columbia, Maryland, West Washington National Records
Virginia, and Virginia (except U.S. Center, 4205 Suitland Rd.,
Court records). Washington, DC 20409-0002.
Designated records of the Military National Personnel Records
Departments and the U.S. Coast Guard. Center (Military Personnel
Records), 9700 Page Ave., St.
Louis, MO 63132-5100.
[[Page 19555]]
The entire Federal Government personnel National Personnel Records
records of separated Federal Center (Civilian Personnel
employees; medical and pay records of Records), 111 Winnebago St.,
all Federal employees; designated St. Louis, MO 63118-4199.
medical records of Army and Air Force
military personnel and their
dependents; and records of agencies in
the St. Louis area (Missouri only), of
Scott AFB, IL, and of the Memphis
Service Center, Internal Revenue
Service.
National collection of long term Federal Records Center, 100 Dan
records. Fox Dr., Pittsfield, MA 01201-
8230.
Maine, Vermont, New Hampshire, Federal Records Center, 380
Massachusetts, Connecticut, and Rhode Trapelo Rd., Waltham, MA 02154-
Island. 6399.
New York, New Jersey, Puerto Rico, and Federal Records Center,
the Virgin Islands. Military Ocean Terminal, Bldg.
22, Bayonne, NJ 07002-5388.
Delaware, Pennsylvania, and U.S. court Federal Records Center, 14700
records for Maryland, Virginia, and Townsend Rd., Philadelphia, PA
West Virginia. 19154-1025.
North Carolina, South Carolina, Federal Records Center, 1557
Tennessee, Mississippi, Alabama, St. Joseph Ave., East Point,
Georgia, Florida, and Kentucky. GA 30344-2593.
Illinois, Wisconsin, Minnesota, and Federal Records Center, 7358 S.
U.S. court records for Indiana, Pulaski Rd., Chicago, IL 60629-
Michigan, and Ohio. 5898.
Indiana, Michigan, and Ohio except for Federal Records Center, 3150
U.S. court records. Springboro Drive, Dayton, OH
45439-1883.
Kansas, Iowa, Nebraska, and Missouri Federal Records Center, 2312 E.
except greater St. Louis area. Bannister Rd., Kansas City, MO
64131-3060.
Texas, Oklahoma, Arkansas, Louisiana, Federal Records Center, P.O.
and New Mexico. Box 6216, Fort Worth, TX 76115-
0216.
Colorado, Wyoming, Utah, Montana, North Federal Records Center, Denver
Dakota, and South Dakota. Federal Center Bldg. 48, P.O.
Box 25307, Denver, CO 80225-
0307.
Nevada except Clark County, California Federal Records Center, 1000
except southern California, American Commodore Dr., San Bruno, CA
Samoa. 94066-2350.
Arizona; Clark County, Nevada, and Federal Records Center, 24000
southern California (counties of San Avila Rd., P.O. Box 6719,
Luis Obispo, Kern, San Bernadino, Laguna Niguel, CA 92607-6719.
Santa Barbara, Ventura, Orange, Los
Angeles, Riverside, Inyo, Imperial,
and San Diego).
Washington, Oregon, Idaho, Alaska, Federal Records Center, 6125
Hawaii, and Pacific Ocean area (except Sand Point Way NE., Seattle,
American Samoa). WA 98115-7999.
------------------------------------------------------------------------
5. Section 1228.164 is amended by revising paragraph (c) to read as
follows:
Sec. 1228.164 Disposal clearances for records in Federal records
centers.
* * * * *
(c) Other records of Federal agencies held by Federal records
centers will be destroyed with the concurrence of the agency concerned
by use of NA Form 13001, Notice of Intent to Destroy Records, or other
written concurrence for each disposal action. If an agency is notified
of the eligibility of its records for disposal and the agency fails to
respond to this notification within 90 calendar days, the records will
be destroyed in accordance with the appropriate disposition authority.
If an agency does not concur in the scheduled destruction of an
accession, the agency may request extended retention of the records for
up to an additional 6 months by submitting written justification,
including a new disposal date, within 90 days to the records center
director. Further extensions must be requested in accordance with
Sec. 1228.54 of this part.
Dated: December 27, 1995
John W. Carlin,
Archivist of the United States.
[FR Doc. 96-10888 Filed 5-1-96; 8:45 am]
BILLING CODE 7515-01-P
Complete official Federal Register PDF
FR Doc. 96-10887 Sheep and Wool Promotion, Research, Education, and Information Order
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19514-19524]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10887]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
7 CFR Part 1280
[No. LS-94-015]
Sheep and Wool Promotion, Research, Education, and Information
Order
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This rule establishes a Sheep and Wool Promotion, Research,
Education, and Information Order (Order) which is authorized by the
Sheep Promotion, Research, and Information Act of 1994 (Act). The
program will be funded by assessments collected from sheep producers,
sheep feeders and importers of sheep and sheep products. The program
will be administered by a National Sheep Promotion, Research, and
Information Board (Board).
Implementing regulations will be published separately in the
Federal Register.
EFFECTIVE DATE: This final rule is effective May 3, 1996, except that
Sec. 1280.224-1280.228 become effective July 1, 1996.
ADDRESSES: Ralph L. Tapp, Chief; Marketing Programs Branch, Room 2606-
S; Livestock and Seed Division, AMS-USDA; P.O. Box 96456; Washington,
D.C. 20090-6456.
FOR FURTHER INFORMATION CONTACT: Ralph L. Tapp, Chief, Marketing
Programs Branch, 202/720-1115.
SUPPLEMENTARY INFORMATION: Prior documents: Notice-Invitation to submit
proposals published January 4, 1995 (60 FR 381); Proposed Rule-Sheep
and Wool Promotion, Research, Education, and Information Order
published June 2, 1995 (60 FR 28747); Proposed Rule-Procedures for
Conduct of Referendum published August 8, 1995 (60 FR 40313); Notice-
Certification of Organizations for Eligibility to Make Nominations to
the Proposed Board published August 8, 1995 (60 FR 40343); Proposed
Rule-Rules and Regulations published October 3, 1995 (60 FR 51737);
Proposed Rule-Sheep and Wool Promotion, Research, Education, and
Information Order published December 5, 1995 (60 FR 62298); and Final
Rule and Referendum Order-Procedures for the Conduct of Referendum
published December 15, 1995 (60 FR 64297).
Regulatory Impact Analysis
Executive Orders 12866 and 12778 and the Regulatory Flexibility Act
This final rule has been determined to be not significant for
purposes of Executive Order 12866 and therefore has not been reviewed
by the Office of Management and Budget (OMB).
This final rule was reviewed under Executive Order 12778, Civil
Justice Reform. It is not intended to have a retroactive effect. This
rule would not preempt any State or local laws, regulations, or
policies unless they present an irreconcilable conflict with this rule.
The Act provides that any person subject to the Order may file with
the Secretary a petition stating that the Order, any provision of the
Order, or any obligation imposed in connection with the Order is not in
accordance with the law, and requesting a modification of the Order or
an exemption from certain provisions or obligations of the Order. The
petitioner would have the opportunity for a hearing on the petition.
Thereafter the Secretary would issue a decision on the petition. The
Act provides that the district court of the United States in the
district in which the petitioner resides or carries on business has
jurisdiction to review the Secretary's decision, if the petitioner
files a complaint for that purpose not later than 20 days after the
date of the entry of the decision. The petitioner must exhaust his or
her administrative remedies before filing such a complaint in the
district court.
Pursuant to requirements set forth in the Regulatory Flexibility
Act (RFA) (5 U.S.C. 601 et seq.), AMS has considered the economic
impact of this final action on small entities.
The purpose of RFA is to fit regulatory actions to the scale of the
businesses that are subject to such actions so that small businesses
would not be unduly or disproportionately burdened.
According to the January 27, 1995, issue of ``Sheep and Goats,''
published by the Department's National Agricultural Statistics Service,
there are approximately 87,350 sheep operations in the United States,
nearly all of which would be classified as small businesses under the
criteria established by the Small Business Administration (13 CFR
Sec. 121.601). Additionally, there are approximately 9,000 importers of
sheep and sheep products, nearly all of which would be classified as
small businesses.
This final Order will require each person who makes payment to a
sheep producer, feeder, or handler of sheep or sheep products to be a
collecting person, and to collect an assessment from that sheep
producer, feeder, or handler of sheep or sheep products. Any person who
buys domestic live sheep or greasy wool for processing must also
collect the assessment and remit it to the Board. Each person who
processes or causes to be processed sheep or sheep products of that
person's own production and who markets the processed products will pay
an assessment and remit the assessment to the Board. Any person who
exports live sheep or greasy wool will be required to remit an
assessment to the Board. Finally, each person who imports into the
United States sheep, sheep products, wool, or wool products, other than
raw
[[Page 19515]]
wool, will pay an assessment. The U.S. Customs Service (Customs) will
collect the assessments on imported sheep and sheep products (except
raw wool) and forward them to AMS for disbursement to the Board.
The rate of assessment on domestic sheep producers, feeders, and
exporters of live sheep and greasy wool will be 1 cent per pound on
live sheep sold and 2 cents per pound on greasy wool sold. Importers
will be assessed 1 cent per pound on live sheep and the equivalent of 1
cent per pound of live sheep for sheep products and 2 cents per pound
of degreased wool or the equivalent of degreased wool for wool and wool
products. Imported raw wool will be exempt from assessments. Each
person who processes or causes to be processed sheep or sheep products
of that person's own production and markets the processed products will
be assessed the equivalent of 1 cent per pound of live sheep sold and 2
cents per pound of greasy wool sold. All assessment rates may be
adjusted in accordance with the applicable provisions of the Act.
Paperwork Reduction
In accordance with the Paperwork Reduction Act of 1980 (44 U.S.C.
Chapter 35), the information collection requirements contained herein
were submitted to OMB for approval and assigned OMB No. 0581-0093. This
action sets forth the provisions for establishing a nationwide,
industry-funded sheep and wool promotion, research, education, and
information program. The information collection requirements required
by this action and necessary for the implementation of this Order
include:
(1) A report by each collecting person required to remit
assessments to the Board for live sheep or greasy wool purchased from
the producer, feeder, or handler of sheep or sheep products; by each
person marketing sheep or sheep products of that person's own
production; and by each exporter of sheep or greasy wool. The estimated
number of respondents for this report is 700. Each respondent would
submit one report per month, unless otherwise prescribed by the Board,
and the estimated average reporting burden is 0.5 hours per response;
(2) A requirement to maintain sufficient records to verify reports
submitted under the Order. The estimated number of recordkeepers needed
to comply with this requirement is 700, each of whom would have an
estimated annual reporting burden of 0.5 hours;
(3) An application for certification of organization, to be
completed by eligible organizations that request certification in order
to be eligible to nominate producers, feeders, and importers to the
Board. The estimated number of respondents is 70 (with each submitting
one response), and the estimated average reporting burden is 0.5 hour
per response;
(4) A nomination form by which certified organizations will
nominate producers, feeders, and importers for membership on the Board.
The estimated number of respondents is 60 for the first year of the
Order, and 20 each year thereafter. Each respondent would submit one
response per year, and the estimated average reporting burden is 0.5
hour per response; and
(5) An advisory committee membership background information form,
to be completed by candidates nominated by certified organizations for
appointment to the Board. The estimated number of respondents is 240
during the first year of the Order, and 80 each year thereafter. Each
respondent would submit one response per year, and the estimated
average reporting burden is 0.5 hour per response.
Background
The Act (7 U.S.C. 7101-7111), enacted October 22, 1994, authorizes
the Secretary to establish a national sheep and wool promotion,
research, education, and information program. The program will be
funded by a mandatory assessment on domestic sheep producers, sheep
feeders, and exporters of live sheep and greasy wool of 1 cent per
pound on live sheep sold and 2 cents per pound on greasy wool sold.
Importers will be assessed 1 cent per pound on live sheep imported and
the equivalent of 1 cent per pound of live sheep for sheep products
imported and 2 cents per pound of degreased wool or the equivalent of
degreased wool for wool and wool products imported. Imported raw wool
will be exempt from assessments. Each person who processes or causes to
be processed sheep or sheep products of that person's own production,
and who markets the processed products, will be assessed the equivalent
of 1 cent per pound of live sheep sold and 2 cents per pound of greasy
wool sold. All assessment rates may be adjusted in accordance with
applicable provisions of the Act.
The Act provides for the submission of proposals for a Sheep and
Wool Promotion, Research, Education, and Information Order (Order). The
Secretary may propose the issuance of an Order, or an association of
sheep producers may submit and request the issuance of an Order. The
Act provides that when the Secretary decides to propose an Order or
receives a request and proposal for an Order, the Secretary shall
publish the proposed Order and give due notice and opportunity for
public comment. The Act further provides that an order contain certain
specified terms and conditions. Such terms and conditions included
provisions concerning the establishment of and composition of a Board
and the powers and duties of such a Board. Also included under terms
and conditions are provisions concerning plans and budgets, contracts
and agreements, books and records of the Board, assessments,
prohibitions, and reports, books, and records of collecting persons
required to remit assessments and each person required to collect the
assessment pursuant to the Act and the Order.
As established by the Act, the Order provides for the establishment
of a Board comprised of 85 sheep producers, 10 sheep feeders, and 25
importers of sheep and sheep products. The Act further provides that
any State with one producer member may have an alternate producer
member.
The Department issued an invitation to submit proposals for an
initial Order in the January 4, 1995, (60 FR 381) issue of the Federal
Register. In response to that invitation, the American Sheep Industry
Association (ASI), the sheep industry's producer member organization,
submitted a proposed Order. In addition, the New Zealand Meat Producers
Board, the Australian Meat and Live-stock Corporation, the Wools of New
Zealand, the National Lamb Feeders Association, and the Lamb Committee
of the National Livestock and Meat Board each submitted a partial
proposal.
The Department also received letters from other interested parties.
The Department did not consider these letters to be proposals because
they primarily addressed information related to provisions of the Act
itself.
The Department published ASI's proposal as Proposal I, the New
Zealand Meat Producers Board's proposal as Proposal II, the Australian
Meat and Live-stock Corporation's proposal as Proposal III, the Wools
of New Zealand's proposal as Proposal IV, and the National Lamb Feeders
Association's proposal as Proposal V. The Department modified these
proposals slightly in order to (1) make them consistent with the Act
and other similar national research and promotion programs supervised
by the Department, (2) simplify the language and format of some
provisions, and (3) add certain sections necessary for the proper
administration of the Order by the
[[Page 19516]]
Department. The Department rejected the proposal submitted by the Lamb
Committee of the National Livestock and Meat Board and discussed that
proposal in the proposed rule. Each proposal was published in the June
2, 1995, issue of the Federal Register (60 FR 28747). Interested
persons were invited to submit comments on the proposals until July 17,
1995. On June 26, 1995, a public meeting was held at the Department to
afford any interested person the opportunity to comment on the proposed
Order.
The Department received 137 written comments concerning the
proposed Order from individual sheep producers, sheep feeders,
importers of sheep and sheep products, State sheep producer
organizations, general farm organizations, universities, and other
interested parties. Ninety-three comments were filed on time and forty-
four comments were filed after the comment period closed. The comments
on the proposed Order were discussed in the December 5, 1995, issue of
the Federal Register (60 FR 62298). A nationwide referendum was held on
February 6, 1996, among eligible producers, feeders, and importers to
determine whether the Order would become effective. Requests for
absentee ballots were available from January 16, 1996, through January
26, 1996. An Order becomes effective only if the Secretary determines
that the Order has been approved by not less than a majority of the
producers, feeders, and importers voting in the referendum or at least
two-thirds of the production represented by persons voting in the
referendum. The Order was approved by a majority of those persons
voting in the referendum.
The Order provisions as proposed by the Department and approved in
the referendum are summarized as follows:
Sections 1280.101-1280.136 of the Order define certain words that
are used in the Order.
Sections 1280.201-1280.211 of the Order concern the establishment,
membership, nominations, method of obtaining nominations, certification
of organizations, term of office, compensation, removal, and powers and
duties of the Board, which is the governing body authorized to
administer the Order subject to the oversight of the Secretary.
Sections 1280.212-1280.214 of the Order provide for budget review
and approval, maintenance of books and records by the Board, and the
investment of funds.
Section 1280.215 of the Order authorizes the use of assessments
which includes expenditures of funds for domestic country of origin
specific promotion and reimbursement for expenses incurred for the
Department's oversight responsibilities.
Sections 1280.216-1280.222 of the Order establish that the
membership of the Executive Committee will be composed of 14 members,
including 7 producer members elected from 7 regions reflecting sheep
production and sheep producers, 1 sheep feeder, 3 importers of sheep or
sheep products, and 3 elected officers of the Board. In addition, these
sections authorize the Executive Committee to develop plans and
projects of promotion, research, consumer information, education,
industry information, and producer information with respect to sheep
and sheep products and to develop and submit to the Board budgets of
anticipated expenses and disbursements for program projects. The
Secretary must approve such plans, projects, or budgets before they are
implemented.
Section 1280.223 of the Order holds the Board responsible for
expenses of the Board and the Executive Committee, and establish
requirements for contracts and agreements that the Board enters into.
Sections 1280.224-1280.228 establish assessment rates on sheep and
sheep products as provided by the Act. These sections also provide that
the domestic rate and the import rate must be raised or lowered
simultaneously by an equivalent amount.
Section 1280.229 authorizes each Qualified State Sheep Board (QSSB)
to receive 20 percent of the total assessments collected by the Board
on the marketing of domestic sheep and domestic sheep products in any
one year from each State. However, no QSSB will receive less than
$2,500 per year.
Section 1280.230 of the Order establishes collection procedures for
each person responsible for collecting the assessment, fixes a 2
percent late payment charge for past due assessments, and authorizes
the Secretary to receive assessments on behalf of the Board, if the
Board is not in place or is otherwise unable to collect assessments.
Section 1280.231 of the Order prohibits funds received under this
program from being used to influence Government action or policy, with
certain specified exceptions. In addition, funds received under this
program that are used to conduct plans or projects shall not (1) make
false or misleading claims on behalf of sheep or sheep products or
against a competing product or (2) promote or advertise any sheep or
sheep products by brand or trade name without the approval of the Board
and the concurrence of the Secretary.
Sections 1280.232-1280.235 of the Order contain reporting and
recordkeeping requirements for persons subject to the Order, and
provide that all information obtained by the Board or the Department
from books and reports required by the Order would be kept
confidential. A correction is made to Sec. 1280.235(d) by deleting the
word ``subpart'' and inserting in its place the word ``section.''
Sections 1280.240-1280.246 of the Order contain miscellaneous
provisions, including provisions concerning the Secretary's authority;
proceedings after the termination of the Order; the effect of
termination or amendment of the Order; personal liability of Board
members; patents, copyrights, inventions and publications; amendments
to the Order; and separability of Order provisions.
On February 6, 1996, a nationwide referendum was conducted among
eligible sheep producers, sheep feeders, and importers of sheep and
sheep products to determine whether the Order should become effective.
Requests for absentee ballots were available from January 16, 1996,
through January 26, 1996. The representative period for establishing
voter eligibility was from January 1, 1994, through December 31, 1994.
It is determined that a majority of those persons who voted in the
referendum approved the implementation of the Order. To become
effective, the Order had to be approved either by a simple majority
vote or by those persons voting in the referendum who accounted for at
least two-thirds of the production voted.
After consideration of all relevant material presented, including
the initial proposals, comments received, the referendum results, and
other available information, it is found that the Order and all of the
terms and conditions thereof, should be made final.
Pursuant to 5 U.S.C. 553, it is also found and determined that good
cause exists for not postponing the effective date of this action until
30 days after publication in the Federal Register. Each section of this
final rule except, Sec. 1280.224 through Sec. 1280.228 which establish
assessment rates on both domestic and imported sheep and sheep products
as provided by the Act, will become effective upon publication of this
final rule. Sections 1280.224-1280.228 of the Order will become
effective July 1, 1996, after regulations implementing the collection
and remittance procedures are issued and published in the Federal
Register.
[[Page 19517]]
Accordingly, no useful purpose would be served in delaying the
effective date of the other provisions of the Order. The Act requires
implementation of the Order if the Order is approved by the sheep and
wool industry and the sheep and wool industry approved the Order in the
February 6, 1996, referendum. Further, the Board must be appointed to
administer the program as soon as possible. Therefore, this final rule
is effective on the day following date of publication in the Federal
Register except for the provisions in Sec. 1280.224-Sec. 1280.228.
List of Subjects in 7 CFR Part 1280
Administrative practice and procedure, Advertising, Agricultural
research, Marketing agreements, Sheep and sheep products, Reporting and
recordkeeping requirements.
For the reasons set forth in the preamble, 7 CFR Part 1280 of the
Code of Federal Regulations is amended as follows:
PART 1280--SHEEP PROMOTION, RESEARCH, AND INFORMATION
1. The authority citation for Part 1280 continues to read as
follows:
Authority: 7 U.S.C. 7101-7111.
2. In Part 1280, Subpart A is added to read as follows:
Subpart A--Sheep and Wool Promotion, Research, Education, and
Information Order
Definitions
Sec
1280.101 Act.
1280.102 Board.
1280.103 Carbonized wool.
1280.104 Certified organization.
1280.105 Collecting person.
1280.106 Consumer information.
1280.107 Customs Service.
1280.108 Degreased wool.
1280.109 Department.
1280.110 Education.
1280.111 Executive committee.
1280.112 Exporter.
1280.113 Feeder.
1280.114 Greasy wool.
1280.115 Handler.
1280.116 Importer.
1280.117 Industry information.
1280.118 National feeder organization.
1280.119 Part and subpart.
1280.120 Person.
1280.121 Processor.
1280.122 Producer.
1280.123 Producer information.
1280.124 Promotion.
1280.125 Pulled wool.
1280.126 Qualified State Sheep Board.
1280.127 Raw wool.
1280.128 Research.
1280.129 Secretary.
1280.130 Sheep.
1280.131 Sheep products.
1280.132 State.
1280.133 Unit.
1280.134 United States.
1280.135 Wool.
1280.136 Wool products.
National Sheep Promotion, Research, and Information Board
1280.201 Establishment and membership of the Board.
1280.202 Nominations.
1280.203 Nominee's agreement to serve.
1280.204 Appointment.
1280.205 Method of obtaining nominations.
1280.206 Vacancies.
1280.207 Certification of organizations.
1280.208 Term of office.
1280.209 Compensation.
1280.210 Removal.
1280.211 Powers and duties of the Board.
1280.212 Budgets.
1280.213 Books and records of the Board.
1280.214 Investment of funds.
1280.215 Use of assessments.
Executive Committee
1280.216 Establishment.
1280.217 Membership.
1280.218 Powers and duties.
1280.219 Term of office.
1280.220 Chairperson.
1280.221 Quorum.
1280.222 Vacancies.
Expenses
1280.223 Expenses.
Assessments
1280.224 Sheep purchases.
1280.225 Wool purchases.
1280.226 Direct processing.
1280.227 Export.
1280.228 Imports.
1280.229 Qualified State Sheep Board.
1280.230 Collection.
1280.231 Prohibition on use of funds.
Reports, Books, and Records
1280.232 Reports.
1280.233 Books and records.
1280.234 Use of information.
1280.235 Confidentiality.
Miscellaneous
1280.240 Right of the Secretary.
1280.241 Proceedings after termination.
1280.242 Effect of termination or amendment.
1280.243 Personal liability.
1280.244 Patents, copyrights, invention, and publication.
1280.245 Amendments.
1280.246 Separability.
Subpart A--Sheep and Wool Promotion, Research, Education, and
Information Order
Definitions
Sec. 1280.101 Act.
The term Act means the Sheep Promotion, Research, and Information
Act of 1994, 7 U.S.C. 7101-7111; Public Law No. 103-107; 108 Statute
4210, enacted October 22, 1994, and any amendments thereto.
Sec. 1280.102 Board.
The term Board means the National Sheep Promotion, Research, and
Information Board established pursuant to Sec. 1280.201.
Sec. 1280.103 Carbonized wool.
The term carbonized wool means wool that has been immersed in a
bath, usually of mineral acids or acid salts, that destroys vegetable
matter in the wool, but does not affect the wool fibers.
Sec. 1280.104 Certified organization.
The term certified organization means any organization that has
been certified by the Secretary pursuant to this part as being eligible
to submit nominations for membership on the Board.
Sec. 1280.105 Collecting person.
The term collecting person means any person who is responsible for
collecting an assessment pursuant to the Act, this subpart and
regulations prescribed by the Board and approved by the Secretary,
including processors and any other persons who are required to remit
assessments to the Board pursuant to this part, except that a
collecting person who is a market agency; i.e., commission merchant,
auction market, or livestock market in the business of receiving such
sheep or sheep products for sale on commission for or on behalf of a
producer or feeder shall pass the collected assessments on to the
subsequent purchaser pursuant to the Act, this subpart and the
regulations prescribed by the Board and approved by the Secretary.
Sec. 1280.106 Consumer information.
The term consumer information means nutritional data and other
information that would assist consumers and other persons in making
evaluations and decisions regarding the purchase, preparation, or use
of sheep products.
Sec. 1280.107 Customs Service.
The term Customs Service means the U.S. Customs Service of the
Department of the Treasury.
Sec. 1280.108 Degreased wool.
The term degreased wool means wool from which the bulk of
impurities has been removed by processing.
Sec. 1280.109 Department.
The term Department means the U.S. Department of Agriculture.
Sec. 1280.110 Education.
The term education means activities providing information relating
to the sheep industry or sheep products to producers, feeders,
importers, consumers, and other persons.
[[Page 19518]]
Sec. 1280.111 Executive Committee.
The term Executive Committee means the Executive Committee of the
Board established under Sec. 1280.216.
Sec. 1280.112 Exporter.
The term exporter means any person who exports domestic live sheep
or greasy wool from the United States.
Sec. 1280.113 Feeder.
The term feeder means any person who feeds lambs until the lambs
reach slaughter weight.
Sec. 1280.114 Greasy wool.
The term greasy wool means wool that has not been washed or
otherwise cleaned.
Sec. 1280.115 Handler.
The term handler means any person who purchases and markets greasy
wool.
Sec. 1280.116 Importer.
The term importer means any person who imports sheep or sheep
products into the United States.
Sec. 1280.117 Industry information.
The term industry information means information and programs that
would lead to increased efficiency in processing and the development of
new markets, marketing strategies, increased marketing efficiency, and
activities to enhance the image of sheep or sheep products on a
national or international basis.
Sec. 1280.118 National feeder organization.
The term national feeder organization means any organization of
feeders that has been certified by the Secretary pursuant to the Act
and this part as being eligible to submit nominations for membership on
the Board.
Sec. 1280.119 Part and subpart.
Part means the Sheep and Wool Promotion, Research, Education, and
Information Order and all rules and regulations issued pursuant to the
Act and the Order, and the Order itself shall be a ``subpart'' of such
part.
Sec. 1280.120 Person.
The term person means any individual, group of individuals,
partnership, corporation, association, cooperative, or any other legal
entity.
Sec. 1280.121 Processor.
The term processor means any person who slaughters sheep or
processes greasy wool into degreased wool.
Sec. 1280.122 Producer.
The term producer means any person, other than a feeder, who owns
or acquires ownership of sheep.
Sec. 1280.123 Producer information.
The term producer information means activities designed to provide
producers, feeders, and importers with information relating to
production or marketing efficiencies or developments, program
activities, or other information that would facilitate an increase in
the consumption of sheep or sheep products.
Sec. 1280.124 Promotion.
The term promotion means any action (including paid advertising) to
advance the image and desirability of sheep or sheep products, to
improve the competitive position, and stimulate sales, of sheep
products in the domestic and international marketplace.
Sec. 1280.125 Pulled wool.
The term pulled wool means wool that is pulled from the skin of
slaughtered sheep.
Sec. 1280.126 Qualified State Sheep Board.
The term Qualified State Sheep Board means a sheep and wool
promotion entity that:
(a) Is authorized by State statute or organized and operating
within a State;
(b) Receives voluntary contributions or dues and conducts
promotion, research, or consumer information programs with respect to
sheep or wool, or both; and
(c) Is recognized by the Board as the sheep and wool promotion
entity within the State; except that not more than one QSSB shall exist
in any State at any one time.
Sec. 1280.127 Raw wool.
The term raw wool means greasy wool, pulled wool, degreased wool,
or carbonized wool.
Sec. 1280.128 Research.
The term research means development projects and studies relating
to the production (including the feeding of sheep), processing,
distribution, or use of sheep or sheep products, to encourage, expand,
improve, or make more efficient the marketing of sheep or sheep
products.
Sec. 1280.129 Secretary.
The term Secretary means the Secretary of Agriculture of the United
States or any other officer or employee of the Department to whom
authority has been delegated, or to whom authority may be delegated, to
act in the Secretary's stead.
Sec. 1280.130 Sheep.
The term sheep means ovine animals of any age, including lambs.
Sec. 1280.131 Sheep products.
The term sheep products means products produced in whole or in part
from sheep, including wool and products containing wool fiber.
Sec. 1280.132 State.
The term State means each of the 50 States.
Sec. 1280.133 Unit.
The term unit means each State, group of States, or class
designation that is represented on the Board.
Sec. 1280.134 United States.
The term United States means the 50 States and the District of
Columbia.
Sec. 1280.135 Wool.
The term wool means the fiber from the fleece of a sheep.
Sec. 1280.136 Wool products.
The term wool products means products produced, in whole or in
part, from wool and products containing wool fiber.
National Sheep Promotion, Research, and Information Board
Sec. 1280.201 Establishment and membership of the Board.
There is hereby established a National Sheep Promotion, Research,
and Information Board (Board) of 120 members. Members of the Board
shall be appointed by the Secretary from nominations submitted in
accordance with this subpart. The seats shall be apportioned as
follows:
(a) Producers: For purposes of nominating producers to the Board,
each State shall be represented by the following number of members:
------------------------------------------------------------------------
Board
Unit members
------------------------------------------------------------------------
Alabama....................................................... 1
Alaska........................................................ 1
Arizona....................................................... 1
Arkansas...................................................... 1
California.................................................... 5
Colorado...................................................... 4
Connecticut................................................... 1
Delaware...................................................... 1
Florida....................................................... 1
Georgia....................................................... 1
Hawaii........................................................ 1
Idaho......................................................... 2
Illinois...................................................... 1
Indiana....................................................... 1
Iowa.......................................................... 2
Kansas........................................................ 1
Kentucky...................................................... 1
Louisiana..................................................... 1
[[Page 19519]]
Maine......................................................... 1
Maryland...................................................... 1
Massachusetts................................................. 1
Michigan...................................................... 1
Minnesota..................................................... 2
Mississippi................................................... 1
Missouri...................................................... 1
Montana....................................................... 5
Nebraska...................................................... 1
Nevada........................................................ 1
New Hampshire................................................. 1
New Jersey.................................................... 1
New Mexico.................................................... 2
New York...................................................... 1
North Carolina................................................ 1
North Dakota.................................................. 2
Ohio.......................................................... 1
Oklahoma...................................................... 1
Oregon........................................................ 2
Pennsylvania.................................................. 1
Rhode Island.................................................. 1
South Carolina................................................ 1
South Dakota.................................................. 4
Tennessee..................................................... 1
Texas......................................................... 10
Utah.......................................................... 3
Vermont....................................................... 1
Virginia...................................................... 1
Washington.................................................... 1
West Virginia................................................. 1
Wisconsin..................................................... 1
Wyoming....................................................... 5
------------------------------------------------------------------------
(b) Feeders. The feeder sheep industry shall be represented by 10
members.
(c) Importers. Importers shall be represented by 25 members.
(d) Alternates. A unit represented by only one producer member may
have an alternate member appointed to ensure representation at meetings
of the Board.
Sec. 1280.202 Nominations.
(a) Producers. The Secretary shall appoint producers and alternates
to represent units as specified under Sec. 1280.201(a) of this subpart
from nominations submitted by organizations certified under
Sec. 1280.207. A certified organization may submit only nominations for
producer representatives and alternates if appropriate from the
membership of the organization for the unit in which the organization
operates. To be represented on the Board, each certified organization
shall submit to the Secretary at least 1.5 nominations for each seat on
the Board for which the unit is entitled to representation. If a unit
is entitled to only one seat on the Board, the unit shall submit at
least two nominations for the appointment.
(b) Feeders. The Secretary shall appoint representatives of the
feeder sheep industry to seats established under Sec. 1280.201(b) from
nominations submitted by qualified national organizations that
represent the feeder sheep industry. To be represented on the Board,
the industry shall provide at least 1.5 nominations for each
appointment to the Board to which the feeder sheep industry is
entitled.
(c) Importers. The Secretary shall appoint importers to seats
established under Sec. 1280.201(c) from nominations submitted by
qualified organizations that represent importers. The Secretary shall
receive at least 1.5 nominations for each appointment to the Board to
which importers are entitled.
(d) As soon as practicable, the Secretary shall obtain nominations
from certified organizations. If no organization is certified in a unit
the Secretary may use other means to obtain nominations. A certified
organization shall only submit nominations for positions on the Board
representing units in which such certified organization can establish
that it is certified as eligible to submit nominations for
representation of that unit of individual producers, feeders, or
importers residing in that unit.
(e) After the establishment of the initial Board, the Department
shall announce when a vacancy does or will exist. Nominations shall be
initiated not less than 6 months before the expiration of the terms of
the members whose terms are expiring, in the manner described in
Sec. 1280.205(b). In the case of vacancies due to reasons other than
the expiration of term of office, successor Board members shall be
appointed pursuant to Sec. 1280.206.
(f) Where there is more than one eligible organization representing
producers, feeders, or importers in a State or unit, they may caucus
and jointly nominate a minimum of 1.5 qualified persons for each
position representing that State or unit on the Board for which a
member is to be appointed. If joint agreement is not reached with
respect to any such nominations, or if no caucus is held, each
certified organization may submit nominations for each appointment to
be made to represent that State or unit.
(g) Nominations should be submitted in order of preference and, for
the initial Board, in order of preference for staggered terms. If the
Secretary rejects any nominations submitted and there are insufficient
nominations submitted from which appointments can be made, the
Secretary may request additional nominations under paragraphs (a), (b),
or (c) of this section.
Sec. 1280.203 Nominee's agreement to serve.
Any producer, feeder, or importer nominated to serve on the Board,
or as an alternate, shall file with the Secretary at the time of the
nomination a written agreement to:
(a) Serve on the Board if appointed;
(b) Disclose any relationship with any organization that operates a
qualified State or regional program or has a contractual relationship
with the Board; and
(c) Withdraw from participation in deliberations, decision making,
or voting on matters that concern the relationship disclosed under
paragraph (b) of this section.
Sec. 1280.204 Appointment.
From the nominations made pursuant to Sec. 1280.202 above, the
Secretary shall appoint the members of the Board on the basis of
representation provided in Sec. 1280.201 above.
Sec. 1280.205 Method of obtaining nominations.
(a) Initially Established Board.
(1) Producer and Alternate Nominations. The Secretary shall
solicit, from organizations certified under Sec. 1280.207, nominations
for each producer's or alternate member's seat on the initially-
established Board to which a unit is entitled. If no such organization
exist, the Secretary shall solicit nominations for appointments in such
manner as the Secretary determines appropriate.
(2) Feeder and Importer Nominations. The Secretary shall solicit,
from certified organizations that represent feeders and importers,
nominations for each seat to which feeders or importers are entitled.
If no such organization exists, the Secretary shall solicit nominations
for appointments in such manner as the Secretary determines
appropriate. In determining whether an organization is eligible to
submit nominations under this subparagraph, the Secretary shall
determine whether:
(A) The organization's active membership includes a significant
number of feeders or importers in relation to the total membership of
the organization;
(B) There is evidence of stability and permanency of the
organization; and
(C) The organization has a primary and overriding interest in
representing the feeder or importer segment of the sheep industry.
(b) Subsequent Appointment.
(1) Producer Nominations. The solicitation of nominations for
subsequent appointment to the Board from eligible organizations
certified under Sec. 1280.207 shall be initiated by the Secretary, with
the Board securing the nominations for the Secretary.
(2) Feeder and Importer Nominations. The solicitation of feeder and
importer
[[Page 19520]]
nominations for subsequent appointment to the Board shall be made by
the Secretary from organizations certified in accordance with paragraph
(a)(2) of this section.
Sec. 1280.206 Vacancies.
To fill any vacancy occasioned by the death, removal, resignation,
or disqualification of any member of the Board, the Secretary shall
appoint a successor from the most recent list of nominations for the
position or from nominations submitted by the Board.
Sec. 1280.207 Certification of organizations.
(a) In general. The eligibility of any State organization to
represent producers and to participate in the making of nominations
under this subpart shall be certified by the Secretary. The Secretary
shall certify any State organization that the Secretary determines
meets the eligibility criteria established under paragraph (b) of this
section. An eligibility determination by the Secretary shall be final.
(b) Basis for Certification. Certification shall be based upon, in
addition to other available information, a factual report submitted by
the organization that shall contain information considered relevant and
specified by the Secretary, including:
(1) The geographic territory covered by the active membership of
the organization;
(2) The nature and size of the active membership of the
organization, including the proportion of the total number of active
producers represented by the organization;
(3) Evidence of stability and permanency of the organization;
(4) Sources from which the operating funds of the organization are
derived;
(5) The functions of the organization; and
(6) The ability and willingness of the organization to further the
aims and objectives of the Act.
(c) Primary Considerations. A primary consideration in determining
the eligibility of an organization under this paragraph shall be
whether:
(1) The membership of the organization consists primarily of
producers who own a substantial quantity of sheep; and
(2) An interest of the organization is in the production of sheep.
Sec. 1280.208 Term of office.
Each appointment to the Board shall be for a term of 3 years,
except that appointments to the initially established Board shall be
proportionately for 1-year, 2-year, and 3-year terms. No person may
serve more than two consecutive 3-year terms, except that elected
officers shall not be subject to the term limitation while they hold
office.
Sec. 1280.209 Compensation.
Board members shall serve without compensation, but shall be
reimbursed for their reasonable expenses incurred in performing their
duties as Board members.
Sec. 1280.210 Removal.
If the Secretary determines that any person appointed under this
part fails to perform his or her duties properly or engages in acts of
dishonesty or willful misconduct, the Secretary shall remove the person
from office. The Secretary may remove a person appointed or certified
under this part, or any employee of the Board, if the Secretary
determines that the person's continued service would be detrimental to
the purposes of the Act.
Sec. 1280.211 Powers and duties of the Board.
The Board shall have the following powers and duties:
(a) To elect officers of the Board, including a chairperson, vice
chairperson, and secretary/treasurer;
(b) To administer this subpart in accordance with its terms and
provisions;
(c) To recommend regulations to effectuate the terms and provisions
of this subpart;
(d) To hold at least one annual meeting and any additional meetings
it deems appropriate;
(e) To elect members of the Board to serve on the Executive
Committee;
(f) To approve or reject budgets submitted by the Executive
Committee;
(g) To submit budgets to the Secretary for approval;
(h) To contract with entities, if necessary, to implement plans or
projects in accordance with the Act;
(i) To conduct programs of promotion, research, consumer
information, education, industry information, and producer information;
(j) To receive, investigate, and report to the Secretary complaints
of violations of this subpart;
(k) To recommend to the Secretary amendments to this subpart;
(l) To provide the Secretary with prior notice of meetings of the
Board to permit the Secretary or a designated representative to attend
such meetings;
(m) To provide not less than annually a report to producers,
feeders, and importers, accounting for the funds expended by the Board,
and describing programs implemented under the Act; and to make such
report available to the public upon request;
(n) To establish seven regions that, to the extent practicable,
contain geographically contiguous States and approximately equal
numbers of sheep producers and sheep production;
(o) To employ or retain necessary staff; and
(p) To invest funds in accordance with Sec. 1280.214.
Sec. 1280.212 Budgets.
(a) In general. The Board shall review the budget submitted by the
Executive Committee, on a fiscal year basis, of anticipated expenses
and disbursements by the Board, including probable costs of
administration and promotion, research, consumer information,
education, industry information, and producer information projects. The
Board shall submit the budget to the Secretary for the Secretary's
approval.
(b) Limitation. No expenditure of funds may be made by the Board
unless such expenditure is authorized under a budget or budget
amendment approved by the Secretary.
Sec. 1280.213 Books and records of the Board.
The Board shall:
(a) Maintain such books and records, which shall be made available
to the Secretary for inspection and audit, as the Secretary may
prescribe;
(b) Prepare and submit to the Secretary, from time-to-time, such
reports as the Secretary may prescribe; and
(c) Account for the receipt and disbursement of all funds entrusted
to it. The Board shall cause its books and records to be audited by an
independent auditor at the end of each fiscal year, and a report of
such audit to be submitted to the Secretary.
Sec. 1280.214 Investment of funds.
The Board may invest, pending disbursement, funds it receives under
this subpart, only in obligations of the United States or any agency
thereof, in general obligations of any State or any political
subdivision thereof, in any interest-bearing account or certificate of
deposit of a bank that is a member of the Federal Reserve System, or in
obligations fully guaranteed as to principal and interest by the United
States. Any income from any such investment may be used for any purpose
for which the invested funds may be used.
Sec. 1280.215 Use of assessments.
(a) Assessments received by the Board shall be used by the Board:
[[Page 19521]]
(1) To fund promotion, research, education, and information plans
and projects authorized under this subpart, including promotion plans
and projects which make specific reference to domestic sheep and sheep
products originating or being produced and/or marketed in the U.S.,
except that the combined expenditures for such promotion plans and
projects involving domestic country of origin shall be limited to no
more than the combined domestic assessments collected on sheep and
sheep products and the percentage of domestic assessments spent on the
promotion of domestic sheep and sheep products shall not exceed the
percentage of import assessments spent on the generic promotion of
sheep and sheep products; and
(2) For the payment of expenses incurred in administering this
subpart, including a reasonable reserve.
(b) The Board shall reimburse the Secretary, from assessments
collected, for costs incurred in implementing and administering the
Order as provided for under the Act.
Executive Committee
Sec. 1280.216 Establishment.
The Board shall establish an Executive Committee of the Board to
assist the Board in the administration of the terms and provisions of
this subpart, under the direction of the Board, and consistent with the
policies determined by the Board.
Sec. 1280.217 Membership.
The Executive Committee shall be comprised of 14 members:
(a) Eleven members of the Executive Committee shall be elected by
the Board annually. Of these members:
(1) One member shall represent each of the seven regions
established under Sec. 1280.211(n) for a total of seven members
representing producers;
(2) One member shall represent feeders; and
(3) Three members shall represent importers.
(b) The remaining three members of the Executive Committee shall be
the elected officers of the Board.
Sec. 1280.218 Powers and duties.
(a) Plans and Projects. The Executive Committee shall develop plans
or projects of promotion and advertising, research, consumer
information, education, industry information, and producer information,
which plans or projects shall be paid for with assessments collected by
the Board. The plans or projects shall not become effective until
approved by the Secretary.
(b) Budgets. The Executive Committee shall be responsible for
developing and submitting to the Board, for Board approval, budgets on
a fiscal year basis of the Board's anticipated expenses and
disbursements, including the estimated costs of advertising and
promotion, research, consumer information, education, industry
information, and producer information projects. The Board shall approve
or disapprove such budgets and, if approved, shall submit them to the
Secretary for the Secretary's approval.
Sec. 1280.219 Term of office.
Terms of appointment to the Executive Committee shall be for 1
year.
Sec. 1280.220 Chairperson.
The Chairperson of the Board shall serve as chairperson of the
Executive Committee.
Sec. 1280.221 Quorum.
A quorum of the Executive Committee shall consist of eight members.
Sec. 1280.222 Vacancies.
To fill any vacancy caused by the death, removal, resignation, or
disqualification of any member of the Executive Committee, the Board
shall elect a successor for the position pursuant to Sec. 1280.217.
Expenses
Sec. 1280.223 Expenses.
(a) The Board shall be responsible for all expenses of the Board
and the Executive Committee.
(b) Contracts and Agreements. Any contract or agreement entered
into by the Board shall provide that:
(1) The contracting party shall develop and submit to the Board a
plan or project of promotion, research, education, consumer
information, industry information, and producer information, together
with a budget or budgets that shall show estimated costs to be incurred
for such plan or project; and
(2) No plan, project, contract, or agreement shall become effective
until it has been approved by the Secretary.
(c) The contracting party shall:
(1) keep accurate records of all of its transactions;
(2) account for funds received and expended, including staff time,
salaries, and expenses expended on behalf of Board activities;
(3) make periodic reports to the Board of activities conducted; and
(4) make such other reports as the Board or the Secretary may
require.
Assessments
Sec. 1280.224 Sheep purchases.
(a) In general. Each person making payment to a producer or feeder
for sheep purchased from the producer or feeder shall be a collecting
person and shall collect an assessment from the producer or feeder on
each sheep sold by the producer or feeder. Each such producer or feeder
shall pay such assessment to the collecting person at the rate set
forth in paragraph (d) of this section.
(b) Remittances. Each processor making payment to a producer,
feeder, or collecting person for sheep purchased from the producer,
feeder, or collecting person shall be a collecting person and shall
collect an assessment from the producer, feeder, or other collecting
person on each sheep sold by the producer, feeder, or collecting
person, and each such producer, feeder, or collecting person shall pay
such assessment to the processor at the rate set forth in paragraph (d)
in this section, and such processor shall remit the assessment to the
Board.
(c) Processing. Any person who purchases sheep for processing shall
collect the assessment from the seller and remit the assessment to the
Board.
(d) Rate. Except as otherwise provided, the rate of assessment
shall be 1 cent per pound of live sheep sold. The rate of assessment
may be raised or lowered no more than 0.15 of a cent in any 1 year as
recommended by the Executive Committee and approved by the Board and
the Secretary. However, if the Board makes a recommendation to the
Secretary to raise or lower the assessment rates, the domestic rate and
the import rate must be raised or lowered simultaneously by an
equivalent amount. The rate of assessment shall not exceed 2\1/2\ cents
per pound.
Sec. 1280.225 Wool purchases.
(a) In general. Each person making payment to a producer, feeder,
or handler of wool for wool purchased from the producer, feeder, or
handler shall be a collecting person and shall collect an assessment
from the producer, feeder, or handler on each pound of greasy wool
sold. The producer, feeder, or handler shall pay such assessment to the
collecting person at the rate set forth in (d) of this section.
(b) Remittances. Each processor making payment to a producer,
feeder, handler, or collecting person for wool purchased from the
producer, feeder, handler, or collecting person shall be a collecting
person and shall collect an assessment from the producer, feeder,
[[Page 19522]]
handler, or other collecting person on all wool sold by the producer,
feeder, handler, or collecting person, and each such producer, feeder,
handler, or collecting person shall pay such assessment to the
processor at the rate set forth in paragraph (d) of this section and
such processor shall remit the assessment to the Board.
(c) Processing. Any person purchasing greasy wool for processing
shall collect the assessment and remit the assessment to the Board.
(d) Rate. Except as otherwise provided, the rate of assessment
shall be 2 cents per pound. The rate of assessment may be raised or
lowered no more than 0.2 of a cent per pound in any 1 year as
recommended by the Executive Committee and approved by the Board and
the Secretary. However, if the Board makes a recommendation to the
Secretary to raise or lower the assessment rates, the domestic rate and
the import rate must be raised or lowered simultaneously by an
equivalent amount. The rate of assessment shall not exceed 4 cents per
pound of greasy wool.
Sec. 1280.226 Direct processing.
Each person who processes or causes to be processed sheep or sheep
products of that person's own production, and markets such sheep or
sheep products, shall pay an assessment on such sheep or sheep products
at the time of sale at a rate equivalent to the rate established in
Sec. 1280.224(d) or Sec. 1280.225(d), as appropriate, and shall remit
such assessment to the Board.
Sec. 1280.227 Export.
Each person who exports live sheep or greasy wool shall remit the
assessment on such sheep or greasy wool at the time of export, at a
rate equivalent to the rate established in Sec. 1280.224(d) or
Sec. 1280.225(d), as appropriate, and shall remit such assessment to
the Board.
Sec. 1280.228 Imports.
(a) In general. Each person who imports sheep or sheep products or
who imports wool or products containing wool (with the exception of raw
wool) into the United States shall pay an assessment to the Board.
(b) Collection. Customs is authorized to collect and remit such
assessment to the Secretary for disbursement to the Board.
(c) Rate for Sheep and Sheep Products. The assessment rate for
sheep shall be 1 cent per pound of live sheep. The assessment rate for
sheep products shall be the equivalent of 1 cent per pound of live
sheep, as determined by the Secretary in consultation with the domestic
sheep industry. Such rates may be raised or lowered no more than 0.15
cent per pound in any 1 year as recommended by the Executive Committee
and approved by the Board and the Secretary, but shall not exceed 2\1/
2\ cents per pound. However, if the Board makes a recommendation to the
Secretary to raise or lower the assessment rates, the domestic rate and
the import rate must be raised or lowered simultaneously by an
equivalent amount.
(d) Rate for Wool and Wool Products. The assessment rate for wool
and products containing wool shall be 2 cents per pound of degreased
wool or the equivalent of degreased wool. The rate of assessment may be
raised or lowered no more than 0.2 cents per pound in any 1 year, as
recommended by the Executive Committee and approved by the Board and
the Secretary, but shall not exceed 4 cents per pound of degreased wool
or the equivalent. However, if the Board makes a recommendation to the
Secretary to raise or lower the assessment rates, the domestic rate and
the import rate must be raised or lowered simultaneously by an
equivalent amount.
(e) The Secretary shall issue regulations regarding the assessment
rates for imported sheep and sheep products. The Secretary may exclude
from assessment certain imported products that contain de minimis
levels of sheep or sheep products and waive the assessment on such
products.
Sec. 1280.229 Qualified State Sheep Boards.
(a) Except as provided in paragraph (b) of this section, 20 percent
of the total assessments collected by the Board on the marketings of
domestic sheep and domestic sheep products in any 1 year from a State
shall be returned to the QSSB of the State.
(b) No QSSB shall receive less than $2,500 under paragraph (a) of
this section in any 1 year.
(c) The Board shall establish procedures with the approval of the
Secretary to account for funds expended pursuant to paragraphs (a) and
(b) of this section.
Sec. 1280.230 Collection.
(a) Each person responsible for the collection and remittance to
the Board of assessments under this subpart shall do so on a monthly
basis, unless the Board, with the approval of the Secretary, has
specifically authorized otherwise.
(b) Late Payment Charges. Any unpaid assessments due the Board or
from a person responsible for remitting assessments to the Board, shall
be increased by 2 percent each month beginning with the day after the
date such assessments were due under this subpart. Any assessments or
late payment charges that remain unpaid shall be increased at the same
rate on the corresponding day of each month thereafter until paid.
(c) Any unpaid assessments due to the Board pursuant to
Sec. 1280.224, Sec. 1280.225, Sec. 1280.226, and Sec. 1280.227 shall be
increased 2 percent each month beginning with the day following the
date such assessments were due. Any remaining amount due, which shall
include any unpaid charges previously made pursuant to this paragraph,
shall be increased at the same rate on the corresponding day of each
month thereafter until paid. For the purposes of this paragraph, any
assessment determined at a date later than the date prescribed by this
subpart because of a person's failure to submit a timely report to the
Board shall be considered to have been payable by the date it would
have been due if the report had been timely filed. The date of payment
is the applicable postmark date or the date of receipt by the Board,
whichever is earlier.
(d) If the Board is not in place by the date the first assessments
are to be collected, the Secretary shall have the authority to receive
assessments and invest them on behalf of the Board, and shall pay such
assessments and any interest earned to the Board when it is formed. The
Secretary shall have the authority to promulgate rules and regulations
concerning assessments and the collection of assessments if the Board
is not in place or is otherwise unable to develop such rules and
regulations.
Sec. 1280.231 Prohibition on use of funds.
(a) Except as otherwise provided in paragraph (b) of this section,
no funds collected by the Board under this subpart shall be used in any
manner for the purpose of influencing any action or policy of the
United States Government, any foreign or State Government, or any
political subdivision thereof.
(b) The prohibition in paragraph (a) of this section shall not
apply:
(1) To the development and recommendation of amendments to this
subpart; or
(2) To the communication to appropriate Government officials, in
response to a request made by the officials, of information relating to
the conduct, implementation, or results of promotion, research,
consumer information, education, industry
[[Page 19523]]
information, or producer information activities under this subpart;
(c) A plan or project conducted pursuant to this title shall not
make false or misleading claims on behalf of sheep or sheep products or
against a competing product.
(d) No such plans or projects shall be undertaken to promote or
advertise any sheep or sheep products by brand or trade name without
the approval of the Board and the concurrence of the Secretary.
Reports, Books, and Records
Sec. 1280.232 Reports.
(a) Each collecting person, including processors and other persons
required to remit assessments to the Board pursuant to Sec. 1280.224(b)
for live sheep, each person who markets sheep products of that person's
own production and each exporter of sheep shall report to the Board
information pursuant to regulations prescribed by the Board and
approved by the Secretary. Such information may include:
(1) The number of sheep purchased, initially transferred or which,
in any other manner, are subject to the collection of assessment, and
the dates of such transaction;
(2) The number of sheep imported or exported, or the equivalent
thereof sheep products imported;
(3) The amount of assessment remitted;
(4) An explanation for the remittance of any assessment that is
less than the pounds of sheep multiplied by the assessment rate; and
(5) The date any assessment was paid.
(b) Each collecting person, including processors and other persons
required to remit assessments to the Board pursuant to Sec. 1280.225(b)
for wool purchased from the producer or handler of wool or wool
products, each person purchasing greasy wool for processing, each
importer of wool or wool products (except raw wool), each exporter of
greasy wool, and each person who markets wool of that person's own
production shall report to the Board information pursuant to
regulations prescribed by the Board and approved by the Secretary. Such
information may include:
(1) The amount of wool purchased, initially transferred or in any
other manner subject to the collection of assessment, and the dates of
such transaction;
(2) The amount of wool imported (except raw wool) or the equivalent
thereof of wool products imported or the amount of greasy wool
exported;
(3) The amount of assessment remitted;
(4) An explanation for the remittance of an assessment that is less
than the pounds of wool multiplied by the assessment rate; and
(5) The date any assessment was paid.
Sec. 1280.233 Books and records.
(a) Each collecting person, including processors and other persons
required to remit assessments to the Board, each importer of sheep or
sheep products (except raw wool), and exporter of sheep or greasy wool,
and each person who markets sheep products of that person's own
production, shall maintain and make available for inspection such books
and records as may be required by regulations prescribed by the Board
and approved by the Secretary, including records necessary to verify
any required reports. Such records shall be maintained for the period
of time prescribed by the regulations issued hereunder.
(b) Document Evidencing Payment of Assessments. Each collecting
person responsible for collecting an assessment paid pursuant to this
subpart, other than a person who slaughters sheep or markets sheep
products of his or her own production for sale, is required to give the
person or collecting person from whom the collecting person collected
an assessment written evidence of payment of the assessments paid
pursuant to this subpart. Such written evidence serving as a receipt
shall include:
(1) Name and address of the collecting person;
(2) Name of the producer who paid the assessment;
(3) Number of head of sheep or pounds of wool sold;
(4) Total assessments paid by the producer;
(5) Date; and
(6) Such other information as the Board, with the approval of the
Secretary, may require.
Sec. 1280.234 Use of information.
Information from records or reports required pursuant to this
subpart shall be made available to the Secretary as is appropriate to
the administration or enforcement of the Act, this subpart or any
regulation issued under the Act. In addition, the Secretary shall
authorize the use under this part of information that is accumulated
under laws or regulations other than the Act or regulations issued
under the Act regarding persons paying producers, feeders, importers,
handlers, or processors.
Sec. 1280.235 Confidentiality.
(a) All information from records or reports required pursuant to
this subpart shall be kept confidential by all officers and employees
of the Department and of the Board. Such information may be disclosed
only if the Secretary considers the information relevant, the
information is disclosed only in a suit or administrative hearing
brought at the direction or on the request of the Secretary, or to
which the Secretary or any officer of the United States is a party, and
the information relates to the Act.
(b) Administration. No information obtained under the authority of
this subpart may be made available to any agency or officer of the
Federal Government for any purpose other than the implementation of the
Act and any investigatory or enforcement action necessary for the
implementation of the Act.
(c) General Statements. Nothing in paragraph (a) of this section
may be deemed to prohibit:
(1) The issuance of general statements, based on the reports of the
number of persons subject to this subpart or statistical data collected
therefrom, which statements do not identify the information furnished
by any person; or
(2) The publication, by direction of the Secretary, of the name of
any person violating this subpart and a statement of the particular
provisions of this subpart violated by such person.
(d) Penalty. Any person who willfully violates the provisions of
this section, on conviction, shall be subject to a fine of not more
than $1,000, or to imprisonment for not more than 1 year, or both, and
if the person is an officer or employee of the Board or the Department,
that person shall be removed from office.
Miscellaneous
Sec. 1280.240 Right of the Secretary.
All fiscal matters, programs or projects, bylaws, rules or
regulations, reports, or other substantive actions proposed, and
prepared by the Board shall be submitted to the Secretary for approval.
Sec. 1280.241 Proceedings after termination.
(a) Upon the termination of this subpart, the Board shall recommend
not more than five of its members to the Secretary to serve as trustees
for the purpose of liquidating the affairs of the Board. Such persons,
upon designation by the Secretary, shall become trustees of all the
funds and property owned, in the possession of or under the control of
the Board, including any claims of the Board against third parties that
exist at the time of such termination.
(b) The trustees shall:
[[Page 19524]]
(1) Act as trustees until discharged by the Secretary;
(2) Carry out the obligations of the Board under any contracts or
agreements entered into by the Board pursuant to Sec. 1280.223(b);
(3) From time to time account for all receipts and disbursements
and deliver all property on hand, together with all books and records
of the Board and of the trustees, to such persons as the Secretary may
direct; and
(4) Upon the request of the Secretary, execute such assignment of
other instruments necessary or appropriate to transfer to such persons
full title and right to all of the funds, property, and claims of the
Board or the trustees pursuant to this subpart.
(c) Any person to whom funds, property or claims have been
transferred or delivered pursuant to this subpart shall be subject to
the same obligation imposed upon the Board and upon the trustees.
(d) Any residual funds not required to pay the necessary costs of
liquidation shall be turned over to the Secretary to be used, to the
extent practicable, for continuing one or more of the promotion,
research, consumer information, education, industry information, and
producer information plans or projects authorized pursuant to this
subpart.
Sec. 1280.242 Effect of termination or amendment.
Unless otherwise expressly provided by the Secretary, the
termination of this subpart or of any regulation issued pursuant
thereto, or the issuance of any amendment to either thereof, shall not:
(a) Affect or waive any right, duty, obligation, or liability that
has arisen or may hereafter arise in connection with any provision of
this subpart or any regulation issued thereunder; or
(b) Release or extinguish any violation of this subpart or any
regulation issued thereunder; or
(c) Affect or impair any rights or remedies of the United States,
the Secretary or any person with respect to any such violation.
Sec. 1280.243 Personal liability.
No member, employee, or agent of the Board, including employees,
agents, or Board members of the QSSB, acting pursuant to the authority
provided in this subpart, shall be held personally responsible, either
individually or jointly, in any way whatsoever, to any person for
errors in judgment, mistakes, or other acts of either commission or
omission, of such member, employee, or agent except for acts of
dishonesty or willful misconduct.
Sec. 1280.244 Patents, copyrights, inventions, and publication.
Any patents, copyrights, inventions, or publications developed
through the use of funds remitted to the Board under the provisions of
this subpart shall be the property of the United States Government as
represented by the Board, and shall, along with any rents, royalties,
residual payments, or other income from the rental, sales, leasing,
franchising, or other uses of such patents, copyrights, inventions, or
publications, inure to the benefit of the Board. Upon termination of
this subpart, Sec. 1280.240 shall apply to determine disposition of all
such property.
Sec. 1280.245 Amendments.
Amendments to the subpart may be proposed, from time to time, by
the Board or by any interested person affected by the provisions of the
Act, including the Secretary.
Sec. 1280.246 Separability.
If any provision of this subpart is declared invalid or its
applicability to any person or circumstances is held invalid, the
validity of the remainder of this subpart of the applicability thereof
to other persons or circumstances shall not be affected thereby.
Dated: April 26, 1996.
Lon Hatamiya,
Administrator.
[FR Doc. 96-10887 Filed 5-1-96; 8:45 am]
BILLING CODE 3410-02-P
Complete official Federal Register PDF
FR Doc. 96-10885 Office of the Assistant Secretary for HousingFederal Housing Commissioner; Title I Property Improvement and Manufactured Home Loan Insurance Programs
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19788-19800]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10885]
[[Page 19787]]
_______________________________________________________________________
Part VIII
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Part 201
Title I Property Improvement and Manufactured Home Loan Insurance
Programs; Final Rule
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules
and Regulations
[[Page 19788]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 201
[Docket No. FR-3718-I-01]
RIN 2502-AG32
Office of the Assistant Secretary for Housing--Federal Housing
Commissioner; Title I Property Improvement and Manufactured Home Loan
Insurance Programs
AGENCY: Office of the Assistant Secretary for Housing Federal Housing
Commissioner, HUD.
ACTION: Interim rule.
-----------------------------------------------------------------------
SUMMARY: This interim rule amends the Department's regulations
implementing its property improvement and manufactured home loan
insurance programs under title I, section 2 of the National Housing
Act. This interim rule amends the regulations to codify program changes
that were previously effectuated by waiving various requirements of the
regulations, under the Secretary's general waiver authority. The
interim rule also makes other changes that are needed to clarify
program requirements, to enable the Department to better use the Title
I programs in accomplishing its mission, and to eliminate unnecessary
regulations.
DATES: Effective date: June 3, 1996.
Comments due date: July 1, 1996.
ADDRESSES: Interested persons are invited to submit comments regarding
this interim rule to the Rules Docket Clerk, Office of the General
Counsel, Department of Housing and Urban Development, Room 10276, 451
Seventh Street SW., Washington, DC 20410. Communications should refer
to the above docket number and title. A copy of each communication
submitted will be available for public inspection and copying during
regular business hours (7:30 a.m.-5:30 p.m. eastern time) at the above
address. HUD will not accept comments sent by facsimile (FAX).
FOR FURTHER INFORMATION CONTACT: Robert J. Coyle, Director, Title I
Insurance Division, 490 L'Enfant Plaza East, Suite 3214, Washington, DC
20024, telephone (202) 755-7400. This number is not toll-free. Hearing-
or speech-impaired individuals may access this number via TTY by
calling the Federal Information Relay Service at (800) 877-8339.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act Requirements
The information collection requirements in this interim rule have
been approved by the Office of Management and Budget (OMB) under the
Paperwork Reduction Act (44 U.S.C. 3501-3520) and were assigned OMB
control number 2502-0328. An agency may not conduct or sponsor, and a
person is not required to respond to, a collection of information
unless the collection displays a valid control number.
Introduction
Under title I, section 2 of the National Housing Act (12 U.S.C.
1703), the Department insures approved lenders against losses sustained
as a result of borrower defaults on property improvement loans and
manufactured home loans. The regulations implementing the Title I
programs are in 24 CFR part 201.
This interim rule amends part 201 to codify program changes that
were previously effectuated by waiving various requirements of the
regulations, under the Secretary's general waiver authority in
Sec. 201.5(a). The Department informed all approved Title I lenders of
these changes in three Title I Letters: TI-428, issued July 22, 1994;
TI-429, issued October 6, 1994; and TI-431, issued June 5, 1995.
These program changes were the result of an outreach process in
which the Department received recommendations from a wide variety of
program participants, including lenders, State and local government
agencies, nonprofit organizations, manufactured home retailers and
producers, insurance companies, trade associations, and owners of
manufactured homes. They reflect a significant redirection of the Title
I programs to serve community development needs, with a focus on
assisting low- and moderate-income families in making needed repairs to
their homes, supporting revitalization and rebuilding efforts in
central cities, upgrading housing in rural areas and other underserved
credit areas, and enabling first-time homebuyers to purchase affordable
housing.
The waivers announced in TI-428, TI-429, and TI-431 were limited in
duration until the Department could make the necessary changes in the
regulations. Accordingly, as of the effective date of this interim
rule, those waivers are no longer operative.
This interim rule also amends part 201 to make other changes
necessary to clarify program requirements, to enable the Department to
better utilize the Title I programs in accomplishing its mission, and
to eliminate unnecessary regulations. Each of the program changes is
discussed in the sections that follow.
Changes Affecting Both Title I Loan Programs
Changes in the Title I regulations that apply to both property
improvement and manufactured home loans include the following:
clarifying dealer approval requirements; limiting discount points paid
by borrowers; prohibiting discount points from being collected from
dealers; prohibiting penalties for loan prepayment; permitting
financial assistance in meeting the borrower's initial payment;
providing that eligible fees and charges will be established by the
Secretary, but removing the specific fees and charges from the
regulations; revising flood insurance requirements; and eliminating the
annual adjustment in the lender's insurance reserves.
Dealer Approval Requirements
Section 201.27(a)(2) requires that the dealer's financial statement
be prepared by a licensed public accountant. This licensing requirement
was waived in TI-428, because the Department determined that it imposed
a burden on small dealers, particularly in the property improvement
loan program. In place of the licensing requirement, the Department
stated that it expected the lender to take into consideration whether
the financial statement was prepared by someone who is independent of
the dealer and is qualified by education and experience to prepare such
statements.
Accordingly, this interim rule amends Sec. 201.27(a)(2) by
eliminating the requirement that the financial statement be prepared by
a licensed public accountant and substituting the phrase ``someone who
is independent of the dealer and is qualified by education and
experience to prepare such statements.''
Payment of Discount Points by Borrowers
Section 201.13 states that the lender and the borrower may
negotiate the amount of any discount points to be paid by the borrower
as part of the borrower's initial payment. As used in the Title I
regulations, the Department intends the term ``discount points'' to
have the same meaning it has throughout the banking, finance, and
investment communities--that is, an up front fee charged by the lender,
separate from interest but part of the total finance charge, that is to
increase the lender's yield on the loan to a competitive
[[Page 19789]]
position with other types of investments.
In recent years, property improvement lenders in certain areas of
the country have been charging high up-front fees to borrowers and
calling them ``discount points,'' although they seem to have no
relationship to the lender's overall yield on the loan. Rather, they
are being used to cover the lender's costs in originating the loan and
marketing the Title I program. The Department's Monitoring Division has
found evidence that these ``discount points'' are often financed from
the loan proceeds, in contravention of the program regulations. The
result is that many low- and moderate-income borrowers, who are
otherwise creditworthy and need Title I loans, cannot obtain them
because of the high discount points.
In TI-431, the Department announced that the continued practice of
borrowers' being charged high levels of ``discount points'' when there
was no benefit to the borrower in the form of a lower interest rate was
no longer acceptable. TI-431 stated that the collection of discount
points from the borrower was no longer permitted, unless the lender
could demonstrate a clear relationship between the charging of discount
points and some tangible benefit to the borrower such as a compensating
decrease in the interest rate being charged.
To clarify the Department's intent, this interim rule amends
Sec. 201.2 to define ``discount points'' as ``a fee charged by the
lender, separate from interest but part of the lender's total yield on
the loan needed to maintain a competitive position with other types of
investments. One discount point equals one percent of the principal
amount of the loan. As discount points on the loan increase, the
interest rate can be expected to decrease in a fairly consistent
relationship.''
Payment of Discount Points by Dealers
Section 201.13 states that the lender and the dealer may negotiate
the amount of any discount points to be paid by the dealer for the
benefit of the borrower. The purpose of this provision, which was added
to the regulations in 1986, was to enable the dealer to assist the
borrower by paying some of the up-front costs of obtaining a Title I
loan, or by buying down the interest rate so that the borrower could
qualify for the loan. Some lenders have abused this provision, charging
``discount points'' to dealers for the acceptance of borrowers with
marginal credit, and inflating the cost of home improvements to the
detriment of low- and moderate-income borrowers.
In TI-428, the Department clarified that certain financeable fees
and charges incurred by the lender could be paid by the dealer. TI-428
stated that the dealer could advance the funds for these items and
could be reimbursed by the lender from the loan proceeds.
Alternatively, the lender could advance the funds for these items and
then deduct their cost from the loan proceeds paid to the dealer. In
either case, TI-428 made clear that there must be full disclosure that
these items had been added to the price of the goods and/or services
being provided by the dealer.
The Department informed lenders that, with this clarification on
the fees and charges that may be paid by dealers, the collection of
discount points from dealers was no longer necessary. The Department
urged lenders to discontinue the practice of collecting discount points
from dealers when those points were unrelated to the financeable fees
and charges. The Department advised lenders that, if they failed to
comply with this request voluntarily, the Department would amend the
regulations to prohibit any collection of discount points from dealers.
Since TI-428 was issued on July 22, 1994, the Department's
Monitoring Division has found that many lenders have continued the
practice of collecting ``discount points'' that are not for the benefit
of the borrower and bear no relation to the payment of fees and charges
that may be paid by the dealer. Therefore, this interim rule amends
Sec. 201.13 to prohibit the payment of discount points by any party
other than the borrower. Conforming amendments are also made to
Sec. 201.26(a)(5)(ii), (b)(3)(vii), (b)(4)(vii), and (b)(4)(viii).
Loan Prepayment Without Penalty
Section 201.17 requires that the loan note contain a provision
permitting full or partial prepayment of the loan.
That section previously contained a requirement that when a loan
was prepaid in full, the lender must rebate all unearned interest on
the loan, except for a minimum retained handling charge if permitted by
State or local law. The Department had intended this requirement to
preclude lenders from exacting a prepayment penalty.
The Department removed this requirement in a final rule published
in the Federal Register on October 18, 1991 (56 FR 52414, 52430). As
stated in the preamble to the October 18, 1991 final rule, the
Department determined that, since interest on all loans with
applications approved on or after January 15, 1986 must be calculated
according to the actuarial method, there should be no unearned
interest, and therefore the requirement was unnecessary. However, in
amending Sec. 201.17, the Department inadvertently failed to include
the replacement language to prohibit lenders from charging a prepayment
penalty on loans made since January 1986.
Some lenders have taken advantage of this oversight to assess
penalties of as much as six months' advance interest on loans that are
prepaid within the first five years of the loan term. Assessing a high
prepayment penalty prevents many borrowers from refinancing their loans
to take advantage of lower interest rates, even when this may be to
their benefit. Prepayment penalties are particularly troublesome in the
case of low- and moderate-income borrowers who do not have the cash
reserves to pay the penalty.
Accordingly, this interim rule restores the requirement in
Sec. 201.17 that full or partial prepayment of the loan must be without
penalty, except that the borrower may be assessed reasonable and
customary charges for recording a release of the lender's security
interest in the property, if permitted by State law.
Financial Assistance on the Initial Payment
Section 201.23(a) provides that, if any part of the borrower's
initial payment is loaned to the borrower, that loan must be secured by
property or collateral owned by the borrower independently of the
property securing the Title I loan. The Department has had several
cases in which financial assistance was available from a governmental
agency or nonprofit organization to help low- and moderate-income
borrowers meet the up-front costs of obtaining a property improvement
or manufactured home loan. This assistance was in the form of a loan
requiring that the borrower provide a ``soft second'' lien on the
property, so that the loan might be repaid at the time the property is
sold. In these situations, the Department needs greater flexibility to
allow for exceptions to the requirement that the loan be secured by a
different property.
Accordingly, this interim rule amends Sec. 201.23(a) to provide
that if any part of the borrower's initial payment is loaned to the
borrower, that loan must be secured by property or collateral owned by
the borrower independently of the property securing the Title I loan,
unless the Secretary's prior approval is obtained for an exception to
this requirement.
[[Page 19790]]
Eligible Fees and Charges
Section 201.25(a) establishes maximum origination fees that may be
charged in connection with any new or refinanced Title I loan. Section
201.25(b) lists those fees and charges that may be financed in a
property improvement or manufactured home loan, as long as their
inclusion does not increase the total principal obligation beyond the
maximum loan amounts in Sec. 201.10. Section 201.25(c) lists fees and
charges that may be collected from the borrower in the initial payment,
but may not be included in the loan amount or otherwise financed or
advanced by the dealer, manufacturer, or any other party to the loan
transaction.
In TI-429 and TI-431, the Department waived Sec. 201.25(a) and
(c)(1) to increase the maximum origination fee for any new property
improvement loan and to permit this fee to be financed. In TI-428, the
Department waived Sec. 201.25(c) (3) and (4) to permit recording fees,
recording taxes, filing fees, and documentary stamp taxes to be
financed for both property improvement and manufactured home loans. In
that letter, the Department also waived Sec. 201.25(c)(8) to permit
appraisal fees in connection with the purchase or refinancing of a
manufactured home and/or lot to be financed.
However, as a result of the Department's page-by-page review of its
regulations, it has determined that the inclusion of detailed lists of
eligible fees and charges in the program regulations is unnecessary.
Changes to the list of eligible fees and charges are sometimes needed,
and program participants would benefit greatly if these changes could
be made in a more timely manner than through the rulemaking process.
Accordingly, this interim rule amends Sec. 201.25 (a) and (b) to
provide that the Secretary will establish a list of fees and charges
that may be included in property improvement loans and manufactured
home loans, respectively, provided that they are incurred in
originating the loan and their inclusion does not increase the total
principal obligation beyond the maximum loan amounts in Sec. 201.10.
The interim rule also amends Sec. 201.25(c) to provide that the
Secretary will establish a list of fees and charges incurred by the
lender that may be collected from the borrower in the initial payment,
but may not be included in the loan amount or otherwise financed or
advanced by the dealer, the manufacturer, or any other party to the
loan transaction.
Concurrently with the publication of this interim rule, the
Department will issue a Title I Letter that identifies the specific
fees and charges that may be financed in a property improvement or
manufactured home loan, as well as the fees and charges that may be
collected from the borrower but may not be financed in the loan. The
fees and charges that were the subject of waivers in TI-428, TI-429,
and TI-431 will be included in the Title I Letter.
Revised Flood Insurance Requirements
Section 201.28(a) requires flood insurance coverage if the property
securing a Title I loan is located in a special flood hazard area as
identified by the Federal Emergency Management Agency (FEMA). The
National Flood Insurance Reform Act of 1994 (Pub. L. 103-325, approved
September 23, 1994) amended and expanded the flood insurance
requirements of the Flood Disaster Protection Act of 1973 (Pub. L. 93-
234, approved December 31, 1973). The 1994 Act requires that flood
insurance be obtained at any time during the term of the loan that a
supervised lender or its servicer determines that the secured property
is located in a special flood hazard area identified by FEMA. If the
borrower does not obtain flood insurance within 45 days after being
notified by the lender or servicer that it is required, the lender is
expected to force-place the insurance and bill the borrower for the
premiums.
It has been a longstanding policy of the Department that all
secured Title I loans are subject to Federal flood insurance
requirements. The Department expects all lenders, whether supervised or
nonsupervised, to comply fully with the requirements of the 1994 Act.
Accordingly, this interim rule amends Sec. 201.28(a) to reflect the new
statutory requirements and make them applicable to all Title I lenders.
Lenders may make their own flood hazard area determinations, or
they may use outside firms that specialize in providing this
information. If an outside firm is used, the fee for obtaining the
flood hazard area determination, including the cost of life-of-the-loan
determinations, may be included in the loan amount, as long as the
maximum loan amounts in Sec. 201.10 are not exceeded. Permitting these
fees to be financed is a change from previous Departmental policy. The
Title I Letter on fees and charges that is to be issued concurrently
with the publication of this interim rule includes this policy change.
Annual Adjustment in Insurance Reserves
Section 201.32(b) requires that a 10 percent annual reduction be
applied to each lender's insurance coverage reserve account after the
lender has had a Title I contract of insurance for more than five
years. In TI-431, the Department announced that it would no longer
apply an annual adjustment to any lender's insurance reserves,
beginning on October 1, 1995. The Department concluded that the annual
reduction no longer serves the purpose of protecting the Federal
Housing Administration (FHA) insurance fund against excessive claim
losses caused by lenders that exhaust their insurance reserves. Rather,
it has penalized lenders who built their loan volume methodically over
a period of years and those who maintained low claim rates.
The Department instituted the annual adjustment of insurance
reserves in the early 1950s, when the Department was extending the
Title I program for a time period that exceeded the maximum allowable
term of the loans being made. In that lending climate, all lenders held
loans in their own portfolios. The Department's concern was that
lenders might accumulate reserves that were excessive in relation to
the loans remaining in the lenders' portfolios.
In today's lending environment, the annual adjustment has become an
anachronism. Many lenders that originate Title I loans sell them to
servicing lenders; the servicing lenders then sell them to investing
lenders that issue securities backed by the loans for sale to
investors. With the movement of loans from lender to lender, the annual
adjustment is no longer meaningful or effective in protecting the
program against excessive claim losses. Instead, it has been
restricting the growth of the Title I program, creating uncertainty
about the lender's future insurance coverage, and preventing the active
participation of larger, better capitalized lenders in the program.
Accordingly, this interim rule amends Sec. 201.32 by removing
paragraph (b). In addition, the interim rule makes conforming
amendments to Secs. 201.1 and 201.32(a) to remove references to the
annual adjustment in insurance reserves.
Changes Affecting Property Improvement Loans
Changes to the Title I regulations that are applicable only to
property improvement loans include the following: eliminating the
equity requirement for loans over $15,000, increasing the maximum
origination fee and the maximum amount of an unsecured loan, permitting
greater use of the program to improve manufactured homes, removing
impediments to greater use of the program for improving
[[Page 19791]]
multifamily structures, eliminating the completion certificate
requirement under certain circumstances, and revising procedures to
assist victims of major disasters.
Elimination of the Equity Requirement
Sections 201.20(a)(3) and 201.26(a)(1) of the regulations require
that the borrower have equity in the property at least equal to the
loan amount on any property improvement loan (or combination of such
loans) exceeding $15,000. In TI-428, the Department partially waived
this equity requirement, so that it no longer applied when the property
to be improved was occupied by the borrower.
The equity requirement was intended to provide more secure
collateral for larger property improvement loans. However, after three
years of experience with the requirement, the Department concluded that
it was costly and time-consuming, with no significant risk protection
for either the lenders or the Department. In the event of default, it
was usually not cost-effective for the lender to foreclose on the
property, because the costs of carrying the first mortgage, disposing
of the property, and maintaining it prior to sale would consume
whatever equity there might be. The equity requirement was preventing
the people that Title I was created to serve (creditworthy borrowers
with limited equity) from obtaining loans to carry out needed
improvements.
The waiver granted by TI-428 has benefited many creditworthy
borrowers, but only when the property was owner-occupied. The
Department is concerned that the equity requirement is preventing the
property improvement loan program from being used in the revitalization
of central cities, where much of the housing stock consists of small
multifamily buildings (e.g., two to ten units). Title I loans are
usually not available for these multifamily buildings because the owner
does not live on-site and does not have enough equity to qualify for a
loan.
Accordingly, this interim rule eliminates the equity requirement in
its entirety by removing Secs. 201.20(a)(3) and 201.26(a)(1)(iii). In
addition, with the publication of this interim rule and upon its
effective date, the Department is withdrawing the Federal Register
notice published on January 8, 1992 (57 FR 610) that established the
procedures for determining the market value of the property and
evaluating whether the borrower had sufficient equity.
Increased Maximum Origination Fee
Section 201.25(a) limits the maximum origination fee that may be
paid by the borrower to one percent of the loan amount on any new Title
I loan, and to one percent of the additional advance on any existing
Title I loan being refinanced by the lender. Section 201.25(c)(1)
specifies that this origination fee may not be financed in the loan.
In TI-429, the Department waived these two limitations to permit
the financing of an origination fee of up to three percent of the loan
amount. However, this waiver was only for single family property
improvement loans made to low- and moderate-income borrowers in
connection with a housing assistance program administered by a State or
local government agency or a nonprofit organization. The waiver was
intended to serve as an inducement for the creation of public-private
partnerships and to reduce the out-of-pocket expenses for low- and
moderate-income borrowers.
In TI-431, the Department extended the waiver of the one percent
limitation on the origination fee to all property improvement loans,
and a maximum origination fee of five percent of the loan amount is now
permitted on all new property improvement loans. In addition, the
Department waived the prohibition against financing this origination
fee, as long as the maximum loan amounts in Sec. 201.10 are not
exceeded. The Department recognized that a one percent origination fee
was simply not enough to cover the lenders' costs in originating these
loans, when the origination fee on the average property improvement
loan of $13,000 is limited to $130. These waivers allow property
improvement lenders to charge a more reasonable origination fee, while
at the same time reducing the out-of-pocket expenses of borrowers
obtaining Title I loans.
As discussed above, the Department is amending Sec. 201.25(a), (b),
and (c) to provide that the Secretary will establish eligible fees and
charges. However, the Department is removing the specific fees and
charges from the regulations. In a Title I Letter to be issued
concurrently with the publication of this interim rule, the Department
is revising the list of fees and charges that may be financed to permit
the lender to charge a maximum origination fee of five percent of the
loan amount on any new property improvement loan, as long as the fee
has been incurred and its inclusion does not increase the total
principal obligation beyond the maximum loan amounts in Sec. 201.10.
The maximum origination fee for a new manufactured home loan remains at
one percent of the loan amount and cannot be financed.
In a related change, the Department is revising the list of
nonfinanceable fees and charges to permit the lender to assess a
handling charge of up to one percent of the new loan amount for
refinancing an existing Title I loan. This change will enable lenders
to charge a more reasonable fee for the work involved in processing a
loan refinancing, and it is included in the Title I Letter that is to
be issued concurrently with the publication of this interim rule.
Maximum Amount for Unsecured Loans
Section 201.24(a) limits the maximum amount of an unsecured
property improvement loan to $5,000. In TI-428, the Department waived
this limitation to allow lenders to make unsecured property improvement
loans up to $7,500. This increase in the unsecured loan amount makes it
possible for lenders to finance small home improvement projects without
obtaining and recording a security interest in the property being
improved. It also sets the threshold for obtaining a security interest
at the same dollar amount required for on-site inspections of property
improvements. Accordingly, this interim rule amends Sec. 201.24(a) by
substituting ``$7,500'' for ``$5,000.''
Manufactured Home Improvement Loans
Under the definition of ``manufactured home improvement loan'' in
Sec. 201.2, the loan proceeds may be used only to improve the
manufactured home, but cannot be used for site improvements. In TI-428,
the Department waived this restriction to permit the proceeds of a
manufactured home improvement loan to be used for site improvements, as
long as the borrower is the owner of the underlying real estate.
Accordingly, this interim rule amends Sec. 201.2 to permit the proceeds
of a manufactured home improvement loan to be used for site
improvements if the borrower is the owner of the underlying real
estate.
In a related change, the interim rule also amends
Sec. 201.10(a)(1)(iv) to increase the maximum loan amount for a
manufactured home improvement loan from $5,000 to $7,500. This increase
is needed to keep pace with the increased cost of home improvements, as
measured by the change in the Home Maintenance and Repair component of
the Consumer Price Index since the $5,000 limit was established in
1980. Between 1980 and 1994, the Home
[[Page 19792]]
Maintenance and Repair component increased by 59 percent. Thus, a 50
percent increase in the maximum loan amount is warranted.
Ownership of Multifamily Properties
The definition of ``multifamily property improvement loan'' in
Sec. 201.2 provides that the multifamily structure may not be owned by
a corporation, partnership, or trust. As noted above, the Department is
interested in expanding the use of Title I property improvement loans
to rehabilitate small multifamily structures in central cities. The
Department has occasionally waived this restriction on ownership to
permit multifamily property improvement loans to be made to nonprofit
corporations or partnerships that own and operate housing primarily for
low- and moderate-income families.
To give the Department greater flexibility in approving these types
of nonprofit entities as Title I borrowers and to eliminate the delays
inherent in the waiver process, this interim rule amends Sec. 201.2 to
allow for exceptions to the prohibition against corporations,
partnerships, and trusts with the prior approval of the Secretary.
Approval for Loan Amounts Over $25,000
Section 201.10(a)(2) requires the prior approval of the Secretary
for any property improvement loan that will result in the borrower
having a total unpaid principal obligation in excess of $25,000,
whether in one Title I loan or several loans. The Department has
determined that, because of staff reductions and the restructuring of
its field offices, the continued imposition of this requirement will
only serve to delay loan originations.
In addition, it is an impediment to the use of multifamily property
improvement loans to rehabilitate small multifamily structures in
central cities. Accordingly, this interim rule amends Sec. 201.10 by
removing paragraph (a)(2).
Completion Certificate Requirements
Section 201.40(b) of the regulations requires that a borrower
obtaining a direct property improvement loan must submit a completion
certificate to the lender after completion of the work, but not later
than 6 months after disbursement of the loan proceeds. In TI-429, the
Department waived the requirement for submitting a completion
certificate for situations in which the borrower applies for a property
improvement loan through a State or local government agency or a
nonprofit organization, the loan proceeds are held in an escrow account
pending completion of the improvements, and the loan proceeds are
disbursed from the escrow account in stages, based upon the percentage
of work completed. The Department determined that, under these
conditions, the controlled disbursement of the loan funds with the
borrower's approval obviates the need for obtaining a completion
certificate.
Accordingly, this interim rule amends Sec. 201.40 by adding a new
paragraph (b)(3) to exempt the borrower from submitting a completion
certificate when the property improvement loan is made by or on behalf
of a State or local government agency or a nonprofit organization, the
loan proceeds are held in an escrow account pending completion of the
improvements, and the loan proceeds are disbursed from the escrow
account in stages, with the written approval of the borrower and based
upon the percentage of work completed.
Assistance to Disaster Victims
Section 201.20(b)(3) provides that the proceeds of a property
improvement loan may be used only for improvements that are started
after loan approval. The Department has waived this limitation in
connection with Presidentially-declared disasters such as the
Northridge, California earthquake and Hurricanes Marilyn and Opal. In
addition, the Department has waived this limitation in individual cases
when the borrower needed to begin emergency repairs prior to loan
approval.
The Department has concluded that greater use would be made of the
Title I program to assist disaster victims in repairing their homes if
the regulations provided for an exception to Sec. 201.20(b)(3) whenever
there is a major disaster declared by the President. In addition, the
Department's ability to address other emergency situations would be
enhanced if greater flexibility were available to grant exceptions to
this limitation on starting the improvements.
Accordingly, this interim rule amends Sec. 201.20(b)(3) to provide
that the loan proceeds shall only be used to finance property
improvements that are started after loan approval, unless (a) the prior
approval of the Secretary is obtained for an exception, or (b) the
property is located in a major disaster area declared as such by the
President, and the lender determines that emergency action is needed to
repair damage resulting from the disaster.
The interim rule also amends Sec. 201.54(b)(2) to permit the
Secretary to extend the claim filing period on a property improvement
loan when the borrower had experienced a loss of income or other
financial difficulties directly attributable to a major disaster
declared by the President, and additional time was needed to provide
forbearance.
Changes Affecting Manufactured Home Loans
Changes in the Title I regulations that are applicable only to
manufactured home loans include the following: reducing the minimum
required downpayment and revising the maximum loan amount to compensate
for the lower downpayment, increasing the maximum expense-to-income
ratios for borrowers purchasing energy-efficient manufactured homes,
and increasing the maximum dollar allowances for repossession expenses
and legal fees.
Reduced Downpayment Requirements
Section 201.23 of the regulations requires a minimum cash
downpayment of five percent of the first $5,000 and ten percent of the
balance of the purchase price to obtain a new manufactured home or a
manufactured home and lot. To purchase an existing manufactured home or
a developed lot on which to place a manufactured home, the minimum
downpayment is ten percent of the purchase price.
In TI-428, the Department waived the present downpayment
requirements to require a minimum cash downpayment of five percent of
the purchase price for all manufactured home purchase loans,
manufactured home lot loans, and combination loans. The Department
decided that a five percent minimum downpayment would help restore
Title I as a financing vehicle for first-time buyers to achieve
affordable homeownership. It would create a different loan program from
conventional financing and would enable lenders and dealers to offer
low- and moderate-income families a real alternative.
Accordingly, this interim rule amends Sec. 201.23(b), (c), and (d)
by replacing the existing downpayment requirements in these sections
with ``five percent of the purchase price.''
Changes in Maximum Loan Calculation
Because of the reduction in the minimum downpayment to five
percent, TI-428 also granted waivers that apply to the maximum loan
amount calculations in Sec. 201.10(b), (c), and (d). The maximum loan
amount for the purchase of a new manufactured home under
Sec. 201.10(b)(1) or for the purchase of a new manufactured home and
lot under Sec. 201.10(d)(1) was based upon 125 percent of the wholesale
(base)
[[Page 19793]]
price of the home, itemized options, and freight charge. The Department
increased the percentage to 130 percent to conform with the reduced
downpayment requirement.
In a related change, the Department also waived the maximum dollar
allowances applicable to delivery and set-up of the home in
Sec. 201.10(b)(1) and (d)(1), and to skirting in Sec. 201.10(b)(1).
These waivers ensure that the downpayment is a true 5 percent in most
cases, and give lenders and dealers greater flexibility in dealing with
State and local variations in installation standards.
For the purchase of an existing manufactured home under
Sec. 201.10(b)(2) or a manufactured home lot under Sec. 201.10(c), the
maximum loan amount was calculated at 90 percent of the appraised value
or purchase price, whichever was less. To conform with the reduced
downpayment requirement, the Department increased the percentage to 95
percent.
Accordingly, this interim rule amends Sec. 201.10(b), (c), and (d)
in the following respects:
1. By replacing ``125 percent'' with ``130 percent'' in
Sec. 201.10(b)(1)(i) and (d)(1)(i);
2. By removing ``not to exceed $750 per module'' in
Sec. 201.10(b)(1)(iii);
3. By replacing ``Skirting costs, not to exceed $500'' with ``The
actual dealer's cost of skirting'' in Sec. 201.10(b)(1)(iv);
4. By replacing ``90 percent'' with ``95 percent'' in
Sec. 201.10(b)(2) and (c); and
5. By removing ``not to exceed $1,200 per module'' in
Sec. 201.10(d)(1)(iii).
Increase in Expense-to-Income Ratios
Section 201.22(b) states that, for any Title I loan, the borrower's
income must be adequate to meet the periodic payments required by the
loan, as well as the borrower's other housing expenses and recurring
charges. For a borrower's income to be considered adequate, housing
expenses and total fixed expenses generally may not exceed maximum
percentages of effective gross income established by the Secretary. On
October 18, 1991 (56 FR 52438), the Department published a notice in
the Federal Register setting the maximum expense-to-income ratios for
manufactured home loans at 29 percent for total housing expenses and 41
percent for total fixed expenses.
In TI-428, the Department waived the 29 percent and 41 percent
ratios in favor of higher ratios of 31 percent and 43 percent,
respectively, for borrowers who purchased manufactured homes with a
date of manufacture on or after October 25, 1994, the effective date of
the Department's new energy conservation standards. The Department
adopted the higher ratios to recognize that while energy-efficient
homes are more expensive, borrowers will be spending less of their
income on fuel costs.
Since the Department has already notified lenders of this change in
the maximum expense-to-income ratios by Title I Letter, this interim
rule amends Sec. 201.22(b)(1) to eliminate the need for publication of
a Federal Register notice to advise lenders of the change. The
Department has decided that lenders can be more effectively notified of
future changes in maximum expense-to-income ratios through Title I
Letters or by including the information in program handbooks.
Repossession Expenses and Legal Fees
Section 201.55(b)(3) sets the maximum dollar allowances for removal
and transportation of a repossessed manufactured home to an off-site
location at $750 per module. In TI-428, the Department waived this
limit to permit an increase in the allowance to $1,000 per module,
which more accurately reflects the lender's cost for this activity.
Accordingly, this interim rule amends Sec. 201.55(b)(3) by substituting
``$1,000'' for ``$750.''
Section 201.55(b)(7) sets the maximum dollar allowance for
attorney's fees in connection with a claim on a manufactured home loan
at $500. In TI-428, the Department waived this limit to permit an
increase in the allowance to $1,000, which more accurately reflects the
cost for legal services. Accordingly, this interim rule amends
Sec. 201.55(b)(7) by substituting ``$1,000'' for ``$500.''
Clarifying and Conforming Amendments
The Department is also amending other sections of part 201 to
clarify the regulations and conform them with current practice in the
operation of the Title I program. The Department calls particular
attention to the following amendments:
1. In Sec. 201.2, the Department is revising the definition of
``existing structure'' to clarify that the 90-day completion and
occupancy requirement applies to all manufactured homes, whether they
are real or personal property. In a conforming change, the Department
is revising Sec. 201.20(b)(1) to remove redundant language on the 90-
day completion and occupancy requirement.
2. In Sec. 201.2, the Department is revising the definition of
``manufactured home'' to clarify that the construction standards for
existing manufactured homes apply only to loans for the purchase or
refinancing of such homes, and not to property improvement loans on
manufactured homes.
3. In Sec. 201.2, the Department is revising the definition of
``State'' to substitute ``the Commonwealth of the Northern Mariana
Islands'' for ``the Trust Territory of the Pacific Islands,'' since the
remainder of the Trust Territory is now independent and is no longer
eligible to participate in the Title I programs.
4. In Sec. 201.3, the Department is removing paragraph (b), which
indicates the applicability of amendments made to part 201 by a final
rule that was published in the Federal Register on October 18, 1991 (56
FR 52414). The paragraph is now obsolete because many of the regulatory
sections listed in the paragraph have been eliminated or changed. To
the extent that it is still applicable, the preamble to the final rule
contains the same information.
5. The Department is revising Sec. 201.10(b)(3) and (d)(3) to
clarify that the ``purchase price'' used in connection with
manufactured home purchase loans and combination loans includes the
retail cost to the borrower of all items set forth in the purchase
contract, not just those items that are eligible for inclusion in the
Title I loan.
6. The Department is revising Secs. 201.10(f)(3) and 201.11(c)(2)
to clarify that these provisions apply to the refinancing of any
uninsured manufactured home loan, and are not limited to manufactured
home purchase loans and combination loans.
7. The Department is revising Secs. 201.10(f)(4) and 201.11(c)(3)
to clarify that these provisions apply anytime the borrower is
refinancing a manufactured home lot already owned by the borrower in
connection with the purchase of a manufactured home.
8. The Department is revising Secs. 201.10(f)(5) and 201.11(c)(4)
to clarify that these provisions apply anytime the borrower is
refinancing a manufactured home already owned by the borrower in
connection with the purchase of a manufactured home lot. The Department
is also increasing the maximum loan amount in Sec. 201.10(f)(5) to
$64,800, in conformance with a final rule published in the Federal
Register on July 30, 1993 (58 FR 40996).
9. The Department is revising Sec. 201.11 to add a new paragraph
(a)(3), limiting the maximum term for an historic preservation loan to
15 years and 32 days. The Department inadvertently omitted this
provision when it changed the maximum term for other types of property
improvement loans in a final rule published in the Federal Register on
September 30, 1992 (57 FR 45244).
[[Page 19794]]
10. The Department is revising Sec. 201.12, which sets forth
requirements for the note, to remove a prohibition against the use of
discount or add-on notes in connection with any Title I loan approved
on or after January 15, 1986. Although such loans remain uninsurable,
the Department believes that it is no longer necessary to spell out
this prohibition, since the Department is revising Sec. 201.13 as
described in paragraph 10, below.
11. The Department is revising Sec. 201.13 to state that interest
on a Title I loan shall be ``calculated on a simple interest basis,''
rather than ``calculated according to the actuarial method.''
12. The Department is revising Sec. 201.20(a)(2) to specify that
the manufactured home must be the principal residence of the borrower
to be eligible for a manufactured home improvement loan. In a
conforming change, this interim rule removes the same provision from
Sec. 201.20(b)(1), since that section deals with the use of the loan
proceeds.
13. The Department is further revising Sec. 201.20(b)(1) to include
provisions previously found in Sec. 201.26(a)(2). As revised,
Sec. 201.20(b)(1) requires that, if the borrower plans to use a dealer
or contractor to carry out the property improvements, the lender shall
obtain a copy of a proposal or contract that describes in detail the
work to be performed and the estimated or actual cost. Alternatively,
if the borrower plans to carry out the work without the services of a
dealer or contractor, the borrower shall be required to furnish a
detailed written description of the work to be performed, the materials
to be furnished, and their estimated cost. In a conforming change, the
Department is revising Sec. 201.26(a)(2) to remove the present language
and to refer to the requirements of Sec. 201.20(b)(1).
14. The Department is revising Secs. 201.20(b)(2) and 201.21(b)(5)
to eliminate the need for publication of a Federal Register notice to
notify lenders about items and activities that are ineligible for
financing in property improvement or manufactured home loans. The
Department has decided that lenders are more effectively notified of
this information through Title I Letters or by including the
information in program handbooks.
15. The Department is revising Sec. 201.21(b)(3) to specify that
wheels and axles cannot be purchased with the proceeds of a
manufactured home loan, and to clarify that the cost of furniture,
wheels, and axles shall not be included in the maximum loan amount
calculated under Sec. 201.10(b)(1) or (d)(1). The Department
inadvertently omitted the reference to wheels and axles from this
section when it implemented the prohibition against financing these
items in a final rule published in the Federal Register on October 18,
1991 (56 FR 52414).
16. In Sec. 201.22(b)(2), the Department is revising the definition
of ``other recurring charges'' to remove child care expenses as an item
that must be considered in determining whether the borrower's income is
adequate to qualify for a property improvement or manufactured home
loan. This change is consistent with modifications in credit
underwriting requirements that have taken place in the Department's
other loan and mortgage insurance programs.
17. The Department is revising Sec. 201.22(c)(1) to clarify the
prohibition against a lender approving a Title I loan if the borrower
is in default on a previous loan obligation owed to or insured or
guaranteed by the Federal Government.
18. The Department is revising Sec. 201.24(a)(1) to clarify that
the requirement that the Title I loan must have lien priority over any
uninsured loan made by the lender at the same time does not apply when
the uninsured loan is a first mortgage loan for the purchase or
refinancing of the property.
19. The Department is revising Sec. 201.25(d) to clarify that
neither the lender nor the borrower may pay a referral fee to any third
party in connection with the origination of a Title I loan. Prohibiting
the borrower from paying a referral fee is consistent with the wording
in the preambles to both the proposed rule published in the Federal
Register on January 29, 1991 (56 FR 3302) and the final rule published
in the Federal Register on October 18, 1991 (56 FR 52414), but the
Department inadvertently omitted this prohibition from the text of the
regulation.
20. The Department is revising Sec. 201.26(b)(6) to clarify that an
inspection by the lender or its agent on a direct manufactured home
loan is required only when the transaction involves the relocation of
the manufactured home to a new homesite.
21. The Department is revising Sec. 201.27(a)(5) to clarify that
the lender is required to notify the Department that it has terminated
its approval of a dealer only if the termination was because the dealer
did not satisfactorily perform its contractual obligations to
borrowers, did not comply with Title I requirements, or was
unresponsive to the lender's supervision and monitoring requirements.
22. The Department is removing Sec. 201.27(b)(2), which provided
for limited recourse agreements between manufactured home lenders and
dealers for uninsurable loans, because it is obsolete.
23. In Sec. 201.32(a)(1), the Department is eliminating the
requirement that separate Title I contracts of insurance and separate
reserve accounts be established for lenders that originate, purchase,
or hold both property improvement and manufactured home loans. The
Department has determined that requiring two contracts of insurance
poses an unnecessary obstacle to more widespread lender participation
in the Title I program.
24. The Department is revising Sec. 201.52 to clarify that when a
lender accepts a voluntary conveyance of title or a voluntary surrender
of the property securing a manufactured home loan, it is not necessary
to send the borrower the notice of default and acceleration that is
otherwise required by Sec. 201.50(b).
25. The Department is revising Sec. 201.53 to clarify that in
determining the best price obtainable for a manufactured home property,
cost items other than repairs may be deducted from the actual sales
price, so that a valid comparison can be made with the appraised value
of the property before repairs.
Justification for Interim Rulemaking
The Department generally publishes a rule for public comment before
issuing a rule for effect, in accordance with its regulations on
rulemaking in 24 CFR part 10. However, part 10 provides that prior
public procedure will be omitted if HUD determines that it is
``impracticable, unnecessary, or contrary to the public interest'' (24
CFR 10.1).
Many of the changes in this interim rule merely codify the
Secretary's waiver of burdensome regulatory requirements. As noted
earlier, the Department developed many of these changes through an
outreach process that involved a wide variety of program participants,
and the Department notified all approved lenders of the changes through
Title I Letters. The Department considered the alternatives and
determined that these changes are generally compatible with industry
practice and are necessary to increase the availability of credit to
qualified borrowers and to further the goals of the National Housing
Act. Greater use of the Title I program will help preserve the nation's
existing housing stock and rebuild neighborhoods.
Furthermore, implementation of the interim rule's provisions is
needed as soon as possible to eliminate the practice of lenders
collecting discount
[[Page 19795]]
points from dealers that are not for the benefit of borrowers, and to
stop the continued assessment of excessive prepayment penalties that
are preventing low- and moderate-income borrowers from refinancing
their loans. Therefore, the Department has determined that good cause
exists to omit prior public procedure for this interim rule because
such delay would be contrary to the public interest and unnecessary.
However, the Department is interested in obtaining as much public
input as possible as to how this interim rule could be further improved
or streamlined. The Department is allowing for a 60-day public comment
period, after which it will consider the issues raised by the
commenters in its development of a final rule.
Regulatory Reinvention
Consistent with Executive Order 12866 and President Clinton's
memorandum of March 4, 1995 to all Federal departments and agencies on
the subject of regulatory reinvention, the Department is conducting a
page-by-page review of all its regulations to determine whether certain
regulations can be eliminated. As part of this review, the Department
is publishing this interim rule, which eliminates from the Code of
Federal Regulations many of the burdensome substantive requirements in
the Title I programs. This interim rule also removes from the
regulations the lists of eligible fees and charges under the Title I
programs. It is unnecessary and burdensome for these lists to be
included in the regulations. The Secretary will instead notify lenders
of these fees and charges directly through Title I Letters.
Findings and Other Matters
Executive Order 12866
The Office of Management and Budget (OMB) reviewed this interim
rule under Executive Order 12866, Regulatory Planning and Review,
issued by the President on September 30, 1993. Any changes made in this
interim rule subsequent to its submission to OMB are identified in the
docket file, which is available for public inspection during regular
business hours in the Office of the Rules Docket Clerk, Office of the
General Counsel, Department of Housing and Urban Development, Room
10276, 451 Seventh Street SW., Washington, DC 20410.
Environmental Impact
A Finding of No Significant Impact with respect to the environment
was made in accordance with the Department's regulations at 24 CFR Part
50, which implement section 102(2)(C) of the National Environmental
Policy Act of 1969. The Finding of No Significant Impact is available
for public inspection as provided under the section of this preamble
entitled ``Executive Order 12866.''
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this interim rule, and in so
doing certifies that it will not have a significant economic impact on
a substantial number of small entities. The majority of institutions
that participate in the Title I program are large depository
institutions, and nearly all of the changes relieve regulatory burdens
for all entities seeking to conduct Title I loan transactions.
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that this interim
rule will not have substantial direct effects on States or their
political subdivisions, or the relationship between the Federal
Government and the States, or on the distribution of power and
responsibilities among the various levels of Government. Specifically,
the requirements of this interim rule are directed to lenders and
borrowers, and will not impinge upon the relationship between the
Federal Government and State and local governments. As a result, the
interim rule is not subject to review under the Order.
Executive Order 12606, The Family
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12606, The Family, has determined that this interim
rule will not have potential for significant impact on family
formation, maintenance, or general well-being, and thus is not subject
to review under the Order. The interim rule involves requirements for
property improvement and manufactured home loans insured by the
Department. Any effect on the family will likely be indirect and
insignificant.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance program numbers are:
14.110 Manufactured Home Loan Insurance--Financing Purchase of
Manufactured Homes as Principal Residences of Borrowers;
14.142 Property Improvement Loan Insurance for Improving All
Existing Structures and Building of New Nonresidential Structures; and
14.162 Mortgage Insurance--Combination and Manufactured Home Lot
Loans.
List of Subjects in 24 CFR Part 201
Health facilities, Historic preservation, Home improvement, Loan
programs--housing and community development, Manufactured homes,
Mortgage insurance, Reporting and recordkeeping requirements.
Accordingly, 24 CFR part 201 is amended as follows:
PART 201----TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME
LOANS
1. The authority citation for 24 CFR part 201 continues to read as
follows:
Authority: 12 U.S.C. 1703; 42 U.S.C. 1436a and 3535(d).
2. Section 201.1 is amended by adding a period after the phrase
``Sec. 201.2'', and by revising the fourth sentence, to read as
follows:
Sec. 201.1 Purpose.
* * * The insurance can cover up to 10 percent of the amount of all
insured Title I loans in the financial institution's portfolio, as
reflected in the total amount of insurance coverage contained at any
time in an insurance coverage reserve account established by the
Secretary, less amounts for insurance claims paid. * * *
3. Section 201.2 is amended by:
a. Removing the paragraph designations (a) through (ll);
b. Adding a new definition of the term ``Discount points'' in
alphabetical order;
c. Revising the first sentence of the introductory text of the
definition of the term ``Existing structure'';
d. Revising the second sentence in paragraph (2) of the definition
of the term ``Lender'';
e. Revising the third sentence of the definition of the term
``Manufactured home'';
f. Adding a sentence at the end of the definition of the term
``Manufactured home improvement loan''; and
g. Revising the definitions of the terms ``Multifamily property
improvement loan'' and ``State'', to read as follows:
Sec. 201.2 Definitions.
* * * * *
Discount points means a fee charged by the lender, separate from
interest but part of the total finance charges on the loan, that is
part of the lender's total yield on the loan needed to maintain a
competitive position with other types of
[[Page 19796]]
investments. One discount point equals one percent of the principal
amount of the loan. As discount points on the loan increase, the
interest rate can be expected to decrease in a fairly consistent
relationship.
Existing structure means a dwelling, including a manufactured home,
that was completed and occupied at least 90 days prior to an
application for a Title I loan, or a nonresidential structure that was
a completed building with a distinctive functional use prior to an
application for a Title I loan. * * *
* * * * *
Lender * * *
(2) For purposes of loan origination under subparts A, B, and C of
this part, the term ``lender'' also includes a ``loan correspondent''
as defined in this section.
* * * * *
Manufactured home * * * To qualify for a manufactured home loan
insured under this part, an existing manufactured home must have been
constructed in accordance with standards published at 24 CFR part 3280
and must meet standards similar to the minimum property standards
applicable to existing homes insured under title II of the Act, as
prescribed by the Secretary.
Manufactured home improvement loan * * * The proceeds of a
manufactured home improvement loan may also be used for improvements to
the homesite, as long as the borrower is the owner of the home and the
underlying real estate.
* * * * *
Multifamily property improvement loan means a loan to finance the
alteration, repair, improvement, or conversion of an existing structure
used or to be used as an apartment house or a dwelling for two or more
families. The multifamily structure may not be owned by a corporation,
partnership, or trust, unless the prior approval of the Secretary is
obtained for an exception to this requirement.
* * * * *
State means any State of the United States, Puerto Rico, the
District of Columbia, Guam, American Samoa, the Commonwealth of the
Northern Mariana Islands, or the United States Virgin Islands.
* * * * *
4. Section 201.3 is revised to read as follows:
Sec. 201.3 Applicability of the regulations.
The regulations in this part may be amended by the Secretary at any
time. Such amendment shall not adversely affect the insurance
privileges of a lender on any loan that has been made or for which a
loan application has been approved before the effective date of the
amendment.
5. Section 201.10 is amended by:
a. Revising paragraph (a)(1)(iv);
b. Removing paragraph (a)(2);
c. Redesignating paragraph (a)(3) as paragraph (a)(2); and
d. Revising paragraphs (b)(1)(i), (b)(1)(iii), (b)(1)(iv),
(b)(2)(i), (b)(2)(ii), (b)(3), (c), (d)(1)(i), (d)(1)(iii), (d)(3),
(f)(3), (f)(4), and (f)(5), to read as follows:
Sec. 201.10 Loan amounts.
(a) * * *
(1) * * *
(iv) Manufactured home improvement loans--$7,500.
* * * * *
(b) * * *
(1) * * *
(i) 130 percent of the sum of the wholesale (base) prices of the
home and any itemized options and the charge for freight, as detailed
in the manufacturer's invoice;
* * * * *
(iii) The actual dealer's cost of transportation to the homesite,
set-up and anchoring, including the rental of wheels and axles (if not
included in the freight charges);
(iv) The actual dealer's cost of skirting;
* * * * *
(2) * * *
(i) 95 percent of the appraised value of the home as equipped and
furnished (as determined by a HUD-approved appraisal) and 95 percent of
any itemized amounts allowed under paragraphs (b)(1)(iii) through (vii)
of this section, if incurred; or
(ii) 95 percent of the purchase price of the home.
(3) The purchase price of a manufactured home financed with a
manufactured home purchase loan shall include the retail cost to the
borrower of all items set forth in the purchase contract, including any
applicable charges authorized under Sec. 201.25(b).
(c) Manufactured home lot loans. The total principal obligation for
a loan to purchase and, if necessary, develop a lot suitable for a
manufactured home, including on-site water and utility connections,
sanitary facilities, site improvements and landscaping, shall not
exceed 95 percent of either the appraised value of the developed lot
(as determined by a HUD-approved appraisal) or the total of the
purchase price and development costs, whichever is less, up to a
maximum of $16,200.
(d) * * *
(1) * * *
(i) 130 percent of the sum of the wholesale (base) prices of the
home and any itemized options and the charge for freight, as detailed
in the manufacturer's invoice;
* * * * *
(iii) The actual dealer's cost of transportation to the homesite,
set-up and anchoring, including the rental of wheels and axles (if not
included in the freight charge);
* * * * *
(3) The purchase price of a manufactured home and a lot financed
with a combination loan shall include the retail cost to the borrower
of all items set forth in the purchase contract or contracts, including
any applicable charges authorized under Sec. 201.25(b).
* * * * *
(f) * * *
(3) The total principal obligation of a loan made to refinance a
borrower's existing uninsured manufactured home loan shall not exceed
the cost to the borrower of prepaying the existing loan or the
appraised value of the property (as determined by a HUD-approved
appraisal), whichever is less, up to the maximum loan amount permitted
under this section for the particular type of loan.
(4) When a borrower's existing manufactured home lot is being
refinanced in connection with the purchase of a manufactured home, the
total principal obligation of the combination loan shall be determined
in accordance with paragraph (d)(1) or (d)(2) of this section.
(5) When a borrower's existing manufactured home is being
refinanced in connection with the purchase of a manufactured home lot,
the total principal obligation of the combination loan shall not exceed
the lesser of the following amounts, up to a maximum of $64,800:
(i) The cost to the borrower of prepaying any existing loan on the
home, plus the purchase price of the lot; or
(ii) The appraised value of the home and lot (as determined by a
HUD-approved appraisal).
* * * * *
6. Section 201.11 is amended by revising paragraphs (a)(1) and
(a)(2), by adding a new paragraph (a)(3), and by revising paragraphs
(c)(2), (c)(3), and (c)(4), to read as follows:
Sec. 201.11 Loan maturities.
(a) * * *
(1) The maximum term for a single family property improvement loan
on a manufactured home that qualifies as real property shall not exceed
15 years and 32 days from the date of the loan;
[[Page 19797]]
(2) The maximum term for a manufactured home improvement loan shall
not exceed 12 years and 32 days from the date of the loan; and
(3) The maximum term for an historic preservation loan shall not
exceed 15 years and 32 days from the date of the loan.
* * * * *
(c) * * *
(2) The term of a loan made to refinance a borrower's existing
uninsured manufactured home loan shall not exceed the maximum term
permitted under paragraph (b) of this section for the particular type
of loan.
(3) When a borrower's existing manufactured home lot is being
refinanced in connection with the purchase of a manufactured home, the
term of the combination loan shall not exceed the maximum term
permitted under paragraph (b) of this section for the particular type
of loan.
(4) When a borrower's existing manufactured home is being
refinanced in connection with the purchase of a manufactured home lot,
the term of the combination loan shall not exceed the maximum term
permitted under paragraph (b) of this section for the particular type
of loan.
7. Section 201.12 is revised to read as follows:
Sec. 201.12 Requirements for the note.
The note shall bear the genuine signature of each borrower and of
any co-maker or co-signer, be valid and enforceable against the
borrower and any co-maker or co-signer, and be complete and regular on
its face. The borrower and any co-maker or co-signer shall execute the
note for the full amount of the loan obligation. Although the note may
be executed by the borrower on an earlier date, the date of the loan
shall be the date that the loan proceeds are disbursed by the lender.
Such date shall be entered on the note when disbursement occurs. The
note shall separately recite the principal amount and any interest at
an agreed annual rate that comprises the borrower's payment obligation.
The lender shall assure that the note and all other documents
evidencing the loan transaction are in compliance with applicable
Federal, State, and local laws. If the note is executed on behalf of a
corporation, partnership, or trust by an authorized representative, it
shall create a binding obligation on such entity.
8. Section 201.13 is revised to read as follows:
Sec. 201.13 Interest and discount points.
The interest rate for any loan shall be negotiated and agreed to by
the borrower and the lender, and such interest rate shall be fixed for
the full term of the loan and recited in the note. Interest on the loan
shall accrue from the date of the loan, and shall be calculated on a
simple interest basis. The lender and the borrower may negotiate the
amount of discount points, if any, to be paid by the borrower as part
of the borrower's initial payment. The lender shall not require or
allow any party other than the borrower to pay any discount points or
other financing charges in connection with the loan transaction.
9. Section 201.17 is revised to read as follows:
Sec. 201.17 Prepayment provision.
The note shall contain a provision permitting full or partial
prepayment of the loan without penalty, except that the borrower may be
assessed reasonable and customary charges for recording a release of
the lender's security interest in the property, if permitted by State
law.
10. Section 201.20 is amended by revising paragraph (a)(2), by
removing paragraph (a)(3), and by revising paragraph (b), to read as
follows:
Sec. 201.20 Property improvement loan eligibility.
(a) * * *
(2) To be eligible for a manufactured home improvement loan, the
borrower shall have at least a one-half interest in the manufactured
home, and the home must be the principal residence of the borrower.
(b) Eligible use of the loan proceeds. (1) The loan proceeds shall
be used only for the purposes disclosed in the loan application. If the
borrower plans to use a dealer or contractor to carry out the
improvement work, the lender shall obtain a copy of a proposal or
contract that describes in detail the work to be performed and the
estimated or actual cost. If the borrower plans to carry out the
improvement work without the services of a dealer or contractor, the
borrower shall be required to furnish a detailed written description of
the work to be performed, the materials to be furnished, and their
estimated cost.
(2) The loan proceeds shall be used only to finance property
improvements that substantially protect or improve the basic livability
or utility of the property. The Secretary will establish a list of
items and activities that may not be financed with the proceeds of any
property improvement loan. If a lender has any doubt as to the
eligibility of any item or activity, it shall request a specific ruling
by the Secretary before making a loan.
(3) The loan proceeds shall only be used to finance property
improvements that are started after loan approval, unless:
(i) The prior approval of the Secretary is obtained for an
exception to this requirement; or
(ii) The property is located in a major disaster area declared by
the President, and the lender determines that emergency action is
needed to repair damage resulting from the disaster.
* * * * *
11. Section 201.21 is amended by revising paragraphs (b)(3) and
(b)(5), to read as follows:
Sec. 201.21 Manufactured home loan eligibility.
* * * * *
(b) * * *
(3) The proceeds of a loan to purchase a new manufactured home or a
new manufactured home and lot shall not be used to purchase furniture
or wheels and axles, and the cost of these items shall not be included
in the total principal obligation calculated under Sec. 201.10(b)(1) or
(d)(1).
* * * * *
(5) The Secretary will establish a list of items and activities
that may not be financed with the proceeds of any manufactured home
loan. If a lender has any doubt as to the eligibility of any item or
activity, it shall request a specific ruling by the Secretary before
making a loan.
* * * * *
12. Section 201.22 is amended by revising paragraphs (b)(1),
(b)(2)(iv), and (c)(1), to read as follows:
Sec. 201.22 Credit requirements for borrowers.
* * * * *
(b) * * *
(1) For any Title I loan, the credit application and review must
establish that the borrower's income will be adequate to meet the
periodic payments required by the loan, as well as the borrower's other
housing expenses and recurring charges. For a borrower's income to be
considered adequate, housing expenses and total fixed expenses
generally may not exceed maximum percentages of effective gross income
established by the Secretary. If these expense-to-income ratios are
exceeded, the borrower's income may be considered adequate only if the
lender determines and documents in the loan file the existence of
compensating factors concerning the borrower's
[[Page 19798]]
creditworthiness that support approval of the loan.
(2) * * *
(iv) Other recurring charges include all payments on automobile
loans, furniture loans, student loans, installment loans, revolving
charge accounts, alimony or child support, and any other debt for which
the obligation is expected to continue for six months or more.
(c) * * *
(1) The borrower is past due more than 30 days as to the payment of
principal or interest under the original terms of a loan obligation
owed to or insured or guaranteed by the Federal Government, unless the
debt has since been discharged or satisfied; or
* * * * *
13. Section 201.23 is revised to read as follows:
Sec. 201.23 Borrower's initial payment.
(a) General requirement. The borrower shall be responsible for the
payment in cash of any costs that will not be paid, or are not eligible
to be paid, from the proceeds of the loan. Such costs payable by the
borrower may include any required downpayment, any discount points to
be paid by the borrower to the lender, any other fees and charges that
may not be financed, and any other costs in excess of the loan amount.
No part of such costs payable by the borrower may be loaned, advanced,
or paid to or for the benefit of the borrower by the dealer, the
manufacturer, or any other party to the loan transaction. If the
borrower obtains all or any part of such costs through a gift or a loan
from some other source, the borrower must disclose the source of such
gift or loan on the credit application. Any such loan must be secured
by property or collateral owned by the borrower independently of the
property securing repayment of the Title I loan, unless the prior
approval of the Secretary is obtained for an exception to this
requirement. The lender shall consider any such loan obligation in
performing the credit investigation. Documentation of any initial
payment shall be retained by the lender in the loan file.
(b) Manufactured home purchase loans. In the case of a manufactured
home purchase loan, the borrower shall make a minimum cash downpayment
of at least five percent of the purchase price of the home. The
borrower's equity in an existing manufactured home and any movable
appurtenances may be traded-in on a new home and accepted in lieu of
full or partial cash downpayment, but without any cash payment to the
borrower. The existing manufactured home being traded-in shall be
clearly identified, and the borrower's equity in the home shall be
based upon the retail value of the home and appurtenances (as
determined by a HUD-approved appraisal), less the total of all loans
outstanding on the home and appurtenances.
(c) Manufactured home lot loans. In the case of a manufactured home
lot loan, the borrower shall make a minimum cash downpayment of at
least five percent of the total of the purchase price and development
costs for the lot.
(d) Combination loans. In the case of a combination loan, the
borrower shall make a minimum cash downpayment of at least five percent
of the purchase price of the manufactured home and lot. If the borrower
already owns a manufactured home or a lot on which a manufactured home
is to be placed, the borrower's equity in such home or lot may be
accepted in lieu of full or partial cash downpayment on a combination
loan, but without any cash payment to the borrower.
14. Section 201.24 is amended by revising paragraphs (a)(1) and
(a)(2) to read as follows:
Sec. 201.24 Security requirements.
(a) * * *
(1) Any property improvement loan in excess of $7,500 shall be
secured by a recorded lien on the improved property. The lien shall be
evidenced by a mortgage or deed of trust, executed by the borrower and
all other owners in fee simple. If the borrower is a lessee, the
borrower and all owners in fee simple must execute the mortgage or deed
of trust. If the borrower is purchasing the property under a land
installment contract, the borrower, all owners in fee simple, and all
intervening contract sellers must execute the mortgage or deed of
trust. The lien need not be a first lien on the property; however, the
lien securing the Title I loan must have priority over any lien
securing an uninsured loan made at the same time and in connection with
the same property, unless the uninsured loan is a first mortgage loan
for the purchase or refinancing of the property.
(2) Any property improvement loan for $7,500 or less (other than a
manufactured home improvement loan) shall be similarly secured if,
including such loan, the total amount of all Title I loans on the
improved property is more than $7,500.
* * * * *
15. Section 201.25 is revised to read as follows:
Sec. 201.25 Charges to borrower to obtain loan.
(a) Fees and charges that may be financed in a property improvement
loan. The Secretary will establish a list of fees and charges that may
be included in a property improvement loan. Such fees and charges shall
have been incurred in connection with the origination of the loan, and
their inclusion shall not increase the total principal obligation
beyond the maximum loan amounts in Sec. 201.10.
(b) Fees and charges that may be financed in a manufactured home
loan. The Secretary will establish a list of fees and charges that may
be included in a manufactured home loan. Such fees and charges shall
have been incurred in connection with the origination of the loan, and
their inclusion shall not increase the total principal obligation
beyond the maximum loan amounts in Sec. 201.10.
(c) Fees and charges that may not be financed. The Secretary will
establish a list of fees and charges incurred by the lender that may be
collected from the borrower in the initial payment, but may not be
included in the loan amount or otherwise financed or advanced by the
dealer, the manufacturer, or any other party to the loan transaction.
(d) Fees and charges that may not be paid. Neither the lender nor
the borrower may pay a referral fee to any dealer, home manufacturer,
contractor, supplier, real estate broker, loan broker, or any other
party in connection with the origination of a loan insured under this
part.
16. Section 201.26 is amended by revising paragraphs (a)(1),
(a)(2), (a)(5)(ii), (a)(6)(i), (b)(3)(vi), (b)(3)(vii), (b)(4)(vi), and
(b)(4)(vii); by removing paragraph (b)(4)(viii); and by revising
paragraph (b)(6) introductory text, to read as follows:
Sec. 201.26 Conditions for loan disbursement.
(a) * * *
(1) The lender shall ensure that the following conditions are met:
(i) The borrower is eligible for a property improvement loan in
accordance with Sec. 201.20(a) (1) or (2); and
(ii) The interest of the borrower in the property is valid, through
such title or other evidence as is generally acceptable to prudent
lending institutions and leading attorneys in the community in which
the property is situated.
(2) The proposed use of the loan proceeds shall be documented in
accordance with the requirements of Sec. 201.20(b)(1).
* * * * *
[[Page 19799]]
(5) * * *
(ii) The borrower has not obtained the benefit of and will not
receive any cash payment, rebate, cash bonus, sales commission, or
anything of more than nominal value from the dealer as an inducement
for the consummation of the transaction.
(6) * * *
(i) States that the loan will be insured by HUD and describes the
actions the Secretary may take to recover the debt if the borrower
defaults on the loan and an insurance claim is paid;
* * * * *
(b) * * *
(3) * * *
(vi) The borrower has paid the remaining unpaid balance on any
other manufactured home loan secured by a different property, unless
the prior approval of the Secretary is obtained for an exception to
this requirement; and
(vii) The borrower has not obtained the benefit of and will not
receive any cash payment, rebate, cash bonus, or anything of more than
nominal value from the manufacturer or dealer as an inducement for the
consummation of the transaction.
(4) * * *
(vi) Any initial payment required under Sec. 201.23 was made by the
borrower, and no part of the initial payment was loaned, advanced, or
paid to or for the benefit of the borrower by the manufacturer, dealer,
or any other party to the loan transaction; and
(vii) The borrower has not obtained the benefit of and will not
receive any cash payment, rebate, cash bonus, or anything of more than
nominal value from the manufacturer or dealer as an inducement for the
consummation of the transaction.
* * * * *
(6) For any direct manufactured home purchase loan or combination
loan involving the relocation of the manufactured home to a new
homesite owned or leased by the borrower, the lender (or an agent of
the lender that is not a manufactured home dealer) shall conduct a
site-of-placement inspection to verify that:
* * * * *
17. Section 201.27 is amended by revising the second sentence of
paragraph (a)(2) and by revising paragraph (a)(5); by removing
paragraph (b)(2); and by redesignating paragraph (b)(1) as paragraph
(b), to read as follows:
Sec. 201.27 Requirements for dealer loans.
(a) * * *
(2) * * * The dealer shall furnish a current financial statement
prepared by someone who is independent of the dealer and is qualified
by education and experience to prepare such statements, together with
such other documentation as the lender deems necessary to support its
approval of the dealer. * * *
* * * * *
(5) If a dealer does not satisfactorily perform its contractual
obligations to borrowers, does not comply with Title I program
requirements, or is unresponsive to the lender's supervision and
monitoring requirements, the lender shall terminate the dealer's
approval and immediately notify the Secretary with written
documentation of the facts. A dealer whose approval is terminated under
these circumstances shall not be reapproved without prior written
approval from the Secretary. The lender may in its discretion terminate
the approval of a dealer for other reasons at any time.
* * * * *
18. Section 201.28 is amended by revising paragraph (a) to read as
follows:
Sec. 201.28 Flood and hazard insurance, and Coastal Barriers
properties.
(a) Flood insurance. No property improvement loan or manufactured
home loan shall be eligible for insurance under this part if the
property securing repayment of the loan is located in a special flood
hazard area identified by the Federal Emergency Management Agency
(FEMA), unless flood insurance on the property is obtained by the
borrower in compliance with section 102 of the Flood Disaster
Protection Act of 1973 (42 U.S.C. 4012a). Such insurance shall be
obtained at any time during the term of the loan that the lender
determines that the secured property is located in a special flood
hazard area identified by FEMA, and shall be maintained by the borrower
for the remaining term of the loan, or until the lender determines that
the property is no longer in a special flood hazard area, or until the
property is repossessed or foreclosed upon by the lender. The amount of
such insurance shall be at least equal to the unpaid balance of the
Title I loan, and the lender shall be named as the loss payee for flood
insurance benefits.
* * * * *
19. Section 201.32 is amended by revising paragraph (a); by
removing paragraph (b); and by redesignating paragraphs (c), (d), and
(e) as paragraphs (b), (c), and (d), respectively, to read as follows:
Sec. 201.32 Insurance coverage reserve account.
(a) Establishment. The Secretary shall establish an insurance
coverage reserve account for each lender. The amount of insurance
coverage in each reserve account shall equal 10 percent of the amount
disbursed, advanced, or expended by the lender in originating or
purchasing eligible loans registered for insurance under this part,
less the amount of all insurance claims approved for payment in
connection with losses on such loans.
* * * * *
20. Section 201.40 is amended by adding a new paragraph (b)(3) to
read as follows:
Sec. 201.40 Post-disbursement loan requirements.
* * * * *
(b) * * *
(3) The borrower is not required to submit a completion certificate
when the property improvement loan is made by or on behalf of a State
or local government agency or a nonprofit organization, the loan
proceeds are held in an escrow account pending completion of the
improvements, and the loan proceeds are disbursed from the escrow
account in stages, with the written approval of the borrower and based
upon the percentage of work completed.
* * * * *
21. Section 201.52 is amended by adding a sentence at the end, to
read as follows:
Sec. 201.52 Acquisition by voluntary conveyance or surrender.
* * * If the lender accepts a voluntary conveyance of title or a
voluntary surrender of the property, the notice of default and
acceleration under Sec. 201.50(b) shall not be required.
22. Section 201.53 is amended by:
a. Redesignating the paragraph as introductory text;
b. Revising the third sentence of the newly designated introductory
text; and
c. Adding paragraphs (a) and (b), to read as follows:
Sec. 201.53 Disposition of manufactured home loan property.
* * * The best price obtainable shall be the greater of:
(a) The actual sales price of the property, after deducting the
cost of repairs, furnishings, and equipment needed to make the property
marketable, and after deducting the cost of transportation, set-up, and
anchoring if the manufactured home is moved to a new homesite; or
(b) The appraised value of the property before repairs (as
determined by a HUD-approved appraisal obtained in accordance with
Sec. 201.51(b)(3)).
[[Page 19800]]
23. Section 201.54 is amended by revising paragraph (b)(2), to read
as follows:
Sec. 201.54 Insurance claim procedure.
* * * * *
(b) * * *
(2) The Secretary may extend the claim filing period in a
particular case, but only if the lender shows clear evidence that the
delay in claim filing was in the interest of the Secretary or was
caused by one of the following:
(i) Litigation related to the loan;
(ii) Management control of the lender or the Title I loan portfolio
was assumed by a Federal or State agency; or
(iii) The borrower had experienced a loss of income or other
financial difficulties directly attributable to a major disaster
declared by the President, and additional time was needed to provide
forbearance on a property improvement loan.
* * * * *
24. Section 201.55 is amended by revising the introductory text of
paragraph (a), the introductory text of paragraph (b), and paragraphs
(b)(3) and (b)(7), to read as follows:
Sec. 201.55 Calculation of insurance claim payment.
* * * * *
(a) Property improvement loans. For property improvement loans, the
insurance claim payment shall be 90 percent of the following amounts:
* * * * *
(b) Manufactured home loans. For manufactured home loans, the
insurance claim payment shall be 90 percent of the sum of the following
amounts:
* * * * *
(3) For manufactured home purchase loans, the amount of costs paid
to a dealer or other third party to repossess and preserve the
manufactured home and other property securing repayment of the loan
(including the costs of site inspection, property appraisal, hazard
insurance premiums, personal property taxes, and site rental, as
appropriate), plus actual costs not to exceed $1,000 per module for
removing and transporting the home to a dealer's lot or other off-site
location.
* * * * *
(7) The amount of attorney's fees on an hourly or other basis for
time actually expended and billed, not to exceed $1,000.
* * * * *
Dated: January 11, 1996.
Nicolas P. Retsinas,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 96-10885 Filed 5-01-96; 8:45 am]
BILLING CODE 4210-27-P
Complete official Federal Register PDF
FR Doc. 96-10871 Avocados Grown in South Florida; Assessment Rate
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19512-19514]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10871]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
7 CFR Part 915
[Docket No. FV96-915-1IFR]
Avocados Grown in South Florida; Assessment Rate
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Interim final rule with request for comments.
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SUMMARY: This interim final rule establishes an assessment rate of
$0.16 per bushel of assessable avocados under Marketing Order No. 915
for the 1996-97 and subsequent fiscal periods. Authorization to assess
avocado handlers enables the Avocado Administrative Committee
(committee) to incur expenses that are reasonable and necessary to
administer the program.
DATES: Effective April 1, 1996. Comments received by June 3, 1996, will
be considered prior to issuance of a final rule.
ADDRESSES: Interested persons are invited to submit written comments
concerning this action. Comments must be sent in triplicate to the
Docket Clerk, Fruit and Vegetable Division, AMS, USDA, P.O. Box 96456,
room 2523-S, Washington, DC 20090-6456, FAX 202-720-5698. Comments
should reference the docket number and the date and page number of this
issue of the Federal Register and will be available for public
inspection in the Office of the Docket Clerk during regular business
hours.
FOR FURTHER INFORMATION CONTACT: Caroline C. Thorpe, Marketing Order
Administration Branch, Fruit and
[[Page 19513]]
Vegetable Division, AMS, USDA, P.O. Box 96456, room 2523-S, Washington,
DC 20090-6456, telephone 202-720-5127, FAX (202) 720-5698, or Alex
Jonas, Marketing Specialist, Southeast Marketing Field Office, Fruit
and Vegetable Division, AMS, USDA, P.O. Box 2276, Winter Haven, FL
33883-2276, telephone 813 299-4896, FAX (813) 299-5169.
SUPPLEMENTARY INFORMATION: This rule is issued under Marketing
Agreement No. 121 and Order No. 915, both as amended (7 CFR part 915),
regulating the handling of avocados grown in South Florida, hereinafter
referred to as the order. The marketing agreement and order are
effective under the Agricultural Marketing Agreement Act of 1937, as
amended (7 U.S.C. 601-674), hereinafter referred to as the Act.
The Department of Agriculture (Department) is issuing this rule in
conformance with Executive Order 12866.
This interim final rule has been reviewed under Executive Order
12778, Civil Justice Reform. Under the marketing order now in effect
Florida avocado handlers are subject to assessments. Funds to
administer the order are derived from such assessments. It is intended
that the assessment rate as issued herein will be applicable to all
assessable avocados beginning April 1, 1996, and continuing until
amended or terminated. This interim final rule will not preempt any
State or local laws, regulations, or policies, unless they present an
irreconcilable conflict with this rule.
The Act provides that administrative proceedings must be exhausted
before parties may file suit in court. Under section 608c(15)(A) of the
Act, any handler subject to an order may file with the Secretary a
petition stating that the order, any provision of the order, or any
obligation imposed in connection with the order is not in accordance
with law and request a modification of the order or to be exempted
therefrom. Such handler is afforded the opportunity for a hearing on
the petition. After the hearing the Secretary would rule on the
petition. The Act provides that the district court of the United States
in any district in which the handler is an inhabitant, or has his or
her principal place of business, has jurisdiction to review the
Secretary's ruling on the petition, provided an action is filed not
later than 20 days after the date of the entry of the ruling.
Pursuant to requirements set forth in the Regulatory Flexibility
Act (RFA), the Administrator of the Agricultural Marketing Service
(AMS) has considered the economic impact of this rule on small
entities.
The purpose of the RFA is to fit regulatory actions to the scale of
business subject to such actions in order that small businesses will
not be unduly or disproportionately burdened. Marketing orders issued
pursuant to the Act, and the rules issued thereunder, are unique in
that they are brought about through group action of essentially small
entities acting on their own behalf. Thus, both statutes have small
entity orientation and compatibility.
There are approximately 65 producers of avocados under the order
and approximately 95 handlers. Small agricultural producers have been
defined by the Small Business Administration (13 CFR 121.601) as those
having annual receipts of less than $500,000, and small agricultural
service firms are defined as those whose annual receipts are less than
$5,000,000. The majority of avocado producers and handlers may be
classified as small entities.
This continuing rate of assessment, beginning with the 1996-97
fiscal period, was prepared by the committee, the agency responsible
for local administration of the marketing order, and submitted to the
Department for approval. The members of the committee are producers and
handlers of South Florida avocados. They are familiar with the
committee's needs and with the costs for goods and services in their
local area and are thus in a position to formulate an appropriate
budget and assessment rate. The assessment rate was formulated and
discussed in a public meeting. Thus, all directly affected persons have
had an opportunity to participate and provide input.
The assessment rate recommended by the committee was derived by
dividing anticipated expenses by expected shipments of South Florida
Avocados. Because that rate will be applied to actual shipments, it
must be established at a rate that will provide sufficient income to
pay the committee's expenses.
The committee met on December 13, 1995, and unanimously recommended
an assessment rate of $0.16 per bushel, the same as last season. This
rate, when applied to anticipated shipments, should yield sufficient
assessment income. This rate, along with interest income and funds from
the committee's authorized reserve, will be adequate to cover budgeted
expenses. Funds in the reserve will be kept within the maximum
permitted by the order of one fiscal period's expenses.
While this rule will impose some additional costs on handlers, the
costs are in the form of uniform assessments on all handlers. Some of
the additional costs may be passed on to producers. However, these
costs will be offset by the benefits derived by the operation of the
marketing order. Therefore, the Administrator of the AMS has determined
that this rule will not have a significant economic impact on a
substantial number of small entities.
The assessment rate established in this interim final rule,
effective April 1, 1996, will continue in effect from fiscal period to
fiscal period indefinitely unless modified, suspended, or terminated by
the Secretary upon recommendation and information submitted by the
committee or other information available to the Secretary. Heretofore,
assessment rates issued under the marketing order were made effective
for a single fiscal period. The change to issuing assessment rates
which will continue in effect from fiscal period to fiscal period
reflects the fact that assessment rates change infrequently from fiscal
period to fiscal period and it is believed unnecessary to issue them
for only a single fiscal period. In addition, this rule will result in
a reduction in operational costs to the committee and the government.
Although this assessment rate is effective for an indefinite period,
the committee will continue to meet prior to or during each fiscal
period to recommend a budget and consider recommendations for
modification of the assessment rate. The dates and times of committee
meetings are available from the Department at the address listed under
ADDRESSES. Committee meetings are open to the public and interested
persons may express their views at these meetings or may file comments
with the Docket Clerk at the address listed above before April 1, each
year. The Department will evaluate committee recommendations and
information submitted by the committee, comments filed, and other
available information, and determine whether modification of the
assessment rate on assessable shipments of South Florida Avocados would
tend to effectuate the declared policy of the Act.
After consideration of all relevant material presented, including
the information and recommendation submitted by the committee and other
available information, it is hereby found that this rule, as
hereinafter set forth, will tend to effectuate the declared policy of
the Act.
Pursuant to 5 U.S.C. 553, it is also found and determined upon good
cause that it is impracticable, unnecessary,
[[Page 19514]]
and contrary to the public interest to give preliminary notice prior to
putting this rule into effect, and that good cause exists for not
postponing the effective date of this action until 30 days after
publication in the Federal Register because: (1) The committee needs to
have sufficient funds to pay its expenses which are incurred on a
continuous basis; (2) the 1996-97 fiscal period begins on April 1,
1996, and the marketing order requires that the rate of assessment for
each fiscal period apply to all assessable avocados handled during such
fiscal period; (3) handlers are aware of this action which was
unanimously recommended by the committee at a public meeting and is
similar to other assessment rate actions issued in past years; and (4)
this interim final rule provides a 30-day comment period, and all
comments timely received will be considered prior to finalization of
this action.
List of Subjects in 7 CFR Part 915
Avocados, Marketing agreements, Reporting and recordkeeping
requirements.
For the reasons set forth in the preamble, 7 CFR part 915 is
amended as follows:
PART 915--AVOCADOS GROWN IN SOUTH FLORIDA
1. The authority citation for 7 CFR part 915 continues to read as
follows:
Authority: 7 U.S.C. 601-674.
2. A new section 915.235 is added to read as follows:
Note: This section will not appear in the annual code of Federal
Regulations.
Sec. 915.235 Assessment rate.
On and after April 1, 1996, an assessment rate of $0.16 per bushel
of assessable avocados is established for the Avocado Administrative
Committee.
Dated: April 26, 1996.
Eric M. Forman,
Deputy Director, Fruit and Vegetable Division.
[FR Doc. 96-10871 Filed 5-1-96; 8:45 am]
BILLING CODE 3410-02-P
Complete official Federal Register PDF
FR Doc. 96-10853 Television Broadcasting Services; Virginia Beach, VA
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Page 19558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10853]
=======================================================================
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FEDERAL COMMUNICATIONS COMMISSION
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 73
[MM Docket No. 95-77; RM-8616]
Television Broadcasting Services; Virginia Beach, VA
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Commission, at the request of Lockwood Broadcasting, Inc.,
allots UHF Channel 21 to Virginia Beach, Virginia, as an additional
television service. See 60 FR 31278, June 14, 1995. Channel 21+ can be
allotted to Virginia Beach consistent with the minimum distance
separation requirements of Sections 73.610 and 73.698 of the
Commission's Rules with a site restriction of 4.0 kilometers (2.5
miles) south to avoid the ATV freeze zone surrounding Washington, DC.
The coordinates for Channel 21+ at Virginia Beach are 36-48-38 and 75-
58-30. With this action, this proceeding is terminated.
EFFECTIVE DATE: June 10, 1996.
FOR FURTHER INFORMATION CONTACT: Pam Blumenthal, Mass Media Bureau,
(202) 418-2180.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Report and Order, MM Docket No. 95-77, adopted March 25, 1996, and
released April 24, 1996. The full text of this Commission decision is
available for inspection and copying during normal business hours in
the FCC Reference Center (Room 239), 1919 M Street, NW., Washington,
DC. The complete text of this decision may also be purchased from the
Commission's copy contractor, ITS, Inc., (202) 857-3800, 2100 M Street,
NW., Suite 140, Washington, DC 20037.
List of Subjects in 47 CFR Part 73
Television broadcasting.
Part 73 of title 47 of the Code of Federal Regulations is amended
as follows:
PART 73--[AMENDED]
1. The authority citation for part 73 continues to read as follows:
Authority: Secs. 303, 48 Stat., as amended, 1082; 47 U.S.C. 154,
as amended.
Sec. 73.606 [Amended]
2. Section 73.606(b), the Table of TV Allotments under Virginia, is
amended by adding Channel 21+ at Virginia Beach.
Federal Communications Commission.
John A. Karousos,
Chief, Allocations Branch, Policy and Rules Division, Mass Media
Bureau.
[FR Doc. 96-10853 Filed 5-1-96; 8:45 am]
BILLING CODE 6712-01-F
Complete official Federal Register PDF
FR Doc. 96-10851 Conforming the Maritime Service Rules to the Provisions of the Telecommunications Act of 1996
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19558-19560]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10851]
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 80
[FCC 96-156]
Conforming the Maritime Service Rules to the Provisions of the
Telecommunications Act of 1996
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This action amends the maritime service rules, consistent with
the statutory mandate of the 1996 Telecommunications Act, to eliminate
the radiotelegraph carriage requirement for vessels equipped in
accordance with the Global Maritime Distress and Safety System (GMDSS).
The effect of this rule is to reduce economic burdens for vessel
operators and increase safety at sea by promoting the carriage of GMDSS
radio installations.
EFFECTIVE DATE: June 3, 1996.
FOR FURTHER INFORMATION CONTACT: Roger Noel of the Commission's
Wireless Telecommunications Bureau at (202) 418-0680 or via email at
[email protected].
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order,
FCC 96-156, adopted April 5, 1996, and released April 12, 1996. The
full text of this Order is available for inspection and copying during
normal business hours in the FCC Reference Center (Room 239) 1919 M
Street NW., Washington, DC. The complete text may be purchased from the
Commission's copy contractor, ITS, Inc., 2100 M Street NW., Suite 140,
Washington, DC 20037, telephone (202) 857-3800.
Summary of Order
1. Prior to the enactment of the Telecommunications Act of 1996,
Section 351 of the Communications Act required passenger vessels and
large cargo vessels to be equipped with a manual Morse code
radiotelegraph installation when navigating in the open sea or on
international voyages. In 1988, the international maritime community
agreed to replace the radiotelegraph as the required installation with
the GMDSS--an automated ship-shore distress and safety radio
communications system that relies on satellites and advanced
terrestrial systems. Accordingly, in the Report and
[[Page 19559]]
Order in PR Docket No. 90-480, 57 FR 9063 (March 16, 1992), the
Commission adopted rules implementing the new international GMDSS
requirements in Part 80 of the Rules. Under the rules, vessels were
required to meet certain minimum equipment-carriage implementation
dates and were given the option to fully comply with the GMDSS prior to
the February 1, 1999 international deadline. The Report and Order,
however, did not relieve the requirement for compulsory vessels
carrying GMDSS equipment from Section 351's requirement to carry
radiotelegraph installations. Thus, compulsory vessels complying with
the implementation dates, as well as vessels in full compliance prior
to the international deadline, were required to carry components of two
distinct safety systems, each with designated radio operators.
2. Section 206 of the Telecommunications Act of 1996 eliminates the
radiotelegraph carriage requirement for each GMDSS-equipped vessel, so
long as the U.S. Coast Guard determines that each vessel has the GMDSS
equipment installed and in good working condition. Thus, this Order
provides a general exemption from the radiotelegraph requirements of
part II of title III of the Communications Act for GMDSS-equipped
vessels that obtain a Safety Certificate or endorsement from the
Commission or its designee. The U.S. Coast Guard has informed the
Commission that it intends to interpret the Safety Certificate or
endorsement as prima facie evidence that each vessel has the GMDSS
equipment installed and in good working condition.
3. This rule is necessary in order to make our rules consistent
with the requirements of the 1996 Telecommunications Act. Additionally,
this action reduces regulatory burdens on vessel owners and eliminates
economic disincentives associated with the installation of GMDSS
equipment prior to the international deadline. Further, this action
increases safety of life at sea by ensuring that reliable distress
alerting and communications equipment, compatible with that of the
international shipping fleet, may be installed on large oceangoing
vessels.
5. This Order is issued under the authority of sections 4(i) and
303(r) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i)
and 303(r).
List of Subjects in 47 CFR Part 80
Communications equipment, Marine Safety, Radio, Telegraph, Vessels.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Final Rule
Part 80 of Chapter I of Title 47 of the Code of Federal Regulations
is amended as follows:
PART 80--STATIONS IN THE MARITIME SERVICES
1. The authority citation for Part 80 continues to read as follows:
Authority: Secs. 4, 303, 48 Stat. 1066, 1082, as amended; 47
U.S.C. 154, 303, unless otherwise noted. Interpret or apply 48 Stat.
1064-1068, 1081-1105, as amended; 47 U.S.C. 151-155, 301-609; 3 UST
3450, 3 UST 4726, 12 UST 2377.
2. Section 80.836 is amended by revising paragraph (c),
redesignating paragraph (d) as paragraph (e), and adding new paragraph
(d) to read as follows:
Sec. 80.836 General exemptions.
* * * * *
(c) Prior to February 1, 1999, cargo ships of 1600 gross tons and
upward are exempt from the radiotelegraph requirements of Part II of
Title III of the Communications Act, if the following criteria are met:
(1) The ship operates on domestic voyages only. For purposes of
this paragraph, the term domestic voyages includes ports in Alaska,
U.S. possessions in the Caribbean, and along the coasts of the 48
contiguous states, so long as the vessel does not make port at a
foreign destination;
(2) The routes of the voyage are never more than 150 nautical miles
from the nearest land; and,
(3) The ship complies fully with all of the following conditions.
The ship must:
(i) Be equipped with a satellite ship earth station providing both
voice and telex, which has been type accepted for GMDSS use;
(ii) Be equipped with a VHF and MF radiotelephone installation
which complies fully with subpart R of this part and has the additional
capability of operating on the HF frequencies listed in Sec. 80.369(b)
for distress and safety communications (this capability may be added to
the MF radiotelephone installation);
(iii) Be equipped with a narrow-band direct-printing radiotelegraph
system with SITOR meeting the requirements of Sec. 80.219;
(iv) Be equipped with at least two VHF transceivers capable of
being powered by the reserve power supply (one of the VHF transceivers
may be the VHF required by paragraph (c)(3)(ii) of this section);
(v) Be equipped with a Category 1, 406 MHz EPIRB meeting the
requirements of Sec. 80.1061;
(vi) Be equipped with a NAVTEX receiver meeting the requirements of
Sec. 80.1101(c)(1);
(vii) Be equipped with three two-way VHF radiotelephone apparatus
and two radar transponders in accordance with Sec. 80.1095;
(viii) In addition to the main power source, be equipped with an
emergency power source which complies with all applicable rules and
regulations of the U.S. Coast Guard (the satellite earth station, the
narrow-band direct-printing equipment and the 500 kHz autoalarm
receiver must be capable of being powered by the main and emergency
power sources);
(ix) Be equipped with a 500 kHz autoalarm receiver and a means of
recording or decoding any distress signal received for relay to the
Coast Guard or a public coast station;
(x) Participate in the AMVER system when on voyages of more than
twenty-four hours and have the capability of operating on at least four
of the AMVER HF duplex channels;
(xi) Carry at least one licensed operator to operate and maintain
all the ship's distress and safety radio communications equipment in
accordance with Secs. 80.159(c) and 80.169; and,
(xii) Maintain a continuous watch on 2182 kHz and 156.8 MHz, in
accordance with Sec. 80.305(b), when navigated.
(d) Subject to a determination by the United States Coast Guard
pursuant to Public Law No. 104-104, 110 Stat. 56 (1996) at Section 206,
each U.S. passenger vessel and each U.S. cargo vessel of 1,600 gross
tons and upward is exempt from the radiotelegraph provisions of part II
of title III of the Communications Act, provided that the vessel
complies fully with the requirements for the Global Maritime Distress &
Safety System (GMDSS) contained in subpart W of this part and obtains
either a Safety Certificate or endorsement as described in
Sec. 80.1067.
Note to paragraph (d): In a letter to the Commission, dated March
13, 1996, the United States Coast Guard noted that it may rely on the
Safety Certificate or endorsement described in Sec. 80.1067 as prima
facie evidence that the GMDSS has been installed and found to be
operating properly. The Coast Guard also stated that it retains the
authority for ensuring overall vessel safety and compliance with all
applicable domestic
[[Page 19560]]
and international laws, regulations and treaties.
* * * * *
[FR Doc. 96-10851 Filed 5-1-96; 8:45 am]
BILLING CODE 6712-01-P
Complete official Federal Register PDF
FR Doc. 96-10824 Removal of Part 159; National Capital Airports
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19784-19786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10824]
[[Page 19783]]
_______________________________________________________________________
Part VII
Department of Transportation
_______________________________________________________________________
Federal Aviation Administration
14 CFR Part 159
Removal of Part 159; National Capital Airports; Final Rule
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules
and Regulations
[[Page 19784]]
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 159
[Docket No. 28556; Amendment No. 159-32]
RIN 2120-AG05
Removal of Part 159; National Capital Airports
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Final rule; request for comment.
-----------------------------------------------------------------------
SUMMARY: The FAA is removing part 159, entitled ``National Capital
Airports,'' from Title 14, Code of Federal Regulations (14 CFR). That
part has prescribed regulations for the use and occupancy of Washington
National Airport and Washington Dulles International Airport, which now
are operated by the Washington Metropolitan Airports Authority and not
by the Federal government. Similar regulations have been adopted by the
Airports Authority, and the Federal regulations no longer govern use
and occupancy at either airport. This rulemaking action will remove
unnecessary Federal regulations from the Code of Federal Regulations.
EFFECTIVE DATE: The final rule is effective May 2, 1996. Comments on
this action must be received on or before June 3, 1996.
ADDRESSES: Comments on this notice may be delivered or mailed, in
triplicate, to: Federal Aviation Administration, Office of the Chief
Counsel, Attn: Rules Docket (AGC-200), Docket No. 28556, Room 915G, 800
Independence Avenue, SW., Washington, DC 20591. Comments submitted must
be marked: ``Docket No. 28556.'' Comments may also be sent
electronically to the following internet address:
[email protected]. Comments may be examined in Room 915G on
weekdays, except Federal holidays, between 8:30 a.m. and 5:00 p.m.
FOR FURTHER INFORMATION CONTACT:
Kevin Hehir, Airport Safety and Compliance Branch (AAS-310), Office of
Airport Safety and Standards, Federal Aviation Administration, 800
Independence Avenue SW., Washington, DC 20591; telephone 202-267-8224.
SUPPLEMENTARY INFORMATION:
Comments Invited
The final rule will remove part 159 from Title 14 of the Code of
Federal Regulations and clarify that the Washington Metropolitan
Airports Authority is responsible for adoption and enforcement of
regulations that apply to National Airport and Dulles International
Airport. This final rule is an administrative and procedural action
consistent with the objectives of Executive Order 12866. Because these
regulations are no longer in effect by operation of law, the final rule
is being adopted without notice and prior public comment. However, DOT
regulatory policies and procedures encourage operating administrations
to provide an opportunity for public comment on regulations issued
without prior notice.
Accordingly, interested persons are invited to participate in this
rulemaking by submitting such written data, views, or arguments as they
may desire. Comments relating to the environmental, energy, federalism,
or economic impact that might result from promulgating the final rule
are also invited. Substantive comments should be accompanied by cost
estimates. All comments received on or before the closing date for
comments will be considered by the agency. The action taken in this
final rule may be changed in light of the comments received. All
comments received both before and after the closing date for comments
will be available for review by interested persons in the Rules Docket.
A report summarizing each substantive public contact with FAA personnel
on this rulemaking will be included in the docket. Commenters who would
like the FAA to acknowledge receipt of comments on this final rule must
include with the comments a preaddressed, stamped postcard that states
``Comments to Docket No. 28556.'' The postcard will be date-stamped and
returned to the commenter.
Background
On October 18, 1986, the Metropolitan Washington Airports Act of
1986 was signed by the President (49 U.S.C. App. 2452 et seq.). The
1986 act authorized the Federal government to transfer operating
responsibility for Washington National Airport and Washington Dulles
International Airport, under a long-term lease of 50 years, to an
independent local agency. That local agency is the Metropolitan
Washington Airports Authority--a public body with regulatory authority
created under the laws of the Commonwealth of Virginia and the District
of Columbia. One of the purposes of the 1986 act was to ``achieve local
control, management, operation, and development'' of both airports (49
U.S.C. App. 2453(a)). Part of that local control includes day-to-day
operation, and regulation of the use and occupancy, of both airports by
the local Airports Authority.
In the 1986 act, Congress provided a mechanism to facilitate smooth
transition of operational control and responsibility to the Airports
Authority, such as ensuring the continuation of regulations that
governed the use and occupancy of National Airport and Dulles
International Airport. Under Sec. 6005(c)(5) of the act (49 U.S.C. App.
2455(c)(5)), the regulations in part 159 were to become the regulations
of the Metropolitan Washington Airports Authority on June 7, 1987, the
date the long-term lease between the Federal government and the
Airports Authority was effective. Under the 1986 act, those regulations
were to be effective as regulations of the Airports Authority until
modified or revoked by the Airports Authority under procedures
developed for such administrative actions.
This transition mechanism was intended to enable the Metropolitan
Washington Airports Authority to continue to rely on the Federal
regulations, with certain exceptions noted in the 1986 act, for only a
short time. However, on April 1, 1987, the Metropolitan Washington
Airports Authority adopted its own regulations for National Airport and
Dulles International Airport by Resolution 87-5. Thus, use and
occupancy regulations actually were effective shortly after formation
of the Airports Authority on October 18, 1986, and several months in
advance of the lease effective date of June 7, 1987. Adoption of those
regulations by the Airports Authority essentially eliminated the need
for regulations contained in 14 CFR part 159.
Congress authorized the Airports Authority to ``* * * maintain,
improve, operate, protect, and promote * * *'' the Washington
Metropolitan Airports (49 U.S.C. 2457(c).) The Airports Authority's
regulations, adopted in 1987, assist the daily operation of the
airports and have been effective and used continuously by the Airports
Authority and the public since the creation of the local entity and the
transfer of both airports. Copies of the regulations generally are
available at local libraries near either airport and upon request from
the Office of Legal Counsel for the Metropolitan Washington Airports
Authority. The Office of Legal Counsel is located in Alexandria,
Virginia; the telephone number is (703) 739-8615.
[[Page 19785]]
Recent Regulatory Reviews
Both DOT and the FAA have conducted regulatory reviews and
requested comment on regulations that could be eliminated to reduce any
unnecessary or undue regulatory burdens consistently with the FAA's
statutory safety, security, and public interest responsibilities. (See
57 FR 4744, February 7, 1992; 59 FR 1362, January 10, 1994.) There were
no comments supporting retention or advocating elimination of part 159
in response to either request for comment. In both notices of
regulatory review, DOT and the FAA stated that changes, including
repeal where appropriate, would be considered to ensure that
regulations and regulatory programs were consistent with Presidential
direction regarding the regulatory review. Eliminating the regulations
in part 159 is consistent with the requirements of Executive Order
12866 (September 30, 1993). Specifically, that order requires Federal
agencies to ``identify regulations that are cumulative, obsolete, or
inconsistent, and where appropriate, eliminate or modify them.''
This action will not alter any existing responsibility for, or the
enforcement of, the regulations that now apply to use and occupancy of
Washington National Airport and Washington Dulles International
Airports. Despite legal challenges to certain provisions of the 1986
act, the validity of the regulations adopted in 1987 by the Airports
Authority has not been questioned. (See 501 U.S. 252 (1991) and 36 F.3d
97 (1994), 115 S.Ct. 934 (1995).) In addition, a specific savings
clause included in subsequent legislation enacted in 1991 would ensure
the continued vitality of the regulations adopted in 1987. (See 7004(b)
of Pub. L. 102-240, December 18, 1991.) The Airports Authority, the
Federal government, and the public continue to rely on the local
regulations, and not the Federal regulations in part 159, for use and
operations at both airports. The FAA does not envision any future need
for the Federal regulations on the part of the Federal government, the
general public, or the Airports Authority. Continued publication of
these regulations is neither necessary nor cost-effective and they
should be removed from the CFR.
Paperwork Reduction Act
There is no requirement to collect or submit information associated
with this rulemaking. Any information collection requirements
associated with part 159 will be eliminated when this part is removed
from the Code of Federal Regulations. Therefore, there are no issues of
compliance regarding the Paperwork Reduction Act of 1980 (Pub. L. 96-
5111), as amended by the Paperwork Reduction Act of 1995 (Pub. L. 104-
13, May 22, 1995), or OMB implementing regulations (60 FR 44978; August
29, 1995).
Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980 was enacted by Congress to
ensure that small entities are not unnecessarily or disproportionately
burdened by regulations. The Act requires Federal agencies to analyze
the economic effect of regulatory changes on small entities. A
regulatory flexibility analysis is required if a proposal will have a
significant economic impact on a substantial number of small business
entities. Removing these obsolete and possibly inconsistent regulations
that apply only to the Washington Metropolitan Airports will not have a
significant effect on any small business entities under the criteria of
the Regulatory Flexibility Act or FAA Order 2100.14A, ``Regulatory
Flexibility Criteria and Guidance,'' which establishes threshold costs
and size standards to assist compliance with the act.
International Trade Impact Analysis
The Office of Management and Budget directs Federal agencies to
assess the effect of regulatory changes on international trade.
Removing part 159 will have no impact on trade for U.S. firms doing
business in foreign countries or foreign firms doing business in the
United States. Thus, adopting this final rule will not constitute a
barrier to international trade.
Federalism Implications
The final rule will not have substantial direct effects 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. In fact, adopting this final rule is
consistent with the transfer of operating authority and responsibility
to a local public entity as directed by Congress in the Washington
Metropolitan Airports Act of 1986. Therefore, in accordance with
Executive Order 12612, this final rule does not have sufficient
federalism impacts to warrant the preparation of a federalism
assessment.
Conclusion
Removing part 159 from the Code of Federal Regulations is not a
significant regulatory action under the criteria in Executive Order
12866, entitled ``Regulatory Planning and Review,'' issued on September
30, 1993 (58 FR 51735; October 4, 1993), or the guidance issued by the
Office of Management and Budget for implementation of E.O. 12866 (dated
October 12, 1993). This rulemaking action also is not significant under
DOT Order 2100.5, ``Policies and Procedures for Simplification,
Analysis, and Review of Regulations.'' Removing part 159 is not
expected to have any economic impact on the use and occupancy or daily
operation of the Washington Metropolitan Airports. The FAA has not
identified any specific economic consequences attributable to
eliminating these redundant regulations. To the extent this rulemaking
action has any economic impact, the only impact will be the savings to
the Federal government realized by discontinuing publication of this
part in the CFR. If there are any costs or benefits associated with
removing part 159, the FAA expects their value, if any, to be minimal
under the criteria of applicable Executive Orders, statutes, or
regulations. Since there are no costs expected to accrue and only
minimal benefits are anticipated, the FAA is not required to prepare a
full regulatory evaluation of this final rule.
Reason for No Notice and Immediate Adoption
Under Sec. 6005(c)(5) of the Metropolitan Airports Act of 1986 (49
U.S.C. App. 2455(c)(5)), the regulations in part 159 were to become the
regulations of the Metropolitan Washington Airports Authority on June
7, 1987, the date the long-term lease between the Federal government
and the Airports Authority was effective. Under the 1986 act, those
regulations were to be effective as regulations of the Airports
Authority, until modified or revoked by the Airports Authority, under
procedures developed for such administrative actions.
On April 1, 1987, the Metropolitan Washington Airports Authority
adopted its own regulations for National Airport and Dulles
International Airport by Resolution 87-5. Thus, local use and occupancy
regulations actually were effective shortly after formation of the
Airports Authority on October 18, 1986, and several months in advance
of the lease effective date on June 7, 1987. The regulations authorized
by Congress and adopted by the local agency for the expressed purpose
of transferring
[[Page 19786]]
operating authority and responsibility for the airports have been
effective and used continuously by the Airports Authority and the
public since the creation of the local entity and the transfer of both
airports. The regulations are generally available at local libraries
near either airport and are available upon request from the Office of
Legal Counsel for the Metropolitan Washington Airports Authority.
Adoption of the final rule, therefore, will have no effect on
operations of the Metropolitan Washington Airports, the users of the
airport, the general public, the Airports Authority, or the Federal
government.
Accordingly, notice and public comment are unnecessary. In
addition, good cause exists, under Sec. 553(d) of the Administrative
Procedure Act (5 U.S.C. 553(d)), to make this amendment effective in
fewer than 30 days. In accordance with DOT regulatory policies and
procedures, an opportunity for public comment on the final rule is
provided.
List of Subjects in 14 CFR Part 159
Air carriers, Air traffic control, Aircraft, Airports, District of
Columbia, Federal buildings and facilities, Fire prevention, Law
enforcement. Reporting and recordkeeping requirements, Security
measures, Traffic regulations.
The Amendment
Accordingly, pursuant to 49 U.S.C. 44701, the Federal Aviation
Administration amends 14 CFR by removing part 159.
Issued in Washington, DC, on April 26, 1996.
David R. Hinson,
Administrator.
[FR Doc. 96-10824 Filed 5-1-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-10790 Federal Motor Vehicle Safety Standards; Hydraulic Brake Systems
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19561-19562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10790]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
49 CFR Part 571
[Docket No. 96-29, Notice 01]
RIN 2127-AG28
Federal Motor Vehicle Safety Standards; Hydraulic Brake Systems
AGENCY: National Highway Traffic Safety Administration (NHTSA),
Department of Transportation.
ACTION: Final rule, technical amendment.
-----------------------------------------------------------------------
SUMMARY: This document deletes an obsolete section of Standard No. 105,
Hydraulic brake systems, that relates to an optional burnish procedure.
This section is obsolete because the time period to which it specifies
is in the past.
EFFECTIVE DATE: This rule is effective June 3, 1996.
FOR FURTHER INFORMATION CONTACT: For nonlegal issues: Mr. Robert M.
Clarke, Office of Crash Avoidance, telephone (202) 366-4923.
For legal issues: Mr. Marvin Shaw, Office of Chief Counsel, NCC-20,
(202) 366-2992. Both may be reached at the National Highway Traffic
Safety Administration, 400 Seventh St., S.W., Washington, D.C. 20590.
SUPPLEMENTARY INFORMATION: Pursuant to the President's March 4, 1995,
directive, ``Regulatory Reinvention Initiative,'' to the heads of
departments and agencies, NHTSA undertook a review of all its
regulations and directives. During the course of this review, the
agency identified several requirements and regulations that are
potential candidates for rescission. In reviewing Standard No. 105, the
agency concluded that a section relating to the optional burnish
requirements in S7.4.2.1(a) was obsolete and should be deleted.1
The optional burnish requirements applied to vehicles manufactured
before September 1, 1994, because the agency wanted to provide this
option for a finite period of time. To improve the clarity and
conciseness of Standard No. 105, the agency is deleting S7.4.2.1(a)
from the standard.
---------------------------------------------------------------------------
\1\ During this review, the agency identified another obsolete
reference in S7 which was deleted in a December 13, 1995, final rule
(60 FR 63965).
---------------------------------------------------------------------------
NHTSA finds good cause to make this amendment effective 30 days
after publication of this document. This amendment makes a minor change
to Standard No. 105.
NHTSA also finds for good cause that notice and an opportunity for
comment on this document are unnecessary. This document does not impose
any additional responsibilities on any manufacturer. Instead, this
document simply removes an outdated provision in the standard.
Rulemaking Analyses and Notices
Executive Order 12866 and DOT Regulatory Policies and Procedures
This rulemaking document was not reviewed under E.O. 12866,
``Regulatory Planning and Review.'' Further, this action has been
determined to be not ``significant'' under the Department of
Transportation's regulatory policies and procedures. This rule removes
an outdated portion of Standard 105 without changing any of the
requirements in the standard. Because this rule does not affect any
substantive requirement of the hydraulic brake standard, its impacts
are so minimal as not to warrant preparation of a full regulatory
evaluation.
Regulatory Flexibility Act: NHTSA has also considered the impacts
of this rule under the Regulatory Flexibility Act. I hereby certify
that this rule will not have a significant economic impact on a
substantial number of small entities. As noted above, this rule simply
removes an outdated portion of Standard 105. It has no effect
whatsoever on the manufacture or sale of vehicles.
National Environmental Policy Act: NHTSA has also analyzed this
rule under the National Environmental Policy Act and determined that it
will not have a significant impact on the human environment.
Executive Order 12612 (Federalism): NHTSA has analyzed this rule in
accordance with the principles and criteria contained in E.O. 12612,
and has determined that this rule will not have significant federalism
implications to warrant the preparation of a Federalism Assessment.
Civil Justice Reform: This rule will not have any retroactive
effect. Under 49 U.S.C. 30103, whenever a Federal motor vehicle safety
standard is in effect, a State may not adopt or maintain a safety
standard applicable to the same aspect of performance which is not
identical to the Federal standard, except to the extent that the state
requirement imposes a higher level of performance and applies only to
vehicles procured for the State's use. 49 U.S.C. 30161 sets forth a
procedure for judicial review of final rules establishing, amending or
revoking Federal motor vehicle safety standards. That section does not
require submission of a petition for reconsideration or other
administrative proceedings before parties may file suit in court.
List of Subjects in 49 CFR Part 571
Imports, Motor vehicle safety, Motor vehicles, Rubber and rubber
products, Tires.
In consideration of the foregoing, the agency is amending 49 CFR
571.105, Hydraulic brake systems, to read as follows:
PART 571--FEDERAL MOTOR VEHICLE SAFETY STANDARDS
1. The authority citation for part 571 continues to read as
follows:
Authority: 49 U.S.C. 322, 30111, 30115, 30117, and 30166;
delegation of authority at 49 CFR 1.50.
Sec. 571.301 [Amended]
2. Section 571.105 is amended by revising S7.4.2.1 to read as
follows:
[[Page 19562]]
Sec. 571.105 Standard No. 105, Hydraulic Brake Systems.
* * * * *
S7.4.2.1 Burnish. Vehicles are burnished according to the
following procedures. Make 500 snubs between 40 mph and 20 mph at a
deceleration rate of 10 f.p.s.p.s. Except where an adjustment is
specified, after each brake application accelerate to 40 mph and
maintain that speed until making the next brake application at a point
1 mile from the initial point of the previous brake application. If the
vehicle cannot attain a speed of 40 mph in 1 mph, continue to
accelerate until the vehicle reaches 40 mph or until the vehicle has
traveled 1.5 miles from the initial point of the previous brake
application, whichever occurs first. The brakes shall be adjusted three
times during the burnish procedure, in accordance with the
manufacturer's recommendations, after 125, 250, and 375 snubs.
* * * * *
Issued on April 25, 1996.
Barry Felrice,
Associate Administrator for Safety Performance Standards.
[FR Doc. 96-10790 Filed 5-1-96; 8:45 am]
BILLING CODE 4910-59-P
Complete official Federal Register PDF
FR Doc. 96-10789 Federal Motor Vehicle Safety Standards; Seat Belt Assembly Anchorages
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19560-19561]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10789]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
National Highway Traffic Safety Administration
49 CFR Part 571
[Docket No. 96-21; Notice 01]
RIN 2127-AF68
Federal Motor Vehicle Safety Standards; Seat Belt Assembly
Anchorages
AGENCY: National Highway Traffic Safety Administration (NHTSA), DOT.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This rule deletes two owner's manual requirements in Standard
No. 210, ``Seat Belt Anchorages.'' Standard No. 210 requires that
manufacturers include a diagram in their owner's manuals showing the
location of any shoulder belt anchorages required by the standard, if
the vehicle is not equipped with shoulder belts at those locations.
Standard No. 210 also requires the inclusion of owner's manual
information concerning the use and the installation of child safety
seats in vehicles equipped with an automatic belt at the right front
outboard seating position, if the belt cannot be used to secure a child
seat. NHTSA believes it is appropriate to delete these requirements
because they are or soon will be obsolete.
DATES: Effective Dates: The removal of paragragh S6(c) of Sec. 571.210
is effective June 3, 1996. The removal of S7 of Sec. 571.210 is
effective September 1, 1998.
Petition Date: Any petitions for reconsideration must be received
by NHTSA no later than June 17, 1996.
ADDRESS: Any petitions for reconsideration should refer to the docket
and notice number of this notice and be submitted to: Administrator,
National Highway Traffic Safety Administration, 400 Seventh Street SW.,
Washington, DC 20590.
FOR FURTHER INFORMATION CONTACT: The following persons at the National
Highway Traffic Safety Administration, 400 Seventh Street SW.,
Washington, DC 20590:
For non-legal issues: Clarke B. Harper, Office of Crashworthiness
Standards, NPS-11, telephone (202) 366-4916, facsimile (202) 366-4329,
electronic mail ``[email protected]''.
For legal issues: Mary Versailles, Office of the Chief Counsel,
NCC-20, telephone (202) 366-2992, facsimile (202) 366-3820, electronic
mail ``[email protected]''.
SUPPLEMENTARY INFORMATION: Pursuant to the March 4, 1995 directive,
``Regulatory Reinvention Initiative,'' from the President to the heads
of departments and agencies, NHTSA undertook a review of all its
regulations and directives. During the course of this review, the
agency identified several requirements and regulations that are
potential candidates for amendment or rescission, including two owner's
manual information requirements in Standard No. 210, ``Seat Belt
Assembly Anchorages.''
NHTSA believes that these requirements should be deleted because
they are or soon will be obsolete. The first requirement is in
paragraph S6(c), which requires that vehicle manufacturers include a
diagram in their vehicle owner's manuals showing the location of any
shoulder belt anchorages required by the standard, if their vehicles
are not equipped with shoulder belts at those locations. This
requirement was intended to ensure that consumers were aware of the
existence of beltless anchorages in rear seating locations. The other
requirement is in paragraph S7, which requires the inclusion of owner's
manual information concerning the use and the installation of child
safety seats in vehicles equipped with an automatic belt at the right
front outboard seating position, if the belt cannot be used to secure a
child seat.
Paragraph S6(c) is currently not applicable to any vehicle. Since
September 1, 1991, all rear seating positions which are required by
Standard No. 210 to have a shoulder belt anchorage are also required by
Standard No. 208, ``Occupant Crash Protection,'' to have shoulder belts
installed. As there are no longer any required, but unused, rear
outboard shoulder belt anchorages, the agency is deleting this
requirement.
With regard to the requirements of S7 of Standard No. 210 requiring
information concerning installation of child restraints in a seating
position with an automatic belt, several recent amendments to Standard
No. 208 will make this owner's manual requirement obsolete after
September 1, 1998. First, a final rule published on September 2, 1993,
requires an air bag and manual belt at the right front outboard seating
position in passenger cars and light trucks by September 1, 1998 (58 FR
46551). After that date, automatic belts will not be installed in those
seating positions. Second, a final rule published on October 13, 1993,
requires manual belts installed at any seating position other than the
driver's position in vehicles manufactured after September 1, 1995, to
be capable of tightly securing a child safety seat without the
necessity of the user's attaching any device to the safety belt system
(58 FR 52922). This ``lockability'' requirement will also be described
in the owners manual. The combination of the manual belt requirement
and the lockability requirement will make Section 7 of 210 obsolete
after September 1, 1998.
NHTSA is not soliciting public comment on these amendments. NHTSA
finds for good cause that notice and opportunity to comment are
unnecessary because the amendments are technical in nature. They delete
requirements addressing circumstances that have been or will be
eliminated by other requirements in the Federal Motor Vehicle Safety
Standards.
Rulemaking Analyses and Notices
Executive Order 12866 and DOT Regulatory Policies and Procedures
NHTSA has considered the impact of this rulemaking action under
E.O. 12866 and the Department of Transportation's regulatory policies
and procedures. This rulemaking document was not reviewed under E.O.
12866, ``Regulatory Planning and Review.'' This action has been
determined to be not ``significant'' under the Department of
Transportation's regulatory policies and procedures. Because this rule
deletes obsolete provisions, no cost or saving will result.
Regulatory Flexibility Act: NHTSA has also considered the impacts
of this rule under the Regulatory Flexibility Act. I hereby certify
that this rule will not have a significant economic impact on a
substantial number of small entities. As explained above, NHTSA does
not anticipate any economic impact from this rulemaking action.
Paperwork Reduction Act: In accordance with the Paperwork Reduction
Act of 1980 (P.L. 96-511), there are no requirements for information
collection associated with this rule.
National Environmental Policy Act: NHTSA has also analyzed this
rule under the National Environmental Policy Act and determined that it
will not have a significant impact on the human environment.
Executive Order 12612 (Federalism): NHTSA has analyzed this rule in
accordance with the principles and criteria contained in E.O. 12612,
and
[[Page 19561]]
has determined that this rule will not have significant federalism
implications to warrant the preparation of a Federalism Assessment.
Civil Justice Reform: This rule does not have any retroactive
effect. Under 49 U.S.C. 30103, whenever a Federal motor vehicle safety
standard is in effect, a State may not adopt or maintain a safety
standard applicable to the same aspect of performance which is not
identical to the Federal standard, except to the extent that the state
requirement imposes a higher level of performance and applies only to
vehicles procured for the State's use. 49 U.S.C. 30161 sets forth a
procedure for judicial review of final rules establishing, amending or
revoking Federal motor vehicle safety standards. That section does not
require submission of a petition for reconsideration or other
administrative proceedings before parties may file suit in court.
List of Subjects in 49 CFR Part 571
Imports, Motor vehicle safety, Motor vehicles.
In consideration of the foregoing, 49 CFR Part 571 is amended as
follows:
PART 571--FEDERAL MOTOR VEHICLE SAFETY STANDARDS
1. The authority citation for Part 571 of Title 49 continues to
read as follows:
Authority: 49 U.S.C. 322, 30111, 30115, 30117, and 30166;
delegation of authority at 49 CFR 1.50.
2. Sec. 571.210 is amended by removing paragraph S6(c) and S7.
Issued on April 25, 1996.
Ricardo Martinez,
Administrator.
[FR Doc. 96-10789 Filed 5-1-96; 8:45 am]
BILLING CODE 4910-59-P
Complete official Federal Register PDF
FR Doc. 96-10743 Charter Service; Transportation for Elderly and Handicapped Persons
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19562-19563]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10743]
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DEPARTMENT OF TRANSPORTATION
Federal Transit Administration
49 CFR Parts 604 and 609
RIN 2132-AA46
Charter Service; Transportation for Elderly and Handicapped
Persons
AGENCY: Federal Transit Administration, DOT.
ACTION: Final rule.
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SUMMARY: This rule removes and updates obsolete sections of the Federal
Transit Administration's Charter Service and Transportation for Elderly
and Handicapped Persons regulations, which have been superseded by the
Department of Transportation's regulation implementing the Americans
with Disabilities Act of 1990, replaces references to the former
Federal Transit Act, as amended (49 U.S.C. app Secs. 1601 et seq.) with
references to Chapter 53 of Title 49 of the United States Code, and
redesignates Appendix B of the Charter Service regulation as Appendix A
of the Transportation for Elderly and Handicapped Persons regulation.
EFFECTIVE DATE: May 2, 1996.
FOR FURTHER INFORMATION CONTACT: Richard L. Wong, Attorney-Advisor,
Office of the Chief Counsel, Phone: (202) 366-1936 (voice).
SUPPLEMENTARY INFORMATION: Part 609 of 49 CFR set forth regulatory
requirements of the Federal Transit Administration on transportation
for the elderly and persons with disabilities under sections 5 and 16
of the former Federal Transit Act, as amended (49 U.S.C. app.
Secs. 1604 and 1612). These requirements included transportation
planning in urbanized areas, transportation planning in nonurbanized
areas, accessible transportation facilities, and accessible buses,
rapid rail vehicles, light rail vehicles, and other vehicles.
The specification for accessible transportation facilities and
vehicles have now been superseded by the Department of Transportation's
regulation implementing the Americans with Disabilities Act of 1990 (49
CFR Parts 27, 37, and 38), and the special efforts planning
requirements for urbanized areas are located in the joint FHWA/FTA
Statewide and Metropolitan Planning Rules (49 CFR Part 613 and 23 CFR
Part 450, respectively).
In addition, 49 CFR Part 604, Charter Service, Appendix B, contains
a series of questions and answers regarding the definitions addressed
under 49 CFR Part 609. This final rule moves Appendix B to Part 609, a
more appropriate location, and makes several technical amendments
reflecting that change and the codification of the former Federal
Transit Act (now 49 U.S.C. Chapter 53).
Regulatory Analyses and Notices
This is not a significant rule under Executive Order 12866 or under
the Department's Regulatory Policies and Procedures. It does not impose
costs on regulated parties. It merely removes several superseded
sections of a regulation and consolidates the effective sections. There
are not sufficient Federalism implications to warrant a Federalism
Assessment. The Department certifies that this rule will not have a
significant economic impact on a substantial number of small entities.
Under the Administrative Procedure Act (5 U.S.C. 553), FTA
determines that notice and an opportunity for comment are
impracticable, unnecessary, and contrary to the public interest. The
amendments made in this document are ministerial, removing obsolete and
redundant material and making minor technical and terminological
changes. FTA expects these changes to have no substantive impact and
does not anticipate receiving meaningful comments on them. Therefore,
because it would be contrary to the public interest to unnecessarily
delay this effort to eliminate and revise outdated rules, FTA is not
seeking public comment on these changes to 49 CFR.
List of Subjects in 49 CFR Parts 604 and 609
Elderly and handicapped; charter service.
For the reasons set forth, the Department amends 49 CFR Parts 609
and 604 as follows:
PARTS 604 AND 609--[AMENDED]
1. The authority citation for 49 CFR Part 604 continues to read as
follows:
Authority: 49 U.S.C. 5323(d); 23 U.S.C. 103(e)(4); 142(a); and
142(c); and 49 CFR 1.51.
2. The authority citation for 49 CFR Part 609 is revised to read as
follows:
Authority: 49 U.S.C 5307(d) and 5308(b); 23 U.S.C. 134,135 and
142; 29 U.S.C. 794; 49 CFR 1.51.
Appendix B [Redesignated]
3. 49 CFR Part 604, Appendix B is redesignated as 49 CFR Part 609,
Appendix A.
Appendix A [Amended]
4. In newly designated Appendix A to Part 609, the first sentence
of the second paragraph is amended by deleting ``Sec. 604.9(b)(6)'' and
replacing it with ``this part''.
5. In newly designated Appendix A to Part 609, the first sentence
of Answer 3 is amended by replacing ``section 16 of the FT Act'' with
``section 5302(a)(5) of the Federal transit laws (49 U.S.C. Chapter
53)''.
6. In newly designated Appendix A to Part 609, the second sentence
of Answer 5 is amended by replacing ``FTA's elderly and handicapped
regulation'' with ``the Department of Transportation's ADA
regulation''.
Sec. 609.5 [Amended]
7. Section 609.5 is amended by replacing ``sections 3, 5, or 9 of
the Federal Mass Transit Act of 1964, as amended (49 U.S.C. 1602, 1604,
or 1607a)'' with ``sections 5307 or 5308 of the Federal transit laws
(49 U.S.C. Chapter 53)''.
Sec. 609.23 [Amended]
8. Section 609.23 is amended by replacing ``section 5 of the
Federal Mass Transit Act of 1964, as amended (49 U.S.C. 1604)'' with
``section 5307 of the Federal transit laws (49 U.S.C. Chapter 53).
Secs. 609.5 and 609.23 [Amended]
9. Sections 609.5 and 609.23 are amended by removing the words
``Federal Mass Transit Administrator'' and adding in their place, the
words ``Federal Transit Administrator''.
[[Page 19563]]
10. Sections 609.7, 609.9, 609.11, 609.13, 609.15, 609.17, 609.19,
609.21, and 609.25 are removed.
Issued this 25th day of April 1996, at Washington, D.C.
Gordon J. Linton,
Administrator.
[FR Doc. 96-10743 Filed 5-1-96; 8:45 am]
BILLING CODE 4910-57-U
Complete official Federal Register PDF
FR Doc. 96-10739 Employment (General); Use of Private Sector Temporaries
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19509-19511]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10739]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
week.
========================================================================
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules
and Regulations
[[Page 19509]]
OFFICE OF PERSONNEL MANAGEMENT
5 CFR Part 300
RIN 3206-AE80
Employment (General); Use of Private Sector Temporaries
AGENCY: Office of Personnel Management.
ACTION: Final regulation.
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SUMMARY: The Office of Personnel Management (OPM) is issuing final
regulations to authorize Federal agencies to use private sector
temporaries for 120 workdays instead of 120 calendar days. In addition,
agencies are delegated authority to extend the use of private sector
temporaries for up to an additional 120 workdays. Agencies purchase
temporary help services through the Federal procurement process
following all applicable laws and regulations relating to the purchase
of goods or services from the private sector.
EFFECTIVE DATE: June 3, 1996.
FOR FURTHER INFORMATION CONTACT: Ellen Russell on 202-606-0830, FAX
202-606-2329, or TDD 202-606-0023.
SUPPLEMENTARY INFORMATION: On September 8, 1995, (60 FR 46780) OPM
published proposed regulations to permit agencies to use temporary help
services for 120 workdays instead of 120 calendar days. Under the
proposal, the new 120-workday limit would also apply to an agency's use
of a particular individual from a firm, a change from the previous 45-
workday limit.
These changes give agencies more flexibility to conduct their
operations, as recommended by the National Performance Review. However,
in exercising their discretion to use temporary help services, agencies
must honor their labor relations obligations under Chapter 71 of Title
5 of the U.S. Code and Executive Order 12871.
OPM maintains its view that continuing work is most appropriately
performed by permanent Federal employees. Thus, the final regulations
continue the prohibitions on using temporary help services to displace
Federal employees or in place of regular civil service procedures for
permanent appointment. The regulations continue previous provisions
permitting the use of temporary help services only when there are no
current agency employees who could be spared to do the work, when there
are no former employees available on the agency's reemployment priority
list, or when there are no applicants available for temporary Federal
employment within the timeframe needed.
In addition, the final regulations add two new prohibitions against
use of temporary help services. First, agencies are not permitted to
use such services to circumvent controls on employment levels. This
means agencies could not use temporary help services merely because
hiring was frozen or ceiling levels were insufficient. Second, agencies
are not permitted to use temporary help services in lieu of appointing
a surplus or displaced Federal employee as required by the President's
memorandum of September 12, 1995, entitled ``Career Transition
Assistance for Federal Employees.'' OPM regulations implementing the
President's memorandum were published on December 29, 1995. These
interim regulations in 5 CFR part 330 provide a new subpart F, Agency
Career Transition Assistance Plans for Local Surplus and Displaced
Employees and a new subpart G, Interagency Career Transition Assistance
Plan for Displaced Employees.
The final regulations replace the annual reporting requirement with
a provision for agencies to report to OPM on an as-requested basis.
Agencies have to maintain the records necessary for such reports and
for their own internal evaluations. Agency adherence to these
regulations continues to be subject to review under OPM's oversight
function.
Finally, the final regulations make several minor editorial
changes.
Comments
We received comments from four Federal agencies, two unions, and
one private sector temporary help services firm.
One agency commenter suggested permitting the use of private sector
temporaries to accomplish project work to help management more
adequately manage changing workloads. We have not adopted this
suggestion because agencies can use temporary or term Federal
appointments to handle project work. Agencies can make temporary
appointments for up to 1 year with one extension of not more than 1
year. Agencies can make term appointments for more than 1 year up to 4
years. Further, the regulations already permit the use of private
sector temporaries for temporary work which cannot be delayed because
of critical need. If an agency could not accomplish a critical project
with current employees or by hiring temporary or term employees, the
agency could use private sector temporaries.
Two agency commenters suggested we drop the requirement for OPM
approval when agencies need to continue the use of private sector
temporaries beyond the 120-workday limit. We agree with this suggestion
and have modified the regulations to delegate the agencies authority to
extend their use of private sector temporaries for a second period of
up to 120 workdays without OPM approval. This change also means that an
agency could use a particular individual from a temporary help services
firm for the initial 120 workdays plus any extension of up to 120
workdays, as approved by the agency, up to a maximum of 240 workdays in
a 24-month period. This limitation on the use of a specific individual
from a temporary help services firm applies to multiple situations
where the use of temporary help services is appropriate. For example, a
major headquarters component of an agency may use a specific
individual, Mr. O, to fill in for an ill employee for up to a maximum
of 240 workdays. That headquarters component could not use Mr. O
again--under any temporary help services contract--until 24 months had
passed from the first day of Mr. O's assignment.
One agency commenter suggested the regulations permit OPM to grant
additional waivers to the 240-workday limit for major reorganizations
due to downsizing, particularly when agencies need clerical support. We
have not adopted this suggestion. The final regulations already provide
for use of
[[Page 19510]]
temporary help services up to a maximum of 240 workdays (nearly a
year). We believe the 240-workday maximum gives agencies ample time to
locate and hire Federal employees, especially in light of the surplus
and displaced Federal employees who will be available as the Government
continues downsizing.
One agency commenter suggested we change the regulations to permit
agencies to use private sector temporaries when employees are on
vacation. Because downsizing has left many agencies shortstaffed, the
commenter believes there may be situations where managers would need to
use temporary help services when a key employee is on vacation.
We do not think this change is necessary because Sec. 300.503(a)(2)
already provides for the use of temporary help services for work which
cannot be delayed in the judgment of the agency because of a critical
need. Although we do not believe the use of temporary help service is
generally appropriate to fill in for Federal employees on vacation, the
need to carry out critical work would be sufficient justification for
the use of temporary help services even if a particular employee were
away on vacation.
One union commenter stated that Federal agencies should be able to
use private sector temporaries only when there is a critical need to
fill a position. Section 300.503 assures this is the case by permitting
use of private sector temporaries only when there are no current agency
employees who could be spared to do the work, there are no former
employees available on the agency's reemployment priority list, and
when there are no applicants available for temporary employment within
the timeframe needed.
The same commenter objected to the lengthened time limits on use of
temporary help services claiming that the longer timeframe would mean
that the private sector temporary employees would become integrated
into the day-to-day activities of the Federal office and thus become
subject to Federal supervision. Alternatively, the commenter claimed
that, as a result of using private sector temporaries for a longer
period, agency operations and service would suffer because the Federal
manager had no supervisory control over these individuals. The
commenter suggested agencies be permitted to use private sector
temporaries for periods longer than 120 calendar days only when
justified by the kind of analysis required when positions are
contracted out.
We have not adopted this suggestion. We believe that increasing the
maximum time limit from 120 calendar days to 120 workdays, and
permitting agencies to extend for up to another 120 workdays, does not
pose any risk because the basic requirements and prohibitions of the
original regulation remain intact: agencies cannot use temporary help
services to displace Federal employees or to fill permanent jobs;
agencies can use temporary help services only when the need could not
be met with current employees, employees on the agency's reemployment
priority list, or through the direct appointment of temporary Federal
employees within the timeframe required by the agency. In addition, the
final regulations contain additional prohibitions: agencies cannot use
temporary help services to circumvent controls on employment levels or
in lieu of hiring surplus or displaced Federal employee. Given these
conditions, an agency manager would have to determine that using
temporary help services is the only way to maintain necessary services
and operations.
We have, however, changed a provision in response to the union's
concerns. The proposed regulation permitted an agency to use the same
individual from a temporary help services firm for up to 240 workdays,
with OPM approval, in a 12-month period. Thus, the individual could
have worked in an agency office for 240 out of a possible 260 workdays
in each year. We have changed the limitation so that an individual from
a firm could work in an agency office for only 240 workdays in a 24-
month period. The limitation applies to a major organizational element
(headquarters or field) of a agency.
The second union commenter suggested that the regulation require
agencies to bargain on the use of temporary help services. We did not
accept this suggestion because the Federal Labor Relations Authority
(FLRA), not OPM, decides duty-to-bargain issues.
The comments from the private sector firm supported the change from
120 calendar days to 120 workdays.
Regulatory Flexibility Act
I certify that these regulations will not have a significant
economic impact on a substantial number of small entities for the
following reasons:
1. OPM is not regulating entities (including businesses) of any
size, or imposing record keeping, reporting, or other compliance
requirements on them. OPM is regulating the conduct of Federal agencies
if they choose to use temporary help firms.
2. The requirements entities must observe are generated through an
agency-initiated contracting process featuring competitive bidding
under the already-established, statutory Federal procurement system.
That system applies to all contractors providing goods and services to
the Government. The entities affected by that system are those who seek
a contract. Those who win a contract receive a beneficial economic
impact.
Executive Order 12866, Regulatory Review
This rule has been reviewed by the Office of Management and Budget
in accordance with Executive Order 12866.
List of Subjects in 5 CFR Part 300
Freedom of information, Government employees, Reporting and record
keeping requirements, Selective Service System.
Office of Personnel Management.
James B. King,
Director.
Accordingly, OPM is amending part 300 of title 5, Code of Federal
Regulations, as follows:
PART 300--EMPLOYMENT (GENERAL)
1. The authority citation for part 300 is revised to read as
follows:
Authority: 5 U.S.C. 552, 3301, 3302; E.O. 10577, 3 CFR, 1954-
1958 Comp., page 218, unless otherwise noted.
Secs. 300.101 through 300.104 also issued under 5 U.S.C. 7201,
7204, 7701; E.O. 11478, 3 CFR, 1966-1970 Comp., page 803.
Secs. 300.301 also issued under 5 U.S.C. 1104 and 3341.
Secs. 300.401 through 300.408 also issued under 5 U.S.C.
1302(c), 2301, and 2302.
Secs. 300.501 through 300.507 also issued under 5 U.S.C.
1103(a)(5).
Secs. 300.603 also issued under 5 U.S.C. 1104.
Secs. 300.801 through 300.802 issued under 5 U.S.C. 3328.
2. Section 300.502 is revised to read as follows:
Sec. 300.502 Coverage.
(a) These regulations apply to the competitive service and to
Schedules A and B in the excepted service.
(b) Agencies may not use temporary help services for the Senior
Executive Service or for the work of managerial or supervisory
positions.
3. In Sec. 300.503, paragraphs (c)(3) and (c)(4) are added to read
as follows:
Sec. 300.503 Conditions for using private sector temporaries.
* * * * *
[[Page 19511]]
(c) * * *
(3) To circumvent controls on employment levels.
(4) In lieu of appointing a surplus or displaced Federal employee
as required by 5 CFR part 330, subpart F (Agency Career Transition
Assistance Plan for Displaced Employees) and subpart G (Interagency
Career Transition Assistance Plan for Displaced Employees.)
4. In Sec. 300.504, paragraphs (a) and (b) are revised to read as
follows:
Sec. 300.504 Prohibition on employer-employee relationship.
* * * * *
(a) Time limit on use of temporary help service firm. An agency may
use a temporary help service firm(s) in a single situation, as defined
in Sec. 300.503, initially for no more than 120 workdays. Provided the
situation continues to exist beyond the initial 120 workdays, the
agency may extend its use of temporary help services up to the maximum
limit of 240 workdays.
(b) Time limit on use of individual employee of a temporary help
service firm. (1) An individual employee of any temporary help firm may
work at a major organizational element (headquarters or field) of an
agency for up to 120 workdays in a 24-month period. The 24-month period
begins on the first day of assignment.
(2) An agency may make an exception for an individual to work up to
a maximum of 240 workdays only when the agency has determined that
using the services of the same individual for the same situation will
prevent significant delay.
* * * * *
5. Section 300.505 is revised to read as follows:
Sec. 300.505 Relationship of civil service procedures.
Agencies continue to have full authority to meet their temporary
needs by various means, for example, redistributing work, authorizing
overtime, using in-house pools, and making details or time-limited
promotions of current employees. In addition, agencies may appoint
individuals as civil service employees on various work schedules
appropriate for the work to be performed.
6. Section 300.507 is revised to read as follows:
Sec. 300.507 Documentation and Oversight.
Agencies are required to maintain records and provide oversight to
establish that their use of temporary help service firms is consistent
with these regulations. As needed, OPM may require agencies to provide
information on their use of temporary help service firms.
[FR Doc. 96-10739 Filed 5-1-96; 8:45 am]
BILLING CODE 6325-01-M
Complete official Federal Register PDF
FR Doc. 96-10565 Approval and Promulgation of Implementation Plans; California State Implementation Plan Revision, San Joaquin Valley Unified Air Pollution Control District
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19555-19558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10565]
=======================================================================
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 52
[CA 070-0001a; FRL-5451-9]
Approval and Promulgation of Implementation Plans; California
State Implementation Plan Revision, San Joaquin Valley Unified Air
Pollution Control District
AGENCY: Environmental Protection Agency (EPA).
ACTION: Direct final rule.
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SUMMARY: EPA is taking direct final action on revisions to the
California State Implementation Plan (SIP). The revisions concern rules
from the San Joaquin Valley Unified Air Pollution Control District
(SJVUAPCD). This approval action will incorporate these rules into the
federally approved SIP. The intended effect of approving these rules is
to regulate emissions of volatile organic compounds (VOCs) in
accordance with the requirements of the Clean Air Act, as amended in
1990 (CAA or the Act). The rules control VOC emissions from the
transfer of gasoline into stationary storage containers, delivery
vessels, bulk plants, and vehicle fuel tanks. Thus, EPA is finalizing
the approval of these revisions into the California SIP under
provisions of the CAA regarding EPA action on SIP submittals, SIPs for
national primary and secondary ambient air quality standards and plan
requirements for nonattainment areas.
DATES: This action is effective on July 1, 1996, unless adverse or
critical comments are received by June 3, 1996. If the effective date
is delayed, a timely notice will be published in the Federal Register.
ADDRESSES: Copies of the rule revisions and EPA's evaluation report for
each rule are available for public inspection at EPA's Region IX office
during normal business hours. Copies of the submitted rules are
available for inspection at the following locations:
Rulemaking Section (A-5-3), Air and Toxics Division, U.S. Environmental
Protection Agency, Region IX, 75 Hawthorne Street, San Francisco, CA
94105.
Environmental Protection Agency, Air Docket (6102), 401 ``M'' Street,
S.W., Washington, D.C. 20460.
California Air Resources Board, Stationary Source Division, Rule
Evaluation Section, 2020 ``L'' Street, Sacramento, CA 95814.
San Joaquin Valley Unified Air Pollution Control District, 1999
Tuolumne Street, Fresno, CA 93721.
FOR FURTHER INFORMATION CONTACT: Christine Vineyard, Rulemaking Section
(A-5-3), Air and Toxics Division, U.S.
[[Page 19556]]
Environmental Protection Agency, Region IX, 75 Hawthorne Street, San
Francisco, CA 94105, Telephone: (415) 744-1197.
SUPPLEMENTARY INFORMATION:
Applicability
The SJVUAPCD rules being approved into the California SIP include:
Rule 4621, Gasoline Transfer into Stationary Storage containers,
Delivery Vessels, and Bulk Plants, and Rule 4622, Transfer of Gasoline
into Vehicle Fuel Tanks. These rules were submitted by the California
Air Resources Board (CARB) to EPA on November 18, 1993 and May 24,
1994, respectively.
Background
On March 3, 1978, EPA promulgated a list of ozone nonattainment
areas under the provisions of the Clean Air Act, as amended in 1977
(1977 Act or pre-amended Act), that included the San Joaquin Valley Air
Basin which includes the following eight air pollution control
districts (APCDs): Fresno County APCD, Kern County APCD,1 King
County APCD, Madera County APCD, Merced County APCD, San Joaquin County
APCD, Stanislaus County APCD, and Tulare County APCD. 43 FR 8964, 40
CFR 81.305. The SJVUAPCD has authority over the San Joaquin Valley Air
Basin which includes all the above eight counties except for the
Southeast Desert Air Basin portion of Kern County. Because these areas
were unable to meet the statutory attainment date of December 31, 1982,
California requested under section 172(a)(2), and EPA approved, an
extension of the attainment date to December 31, 1987.2 On May 26,
1988, EPA notified the Governor of California, pursuant to section
110(a)(2)(H) of the 1977 Act, that the above districts' portions of the
California SIP were inadequate to attain and maintain the ozone
standard and requested that deficiencies in the existing SIP be
corrected (EPA's SIP-Call). On November 15, 1990, the Clean Air Act
Amendments of 1990 were enacted. Pub. L. 101-549, 104 Stat. 2399,
codified at 42 U.S.C. 7401-7671q. In amended section 182 (a)(2)(A) of
the CAA, Congress statutorily adopted the requirement that
nonattainment areas fix their deficient reasonably available control
technology (RACT) rules for ozone and established a deadline of May 15,
1991 for states to submit corrections of those deficiencies.
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\1\ At that time, Kern County included portions of two air
basins: the San Joaquin Valley Air Basin and the Southeast Desert
Air Basin. The San Joaquin Valley Air Basin portion of Kern County
was designated as nonattainment, and the Southeast Desert Air Basin
portion of Kern County was designated as unclassified. See CFR
81.305 (1991).
\2\ This extension was not requested for the following counties:
Kern, Kings, Madera, Merced and Tulare. Thus, the attainment date
for these counties remained December 31, 1982.
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Section 182 (a)(2)(A) applies to areas designated as nonattainment
prior to enactment of the amendments and classified as marginal or
above as of the date of enactment. It requires such areas to adopt and
correct RACT rules pursuant to pre-amended section 172 (b) as
interpreted in pre-amendment guidance.3 EPA's SIP-Call used that
guidance to indicate the necessary corrections for specific
nonattainment areas. The San Joaquin Valley Air Basin is classified as
serious 4; therefore, this area was subject to the RACT fix-up
requirement and the May 15, 1991 deadline.
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\3\ Among other things, the pre-amendment guidance consists of
those portions of the proposed Post-1987 ozone and carbon monoxide
policy that concern RACT, 52 FR 45044 (November 24, 1987); ``Issues
Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations,
Clarification to Appendix D of November 24, 1987 Federal Register
Notice'' (Blue Book) (notice of availability was published in the
Federal Register on May 25, 1988); and the existing control
technique guidelines (CTGs).
\4\ The San Joaquin Valley Air Basin was retained its
designation of nonattainment and was classified by operation of law
pursuant to sections 107(d) and 181(a) upon the date of enactment of
the CAA. See 55 FR 56694 (November 6, 1991).
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The State of California submitted many revised RACT rules for
incorporation into its SIP on November 18, 1993 and May 24, 1994,
including the rules being acted on in this document. This document
addresses EPA's direct-final action for SJVUAPCD Rule 4621, Gasoline
Transfer into Stationary Storage Containers, Delivery Vessels, and Bulk
Plants, and Rule 4622, Transfer of Gasoline into Vehicle Fuel Tanks.
SJVUAPCD adopted Rule 4621 on May 20, 1993 and Rule 4622 on February
17, 1994. These submitted rules were found to be complete on December
23, 1993 and July 14, 1994, respectively, pursuant to EPA's
completeness criteria that are set forth in 40 CFR part 51, Appendix V
5 and are being finalized for approval into the SIP.
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\5\ EPA adopted the completeness criteria on February 16, 1990
(55 FR 5830) and, pursuant to section 110(k)(1)(A) of the CAA,
revised the criteria on August 26, 1991 (56 FR 42216).
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Rule 4621 limits VOC emissions from the transfer of gasoline into
stationary storage containers, delivery vessels, and gasoline bulk
plants. Rule 4622 limits VOC emissions in gasoline vapors during the
transfer of gasoline into vehicle fuel tanks. VOCs contribute to the
production of ground level ozone and smog. These rules were originally
adopted as part of SJVUAPCD's effort to achieve the National Ambient
Air Quality Standard (NAAQS) for ozone and in response to EPA's SIP-
Call and the section 182 (a)(2)(A) CAA requirement. The following is
EPA's evaluation and final action for these rules.
EPA Evaluation and Action
In determining the approvability of a VOC rule, EPA must evaluate
the rule for consistency with the requirements of the CAA and EPA
regulations, as found in section 110 and part D of the CAA and 40 CFR
part 51 (Requirements for Preparation, Adoption, and Submittal of
Implementation Plans). The EPA interpretation of these requirements,
which forms the basis for today's action, appears in the various EPA
policy guidance documents listed in footnote 1. Among those provisions
is the requirement that a VOC rule must, at a minimum, provide for the
implementation of RACT for stationary sources of VOC emissions. This
requirement was carried forth from the pre-amended Act.
For the purpose of assisting state and local agencies in developing
RACT rules, EPA prepared a series of Control Technique Guideline (CTG)
documents. The CTGs are based on the underlying requirements of the Act
and specify the presumptive norms for what is RACT for specific source
categories. Under the CAA, Congress ratified EPA's use of these
documents, as well as other Agency policy, for requiring States to
``fix-up'' their RACT rules. See section 182(a)(2)(A). The CTG
applicable to Rule 4621 is entitled, Control of Volatile Organic
Emissions from Bulk Gasoline Plants, EPA-450/2-77-035; and Control of
Volatile Organic Compound Leaks from Gasoline Tank Trucks and Vapor
Collection Systems, EPA-450/2-78-051. Rule 4622 was compared to EPA's
draft model Stage II Rule, dated August 17, 1992. Further
interpretations of EPA policy are found in the Blue Book, referred to
in footnote 1. In general, these guidance documents have been set forth
to ensure that VOC rules are fully enforceable and strengthen or
maintain the SIP.
SJVUAPCD's submitted Rule 4621, Gasoline Transfer into Stationary
Storage Containers, Delivery Vessels, and Bulk Plants includes the
following significant changes from the current SIP, Rule 411.1, Storage
of Gasoline into Stationary Storage Containers:
The scope of the rule was expanded to include delivery
vessels and bulk plants.
The definitions section was expanded for rule clarity.
[[Page 19557]]
The exemption section was revised to include a limited
exemption for delivery vessels.
A requirement was added for gasoline bulk plants.
Recordkeeping and test method requirements were added.
The compliance schedule was revised.
SJVUAPCD Rule 4622, Transfer of Gasoline into Vehicle Fuel Tanks,
includes the following significant changes from the current SIP Rule
411.2:
An applicability and purpose statement was added to the
rule for clarity.
The definitions section was expanded.
Recordkeeping and test method requirements were added.
The compliance schedule was revised.
SJVUAPCD Rules 4621 and 4622 were amended and renumbered several
times. A detailed description and history of each rule is contained in
the associated technical support document, dated February 8, 1996.
EPA has evaluated the submitted rules and has determined that they
are consistent with the CAA, EPA regulations, and EPA policy.
Therefore, SJVUAPCD Rule 4621, Gasoline Transfer into Stationary
Storage Containers, Delivery Vessels, and Bulk Plants, and Rule 4622,
Transfer of Gasoline into Vehicle Fuel Tanks are being approved under
section 110(k)(3) of the CAA as meeting the requirements of section
110(a) and part D.
Nothing in this action should be construed as permitting or
allowing or establishing a precedent for any future implementation
plan. Each request for revision to the state implementation plan shall
be considered separately in light of specific technical, economic, and
environmental factors and in relation to relevant statutory and
regulatory requirements.
EPA is publishing this document without prior proposal because the
Agency views this as a noncontroversial amendment and anticipates no
adverse comments. However, in a separate document in this Federal
Register publication, the EPA is proposing to approve the SIP revision
should adverse or critical comments be filed. This action will be
effective July 1, 1996, unless, by June 3, 1996, adverse or critical
comments are received.
If the EPA receives such comments, this action will be withdrawn
before the effective date by publishing a subsequent notice that will
withdraw the final action. All public comments received will then be
addressed in a subsequent final rule based on this action serving as a
proposed rule. The EPA will not institute a second comment period on
this action. Any parties interested in commenting on this action should
do so at this time. If no such comments are received, the public is
advised that this action will be effective July 1, 1996.
Regulatory Process
Under the Regulatory Flexibility Act, 5 U.S.C. 600 et. seq., EPA
must prepare a regulatory flexibility analysis assessing the impact of
any proposed or final rule on small entities. 5 U.S.C. Sec. Sec. 603
and 604. Alternatively, EPA may certify that the rule will not have a
significant impact on a substantial number of small entities. Small
entities include small businesses, small not-for-profit enterprises and
government entities with jurisdiction over population of less than
50,000.
SIP approvals under sections 110 and 301(a) and subchapter I, Part
D of the CAA do not create any new requirements, but simply approve
requirements that the State is already imposing. Therefore, because the
Federal SIP-approval does not impose any new requirements, I certify
that it does not have a significant impact on any small entities
affected. Moreover, due to the nature of the Federal-state relationship
under the CAA, preparation of a regulatory flexibility analysis would
constitute Federal inquiry into the economic reasonableness of state
action. The CAA forbids EPA to base its actions concerning SIPs on such
grounds. Union Electric Co. v. U.S. E.P.A., 427 U.S. 246, 256-66 (S.
Ct. 1976); 42 U.S.C. 7410 (a)(2).
Unfunded Mandates
Under Sections 202, 203, and 205 of the Unfunded Mandates Reform
Act of 1995 (``Unfunded Mandates Act''), signed into law on March 22,
1995, EPA must undertake various actions in association with proposed
or final rules that include a Federal mandate that may result in
estimated costs of $100 million or more to the private sector or to
State, local, or tribal governments in the aggregate.
Through submission of this state implementation plan or plan
revision, the State and any affected local or tribal governments have
elected to adopt the program provided for under Part D of the Clean Air
Act. These rules may bind State, local, and tribal governments to
perform certain actions and also require the private sector to perform
certain duties. The rules being approved by this action will impose no
new requirements because affected sources are already subject to these
regulations under State law. Therefore, no additional costs to State,
local, or tribal governments or to the private sector result from this
action. EPA has also determined that this final action does not include
a mandate that may result in estimated costs of $100 million or more to
State, local, or tribal governments in the aggregate or to the private
sector.
This action has been classified as a Table 3 action for signature
by the Regional Administrator under the procedures published in the
Federal Register on January 19, 1989 (54 FR 2214-2225), as revised by a
July 10, 1995 memorandum from Mary Nichols, Assistant Administrator for
Air and Radiation. The Office of Management and Budget (OMB) has
exempted this regulatory action from Executive Order 12866 review.
List of Subjects in 40 CFR Part 52
Environmental protection, Air pollution control, Hydrocarbons,
Incorporation by reference, Intergovernmental relations, Ozone,
Reporting and recordkeeping requirements, Volatile organic compounds.
Note: Incorporation by reference of the State Implementation
Plan for the State of California was approved by the Director of the
Federal Register on July 1, 1982.
Dated: March 24, 1996.
Felicia Marcus,
Regional Administrator.
Subpart F of part 52, chapter I, title 40 of the Code of Federal
Regulations is amended as follows:
PART 52--[AMENDED]
1. The authority citation for part 52 continues to read as follows:
Authority: 42 U.S.C. 7401-7671q.
Subpart F--California
2. Section 52.220 is amended by adding paragraphs (c)(194)(i)(C)(2)
and (197)(i)(C) to read as follows:
Sec. 52.220 Identification of plan.
* * * * *
(c) * * *
(194) * * *
(i) * * *
(C) * * *
(2) Rule 4621, adopted on May 20, 1993.
* * * * *
(197) * * *
(i) * * *
(C) San Joaquin Valley Unified Air Pollution Control District.
[[Page 19558]]
(1) Rule 4622, adopted on February 17, 1994.
* * * * *
[FR Doc. 96-10565 Filed 5-1-96; 8:45 am]
BILLING CODE 6560-50-W
Complete official Federal Register PDF
FR Doc. 96-10477 Airworthiness Directives; Aviat Aircraft Inc. Models S-2A, S-2B, and S-2S Airplanes (Formerly Pitts Models S-2A, S-2B, and S-2S Airplanes)
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19540-19541]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10477]
[[Page 19540]]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. 95-CE-101-AD; Amendment 39-9584; AD 96-09-08]
RIN 2120-AA64
Airworthiness Directives; Aviat Aircraft Inc. Models S-2A, S-2B,
and S-2S Airplanes (Formerly Pitts Models S-2A, S-2B, and S-2S
Airplanes)
AGENCY: Federal Aviation Administration, DOT.
ACTION: Final rule; request for comments.
-----------------------------------------------------------------------
SUMMARY: This amendment adopts a new airworthiness directive (AD) that
is applicable to Aviat Aircraft Inc., Models S-2A, S-2B, and S-2S
airplanes (formerly Pitts Models S-2A, S-2B, and S-2S airplanes). This
action requires inspecting the longerons aft of the rear cabane struts
for cracks, and if cracked, prior to further flight, repairing the
cracks. Reports of longeron failure caused by fatigue aft of the rear
cabane struts prompted this action. The actions specified by this AD
are intended to prevent cracking and subsequent failure of the
longerons resulting in possible loss of control of the airplane.
DATES: Effective May 20, 1996.
The incorporation by reference of certain publications listed in
the regulations is approved by the Director of the Federal Register as
of May 20, 1996.
Comments for inclusion in the Rules Docket must be received on or
before June 21, 1996.
ADDRESSES: Submit comments in triplicate to the Federal Aviation
Administration (FAA), Central Region, Office of the Assistant Chief
Counsel, Attention: Rules Docket 95-CE-101-AD, Room 1558, 601 E. 12th
Street, Kansas City, Missouri 64106.
Service information that applies to this AD may be obtained from
Aviat Aircraft Inc., The Airport-Box No. 11240, 672 South Washington
Street, Afton, Wyoming, 83110; telephone (307) 886-3151; facsimile
(307) 886-9674. This information may also be examined at the Federal
Aviation Administration (FAA), Central Region, Office of the Assistant
Chief Counsel, Attention: Rules Docket 95-CE-101-AD, Room 1558, 601 E.
12th Street, Kansas City, Missouri 64106; or at the Office of the
Federal Register, 800 North Capitol Street, NW., suite 700, Washington,
DC.
FOR FURTHER INFORMATION CONTACT: Roger Caldwell, Project Engineer, FAA,
Denver Aircraft Certification Office, 5440 Roslyn St., suite 133,
Denver, Colorado, 80216; telephone (303) 286-5683; facsimile (303) 286-
5689.
SUPPLEMENTARY INFORMATION: The FAA has been notified that an unsafe
condition may exist on Aviat Models S-2A, S-2B, and S-2S airplanes. The
owners/operators of several of these airplanes have reported cracking
and failure of the longerons aft of the rear cabane struts. One
incident reported that the cracked longeron made it very difficult to
control the airplane to a safe landing.
Aviat has issued service bulletin (SB) No. 24, dated February 8,
1996, which specifies inspecting for cracks and repairing any cracks
found in the longerons aft of the rear cabane struts.
After examining the circumstances and reviewing all available
information related to the incidents described above, the FAA has
determined that AD action should be taken in order to prevent cracking
and subsequent failure of the longerons resulting in possible loss of
control of the airplane.
Since an unsafe condition has been identified that is likely to
exist or develop in other Aviat Models S-2A, S-2B, and S-2S airplanes
of the same type design registered for operation in the United States,
this AD requires:
--Inspecting the longerons around the rear cabane struts for cracks,
--If no cracks are found, repetitively inspecting, and
--If cracks are found during any inspection, prior to further flight,
contact the Denver ACO manager for an approved repair scheme
--Repair any cracks found according to the approved repair scheme
provided by the ACO manger
The inspections are to be done in accordance with the instructions
in the Aviat SB No. 24, dated February 8, 1996.
Since a situation exists that requires the immediate adoption of
this regulation, it is found that notice and opportunity for public
prior comment hereon are impracticable, and that good cause exists for
making this amendment effective in less than 30 days.
Comments Invited
Although this action is in the form of a final rule that involves
requirements affecting immediate flight safety and, thus, was not
preceded by notice and opportunity to comment, comments are invited on
this rule. Interested persons are invited to comment on this rule by
submitting such written data, views, or arguments as they may desire.
Communications should identify the Rules Docket number and be submitted
in triplicate to the address specified above. All communications
received on or before the closing date for comments will be considered,
and this rule may be amended in light of the comments received. Factual
information that supports the commenter's ideas and suggestions is
extremely helpful in evaluating the effectiveness of the AD action and
determining whether additional rulemaking action would be needed.
Comments are specifically invited on the overall regulatory,
economic, environmental, and energy aspects of the rule that might
suggest a need to modify the rule. All comments submitted will be
available, both before and after the closing date for comments, in the
Rules Docket for examination by interested persons. A report that
summarizes each FAA-public contact concerned with the substance of this
AD will be filed in the Rules Docket.
Commenters wishing the FAA to acknowledge receipt of their comments
submitted in response to this notice must submit a self-addressed,
stamped postcard on which the following statement is made: ``Comments
to Docket No. 95-CE-101-AD.'' The postcard will be date stamped and
returned to the commenter.
The regulations adopted herein will not have substantial direct
effects 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. Therefore, in
accordance with Executive Order 12612, it is determined that this final
rule does not have sufficient federalism implications to warrant the
preparation of a Federalism Assessment.
The FAA has determined that this regulation is an emergency
regulation that must be issued immediately to correct an unsafe
condition in aircraft, and is not a significant regulatory action under
Executive Order 12866. It has been determined further that this action
involves an emergency regulation under DOT Regulatory Policies and
Procedures (44 FR 11034, February 26, 1979). If it is determined that
this emergency regulation otherwise would be significant under DOT
Regulatory Policies and Procedures, a final regulatory evaluation will
be prepared and placed in the Rules Docket (otherwise, an evaluation is
not required). A copy of it, if filed, may be obtained from the Rules
Docket.
[[Page 19541]]
List of Subjects in 14 CFR Part 39
Air transportation, Aircraft, Aviation safety, Incorporation by
reference, Safety.
Adoption of the Amendment
Accordingly, pursuant to the authority delegated to me by the
Administrator, the Federal Aviation Administration amends part 39 of
the Federal Aviation Regulations (14 CFR part 39) as follows:
PART 39--AIRWORTHINESS DIRECTIVES
1. The authority citation for part 39 continues to read as follows:
Authority: 49 USC 106(g), 40113, 44701.
Sec. 39.13 [Amended]
2. Section 39.13 is amended by adding a new airworthiness directive
(AD) to read as follows:
96-09-08. Aviat Aircraft Inc.: Amendment 39-9584; Docket No. 95-CE-
101-AD.
Applicability: Models S-2A, S-2B, and S-2S airplanes (formerly
Pitts Models S-2A, S-2B, and S-2S airplanes), all serial numbers,
certificated in any category.
Note 1: This AD applies to each airplane identified in the
preceding applicability provision, regardless of whether it has been
modified, altered, or repaired in the area subject to the
requirements of this AD. For airplanes that have been modified,
altered, or repaired so that the performance of the requirements of
this AD is affected, the owner/operator must request approval for an
alternative method of compliance in accordance with paragraph (e) of
this AD. The request should include an assessment of the effect of
the modification, alteration, or repair on the unsafe condition
addressed by this AD; and, if the unsafe condition has not been
eliminated, the request should include specific proposed actions to
address it. Compliance: Required at the accumulation of 300 hours
total time-in-service (TIS), or within the next 25 hours TIS,
whichever occurs later, and thereafter at intervals not to exceed 25
hours TIS, unless already accomplished.
To prevent cracking and subsequent failure of the longerons,
which could result in loss of control of the airplane, accomplish
the following:
(a) Inspect (using a 10x magnifying glass) the longerons aft of
the rear cabane struts for cracks in accordance with paragraphs 1.)
through 5.) in the Aviat Service Bulletin (SB) No. 24, dated
February 8, 1996. If cracks are found during any inspection required
by this AD, prior to further flight, contact the Manager of the
Denver ACO for an approved repair scheme.
(b) Prior to further flight, repair any cracks found in
accordance with the approved repair scheme provided by the ACO
manager.
(c) Report the results of the initial inspection to the Manager
of the Denver Aircraft Certification Office (ACO), FAA, Denver
Aircraft Certification Office, 5440 Roslyn St., suite 133, Denver,
Colorado, 80216, within 10 days of the inspection. The information
provided should include airplane model number, serial number,
registration number, location of cracks found, number of cracks, and
total TIS. Reporting requirements have been approved by the Office
of Management and Budget and assigned OMB control number 2120-0056.
(d) Special flight permits may be issued in accordance with
sections 21.197 and 21.199 of the Federal Aviation Regulations (14
CFR 21.197 and 21.199) to operate the airplane to a location where
the inspection requirements of this AD can be accomplished, provided
that aerobatic flying is prohibited.
(e) An alternative method of compliance or adjustment of the
initial or repetitive compliance times that provides an equivalent
level of safety may be approved by the Manager, Denver Aircraft
Certification Office, FAA, Denver Aircraft Certification Office,
5440 Roslyn St., suite 133, Denver, Colorado, 80216. The request
shall be forwarded through an appropriate FAA Maintenance Inspector,
who may add comments and then send it to the Manager, Denver
Aircraft Certification Office.
Note 2: Information concerning the existence of approved
alternative methods of compliance with this AD, if any, may be
obtained from the Denver Aircraft Certification Office.
(f) The inspections required by this AD shall be done in
accordance with Aviat Aircraft Inc. Service Bulletin No. 24, dated
February 8, 1996. This incorporation by reference was approved by
the Director of the Federal Register in accordance with 5 U.S.C.
552(a) and 1 CFR part 51. Copies may be obtained from Aviat Aircraft
Inc., The Airport-Box No. 1240, 672 South Washington Street, Afton,
Wyoming, 83110. Copies may be inspected at the FAA, Central Region,
Office of the Assistant Chief Counsel, Room 1558, 601 E. 12th
Street, Kansas City, Missouri, or at the Office of the Federal
Register, 800 North Capitol Street, NW., suite 700, Washington, DC.
(g) This amendment (39-9584) becomes effective on May 20, 1996.
Issued in Kansas City, Missouri, on April 22, 1996.
Henry A. Armstrong,
Acting Manager, Small Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 96-10477 Filed 5-1-96; 8:45 am]
BILLING CODE 4910-13-U
Complete official Federal Register PDF
FR Doc. 96-10445 Office of the Assistant Secretary for Public and Indian Housing; Public/Private Partnerships for the Mixed-Finance Development of Public Housing Units
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19708-19719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10445]
[[Page 19707]]
_______________________________________________________________________
Part III
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Parts 941 and 970
Public/Private Partnerships for the Mixed-Finance Development of Public
Housing Units; Final Rule
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules
and Regulations
[[Page 19708]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 941 and 970
[Docket No. FR-3919-I-01]
RIN 2577-AB54
Office of the Assistant Secretary for Public and Indian Housing;
Public/Private Partnerships for the Mixed-Finance Development of Public
Housing Units
AGENCY: Office of the Assistant Secretary for Public and Indian
Housing, HUD.
ACTION: Interim rule.
-----------------------------------------------------------------------
SUMMARY: This interim rule adds a new subpart F to the public housing
development program at 24 CFR part 941, which authorizes a public
housing authority to use a combination of private financing and public
housing development funds to develop public housing units. HUD is
issuing this interim rule as a result of its determination that public
housing development funds may be provided to a PHA, even though the PHA
will provide those funds to a non-PHA entity so that it can develop and
own the resulting public housing units. This interim rule also sets
forth the requirements that must be met by the owner entity before HUD
will approve a proposal to use mixed-finance strategies under subpart
F, and sets forth continuing requirements that apply throughout the
development and operation of the public housing units by the owner
entity. In addition, this interim rule clarifies that replacement
public housing units for public housing units that have been demolished
may be built on the original public housing site, or in the same
neighborhood, if the number of such replacement units is significantly
fewer than the number of units demolished.
DATES: Effective date: July 1, 1996, except for Secs. 941.606 and
941.610, which contain information collection requirements, and are not
effective until approved by the Office of Management and Budget. When
approval is obtained, HUD will publish notice of the effective date.
See the Paperwork Reduction Act Statement below under the heading, ``V.
OTHER MATTERS.''
Comments due date: Comments must be submitted by July 1, 1996.
ADDRESSES: Interested persons are invited to submit comments regarding
this interim rule to the Office of the General Counsel, Rules Docket
Clerk, room 10276, Department of Housing and Urban Development, 451
Seventh Street, S.W., Washington, D.C. 20410-0500. Comments should
refer to the above docket number and title. A copy of each
communication submitted will be available for public inspection and
copying during regular business hours (weekdays 7:30 a.m. to 5:30 p.m.
Eastern time) at the above address. Facsimile (FAX) comments are not
acceptable. A copy of any comment concerning the information
collections contained in the interim rule also should be sent to the
Office of Management and Budget, Office of Information and Regulatory
Affairs, Attention: Desk Officer for HUD, Washington, D.C. 20503.
FOR FURTHER INFORMATION CONTACT: Bill Flood, Office of Capital
Improvements, Office of Public and Indian Housing, Department of
Housing and Urban Development, 451 Seventh Street, S.W., Washington,
D.C. 20410. Telephone number (voice): (202) 708-1640, ext. 4185; (TTY):
(202) 708-9300 or 1-800-877-8339. (Except for the ``800'' telephone
number, these are not toll-free numbers.)
SUPPLEMENTARY INFORMATION:
I. Background
This interim rule adds a new subpart F to the public housing
development program at 24 CFR part 941, which authorizes a PHA to use a
combination of private financing and public housing development funds
to develop public housing units. HUD is issuing this interim rule as a
result of its determination that a PHA may receive public housing
development funds under section 5 of the United States Housing Act of
1937, notwithstanding the fact that the PHA will provide those funds to
a non-PHA entity to develop and own the resulting public housing units.
Under this subpart, a PHA and its partner(s) may structure
transactions that make use of private and/or public sources of
financing (including public housing development funds) for the purpose
of developing public housing units. The resulting development(s)
(referred to as a ``mixed-finance'' development(s) for purposes of this
interim rule), may consist of 100 percent public housing units, or may
consist of both public housing and non-public housing units. Through
Fiscal Year 1997, transactions approved under this subpart will not
involve more than $94 million in mortgage financing insured by the
Federal Housing Administration. Additionally, at the end of the 1997
fiscal year, HUD will undertake an analysis to determine the costs and
benefits of the transactions approved under this subpart and will
reconsider the policy of using FHA mortgage insurance in connection
with this development method.
Many potential scenarios for ownership and transaction structures
exist, ranging from the PHA or its partner(s) holding no ownership
interest, a partial ownership interest, or l00 percent ownership
interest in the public housing units that are to be developed. PHAs
and/or their partner(s) may choose to enter into a partnership or other
contractual arrangement with a third-party entity for the mixed-finance
development and/or ownership of public housing units. If this entity
has primary responsibility along with the PHA for the development of
these units, it is referred to for purposes of this interim rule as the
PHA's partner. The entity that ultimately owns the public housing
units, whether the PHA retains an ownership interest or not, is
referred to as the ``owner entity.''
Subpart F also sets forth the requirements that must be met by the
PHA before HUD can approve a proposal involving mixed-finance
strategies, and sets forth continuing requirements that apply
throughout the development and operation of the public housing units by
the owner entity. HUD notes that, in developments where the proposed
public housing units are not specifically designated units, the
development requirements set forth in subpart F (including Davis-Bacon
and procurement requirements) are applicable to all units that may, at
any time, be used as the public housing units. Federal requirements
applicable to the operation of public housing units must also be
satisfied with respect to the percentage of public housing units
approved by HUD for construction within the development.
HUD believes that the establishment of this new subpart will expand
greatly opportunities for private sector investment in the development
of public housing units. The Department believes further that the
increased development of such public housing units will aid local
efforts in providing affordable housing for low income families. HUD
expects that the increased flexibility of using public housing funds
for mixed-finance developments will expand considerably the
opportunities for low income families to become more economically and
socially integrated within the broader community. HUD specifically
requests comments from the public on how the interim rule can provide
for further expansion of such opportunities.
Furthermore, in HUD's continuing efforts to devolve responsibility
and avoid micromanagement, it has
[[Page 19709]]
attempted to establish in this interim rule the minimal process
necessary to ensure that public housing development funds are used for
program purposes and not subject to waste, fraud or abuse. The
Department specifically requests comments from the public as to how the
process may be further streamlined, particularly in light of any
existing safe harbors that may permit an abbreviated Departmental
review. HUD will consider all comments that it receives in developing
the final rule implementing subpart F.
II. Implementation
The Department's primary consideration in approving proposals under
this new subpart is to ensure the financial viability of the proposed
mixed-finance development, since HUD wants to ensure that the public
housing units remain available to eligible families for the maximum
term of any low-income use restrictions. HUD also wants to ensure that
the Federal investment of funds in the development is protected.
The mixed-finance strategies established in subpart F are
independent of the normal requirements governing public housing
development, as set forth in existing subparts A through E of part 941.
To the extent that certain requirements contained in subparts A through
E also apply to mixed-finance development, HUD has included in subpart
F explicit cross-references to such requirements.
The Department intends to model procedures and requirements under
subpart F as closely as possible to the Urban Development Action Grant
(UDAG) program. Just as UDAG provided grant assistance to local
governments for use with other sources of public and private funds
(frequently for implementation through partnerships with other
entities), so subpart F is intended to allow PHAs to combine their
funds with other sources and enter into partnerships for the
development and/or ownership of the funded property. Of course, the
public housing funding sources that may be used in a mixed-finance
development strategy operate under statutory provisions different from
those of the UDAG program. The requirements applicable to the use of
public housing development funds are set forth in this subpart.
The Department notes that currently it is in the process of
overhauling the public housing development program set forth in 24 CFR
subparts A through E, and expects to publish shortly an interim rule
that will effect major changes to these subparts. HUD intends to
include in that interim rulemaking a republication of the contents of
today's rulemaking. This will enable HUD to correct in subpart F any
cross-references to provisions that may be revised and reorganized in
subparts A through E of part 941.
A PHA may decide to pursue a mixed-finance development strategy
under subpart F using either public housing development funds, or
modernization funds reserved by HUD for the PHA prior to September 30,
1995 and approved by HUD for conversion to development uses. A PHA may
also propose mixed-finance strategies to HUD under funding rounds for
any appropriate programs in the future, which may be implemented after
HUD establishes the necessary regulatory framework.
A PHA that wants to pursue a mixed-finance strategy is encouraged
to identify as soon as possible the entity(ies) with which it would
like to partner. The PHA must select its partner(s) pursuant to the
requirements set forth in Sec. 941.602(d), in such a manner that it can
certify as to competitive selection pursuant to Sec. 941.606(n)(1)(ii).
Since the roles in development, ownership and management of the
proposed public housing may substantially affect the type of partner
the PHA seeks, PHAs are encouraged to thoroughly consider desired
arrangements before soliciting partner(s).
The Department is authorizing the use of mixed-finance strategies
under this subpart because it allows PHAs to incorporate other
financing sources into the redevelopment of public housing communities.
The PHA and its partner(s), as the primary entities responsible for
developing the proposal, will be responsible for raising non-public
housing capital for the mixed-finance development, as well as
structuring a transaction and ownership structure that accommodates the
requirements of the other financing sources.
For purposes of this interim rule, the term ``participating party''
refers to any public or private individual or organization that: (a)
provides financial or other resources to carry out the proposal, or
specified activities contained in the proposal; or (b) otherwise
participates in the development and/or operation of the public housing
units and will receive HUD funds with respect to such participation.
To be eligible to use mixed-finance strategies under this subpart,
a PHA must prepare its proposal pursuant to Sec. 941.606, and make a
submission directly to Headquarters. Following a technical screening of
the proposal, HUD will carry out a substantive review of the proposal.
This review includes a preliminary assessment of the financing and
other documentation so that HUD can determine, to its own satisfaction,
whether the mixed-finance development is viable and is structured so as
to adequately protect the Federal investment of funds in the
development. In addition, HUD will determine whether the proposal
complies with all program requirements set forth in subpart F, and will
undertake various statutory, regulatory and executive order reviews.
If Headquarters determines that the proposal can be approved, it
will notify the PHA accordingly and send to the PHA for execution an
ACC amendment and/or grant agreement. If the PHA has already executed a
front-end ACC amendment, HUD will send to the PHA another ACC amendment
for the mixed-finance development and/or a grant agreement. After the
PHA executes these document(s), it must return them to HUD for
execution.
Before public housing development funds may be disbursed to the
PHA, it must first submit to HUD evidentiary materials and other forms
of documentation, as described in Secs. 941.610 and 941.612, and
execute the ACC amendment or special mixed-finance amendment to the ACC
(and/or grant agreement). Thereafter, the PHA is responsible for
ensuring that the mixed-finance development is carried out in
accordance with its approved proposal. Requirements governing HUD's
monitoring and review of the development, and the sanctions that HUD
may impose for non-performance, will be set forth in the special mixed-
finance amendment to the ACC (and/or grant agreement).
III. Justification for Interim Rulemaking
In general, the Department publishes a rule for public comment
before issuing a rule for effect, in accordance with its own
regulations on rulemaking at 24 CFR part 10. However, part 10 does
provide for exceptions from that general rule where the agency finds
good cause to omit advance notice and public participation. The good
cause requirement is satisfied when prior public procedure is
``impracticable, unnecessary, or contrary to the public interest.'' (24
CFR Sec. 10.1.)
The Department finds that good cause exists to publish this interim
rule for effect without first soliciting public comment, in that prior
public procedure is contrary to the public interest. This is
[[Page 19710]]
because 24 CFR part 941, subpart F authorizes a new and creative method
of financing the development of public housing, which will enable
localities to respond to critical shortages in their low income housing
stock. The development of public housing units within a development
will also promote the economic and social integration of low income
families within the broader community, thereby providing greater
opportunities for the upward mobility of such families. In addition,
mixed-finance development will promote public/private development of
public housing units, thereby facilitating the demolition of some of
the nation's most severely distressed, obsolete high-rise public
housing complexes. The Department invites public comment on the interim
rule. The comments received within the 60-day comment period will be
considered during development of a final rule that will supersede this
interim rule.
IV. Description of Provisions
Following is a section-by-section analysis of each of the
provisions included in this interim rulemaking:
Section 941.202--(``Site and Neighborhood Standards'')
This rulemaking adds a new paragraph (c)(3) to HUD's existing site
and neighborhood standards at Sec. 941.202. This provision is
applicable only to mixed-finance proposals submitted under 24 CFR part
941, subpart F. The purpose of this provision is to clarify HUD's
existing authority to approve the building of replacement public
housing units for public housing units that have been demolished on
either the original public housing site, or in the same neighborhood,
if the number of such replacement public housing units is significantly
fewer than the number of public housing units demolished. This
authority was affirmed by the recent passage of section 1002(a)(9) of
Pub.L. 104-19 (approved July 27, 1995) which explicitly authorizes HUD
to approve the building of replacement public housing units under such
circumstances.
The Department notes that, in construing the phrase,
``significantly fewer units,'' it has chosen not to establish a
quantitative standard. Instead, HUD will assess, on a case-by-case
basis, the facts involved in each request. In addition, it will take
into account the evolving interpretation of the phrase, ``significantly
fewer units'' as it develops in the course of HUD's separate rulemaking
on site and neighborhood standards.
Section 941.600--(``Purpose'')
This section indicates that the purpose of 24 CFR part 941, subpart
F, is to authorize PHAs to use a combination of private financing and
public housing development funds. In addition, this provision indicates
that subpart F is intended to authorize a variety of ownership and
transaction structures, in which the PHA or its partner(s) may hold no
ownership interest, a partial ownership interest, or 100 percent
ownership interest. In addition, this section sets forth continuing
requirements that apply throughout the development and operation of the
public housing units in the development.
Section 941.600(b) provides that public housing units built within
a development using mixed-finance strategies must be comparable to non-
public housing units with respect to size, location, external
appearance, and distribution within the development.
Section 941.602--(``Applicability of Other Requirements'')
Paragraph (a) identifies the relationship between subpart F and the
remaining subparts in 24 CFR part 941. Specifically, this paragraph
states that the requirements contained in subpart F apply to the
development and operation of public housing units in a development that
is owned, or that will be owned, by a public/private partnership using
mixed-finance strategies. If the PHA and/or owner entity does not want
to designate specific units in a development as public housing units,
the development of all units that may at any time be considered public
housing units must be carried out in accordance with Federal
requirements (including Davis-Bacon and procurement requirements, as
set forth in this subpart).
This paragraph also provides that other requirements related to
public housing development, as set forth in subparts A through E, do
not apply to subpart F, except as may be required by HUD. Included in
this paragraph is a listing of specific provisions contained in
subparts A through E that are applicable to mixed-finance development
under subpart F, which include: various definitions contained in
Sec. 941.103; PHA eligibility (Sec. 941.201); site and neighborhood
standards (Sec. 941.202); design and construction standards
(Sec. 941.203); cost guidelines (Sec. 941.204); PHA contracts
(Sec. 941.205); eligible properties (Sec. 941.206); relocation and
acquisition (Sec. 941.207); other Federal requirements (Sec. 941.208);
audit (Sec. 941.209); maximum development cost (Sec. 941.406);
construction requirements (Sec. 941.503); acceptance of work and
contract settlement (Sec. 941.504); and completion of development
(Sec. 941.505). (See Sec. 941.602(a) for limitations on applicability.)
Paragraph (b) provides that if HUD determines there is a conflict
between a requirement contained in subpart F and a requirement
contained in any other subpart of part 941, the requirements set forth
in subpart F shall apply, unless HUD otherwise determines in writing.
Paragraph (c) of this section states that all references in
subparts A through F of part 941 to the need for ``HUD'' or ``field
office'' action or approval shall be construed to mean that ``HUD
Headquarters'' shall take such action or provide such approval, unless
the field office is authorized in writing by Headquarters to carry out
a specific function under this part. This is because HUD intends that
its Headquarters office, located in Washington, DC, will be responsible
primarily for taking necessary actions, and providing approvals with
respect to proposals under subpart F.
Paragraph (d) provides that the administrative requirements under
24 CFR part 85, which are applicable to grants to PHAs and certain
subgrantees, are also applicable to grantees and subgrantees that
receive funds under subpart F. However, this paragraph also sets forth
two provisos with respect to the applicability of part 85.
The first proviso states that a PHA may select a partner to
implement its proposal using competitive proposal procedures for
qualifications-based procurement. This method will enable the PHA to
select a partner based on its qualifications, subject to negotiation of
fair and reasonable compensation. Currently, this method (which does
not require a consideration of price as a selection factor) is
authorized in part 85 only with respect to a grantee's procurement of
architectural/engineering professional services (see 24 CFR
Sec. 85.36(d)(3)(v). HUD believes that a qualifications-based
procurement of partners in mixed-finance undertakings is critical to
the success of this new development method. This is because the success
of a public/private partnership hinges upon the creativity, capacity,
and vision of the partner and, in many instances, the scope or cost of
the development may not be known at the time the owner entity seeks to
procure the partner.
Consequently, HUD advocates providing maximum flexibility to the
PHA to select a partner based upon its qualifications to develop a
mixed-
[[Page 19711]]
finance development. In this manner, once selected, the partner will
have the freedom to consider various approaches, sites, and financing
strategies for the development of the public housing units, so long as
the partner can provide the minimum number of units for which public
housing funds were provided, and complies with any total development
cost (TDC) and other statutory and mandatory requirements.
The second proviso relates to the applicability of part 85 to the
owner entity that will develop and operate the public housing units. As
a private entity, the owner entity would not normally be subject to the
requirements of part 85. However, this provision states that the owner
entity will be required to comply with 24 CFR part 85 if HUD determines
that the PHA or PHA instrumentality exercises significant functions
within the owner entity with respect to managing the development of the
proposed units. Even under such circumstances, however, HUD may exempt
the owner entity from complying with part 85 if it finds that the owner
entity has developed an acceptable alternative procurement plan.
Section 941.604--(``Definitions'')
This section of the interim rule defines terms that are applicable
only to mixed-finance development: ``development,'' ``mixed-finance,''
``owner entity,'' ``participating party,'' ``partner,'' ``proposal,''
``public housing agency,'' and ``public housing unit.'' In addition to
these terms, Sec. 941.602(a)(1) identifies those definitions in subpart
A that are also applicable to development carried out pursuant to
subpart F. These definitions include: ``Annual Contributions
Contract,'' ``cooperation agreement,'' ``design documents,''
``reformulation,'' and ``total development cost.''
Section 941.606--Proposal
This section provides that the PHA must submit its proposal for the
mixed-finance development by a deadline to be established by HUD. The
Department has the discretion to determine the scope of a PHA's
submissions under this section. HUD shall exercise its discretion based
upon a consideration of whether the documentation is required for HUD
to carry out statutory or other mandatory reviews, as well as a
consideration of the PHA's past performance in implementing development
projects under part 941, and the PHA's administrative capability, as
demonstrated by its overall score on the PHMAP.
HUD has attempted to limit the scope of the PHA proposal
submissions to those that it believes are necessary for the Department
to comply with mandatory front-end reviews, such as environmental
reviews, section 213 (24 CFR part 791, subpart C) clearance, subsidy
layering, and life cycle analysis.
In addition, HUD is requesting a number of items that it believes
are necessary for a preliminary assessment of the financial viability
of the proposed mixed-finance development, and which would be required
by any private sector lender prior to making available construction or
permanent financing. These submissions include, but are not limited to:
information with respect to the proposed activities to be carried out;
a description of the relationship of the participating parties and of
the proposed financing (including the proposed use of public housing
development funds); a description of the proposed housing; site
information; a market analysis; an estimate of the development
construction cost; information with respect to facilities, displaced
occupants, life cycle analysis, a determination of operating
feasibility, and a copy of the section 213 solicitation letter; and
various certifications and assurances.
Section 941.608--Technical Processing and Approval
After a PHA submits its proposal by the specified deadline, HUD
will perform an initial screening to determine that all required
documentation has been submitted. If there are any deficiencies in the
proposal, HUD will advise the PHA and request that the additional
information be submitted by a specified date.
Once the proposal is determined to be complete, HUD will evaluate
the proposal to determine whether: (1) The PHA has the necessary legal
authority to develop the public housing units pursuant to subpart F;
(2) the proposed sources and uses of funds identified in the proposal
are eligible and reasonable, and whether HUD's preliminary assessment
of the financing and other documentation establishes to HUD's
satisfaction that the mixed-finance development is viable and is
structured so as to adequately protect the Federal investment of funds
in the development; (3) if applicable, whether the public housing units
in the proposed development will be comparable in size, location,
external appearance and distribution within the development to the non-
public housing units; (4) if applicable, if public housing development
funds are to be used to pay for more than the pro rata cost of common
area improvements, whether the proposal complies with the specific
requirements set forth in Sec. 941.608(b)(4) (i) and (ii); (5) the
proposal complies with all program requirements including, if
applicable, any comments received from the unit of general local
government under section 213 (24 CFR part 791, subpart C); and (6) the
proposal is approvable after conducting an environmental review in
accordance with 24 CFR part 50.
If HUD determines that the proposal can be approved, it will send a
notification letter to the PHA indicating that its proposal has been
approved and stating the approved total development cost of the public
housing units in the development. HUD will also send to the PHA for
execution an ACC amendment and/or grant agreement (or, if the PHA has
previously executed a front-end ACC amendment, HUD will send to the PHA
a special mixed-finance amendment to the ACC and/or a grant agreement).
(The special amendment to the ACC (and/or grant agreement) contains
additional requirements pertaining to the development and operation of
the public housing units in the context of a mixed-finance
development.) After the PHA executes these documents, it will return
them to HUD for execution.
Section 941.610--Evidentiary Materials and Other Documents
Before HUD will allow a PHA to draw down development funds pursuant
to its approved proposal, the PHA must submit to HUD, within the
prescribed timeframe, certain evidentiary materials and other
documentation with respect to the proposed development. This
documentation includes, but is not limited to: various certifications
and assurances to ensure that the public housing units will be
developed and operated by the owner entity in accordance with the ACC
and other applicable Federal requirements for the maximum period
required by law; copies of executed development-related contracts;
agreements that are needed to implement the approved proposal; deed
restrictions, covenants running with the land, etc.
Section 941.612--Disbursement of Grant Funds
Paragraph (a) provides that a PHA may obtain front-end assistance
under this subpart, and may use such funds to pay for: (1) The costs of
materials and services related to the development of a proposal; (2)
costs associated with the demolition of existing units on a proposed
site; or (3) other preliminary development work.
[[Page 19712]]
HUD will determine the maximum amount of public housing funds that
may be drawn down by a PHA to pay for preliminary development costs
based upon its review of the nature and scope of activities proposed to
be carried out by the PHA. The Department emphasizes that it will
scrutinize carefully any proposed request by a PHA to use public
housing funds in such a manner as to benefit the non-public housing
units in a development. HUD will not permit public housing development
funds to be used to subsidize non-public housing units, or parts of the
development, that do not meet the specific requirements set forth in
this subpart.
Paragraph (b) provides that HUD will review the evidentiary
materials and other documents submitted pursuant to Sec. 941.610 and,
upon determining that such documents are satisfactory, may approve a
drawdown of development funds, consistent with the following
requirements:
First, a PHA may only draw down public housing development funds in
an approved ratio to other public and private funds, in accordance with
a schedule approved by HUD. The PHA and its partner must certify, in a
form prescribed by HUD, prior to the initial drawdown of public housing
development funds that the PHA will not draw down, and the partner will
not request, more public housing grant funds than necessary to meet the
PHA's pro rata share of the development costs. The PHA may draw down
public housing development funds only when payment is due and after
inspection and acceptance of work covered by the draw. The PHA is
required to release funds promptly to its partner (or other designated
third parties approved by HUD), normally within two working days of
receipt of the funds from HUD. The PHA's partner is also required to
take prompt action to distribute the funds (normally within two working
days of receipt of the funds from the PHA).
Second, the interim rule provides that each drawdown of public
housing development funds constitutes a certification by the PHA that
all the representations and warranties of the PHA, as submitted under
subpart F, continue to be valid, true, and in full force and effect.
The PHA's draw down of funds constitutes a certification that it is in
full compliance with all of the PHA's obligations under this subpart
that are applicable at the time the funds are draw down, and that the
ratio for the draw down of funds is satisfied. Finally, the interim
rule provides that the PHA's drawdown of funds constitutes a
certification that all conditions precedent to the PHA's authority to
draw down the public housing grant funds have been satisfied, and that
the funds to be drawn down will be used only for eligible costs
actually incurred, or that will be incurred, in accordance with the
provisions of this subpart and the approved proposal.
Paragraph (c) of this section clarifies that the standard drawdown
requirements set forth in paragraph (b) (including the requirement that
public housing development funds must be drawn down in an approved
ratio to other public and private funds) do not apply to front-end
assistance that is approved by HUD for drawdown under paragraph (a) of
this section.
Section 941.614--(``HUD Monitoring and Review'')
This section establishes the regulatory authority for HUD's ongoing
monitoring and review of a PHA's approved proposal, and provides that
the special mixed-finance amendment to the ACC (and/or grant agreement)
will set forth specific monitoring and review requirements under this
subpart.
Section 941.616--(``Sanctions'')
This section establishes the regulatory authority for HUD's
imposition of sanctions in the event the public housing units that are
proposed to be developed under this subpart are not developed in
accordance with the projected development schedule, the approved
proposal, or all applicable Federal requirements, or if the units are
not operated in accordance with applicable requirements. In addition,
this section provides that HUD may impose sanctions on the PHA, and/or
seek legal and equitable relief in accordance with requirements
prescribed by HUD in the special mixed-finance amendment to the ACC
and/or the grant agreement.
Section 970.2--(``Applicability'')
HUD is amending 24 CFR Sec. 970.2 to carve out two additional
exceptions to the applicability of 24 CFR part 970 (the Department's
regulations implementing the demolition and disposition requirements of
section 18 of the United States Housing Act of 1937 (``USHA'')). These
exceptions are intended to clarify that a PHA is not required under
certain circumstances to comply with the disposition requirements set
forth in section 18 of the USHA.
The first exception provides that a PHA is not required to comply
with section 18 if the PHA conveys a project to the owner entity
pursuant to an approved proposal under 24 CFR part 941, subpart F,
before the determination of the Actual Development Cost to enable an
owner entity to develop the project using the mixed-finance development
method.
The second exception provides that the requirements of section 18
are inapplicable in the event of a reversion of the public housing
units from the owner entity to the PHA (e.g., at the end of the low-
income housing tax credit term).
However, section 18 does apply whenever the owner entity seeks to
dispose of public housing units developed under subpart F to a non-PHA
entity, or to demolish the units, or to operate the units in a manner
inconsistent with public housing occupancy requirements. Section 18
also applies to any disposition by the PHA of public housing units once
the Actual Development Cost of the units is determined. Thus, a PHA
that wants to convey existing public housing units to an owner entity
for rehabilitation would have to comply with requirements set forth in
section 18.
V. Other Matters
National Environmental Policy Act
A Finding of No Significant Impact with respect to the environment
has been made in accordance with HUD regulations at 24 CFR part 50
implementing section 102(2)(C) of the National Environmental Policy Act
of 1969, 42 U.S.C. 4332. The Finding of No Significant Impact is
available for public inspection and copying between 7:30 a.m. and 5:30
p.m. weekdays at the Office of Rules Docket Clerk, 451 Seventh Street,
S.W., room 10276, Washington, D.C. 20410-0500.
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed this interim rule before publication and
by approving it certifies that the interim rule will not have a
significant impact on a substantial number of small entities.
Executive Order 12866
This interim rule was reviewed by the Office of Management and
Budget under Executive Order 12866 as a significant regulatory action.
Any changes made in this interim rule as a result of that review are
clearly identified in the docket file, which is available for public
inspection in the Office of HUD's Rules Docket Clerk, room 10276, 451
7th Street, S.W., Washington, D.C.
Pursuant to Executive Order 12866, each Federal agency must provide
a cost/benefit analysis with respect to
[[Page 19713]]
each rule that is determined to be a significant regulatory action.
Accordingly, HUD sets forth the following cost/benefit analysis for
this interim rulemaking:
Mixed finance development is a new development method whereby
existing public housing development funds can be used with other public
and private funding sources. This interim rule will not result in any
additional cost to the taxpayer, since it enables PHAs to combine their
funding with private and other public sources, and to enter into
partnerships with other entities for the development, ownership and/or
management of public housing units. This financing mechanism will
enable PHAs to locate public housing units in developments that may
consist of public housing and non-public housing units.
This interim rule provides that public housing units located within
a development must be comparable to the non-public housing units with
respect to size, location, external appearance and distribution within
the development. In developments consisting solely of public housing
units, the additional capital made available through other sources is
expected to provide higher quality living environments than would be
possible if the PHA used only public housing development funds to
construct the development.
Examples of this method of development under the HOPE VI Urban
Revitalization Demonstration program are underway. Estimated private
investment in these transactions range from one-half to twice the level
of the public housing funds involved.
Additional benefits to the public include ending the isolation and
stigmatization of public housing residents. Moreover, the interim rule
will enhance the ability of PHAs to collaborate substantially with
other local institutions in the large-scale revitalization of
neighborhoods containing public housing. Public housing created as part
of mixed-finance transactions is subject to market forces, particularly
when integrated with non-public housing units in a development.
Finally, the interim rule provides for flexibility in transaction
structures as well as development, ownership and management strategies
for PHAs to craft the most advantageous proposal for their particular
communities.
Executive Order 12606, the Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that the provisions of this
interim rule will not have a significant impact on family formation,
maintenance or well-being, except to the extent that the program
authorized by the interim rule will provide increased opportunities for
low-income families to live in public housing developments. The
Department believes that these opportunities will increase the
likelihood that low-income families will become more economically and
racially integrated within the broader community, thereby providing
positive benefits for families.
Executive Order 12611, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12611, Federalism, has determined that the policies
contained in this interim rule will not have substantial direct effects
on States or their political subdivisions, or on the relationship
between the Federal government and the States, or on the distribution
of power and responsibilities among the various levels of government.
Catalog of Federal Domestic Assistance.
The Catalog of Federal Domestic Assistance number for this
program is 14.850.
Paperwork Reduction Act Statement
The information collection requirements contained in Secs. 941.606
and 941.610 of this interim rule have been submitted to the Office of
Management and Budget (OMB) for review under the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501-3520). An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless the collection displays a valid control number. The
OMB control number, when assigned, will be announced by separate notice
in the Federal Register.
The public reporting burden for each of these collections of
information is estimated to include the time for reviewing the
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information. Information on the estimated public
reporting burden is provided herein. Send comments regarding this
burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to Kay Weaver, Reports
Management Officer, Department of Housing and Urban Development, 45l
Seventh Street, S.W., Room 10276, Washington, D.C. 20410; and to the
Office of Management and Budget, Attention: Desk Officer for HUD,
Washington, D.C. 20503.
Information on the estimated public reporting burden is provided,
as follows:
Annual Reporting Burden for Information Collection
[FR-3919]
----------------------------------------------------------------------------------------------------------------
Number of Frequency of Hours per
Section respondents x responses x response = Burden hours
----------------------------------------------------------------------------------------------------------------
941.606...................... 35 1 48 1,680
941.610...................... 20 1 64 1,280
----------------
Total Reporting Burden. ............... ... ............... ... ............... ... 2,960
----------------------------------------------------------------------------------------------------------------
List of Subjects
24 CFR Part 941
Grant programs--housing and community development, Loan programs--
housing and community development, Public housing, Reporting and
recordkeeping requirements.
24 CFR Part 970
Grant programs--housing and community development, Public housing,
Reporting and recordkeeping requirements.
In accordance with the reasons set forth in the preamble, 24 CFR
part 941 and part 970 are amended as follows:
PART 941--PUBLIC HOUSING DEVELOPMENT
1. The authority citation for 24 CFR part 941 continues to read as
follows:
Authority: 42 U.S.C. 1437b, 1437c, 1437g, and 3535(d).
[[Page 19714]]
2. Section 941.202 is amended by adding a new paragraph (c)(3), to
read as follows:
Sec. 941.202 Site and neighborhood standards.
* * * * *
(c) * * *
(3) Notwithstanding any other provision of this part, and for
purposes only of subpart F of this part, replacement public housing
units for public housing units demolished may be built on the original
public housing site, or in the same neighborhood, if the number of such
replacement public housing units is significantly fewer than the number
of public housing units demolished.
* * * * *
3. A new subpart F is added to read as follows:
Subpart F--Public/Private Partnerships for the Mixed Finance
Development of Public Housing Units
Sec.
941.600 Purpose.
941.602 Applicability of other requirements.
941.604 Definitions.
941.606 Proposal.
941.608 Technical processing and approval.
941.610 Evidentiary materials and other documents.
941.612 Disbursement of grant funds.
941.614 HUD monitoring and review.
941.616 Sanctions.
Subpart F--Public/Private Partnerships for the Mixed Finance
Development of Public Housing Units
Sec. 941.600 Purpose.
(a)(1) This subpart authorizes a PHA to use a combination of
private financing and public housing development funds to develop
public housing units, and is designed to enable PHAs and their partners
to structure transactions that make use of private and/or public
sources of financing. Many potential scenarios for ownership and
transaction structures exist, ranging from the PHA or its partner(s)
holding no ownership interest, a partial ownership interest, or 100
percent of the ownership interest of the public housing units that are
to be developed. PHAs and/or their partner(s) may choose to enter into
a partnership or other contractual arrangement with a third-party
entity for the mixed-finance development and/or ownership of public
housing units. If this entity has primary responsibility along with the
PHA for the development of these units, it is referred to for purposes
of this subpart as the PHA's ``partner.'' The entity that ultimately
owns the public housing units, whether or not the PHA retains an
ownership interest, is referred to as the ``owner entity.'' The
resulting ``mixed-finance'' developments may consist of 100 percent
public housing units, or may consist of public housing and non-public
housing units.
(2) This subpart sets forth the requirements that must be met by
the PHA and its partner(s) before HUD can approve a proposal for mixed-
finance development, and also sets forth continuing requirements that
apply throughout the development and operation of the development by
the owner entity.
(b) Under this subpart, public housing units that are built in a
mixed-finance development must be comparable in size, location,
external appearance, and distribution to the non-public housing units
within the development.
Sec. 941.602 Applicability of other requirements.
(a) Relationship of this subpart to other requirements in this
part. The requirements contained in this subpart apply only to the
development of public housing units using mixed-finance development
methods under this subpart and to the operation of public housing units
that are owned, or that will be owned, by an owner entity under this
subpart. Other requirements for the development of public housing, as
set forth in subparts A through E of this part, shall not apply to the
development of public housing units pursuant to this subpart, except as
may be required by HUD. Applicable requirements include, but shall not
be limited to, the following:
(1) Section 941.103 (``Definitions'') (definitions of the following
terms only shall apply to this subpart: ``Annual Contributions Contract
(ACC),'' ``cooperation agreement,'' ``design documents,''
``reformulation,'' and ``Total Development Cost (TDC).''
(2) Section 941.201 (``PHA eligibility'') (except that specific
requirements governing the cooperation agreement, as set forth in
Sec. 941.201(c), shall be determined in accordance with this subpart);
(3) Section 941.202 (``Site and neighborhood standards'');
(4) Section 941.203 (``Design and construction standards'');
(5) Section 941.204 (``Cost guidelines'');
(6) Section 941.205 (``PHA contracts'') (except that the reference
to ``development related contracts entered into by the PHA'' shall be
construed to mean ``development related contracts entered into by the
PHA or the owner entity'');
(7) Section 941.206 (``Eligible properties'');
(8) Section 941.207 (``Relocation and acquisition'');
(9) Section 941.208 (``Other Federal requirements'');
(10) Section 941.209 (``Audit'');
(11) Section 941.406 (``Maximum development cost and advances'')
(except that paragraph (b) of that section, dealing with ``development
advances,'' is not applicable to this subpart);
(12) Section 941.503 (``Construction requirements'');
(13) Section 941.504 (``Acceptance of work and contract
settlement''); and
(14) Section 941.505 (``Completion of development'').
(b) Procedure in the event of a conflict between requirements. In
the event of a conflict between a requirement contained in this subpart
and an applicable requirement set forth in subparts A through E of this
part, the requirements of this subpart shall apply, unless HUD
otherwise so determines in writing.
(c) HUD approval. For purposes of this subpart only, any action or
approval that is required to be taken or provided by HUD or by the HUD
field office, pursuant to a requirement set forth in subparts A through
F of this part, shall be construed to mean that HUD Headquarters shall
take such action or provide such approval, unless the field office is
authorized in writing by Headquarters to carry out a specific function
under this subpart.
(d) Applicability of requirements pursuant to 24 CFR part 85. The
requirements of 24 CFR part 85 are applicable to this subpart, subject
to the following two provisos:
(1) A PHA may select a partner using competitive proposal
procedures for qualifications-based procurement (subject to negotiation
of fair and reasonable compensation, including TDC and other applicable
cost limitations);
(2) An owner entity (which, as a private entity, would normally not
be subject to part 24 CFR part 85) shall be required to comply with 24
CFR part 85 if HUD determines that the PHA or PHA instrumentality
exercises significant functions within the owner entity with respect to
managing the development of the proposed units. HUD may, on a case-by-
case basis, exempt such an owner entity from the need to comply with 24
CFR part 85 if it determines that the owner entity has developed an
acceptable alternative procurement plan.
[[Page 19715]]
Sec. 941.604 Definitions.
In addition to the definitions set forth in Sec. 941.602(a)(1), the
following definitions are applicable to this subpart:
Development. A housing facility consisting of public housing units,
and that may also consist of non-public housing units, that has been
developed, or that will be developed, using mixed-finance strategies
under this subpart.
Mixed-finance. The combined use of publicly and privately financed
sources of funds for the development of public housing units under this
subpart.
Owner Entity. The entity that will own the public housing units, if
the PHA holds less than one hundred percent of the ownership interest;
or the lessee under a ground lease from the PHA. The owner entity may
be a partnership that includes the PHA.
Participating party. Any person, firm, corporation, or public or
private entity that:
(1) Agrees to provide financial or other resources to carry out the
approved proposal, or specified activities contained in the proposal;
or
(2) Otherwise participates in the development and/or operation of
the public housing units and will receive funds derived from HUD with
respect to such participation. The term ``participating party''
includes an owner entity or partner.
Partner. A third party entity with whom the PHA has entered into a
partnership or other contractual arrangement to provide for the mixed-
finance development of public housing units pursuant to this subpart,
and that has primary responsibility with the PHA for the development of
the housing units under the terms of the approved proposal.
Proposal. For purposes of this subpart only, the term ``proposal''
means a detailed PHA submission of information under Sec. 941.606.
Public Housing Agency (PHA). Any State, county, municipality, or
other governmental entity or public body (or agency or instrumentality
thereof) which is authorized to engage in or assist in the development
or operation of low-income housing under this part. For purposes of
this subpart, the term ``PHA'' also encompasses any agency or
instrumentality of the PHA.
Public housing unit. A unit that is eligible to receive operating
subsidy pursuant to section 9 of the Act (42 U.S.C. 1437g).
Sec. 941.606 Proposal.
Each proposal shall be prepared in the form prescribed by HUD and
shall include some or all of the following documentation, as deemed
necessary by HUD. In determining the amount of information to be
submitted by the PHA under this section, HUD shall consider whether the
documentation is required for HUD to carry out mandatory statutory or
executive order reviews, the quality of the PHA's past performance in
implementing development projects under this part, and the PHA's
demonstrated administrative capability, as demonstrated by its overall
score on the PHMAP. The proposal includes:
(a) Activities; relationship of participating parties. An
identification of the participating parties and a description of the
activities to be undertaken by each of the participating parties and
the PHA, and the legal and business relationships between the PHA and
each of the participating parties.
(b) Financing. A detailed description of all financing (including
public housing development funds) necessary for the implementation of
the proposal, specifying the sources (with respect to each of the
proposed categorical uses of all such financing), together with a ten-
year operating pro forma for the development (including all underlying
assumptions). In addition, the PHA may be required to submit to HUD,
for such review and approval as HUD deems necessary, all documents
(including applications for financing) relating to the financing of the
proposal, including, but not limited to, any loan agreements, notes,
mortgages or deeds of trust, use restrictions, operating pro formas
relating to the viability of the development, and other agreements or
documents pertaining to the financing of the proposal.
(c) Methodology. If the PHA proposes to provide public housing
operating subsidy for the public housing units, it must submit a
methodology acceptable to HUD for the distribution of a portion of its
operating subsidy to such units;
(d) Development description. A description of the housing,
including the number and type (with bedroom count) of public housing
units and, if applicable, the number and type of non-public housing
units (with bedroom count) to be developed; schematic drawings and
designs of the proposed building and unit plans; outline
specifications; and the types and amounts of non-dwelling space to be
provided.
(e) Site information. An identification and description of the
proposed site, site plan, and neighborhood.
(f) Market analysis. An analysis of the projected market for the
proposed development.
(g) Development construction cost estimate. A preliminary
development construction cost estimate based on the schematic drawings
and outline specifications and current construction costs prevailing in
the area. In addition, a copy of the PHA development schedule,
including the architect or contractor estimate of the time required to
complete each major development stage.
(h) Facilities. A statement addressing the adequacy of existing or
proposed facilities and services for the prospective occupants of the
development.
(i) Relocation. Information concerning any displacement of site
occupants, including identification of each displacee, the distribution
plan for notices, and the anticipated cost and source of funding for
relocation benefits.
(j) Operating feasibility. A demonstration of the operating
feasibility of the development, which shall be accomplished by the
PHA's showing that the estimated operating expenses of the development
will not exceed its estimated operating income.
(k) Life cycle analysis. For new construction and substantial
rehabilitation, the criteria to be used in equipping the proposed
development with heating and cooling systems, which shall include a
life-cycle cost analysis of the installation, maintenance and operating
costs of such systems pursuant to section 13 of the Act (42 U.S.C.
1437k).
(l) Section 213 clearance. To expedite processing of the proposal,
a PHA may solicit, on behalf of HUD, comments under section 213 (24 CFR
part 791, subpart C) from the chief executive officer (CEO) (or his or
her designee) of the unit of general local government. In such case,
the solicitation letter must state that comments should be sent
directly to HUD within 30 calendar days of HUD's estimated date of
receipt of the PHA's proposal. The local government's response must
state that the comments are to be considered its only response under 24
CFR part 791, subpart C. A copy of the solicitation letter must be
included in the PHA's proposal.
(m) New construction. If a proposal involves new construction, the
PHA must comply with section 6(h) of the Act (42 U.S.C. 1437d). This
may be accomplished by the PHA's submission of a comparison of the cost
of new construction in the neighborhood where the housing is proposed
to be constructed and the cost of acquisition of existing housing (with
or without rehabilitation) in the same neighborhood (including
estimated costs of lead-based paint testing and abatement).
Alternatively, the PHA may submit a certification, accompanied by
[[Page 19716]]
supporting documentation, that there is insufficient existing housing
in the neighborhood to develop public housing through acquisition.
(n)(1) Certifications and assurances. The PHA shall submit, as part
of its proposal, certifications and assurances warranting that it:
(i) Has the legal authority under State and local law to develop
public housing units through the establishment or selection of an owner
entity, and to enter into all agreements and provide all assurances
required under this subpart. In addition, the PHA shall warrant that it
has the legal authority necessary to enter into any proposed
partnership and to fulfill its obligations as a partner thereunder, and
that it has obtained all necessary approvals for this purpose;
(ii) Will use an open and competitive process to select the partner
and/or the owner entity and shall ensure that there is no conflict of
interest involved in the PHA's selection of the partner and/or owner
entity to develop and operate the proposed public housing units. In
addition, the PHA shall ensure that:
(A) Any selected partner and/or owner entity complies with all
applicable State and local procurement and conflict of interest
requirements with respect to its selection of entities to assist in the
development, and uses a competitive process consistent with the
requirements set forth in this subpart; and
(B) If the partner and/or owner entity (or any other entity with an
identity of interests with such parties) wants to serve as the general
contractor for the project or development, it may award itself the
construction contract only if it can demonstrate to HUD's satisfaction
that its bid is the lowest bid submitted in response to a public
request for bids;
(iii) Will be responsible to HUD for ensuring that the public
housing units are developed and operated in accordance with all
applicable public housing requirements, including the ACC, and all
pertinent statutory, regulatory, and executive order requirements, as
those requirements may be amended from time to time. The PHA must also
warrant that it will provide for a mechanism to assure, to HUD's
satisfaction, that the public housing units will remain available for
use by low-income families for the maximum period required by law. In
addition, the PHA must warrant that any agreement providing for the
management of the public housing units by an entity other than the PHA
shall require that the units be operated in accordance with all
applicable requirements under this subpart for the full term of any
low-income use restrictions.
(2) The PHA shall submit a certification of previous participation
in accordance with procedures set forth in 24 CFR part 200, subpart H,
and shall ensure that a similar certification is submitted to HUD by
the participating parties.
Sec. 941.608 Technical processing and approval.
(a) Initial screening. HUD shall perform an initial screening to
determine that all documentation required as part of the proposal under
Sec. 941.606 has been submitted. HUD will advise the PHA of any
deficiencies in the proposal and indicate that additional information
will be accepted if it is received by a specified date.
(b) Technical processing. Upon determining that a proposal is
acceptable for technical processing, HUD will evaluate the proposal to
determine:
(1) Whether the PHA has the legal authority necessary to develop
public housing units through the establishment of an owner entity and
the use of mixed-finance strategies in accordance with this subpart;
(2) Whether the proposed sources and uses of funds set forth in the
proposal are eligible and reasonable, and whether HUD's preliminary
assessment of the financing and other documentation establishes to
HUD's satisfaction that the mixed-finance development is viable and is
structured so as to adequately protect the Federal investment of funds
in the development. For this purpose, HUD will consider (among other
factors) the PHA's proposed methodology for allocating operating
subsidies on behalf of the public housing units; the projected revenues
to be generated by any non-public housing units in a mixed-finance
development; and the l0-year operating pro forma and other information
contained in the proposal;
(3) If applicable, whether the public housing units in the proposed
development will be comparable in size, location, external appearance
and distribution within the development to the non-public housing
units;
(4) If public housing development funds are to be used to pay for
more than the pro rata cost of common area improvements, whether the
proposal ensures that:
(i) On a per unit basis (taking into consideration the number of
public housing units for which funds have been reserved) the PHA will
not exceed TDC limits; and
(ii) Any common area improvements will benefit all residents of the
development;
(5) Whether the proposal complies with all program requirements
including, if applicable, any comments received from the unit of
general local government pursuant to section 213 of the Housing and
Community Development Act of 1974 (42 U.S.C. 1439) (see 24 CFR part
791, subpart C); and
(6) Whether the proposal is approvable following completion by HUD
of an environmental review in accordance with the requirements of 24
CFR part 50.
(c) Proposal approval. HUD shall send a notification letter to the
PHA stating that the proposal has been approved or disapproved. For
approved proposals, the letter shall indicate the approved total
development cost of the public housing units in the development. HUD
will also send to the PHA for execution an ACC amendment and/or a grant
agreement. If the PHA has already executed a front-end ACC amendment,
HUD will send to the PHA for execution a special ACC amendment for the
mixed-finance development (and/or a grant agreement). The PHA shall
execute these documents and return them to HUD for execution.
Sec. 941.610 Evidentiary materials and other documents.
(a) Submission of documents. As a condition of the release of grant
funds under Sec. 941.612, the PHA shall submit to HUD, within the
timeframe prescribed by HUD, evidentiary materials and other
documentation, as more fully set forth in the special mixed-finance
amendment to the ACC (and/or grant agreement). Such materials and
documentation shall include, but shall not be limited to:
(1) A copy of executed development-related contracts entered into
by the PHA or owner entity with respect to the development, and the
PHA-executed ACC amendment or special mixed-finance amendment to the
ACC (and/or grant agreement);
(2) Agreements that are necessary to implement the proposal and to
ensure that all requirements of this subpart are satisfied. Such
agreements must be submitted to HUD for review and approval and shall
include, but shall not be limited to:
(i) A deed restriction, covenant running with the land, ground
lease, or other arrangement of public record, that will assure to HUD's
satisfaction that the public housing units will be available for use by
eligible low-income families in accordance with all
[[Page 19717]]
applicable public housing requirements for the maximum period required
by law;
(ii) A regulatory or operating agreement between the PHA and the
owner entity that provides binding assurances that the operation of the
public housing units will be in accordance with all applicable public
housing requirements;
(iii) An agreement between the PHA and the owner entity with
respect to the provision of operating subsidy by the PHA in accordance
with this subpart;
(iv) A partnership agreement, development agreement, or other
agreement entered into between the PHA and its partner, or any other
participating party, that establishes the relationships between the
parties with respect to the implementation of the proposal, including
all rights and liabilities (financial and otherwise) of the parties, a
development schedule, and the respective commitments of the parties
with respect to the development of the public housing units. For
developments involving public and non-public housing units only, the
PHA shall also provide for an allocation with the owner entity of
expenses and risks (e.g., fire, exhaustion of, or failure to receive,
syndication funds, etc.) associated with the development and operation
of the development. The allocation of expenses and risks shall be based
upon a ratio that reflects the proposed bedroom mix of the public
housing units as compared to the bedroom mix and unit count of the non-
public housing units in the development, or as otherwise approved by
HUD;
(v) Any agreement relating to the management of the public housing
units by an entity other than the PHA;
(vi) For developments consisting of public housing and non-public
housing units, and in lieu of the standard cooperation agreement
required under Sec. 941.201(c), the PHA shall submit a cooperation
agreement with the applicable locality concerning PILOT payments, local
tax exemption and local government services on behalf of the proposed
public housing units. Such payments, exemption and services must be
based upon a ratio reflecting the proposed bedroom mix of the public
housing units as compared to the bedroom mix of the non-public housing
units in the development, or as otherwise approved by HUD. For
developments consisting only of public housing units, the PHA shall
submit the standard cooperation agreement required under
Sec. 941.201(c);
(3) All private or public financing documents evidencing the
availability of the participating party(ies)'s financing, the amount
and source of financing committed to the proposal by the participating
party(ies), and the irrevocability of those funds. HUD may require in
lieu of, or in addition to the submission of these documents, an
opinion of the PHA's and the owner entity's counsel (or other party
designated by HUD) attesting that counsel has examined the availability
of the participating party(ies)'s financing, and the amount and source
of financing committed to the proposal by the participating party(ies),
and has determined that such financing has been irrevocably committed
by the participating party(ies) for use in carrying out the proposal,
and that such commitment is in the amount required under the terms of
the proposal;
(4) The organizational documents of the owner entity, which shall
be reviewed by HUD (together with all financing documents) to ensure
that they do not provide equity investors, creditors, and any other
parties, with rights that would be inconsistent with, or that could
interfere with, HUD's interest in the proposed development;
(5) Evidence that all necessary actions have been taken by the PHA
and other participating parties to confer such legally enforceable
rights as will enable HUD to protect its investment in the property and
to ensure the availability of the public housing units for low-income
persons for the maximum permissible period;
(6) Evidence of control of the site by the PHA, partner, or owner
entity following proposal submission, for such period of time as may be
required by HUD;
(7) Evidence that construction or rehabilitation is permitted by
current zoning ordinances or regulations, or evidence to indicate that
needed rezoning is likely and will not delay construction of the
development;
(8) In addition, the PHA shall submit the following certifications
warranting that:
(i) For PHAs receiving operating assistance, that:
(A) There shall be no disposition of the public housing units
without the prior written approval of HUD during and for ten years
after the end of the period in which the public housing units receiving
operating subsidy from the PHA; and
(B) During a 40-year period (which may be extended for 10 years
after the end of the period in which the public housing units receive
operating subsidy from the PHA, or as may be otherwise required by
law), the public housing units shall be maintained and operated in
accordance with all applicable public housing requirements (including
the ACC), as those requirements may be amended from time to time;
(ii) The PHA will develop at least the same number of public
housing units as were approved by HUD as part of the PHA's proposal.
Where the PHA proposes to pay for more than its pro rata share of the
cost of common area improvements, the PHA must also certify that:
(A) It will develop the same number of public housing units as were
approved by HUD as part of the PHA's proposal, and will do so within
the TDC limits; and
(B) The common area improvements will benefit all residents of the
development. If the PHA's proposal provides that public housing units
within a development will not be specifically designated as public
housing units, but shall instead constitute a fixed percentage of the
housing units and number of bedrooms developed under the proposal, the
PHA must provide additional binding assurances that the percentage of
public housing units and number of bedrooms, as approved by HUD, will
be maintained as public housing by the owner entity, and that all of
the requirements of this subpart will be satisfied with respect to
those units;
(iii) It will ensure that the requirements of this subpart are
binding upon the owner entity and any partner of the PHA and, to the
extent determined necessary by HUD, upon any other participating party.
In addition, in the event of any noncompliance with the requirements of
this subpart by any participating party, the PHA agrees to take all
necessary enforcement action to ensure such compliance or,
alternatively, to pursue any legal or equitable remedies that HUD deems
appropriate;
(iv) It will include in all agreements or contracts with the
partner, owner entity, or any other participating parties receiving
development funds under this subpart, an acknowledgement that a
transfer of the development funds by the PHA to the partner, the owner
entity, or other participating party, shall not be deemed to be an
assignment of development grant funds and that, accordingly, the
partner, the owner entity or other participating party shall not
succeed to any rights to benefits of the PHA under the ACC, or ACC
amendment, nor shall it attain any privileges, authorities, interests,
or rights in or under the ACC or ACC amendment;
(v) It will include, or cause to be included, in all its agreements
or
[[Page 19718]]
contracts with the partner, the owner entity, or other participating
parties, and in all contracts with any other party involving the use of
development grant funds under this subpart, a provision stating that
nothing in the ACC or ACC amendments providing such funds, nor any
agreement or contract between the party(ies) shall be deemed to create
a relationship of third-party beneficiary, principal and agent, limited
or general partnership, joint venture, or any association or
relationship involving HUD;
(vi) It will ensure that the development of the public housing
units will be in compliance with labor standards applicable to the
development of public housing including, but not limited to, wage rates
under the Davis-Bacon Act (40 U.S.C. 276a et seq.). If the proposed
development will include public housing units that are not specifically
designated units, the PHA shall ensure that such labor requirements are
met with respect to the development of all units that may, at any time,
be used as the public housing units;
(vii) It will take all steps necessary to ensure that, in the event
of a foreclosure or other adverse action brought against the owner
entity with respect to the housing units (including, but not limited
to, the public housing units), the operation of the public housing
units developed under this subpart shall not be adversely affected.
(9) Such additional documentation as may be required by HUD.
(b) Subsidy layering analysis. After the PHA submits the
documentation required under paragraph (a) of this section, HUD (or its
designee) shall carry out a subsidy layering analysis pursuant to
section 102(d) of the Department of Housing and Urban Development
Reform Act of 1989 (42 U.S.C. 3545) (see 24 CFR part 4) to determine
whether the amount of assistance being provided for the development is
more than necessary to make the assisted activity feasible after taking
into account the other governmental assistance.
Sec. 941.612 Disbursement of grant funds.
(a) Front-end drawdowns. A PHA may request front-end assistance for
both scattered or non-scattered site development in accordance with the
following requirements:
(1) Front-end assistance may be used to pay for materials and
services related to proposal development, and may also be used to pay
for costs related to the demolition of existing units on a proposed
site or for preliminary development work;
(2) HUD shall determine on a case-by-case basis the maximum amount
that may be drawn down by a PHA to pay for preliminary development
costs, based upon a consideration of the nature and scope of activities
proposed to be carried out by the PHA;
(3) Before a request for front-end assistance may be approved, the
PHA must provide HUD with such information and documentation as HUD
deems appropriate from the list set forth at Sec. 941.606. In
determining the extent of the PHA's submissions under this paragraph
(a), HUD shall ensure that it has adequate information or documentation
to enable it to carry out any statutory, executive order, or other
mandatory upfront reviews under this subpart. These reviews shall
include, but shall not be limited to, environmental reviews (including
NEPA and historic preservation), intergovernmental review, section 213
clearance (24 CFR part 791, subpart C), and subsidy layering. If, upon
completing these reviews, HUD determines that the proposed development
is approvable, it may execute with the PHA a front-end ACC amendment
and the special mixed-finance amendment to the ACC (and/or grant
agreement) to provide advances for the purposes, and in the amounts,
approved by HUD.
(b) Standard drawdown requirements. HUD will review the evidentiary
materials and other documents submitted pursuant to Sec. 941.610, and,
upon determining that such documents are satisfactory, may approve a
drawdown of development funds, consistent with the following
requirements:
(1) A PHA may only draw down public housing development funds in an
approved ratio to other public and private funds, in accordance with a
draw schedule prepared by the PHA and approved by HUD. The PHA and its
partner shall certify, in a form prescribed by HUD, prior to the
initial drawdown of public housing development funds that the PHA will
not draw down and the partner will not request more public housing
grant funds than necessary to meet the PHA's pro rata share of the
development costs. The PHA shall draw down public housing development
funds only when payment is due and after inspection and acceptance of
work covered by the draw. The PHA shall release funds to its partner
promptly, normally within two working days of receipt of the funds from
HUD, and only in accordance with the ratio approved by HUD. The PHA's
partner shall take prompt action to distribute the funds, normally
within two working days of receipt of the funds from the PHA;
(2) Each drawdown of public housing development funds constitutes a
certification by the PHA that:
(i) All the representations and warranties of the PHA, as submitted
in accordance with this subpart, continue to be valid, true, and in
full force and effect;
(ii) The PHA is in full compliance with all of the PHA's
obligations pursuant to this part which, by their terms, are applicable
at the time of the drawdown of the public housing development funds,
and that to the best of the PHA's knowledge, it is not in default under
the ACC, as amended;
(iii) All conditions precedent to the PHA's authority to draw down
the public housing grant funds have been satisfied;
(iv) The public housing grant funds to be drawn down will be used
for eligible costs actually incurred or to be incurred in accordance
with the provisions of this subpart and the approved proposal; and
(v) The ratio for the draw down of funds is satisfied.
(c) The standard drawdown requirements set forth in paragraph (b)
of this section (including the requirement that public housing
development funds must be drawn down in an approved ratio to other
public and private funds) do not apply to front-end assistance approved
by HUD pursuant to paragraph (a) of this section.
Sec. 941.614 HUD monitoring and review.
HUD shall monitor and review the implementation of the PHA's
approved proposal in accordance with requirements prescribed by HUD in
a special mixed-finance amendment to the ACC (and/or grant agreement).
Sec. 941.616 Sanctions.
In the event the public housing units that are proposed to be
developed under this subpart are not developed in accordance with the
projected development schedule, the approved proposal, and all
applicable Federal requirements, or if the units are not operated in
accordance with applicable requirements, HUD may impose sanctions on
the PHA, and/or seek legal and equitable relief, in accordance with
requirements prescribed by HUD in the special mixed-finance amendment
to the ACC (and/or grant agreement).
[[Page 19719]]
PART 970--PUBLIC HOUSING PROGRAM--DEMOLITION OR DISPOSITION OF
PUBLIC HOUSING PROJECTS
5. Section 970.2 is amended by removing the word ``and'' at the end
of paragraph (a)(9); by removing the period at the end of paragraph
(a)10); and by adding new paragraphs (a)(11) and (a)(12), to read as
follows:
Sec. 970.2 Applicability.
(a) * * *
(11) A public housing development that is conveyed by a PHA to an
owner entity pursuant to an approved proposal under 24 CFR part 941,
subpart F and prior to the determination of the Actual Development Cost
to enable an owner entity to develop the project using the mixed-
finance development method; and
(12) Public housing units that are developed pursuant to the mixed-
finance development method at 24 CFR part 941, subpart F, and that are
reconveyed by the owner entity to the PHA.
* * * * *
Dated: January 16, 1996.
Kevin Emanuel Marchman,
Acting Assistant Secretary for Public and Indian Housing.
[FR Doc. 96-10445 Filed 5-1-96; 8:45 am]
BILLING CODE 4210-33-P
Complete official Federal Register PDF
FR Doc. 96-10433 Personal Protective Equipment for General Industry
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19547-19548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10433]
=======================================================================
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DEPARTMENT OF LABOR
Occupational Safety and Health Administration
29 CFR Part 1910
[Docket No. S-060]
RIN 1218-AA71
Personal Protective Equipment for General Industry
AGENCY: Occupational Safety and Health Administration (OSHA); Labor.
ACTION: Final rule; technical amendment.
-----------------------------------------------------------------------
SUMMARY: The final rule on personal protective equipment for general
industry was published by OSHA on April 6, 1994 (59 FR 16334). In that
rule, the introductory phrase ``the employer shall ensure'' was removed
from various proposed requirements for employees to wear different
types of protective equipment (final rule Secs. 1910.133, 1910.135, and
1910.136). The general requirement for the employer to select and have
the employees wear appropriate PPE, including any PPE described in
these specific provisions, was retained in Sec. 1910.132. The
employer's obligation to assure compliance with the individual
requirements for particular types of PPE was intended to remain the
same as if the words ``the employer shall ensure'' or similar language
were affixed to each substantive PPE provision in the final rule.
However, OSHA's compliance staff has encountered difficulties in using
Secs. 1910.133, 1910.135, and 1910.136 because they do not explicitly
assign the employer the responsibility for assuring that employees wear
the designated equipment. Therefore, this technical amendment is
necessary to restate that obligation within the text of these
requirements.
DATES: This amendment is effective June 3, 1996.
FOR FURTHER INFORMATION CONTACT: Anne C. Cyr, Acting Director, Office
of Information and Consumer Affairs, Occupational Safety and Health
Administration, U. S. Department of Labor, Room N-3647, 200
Constitution Ave., N. W., Washington, DC 20210. Telephone: (202) 219-
8151.
SUPPLEMENTARY INFORMATION: OSHA's final rule on personal protective
equipment (PPE) for general industry was published on April 6, 1994 (59
FR 16334), and became effective July 5, 1994. The PPE standards require
the employer to assure that each employee wears appropriate equipment
which protects the eyes, head, feet, and hands, from exposure to
hazards in the workplace. Section 1910.132 clearly states that where
such hazards are present, or are likely to be present, the employer has
the obligation both to select proper PPE and to require each affected
employee to wear it.
Sections 1910.133, 1910.135, and 1910.136 require that each
affected employee wear protective equipment for the eyes and face,
head, and feet, respectively, when those parts of the body are exposed
to hazards. The proposed version of each of those sections was prefaced
with the words ``The employer shall ensure that'' the employees wear
the equipment. In the final rule, OSHA deleted the prefatory language
in response to various comments. The preamble to the final rule made
clear that in making these deletions, the Agency intended to make no
change in the substantive requirements between the proposed and final
rules. That is, the employer was to be obligated to require the
employee to wear eye, face, head and foot protection under
Secs. 1910.133, 1910.135, and 1910.136, regardless of whether the words
``the employer shall ensure'' were included in those standards. (see
final rule preamble, 59 FR at 16335.)
The reason for the language change from the proposal was concern by
some commenters that the proposed language would result in their being
held liable for violations of these standards, regardless of any
exculpatory considerations such as employee misconduct. In making the
changes, OSHA emphasized two points: first, that the proposed language
would not have affected an employer's ability to raise defenses to a
citation; and second, that it was the Agency's intention that the
employer's obligations for compliance with standards issued under the
OSH Act be unaffected by the changes from the proposed rule to the
final rule.
Since the final rule was issued, the revised language has caused
difficulty for OSHA's compliance staff with regard to the employer's
obligation to have employees wear PPE. That obligation, while
specifically stated under Sec. 1910.132 for all PPE, is not explicitly
spelled out in the specific provisions of Secs. 1910.133, 1910.135 and
1910.136, for eye and head, face, and foot protection, even though it
was the Agency's clearly stated intention that the obligation apply
there, as well. Accordingly, OSHA has determined that it is necessary
to make a technical amendment to those three sections, to bring them
into line with the stated intention of the Agency in the preamble to
the final rule.
[[Page 19548]]
The current language of Secs. 1910.133, 1910.135, and 1910.136
contains requirements that employees wear the particular PPE addressed
by those sections. However, there is no specific text in any of these
sections that directly addresses the employer and the employer's
responsibilities for compliance. OSHA compliance staff have dealt with
this situation to date by grouping their citations for violations of
Secs. 1910.133, 1910.135, and 1910.136 with their citation under the
general PPE requirement in Sec. 1910.132. Each of these provisions was
intended in the final rule to stand on its own, and the Agency has
determined that a technical amendment is necessary to correct the
problem.
This technical amendment inserts appropriate language into
Secs. 1910.133, 1910.135, and 1910.136 which states the employer's
obligation to ensure that each affected employee wears the specified
types of PPE under these sections as well as under Sec. 1910.132, where
the employer's responsibility in this area is already spelled out. It
should also be noted that this technical amendment does not prevent the
employer who is cited for a PPE violation from raising any affirmative
defenses which would otherwise be applicable.
Under 5 U.S.C. 553 and 29 CFR 1911.5, this constitutes a minor rule
change which does not require public notice and comment. As noted
above, it clarifies an obligation under the specific PPE standards
which already applies to employers under the general rule in
Sec. 1910.132, and implements determinations already made by the Agency
in the preamble to the final rule. Accordingly, further public
participation is not required. However, in order to allow enough time
for information on the technical amendment to be distributed and
implemented by employers, OSHA is making the amendment effective June
3, 1996.
List of Subjects in 29 CFR Part 1910
Eye protection; Face protection; Foot Protection; Hand protection;
Footwear; Hard hats; Head protection; Occupational safety and health;
Occupational Safety and Health Administration; Personal protective
equipment; Safety glasses; Safety shoes.
Authority
This document has been prepared under the direction of Joseph A.
Dear, Assistant Secretary of Labor for Occupational Safety and Health,
U.S. Department of Labor, 200 Constitution Avenue NW, Washington, DC
20210.
Accordingly, pursuant to sections 4, 6 and 8 of the Occupational
Safety and Health Act of 1970 (29 U.S.C. 653, 655, 657); 5 U.S.C. 553;
Secretary of Labor's Order No. 1-90 (55 FR 9033), and 29 CFR Part 1911,
29 CFR part 1910 is amended as set forth below.
Signed at Washington, D.C., this 15th day of April, 1996.
Joseph A. Dear,
Assistant Secretary of Labor.
PART 1910--[AMENDED]
Subpart I--Personal Protective Equipment
1. The authority citation for subpart I of part 1910 is revised to
read as follows:
Authority: Sections 4, 6 and 8, Occupational Safety and Health
Act of 1970 (29 U.S.C. 653, 655, 657); Secretary of Labor's Order
No. 12-71 (36 FR 8754), 8-76 (41 FR 25059), 9-83 (48 FR 35736), or
1-90 (55 FR 9033), as applicable.
Sections 1910.132, and 1910.138 also issued under 29 CFR part
1911.
Sections 1910.133, 1910.135, and 1910.136 also issued under 29
CFR part 1911 and 5 U.S.C. 553.
Sec. 1910.133 [Amended]
2. Paragraphs (a)(1), (a)(2), (a)(5) of Sec. 1910.133 are amended
by replacing the words ``Each affected employee shall use'' with the
words ``The employer shall ensure that each affected employee uses''.
Sec. 1910.133 [Amended]
3. Paragraph (a)(3) of Sec. 1910.133 is amended by removing the
word ``Each'', adding the words ``The employer shall ensure that each''
in its place at the beginning of the paragraph, and by replacing the
words ``shall wear'' with ``wears'' both places they appear in the
paragraph.
Sec. 1910.135 [Amended]
4. Paragraph (a)(1) of Sec. 1910.135 is amended by replacing the
words ``Each affected employee shall wear protective helmets'' with the
words ``The employer shall ensure that each affected employee wears a
protective helmet''.
Sec. 1910.135 [Amended]
5. Paragraph (a)(2) of Sec. 1910.135 is amended by replacing the
words ``Protective helmets'' with the words ``The employer shall ensure
that a protective helmet'', and by replacing the words ``shall be worn
'' with the words ``is worn.''
Sec. 1910.136 [Amended]
6. Paragraph (a) of Sec. 1910.136 is amended by replacing the words
``Each affected employee shall wear'' with the words ``the employer
shall ensure that each affected employee used.''
[FR Doc. 96-10433 Filed 5-1-96; 8:45 am]
BILLING CODE 4510-26-P
Complete official Federal Register PDF
FR Doc. 96-10432 International Banking Activities
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19524-19539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10432]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 5, 20, and 28
[Docket No. 96-11]
RIN 1557-AB26
International Banking Activities
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Office of the Comptroller of the Currency (OCC) is
comprehensively revising its regulations governing the international
operations of national banks and the operation of foreign banks through
Federal branches and agencies in the United States. The revision is
part of the OCC's Regulation Review Program, which seeks to simplify
OCC regulations and reduce unnecessary compliance costs, consistent
with maintaining safety and soundness and furthering the other
responsibilities of the OCC. The final rule streamlines and
consolidates into one part of the Code of Federal Regulations
substantially all provisions relating to international banking, and
clarifies and simplifies their various requirements.
The final rule also updates the rules to implement provisions of
the Foreign Bank Supervisory Enhancement Act of 1991 (FBSEA) and the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(Interstate Act) relating to Federal branches and agencies.
EFFECTIVE DATE: July 1, 1996.
FOR FURTHER INFORMATION CONTACT: Raija Bettauer, Counselor for
International Activities, (202) 874-0680,
[email protected]; Laurie Sears, Attorney, International
Activities (202) 874-0680, [email protected]; Timothy M.
Sullivan, Director, International Banking and Finance, (202) 874-4730,
[email protected]; Comptroller of the Currency, 250 E Street,
SW, Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
Background
On July 5, 1995, the OCC published a notice of proposed rulemaking
(60 FR 34907) (proposal) proposing to revise its regulations governing
the international operations of national banks and the operation of
foreign banks through Federal branches and agencies in the United
States (12 CFR parts 20 and 28). The proposal was another component of
the OCC's Regulation Review Program (Program). The goal of the Program
is to review all of the OCC's rules and to eliminate provisions that
impose unnecessary regulatory burden and do not contribute
significantly to maintaining the safety and soundness of national banks
(and Federal branches and agencies) or to accomplishing the OCC's other
statutory responsibilities. Another goal of the Program is to clarify
the OCC's regulations and to better communicate the standards that the
rules intend to convey.
The proposal sought to achieve those goals and also to update the
OCC's rules to implement provisions in the FBSEA (Pub. L. 102-242,
title II, 105 Stat. 2286) and Interstate Act (Pub. L. 103-328, 108
Stat. 2338) relating to Federal branches and agencies of foreign banks.
It also added a mechanism for the OCC to obtain information on foreign
banking organizations to improve the OCC's safety and soundness
oversight of Federal branches and agencies.
The proposal further sought to reduce the complexity of the
existing regulatory
[[Page 19525]]
framework for international banking by referencing provisions in the
regulations of the Board of Governors of the Federal Reserve System
(FRB) and the Federal Deposit Insurance Corporation (FDIC), and, where
possible, using terms and procedures consistent with the provisions in
the other agencies' regulations dealing with comparable situations.
Comments Received
The OCC received four comment letters on the proposal: one from a
national bank and three from trade associations. The commenters
generally supported the OCC's efforts to consolidate and streamline the
current regulations and reduce unnecessary regulatory burden. Overall,
commenters commended the OCC's efforts, and some commenters offered
variations on certain of the proposed changes.
Overview of the Final Rule and Response to Comments Received
The final rule consolidates into a single comprehensive regulation
the substantive requirements governing international banking operations
supervised by the OCC. The final rule relocates and incorporates what
is currently subpart B of part 20, regarding international lending
supervision, as subpart C of part 28. The OCC originally drafted this
subpart in consultation with the FRB and the FDIC, and the OCC hopes to
undertake a review of subpart C of part 28 in the near future in
consultation with those agencies.
Under the final rule, the procedural requirements of 12 CFR part 5
continue to apply to Federal branches and agencies, unless otherwise
provided, and part 28 cross-references the procedural requirements in
part 5, as appropriate. The Comptroller's Manual for Corporate
Activities also provides additional and more specific guidance on the
application of the general corporate regulations to the Federal
branches and agencies.
The four commenters recommended changes that focused on specific
sections of the proposal. The OCC carefully considered each of the
comments, and has made changes in the final rule in response to the
comments received. The following discussion of significant sections
identifies and discusses the comments the OCC received on the proposal
and the changes the OCC made to the proposal to address those comments.
The discussion also notes other changes to the current regulations that
the OCC has adopted in the final rule. The preamble concludes by
indicating the technical changes that the final rule makes to remove
superfluous sections of 12 CFR part 5. A derivation table summarizing
sections of former parts 20 and 28 changed by the final rule is
included at the end of this preamble.
Subpart A--Foreign Operations of National Banks
Filing Requirements for Foreign Operations of a National Bank
(Sec. 28.3)
The proposal required a national bank to notify the OCC upon
establishing, opening, relocating, or closing a foreign branch, or when
filing an application, notice, or report with the FRB regarding the
acquisition or divestment of certain foreign investments. Under the
proposal, a national bank could satisfy this requirement by providing
the OCC with a copy of the appropriate filing made with the FRB. Also,
the proposal removed the requirement in the current regulation for a
national bank to make two separate filings when establishing a foreign
branch or acquiring certain foreign investments.
One commenter requested that the OCC clarify the requirement that
notice be provided to the OCC when a national bank ``establishes'' a
foreign branch. The commenter noted that both the OCC's proposal and
FRB's Regulation K, 12 CFR 211.3(a), require notice at the opening,
closing, or relocating of a foreign branch. However, the OCC proposal
also required a notice for ``establishing'' a foreign branch. The
commenter requested that the OCC clarify whether ``establish'' has the
same meaning as ``open,'' and, if not, whether the OCC is requesting
something beyond that which is required under Regulation K.
Regulation K states that the establishment of a foreign branch
generally requires the specific approval of the FRB. See 12 CFR
211.3(a)(1). Regulation K also requires any member bank that opens,
closes, or relocates a foreign branch to report those changes in a
manner prescribed by the FRB. See 12 CFR 211.3(a)(5). In addition,
Regulation K requires a member bank to obtain the FRB's approval, or
notify the FRB, when it acquires, divests, or disposes of certain
foreign investments. See 12 CFR 211.5, 211.7.
The final rule makes it clear that whenever a national bank is
required to make a filing with the FRB under Regulation K, as described
in the paragraph above, it must also provide a copy of that filing or a
notice of that filing to the OCC. However, even if not required by the
FRB, the final rule requires a national bank to provide a simple notice
to the OCC of the opening, closing, or relocation of a foreign branch.
As the primary supervisor of the national bank and its consolidated
global operations, it is necessary for the OCC to know the basic
structure and location of the national bank's operations in order to
effectively supervise the consolidated operations of the bank.
Liability for Deposits Maintained at Non-United States Offices
Section 326 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (CDRI Act) (Pub. L. 103-325, 108 Stat. 2160)
amends the Federal Reserve Act, 12 U.S.C. 221 et seq., to limit a
United States bank's liability for deposits in its foreign branches if
the branch cannot repay the deposit due to foreign sovereign action,
war, insurrection, or civil strife, and the bank has not expressly
agreed in writing to repay the deposit under those circumstances. The
proposal specifically solicited public comment on whether additional
guidance is necessary or desirable to implement this provision of the
CDRI Act. The OCC received no comments regarding the effect of the
proposal on United States banks.
One commenter, however, urged the OCC to adopt a provision in the
final rule applying section 326 to Federal branches and agencies of
foreign banks operating in the United States. The suggested provision
would state that United States offices of foreign banks will not be
subject to liability for deposits maintained at a non-United States
office if that non-United States office cannot repay the deposits due
to foreign sovereign action, war, insurrection, or civil strife. The
commenter argued that its request is consistent with the protection
provided United States banks under section 326 and the national
treatment principle.
The OCC has decided not to adopt the commenter's suggestion at this
time. Subpart B of part 28 contains a general provision regarding
United States laws that apply to Federal branches and agencies, and the
OCC expects to provide additional and more specific guidance in this
area in the future. Section 326 was the product of some particular
concerns. The OCC believes that it will be more appropriate to address
the commenter's question via a process that better allows those
concerns to be considered and, if appropriate, specific guidance to be
issued.
[[Page 19526]]
Subpart B--Federal Branches and Agencies of Foreign Banks
Authority, Purpose, Scope, and Filing Requirements (Sec. 28.10)
The proposal set out the legal authority, purpose, and scope of
subpart B. The final rule adds a new paragraph (c) to this section to
explain that, unless otherwise provided, the rules of general
applicability in 12 CFR part 5 apply to a filing by a foreign bank or a
Federal branch or agency as they would apply to a similar filing by a
national bank. The final rule tells filers where to file and where to
obtain forms. The final rule also informs filers that the OCC accepts a
copy of an application form, notice, or report submitted to another
Federal regulatory agency that covers the proposed action and contains
substantially the same information that would be required by the OCC.
Definitions (Sec. 28.11)
The proposal included new and updated definitions to assist in the
implementation of new statutory requirements and to make the
definitions more consistent with those of the FRB and FDIC. The final
rule adopts the definitions as proposed, except as discussed below.
The final rule includes a new definition for ``affiliate'' that was
discussed in the preamble of the proposal. The final rule extends the
exemption for those from whom an uninsured Federal branch may take
deposits of less than $100,000 to include persons to whom the branch,
or foreign bank (including any affiliate thereof) has extended credit
or provided other nondeposit banking services within the past 12
months. Therefore, it was necessary to add a definition for
``affiliate.''
The final rule adds a definition of ``capital equivalency deposit''
that refers to section 4 of the International Banking Act of 1978
(IBA), 12 U.S.C. 3102(g).
The final rule also adds a separate definition of ``control'' that
was not in the proposal. However, the proposal described this term in
two other definitions, so the final rule eliminates this redundancy.
The final rule defines ``initial deposit'' to clarify that ``first
deposit'' means any deposit made when there is no current deposit
relationship between the depositor and the Federal branch. This issue
is discussed more thoroughly in the discussion of Sec. 28.16 in
reference to a comment received regarding accounts established with a
deposit of $100,000 or more before the effective date of the
regulation.
The OCC received a comment suggesting changes to the definition of
``managed or controlled,'' but the final rule adopts the definition as
proposed. The Interstate Act, 12 U.S.C. 3105(k), provides that United
States branches and agencies of foreign banks cannot manage any type of
activity that is conducted through an offshore office of the foreign
bank that is managed or controlled by the branch or agency unless a
United States bank is permitted to manage that activity at its offshore
branch or subsidiary.
The proposal defined ``managed or controlled'' to mean that the
majority of the responsibility for business decisions, including
decisions with regard to lending, asset management, funding, or
liability management, or the responsibility for recordkeeping of assets
or liabilities for a non-United States office, resides at the Federal
branch or agency. This definition is consistent with the definition
used in the Federal Financial Institutions Examinations Council (FFIEC)
Supplement to the quarterly Report of Assets and Liabilities of U.S.
Branches and Agencies of Foreign Banks, FFIEC 002S, for the purpose of
determining which United States branches and agencies of foreign banks
manage or control offshore offices and must complete FFIEC 002S. 57 FR
61907, Dec. 29, 1992.
One commenter proposed that the OCC exclude from the definition of
``managed or controlled'' recordkeeping for a non-United States office
by the United States office. The commenter recommended that, for
various cost and efficiency reasons, a foreign bank may maintain
records at a United States location for non- United States offices that
the United States office does not otherwise manage or control, and that
FFIEC 002S is intended for other purposes. Therefore, the broad
definition of ``managed or controlled'' in FFIEC 002S that is used for
reporting purposes should not automatically be used for applying
restrictions on the types of activities that may be managed at offshore
branches.
The OCC carefully considered this comment and decided not to adopt
the commenter's recommendation. The OCC believes that two different
definitions of ``managed or controlled'' would be impractical and
confusing. In most, if not virtually all, cases where a United States
office is performing recordkeeping functions for a non-United States
office, the United States office would otherwise satisfy the definition
of ``managed or controlled.'' The OCC recognizes, however, that if a
United States office of the foreign bank simply compiles or forwards to
the parent foreign bank data or information regarding offshore
operations in the normal course of business, that activity would not
constitute recordkeeping for this purpose. Thus, that United States
office of the foreign bank would not ``manage or control'' the foreign
bank's offshore activities for purposes of this provision.
Consequently, the final rule defines ``managed or controlled'' to
apply to those offshore offices for which a Federal branch or agency
has substantial responsibility with regard to assets or liabilities or
recordkeeping. For example, consistent with FFIEC 002S, a Federal
branch or agency would be deemed to manage or control its offshore
office if: (1) The manager for the Federal branch or agency and the
manager for the offshore office are the same person or there is other
significant overlap in personnel; (2) substantial responsibility for
decisions regarding either assets or liabilities of the offshore office
resides with staff in the Federal branch or agency; or (3)
recordkeeping systems for either assets or liabilities of the offshore
office are maintained in the Federal branch or agency. The
restrictions, however, generally would not apply to offshore branches
that are full-service facilities managed or controlled by staff located
at the offshore office or at a location outside the United States.
Approval of a Federal Branch or Agency (Sec. 28.12)
The proposal updated and clarified criteria for OCC approval of
applications to establish a Federal branch or agency, or a limited
Federal branch. The proposal also streamlined the procedures and
provided for expedited review for certain corporate applications by
eligible foreign banks.
Commenters generally commended the OCC's efforts to streamline the
approval process. The OCC received no suggestions to improve this
section, and the final rule adopts this section as proposed. Commenters
especially favored the OCC's proposal to expedite the review procedure
for eligible foreign banks.
For purposes of the expedited review procedures in the final rule,
a foreign bank is an ``eligible foreign bank'' if each Federal branch
and agency of the foreign bank in the United States: (1) Has a
composite rating of 1 or 2 under the interagency rating system used by
the OCC for United States branches and agencies of foreign banks
(ROCA); (2) is not subject to a cease and desist order, consent order,
formal written agreement, or Prompt Corrective Action
[[Page 19527]]
directive (see 12 CFR part 6) or, if subject to such order, agreement,
or directive, is informed in writing by the OCC that the parent foreign
bank may be treated as an ``eligible foreign bank'' for purposes of
this section; and (3) has, if applicable, a Community Reinvestment Act
(CRA), 12 U.S.C. 2906, rating of ``Outstanding'' or ``Satisfactory.''
The OCC will not provide expedited review, however, if it concludes,
and advises the applicant in writing, that the filing presents
significant supervisory or compliance concerns, or raises significant
legal or policy issues.
The final rule also adds a paragraph to allow a foreign bank
proposing to establish a Federal branch or agency through acquisition,
merger, or consolidation with another foreign bank to obtain after-the-
fact approval from the OCC in certain circumstances. This type of an
establishment occurs when there is a change in the corporate form of
the foreign bank operating the Federal branch or agency, for instance,
through a merger of a foreign bank operating a Federal branch or agency
into another foreign bank. This could also occur, in certain
circumstances, through the acquisition of the assets or operations of a
foreign bank operating a Federal branch or agency by another foreign
bank.
The regulation provides the minimum requirements for an after-the-
fact application, and further criteria and information regarding these
transactions and procedures may be contained in the Manual. The OCC
reserves, however, the right to deny the application, and an applicant
must agree to abide by the OCC's decision, including terminating the
activity or activities of an Federal branch or agency, if the OCC so
requires.
The final rule expands the types of change of status that may be
granted expedited review by including the conversion of a state branch
or agency operated by a foreign bank, or a commercial lending company
controlled by a foreign bank into a Federal branch, limited Federal
branch, or Federal agency.
Permissible Activities (Sec. 28.13)
In paragraph (a) of this section the proposal restated the general
provision on the applicability of domestic law to Federal branches and
agencies and requested comment on forms of supplemental guidance that
interested parties thought would be most useful. The OCC received no
comments on this paragraph and accordingly no substantive changes are
made to paragraph (a) in the final rule.
In paragraph (b) of this section, the proposal restated the
requirement in the Interstate Act regarding the management of certain
offshore activities, 12 U.S.C. 3105(k), and clarified, in general
terms, the activities that a United States bank may manage at its
offshore branch or subsidiary. The Interstate Act provides that a
United States branch or agency of a foreign bank shall not, through an
offshore shell branch that it manages and controls, manage the types of
activities that a United States bank may not manage at its foreign
branch or subsidiary.
A commenter suggested that in accordance with the legislative
history of the Interstate Act, the OCC should clarify that
Sec. 28.13(b) applies to offshore shell branches. The OCC agrees that
this clarification is warranted and has changed the title of paragraph
(b) of this section to mirror section 107(e) of the Interstate Act, 12
U.S.C. 3105(k).
In the preamble to the proposal, the OCC solicited comment on
whether procedural or quantitative supervisory requirements that may
apply to an activity of a United States bank at its foreign branches or
subsidiaries should also apply to a Federal branch or agency in this
context. One commenter noted that the Interstate Act does not require
such limits to be imposed and that in other relevant contexts the
Federal banking agencies have not imposed such limits. The OCC agrees
with the commenter. The final rule refers to the ``types'' of
activities and explicitly excludes United States procedural or
quantitative supervisory requirements that may apply to the offshore
branch or subsidiary of a United States bank.
The OCC notes, however, that the Interstate Act does not confer on
a foreign bank the right to manage activities of an offshore office
from its Federal branch or agency. The OCC will continue to monitor
relationships between Federal branches and agencies and offshore
offices of foreign banks and to evaluate the compliance of law and
safety and soundness of the United States operations of Federal
branches and agencies.
Capital Equivalency Deposit (Sec. 28.15)
The proposal restated the current provision that eligible capital
equivalency deposits (CED) for Federal branches and agencies may
include dollar deposits or investment securities that are permissible
investments for a national bank. The proposal also stated that high-
grade commercial paper and bankers' acceptances are the functional
equivalents of deposits. The proposal required that permissible CED
instruments be valued at the lower of the principal amount or market
value. The proposal provided that if no published source for market
value is available, the instruments must be priced by an independent
pricing service at least quarterly.
One commenter recommended that the OCC not subject negotiable
certificates of deposits or bankers' acceptances issued by United
States banks or United States offices of foreign banks to the
requirement that the instruments have a market value that is available
from either a published source or from an independent pricing service.
The commenter was concerned that this requirement may in practice
prevent Federal branches and agencies from pledging negotiable
certificates of deposit or bankers' acceptances issued by banks that
are regulated by United States authorities and that are in a safe and
sound financial condition solely because their prices are not
published.
The proposal was not intended to make it impractical for Federal
branches or agencies to pledge high quality instruments as CED. As
mentioned in the proposal, the quality of bank certificates of deposit
offered as CED has been occasionally questionable or difficult to
ascertain. Also, certain securities used as CED may be volatile or
difficult to price at market value. Therefore, the OCC included the
published source requirement in the proposal.
The OCC recognizes, however, that this requirement may
unnecessarily exclude certain high quality certificates of deposit or
other instruments. Therefore, the final rule does not adopt the
published source requirement for certificates of deposit and banker's
acceptances. Instead, the final rule requires that for an instrument to
qualify as CED it must be: (1) An investment security eligible for
investment by a national bank; (2) a United States dollar deposit
payable in the United States, other than a certificate of deposit; (3)
a certificate of deposit, payable in the United States, or bankers'
acceptance, provided that, in either case, the issuer or the instrument
is rated investment grade by an internationally recognized rating
organization, and neither the issuer nor the instrument is rated lower
than investment grade by any such rating organization that has rated
the issuer or the instrument; or (4) another asset permitted by the OCC
to qualify as CED. Although currently under OCC supervisory policy
dollar deposits include dollar denominated certificates of deposit
payable in the United States, the final rule categorizes certificates
of deposits separately to clarify the
[[Page 19528]]
treatment of these instruments. The final rule also restates the
requirement in section 4 of the IBA, 12 U.S.C. 3102(g)(2), that the
obligations used for CED must be valued at principal amount or market
value, whichever is lower. The OCC believes that these requirements
strike a reasonable balance between the OCC's concerns about the
quality of these instruments offered as CED and providing flexibility
to Federal branches and agencies in their choice of instruments that
can be properly pledged as CED. In addition, the OCC retains the
authority to disallow any particular CED investment that it concludes
is inappropriate.
The OCC recognizes that, on the effective date of this regulation,
CED accounts of some Federal branches and agencies may contain
instruments that do not meet the investment grade rating standard of
the final rule. In order to avoid unnecessary operational disruption,
the OCC will not require immediate replacement of those instruments.
Instead, an instrument in the CED account that does not qualify under
this regulation must be replaced with a qualifying instrument, i.e.,
one that satisfies the requirements of this regulation, upon maturity
of that instrument. This accommodation applies, however, only to
instruments already properly pledged as CED under the current
regulation.
Deposit-Taking by an Uninsured Federal Branch (Sec. 28.16)
The Interstate Act, 12 U.S.C. 3104 note, requires the OCC and the
FDIC to review and revise their regulations regarding deposit-taking by
foreign branches to ensure that the agencies' regulations are
consistent with the principle of national treatment articulated in the
IBA, 12 U.S.C. 3104(a). Specifically, the OCC and FDIC are directed to
consider whether foreign branches may accept initial deposits of less
than $100,000 from six categories of depositors listed in the statute.
The Interstate Act also directs the agencies to reduce the amount of
deposits of less than $100,000, not otherwise permissible under this
regulation, that may be accepted by foreign branches. This exemption,
characterized as a ``regulatory de minimis exemption'' by the
Interstate Act, reduces the amount of those deposits maintained by an
uninsured Federal branch under the exemption from 5% to 1% of the
average deposits held by that Federal branch.
The Interstate Act also directs the OCC to consider equal
competitive opportunities among foreign banks and United States banks
and the availability of credit to all sectors of the United States
economy, including international trade finance. One objective that
Congress expected the agencies to achieve in the implementation of this
regulation is to afford equal competitive opportunities to foreign and
United States banks by ensuring that foreign banks do not receive an
unfair competitive advantage in taking uninsured deposits.
The OCC proposal, in general, adopted the exceptions suggested by
Congress in the Interstate Act, but added several limited exemptions.
The OCC believes these additional limited exemptions are consistent
with the purposes of the Interstate Act. The preamble to the OCC's
proposal set forth in detail the information and data that the OCC
reviewed in considering this question. See 60 FR 34907, July 5, 1995.
The final rule adopts this provision as proposed with some changes as
described in the following discussion.
Nondeposit Banking Services (Sec. 28.16(b)(3))
The Interstate Act requires the OCC to consider whether to permit
an uninsured Federal branch to accept initial deposits of less than
$100,000 from persons to whom the branch or foreign bank has extended
credit or provided other nondeposit banking services. The OCC's
proposal provided that an uninsured Federal branch may accept initial
deposits of less than $100,000 from persons to whom the branch or
foreign bank has extended credit or provided other nondeposit banking
services within the past 12 months or has entered into an agreement to
provide those services within the next 12 months.
The proposal recognized that in a banking relationship a deposit
may, in some cases, precede the extension of credit or the provision of
other nondeposit banking services by the uninsured Federal branch or
foreign bank. In the proposal, the OCC also indicated that it was
considering clarifying this exemption to permit uninsured Federal
branches to accept deposits from persons, and their affiliates, to whom
the branch, foreign bank, or any financial institution affiliate
thereof has extended credit or provided other non-deposit banking
service within the past 12 months, or with whom the branch, bank, or
its financial institution affiliate has a written agreement to extend
credit to provide such services. The OCC did not receive any comments
opposing the clarification of this exemption.
One commenter strongly supported expanding the scope of this
exemption to include nondeposit banking services provided to the
depositor, or its affiliates, by financial affiliates of the foreign
bank. The commenter noted that, like United States banks, foreign banks
provide nondeposit banking services through affiliates for a variety of
regulatory and business reasons. Financial affiliates frequently
provide banking services to customers that can also be provided
directly by the bank. Similarly, depositors frequently conduct their
operations through affiliates. The commenter also suggested that the
OCC exercise its discretion under the Interstate Act to expand this
category to cover deposit services provided by the foreign bank or its
financial institution affiliates.
The OCC has adopted one of the commenter's recommendations. The
final rule expands the scope of this exemption to permit an uninsured
Federal branch to accept initial deposits of less than $100,000 from a
person to whom the branch, foreign bank, or an affiliate of the foreign
bank has extended credit or provided other nondeposit banking services
within the past 12 months or has a written agreement to provide credit
or those services within the next 12 months. The OCC believes that this
expansion is warranted by the connection among the foreign entity's
various components. Similarly, a customer who has a business
relationship with an affiliate of the foreign bank may prefer the
convenience of a deposit relationship with a Federal branch of the
foreign bank. Moreover, the deposit relationship with the branch may,
in some cases, precede the extension of credit or providing of other
nondeposit banking services by the branch or foreign bank or its
affiliates.
This expansion is supported by the language of the IBA, which
defines ``foreign bank'' to include any affiliate of a foreign bank.
See 12 U.S.C. 3101(7). Consistent with this exemption, affiliates of a
foreign bank include companies that are capable of extending credit or
providing some other nondeposit banking service to prospective
depositors. For example, affiliates of a foreign bank that provide
credit or other nondeposit banking services may include investment
advisors, broker-dealers, futures commission merchants, finance
companies, Edge corporations and Agreement corporations, commodity
trading advisors, other banks, or any other comparable institution.
The OCC does not find equally compelling the commenter's argument
to expand the exemption to include affiliates of the depositor, or to
expand
[[Page 19529]]
the transactions triggering the exemption to include providing deposit
services. There is no explicit statutory support in the IBA for this
expansion, or any indication in the Interstate Act that Congress
intended to include affiliates of persons to whom the branch or foreign
bank (including its affiliates) has extended credit or provided any
other nondeposit banking service. However, as a matter of convenience
to depositors, the final rule includes a provision in the exemption to
permit a Federal branch to accept deposits from immediate family
members of an individual to whom the branch or foreign bank (including
its affiliates) has extended credit or other nondeposit banking
services within the past 12 months or has entered into a written
agreement to provide such services within the next 12 months. The OCC
notes that it specifically requested comment on an exemption for
immediate family members in this section, and one commenter strongly
supported this proposal. The OCC received no opposing comments.
Business Deposits (Sec. 28.16(b)(4))
The Interstate Act requires the OCC to consider whether to permit
an uninsured branch to accept initial deposits of less than $100,000
from a foreign business or large United States business. The OCC has
determined that this exemption is consistent with the objectives in
section 6(a) of the IBA, 12 U.S.C. 3104. Consequently, the OCC,s
proposal provided that an uninsured Federal branch may accept initial
deposits of less than $100,000 from foreign businesses and large United
States businesses. The proposal defined ``large United States
business'' to mean any business entity organized under the laws of the
United States, and that has: (1) securities registered on a national
securities exchange or quoted on the National Associate of Securities
Dealers Automated Quotation System (NASDAQ); or (2) more than $1
million in annual gross revenues. The proposal specifically requested
comment on this definition, including the appropriateness of the
criteria and suggestions for alternative criteria. Two commenters
suggested modifications to this exemption.
One commenter urged the OCC to expand this exemption to permit an
uninsured Federal branch to accept deposits from all businesses. The
commenter believed that the Interstate Act gives the OCC and the FDIC
discretion because the Interstate Act directs the agencies to
``consider'' adopting the exemption categories listed in the statute.
The commenter noted that the ability of an uninsured Federal branch to
accept initial deposits of less than $100,000 from all businesses is
significant in maintaining and expanding credit availability to the
United States economy. However, the commenter did not offer more
specific information to support this assertion.
Alternatively, the commenter recommended that the OCC expand the
exemption criteria to include businesses with: (1) $1 million in total
assets; (2) 50 or more employees; or (3) affiliates of large United
States businesses. The commenter suggested that the OCC expand the
proposed criteria for large United States businesses to accommodate the
wide range of different circumstances of business entities. For
example, a foundation or trust would not be listed on a national
securities exchange and may not generate revenues, although it could be
considered large in terms of its total assets or employees. Also, the
commenter proposed that the OCC should treat a large United States
business and its affiliates as a group.
Another commenter, however, recommended narrowing the exemption by
increasing the $1 million annual gross revenue amount required for
large United States businesses to between $25 and $100 million.
Furthermore, the commenter suggested imposing conditions under which a
domestic business may open an account with an uninsured Federal branch.
The commenter argued that using a $1 million cut-off would include a
great number of domestic businesses and would undermine the purpose of
the restriction. This commenter did not offer any more specific
arguments to support its recommendation.
In the final rule, the OCC clarifies that the definition of ``large
United States business'' includes non-profit institutions, such as
foundations. In the absence of data supporting an alternative
definition of ``large United States business,'' however, the OCC has
decided not to make any other changes in the definition in the final
rule. The OCC believes that the proposal represents a reasonable
balance between Congress' concern that foreign banks and United States
banks be provided equal competitive opportunities and the importance of
maintaining credit to all sectors of the United States economy. At the
same time, additional criteria or more specific conditions under which
business deposits can be made, as proposed by one commenter, would make
the exemption more complex and difficult to administer by uninsured
Federal branches, without clear evidence that it would further the
purposes of the Interstate Act.
Other Categories of Depositors (Sec. 28.16(b) (1), (2), (6) and (8))
One commenter expressed support for the other categories of exempt
depositors proposed by the OCC. The proposal included a list of nine
types of persons or entities from which an uninsured Federal branch may
accept initial deposits of less than $100,000. In particular, the
commenter supported the exemptions for Federal and state governments,
individuals who are neither citizens nor residents of the United
States, individuals who are not United States citizens, but who are
residents of the United States and are employed by a foreign bank,
foreign business, foreign government or recognized international
organization, and deposits made in connection with the issuance of a
financial instrument for the transmission of funds. The OCC did not
receive any comments suggesting changes to these categories, and the
final rule adopts the other depositor exemption categories as proposed.
De minimis Deposits (Sec. 28.16(b)(9)) and Transition rule
(Sec. 28.16(f))
The Interstate Act, 12 U.S.C. 3104 note, requires that the OCC
reduce the amount of deposits of less than $100,000 that an uninsured
Federal branch may accept from any party under the de minimis exemption
from 5% to 1% of the branch's average deposits.1 The Interstate
Act also permits the OCC to establish reasonable transition rules to
facilitate the termination of any deposit-taking activities that would
no longer be permissible under the new regulatory exemptions.
---------------------------------------------------------------------------
1 The de minimis calculation methodology remains
unchanged from the current rule and is consistent with the
calculation methodology used by the FDIC for state-licensed
branches.
---------------------------------------------------------------------------
As required, the OCC's proposal reduced the amount of the de
minimis exemption from 5% to 1% of an uninsured Federal branch's
average deposits. In addition, the proposal provided a five-year
transition period for all currently exempted accounts, other than time
deposits. During the transition period, branches would have to
reclassify deposits accepted under the current set of exemptions into
one of the new exemptions, or terminate those deposit accounts that do
not qualify for an exemption under this regulation as of the end of the
transition period. The transition period for a time deposit would be
until maturity of the deposit, at which time the branch must reclassify
the deposit under a new exemption,
[[Page 19530]]
obtain a special exemption from the OCC for the specific deposit, or
terminate the deposit relationship. An uninsured branch may continue to
accept deposits for an existing account that does not qualify for an
exemption until the end of the transition period.
One commenter addressed the de minimis deposit and transition
provisions of the proposal. The commenter supported the general
approach of the five-year phase-in period. However, the commenter
suggested the following modifications. First, the commenter suggested
that the reclassification of initial deposits of less than $100,000
that were accepted under the current regulation should apply only to
those deposits that were accepted under the current 5% de minimis test.
In other words, the commenter thought it unnecessary to apply the
reclassification requirement to all deposits maintained by uninsured
branches under the current set of exemptions as the proposal provided.
The OCC considered this option and decided to adopt the requirement
as proposed. The OCC interprets the Interstate Act to require
reclassification of all deposits maintained by an uninsured Federal
branch under the current exemptions. Those exemptions include deposits
received, not only under the 5% de minimis exemption, but also deposits
received under other current exemptions that no longer apply under the
final rule. The OCC believes that its interpretation is more consistent
with the Interstate Act and its legislative history which appear to
contemplate a transition period for all existing exempted deposits,
i.e., not only for the de minimis deposits. In addition, the OCC has
provided a five-year transition period for reclassification to reduce
any disruption imposed by reclassification. In the final rule, the OCC
clarifies that accounts accepted under all the existing regulatory
exemptions must be reclassified during the transition period.
Second, the commenter requested clarification regarding the
transition rule. The commenter requested that the OCC confirm that the
reclassification of initial deposits of less than $100,000 could take
place at any time during the phase-in period depending on the
circumstances of the deposit account. The OCC confirms that a deposit,
including a time deposit, may be reclassified at any time during the
five-year transition period, but a time deposit is not required to be
reclassified until its maturity date.
Third, the commenter addressed the transition period for time
deposits. The proposal provided that the transition period for a time
deposit would be until maturity of the deposit, at which time the
branch must reclassify the deposit under a new exemption or obtain a
special exemption from the OCC for the specific deposit. The commenter
pointed out that time deposits can be as short as seven days in
duration, and, therefore, a branch would have an unreasonably short
period of time to reclassify many of its time deposits. The commenter
recommended that the OCC delay the effective date for the requirement
to begin reclassifying time deposits once they mature until six months
after publication of the final rule.
The OCC recognizes that the proposal may provide insufficient time
to reclassify time deposits that mature shortly after the effective
date of the regulation. Therefore, the final rule provides, in the case
of time deposits, that an uninsured Federal branch has until the
maturity of the time deposit or 90 days after the effective date of the
final rule, whichever is longer, to reclassify the deposit. The OCC
believes that 90 days from the effective date of the final rule is a
reasonable period of time to reclassify time deposits that mature
shortly after the effective date of the regulation.
Fourth, the commenter requested clarification regarding the
applicability of Sec. 28.16 to accounts established with deposits of
$100,000 or more before the effective date of this regulation.
Specifically, the commenter pointed out that the proposed definition of
``initial deposit'' may conflict with the commenter's understanding
that accounts established with a deposit of $100,000 or more before the
effective date of the final rule would not be subject to the
reclassification requirement. The proposal defined ``initial deposit''
as the first deposit received after the effective date of the final
rule. The commenter noted that, under the proposal, after the effective
date of the final rule the first deposit to an existing account of, for
example, $10,000 that was initially opened with a deposit of $100,000
or more would be subject to this section although the original deposit
of $100,000 or more was not subject to the current regulation. The
commenter requested confirmation that existing deposits that were not
subject to the exemptions because the initial deposit was $100,000 or
more would not be subject to the revised regulation, even if the first
deposit in the account after the effective date of the revised
regulation was less than $100,000.
The commenter's interpretation is correct. Only initial deposits of
less than $100,000 that were received under one of the current sets of
exemptions under the current regulation are subject to the
reclassification requirements in the final rule. Accordingly, the OCC
changed the proposed definition of ``initial deposit'' to provide that
a ``first deposit'' means any deposit when there is no current deposit
relationship between the depositor and the Federal branch.
Notice of Change in Activity or Operations (Sec. 28.17)
The proposal added this section to clarify the OCC's policy
regarding notice requirements for certain changes in activities and
operations. The proposal required a Federal branch or agency to provide
a notice to the OCC when changing its corporate title or mailing
address, converting to a state branch, state agency, or a
representative office, or when its parent foreign bank changes its home
state designation.
The final rule removes proposed paragraphs (b) and (c) of this
section concerning where to file and when the OCC would accept notices
filed with other banking agencies. In order to provide this information
for all filings and requests under this subpart, the final rule
contains this information in Sec. 28.10(c).
Recordkeeping and Reporting (Sec. 28.18)
The proposal restated current OCC policy and practice requiring a
parent foreign bank to provide the OCC with information regarding its
affairs. The proposal also added a specific requirement that a foreign
bank operating a Federal branch or agency in the United States provide
the OCC with a copy of regulatory reports that it files with other
Federal regulatory agencies that are designated in guidance issued by
the OCC. The proposal also clarified that, while a Federal branch or
agency does not need to maintain all records in English, it must
maintain sufficient records in English to permit examiners to perform
their responsibilities. The OCC received no comments on this section
and has made no changes in the final rule.
Maintenance of Assets (Sec. 28.20)
The proposal clarified the current asset maintenance requirements
for Federal branches and agencies. Because the OCC believes that the
importance of the asset maintenance requirement as a supervisory tool
may increase in the future, the proposal requested comment on whether
the level of detail provided in the proposal adequately clarified the
use and scope of the provision to the industry. The OCC also requested
comment on the exclusion of classified assets. The OCC received no
comments
[[Page 19531]]
on either issue and made no changes in the final rule.
Termination of a Federal Branch or Agency (Sec. 28.23)
The proposal clarified the OCC's authority to terminate Federal
branches and agencies. The proposal explicitly spelled out the grounds
for termination in section 4(i) of the IBA, 12 U.S.C. 3102(i), and the
grounds for national bank termination in 12 U.S.C. 191 and 12 U.S.C.
1821(c)(5). It also stated that a recommendation from the FRB to
terminate a Federal branch or agency could constitute grounds for
termination. The OCC received no comments on this section.
The OCC further clarifies this section in the final rule by
including a reference to termination of a Federal branch or agency
based on the foreign bank's insolvency, as specified in section 4(j)(1)
of the IBA, 12 U.S.C. 3102(j)(1). In other respects, the final rule is
unchanged from the proposal.
Subpart C--International Lending Supervision
Allocated Transfer Risk Reserve (Sec. 28.52) and Accounting for Fees on
International Loans (Sec. 28.53)
This subpart implements the requirements of the International
Lending Supervision Act of 1983 (12 U.S.C. 3901 et seq.). Subpart C
requires national banks and District of Columbia banks to establish
reserves against the risks presented in certain international assets
and sets forth the accounting for various fees received by the banks
when making international loans.
This subpart is subpart B of part 20 in the current regulation. The
proposal relocated this subpart to subpart C of part 28. Because
subpart B of part 20 was originally promulgated in cooperation with the
FRB and the FDIC, the OCC intends to review the subpart with those
agencies in the future, and, therefore, the OCC made no substantive
changes to this subpart in the proposal. Public comment was invited on
the subpart in order to bring particular issues to the OCC's attention.
One commenter recommended that the accounting provisions in the
proposal be amended to be uniform among the Federal banking regulatory
agencies and consistent with generally accepted accounting principles
and various Financial Accounting Standards Board Statements. The
commenter also requested clarification of regulatory accounting
practices for the allocated transfer risk reserve as it relates to the
allowance for loan and lease losses. The OCC will address these issues
when the subpart is reviewed with the FRB and the FDIC.
Technical Changes to Part 5
Insofar as the final rule consolidates all substantive rules
regarding the corporate activities of Federal branches and agencies
into part 28, the OCC removes those sections in 12 CFR part 5 that
concern Federal branches and agencies. However, the final rule points
out, in Sec. 28.10(c), that the rules of general applicability in part
5 apply to a Federal branch or agency as they would to a national bank
undertaking a similar transaction, unless otherwise stated in part 28.
Derivation Table
This table directs readers to the original provision upon which the
revised provision is based.
------------------------------------------------------------------------
Revised provision Original provision Comments
------------------------------------------------------------------------
Sec. 28.2...................... Sec. 20.2........ Modified.
Sec. 28.3...................... Secs. 20.3, 20.4. Significant
change.
Sec. 28.4(a)................... .................. Added.
Sec. 28.4(b)................... 12 CFR 7.7010(b) Modified.
(1995).
Sec. 28.4(c)................... 12 CFR 7.1012 No change.
(1995).
Sec. 20.5........ Removed.
Sec. 28.11..................... Sec. 28.2........ Significant
change.
Sec. 28.12..................... Sec. 28.3........ Significant
change.
Sec. 28.13..................... Sec. 28.4........ Significant
change.
Sec. 28.14..................... Sec. 28.5........ Modified.
Sec. 28.15..................... Sec. 28.6........ Significant
change.
Sec. 28.16..................... Sec. 28.8........ Significant
change.
Sec. 28.17..................... .................. Added.
Sec. 28.18..................... Sec. 28.10....... Significant
change.
Sec. 28.19..................... .................. Added.
Sec. 28.20..................... Sec. 28.9........ Significant
change.
Sec. 28.22..................... .................. Added.
Sec. 28.23..................... .................. Added.
Subpart C....................... Subpart B of part No change.
20.
Sec. 5.23........ Removed.
Sec. 5.25........ Removed.
Sec. 5.32........ Removed.
Sec. 5.41........ Removed.
Sec. 5.43........ Removed .
------------------------------------------------------------------------
Regulatory Flexibility Act
It is hereby certified that this regulation will not have a
significant economic impact on a substantial number of small entities.
Accordingly, a regulatory flexibility analysis is not required. This
regulation will reduce the regulatory burden on national banks and
Federal branches and agencies of foreign banks, regardless of size, by
simplifying and clarifying existing regulations.
Executive Order 12866
The OCC has determined that this final rule is not a significant
regulatory action.
Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.
104-4, 109 Stat. 48 (March 22, 1995) (Unfunded Mandates Act), requires
that an agency prepare a budgetary impact statement before promulgating
a rule that includes a Federal mandate that may result in the
expenditure by state, local, and tribal governments, in the aggregate,
or by the private sector, of $100 million or more in any one year. If a
budgetary impact statement is required, section 205 of the Unfunded
Mandates Act also requires an agency to identify and consider a
reasonable number of regulatory alternatives before promulgating a
rule. Because the OCC has determined that the final rule will not
result in expenditures by state, local, and tribal governments, or by
the private sector, of more than $100 million in any one year, the OCC
has not prepared a budgetary impact statement or specifically addressed
the regulatory alternatives considered. Nevertheless, as discussed in
the preamble, the final rule has the effect of reducing burden.
Paperwork Reduction Act of 1995
The collection of information requirements contained in this final
rule have received approval from the Office of Management and Budget in
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(d)), under OMB control number 1557-0102. Comments on the
collection of information should be sent to the Office of Management
and Budget, Paperwork Reduction Project 1557-0204, Washington, DC
20503, with copies to the Legislative and Regulatory Activities
Division 1557- 0204, Office of the Comptroller of the Currency, 250 E
Street, SW, Washington, DC 20219. The OCC will submit the collection of
information requirements contained in this final rule for renewal of
OMB approval following publication of this final rule.
The collection of information requirements in this rule are found
in 12 CFR 28.3, 28.10, 28.13, 28.14, 28.15, 28.16, 28.17, 28.18, 28.20,
28.52, 28.53, and 28.54. The collections of information are necessary
for regulatory and examination purposes, for Federal
[[Page 19532]]
branches and agencies and national banks with foreign operations to
ensure their compliance with Federal law and regulations, and to
evidence compliance with various regulatory requirements. This
information assists management in its safe and sound operation of the
institution. The OCC uses the information to evaluate national banks
with international operations and Federal branches and agencies for
supervisory, prudential, and legal purposes, and for statistical and
examination purposes.
Respondents are not required to respond to the foregoing collection
of information unless it displays a currently valid OMB control number.
The likely respondents are foreign banks and national banks.
Estimated average annual burden hours per recordkeeper: 36.3 hours.
Estimated number of recordkeepers: 185.
Estimated total annual recordkeeping burden: One per year.
Start-up costs to respondents: none.
List of Subjects
12 CFR Part 5
Administrative practice and procedure, National banks, Reporting
and recordkeeping requirements, Securities.
12 CFR Part 20
Foreign banking, National banks, Reporting and recordkeeping
requirements.
12 CFR Part 28
Foreign banking, National banks, Reporting and recordkeeping
requirements.
Authority and Issuance
For the reasons set out in the preamble and under the authority of
12 U.S.C. 93a, 602, and 3108, chapter I of title 12 of the Code of
Federal Regulations is amended as set forth below:
PART 5--[AMENDED]
1. The authority citation for part 5 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 93a.
Sec. 5.23 [Removed]
2. Section 5.23 is removed.
Sec. 5.25 [Removed]
3. Section 5.25 is removed.
Sec. 5.32 [Removed]
4. Section 5.32 is removed.
Sec. 5.41 [Removed]
5. Section 5.41 is removed.
Sec. 5.43 [Removed]
6. Section 5.43 is removed.
PART 20--[REMOVED]
7. Part 20 is removed.
8. Part 28 is revised to read as follows:
PART 28--INTERNATIONAL BANKING ACTIVITIES
Subpart A--Foreign Operations of National Banks
Sec.
28.1 Authority, purpose, and scope.
28.2 Definitions.
28.3 Filing requirements for foreign operations of a national bank.
28.4 Permissible activities.
28.5 Filing of notice.
Subpart B--Federal Branches and Agencies of Foreign Banks
28.10 Authority, purpose, scope, and filing requirements.
28.11 Definitions.
28.12 Approval of a Federal branch or agency.
28.13 Permissible activities.
28.14 Limitations based upon capital of a foreign bank.
28.15 Capital equivalency deposits.
28.16 Deposit-taking by an uninsured Federal branch.
28.17 Notice of change in activity or operations.
28.18 Recordkeeping and reporting.
28.19 Enforcement.
28.20 Maintenance of assets.
28.21 Service of process.
28.22 Voluntary liquidation.
28.23 Termination of a Federal branch or agency.
Subpart C--International Lending Supervision
28.50 Authority, purpose, and scope.
28.51 Definitions.
28.52 Allocated transfer risk reserve.
28.53 Accounting for fees on international loans.
28.54 Reporting and disclosure of international assets.
Authority: 12 U.S.C. 1 et seq., 93a, 161, 602, 1818, 3102, 3108,
and 3901 et seq.
Subpart A--Foreign Operations of National Banks
Sec. 28.1 Authority, purpose, and scope.
(a) Authority. This subpart is issued pursuant to 12 U.S.C. 1 et
seq., 24(Seventh), 93a, and 602.
(b) Purpose. This subpart sets forth filing requirements for
national banks that engage in international operations and clarifies
permissible foreign activities of national banks.
(c) Scope. This subpart applies to any national bank that engages
in international operations through a foreign branch, or acquires an
interest in an Edge corporation, Agreement corporation, foreign bank,
or certain other foreign organizations.
Sec. 28.2 Definitions.
For purposes of this subpart:
(a) Agreement corporation means a corporation having an agreement
or undertaking with the Board of Governors of the Federal Reserve
System (FRB) under section 25 of the Federal Reserve Act (FRA), 12
U.S.C. 601 through 604a.
(b) Edge corporation means a corporation that is organized under
section 25(a) of the FRA, 12 U.S.C. 611 through 631.
(c) Foreign bank means an organization that:
(1) Is organized under the laws of a foreign country;
(2) Engages in the business of banking;
(3) Is recognized as a bank by the bank supervisory or monetary
authority of the country of its organization or principal banking
operations;
(4) Receives deposits to a substantial extent in the regular course
of its business; and
(5) Has the power to accept demand deposits.
(d) Foreign branch means an office of a national bank (other than a
representative office) that is located outside the United States at
which banking or financing business is conducted.
(e) Foreign country means one or more foreign nations, and includes
the overseas territories, dependencies, and insular possessions of
those nations and of the United States, and the Commonwealth of Puerto
Rico.
Sec. 28.3 Filing requirements for foreign operations of a national
bank.
(a) Notice requirement. A national bank shall notify the OCC when
it:
(1) Files an application, notice, or report with the FRB to:
(i) Establish, open, close, or relocate a foreign branch; or
(ii) Acquire or divest of an interest in, or close, an Edge
corporation, Agreement corporation, foreign bank, or other foreign
organization; or
(2) Opens, closes, or relocates a foreign branch, and no
application or notice is required by the FRB for such transaction.
(b) Other applications and notices accepted. In lieu of a notice
under paragraph (a)(1) of this section, the OCC may accept a copy of an
application, notice, or report submitted to another Federal agency that
covers the proposed action and contains substantially the same
information required by the OCC.
(c) Additional information. A national bank shall furnish the OCC
with any additional information the OCC may require in connection with
the national bank's foreign operations.
[[Page 19533]]
Sec. 28.4 Permissible activities.
(a) General. Subject to the applicable approval process, if any, a
national bank may engage in any activity in a foreign country that is:
(1) Permissible for a national bank in the United States; and
(2) Usual in connection with the business of banking in the country
where it transacts business.
(b) Additional activities. In addition to its general banking
powers, a national bank may engage in any activity in a foreign country
that is permissible under the FRB's Regulation K, 12 CFR part 211.
(c) Foreign operations guarantees. A national bank may guarantee
the deposits and other liabilities of its Edge corporations and
Agreement corporations and of its corporate instrumentalities in
foreign countries.
Sec. 28.5 Filing of notice.
(a) Where to file. A national bank shall file any notice or
submission required under this subpart with the Office of the
Comptroller of the Currency, International Banking and Finance, 250 E
Street SW, Washington, DC 20219.
(b) Availability of forms. Individual forms and instructions for
filings are available from International Banking and Finance.
Subpart B--Federal Branches and Agencies of Foreign Banks
Sec. 28.10 Authority, purpose, scope, and filing requirements.
(a) Authority. This subpart is issued pursuant to the authority in
the International Banking Act of 1978 (IBA), 12 U.S.C. 3101 et seq.,
and 12 U.S.C. 93a.
(b) Purpose and scope. This subpart implements the IBA pertaining
to the licensing, supervision, and operations of Federal branches and
agencies in the United States.
(c) Filing requirements--(1) Rules of general applicability. Except
as otherwise provided by the OCC, the rules of general applicability in
12 CFR part 5 apply to any filing by a foreign bank, or Federal branch
or agency as they would to a similar filing by a national bank.
(2) Where to file. A foreign bank or a Federal branch or agency
shall file any notice or submission required under this subpart with
the Office of the Comptroller of the Currency, International Banking
and Finance, 250 E Street SW, Washington, DC 20219.
(3) Availability of forms. Individual forms and instructions for
filings are available from International Banking and Finance.
(4) Other notices accepted. The OCC accepts a copy of an
application form, notice, or report submitted to another Federal
regulatory agency that covers the proposed action and contains
substantially the same information as would be required by the OCC. The
OCC may also require the applicant to submit supplemental information.
Sec. 28.11 Definitions.
For purposes of this subpart:
(a) Affiliate means any entity that controls, is controlled by, or
is under common control with another entity.
(b) Agreement corporation means a corporation having an agreement
or undertaking with the FRB under section 25 of the FRA, 12 U.S.C. 601
through 604a.
(c) Capital equivalency deposit means a deposit by a Federal branch
or agency in a member bank as described in section 4 of the IBA, 12
U.S.C. 3102(g).
(d) Change the status of an office means conversion of a:
(1) State branch or state agency operated by a foreign bank, or a
commercial lending company controlled by a foreign bank, into a Federal
branch, limited Federal branch, or Federal agency;
(2) Federal agency into a Federal branch or limited Federal branch;
(3) Federal branch into a limited Federal branch or Federal agency;
or
(4) Limited Federal branch into a Federal branch or Federal agency.
(e) Control. An entity controls another entity if the entity
directly or indirectly controls or has the power to vote 25 percent or
more of any class of voting securities of the other entity or controls
in any manner the election of a majority of the directors or trustees
of the other entity.
(f) Edge corporation means a corporation that is organized under
section 25(a) of the FRA, 12 U.S.C. 611 through 631.
(g) Establish a Federal branch or agency means to:
(1) Open and conduct business through a Federal branch or agency;
(2) Acquire directly or indirectly through merger, consolidation,
or similar transaction with another foreign bank, the operations of a
Federal branch or agency that is open and conducting business;
(3) Acquire a Federal branch or agency through the acquisition of a
foreign bank subsidiary that will cease to operate in the same
corporate form following the acquisition;
(4) Change the status of an office; or
(5) Relocate a Federal branch or agency within a state or from one
state to another.
(h) Federal agency means an office or place of business, licensed
by the OCC and operated by a foreign bank in any state, that may engage
in the business of banking, including maintaining credit balances,
cashing checks, and lending money, but may not accept deposits from
citizens or residents of the United States. Obligations may not be
considered credit balances unless they are:
(1) Incidental to, or arise out of the exercise of, other lawful
banking powers;
(2) To serve a specific purpose;
(3) Not solicited from the general public;
(4) Not used to pay routine operating expenses in the United States
such as salaries, rent, or taxes;
(5) Withdrawn within a reasonable period of time after the specific
purpose for which they were placed has been accomplished; and
(6) Drawn upon in a manner reasonable in relation to the size and
nature of the account.
(i) Federal branch means an office or place of business, licensed
by the OCC and operated by a foreign bank in any state, that may engage
in the business of banking, including accepting deposits, that is not a
Federal agency as defined in paragraph (h) of this section.
(j) Foreign bank means an organization that is organized under the
laws of a foreign country, a territory of the United States, Puerto
Rico, Guam, American Samoa, or the Virgin Islands, and that engages
directly in the business of banking in a foreign country.
(k) Foreign business means any entity, including a corporation,
partnership, sole proprietorship, association, foundation or trust that
is organized under the laws of a foreign country, or any United States
entity that is controlled by a foreign entity or foreign national.
(l) Foreign country means one or more foreign nations, and includes
the overseas territories, dependencies, and insular possessions of
those nations and of the United States, and the Commonwealth of Puerto
Rico.
(m) Home country means the country in which the foreign bank is
chartered or incorporated.
(n) Home country supervisor means the governmental entity or
entities in the foreign bank's home country responsible for supervising
and regulating the foreign bank.
(o) Home state of a foreign bank means the state in which the
foreign bank has a branch, agency, subsidiary commercial lending
company, or subsidiary bank. If a foreign bank has an office in more
than one state, the home
[[Page 19534]]
state of the foreign bank is the state that is selected to be the home
state by the foreign bank or, in default of the foreign bank's
selection, by the FRB.
(p) Immediate family member of an individual means the spouse,
father, mother, brother, sister, son, or daughter of that individual.
(q) Initial deposit means the first deposit transaction between a
depositor and the Federal branch made on or after July 1, 1996. The
initial deposit may be placed into different deposit accounts or into
different kinds of deposit accounts, such as demand, savings, or time
accounts. Deposit accounts that are held by a depositor in the same
right and capacity may be added together for the purpose of determining
the dollar amount of the initial deposit. First deposit means the
deposit made when there is no current deposit relationship between the
depositor and the Federal branch.
(r) International banking facility means a set of asset and
liability accounts segregated on the books and records of a depository
institution, a United States branch or agency of a foreign bank, or an
Edge corporation or Agreement corporation, that includes only
international banking facility time deposits and extensions of credit.
(s) Large United States business means any business entity
including a corporation, company, partnership, sole proprietorship,
association, foundation or trust that is organized under the laws of
the United States or any state thereof, and has:
(1) Securities registered on a national securities exchange or
quoted on the National Association of Securities Dealers Automated
Quotation System; or
(2) More than $1 million in annual gross revenues for the fiscal
year immediately preceding the year of the initial deposit.
(t) Limited Federal branch means a Federal branch that, pursuant to
an agreement between the parent foreign bank and the FRB, may receive
only those deposits permissible for an Edge corporation to receive.
(u) Managed or controlled by a Federal branch or agency means that
a majority of the responsibility for business decisions, including
decisions with regard to lending, asset management, funding, or
liability management, or the responsibility for recordkeeping of assets
or liabilities for a non-United States office, resides at the Federal
branch or agency. For purposes of this definition, forwarding data or
information of offshore operations gathered or compiled by the United
States office in the normal course of business to the parent foreign
bank does not constitute recordkeeping.
(v) Manual means the Comptroller's Manual for Corporate Activities
(see 12 CFR part 5).
(w) Parent foreign bank senior management means individuals at the
executive level of the parent foreign bank who are responsible for
supervising and authorizing activities of the Federal branch or agency.
(x) Person means an individual or a corporation, government,
partnership, association, or any other entity.
(y) State means any state of the United States and the District of
Columbia.
(z) United States bank means a bank organized under the laws of the
United States or any state.
Sec. 28.12 Approval of a Federal branch or agency.
(a) Approval requirements. A foreign bank shall submit an
application to and obtain prior approval from the OCC before it:
(1) Establishes a Federal branch, Federal agency, or limited
Federal branch; or
(2) Exercises fiduciary powers at a Federal branch. (A foreign bank
may submit an application to exercise fiduciary powers at the time of
filing an application for a Federal branch or at any subsequent date.)
(b) Standards for approval. Generally, in reviewing an application
by a foreign bank to establish a Federal branch or agency, the OCC
considers:
(1) The financial and managerial resources and future prospects of
the applicant foreign bank and the Federal branch or agency;
(2) Whether the foreign bank has furnished to the OCC the
information the OCC requires to assess the application adequately, and
provided the OCC with adequate assurances that informa
FR Doc. 96-10432 International Banking Activities
tion will be made
available to the OCC on the operations or activities of the foreign
bank or any of its affiliates that the OCC deems necessary to determine
and enforce compliance with the IBA and other applicable Federal
banking statutes;
(3) Whether the foreign bank and its United States affiliates are
in compliance with applicable United States law;
(4) The convenience and needs of the community to be served and the
effects of the proposal on competition in the domestic and foreign
commerce of the United States;
(5) Whether the foreign bank is subject to comprehensive
supervision or regulation on a consolidated basis by its home country
supervisor; and
(6) Whether the home country supervisor has consented to the
proposed establishment of the Federal branch or agency.
(c) Comprehensive supervision or regulation on a consolidated
basis. In determining whether a foreign bank is subject to
comprehensive supervision or regulation on a consolidated basis, the
OCC reviews various factors, including whether the foreign bank is
supervised or regulated in a manner so that its home country supervisor
receives sufficient information on the worldwide operations of the
foreign bank to assess the foreign bank's overall financial condition
and compliance with laws and regulations as specified in the FRB's
Regulation K, 12 CFR 211.24.
(d) Conditions on approval. The OCC may impose conditions on its
approval including a condition permitting future termination of
activities based on the inability of the foreign bank to provide
information on its activities, or those of its affiliate, that the OCC
deems necessary to determine and enforce compliance with United States
banking laws.
(e) Expedited review. Unless the OCC concludes that the filing
presents significant supervisory or compliance concerns, or raises
significant legal or policy issues, the OCC generally processes the
following filings by an eligible foreign bank, as defined in paragraph
(f) of this section, under expedited review procedures:
(1) Intrastate relocations. An application submitted by an eligible
foreign bank to relocate a Federal branch or agency within a state is
deemed approved by the OCC as of the seventh day after the close of the
applicable public comment period in 12 CFR part 5, unless the OCC
notifies the bank prior to that date that the filing is not eligible
for expedited review.
(2) Change of status. An application to change the status of an
office submitted by an eligible foreign bank is deemed approved by the
OCC 45 days after filing with the OCC, unless the OCC notifies the bank
prior to that date that the filing is not eligible for expedited
review.
(3) Fiduciary powers. An application submitted by an eligible
foreign bank to exercise fiduciary powers at an established Federal
branch is deemed approved by the OCC 30 days after filing with the OCC,
unless the OCC notifies the bank prior to that date that the filing is
not eligible for expedited review.
(4) Other filings. Any other application submitted by an eligible
foreign bank may be approved by the OCC on an expedited basis as
described in the Manual.
[[Page 19535]]
(f) Eligible foreign bank. For purposes of this section, a foreign
bank is an eligible foreign bank if each Federal branch and agency of
the foreign bank in the United States:
(1) Has a composite rating of 1 or 2 under the interagency rating
system for United States branches and agencies of foreign banks;
(2) Is not subject to a cease and desist order, consent order,
formal written agreement, Prompt Corrective Action directive (see 12
CFR part 6) or, if subject to such order, agreement, or directive, is
informed in writing by the OCC that the Federal branch or agency may be
treated as an ``eligible foreign bank'' for purposes of this section;
and
(3) Has, if applicable, a Community Reinvestment Act (CRA), 12
U.S.C. 2906, rating of ``Outstanding'' or ``Satisfactory''.
(g) After-the-fact approval. Unless otherwise provided by the OCC,
a foreign bank proposing to establish a Federal branch or agency
through the acquisition of, or merger or consolidation with, a foreign
bank that has an office in the United States, may proceed with the
transaction before an application to establish the Federal branch or
agency has been filed or acted upon, if the applicant:
(1) Gives the OCC reasonable advance notice of the proposed
acquisition, merger, or consolidation;
(2) Prior to consummation of the acquisition, merger, or
consolidation, commits in writing to comply with the OCC application
procedures within a reasonable period of time, or has already submitted
an application; and
(3) Commits in writing to abide by the OCC's decision on the
application, including a decision to terminate activities of the
Federal branch or agency.
(h) Procedures for approval. A foreign bank shall file an
application for approval pursuant to this section in accordance with 12
CFR part 5 and the Manual.
(i) Additional requirements. Nothing in this section relieves a
foreign bank of any requirement to obtain the approval of the FRB as
may be necessary under the FRB's Regulation K, 12 CFR part 211.
Sec. 28.13 Permissible activities.
(a) Applicability of laws--(1) General. Except as otherwise
provided by the IBA, other Federal laws or regulations, or otherwise
determined by the OCC, the operations of a foreign bank at a Federal
branch or agency shall be conducted with the same rights and privileges
and subject to the same duties, restrictions, penalties, liabilities,
conditions, and limitations that would apply if the Federal branch or
agency were a national bank operating at the same location.
(2) Parent foreign bank senior management approval. Unless
otherwise provided by the OCC, any provision in law, regulation,
policy, or procedure that requires a national bank to obtain the
approval of its board of directors will be deemed to require a Federal
branch or agency to obtain the approval of parent foreign bank senior
management.
(b) Management of shell branches-- (1) Federal branches and
agencies. A Federal branch or agency of a foreign bank shall not
manage, through an office of the foreign bank that is located outside
the United States and that is managed or controlled by that Federal
branch or agency, any type of activity that a United States bank is not
permitted to manage at any branch or subsidiary of the United States
bank that is located outside the United States.
(2) Activities managed in foreign branches or subsidiaries of
United States banks. The types of activities referred to in paragraph
(b)(1) of this section include the types of activities authorized to a
United States bank by state or Federal charters, regulations issued by
chartering or regulatory authorities, and other United States banking
laws. However, United States procedural or quantitative requirements
that may be applicable to the conduct of those activities by United
States banks do not apply.
(c) Additional guidance regarding permissible activities. For
purposes of section 7(h) of the IBA, 12 U.S.C. 3105(h), the OCC may
issue opinions, interpretations, or rulings regarding permissible
activities of Federal branches.
Sec. 28.14 Limitations based upon capital of a foreign bank.
(a) General. Any limitation or restriction based upon the capital
of a national bank shall be deemed to refer, as applied to a Federal
branch or agency, to the dollar equivalent of the capital of the
foreign bank.
(b) Calculation. Unless otherwise provided by the OCC, a foreign
bank must calculate its capital in a manner consistent with 12 CFR part
3, for purposes of this section.
(c) Aggregation. The foreign bank shall aggregate business
transacted by all Federal branches and agencies with the business
transacted by all state branches and state agencies controlled by the
foreign bank in determining its compliance with limitations based upon
the capital of the foreign bank. The foreign bank shall designate one
Federal branch or agency office in the United States to maintain
consolidated information so that the OCC can monitor compliance.
Sec. 28.15 Capital equivalency deposits.
(a) Capital equivalency deposits--(1) General. For purposes of
section 4(g) of the IBA, 12 U.S.C. 3102(g), unless otherwise provided
by the OCC, a foreign bank's capital equivalency deposits (CED) must
consist of:
(i) Investment securities eligible for investment by national
banks;
(ii) United States dollar deposits payable in the United States,
other than certificates of deposit;
(iii) Certificates of deposit, payable in the United States, and
banker's acceptances, provided that, in either case, the issuer or the
instrument is rated investment grade by an internationally recognized
rating organization, and neither the issuer nor the instrument is rated
lower than investment grade by any such rating organization that has
rated the issuer or the instrument; or
(iv) Other assets permitted by the OCC to qualify as CED.
(2) Legal requirements. The agreement with the depository bank to
hold the CED and the amount of the deposit must comply with the
requirements in section 4(g) of the IBA, 12 U.S.C. 3102(g). If a
foreign bank has more than one Federal branch or agency in a state, it
shall determine the CED and the amount of liabilities requiring capital
equivalency coverage on an aggregate basis for all the foreign bank's
Federal branches or agencies in that state.
(b) Increase in capital equivalency deposits. For prudential or
supervisory reasons, the OCC may require, in individual cases or
otherwise, that a foreign bank increase its CED above the minimum
amount.
(c) Value of assets. The obligations referred to in paragraph (a)
of this section must be valued at principal amount or market value,
whichever is lower.
(d) Deposit arrangements. A foreign bank should require its
depository bank to segregate its CED on the depository bank's books and
records. The funds deposited and obligations referred to in paragraph
(a) of this section that are placed in safekeeping at a depository bank
to satisfy a foreign bank's CED requirement:
(1) May not be reduced in aggregate value by withdrawal without the
prior approval of the OCC;
(2) Must be pledged and maintained pursuant to an agreement
prescribed by the OCC; and
[[Page 19536]]
(3) Must be free from any lien, charge, right of setoff, credit, or
preference in connection with any claim of the depository bank against
the foreign bank.
(e) Maintenance of capital equivalency ledger account. Each Federal
branch or agency shall maintain a capital equivalency account and keep
records of the amount of liabilities requiring capital equivalency
coverage in a manner and form prescribed by the OCC.
Sec. 28.16 Deposit-taking by an uninsured Federal branch.
(a) Policy. In carrying out this section, the OCC shall consider
the importance of according foreign banks competitive opportunities
equal to those of United States banks and the availability of credit to
all sectors of the United States economy, including international trade
finance.
(b) General. An uninsured Federal branch may accept initial
deposits of less than $100,000 only from:
(1) Individuals who are not citizens or residents of the United
States at the time of the initial deposit;
(2) Individuals who are not citizens of the United States, but are
residents of the United States, and are employed by a foreign bank,
foreign business, foreign government, or recognized international
organization;
(3) Persons (including immediate family members of an individual)
to whom the branch or foreign bank (including any affiliate thereof)
has extended credit or provided other nondeposit banking services
within the past 12 months, or with whom the branch or foreign bank has
a written agreement to extend credit or provide such services within 12
months after the date of the initial deposit;
(4) Foreign businesses and large United States businesses;
(5) Foreign governmental units, including political subdivisions,
and recognized international organizations;
(6) Federal and state governmental units, including political
subdivisions and agencies thereof;
(7) Persons who are depositing funds in connection with the
issuance of a financial instrument by the branch for transmission of
funds, or transmission of funds by any electronic means;
(8) Persons who may deposit funds with an Edge corporation as
provided in the FRB's Regulation K, 12 CFR 211.4, including persons
engaged in certain international business activities; and
(9) Any other depositor if:
(i) The aggregate amount of deposits received from those depositors
does not exceed, on an average daily basis, 1 percent of the average of
the branch's deposits for the last 30 days of the most recent calendar
quarter, excluding deposits of other offices, branches, agencies, or
wholly owned subsidiaries of the foreign bank; and
(ii) The branch does not solicit deposits from the general public
by advertising, display of signs, or similar activity designed to
attract the attention of the general public.
(c) Application for an exemption. A foreign bank may apply to the
OCC for an exemption to permit an uninsured Federal branch to accept or
maintain deposit accounts that are not listed in paragraph (b) of this
section. The request should describe:
(1) The types, sources, and estimated amounts of such deposits and
explain why the OCC should grant an exemption; and
(2) How the exemption maintains and furthers the policies described
in paragraph (a) of this section.
(d) Aggregation of deposits. For purposes of paragraph (b)(9) of
this section, a foreign bank that has more than one Federal branch in
the same state may aggregate deposits in all of its Federal branches in
that state, but exclude deposits of other branches, agencies or wholly
owned subsidiaries of the bank. The Federal branch shall compute the
average amount by using the sum of deposits as of the close of business
of the last 30 calendar days ending with and including the last day of
the calendar quarter, divided by 30. The Federal branch shall maintain
records of the calculation until its next examination by the OCC.
(e) Notification to depositors. A Federal branch that accepts
deposits pursuant to this section shall provide notice to depositors
pursuant to 12 CFR 346.7, which generally requires that the Federal
branch conspicuously display a sign at the branch and include a
statement on each signature card, passbook, and instrument evidencing a
deposit that the deposit is not insured by the Federal Deposit
Insurance Corporation (FDIC).
(f) Transition period. (1) An uninsured Federal branch may maintain
a deposit lawfully accepted under the exemptions existing prior to July
1, 1996 if the deposit would qualify for an exemption under paragraph
(b) of this section, except for the fact that the deposit was made
before July 1, 1996.
(2) If a deposit lawfully accepted under the exemption existing
prior to July 1, 1996 would not qualify for an exemption under
paragraph (b) or (c) of this section, the uninsured Federal branch must
terminate the deposit no later than:
(i) In the case of time deposits, the maturity of a time deposit or
October 1, 1996, whichever is longer; or
(ii) In the case of all other deposits, five years after July 1,
1996.
(g) Insured banks in United States territories. For purposes of
this section, the term ``foreign bank'' does not include any bank
organized under the laws of any territory of the United States, Puerto
Rico, Guam, American Samoa, or the Virgin Islands whose deposits are
insured by the FDIC pursuant to the Federal Deposit Insurance Act, 12
U.S.C. 1811 et seq.
Sec. 28.17 Notice of change in activity or operations.
Notice. A Federal branch or agency shall notify the OCC if:
(a) It changes its corporate title;
(b) It changes its mailing address;
(c) It converts to a state branch, state agency, or representative
office; or
(d) The parent foreign bank changes the designation of its home
state.
Sec. 28.18 Recordkeeping and reporting.
(a) General. A Federal branch or agency shall comply with
applicable recordkeeping and reporting requirements that apply to
national banks and with any additional requirements that may be
prescribed by the OCC. A Federal branch or agency, and the parent
foreign bank, shall furnish information relating to the affairs of the
parent foreign bank and its affiliates that the OCC may from time to
time request.
(b) Regulatory reports filed with other agencies. A foreign bank
operating a Federal branch or agency in the United States shall provide
the OCC with a copy of reports filed with other Federal regulatory
agencies that are designated in guidance issued by the OCC.
(c) Maintenance of accounts, books, and records. (1) Each Federal
branch or agency shall maintain a set of accounts and records
reflecting its transactions that are separate from those of the foreign
bank and any other branch or agency. The Federal branch or agency shall
keep a set of accounts and records in English sufficient to permit the
OCC to examine the condition of the Federal branch or agency and its
compliance with applicable laws and regulations. The Federal branch or
agency shall promptly provide any additional records requested by the
OCC for examination or supervisory purposes.
(2) A foreign bank with more than one Federal branch or agency in a
state shall designate one of those offices to maintain consolidated
asset, liability, and capital equivalency accounts for all Federal
branches or agencies in that state.
[[Page 19537]]
Sec. 28.19 Enforcement.
As provided by section 13 of the IBA, 12 U.S.C. 3108(b), the OCC
may enforce compliance with the requirements of the IBA, other
applicable banking laws, and OCC regulations or orders under section 8
of the Federal Deposit Insurance Act, 12 U.S.C. 1818. This enforcement
authority is in addition to any other remedies otherwise provided by
the IBA or any other law.
Sec. 28.20 Maintenance of assets.
(a) General rule. (1) For prudential, supervisory, or enforcement
reasons, the OCC may require a foreign bank to hold certain assets in
the state in which its Federal branch or agency is located. Those
assets may only consist of currency, bonds, notes, debentures, drafts,
bills of exchange, or other evidence of indebtedness including loan
participation agreements or certificates, or other obligations payable
in the United States or in United States funds or, with the approval of
the OCC, funds freely convertible into United States funds.
(2) If the OCC requires asset maintenance, the amount of assets
held by a foreign bank shall be prescribed by the OCC, but may not be
less than 105 percent of the aggregate amount of liabilities of the
Federal branch or agency, payable at or through the Federal branch or
agency. To determine the aggregate amount of liabilities for purposes
of this section, the foreign bank shall include bankers' acceptances,
but exclude liabilities to the head office and any other branches,
offices, agencies, subsidiaries, and affiliates of the foreign bank.
(b) Valuation. For the purposes of this section, marketable
securities must be valued at principal amount or market value,
whichever is lower.
(c) Credits. In determining compliance with the asset maintenance
requirements, the OCC will give the Federal branch or agency credit
for:
(1) Capital equivalency deposits maintained pursuant to Sec. 28.15;
(2) Reserves required to be maintained by the Federal branch or
agency pursuant to the FRB's authority under 12 U.S.C. 3105(a); and
(3) Assets pledged, and surety bonds payable, to the FDIC to secure
the payment of domestic deposits.
(d) Exclusions. In determining eligible assets for purposes of this
section, the Federal branch or agency shall exclude:
(1) Any amount due from the head office or any other branch,
office, agency, subsidiary, or affiliate of the foreign bank;
(2) Any classified asset;
(3) Any asset that, in the determination of the OCC, is not
supported by sufficient credit information;
(4) Any deposit with a bank in the United States, unless that bank
has executed a valid waiver of offset agreement;
(5) Any asset not in the Federal branch's actual possession unless
the branch holds title to the asset and maintains records sufficient to
enable independent verification of the branch's ownership of the asset,
as determined at the most recent examination; and
(6) Any other particular asset or class of assets as provided by
the OCC, based on a case-by-case assessment of the risks associated
with the asset.
(e) International banking facility. Unless specifically exempted by
the OCC, the eligible assets and liabilities of any international
banking facility operated through the Federal branch or agency must be
included in the computation of eligible assets and liabilities for
purposes of this section.
Sec. 28.21 Service of process.
A foreign bank operating at any Federal branch or agency is subject
to service of process at the location of the Federal branch or agency.
Sec. 28.22 Voluntary liquidation.
(a) Procedures. Unless otherwise provided, a Federal branch or
agency that proposes to close its operations shall comply with the
requirements in 12 CFR 5.48, as applicable, and the Manual.
(b) Notice to customers and creditors. A foreign bank shall provide
any customers and known creditors, not previously notified in writing,
with written notice of the impending closure of the Federal branch or
agency at least 30 days prior to its closure.
(c) Report of condition. The Federal branch or agency shall submit
a Report of Assets and Liabilities of United States Branches and
Agencies of Foreign Banks as of the close of the last business day
prior to the start of liquidation of the Federal branch or agency. This
report must include a certified maturity schedule of all remaining
liabilities, if any.
(d) Return of certificate. The Federal branch or agency shall
return the Federal branch or agency license certificate within 30 days
of closure to the public.
(e) Reports of examination. The Federal branch or agency shall send
the OCC certification that all of its Reports of Examination have been
destroyed or return its Reports of Examination to the OCC.
Sec. 28.23 Termination of a Federal branch or agency.
(a) Grounds for termination. The OCC may revoke the authority of a
foreign bank to operate a Federal branch or agency if:
(1) The OCC determines that there is reasonable cause to believe
that the foreign bank has violated or failed to comply with any of the
provisions of the IBA, other applicable Federal laws or regulations, or
orders of the OCC;
(2) A conservator is appointed for the foreign bank, or a similar
proceeding is initiated in the foreign bank's home country;
(3) One or more grounds for receivership, including insolvency, as
specified in 12 U.S.C. 3102(j), exists;
(4) One or more grounds for termination, including unsafe and
unsound practices, insufficiency or dissipation of assets, concealment
of books and records, a money laundering conviction, or other grounds
as specified in 12 U.S.C. 191, exists; or
(5) The OCC receives a recommendation from the FRB, pursuant to 12
U.S.C. 3105(e)(5), that the license of a Federal branch or agency be
terminated.
(b) Procedures--(1) Notice and hearing. Except as otherwise
provided in this section, the OCC may issue an order to terminate the
license of a Federal branch or agency after providing notice to the
Federal branch or agency and after providing an opportunity for a
hearing.
(2) Procedures for hearing. The OCC shall conduct a hearing under
this section pursuant to the OCC's Rules of Practice and Procedure in
12 CFR part 19.
(3) Expedited procedure. The OCC may act without providing an
opportunity for a hearing if it determines that expeditious action is
necessary in order to protect the public interest. When the OCC finds
that it is necessary to act without providing an opportunity for a
hearing, the OCC in its sole discretion, may:
(i) Provide the Federal branch or agency with notice of the
intended termination order;
(ii) Grant the Federal branch or agency an opportunity to present a
written submission opposing issuance of the order; or
(iii) Take any other action designed to provide the Federal branch
or agency with notice and an opportunity to present its views
concerning the termination order.
[[Page 19538]]
Subpart C--International Lending Supervision
Sec. 28.50 Authority, purpose, and scope.
(a) Authority. This subpart is issued pursuant to 12 U.S.C. 1 et
seq., 93a, 161, and 1818; and the International Lending Supervision Act
of 1983 (Pub. L. 98-181, title IX, 97 Stat. 1153, 12 U.S.C. 3901 et
seq.).
(b) Purpose. This subpart implements the requirements of the
International Lending Supervision Act of 1983 (12 U.S.C. 3901 et seq.),
(c) Scope. This subpart requires national banks and District of
Columbia banks to establish reserves against the risks presented in
certain international assets and sets forth the accounting for various
fees received by the banks when making international loans.
Sec. 28.51 Definitions.
For the purposes of this subpart:
(a) Banking institution means a national bank or a District of
Columbia bank.
(b) Federal banking agencies means the OCC, the FRB, and the FDIC.
(c) International assets means those assets required to be included
in banking institutions' Country Exposure Report forms (FFIEC 009).
(d) International loan means a loan as defined in the instructions
to the Report of Condition and Income for the respective banking
institution (FFIEC 031, 032, 033 and 034) and made to a foreign
government, or to an individual, a corporation, or other entity not a
citizen of, resident in, or organized or incorporated in the United
States.
(e) International syndicated loan means a loan characterized by the
formation of a group of managing banking institutions and, in the usual
case, assumption by them of underwriting commitments, and participation
in the loan by other banking institutions.
(f) Loan agreement means the document signed by all of the parties
to a loan, containing the amount, terms, and conditions of the loan,
and the interest and fees to be paid by the borrower.
(g) Restructured international loan means a loan that meets the
following criteria:
(1) The borrower is unable to service the existing loan according
to its terms and is a resident of a foreign country in which there is a
generalized inability of public and private sector obligors to meet
their external debt obligations on a timely basis because of a lack of,
or restraints on the availability of, needed foreign exchange in the
country; and
(2) The terms of the existing loan are amended to reduce stated
interest or extend the schedule of payments; or
(3) A new loan is made to, or for the benefit of, the borrower,
enabling the borrower to service or refinance the existing debt.
(h) Transfer risk means the possibility that an asset cannot be
serviced in the currency of payment because of a lack of, or restraints
on the availability of, needed foreign exchange in the country of the
obligor.
Sec. 28.52 Allocated transfer risk reserve.
(a) Establishment of allocated transfer risk reserve. A banking
institution shall establish an allocated transfer risk reserve (ATRR)
for specified international assets when required by the OCC in
accordance with this section.
(b) Procedures and standards--(1) Joint agency determination. At
least annually, the Federal banking agencies shall determine jointly,
based on the standards set forth in paragraph (b)(2) of this section,
the following:
(i) Which international assets subject to transfer risk warrant
establishment of an ATRR;
(ii) The amount of the ATRR for the specified assets; and
(iii) Whether an ATRR established for specified assets may be
reduced.
(2) Standards for requiring ATRR--(i) Evaluation of assets. The
Federal banking agencies shall apply the following criteria in
determining whether an ATRR is required for particular international
assets:
(A) Whether the quality of a banking institution's assets has been
impaired by a protracted inability of public or private obligors in a
foreign country to make payments on their external indebtedness as
indicated by such factors, among others, as whether:
(1) Such obligors have failed to make full interest payments on
external indebtedness;
(2) Such obligors have failed to comply with the terms of any
restructured indebtedness; or
(3) A foreign country has failed to comply with any International
Monetary Fund or other suitable adjustment program; or
(B) Whether no definite prospects exist for the orderly restoration
of debt service.
(ii) Determination of amount of ATRR. (A) In determining the amount
of the ATRR, the Federal banking agencies shall consider:
(1) The length of time the quality of the asset has been impaired;
(2) Recent actions taken to restore debt service capability;
(3) Prospects for restored asset quality; and
(4) Such other factors as the Federal banking agencies may consider
relevant to the quality of the asset.
(B) The initial year's provision for the ATRR shall be 10 percent
of the principal amount of each specified international asset, or such
greater or lesser percentage determined by the Federal banking
agencies. Additional provision, if any, for the ATRR in subsequent
years shall be 15 percent of the principal amount of each specified
international asset, or such greater or lesser percentage determined by
the Federal banking agencies.
(3) Notification. Based on the joint agency determinations under
paragraph (b)(1) of this section, the OCC shall notify each banking
institution holding assets subject to an ATRR:
(i) Of the amount of the ATRR to be established by the institution
for specified international assets; and
(ii) That an ATRR to be established for specified assets may be
reduced.
(c) Accounting treatment of ATRR--(1) Charge to current income. A
banking institution shall establish an ATRR by a charge to current
income and the amounts so charged shall not be included in the banking
institution's capital or surplus.
(2) Separate accounting. A banking institution shall account for an
ATRR separately from the Allowance for Possible Loan Losses, and shall
deduct the ATRR from ``gross loans and leases'' to arrive at ``net
loans and leases.'' The ATRR must be established for each asset subject
to the ATRR in the percentage amount specified.
(3) Consolidation. A banking institution shall establish an ATRR,
as required, on a consolidated basis. Consolidation should be in
accordance with the procedures and tests of significance set forth in
the instructions for preparation of Consolidated Reports of Condition
and Income (FFIEC 031, 032, 033 and 034). For bank holding companies,
the consolidation shall be in accordance with the principles set forth
in the ``Instructions to the Bank Holding Company Financial Supplement
to Report F.R. Y-6'' (Form F.R. Y-9). Edge corporations and Agreement
corporations engaged in banking shall report in accordance with
instructions for preparation of the Report of Condition for Edge
corporations and Agreement corporations (Form F.R. 2886b).
(4) Alternative accounting treatment. A banking institution need
not establish an ATRR if it writes down in the period in which the ATRR
is required, or has written down in prior periods, the value
[[Page 19539]]
of the specified international assets in the requisite amount for each
such asset. For purposes of this paragraph, international assets may be
written down by a charge to the Allowance for Possible Loan Losses or a
reduction in the principal amount of the asset by application of
interest payments or other collections on the asset. However, the
Allowance for Possible Loan Losses must be replenished in such amount
necessary to restore it to a level which adequately provides for the
estimated losses inherent in the banking institution's loan portfolio.
(5) Reduction of ATRR. A banking institution may reduce an ATRR
when notified by the OCC or, at any time, by writing down such amount
of the international asset for which the ATRR was established.
Sec. 28.53 Accounting for fees on international loans.
(a) Restrictions on fees for restructured international loans. No
banking institution shall charge any fee in connection with a
restructured international loan unless all fees exceeding the banking
institution's administrative costs, as described in paragraph (c)(2) of
this section, are deferred and recognized over the term of the loan as
an interest yield adjustment.
(b) Amortizing fees. Except as otherwise provided by this section,
fees received on international loans shall be deferred and amortized
over the term of the loan. The interest method should be used during
the loan period to recognize the deferred fee revenue in relation to
the outstanding loan balance. If it is not practicable to apply the
interest method during the loan period, the straight-line method shall
be used.
(c) Accounting treatment of international loan or syndication
administrative costs and corresponding fees. (1) Administrative costs
of originating, restructuring, or syndicating an international loan
shall be expensed as incurred. A portion of the fee income equal to the
banking institution's administrative costs may be recognized as income
in the same period such costs are expensed.
(2) The administrative costs of originating, restructuring, or
syndicating an international loan include those costs which are
specifically identified with negotiating, processing and consummating
the loan. These costs include, but are not necessarily limited to:
Legal fees; costs of preparing and processing loan documents; and an
allocable portion of salaries and related benefits of employees engaged
in the international lending function and, where applicable, the
syndication function. No portion of supervisory and administrative
expenses or other indirect expenses such as occupancy and other similar
overhead costs shall be included.
(d) Fees received by managing banking institutions in an
international syndicated loan. Fees received on international
syndicated loans representing an adjustment of the yield on the loan
shall be recognized over the loan period using the interest method. If
the interest yield portion of a fee received on an international
syndicated loan by a managing banking institution is unstated or
differs materially from the pro rata portion of fees paid other
participants in the syndication, an amount necessary for an interest
yield adjustment shall be recognized. This amount shall at least be
equivalent (on a pro rata basis) to the largest fee received by a loan
participant in the syndication that is not a managing banking
institution. The remaining portion of the syndication fee may be
recognized as income at the loan closing date to the extent that it is
identified and documented as compensation for services in arranging the
loan. Such documentation shall include the loan agreement. Otherwise,
the fee shall be deemed an adjustment of yield.
(e) Loan Commitment fees. (1) Fees which are based upon the
unfunded portion of a credit for the period until it is drawn and
represent compensation for a binding commitment to provide funds or for
rendering a service in issuing the commitment shall be recognized as
income over the term of the commitment period using the straight-line
method of amortization. Such fees for revolving credit arrangements,
where the fees are received periodically in arrears and are based on
the amount of the unused loan commitment, may be recognized as income
when received provided the income result would not be materially
different.
(2) If it is not practicable to separate the commitment portion
from other components of the fee, the entire fee shall be amortized
over the term of the combined commitment and expected loan period. The
straight-line method of amortization should be used during the
commitment period to recognize the fee revenue. The interest method
should be used during the loan period to recognize the remaining fee
revenue in relation to the outstanding loan balance. If the loan is
funded before the end of the commitment period, any unamortized
commitment fees shall be recognized as revenue at that time.
(f) Agency fees. Fees paid to an agent banking institution for
administrative services in an intentional syndicated loan shall be
recognized at the time of the loan closing or as the service is
performed, if later.
Sec. 28.54 Reporting and disclosure of international assets.
(a) Requirements. (1) Pursuant to section 907(a) of the
International Lending Supervision Act of 1983 (title IX, Pub. L. 98-
181, 97 Stat. 1153, 12 U.S.C. 3906) (ILSA) a banking institution shall
submit to the OCC, at least quarterly, information regarding the
amounts and composition of its holdings of international assets.
(2) Pursuant to section 907(b) of ILSA (12 U.S.C. 3906), a banking
institution shall submit to the OCC information regarding
concentrations in its holdings of international assets that are
material in relation to total assets and to capital of the institution,
such information to be made publicly available by the OCC on request.
(b) Procedures. The format, content, and reporting and filing dates
of the reports required under paragraph (a) of this section shall be
determined jointly by the Federal banking agencies. The requirements to
be prescribed by the agencies may include changes to existing reporting
forms (such as the Country Exposure Report, FFIEC 009) or such other
requirements as the agencies deem appropriate. The agencies also may
determine to exempt from the requirements of paragraph (a) of this
section banking institutions that, in the agencies' judgment, have de
minimis holdings of international assets.
(c) Reservation of authority. Nothing contained in this part shall
preclude the OCC from requiring from a banking institution such
additional or more frequent information on the institution's holdings
of international assets as the OCC may consider necessary.
Dated: April 13, 1996.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 96-10432 Filed 5-1-96; 8:45 am]
BILLING CODE 4810-33-P
Complete official Federal Register PDF
FR Doc. 96-10394 Transfers to Investment Companies
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19544-19546]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10394]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 8663]
RIN 1545-AT43
Transfers to Investment Companies
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations amending regulations
under section 351(e) of the Internal Revenue Code relating to transfers
to investment companies. The final regulations concern the treatment of
certain transfers to a controlled corporation. Generally, the final
regulations amend the regulations to provide when certain transfers
will not cause a diversification of the transferors' interests.
EFFEFCITVE DATE: These regulations are effective May 2, 1996.
FOR FURTHER INFORMATION CONTACT: Andrew M. Eisenberg, (202) 622-7790
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
1. Background
This document contains final regulations under section 351. The
final regulations provide for the treatment of
[[Page 19545]]
certain transfers to a controlled corporation. Section 351(a) provides
that no gain or loss will be recognized if one or more persons transfer
property to a corporation solely in exchange for stock in the
corporation and immediately after the exchange such person or persons
are in control of the corporation. Section 351(e)(1) provides that
section 351(a) will not apply to a transfer of property to an
investment company.
On August 10, 1995, the Federal Register published a notice of
proposed rulemaking (CO-19-95), amending regulations under section 351
of the Internal Revenue Code relating to transfers of property to an
investment company (60 FR 40794). The proposed rules were based on the
conclusion that transfers of diversified portfolios are not
inconsistent with the Congressional purpose of section 351(e)(1).
2. Public Comments and the Final Regulations
The IRS received comments from the public on the proposed
regulations. No public hearing was requested and none was held. The
comments received were generally supportive of the proposed
regulations. After consideration of all the comments, the regulations
proposed by CO-19-95 are adopted as revised by this Treasury decision.
The principal comments on the proposed regulations are discussed below.
Government securities are not treated as securities of an issuer
for purposes of the 25 and 50-percent tests. Several commentators
suggested that the final regulations include specific assurance that
Government securities are not treated as securities of an issuer in
applying the 25 and 50-percent tests contained in section
368(a)(2)(F)(ii). The proposed regulations generally adopt the section
368(a)(2)(F)(ii) tests for purposes of determining whether a portfolio
of stocks and securities is diversified. However, the proposed
regulations modify the 25 and 50-percent tests of section
368(a)(2)(F)(ii) by including Government securities in total assets
(clause (iv) of section 368(a)(2)(F) excludes Government securities
from total assets for purposes of the 25 and 50-percent tests in clause
(ii) of section 368(a)(2)(F)). The final regulations clarify that
Government securities, while included in total assets, are not treated
as securities of an issuer for purposes of the numerator of the 25 and
50-percent tests of section 368(a)(2)(F)(ii).
The transfer of a diversified portfolio of stocks and securities by
any transferor satisfies the modified diversification test. One
commentator suggested that the final regulations should clarify that
any person, rather than corporate transferors only, may satisfy the
modified diversification test. The commentator is concerned that the
use of the section 368(a)(2)(F)(ii) tests, which are adopted from a
provision that applies only to transfers by corporations, may imply
that the tests as applied in section 351 are limited to corporate
transferors.
The Treasury and IRS do not intend to limit application of the
final regulations solely to corporate transferors. The final
regulations provide that a portfolio will be diversified if it
satisfies the 25 and 50-percent tests of section 368(a)(2)(F)(ii) (as
modified), rather than section 368(a)(2)(F)(ii), generally.
Transfers of interests in real property to an investment company.
One commentator suggested that the final regulations adopt a rule
whereby transfers of real property would not result in the
diversification of the transferors' interests if each transferor
transfers a diversified portfolio of real property to a Real Estate
Investment Trust. The subject of real property transfers is beyond the
scope of these final regulations.
Retroactive effect of the final regulations. Several commentators
suggested that the final regulations include a retroactive effective
date. The final regulations allow taxpayers who transfer diversified,
but nonidentical, portfolios of stocks and securities before May 2,
1996, to choose to treat the transfers consistent with the final
regulations or as transfers resulting in diversification. However,
transfers completed on or after May 2, 1996, are subject to the final
regulations.
Special Analyses. It has been determined that this Treasury
decision is not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter
6) do not apply to these regulations, and, therefore, a Regulatory
Flexibility Analysis is not required. Pursuant to section 7805(f) of
the Internal Revenue Code, the notice of proposed rulemaking preceding
these regulations was submitted to the Chief Counsel for Advocacy of
the Small Business Administration for comment on its impact on small
business.
Drafting Information. The principal author of these regulations is
Andrew M. Eisenberg, Office of Assistant Chief Counsel (Corporate),
IRS. However, other personnel from the IRS and Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendment to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read as
follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.351-1 also issued under 26 U.S.C. 351. * * * .
Par. 2. Section 1.351-1 is amended by:
1. Redesignating paragraph (c)(6) as paragraph (c)(7).
2. Adding new paragraph (c)(6) to read as follows:
Sec. 1.351-1 Transfer to corporation controlled by transferor.
* * * * *
(c) * * *
(6)(i) For purposes of paragraph (c)(5) of this section, a transfer
of stocks and securities will not be treated as resulting in a
diversification of the transferors' interests if each transferor
transfers a diversified portfolio of stocks and securities. For
purposes of this paragraph(c)(6), a portfolio of stocks and securities
is diversified if it satisfies the 25 and 50-percent tests of section
368(a)(2)(F)(ii), applying the relevant provisions of section
368(a)(2)(F). However, Government securities are included in total
assets for purposes of the denominator of the 25 and 50-percent tests
(unless the Government securities are acquired to meet the 25 and 50-
percent tests), but are not treated as securities of an issuer for
purposes of the numerator of the 25 and 50-percent tests.
(ii) Paragraph (c)(6)(i) of this section is effective for transfers
completed on or after May 2, 1996. Transfers of diversified (within the
meaning of paragraph (c)(6)(i) of this section), but nonidentical,
portfolios of stocks and securities completed before May 2, 1996, may
be treated either--
(A) Consistent with paragraph (c)(6)(i) of this section; or
[[Page 19546]]
(B) As resulting in diversification of the transferors' interests.
* * * * *
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: March 6, 1996.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 96-10394 Filed 5-1-96; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 96-10393 Diversification of Common Trust Funds
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19546-19547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10393]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
26 CFR Part 1
[TD 8662]
RIN 1545-AQ64
Diversification of Common Trust Funds
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations relating to the
diversification of common trust funds at the time of a combination or
division. The final regulations affect common trust funds and their
participants.
EFFECTIVE DATE: May 2, 1996.
FOR FURTHER INFORMATION CONTACT: Steven Schneider, (202) 622-3060 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On August 10, 1995, a notice of proposed rulemaking (PS-29-92) was
published in the Federal Register (60 FR 40796) proposing amendments to
the Income Tax Regulations (26 CFR part 1) under section 584 of the
Internal Revenue Code. Written comments responding to this notice were
received. No public hearing was held because no hearing was requested.
After consideration of all comments received, the proposed regulations
under section 584 are adopted as revised by this Treasury decision.
Explanation of Provisions
The final regulations modify the diversification test applied to
combining, dividing, and resulting common trust funds at the time of a
combination or division. Under the existing regulations, which
incorporate the diversification test of section 368(a)(2)(F)(ii),
Government securities are excluded in determining total assets. These
final regulations modify the diversification test so that Government
securities are included in determining total assets when applying
section 368(a)(2)(F)(ii).
This modified diversification test is the same as that in the final
regulations under section 351(e), which deals with transfers to
investment companies. These corresponding modifications ensure that a
uniform diversification test will be applied to common trust funds and
similar investment entities.
The final regulations also update the regulations under section 584
to conform to changes in the law.
Changes to the Proposed Regulations in Response to Comments
I. Clarification That Government Securities Are Not Treated as
Securities of an Issuer
Two commentators suggested that the final regulations include
specific assurance that Government securities are not treated as
securities of an issuer in applying the 25 and 50-percent tests
contained in section 368(a)(2)(F)(ii) to mergers and divisions of
common trust funds. The proposed regulations provide that Government
securities are included in total assets in applying the 25 and 50-
percent tests to common trust fund combinations and divisions, but do
not specifically state that Government securities are not treated as
securities of an issuer. The final regulations clarify that Government
securities, while included in total assets, are not treated as
securities of an issuer for purposes of the numerator of the 25 and 50-
percent tests of section 368(a)(2)(F)(ii).
II. Clarification of the Definition of Government Securities
One commentator suggested that the regulations broaden the
definition of the term Government securities to include state and local
government obligations. The final regulations do not adopt the
suggestion.
Effective Date
These regulations apply to combinations and divisions of common
trust funds completed on or after May 2, 1996.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It has also been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations was
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Drafting Information
The principal author of this regulation is Brian J. O'Connor,
formerly of the Office of Assistant Chief Counsel (Passthroughs and
Special Industries). However, other personnel from the IRS and Treasury
Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Sec. 1.584-2 [Amended]
Par. 2. Section 1.584-2 is amended by:
1. Removing paragraph (b)(1).
2. Removing the paragraph designation (b)(2).
Par. 3. Section 1.584-4 is amended by:
1. Removing paragraphs (a)(1) and (a)(2).
2. Removing the last sentence in paragraph (a) and adding 6
sentences in its place.
3. Adding paragraph (e).
The additions read as follows:
Sec. 1.584-4 Admission and withdrawal of participants in the common
trust fund.
(a) * * * When a participating interest is transferred by a bank,
or by two or more banks that are members of the same affiliated group
(within the meaning of section 1504), as a result of the combination of
two or more common trust funds or the division of a single common trust
fund, the transfer to the surviving or divided fund is not considered
to be an admission or a withdrawal if the combining, dividing, and
resulting common trust funds have diversified portfolios. For purposes
of this paragraph (a), a common trust fund has a diversified portfolio
if it satisfies the 25 and 50-percent tests of section
368(a)(2)(F)(ii), applying the relevant provisions of section
368(a)(2)(F). However, Government securities are included in total
assets for purposes of the denominator of the 25 and 50-percent tests
(unless the Government
[[Page 19547]]
securities are acquired to meet the 25 and 50-percent tests), but are
not treated as securities of an issuer for purposes of the numerator of
the 25 and 50-percent tests. In addition, for a transfer of a
participating interest in a division of a common trust fund not to be
considered an admission or withdrawal, each participant's pro rata
interest in each of the resulting common trust funds must be
substantially the same as was the participant's pro rata interest in
the dividing fund. However, in the case of the division of a common
trust fund maintained by two or more banks that are members of the same
affiliated group resulting from the termination of such affiliation,
the division will be treated as meeting the requirements of the
preceding sentence if the written plans of operation of the resulting
common trust funds are substantially identical to the plan of operation
of the dividing common trust fund, each of the assets of the dividing
common trust fund are distributed substantially pro rata to each of the
resulting common trust funds, and each participant's aggregate interest
in the assets of the resulting common trust funds of which he or she is
a participant in substantially the same as was the participant's pro
rata interest in the assets of the dividing common trust fund. The plan
of operation of a resulting common trust fund will not be considered to
be substantially identical to that of the dividing common trust fund
where, for example, the plan of operation of the resulting common trust
fund contains restrictions as to the types of participants that may
invest in the common trust fund where such restrictions were not
present in the plan of operation of the dividing common trust fund.
* * * * *
(e) Effective date. The eighth sentence of paragraph (a) of this
section is effective for combinations and divisions of common trust
funds completed on or after May 2, 1996.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: March 6, 1996.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 96-10393 Filed 5-1-96; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 96-10180 Electronic Fund Transfers
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19678-19695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10180]
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FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-0831]
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Official Staff Interpretation.
-----------------------------------------------------------------------
SUMMARY: The Board is publishing final revisions to its official staff
commentary to Regulation E (which implements the Electronic Fund
Transfer Act), as part of the Board's review of the regulation. The
commentary applies and interprets the requirements of Regulation E to
facilitate compliance by financial institutions that offer electronic
fund transfer services to consumers. The revisions change the question-
and-answer format to a narrative one to make the commentary easier to
use and to conform it with the format of the Board's other staff
commentaries. In conjunction with revisions to Regulation E adopted by
the Board and published elsewhere in today's Federal Register, the
revised commentary also includes interpretative provisions previously
contained in the regulation that were more explanatory in nature and
additional interpretations on matters not previously addressed.
DATES: Effective date. May 2, 1996.
Compliance date. Mandatory compliance January 1, 1997.
FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Kyung Cho-Miller,
Michael Hentrel, or Natalie E. Taylor, Staff Attorneys, Division of
Consumer and Community Affairs, Board of Governors of the Federal
Reserve System, Washington, D.C. 20551, at (202) 452-2412 or (202) 452-
3667. For the hearing impaired only, contact Dorothea Thompson,
Telecommunications Device for the Deaf (TDD), at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background
The Electronic Fund Transfer Act (EFTA) (15 U.S.C. 1693), enacted
in 1978, provides a basic framework establishing the rights,
liabilities, and responsibilities of participants in electronic fund
transfer (EFT) systems. The EFTA is implemented by the Board's
Regulation E (12 CFR part 205). The Board has revised Regulation E
under its Regulatory Planning and Review Program, which calls for the
periodic review of all Board regulations. In 1981, the Board published
an official staff commentary to Regulation E. The commentary
substitutes for individual staff interpretations and is designed to
facilitate compliance and provide protection from civil liability,
under section 915(d)(1) of the act, for financial institutions that act
in conformity with it.
The question-and-answer format of the former commentary was
designed to make compliance easier by providing specific answers, in
nontechnical language, to frequently asked questions. However, that
format usually relied on specific factual situations and often
restricted the scope of an interpretation. The Board has adopted a
narrative format, similar to other commentaries issued by the Board, to
provide more general applicability.
The order of comments in the final commentary corresponds with the
new sections in the revised regulation. Throughout the commentary,
reference to ``this section'' or ``this paragraph'' means the section
or paragraph in the regulation that is the subject of the comment. Each
comment in the commentary is identified by a number and the regulatory
section or paragraph that it interprets. The commentary incorporates
text that was moved from the regulation because it is more explanatory
than regulatory in nature. A number of comments have been deleted as
obsolete.
II. Section-by-Section Analysis
The section-by-section descriptions highlight certain provisions
that differ from the former commentary and certain portions of the
former regulation that have been moved to the commentary. Comments in
the former commentary are referred to as ``questions'' and are cited by
the section number and the number of the question. For example, Q2-11
is the citation for question number 11 in the commentary to Sec. 205.2.
As the substance of many questions does not change in the new format,
those comments are not specifically discussed. A summary at the
beginning of the section-by-section analysis matches the old question
to the new commentary provisions. The summary also lists questions that
have been deleted from the commentary, comments that are new, and
comments that have been moved to other sections.
Section 205.2--Definitions
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q2-1
(b)(1)-1.................................. Q2-2, Q2-3, Q2-4, Q2-5, Q2-
5.5
(b)(2)-1.................................. Q3-21
(b)(2)-2.................................. Q3-20
(d)-1..................................... Q2-8
(d)-2..................................... Q2-6
(d)-3..................................... Q2-9
[[Page 19679]]
(d)-4..................................... Q2-7
(h)-1..................................... Q2-25.5, Q2-23
(h)-2..................................... Q2-24
(h)-3..................................... Q2-25
(m)-1..................................... Q2-26
(m)-2..................................... Q2-27
(m)-3..................................... Q2-27
(m)-4..................................... Q2-28
------------------------------------------------------------------------
Comment deleted
Q2-22: Electronic terminal--telephone bill payment
Comments moved
Comments relating to the definition of an EFT have been moved to
the commentary to Sec. 205.3
Paragraph 2(b)(2)
In the regulation, the exemption for trust accounts has been
incorporated into the definition of account. The substance of Q3-20
(custodial agreements) and Q3-21 (trust accounts) is included in this
section as comments (b)(2)-2 and (b)(2)-1. The change mirrors the
statutory definition of account.
2(d) Business Day
The regulatory proposal included a new definition of business day.
The Board has retained the current definition of business day;
accordingly, comments Q2-6, Q2-7, and Q2-9, which provide guidance on
interpreting ``substantially all business functions,'' have been
retained and included in comments (d)(2)-(d)(4).
2(m) Unauthorized Electronic Fund Transfer
Comment (m)-2, which incorporates Q2-27, provides that when the
consumer furnishes an access device and grants actual authority to make
transfers to another person (a family member or co-worker, for example)
who then exceeds that authority, the consumer is liable for the
transfers unless the consumer has notified the financial institution
that transfers by that person are no longer authorized. While
institutions are required to provide a summary of the consumer's
liability under Sec. 205.6 in the initial disclosures, the model
clauses do not require financial institutions to disclose this
potential liability as part of the initial disclosures of Sec. 205.7.
Section 205.3--Coverage
Section 205.3 of the regulation is a new section on the
regulation's coverage, including the scope of Regulation E, the
definition of an EFT, and the exemptions from the regulation. To
correspond with these regulatory amendments, the commentary
consolidates existing and new comments on the regulation's coverage.
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q9-15 in part
(a)-2..................................... Q9-15 in part
(a)-2..................................... new
(b)-1..................................... Q2-11, broadens and reverses
Q2-16, Q2-18, Q2-19, Q2-
21.5
(b)-2..................................... Q2-10, Q2-12, Q2-21
(c)(2)-1.................................. Q3-1
(c)(3)-1.................................. Q3-3
(c)(3)-2.................................. new
(c)(3)-3.................................. new
(c)(4)-1.................................. new
(c)(4)-2.................................. new
(c)(4)-3.................................. Q3-3.5, Q3-3.6
(c)(5)-1.................................. Q3-8, Q3-9, Q3-10, Q3-11, Q3-
12
(c)(5)-2.................................. Q3-13
(c)(6)-1.................................. Q3-14, Q3-15, Q3-16, Q3-19.5
(c)(6)-2.................................. Q3-17, Q3-18, Q3-19, new
(facsimile machine)
(c)(7)-1.................................. new
------------------------------------------------------------------------
Comments deleted
Q2-12.5: Fund transfer--withholding of income tax on interest
Q2-12.6: Fund transfer--EBT
Q2-13: Fund transfer--withdrawal at another institution
Q2-14: Fund transfer--check truncation
Q2-15: Fund transfer--payee information, non-electronic form
Q2-17: Fund transfer--ACH
Q2-20: Fund transfer--preauthorized debits by paper drafts, ACH
Q3-2: Wire transfer--instructions on magnetic tape
Q3-4: Telephone transfer plans--applicability of
intrainstitutional exemption
Q3-5: Compulsory use--preauthorized loan payments
Comments moved
Q3-6, Q3-7, and Q3-7.5 (see commentary to Sec. 205.10(e))
Q3-20 and Q3-21 (see commentary to Sec. 205.2)
3(a) General
Comments 3(a)-1 and -2 incorporate the part of Q9-15 that details
the types of accounts subject to the requirements of the regulation.
Comment 3(a)-2 is new. Language for this comment is modeled on the
commentary to Regulation Z on foreign applicability (12 CFR part 226,
Supp. I, comment 1(c)-1).
3(b) Electronic Fund Transfer
In the revised regulation, the definition of ``electronic fund
transfer'' is referenced in Sec. 205.2(g) but is included in Sec. 205.3
as the definition is central to determining coverage. The commentary
consolidates in this section the questions pertaining to EFTs. A number
of comments were deleted because of a change in Board interpretations.
For example, Q2-12.6 dealt with the electronic payment of government
benefits, stating that such transfers were not subject to Regulation E.
As the Board has adopted amendments to Regulation E extending coverage
to electronic benefit transfer programs established by federal, state,
or local government agencies, the substance of Q2-12.6 has been
deleted.
Comment 3(b)-1(iii) broadens and reverses Q2-16 to achieve
consistency with other sections of Regulation E. The comment states
that debits or credits to a consumer's account according to billing
information contained on magnetic tape are EFTs even if the financial
institution receives or sends a composite check. Previously, credits to
consumers' accounts made by a composite check accompanied by a magnetic
tape containing payee information were not EFTs for purposes of
Regulation E.
3(c) Exclusions From Coverage
The regulation's exemptions are incorporated in Sec. 205.3.
Paragraph 3(c)(3)--Wire or Other Similar Transfers
Comment 3(c)(3)-2 addresses the relationship of Regulation E to
Article 4A of the Uniform Commercial Code (UCC). Article 4A provides
comprehensive rules governing rights and responsibilities arising from
wire transfers. It applies primarily to large-dollar, commercial wire
transfers made via Fedwire, Clearing House Interbank Payments Systems
(CHIPS), Society for Worldwide Interbank Payments Systems (SWIFT), and
Telex.
UCC Sec. 4A-108 provides that Article 4A does not cover a fund
transfer any part of which is governed by the EFTA. In drafting Article
4A, the National Conference of Commissioners on Uniform State Laws
stated that if a fund transfer is made in part by Fedwire and in part
via an automated clearinghouse (ACH), because the EFTA applies to the
ACH part of the transfer, Article 4A does not apply to any part of the
transfer. Institutions that offer Fedwire services expressed concern
that these transfers would lose the legal certainty offered by
complying with the requirements of Article 4A if some part of the
transfer is subject to the EFTA. This concern must be balanced with the
potential of subjecting consumers to full liability for unauthorized
transfers merely because some part of the transfer, which would
ordinarily be
[[Page 19680]]
covered by Regulation E, is made via Fedwire.
In 1990, the Board adopted a comprehensive revision of subpart B to
Regulation J (55 FR 40791, October 5, 1990). Regulation J (12 CFR Part
210) specifies the rules applicable to funds transfers handled by
Federal Reserve Banks. To ensure that the rules for all funds transfers
through Fedwire are consistent, the Board used its preemptive authority
under UCC Sec. 4A-107 to determine that subpart B, including the
provisions of Article 4A, applies to all fund transfers through
Fedwire, even if a portion of the fund transfer is governed by the
EFTA. Even so, the Board has continued to receive questions about the
effect of dual coverage. For example, if an institution offers
consumers the ability to initiate Fedwire transfers pursuant to a
telephone transfer agreement, the transfer could be covered by both
Regulation E and Article 4A. UCC Sec. 4A-202 encourages verification of
the authenticity of a Fedwire payment order pursuant to a ``security
procedure'' established by agreement between a customer and a receiving
bank. Putting such an agreement in writing could be deemed to
constitute a telephone transfer plan for purposes of Regulation E. The
Board believes that if an institution makes Fedwire payments available
to consumers, but does not make the service available in conjunction
with a telephone plan that is subject to Regulation E, then the
protections of Article 4A are applicable to the transfer.
The wire transfer exemption extends to any transfer of funds
through Fedwire or through a similar fund transfer system. Comment
3(c)(3)-3 provides examples of such systems. The Board was asked also
to exempt transfers made on the books or ``in book-entry form'' by the
financial institution. The commentary clarifies that such transfers are
exempt from Regulation E.
Paragraph 3(c)(4)--Securities and Commodities Transfers
The Board has revised the exemption for certain securities and
commodities transfers contained in Sec. 205.3(c). The exemption applies
to a transfer for the purchase or sale of securities or commodities,
even if the security or commodity is not regulated by the Securities
and Exchange Commission or the Commodity Futures Trading Commission, so
long as the security or commodity is sold by a registered broker-dealer
or futures commission merchant (for example, municipal securities).
Comment 3(c)(4)-1 provides added clarification on this point.
Comments 3(c)(4)-2 and -3 provide examples of covered and exempt
securities transfers. Comment 3(c)(4)-2 also contains a new example of
an exempt transfer, that of a telephone order to exercise a margin
call. The Board believes that the exercise of a margin call is so
closely linked to the purchase or sale of securities as to come within
the purview of the exemption.
Several commenters requested clarification on Q3-3.5, which stated
that the exemption applied only if a transfer's primary purpose is the
purchase or sale of securities and which provided an example of a money
market mutual fund transfer. The Board believes that all securities
transfers must meet the primary purpose test-- transfers must be to
purchase or sell securities--set forth in Q3-3.5 to qualify for the
exemption. If a transfer results from the use of a debit card to access
any securities account (including a money market mutual fund account)
for the purchase of goods or services or to obtain cash, the transfer
is not exempt from Regulation E.
Paragraph 3(c)(6)--Telephone-Initiated Transfers
Comment 3(c)(6)-2 incorporates examples contained in the former
commentary of covered transfers under a written plan (see Q3-17, Q3-18,
and Q3-19). The comment also contains a new example regarding the use
of a facsimile machine to initiate a transfer. The Board has received
questions about plans in which the consumer uses facsimile paper
designed to look like a paper ``draft'' to initiate a transfer sent via
facsimile machine. The EFTA's definition of EFT includes any transfer
through a ``telephonic instrument.'' The Board considers a facsimile
machine to be the functional equivalent of a telephone; it is
inconsequential whether information about the transfer is transmitted
orally or by facsimile.
Paragraph 3(c)(7)--Small Institutions
Comment 3(c)(7)-1 makes clear the Board's view that Article 4A is
not applicable to transfers exempt from Regulation E under the small-
institution exemption. As noted above, the drafters of Article 4A
considered the EFTA and Regulation E to be mutually exclusive. The
Board has been asked whether preauthorized transfers by small
institutions (now, institutions with assets under $100 million), which
are largely exempt from Regulations E, are subject to the requirements
of Article 4A by virtue of that exemption (for example, a direct
deposit to a consumer's account at a small bank). The Board regards the
transfers as generally subject to the EFTA, and therefore not subject
to Article 4A.
Section 205.4--General Disclosure Requirements; Jointly Offered
Services
Section 205.4 of the revised regulation sets forth general and
special requirements for the various disclosures. Corresponding changes
have been made in the commentary.
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q7-3, Q9-4 in part
(a)-2..................................... new (revises and broadens Q7-
4)
------------------------------------------------------------------------
Comments deleted
Q4-3: Multiple accounts and account holders (clarified in
Sec. 205.4(d)(1) of the regulation)
Section 205.5--Issuance of Access Devices
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
5-1....................................... Q5-1.5
(a)(1)-1.................................. new (footnote 1b to former
Sec. 205.5(a)(1))
(a)(1)-2.................................. new
(a)(2)-1.................................. Q5-1, Q5-2
(a)(2)-2.................................. Q5-3
(b)-1..................................... Q5-6, Q5-7
(b)-2..................................... Q5-4.5
(b)-3..................................... Q5-5
(b)-4..................................... Q5-8 (including examples
from former Sec. 205.5(b)
------------------------------------------------------------------------
Comment deleted
Q5-4: Renewal or substitution--pre-February 8, 1979 device
Comments moved
Q5-9, Q5-10 (see commentary to Sec. 205.12)
5(a) Solicited Issuance
Paragraph 5(a)(1)
Comment (a)(1)-2 has been added to clarify the permissible forms of
a consumer's request for an access device. Section 205.6--Liability of
Consumer for Unauthorized Transfers
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q6-4, new (former Sec.
205.6(a)(2))
(a)-2..................................... Q6-3
(b)-1..................................... Q6-5 (revised)
(b)-2..................................... Q6-6.5 (with cross-reference
to comment 2(k)-2 added)
(b)-3..................................... Q6-6.5
(b)(1)-1.................................. Q6-5 (revised)
(b)(1)-2.................................. Q6-6 (revised)
(b)(2)-1.................................. Q6-5 (revised)
(b)(3)-1.................................. Q6-5 (revised)
(b)(3)-2.................................. Q6-5 (revised)
(b)(4)-1.................................. new (former Sec.
205.6(b)(4))
(b)(5)-1.................................. Q6-7
(b)(5)-2.................................. new
[[Page 19681]]
(b)(5)-3.................................. Q6-8
------------------------------------------------------------------------
Comments deleted
Q6-1: Unauthorized transfers--access device not involved
Q6-2: Failure to disclose business days
Comments moved
Q6-9, Q6-10, and Q6-11 (see commentary to Sec. 205.12)
6(a) Conditions for Liability
The Board had proposed amending the regulation to require that a
financial institution provide all of the initial disclosures required
by Sec. 205.7 in order to impose liability on the consumer. Based on
comment and further analysis, the Board has instead retained the
current rule.
The former regulation implicitly conditioned consumer liability on
the issuance of an accepted access device (Sec. 205.6(a)). The
commentary, on the other hand, stated that if the consumer failed to
report an unauthorized EFT within 60 days of transmittal of the
periodic statement reflecting the transfer, the consumer could be
subject to liability for subsequent transfers, even if the unauthorized
EFT did not involve an access device. This commentary position was
based on the Board's interpretation of section 909 of the EFTA as
precluding consumer liability for unauthorized transfers not involving
an access device until 60 days after transmittal of the periodic
statement reflecting the transfer. The Board has incorporated that
clarification into the Sec. 205.6(a)(3) of the regulation.
Commenters generally supported the revision, although some believed
that a 60-day period is unreasonable. The latter suggested an
alternative time period ranging from 30 to 45 days; this change,
however, would require a statutory amendment. Upon further analysis,
the Board adopted the regulatory revision as proposed and has
incorporated Q6-1 into Sec. 205.6(b)(3). Comment 6(b)(3)-2 provides
further clarification.
6(b) Limitations on Amount of Liability
Q6-5 provided examples of when the liability rules apply. Material
from Q6-5, in revised form, has been incorporated into the commentary
to paragraph (b).
Paragraph 6(b)(4)--Extension of Time Limits
Former Sec. 205.6(b)(4) provided examples of extenuating
circumstances when a consumer delays notification to the institution
that an access device has been lost or stolen. The examples have been
deleted from the revised regulation and moved to comment (b)(4)-1.
Paragraph 6(b)(5)--Notice to Financial Institution
The Board has received questions about whether notice from a third
party is sufficient to limit a consumer's liability under Sec. 205.6.
Proposed comment (b)(5)-2 indicated that such notice is valid if it is
communicated by a third party on the consumer's behalf. Commenters
generally supported this interpretation. Several commenters asked the
Board to clarify that a financial institution may require adequate
documentation of the authority of the person who claims to represent
the consumer. Others requested that the Board address the potential
liability of financial institutions arising from reliance on the claims
of a third party. In response, the Board has clarified that a financial
institution should have a reasonable belief that a third party is
acting on the consumer's behalf.
Section 205.7--Initial Disclosures
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q7-1
(a)-2..................................... Q7-2
(a)-3..................................... Q7-5.5
(a)-4..................................... Q7-6, new (timing of
disclosures)
(a)-5..................................... Q7-6.5
(a)-6..................................... Q7-5
(b)(1)-1.................................. Q7-8
(b)(1)-2.................................. Q7-7
(b)(1)-3.................................. new (former Sec.
205.7(a)(1))
(b)(2)-1.................................. Q7-19
(b)(2)-2.................................. Q7-20
(b)(4)-1.................................. Q7-11
(b)(4)-2.................................. Q7-11.5
(b)(4)-3.................................. Q7-10
(b)(5)-1.................................. Q7-14, 7-15
(b)(5)-2.................................. Q7-12, 7-13
(b)(5)-3.................................. Q7-15.5
(b)(9)-1.................................. Q7-16, 7-17
(b)(10)-1................................. Q7-18
(b)(10)-2................................. Q7-18.5
------------------------------------------------------------------------
Comment deleted
Q7-9: Summary disclosure of rights
Comments moved
Q7-3, Q7-4 (see commentary to Sec. 205.4)
7(a) Timing of Disclosures
Comment (a)-4 expands on Q7-6, which discussed the addition of new
EFT services and required financial institutions to provide disclosures
for the additional service if it was subject to terms and conditions
different from those previously described in the initial disclosures;
the commentary was silent, however, as to when such disclosures should
be provided. Comment (a)-4 provides that the disclosures be given
either when the consumer contracts for the new service or before the
first EFT is made using the new service.
7(b) Content of Disclosures
Former Sec. 205.7(a)(1) gave financial institutions the option of
including advice about promptly reporting the loss or theft of the
access device or other unauthorized transfers in the summary of the
consumer's liability. This language has been deleted from the
regulation and moved to comment (b)(1)-3.
Section 205.8--Change-in-Terms Notice; Error Resolution Notice
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q8-6
(a)-2..................................... Q8-3, Q8-5
(a)-3..................................... Q8-4
(a)-4..................................... Q8-2
(b)-1..................................... Q8-8
------------------------------------------------------------------------
Comments deleted
Q8-1: Terms requiring change in terms notice
Q8-7: Error resolution notice--no periodic statements sent
8(a) Change-in-Terms Notice
Paragraph 8(a)(2)--Prior Notice Exception
Proposed comment (a)(2)-1, which addressed circumstances when
financial institutions include with the periodic statement a subsequent
notice upon making a permanent change in terms related to security has
not been adopted, as the Board did not adopt its proposal revising the
regulation to extend to 45 days the time period in which financial
institutions must send such notice.
Section 205.9--Receipts at Electric Terminals; Periodic Statements
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1.................................. Q9-1
(a)-2.................................. new (footnote 2 to former Sec.
205.9(a)), Q9-2
(a)-3.................................. Q9-3.5
(a)-4.................................. Q9-5
(a)-5.................................. Q9-6
(a)-6.................................. Q9-4 in part
(a)(1)-1............................... new
(a)(2)-1............................... Q9-7
(a)(3)-1............................... new (former Sec. 205.9(a)(3))
(a)(3)-2............................... new (footnote 3 to former Sec.
205.9(a)(3)), Q-9, 9-10
(a)(3)-3............................... Q9-8
(a)(3)-4............................... new (former Sec. 205.9(a)(3)),
Q9-37
(a)(3)-5............................... Q9-36, Q9-27
(a)(5)-1............................... Q9-38
(a)(5)-2............................... Q9-40
(a)(5)(i)-1............................ new (former Sec.
205.9(b)(1)(iv)(A))
(a)(5)(ii)-1........................... new (former Sec.
205.9(b)(1)(iv)(B))
(a)(5)(iii)-1.......................... new (former Sec.
205.9(b)(1)(iv)(C))
[[Page 19682]]
(a)(5)(iv)-1........................... new (former Sec.
205.9(b)(1)(iv) footnote 5
(a)(5)(iv)-2........................... new (former Sec.
205.9(b)(1)(iv) footnote 5
(a)(6)-1............................... Q9-13, new (former Sec.
205.9(a)(6))
(a)(6)-2............................... Q9-14
(b)-1.................................. Q9-19, 9-20
(b)-2.................................. new
(b)-3.................................. Q9-17
(b)-4.................................. Q9-18
(b)-5.................................. Q9-21
(b)-6.................................. Q9-23, new (footnote 4 to Sec.
205.9(b)(1))
(b)(1)-1............................... Q9-25
(b)(1)(i)-1............................ Q9-35
(b)(1)(iii)-1.......................... Q9-36
(b)(1)(iv)-1........................... Q9-40.5
(b)(1)(v)-1............................ Q9-28
(b)(1)(v)-2............................ Q9-30
(b)(1)(v)-3............................ Q9-41
(b)(1)(v)-4............................ Q9-43
(b)(1)(v)-5............................ Q9-44
(b)(1)(v)-6............................ new (footnote 9 to former Sec.
205.9(b)(1)(v))
(b)(3)-1............................... Q9-31
(b)(3)-2............................... Q9-31.5
(b)(3)-3............................... new (former Sec. 205.9(b)(3))
(b)(4)-1............................... Q9-32
(b)(5)-1............................... Q9-33
(b)(6)-1............................... Q9-33
(c)-1.................................. Q9-50
(d)-1.................................. Q9-51
------------------------------------------------------------------------
Comments deleted
Q9-3: Receipts--information displayed on screen
Q9-10.5: Receipts--type of account, interchange system
Q9-11: Receipts--unique identifier
Q9-12: Receipts--terminal location
Q9-16: Periodic statements--frequency
Q9-24: Periodic statements--accompanying documents
Q9-29: Periodic statements--multiple transferee
Q9-34: Periodic statements--telephone numbers
Q9-39: Receipts/periodic statements--location code
Q9-42: Receipts/periodic statements--intermediate party
Q9-45: Passbook updates--when required
Q9-46: Passbook accounts--telephone notice alternative
Q9-47: Passbook updates--discarding of data
Q9-48: Passbook updates--periodic transmittals
Q9-49: Quarterly statements--compliance with regular
requirements
Comments moved
Q9-4 in part (see commentary to Sec. 205.4)
Q9-15 (see commentary to Sec. 205.2)
Q9-26 (see commentary to Sec. 205.11)
A number of comments have been deleted because they were obsolete
or very fact specific and not of general applicability. Proposed
comment (a)(4)-1 has been omitted because the Board deleted the
regulatory requirement that a financial institution ``uniquely''
identify the consumer on a terminal receipt (see 55 FR 15032, March 22,
1995).
9(a) Receipts at Electronic Terminals
Footnote 2 to former Sec. 205.9(a) allowed an account-holding
institution to make terminal receipts available through third parties.
The footnote has been deleted from the regulation and moved to comment
9(a)-2.
Paragraph 9(a)(1)--Amount
Former Sec. 205.9(a)(1) provided that financial institutions other
than the account-holding institution may include a fee for a transfer
in the amount of the transfer if the fee is disclosed on the receipt
and on a sign posted on or at the terminal. The revised regulation
modifies these requirements and allows the account-holding institution
also to take advantage of the exception. In addition, proposed comment
9(a)(1)-1 provided that the requirement to display the amount of a
transaction fee ``on or at the terminal'' could be met by displaying
the fee on the terminal screen before the consumer has initiated the
transfer if displayed for a reasonable duration. Commenters generally
believed that displaying the fee on a screen provided adequate notice,
as long as consumers were given the option to cancel the transaction
after receiving notice. The Board has adopted the comment as proposed.
The Board believes that providing consumers with the option to cancel
the transaction after receiving notice helps ensure compliance with the
notice requirements of this paragraph.
Paragraph 9(a)(3)--Type
Former Sec. 205.9(a)(3) required disclosure of the type of transfer
and the type of consumer's account to or from which funds are
transferred. It also provided examples of descriptions for such
accounts. The examples have been deleted from the regulation and moved
to comment 9(a)(3)-1. In addition, Sec. 205.9(a)(3) provided generic
descriptions for accounts that are similar in function. These examples
have been deleted from the regulation and incorporated with the
substance of Q9-37 in comment 9(a)(3)-4.
Footnote 3 to former Sec. 205.9(a)(3) provided an exception to the
requirement to disclose the type of transfer and account if the
consumer can access only one account at a particular time or terminal.
The exception has been deleted from the regulation and the substance
moved to comment 9(a)(3)-2.
Paragraph 9(a)(5)--Terminal Location
Footnotes 5, 6, and 8 have been deleted from the regulation.
Footnote 5 allowed institutions to omit the name of the state on
terminal receipts for transfers occurring at terminals within 50 miles
of the institution's main office. Footnotes 6 and 8 referred back to
the text of footnote 5. Based upon comments and further analysis the
Board has retained the substance of footnote 5, incorporating it in
comment 9(a)(5)(iv)-1.
The former regulation included detailed guidance for specifying the
terminal location on both the receipt and periodic statement (see
former Sec. 205.9(b)(1)(iv)). While the substantive requirement to
disclose the location remains unchanged, the illustrative text has been
moved to comments 9(a)(5)(i)-1, 9(a)(5)(ii)-1, and 9(a)(5)(iii)-1.
Paragraph 9(a)(6)--Third Party Transfer
Former Sec. 205.9(a)(6) required that the name of any third party
to or from whom funds are transferred be disclosed on the receipt. It
also provided guidance on the use of codes and an exception to the
disclosure requirement when the name of the payee cannot be provided in
a machine-readable form at the terminal. This guidance has been deleted
from the regulation and moved to comment 9(a)(6)-1.
9(b) Periodic Statements
Former Sec. 205.9(b) provided that periodic statements must be sent
for each monthly or shorter cycle in which an EFT has occurred, but at
least quarterly if no transfer has occurred. As the Board believes that
few institutions send a statement (for Regulation E purposes) for a
cycle shorter than one month, the final regulation has deleted
reference to a ``shorter cycle.'' The reference has been moved to
comment 9(b)-1.
Proposed comment 9(b)-2 provided guidance on what is considered a
cycle for purposes of Regulation E. The comment required that financial
institutions provide relevant information for the cycle or period since
the last statement was issued. The Board adopted a similar approach in
the proposed commentary to Regulation DD (see 59 FR 5536, February 7,
1994). For example, if an institution may issue quarterly statements in
March, June, September, and December and the
[[Page 19683]]
consumer initiates an EFT in February, an interim statement would be
provided. The comment indicates that the statement should provide
information for the months of January and February. The regularly
scheduled March statement would provide information only about the
month of March. The Regulation DD commentary states that disclosures
given on the interim statement cannot be repeated on the regularly
scheduled statement. In the example above, the March statement could
not repeat information disclosed on the February statement.
Commenters requested clarification on whether an interim Regulation
E statement should repeat the information on a regularly scheduled
quarterly statement. The Board believes that if Regulation DD is
triggered (because the interim statement contains interest or rate
information) institutions should comply with Regulation DD and should
not repeat information on the quarterly statement. If Regulation DD is
not triggered, however, institutions should continue to comply with
Regulation E.
Footnote 4 to former Sec. 205.9(b)(1) permitted financial
institutions to provide certain periodic statement disclosures on
documents that accompany the statement. It also permitted institutions
to use codes for the disclosures if they are explained either on the
statement or accompanying documents. The footnote has been deleted from
the regulation and the substance moved to comment 9(b)-6.
Paragraph 9(b)(1)(v)
Footnote 9 to former Sec. 205.9(b)(1)(v) provided that a financial
institution need not identify on the periodic statement third parties
whose names appear on checks, drafts, or similar paper instruments
deposited to the consumer's account at an electronic terminal. The
footnote has been deleted from the regulation and the substance moved
to comment 9(b)(1)(v)-6.
Paragraph 9(b)(3)--Fees
Section 205.9(b)(3) provides that financial institutions must
disclose the amount of any fees (other than a finance charge imposed
under Regulation Z, 12 CFR Sec. 226.7(f)) that were assessed against
the account during the statement period for EFTs. The reference to
finance charges in former Sec. 205.9(b)(3) has been deleted from the
regulation and moved to comment (b)(3)-3.
Section 205.10--Preauthorized Transfers
Section 205.10 sets forth the substantive and disclosure
requirements for authorizing preauthorized transfers to and from a
consumer's account. The Board has expanded this section to include
guidance on the prohibitions against compulsory use, and corresponding
commentary has been added.
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)(1)-1.................................. Q10-5, Q10-6
(a)(1)-2.................................. Q10-1
(a)(1)-3.................................. Q10-7
(a)(1)-4.................................. Q10-7
(a)(1)-5.................................. Q10-10
(a)(1)-6.................................. Q10-12
(a)(1)-7.................................. Q10-11
(b)-1..................................... Q10-17
(b)-2..................................... Q10-18
(b)-3..................................... Q10-18.6
(b)-4..................................... Q10-18.5
(b)-5..................................... new
(b)-6..................................... new
(c)-1..................................... Q10-19
(c)-2..................................... Q10-19.5
(d)(1)-1.................................. Q10-21
(d)(2)-1.................................. new (range)
(e)(1)-1.................................. Q3-7, Q3-7.5
(e)(1)-2.................................. new
(e)(2)-1.................................. Q3-6
------------------------------------------------------------------------
Comments deleted
Q10-2: Notice of credit--when receipt guaranteed
Q10-3: Notice provided by payor
Q10-4: Notice provided by payor--form
Q10-8: Negative notice--timing
Q10-9: Negative notice--cessation of transfers
Q10-13: Preauthorized credits--availability of funds
Q10-14: Preauthorized credits--posting schedule
Q10-15: Preauthorized credits--funds received prior to agreed
crediting date
Q10-16: Preauthorized debits--preexisting authorizations
Q10-20: Ten-day notice of varying debits--preexisting
authorizations
Paragraph 10(a)(1)--Notice by Financial Institution
Section 906(b) of the EFTA and former Sec. 205.10(a)(1) of the
regulation provide that when a payor credits a consumer's account by
preauthorized EFT at least once every 60 days, the account-holding
institution must inform the consumer that the transfer has or has not
occurred or provide a phone number for the consumer to use to verify
the transfer. Q10-7 provided that the absence of a deposit entry on a
periodic statement can serve as notice that a preauthorized transfer
has not occurred. The Board's proposed comment 10(a)(1)-4 would have
reversed that position, stating that the absence of a deposit entry is
not negative notice.
Of the commenters addressing this issue, the majority opposed
placing an affirmative duty on the account-holding institution to
provide notice either positively or negatively. Based on the comments
and further analysis resulting from comment 10(a)(1)-4, the Board
believes that the regulatory burden on the receiving bank outweighs the
potential benefit to the consumer. Therefore, the Board is retaining
the substance of Q10-7 in comment 10(a)(1)-4, allowing the absence of
the deposit entry (on a periodic statement sent within two business
days of the scheduled transfer date) to serve as negative notice.
10(b) Written Authorization for Preauthorized Transfers From Consumer's
Account
Proposed comment 10(b)-1, which incorporates Q10-17, provided that
a financial institution or designated payee does not need to obtain new
authorizations before shifting from a paper-based to an electronic
debiting system. The proposed comment also provided that a successor
payee or institution may rely on a preexisting authorization to debit
payments from the consumer's account (for example, when an institution
purchases the mortgage servicing rights from a party that previously
obtained the consumer's authorization).
Commenters generally supported the proposed language but sought
clarification on how broadly the term ``successor institution'' could
be construed in this context. One suggested some minimal requirement
for an authorization since it would be difficult for successor
financial institutions to ensure that all required disclosures were
provided when relying on pre-existing authorizations. The Board
believes that ``successor institution'' should be interpreted broadly
to include any successor payee. To do otherwise could be extremely
disruptive to consumers who have entered into agreements for automatic
debiting and could lead to missed payments and adverse consequences.
The requirement in former Sec. 205.10(b) of the regulation that
preauthorized EFTs from a consumer's account be authorized by the
consumer only in writing has been revised. The requirement for the
authorization to be a signed writing has been expanded to include
authorizations which are ``similarly authenticated'' by the consumer.
This enhancement addresses developments in electronic services, such as
home banking.
Proposed comment 10(b)-5 provided an example of a consumer's
authorization that is ``similarly authenticated.'' The comment provided
that for a home banking system to satisfy the requirement, there must
be
[[Page 19684]]
some means to identify the consumer (such as a security code), and the
consumer must have the ability to obtain a printed copy of the
authorization (either by printing a copy or obtaining one from the
payee). The Board solicited comment on whether additional safeguards
are necessary to protect consumers in this situation and on other
issues related to the requirements of a written authorization under
this section.
The majority of commenters supported the Board's proposal that an
electronic system that has some means to identify the consumer such as
by a security code satisfies the ``similarly authenticated'' standard
adopted in Sec. 205.10(b). Preauthorized transfers in an electronic
system should be authenticated by a method that provides the same
assurance as a signature in a paper-based system. Commenters believed
that these methods of preauthorizing transfers would benefit consumers
by enabling payments to be handled expeditiously.
Several commenters raised concerns about unauthorized transfers
that might result because a consumer has written down codes and kept
them adjacent to a personal computer, and about the potential for
increased liability for institutions arising from unauthorized use.
The Board believes that these concerns are not sufficient to change
the liability standard currently in effect. The Board believes that
institutions may reduce exposure to liability by reviewing security
procedures with the consumer when establishing the home banking
relationship. However, for home banking systems, the Board is limiting
the use of a code as a means to similarly authenticate an authorization
to those where the code originates with the paying institution. The
Board believes that this limitation will preserve the ``unique status''
of a code or PIN similar to a signature. This condition also would not
allow the use of a code issued by a third party that the paying
institution could not verify.
The majority of commenters opposed the requirement in proposed
comment 10(b)-5 that the consumer must have the ability to obtain a
printed copy of the authorization (either from the consumer's printer
or from the payee). There was concern that such a requirement could
inhibit the development of home banking products. Other commenters
found the requirement placed unrealistic burdens on the institution to
determine whether the consumer possessed a printer and whether it was
used to print out a copy. Several commenters urged the Board to make
this requirement an option available to the consumer.
Based on comment and upon further analysis, the comment has been
revised. If an authorization is initiated electronically, a copy must
be made available to the consumer. The text of an electronic
authorization would have to be displayed on a computer screen or other
visual display. A consumer is entitled to a hard copy upon request.
The Board solicited comment on two issues that have not been
discussed previously in the commentary--telephone-initiated transfers
and the appropriate means for obtaining a consumer's authorization for
preauthorized transfers.
Regarding the first issue, the Board has received inquiries about
one-time transfers usually initiated by telephone when the consumer
provides an account number to the caller and authorizes a draft or an
ACH debit to be submitted against the consumer's account. Such
transfers are EFTs where the consumer's account is debited through the
ACH.
The one-time transfers are not ``preauthorized transfers,''
however, and the rules regarding written authorization by the consumer
thus are not applicable. The Board solicited comment on whether this
type of transfer warranted written authorization. A few commenters
believed that telephone-initiated transfers posed sufficient risk to
mandate written authorization. Most commenters believed that for such
nonrecurring transfers, NACHA rules and the UCC provided the consumers
with sufficient protections. At this time, the Board has maintained the
current position that written authorizations are not required for non-
recurring transfers.
The second issue concerns the appropriate means for obtaining a
consumer's authorization for preauthorized transfers. A few commenters
discouraged regulation of the format of authorizations. The majority of
commenters acknowledged that the Board could not compile a
comprehensive list of authorization methods and suggested that an
outline of the general requirements, like those under the NACHA rules,
would be helpful.
The Board is adding a new comment 10(b)-6, which generally
incorporates the requirements of an authorization under NACHA rules. An
authorization is valid if it is readily identifiable as such and the
terms of the preauthorized transfer are clear and readily
understandable.
The Board was asked whether sending the consumer a check that
incorporates in the endorsement an authorization for the financial
institution to automatically debit the consumer's account on a monthly
basis is a legitimate method for obtaining the consumer's
authorization. The Board believes that if the authorization meets the
requirements under comment 10(b)-6, an endorsement on a check could
satisfy the written authorization requirement of Sec. 10(b).
10(d) Notice of Transfers Varying in Amount
Paragraph 10(d)(2)--Range
Proposed comment 10(d)(2)-1 provided guidance on what is an
acceptable range for purposes of this section, stating that an
acceptable range is one that could plausibly be anticipated by the
consumer. For example, if the consumer's monthly payment is
approximately $50, providing a range between zero and $10,000 is not
acceptable.
The majority of commenters suggested that the range should not be
so broad as to create uncertainty for consumers about their ability to
maintain sufficient balances to avoid overdrafts.
The Board believes that comment (d)(2)-1 does not increase the
compliance burden given that it is an option. The language ``or
designated payee'' has been added after ``financial institutions'' in
the first sentence since this option is also available to a designated
payee. The Board believes that the example of an acceptable range in
the comment provides adequate guidance, and is not adding other
examples at this time.
10(e) Compulsory Use
Paragraph 10(e)(1)--Credit
The revised regulation incorporates the statutory restrictions
against compulsory use of EFTs (as a condition of credit, employment,
or receipt of government benefits) into Sec. 205.10(e).
Comment 10(e)(1)-2 would allow an institution to use the exception
in Sec. 205.10(e)(1) even if the overdraft extension is charged to an
open-end account that may be accessed by the consumer in ways other
than by overdrafts. For example, in addition to overdraft protection, a
consumer may be able to obtain cash advances directly from the credit
line without going through a checking account. The Board believes that
it is not practicable for an institution to distinguish between
extensions of credit triggered under such plans because of the
overdraft mechanism and those advanced to the consumer by some other
means.
Several consumers requested clarification on whether the
prohibition in comment 10(e)(2)-1 preempted state
[[Page 19685]]
laws. A reference to Sec. 205.12, which discusses preemption of state
laws and the standards for preemption, has been added.
Section 205.11--Procedures for Resolving Errors
Section 205.11 sets forth the regulation's procedures for error
resolution. The revised regulation reformats the section to facilitate
compliance and the commentary provisions have been revised accordingly.
Several new comments incorporate provisions that have been removed from
the regulation.
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q9-26
(a)-2..................................... Q9-26
(a)-3..................................... Q11-2
(a)-4..................................... Q11-3
(a)-5..................................... Q11-4
(b)(1)-1.................................. Q11-8, new (example added)
(b)(1)-2.................................. new
(b)(1)-3.................................. Q11-5
(b)(1)-4.................................. Q11-6
(b)(1)-5.................................. Q11-7
(b)(1)-6.................................. new (footnote 10 to former
Sec. 205.11(b)(1)(i))
(b)(2)-1.................................. Q11-9
(c)-1..................................... new
(c)-2..................................... Q11-10
(c)-3..................................... new (revised Q11-31)
(c)-4..................................... new (former Sec.
205.11(d)(3))
(c)-5..................................... Q11-20, new (footnote 12 to
former Sec. 205.11(e)(2))
(c)-6..................................... Q11-19, new (former Sec.
205.11(e)(1))
(c)-7..................................... new former Sec.
205.11(d)(1)
(c)(2)(i)-1............................... new (former Sec.
205.11(c)(3))
(c)(3)-1.................................. Q11-11.5
(c)(4)-1.................................. Q11-13
(c)(4)-2.................................. Q11-14
(c)(4)-3.................................. Q11-16
(c)(4)-4.................................. new (footnote 11 to former
Sec. 205.11(d)(1))
(d)-1..................................... Q11-17
(d)(1)-1.................................. Q11-25
(d)(2)-1.................................. Q11-23
(d)(2)-1.................................. Q11-24
(e)-1..................................... Q11-30
------------------------------------------------------------------------
Comments deleted
Q11-1: Transfers--initiated by institution
Q11-11: Deadlines for investigation of error
Q11-12: Request for documentation--facsimile or photocopy
Q11-15: Scope of investigation--preauthorized credits
Q11-18: Crediting of interest
Q11-21: Written explanation--timing
Q11-22: Debiting of recredited funds--items to be honored
Q11-26: Documents relied on--privacy issue
Q11-27: Documents relied on--no information on relevant tapes
Q11-28: Withdrawal of error notice
Q11-29: Withdrawal of error notice
Comments moved
Q11-32, Q11-33 (see commentary to Sec. 205.12)
11(b) Notice of Error From Consumer
Paragraph 11(b)(1)--Timing; Contents
Section 205.11 requires institutions to investigate and make a
final determination as to a consumer's allegation of an error within
either 10 business days or 45 calendar days. Financial institutions
have asked whether they can delay initiating or completing an
investigation pending receipt of an affidavit related to the alleged
error. Comment (b)(1)-2 prohibits institutions from delaying their
investigation until a consumer has produced a written, signed statement
relating to an error. The Board believes that permitting delay would
allow institutions to circumvent the investigation procedures currently
mandated by the act and regulation. The language of the comment has
been revised to more closely parallel Regulation Z, substituting
``written, signed statement'' for ``affidavit.''
Footnote 10 to former Sec. 205.11(b)(1)(i), which permits a
financial institution to prescribe procedures for giving notice of an
error, has been deleted from the regulation and the substance moved to
comment (b)(1)-6.
Paragraph 11(b)(2)--Written Confirmation
Comment 11(b)(2)-1 incorporates Q11-9 and further provides that
institutions operating under the 45-calendar-day rule need not
provisionally credit the consumer's account when the written
confirmation is delayed beyond 10 business days because it was sent to
the wrong address.
11(c) Time Limits and Extent of Investigation
Q11-31 articulated the Board's concern that charging consumers for
the financial institution's compliance with the regulation's error
resolution procedures might have a chilling effect on the good-faith
assertion of errors. Proposed comment (c)-3, based on Q11-31,
explicitly prohibited institutions from charging consumers for error
resolution. The Board solicited comment on the impact of such a
prohibition on institutions and consumers. Based on comment and further
analysis, the comment has been revised; it parallels a similar
provision in the commentary to Regulation Z.
Former Sec. 205.11(d)(3) provided that a financial institution may
correct an error in the amount or manner alleged by the consumer
without complying with the investigation requirements of this section
if it complies with all other requirements of Sec. 205.11. The
provision has been deleted from the regulation and moved to comment
(c)-4.
Footnote 12 to former Sec. 205.11(e)(2) allowed financial
institutions to provide the notice of correction on the periodic
statement that is mailed or delivered within the time limits specified
in the section. The footnote has been deleted from the regulation and
moved to comment (c)-5.
Former Sec. 205.11(e)(1) provided that in correcting an error, a
financial institution must, where applicable, credit interest and
refund any fees or charges imposed. This language has been deleted from
the regulation and combined with the substance of Q11-19 in comment
(c)-6. The comment also clarifies that the requirement only applies to
fees imposed by the institution and not to those imposed by third
parties.
Paragraph 11(c)(2)(i)
Former Sec. 205.11(c)(3) provided examples of when a financial
institution must comply with all requirements of Sec. 205.11 except the
provisional crediting requirements. While the examples have been
retained in the final regulation, the language requiring compliance
with other requirements of the section has been deleted and moved to
comment (c)(2)(i)-1.
Paragraph 11(c)(4)--Investigation
Footnote 11 to former Sec. 205.11(d)(1) provided examples of what
does and does not constitute an agreement for purposes of this section.
The explanatory language has been deleted from the regulation and moved
to comment (c)(4)-4.
Section 205.12--Relation to Other Laws
The revised regulation consolidates the references to a number of
provisions dealing with the relationship of Regulation E and the Truth
in Lending Act and Regulation Z formerly in Secs. 205.5, 205.6, and
205.11, in Sec. 205.12. The section also contains the rules the Board
applies in determining the preemption of inconsistent state laws or in
granting a state exemption. The commentary provisions for these rules
and references are similarly consolidated in this section.
[[Page 19686]]
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q6-9, Q6-10, Q6-11, Q11-32,
Q11-33
(a)-2..................................... Q5-9, Q5-10
(b)-1..................................... Q12-1, new
(b)-2..................................... new
------------------------------------------------------------------------
12(b) Preemption of Inconsistent State Laws
Comment 12(b)-1 incorporates Q12-1, which provides that state law
may be preempted even if the Board has not issued a determination. The
comment also notes that financial institutions are not protected from
liability for failing to comply with state law in the absence of a
preemption determination by the Board.
Comment 12(b)-2 incorporates into the commentary an official staff
interpretation preempting certain provisions of Michigan's EFT statute.
Future preemption determinations will also be included in the
commentary.
Section 205.13--Administrative Enforcement; Record Retention
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
13(b)-1................................... Q13-2
------------------------------------------------------------------------
Comments moved
Q13-1 (see commentary to appendix A)
Proposed comment 13(b)-1 has been revised, based on public comment,
to indicate that records of disclosures and documentation given to
individual consumers need not be retained.
Section 205.14--Electronic Fund Transfer Service Provider Not Holding
Consumer's Account
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
14(a)-1................................... Q14-1, Q14-2
14(a)-2................................... Q14-3
14(b)-1................................... new (formerly Sec.
205.14(a)(1)
14(b)(1)-1................................ Q14-4
14(b)(2)-1................................ Q14-6
14(c)(1)-1................................ Q14-7
------------------------------------------------------------------------
Comment deleted
Q14-5: Periodic statement--issuance of card
14(a) Provider of Electronic Fund Transfer Service
Proposed comments 14(a)-1 and 14(a)-2 have been revised to make
clear that transactions cleared and settled through the ACH are not
excluded from coverage by this section on the basis of an ``agreement''
between the two institutions involved.
14(b) Compliance by Service Provider
Former Sec. 205.14(a)(1) provided that the service-providing
institution must reimburse the consumer for unauthorized EFTs in excess
of the limits set by Sec. 205.6. This provision has been deleted from
the regulation and moved to comment 14(b)-1.
Appendix A--Model Disclosure Clauses and Forms
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
App. A-1.................................. Q13-1
App. A-2.................................. new (former introductory
language in Appendix A)
App. A-3.................................. new (former introductory
language in Appendix A)
------------------------------------------------------------------------
List of Subjects in 12 CFR Part 205
Consumer protection, Electronic fund transfers, Federal Reserve
System, Reporting and recordkeeping requirements.
Text of Revisions
For the reasons set forth in the preamble, the Board amends 12 CFR
part 205, as follows:
PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)
1. The authority citation for part 205 continues to read as
follows:
Authority: 15 U.S.C. 1693.
2. In part 205, Supplement I is revised to read as follows:
SUPPLEMENT I TO PART 205--OFFICIAL STAFF INTERPRETATIONS
Section 205.2--Definitions.
2(a) Access Device
1. Examples. The term access device includes debit cards,
personal identification numbers (PINs), telephone transfer and
telephone bill payment codes, and other means that may be used by a
consumer to initiate an electronic fund transfer (EFT) to or from a
consumer account. The term does not include magnetic tape or other
devices used internally by a financial institution to initiate
electronic transfers.
2(b) Account
1. Consumer asset account. The term consumer asset account
includes:
i. Club accounts, such as vacation clubs. In many cases,
however, these accounts are exempt from the regulation under
Sec. 205.3(c)(5) because all electronic transfers to or from the
account have been preauthorized by the consumer and involve another
account of the consumer at the same institution.
ii. A retail repurchase agreement (repo), which is a loan made
to a financial institution by a consumer that is collateralized by
government or government-insured securities.
2. Examples of accounts not covered by Regulation E (12 CFR part
205) include:
i. Profit-sharing and pension accounts established under a trust
agreement, which are exempt under Sec. 205.2(b)(2).
ii. Escrow accounts, such as those established to ensure payment
of items such as real estate taxes, insurance premiums, or
completion of repairs or improvements.
iii. Accounts for accumulating funds to purchase U.S. savings
bonds.
Paragraph 2(b)(2)
1. Bona fide trust agreements. The term bona fide trust
agreement is not defined by the act or regulation; therefore,
financial institutions must look to state or other applicable law
for interpretation.
2. Custodial agreements. An account held under a custodial
agreement that qualifies as a trust under the Internal Revenue Code,
such as an individual retirement account, is considered to be held
under a trust agreement for purposes of Regulation E.
2(d) Business Day
1. Duration. A business day includes the entire 24-hour period
ending at midnight, and a notice required by the regulation is
effective even if given outside normal business hours. The
regulation does not require, however, that a financial institution
make telephone lines available on a 24-hour basis.
2. Substantially all business functions. ``Substantially all
business functions'' include both the public and the back-office
operations of the institution. For example, if the offices of an
institution are open on Saturdays for handling some consumer
transactions (such as deposits, withdrawals, and other teller
transactions), but not for performing internal functions (such as
investigating account errors), then Saturday is not a business day
for that institution. In this case, Saturday does not count toward
the business-day standard set by the regulation for reporting lost
or stolen access devices, resolving errors, etc.
3. Short hours. A financial institution may determine, at its
election, whether an abbreviated day is a business day. For example,
if an institution engages in substantially all business functions
until noon on Saturdays instead of its usual 3:00 p.m. closing, it
may consider Saturday a business day.
4. Telephone line. If a financial institution makes a telephone
line available on Sundays for reporting the loss or theft of an
access device, but performs no other business functions, Sunday is
not a business day under the ``substantially all business
functions'' standard.
2(h) Electronic Terminal
1. Point-of-sale (POS) payments initiated by telephone. Because
the term electronic terminal excludes a telephone operated by a
consumer, a financial institution need not provide a terminal
receipt when:
i. A consumer uses a debit card at a public telephone to pay for
the call.
ii. A consumer initiates a transfer by a means analogous in
function to a telephone,
[[Page 19687]]
such as by home banking equipment or a facsimile machine.
2. POS terminals. A POS terminal that captures data
electronically, for debiting or crediting to a consumer's asset
account, is an electronic terminal for purposes of Regulation E if a
debit card is used to initiate the transaction.
3. Teller-operated terminals. A terminal or other computer
equipment operated by an employee of a financial institution is not
an electronic terminal for purposes of the regulation. However,
transfers initiated at such terminals by means of a consumer's
access device (using the consumer's PIN, for example) are EFTs and
are subject to other requirements of the regulation. If an access
device is used only for identification purposes or for determining
the account balance, the transfers are not EFTs for purposes of the
regulation.
2(m) Unauthorized Electronic Fund Transfer
1. Transfer by institution's employee. A consumer has no
liability for erroneous or fraudulent transfers initiated by an
employee of a financial institution.
2. Authority. If a consumer furnishes an access device and
grants authority to make transfers to a person (such as a family
member or co-worker) who exceeds the authority given, the consumer
is fully liable for the transfers unless the consumer has notified
the financial institution that transfers by that person are no
longer authorized.
3. Access device obtained through robbery or fraud. An
unauthorized EFT includes a transfer initiated by a person who
obtained the access device from the consumer through fraud or
robbery.
FR Doc. 96-10180 Electronic Fund Transfers
4. Forced initiation. An EFT at an automated teller machine
(ATM) is an unauthorized transfer if the consumer has been induced
by force to initiate the transfer.
Section 205.3--Coverage
3(a) General
1. Accounts covered. The requirements of the regulation apply
only to an account for which an agreement for EFT services to or
from the account has been entered into between:
i. The consumer and the financial institution (including an
account for which an access device has been issued to the consumer,
for example);
ii. The consumer and a third party (for preauthorized debits or
credits, for example), when the account-holding institution has
received notice of the agreement and the fund transfers have begun.
2. Automated clearing house (ACH) membership. The fact that
membership in an ACH requires a financial institution to accept EFTs
to accounts at the institution does not make every account of that
institution subject to the regulation.
3. Foreign applicability. Regulation E applies to all persons
(including branches and other offices of foreign banks located in
the United States) that offer EFT services to residents of any
state, including resident aliens. It covers any account located in
the United States through which EFTs are offered to a resident of a
state. This is the case whether or not a particular transfer takes
place in the United States and whether or not the financial
institution is chartered in the United States or a foreign country.
The regulation does not apply to a foreign branch of a U.S. bank
unless the EFT services are offered in connection with an account in
a state as defined in Sec. 205.2(l).
3(b) Electronic Fund Transfer
1. Fund transfers covered. The term electronic fund transfer
includes:
i. A deposit made at an ATM or other electronic terminal
(including a deposit in cash or by check) provided a specific
agreement exists between the financial institution and the consumer
for EFTs to or from the account to which the deposit is made.
ii. A transfer sent via ACH. For example, social security
benefits under the U.S. Treasury's direct-deposit program are
covered, even if the listing of payees and payment amounts reaches
the account-holding institution by means of a computer printout from
a correspondent bank.
iii. A preauthorized transfer credited or debited to an account
in accordance with instructions contained on magnetic tape, even if
the financial institution holding the account sends or receives a
composite check.
iv. A transfer from the consumer's account resulting from a
debit-card transaction at a merchant location, even if no electronic
terminal is involved at the time of the transaction, if the
consumer's asset account is subsequently debited for the amount of
the transfer.
2. Fund transfers not covered. The term electronic fund transfer
does not include:
i. A payment that does not debit or credit a consumer asset
account, such as a payroll allotment to a creditor to repay a credit
extension (which is deducted from salary).
ii. A payment made in currency by a consumer to another person
at an electronic terminal.
iii. A preauthorized check drawn by the financial institution on
the consumer's account (such as an interest or other recurring
payment to the consumer or another party), even if the check is
computer-generated.
3(c) Exclusions From Coverage
Paragraph 3(c)(2)--Check Guarantee or Authorization
1. Memo posting. Under a check guarantee or check authorization
service, debiting of the consumer's account occurs when the check or
draft is presented for payment. These services are exempt from
coverage, even when a temporary hold on the account is memo-posted
electronically at the time of authorization.
Paragraph 3(c)(3)--Wire or Other Similar Transfers
1. Fedwire and ACH. If a financial institution makes a fund
transfer to a consumer's account after receiving funds through
Fedwire or a similar network, the transfer by ACH is covered by the
regulation even though the Fedwire or network transfer is exempt.
2. Article 4A. Financial institutions that offer telephone-
initiated Fedwire payments are subject to the requirements of UCC
section 4A-202, which encourages verification of Fedwire payment
orders pursuant to a security procedure established by agreement
between the consumer and the receiving bank. These transfers are not
subject to Regulation E and the agreement is not considered a
telephone plan if the service is offered separately from a telephone
bill-payment or other prearranged plan subject to Regulation E. The
Board's Regulation J (12 CFR part 210) specifies the rules
applicable to funds handled by Federal Reserve Banks. To ensure that
the rules for all fund transfers through Fedwire are consistent, the
Board used its preemptive authority under UCC section 4A-107 to
determine that subpart B of Regulation J (12 CFR part 210),
including the provisions of Article 4A, applies to all fund
transfers through Fedwire, even if a portion of the fund transfer is
governed by the EFTA. The portion of the fund transfer that is
governed by the EFTA is not governed by subpart B of Regulation J
(12 CFR part 210).
3. Similar fund transfer systems. Fund transfer systems that are
similar to Fedwire include the Clearing House Interbank Payments
System (CHIPS), Society for Worldwide Interbank Financial
Telecommunication (SWIFT), Telex, and transfers made on the books of
correspondent banks.
Paragraph 3(c)(4)--Securities and Commodities Transfers
1. Coverage. The securities exemption applies to securities and
commodities that may be sold by a registered broker-dealer or
futures commission merchant, even when the security or commodity
itself is not regulated by the Securities and Exchange Commission or
the Commodity Futures Trading Commission.
2. Example of exempt transfer. The exemption applies to a
transfer involving a transfer initiated by a telephone order to a
stockbroker to buy or sell securities or to exercise a margin call.
3. Examples of nonexempt transfers. The exemption does not apply
to a transfer involving:
i. A debit card or other access device that accesses a
securities or commodities account such as a money market mutual fund
and that the consumer uses for purchasing goods or services or for
obtaining cash.
ii. A payment of interest or dividends into the consumer's
account (for example, from a brokerage firm or from a Federal
Reserve Bank for government securities).
Paragraph 3(c)(5)--Automatic Transfers by Account-Holding Institution
1. Automatic transfers exempted. The exemption applies to:
i. Electronic debits or credits to consumer accounts for check
charges, stop-payment charges, NSF charges, overdraft charges,
provisional credits, error adjustments, and similar items that are
initiated automatically on the occurrence of certain events.
ii. Debits to consumer accounts for group insurance available
only through the financial institution and payable only by means of
an aggregate payment from the institution to the insurer.
[[Page 19688]]
iii. EFTs between a thrift institution and its paired commercial
bank in the state of Rhode Island, which are deemed under state law
to be intra-institutional.
iv. Automatic transfers between a consumer's accounts within the
same financial institution, even if the account holders on the two
accounts are not identical.
2. Automatic transfers not exempted. Transfers between accounts
of the consumer at affiliated institutions (such as between a bank
and its subsidiary or within a holding company) are not intra-
institutional transfers, and thus do not qualify for the exemption.
Paragraph 3(c)(6)--Telephone-Initiated Transfers
1. Written plan or agreement. A transfer that the consumer
initiates by telephone is covered only if the transfer is made under
a written plan or agreement between the consumer and the financial
institution making the transfer. The following do not, by
themselves, constitute a written plan or agreement:
i. A hold-harmless agreement on a signature card that protects
the institution if the consumer requests a transfer.
ii. A legend on a signature card, periodic statement, or
passbook that limits the number of telephone-initiated transfers the
consumer can make from a savings account because of reserve
requirements under Regulation D (12 CFR part 204).
iii. An agreement permitting the consumer to approve by
telephone the rollover of funds at the maturity of an instrument.
2. Examples of covered transfers. When a written plan or
agreement has been entered into, a transfer initiated by a telephone
call from a consumer is covered even though:
i. An employee of the financial institution completes the
transfer manually (for example, by means of a debit memo or deposit
slip).
ii. The consumer is required to make a separate request for each
transfer.
iii. The consumer uses the plan infrequently.
iv. The consumer initiates the transfer via a facsimile machine.
Paragraph 3(c)(7)--Small Institutions
1. Coverage. This exemption is limited to preauthorized
transfers; institutions that offer other EFTs must comply with the
applicable sections of the regulation as to such services. The
preauthorized transfers remain subject to sections 913, 915, and 916
of the act and Sec. 205.10(e), and are therefore exempt from UCC
Article 4A.
Section 205.4--General Disclosure Requirements; Jointly Offered
Services
4(a) Form of Disclosures
1. General. Although no particular rules govern type size,
number of pages, or the relative conspicuousness of various terms,
the disclosures must be in a clear and readily understandable
written form that the consumer may retain. Numbers or codes are
considered readily understandable if explained elsewhere on the
disclosure form.
2. Foreign language disclosures. Disclosures may be made in
languages other than English, provided they are available in English
upon request.
Section 205.5--Issuance of Access Devices
1. Coverage. The provisions of this section limit the
circumstances under which a financial institution may issue an
access device to a consumer. Making an additional account accessible
through an existing access device is equivalent to issuing an access
device and is subject to the limitations of this section.
5(a) Solicited Issuance
Paragraph 5(a)(1)
1. Joint account. For a joint account, a financial institution
may issue an access device to each account holder if the requesting
holder specifically authorizes the issuance.
2. Permissible forms of request. The request for an access
device may be written or oral (for example, in response to a
telephone solicitation by a card issuer).
Paragraph 5(a)(2)
1. One-for-one rule. In issuing a renewal or substitute access
device, a financial institution may not provide additional devices.
For example, only one new card and PIN may replace a card and PIN
previously issued. If the replacement device permits either
additional or fewer types of electronic fund transfer services, a
change-in-terms notice or new disclosures are required.
2. Renewal or substitution by a successor institution. A
successor institution is an entity that replaces the original
financial institution (for example, following a corporate merger or
acquisition) or that acquires accounts or assumes the operation of
an EFT system.
5(b) Unsolicited Issuance
1. Compliance. A financial institution may issue an unsolicited
access device (such as the combination of a debit card and PIN) if
the institution's ATM system has been programmed not to accept the
access device until after the consumer requests and the institution
validates the device. Merely instructing a consumer not to use an
unsolicited debit card and PIN until after the institution verifies
the consumer's identity does not comply with the regulation.
2. PINS. A financial institution may impose no liability on a
consumer for unauthorized transfers involving an unsolicited access
device until the device becomes an ``accepted access device'' under
the regulation. A card and PIN combination may be treated as an
accepted access device once the consumer has used it to make a
transfer.
3. Functions of PIN. If an institution issues a PIN at the
consumer's request, the issuance may constitute both a way of
validating the debit card and the means to identify the consumer
(required as a condition of imposing liability for unauthorized
transfers).
4. Verification of identity. To verify the consumer's identity,
a financial institution may use any reasonable means, such as a
photograph, fingerprint, personal visit, signature comparison, or
personal information about the consumer. However, even if reasonable
means were used, if an institution fails to verify correctly the
consumer's identity and an imposter succeeds in having the device
validated, the consumer is not liable for any unauthorized transfers
from the account.
Section 205.6--Liability of Consumer for Unauthorized Transfers
6(a) Conditions for Liability
1. Means of identification. A financial institution may use
various means for identifying the consumer to whom the access device
is issued, including but not limited to:
i. Electronic or mechanical confirmation (such as a PIN).
ii. Comparison of the consumer's signature, fingerprint, or
photograph.
2. Multiple users. When more than one access device is issued
for an account, the financial institution may, but need not, provide
a separate means to identify each user of the account.
6(b) Limitations on Amount of Liability
1. Application of liability provisions. There are three possible
tiers of consumer liability for unauthorized EFTs depending on the
situation. A consumer may be liable for (1) up to $50; (2) up to
$500; or (3) an unlimited amount depending on when the unauthorized
EFT occurs. More than one tier may apply to a given situation
because each corresponds to a different (sometimes overlapping) time
period or set of conditions.
2. Consumer negligence. Negligence by the consumer cannot be
used as the basis for imposing greater liability than is permissible
under Regulation E. Thus, consumer behavior that may constitute
negligence under state law, such as writing the PIN on a debit card
or on a piece of paper kept with the card, does not affect the
consumer's liability for unauthorized transfers. (However, refer to
comment 2(m)-2 regarding termination of the authority of given by
the consumer to another person.)
3. Limits on liability. The extent of the consumer's liability
is determined solely by the consumer's promptness in reporting the
loss or theft of an access device. Similarly, no agreement between
the consumer and an institution may impose greater liability on the
consumer for an unauthorized transfer than the limits provided in
Regulation E.
Paragraph 6(b)(1)--Timely Notice Given
1. $50 limit applies. The basic liability limit is $50. For
example, the consumer's card is lost or stolen on Monday and the
consumer learns of the loss or theft on Wednesday. If the consumer
notifies the financial institution within two business days of
learning of the loss or theft (by midnight Friday), the consumer's
liability is limited to $50 or the amount of the unauthorized
transfers that occurred before notification, whichever is less.
2. Knowledge of loss or theft of access device. The fact that a
consumer has received a periodic statement that reflects
unauthorized transfers may be a factor in determining whether the
consumer had knowledge of the loss or theft, but cannot be deemed to
represent conclusive evidence that the consumer had such knowledge.
Paragraph 6(b)(2)--Timely Notice Not Given
1. $500 limit applies. The second tier of liability is $500. For
example, the consumer's
[[Page 19689]]
card is stolen on Monday and the consumer learns of the theft that
same day. The consumer reports the theft on Friday. The $500 limit
applies because the consumer failed to notify the financial
institution within two business days of learning of the theft (which
would have been by midnight Wednesday). How much the consumer is
actually liable for, however, depends on when the unauthorized
transfers take place. In this example, assume a $100 unauthorized
transfer was made on Tuesday and a $600 unauthorized transfer on
Thursday. Because the consumer is liable for the amount of the loss
that occurs within the first two business days (but no more than
$50), plus the amount of the unauthorized transfers that occurs
after the first two business days and before the consumer gives
notice, the consumer's total liability is $500 ($50 of the $100
transfer plus $450 of the $600 transfer, in this example). But if
$600 was taken on Tuesday and $100 on Thursday, the consumer's
maximum liability would be $150 ($50 of the $600 plus $100).
Paragraph 6(b)(3)--Periodic Statement; Timely Notice Not Given
1. Unlimited liability applies. The standard of unlimited
liability applies if unauthorized transfers appear on a periodic
statement, and may apply in conjunction with the first two tiers of
liability. If a periodic statement shows an unauthorized transfer
made with a lost or stolen debit card, the consumer must notify the
financial institution within 60 calendar days after the periodic
statement was sent; otherwise, the consumer faces unlimited
liability for all unauthorized transfers made after the 60-day
period. The consumer's liability for unauthorized transfers before
the statement is sent, and up to 60 days following, is determined
based on the first two tiers of liability: up to $50 if the consumer
notifies the financial institution within two business days of
learning of the loss or theft of the card and up to $500 if the
consumer notifies the institution after two business days of
learning of the loss or theft.
2. Transfers not involving access device. The first two tiers of
liability do not apply to unauthorized transfers from a consumer's
account made without an access device. If, however, the consumer
fails to report such unauthorized transfers within 60 calendar days
of the financial institution's transmittal of the periodic
statement, the consumer may be liable for any transfers occurring
after the close of the 60 days and before notice is given to the
institution. For example, a consumer's account is electronically
debited for $200 without the consumer's authorization and by means
other than the consumer's access device. If the consumer notifies
the institution within 60 days of the transmittal of the periodic
statement that shows the unauthorized transfer, the consumer has no
liability. However, if in addition to the $200, the consumer's
account is debited for a $400 unauthorized transfer on the 61st day
and the consumer fails to notify the institution of the first
unauthorized transfer until the 62nd day, the consumer may be liable
for the full $400.
Paragraph 6(b)(4)--Extension of Time Limits
1. Extenuating circumstances. Examples of circumstances that
require extension of the notification periods under this section
include the consumer's extended travel or hospitalization.
Paragraph 6(b)(5)--Notice to Financial Institution
1. Receipt of notice. A financial institution is considered to
have received notice for purposes of limiting the consumer's
liability if notice is given in a reasonable manner, even if the
consumer notifies the institution but uses an address or telephone
number other than the one specified by the institution.
2. Notice by third party. Notice to a financial institution by a
person acting on the consumer's behalf is considered valid under
this section. For example, if a consumer is hospitalized and unable
to report the loss or theft of an access device, notice is
considered given when someone acting on the consumer's behalf
notifies the bank of the loss or theft. A financial institution may
require appropriate documentation from the person representing the
consumer to establish that the person is acting on the consumer's
behalf.
3. Content of notice. Notice to a financial institution is
considered given when a consumer takes reasonable steps to provide
the institution with the pertinent account information. Even when
the consumer is unable to provide the account number or the card
number in reporting a lost or stolen access device or an
unauthorized transfer, the notice effectively limits the consumer's
liability if the consumer otherwise identifies sufficiently the
account in question. For example, the consumer may identify the
account by the name on the account and the type of account in
question.
Section 205.7--Initial Disclosures
7(a) Timing of Disclosures
1. Early disclosures. Disclosures given by a financial
institution earlier than the regulation requires (for example, when
the consumer opens a checking account) need not be repeated when the
consumer later enters into an agreement with a third party who will
initiate preauthorized transfers to or from the consumer's account,
unless the terms and conditions differ from those that the
institution previously disclosed. On the other hand, if an agreement
is directly between the consumer and the account-holding
institution, disclosures must be given in close proximity to the
event requiring disclosure, for example, when the consumer contracts
for a new service.
2. Lack of prenotification of direct deposit. In some instances,
before direct deposit of government payments such as Social Security
takes place, the consumer and the financial institution both will
complete Form 1199A (or a comparable form providing notice to the
institution) and the institution can make disclosures at that time.
If an institution has not received advance notice that direct
deposits are to be made to a consumer's account, the institution
must provide the required disclosures as soon as reasonably possible
after the first direct deposit is made, unless the institution has
previously given disclosures.
3. Addition of new accounts. If a consumer opens a new account
permitting EFTs at a financial institution, and the consumer already
has received Regulation E disclosures for another account at that
institution, the institution need only disclose terms and conditions
that differ from those previously given.
4. Addition of EFT services. If an EFT service is added to a
consumer's account and is subject to terms and conditions different
from those described in the initial disclosures, disclosures for the
new service are required. The disclosures must be provided when the
consumer contracts for the new service or before the first EFT is
made using the new service.
5. Addition of service in interchange systems. If a financial
institution joins an interchange or shared network system (which
provides access to terminals operated by other institutions),
disclosures are required for additional EFT services not previously
available to consumers if the terms and conditions differ from those
previously disclosed.
6. Disclosures covering all EFT services offered. An institution
may provide disclosures covering all EFT services that it offers,
even if some consumers have not arranged to use all services.
7(b) Content of Disclosures
Paragraph 7(b)(1)--Liability of Consumer
1. No liability imposed by financial institution. If a financial
institution chooses to impose zero liability for unauthorized EFTs,
it need not provide the liability disclosures. If the institution
later decides to impose liability, however, it must first provide
the disclosures.
2. Preauthorized transfers. If the only EFTs from an account are
preauthorized transfers, liability could arise if the consumer fails
to report unauthorized transfers reflected on a periodic statement.
To impose such liability on the consumer, the institution must have
disclosed the potential liability and the telephone number and
address for reporting unauthorized transfers.
3. Additional information. At the institution's option, the
summary of the consumer's liability may include advice on promptly
reporting unauthorized transfers or the loss or theft of the access
device.
Paragraph 7(b)(2)--Telephone Number and Address
1. Disclosure of telephone numbers. An institution may use the
same or different telephone numbers in the disclosures for the
purpose of:
i. Reporting the loss or theft of an access device or possible
unauthorized transfers;
ii. Inquiring about the receipt of a preauthorized credit;
iii. Stopping payment of a preauthorized debit;
iv. Giving notice of an error.
2. Location of telephone number. The telephone number need not
be incorporated into the text of the disclosure; for example, the
institution may instead insert a reference to a telephone number
that is readily available to the consumer, such as ``Call your
branch office. The number is shown on your periodic statement.''
However, an institution must provide a specific telephone number
[[Page 19690]]
and address, on or with the disclosure statement, for reporting a
lost or stolen access device or a possible unauthorized transfer.
Paragraph 7(b)(4)--Types of Transfers; Limitations
1. Security limitations. Information about limitations on the
frequency and dollar amount of transfers generally must be disclosed
in detail, even if related to security aspects of the system. If the
confidentiality of certain details is essential to the security of
an account or system, these details may be withheld (but the fact
that limitations exist must still be disclosed). For example, an
institution limits cash ATM withdrawals to $100 per day. The
institution may disclose that daily withdrawal limitations apply and
need not disclose that the limitations may not always be in force
(such as during periods when its ATMs are off-line).
2. Restrictions on certain deposit accounts. A limitation on
account activity that restricts the consumer's ability to make EFTs
must be disclosed even if the restriction also applies to transfers
made by nonelectronic means. For example, Regulation D (12 CFR Part
204) restricts the number of payments to third parties that may be
made from a money market deposit account; an institution that does
not execute fund transfers in excess of those limits must disclose
the restriction as a limitation on the frequency of EFTs.
3. Preauthorized transfers. Financial institutions are not
required to list preauthorized transfers among the types of
transfers that a consumer can make.
Paragraph 7(b)(5)--Fees
1. Disclosure of EFT fees. An institution is required to
disclose all fees for EFTs or the right to make them. Others fees
(for example, minimum-balance fees, stop-payment fees, or account
overdrafts) may, but need not, be disclosed (but see Regulation DD,
12 CFR Part 230. An institution is not required to disclose fees for
inquiries made at an ATM since no transfer of funds is involved.
2. Fees also applicable to non-EFT. A per-item fee for EFTs must
be disclosed even if the same fee is imposed on nonelectronic
transfers. If a per-item fee is imposed only under certain
conditions, such as when the transactions in the cycle exceed a
certain number, those conditions must be disclosed. Itemization of
the various fees may be provided on the disclosure statement or on
an accompanying document that is referenced in the statement.
3. Interchange system fees. Fees paid by the account-holding
institution to the operator of a shared or interchange ATM system
need not be disclosed, unless they are imposed on the consumer by
the account-holding institution. Fees for use of an ATM that are
debited directly to the consumer's account by an institution other
than the account-holding institution (for example, fees included in
the transfer amount) need not be disclosed.
Paragraph 7(b)(9)--Confidentiality
1. Information provided to third parties. An institution must
describe the circumstances under which any information relating to
an account to or from which EFTs are permitted will be made
available to third parties, not just information concerning those
EFTs. The term ``third parties'' includes affiliates such as other
subsidiaries of the same holding company.
Paragraph 7(b)(10)--Error Resolution
1. Substantially similar. The error resolution notice must be
substantially similar to the model form in appendix A of part 205.
An institution may use different wording so long as the substance of
the notice remains the same, may delete inapplicable provisions (for
example, the requirement for written confirmation of an oral
notification), and may substitute substantive state law requirements
affording greater consumer protection than Regulation E.
2. Exception from provisional crediting. To take advantage of
the longer time periods for resolving errors under Sec. 205.11(c)(3)
(for transfers initiated outside the United States, or resulting
from POS debit-card transactions), a financial institution must have
disclosed these longer time periods. Similarly, an institution that
relies on the exception from provisional crediting in
Sec. 205.11(c)(2) for accounts subject to Regulation T (12 CFR part
220) must disclose accordingly.
Section 205.8--Change-in-Terms Notice; Error Resolution Notice
8(a) Change-in-Terms Notice
1. Form of notice. No specific form or wording is required for a
change-in-terms notice. The notice may appear on a periodic
statement, or may be given by sending a copy of a revised disclosure
statement, provided attention is directed to the change (for
example, in a cover letter referencing the changed term).
2. Changes not requiring notice. The following changes do not
require disclosure:
i. Closing some of an institution's ATMs;
ii. Cancellation of an access device.
3. Limitations on transfers. When the initial disclosures omit
details about limitations because secrecy is essential to the
security of the account or system, a subsequent increase in those
limitations need not be disclosed if secrecy is still essential. If,
however, an institution had no limits in place when the initial
disclosures were given and now wishes to impose limits for the first
time, it must disclose at least the fact that limits have been
adopted. (See also Sec. 205.7(b)(4) and the related commentary.)
4. Change in telephone number or address. When a financial
institution changes the telephone number or address used for
reporting possible unauthorized transfers, a change-in-terms notice
is required only if the institution will impose liability on the
consumer for unauthorized transfers under Sec. 205.6. (See also
Sec. 205.6(a) and the related commentary.)
8(b) Error Resolution Notice
1. Change between annual and periodic notice. If an institution
switches from an annual to a periodic notice, or vice versa, the
first notice under the new method must be sent no later than 12
months after the last notice sent under the old method.
Section 205.9--Receipts at Electronic Terminals; Periodic Statements
9(a) Receipts at Electronic Terminals
1. Receipts furnished only on request. The regulation requires
that a receipt be ``made available.'' A financial institution may
program its electronic terminals to provide a receipt only to
consumers who elect to receive one.
2. Third party providing receipt. An account-holding institution
may make terminal receipts available through third parties such as
merchants or other financial institutions.
3. Inclusion of promotional material. A financial institution
may include promotional material on receipts if the required
information is set forth clearly (for example, by separating it from
the promotional material). In addition, a consumer may not be
required to surrender the receipt or that portion containing the
required disclosures in order to take advantage of a promotion.
4. Transfer not completed. The receipt requirement does not
apply to a transfer that is initiated but not completed (for
example, if the ATM is out of currency or the consumer decides not
to complete the transfer).
5. Receipts not furnished due to inadvertent error. If a receipt
is not provided to the consumer because of a bona fide unintentional
error, such as when a terminal runs out of paper or the mechanism
jams, no violation results if the financial institution maintains
procedures reasonably adapted to avoid such occurrences.
6. Multiple transfers. If the consumer makes multiple transfers
at the same time, the financial institution may document them on a
single or on separate receipts.
Paragraph 9(a)(1)--Amount
1. Disclosure of transaction fee. The required display of a fee
amount on or at the terminal may be accomplished by displaying the
fee on a sign at the terminal or on the terminal screen for a
reasonable duration. Displaying the fee on a screen provides
adequate notice, as long as consumers are given the option to cancel
the transaction after receiving notice of a fee.
Paragraph 9(a)(2)--Date
1. Calendar date. The receipt must disclose the calendar date on
which the consumer uses the electronic terminal. An accounting or
business date may be disclosed in addition if the dates are clearly
distinguished.
Paragraph 9(a)(3)--Type
1. Identifying transfer and account. Examples identifying the
type of transfer and the type of the consumer's account include
``withdrawal from checking,'' ``transfer from savings to checking,''
or ``payment from savings.''
2. Exception. Identification of an account is not required when
the consumer can access only one asset account at a particular time
or terminal, even if the access device can normally be used to
access more than one account. For example, the consumer may be able
to access only one particular account at terminals not operated by
the account-
[[Page 19691]]
holding institution, or may be able to access only one particular
account when the terminal is off-line. The exception is available
even if, in addition to accessing one asset account, the consumer
also can access a credit line.
3. Access to multiple accounts. If the consumer can use an
access device to make transfers to or from different accounts of the
same type, the terminal receipt must specify which account was
accessed, such as ``withdrawal from checking I'' or ``withdrawal
from checking II.'' If only one account besides the primary checking
account can be debited, the receipt can identify the account as
``withdrawal from other account.''
4. Generic descriptions. Generic descriptions may be used for
accounts that are similar in function, such as share draft or NOW
accounts and checking accounts. In a shared system, for example,
when a credit union member initiates transfers to or from a share
draft account at a terminal owned or operated by a bank, the receipt
may identify a withdrawal from the account as a ``withdrawal from
checking.''
5. Point-of-sale transactions. There is no prescribed
terminology for identifying a transfer at a merchant's POS terminal.
A transfer may be identified, for example, as a purchase, a sale of
goods or services, or a payment to a third party. When a consumer
obtains cash from a POS terminal in addition to purchasing goods, or
obtains cash only, the documentation need not differentiate the
transaction from one involving the purchase of goods.
Paragraph 9(a)(5)--Terminal Location
1. Location code. A code or terminal number identifying the
terminal where the transfer is initiated may be given as part of a
transaction code.
2. Omission of city name. The city may be omitted if the
generally accepted name (such as a branch name) contains the city
name.
Paragraph 9(a)(5)(i)
1. Street address. The address should include number and street
(or intersection); the number (or intersecting street) may be
omitted if the street alone uniquely identifies the terminal
location.
Paragraph 9(a)(5)(ii)
1. Generally accepted name. Examples of a generally accepted
name for a specific location include a branch of the financial
institution, a shopping center, or an airport.
Paragraph 9(a)(5)(iii)
1. Name of owner or operator of terminal. Examples of an owner
or operator of a terminal are a financial institution or a retail
merchant.
Paragraph 9(a)(5)(iv)
1. Omission of a state. A state may be omitted from the location
information on the receipt if:
i. All the terminals owned or operated by the financial
institution providing the statement (or by the system in which it
participates) are located in that state, or
ii. All transfers occur at terminals located within 50 miles of
the financial institutions's main office.
2. Omission of a city and state. A city and state may be omitted
if all the terminals owned or operated by the financial institution
providing the statement (or by the system in which it participates)
are located in the same city.
Paragraph 9(a)(6)--Third Party Transfer
1. Omission of third-party name. The receipt need not disclose
the third-party name if the name is provided by the consumer in a
form that is not machine readable (for example, if the consumer
indicates the payee by depositing a payment stub into the ATM). If,
on the other hand, the consumer keys in the identity of the payee,
the receipt must identify the payee by name or by using a code that
is explained elsewhere on the receipt.
2. Receipt as proof of payment. Documentation required under the
regulation constitutes prima facie proof of a payment to another
person, except in the case of a terminal receipt documenting a
deposit.
9(b) Periodic Statements
1. Periodic cycles. Periodic statements may be sent on a cycle
that is shorter than monthly. The statements must correspond to
periodic cycles that are reasonably equal, that is, do not vary by
more than four days from the regular cycle. The requirement of
reasonably equal cycles does not apply when an institution changes
cycles for operational or other reasons, such as to establish a new
statement day or date.
2. Interim statements. Generally, a financial institution must
provide periodic statements for each monthly cycle in which an EFT
occurs, and at least quarterly if a transfer has not occurred. Where
EFTs occur between regularly-scheduled cycles, interim statements
must be provided. For example, if an institution issues quarterly
statements at the end of March, June, September and December, and
the consumer initiates an EFT in February, an interim statement for
February must be provided. If an interim statement contains interest
or rate information, the institution must comply with Regulation DD,
12 CFR 230.6.
3. Inactive accounts. A financial institution need not send
statements to consumers whose accounts are inactive as defined by
the institution.
4. Customer pickup. A financial institution may permit, but may
not require, consumers to call for their periodic statements.
5. Periodic statements limited to EFT activity. A financial
institution that uses a passbook as the primary means for displaying
account activity, but also allows the account to be debited
electronically, may provide a periodic statement requirement that
reflects only the EFTs and other required disclosures (such as
charges, account balances, and address and telephone number for
inquiries). (See Sec. 205.9(c)(1)(i) for the exception applicable to
preauthorized transfers for passbook accounts.)
6. Codes and accompanying documents. To meet the documentation
requirements for periodic statements, a financial institution may:
i. Include copies of terminal receipts to reflect transfers
initiated by the consumer at electronic terminals;
ii. Enclose posting memos, deposit slips, and other documents
that, together with the statement, disclose all the required
information;
iii. Use codes for names of third parties or terminal locations
and explain the information to which the codes relate on an
accompanying document.
Paragraph 9(b)(1)--Transaction Information
1. Information obtained from others. While financial
institutions must maintain reasonable procedures to ensure the
integrity of data obtained from another institution, a merchant, or
other third parties, verification of each transfer that appears on
the periodic statement is not required.
Paragraph 9(b)(1)(i)
1. Incorrect deposit amount. If a financial institution
determines that the amount actually deposited at an ATM is different
from the amount entered by the consumer, the institution need not
immediately notify the consumer of the discrepancy. The periodic
statement reflecting the deposit may show either the correct amount
of the deposit or the amount entered by the consumer along with the
institution's adjustment.
Paragraph 9(b)(1)(iii)
1. Type of transfer. There is no prescribed terminology for
describing a type of transfer. Placement of the amount of the
transfer in the debit or the credit column is sufficient if other
information on the statement, such as a terminal location or third-
party name, enables the consumer to identify the type of transfer.
Paragraph 9(b)(1)(iv)
1. Nonproprietary terminal in network. An institution need not
reflect on the periodic statement the street addresses,
identification codes, or terminal numbers for transfers initiated in
a shared or interchange system at a terminal operated by an
institution other than the account-holding institution. The
statement must, however, specify the entity that owns or operates
the terminal, plus the city and state.
Paragraph 9(b)(1)(v)
1. Recurring payments by government agency. The third-party name
for recurring payments from federal, state, or local governments
need not list the particular agency. For example, ``U.S. gov't'' or
``N.Y. sal'' will suffice.
2. Consumer as third-party payee. If a consumer makes an
electronic fund transfer to another consumer, the financial
institution must identify the recipient by name (not just by an
account number, for example).
3. Terminal location/third party. A single entry may be used to
identify both the terminal location and the name of the third party
to or from whom funds are transferred. For example, if a consumer
purchases goods from a merchant, the name of the party to whom funds
are transferred (the merchant) and the location of the terminal
where the transfer is initiated will be satisfied by a disclosure
such as ``XYZ Store, Anytown, Ohio.''
4. Account-holding institution as third party. Transfers to the
account-holding institution (by ATM, for example) must show
[[Page 19692]]
the institution as the recipient, unless other information on the
statement (such as, ``loan payment from checking'') clearly
indicates that the payment was to the account-holding institution.
5. Consistency in third-party identity. The periodic statement must
disclose a third-party name as it appeared on the receipt, whether it
was, for example, the ``dba'' (doing business as) name of the third
party or the parent corporation's name.
6. Third-party identity on deposits at electronic terminal. A
financial institution need not identify third parties whose names
appear on checks, drafts, or similar paper instruments deposited to
the consumer's account at an electronic terminal.
Paragraph 9(b)(3)--Fees
1. Disclosure of fees. The fees disclosed may include fees for
EFTs and for other nonelectronic services, and both fixed fees and
per-item fees; they may be given as a total or may be itemized in
part or in full.
2. Fees in interchange system. An account-holding institution
must disclose any fees it imposes on the consumer for EFTs,
including fees for ATM transactions in an interchange or shared ATM
system. Fees for use of an ATM imposed on the consumer by an
institution other than the account-holding institution and included
in the amount of the transfer by the terminal-operating institution
need not be separately disclosed on the periodic statement.
3. Finance charges. The requirement to disclose any fees
assessed against the account does not include a finance charge
imposed on the account during the statement period.
Paragraph 9(b)(4)--Account Balances
1. Opening and closing balances. The opening and closing
balances must reflect both EFTs and other account activity.
Paragraph 9(b)(5)--Address and Telephone Number for Inquiries
1. Telephone number. A single telephone number, preceded by the
``direct inquiries to'' language, will satisfy the requirements of
Sec. 205.9(b)(5) and (6).
Paragraph 9(b)(6)--Telephone Number for Preauthorized Transfers
1. Telephone number. See comment 9(b)(5)-1.
9(c) Exceptions to the Periodic Statement Requirements for Certain
Accounts
1. Transfers between accounts. The regulation provides an
exception from the periodic statement requirement for certain intra-
institutional transfers between a consumer's accounts. The financial
institution must still comply with the applicable periodic statement
requirements for any other EFTs to or from the account. For example,
a Regulation E statement must be provided quarterly for an account
that also receives payroll deposits electronically, or for any month
in which an account is also accessed by a withdrawal at an ATM.
9(d) Documentation for Foreign-Initiated Transfers
1. Foreign-initiated transfers. An institution must make a good
faith effort to provide all required information for foreign-
initiated transfers. For example, even if the institution is not
able to provide a specific terminal location, it should identify the
country and city in which the transfer was initiated.
Section 205.10--Preauthorized Transfers
10(a) Preauthorized Transfers to Consumer's Account
Paragraph 10(a)(1)--Notice by Financial Institution
1. Content. No specific language is required for notice
regarding receipt of a preauthorized transfer. Identifying the
deposit is sufficient; however, simply providing the current account
balance is not.
2. Notice of credit. A financial institution may use different
methods of notice for various types or series of preauthorized
transfers, and the institution need not offer consumers a choice of
notice methods.
3. Positive notice. A periodic statement sent within two
business days of the scheduled transfer, showing the transfer, can
serve as notice of receipt.
4. Negative notice. The absence of a deposit entry (on a
periodic statement sent within two business days of the scheduled
transfer date) will serve as negative notice.
5. Telephone notice. If a financial institution uses the
telephone notice option, it should be able in most instances to
verify during a consumer's initial call whether a transfer was
received. The institution must respond within two business days to
any inquiry not answered immediately.
6. Phone number for passbook accounts. The financial institution
may use any reasonable means necessary to provide the telephone
number to consumers with passbook accounts that can only be accessed
by preauthorized credits and that do not receive periodic
statements. For example, it may print the telephone number in the
passbook, or include the number with the annual error resolution
notice.
7. Telephone line availability. To satisfy the readily-available
standard, the financial institution must provide enough telephone
lines so that consumers get a reasonably prompt response. The
institution need only provide telephone service during normal
business hours. Within its primary service area, an institution must
provide a local or toll-free telephone number. It need not provide a
toll-free number or accept collect long-distance calls from outside
the area where it normally conducts business.
10(b) Written Authorization for Preauthorized Transfers From
Consumer's Account
1. Preexisting authorizations. The financial institution need
not require a new authorization before changing from paper-based to
electronic debiting when the existing authorization does not specify
that debiting is to occur electronically or specifies that the
debiting will occur by paper means. A new authorization also is not
required when a successor institution begins collecting payments.
2. Authorization obtained by third party. The account-holding
financial institution does not violate the regulation when a third-
party payee fails to obtain the authorization in writing or fails to
give a copy to the consumer; rather, it is the third-party payee
that is in violation of the regulation.
3. Written authorization for preauthorized transfers. The
requirement that preauthorized EFTs be authorized by the consumer
``only by a writing'' cannot be met by a payee's signing a written
authorization on the consumer's behalf with only an oral
authorization from the consumer. A tape recording of a telephone
conversation with a consumer who agrees to preauthorized debits also
does not constitute written authorization for purposes of this
provision.
4. Use of a confirmation form. A financial institution or
designated payee may comply with the requirements of this section in
various ways. For example, a payee may provide the consumer with two
copies of a preauthorization form, and ask the consumer to sign and
return one and to retain the second copy.
5. Similarly authenticated. An example of a consumer's
authorization that is not in the form of a signed writing but is
instead ``similarly authenticated'' is a consumer's authorization
via a home banking system. To satisfy the requirements of this
section, there must be some means to identify the consumer (such as
a security code) and to make available a paper copy of the
authorization (automatically or upon request). The text of the
electronic authorization would have to be displayed on a computer
screen or other visual display which enables the consumer to read
the communication. Only the consumer may authorize the transfer and
not, for example, a third-party merchant on behalf of the consumer.
6. Requirements of an authorization. An authorization is valid
if it is readily identifiable as such and the terms of the
preauthorized transfer are clear and readily understandable.
10(c) Consumer's Right To Stop Payment
1. Stop-payment order. The financial institution must honor an
oral stop-payment order made at least three business days before a
scheduled debit. If the debit item is resubmitted, the institution
must continue to honor the stop-payment order (for example, by
suspending all subsequent payments to the payee-originator until the
consumer notifies the institution that payments should resume).
2. Revocation of authorization. Once a financial institution has
been notified that the consumer's authorization is no longer valid,
it must block all future payments for the particular debit
transmitted by the designated payee-originator. The institution may
not wait for the payee-originator to terminate the automatic debits.
The institution may confirm that the consumer has informed the
payee-originator of the revocation (for example, by requiring a copy
of the consumer's revocation as written confirmation to be provided
within fourteen days of an oral notification). If the institution
does not receive the required written confirmation within the
fourteen-day period, it may honor subsequent debits to the account.
[[Page 19693]]
10(d) Notice of Transfers Varying in Amount
Paragraph 10(d)(1)--Notice
1. Preexisting authorizations. A financial institution holding
the consumer's account does not violate the regulation if the
designated payee fails to provide notice of varying amounts.
Paragraph 10(d)(2)--Range
1. Range. A financial institution or designated payee that
elects to offer the consumer a specified range of amounts for
debiting (in lieu of providing the notice of transfers varying in
amount) must provide an acceptable range that could be anticipated
by the consumer. For example, if the transfer is for payment of a
gas bill, an appropriate range might be based on the highest bill in
winter and the lowest bill in summer.
10(e) Compulsory Use
Paragraph 10(e)(1)--Credit
1. Loan payments. Creditors may not require repayment of loans
by electronic means on a preauthorized, recurring basis. A creditor
may offer a program with a reduced annual percentage rate or other
cost-related incentive for an automatic repayment feature, provided
the program with the automatic payment feature is not the only loan
program offered by the creditor for the type of credit involved.
Examples include:
i. Mortgages with graduated payments in which a pledged savings
account is automatically debited during an initial period to
supplement the monthly payments made by the borrower.
ii. Mortgage plans calling for preauthorized biweekly payments
that are debited electronically to the consumer's account and
produce a lower total finance charge.
2. Overdraft. A financial institution may require the automatic
repayment of an overdraft credit plan even if the overdraft
extension is charged to an open-end account that may be accessed by
the consumer in ways other than by overdrafts.
Paragraph 10(e)(2)--Employment or Government Benefit
1. Payroll. A financial institution (as an employer) may not
require its employees to receive their salary by direct deposit to
that same institution or to any other particular institution. An
employer may require direct deposit of salary by electronic means if
employees are allowed to choose the institution that will receive
the direct deposit. Alternatively, an employer may give employees
the choice of having their salary deposited at a particular
institution, or receiving their salary by check or cash.
Section 205.11--Procedures for Resolving Errors
11(a) Definition of Error
1. Terminal location. With regard to deposits at an ATM, a
consumer's request for the terminal location or other information
triggers the error resolution procedures, but the financial
institution need only provide the ATM location if it has captured
that information.
2. Verifying account deposit. If the consumer merely calls to
ascertain whether a deposit made via ATM, preauthorized transfer, or
any other type of EFT was credited to the account, without asserting
an error, the error resolution procedures do not apply.
3. Loss or theft of access device. A financial institution is
required to comply with the error resolution procedures when a
consumer reports the loss or theft of an access device if the
consumer also alleges possible unauthorized use as a consequence of
the loss or theft.
4. Error asserted after account closed. The financial
institution must comply with the error resolution procedures when a
consumer properly asserts an error, even if the account has been
closed.
5. Request for documentation or information. A request for
documentation or other information must be treated as an error
unless it is clear that the consumer is requesting a duplicate copy
for tax or other record-keeping purposes.
11(b) Notice of Error From Consumer
Paragraph 11(b)(1)--Timing; Contents
1. Content of error notice. The notice of error is effective
even if it does not contain the consumer's account number, so long
as the financial institution is able to identify the account in
question. For example, the consumer could provide a Social Security
number or other unique means of identification.
2. Investigation pending receipt of information. While a
financial institution may request a written, signed statement from
the consumer relating to a notice of error, it may not delay
initiating or completing an investigation pending receipt of the
statement.
3. Statement held for consumer. When a consumer has arranged for
periodic statements to be held until picked up, the statement for a
particular cycle is deemed to have been transmitted on the date the
financial institution first makes the statement available to the
consumer.
4. Failure to provide statement. When a financial institution
fails to provide the consumer with a periodic statement, a request
for a copy is governed by this section if the consumer gives notice
within 60 days from the date on which the statement should have been
transmitted.
5. Discovery of error by institution. The error resolution
procedures of this section apply when a notice of error is received
from the consumer, and not when the financial institution itself
discovers and corrects an error.
6. Notice at particular phone number or address. A financial
institution may require the consumer to give notice only at the
telephone number or address disclosed by the institution, provided
the institution maintains reasonable procedures to refer the
consumer to the specified telephone number or address if the
consumer attempts to give notice to the institution in a different
manner.
Paragraph 11(b)(2)--Written Confirmation
1. Written confirmation-of-error notice. If the consumer sends a
written confirmation of error to the wrong address, the financial
institution must process the confirmation through normal procedures.
But the institution need not provisionally credit the consumer's
account if the written confirmation is delayed beyond 10 business
days in getting to the right place because it was sent to the wrong
address.
11(c) Time Limits and Extent of Investigation
1. Notice to consumer. Unless otherwise indicated in this
section, the financial institution may provide the required notices
to the consumer either orally or in writing.
2. Written confirmation of oral notice. A financial institution
must begin its investigation promptly upon receipt of an oral
notice. It may not delay until it has received a written
confirmation.
3. Charges for error resolution. If a billing error occurred,
whether as alleged or in a different amount or manner, the financial
institution may not impose a charge related to any aspect of the
error-resolution process (including charges for documentation or
investigation). Since the act grants the consumer error-resolution
rights, the institution should avoid any chilling effect on the
good-faith assertion of errors that might result if charges are
assessed when no billing error has occurred.
4. Correction without investigation. A financial institution may
make, without investigation, a final correction to a consumer's
account in the amount or manner alleged by the consumer to be in
error, but must comply with all other applicable requirements of
Sec. 205.11.
5. Correction notice. A financial institution may include the
notice of correction on a periodic statement that is mailed or
delivered within the 10-business-day or 45-calendar-day time limits
and that clearly identifies the correction to the consumer's
account. The institution must determine whether such a mailing will
be prompt enough to satisfy the requirements of this section, taking
into account the specific facts involved.
6. Correction of an error. If the financial institution
determines an error occurred, within either the 10-day or 45-day
period, it must correct the error (subject to the liability
provisions of Secs. 205.6 (a) and (b)) including, where applicable,
the crediting of interest and the refunding of any fees imposed by
the institution. In a combined credit/EFT transaction, for example,
the institution must refund any finance charges incurred as a result
of the error. The institution need not refund fees that would have
been imposed whether or not the error occurred.
7. Extent of required investigation. A financial institution
complies with its duty to investigate, correct, and report its
determination regarding an error described in Sec. 205.11(a)(1)(vii)
by transmitting the requested information, clarification, or
documentation within the time limits set forth in Sec. 205.11(c). If
the institution has provisionally credited the consumer's account in
accordance with Sec. 205.11(c)(2), it may debit the amount upon
transmitting the requested information, clarification, or
documentation.
Paragraph 11(c)(2)(i)
1. Compliance with all requirements. Financial institutions
exempted from provisionally crediting a consumer's account
[[Page 19694]]
under Sec. 205.11(c)(2)(i) (A) and (B) must still comply with all
other requirements of Sec. 205.11.
Paragraph 11(c)(3)--Extension of Time Periods
1. POS debit card transactions. The extended deadlines for
investigating errors resulting from POS debit card transactions
apply to all debit card transactions, including those for cash only,
at merchants' POS terminals, and also including mail and telephone
orders. The deadlines do not apply to transactions at an ATM,
however, even though the ATM may be in a merchant location.
Paragraph 11(c)(4)--Investigation
1. Third parties. When information or documentation requested by
the consumer is in the possession of a third party with whom the
financial institution does not have an agreement, the institution
satisfies the error resolution requirement by so advising the
consumer within the specified time period.
2. Scope of investigation. When an alleged error involves a
payment to a third party under the financial institution's telephone
bill-payment plan, a review of the institution's own records is
sufficient, assuming no agreement exists between the institution and
the third party concerning the bill-payment service.
3. POS transfers. When a consumer alleges an error involving a
transfer to a merchant via a POS terminal, the institution must
verify the information previously transmitted when executing the
transfer. For example, the financial institution may request a copy
of the sales receipt to verify that the amount of the transfer
correctly corresponds to the amount of the consumer's purchase.
4. Agreement. An agreement that a third party will honor an
access device is an agreement for purposes of this paragraph. A
financial institution does not have an agreement for purposes of
Sec. 205.11(c)(4)(ii) solely because it participates in transactions
that occur under the federal recurring payments programs, or that
are cleared through an ACH or similar arrangement for the clearing
and settlement of fund transfers generally, or because it agrees to
be bound by the rules of such an arrangement.
11(d) Procedures if Financial Institution Determines No Error or
Different Error Occurred
1. Error different from that alleged. When a financial
institution determines that an error occurred in a manner or amount
different from that described by the consumer, it must comply with
the requirements of both Sec. 205.11 (c) and (d), as relevant. The
institution may give the notice of correction and the explanation
separately or in a combined form.
Paragraph 11(d)(1)--Written Explanation
1. Request for documentation. When a consumer requests copies of
documents, the financial institution must provide the copies in an
understandable form. If an institution relied on magnetic tape it
must convert the applicable data into readable form, for example, by
printing it and explaining any codes.
Paragraph 11(d)(2)--Debiting Provisional Credit
1. Alternative procedure for debiting of credited funds. The
financial institution may comply with the requirements of this
section by notifying the consumer that the consumer's account will
be debited five business days from the transmittal of the
notification, specifying the calendar date on which the debiting
will occur.
2. Fees for overdrafts. The financial institution may not impose
fees for items it is required to honor under Sec. 205.11. It may,
however, impose any normal transaction or item fee that is unrelated
to an overdraft resulting from the debiting. If the account is still
overdrawn after five business days, the institution may impose the
fees or finance charges to which it is entitled, if any, under an
overdraft credit plan.
11(e) Reassertion of Error
1. Withdrawal of error; right to reassert. The financial
institution has no further error resolution responsibilities if the
consumer voluntarily withdraws the notice alleging an error. A
consumer who has withdrawn an allegation of error has the right to
reassert the allegation unless the financial institution had already
complied with all of the error resolution requirements before the
allegation was withdrawn. The consumer must do so, however, within
the original 60-day period.
Section 205.12--Relation to Other Laws
12(a) Relation to Truth in Lending
1. Determining applicable regulation. For transactions involving
access devices that also constitute credit cards, whether Regulation
E or Regulation Z (12 CFR part 226) applies, depends on the nature
of the transaction. For example, if the transaction is purely an
extension of credit, and does not include a debit to a checking
account (or other consumer asset account), the liability limitations
and error resolution requirements of Regulation Z (12 CFR part 226)
apply. If the transaction only debits a checking account (with no
credit extended), the provisions of Regulation E apply. Finally, if
the transaction debits a checking account but also draws on an
overdraft line of credit, the Regulation E provisions apply, as well
as Secs. 226.13 (d) and (g) of Regulation Z. In such a transaction,
the consumer might be liable for up to $50 under Regulation Z (12
CFR part 226) and, in addition, for $50, $500, or an unlimited
amount under Regulation E.
2. Issuance rules. For access devices that also constitute
credit cards, the issuance rules of Regulation E apply if the only
credit feature is a preexisting credit line attached to the asset
account to cover overdrafts (or to maintain a specified minimum
balance). Regulation Z (12 CFR part 226) rules apply if there is
another type of credit feature, for example, one permitting direct
extensions of credit that do not involve the asset account.
12(b) Preemption of Inconsistent State Laws
1. Specific determinations. The regulation prescribes standards
for determining whether state laws that govern EFTs are preempted by
the act and the regulation. A state law that is inconsistent may be
preempted even if the Board has not issued a determination. However,
nothing in Sec. 205.12(b) provides a financial institution with
immunity for violations of state law if the institution chooses not
to make state disclosures and the Board later determines that the
state law is not preempted.
2. Preemption determination. The Board determined that certain
provisions in the state law of Michigan are preempted by the federal
law, effective March 30, 1981:
i. Definition of unauthorized use. Section 5(4) is preempted to
the extent that it relates to the section of state law governing
consumer liability for unauthorized use of an access device.
ii. Consumer liability for unauthorized use of an account.
Section 14 is inconsistent with Sec. 205.6 and is less protective of
the consumer than the federal law. The state law places liability on
the consumer for the unauthorized use of an account in cases
involving the consumer's negligence. Under the federal law, a
consumer's liability for unauthorized use is not related to the
consumer's negligence and depends instead on the consumer's
promptness in reporting the loss or theft of the access device.
iii. Error resolution. Section 15 is preempted because it is
inconsistent with Sec. 205.11 and is less protective of the consumer
than the federal law. The state law allows financial institutions up
to 70 days to resolve errors, whereas the federal law generally
requires errors to be resolved within 45 days.
iv. Receipts and periodic statements. Sections 17 and 18 are
preempted because they are inconsistent with Sec. 205.9. The state
provisions require a different disclosure of information than does
the federal law. The receipt provision is also preempted because it
allows the consumer to be charged for receiving a receipt if a
machine cannot furnish one at the time of a transfer.
Section 205.13--Administrative Enforcement; Record Retention
13(b) Record Retention
1. Requirements. A financial institution need not retain records
that it has given disclosures and documentation to each consumer; it
need only retain evidence demonstrating that its procedures
reasonably ensure the consumers' receipt of required disclosures and
documentation.
Section 205.14--Electronic Fund Transfer Service Provider Not Holding
Consumer's Account
14(a) Electronic Fund Transfer Service Providers Subject to
Regulation
1. Applicability. This section applies only when a service
provider issues an access device to a consumer for initiating
transfers to or from the consumer's account at a financial
institution and the two entities have no agreement regarding this
EFT service. If the service provider does not issue an access device
to the consumer for accessing an account held by another
institution, it does not qualify for the treatment accorded by
Sec. 205.14. For example, this section does not apply to an
institution that initiates preauthorized payroll deposits to
consumer accounts on behalf of an employer. By
[[Page 19695]]
contrast, Sec. 205.14 can apply to an institution that issues a code
for initiating telephone transfers to be carried out through the ACH
from a consumer's account at another institution. This is the case
even if the consumer has accounts at both institutions.
2. ACH agreements. The ACH rules generally do not constitute an
agreement for purposes of this section. However, an ACH agreement
under which members specifically agree to honor each other's debit
cards is an ``agreement,'' and thus this section does not apply.
14(b) Compliance by Electronic Fund Transfer Service Provider
1. Liability. The service provider is liable for unauthorized
EFTs that exceed limits on the consumer's liability under
Sec. 205.6.
Paragraph 14(b)(1)--Disclosures and Documentation
1. Periodic statements from electronic fund transfer service
provider. A service provider that meets the conditions set forth in
this paragraph does not have to issue periodic statements. A service
provider that does not meet the conditions need only include on
periodic statements information about transfers initiated with the
access device it has issued.
Paragraph 14(b)(2)--Error Resolution
1. Error resolution. When a consumer notifies the service
provider of an error, the EFT service provider must investigate and
resolve the error in compliance with Sec. 205.11 as modified by
Sec. 205.14(b)(2). If an error occurred, any fees or charges imposed
as a result of the error, either by the service provider or by the
account-holding institution (for example, overdraft or dishonor
fees) must be reimbursed to the consumer by the service provider.
14(c) Compliance by Account-Holding Institution
Paragraph 14(c)(1)
1. Periodic statements from account-holding institution. The
periodic statement provided by the account-holding institution need
only contain the information required by Sec. 205.9(b)(1).
Appendix A--Model Disclosure Clauses and Forms
1. Review of forms. The Board will not review or approve
disclosure forms or statements for financial institutions. However,
the Board has issued model clauses for institutions to use in
designing their disclosures. If an institution uses these clauses
accurately to reflect its service, the institution is protected from
liability for failure to make disclosures in proper form.
2. Use of the forms. The appendix contains model disclosure
clauses for optional use by financial institutions to facilitate
compliance with the disclosure requirements of Secs. 205.5(b)(2) and
(b)(3), 205.6(a), 205.7, 205.8(b), 205.14(b)(1)(ii) and 205.15(d)(7)
and (d)(2). The use of appropriate clauses in making disclosures
will protect a financial institution from liability under sections
915 and 916 of the act provided the clauses accurately reflect the
institution's EFT services.
3. Altering the clauses. Financial institutions may use clauses
of their own design in conjunction with the Board's model clauses.
The inapplicable words or portions of phrases in parentheses should
be deleted. The catchlines are not part of the clauses and need not
be used. Financial institutions may make alterations, substitutions,
or additions in the clauses to reflect the services offered, such as
technical changes (including the substitution of a trade name for
the word ``card,'' deletion of inapplicable services, or
substitution of lesser liability limits). Several of the model
clauses include references to a telephone number and address. Where
two or more of these clauses are used in a disclosure, the telephone
number and address may be referenced and need not be repeated.
Supplement II to Part 205 [Removed]
3. Supplement II to Part 205 is removed.
By order of the Board of Governors of the Federal Reserve
System, acting through the Secretary of the Board under delegated
authority, April 19, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-10180 Filed 5-1-96; 8:45 am]
BILLING CODE 6210-01-P
Complete official Federal Register PDF
FR Doc. 96-10179 Electronic Fund Transfers
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19662-19678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10179]
[[Page 19661]]
_______________________________________________________________________
Part II
Federal Reserve System
_______________________________________________________________________
12 CFR Part 205
Electronic Fund Transfers; Final Rules and Proposed Rule
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules
and Regulations
[[Page 19662]]
FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-0830]
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Board is publishing a final rule to amend Regulation E,
which implements the Electronic Fund Transfer Act. The amendments are a
result of the Board's review of Regulation E under its Regulatory
Planning and Review Program, which calls for the periodic review of all
Board regulations. The final rule contains some substantive amendments,
including changes to the existing exemptions for securities or
commodities transfers. Primarily, the final amendments simplify the
language and format of the regulation, and delete obsolete provisions.
Commenters generally supported the Board's proposed amendments and
offered suggestions for additional changes, some of which were adopted
in the final rule. In conjunction with the amendments to the
regulation, the Board also has made amendments to the staff commentary,
published elsewhere in today's Federal Register.
DATES: Effective date. May 2, 1996. Compliance date. Mandatory
compliance January 1, 1997.
FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Kyung Cho-Miller,
Natalie Taylor, or Michael Hentrel, Staff Attorneys, Division of
Consumer and Community Affairs, at (202) 452-2412 or (202) 452-3667.
For users of Telecommunications Device for the Deaf only, contact
Dorothea Thompson, at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background
The Electronic Fund Transfer Act (EFTA) (15 U.S.C. 1693), enacted
in 1978, provides a basic framework establishing the rights,
liabilities, and responsibilities of participants in electronic fund
transfer (EFT) systems. The Federal Reserve Board was given rulewriting
authority to issue implementing regulations. Types of transfers covered
by the act and regulation include transfers initiated through an
automated teller machine (ATM), point-of-sale terminal, automated
clearinghouse, telephone bill-payment system, or home banking program.
The act and Regulation E (12 CFR part 205) provide rules that govern
these and other EFTs. The rules prescribe restrictions on the
unsolicited issuance of ATM cards and other access devices; disclosure
of terms and conditions of an EFT service; documentation of EFTs by
means of terminal receipts and periodic account statements; limitations
on consumer liability for unauthorized transfers; procedures for error
resolution; and certain rights related to preauthorized EFTs.
Board policy under its Regulatory Planning and Review (RPR) program
calls for the periodic review of each Board regulation. The RPR program
has four goals: to clarify and simplify regulatory language; to amend
regulations to reflect technological and other developments; to reduce
undue regulatory burden on the industry; and to delete obsolete
provisions. In keeping with that policy, the Board conducted a detailed
review of Regulation E to determine whether it can be simplified to
ease compliance burdens for financial institutions, while meeting the
Board's responsibility for implementing the consumer protections of the
EFTA. The Board issued a proposed rule on March 7, 1994 (59 FR 10684).
Based on the comments received on the proposal and on its own
further analysis, the Board has adopted a revised Regulation E. While
certain substantive revisions have been made (see the section-by-
section discussion below), the final rule leaves most of the regulatory
provisions substantively unchanged. The regulation closely follows the
statute, which contains detailed requirements in most areas; major
changes to the regulation are not possible unless the act itself is
amended. The Board solicited comment on whether specific legislative
revisions to the EFTA are necessary and achievable without imposing a
significant adverse impact on consumer protections. A number of
commenters provided recommendations. The Board plans to convey these
recommendations to the Congress, as appropriate, as part of a report
that the Board will make pursuant to section 303 of the Community
Development and Regulatory Improvement Act of 1994.
The final rule simplifies the language and format of each section
of the regulation to state the requirements more clearly. All footnotes
are either integrated into the text of the regulation or moved to the
staff commentary, making the regulation itself less cumbersome to use.
The final regulation is shorter than current Regulation E by about
fifteen percent, a reduction largely attributable to the deletion of
obsolete provisions and to the transfer of explanatory material to the
commentary. Commenters offered specific suggestions, as well as
rationale, for changes to the regulation (beyond those proposed by the
Board) that would facilitate compliance. A number of these suggestions
have been incorporated in the final rule. Also, unless otherwise
indicated below, the revisions that were proposed in March 1994 have
been adopted in the final rule.
II. Regulatory Revisions
The following discussion covers the revisions to Regulation E
section-by-section. In many cases, the changes simplify or clarify the
current text, with no substantive change in the regulatory
requirements; where the meaning of these changes is evident from
reading the text itself, they are not discussed.
Section 205.1--Authority and purpose
This section has been simplified without substantive change. The
discussion of congressional findings in former paragraph (b) and
contained in Sec. 902(a) of the act has been deleted as unnecessary.
The paragraph relating to the coverage of the act and regulation has
been moved to Sec. 205.3.
Section 205.2--Definitions
2(b) Account
This paragraph incorporates in paragraph (b)(2) the exemption for
trust accounts (former Sec. 205.3(f)) to track more closely the
statutory language contained in section 903(2) of the EFTA.
2(d) Business day
This paragraph defining business day is unchanged.
The act and regulation define business day as any day on which the
offices of the consumer's financial institution are open to the public
for carrying on substantially all business functions. This requires
that each financial institution determine when its offices are
``carrying on substantially all business functions.'' The Board
proposed to use its authority under section 904(c) of the EFTA to
change the definition to mirror the definitions used in Regulations CC
(12 CFR part 229) and DD (12 CFR part 230). Those regulations define a
business day as a calendar day other than a Saturday, Sunday, or any
legal public holiday specified in 5 U.S.C. 6103(a).
Some commenters supported the proposed change; they believed that
the change would simplify compliance by conforming the regulations
governing deposit accounts. Among these commenters, however, several
qualified their support. Some believed that a financial institution
should not be
[[Page 19663]]
required to investigate and resolve errors on a day that the
institution is not open for business. These commenters were concerned
that they could have fewer days to investigate and resolve errors; they
suggested using the definition of ``banking day'' in Regulation CC (the
current definition of ``business day'' in Regulation E) to compute the
time period for resolving disputes. Using multiple definitions--
including the existing definition for certain purposes--would seem to
further complicate the regulation. Other commenters opposed changing
the definition, mentioning the burden and cost associated with changing
disclosures without corresponding benefit. After further analysis, the
Board has retained the current definition.
2(f) Credit
The definition of credit, inadvertently deleted from the proposal,
has been retained.
2(i) Financial institution
The definition of financial institution (former Sec. 205.2(i)) has
been simplified by eliminating references to both state and federal
institutions.
2(j) Person
A definition of ``person'' has been added, incorporating language
similar to that in Regulation B (Equal Credit Opportunity, 12 CFR
202.2(x)) and Regulation Z (Truth in Lending, 12 CFR 226.2(a)(22)). The
term is used in several places in the regulation, including
Sec. 205.3(a), which defines the regulation's coverage, Sec. 205.10(e)
on compulsory use, and Sec. 205.13(b) on record retention.
Section 205.3--Coverage
This section (formerly captioned Exemptions) incorporates the
definition of an EFT (formerly in Sec. 205.2) and consolidates in one
place all the rules dealing with coverage to facilitate compliance. A
proposal regarding Regulation E coverage of stored-value products and
other emerging EFT payment systems is published separately in today's
Federal Register.
3(b) Electronic fund transfer
The definition of ``electronic fund transfer'', which is central to
determining coverage under the regulation, has been moved to paragraph
3(b). The definitions of ``preauthorized electronic fund transfer'' and
``unauthorized electronic fund transfer'' remain in the definitions
section.
3(c)(3) Wire or other similar transfers
The exemption for wire transfers in former Sec. 205.3(b) has been
revised to clarify that it exempts transfers through Fedwire (or
similar wire transfer systems, such as CHIPS or S.W.I.F.T.) and not all
transfers through the Federal Reserve Communications System such as the
automated clearinghouse. No substantive change in the scope of the
exemption is intended.
Commenters generally favored the proposed revision. One commenter
requested examples of transfers similar to those through the Federal
Reserve Communications System that are exempt from Regulation E. The
commentary addresses this issue. (See comment 205.3(c)(3)-3.)
3(c)(4) Securities and commodities transfers
The exemption for certain securities and commodities transfers
(formerly Sec. 205.3(c)) is revised to more closely parallel the
statute. As revised, transfers involving unregulated securities are
exempt from the EFTA if the purchase or sale is transacted by a broker-
dealer regulated by the Securities and Exchange Commission (SEC) or a
futures commission merchant regulated by the Commodity Futures Trading
Commission (CFTC). The Board believes that the regulation of broker-
dealers and futures commission merchants offers sufficient protection
of payment transfers for consumers and that the application of the
protections in Regulation E would only duplicate available safeguards.
Paragraph (c)(4)(iii) extends the exemption to all securities or
commodities held in book-entry form by Federal Reserve Banks on behalf
of the Treasury Department and other federal agencies (for example,
Treasury Direct issues). Previously a transfer to purchase Treasury
securities was technically covered by Regulation E because the
securities were not regulated by the SEC or the CFTC and, when
purchased from the Federal Reserve Banks, were not purchased or sold by
a registered broker-dealer. The Board believes there is adequate
regulation of transfers that involve Federal Reserve Banks and federal
agencies, offering sufficient consumer protection (see 31 CFR part 370,
regulations governing payments by the automated clearing house method
on account of United States securities).
3(c)(6) Telephone initiated transfers
Former Sec. 205.3(e) exempted any transfer of funds initiated by a
telephone conversation between a consumer and an officer or an employee
of a financial institution if the transfer is not under a prearranged
plan. To accommodate telephone transfers initiated by facsimile or
through telephone response machines, this paragraph has been revised to
replace ``conversation'' with the broader term ``communications.'' Also
the phrase ``officer and employee'' has been deleted as unnecessary.
3(c)(7) Small institutions
The asset-size cutoff for the small institution exemption (formerly
contained in Sec. 205.3(g)) has been increased from $25 million to $100
million. Section 904(c) of the EFT gives the Board authority to modify
the requirements imposed by the regulation on small financial
institutions if the Board determines that such modifications are
necessary to alleviate any undue compliance burden on small
institutions and that such modifications are consistent with the
purposes and objective of the act. In 1982, the Board exempted
preauthorized transfers to or from accounts at financial institutions
with assets of less than $25 million to reduce compliance burdens for
small institutions that did not offer any other EFT services.
The regulation exempts the preauthorized transfers as a class of
EFTs, and not the financial institutions themselves. A small financial
institution that provides EFT services besides preauthorized transfers
must comply with the regulation for those other services. For example,
a small financial institution that offers ATM services must comply with
Regulation E in regard to the issuance of debit cards, terminal
receipts, periodic statements, and other requirements. In addition, the
institution must comply with provisions of the act that apply to the
financial institution's conduct rather than to the exempted transfers.
For example, the prohibition against compulsory use of EFTs in section
913 of the act, in regard to credit or employment, remains applicable.
When the Board adopted the $25 million exemption in 1982, many
small institutions that did not offer EFT services such as ATM access
benefited from the exemption. Given the growth in assets of financial
institutions in the past ten years, increasing the asset-size cutoff of
the exemption to $100 million could reduce burden without lessening the
extent of consumer protection originally provided. Because many small
institutions now offer a variety of EFT services, it appears that only
a limited number of institutions would be
[[Page 19664]]
exempted from Regulation E under the increase.
The Board solicited comment on the proposed increase in the
exemption level and on other ways the burden on small institutions
could be reduced without sacrificing the consumer protections intended
by the act. The majority of the commenters agreed that increasing the
asset-size of the exemption would reduce burden and supported the
proposal. Most commenters supporting the proposal are credit unions
which do not offer EFTs other than preauthorized transfers such as
payroll deductions. Other commenters opposed the proposal, stating that
consumers should receive the same treatment from all institutions
regardless of asset size.
Based on comments and further analysis, the Board has increased the
asset-size cutoff to $100 million. In light of current concerns about
regulatory burden, the Board believes that increasing the asset-size
cutoff will provide relief to small institutions offering limited EFT
services, consistent with the principles under which the original
exemption was granted.
Questions have been raised about the impact of Article 4A of the
Uniform Commercial Code (UCC) on the small institution exemption. The
revised commentary to Regulation E clarifies that Article 4A is not
applicable to the preauthorized transfers that qualify for the small
institution exemption. (See comment 3(c)(7)-1.) Article 4A applies
primarily to large-dollar commercial wire transfers made, for example,
via Fedwire, CHIPs, SWIFT, and Telex. Section 4A-108 excludes any
transaction that is subject to the EFT from coverage under Article 4A.
The question is whether the transfers initiated by small financial
institutions that take advantage of the regulatory exemption (such as
for direct deposits) may be subject to the requirements of Article 4A
as a consequence. The Board regards these preauthorized transfers as
remaining subject to certain requirements of the EFT, and therefore not
covered by Article 4A.
Footnote 1a which refers to sections 913, 915, and 916 of the EFT
has been deleted. Section 913 places restrictions on the compulsory use
of EFTs. For example, an institution may not condition the extension of
credit on repayment by preauthorized debit. The statutory language from
section 913 has been incorporated in Sec. 205.10(e). References to
sections 915 and 916 (concerning civil and criminal liability for
violations of the EFTA) are contained in Sec. 205.3(c)(5)(ii). The
Board has added cross-references to Sec. 205.10 and sections 915 and
916 in the appropriate paragraphs to replace footnote 1a.
Section 205.4--General disclosure requirements; jointly offered
services
This section consolidates the general disclosure requirements
currently dispersed throughout the regulation in this section. In
addition to adding paragraph (a), the final rule contains various
editorial changes including a reordering of the section; no substantive
change is intended.
4(a) Form of disclosures
The format requirements for disclosures formerly found in
Secs. 205.7(a) and 205.9 are incorporated into this section. The Board
interprets these requirements as generally applying to all disclosures
and notices.
With the continuing emergence of EFT payment technologies, the
Board has received inquiries about providing disclosures required under
the EFTA and Regulation E to consumers in an electronic form, in lieu
of paper documentation. The Board has addressed this issue in the
proposed rulemaking on Regulation E published elsewhere in today's
Federal Register.
4(e) Services offered jointly
This paragraph incorporates the substance of former paragraph 4(a).
The Board has retained text concerning disclosures within an
institution's knowledge, which had been omitted in the proposal as
unnecessary. The Board did not intend to make a substantive change by
omitting this language.
Section 205.5--Issuance of access devices
The final rule makes editorial changes to this section. The
substance of footnote 1b, which provided guidance on issuance of an
access device for a joint account, has been moved to the commentary.
The final rule deletes as obsolete former Sec. 205.5(a)(3), which
grandfathered renewals of pre-1979 access devices from the requirements
of the section. The explanatory language from former Sec. 202.5(b)(4)--
providing examples of the methods a financial institution may use to
verify a consumer's identity when validating an access device--has been
moved to the commentary. (See comment 205.5(b)-4.)
The Board has moved the provisions relating to the Truth in Lending
Act (TILA) from former Sec. 205.5(c) to Sec. 205.12, to simplify the
regulation by placing all references to TILA in the same section.
Section 205.6--Liability of Consumer for Unauthorized Transfers
Section 205.6 specifies the rules governing consumer liability for
unauthorized use. To simplify the text and make it easier to
understand, the Board has moved explanatory or illustrative material to
the commentary. This includes examples of means of identification that
an institution may provide to the consumer to whom an access device is
issued; part of former Sec. 205.6(b)(3), on the relationship between
the various tiers of liability; and former Sec. 205.6(b)(4), about
extenuating circumstances that would permit delayed notification by
consumers. The provisions in former Sec. 205.6(d) concerning the
relation to the TILA now appear in Sec. 205.12.
6(a) Conditions for liability
The former regulation appeared to condition consumer liability for
unauthorized EFTs in all cases on the issuance of an accepted access
device (Sec. 205.6(a)). The former commentary, on the other hand,
stated that if the consumer failed to report an unauthorized EFT within
sixty days of transmittal of the periodic statement reflecting the
transfer, the consumer could be subject to liability for subsequent
transfers, even if the unauthorized transfer did not involve an access
device.
Paragraph 6(a) is revised to clarify that a consumer can be held
liable for unauthorized EFTs that do not involve an access device, but
only those that occur sixty days after transmittal of the periodic
statement reflecting an unauthorized transfer. Some commenters believed
that a sixty-day period was unreasonable and suggested an alternative
time period ranging from thirty to forty-five days; such a revision,
however, would require a statutory change.
Section 205.6(a)(3) requires that only three of the disclosures
from Sec. 205.7 to be provided before a consumer can be held liable for
unauthorized transfers. The Board proposed to require that a financial
institution provide all of the disclosures required by Sec. 205.7 in
order to impose liability, given that institutions must initially
provide all of the disclosures to comply with Sec. 205.7(b).
Commenters were split on whether this change would increase the
risk of liability for institutions. Some agreed with the Board that the
proposed requirement would not increase compliance burden. Others
believed that the requirement could have adverse consequences due to
inadvertent
[[Page 19665]]
disclosure errors unrelated to consumers' liability. Upon further
analysis, the Board has retained the current rule.
6(b) Limitations on amount of liability
Paragraph (b) incorporates the substance of former paragraphs (b)
(limitations on amount of liability) and (c) (notice to financial
institution). The final rule more clearly sets forth each of the three
tiers of a consumer's liability ($50, $500, or unlimited).
Section 205.7--Initial disclosures
The final rule includes format and editorial changes to this
section to provide greater clarity. No substantive changes are
intended. The format requirements in former paragraph (a) have been
moved to Sec. 205.4(a).
The provision in former Sec. 205.7(a)(1), giving financial
institutions the option of informing the consumer about the
advisability of promptly reporting lost or stolen access devices, has
been moved to comment 7(b)(1)-3 of the commentary.
The Board has moved the error resolution notice from former
Sec. 205.7(a)(10) to appendix A (Model Form A-3), to streamline the
regulation and place all model disclosures together. The final rule
deletes as obsolete former Sec. 205.7(b) regarding disclosures for
accounts that predate the statute.
7(a)(3) Business days
Because the Board did not adopted the proposed definition of
business day, as discussed under Sec. 205.2(d), the disclosure
requirement has been retained.
Section 205.8--Change in terms notice; error resolution notice
The Board has restructured Sec. 205.8 and added subheadings to make
it easier to follow.
8(a)(1) Prior notice required
Section 905(b) of the EFTA requires a financial institution to
notify a consumer in writing at least 21 days before the effective date
of an adverse change in certain terms or conditions contained in the
initial disclosures. The Truth in Savings Act (TISA) (12 U.S.C. 4301)
also requires institutions to provide a change-in-terms notice for
deposit accounts. Section 266(c) of TISA requires a notice 30 days
before the effective date of any adverse change in terms or conditions.
The official staff commentary of Regulation DD (Truth in Savings)
provides that if a changed term also triggers a change in terms notice
under Regulation E, the institution may use the timing rules of
Regulation E for sending the notice to affected consumers (see 59 FR
5543, February 7, 1994).
The Board proposed to use its exception authority under the EFTA to
extend the timing of the change-in-terms notice in Regulation E from 21
to 30 days to parallel Regulation DD and facilitate compliance with
both regulations. The Board solicited comment on whether it is
preferable to retain the flexibility offered by the two different
timing requirements. Most commenters opposed extending the timing
requirement to 30 days because the extension would in many cases double
the period of notice before a change in terms could be implemented
without a special mailing. The Board believes the proposed change might
unnecessarily increase regulatory burden and, accordingly, has retained
the 21-day notice requirement.
8(a)(2) Prior notice exception
Prior notice is not required when an immediate change in terms is
needed to maintain or restore the security of an EFT system or account.
If a change is made permanent, however, a financial institution must
notify the consumer ``on or with the next regularly scheduled periodic
statement or within 30 days'' of the change if disclosure would not
raise security concerns. In certain circumstances, periodic statements
are sent on a quarterly basis, and thus the consumer might not receive
notification of a change for up to ninety days after the change occurs.
The Board proposed to require written notice within 45 days of the
change. Most commenters opposed the proposal. The majority believe the
revision would result in increased costs and regulatory burden. Where
financial institutions send quarterly periodic statements, or where no
EFT has been made during a statement cycle, notice of the change in
terms would have to be provided in a separate mailing. Some commenters
asked the Board to clarify whether the notice is triggered by the date
of the initial change or the date the change becomes permanent; it is
the latter.
Based on the comments and upon further analysis, the Board has
retained the current rule. The notice provided to consumers reflects a
change in terms that has already been made. Since many institutions
send statements monthly, in many cases consumers will obtain notice in
or around 45 days after the change. In all instances, notice will be
provided within 90 days. Given the likelihood that a section 8(a)(2)
change is rare, and that most notices will be provided within 45 days
(and all no later than 90 days), the minimal consumer benefit
associated with the change is outweighed by the potential compliance
cost to financial institutions.
8(b) Error resolution notice
To streamline the regulation and place all model disclosure forms
in one location, the abbreviated error resolution notice in former
Sec. 205.8(b)--which an institution may give with each periodic
statement in place of the longer annual notice--has been moved to
appendix A (Model Form A-3). Language has been added to clarify that
financial institutions may use a form substantially similar to the
model form.
Section 205.9--Receipts at electronic terminals; periodic statements
This section contains a number of editorial revisions and several
substantive changes. New paragraphs and headings have been added to
better organize the text concerning the content of disclosures.
Disclosure format requirements, and former paragraph (e) concerning
use of abbreviations, have been moved to Sec. 205.4. Former footnote 2,
which permits a financial institution to make receipts available
through a third party, has been moved to the commentary. Two obsolete
paragraphs, (f) and (g), which dealt with receipts from terminals
purchased prior to 1980 and delayed effective dates for certain
periodic statements have been deleted.
9(a)(1)--Amount
The former regulation allowed financial institutions other than the
account-holding institution to include a charge for the transfer in the
total amount of the transfer, provided the amount of the charge is
disclosed on the receipt and on a sign posted on or at the terminal.
The final rule permits all financial institutions (including the
account-holding institution) to include the charge in the total amount
of the transfer, if the appropriate disclosures are made; and permits
institutions to display the fee on or at the terminal--meaning either
on a sign posted at the terminal or on the terminal screen itself.
Some commenters requested clarification as to whether disclosure of
a transaction fee on the receipt or at the terminal would substitute
for disclosure of the fee under Sec. 205.7(a)(5), initial disclosures.
Institutions holding a consumer's account must continue to disclose
transaction fees under Sec. 205.7(a)(5), as well as on the receipt and
at the terminal.
The Board solicited comment on whether consumers would need
[[Page 19666]]
protections if the fee is displayed on the screen, for example,
allowing the consumer to cancel the transaction after the fee is
disclosed. Commenters generally believed that displaying the fee on a
screen provided adequate notice, as long as consumers are provided with
the option to cancel the transaction after receiving notice. This
interpretation is reflected in comment 9(a)(1)-1 of the staff
commentary.
9(a)(3)--Type
The examples included in former paragraph (a)(3) have been moved to
the commentary.
9(a)(4)--Identification
In a previous rulemaking, the Board deleted the requirement that a
financial institution ``uniquely'' identify the consumer. See 55 FR
15032 (March 22, 1995). The final rule, effective April 24, 1995, no
longer requires that terminal receipts uniquely identify the consumer,
the consumer's account, or the consumer's card. The change allows
institutions to truncate the number on the receipt and helps protect
consumers and financial institutions against fraudulent withdrawals.
9(a)(5)--Terminal location
This paragraph incorporates the substance of former
Sec. 205.9(b)(1)(iv), the rules regarding terminal identification on
receipts; former footnote 5 and much of the explanatory material on
describing locations has been moved to the commentary.
The Board had proposed to delete the exception in footnote 5
allowing institutions (1) to omit the name of the city and state if all
of the terminals owned or operated by the financial institution
providing the statement are located in the same city, or if the system
in which the financial institution's terminal participates is located
in the same city and (2) to omit the state if all of the terminals are
located in the same state. Since most institutions that offer ATM
access belong to networks operating on an interstate basis, the Board
believed that few, if any, financial institutions would be able to take
advantage of the exception provided by the footnote. The Board
solicited comment on whether the exception is still used by
institutions. Many commenters stated that credit unions and ``closed
systems'' frequently used at universities continue to benefit from this
exception because such institutions do not belong to interstate
networks. Thus, the Board has retained the exception but moved it to
the commentary. (See comment 205.9(a)(5)(iv)-1.)
The rules regarding terminal identification on the receipt have
been slightly modified. Former Sec. 205.9(b)(1)(iv)(C) allowed
financial institutions to identify the terminal location by using the
name of the entity at whose place of business the terminal is located
or the entity that owns or operates the terminal (such as the financial
institution). Footnote 7 required, however, that if the financial
institution owns or operates terminals at more than one location, the
terminal location must be identified on the periodic statement in
accordance with former 9(b)(1)(iv) (A) or (B) and had to provide either
a street address or a generally accepted name for the location. If an
institution owned only one terminal (and did not belong to a network),
however, it could identify the terminal using its own name under
paragraph 9(b)(1)(iv)(C). The final rule omits the footnote, removing
the limitation so that the receipt and the periodic statement may
provide the terminal location by giving the name of the institution if
it is other than the account-holding institution. The Board believes
this change makes the provision available to more institutions, since
very few institutions own and operate only one terminal and do not
belong to a network. Commenters generally believed this change would
not adversely reduce consumer information.
9(a)(6) Third party transfer
Paragraph (a)(6), which requires disclosure of the name of any
third party to or from whom funds are transferred, has been revised;
guidance on the use of codes as identification or the exception to the
requirement when the name of the payee cannot be duplicated by the
terminal has been incorporated into the commentary. (See comment
205.9(a)(6)-1.)
9(b) Periodic statements
9(b)(1)--Transaction information
For each transfer initiated at an electronic terminal, paragraph
(b)(1)(iv) requires financial institutions to disclose on the periodic
statement the location of the terminal as it appeared on the receipt
provided under Sec. 205.9(a). Under the former rule, if a code or
terminal number on the receipt was used to identify the location, both
the code and a description of the location, as specified in
Sec. 205.9(b)(1)(iv) had to be disclosed on the periodic statement. The
final rule does not require a restatement of the code in addition to
the location description. Commenters generally supported this revision,
noting that the code was of little use and that rules of the National
Association of Automated Clearing Houses already require codes to be
retained by the institution which would allow consumers to get the code
upon request. The substance of footnote 4a, which provided that a
financial institution need not identify the terminal location for
transactions that involve the deposit of cash, checks, drafts, or
similar paper instruments at electronic terminals, has been
incorporated into paragraph (b)(1)(iv).
Former footnote 4 permitted financial institutions to provide
transaction information on documents that accompany the periodic
statement; and permits the use of codes, if explained on either the
statement or the accompanying documents. Former footnote 9 allowed an
institution to omit the identification of third parties from periodic
statements if their names appear on checks, drafts, or similar paper
instruments deposited to the consumer's account at an electronic
terminal. The substance of former footnotes 4 and 9 has been moved to
the commentary. (See comments 205.9(b)-6 and 205.9(b)(1)(v)-6.)
9(b)(3)--Fees
The reference in former Sec. 205.9(b)(3) that a periodic statement
required by Regulation E need not disclose any finance charge imposed
under 12 CFR 226.7(f) has been moved to the commentary. (See comment
205.9(b)(3)-3.)
The Board solicited comment on whether regulatory compliance burden
would be eased if the fee disclosure requirements in Regulations E and
DD were identical. Many commenters preferred having the option of
complying with Regulation E or Regulation DD. The Board has retained
the existing fee disclosure requirements.
9(c) Exceptions to the periodic statement requirements for certain
accounts
The final rule incorporates current paragraphs (c), (d), (h), and
footnote 9a in Sec. 205.9(c), pertaining to intra-institutional
transfers and the circumstances in which a periodic statement for EFT
transactions is not required (for example, for a passbook account that
can be accessed electronically only by preauthorized transfers to the
account) or is not required on a monthly cycle. Some editorial changes
have been made in the final rule that differ slightly from the proposal
but no substantive change is intended.
[[Page 19667]]
9(d)--Documentation for foreign-initiated transfers
Paragraph (d) incorporates the substance of former paragraph (i)
without substantive change.
Section 205.10--Preauthorized transfers
Section 205.10 sets forth general requirements for preauthorized
transfers. The Board has reformatted and made editorial changes to this
section. Substantive changes are discussed below.
10(a) Preauthorized transfers to consumer's account
10(a)(3)--Crediting
This paragraph (formerly paragraph 10(a)(2)) provides that when a
consumer's account will be credited by a preauthorized EFT from the
same payor at least once every 60 days, an institution must credit the
funds to the account as of the day the funds for the transfer are
received. The Board believed that this provision was not necessary
since other regulations address both when funds must be made available
to the consumer and when interest must be paid on the deposit (see
Regulation CC, 12 CFR part 229; Treasury regulations, 31 CFR part 210;
and ACH association rules). The Board solicited comment on its proposed
deletion of paragraph 10(a)(2).
Most commenters agreed that Regulation CC, NACHA rules governing
automated clearing house transactions, and Treasury direct-deposit
rules adequately covered this issue and supported the Board's proposal
to delete the requirement. Several commenters requested that a
reference to the other rules and regulations be added to the paragraph
10(a)(2). One commenter distinguished the requirements under paragraph
10(a)(2) from those under other rules and regulations, noting that
paragraph 10(a)(2) addressed crediting and that the NACHA rules, for
example, address the availability of funds for withdrawal. The
commenter recommended retaining the current language.
Upon further analysis, the Board believes that the requirement
under current paragraph 10(a)(2) is, in fact, different from those
required by other regulations and has retained the current rule in
paragraph 10(a)(3).
10(b) Written authorization for preauthorized transfers from consumer's
account
Under the former rule, preauthorized EFTs from a consumer's account
may be authorized by the consumer only in writing (typically a signed
paper document); a copy of the authorization must be given to the
consumer. To address developments in electronic services such as home
banking, the Board has more broadly interpreted a written authorization
to include electronic authorizations which are ``similarly
authenticated'' by the consumer. The Board believes this broader
interpretation is consistent with the requirement in section 907 of the
EFTA that the authorization be in writing.
This change would, for example, allow preauthorized transfers in an
electronic payment system to be authenticated by a ``digital
signature'' or a security code. The Board believes that these are
options that may provide the same assurance as a signature in a paper-
based system. To meet the requirement that an authorization be in
writing, the electronic agreement would have to be displayed on a
computer screen (or other visual display) that enables the consumer to
read the communication. The person that obtains the authorization must
provide an electronic or hard copy to the consumer. These
interpretations are codified in the commentary.
10(e) Compulsory use
This paragraph incorporates section 913 of the EFTA, which places
certain restrictions on compulsory use of EFTs as a condition of
credit, employment, or receipt of government benefits. This paragraph
also clarifies that the provision applies to persons such as employers,
and not just to financial institutions. In the former regulation, the
prohibition against compulsory use was referenced in footnote 1a.
Section 205.11--Procedures for resolving errors
The Board has reformatted this section and made editorial revisions
to simplify the language and facilitate compliance. The one substantive
change, discussed below, allows a financial institution three business
days to provide notice after it has determined that an error has
occurred.
The substance of three footnotes has been moved to the commentary:
footnote 10, permitting an institution to prescribe procedures for
giving an error notice; footnote 11, defining an agreement for purposes
of Sec. 205.14; and footnote 12, allowing institutions to use a
periodic statement to inform consumers that no error has occurred.
The substance of former paragraphs (d)(1), (3); (e)(1); and (g) has
been moved to the commentary. Paragraph (e) on reasserting errors
replaces former paragraph (h). Former paragraph (i), rules relating to
the TILA, has been moved to Sec. 205.12.
11(c) Time limits and extent of investigation
Paragraph 11(c) combines former paragraphs 11(c) and 11(d)(2)
concerning investigation of errors. The regulation requires a financial
institution to provide the consumer with a written explanation, within
the prescribed time period (either 10 business days or 45 calendar
days), if an error occurred. If an error did not occur and the
financial institution is operating under the 45-day rule, the
institution has three additional days to notify the consumer of its
findings. Section 908 of the EFTA makes clear the extra time is
available when no error occurred, but is silent on the availability of
extra time when an error is found.
To facilitate compliance, the Board has used its exception
authority under section 904(c) to permit institutions to give notice
within three business days of concluding its investigation regardless
of the procedure being followed and whether or not an error has been
found. The statutory language contained in section 908(d) lends itself
to such an interpretation, and the Board believes the change will
facilitate compliance with the section without any significant loss of
consumer protection.
Commenters requested that the Board consider extending the time
periods for investigations of errors on new accounts based on concerns
about fraud and misrepresentation. The Board has published a proposed
rule elsewhere in today's Federal Register that would change the timing
for error resolution on new accounts.
11(d) Procedures if financial institution determines no error or
different error occurred
This paragraph simplifies and replaces former paragraph 11(f).
Section 205.12--Relation to other laws
This section contains the various references to the Truth in
Lending Act (TILA) and Regulation Z formerly dispersed throughout
Regulation E. The section also includes the standards applied by the
Board in granting a state law preemption or in making an exemption
determination.
12(a) Relation to Truth in Lending
All references from Secs. 205.5, 205.6, and 205.11 to compliance
with both the TILA and the EFTA are consolidated in this paragraph to
facilitate compliance.
[[Page 19668]]
12(b) Preemption of inconsistent state laws
Former Sec. 205.12 (a) and (b) are incorporated in paragraph (b).
Former Sec. 205.12(c), which establishes procedures for preemption, has
been deleted from the regulation. The procedures for requesting a
preemption determination are available from the Board upon request.
12(c) State exemptions
Paragraph (c) (formerly (d)) contains the rules the Board applies
in granting a state exemption.
Section 205.13--Administrative enforcement; record retention
Former Sec. 205.13 contained information about administrative
enforcement, issuance of staff interpretations, and record retention.
Much of this information has been moved to the appendices, with the
exception of the provision on record retention. Specifically, former
paragraph (a) listed the federal agencies charged with administrative
enforcement of the act and regulation; revised paragraph (a) merely
cross-references Appendix B, which lists the federal enforcement
agencies in greater detail. Former paragraph (b) dealt with issuance of
staff interpretations; this material has been updated to describe the
staff commentary process that replaced the old interpretation letters,
and has been moved to new Appendix C. Former paragraph (c), record
retention, has been redesignated paragraph (b).
13(b) Record retention
Only certain provisions of the act and regulation apply to persons
other than financial institutions (for example, the compulsory use
provisions of section 913, which apply to employers, creditors, and
government agencies). The proposal would have limited the record
retention requirements to financial institutions, rather than covering
``any person subject to the act and regulation.'' The majority of the
commenters addressing this issue opposed the proposed change, arguing
that the same record retention requirement should apply to all persons
subject to the regulation, and that the proposed change could adversely
affect enforcement. The Board has retained the current rule; the record
retention requirements continue to apply to all persons subject to the
act and regulation.
Section 205.14--Electronic fund transfer service provider not holding
consumer's account
Substantial editorial revisions have been made to this section to
simplify the text.
14(a) Electronic fund transfer service providers subject to regulation
Revised paragraph (a) deals expressly with the entities subject to
section 205.14, and identifies entities more clearly by setting forth
the conditions for coverage under section 205.14 in separate
subparagraphs.
14(b) Compliance by electronic fund transfer service provider
This paragraph contains much of the material that appeared in
former paragraph (a), and sets forth the compliance responsibilities of
a non-account-holding service provider. The material has been revised
and reorganized for greater clarity, without substantive change.
14(c) Compliance by account-holding institution
This paragraph sets forth the compliance responsibilities of the
account-holding institution, and is substantively unchanged from former
paragraph (b). Former footnote 13, regarding delayed effective dates,
has been deleted as obsolete. The substance of former paragraph (c),
providing guidance on when there is an agreement between a service
provider and an account-holding institution, has been moved to the
commentary.
Section 205.15--Electronic fund transfer of government benefits
In March 1994, the Board issued a final rule relating to the
coverage by the EFTA and Regulation E of government benefits that
federal, state, and local governments disburse to recipients by means
of electronic benefit transfer (EBT) programs, adding a new section
205.15 to Regulation E (59 FR 10678, March 7, 1994). This section is
unchanged from the one originally issued.
Appendix A--Model Disclosure Clauses and Forms
The model forms contained in the former regulation have been
consolidated in Appendix A. As noted earlier, the error resolution
notices in former Secs. 205.7(a)(10) and 205.8(b) have been moved from
the regulation to Appendix A to streamline the regulation (see Model
Form A-3).
Appendix B--Administrative enforcement
Appendix B lists the federal enforcement agencies responsible for
enforcing Regulation E for particular classes of institutions.
Appendix C--Issuance of staff interpretations
The final rule adds a new appendix C to replace former
Sec. 205.13(b) pertaining to staff interpretations of Regulation E. The
Board will continue to rely on the publication of interpretations in
the official staff commentary as the primary means of interpreting the
regulation. In keeping with the practice that has been in place for
years, the final rule deletes any reference to unofficial staff
interpretations that are in writing, limiting written interpretations
to those that appear in the staff commentary, as revised. The Board
believes this to be the most efficient and useful way to facilitate
compliance.
III. Regulatory Flexibility Analysis
The Board's Office of the Secretary has prepared an economic impact
statement on the amendment to Regulation E. A copy of the analysis may
be obtained from Publications Services, Board of Governors of the
Federal Reserve System, Washington, D.C. 20551, at (202) 452-3245.
IV. Paperwork Reduction Act
In accordance with section 3506 of the Paperwork Reduction Act of
1995 (44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board reviewed
the rule under the authority delegated to the Board by the Office of
Management and Budget. No comments specifically addressing the burden
estimate were received.
The collection of information requirements in this regulation are
found in 12 CFR Part 205. This information is mandatory (15 U.S.C. 1693
et seq.) to ensure adequate disclosure of basic terms, costs, and
rights relating to electronic fund transfer (EFT) services provided to
consumers. The respondents/recordkeepers are for-profit financial
institutions, including small businesses. Records must be retained for
twenty-four months. Regulation E applies to all types of financial
institutions, not just state member banks. However, under Paperwork
Reduction Act regulations, the Federal Reserve accounts for the burden
of the paperwork associated with the regulation only for state member
banks. Other agencies account for the Regulation E paperwork burden on
their respective constituencies. Please contact the appropriate agency
[[Page 19669]]
for an estimate of this proposed regulation's affect on other
institutions.
The revisions are expected to decrease the associated paperwork
burden on state member banks. It is estimated that 25 percent of small
state member banks have no covered activities other than preauthorized
transfers. Thus the Federal Reserve estimates that raising the asset-
size cutoff from $25 million to $100 million will decrease the number
of covered state member banks from 1,000 to 873. The estimated burden
per response ranges from fifteen seconds (for an ATM receipt) to 30
minutes (for notice of revised error resolution rules). The Federal
Reserve estimates the average frequency of response to be 85,800
responses per respondent each year. Thus, the total amount of annual
burden is estimated to be 474,804 hours, a decrease of 13 percent from
543,447 hours.
List of Subjects in 12 CFR Part 205
Consumer protection, Electronic fund transfers, Federal Reserve
System, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Board amends 12 CFR
part 205 as set forth below:
PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)
1. The authority citation for part 205 continues to read as
follows:
Authority: 15 U.S.C. 1693.
2. The table of contents for part 205 is revised to read as
follows:
Sec.
205.1 Authority and purpose.
205.2 Definitions.
205.3 Coverage.
205.4 General disclosure requirements; jointly offered services.
205.5 Issuance of access devices.
205.6 Liability of consumer for unauthorized transfers.
205.7 Initial disclosures.
205.8 Change in terms notice; error resolution notice.
205.9 Receipts at electronic terminals; periodic statements.
205.10 Preauthorized transfers.
205.11 Procedures for resolving errors.
205.12 Relation to other laws.
205.13 Administrative enforcement; record retention.
205.14 Electronic fund transfer service provider not holding
consumer's account.
205.15 Electronic fund transfer of government benefits.
Appendix A to Part 205--Model Disclosure Clauses and Forms
Appendix B to Part 205--Federal Enforcement Agencies
Appendix C to Part 205--Issuance of Staff Interpretations
Supplement 1 to Part 205--Official Staff Interpretations
3. Sections 205.1 through 205.15 are revised to read as follows:
Sec. 205.1 Authority and purpose.
(a) Authority. The regulation in this part, known as Regulation E,
is issued by the Board of Governors of the Federal Reserve System
pursuant to the Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.).
The information-collection requirements have been approved by the
Office of Management and Budget under 44 U.S.C. 3501 et seq. and have
been assigned OMB No. 7100-0200.
(b) Purpose. This part carries out the purposes of the Electronic
Fund Transfer Act, which establishes the basic rights, liabilities, and
responsibilities of consumers who use electronic fund transfer services
and of financial institutions that offer these services. The primary
objective of the act and this part is the protection of individual
consumers engaging in electronic fund transfers.
Sec. 205.2 Definitions.
For purposes of this part, the following definitions apply:
(a)(1) Access device means a card, code, or other means of access
to a consumer's account, or any combination thereof, that may be used
by the consumer to initiate electronic fund transfers.
(2) An access device becomes an accepted access device when the
consumer:
(i) Requests and receives, or signs, or uses (or authorizes another
to use) the access device to transfer money between accounts or to
obtain money, property, or services;
(ii) Requests validation of an access device issued on an
unsolicited basis; or
(iii) Receives an access device in renewal of, or in substitution
for, an accepted access device from either the financial institution
that initially issued the device or a successor.
(b)(1) Account means a demand deposit (checking), savings, or other
consumer asset account (other than an occasional or incidental credit
balance in a credit plan) held directly or indirectly by a financial
institution and established primarily for personal, family, or
household purposes.
(2) The term does not include an account held by a financial
institution under a bona fide trust agreement.
(c) Act means the Electronic Fund Transfer Act (title IX of the
Consumer Credit Protection Act, 15 U.S.C. 1693 et seq.).
(d) Business day means any day on which the offices of the
consumer's financial institution are open to the public for carrying on
substantially all business functions.
(e) Consumer means a natural person.
(f) Credit means the right granted by a financial institution to a
consumer to defer payment of debt, incur debt and defer its payment, or
purchase property or services and defer payment therefor.
(g) Electronic fund transfer is defined in Sec. 205.3.
(h) Electronic terminal means an electronic device, other than a
telephone operated by a consumer, through which a consumer may initiate
an electronic fund transfer. The term includes, but is not limited to,
point-of-sale terminals, automated teller machines, and cash dispensing
machines.
(i) Financial institution means a bank, savings association, credit
union, or any other person that directly or indirectly holds an account
belonging to a consumer, or that issues an access device and agrees
with a consumer to provide electronic fund transfer services.
(j) Person means a natural person or an organization, including a
corporation, government agency, estate, trust, partnership,
proprietorship, cooperative, or association.
(k) Preauthorized electronic fund transfer means an electronic fund
transfer authorized in advance to recur at substantially regular
intervals.
(l) State means any state, territory, or possession of the United
States; the District of Columbia; the Commonwealth of Puerto Rico; or
any political subdivision of the above in this paragraph (l).
(m) Unauthorized electronic fund transfer means an electronic fund
transfer from a consumer's account initiated by a person other than the
consumer without actual authority to initiate the transfer and from
which the consumer receives no benefit. The term does not include an
electronic fund transfer initiated:
(1) By a person who was furnished the access device to the
consumer's account by the consumer, unless the consumer has notified
the financial institution that transfers by that person are no longer
authorized;
(2) With fraudulent intent by the consumer or any person acting in
concert with the consumer; or
(3) By the financial institution or its employee.
Sec. 205.3 Coverage.
(a) General. This part applies to any electronic fund transfer that
authorizes a financial institution to debit or credit a consumer's
account. Generally, this
[[Page 19670]]
part applies to financial institutions. For purposes of Secs. 205.10
(b), (d), and (e) and 205.13, this part applies to any person.
(b) Electronic fund transfer. The term electronic fund transfer
means any transfer of funds that is initiated through an electronic
terminal, telephone, computer, or magnetic tape for the purpose of
ordering, instructing, or authorizing a financial institution to debit
or credit an account. The term includes, but is not limited to:
(1) Point-of-sale transfers;
(2) Automated teller machine transfers;
(3) Direct deposits or withdrawals of funds;
(4) Transfers initiated by telephone; and
(5) Transfers resulting from debit card transactions, whether or
not initiated through an electronic terminal.
(c) Exclusions from coverage. The term electronic fund transfer
does not include:
(1) Checks. Any transfer of funds originated by check, draft, or
similar paper instrument; or any payment made by check, draft, or
similar paper instrument at an electronic terminal.
(2) Check guarantee or authorization. Any transfer of funds that
guarantees payment or authorizes acceptance of a check, draft, or
similar paper instrument but that does not directly result in a debit
or credit to a consumer's account.
(3) Wire or other similar transfers. Any transfer of funds through
Fedwire or through a similar wire transfer system that is used
primarily for transfers between financial institutions or between
businesses.
(4) Securities and commodities transfers. Any transfer of funds the
primary purpose of which is the purchase or sale of a security or
commodity, if the security or commodity is:
(i) Regulated by the Securities and Exchange Commission or the
Commodity Futures Trading Commission;
(ii) Purchased or sold through a broker-dealer regulated by the
Securities and Exchange Commission or through a futures commission
merchant regulated by the Commodity Futures Trading Commission; or
(iii) Held in book-entry form by a Federal Reserve Bank or federal
agency.
(5) Automatic transfers by account-holding institution. Any
transfer of funds under an agreement between a consumer and a financial
institution which provides that the institution will initiate
individual transfers without a specific request from the consumer:
(i) Between a consumer's accounts within the financial institution;
(ii) From a consumer's account to an account of a member of the
consumer's family held in the same financial institution; or
(iii) Between a consumer's account and an account of the financial
institution, except that these transfers remain subject to
Sec. 205.10(e) regarding compulsory use and sections 915 and 916 of the
act regarding civil and criminal liability.
(6) Telephone-initiated transfers. Any transfer of funds that:
(i) Is initiated by a telephone communication between a consumer
and a financial institution making the transfer; and
(ii) Does not take place under a telephone bill-payment or other
written plan in which periodic or recurring transfers are contemplated.
(7) Small institutions. Any preauthorized transfer to or from an
account if the assets of the account-holding financial institution were
$100 million or less on the preceding December 31. If assets of the
account-holding institution subsequently exceed $100 million, the
institution's exemption for preauthorized transfers terminates one year
from the end of the calendar year in which the assets exceed $100
million. Preauthorized transfers exempt under this paragraph (c)(7)
remain subject to Sec. 205.10(e) regarding compulsory use and sections
915 and 916 of the act regarding civil and criminal liability.
Sec. 205.4 General disclosure requirements; jointly offered services.
(a) Form of disclosures. Disclosures required under this part shall
be clear and readily understandable, in writing, and in a form the
consumer may keep. A financial institution may use commonly accepted or
readily understandable abbreviations in complying with the disclosure
requirements of this part.
(b) Additional information; disclosures required by other laws. A
financial institution may include additional information and may
combine disclosures required by other laws (such as the Truth in
Lending Act (15 U.S.C. 1601 et seq.) or the Truth in Savings Act (12
U.S.C. 4301 et seq.)) with the disclosures required by this part.
(c) [Reserved]
(d) Multiple accounts and account holders--(1) Multiple accounts. A
financial institution may combine the required disclosures into a
single statement for a consumer who holds more than one account at the
institution.
(2) Multiple account holders. For joint accounts held by two or
more consumers, a financial institution need provide only one set of
the required disclosures and may provide them to any of the account
holders.
(e) Services offered jointly. Financial institutions that provide
electronic fund transfer services jointly may contract among themselves
to comply with the requirements that this part imposes on any or all of
them. An institution need make only the disclosures required by
Secs. 205.7 and 205.8 that are within its knowledge and within the
purview of its relationship with the consumer for whom it holds an
account.
Sec. 205.5 Issuance of access devices.
(a) Solicited issuance. Except as provided in paragraph (b) of this
section, a financial institution may issue an access device to a
consumer only:
(1) In response to an oral or written request for the device; or
(2) As a renewal of, or in substitution for, an accepted access
device whether issued by the institution or a successor.
(b) Unsolicited issuance. A financial institution may distribute an
access device to a consumer on an unsolicited basis if the access
device is:
(1) Not validated, meaning that the institution has not yet
performed all the procedures that would enable a consumer to initiate
an electronic fund transfer using the access device;
(2) Accompanied by a clear explanation that the access device is
not validated and how the consumer may dispose of it if validation is
not desired;
(3) Accompanied by the disclosures required by Sec. 205.7, of the
consumer's rights and liabilities that will apply if the access device
is validated; and
(4) Validated only in response to the consumer's oral or written
request for validation, after the institution has verified the
consumer's identity by a reasonable means.
Sec. 205.6 Liability of consumer for unauthorized transfers.
(a) Conditions for liability. A consumer may be held liable, within
the limitations described in paragraph (b) of this section, for an
unauthorized electronic fund transfer involving the consumer's account
only if the financial institution has provided the disclosures required
by Sec. 205.7(b)(1), (2), and (3). If the unauthorized transfer
involved an access device, it must be an accepted access device and the
financial institution must have provided a means to identify the
consumer to whom it was issued.
(b) Limitations on amount of liability. A consumer's liability for
an
[[Page 19671]]
unauthorized electronic fund transfer or a series of related
unauthorized transfers shall be determined as follows:
(1) Timely notice given. If the consumer notifies the financial
institution within two business days after learning of the loss or
theft of the access device, the consumer's liability shall not exceed
the lesser of $50 or the amount of unauthorized transfers that occur
before notice to the financial institution.
(2) Timely notice not given. If the consumer fails to notify the
financial institution within two business days after learning of the
loss or theft of the access device, the consumer's liability shall not
exceed the lesser of $500 or the sum of:
(i) $50 or the amount of unauthorized transfers that occur within
the two business days, whichever is less; and
(ii) The amount of unauthorized transfers that occur after the
close of two business days and before notice to the institution,
provided the institution establishes that these transfers would not
have occurred had the consumer notified the institution within that
two-day period.
(3) Periodic statement; timely notice not given. A consumer must
report an unauthorized electronic fund transfer that appears on a
periodic statement within 60 days of the financial institution's
transmittal of the statement to avoid liability for subsequent
transfers. If the consumer fails to do so, the consumer's liability
shall not exceed the amount of the unauthorized transfers that occur
after the close of the 60 days and before notice to the institution,
and that the institution establishes would not have occurred had the
consumer notified the institution within the 60-day period. When an
access device is involved in the unauthorized transfer, the consumer
may be liable for other amounts set forth in paragraphs (b)(1) or
(b)(2) of this section, as applicable.
(4) Extension of time limits. If the consumer's delay in notifying
the financial institution was due to extenuating circumstances, the
institution shall extend the times specified above to a reasonable
period.
(5) Notice to financial institution. (i) Notice to a financial
institution is given when a consumer takes steps reasonably necessary
to provide the institution with the pertinent information, whether or
not a particular employee or agent of the institution actually receives
the information.
(ii) The consumer may notify the institution in person, by
telephone, or in writing.
(iii) Written notice is considered given at the time the consumer
mails the notice or delivers it for transmission to the institution by
any other usual means. Notice may be considered constructively given
when the institution becomes aware of circumstances leading to the
reasonable belief that an unauthorized transfer to or from the
consumer's account has been or may be made.
(6) Liability under state law or agreement. If state law or an
agreement between the consumer and the financial institution imposes
less liability than is provided by this section, the consumer's
liability shall not exceed the amount imposed under the state law or
agreement.
Sec. 205.7 Initial disclosures.
(a) Timing of disclosures. A financial institution shall make the
disclosures required by this section at the time a consumer contracts
for an electronic fund transfer service or before the first electronic
fund transfer is made involving the consumer's account.
(b) Content of disclosures. A financial institution shall provide
the following disclosures, as applicable:
(1) Liability of consumer. A summary of the consumer's liability,
under Sec. 205.6 or under state or other applicable law or agreement,
for unauthorized electronic fund transfers.
(2) Telephone number and address. The telephone number and address
of the person or office to be notified when the consumer believes that
an unauthorized electronic fund transfer has been or may be made.
(3) Business days. The financial institution's business days.
(4) Types of transfers; limitations. The type of electronic fund
transfers that the consumer may make and any limitations on the
frequency and dollar amount of transfers. Details of the limitations
need not be disclosed if confidentiality is essential to maintain the
security of the electronic fund transfer system.
(5) Fees. Any fees imposed by the financial institution for
electronic fund transfers or for the right to make transfers.
(6) Documentation. A summary of the consumer's right to receipts
and periodic statements, as provided in Sec. 205.9, and notices
regarding preauthorized transfers as provided in Secs. 205.10(a), and
205.10(d).
(7) Stop payment. A summary of the consumer's right to stop payment
of a preauthorized electronic fund transfer and the procedure for
placing a stop-payment order, as provided in Sec. 205.10(c).
(8) Liability of institution. A summary of the financial
institution's liability to the consumer under section 910 of the act
for failure to make or to stop certain transfers.
(9) Confidentiality. The circumstances under which, in the ordinary
course of business, the financial institution may provide information
concerning the consumer's account to third parties.
(10) Error resolution. A notice that is substantially similar to
Model Form A-3 as set out in Appendix A of this part concerning error
resolution.
Sec. 205.8 Change in terms notice; error resolution notice.
(a) Change in terms notice--(1) Prior notice required. A financial
institution shall mail or deliver a written notice to the consumer, at
least 21 days before the effective date, of any change in a term or
condition required to be disclosed under Sec. 205.7(b) if the change
would result in:
(i) Increased fees for the consumer;
(ii) Increased liability for the consumer;
(iii) Fewer types of available electronic fund transfers; or
(iv) Stricter limitations on the frequency or dollar amount of
transfers.
(2) Prior notice exception. A financial institution need not give
prior notice if an immediate change in terms or conditions is necessary
to maintain or restore the security of an account or an electronic fund
transfer system. If the institution makes such a change permanent and
disclosure would not jeopardize the security of the account or system,
the institution shall notify the consumer in writing on or with the
next regularly scheduled periodic statement or within 30 days of making
the change permanent.
(b) Error resolution notice. For accounts to or from which
electronic fund transfers can be made, a financial institution shall
mail or deliver to the consumer, at least once each calendar year, an
error resolution notice substantially similar to the model form set
forth in Appendix A of this part (Model Form A-3). Alternatively, an
institution may include an abbreviated notice substantially similar to
the model form error resolution notice set forth in Appendix A of this
part (Model Form A-3), on or with each periodic statement required by
Sec. 205.9(b).
Sec. 205.9 Receipts at electronic terminals; periodic statements.
(a) Receipts at electronic terminals. A financial institution shall
make a receipt available to a consumer at the time the consumer
initiates an electronic fund transfer at an electronic terminal. The
[[Page 19672]]
receipt shall set forth the following information, as applicable:
(1) Amount. The amount of the transfer. A transaction fee may be
included in this amount, provided the amount of the fee is disclosed on
the receipt and displayed on or at the terminal.
(2) Date. The date the consumer initiates the transfer.
(3) Type. The type of transfer and the type of the consumer's
account(s) to or from which funds are transferred. The type of account
may be omitted if the access device used is able to access only one
account at that terminal.
(4) Identification. A number or code that identifies the consumer's
account or accounts, or the access device used to initiate the
transfer. The number or code need not exceed four digits or letters to
comply with the requirements of this paragraph (a)(4).
(5) Terminal location. The location of the terminal where the
transfer is initiated, or an identification such as a code or terminal
number. Except in limited circumstances where all terminals are located
in the same city or state, if the location is disclosed, it shall
include the city and state or foreign country and one of the following:
(i) The street address; or
(ii) A generally accepted name for the specific location; or
(iii) The name of the owner or operator of the terminal if other
than the account-holding institution.
(6) Third party transfer. The name of any third party to or from
whom funds are transferred.
(b) Periodic statements. For an account to or from which electronic
fund transfers can be made, a financial institution shall send a
periodic statement for each monthly cycle in which an electronic fund
transfer has occurred; and shall send a periodic statement at least
quarterly if no transfer has occurred. The statement shall set forth
the following information, as applicable:
(1) Transaction information. For each electronic fund transfer
occurring during the cycle:
(i) The amount of the transfer;
(ii) The date the transfer was credited or debited to the
consumer's account;
(iii) The type of transfer and type of account to or from which
funds were transferred;
(iv) For a transfer initiated by the consumer at an electronic
terminal (except for a deposit of cash or a check, draft, or similar
paper instrument), the terminal location described in paragraph (a)(5)
of this section; and
(v) The name of any third party to or from whom funds were
transferred.
(2) Account number. The number of the account.
(3) Fees. The amount of any fees assessed against the account
during the statement period for electronic fund transfers, for the
right to make transfers, or for account maintenance.
(4) Account balances. The balance in the account at the beginning
and at the close of the statement period.
(5) Address and telephone number for inquiries. The address and
telephone number to be used for inquiries or notice of errors, preceded
by ``Direct inquiries to'' or similar language. The address and
telephone number provided on an error resolution notice under
Sec. 205.8(b) given on or with the statement satisfies this
requirement.
(6) Telephone number for preauth
FR Doc. 96-10179 Electronic Fund Transfers
orized transfers. A telephone
number the consumer may call to ascertain whether preauthorized
transfers to the consumer's account have occurred, if the financial
institution uses the telephone-notice option under
Sec. 205.10(a)(1)(iii).
(c) Exceptions to the periodic statement requirement for certain
accounts--(1) Preauthorized transfers to accounts. For accounts that
may be accessed only by preauthorized transfers to the account the
following rules apply:
(i) Passbook accounts. For passbook accounts, the financial
institution need not provide a periodic statement if the institution
updates the passbook upon presentation or enters on a separate document
the amount and date of each electronic fund transfer since the passbook
was last presented.
(ii) Other accounts. For accounts other than passbook accounts, the
financial institution must send a periodic statement at least
quarterly.
(2) Intra-institutional transfers. For an electronic fund transfer
initiated by the consumer between two accounts of the consumer in the
same institution, documenting the transfer on a periodic statement for
one of the two accounts satisfies the periodic statement requirement.
(3) Relationship between paragraphs (c)(1) and (c)(2) of this
section. An account that is accessed by preauthorized transfers to the
account described in paragraph (c)(1) of this section and by intra-
institutional transfers described in paragraph (c)(2) of this section,
but by no other type of electronic fund transfers, qualifies for the
exceptions provided by paragraph (c)(1) of this section .
(d) Documentation for foreign-initiated transfers. The failure by a
financial institution to provide a terminal receipt for an electronic
fund transfer or to document the transfer on a periodic statement does
not violate this part if:
(1) The transfer is not initiated within a state; and
(2) The financial institution treats an inquiry for clarification
or documentation as a notice of error in accordance with Sec. 205.11.
Sec. 205.10 Preauthorized transfers.
(a) Preauthorized transfers to consumer's account--(1) Notice by
financial institution. When a person initiates preauthorized electronic
fund transfers to a consumer's account at least once every 60 days, the
account-holding financial institution shall provide notice to the
consumer by:
(i) Positive notice. Providing oral or written notice of the
transfer within two business days after the transfer occurs; or
(ii) Negative notice. Providing oral or written notice, within two
business days after the date on which the transfer was scheduled to
occur, that the transfer did not occur; or
(iii) Readily-available telephone line. Providing a readily
available telephone line that the consumer may call to determine
whether the transfer occurred and disclosing the telephone number on
the initial disclosure of account terms and on each periodic statement.
(2) Notice by payor. A financial institution need not provide
notice of a transfer if the payor gives the consumer positive notice
that the transfer has been initiated.
(3) Crediting. A financial institution that receives a
preauthorized transfer of the type described in paragraph (a)(1) of
this section shall credit the amount of the transfer as of the date the
funds for the transfer are received.
(b) Written authorization for preauthorized transfers from
consumer's account. Preauthorized electronic fund transfers from a
consumer's account may be authorized only by a writing signed or
similarly authenticated by the consumer. The person that obtains the
authorization shall provide a copy to the consumer.
(c) Consumer's right to stop payment--(1) Notice. A consumer may
stop payment of a preauthorized electronic fund transfer from the
consumer's account by notifying the financial institution orally or in
writing at least three business days before the scheduled date of the
transfer.
(2) Written confirmation. The financial institution may require the
consumer to give written confirmation of a stop-payment order within 14
days of an oral notification. An institution that requires written
confirmation shall inform the consumer of the requirement
[[Page 19673]]
and provide the address where confirmation must be sent when the
consumer gives the oral notification. An oral stop-payment order ceases
to be binding after 14 days if the consumer fails to provide the
required written confirmation.
(d) Notice of transfers varying in amount--(1) Notice. When a
preauthorized electronic fund transfer from the consumer's account will
vary in amount from the previous transfer under the same authorization
or from the preauthorized amount, the designated payee or the financial
institution shall send the consumer written notice of the amount and
date of the transfer at least 10 days before the scheduled date of
transfer.
(2) Range. The designated payee or the institution shall inform the
consumer of the right to receive notice of all varying transfers, but
may give the consumer the option of receiving notice only when a
transfer falls outside a specified range of amounts or only when a
transfer differs from the most recent transfer by more than an agreed-
upon amount.
(e) Compulsory use--(1) Credit. No financial institution or other
person may condition an extension of credit to a consumer on the
consumer's repayment by preauthorized electronic fund transfers, except
for credit extended under an overdraft credit plan or extended to
maintain a specified minimum balance in the consumer's account.
(2) Employment or government benefit. No financial institution or
other person may require a consumer to establish an account for receipt
of electronic fund transfers with a particular institution as a
condition of employment or receipt of a government benefit.
Sec. 205.11 Procedures for resolving errors.
(a) Definition of error--(1) Types of transfers or inquiries
covered. The term error means:
(i) An unauthorized electronic fund transfer;
(ii) An incorrect electronic fund transfer to or from the
consumer's account;
(iii) The omission of an electronic fund transfer from a periodic
statement;
(iv) A computational or bookkeeping error made by the financial
institution relating to an electronic fund transfer;
(v) The consumer's receipt of an incorrect amount of money from an
electronic terminal;
(vi) An electronic fund transfer not identified in accordance with
Secs. 205.9 or 205.10(a); or
(vii) The consumer's request for documentation required by
Secs. 205.9 or 205.10(a) or for additional information or clarification
concerning an electronic fund transfer, including a request the
consumer makes to determine whether an error exists under paragraphs
(a)(1) (i) through (vi) of this section.
(2) Types of inquiries not covered. The term error does not
include:
(i) A routine inquiry about the consumer's account balance;
(ii) A request for information for tax or other recordkeeping
purposes; or
(iii) A request for duplicate copies of documentation.
(b) Notice of error from consumer--(1) Timing; contents. A
financial institution shall comply with the requirements of this
section with respect to any oral or written notice of error from the
consumer that:
(i) Is received by the institution no later than 60 days after the
institution sends the periodic statement or provides the passbook
documentation, required by Sec. 205.9, on which the alleged error is
first reflected;
(ii) Enables the institution to identify the consumer's name and
account number; and
(iii) Indicates why the consumer believes an error exists and
includes to the extent possible the type, date, and amount of the
error, except for requests described in paragraph (a)(1)(vii) of this
section.
(2) Written confirmation. A financial institution may require the
consumer to give written confirmation of an error within 10 business
days of an oral notice. An institution that requires written
confirmation shall inform the consumer of the requirement and provide
the address where confirmation must be sent when the consumer gives the
oral notification.
(3) Request for documentation or clarifications. When a notice of
error is based on documentation or clarification that the consumer
requested under paragraph (a)(1)(vii) of this section, the consumer's
notice of error is timely if received by the financial institution no
later than 60 days after the institution sends the information
requested.
(c) Time limits and extent of investigation--(1) Ten-day period. A
financial institution shall investigate promptly and, except as
otherwise provided in this paragraph (c), shall determine whether an
error occurred within 10 business days of receiving a notice of error.
The institution shall report the results to the consumer within three
business days after completing its investigation. The institution shall
correct the error within one business day after determining that an
error occurred.
(2) Forty-five day period. If the financial institution is unable
to complete its investigation within 10 business days, the institution
may take up to 45 days from receipt of a notice of error to investigate
and determine whether an error occurred, provided the institution does
the following:
(i) Provisionally credits the consumer's account in the amount of
the alleged error (including interest where applicable) within 10
business days of receiving the error notice. If the financial
institution has a reasonable basis for believing that an unauthorized
electronic fund transfer has occurred and the institution has satisfied
the requirements of Sec. 205.6(a), the institution may withhold a
maximum of $50 from the amount credited. An institution need not
provisionally credit the consumer's account if:
(A) The institution requires but does not receive written
confirmation within 10 business days of an oral notice of error; or
(B) The alleged error involves an account that is subject to
Regulation T (Securities Credit by Brokers and Dealers, 12 CFR part
220);
(ii) Informs the consumer, within two business days after the
provisional crediting, of the amount and date of the provisional
crediting and gives the consumer full use of the funds during the
investigation;
(iii) Corrects the error, if any, within one business day after
determining that an error occurred; and
(iv) Reports the results to the consumer within three business days
after completing its investigation (including, if applicable, notice
that a provisional credit has been made final).
(3) Extension of time periods. The applicable time periods in this
paragraph (c)(3) are 20 business days in place of 10 business days, and
90 days in place of 45 days, if a notice of error involves an
electronic fund transfer that:
(i) Was not initiated within a state; or
(ii) Resulted from a point-of-sale debit card transaction.
(4) Investigation. With the exception of transfers covered by
Sec. 205.14, a financial institution's review of its own records
regarding an alleged error satisfies the requirements of this section
if:
(i) The alleged error concerns a transfer to or from a third party;
and
(ii) There is no agreement between the institution and the third
party for the type of electronic fund transfer involved.
(d) Procedures if financial institution determines no error or
different error
[[Page 19674]]
occurred. In addition to following the procedures specified in
paragraph (c) of this section, the financial institution shall follow
the procedures set forth in this paragraph (d) if it determines that no
error occurred or that an error occurred in a manner or amount
different from that described by the consumer:
(1) Written explanation. The institution's report of the results of
its investigation shall include a written explanation of the
institution's findings and shall note the consumer's right to request
the documents that the institution relied on in making its
determination. Upon request, the institution shall promptly provide
copies of the documents.
(2) Debiting provisional credit. Upon debiting a provisionally
credited amount, the financial institution shall:
(i) Notify the consumer of the date and amount of the debiting;
(ii) Notify the consumer that the institution will honor checks,
drafts, or similar instruments payable to third parties and
preauthorized transfers from the consumer's account (without charge to
the consumer as a result of an overdraft) for five business days after
the notification. The institution shall honor items as specified in the
notice, but need honor only items that it would have paid if the
provisionally credited funds had not been debited.
(e) Reassertion of error. A financial institution that has fully
complied with the error resolution requirements has no further
responsibilities under this section should the consumer later reassert
the same error, except in the case of an error asserted by the consumer
following receipt of information provided under paragraph (a)(1)(vii)
of this section.
Sec. 205.12 Relation to other laws.
(a) Relation to Truth in Lending. (1) The Electronic Fund Transfer
Act and this part govern:
(i) The addition to an accepted credit card, as defined in
Regulation Z (12 CFR 226.12(a)(2), footnote 21), of the capability to
initiate electronic fund transfers;
(ii) The issuance of an access device that permits credit
extensions (under a preexisting agreement between a consumer and a
financial institution) only when the consumer's account is overdrawn or
to maintain a specified minimum balance in the consumer's account; and
(iii) A consumer's liability for an unauthorized electronic fund
transfer and the investigation of errors involving an extension of
credit that occurs under an agreement between the consumer and a
financial institution to extend credit when the consumer's account is
overdrawn or to maintain a specified minimum balance in the consumer's
account.
(2) The Truth in Lending Act and Regulation Z (12 CFR part 226),
which prohibit the unsolicited issuance of credit cards, govern:
(i) The addition of a credit feature to an accepted access device;
and
(ii) Except as provided in paragraph (a)(1)(ii) of this section,
the issuance of a credit card that is also an access device.
(b) Preemption of inconsistent state laws--(1) Inconsistent
requirements. The Board shall determine, upon its own motion or upon
the request of a state, financial institution, or other interested
party, whether the act and this part preempt state law relating to
electronic fund transfers. Only state laws that are inconsistent with
the act and this part are preempted and then only to the extent of the
inconsistency. A state law is not inconsistent with the act and this
part if it is more protective of consumers.
(2) Standards for determination. State law is inconsistent with the
requirements of the act and this part if it:
(i) Requires or permits a practice or act prohibited by the federal
law;
(ii) Provides for consumer liability for unauthorized electronic
fund transfers that exceeds the limits imposed by the federal law;
(iii) Allows longer time periods than the federal law for
investigating and correcting alleged errors, or does not require the
financial institution to credit the consumer's account during an error
investigation in accordance with Sec. 205.11(c)(2)(i); or
(iv) Requires initial disclosures, periodic statements, or receipts
that are different in content from those required by the federal law
except to the extent that the disclosures relate to consumer rights
granted by the state law and not by the federal law.
(c) State exemptions--(1) General rule. Any state may apply for an
exemption from the requirements of the act or this part for any class
of electronic fund transfers within the state. The Board shall grant an
exemption if it determines that:
(i) Under state law the class of electronic fund transfers is
subject to requirements substantially similar to those imposed by the
federal law; and
(ii) There is adequate provision for state enforcement.
(2) Exception. To assure that the federal and state courts continue
to have concurrent jurisdiction, and to aid in implementing the act:
(i) No exemption shall extend to the civil liability provisions of
section 915 of the act; and
(ii) When the Board grants an exemption, the state law requirements
shall constitute the requirements of the federal law for purposes of
section 915 of the act, except for state law requirements not imposed
by the federal law.
Sec. 205.13 Administrative enforcement; record retention.
(a) Enforcement by federal agencies. Compliance with this part is
enforced by the agencies listed in Appendix B of this part.
(b) Record retention. (1) Any person subject to the act and this
part shall retain evidence of compliance with the requirements imposed
by the act and this part for a period of not less than two years from
the date disclosures are required to be made or action is required to
be taken.
(2) Any person subject to the act and this part having actual
notice that it is the subject of an investigation or an enforcement
proceeding by its enforcement agency, or having been served with notice
of an action filed under sections 910, 915, or 916(a) of the act, shall
retain the records that pertain to the investigation, action, or
proceeding until final disposition of the matter unless an earlier time
is allowed by court or agency order.
Sec. 205.14 Electronic fund transfer service provider not holding
consumer's account.
(a) Provider of electronic fund transfer service. A person that
provides an electronic fund transfer service to a consumer but that
does not hold the consumer's account is subject to all requirements of
this part if the person:
(1) Issues a debit card (or other access device) that the consumer
can use to access the consumer's account held by a financial
institution; and
(2) Has no agreement with the account-holding institution regarding
such access.
(b) Compliance by service provider. In addition to the requirements
generally applicable under this part, the service provider shall comply
with the following special rules:
(1) Disclosures and documentation. The service provider shall give
the disclosures and documentation required by Secs. 205.7, 205.8, and
205.9 that are within the purview of its relationship with the
consumer. The service provider need not furnish the periodic statement
required by Sec. 205.9(b) if the following conditions are met:
[[Page 19675]]
(i) The debit card (or other access device) issued to the consumer
bears the service provider's name and an address or telephone number
for making inquiries or giving notice of error;
(ii) The consumer receives a notice concerning use of the debit
card that is substantially similar to the notice contained in Appendix
A of this part;
(iii) The consumer receives, on or with the receipts required by
Sec. 205.9(a), the address and telephone number to be used for an
inquiry, to give notice of an error, or to report the loss or theft of
the debit card;
(iv) The service provider transmits to the account-holding
institution the information specified in Sec. 205.9(b)(1), in the
format prescribed by the automated clearinghouse system used to clear
the fund transfers;
(v) The service provider extends the time period for notice of loss
or theft of a debit card, set forth in Sec. 205.6(b) (1) and (2), from
two business days to four business days after the consumer learns of
the loss or theft; and extends the time periods for reporting
unauthorized transfers or errors, set forth in Secs. 205.6(b)(3) and
205.11(b)(1)(i), from 60 days to 90 days following the transmittal of a
periodic statement by the account-holding institution.
(2) Error resolution. (i) The service provider shall extend by a
reasonable time the period in which notice of an error must be
received, specified in Sec. 205.11(b)(1)(i), if a delay resulted from
an initial attempt by the consumer to notify the account-holding
institution.
(ii) The service provider shall disclose to the consumer the date
on which it initiates a transfer to effect a provisional credit in
accordance with Sec. 205.11(c)(2)(ii).
(iii) If the service provider determines an error occurred, it
shall transfer funds to or from the consumer's account, in the
appropriate amount and within the applicable time period, in accordance
with Sec. 205.11(c)(2)(i).
(iv) If funds were provisionally credited and the service provider
determines no error occurred, it may reverse the credit. The service
provider shall notify the account-holding institution of the period
during which the account-holding institution must honor debits to the
account in accordance with Sec. 205.11(d)(2)(ii). If an overdraft
results, the service provider shall promptly reimburse the account-
holding institution in the amount of the overdraft.
(c) Compliance by account-holding institution. The account-holding
institution need not comply with the requirements of the act and this
part with respect to electronic fund transfers initiated through the
service provider except as follows:
(1) Documentation. The account-holding institution shall provide a
periodic statement that describes each electronic fund transfer
initiated by the consumer with the access device issued by the service
provider. The account-holding institution has no liability for the
failure to comply with this requirement if the service provider did not
provide the necessary information; and
(2) Error resolution. Upon request, the account-holding institution
shall provide information or copies of documents needed by the service
provider to investigate errors or to furnish copies of documents to the
consumer. The account-holding institution shall also honor debits to
the account in accordance with Sec. 205.11(d)(2)(ii).
Sec. 205.15 Electronic fund transfer of government benefits.
(a) Government agency subject to regulation. (1) A government
agency is deemed to be a financial institution for purposes of the act
and this part if directly or indirectly it issues an access device to a
consumer for use in initiating an electronic fund transfer of
government benefits from an account. The agency shall comply with all
applicable requirements of the act and this part except as provided in
this section.
(2) For purposes of this section, the term account means an account
established by a government agency for distributing government benefits
to a consumer electronically, such as through automated teller machines
or point-of-sale terminals.
(b) Issuance of access devices. For purposes of this section, a
consumer is deemed to request an access device when the consumer
applies for government benefits that the agency disburses or will
disburse by means of an electronic fund transfer. The agency shall
verify the identity of the consumer receiving the device by reasonable
means before the device is activated.
(c) Alternative to periodic statement. A government agency need not
furnish the periodic statement required by Sec. 205.9(b) if the agency
makes available to the consumer:
(1) The consumer's account balance, through a readily available
telephone line and at a terminal (such as by providing balance
information at a balance-inquiry terminal or providing it, routinely or
upon request, on a terminal receipt at the time of an electronic fund
transfer); and
(2) A written history of the consumer's account transactions that
is provided promptly in response to an oral or written request and that
covers at least 60 days preceding the date of a request by the
consumer.
(d) Modified requirements. A government agency that does not
furnish periodic statements, in accordance with paragraph (c) of this
section, shall comply with the following special rules:
(1) Initial disclosures. The agency shall modify the disclosures
under Sec. 205.7(b) by disclosing:
(i) Account balance. The means by which the consumer may obtain
information concerning the account balance, including a telephone
number. The agency provides a notice substantially similar to the
notice contained in paragraph A-5 in Appendix A of this part.
(ii) Written account history. A summary of the consumer's right to
receive a written account history upon request, in place of the
periodic statement required by Sec. 205.7(b)(6), and the telephone
number to call to request an account history. This disclosure may be
made by providing a notice substantially similar to the notice
contained in paragraph A-5 in Appendix A of this part.
(iii) Error resolution. A notice concerning error resolution that
is substantially similar to the notice contained in paragraph A-5 in
Appendix A of this part, in place of the notice required by
Sec. 205.7(b)(10).
(2) Annual error resolution notice. The agency shall provide an
annual notice concerning error resolution that is substantially similar
to the notice contained in paragraph A-5 in appendix A, in place of the
notice required by Sec. 205.8(b).
(3) Limitations on liability. For purposes of Sec. 205.6(b)(3),
regarding a 60-day period for reporting any unauthorized transfer that
appears on a periodic statement, the 60-day period shall begin with
transmittal of a written account history or other account information
provided to the consumer under paragraph (c) of this section.
(4) Error resolution. The agency shall comply with the requirements
of Sec. 205.11 in response to an oral or written notice of an error
from the consumer that is received no later than 60 days after the
consumer obtains the written account history or other account
information, under paragraph (c) of this section, in which the error is
first reflected.
4. Appendices A and B are revised and Appendix C is added to read
as follows:
[[Page 19676]]
Appendix A to Part 205--Model Disclosure Clauses and Forms
Table of Contents
A-1--MODEL CLAUSES FOR UNSOLICITED ISSUANCE (Sec. 205.5(b)(2))
A-2--MODEL CLAUSES FOR INITIAL DISCLOSURES (Sec. 205.7(b))
A-3--MODEL FORMS FOR ERROR RESOLUTION NOTICE (Secs. 205.7(b)(10) and
205.8(b))
A-4--MODEL FORM FOR SERVICE-PROVIDING INSTITUTIONS
(Sec. 205.14(b)(1)(ii))
A-5--MODEL FORMS FOR GOVERNMENT AGENCIES (Sec. 205.15(d) (1) and
(2))
A-1--MODEL CLAUSES FOR UNSOLICITED ISSUANCE (Sec. 205.5(b)(2))
(a) Accounts using cards. You cannot use the enclosed card to
transfer money into or out of your account until we have validated
it. If you do not want to use the card, please (destroy it at once
by cutting it in half).
[Financial institution may add validation instructions here.]
(b) Accounts using codes. You cannot use the enclosed code to
transfer money into or out of your account until we have validated
it. If you do not want to use the code, please (destroy this notice
at once).
[Financial institution may add validation instructions here.]
A-2--MODEL CLAUSES FOR INITIAL DISCLOSURES (Sec. 205.7(b))
(a) Consumer Liability (Sec. 205.7(b)(1)). (Tell us AT ONCE if
you believe your [card] [code] has been lost or stolen. Telephoning
is the best way of keeping your possible losses down. You could lose
all the money in your account (plus your maximum overdraft line of
credit). If you tell us within 2 business days, you can lose no more
than $50 if someone used your [card][code] without your permission.
(If you believe your [card] [code] has been lost or stolen, and you
tell us within 2 business days after you learn of the loss or theft,
you can lose no more than $50 if someone used your [card] [code]
without your permission.)
If you do NOT tell us within 2 business days after you learn of
the loss or theft of your [card] [code], and we can prove we could
have stopped someone from using your [card] [code] without your
permission if you had told us, you could lose as much as $500.
Also, if your statement shows transfers that you did not make,
tell us at once. If you do not tell us within 60 days after the
statement was mailed to you, you may not get back any money you lost
after the 60 days if we can prove that we could have stopped someone
from taking the money if you had told us in time.
If a good reason (such as a long trip or a hospital stay) kept
you from telling us, we will extend the time periods.
(b) Contact in event of unauthorized transfer
(Sec. 205.7(b)(2)). If you believe your [card] [code] has been lost
or stolen or that someone has transferred or may transfer money from
your account without your permission, call:
[Telephone number]
or write:
[Name of person or office to be notified]
[Address]
(c) Business days (Sec. 205.7(b)(3)). For purposes of these
disclosures, our business days are (Monday through Friday) (Monday
through Saturday) (any day including Saturdays and Sundays).
Holidays are (not) included.
(d) Transfer types and limitations (Sec. 205.7(b)(4))--(1)
Account access. You may use your [card][code] to:
(i) Withdraw cash from your [checking] [or] [savings] account.
(ii) Make deposits to your [checking] [or] [savings] account.
(iii) Transfer funds between your checking and savings accounts
whenever you request.
(iv) Pay for purchases at places that have agreed to accept the
[card] [code].
(v) Pay bills directly [by telephone] from your [checking] [or]
[savings] account in the amounts and on the days you request.
Some of these services may not be available at all terminals.
(2) Limitations on frequency of transfers.--(i) You may make
only [insert number, e.g., 3] cash withdrawals from our terminals
each [insert time period, e.g., week].
(ii) You can use your telephone bill-payment service to pay
[insert number] bills each [insert time period] [telephone call].
(iii) You can use our point-of-sale transfer service for [insert
number] transactions each [insert time period].
(iv) For security reasons, there are limits on the number of
transfers you can make using our [terminals] [telephone bill-payment
service] [point-of-sale transfer service].
(3) Limitations on dollar amounts of transfers--(i) You may
withdraw up to [insert dollar amount] from our terminals each
[insert time period] time you use the [card] [code].
(ii) You may buy up to [insert dollar amount] worth of goods or
services each [insert time period] time you use the [card] [code] in
our point-of-sale transfer service.
(e) Fees (Sec. 205.7(b)(5))--(1) Per transfer charge. We will
charge you [insert dollar amount] for each transfer you make using
our [automated teller machines] [telephone bill-payment service]
[point-of-sale transfer service].
(2) Fixed charge. We will charge you [insert dollar amount] each
[insert time period] for our [automated teller machine service]
[telephone bill-payment service] [point-of-sale transfer service].
(3) Average or minimum balance charge. We will only charge you
for using our [automated teller machines] [telephone bill-payment
service] [point-of-sale transfer service] if the [average] [minimum]
balance in your [checking account] [savings account] [accounts]
falls below [insert dollar amount]. If it does, we will charge you
[insert dollar amount] each [transfer] [insert time period].
(f) Confidentiality (Sec. 205.7(b)(9)). We will disclose
information to third parties about your account or the transfers you
make:
(i) Where it is necessary for completing transfers, or
(ii) In order to verify the existence and condition of your
account for a third party, such as a credit bureau or merchant, or
(iii) In order to comply with government agency or court orders,
or
(iv) If you give us your written permission.
(g) Documentation (Sec. 205.7(b)(6))--(1) Terminal transfers.
You can get a receipt at the time you make any transfer to or from
your account using one of our [automated teller machines] [or]
[point-of-sale terminals].
(2) Preauthorized credits. If you have arranged to have direct
deposits made to your account at least once every 60 days from the
same person or company, (we will let you know if the deposit is
[not] made.) [the person or company making the deposit will tell you
every time they send us the money] [you can call us at (insert
telephone number) to find out whether or not the deposit has been
made].
(3) Periodic statements. You will get a [monthly] [quarterly]
account statement (unless there are no transfers in a particular
month. In any case you will get the statement at least quarterly).
(4) Passbook account where the only possible electronic fund
transfers are preauthorized credits. If you bring your passbook to
us, we will record any electronic deposits that were made to your
account since the last time you brought in your passbook.
(h) Preauthorized payments (Sec. 205.7(b) (6), (7) and (8);
Sec. 205.10(d))--(1) Right to stop payment and procedure for doing
so. If you have told us in advance to make regular payments out of
your account, you can stop any of these payments. Here's how:
Call us at [insert telephone number], or write us at [insert
address], in time for us to receive your request 3 business days or
more before the payment is scheduled to be made. If you call, we may
also require you to put your request in writing and get it to us
within 14 days after you call. (We will charge you [insert amount]
for each stop-payment order you give.)
(2) Notice of varying amounts. If these regular payments may
vary in amount, [we] [the person you are going to pay] will tell
you, 10 days before each payment, when it will be made and how much
it will be. (You may choose instead to get this notice only when the
payment would differ by more than a certain amount from the previous
payment, or when the amount would fall outside certain limits that
you set.)
(3) Liability for failure to stop payment of preauthorized
transfer. If you order us to stop one of these payments 3 business
days or more before the transfer is scheduled, and we do not do so,
we will be liable for your losses or damages.
(i) Financial institution's liability (Sec. 205.7(b)(8)). If we
do not complete a transfer to or from your account on time or in the
correct amount according to our agreement with you, we will be
liable for your losses or damages. However, there are some
exceptions. We will not be liable, for instance:
(1) If, through no fault of ours, you do not have enough money
in your account to make the transfer.
(2) If the transfer would go over the credit limit on your
overdraft line.
(3) If the automated teller machine where you are making the
transfer does not have enough cash.
[[Page 19677]]
(4) If the [terminal] [system] was not working properly and you
knew about the breakdown when you started the transfer.
(5) If circumstances beyond our control (such as fire or flood)
prevent the transfer, despite reasonable precautions that we have
taken.
(6) There may be other exceptions stated in our agreement with
you.
A-3--MODEL FORMS FOR ERROR RESOLUTION NOTICE (Secs. 205.7(b)(10) and
205.8(b))
(a) Initial and annual error resolution notice (Secs. 205.7(b)(10)
and 205.8(b))
In Case of Errors or Questions About Your Electronic Transfers,
Telephone us at [insert telephone number] or Write us at [insert
address] as soon as you can, if you think your statement or receipt
is wrong or if you need more information about a transfer listed on
the statement or receipt. We must hear from you no later than 60
days after we sent the FIRST statement on which the problem or error
appeared.
(1) Tell us your name and account number (if any).
(2) Describe the error or the transfer you are unsure about, and
explain as clearly as you can why you believe it is an error or why
you need more information.
(3) Tell us the dollar amount of the suspected error.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days.
We will tell you the results of our investigation within 10
business days after we hear from you and will correct any error
promptly. If we need more time, however, we may take up to 45 days
to investigate your complaint or question. If we decide to do this,
we will credit your account within 10 business days for the amount
you think is in error, so that you will have the use of the money
during the time it takes us to complete our investigation. If we ask
you to put your complaint or question in writing and we do not
receive it within 10 business days, we may not credit your account.
If we decide that there was no error, we will send you a written
explanation within three business days after we finish our
investigation. You may ask for copies of the documents that we used
in our investigation.
(b) Error resolution notice on periodic statements Sec. 205.8(b)
In Case of Errors or Questions About Your Electronic Transfers,
Telephone us at [insert telephone number] or Write us at [insert
address] as soon as you can, if you think your statement or receipt
is wrong or if you need more information about a transfer on the
statement or receipt. We must hear from you no later than 60 days
after we sent you the FIRST statement on which the error or problem
appeared.
(1) Tell us your name and account number (if any).
(2) Describe the error or the transfer you are unsure about, and
explain as clearly as you can why you believe it is an error or why
you need more information.
(3) Tell us the dollar amount of the suspected error.
We will investigate your complaint and will correct any error
promptly. If we take more than 10 business days to do this, we will
credit your account for the amount you think is in error, so that
you will have the use of the money during the time it takes us to
complete our investigation.
A-4--MODEL FORM FOR SERVICE-PROVIDING INSTITUTIONS
(Sec. 205.14(b)(1)(ii))
ALL QUESTIONS ABOUT TRANSACTIONS MADE WITH YOUR (NAME OF CARD)
CARD MUST BE DIRECTED TO US (NAME OF SERVICE PROVIDER), AND NOT TO
THE BANK OR OTHER FINANCIAL INSTITUTION WHERE YOU HAVE YOUR ACCOUNT.
We are responsible for the [name of service] service and for
resolving any errors in transactions made with your [name of card]
card.
We will not send you a periodic statement listing transactions
that you make using your [name of card] card. The transactions will
appear only on the statement issued by your bank or other financial
institution. SAVE THE RECEIPTS YOU ARE GIVEN WHEN YOU USE YOUR [NAME
OF CARD] CARD, AND CHECK THEM AGAINST THE ACCOUNT STATEMENT YOU
RECEIVE FROM YOUR BANK OR OTHER FINANCIAL INSTITUTION. If you have
any questions about one of these transactions, call or write us at
[telephone number and address] [the telephone number and address
indicated below].
IF YOUR [NAME OF CARD] CARD IS LOST OR STOLEN, NOTIFY US AT ONCE
by calling or writing to us at [telephone number and address].
A-5--MODEL FORMS FOR GOVERNMENT AGENCIES (Sec. 205.15(d) (1) and (2))
(1) Disclosure by government agencies of information about
obtaining account balances and account histories Sec. 205.15(d)(1)
(i) and (ii)
You may obtain information about the amount of benefits you have
remaining by calling [telephone number]. That information is also
available [on the receipt you get when you make a transfer with your
card at (an ATM) (a POS terminal)] [when you make a balance inquiry
at an ATM][when you make a balance inquiry at specified locations].
You also have the right to receive a written summary of
transactions for the 60 days preceding your request by calling
[telephone number]. [Optional: Or you may request the summary by
contacting your caseworker.]
(2) Disclosure of error resolution procedures for government
agencies that do not provide periodic statements (Sec. 205.15
(d)(1)(iii) and (d)(2))
In Case of Errors or Questions About Your Electronic Transfers
Telephone us at [telephone number] or Write us at [address] as soon
as you can, if you think an error has occurred in your
[EBT][agency's name for program] account. We must hear from you no
later than 60 days after you learn of the error. You will need to
tell us:
Your name and [case] [file] number.
Why you believe there is an error, and the dollar
amount involved.
Approximately when the error took place.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days. We will
generally complete our investigation within 10 business days and
correct any error promptly. In some cases, an investigation may take
longer, but you will have the use of the funds in question after the
10 business days. If we ask you to put your complaint or question in
writing and we do not receive it within 10 business days, we may not
credit your account during the investigation.
For errors involving transactions at point-of-sale terminals in
food stores, the periods referred to above are 20 business days
instead of 10 business days.
If we decide that there was no error, we will send you a written
explanation within three business days after we finish our
investigation. You may ask for copies of the documents that we used
in our investigation.
If you need more information about our error resolution
procedures, call us at [telephone number][the telephone number shown
above].
Appendix B to Part 205--Federal Enforcement Agencies
The following list indicates which Federal agency enforces
Regulation E (12 CFR part 205) for particular classes of
institutions. Any questions concerning compliance by a particular
institution should be directed to the appropriate enforcing agency.
Terms that are not defined in the Federal Deposit Insurance Act (12
U.S.C. 1813(s)) shall have the meaning given to them in the
International Banking Act of 1978 (12 U.S.C. 3101).
National banks, and Federal branches and Federal agencies of
foreign banks
District office of the Office of the Comptroller of the Currency
where the institution is located.
State member banks, branches and agencies of foreign banks (other
than Federal branches, Federal agencies, and insured state branches
of foreign banks), commercial lending companies owned or controlled
by foreign banks, and organizations operating under section 25 or
25(a) of the Federal Reserve Act
Federal Reserve Bank serving the District in which the
institution is located.
Nonmember insured banks and insured state branches of foreign banks
Federal Deposit Insurance Corporation regional director for the
region in which the institution is located.
Savings institutions insured under the Savings Association
Insurance Fund of the FDIC and federally-chartered savings banks
insured under the Bank Insurance Fund of the FDIC (but not
including state-chartered savings banks insured under the Bank
Insurance Fund)
Office of Thrift Supervision Regional Director for the region in
which the institution is located.
[[Page 19678]]
Federal Credit Unions
Division of Consumer Affairs, National Credit Union
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428
Air Carriers
Assistant General Counsel for Aviation Enforcement and
Proceedings, Department of Transportation, 400 Seventh Street, S.W.,
Washington, D.C. 20590.
Brokers and Dealers
Division of Market Regulation, Securities and Exchange
Commission, Washington, D.C. 20549.
Retailers, Consumer Finance Companies, Certain Other Financial
Institutions, and all others not covered above
Federal Trade Commission, Electronic Fund Transfers, Washington,
D.C. 20580.
Appendix C to Part 205--Issuance of Staff Interpretations
Official Staff Interpretations
Pursuant to section 915(d) of the act, the Board has designated the
director and other officials of the Division of Consumer and Community
Affairs as officials ``duly authorized'' to issue, at their discretion,
official staff interpretations of this part. Except in unusual
circumstances, such interpretations will not be issued separately but
will be incorporated in an official commentary to this part, which will
be amended periodically.
Requests for Issuance of Official Staff Interpretations
A request for an official staff interpretation shall be in writing
and addressed to the Director, Division of Consumer and Community
Affairs, Board of Governors of the Federal Reserve System, Washington,
D.C. 20551. The request shall contain a complete statement of all
relevant facts concerning the issue, including copies of all pertinent
documents.
Scope of Interpretations
No staff interpretations will be issued approving financial
institutions' forms or statements. This restriction does not apply to
forms or statements whose use is required or sanctioned by a government
agency.
By order of the Board of Governors of the Federal Reserve
System, April 19, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-10179 Filed 5-1-96; 8:45 am]
BILLING CODE 6210-01-P
Complete official Federal Register PDF
FR Doc. 95-10901 Medicare and Medicaid Programs; Conditions of Coverage for Organ Procurement Organizations (OPOs)
[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19722-19760]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10901]
[[Page 19721]]
_______________________________________________________________________
Part IV
Department of Health and Human Services
_______________________________________________________________________
Health Care Financing Administration
_______________________________________________________________________
42 CFR Parts 405 and 486
Medicare and Medicaid Programs; Conditions of Coverage for Organ
Procurement Organizations (OPOs); Final Rule
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules
and Regulations
[[Page 19722]]
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Parts 405 and 486
[BPD-646-FC]
RIN 0938-AE48
Medicare and Medicaid Programs; Conditions of Coverage for Organ
Procurement Organizations (OPOs)
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Final rule with comment period.
-----------------------------------------------------------------------
SUMMARY: This final rule with comment period sets forth changes to the
conditions of coverage for organ procurement organizations (OPOs). It
provides for exceptions to the OPO qualification and performance
standards under certain circumstances, revises the methodology for
counting organs, and extends the period for interim OPO designations
and notification of termination. It also adds new regulations relating
to hospitals that change OPO designations when there is a change in the
OPO service area.
This final rule with comment period modifies conditions of coverage
previously set forth in an interim final rule. These changes are being
made in response to public comments received on that interim rule. New
regulations contained in this final rule implement provisions of the
Social Security Act Amendments of 1994.
DATES: Effective date: This final rule is effective May 31, 1996.
Comment date: Written comments on the definition of ``donor''
(Section VI of the preamble) or the hospital waiver process (XI of the
preamble) will be considered if we receive them at the appropriate
address, as provided below, no later than 5 p.m. on July 1, 1996.
ADDRESSES: Mail written comments (One original and three copies) to the
following address: Health Care Financing Administration, Department of
Health and Human Services, Attention: BPD-646-FC, P.O. Box 7518,
Baltimore, MD 21207-0518.
If you prefer, you may deliver your written comments (one original
and three copies) to one of the following addresses: Room 309-G, Hubert
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC or
Room C5-09-26, 7500 Security Boulevard, Baltimore, MD.
Due to staffing and resource limitations, we cannot accept comments
by facsimile (FAX) transmission. In commenting, please refer to file
code BPD-646-FC. Comments received timely will be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, in Room 309-G of the
Department's offices at 200 Independence Avenue SW., Washington, DC, on
Monday through Friday of each week from 8:30 a.m. to 5 p.m. (phone:
(202) 690-7890).
See section XV of this preamble for special instructions regarding
the submission of comments and recommendations regarding the
information collection requirements contained in these regulations.
FOR FURTHER INFORMATION CONTACT: Jackie Sheridan, (410) 786-4635.
SUPPLEMENTARY INFORMATION:
I. Background
A. Legislative History
Medicare coverage of services furnished to individuals with end-
stage renal disease who require dialysis or kidney transplantation is
authorized under section 1881 of the Social Security Act (the Act).
Medicare also covers certain other organ transplants that HCFA has
determined are ``reasonable and necessary'' under section 1862 of the
Act, and pays for those transplants and related organ procurement
services.
Under the Medicaid program, payment is made for ``medical
assistance'' as defined in section 1905(a) of the Act and in our
regulations at 42 CFR Part 440. Each State has a considerable degree of
flexibility to supplement Medicaid-required services with optional
services the State elects in its State plan. States must pay Medicare
coinsurance and deductible amounts for transplant services for
``qualified Medicare beneficiaries,'' and must pay for transplant
services to individuals under the age of 21 who receive early and
periodic screening, diagnostic, and treatment services. In addition,
States may pay for other transplant services based on written standards
which provide that similarly situated individuals are treated alike.
Payment may be made under the Medicare and Medicaid programs for
organ procurement costs attributable to payments to an organ
procurement organization (OPO) only if the organization has been
designated by the Secretary as meeting the conditions for coverage as
an OPO. OPOs are generally paid indirectly for organ procurement costs.
Usually, the transplanting hospital pays those costs to the OPO and
claims them on its cost report. An OPO, however, does have to file a
cost report with us at the end of its fiscal year. At that time, we
settle any overpayments or underpayments with the OPO.
Section 1138(b) of the Act sets forth the statutory qualifications
and requirements that an OPO must meet for coverage of the costs of its
services in procuring organs for hospitals under the Medicare and
Medicaid programs.
Title IV of the Health Omnibus Programs Extension Act of 1988
(Public Law 100-607) contained the Transplant Amendments Act of 1988.
This Act contained amendments to section 371 of the Public Health
Service Act (PHS Act) (42 U.S.C. 273), which defines OPOs.
Specifically, section 402(c)(1)(A) of Public Law 100-607 amended
section 371(b)(1)(E) of the PHS Act by revising the definition of
``service area'' that must be encompassed by an OPO. Public Law 101-
274, enacted on April 23, 1990, postponed until January 1, 1992, the
effective date of section 402(c)(1)(A) of Public Law 100-607.
Additional legislation regarding the definition of a service area was
included in the Transplant Amendments Act of 1990 (Public Law 101-616).
The details of these provisions are discussed under section II
``Service Area'' of this preamble.
Section 201(d)(1) of Public Law 101-616 redesignated section
371(b)(2) of the PHS Act as section 371(b)(3). That section sets forth
the functions of an OPO. However, the Congress did not amend two
textual references in section 371(b)(1) to the OPO functions formerly
specified in paragraph (2). Since that was clearly an oversight and
failure to read the section 371(b)(1) text as if those ``paragraph
(2)'' references had been changed to ``paragraph (3)'' would make part
of the statute meaningless, we are using the corrected references in
this document.
Additional legislation regarding OPOs was included in section 155
of the Social Security Amendments of 1994 (Public Law 103-432, enacted
on October 31, 1994). This legislation amended section 1138(a)(1) of
the Act to require a hospital to have an agreement for notification of
potential organ donation only with the OPO designated for the area in
which the hospital is located. Because this legislation was passed
after our issuance of proposed and interim final rules in 1991 and 1994
respectively to implement statutory provisions, we did not include any
revisions regarding this subject in those publications. We are,
however, including revisions to the regulations in this final rule to
reflect the provisions of Public Law 103-432. These
[[Page 19723]]
provisions are discussed under section XI. ``Waiver of Service Area
Designations'' of this preamble.
B. Regulations
Regulations regarding organ procurement are currently found at 42
CFR part 486 (``Conditions for Coverage of Specialized Services
Furnished by Suppliers'') under subpart G (``Conditions of Coverage:
Organ Procurement Organizations''). The existing regulations were
recently redesignated from subpart D of 42 CFR Part 485 in a final rule
with comment period published in the Federal Register on September 29,
1995 (60 FR 50446). For the benefit of the reader, we are including a
redesignation table. All succeeding regulations references will be to
the redesignated sections. Throughout this preamble, we generally use
the new section numbers in our discussion of specific sections. In some
cases, we use both the old and the new section numbers for ease of
reference.
------------------------------------------------------------------------
Old section (subpart D of part 485 New section (subpart G of part 486
------------------------------------------------------------------------
485.301............................ 486.301
485.302............................ 486.302
485.303............................ 486.304
485.304............................ 486.306
485.305............................ 486.308
485.306............................ 486.310
485.307............................ 486.314
485.308............................ 486.316
485.309............................ 486.318
485.311............................ 486.325
------------------------------------------------------------------------
On June 21, 1991, we published a Notice of Proposed Rulemaking in
the Federal Register (56 FR 28513). In it, we proposed to implement
section 402 of Public Law 100-607 and section 201 of Public Law 101-616
by amending certain sections of 42 CFR part 482, which set forth the
Medicare conditions of participation for hospitals, and subpart D of 42
CFR part 485, which, at that time, set forth the Medicare and Medicaid
conditions of coverage for OPOs.
In addition to the provisions necessary to implement these laws, we
proposed some other revisions to the existing regulations. These
additional regulations were derived from our experience in
administering the OPO program and not related to legislation. The most
noteworthy of these latter provisions dealt with change of ownership of
an OPO and with termination of participation in the Medicare and
Medicaid.
These proposed regulations were updated, revised, and adopted in an
interim final rule with comment period issued on September 8, 1994 (59
FR 46513). Provisions in the interim final rule which contained changes
based on public comments included:
Participation in the Organ Procurement and Transplantation
Network (OPTN) as one of the Medicare conditions of participation for
hospitals.
Certification requirements for an OPO.
Requirements for an OPO service area.
Requirements that an OPO obtain HCFA approval before
entering into any change of ownership, merger, consolidation, or change
in its service area.
Medicare payment provisions.
OPO performance standards.
We have included detailed information regarding the provisions of
the proposed and interim final rule with comment period as background
in the discussion of individual topics.
We received 33 timely items of correspondence in response to the
September 8, 1994, interim final rule with comment period. This final
rule with comment period responds to the comments we received on the
interim final rule with comment period. It also contains revisions to
the regulations to implement provisions of the Social Security Act
Amendments of 1994 (Public Law 103-432). These changes to the
conditions of coverage for OPOs (42 CFR Part 486) are discussed below.
II. Service Area (Sec. 486.307)
A. Background
Before enactment of Public Law 100-607, the PHS Act provided that,
unless an OPO service area comprised an entire State, it had to be of
sufficient size to include ``at least 50 potential organ donors'' each
year.
Section 402(c)(1)(A) of Public Law 100-607 amended section
371(b)(1)(E) of the PHS Act to require the service area to be large
enough that the OPO ``can reasonably expect to procure organs from not
less than 50 donors each year.''
We determined that this change would have resulted in a substantial
number of existing OPOs failing to qualify for redesignation, because
we interpreted the requirement that the OPO ``can reasonably expect to
procure organs from not less than 50 donors'' to be more stringent than
the requirement that the service area include ``at least 50 potential
organ donors.'' According to a Departmental study cited in the Report
of the Committee on Energy and Commerce on a precursor to the 1988
legislative amendments to the Transplant Amendments Act of 1987 (H.R.
Rep. No. 383, 100th Cong., 1st Sess. 5-6 (1987)), the average OPO was,
at the time of the report, procuring organs from only 44 donors per
year. (Because more than one organ may be obtained from a donor, the
average number of organs obtained per OPO per year was about 110.)
Currently, the average number of donors per OPO is 77, resulting in an
average of 279 organs per OPO.
Most of the designated OPOs were scheduled for redesignation
beginning in March 1990 and would have been required to meet the new
requirement imposed by Public Law 100-607. Information obtained from
many representatives of organ procurement organizations (OPOs) revealed
that almost one-half of the OPOs would not have been able to meet the
new requirement. Some organ procurement and transplantation experts
believed that many of the OPOs that did not have a realistic
expectation of procuring organs from at least 50 donors were
nonetheless effective and efficient entities. Consequently, the
Department and other interested parties sought statutory relief to
avoid disruption to the nation's organ procurement system.
On April 23, 1990, Public Law 101-274 was passed. It postponed
until January 1, 1992, the effective date of section 402(c)(1)(A) of
Public Law 100-607, which changed the definition of ``service area.''
Therefore, the ``at least 50 potential donors'' requirement would have
remained in full force and effect until that date. However, Public Law
101-616 further amended section 371(b)(1)(E) of the PHS Act to require
an OPO to have a defined service area that (1) is of sufficient size to
assure maximum effectiveness in the procurement and equitable
distribution of organs, and (2) either includes an entire Metropolitan
Statistical Area (MSA) or does not include any part of the area.
Section 201(d)(2) of Public Law 101-616 required the Secretary to
publish a proposed definition of ``service area'' by February 14, 1991,
and final regulations defining ``service area'' by November 16, 1991.
In the June, 1991 proposed rule, we specified in Sec. 485.304(d)
that an OPO cover a service area ``* * * of sufficient size to assure
maximum effectiveness in the procurement and equitable distribution of
organs and that either includes an entire metropolitan statistical area
as specified by the Office of Management and Budget or does not include
any part of such area * * * *''.
In the September 1994 interim final rule, we revised proposed
Sec. 485.304(d) (now Sec. 486.306(d)) to provide that, for designations
in 1996 and thereafter, an
[[Page 19724]]
OPO's service area must include an entire State or the OPO must procure
organs from an average of at least 24 donors per calendar year in the 2
years before the year of designation. We provided that an OPO operating
in a noncontiguous U.S. State, a U.S. Territory, or a U.S.
Commonwealth, such as Hawaii or Puerto Rico, was subject to a
specified, alternative standard beginning January 1, 1996. We also
provided that if an entity has not previously operated as a Medicare-
certified OPO, it must demonstrate that it can procure organs from at
least 50 potential donors per calendar year.
B. Public Comments and Our Responses
Comment: One commenter suggested that we require that every
transplant center have a working relationship with an OPO.
Response: Existing law and regulations already require this
relationship. Sections 1138(a)((1)(C) and 1138(a)(3) of the Act require
that a hospital have an agreement, as described in section 371(b)(3)(A)
of the PHS Act, with its designated OPO if it is to participate in the
organ procurement program. Medicare regulations at 42 CFR 405.2163
require that every renal transplant center ``* * * participates in a
patient registry program with an OPO designated or redesignated under
Part 485, Subpart D * * * ''. (We are changing this reference to Part
486, Subpart G in this final rule with comment period to reflect the
redesignation). In addition, we have published in the Federal Register
notices containing the Medicare coverage criteria for heart (52 FR
10935, April 6, 1987), liver (56 FR 15006, April 12, 1991), and lung
(60 FR 6537, February 2, 1995) transplantations. Each of these notices
requires that a hospital submit documentation demonstrating the
hospital's agreement with a Medicare-certified OPO as one of the
conditions necessary for Medicare approval as a facility for which
respective organ transplantation may be covered. We believe that these
requirements meet the commenter's suggestion.
Comment: One commenter suggested that more consideration be given
to regional MSAs than to State boundaries. The commenter believed the
current policy results in poor service to remote areas.
Response: It is not clear to us how the current policy would
inappropriately effect organ distribution to remote areas. We believe,
however, that the law is clear regarding the MSAs and provides little
latitude for alternative interpretation. Section 371(b)(1)(E) of the
PHS Act provides that an OPO ``* * * has a defined service area that is
of sufficient size to assure maximum effectiveness in the procurement
and equitable distribution of organs, and that either includes an
entire MSA (as specified by the Director of the Office of Management
and Budget) or does not include any part of the area.'' Thus, we have
no authority to split MSAs in designating OPO service areas. Other than
repeating this statutory language, our Medicare regulations do not
address MSAs.
As a matter of practice, we designate OPO service areas on a county
specific basis. An OPO's service area will include all of the counties
within the MSA and as many other counties as it desires and is awarded
based on the criteria in Sec. 485.308 (now redesignated as
Sec. 486.316). We note that all counties that contain a hospital are
assigned to one of the designated OPOs. In addition, in principle, we
believe that organ donation is most likely to be enhanced where there
is a willing and cooperative arrangement between the hospital and the
OPO. Therefore, we believe that it could be potentially deleterious
rather than helpful to force hospitals in counties that are not
officially part of an MSA to be served by the OPO servicing the MSA.
However, if the parties agree that designation of a regional MSA would
be helpful, we would not preclude such designations.
Comment: One commenter noted that current terminology used by the
Office of Management and Budget (OMB) refers to ``Metropolitan Area''
(MA) rather than MSA as the general term describing urban
classifications. Within MAs, there are several categories: MSA,
Consolidated MSAs (CMSAs), Primary MSAs (PMSAs), and New England County
Metropolitan Areas (NECMAs). The commenter requested clarification as
to which MA categories are applicable to the OPO regulations.
Response: For purposes of the OPO regulations, MSAs encompass the
current MA categories of MSA, PMSA, and NECMA. A CMSA is comprised of a
number of PMSAs that are considered separately for purposes of defining
OPO service areas. In New England, we use NECMAs rather than MSAs and
PMSAs which are based on townships rather than county areas. Since OPO
service areas are defined based on counties, we believe it is more
appropriate to use the county equivalent MA designations in New England
(that is, NECMAs). The law clearly states that we may not divide an MSA
into the service areas of multiple OPOs. If an OPO's service area
includes any part of an MSA, PMSA, or NECMA, it must include the entire
area.
Comment: One commenter noted that a newly established OPO could
qualify based on a determination that it has the potential to procure
organs from at least 50 potential donors. The commenter requested
clarification as to how the organization would demonstrate this fact.
The commenter also noted that currently OPOs convert fewer than 50
percent of the potential donors to actual donors. Therefore, it is
unlikely that an organization with only a 50-donor potential can meet
the 24-donor criterion.
Response: The current criterion for qualification as an OPO
servicing an area of fewer than 2.5 million people is that the
organization demonstrate that it has the potential to procure organs
from 50 donors. Thus, the criterion we have established for newly
functioning OPOs is identical to that currently applied to the existing
OPOs. We have historically not prescribed how an OPO must demonstrate
this standard is met. Rather, when making such a determination, we have
accepted the information submitted by the OPO, evaluated it, and
requested clarification if necessary. We believe it is appropriate to
hold newly established OPOs to the condition in place for existing
OPOs. Thus, we do not intend to specify how such a standard is to be
met. We will continue to allow flexibility for the OPO to come forward
with reasonable information to demonstrate its position.
We do, however, intend to take a more rigorous look at the
information than we have previously. Newly established OPOs need to
qualify at the end of a 2-year period based on one of the other
criteria. In most cases, this criterion will be an average 24 donors
per year over a 2-year period. We believe it would be disruptive to the
organ procurement industry to allow OPOs to enter the arena only to
exit 2 years later if they cannot meet the qualification criteria.
Consequently, we expect OPOs to act responsibly and to have a specific
plan for achieving the long-term qualification criteria.
Comment: Several commenters expressed concern about the 24-donor
rule. For the most part, these commenters believed that some very small
OPOs are performing efficiently as is evidenced by the fact that they
meet the performance criteria. The commenters believed that the 24-
donor criteria is not an appropriate measure of performance. They
recommended that no size limitations be part of the qualification
criteria for designation as a Medicare-approved OPO.
One commenter believed that we should continue to permit an OPO
that meets the performance criterion to
[[Page 19725]]
qualify if it has an alternative local unit (ALU) to address the
equitable distribution issue. An ALU is an area developed by the OPO
and approved by the OPTN contractor as an alternative area as an aid to
equitable distribution. An ALU may be treated as a substitute for the
OPO's service area in the allocation scheme. The commenter, from a very
small OPO that is one of three OPOs operating in a single medium-size
State, believed that HCFA should continue to permit an OPO that meets
the performance criterion to qualify if it has an ALU to address the
equitable distribution issue. In the commenter's State, the three OPOs
share certain matched organs on a broader scale than they would if the
ALU were not in place, but the majority of organs are allocated
locally. The commenter believed that the regulations should be modified
to provide for an exception criterion that would allow this small OPO
to continue to qualify.
Response: The qualification criteria are intended to implement
section 371 of the PHS Act. Section 371(b)(1)(E) of the PHS Act
provides that an OPO must have a defined service area that ``* * * is
of sufficient size to assure maximum effectiveness in the procurement
and equitable distribution of organs * * *.'' We believe the use of
the explicit words ``of sufficient size'' in the statutory language is
a clear expression that the Congress intended the Secretary to
establish some measures of size in response to this mandate in the law.
Further, when we look at the legislative history, we believe that
the Congress intended that the service area size criterion be rigorous.
Section 371 initially set the qualification criterion at 50 potential
donors. However, the Congress recognized that this criterion was too
lax. The Congress subsequently modified section 371(b)(1)(E) in section
402 of Public Law 100-607 to require the service area to be large
enough that the OPO ``* * * can reasonably expect to procure organs
from not less than 50 donors each year''.
When this legislation was enacted, we recognized that setting the
qualification standard at this level at that time would have resulted
in decertification of approximately one-half of the OPOs approved by
Medicare. Consequently, we sought legislative relief from the statutory
standard. The Congress responded to our request with Public Law 101-
616.
We acknowledge that the fact that an OPO procures 24 donors per
year is not in and of itself assurance of ``maximum effectiveness'' in
organ procurement. We believe, however, that this criterion certainly
contributes to the retention of OPOs that are more likely to be
effective in organ procurement. This is true particularly for OPOs with
service areas that have populations under 1.5 million. We do not
believe that it is productive and cost effective to continue to retain
several OPOs operating within a single, often small, State. In these
cases, often too much time and effort are spent in competition with the
neighboring OPO rather than in organ outreach. Generally, a merger of a
number of small competing OPOs is cost effective because it results in
shared overhead, shared optimal practices, and a higher ratio of organs
to fixed operating costs.
Our decision to proceed with the 24-donor rule, however, is not
solely based on the maximum effectiveness portion of the statutory
language. The law also specifically requires that service area
designations be sufficiently large to ensure equitable distribution of
organs. Organs available for transplant are a scarce resource. There
are many more people on the transplant waiting list than there are
available organs. Both the Congress and this Administration support
transplant policies that contribute to the equitable distribution of
organs. We believe a proliferation of a large number of very small OPOs
does not contribute to this goal. The organ allocation policies give
priority, in most cases, to distribution of organs within the service
area. Consequently, OPOs must give first priority to keeping organs
procured within their service areas for transplant rather than
dispersing them to a larger area. The existence of a substantial number
of small OPOs could be disruptive to an effective large organ
allocation system because each of these OPOs would be keeping organs
for transplant within its own small service area.
For example, a small hospital-based OPO may have only a single
transplant center (itself) within its service area. In most cases, all
the organs procured in the service area are then transplanted to
patients on the waiting list at the transplant center instead of being
allocated to patients on a regional or national basis. The OPO, in
accordance with the national allocation rules, is transplanting the
procured organs to the highest-ranking appropriate patients in the
local area. These patients may have been on the waiting list a very
short time. Equally appropriate patients in the region who have been
waiting a much longer period of time would not receive the organs
because they are outside the local area. Since the OPO is servicing
only itself, it has an incentive to be a high-performing OPO. The
patients at this center have a shorter wait time.
However, in a neighboring town that is part of a larger OPO service
area, there may be several hospitals that must share the organs
procured from an OPO that is as effective in procuring organs as the
small OPO. Because this OPO must share organs among several transplant
centers, patients in these centers must wait considerably longer for
the needed lifesaving organs. As a result, there is significant
disparity among the transplant center waiting times. In various
hearings on organ transplantation over the years the Congress has
expressed concern about the disparity in waiting times for organ
transplantation among various geographic areas. Many members of the
Congress have expressed a strong desire to move toward a national
allocation methodology to mitigate this condition. We believe that the
definition of service area in the statute that addresses the idea that
an OPO's service area be of sufficient size to assure equitable
distribution is direction to the Secretary to not only look at OPO
performance or effectiveness but to also consider the impact of service
area size on organ distribution since very small OPO service areas tend
to result in disproportionately short waits in some areas and
disproportionately long waits in other areas. We conclude that a
proliferation of very small OPOs may not be consistent with an
equitable distribution system as required in the statute.
While we acknowledge the existence of an ALU for the purpose of
organ distribution may potentially mitigate some of the concern
regarding equitable distribution, we believe that there are other
values associated with establishing OPO minimal service area size that
cause us to continue to support this position. There are many benefits
of the consolidation of OPOs, such as the sharing of best practices,
shared overhead, expediency in reacting to emergency situations,
consistent procurement and transplant practices, and promotion of
equitable treatment. We find no benefit to the program or the American
public in retaining very small OPOs under a system of exceptions when
there is no potential that these OPOs would ever meet the size
criterion.
On the other hand, we have not arbitrarily set up criteria that
restrict OPOs to a certain size or population base. We recognize that
small OPOs can be very effective in procuring and distributing organs
despite serving a small population area in certain circumstances. OPOs
may qualify if they service an entire State, regardless of the
population or the number of donors
[[Page 19726]]
available. Similarly, we have established special qualifying criteria
for OPOs servicing areas that are not contiguous to the rest of the
nation. OPOs servicing Hawaii, Alaska, and U.S. territories must meet
alternative criteria as discussed below.
We also point out that the criterion is applied based on a 2-year
average. Thus, if an OPO fails to meet the criterion in one year due to
uncontrollable or unforeseen circumstances, it will have an opportunity
to make up for lost donors in the following period. Since this is a
static number, OPOs will be able to continually monitor themselves
against this criterion and take corrective actions as necessary to
improve.
In evaluating the impact of this criterion on the existing OPOs
using historical data, we are comfortable that the criterion will not
have a major adverse impact on the existing OPOs.
Based on 1994/1995 data, three OPOs that would have met the
performance criterion if it had existed in that period would not have
met the 24-donors per year criterion. However, one of these OPOs would
have qualified under the statewide criterion. The remaining two OPOs
are small organizations located in States with alternative, OPOs. We
believe alternative, high-performing OPOs could service the respective
areas adequately, while providing for a broader allocation area that is
likely to promote more equity in organ distribution. Consequently, we
continue to believe that the 24-donor rule is appropriate as one of the
qualification criteria.
In response to the comment that the 24-donor rule is not an
appropriate measure of performance, we have reviewed this requirement.
We agree that the 24-donor rule is not a measure of performance but a
measure of service area size. Furthermore, it is redundant to maintain
this requirement as both a performance and a qualification criterion.
All OPOs must meet all of the qualification criteria to be recertified.
It serves no purpose to place the requirement in two separate sections.
Therefore, we are deleting Sec. 486.310(b)(2) (formerly
Sec. 485.306(b)(2)) from this final rule with comment period.
Comment: Some commenters noted that this same criterion was both a
qualification standard and a performance standard. The performance
standard is one that is subject to a corrective action plan. However,
it was not clear whether the qualification criterion is subject to
corrective action.
Response: As noted above, we are deleting the 24-donor rule as a
performance criterion. Nonetheless, we think the commenters' concern
that there is no provision for exception to the qualification criteria
is important.
The law specifically requires that an OPO be of sufficient size to
assure maximum effectiveness in the procurement and equitable
distribution of organs. As discussed above, we do not believe it is in
the best interests of the program or the public to establish an
exception system for very small OPOs that historically do not possess
the base to achieve 24 donors. Even though such a small OPO may be
performing adequately based on its population base, we are concerned
that the proliferation of extremely small service areas runs counter to
the objectives of an equitable national organ allocation system.
However, we recognize that an OPO may experience unforeseen
circumstances beyond its control that result in the OPO failing to meet
the qualification criterion during a single recertification period.
Consequently, we are adding a new Sec. 486.307(d)(3) to provide for an
exception process.
This exception process is explicitly limited to those OPOs that
have historically met the criteria and that have a specific plan to
achieve 24 donors per year in the future. We are also allowing a one-
time exception for the transitional period. This exception allows an
OPO that meets the performance standards in Sec. 486.310 to continue
Medicare and Medicaid participation for 2 years while it puts in place
a plan to achieve 24 donors per year in the future. (See Section X of
this preamble)
To receive the exception, an OPO must file its request with HCFA at
least 15 days before its recertification date. The request must be in
narrative form. If the exception is based on unusual circumstances the
narrative must explain in detail the unusual circumstances that
contributed to the OPOs failure to procure 24 donors per year. The
exception request must also include data regarding the number of donors
per year for the 5 years immediately preceding the present designation
period. For example, if an OPO fails to meet the qualification standard
for the 1996 designation period and it requests an exception, it must
submit data, by year, for donors procured from 1991 through 1995. The
exception request must also detail the specific actions the OPO intends
to take to increase organ donors to 24 per year. Detailed instructions
concerning the exception process and the corrective action will be
included in the manual instructions.
Comment: One commenter wrote encouraging us to view the
qualification criteria as bare minimum which should not be weakened for
any reason. The commenter was concerned with the discrepancy between
the qualification standards for new OPOs and currently existing OPOs.
Response: We appreciate support for the qualification standards
adopted. As noted above, we believe it is important to maintain high
standards to encourage OPOs to make every effort to procure all
available organs. However, we are not aware of any means to avoid a
discrepancy in standards between new and existing OPOs. That is, a new
OPO will not have actual data on any objective measure of organ
recovery or transplant rates. Consequently, we have no alternative than
to use a measure of potential procurement for the initial designation.
On the other hand, if an OPO is not recovering the potential
organs, despite the fact that the area is large enough to support
minimum recovery level, we believe it would be irresponsible to
continue to allow that OPO to service the area. Thus, while there may
be some discussion as to what exactly is the most appropriate
qualification standard for existing OPOs, we believe that there should
be no alternative to setting the standard using actual experience
measures as opposed to potential. Since it is impossible to use actual
data for new OPOs and we are wedded to using actual data for existing
OPOs, there appears to be no alternative but to use different standards
for new and existing OPOs.
However, from the context of the comment, it appears that the
commenter believes the standard for new OPOs, which uses potential
recoveries, is more difficult than the standard for existing OPOs. We
point out that while the number of potential donors for new OPOs is
higher than the number of actual donors for existing OPOs, we do not
believe the standard for new OPOs is more rigorous. We have been told
by some OPOs that the average conversion rate of potential organs is
approaching 3 to 1. This means that to achieve the standard for
existing OPOs of 24 donors, a new OPO should have an area big enough to
have close to 72 potential donors.
We did not use the 72-donor criterion for several reasons. First,
we believe it is inappropriate to hold new OPOs to a different initial
standard than that which had to be met by their competitors when they
first entered the program. Second, we believe that new OPOs deserve the
benefit of the doubt in achieving a conversion rate that is above the
national average. That is, a new OPO may have only 50 potential
[[Page 19727]]
donors, but because of effective practices is able to achieve a
conversion rate of 2 to 1, and thus would continue to meet the
qualification criterion at recertification time.
Comment: One commenter noted that not all OPO service areas are
contiguous territories. The commenter requested that HCFA prohibit OPOs
from developing noncontiguous areas, citing difficulty in organ
allocation when service areas are separated.
Response: The commenter did not present any data or examples
demonstrating that noncontiguous areas are problematic. Further, the
issue of noncontiguous service areas has not presented a significant
problem for organ allocation or procurement to the best of our
knowledge. Most OPOs that have noncontiguous service areas have
established field offices in each territory. Often, they have secured
approval for alternative allocation policies for each portion of the
service area. While there may be some administrative complexities
associated with noncontiguous areas, this concept has appeared to work
very well. We find no reason to prohibit the practice in the future.
C. Provisions of This Final Rule With Comment Period
We are making the following changes to the interim final rule.
We are revising Sec. 486.306(d). We are retaining the
general requirements for documentation of service area in paragraph (d)
and moving the specific detailed requirements in that paragraph to new
Sec. 486.307 OPO service area requirements and documentation and
including a cross-reference to Sec. 486.307 in Sec. 486.306(d). We are
making this change as a technical change to allow for a better
organization and readability of the regulations.
We are adding Sec. 486.307(d)(3) to provide for an
exception process when an OPO experiences unforeseen circumstances
beyond its control that result in the OPO failing to meet the
qualification criterion during a single certification period. To
qualify for an exception, the OPO must demonstrate that (1) it failed
to meet the 24-donor criterion due to unusual circumstances beyond its
control, (2) it has historically maintained a service area sufficient
to assure effective procurement and equitable distribution (that is, it
has historically achieved 24 donors per year), and (3) it has a
specific plan to achieve 24 donors per year in the future.
We are deleting Sec. 486.310(b)(2) (formerly
Sec. 485.306(b)(2)). This paragraph contains the 24-donor rule as a
measure of performance. As noted above, we are keeping this measure as
a qualification criterion.
Although we did not receive a comment to this effect, we
are redesignating Sec. 486.310(a)(3) (formerly Sec. 485.306(a)(3)),
that requires OPOs to enter into a working relationship with any
hospital or transplant center in the OPO's service area that requests a
working relationship, as Sec. 486.304(b)(8). We believe that this
requirement is more appropriately considered as a qualification
standard for OPOs rather than as a performance standard.
III. Composition of the Board of Directors of an OPO
(Sec. 486.306(f))
A. Background
Section 485.304(f) (redesignated as Sec. 486.306(f)) requires that
as one of the conditions for qualification as an OPO under the Medicare
and Medicaid programs, an OPO must have a board of directors or an
advisory board that has the authority to recommend policies relating to
the donation, procurement, and distribution of organs. That section
also specifies that the board must include members with various
backgrounds and areas of interest. In the proposed rule, we included a
revision to Sec. 485.304(f)(3) (now Sec. 486.306(f)(3)) to allow either
a physician or an individual with a doctorate degree in a biological
science with knowledge, experience, or skill in the field of
histocompatibility to serve on an OPO board of directors or advisory
board. In the interim final rule, we changed the requirement from ``a
physician with knowledge, experience, or skills in the field of human
histocompatibility'' to ``a physician with knowledge, experience or
skill in human histocompatibility, or an individual with a doctorate
degree in a biological science and with knowledge, experience, or
skills in the field of human histocompatibility.''
In addition to this requirement, Sec. 486.306(f) specifies that the
board must also consist of:
Members who represent hospital administrators, tissue
banks, voluntary health associations in its service area, or emergency
room personnel.
Members who represent the public residing in that area.
A neurosurgeon or another physician with knowledge or
skills in the field of neurology; and
A transplant surgeon from each transplant center in its
service area with which the OPO has an arrangement to coordinate its
activities.
While an OPO may have more than one board, the membership
composition specified in Sec. 486.306(f) must exist on a single board.
B. Public Comments and Our Responses
Comment: Several commenters questioned the composition of the
policy board. Some commenters expressed concern with the involvement of
a transplant surgeon from each transplant center. They interpreted the
regulation as requiring that each transplant surgeon from each center
be placed on the board. They commented that this provision would
produce very large and costly boards and would give transplant surgeons
control.
Response: The commenters misinterpreted the regulation. We are not
requiring that each transplant surgeon be included on the OPO policy
board. Rather, we are including in the regulations the statutory
requirement contained in section 371(b)(1)(G)(i)(V) of the PHS Act.
This section requires that there be one transplant surgeon from each
transplant center within the OPO service area included on the policy
board.
We agree with the commenter that to include all transplant surgeons
would be inappropriate. Such a situation would give transplant surgeons
a disproportionate influence over OPO policies. We did not intend to
require the inclusion of every transplant surgeon. In fact, we read the
statute as prohibiting this composition. That is, we believe the
statute does not provide the OPO an opportunity to alter the
composition of the board from that provided in the law. Section
371(b)(1)(G)(i) of the PHS Act states clearly that the board ``is
composed of * * * from each transplant center * * * a member who is a
surgeon * * *.'' We believe the use of the article ``a'' to modify
transplant surgeon members, expresses the will of the Congress that the
board be composed using only a single transplant surgeon from each
transplant center within the service area. The statute does not say
that the board must include at least the following members. Rather it
clearly states that the board is composed as directed. Thus, OPOs may
not add additional members to the policy board other than those
specified in Sec. 486.306(f). We are modifying this section to specify
that the board must ``be composed of'', rather than say ``include'' to
clarify this provision.
Comment: Another commenter recommended that Sec. 486.306(f) be
modified to include only a single representative from one of the
disciplines from each transplant center on the policy board. The
commenter was concerned that the current regulation gives surgeons a
disproportionate influence on the board
[[Page 19728]]
or requires very large boards to balance their influence.
Response: As noted above, the statute is very clear in describing
the composition of the policy board. To alter the composition would
require a change in the law. However, we are not convinced that the
composition mandated in the law is problematic in most cases.
The law requires both a neurologist and a histocompatibility expert
on the board. In addition, it requires an unspecified number of other
people that may be included; for example, representatives of hospital
administrators, intensive care and emergency room personnel, tissue
banks, voluntary health associations, and members of the public.
Although the law does not specify the number of these representatives,
it is clear that there must be multiple representatives through the use
of the plural of the word ``members'' in sections 371(b)(1)(G)(i) (I)
and (II) of the PHS Act. In all but a few extremely large urban OPO
service areas, using only the minimum representation from these other
categories will result in a fairly small and balanced policy board.
We acknowledge that there will be isolated cases where the
requirement for a surgeon from each transplant center may be
problematic. For example, we are aware of one OPO that services 17
transplant centers. The inclusion of 17 transplant surgeons will result
in a very large and potentially difficult policy board. Therefore, we
are considering recommending a statutory change to the Congress
regarding the law governing OPO board composition. In the meantime, the
boards must be composed as directed in the law.
Comment: Other commenters recommended that OPOs be allowed to
establish committees, such as a quality of organs recovered committee
or a medical committee, in lieu of full representation on the policy
board by all surgeons. Still other commenters expressed support for
inclusion of one transplant physician from each transplant center on
the policy board.
Response: As noted above, the composition of the board is explicit
in the statute. We do not have the authority to condone alternative
governing strategies. We will consider developing a recommendation for
statutory change in this regard. However, we believe that the statute
would not prohibit OPOs from establishing the committees that have been
suggested. Such committees could advise the board and may be very
helpful in developing the OPO's policies and influencing its practices.
We strongly encourage OPOs to seek opinions from their customers and
others affected by their decisions. The only problem we find with the
commenter's recommendation is that such committees cannot be used in
lieu of full representation.
Comment: One commenter suggested that Sec. 485.304(f)(3) (now
Sec. 486.306(f)(3)) relating to histocompatibility representation on
the board be broadened further to include a doctorate level individual
in bioethics or a nursing specialty.
Response: We are not certain if the commenter intended that the
histocompatibility requirement be met by someone with bioethic or
nursing doctorate level education or that such individuals be added in
addition to the histocompatibility person. We believe that the
histocompatibility requirement is extremely important to the policy
board composition. Histocompatibility testing is paramount in
discussing policies related to equitable distribution of organs. We
believe that the histocompatibility representative on the policy board
must be someone with a medical degree or a biological science degree
with experience in human histocompatibility.
The requirement included in Sec. 486.306(f)(3) is a reiteration of
the requirement in the statute. The current law does not authorize
alternative education for this requirement. However, the current
regulations do not prohibit an OPO from including someone with a
doctorate level education in nursing or bioethics on the board. The
statute does not provide specific direction as to the education or
number of representatives from hospitals and the public. An OPO could
certainly choose to include a person with advanced nursing and
bioethics training, or both, as one of these board representatives.
Comment: One commenter recommended that the OPO boards be comprised
of not more than 50-percent representation from transplant centers.
Response: As noted above, we have described the composition of the
OPO boards in this regulation in accordance with section 371 of the PHS
Act. We note that the law does not prescribe the number or skills mix
of representatives from hospitals or the public. We expect that, given
that the boards must include a transplant surgeon from each transplant
center, in most cases the transplant centers will be heavily
represented on the boards.
We believe, however, that it is unnecessary and inappropriate to
dictate the percentage of transplant center representatives on the
board. We believe that each OPO is best equipped to determine the needs
of its operation and the community. Given the number of transplant
centers in the OPO's service area, such a requirement could result in
extremely large boards which could be costly to the OPO and,
consequently, the Medicare and Medicaid programs. Further, we do not
believe that the statute supports such a requirement because the law
was deliberately vague in its use of the term ``representatives'' as
opposed to use of limiting article ``a'' in the requirements regarding
members of the board.
However, given the rigorous performance standards that OPOs must
meet, we expect that each OPO will ensure as broad a representation as
practicable in setting up its policy board. We expect that it would
want to seek out increased involvement with donor hospitals and public
representatives to achieve innovative strategies to increase donation
rates. OPOs that fail to modify their boards to achieve a balance in
representation from the donor community and the transplant community
are likely to feel the consequences in failure to meet performance
standards. Thus, although we are not specifying the percentage of
representatives, we are holding OPOs accountable for appropriate
decisions.
C. Provisions of this Final Rule With Comment Period
We are clarifying Sec. 486.306(f) by revising the language
describing the OPO board. The revised language, ``the advisory board
must be composed of the following,'' more clearly indicates that there
is no discretion to add or remove skills to the mix on the board.
IV. Equitable Distribution of Organs (Sec. 486.306(i))
A. Background
In a proposed revision to Sec. 485.304(i) (now Sec. 486.306(i)), we
specified that an OPO must have a system to allocate donated organs
equitably among transplant centers and patients according to
established medical criteria. This revision was made to include the
word ``equitably'' in the previously existing requirement. In the
interim final rule with comment period, we changed the requirement to
eliminate the allocation of organs among ``centers'' and to specify the
medical criteria that the system must operate under; that is, they must
be consistent with Centers for Disease Control and Prevention (CDC)
standards and with OPTN rules. We made the former change to be
consistent with section 371(b)(3)(E) of the PHS Act.
[[Page 19729]]
B. Public Comments and Our Responses
Comment: One commenter believed there was now an absence of a
requirement for OPOs to equitably distribute organs. Another commenter
recommended that there be a follow-up mechanism to ensure that OPOs use
a system to allocate organs according to established medical criteria.
Response: The regulations at Sec. 486.306(i) require OPOs to have a
system to equitably allocate donated organs among transplant patients
that is consistent with the CDC and the OPTN rules. We made the change
in the interim final rule to specifically add the word ``equitably'' to
the distribution requirement. Currently, the OPTN develops a national
organ allocation system. The system is developed by the membership and
is medically based.
Although we are aware of isolated instances of OPOs using
allocation systems that do not comport with the national OPTN rules, we
do not believe that this situation is widespread. Consequently, we
believe it is unnecessary to establish a formal mechanism to evaluate
OPO allocation methodologies at this time. However, we invite the
public to advise the Department of incidents of organ allocation that
fall outside the established system. Incidents should be reported to
Judith B. Braslow, Director, Division of Organ Transplantation, Room 7-
18, 5600 Fishers Lane, Rockville, MD 20857.
Comment: Two commenters requested clarification regarding the
reference to the CDC standards. They noted that the CDC guidelines were
published as guidelines, not rules. They inquired if inclusion in
Sec. 485.304(i) (now Sec. 486.306(i)) sets these guidelines as
standards of practice for the entire transplant community.
Response: Section 486.306(i) requires that an OPO's system of
distribution of organs among patients be consistent with the CDC
standards. For the most part, these CDC standards relate to screening
potential organ donors and organs recovered for Human Immunodeficiency
Virus (HIV) infection. We believe that the monitoring for HIV infection
is critical and is an essential element for Medicare certification of
OPOs. In fact, in section 371(b)(3)(C) of the PHS Act, the Congress has
specifically required that OPOs evaluate an organ for HIV infection.
Exclusion of prospective blood donors based on their acknowledged
risk factors for HIV infection began in 1983. In 1985, when the test
for the HIV antibody became available, screening of prospective donors
of blood, tissue and organs began. Both measures have reduced
remarkably the transmission of HIV via these routes. A 1991
investigation, however, determined that several recipients had been
infected with HIV by an organ/tissue donor who had negative HIV
antibodies at the time of the donation. This occurrence raised
questions about the need for additional Federal oversight of
transplantation of organs and tissues.
A work-group was formed by the Public Health Service (PHS) to
address transmission of HIV through transplantation of human tissue.
This group produced a set of recommendations that were included in the
CDC Guidelines that we have included as an appendix to subpart G of
part 486 and referenced in the OPO regulations. OPOs must abide by the
CDC guidelines to qualify for Medicare and Medicaid certification.
In developing the recommendations, the PHS sought assistance from
public and private health professionals and representatives of the
transplant community, public health and other organizations. A total of
37 external consultants and 18 government staff formulated the
recommendations. These recommendations address issues such as donor
screening; quarantine of tissue from a living donor; inactivation or
elimination of infectious organisms in organs and tissues before
transplantation; timely detection, reporting, and tracking of
potentially infected tissues, organs and recipients; and recall of
stored tissues from donors found after donation to have been infected.
Factors considered in the development of these guidelines included
differences between the screening of living and cadaveric donors; time
constraints due to organ/tissue viability that may preclude performing
certain screening procedures; differences in the risk of HIV
transmission from various organs and tissues; differences between
systems for procuring and distributing organs and tissues; the effect
of screening practices on the limited availability of organs and some
tissues; and the benefit of the transplant recipients.
The CDC guidelines are intended to promote public health and
safety. They were not arrived at without appropriate assessment of the
risks and benefits for the public health of Americans. We fully support
the CDC guidelines and have attempted to assure compliance with them
through inclusion in the Medicare conditions of coverage. Thus, the
inclusion of the CDC guidelines as a requirement for OPOs does give the
CDC guidelines regarding organ allocation the force of regulation. That
is, any OPO found to be failing to conduct appropriate screening or
distributing organs that are not in compliance with the CDC guidelines
for organ allocation can be found out of compliance with the
qualifications for becoming a Medicare- or Medicaid-certified OPO and
have its certification terminated.
However, we acknowledge that the reference to the CDC guidelines
contained in the interim final rule with comment period is not
sufficiently clear on this point. Consequently, we are revising
Sec. 486.306(i) to specifically incorporate by reference the CDC
guidelines. The guidelines were issued as one of the CDC Morbidity and
Mortality Weekly Reports, ``Guidelines on Preventing Transmission of
Human Immunodeficiency Virus Through Transplantation of Human Tissue
and Organs,'' Vol. 43, No. RR-8, May 20, 1994.
We did not receive a formal comment on the application of the CDC
guidelines during the public comment period for the interim final rule.
We understand, however, that OPOs have taken the position that
acceptance of recovered organs is a matter of patient choice. Some
patients are so dangerously close to death while on the waiting list
that they are willing to risk receiving an organ potentially infected
with a fatal virus rather than risk the chance of not finding in a
timely manner an appropriate healthy organ. Some OPOs support the
patient having the opportunity to make this choice for themselves and
believe the CDC guidelines prohibit this practice.
The law at section 371(b)(3)(C) of the PHS Act is clear regarding
testing for infection with the etiologic agents (HIV-1 and HIV-2) for
acquired immune deficiency syndrome and taking steps to prevent
exposure to HIV through transplantation of these organs. Regardless of
the personal preference of a potential recipient or the opinion of the
OPO staff, the law requires that potential donors be tested for viral
markers for HIV-1 and HIV-2, and if found to be infected, organs from
that donor are not to be transplanted.
The CDC guidelines, however, do permit some measure of judgment for
organs tested negative for HIV etiological agents, but procured from
donors who have demonstrated high-risk behaviors. The recommendation in
the CDC guidelines on donor screening state that ``* * * Regardless of
the HIV antibody test results, persons who meet any of the high-risk
criteria should be excluded from donation of organs or
[[Page 19730]]
tissues unless the risk to the recipient of not performing the
transplant is deemed to be greater than the risk of HIV transmission
and disease. In such a case, informed consent regarding the possibility
of HIV transmission should be obtained from the recipient. * * *''
Thus, while compliance with the CDC guidelines requires OPOs to
conduct screening of donors through asking questions about the
potential donor's behavior relative to HIV-risk factors, the guidelines
do not unilaterally prohibit transplantation of the organs from donors
found to have high-risk behavioral criteria who have negative HIV-1 and
HIV-2 serologic tests. The OPO may procure the organs from such donors
and make the information concerning HIV-risk factors available to the
transplant surgeon. The transplant surgeon will then assess the risk
factors for HIV against the risk associated with delaying
transplantation and together with the potential recipient (and his or
her family if appropriate) make a decision to accept or reject the
organ. It is imperative, however, that full information regarding the
risk factors be disclosed by the appropriate transplant surgeon to the
potential recipient.
C. Provisions of this Final Rule With Comment Period
We are including the specific CDC guidelines cited in the interim
final rule as appendix A of part 436 subpart G. We are also clarifying
the reference to the CDC guidelines in Sec. 486.306(i). As a result of
these revisions, we are making the guidelines required standards for
OPOs.
V. Testing of Organs (Sec. 486.306 (q) and (s))
A. Background
In the proposed rule, we added a new Sec. 485.304(r) (now
Sec. 486.306(q)) to require OPOs to assure appropriate tests consistent
with OPTN standards and CDC guidelines are performed to prevent the
acquisition of organs that are infected with the HIV-1 and HIV-2
etiologic agents for acquired immune deficiency syndrome. In the
interim final rule, we redesignated the contents of paragraph (r) as
paragraph (q) and the contents of paragraph (q) as paragraph (r) and
added a new paragraph (s). Revised paragraph (r) required OPOs to
assist hospitals in establishing and implementing protocols for making
routine inquiries about organ donations by potential donors. New
paragraph (s) required OPOs to ensure that serologic testing for HIV-1
and HIV-2 viral markers is performed on potential donors consistent
with OPTN rules and CDC guidelines for solid organ donation.
B. Public Comments and Our Responses
Comment: One commenter recommended that we include standard
provisions that are required for all hospital donation protocols. The
two provisions the commenter specifically suggested were that (1)
hospitals refer all potential donors to the OPO before donation has
been mentioned, and (2) a trained professional be involved in all
donation requests.
Response: We believe that the suggested protocols are good and are
likely to work quite effectively for many OPOs and hospitals. However,
it is inappropriate to regulate specific donation protocols at this
time. There are many different protocols that can be highly effective
in organ donation. We do not wish to stifle the development of
innovative means of increasing the procurement rate by regulating
specific methodologies or protocols.
Comment: One commenter expressed concern with the requirement in
Sec. 485.304(s) (now Sec. 486.306(s)) regarding CDC guidelines for
preventing transmission of HIV through transplantation of human tissue
and organs. The commenter noted that an OPO has no knowledge of what
information the transplant center provided to the potential recipients
regarding their informed consent to the risks of transmission of
infections. The commenter suggested alternative language describing an
OPO's responsibility to make information available to the transplant
center. This language would state that an OPO is not responsible for
the decision to transplant high-risk organs in life-threatening
situations.
Response: Section 485.304(s) (now Sec. 486.306(s)) requires that
OPOs ``Ensure that donors are tested for human deficiency viral markers
consistent with OPTN rules and CDC guidelines for solid organ
donation.'' Similarly, Sec. 485.304(i) (now Sec. 486.306(i)) requires
that the OPO allocate organs in accordance with these guidelines. OPOs
are responsible for testing and allocating organs in accordance with
these guidelines.
If an OPO only allocates organs that comply with the guidelines to
a transplant hospital, a transplant center would receive a high-risk
organ to transplant to the recipient only on a very rare and carefully
selected basis. The OPO is required to ensure that informed consent of
the recipient is obtained. Thus, while the commenter is accurate in the
statement that an OPO does not formally have direct contact with the
recipient, we do not agree that such a situation in any way alters the
responsibility of an OPO to follow the CDC guidelines regarding testing
and allocation of organs. We expect that in these rare cases the OPO
will work closely with the transplant center to impress upon the center
the importance of getting informed consent documentation to the OPO
timely. We expect hospitals will cooperate with the OPOs in meeting
this requirement.
An OPO's responsibility does not stop with testing the donor and
making information available to the transplant center. The regulations
go beyond this to require the OPOs to allocate organs in accordance
with CDC guidelines. We believe it is appropriate to continue to hold
OPOs responsible for compliance with the CDC guidelines for allocation
as well as testing. Therefore, we are not modifying the regulations as
recommended by this commenter. However, as we stated above in
discussing Sec. 486.306(i), we believe that the nonspecific reference
to the CDC guidelines could be confusing. Thus, we are clarifying the
regulations to include a reference to the CDC guidelines in
Sec. 486.306(s). The guidelines are also included as an appendix to
part 486 subpart G.
Comment: One commenter suggested we also require OPOs to use the
guidelines and recommendations of the PHS workgroup on the testing of
organ donors for the presence of hepatitis.
Response: Unlike the requirement for testing for HIV viral markers,
which is contained in section 371(b)(3)(C) of the PHS Act, there is no
express legislative authority to mandate a requirement for hepatitis
testing. Although we believe that hepatitis testing is not precluded by
the law, there is no clear indication in either the statutory language
or the legislative history indicating the Congress intended that the
direction provided for HIV testing be expanded to other infectious
diseases.
We believe that it would be permissible to issue a regulation
requiring hepatitis testing for potential organ donors. However, we
believe that it would be imprudent to proceed with such a requirement
without the benefit of a prior public comment period to solicit the
input of the industry and other interested parties. We recognize that
there are significant OPO concerns that must be considered before we
proceed with any proposal to require testing for hepatitis. We
especially want to consider any cost impact and potential for decline
in organ donations before we develop a regulatory change of this
nature. Consequently, we are inviting public comment on this issue at
[[Page 19731]]
this time. If, after considering any comments we receive, we believe
that change in the regulations is appropriate, we will issue a new
regulation.
C. Provisions of the Final Rule With Comment Period
We have revised Sec. 486.306 (q) and (s) to include a reference the
CDC guidelines as standards in this final rule with comment period. We
have also included the CDC guidelines as an appendix to part 486
subpart G.
VI. Qualification Data (Sec. 486.306(t))
A. Background
In the interim final rule with comment period, we added
Sec. 485.304(t) (now Sec. 486.306(t)) to enable us to verify an OPO's
compliance with the performance standards. Section 486.306(t) requires
an OPO to submit accurate data to us within 15 days following the end
of a calendar year (unless otherwise notified), giving information on
the--
Population of designated service areas based on the most
recent U.S. Bureau of the Census data;
Number of actual organ donors;
Number of kidneys procured;
Number of kidneys transplanted;
Number of extrarenal organs by type procured; and
Number of extrarenal organs transplanted.
B. Public Comments and Our Responses
Comment: One commenter believed that there are multiple
interpretations for the terms for ``actual donor'' and ``procured''
that are used in the performance standards. The commenter recommended
that HCFA adopt the definitions that have been developed by the OPTN
contractor.
Response: Because, in the case of the OPO performance criteria, we
are using criteria that are based on the performance of peers, it is
important that all OPOs use the same data definitions to report data
uniformly. We surveyed the use of various terms within the industry,
including the OPTN contractor, and developed the following definitions:
Kidneys recovered--The number of kidneys recovered is the
actual number of kidneys the OPO recovers with the intent to
transplant. Kidneys recovered that are intended for research are not to
be included in the count. However, if a kidney was recovered with the
intent to transplant but was not actually transplanted due to
unforeseen circumstances, it may be counted. Kidneys recovered en bloc
are counted as two kidneys.
Kidneys transplanted--The number of kidneys transplanted
is the actual number of kidneys that were transplanted into recipients.
Kidneys transplanted en bloc are counted as two kidneys. Kidneys
transplanted as part of multiple organ transplants, for example,
kidney-pancreas transplants, are counted as both a kidney transplant
and an extrarenal transplant.
Extrarenal organs recovered--The number of extrarenal
organs recovered is the actual number of hearts, livers, lungs, and
pancreas the OPO recovers with the intent to transplant. Each organ is
counted individually regardless of the number of organs transplanted
into the same recipient.
Extrarenal organs transplanted--The number of extrarenal
organs transplanted into recipients. Each organ is counted individually
regardless of the number of organs transplanted into a single
recipient.
We had initially collected data from the OPOs using alternative
definitions that may have disadvantaged some OPOs serving hospitals
that frequently engaged in multiple organ transplants, such as heart-
lung transplants, bilateral lung transplants, and kidney-pancreas
transplants. We believe these revised definitions treat OPOs fairly. We
note that the OPTN contractor has agreed to use these common
definitions in its data gathering activities. Consequently, the
feedback that the OPTN contractor provides to an OPO throughout the
performance period to monitor an OPO's performance against its peers
should be consistent with the HCFA performance standards. Moreover,
based upon our impact analysis, we believe that changing the
definitions from those contained in the interim final rule with comment
period will not adversely impact any OPO's ability to meet the
performance standards.
We defined ``donors'' in our previous collections as ``the number
of cadavers from which the OPO actually recovers at least one viable
organ.'' Some OPOs advised us that differences in OPO protocols may
result in unintended differences among the OPOs through the use of this
definition. They recommended that we alter the definition to count only
those cadavers from which at least one organ was ultimately
transplanted.
Unlike the changes in other definitions that increase the number of
organs counted for nearly all OPOs, this recommendation for the change
in the definition of ``donors'' would decrease the count of donors for
many OPOs. Further, in conducting an impact analysis, we found at least
one OPO that would have met the performance standard under the
previously announced definition would not meet the standard under the
recommended revision.
We do not want to change the standard without benefit of comment
from the full industry, particularly in light of the fact that OPO
representatives differ in their views of the most appropriate
definition. Similarly, we are concerned that making a change in the
definitions that would adversely impact some OPOs at this late time in
the performance period without providing those entities an opportunity
for comment is not equitable. Consequently, we are retaining the
definition of ``donors'' that we used when we initially collected data
to calculate performance standards for the 1996 designations. We are,
however, open to altering the definitions for the 1998 recertification
process. Therefore, we specifically invite the public to comment on
this provision. If, after analysis of the comments, we believe that
changes are appropriate, we will advise the public, including all OPOs,
of these changes on a timely basis.
We advised OPOs of these definitions in our letters to them
regarding the collection of data throughout the performance period.
Similarly, we intend to include these definitions in the
FR Doc. 95-10901 Medicare and Medicaid Programs; Conditions of Coverage for Organ Procurement Organizations (OPOs)
manual
instructions being prepared on the OPO conditions of coverage. We
believe that this way of proceeding will give us more flexibility in
adopting more appropriate definitions that become evident through
continued work with the data. We are also soliciting comments on
whether changes in the definitions should be made through rulemaking.
Comment: Several commenters objected to our requirement that organs
procured and transplanted en bloc, such as a pair of kidneys or lungs,
be counted as a single organ. The commenters believed that each organ
should be counted separately.
Response: We had intended that the organs be counted in accordance
with industry standards. Mistakenly, we utilized the HCFA standard for
counting organs that is applied during the cost reporting process. We
have now changed our definitions to be consistent with industry usage.
Each organ will be counted separately. OPOs are not able to influence
the transplantation of multiple organs and therefore should not be
penalized for serving centers that engage in this practice at a greater
frequency than the national average.
We note that we have already clarified this in our operational
instructions to the OPOs in verifying the performance data. Thus, the
performance standards
[[Page 19732]]
applied for the 1996 recertification process have been calculated based
on these revised definitions. Moreover, we are deleting any regulatory
reference to how organs are to be counted. We believe that this type of
detailed operational instruction is more appropriately placed in a
manual where it can be revised more easily as appropriate.
Comment: A few commenters recommended that HCFA use only verified
data from the OPTN contractor to monitor performance.
Response: We have analyzed portions of the OPTN data relative to
organ recovery and transplantation. We found the donor data reasonably
consistent with that reported to HCFA directly. Thus, the idea of using
the OPTN data for calculating performance standards is very appealing.
This method would reduce the reporting burden on the OPOs and is
consistent with the Administration's goal of reducing the Federal
regulatory burden. If we make such a change, we will, of course, first
notify all OPOs timely.
However, we have two concerns before we can implement such a
strategy. First, to make the performance standards as current as
possible while still meeting the recertification schedule, we require
that the calendar year data be reported as close to the end of the year
as possible. Currently, we require the OPOs to report this data to us
by January 15 annually. Because of the lag time of hospitals notifying
the OPTN of recipient registrations, the OPTN contractor questions if
the data reported by the 15th of the following month through routine
channels are comprehensive.
Second, we are concerned that OPOs have an avenue to request
adjustment of the data or to provide any necessary explanatory
material. For example, all of the performance criteria are population
based. Due to hospitals dealing with OPOs other than the one designated
for the service area or census changes, changes in the actual
population data for an area may be necessary. The OPTN data on
population is not, to the best of our knowledge, specific to the actual
hospitals served by OPOs. Thus, to use the OPTN data without the
benefit of adjustment could unfairly penalize some OPOs.
We established a process for collecting data from the OPOs. Each
OPO has been asked to submit its data in accordance with our directions
defining the variables. OPOs have the opportunity to identify necessary
adjustments to the population for its designated service area to take
into account hospitals that deal with multiple OPOs or an OPO other
than the one designated for the area. When an OPO requests a population
adjustment, we will work with the alternative OPO and our regional
offices using appropriate census data to accurately apportion the
population in question.
National averages and performance criteria are calculated and
forwarded to the OPOs, along with our recorded data from that OPO, to
provide an opportunity to review the data recorded. The OPO has an
opportunity to assure that data entry errors or other mistakes have not
been made and provide any necessary corrections to the data base. We
believe it is essential to provide OPOs this form of opportunity for
input before we use the data for purposes that could potentially result
in termination of the OPO from Medicare and Medicaid participation.
Initially, we were concerned that this opportunity for input would
not be available if we were to use the OPTN data. However, we
anticipate that once the initial population for the OPO service areas
has been calculated, future changes or adjustments, or both, will be
minor and infrequent. Thus, we may be able to develop a process that is
based on calculation of the standards using OPTN data, yet incorporates
a process for individual OPO adjustment requests.
Despite these concerns, we are supportive of the concept of using
the OPTN data to calculate the performance standards. We, together with
the OPTN contractor, will work with the OPOs and the transplant centers
throughout the year to obtain the necessary data as timely as possible
and develop a process for appropriate adjustments to achieve this goal.
We intend to test the 1995 and 1996 OPTN contractor data submissions
and analyze differences between the OPTN data and the OPO data. If the
OPTN data prove satisfactory, we will begin using them to set the 1998
standards rather than collecting the data individually from the OPOs.
We would, however, continue to allow OPOs to review the data and
request changes as appropriate. We note that adopting the OPTN data may
require revisions to the regulation or paperwork requirements or both.
We invite OPOs to participate with us in this process during the
ongoing evaluation.
Comment: One commenter believed that the requirement that the data
be submitted within 15 days of the end of an calendar year is
unreasonable. The commenter recommended that OPOs be given 60 days in
which to submit data.
Response: We acknowledge that a 15-day period for submission of
data after the end of the year may appear unnecessarily onerous. But,
upon closer examination, we believe that the request is quite
reasonable. The data are for items routinely collected by nearly all
OPOs, there are only six data elements, and the data for the first 11
months may be gathered in advance of the due date with the final
month's data added at the end of the year.
In addition, we believe that it is impractical to extend this
timeframe because of the work that must be done to determine the
performance standards before the recertification process which, for
most OPOs, begins in April. Prior to the beginning of April in the
years in which the recertification process takes place, we must review
the data submitted by the OPOs, make any necessary adjustments, enter
the data into a database, and calculate the performance standards. This
work must be completed as early in the year as possible so that the
OPOs can be notified of the standards, be afforded an opportunity to
verify the accuracy of their data, and make any changes to the data
prior to the recertification process. Because, the performance
standards are based on averages, a change in a single OPO's data can
result in a change in the standard that could impact upon other OPOs.
We believe that it would be inequitable to OPOs to delay having the
performance standards available to them until immediately preceding the
recertification.
Additionally, we must also have estimates available as early as
possible of those service areas currently served by OPOs that do not
appear to meet the standards so that any OPO interested in moving into
a service area of a poorly performing OPO has an opportunity to prepare
a plan for operating in the service area.
The only alternative we have to collecting data within 15 days of
the end of the performance period is to change the base years from
which we calculate the standards. That is, we could calculate the
performance standards for the 1996 redesignation using data from 1993
and 1994 rather than 1994 and 1995. We find this alternative
unsatisfactory. We believe that it is important that the data used to
evaluate an OPO's suitability for redesignation reflect the most recent
performance of an OPO. The use of old data could result in our
terminating the agreement of an OPO that has just completed an
outstanding performance year because the OPO did not meet the criteria
2 or 3 years ago.
We note that very few OPOs appear to have difficulty with the data
collection process and due date once they have gotten used to the
process. For example, only six OPOs did not file their data
[[Page 19733]]
timely in response to our 1995 collection effort. Further, none of the
OPOs called us to complain that the timeframe was unworkable or
unreasonably difficult.
C. Provisions of the Final Rule With Comment Period
We have not made any revisions to Sec. 486.306(t) in this final
regulation with comment period. We have, however, removed the
introductory paragraph of Sec. 486.310 containing operational
instructions regarding the counting of organs. We are removing these
instructions from the OPO regulations because they will be more
appropriately placed and more easily updated in an operational manual.
VII. Performance Standards (Sec. 486.310)
A. Background
Section 485.306 (now Sec. 486.310) lists the performance standards
for OPOs. In the proposed rule, we proposed revisions to this section
to state that we would not ``redesignate'' any OPO that fails to meet
the performance standards contained in this section. We also revised
Sec. 485.306(b) (now Sec. 486.310(b)) to distinguish between an OPO
which has not previously been designated by us for a particular service
area and a redesignated OPO with respect to the exemption from meeting
the performance standards in Sec. 485.306(a) (1) and (2) (now
Sec. 486.310(a) (1) and (2)) for 2 years.
In the interim final rule with comment period, we revised the
proposal to add the performance standards that OPOs must meet beginning
January 1, 1996. An OPO must meet the primary performance standard by
achieving at least 75 percent of the national mean for four of the five
performance categories over 2 calendars years before the year of
redesignation. The performance categories are:
Actual donors per million population.
Kidneys recovered per million population.
Extrarenal organs recovered per million population.
Kidneys transplanted per million population.
Extrarenal organs transplanted per million population.
In addition to the primary performance standard, the interim final
rule provided for three additional performance standards. An OPO must:
Procure organs from an average of at least 24 donors per
calendar year in the 2 calendar years before redesignation.
Maintain an average procurement ratio of three organs per
donor.
Enter into a working relationship with any hospital or
transplant center in the OPO's service area that requests a working
relationship.
For the purpose of measuring adherence to the performance
standards, organs removed en bloc and transplanted en bloc are counted
as a single organ.
In addition, Sec. 485.306 (now Sec. 486.310) permits an OPO to
submit corrected information if it believes the data used to apply the
performance standards were inaccurate. It also allows us to grant an
exception from some of the performance standards to OPOs operating
outside the contiguous United States.
B. Public Comments and Our Responses
Comment: One commenter suggested that performance measures be
reevaluated annually to ensure that the system can incorporate a
superior model for assessing underlying donor potential that is under
development.
Response: We intend to continually reevaluate the performance
standards as new data become available. We believe it is unnecessary to
commit to an annual reevaluation because it is unlikely that new
measures will surface at a rate that would indicate that the existing
standards are antiquated that quickly. Nonetheless, readers can be
assured that we will continue to monitor research and experience to
further refine and perfect performance standards. Any proposed changes
in the standards will be published for public comment before being
effectuated.
Comment: One commenter noted that performance standards based on
potential would be more accurate and effective than the ones specified
in the regulation.
Response: We do not agree with the commenter that standards based
on potential performance are superior to standards based on actual
performance. We believe it would be inappropriate for us to certify any
except a new OPO based on its potential to perform at a certain level,
if the OPO is not achieving a certain level of that potential. For
example, an OPO could service an area with the potential to produce 100
organ donors and significantly higher than average organs per million
population. However, if that OPO does not actually achieve 24 donors
and 75 percent of the national average organs per million population,
we believe strongly that it would be inappropriate for us to ignore the
actual performance and continue to certify the OPO based on its
potential performance.
Comment: One commenter expressed concern that the performance
criteria disproportionately accentuated recovery over transplantation.
That is, the commenter noted that three of the primary performance
standards related to recovery (that is, donors per million, kidneys
recovered, and extrarenal organs recovered), while only two related to
transplantation (that is, kidneys and extrarenal organs transplanted).
The commenter believed this emphasis on recovery over transplantation
does little to accomplish the primary goal of OPOs--providing
transplantable organs for thousands of waiting recipients. The
commenter was concerned that such an emphasis may result in increased
discard rates.
Response: We believe that both organ recovery and transplantation
are critical areas of OPO performance that need to be monitored. We
acknowledge that the commenter is accurate in noting that the primary
performance criteria do slightly emphasize recovery over
transplantation. One of the primary reasons for this is that an OPO can
more directly influence the recovery rate than the transplant rate.
While we acknowledge that a small portion of the organs discarded
are within the control of the OPO through tasks such as thorough
medical history taking, we believe the majority of organ discards occur
for reasons that are beyond the OPO's control. For example, surgical
nicks, damage to the organ during removal, and diseases that were
unknown to the family or not reported in medical records account for
many discards.
While we believe it is important to hold OPOs accountable for
making every effort to avoid unnecessary discards, we believe it is
unnecessary and inappropriate to accentuate the transplantation over
recovery. After all, an organ must first be recovered before it can be
transplanted. Given that there are but five criteria in the primary
performance standard, we continue to believe that it is appropriate to
have three recovery-related criteria and two transplant-related
criteria. We note that, for the most part, the OPO industry widely
supports this division.
Comment: Another commenter expressed concern that the primary
performance criteria were antiquated in that they emphasize kidney
transplants almost to the exclusion of other tissues and organs.
Response: We do not agree with the commenter that the primary
performance standard disproportionately emphasizes kidney transplants
``almost to the exclusion of'' other tissues and organs. Three of the
five primary standards are not related to kidney transplants. However,
since the
[[Page 19734]]
number of kidney transplants significantly outweighs other organ
transplants, we believe it is appropriate to establish separate
standards that look solely at the kidney recoveries and transplants as
part of overall OPO performance. Of the 19017 transplants in 1994,
11,391 or 59 percent were for kidneys. We believe this high incidence
of kidney organ transplants justify standards that concentrate
exclusively on that organ. We welcome comments on whether this emphasis
on kidney transplants is the best course for the future, given the
science of transplantation.
Comment: One commenter stated that some OPOs may not meet the
extrarenal organ standards for reasons beyond their control, such as
geography or availability of transplant surgeons. The commenter stated
that there are no pancreas, lung, or heart/lung programs in the
commenter's State so the OPO often did not recover these organs due to
unavailability of transplant surgeons. The commenter suggested that if
an OPO is able to demonstrate that it cannot meet the standard due to
such reasons, it be given credit for unrecovered organs.
Response: Although we can sympathize with this OPO's concerns, many
OPOs are faced with this situation. Some have developed mechanisms to
facilitate procurement of extrarenal organs for transplantation in
patients listed at transplant centers outside their States. Many OPOs
are meeting these goals by utilizing local surgeons to perform
excisions. Other OPOs are developing relationships with extrarenal
programs to facilitate placements without impediment from geographic
boundaries.
It is an OPO's responsibility to recover all viable organs from all
acceptable donors and facilitate their placement in suitable
recipients. The performance standards are designed specifically to
encourage more effective organ retrieval and transplantation. We
believe it would be irresponsible, given the number of persons awaiting
organs, to modify the performance standards in any way that would
validate the failure to retrieve transplantable organs. Therefore, we
are not altering the regulations as suggested by the commenter. We note
that in areas where geographical boundaries present real obstacles to
placement, such as noncontiguous States and territories, the
regulations now located at Sec. 486.310(c)(1) already adequately
address this issue through an exception process.
If it is true that viable organs are going unrecovered because
there is no transplant program for a specific type of organ in a State,
we find a severe problem exists that should certainly be corrected. We
do not want to encourage the continuance of the problem by altering the
performance standards.
All organs can be transported at least 500 miles without
significant chance of damage. With few exceptions, this 500-mile radius
goes significantly beyond State and, generally, OPO service area
boundaries. Consequently, an organ should be recovered even when the
organ cannot be transplanted in the State or within the OPO's service
area. We strongly encourage any OPO that has adopted the practice of
not recovering organs that it cannot transplant locally to alter that
practice immediately.
Comment: One commenter suggested that HCFA include data from all
OPOs, including new OPOs, in the calculation of the national mean.
Response: We intend to include all OPOs in the calculation of the
national mean, including new OPOs and those in noncontiguous States and
territories. However, we believe it is unnecessary to amend the
regulations to specify this intention. Since the regulatory language
does not restrict the calculation, we believe it already supports our
position to include all OPOs in the calculation.
Comment: Several commenters suggested that we substitute deaths per
year as the denominator in the primary performance criteria is lieu of
population. They believe that logically this denominator is more
directly correlated to the potential donor pool and would produce
better performance standards.
Response: The objective of the performance standards is to
establish an appropriate measure that would enable us to assess how
well OPOs are maximizing organ resources and therefore warrant
certification by the Medicare/Medicaid program. As such, it is
important that the data we use to develop these standards provide an
accurate measure of OPO performance. Clearly, the use of hospital
deaths versus area population in the denominator from which these
standards are derived warrants further investigation. We agree that
since OPOs deal with cadaveric donors, deaths per year (particularly
hospital deaths per year) is a more targeted measure of an OPO's actual
potential donor pool. Therefore, we surveyed the OPOs in an attempt to
collect death data from them for 1994 so that we could study the
feasibility of using deaths per year as the denominator. In nearly
every State, OPOs reported problems obtaining timely data. In at least
one State, the data are not available at all. We were able to
determine, however, that national death statistics are available from
the National Center for Health Statistics (NCHS) and the Social
Security Administration (SSA).
Although we have decided to proceed with the use of population as
the denominator for a number of reasons discussed below, we are
soliciting public comments on which approach--population or death
statistics--would best achieve our objectives with respect to measuring
OPO performance.
Population Data:
For purposes of developing the performance standards, we use the
latest census data. In addition, adjustments are made in the population
data to account for hospitals that deal with OPOs outside the
designated OPO service area.
These data are relatively easy to obtain at minimal, if any, cost
to the OPOs. We are soliciting comment on the timeliness, cost, and
quality of these data and adjustments to these data.
NCHS Death Data:
NCHS produces a public use data tape that contains deaths by county
for all U.S. counties. This tape contains approximately 2.2 million
records per year. Although death data are available universally, there
are some data elements that may be missing for certain areas. The OPO
industry has suggested the use of in-hospital deaths rather than
general death data, and while this could be obtained from the NCHS
tape, certain areas, such as Oklahoma, do not make fine distinctions in
the hospital site. Also, we are not certain about the availability of
death data for the United States territories. The NCHS tape may allow
some finer analysis based on demographic characteristics that may
better reflect the viable organ pool.
In the United States, the collection of these vital statistics data
is a State responsibility. Data are gathered by the States, and each
State establishes its own definitions for terms and coding rules.
Although NCHS conducts a quality review of the data, it uses the
individual State guidelines to verify the data were coded
appropriately. This approach, especially in terms of the definition of
``hospital'', could affect the OPO performance standards. In addition,
there is approximately a two-year delay in the availability of death
data from NCHS.
The NCHS public use tape can be purchased for $590 per year. Since
performance standards utilize a two-year average to avoid penalizing
OPOs for short fluctuations in organ donation, it would cost an OPO
approximately $1200 per redesignation cycle to obtain
[[Page 19735]]
the tapes. At this time, the data file is only available in mainframe
medium. We expect that most OPOs do not employ the staff that would be
required to abstract data from the NCHS tapes, although we would
welcome comment on this point.
The NCHS data does not identify individual hospitals for any State,
and there may be confidentiality issues that preclude States from
collecting hospital-specific information. Lack of hospital-specific
data would create a problem in adjusting the performance data for those
hospitals that deal with OPOs outside of the designated OPO service
area. While for most OPOs the impact of hospitals dealing with
alternative OPOs is minimal, there are several OPOs where the impact of
such hospital choices is very significant.
SSA Death Data:
Although we may be able to obtain timely death data through the
Social Security Administration, we know through experience that there
are a small number of deaths that are not reported accurately. Our
experience with using these data in our intramural research indicates
it is approximately 98 percent accurate. However, we are very concerned
with use of data that the OPOs cannot verify. We are further
investigating the timeliness, cost and quality of the SSA mortality
data. We are interested in receiving public comment on this data
source.
Other Policy Implications:
We are concerned about the impact of using death as the denominator
for those OPOs servicing large urban areas. Urban areas may have a
higher death rate among apparently suitable donors, however, there is a
lower donor consent rate among the minority population and a higher
likelihood that a potential donor will be an HIV risk or present a
history of substance abuse. Therefore, in these cases, the death rate
may not accurately define the potential donor pool and may
disproportionately affect OPOs serving large urban areas. We may not
want to establish a performance standard that may systematically bias a
particular group of OPOs.
We conducted an impact analysis comparing the use of 1991 death
data (the most recent data available at the time of our analysis) and
population data as denominators in calculating performance standards.
We determined that the use of death data would not significantly alter
performance outcomes compared to using population data. However, three
OPOs servicing major urban areas would not meet the performance
standards if death data were substituted for population data, provided
that the performance standards is not also changed. We acknowledge that
if the denominator used to measure performance were changed, the
performance standard itself could in principle be changed, and solicit
comments on this issue.
While research is being conducted on determining adjustment factors
that would allow for normalization of death or population data to
account for demographic factors, we are not aware of a generally
accepted adjustment methodology at this time.
In summary, we are soliciting comments on the approaches discussed
above with respect to use of population versus death statistics (from
either NCHS, SSA or some other national source) as a denominator for
measuring performance. Specifically, we are interested in comments
concerning the timeliness, cost, and validity of the various data
sources. We would also appreciate suggestions concerning possible
adjustments to account for varying demographic factors across areas, as
well as any other potential changes in the performance measures that
could be used in conjunction with death data.
Comment: One commenter suggested that any adopted performance
standards include adjustment for demographic risk factors related to
the population of the service areas. The commenter suggested historical
consent rates and medical suitability rates of potential donors.
Response: We acknowledge that intuitively it would seem to be more
difficult to achieve performance standards in some service areas than
in others. However, the impact analysis we conducted based on 1994 AOPO
data does not support the assumption that the unadjusted population-
based performance standards would disproportionately impact on those
population bases that have higher demographic risk factors. Rather, it
appears that the selected performance standards appropriately identify
those OPOs that have not achieved designated performance standards
based on factors that are within the OPO's control. For the most part,
those OPOs with high demographic risk factors do not appear to have
difficulty meeting the standards. For example, the California
Transplant Donor Network exceeds the mean of all five of the
performance standards while servicing San Francisco, which has one of
the largest HIV populations in the country. Similarly, most OPOs
servicing populations that have historically had low consent rates also
appear to meet the standards.
Finally, the commenter did not propose an empirical value to be
used to adjust for these risk factors. Although we are aware of ongoing
research in this area, we have not found literature that unequivocally
supports a method to calculate exact demographic risk factors that
would appropriately adjust the planned performance standards. We are
interested in any empirical research in this area. We intend to
continue to monitor the research and will consider any significant
findings for future refinement of the standards.
We are very interested in the development of alternative
performance criteria that would be consistent with our goals of
increasing organ donation, setting achievable threshold levels of
acceptable performance that are realistic and fair to all the OPOs.
Unfortunately, we have not been able to ascertain empirical evidence
regarding the correlation between adjustment factors and donation. That
is, to the best of our knowledge organ donation is influenced by a
myriad of factors. An area that has a high incidence of some factor
that would seem to decrease donation may also have a high incidence of
another factor that would seem to increase donation. We are not aware
of any regression analysis or other statistical studies that would
allow us to appropriately adjust performance indicators for
idiosyncracies of a geographic area.
Nonetheless, we are very interested in further refining the
performance standards. We specifically invite the public to comment on
any alternative performance measures that are supportable by empirical
evidence.
We should point out, however, that it appears that the rigorous
performance standards we have selected are providing the appropriate
incentives to increase organ donation. Based on the unverified 1995
performance data reported, there has been an increase of 262 donors in
1995 over 1994, resulting in over 1100 additional organs being
procured. We find these statistics very gratifying and may demonstrate
that the use of rigorous performance standards significantly benefits
the public awaiting transplantation.
Comment: Two commenters noted that many OPOs deal with hospitals
outside of the designated service area. They asked if we would
calculate the appropriate, actual population served by an OPO in
applying the performance standards.
Response: As noted above, we believe that approximately 200
hospitals deal with OPOs outside their service areas. We recognize that
this arrangement can contribute to an OPO's failure to meet the
performance standards based on servicing a designated area. The
[[Page 19736]]
regulations at Sec. 486.310(c)(3) specify an OPO may provide
documentation to us to support an adjustment in its population rate if
one or more hospitals in its designated service area have agreements
with alternative OPOs.
Operationally, we have implemented this provision by soliciting
actual population data from each OPO. We asked the OPOs to advise us
when a population adjustment is appropriate. We then ascertained
appropriate population adjustments through discussions with the
alternative OPOs, the hospitals in question, and the HCFA regional
offices. We note that effective January 1, 1996, a hospital may deal
with only one OPO. We believe this requirement will make it easier to
allocate population as the entire hospital service area will be
designated to the one OPO with which it has an agreement. As noted
above, we calculated the performance standards based on the reported
data, asked OPOs to verify the accuracy of their submitted data, and
provided OPOs an opportunity to request further adjustments.
We believe that the process we developed provides an opportunity
for equitable adjustments to the population data and holds an OPO
accountable for all of the hospitals it serves--including hospitals
outside of its designated service areas.
Comment: One commenter noted that research currently underway at
the Harvard School of Public Health could potentially lead to a more
accurate methodology for measuring OPO performance. The commenter
requested that the current performance measures be reevaluated annually
to ensure that more current research does not produce a superior
mechanism for evaluating performance.
Response: We are pleased to see that there is research ongoing in
this area. We will be very interested in the results and will consider
them fully when the research is complete. While we are always open to
improving the mechanism for evaluating OPO performance from any
interested source, we believe it is unnecessary and inappropriate to
commit to an annual reevaluation in the regulations. OPOs must know in
advance to what standards they will be held, so that they can make
appropriate plans and changes in their procurement strategies. If the
research proves to be superior as the commenter believes, we will issue
a proposed notice in the Federal Register for public comment. Changes
in the performance standards will only be made after the public has had
an opportunity to review and comment on the proposal.
Comment: Two commenters suggested that we develop more appropriate
criteria for the noncontiguous States and territories. They noted that
Puerto Rico has historically had extremely poor success with organ
procurement and would fail to meet the planned standards of 50 percent
of the national mean.
Response: We acknowledge the historically small number of organ
donations in Puerto Rico. We note, however, that other noncontiguous
areas such as Hawaii have had higher donation rates. We feel challenged
to develop a standard that would provide an incentive for improvement
for Puerto Rico without being so lax as to fail to present any
challenge to Hawaii at all. We note that the performance standards for
the noncontiguous States and territories are limited exclusively to
kidneys procured and transplanted. For this single organ, the standard
is 50 percent of the national average.
During 1994, a new OPO assumed responsibility for Puerto Rico.
Under the guidance of this new OPO, we are optimistic that Puerto Rico
will eventually meet this performance standard. In the meantime, we do
not intend to allow a service area that contains a hospital to go
unserved. Thus, we have revised the regulations to specify that an OPO
that does not meet the performance standards will not be terminated as
long as another OPO does not compete for the territory
(Sec. 486.310(c)). Given this change in the regulations, we believe it
is acceptable to retain the standards for the noncontiguous States and
territories. An OPO may continue to be designated for Puerto Rico even
if it does not meet the performance standards as long as no other OPO
competes for the service area. If another OPO demonstrates that it can
achieve better performance in the area, we believe that it is
appropriate to terminate the low performing OPO and give the
alternative OPO an opportunity to achieve higher organ donation.
Comment: Several commenters were concerned that the primary
performance standard of achieving at least 75 percent of the national
mean for four out of the five performance categories is absolutely
mandatory. They believed that OPOs should have an opportunity to
provide a corrective action plan for the primary performance standards
rather than be terminated. Another OPO suggested that OPOs not meeting
the primary performance standard be placed on probation for one year.
Response: We, together with staff in the Health Resources and
Services Administration, have long believed that there are many more
potential organ donors available than are currently being identified by
the OPOs. For example, there are nearly 5,000 hospitals in this country
that have not identified a single organ donor over a 3-year period.
Based on recent research from the Johns Hopkins University, we believe
that approximately 850 of these hospitals have donor potential. While
there are a myriad of reasons for failure to identify all potential
organ donors and to convert all potential donors to actual donors, a
major influence on organ donation is unquestionably the OPO.
We believe that the establishment of primary performance standards
at 75 percent of the national average is a reasonable standard. We hold
no OPO accountable to an arbitrary number but rather look only to its
peers. We are not aware of geographical factors that by themselves make
it impossible for an OPO to meet the standards in certain service
areas. Rather with a 25-percent margin of error off the mean, we
believe that the most influential factor to performance is the OPO
itself.
We intend these performance standards to serve the people on the
transplant waiting lists in all areas of the country by fostering the
most efficient OPO service for them. We believe that all Americans,
regardless of whether they are Medicare or Medicaid beneficiaries,
deserve to be serviced by OPOs that make every effort and use every
skill available to procure transplantable organs so that lives may be
saved or improved through timely organ transplants.
Consequently, we believe it is important to hold each OPO
accountable for meeting the primary performance standard. If the OPO
that is assigned to a service area is not achieving appropriate organ
donation rates, we would be acting irresponsibly to the Americans on
the waiting list to allow that OPO to continue to serve that area
rather than replace it with another better-performing OPO.
However, we equally believe we would be acting irresponsibly to
allow an area to go unserved rather than to permit an OPO an
opportunity for improvement. Therefore, we are altering the regulations
to permit an OPO that does not meet the performance standards to retain
its certification and submit a corrective action plan, if no other OPO
that is performing acceptably is willing to assume the service area.
When an OPO does not meet the primary performance standard, we will
solicit interest in assuming the territory from other OPOs. When
another higher-
[[Page 19737]]
performing OPO wants to assume the service area, we believe that we
should make the potentially superior service available in that area. In
those cases where no other OPO expresses an interest in assuming the
service area, we will allow the poor-performing OPO to submit a
corrective action plan and retain its certification for an additional
2-year period.
Comment: Several commenters thought that the performance standard
requiring OPOs to maintain an average procurement ratio of three organs
per donor should be eliminated. Many of them thought that the standard
would discourage innovative practices by OPOs, particularly those
related to procuring organs from older donors.
Response: We had originally intended the use of a static number
standard, such as the 3 organs per donor and 24 donors per year
standards, as part the performance standards to ensure that the
standards remained rigorous over time. We wished to safeguard against
the industry as a whole becoming lax in performance and driving the
national average to artificially low numbers.
Upon further reflection, we believe that the use of static number
performance standards is unnecessary and could result in a burden on
the OPOs if we required the submission of justification or corrective
action plans when these standards are not met. In conducting an impact
analysis of these performance standards, we found that all OPOs that
did not meet the three organ per donor standard also failed to meet the
primary performance standard. Consequently, we anticipate that this
standard in and of itself would have no immediate impact.
We also recognize that industry changes that could result in these
static number standards not being met may not necessarily be
detrimental. For example, innovative practices, such as procuring
organs from older donors, can result in a net increase in organs
available even though the standard may not be met. We do not wish to
discourage aggressive organ procurement practices as long as they
promote safe organ acquisition and show respect for the families of
potential donors. Our principle goal in the development of performance
standards is to increase the total number of organs transplanted.
Standards that could potentially deter an OPO from obtaining every
viable organ available are contrary to our goal. Consequently, we
believe that our goal is best served if we eliminate the static number
standards and proceed with the primary performance standards alone.
Comment: One commenter requested that newly merged OPOs and OPOs
acquiring significant new territory be granted a grace period for
compliance with the performance standards, similar to what we permit
for newly formed OPOs. The commenter believed that failure to provide a
grace period would deter an OPO from expanding its territory.
Response: The concept of granting a grace period for merging OPOs
and OPOs acquiring significant new territory is a difficult one. We
recognize that significant changes in OPO management, administration,
or new service areas could potentially result in a temporary decline in
performance as the organization adjusts to the change.
On the other hand, we are extremely concerned that permitting a
grace period could instill a perverse incentive into the program. That
is, allowing a grace period could provide an incentive for two poorly
performing OPOs to merge merely to avoid termination or for OPOs to
enter into bidding wars over service areas to avoid application of
performance standards. Policies that promote frequent major changes in
the OPO structure could be counter to our goals by resulting in
decreased rather than increased organ donations.
After considerable thought, we have decided to retain our current
policy of not permitting a grace period for newly merged OPOs or OPOs
with significant changes in territory. We believe that this will
encourage OPOs to undertake such changes judiciously using careful
thought and extensive planning. It is far less likely that big OPOs
will overstep their capacity for expansion if they must maintain high
performance standards.
We note, however, that the above change in policy, related to the
failure to terminate an OPO's provider agreement when there is an
absence of interest by another OPO in assuming the service area, would
apply in the case of newly merged OPOs. That is, a newly merged OPO
will be allowed to continue in the program even if it does not meet the
performance standards when no OPO with acceptable performance levels is
interested in servicing the area.
We expect that, in most cases, there would be a reluctance on the
part of competing OPOs to move into the service area of a newly merged
OPO before that OPO has had an extended opportunity to demonstrate its
ability to perform. We base our expectation on the realization that
repeated changes in OPO personnel and organization practices are
disruptive to organ donation and are likely to make it more difficult
for the second OPO to meet its performance standards as well.
C. Provisions of this Final Rule With Comment Period
We have added new Sec. 486.310(c)(2) to provide that an
OPO that is performing below standards may be redesignated for a
service area if no acceptably performing OPO is willing to accept
responsibility for the service area and if the designated OPO submits a
corrective action plan.
We have reorganized Sec. 486.310(c) for clarity.
We have moved the requirement at Sec. 486.310(b)(4)
(formerly Sec. 485.306(b)(4)) that each OPO enter into a working
relationship with any hospital or transplant center in the OPO's
service area that requests a working relationship to
Sec. 486.304(b)(8).
We have deleted Sec. 486.310(b) (2) through (4) (formerly
Sec. 485.306(b) (2) through (4)) relating to the non-primary
performance standards for redesignation after January 1, 1996. We are
making conforming changes to various other sections to delete
references to these sections.
VIII. Definition of an Open Area (Sec. 486.302)
A. Background
In the proposed rule, we added the definition of ``open area'' to
Sec. 485.302 (now Sec. 486.302). We defined ``open area'' as a service
area for which we are accepting applications for designation. A service
area becomes open for competition once the normal 2-year designation
period or brief interim redesignation period has expired, when the
designated status of the existing OPO is terminated, or when no OPO
previously has been designated for the area. In the interim final rule
with comment period, we modified Sec. 485.308(a) (now Sec. 486.316(a))
to clarify that, based upon the language in Sec. 485.302 (now
Sec. 486.302), it is the OPO's provider agreement with HCFA (not the
OPO itself) that can be terminated.
B. Public Comments and Our Responses
Comment: A few commenters requested clarification of the concept of
an open area. The commenters believed that, if an OPO meets the
performance criteria, no other OPO should be allowed to compete for its
service area.
Response: It is the intent of the law to encourage the most
effective organ procurement and allocation system. During various
Congressional hearings on transplant issues, the Congress has made it
clear that it supports as
[[Page 19738]]
equitable a system as possible. We believe it is the Congress'
expectation that we establish conditions in the Medicare and Medicaid
program that provide incentives for OPOs to operate as efficiently and
effectively as possible in procuring lifesaving organs.
Consequently, we believe that the law does not in any way intend to
assure OPOs a monopoly simply because they barely meet the Medicare
performance criteria. The structure of the statute, which allows only a
single OPO to be designated in any given area, sets up an inherently
competitive system. Thus, it is appropriate and in keeping with the
principles of our national economy to permit competition regardless of
the fact that an OPO is meeting the performance criteria.
We intend to designate the best performing OPO for each service
area. We believe it is inappropriate to designate a marginally
performing OPO for a service area simply because it has operated in
that area previously if a peak-performing OPO is also competing for the
area and has the support of the hospital community. However, we
recognize that organ donation is a voluntary action. Therefore, to
perform well in an area, any OPO must have the support and cooperation
of the community. The ``tie-breaking'' criteria we will use to
adjudicate the competition are specified at Sec. 485.308(a) (1) through
(6) (now Sec. 486.316(a) (1) through (6)). These criteria emphasize the
relationship between the OPO and the hospitals in the service area, the
proximity of the OPO to the area, and past performance.
With regard to the explicit request for clarification of the open
area designations, every county in the country is open for competition
at redesignation time. Currently, most OPOs are in two-year designation
periods that end April through June 1996 and every two years
thereafter. Thus, an OPO may compete for any county, or all counties in
an MSA, that it believes it can serve better than the existing,
designated OPO at that time. To bid on an open area, the OPO must
notify the HCFA regional office of its intention. The regional office
will advise the existing, designated OPO of the competition and request
the necessary information to evaluate the proposals.
In addition to the open area competition that may occur at
redesignation time, an area will be declared open if the provider
agreement with the OPO serving the area is terminated or if no OPO has
been designated for the area. There are a number of counties that do
not contain hospitals. Consequently, no OPO had been designated for
these counties in prior designation periods. We believe that every
county should have a designated OPO to work within the community.
Therefore, we instructed our regional offices to designate these
counties based on the affiliation of the hospital from which the
majority of the residents seek care. That is, we asked the Regional
Offices to designate these counties to the OPO servicing the hospital
that is used routinely by the majority of the residents.
We had considered designating the county to the hospital furnishing
trauma care to the locality. However, we decided to designate the OPO
of the local hospital because the nearest trauma facility may be
located very far away. We believe that designating the area to an OPO
that is a great distance away is likely to be a deterrent to the OPO's
ability to serve the community.
Finally, we point out that the final regulation states explicitly a
policy HCFA has applied administratively in implementing the OPO
redesignation process. We have historically allowed competition for OPO
service areas designations at time of redesignation. Further, we would
accept a bid for a service area for undesignated counties or the
service area of a terminated OPO at any time should an entity apply.
Such competition has been minimal. We do not expect this to change with
the inclusion of this policy in the regulations. It is generally
accepted that OPO-hospital relationships may make procurement more
difficult during the transition. Since OPOs acquiring new service areas
will continue to be held to rigorous performance standards, we do not
believe OPOs will seek expansion without considerable thought and
planning.
Comment: Another commenter noted that the interim final rule did
not list the factors that would be used to adjudicate the designation
of a service area that is being contested. The commenter suggested the
following factors: procurement rate, satisfaction of transplant centers
with service provided by the OPO, organ procurement costs, response
time to donor referrals, extent and effectiveness of professional and
public education, established patterns of organ donor referrals, organ
discard rate, and donor hospital satisfaction.
Response: We did not reprint the factors that would be considered
in adjudicating contested service area designation because we did not
intend to change the regulations. As noted above, the factors are
listed at Sec. 486.316(a) (1) through (6). Many of the factors noted by
the commenter are included in these regulations. These factors follow.
(1) Prior performance, including the previous year's experience in
terms of the number of organs retrieved and wasted and the average cost
per organ;
(2) Actual number of donors compared to the number of potential
donors;
(3) The nature of relationships and degree of involvement with
hospitals in the organization's service area;
(4) Bed capacity associated with the hospitals with which the
organization has working relationships;
(5) Willingness and ability to place organs within the service
area; and
(6) Proximity of the organization to the donor hospitals.
As noted above, we have not heretofore experienced a significant
amount of competition among the OPOs. Thus, we have only limited
experience with these criteria. If competition increases among the OPOs
as a result of this final rule with comment period, we will consider
revising the factors in the future. In that regard, we will give
consideration to the factors noted by the commenter. We will also
publish a proposed notice of these changes in the Federal Register and
invite public comment on the proposal.
C. Provisions of This Final Rule With Comment Period
As we stated above, we are making no revisions in the definition of
``open area'' at this time.
IX. Termination of an OPO's Provider Agreement (Sec. 486.325(b))
A. Background
In the interim final rule, we added Sec. 485.311 (now
Sec. 486.325(b)) to specify the conditions for both voluntary and
involuntary termination of an OPO's provider agreement. For a voluntary
termination, we required that the OPO provide us with a written notice
of its intention with a proposed termination date. We will take action
to approve the request as submitted or take other action to ensure that
there is no disruption in services in the affected service area.
For an involuntary termination, we may terminate an agreement if we
find that an OPO no longer meets the conditions of coverage. Under
Sec. 485.311(b) (now Sec. 486.325(b)), we indicated we would give 15
days notice of termination. We also set forth an OPO's appeal rights,
the requirement that an OPO give prompt public notice regarding the
voluntary termination, and reinstatement provisions.
We made editorial changes to this section as part of the interim
final rule
[[Page 19739]]
with comment period but we did not make any significant changes in the
substance.
B. Public Comments and Our Responses
Comment: One commenter believed that a 15-day notice of
termination, if used, could lead to serious disruption of organ
procurement efforts. The commenter urged a minimum notice requirement
of 90 days.
Response: The added the 15-day termination notice is included in
the OPO regulations to be consistent with the treatment of providers
under the Medicare program. It is common practice in the Medicare
program to give providers a 15-day notice of termination of their
agreement to participate in the Medicare program for failure to comply
with the conditions of coverage.
However, upon further reflection, we can see some significant
differences between certification of Medicare participating providers
and certification/designation of an OPO that may warrant an alternative
policy for OPO termination. Most notably, providers are generally
terminated for serious and imminent health and safety reasons, while
OPOs are most likely to be terminated for failure to meet performance
standards. While it is possible for an OPO to be terminated for a
health and safety reason, such as procuring organs from HIV-infected
donors, such a termination has not occurred to date. Consequently, we
expect that such an occurrence would occur very rarely, if at all.
Thus, in the case of serious health and safety issues, it is important
to protect the health and safety of our beneficiaries by proceeding
with termination expeditiously. However, we believe that because no
serious harm is likely to befall anyone if we move more cautiously with
termination of an OPO's provider agreement, we can consider an extended
termination notification period.
In addition, Medicare beneficiaries generally have easier access to
alternative health care when a provider of health care services is
terminated. That is, while a Medicare beneficiary is no doubt
inconvenienced somewhat when the provider of choice is terminated from
the program, 15 days is generally enough notice for the beneficiary to
locate an alternative source of care within the area. In the case of an
OPO, however, the situation is significantly different. That is, an OPO
does not furnish health care services directly to the beneficiary, and
there are no generally available alternative OPOs within easy access.
Thus, in the case of OPOs, expeditious termination of the entity could
present a significant problem to the providers who have an agreement
with the OPO.
We note that we are changing the process for termination somewhat
from that in the interim final rule with comment period. That is, we
have concluded that we will not necessarily terminate an OPO that does
not meet the primary performance standard if no other OPO is willing to
assume the territory. Rather, we will solicit interest from other OPOs
in assuming the service area. Thus, it seems only practical to allow
for a period in which to solicit such interest from competing OPOs
before terminating the OPO that does not meet the performance standard.
To do otherwise would place an OPO in the anomalous position of being
terminated 15 days after notification of failure to meet the
performance standards only to be reinstated within a month or two when
we discover no alternative OPO is willing to assume the territory.
Consequently, we have modified Sec. 485.311 (now Sec. 486.325) to
provide that termination of OPOs will occur 90 days after the
notification by the Secretary that the OPO does not meet the standards.
C. Provisions of this Final Rule With Comment Period
We have revised Sec. 486.325(b) (formerly Sec. 485.311(b)) to
provide for a 90-day advance notification before a termination of an
OPO's provider agreement becomes effective. Similarly, we have revised
Sec. 486.304(e)(3)(ii) (formerly Sec. 485.303(e)(3)), relating to
interim designation periods, to extend the length of such designations
to 180 days to take into account the longer advance notification period
to effectuate terminations.
X. Effective Dates
A. Background
In the September 1994 interim final rule, we noted that, although
the regulations were effective 30 days after publication, we would
apply the new qualification and performance standards for the first
time with the recertification of OPOs that takes place in the spring of
1996 (for most OPOs, June 1, 1996). For purposes of the
recertification, we would use data from calendar years 1994 and 1995.
B. Public Comments and Our Responses
Comment: Several commenters suggested that we delay the effective
date of the regulations to provide for 2 full years of advance notice
before we apply the standards.
Response: Although the actual regulations were not issued until 9
months into the 24-month performance period (1994 and 1995), we believe
that OPOs have had adequate advance notice of the intent to improve
performance through both the law and the notice of proposed rulemaking
that was issued in June 1991. That is, since 1991, revisions in the
statute relating to OPOs that were discussed in the interim final rule
have expressed the intent of the Congress that OPOs be held to rigorous
performance standards. Moreover, while the 1991 notice of proposed
rulemaking did not specify detailed qualification and performance
standards, it included a discussion of the exact standards we included
in the September 1994 interim final rule.
We believe that OPOs have had adequate advance notice that
performance would be monitored and should have taken appropriate steps
to ensure that they are performing to the best of their ability. In
addition, the interim final rule was issued only 9 months into the
performance period. Thus, even if an OPO had not been planning for the
rigorous performance standards, it still has approximately 63 percent
of the performance period remaining to make up for any past performance
problems.
Finally, we note that the primary performance criteria are based on
national averages. All of the data that are used to set the actual
performance standards numbers come from actual performance of OPOs.
Since the content of the interim final rule was not released until
publication, all of the OPOs are treated equally with regard to
knowledge of the standards. Thus, it is reasonable to assume that no
OPO is unfairly treated by reliance on standards that are based on the
performance of its peers. We collected the 1994 performance data from
the OPOs. National averages were calculated and distributed to the OPOs
in 1995. Thus, each OPO had an indication of what the performance
standards would be and if it needed to significantly alter its
performance to achieve performance equivalent to its peers. In
addition, the AOPO has published peer performance data for OPOs to
review and monitor their own performances throughout the performance
period.
We are anxious to implement meaningful performance standards for
OPOs. We believe that implementation of these standards will promote
organ availability and result in additional lifesaving transplants for
not only Medicare and Medicaid beneficiaries, but for all Americans in
need of organ transplants. The 1996 recertifications are for a 2 year
period. Thus, if we delay implementation of the standards beyond
[[Page 19740]]
the 1996 recertification, the standards will not be fully effective
until June 1998.
Nonetheless, we recognize that the move to a system of performance
and qualification standards that are objectively measured and strictly
enforced is a major transition for the OPO community. Consequently, we
are providing for a transition mechanism for OPOs that do not meet the
standards for the 1996 redesignation period but are making progress
towards meeting them. Therefore, we are providing transitional
standards for both the service area size designation qualification
standard and the performance standards for the 1996 redesignation
period.
We will grant an exception to the 24-donor service area size
criterion during the 1996 redesignation process for those qualified
OPOs that meet the performance standards in Sec. 486.310. To qualify
for the exception, an OPO must submit a written request to HCFA that
includes a narrative description of its plans for meeting the standard
by the 1998 redesignation period. We emphasize that this is a one-time
exception opportunity that will not be repeated for any OPO after the
1996 redesignation process.
We are also providing a one-time exception process for OPOs that do
not meet four of the five performance standards at the time of
redesignation. This exception is limited to those qualified OPOs that
meet three out of the five performance criteria in Sec. 486.310(b) (1)
through (5). Similar to the exception process for the qualification
standard, an OPO must submit a written request to HCFA accompanied by a
detailed, narrative description of the OPO's plans for ensuring that it
will meet the performance standards by the 1998 redesignation.
C. Provisions of This Final Rule With Comment Period
We are not making any changes in the effective dates of the
provisions of the interim final rule with comment period. We are,
however, as explained above, adding two one-time exceptions for the
1996 redesignation process only.
We are adding Sec. 486.307(d)(4) stating that HCFA may
grant an exception to the 24-donor criterion in paragraph
Sec. 486.307(d)(2)(ii) to an OPO that can demonstrate that (1) it meets
the performance criteria in Sec. 486.310(b), and (2) it has a specific
plan to meet the service area size criterion in paragraph
Sec. 486.307(d)(2)(ii) by the 1998 redesignation period.
We are adding Sec. 486.310(c)(3) to provide that for the
1996 designation period only, HCFA may continue to designate for a
service area an OPO that does not meet the standards under paragraph
(b) of this section if the OPO (1) meets three of the five criteria in
Sec. 486.310(b)(1) through (b)(5); and (2) submits an acceptable
corrective action plan in accordance with Sec. 486.310(d).
XI. Waiver of Service Area Designations
A. Background
Section 1138(a)(1)(A)(iii) of the Act had required hospitals
participating in the Medicare program to notify an OPO of potential
organ donors. The use of the article ``an'' indicated that a hospital
need not have an agreement with the OPO whose designated service area
includes the county in which the hospital is located. Thus, a
significant number of hospitals, for various reasons, have chosen to
have agreements with a Medicare/Medicaid-certified OPO other than the
OPO designated for their areas. In fact, several hospitals have
agreements with multiple OPOs.
Sections 155 (a)(1)(A) and (a)(1)(B) of Public Law 103-432 amended
sections 1138 (a)(1)(A)(iii) and (a)(1)(C) of the Act to add
requirements that a hospital have an agreement for notification of
potential organ donation only with the OPO designated for the area in
which the hospital is located. Public Law 103-432 also provided for
waiver of the requirements under certain circumstances. Section
155(a)(1)(C) added new section 1138(a)(2)(A) to the Act. Specifically,
the Secretary must approve waiver requests if (1) the waiver is
expected to increase organ donations and (2) the waiver will assure
equitable treatment of both those patients within the service area
served by the hospital's designated OPO and those patients within the
service area served by the OPO with which the hospital seeks to enter
into an agreement under the waiver.
The law is quite specific in identifying the factors that HCFA may
consider in adjudicating waiver requests. That is, section
1138(a)(2)(B) provides that in making a determination on a waiver
request the Secretary may consider the factors that would include, but
not be limited to (1) cost effectiveness; (2) improvements in quality;
(3) any change in a hospital's designated organ procurement agency due
to a change made on or after December 28, 1992, in the definitions for
MSAs (as established by the Office of Management and Budget); and (4)
the length and continuity of a hospital's relationship with an organ
procurement agency.
Sections 1138 (a)(2)(C) and (a)(2)(D) of the Act are quite specific
in detailing the process for the waiver requests. Effective January 1,
1996, any hospital seeking a waiver must submit an application to the
Secretary. Within 30 days of receipt of a waiver request, the Secretary
will publish a public notice of the request offering interested parties
a 60-day period to comment on the request. Allowing HCFA only 30 days
to evaluate the comments and render a decision would result in a
minimum time period of 120 days for processing a waiver request.
Section 155(a)(2) of Public Law 103-432 contains a grandfathering
provision for hospitals which on October 31, 1994, the date of
enactment of Public Law 103-432, have existing agreements with OPOs
other than the OPO designated for their service areas. Any hospital
that has an agreement with an OPO other than the OPO designated for its
area on October 31, 1994, may continue the agreement until HCFA has
adjudicated its waiver request, provided the hospital has filed a
waiver request by January 1, 1996. This provision was included because
it would be disruptive to a hospital to force it into an agreement with
the OPO designated for its area while a waiver request is being
processed.
We believe the provisions of section 155 are self-implementing.
Thus, we proceeded with implementation prior to modification of the
regulations or prior public comment. In October 1995, we issued Program
Memorandum A-95-11 to our intermediaries outlining the process for
making a waiver request. We instructed each intermediary to notify
every hospital that it serviced of the opportunity to request a waiver
to deal with an OPO other than the OPO designated for the area. We
advised the hospitals that we intended to adjudicate the requests using
the criteria set forth in the law. We advised the hospitals that, to
retain their existing out-of-area OPO agreements that were in effect as
of October 31, 1994, their waiver requests must be received by January
1, 1996.
The law did not address the impact of changes in OPO service areas
on future waiver requests. That is, we note that changes in OPO service
areas are ongoing events. We anticipate that, with the implementation
of the provisions contained in the September 8, 1994, final rule with
comment period, such changes may become somewhat more frequent. Often
these changes occur through mergers or cooperative means. Some changes,
however, are the result of competitive actions among the OPOs with HCFA
awarding the service areas
[[Page 19741]]
based on the criteria in Sec. 485.308 (now Sec. 486.316). When these
changes in service areas occur, the hospitals in the affected counties
must enter into agreements with the newly designated OPO or request a
waiver to deal with an alternative designated OPO.
As noted above, the minimum period of time necessary to process a
waiver request is 120 days. We believe it is unproductive and contrary
to the goal of increasing national organ donation to force the
hospitals in affected areas into new working relationships with a OPO
and then to approve a waiver request and allow an alternative agreement
a few months later. Such a system would be disruptive to the hospital
and to effective organ procurement nationally.
Consequently, we are adding a new provision to the regulations at
Sec. 486.316 to permit the grandfathering of existing agreements
between an OPO and a hospital when changes in a service area occur
pending resolution of the hospital's waiver request.
To be eligible for the grandfathering, a hospital must have had an
agreement with the OPO prior to the changes in service area and the
hospital must have requested waiver from the provisions of section 1138
(a)(1)(A)(iii) and (c) of the Act within 30 days of the effective date
of the change in service area. Of course, if HCFA denies the waiver
request on its merits (the request does not demonstrate that it is
expected to increase organ donation and assure equitable treatment of
patients), the hospital must enter into an agreement with the new OPO
for the area. The regulations provide that such new agreements must be
executed within 30 days of notification of the determination on the
waiver request.
We recognize that this grandfathering provision is not explicitly
stated in the law. Nonetheless, we believe the provision is authorized
under section 1138(a)(2)(A) of the Act which vests broad authority to
HCFA to waive the new requirements of sections 1138(a)(1)(A)(iii) and
1138(a)(1)(C) of the Act. The provision is also complementary to the
grandfathering provision specified in section 155 of the Social
Security Act Amendments of 1994. We believe that allowing such a
grandfathering policy during the processing of the waiver request is
the only means to ensure a smooth transition and promote organ
donation. Nonetheless, we are providing an opportunity for public
comment in this final rule with comment period.
B. Provisions of This Final Rule With Comment Period
We have revised Sec. 486.316 (formerly Sec. 485.308) by adding new
paragraphs (c) through (f) to implement section 1138 (a)(2) of the Act
and the grandfathering provisions of section 155(a)(2) of Public Law
103-432. These revisions permit grandfathering of a hospital to the OPO
with which it has an historical working relationship while the
hospital's request for waiver is being considered when changes in the
OPO designated for the service area in which the hospital is located
occur beginning January 1, 1996. We are soliciting comments on this
provision of the final rule with comment period.
XII. Technical Revisions
We have made the following technical revisions to the regulations
for the purposes of clarifying and reorganizing the OPO regulations.
We amended Sec. 405.2163 by removing the reference to part
485, subpart D and replacing it with a reference to part 486, subpart G
to reflect the earlier published redesignation of the OPO regulations.
We revised Sec. 486.301 to add section 1138(a) and (b) of
the Act and section 371(b) of the PHS Act as the statutory bases of the
OPO regulations.
We reorganized Sec. 486.310 to include the exceptions and
exemptions to the OPO standard requirements under paragraph (c).
We deleted Sec. 486.310(e) (previously designated as
Sec. 485.306(e)) as it is unnecessary and has created confusion among
the OPO industry. This provision provides that an OPO that has not
previously been designated by HCFA for a particular service area is
exempt from meeting the performance standards for its first 2 years of
designation as the OPO for that area. However, the performance
standards are used to measure the OPO's qualifications to be
redesignated beginning 2 years after the OPO has been first designated
for any portion of a service area.
Since there is no data on the OPO's performance in the area when it
is newly designated, it would be impossible to apply the performance
standards at the time of initial designation. Thus, we believe it is
unnecessary to maintain an exemption of this nature. The remaining
portion of the provision merely states that we will apply the normal
performance standards at the time of redesignation. Therefore, this
portion of the regulation is also unnecessary since, without it, we
would have no alternative but to apply the normal performance
standards.
We revised the cross-reference in Sec. 486.314 (formerly
Sec. 485.307) to reflect the reorganization of the material.
XIII. Waiver of Proposed Rulemaking
We ordinarily publish a notice of proposed rulemaking in the
Federal Register and invite public comment before issuing a final
document. Most of the provisions of this rule were open for public
comment through both the June 21, 1991, proposed rule and the September
8, 1994, interim final rule. We are now publishing these provisions as
final rules. Because they have previously been open for comment, we are
not inviting further public comment on these provisions.
The Social Security Act Amendments of 1994 were enacted subsequent
to the September 8, 1994, interim final rule with comment period.
Section 155 of these amendments, relating to OPO hospital
relationships, are inextricably linked to this final rule. The
provisions of section 155 are self-implementing and do not require
rulemaking.
XIV. Regulatory Impact Statement
We generally prepare a regulatory impact statement that is
consisten
FR Doc. 95-10901 Medicare and Medicaid Programs; Conditions of Coverage for Organ Procurement Organizations (OPOs)
t with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601
through 612) unless we certify that a rule will not have a significant
economic impact on a substantial number of small entities.
For purposes of the RFA, we consider all providers and suppliers of
health care as small entities. Individuals and States are not included
in the definition of a small entity. Also, section 1102(b) of the Act
requires us to prepare a regulatory impact analysis if a rule may have
a significant impact on the operations of a substantial number of small
rural hospitals. Such an analysis must conform to the provisions of
section 604 of the RFA. For purposes of section 1102(b) of the Act, we
define a small rural hospital as a hospital that is located outside of
a MSA and has fewer than 50 beds.
This final rule with comment period sets forth changes required by
Public Law 100-607, Public Law 101-616, and Public Law 103-432. In the
September 1994 interim final rule with comment period, we provided an
impact analysis on the provisions of Public Law 100-607 and Public Law
101-616. In that analysis, we stated that we expected that, while OPOs
may incur some additional costs, those costs would be minimal. We
invited public comment on the impact statement in the interim final
rule with comment period. We did not receive any public comments.
The provisions of section 155 of Public Law 103-432 included in
this final rule with comment period conform to section 1138(a)(2) of
the Act to provide for a waiver of section
[[Page 19742]]
1138(a)(1)(A)(iii) and (c) of the Act under certain circumstances.
Section 1138(a)(1) requires that a hospital have an agreement for
potential organ donations only with the OPO designated for the area in
which the hospital is located. We expect any additional costs related
to this provision to be minimal. Any hospital wishing a waiver must
file a request with us. We believe, however, that any additional costs
are minimal compared to the improvement these provisions will have on
the quality of health care for organ recipients.
We have determined and we certify that this final rule with comment
period will not have a significant economic effect on a substantial
number of providers and suppliers. Also, OPOs (independent and
hospital-based) are not considered small rural hospitals since OPOs
generally service large geographical areas. Therefore, a regulatory
flexibility analysis under the RFA and a rural impact analysis under
section 1102(b) of the Act are not required.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.
XV. Information Collection Requirements
Under the Paperwork Reduction Act of 1995, agencies are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. This
final rule with comment period contains information collections that
are subject to review by OMB under the Paperwork Reduction Act of 1995.
The title, description, and respondent description of the information
collections are shown below with an estimate of the annual reporting
and recordkeeping burden. Included in the estimate is the time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and collecting and reviewing the
collection of information.
We are, however, requesting an emergency review of these
regulations. In compliance with the requirement of section
3506(c)(2)(A) of the Paperwork Reduction Act of 1995, we have submitted
to the Office of Management and Budget (OMB) the following requirement
for emergency review. We are requesting an emergency review because the
collection of this information is needed prior to the expiration of the
normal time limits under OMB's regulations at 5 CFR. Part 1320 to
permit recertification of OPO's as required by statute. Failure to
issue these rules in time for the 1996 redesignation process may result
in the termination of OPO agreements. As a consequence, persons in need
of organ transplants may not receive them. The agency cannot reasonably
comply with the normal clearance procedures because public harm is
likely to result if normal clearance procedures are followed. Without
this information, we could not ensure compliance with this
Congressional mandate.
We are requesting that OMB provide a 21-day public comment period
with a 7-day OMB review period and a 90-day approval. We will publish a
separate Federal Register notice for an emergency request for the OPO
manual requirements.
Type of Information Collection Request: New Collection.
Type of Information Collection: Conditions of Coverage for Organ
Procurement Organizations.
Form No.: HCFA-R-13.
USE: Organ Procurement Organizations are required to submit
accurate data to HCFA concerning population and information on donors
and organs on an annual basis in order to ensure maximum effectiveness
in the procurement and distribution of organs.
Frequency: Annually.
Affected public: Not-for-profit institutions.
Number of Respondents: 66.
Total Annual Responses: 66.
Total Annual Hours Requested: 4,096.
To request copies of the proposed paperwork collections referenced
above, call the Reports Clearance Office on (410) 786-1326.
The sections in these final regulations with comment period that
contain information collection requirements are:
Sections 486.304 (c)(2), (c)(4), (c)(7), and (c)(8)
require that an OPO submit documentation to HCFA as part of the
conditions for payment. These requirements include cost reporting, cost
projection, and data to show the number of organs procured and
transplanted. The OPO must maintain data in a format that can readily
be continued by a successor OPO.
Section 486.306(d) requires that an OPO document that it
meets the service area requirements at Sec. 486.307.
Section 486.306(t) requires that an OPO submit to HCFA
within 15 days following the end of the calendar year information on
the service area population, number of donors, number of organs
procured, and the number of organs transplanted.
Section 486.307(a) requires that an OPO make documentation
available to HCFA to verify that it meets the requirements for boundary
designation, service area location, and service area size.
Section 486.307(d) requires that, for the 1996
transitional redesignation period only, an OPO that does not meet the
qualification standards in Sec. 486.307(d)(2)(ii) may submit a request
to HCFA for a one-time exception to the standard if it can demonstrate
that it meets the performance criteria in Sec. 486.310(b) and has a
specific plan to meet the 24-donor standard by the 1998 redesignation
period.
Section 486.310(c)(3) requires that, for the 1996
transitional redesignation period only, HCFA may continue to designate
for a service area an OPO that does not meet the standards of
Sec. 486.310(b) if the OPO can demonstrate that it meets three of the
criteria in Sec. 486.310(b)(1) through Sec. 486.310(b)(5) and if the
OPO submits an acceptable correction plan in accordance with
Sec. 486.310(d).
Section 486.310(d) requires that an OPO that does not meet
the performance standards may continue to be designated for a service
area if no acceptably performing OPO is willing to accept
responsibility for the service area and if the OPO submits a corrective
action plan that is acceptable to HCFA.
Section 486.316 requires that an OPO submit an application
to HCFA if it wishes to be designated as the OPO for a service area.
Applications are only accepted if the area is an open area.
Section 486.318 requires that a designated OPO notify HCFA
if it is considering a change in ownership or service area. It must
submit the same information that it supplied at the time of
designation.
Section 486.325(a)(1) requires that an OPO that wishes to
terminate its agreement with HCFA send written notice of its intention
with the proposed termination date to HCFA.
The information collection requirements concern quantifiable data
for submission to us that document an OPO's performance. The
respondents for the information collection requirements are the 66 OPOs
participating in the Medicare program. The OPOs are required to keep
performance data on an ongoing basis and submit a yearly report. The
reporting burden for the collection of all of this information is
estimated to be 1,000 hours per submission.
Other reporting requirements for special circumstances such as
termination of agreements and requests for exceptions and exemptions
rely on the same information that an OPO must submit in its annual
report. Consequently, no extra collection of
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information is required. Since these submissions depend on special
circumstances, we cannot give the exact number of submissions. However,
since there are only 66 OPOs participating in the Medicare program, we
expect the number of these submissions will be extremely small.
These information collection and recordkeeping requirements are not
effective until they have been approved by OMB. The agency has
submitted a copy of this final rule with comment period to OMB for its
review of these information collections. A notice will be published in
the Federal Register when approval is obtained. Interested persons are
invited to send comments regarding this burden or any other aspect of
these collections of information, including any of the following
subjects: (1) The necessity and utility of the information collection
for the proper performance of the agency's functions; (2) the accuracy
of the estimated burden; (3) ways to enhance the quality, utility, and
clarity of the information to be collected; and (4) the use of
automated collection techniques or other forms of information
technology to minimize the information collection burden. Comments
should be sent to HCFA, OFHR, MPAS, C2-26-17, 7500 Security Boulevard,
Baltimore, Maryland 21244-1850.
XVI. Response to Comments
Because of the large number of items of correspondence we normally
receive on a final rule with comment period, we are not able to
acknowledge or respond to them individually. However, we will consider
all comments that we receive related to the waiver process discussed in
section XI of this preamble, Sec. 486.316, and the definition of
``donor'' by the date and time specified in the DATES section of this
preamble, and, if we proceed with a final rule, we will respond to the
comments in the preamble of that rule.
List of Subjects
42 CFR Part 405
Administrative practice and procedure, Health facilities, Health
professions, Kidney diseases, Medicare, Reporting and recordkeeping
requirements, Rural areas, X-rays.
42 CFR Part 486
Health facilities, Medicare, Reporting and recordkeeping
requirements.
42 CFR Chapter IV is amended as set forth below:
A. Part 405, subpart U is amended as follows:
PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED
Subpart U--Conditions of Coverage of Suppliers of End-Stage Renal
Disease (ESRD) Services
1. The authority citation for part 405, subpart U continues to read
as follows:
Authority: Secs. 1102, 1138, 1861, 1862(a), 1871, 1874, and 1881
of the Social Security Act (42 U.S.C. 1302, 1320b-8, 1395x,
1395y(a), 1395hh, 1395kk, and 1395rr), unless otherwise noted.
2. Section 405.2163(f) is amended by removing the reference to
``part 485, subpart D'' and replacing it with a reference to ``part
486, subpart G.''
B. Part 486 is amended as follows:
PART 486--CONDITIONS FOR COVERAGE OF SPECIALIZED SERVICES FURNISHED
BY PROVIDERS AND SUPPLIERS
Subpart G--Conditions for Coverage: Organ Procurement Organizations
1. The authority citation for part 486 continues to read as
follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
2. Section 486.301 is revised to read as follows:
Sec. 486.301 Basis and scope.
(a) Statutory Basis. (1) Section 1138(b) of the Act sets forth the
requirements that an organ procurement organization must meet to have
its organ procurement services to hospitals covered under Medicare and
Medicaid. These include certification as a ``qualified'' organ
procurement organization (OPO) and designation as the OPO for a
particular service area.
(2) Section 371(b) of the PHS Act sets forth the requirements for
certification and the functions that a qualified OPO is expected to
perform.
(b) Scope. This subpart sets forth--
(1) The conditions and requirements that an OPO must meet;
(2) The procedures for certification and designation of OPOs; and
(3) The terms of the agreement with HCFA, and the basis for, and
the effect of, termination of the agreement.
3. In Sec. 486.304, the introductory text of paragraph (b) is
republished, new paragraph (b)(8) is added, and paragraph (e)(3)(ii) is
revised to read as follows:
Sec. 486.304 General requirements.
* * * * *
(b) Requirements for designated status. To be the designated OPO
for a service area, an entity must do the following:
* * * * *
(8) Enter into a working relationship with any hospitals, including
transplant centers, in the OPO's service area that request a working
relationship.
* * * * *
(e) Designation periods
* * * * *
(3) Interim designation. * * *
(ii) The interim designation period does not exceed 180 days after
the normal designation period has expired.
* * * * *
4. In Sec. 486.306, the introductory text and paragraphs (d), (f)
introductory text, (i), (q), and (s) are revised to read as follows:
Sec. 486.306 Qualifications for designation as an OPO.
To be designated as the OPO for a service area, an organization
must, at the time of application and throughout the period of its
designation, meet the following requirements:
* * * * *
(d) Document that it has a defined service area that meets the
requirements of Sec. 486.307.
* * * * *
(f) Have a board of directors or an advisory board that has the
authority to recommend policies relating to the donation, procurement,
and distribution of organs. While an OPO may have more than one board,
the members specified in paragraphs (f)(1) through (f)(5) of this
section must be members of a single board. The board of directors or
advisory board must be composed of the following:
* * * * *
(i) Have a system to equitably allocate donated organs among
transplant patients that is consistent with--
(1) ``Guidelines for Preventing Transmission of Human
Immunodeficiency Virus Through Transplantation of Human Tissue and
Organs'' issued by the Centers for Disease Control and Prevention (CDC)
that are appended to this subpart; and
(2) Rules of the Organ Procurement and Transplantation Network
(OPTN), see Sec. 486.308.
* * * * *
(q) Ensure that appropriate donor screening and infection tests,
consistent with OPTN standards and the CDC guidelines that are appended
to this subpart, are performed by a laboratory that is certified in the
appropriate specialty or subspecialty of service in accordance with
part 493 of this chapter, including tests to prevent the
[[Page 19744]]
acquisition of organs that are infected with the etiologic agent for
acquired immune deficiency syndrome.
* * * * *
(s) Ensure that donors are tested for human immunodeficiency viral
markers consistent with OPTN rules and the CDC guidelines appended to
this subpart for solid organ donation.
* * * * *
5. A new Sec. 486.307 is added to read as follows:
Sec. 486.307 OPO service area size designation and documentation
requirements
(a) General documentation requirement. An OPO must make available
to HCFA documentation verifying that the OPO meets the requirements of
paragraphs (b) through (d) of this section at the time of application
and throughout the period of its designation.
(b) Boundary designation. The defined service area either includes
an entire Metropolitan Statistical Area or a New England County
Metropolitan Area as specified by the Director of the Office of
Management and Budget or does not include any part of such an area.
(c) Service area location and characteristics. An OPO must
precisely define and document a proposed service area's location
through the following information:
(1) The names of counties (or parishes in Louisiana) served or, if
the service area includes an entire State, the name of the State.
(2) Geographic boundaries of the service area for which U.S.
population statistics are available.
(3) Total population in service area.
(4) The number of and the names of acute care hospitals in the
service area with an operating room and the equipment and personnel to
retrieve organs.
(d) Sufficient size requirements. (1) Before January 1, 1996, an
OPO must demonstrate that it can procure organs from at least 50
potential donors per calendar year or that its service area comprises
an entire State.
(2) Beginning January 1, 1996, an OPO must meet at least one of the
following requirements:
(i) Its service area must include an entire State or official U.S.
territory.
(ii) It must either procure organs from an average of at least 24
donors per calendar year in the 2 years before the year of
redesignation or request and be granted an exception to this
requirement under paragraph (d)(3) or (d)(4) of this section.
(iii) In the case of an OPO operating exclusively in a
noncontiguous U.S. State, a U.S. territory, or a U.S. commonwealth,
such as Hawaii or Puerto Rico, it must procure organs at the rate of 50
percent of the national average of all OPOs for kidney procurement per
million population and for kidney transplantation per million
population.
(iv) If it is an entity that has not been previously designated as
an OPO, it must demonstrate that it can procure organs from at least 50
potential donors per calendar year.
(3) HCFA may grant an OPO an exception to paragraph (d)(2)(ii) of
this section if the OPO can demonstrate that--
(i) It failed to meet the requirement because of unusual
circumstances beyond its control;
(ii) It has historically maintained a service area of sufficient
size to meet the criterion in paragraph (d)(2)(ii) of this section; and
(iii) It has a specific plan to meet the size criterion in
paragraph (d)(2)(ii) of this section in the future.
(4) During the 1996 redesignation process only, HCFA may grant an
exception to paragraph (d)(2)(ii) of this section to an OPO that can
demonstrate that--
(i) It meets the performance criteria in Sec. 486.310(b); and
(ii) It has a specific plan to meet the service area size criterion
in paragraph (d)(2)(ii) of this section by the 1998 redesignation
period.
6. Section 486.310 is amended by removing the introductory text,
adding a heading for paragraph (a); removing paragraphs (a)(3) and (e);
and revising paragraphs (b), (c), and (d) to read as follows:
Sec. 486.310 Condition: Adherence to performance standards.
(a) Standards before January 1, 1996.
* * * * *
(b) Standards beginning on January 1, 1996. Except as specified in
paragraph (c) of this section, each OPO must achieve at least 75
percent of the national mean for four of the following five performance
categories, averaged over the 2 calendar years before the year of
redesignation:
(1) Number of actual donors per million population.
(2) Number of kidneys recovered per million population.
(3) Number of extrarenal organs recovered per million population.
(4) Number of kidneys transplanted per million population.
(5) Number of extrarenal organs transplanted per million
population.
(c) Exceptions and exemptions.
(1) Exception based on location. OPOs operating exclusively in a
noncontiguous U.S. State, a U.S. territory, or a U.S. commonwealth,
such as Hawaii or Puerto Rico, may be granted an exception from the
performance standards of paragraph (b) of this section because of
special geographically related characteristics, such as difficulty in
transporting organs to the mainland, that impede satisfaction of the
national rate of organ procurement. They must meet a standard of 50
percent of the national average of all OPOs for kidneys recovered and
transplanted per million population.
(2) Exception because of lack of competition for a service area.
HCFA may continue to designate an OPO that does not meet the standards
under paragraph (b) of this section for a service area if no OPO that
meets the performance and qualification requirements is willing to
accept responsibility for the service area and if the designated OPO
submits an acceptable corrective action plan in accordance with
paragraph (d) of this section.
(3) Exception for 1996 transition period. During the 1996
designation period only, HCFA may continue to designate for a service
area an OPO that does not meet the standards under paragraph (b) of
this section if the OPO:
(i) Meets three of the criteria in paragraphs (b)(1) through (b)(5)
of this section; and
(ii) Submits an acceptable corrective action plan in accordance
with paragraph (d) of this section.
(d) Corrective action plans and corrected information.
(1) Corrective action plans. (i) If a designated OPO does not meet
the standards of paragraph (a) of this section, it may submit to the
appropriate HCFA regional office a corrective action plan explaining
why it failed to meet them and specifying the actions it will take to
ensure it meets those standards in the future.
(ii) HCFA will not accept corrective action plans from an OPO for
failure to meet the standards specified in paragraph (b) of this
section unless the OPO continues to be designated under paragraph
(c)(2) or (c)(3) of this section.
(2) Corrected information. An OPO may request correction of the
information required by Sec. 486.306(e) from HCFA throughout the two-
year designation period. HCFA will evaluate the OPO's request and may
seek input from other sources, such as hospital personnel, neighboring
OPOs, the OPTN contractor, and the Census Bureau as necessary to verify
the OPO's information before making the changes requested by the OPO.
In addition,
[[Page 19745]]
HCFA will notify an OPO if it does not meet the performance standards
based on the information reported. Any OPO so notified may provide
corrected information for consideration within 30 days of receipt of a
notice of failure to meet the standards.
(e) [Removed]
Sec. 486.314 [Amended]
7. Section 486.314 is amended by removing the reference to
``Sec. 485.310 (a) and (b)'' and replacing it with a reference to
``Sec. 486.310''.
8. Section 486.316 is amended by adding new paragraphs (c), (d),
(e), (f), and (g) to read as follows:
Sec. 486.316 Designation of one OPO for each service area.
* * * * *
(c) After January 1, 1996, a hospital must enter into an agreement
only with the OPO designated to serve the area in which the hospital is
located unless HCFA has granted the hospital a waiver under paragraphs
(d) through (g) of this section to be serviced by another OPO.
(d) If HCFA changes the OPO designated for an area, hospitals
located in that area must enter into agreements with the newly
designated OPO or submit a request for a waiver in accordance with
paragraph (e) of this section within 30 days of notice of the change in
designation.
(e) A hospital may request and HCFA may grant a waiver permitting
the hospital to have an agreement with a designated OPO other than the
OPO designated for the service area in which the hospital is located.
To qualify for a waiver, the hospital must submit data to HCFA
establishing that--
(1) The waiver is expected to increase organ donations; and
(2) The waiver will ensure equitable treatment of patients referred
for transplants within the service area served by the hospital's
designated OPO and within the service area served by the OPO with which
the hospital seeks to enter into an agreement.
(f) In making a determination on waiver requests, HCFA considers:
(1) Cost effectiveness;
(2) Improvements in quality;
(3) Changes in a hospital's designated OPO due to changes in the
metropolitan service area designations, if applicable; and
(4) The length and continuity of a hospital's relationship with an
OPO other than the hospital's designated OPO.
(g) A hospital may continue to operate under its existing agreement
with an out-of-area OPO while HCFA is processing the waiver request. If
a waiver request is denied, a hospital must enter into an agreement
with the designated OPO within 30 days of notification of the final
determination.
Sec. 486.325 [Amended]
9. In Sec. 486.325, in paragraph (b), ``15 days'' is removed and
``90 days'' is added in its place.
10. Appendix A is added to subpart G to read as follows:
Appendix A to Subpart G of Part 486--Guidelines for Preventing
Transmission of Human Immunodeficiency Virus Through Transplantation of
Human Tissue and Organs
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(Catalog of Federal Domestic Assistance Programs No 93.774,
Medicare-- Supplementary Medical Insurance, and No. 13.714, Medical
Assistance Program)
Dated: April 15, 1996.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
Dated: April 25, 1996.
Donna E. Shalala,
Secretary.
[FR Doc. 95-10901 Filed 4-30-96; 8:45 am]
BILLING CODE 4120-01-C
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