FINAL 0149 PRA - Supporting Statement - 2013

Supporting Statement for Paperwork Reduction Act Submission
OMB Control Number 3133 – 0149
12 C.F.R. Part 712
Credit Union Service Organizations
2013

A. Justification
1. Explain the circumstances that make the collection of information necessary.
Identify any legal or administrative requirements that necessitate the
collection.
Part 712 of the National Credit Union Administration’s (NCUA) regulations implements
authority in the Federal Credit Union Act relating to federal credit union (FCU) lending or
investment activity with credit union service organizations (CUSOs). The rule
addresses NCUA’s safety and soundness concerns for activities conducted by CUSOs
and imposes certain recordkeeping obligations on FCUs that have relations with or
conduct operations through CUSOs. NCUA has no direct regulatory authority over
CUSOs.
Requirements in the rule that raise Paperwork Reduction Act issues are:
i)

ii)

iii)

the credit union must obtain a written agreement from the CUSO, before
making a loan to or investment in the CUSO, that the CUSO will: follow
generally accepted accounting principles (GAAP); will prepare financial
statements at least quarterly and obtain an annual opinion audit from a
certified public accountant; and agree to provide access to its books and
records to the NCUA;
the credit union must obtain a written legal opinion confirming the CUSO is
established in a legally sufficient way to limit the credit union’s exposure to
loss of its loans or investments in the CUSO; and
any FCU that is less than adequately capitalized must seek NCUA
approval before recapitalizing a CUSO that has become insolvent.

These requirements enable NCUA to monitor an FCU’s involvement with its CUSO for
safety and soundness purposes and help to assure that CUSOs are properly
established and maintained in accordance with applicable state law. NCUA notes some
elements of the rule reflect sound business judgment and represent usual and
customary practices that businesses typically follow in the ordinary course. For
example, securing a written agreement with an entity before investing funds in its
operations is a standard business practice, as is requiring that its financial statements
be prepared in accordance with GAAP.
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NCUA extends certain aspects of the rule to federally insured, state chartered credit
unions (FISCUs). Under the rule, a FISCU with an investment in or loan to a CUSO is
required to obtain a written agreement with the CUSO providing NCUA and the relevant
SSA with access to the CUSO’s books and records and the requirement that it take
steps to assure that it maintains a corporate identity separate from its CUSO. The rule
also requires that an FCU modify its existing agreement with its CUSO to provide for
access to books and records by any state regulatory authority having oversight
responsibility for any FISCU that also has a loan, investment or contract for services
with the CUSO.
Another aspect of the rule raising Paperwork Reduction Act considerations is the
requirement that any FCU that is less than adequately capitalized, within the meaning of
NCUA’s Prompt Corrective Action rule (12 CFR part 702) seek NCUA approval before
recapitalizing a CUSO that has become insolvent.

2. Indicate how, by whom, and for what purpose the information is to be used.
Except for a new collection, indicate the actual use the agency has made of
the information received from the current collection.
NCUA conducts regular, periodic examinations of FCUs. As part of its examination,
NCUA reviews written agreements, legal opinions and CPA opinion audits relating to
FCU involvement with CUSOs to determine the safety and soundness of the FCU. This
information is critically important in helping to avert or minimize losses to the National
Credit Union Share Insurance Fund (NCUSIF), which provides the federally guaranteed
account insurance for all federally insured credit unions.
FISCUs are exposed to significant potential safety and soundness and reputation risks
based on their relationship with their CUSOs. Although NCUA has the right to examine
books and records belonging to a FISCU, it does not enjoy a similar right concerning
access to the books and records of the CUSO. Without that access, NCUA cannot
thoroughly and accurately evaluate CUSO risks to FISCUs and, ultimately, the risk to
the NCUSIF.
It should be noted that not all states impose the same type of relatively strict investment
limits in the FCU Act, which limit FCU investment in all CUSOs to one percent of
unimpaired capital and surplus. 12 U.S.C. §1757(7)(I). Similarly, not all states limit the
types of activities in which a CUSO may engage. Further, without some assurance that
the FISCU is insulated from claims that might be asserted against its CUSO, there is
risk that the FISCU could lose more than the value of its investment in its CUSO.
3. Describe whether, and to what extent, the collection of information involves
the use of automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
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electronic submission of responses, and the basis for the decision for
adopting this means of collection. Also describe any consideration of using
information technology to reduce burden.
The information required to be produced or maintained under this rule is unique to the
facts of each case and, in the case of legal opinions, calls for the exercise of
professional judgment. By its nature, the information is not capable of automation.

4. Describe efforts to identify duplication. Show specifically why any similar
information already available cannot be used or modified for use for the
purposes described in Item 2 above.
This is the only NCUA rule that pertains directly to CUSOs. The information the rule
requires is unique to each credit union or case, and is not duplicated in any other
required submission or recordkeeping.

5. If the collection of information impacts small businesses or other small
entities (Item 5 of OMB Form 83-I), describe any methods used to minimize
burden.
No methods are used to minimize the burden because much of the required
recordkeeping is already maintained by FCUs that have a relationship with a CUSO.
Since the rule was adopted in 2009, the NCUA Board changed the small credit union
definition threshold from $10 million in assets to $50 million in assets. As of March 31,
2013, there are 4,515 credit unions reporting assets under $50 million. Of those 4,515,
only 364 report any interest (loan or investment) in a CUSO. Since approximately only
8 percent of small credit unions reported having any interest in CUSOs, NCUA
determined the rule does not have a significant economic impact on a substantial
number of small credit unions. Moreover, good business practice mandates that much
of the recordkeeping required under the rule is already maintained by credit unions that
have a relationship with a CUSO.

6. Describe the consequence to Federal program or policy activities if the
collection is not conducted or is conducted less frequently, as well as any
technical or legal obstacles to reducing burden.
The requirements in the rule, including the additions pertaining to written agreements
and legal opinions and the requirement that undercapitalized FCUs seek advance
approval before investing in insolvent CUSOs, are one-time events. Failure to require
these collections would expose credit unions to significant losses and could result in
losses to the NCUSIF.
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7.

Explain any special circumstances that would cause an information
collection to be conducted in a manner inconsistent with the guidelines set
out in 5 C.F.R. 1320.6.

No special circumstances exist.

8. Describe efforts to consult with persons outside the agency to obtain their
views on the availability of data, frequency of collection, the clarity of
instructions and recordkeeping, disclosure, or reporting format (if any), and
on the data elements to be recorded, disclosed, or reported.
Notice of the information collection reinstatement and a request for comment was
published in the Federal Register with a 60-day comment period on August 5, 2013 (78
FR 47425).
NCUA received one comment pertaining to this collection which questioned the burden
calculations. The comment stated that the calculations don’t “take into account the
amount of time credit unions devote to the maintenance and reporting of CUSO-related
matters”. Burden calculations used in this collection are associated with the previous
CUSO rule amendments for 12 CFR 712 and not related to the amendment to the
CUSO rule which was approved by the NCUA Board on November 21, 2013. Any
maintenance and reporting of CUSO-related matters are addressed in the 5300 Report
filing and are not required as part of the rule under review, so they are not addressed in
this burden calculation. Burden estimates for the recently approved CUSO rule, which
will be effective June 30, 2014, were separately included in the final rule to be published
in the Federal Register.

9. Explain any decision to provide any payment or gift to respondents, other than
remuneration of contractors or grantees.
NCUA will not make any payment, gift or remuneration to anyone in connection with this
collection.

10.

Describe any assurance of confidentiality provided to respondents and the
basis for the assurance in statute, regulation, or agency policy.

The rule addresses documents, such as an agreement between a credit union and its
CUSO, and legal opinions, which are and would remain credit union property. There is
no requirement that the documents be made public. Moreover, to the extent that they
are reviewed as part of an examination and become related to an examination report,
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the documents would remain non-public and exempt from public disclosure under
exemption 8 of the Freedom of Information Act. 5 U.S.C. 522(b)(8).

11. Provide additional justification for any questions of a sensitive nature, such as
sexual behavior and attitudes, religious beliefs, and other matters that are
commonly considered private.
There are no questions of a sensitive nature.

12. Provide estimates of the hour burden of the collection of information.
Current burden hours for this rule relate to new relationships between credit unions and
CUSOs. Based on a three-year average of data showing the number of affected
institutions and number of investments in CUSOs, NCUA estimates a total of 133 new
CUSO investments would be made each year. Using this data, NCUA estimates the
burden hours for compliance with the rule to be 532 hours, broken down as follows:
a. Written agreement relating to accounting and access to information.
Average number of new FICU investment interests
reported in CUSOs:
Frequency of response:
Annual hour burden:

133
annually
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2 hours x 133 = 266
b. Written legal opinion.
Number of respondents, i.e., requiring
new or updated opinion per year:
Frequency of response:
Annual hour burden:

133
annually
2

2 hours x 133 = 266

Total burden for compliance: 532 hours

The rule requires certain credit unions to seek and obtain prior approval from NCUA
before making an investment to recapitalize an insolvent CUSO. According to NCUA’s
records, as of March 31, 2013, there were only 15 FCUs less than adequately
capitalized (i.e., net worth of under 6%) that had any interest in a CUSO. Assuming that
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all of these credit unions had to ask for a waiver (a highly conservative estimate), NCUA
estimates it would take the FCU approximately two hours to complete a request for prior
approval for an investment to recapitalize an insolvent CUSO.
Obtaining NCUA prior approval:
Total FCUs less than adequately
Capitalized, 03/31/2013:

15

Frequency of response:
Initial hour burden:

one-time
2

2 hours x 15 = 30

Grand Total Burden Hours: 562 hours

13. Provide an estimate of the total annual [non-hour] cost burden to respondents
or recordkeepers resulting from the collection of information.
There is no submission or filing fee associated with making this information available to
the NCUA. Any ancillary costs such as copying charges or postage would be de
minimis. While there are professional fees associated with securing a CPA opinion
audit and a legal opinion, these services are part of the customary and usual business
practice in this context and so are not included here.

14. Provide estimates of annualized cost to the Federal government. Also,
provide a description of the method used to estimate cost, which should
include quantification of hours, operational expenses (such as equipment,
overhead, printing, and support staff), and any other expense that would not
have been incurred without this collection of information.
As noted above, NCUA conducts regular, periodic examinations of FCUs and also
frequently participates in examinations of FISCUs. Insofar as these examinations
consider all aspects of a credit union’s business, including relationships with any
CUSOs, there is no additional cost to the NCUA (or any other agency) relating to the
information collection contained in this rule. In addition, NCUA routinely receives and
reviews a myriad of requests from credit unions on a wide range of issues, and so is
prepared to process requests concerning recapitalization of CUSOs without additional
cost.

15. Explain the reasons for any program changes or adjustments reported in
Items 13 or 14 of the OMB Form 83-I.
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This is an update of an information collection. The timeframe for credit unions to amend
existing agreements with their CUSOs is over, thus eliminating the initial burden of the
rule as approved in 2008.
The information collection requirements now are one-time obligations that help NCUA
assure the continued safety and soundness of the industry. The rule also requires
certain less than adequately capitalized FCUs to obtain NCUA’s prior approval before
re-capitalizing an insolvent CUSO.

16. For collections of information whose results will be published, outline plans
for tabulation and publication.
As noted above, the information sought under this rule is either not covered by or
exempt from disclosure under the Freedom of Information Act. There are no plans to
publish or disseminate any of the information publicly.

17. If seeking approval to not display the expiration date for OMB approval of the
information collection, explain the reasons that display would be
inappropriate.
There are no forms associated with this information collection and so we are not
seeking approval not to display the expiration dates of OMB approval of this information
collection.

18. Explain each exception to the certification statement identified in Item 19,
"Certification for Paperwork Reduction Act Submissions," of OMB Form 83-I.
There are no exceptions to the certification statement identified in Item 19 of the OMB
Form 83-I.

B. Collections of Information Employing Statistical Methods
This collection does not employ statistical methods.

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