[Federal Register: October 14, 2005 (Volume 70, Number 198)]
[Proposed Rules]
[Page 60019-60031]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14oc05-16]
-----------------------------------------------------------------------
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Parts 331 and 362
RIN 3064-AC95
Interstate Banking; Federal Interest Rate Authority
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The FDIC received a petition for rulemaking to preempt certain
state laws with the stated purpose of establishing parity between
national banks and state-chartered banks in interstate activities and
operations. The petition also requested rulemaking to implement the
interest rate authority contained in the Federal Deposit Insurance Act.
Generally, the requested rules would provide that the home state law of
a state bank applies to the interstate activities of the bank and its
operating subsidiaries to the same extent that the National Bank Act
applies to the interstate activities of a national bank and its
operating subsidiaries. They would also implement the federal statutory
provisions addressing interest charged by FDIC-insured state banks and
insured U.S. branches of foreign banks. The FDIC is requesting comments
on a proposed rule to amend the FDIC's regulations in response to the
rulemaking petition. Issuance of the proposed rules would serve as the
FDIC's response to the rulemaking petition.
DATES: Comments must be submitted on or before December 13, 2005.
ADDRESSES: You may submit comments by any of the following methods:
Agency Web site: http://www.FDIC.gov/regulations/laws/federal/propose.html.
Follow the instructions for submitting comments. E-mail: comments@FDIC.gov..
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th
Street, NW., Washington, DC 20429.
Hand Delivered/Courier: The guard station at the rear of
the 550 17th Street Building (located on F Street), on business days
between 7 a.m. and 5 p.m.
Public Inspection: Comments may be inspected and
photocopied in the FDIC Public Information Center, Room 100, 801 17th
Street, NW., Washington, DC, between 9 a.m. and 4:30 p.m. on business
days.
Internet Posting: Comments received will be posted without
change to http://www.FDIC.gov/regulations/laws/federal/propose.html,
including any personal information provided.
FOR FURTHER INFORMATION CONTACT: Robert C. Fick, Counsel, (202) 898-
8962; Rodney D. Ray, Counsel, (202) 898-3556; or Joseph A. DiNuzzo,
Counsel, (202) 898-7349; Legal Division, Federal Deposit Insurance
Corporation, Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
I. The Petition
The Financial Services Roundtable, a trade association for
integrated financial services companies (``Petitioner''), has
petitioned the FDIC to adopt rules concerning the interstate activities
of insured state banks and their subsidiaries that are intended to
provide parity between state banks and national banks. Generally, the
requested rules would provide that a state bank's home state law
governs the interstate activities of state banks and their operating
subsidiaries (``Op Subs'') \1\ to the same extent that the National
Bank Act (``NBA'') governs a national bank's interstate business. The
Petitioner requests that the FDIC adopt rules with respect to the
following areas:
---------------------------------------------------------------------------
\1\ Generally, an operating subsidiary is a majority-owned
subsidiary of a bank or savings association that engages only in
activities that its parent bank or savings association may engage
in.
---------------------------------------------------------------------------
The law applicable to activities conducted in a host state
by a state bank that has a branch in that state,
The law applicable to activities conducted by a state bank
in a state in which the state bank does not have a branch,
The law applicable to activities conducted by an Op Sub of
a state bank,
[[Page 60020]]
The scope and application of section 104(d) of the Gramm-
Leach-Bliley Act (``GLBA'') \2\ regarding preemption of certain state
laws or actions that impose a requirement, limitation, or burden on a
depository institution, or its affiliate, and
---------------------------------------------------------------------------
\2\ 15 U.S.C. 6701.
---------------------------------------------------------------------------
Implementation of section 27 of the Federal Deposit
Insurance Act (``FDI Act'') \3\ (which permits state depository
institutions to export interest rates) in a manner parallel to the
rules issued by the Office of the Comptroller of the Currency (``OCC'')
and the Office of Thrift Supervision (``OTS'').
---------------------------------------------------------------------------
\3\ 12 U.S.C. 1831d.
---------------------------------------------------------------------------
The Petitioner argues that it is both necessary and timely for the
FDIC to adopt rules that clarify the ability of state banks operating
interstate to be governed by a single framework of law and regulation
to the same extent as national banks. According to the Petitioner, over
the last decade the federal charters for national banks and federal
thrifts have been correctly interpreted by the OCC and the OTS, with
the repeated support of the federal courts, to provide broad federal
preemption of state laws that might appear to apply to the activities
or operations of federally chartered banking institutions within a
state. The result, it asserts, is that national banks and federal
savings associations now can do business across the country under a
single set of federal rules. In contrast, the Petitioner believes that
there is widespread confusion and uncertainty with respect to the law
applicable to state banks engaged in interstate banking activities.
Furthermore, it argues, this uncertainty produces the potential for
litigation and enforcement actions, deters state banks from pursuing
profitable business opportunities, and causes substantial expense to a
state bank that decides to convert to a national bank in order to gain
greater legal certainty. Finally, the Petitioner asserts that the FDIC
has the authority, tools and responsibility to correct this imbalance.
II. The Public Hearing
Overview
On May 24, 2005, the FDIC held a public hearing on the rulemaking
petition. As indicated in the FDIC's formal announcement of the hearing
(70 FR 13,413 (March 21, 2005)) the purpose of the hearing was to
obtain public insight into the issues presented by the petition
including how the FDIC should respond to the rulemaking request. The
notice of the public hearing provided an overview of the rulemaking
petition, posed general questions raised by the petition, identified
legal and policy issues raised by the specific aspects of the
rulemaking petition, and asked for the public's views on these and any
other issues related to the petition. The notice of public hearing also
included a copy of the rulemaking petition.
The sixteen speakers at the hearing presented their views on the
legal, policy and other issues raised in the petition. The speakers
also provided written statements. In addition, eighteen others who
chose not to appear at the hearing submitted written views on the
petition. The presenters at the hearing consisted of trade group
representatives, state banking commissioners, representatives of
consumer groups, and bankers. Those commenting who did not appear at
the hearing consisted of the same categories of interested parties plus
members of Congress and state attorneys general. Overall the FDIC
received thirty-four written statements on the rulemaking petition.\4\
---------------------------------------------------------------------------
\4\ Copies of the petition and all statements we received on the
petition as well as the transcript of the hearing are available on
the FDIC's Web site at: http://www.fdic.gov/news/conferences/agency/noticemay162005publichearing.html
.
---------------------------------------------------------------------------
Summary of Statements in Favor of the Petition
Those in favor of the petition argued that the requested rulemaking
would ensure state banks parity with national banks in their interstate
operations. One speaker, representing a group of state-chartered
commercial banks, stated that ``[a]t stake is the continued vitality of
state bank regulation and the structure and dynamics of bank regulation
at the federal level that have served our nation so well.'' A number of
state banking commissioners agreed with that statement. One commented
that the dual banking system is out of balance because of the ``broad
OCC rulemaking of February 2004 preempting most state laws as they
relate to national banks and their subsidiaries.'' He argued that
``most banks do not want the OCC [preemption rules] rolled back but
want the state charter to have parity with the federal charter'' and
that an FDIC rulemaking would ``re-establish order'' to preserve the
dual banking system. A state banking association agreed with these
views and added that one course for the FDIC would be to issue a rule
codifying the FDIC's opinions on the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (``Riegle-Neal I''), the Riegle-Neal
Amendments Act of 1997 (``Riegle-Neal II'') \5\ and FDIC General
Counsel Opinions 10 and 11 \6\ (``GC-10 and GC-11'') on the exportation
of interest rates, noting that further study might be warranted on the
other aspects of the petition.
---------------------------------------------------------------------------
\5\ Pub. L. 103-328, 108 Stat. 2338 (1994) (codified to various
sections of title 12 of the United States Code); Pub. L. 105-24
(1997).
\6\ General Counsel Op. No. 10, 63 FR 19258 (Apr. 17, 1998) and
General Counsel Op. No. 11, 63 FR 27282 (May 18, 1998).
---------------------------------------------------------------------------
One state banking commissioner voiced opposition to the ``broad
unilateral preemption by charter-granting federal banking agencies''
and argued that an FDIC rule is necessary to ``maintain the
competitiveness of the state charter.'' Another commented that the
``greatest problem is a lack of certainty for state-chartered
interstate banks.'' A large commercial banking organization observed
that it is important to have a ``real choice of regulatory regimes
under which to operate an interstate banking business'' and noted that
its bank's ``participation in the interstate marketplace as a state
chartered institution may be threatened unless the FDIC acts to restore
parity in the banking regulations.''
An executive for a large banking organization stated that the rules
applicable to national banks have given national banks a ``significant
advantage in operating multistate and national scale lending
businesses.'' He maintained that, absent the requested rulemaking,
state banks will continue to contend with an ``extensive patchwork of
additional state and local laws and regulations in crafting any
national lending program or even a modest cross border program.''
Another banker provided an example in which his bank could not obtain
approval to operate an automated teller machine in Florida because it
was chartered by another state. He asserted that a national bank would
not have been subject to that restriction.
An attorney for a large bank noted that the requested rulemaking
would benefit not only large banks with interstate operations but also
small independent banks located near state borders. She argued that, if
the FDIC adopts the proposed rule, state banking supervisors likely
would increase the cooperation they already have demonstrated in
existing cooperative agreements governing the regulation of interstate
state-chartered banks.
Proponents of the petition argued that the requested rulemaking
would not lead to a ``race to the bottom'' by state legislatures. The
``race-to-the-bottom'' concern is that some states will enact minimal
consumer protection laws for
[[Page 60021]]
bank customers in order to lure banks to seek charters from those
states and export those weak home-state consumer laws to host states
which have more encompassing and protective consumer laws. One state
banking commissioner argued that consumers would still be protected by
home state and federal law in areas where host state law has been
preempted. He also suggested that Congress enact national consumer laws
to counteract the concern about a potential for unhealthy competition
among bank chartering authorities in the area of consumer protection.
Another speaker noted that effective and rigorous protection of all
consumers no matter where they reside perhaps could be achieved through
a partnership between the respective states and the Federal Reserve or
the FDIC and through cooperative agreements between and among the
states. He also suggested that the FDIC could issue regulations
limiting charter conversions (of state-banks) as a means to address the
potential consumer protection problem.
A state banking commissioner remarked that state legislators and
attorneys general are in the business of protecting the consumers in
their states; thus, it is unlikely that any state would strive to be at
the bottom for consumer protection in an attempt to gain a few bank
charters. Another doubted the potential for unhealthy competition among
bank chartering authorities in the area of consumer protection by
noting that, as to the current preemption of host state laws for
national banks and federal thrifts, this ``wholesale relocation of
banks hasn't happened so far.''
As to the FDIC's legal authority to issue the requested rulemaking,
one speaker asserted that the petition is not requesting a
comprehensive federal preemption of state law, but rather seeks to
fully implement an existing federal statutory framework for determining
which state law applies when state banks operate across state lines. He
and others argued that the FDIC has ample authority to take all the
actions requested in the petition. In particular, they cited sections
8, 9 and 27 of the FDI Act,\7\ Riegle Neal II and section 104 of the
GLBA. One banking commissioner argued that the intent of federal law is
to maintain the competitive balance between the state and national
charter and that the petition is asking the FDIC to exercise its
authority. Another asserted that the FDIC is the proper forum and
arbiter of the questions raised in the petition and declared that
``[i]t's * * * [the FDIC's] law to interpret,'' emphasizing that the
Riegle-Neal I and II provisions are codified in the FDI Act.
---------------------------------------------------------------------------
\7\ 12 U.S.C. 1818, 1819, and 1831d.
---------------------------------------------------------------------------
An attorney for a large banking organization asserted that: (i)
Section 9 of the FDI Act vests sufficient power in the FDIC to
implement regulations to carry out the provisions of the FDI Act; (ii)
the FDIC is the only regulatory body that has the authority to issue
regulations that will carry out the intent of the Riegle-Neal II and
GLBA to provide parity for state-chartered banks; and (iii) section
104(d)(4) of the GLBA sets forth a broad rule for state banks and
national banks that covers a full range of banking activities and
``[t]he FDIC is best equipped to adopt regulations that will implement
the Congressional mandate set forth in section 104(d).'' One state
banking commissioner expressed uncertainty over the constitutionality
of the OCC's preemption rules but credited the OCC for bringing
together ``these various laws, interpretations, and analyses in one
place as an integrated resource.'' He suggested that the FDIC follow
suit by publishing an interpretation of federal law for state banks,
including rules on section 27 of the FDI Act and Riegle-Neal II.
The president of a financial services trade group argued that the
requested rulemaking would be a natural extension of the authority
Congress granted to state banks under Riegle-Neal II and that
interpretations of section 104 of the GLBA and section 27 of the FDI
Act would clarify the scope of these activities. She urged the FDIC to
issue a rule or interpretation clarifying that: (i) Section 104 applies
to all lending and other activities permitted by the GLBA; (ii) the
four standards set forth in sections 104(d)(4)(D) are to be read in the
disjunctive as separate standards; and (iii) the reference to ``other
persons'' in section 104(d)(4)(D)(i) should be read to include other
depository institutions.
Summary of Statements Opposed to the Petition
Those opposed to the rulemaking petition generally argued that the
petition is a response to a competitive imbalance attributable to the
OCC's preemption regulations. One speaker, representing a trade group
for realtors, stated that the ``cure for any imbalance is for Congress
or the OCC itself, under new leadership, to roll back the OCC
regulations, not to use them as a model for the state banking system.''
She maintained that granting the petition would ``further harm the
ability of states to protect their citizens; result in undue
concentration of banking services and less choice for consumers; open
the door to the mixing of banking and commerce; destroy the state
banking system, not save it; and disrupt the competitive balance among
financial service providers.'' In a supplemental statement filed in
response to a hearing officer's question, another representative for
the trade group noted that issues relating to preemption under Riegle-
Neal have not been expressly delegated to the FDIC and that the
legislative history contains no mention of Congress conferring such
authority on the FDIC. Citing recent case law, the representative also
stated that if the FDIC were to interpret Riegle-Neal, ``its
interpretation would not be entitled to Chevron deference because the
Act could also be interpreted by the OCC and the Federal Reserve
Board.''
An attorney for a national consumer group urged rejection of the
petition because ``there is no basis in federal law for allowing broad
preemption of state law for state-chartered banks'' and, she argued,
``even if there were room for discretionary action on this question by
the FDIC * * * allowing this petition would be terrible public policy,
with devastating consequences for American consumers.'' As to the
FDIC's legal authority to issue the requested regulation, she asserted
that: (i) Riegle-Neal II simply put state-chartered banks on par with
national banks when a state-chartered bank branches into another state;
(ii) the GLBA as a whole provides no support for the position in the
petition that the GLBA creates new preemptive rights to depository
institutions, beyond insurance and securities activities; and (iii)
state bank operating subsidiaries, agents of the banks, or other third
parties are not entitled to preemptive rights.
A state banking commissioner agreed with others who commented that
the FDIC does not have the statutory authority to issue the requested
rulemaking and stated that ``many of us do not believe the OCC has the
statutory authority to do what it has done by regulation.'' He
suggested that, ``[i]nstead of adopting legally questionable
regulations preempting state law, the FDIC should urge Congress to
address the issue.'' The commissioner criticized ``no-rules'' states
that ``have chosen to eliminate traditional consumer protections,
regarding consumer lending practices, in favor of economic
development.'' He argued that ``[o]nly federal laws that establish
national rules applicable to all consumer lenders should be permitted
to pre-empt the protection that State laws afford to their citizens.''
Another consumer group spokesman reiterated the concern expressed
by
[[Page 60022]]
others about the negative effect on consumers that might result from
the requested rulemaking. He said that ``[i]f the petitioner's request
is granted, state-chartered banks headquartered in states with weaker
anti-predatory laws will be able to override the rigorous and
comprehensive laws when they make loans or buy loans from brokers in
states like North Carolina and New Mexico. At a time when minorities,
immigrants, and women disproportionately receive high cost loans, it is
counterproductive to strip states of their rights to protect citizens
who are striving for their American dreams of their first time
homeownership and wealth building.''
Two members of Congress submitted a joint statement in opposition
to the petition. They asserted that the current imbalance with respect
to interstate banking operations is solely the result of the OCC's
recent adoption of its preemption and visitorial regulations and that
the law itself is clear and there are no gaps in the law that the FDIC
needs to, or should, fill. The Congressmen offered these options to
address the issues raised in the petition: (i) The OCC should revise
its rules to eliminate the overly broad ``obstruct, impair or
condition'' language to make clear what state laws are not preempted,
and publish any future preemption determinations on a case-by-case
basis; (ii) the relevant parties should negotiate a workable solution
that identifies what national bank core banking areas are not affected
by state laws, establish a mechanism to inform parties when individual
laws do not apply and why, and clearly identify which regulators are
responsible for policing which practices of which institutions; (iii)
the courts should begin to carefully review the OCC's regulations to
determine if they are consistent with the statutory framework and not
so readily defer to the OCC; and (iv) Congress should adopt the
Preservation of Federalism Banking Act (H.R. 5251) which is designed to
clarify when state laws are applicable to state banks.
A state attorney general, writing on behalf of his state and the
attorneys general of six other states, urged the FDIC to deny the
petition in its entirety. He argued that the FDIC does not have the
authority to adopt the requested rules, specifying that: (i) The FDIC's
rulemaking authority is significantly more limited than the OCC; (ii)
the FDIC is not the primary regulator of state banks and a state bank's
power derives primarily from state law; and (iii) if there is a gap to
fill in Riegle-Neal II and the GLBA, it is a legislative gap that only
Congress can fill. He also asserted that section 104 of the GLBA fails
to provide authority for the requested rules because the anti-
discrimination provisions of section 104(d)(4) have nothing to do with
establishing parity between national and state banks. He commented that
the requested rules would not preserve the dual banking system and
would undermine the ability of states to protect their citizens. In
addition, he argued that the requested rules are not necessary because
many states have adopted ``wild card'' statutes and have entered into
cooperative agreements that permit state banks a considerable degree of
parity with national banks.
Banking commissioners of seven states submitted a joint statement
in opposition to the petition. They acknowledged that the ``broad
preemption by the OCC and the OTS has created an imbalance in the dual
banking system,'' but voiced disagreement ``with the means recommended
by the Roundtable to restore the balance.'' They argued that Congress,
not the FDIC, should determine whether preemption is appropriate,
particularly in the light of the unsettled status of the OCC and OTS
preemption rules and activities.
A consumer group spokeswoman argued that the requested rulemaking
would undermine the dual banking system by ``federalizing'' Delaware's
and South Dakota's banking laws. She noted that: In passing Riegle-Neal
II Congress affirmed the importance of individual state banking
regulation and Riegle-Neal II created a narrow exception to this
principle by permitting interstate branching by state banks; and the
portions of the GLBA relied on by the petition refer largely to the
sale of insurance, not to all banking and financial activities. A
representative of another consumer group characterized the petition as
``audacious'' and said the requested rule would have ``lasting and
harmful effects on New Yorkers and their communities.'' She suggested
that the FDIC hold additional hearings at each of the FDIC's regional
offices to ``afford organizations like ours in New York City and across
the country opportunity to comment meaningfully.''
Summary of Other Views on the Petition
Some statements we received neither supported nor opposed the
petition. A spokesman for the national trade group for state banking
supervisors commented that ``recent preemption rules * * * have
significantly altered the financial regulatory system, and threaten the
future of our nation's dual banking system.'' He said, however, that
his association hesitates to turn such decision-making authority over
to any one federal agency and suggested that Congress address the
issues to clarify its vision of the dual banking system. A state
banking commissioner argued that the ``regulatory world is out of
balance,'' but that the petition ``would not solve what is wrong with
our system.'' Similarly, a spokeswoman for a national trade group for
community banks said, ``[t]he balance in the dual banking system needs
to be restored. However * * * we question whether this forum, as
opposed to the Congress, is the appropriate one. Accordingly, we
neither support nor oppose the recommendations of the petition at this
time.'' Another national trade group for banks suggested that the FDIC
and the industry undertake a broad, in-depth study of the current state
of the dual banking system--strengths, weaknesses, possible remedies
and possible outcomes. It added that a ``quick fix'' might be harmful
in the long run.
A banking commissioner stated that her agency was presently in
litigation on the applicability of her state's law to subsidiaries of
national banks. She commented that ``the issues underlying the petition
* * * are of such broad scope and have such significant implications
for the financial services sector that they warrant a more
comprehensive review by Congress.
III. The Proposed Rules
A. Overview
The rulemaking petition raises serious and complex legal and policy
issues regarding the preemption of state law in the context of
interstate banking. From the comments made in connection with the
public hearing, it is clear that there is a vast and sometimes strong
difference of views among many bankers, industry trade groups, public
advocacy groups, state attorneys general, and members of Congress on
how to respond to the petition. Issuance of the proposed rules serves
as the FDIC's response to the rulemaking petition. The proposed rules
implement sections 24(j) and 27 of the FDI Act (``section 24(j) and
section 27, respectively'').\8\
---------------------------------------------------------------------------
\8\ 12 U.S.C. 1831a(j)(1) and 12 U.S.C. 1831d, respectively.
---------------------------------------------------------------------------
B. Discussion of Section 24(j)
The Statute
Subsection (j) of section 24 currently provides the following:
(j) Activities of branches of out-of-state banks.
(1) Application of Host State Law
The laws of a host State, including laws regarding community
reinvestment,
[[Page 60023]]
consumer protection, fair lending, and establishment of intrastate
branches, shall apply to any branch in the host State of an out-of-
State State bank to the same extent as such State laws apply to a
branch in the host State of an out-of-State national bank. To the
extent host State law is inapplicable to a branch of an out-of-State
State bank in such host State pursuant to the preceding sentence,
home State law shall apply to such branch.
(2) Activities of Branches
An insured State bank that establishes a branch in a host State
may conduct any activity at such branch that is permissible under
the laws of the home State of such bank, to the extent such activity
is permissible either for a bank chartered by the host State
(subject to the restrictions in this section) or for a branch in the
host State of an out-of-State national bank.
(3) Savings Provision
No provision of this subsection shall be construed as affecting
the applicability of--
(A) any State law of any home State under subsection (b), (c),
or (d) of section 1831u of this title; or
(B) Federal law to State banks and State bank branches in the
home State or the host State.
(4) Definitions
The terms ``host State'', ``home State'', and ``out-of-State
bank'' have the same meanings as in section 1831u(g) of this title.
The term ``home State'' as defined in 12 U.S.C. 1831u(g)(4) means
``(i) with respect to a national bank, the State in which the main
office of the bank is located; and (ii) with respect to a State bank,
the State by which the bank is chartered.''
The term ``host State'' as defined in section 12 U.S.C. 1831u(g)(5)
means, ``with respect to a bank, a State, other than the home State of
the bank, in which the bank maintains, or seeks to establish and
maintain, a branch.''
The term ``out-of-State bank'' as defined in section 12 U.S.C.
1831u(g)(8) means, ``with respect to any State, a bank whose home State
is another State.''
Subsection (j) was originally enacted by the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (``Riegle-Neal I'').\9\
Riegle-Neal I generally established a federal framework for interstate
branching for both State banks and national banks.
---------------------------------------------------------------------------
\9\ Pub. L. 103-328, 108 Stat. 2338 (Sept. 29, 1994).
---------------------------------------------------------------------------
As enacted, paragraph (1) of subsection (j) originally stated that:
The laws of the host state, including laws regarding community
reinvestment, consumer protection, fair lending, and establishment
of intrastate branches, shall apply to any branch in the host state
of an out-of-state state bank to the same extent as such state laws
apply to a branch of a bank chartered by that state. (emphasis
added).\10\
\10\ Pub. L. 103-328, sec. 102(b)(3)(B), 108 Stat. 2338 (Sept.
29, 1994).
---------------------------------------------------------------------------
Pursuant to this paragraph a branch of an out-of-state, state bank
would be subject to host state law to the same extent that a branch of
a bank chartered by the host state would be.
Three years after Riegle-Neal I, Congress enacted the Riegle-Neal
Amendments Act of 1997 (``Riegle-Neal II'') \11\ in an attempt to
provide state banks that had interstate branches (i.e., branches
located in states other than the bank's home state) ``parity'' with
national banks that had interstate branches. Riegle-Neal II revised the
language of section 24(j)(1) to read as it currently does today:
---------------------------------------------------------------------------
\11\ Pub. L. 105-24, 111 Stat. 238, (July 3, 1997).
The laws of a host State, including laws regarding community
reinvestment, consumer protection, fair lending, and establishment
of intrastate branches, shall apply to any branch in the host State
of an out-of-State State bank to the same extent as such State laws
apply to a branch in the host State of an out-of-State national
bank. To the extent host State law is inapplicable to a branch of an
out-of-State State bank in such host State pursuant to the preceding
---------------------------------------------------------------------------
sentence, home State law shall apply to such branch.
This change made host state law apply to a branch of an out-of-
state state bank only to the extent that it applies to a branch of an
out-of-state national bank.
Authority To Issue Rules Regarding Section 24(j) and Section 27
The FDIC has the authority to issue rules generally to carry out
the provisions of the FDI Act. Section 9(a) of the FDI Act, 12 U.S.C.
1819(a), provides that:
[T]he Corporation * * * shall have power--
* * * * *
Tenth. To prescribe by its Board of Directors such rules and
regulations as it may deem necessary to carry out the provisions of
this Act or of any other law which it has the responsibility of
administering or enforcing (except to the extent that authority to
issue such rules and regulations has been expressly and exclusively
granted to any other regulatory agency).
In addition, section 10(g) of the FDI Act, 12 U.S.C. 1820(g),
provides that:
Except to the extent that authority under this Act is conferred
on any of the Federal banking agencies other than the Corporation,
the Corporation may--
(1) Prescribe regulations to carry out this Act; and
(2) By regulation define terms as necessary to carry out this
Act.
Section 24(j) and section 27 are each, of course, provisions in the
FDI Act. Furthermore, no other agency has been granted the authority to
issue rules to restate, implement, clarify, or otherwise carry out,
either section 24(j) or section 27. Consequently, sections 9(a) and
10(g) of the FDI Act expressly grant the FDIC the authority to issue
rules with respect to sections 24(j) and 27.\12\
---------------------------------------------------------------------------
\12\ As indicated previously, a commenter asserted that the
FDIC's interpretation of Riegle-Neal would not be entitled to
Chevron deference because other Federal banking agencies could
interpret the statute. The FDIC recognizes that there are federal
court decisions, such as Wachtel v. Office of Thrift Supervision,
982 F.2d 581 (DC Cir. 1993), that indicate that where the same
statute is administered by several agencies, deference to the
interpretation of a statute by one agency is inappropriate. The
Wachtel decision, however, arose in the context of an enforcement
proceeding under section 8 of the FDI Act (12 U.S.C. 1818) which
provides statutory enforcement authorities which are administered by
each of the Federal banking agencies with respect to the depository
institutions each agency supervises. This is distinguishable from
the present situation because the FDIC is here proposing, through
rulemaking under sections 9(a) and 10(g) of the FDI Act, to
implement sections 24(j)(1) and 27 of the FDI Act, and no other
agency has been expressly granted such authority.
---------------------------------------------------------------------------
Interpretation of Section 24(j)(1)
Section 24(j)(1) states that host state law ``shall apply to any
branch in the host state of an out-of-state state bank to the same
extent as such state laws apply to a branch of an out-of-state national
bank.'' (emphasis added). The statute itself does not provide an
explanation of what Congress meant by the phrase ``apply to a branch.''
Clearly Congress was addressing the activities and operations of a
branch in the host state, but it is not clear from the statutory text
what threshold level of involvement by the branch will trigger the
operation of the statute. The range of potential involvements by the
branch might, under a broad interpretation, run from a very minimal
involvement in the activity to, under a very narrow interpretation,
performance of the entire activity at the branch by branch personnel.
The proposed rules would clarify that host state law is subject to
preemption when an activity is conducted at a branch of the out-of-
state state bank, and would define ``activity conducted at a branch''
to mean an activity of, by, through, in, from, or substantially
involving, a branch. This approach is within the range of
interpretations permitted by the statutory language, but the statute
itself does not indicate whether this interpretation is the most
appropriate one. Since the language of this provision is susceptible to
multiple meanings and presents important questions about how
[[Page 60024]]
it is to be applied, the statute is ambiguous.
In interpreting any ambiguous statutory provision the objective is
to interpret the statute in light of the purposes that Congress sought
to serve.\13\ Although there are neither committee reports nor any
conference report on Riegle-Neal II, there are several statements by
the sponsors of Riegle-Neal II, and such statements have been accorded
substantial weight in determining legislative intent.\14\ In this case,
evidence of Congress' intent can be found in the statements of the
sponsors of Riegle-Neal II and in the testimony of witnesses urging
congressional action. Specifically, Representative Marge Roukema, the
principal sponsor of the legislation, stated that:
---------------------------------------------------------------------------
\13\ Chapman v. Houston Welfare Rights Organization, 441 U.S.
600, 608 (1979).
\14\ See, Federal Energy Administration v. Algonquin SNG, Inc.,
426 U.S. 548, 564 (1976).
The essence of this legislation is to provide parity between
State-chartered bank and national banks * * *
This legislation is critical to the survival of the dual banking
system. * * *
This legislation is also important for consumers, because if we
do not enact this legislation, State banks will likely convert to a
national charter. Certainly the incentive will be there. The end
result could be that there will be no consumer protection at the
State level * * *
[T]he bill clarifies [that] the home State law of a State bank
must be followed in situations in which a specific host State [law]
does not apply to a national bank.\15\
\15\ 143 Cong. Rec. H3088-89 (daily ed. May 21, 1997) (statement
of Rep. Roukema).
---------------------------------------------------------------------------
Representative Bruce Vento echoed Representative Roukema's concerns
and confirmed her views of how the bill would operate. Speaking in
support of enactment, Representative Vento stated that:
Only under the limited circumstances in which the Comptroller
preempts host State laws for national banks will out-of-State State-
chartered banks similarly be exempted from the laws of the host
State. In those cases, the out-of-State bank will be required to
follow its own home State laws as regards such activity.
* * * * *
In the absence of this measure, however, most State banks with
out-of-State bank branches will likely change to a national charter
causing the atrophy of the dual banking State-national banking [sic]
system.\16\
---------------------------------------------------------------------------
\16\ 143 Cong. Rec. H3094 (daily ed. May 21, 1997) (statement of
Rep. Vento).
---------------------------------------------------------------------------
Statements by other co-sponsors reinforce the statements of
Representatives Roukema and Vento that Riegle-Neal II was intended to
provide parity between state banks and national banks with regard to
interstate activities.\17\ In addition, Federal Reserve Board Chairman
Alan Greenspan expressed the support of the Federal Reserve Board for
this legislation in a letter to Representative Roukema and stated that
``[t]he Riegle-Neal Clarification Act of 1997 \18\ is an effort to
create parity between national and state-chartered banks in operating
out-of-state branches.'' \19\ Other endorsements received by
Representative Roukema that express the same understanding of the bill
include those from the National Governors' Association, the Conference
of State Bank Supervisors and the Independent Bankers' Association of
America.\20\
---------------------------------------------------------------------------
\17\ See, e.g., 143 Cong. Rec. H3094 (daily ed. May 21, 1997)
(statement of Rep. Metcalf); 143 Cong. Rec. H3094-95 (daily ed. May
21, 1997) (statement of Rep. LaFalce).
\18\ Riegle-Neal II was originally introduced as the Riegle-Neal
Clarification Act of 1997; its name was later changed in the Senate
during deliberations to the ``Riegle-Neal Amendments Act of 1997''.
\19\ 143 Cong. Rec. H3089-93 (daily ed. May 21, 1997) (statement
of Rep. Roukema).
\20\ See id.
---------------------------------------------------------------------------
The debates in the Senate also indicate that the Senate understood
that the purpose of the legislation was to provide parity between state
banks and national banks. In that regard, Senator D'Amato stated the
following:
[T]he bill will restore balance to the dual banking system by
ensuring that neither charter operates at an unfair advantage in
this new interstate environment.
* * * * *
[I]t would establish that a host State's law would apply to the
out-of-State branches of a State-chartered bank only to the same
extent that that those laws apply to the branches of out-of-State
national banks located in the host State.\21\
---------------------------------------------------------------------------
\21\ 143 Cong. Rec. S5637 (daily ed. June 12, 1997) (statement
of Sen. D'Amato).
Consequently, legislative history indicates that the purpose of
Riegle-Neal II is to provide state banks parity with national banks
with regard to interstate branches to the maximum extent possible.
Moreover, the very nature of Riegle-Neal II as remedial legislation
supports a broad interpretation. It is a recognized canon of statutory
construction that remedial legislation should be interpreted broadly to
effectuate its purposes.\22\ The problem that Riegle-Neal II sought to
correct was accurately described by Rep. LaFalce as follows:
---------------------------------------------------------------------------
\22\ See, Tcherepnin v. Knight, 389 U.S. 332, 336 (1967).
Now when Congress passed the Interstate Banking and Branching
bill of 1994, it did not, in my judgment, adequately anticipate the
negative impact that it might have on State-chartered banks
interested in branching outside their home States. However * * * it
has become clear that State-chartered bank wanting to branch outside
their home States are at a significant disadvantage relative
national banks branching outside their home State.
Why so? Well, it is due to the fact that the national bank
regulator has the authority to permit national banks to conduct
operations in all the States with some level of consistency. In
contrast, under the existing interstate legislation State banks
branching outside their home State must comply with a multitude of
different State banking laws in each and every State in which they
operate.
So the complications of complying with so many different State
laws in order to branch interstate has led many State banks to
conclude * * * that it would be much easier to switch to a national
Federal charter [sic].\23\
---------------------------------------------------------------------------
\23\ 143 Cong. Rec. H3094, 95 (daily ed. May 21, 1997)
(statement of Rep. LaFalce).
The problem then, as understood by Congress as well as the banking
industry,\24\ was that State banks operated at a disadvantage to
national banks when they operated outside their home states. The reason
is that when state banks operated in host states, they were subject to
all of the laws of each host state in which they operated. National
banks, however, operate in host states largely free of host state law
because many host state laws are preempted for national banks. To
remedy this problem Congress designed Riegle-Neal II to eliminate the
disparity between the treatment of national bank branches and state
bank branches with respect to the applicability of host state law.
---------------------------------------------------------------------------
\24\ See, 143 Cong. Rec. S5637 (daily ed. June 12, 1997)
(statement of Sen. D'Amato); 143 Cong. Rec. H3089-93 (daily ed. May
21, 1997) (statement of Rep. Roukema).
---------------------------------------------------------------------------
The legislative history of Riegle-Neal II indicates that Congress
wanted to provide state banks parity with national banks at least with
regard to activities involving branches outside the bank's home state.
As noted above, the proposed rules generally clarify that host state
law is subject to preemption when an activity is conducted at a branch
in the host state of an out-of-state, state bank. The proposed rules
also include a definition of the phrase ``activity conducted at a
branch'' to mean ``an activity of, by, through, in, from, or
substantially involving, a branch.'' Such an interpretation is
consistent with the legislative intent as detailed above. Moreover,
Congress recognized that state banks are at a disadvantage to national
banks when it comes to interstate activities, and Riegle-Neal II was
intended to remedy that disadvantage by providing a level playing
field. The language of the
[[Page 60025]]
proposed rules carry out that intention by generally ensuring that
whenever a branch of an out-of-state national bank would not be subject
to a host state's law, then a branch of an out-of-state, state bank
would also not be subject to that host state's law.
In addition, the language of section 24(j) indicates that it is
focused on state banks that have interstate branches. The first
sentence of paragraph (1) of subsection (j) describes the extent to
which host state ``shall apply to any branch in the host state of an
out-of-state state bank.'' Consistent with the first sentence of
paragraph (1), the second sentence provides that when host state law
does not apply, the bank's home state law shall apply to such
branch.\25\ Therefore, the plain language of section 24(j)(1) indicates
that it preempts host state law only with respect to a branch in the
host state of the out-of-state, state bank.
---------------------------------------------------------------------------
\25\ The powers exercised by state banks are naturally those
granted by the individual states, and generally one state's laws
have not been interpreted as preempting any other state's laws.
Section 24(j)(1) would under certain circumstances make one state's
laws (a host state's laws) inapplicable and another's (a home
state's laws) applicable. However, section 24(j)(1) is a federal
statute, and it is federal law that preempts the host state's law,
not another state's laws.
---------------------------------------------------------------------------
As noted above, section 24(j)(1) provides that host state law
applies to a branch in the host state of an out-of-state, state bank to
the same extent that it applies to a branch in the host state of an
out-of-state, national bank. Therefore, in order to determine if host
state law is preempted for a branch of an out-of-state, state bank, it
is necessary to first determine if host state law applies to a branch
of an out-of-state, national bank. In order to determine if host state
law applies to a branch of an out-of-state, national bank, the FDIC
expects to consult with the OCC. This approach is similar to the
consultations that the FDIC engages in currently when making
determinations regarding the permissible activities of a national bank
under section 24(a) of the FDI Act, 12 U.S.C. 1831a(a).
The federal authorities that the FDIC has relied upon in making its
preemption decisions in the past generally have been focused on
specific areas or subjects. For example, section 27 sets forth the
interest rates that state banks may charge and expressly preempts
contrary state law; and section 44 (12 U.S.C. 1831u) provides that the
FDIC may approve a merger between insured banks with different home
states notwithstanding contrary state law.\26\ In contrast, section
24(j)(1) is not focused on a specific area or subject of host state
law; rather it is unrestricted in its scope. As a result of its
dependence on the law applicable to national banks, the scope of
section 24(j)(1) includes every area or subject that does not apply to
national bank branches in the host state.
---------------------------------------------------------------------------
\26\ The FDIC has extraordinarily broad authority to preempt any
state law that prohibits or materially obstructs FDIC-assisted,
interstate acquisitions of BIF-insured institutions in default or in
danger of default. See section 13(f)(4)(A) of the FDI Act (12 U.S.C.
1823(f)(4)(A)). See also section 13(k) of the FDI Act (12 U.S.C.
1823(k) (preempting state law that conflicts with the FDIC's
authority to resolve certain savings associations); cf., State of
Colorado v. Resolution Trust Corporation, 926 F.2d 931 (10th Cir.
1991) (Resolution Trust Corporation was authorized by FIRREA to
override state branch banking laws in emergency acquisition under
section 13(k) of the FDI Act); and section 11(n) of the FDI Act (12
U.S.C. 1821(n)) (preempting state law that conflicts with the FDIC's
authority to transfer assets to a bridge bank); see, e.g., NCNB
Texas National Bank v. Cowden, 895 F.2d 1488 (5th Cir. 1990)
(Federal law, including section 11(n) of the FDI Act, authorized
FDIC to transfer fiduciary appointments of a failed bank to a bridge
bank and preempted conflicting Texas state laws relating to such
transfers).
---------------------------------------------------------------------------
In summary, section 24(j), as amended by Riegle-Neal II, preempts
the application of host state laws to a branch of an out-of-state,
state bank to the extent that those host state laws do not apply to a
branch of an out-of-state, national bank. The scope of the preemption
is not limited to particular areas or subjects, but is broader and
might preempt host state laws dealing with lending, deposit-taking and
other banking activities. Nevertheless, the preemption provided by
section 24(j) only operates with respect to a branch in the host state
of an out-of-state, state bank. By its terms section 24(j)(1), and
therefore the proposed regulation, would not apply if the out-of-state,
state bank does not have a branch in the host state.\27\
---------------------------------------------------------------------------
\27\ Also, the preemption afforded state bank branches pursuant
to section 24(j) and the proposed regulation only operates to the
extent that national bank branches would not be subject to host
state law. If a court were to rule that host state law did apply to
a national bank branch in the host state, then the host state law
would also apply to a state bank branch in the host state.
---------------------------------------------------------------------------
C. Discussion of Section 27
The Petitioner has requested that the FDIC implement section 27 by
adopting rules parallel to those adopted by the OCC and the OTS.
Section 27 is the statutory counterpart to section 85 of the NBA (12
U.S.C. 85) and section 4(g) of the Home Owners' Loan Act (``HOLA'') (12
U.S.C. 1463(g)), which apply to national banks and savings
associations, respectively. The Petitioner has correctly observed that
the OCC and OTS have adopted rules implementing their respective
statutory provisions but the FDIC has not issued rules implementing
section 27.\28\ This may create ambiguity or uncertainty about the
application of the statute. Additionally, in their written statements
or in their testimony at the public hearing on the Petition, certain
representatives of state bank supervisors requested that the FDIC
``codify'' GC-10 and GC-11 and that the authority provided by section
27 be extended to operating subsidiaries of state banks.
---------------------------------------------------------------------------
\28\ The primary OCC rule implementing section 85 is 12 CFR
7.4001 (2005). The OTS rule implementing section 4(g) of HOLA is 12
CFR 560.110 (2005).
---------------------------------------------------------------------------
Considering Congress' stated desire to provide state banks and
insured branches of foreign banks (collectively, ``insured state
banks'') interest rate parity with national banks and to provide
certainty in this area, the FDIC's Board of Directors believes it is
appropriate to grant the Petitioner's request on this portion of the
Petition. The FDIC also believes that it is appropriate to issue rules
concerning the application of section 27 to interstate state banks.
Because section 27, as will be more fully described below, was
patterned after sections 85 and 86 of the NBA (12 U.S.C. 85, 86) to
provide insured state banks competitive equality with national banks,
the following background information is provided to frame the
discussion of the proposed section 27 rules.
Section 30 of the NBA was enacted in 1864 to protect national banks
from discriminatory state usury legislation. To accomplish its goal,
the statute provided several alternative interest rates that national
banks were permitted, under federal law, to charge their customers. At
the time of enactment, the section also specified federal remedies for
violations of the interest rates provided therein. The section was
subsequently divided into two sections and renumbered, with the
interest rate and remedy provisions becoming sections 85 and 86 of the
NBA, respectively. In addition to the interest rates included in the
statute when it was enacted, section 85 was amended in 1933 to also
permit national banks to charge their customers an alternative rate of
one percent above the discount rate for 90 day commercial paper in
effect at the Federal Reserve bank for the Federal Reserve district
where the bank is located.
Shortly after the 1864 statute was enacted, Tiffany v. National
Bank of Missouri, 85 U.S. 409 (1873), gave rise to the ``most favored
lender doctrine.'' In Tiffany, Missouri state law limited interest
rates for state banks to eight
[[Page 60026]]
percent but allowed other lenders to charge up to ten percent. The
United States Supreme Court construed section 85 as permitting the
National Bank of Missouri to charge nine percent interest because
Missouri law allowed other lenders to charge a higher interest rate
than that allowed for state banks. In its decision, the Court explained
that Congress intended to bestow the status of ``national favorites''
on national banks by protecting them from unfriendly state laws that
might make it impossible for them to exist within a state. Since
Tiffany was decided, it has become well established that national banks
are generally permitted to charge the highest interest rates permitted
for any competing state lender by the laws of the state where the
national bank is located.
Another benefit that national banks enjoy under section 85 has
become known as the ``exportation doctrine.'' The exportation doctrine
is based on the United States Supreme Court's interpretation of section
85 in Marquette National Bank v. First of Omaha Service Corp., 439 U.S.
299 (1978). In Marquette the Court was presented with the question of
where a national bank was ``located,'' under section 85, for purposes
of determining the appropriate state law to apply to loans the bank
made to borrowers residing in another state. In construing the statute,
the Court recognized that adopting an interpretation of the statute
that would make the location of the bank depend on the whereabouts of
each loan transaction (in Marquette the transactions at issue involved
credit cards) would throw confusion into the complex system of modern
interstate banking. The Court also observed that national banks could
never be certain whether their contacts with residents of other states
were sufficient to alter the bank's location for purposes of applying
section 85. Instead, the Court focused on the physical location of the
national bank at issue to determine where the bank was ``located'' for
purposes of applying section 85.\29\ Since Marquette was decided,
national banks have been allowed to ``export'' interest rates allowed
by the state where the national bank is located on loans made to out-
of-state borrowers, even though those rates may be prohibited by the
state laws where the borrowers reside.
---------------------------------------------------------------------------
\29\ Unlike the situation today, all the offices of the First
National Bank of Omaha were in the State of Nebraska and its charter
address was in Nebraska because national banks could not operate
interstate branches.
---------------------------------------------------------------------------
Against this backdrop, in the high interest rate environment of the
late 1970s, Congress became concerned that section 85 provided national
banks with a competitive advantage over insured state banks, whose
interest rates were constrained by state laws, and other federally
insured depository institutions. To rectify the imbalance that had been
created, Congress included provisions in Title V of the Depository
Institutions Deregulation and Monetary Control Act of 1980 (``DIDMCA'')
\30\ that granted all federally insured financial institutions (state
banks, savings associations, and credit unions) similar interest rate
authority to that provided in section 85 for national banks.
---------------------------------------------------------------------------
\30\ Pub. L. 96-221, 94 Stat. 132, 164-168 (1980).
---------------------------------------------------------------------------
Title V of DIDMCA contained three parts that preempt state usury
laws. For purposes of this discussion, however, the most relevant
sections are contained in Part C. Sections 521-523 of DIDMCA amended
the FDI Act (for insured state banks), the National Housing Act (for
insured savings associations), and the Federal Credit Union Act (for
insured credit unions), respectively. Each of these sections, as
enacted, contained explicit preemptive language \31\ in the statutory
text, unlike under section 85, but were subject to the ``opt-out''
provision in section 525 of the statute.\32\ These provisions are
described generally in the Conference Report for the legislation as
follows:
---------------------------------------------------------------------------
\31\ Section 27 still contains the express preemptive language
`` * * * '' notwithstanding any State constitution or statute which
is hereby preempted for purposes of this section'' in subsection (a)
and ``'such State fixed rate is thereby preempted by the rate
described in subsection (a) of this section''' in subsection (b).
(Emphasis added).
\32\ 12 U.S.C. 1831d note (Effective and Applicability
Provisions).
``State usury ceilings on all loans made by federally insured
depository institutions (except national banks) * * * will be
permanently preempted subject to the right of affected states to
override at any time * * *. In order for a state to override a
federal preemption of state usury laws provided for in this Title
the override proposal must explicitly and by its terms indicate that
the state is overriding the preemption. Under this requirement the
state law, constitutional provision, or other override proposal must
specifically refer to this Act and indicate that the state intends
to override the federal preemption this Act provides.'' \33\
---------------------------------------------------------------------------
\33\ H.R. Rep. No. 96-842, 78-79 (1980).
Thus, the specific preemptive language contained in section 27, the
accompanying legislative history, and the design and structure of Title
V, Part C of DIDMCA, indicate that Congress intended section 27 to have
preemptive effect, subject to the ability of state legislatures to
``opt-out'' of the statute's coverage by following the prescribed
statutory procedures.
Regarding section 27, specifically, subsection (a) is patterned
after section 85 and provides that insured state banks are permitted to
charge the greater of:
The rate prescribed for state banks under state law, if
any;
One percent more than the discount rate on 90 day
commercial paper in effect at the Federal Reserve bank for the Federal
Reserve district where the bank is located; and
The rate allowed by the laws of the state, territory or
district where the bank is located.\34\
---------------------------------------------------------------------------
\34\ FDIC Advisory Op. No. 81-3, Letter from Frank L. Skillern,
Jr., General Counsel, February 3, 1981, reprinted in [Transfer
Binder 1988-1989] Fed. Banking L. Rep. (CCH) ] 81,006 (``FDIC
Advisory Op. No. 81-3'').
---------------------------------------------------------------------------
In addition, the remedial nature of the enactment and the
Congressional intent of providing insured state banks competitive
equality with respect to interest rates are evidenced in the statutory
language ``[i]n order to prevent discrimination against State-chartered
insured depository institutions * * * with respect to interest rates *
* * \35\ Finally, subsection (b) provides virtually identical federal
remedies for violating subsection (a) of section 27 as section 86 of
the NBA provides for violations of section 85.
---------------------------------------------------------------------------
\35\ Senator Proxmire, the Chairman of the Senate Banking
Committee and a sponsor of DIDMCA, expressed a similar intent in his
comments regarding H.R. 4986, which contained the language that
became section 27(a) stating:
``Title V * * * contains a provision which provides parity, or
competitive equality, between national banks and State chartered
depository institutions on lending limits * * * State chartered
depository institutions are given the benefits of 12 U.S.C. 85
unless a State takes specific action to deny State chartered
institutions that privilege.''
126 Cong. Rec. S3170 (daily ed. Mar. 27, 1980) (remarks of Sen.
Proxmire).
---------------------------------------------------------------------------
Because of the commonalities in the design of section 27 with
section 85, the use of the identical language in the two sections, and
the Congressional objective of providing insured state banks parity
with national banks regarding interest rates, the courts and the FDIC
have construed section 27 in pari materia with section 85.\36\ In the
[[Page 60027]]
interest of maintaining parity with national banks, the FDIC also
believes the same rationale applies with regard to section 86.
---------------------------------------------------------------------------
\36\ Greenwood Trust Co. v. Commonwealth of Massachusetts, 971
F.2d 818, 827 (1st Cir. 1992) (``The historical record clearly
requires a court to read the parallel provisions of [DIDMCA] and the
[NBA] in pari materia. It is, after all, a general rule that when
Congress borrows language from one statute and incorporates it into
a second statute, the language of the two acts should be interpreted
the same way. [citations omitted]. So here. What is more, when
borrowing of this sort occurs, the borrowed phrases do not shed
their skins like so many reinvigorated reptiles. Rather, ``if a word
is obviously transplanted from another legal source, whether the
common law or other legislation, it brings the old soil with it.''
[citation omitted]. Because we think it is perfectly plain that this
portable soil includes prior judicial interpretations of the
transplanted language, [citations omitted], [NBA] precedents must
inform our interpretation of words and phrases that were lifted from
the [NBA] and inserted into [DIDMCA]'s text.''); General Counsel Op.
No. 10; FDIC Advisory Op. No. 81-3.
---------------------------------------------------------------------------
D. Explanation of the Proposed Rules
1. Section 24(j) Provisions
Paragraph (a) is a definitional section that corresponds to section
24(j)(4) and recites in paragraphs (a)(1) through (a)(3) the statutory
definitions of ``home state,'' ``host state'' and ``out-of-state bank''
found in 12 U.S.C. 1831u(g). However, the proposed rule also adds in
paragraph (a)(4) a definition of the phrase ``activity conducted at a
branch'' which is used elsewhere in the proposed rule. It defines
``activity conducted at a branch'' to mean ``an activity of, by,
through, in, from, or substantially involving, a branch.'' This
definition is designed to give effect to Congress' intent to grant
state banks full parity with national banks with respect to interstate
branches. As noted above, commenters at the FDIC's public hearing
stated the need for clarity with regard to the applicability of state
law to branches of out-of-state, state banks. Issuing a regulation
without defining the critical terms used in the regulation would
provide no clarity and could lead to further confusion. Since a
national bank branch gets the benefit of preemption whether or not the
entire activity is performed in its branch, and since Congress intended
to grant state banks full parity with national banks in this area, the
definition in the proposed rule is designed to clarify that a branch of
an out-of-state state bank gets the benefit of preemption whether or
not the entire activity is performed in the branch.
Paragraphs (b) and (c) of the proposed rule carry out section
24(j)(1). Paragraph (b) states that except as provided in paragraph
(c), host state law applies to a branch in the host state of an out-of-
state, state bank. Paragraph (c) clarifies that host state law does not
apply to an activity conducted at a branch in the host state of an out-
of-state, state bank whenever host state law does not apply to an
activity conducted at a branch in the host state of an out-of-state,
national bank. Paragraph (c) further clarifies that when host state law
does not apply as a result of this preemption, then the state bank's
home state law applies.
Paragraph (d) of the proposed rule carries out section 24(j)(2).
Paragraph (d) states generally that subject to the restrictions
contained elsewhere in Part 362 of the FDIC's rules and regulations, an
out-of-state, state bank that has a branch in a host state may conduct
any activity at that branch that is both permissible under its home
state law and either permissible for a host state bank or permissible
for a branch of an out-of-state, national bank. Part 362 sets forth the
prohibitions and restrictions that a state bank is subject to when it
wants to conduct as principal an activity that is not permissible for a
national bank. This paragraph, like the statutory provision it is based
upon, preserves those prohibitions and restrictions.
Paragraph (e) is a savings provision that implements the statutory
savings provision at section 24(j)(3). It basically preserves the
applicability of a state bank's home state law under the interstate
merger provisions of section 44 of the FDI Act (12 U.S.C. 1831u), and
the applicability of Federal law to state banks and state bank
branches, whether they are in the home state or the host state.
2. Section 27 Provisions
The portion of the proposed rules implementing section 27 would be
contained in Part 331, which would be titled ``Federal Interest Rate
Authority.'' In addition to paralleling the existing rules implementing
section 85 for national banks, as indicated in the following section-
by-section analysis, some additional provisions are being proposed for
clarification and to address issues specifically affecting insured
state, but not national, banks.
Section 331.1 addresses the authority, purpose, and application of
the rules. As indicated in the regulatory text, the rules would be
issued pursuant to the FDIC's rulemaking authority in section 9(a)
(Tenth) and 10(g) of the FDI Act (12 U.S.C. 1819(a) (Tenth), 1820(g))
to carry out the provisions of the FDI Act and any other law that the
FDIC has the responsibility for administering or enforcing and to
define the terms necessary to carry out the provisions of the FDI Act.
Their purpose would be to implement Congress' explicit statutory
directive in section 27 of preventing discrimination against insured
state banks with regard to interest rates and to address other issues
the FDIC considers appropriate to implement section 27. They would
apply to a ``state bank'' and an ``insured branch,'' as defined in
section 3(a)(2) and 3(s)(3) (12 U.S.C. 1813(a)(2); 1813(s)(3)),
respectively. Where the rules apply equally to a ``state bank'' and an
``insured branch'' the rules use the term ``insured state banks'' as a
collective reference to the statutorily defined terms. In certain
instances, however, the treatment under the rules would depend on
whether the institution at issue is a ``state bank'' or an ``insured
branch.'' Where such a distinction is relevant, the rules use the
appropriate statutorily defined term.
In addition, this section provides a rule of construction to ensure
that section 27 and its implementing rules are construed in the same
manner as section 85 and its implementing rules are construed by the
OCC. This rule of construction is intended to inform the public of the
authority and benefits provided by section 27, as well as provide
insured state banks assurance that the FDIC intends that section 27
provide the same benefits to insured state banks that section 85
provides to national banks. It will also provide more practical
benefits. For example, the Federal definition of ``interest'' contained
in Sec. 331.2(a), like 12 CFR 7.4001(a), contains a non-comprehensive
list of charges that do and do not constitute ``interest'' for purposes
of the statute. Since the OCC rule was issued, the OCC has issued
interpretive letters addressing whether other charges that are not
listed in the regulation, such as prepayment fees, constitute
``interest'' for purposes of section 85. The rule of construction
should make it unnecessary in most instances for insured state banks to
seek confirmation from the FDIC that its regulation and statute will be
interpreted in the same manner, when such interpretive letters are
issued by the OCC. Also, interpretive letters have been issued by the
OCC advising that national bank operating subsidiaries can utilize
section 85.\37\ To provide parity, this provision will allow section 27
to be utilized by insured state bank subsidiaries to the same extent as
section 85 can be utilized by subsidiaries of national banks (i.e., to
the extent the insured state bank subsidiaries are majority-owned by
the insured state bank, subject to supervision of the state banking
authority, and can only engage in activities that the bank could engage
in directly).
---------------------------------------------------------------------------
\37\ OCC Interpretive Letter No. 954, December 16, 2002,
reprinted in [Transfer Binder 2003-2004] Fed. Banking L. Rep. (CCH)
] 81-479; OCC Interpretive Letter No. 968, February 12, 2003,
reprinted in [Transfer Binder 2003-2004] Fed. Banking L. Rep. (CCH),
] 81-493; OCC Interpretive Letter No. 974, July 21, 2003, reprinted
in [Transfer Binder 2003-2004] Fed. Banking L. Rep. (CCH) ] 81-500.
---------------------------------------------------------------------------
Section 331.2 is essentially identical to section 7.4001 of the
OCC's regulations interpreting section 85. The
[[Page 60028]]
Federal definition of ``interest'' in paragraph (a) was reviewed, with
approval in GC-10.\38\ As is the case with section 7.4001(a) of the
OCC's regulation, the Federal definition in the proposed rule is
intended to define ``interest'' for purposes of determining whether a
particular charge is ``interest'' subject to section 27 of the FDI Act
and its most favored lender and exportation rules. Also, like section
7.4001(a), the charges specified in the paragraph are non-comprehensive
and other charges may be determined to constitute or not constitute
``interest'' for purposes of applying section 27. Paragraph (b) would
formally recognize that insured state banks have the same most favored
lender authority provided for national banks, which is permitted under
the ``rate allowed by the laws of the state, territory, or district
where the bank is located'' language contained in section 27. In 1981,
shortly after section 27 was enacted, the FDIC's General Counsel
analyzed section 27 and recognized that the most favored lender
doctrine applied to insured state banks.\39\ Paragraph (b) of the
proposed rule is almost identical to the OCC regulatory text the FDIC's
General Counsel reviewed approvingly in his the opinion. The U.S.
Supreme Court, in Marquette, also reviewed the same regulatory
text.\40\ Paragraph (c), like section 7.4001(c), confirms that the
Federal definition of the term ``interest'' does not change state law
definitions of ``interest'' (nor how the state definition of interest
is used) solely for purposes of state law. Finally, as with section
7.4001(d) for national banks, paragraph (d) of the proposed rule allows
corporate borrowers and insured state banks to agree to any interest
rate if the bank is located in a state whose laws deny the defense of
usury to a corporate borrower.
---------------------------------------------------------------------------
\38\ GC-10 addressed the question of what charges constitute
``interest'' for purposes of section 27. The opinion observed that
the OCC and the OTS had both adopted virtually the same Federal
definition of ``interest'' for purposes of applying their respective
statutory counterparts to section 27. The Federal definition of
``interest'' contained in paragraph (a) of the proposed rule is
identical to the regulatory definition reviewed in GC-10. The
opinion concluded that section 85 and section 27 had been and should
be construed in pari materia because of the similarities in the two
statutes and the clear congressional intent of providing competitive
equality to state-chartered lending institutions by the enactment of
section 27. Thus, it was the Legal Division's opinion that the term
``interest,'' for purposes of section 27, included those charges
that a national bank was authorized to charge under section 85 and
the OCC regulation.
It is anticipated that GC-10 will be withdrawn if the proposed
regulations are adopted because the rules embody the substance of
the legal analysis and conclusions contained in the opinion.
\39\ FDIC Advisory Op. No. 81-3.
\40\ Marquette, at 548, note 26.
---------------------------------------------------------------------------
Section 331.3 addresses where a state bank that does not maintain
branches in another state, or that operates exclusively over the
Internet, is ``located'' and where an insured U.S. branch of a foreign
bank is ``located.'' Paragraph (a) addresses state banks and determines
the location issue for non-interstate state banks and Internet banks by
reference to the state that issued the charter. Paragraph (b) addresses
insured branches of foreign banks and adopts an analogous method for
determining the location of the insured branch to that provided in
paragraph (a) for state banks. Paragraph (b) is tailored more, however,
to the unique nature of insured branches, which do not operate
interstate branches, do not operate exclusively over the Internet, and
are an office of the foreign bank that is located in the United States
operating under a license from the appropriate banking authority, as
opposed to a separate incorporated entity.
Section 331.4 addresses where a state bank that maintains
interstate branches is ``located'' and the interest rate that should be
applied to loans made by the home office of the bank or its out-of-
state branches. These issues involve the application of section 27 in
the context of Riegle-Neal I and Riegle-Neal II (collectively, the
``Interstate Banking Statutes'') and were analyzed in GC-11. Except as
otherwise indicated, the text of the proposed rule is based upon a
detailed discussion of the interplay between section 27 and the
relevant provisions of Interstate Banking Statutes that was contained
in GC-11; \41\ therefore, the following brief description of the
proposed rule should be read in context with GC-11.
---------------------------------------------------------------------------
\41\ Briefly, in GC-11, the FDIC's General Counsel addressed
where an interstate state bank is ``located,'' for purposes of
applying section 27, when it operates interstate branches and
determined that such a bank could be located in its home state and
in each host state where it operated a branch. The General Counsel
also addressed the effect of the ``applicable law clause for state
banks'' and the ``usury savings clause'' enacted in Riegle-Neal I
and amendments to the ``applicable law clause for state banks''
enacted in Riegle-Neal II, on the determination of the appropriate
state law to apply to loans made by an interstate state bank, either
through its home office or by a branch of the bank located in a host
state. In doing so, the opinion based some of its conclusions
regarding the applicability of host state law, rather than home
state law, on a discussion of the intended effect of the ``usury
savings clause'' by Senator Roth, the sponsor of the amendment.
Finally, the opinion addressed other situations that were not
addressed by the Interstate Banking Statutes, which the OCC has also
addressed for national banks in OCC Interpretive Letter 822, and
concluded that similar analysis and treatment should apply to
interstate state banks in the context of section 27.
---------------------------------------------------------------------------
Paragraph (a) of the proposed rule defines ``home state'' and
``host state,'' for purposes of the section, without reference to
national banks because the rule exclusively addresses the application
of section 27 to a state bank. The rule would not apply to an insured
branch of a foreign bank because section 24(j) (12 U.S.C. 1831a (j)),
unlike section 27, contains no reference to an ``insured branch.'' The
definition of ``non-ministerial functions,'' recognizes that the non-
ministerial functions, discussed below, are factors to be considered in
determining where a loan is made by an interstate state bank. The
definition of the non-ministerial functions also contains a description
of the three non-ministerial functions that is consistent with their
description in GC-11.
Paragraph (b) recognizes that a state bank that operates interstate
branches is ``located,'' for purposes of applying section 27, in the
bank's home state and in each host state where the bank maintains a
branch. Paragraph (c) is based on an explanation by Senator Roth of
section 111 (the usury savings clause) of Riegle-Neal I (12 U.S.C. 1811
note (Restatement of Existing Law)),\42\ which he sponsored.\43\ In
explaining the provisions, a distinction was made between
``ministerial'' \44\ and ``non-ministerial'' \45\ functions, with the
latter being considered the most relevant factors for determining the
appropriate state's law to apply to a particular loan. Senator Roth
indicated that there were considered to be three non-ministerial
functions incident to the making of a loan by an interstate bank and
that if those three non-ministerial functions occur in a single state,
that state's interest rate provisions should be applied to the loan
(this standard is contained in paragraph (c)(1) of the proposed rule).
GC-11 observed, however, that the Interstate Banking Statutes did not
address other situations that could occur in the interstate context,
such as where the three non-
[[Page 60029]]
ministerial functions occur in different states or where some of the
non-ministerial functions occur in an office that is not considered to
be the home office or a branch of the bank. In these instances, as
reflected in GC-11 and paragraph (c)(2) of the proposed rule, home
state rates may be used. Alternatively, as reflected in GC-11 and
paragraph (c)(3) of the proposed rule, host state interest rates may be
applied where a non-ministerial function occurs at a branch in a host
state, if based on an assessment of all of the facts and circumstances,
the loan has a clear nexus to the host state.
---------------------------------------------------------------------------
\42\ The usury savings clause provides, in pertinent part:
No provision of this title and no amendment made by this title
to any other provision of law shall be construed as affecting in any
way--
* * * * *
(3) The applicability of [section 85] or [section 1831d] of the
Federal Deposit Insurance Act.
\43\ The discussion appears at 140 Cong. Rec. S12789-12790
(daily ed. Sept. 13, 1994)(Remarks of Senator Roth).
\44\ These include providing loan applications, assembling
documents, providing a location for returning documents necessary
for making a loan, providing account information, and receiving
payments.
\45\ These include the approval of credit (i.e., decision to
extend credit), the extension of credit itself, and the disbursal of
proceeds of the loan.
---------------------------------------------------------------------------
An issue that is not addressed in the proposed rules is whether an
interstate state bank should be required to disclose to its borrowers
that the interest to be charged on a loan is governed by applicable
federal law and the law of the relevant state which will govern the
transaction. Such a disclosure was discussed in GC-11, to prevent
uncertainty regarding which state's interest rate provisions apply to
loans made by interstate state banks, and was also mentioned in the
OCC's corresponding Interpretive Letter 822.\46\ The FDIC is interested
in comments concerning whether this issue also should be addressed in
section 331.4, as well as any benefits or burdens that would result
from requiring such disclosure.
---------------------------------------------------------------------------
\46\ OCC Interpretive Letter 822, February 17, 1998, reprinted
in [Transfer Binder 1997-1998] Fed. Banking L. Rep. (CCH) ] 81-265.
---------------------------------------------------------------------------
Section 331.5 addresses the effect of a state's election to
exercise the authority provided by section 525 of DIDMCA (12 U.S.C.
1831d note (Effective and Applicability Provisions) to ``opt-out'' of
the federal authority provided by section 27.\47\ As proposed, section
27 would not apply to an insured state bank or an interstate branch of
a state bank that is situated in a state that has opted-out of the
coverage of section 27. The FDIC believes that Iowa, Wisconsin and
Puerto Rico are the only jurisdictions that currently use this
authority.\48\ The FDIC welcomes additional information concerning
these states or any other states that may have elected to opt-out under
section 525.
---------------------------------------------------------------------------
\47\ Section 525 states:
The amendments made by sections 521 through 523 of this title
shall apply only with respect to loans made in any State during the
period beginning on April 1, 1980, and ending on the date, on or
after April 1, 1980, on which such State adopts a law or certifies
that the voters of such State have voted in favor of any provision,
constitutional or otherwise, which states explicitly and by its
terms that such State does not want the amendments made by such
sections to apply with respect to loans made in such State, except
that such amendments shall apply to a loan made on or after the date
such law is adopted or such certification is made if such loan is
made pursuant to a commitment to make such loan which was entered
into on or after April 1, 1980, and prior to the date on which such
law is adopted or such certification is made.
\48\ Act of May 10, 1980, ch. 1156, section 32, 1980 Iowa Acts
537, 547-48 (not codified); Act, ch. 45, section 50, 1981 Wis. Laws
586 (not codified); 10 P.R. Laws Ann. section 9981 (2002). Some
states, such as Nebraska, Massachusetts, Colorado, Maine and North
Carolina, opted out for a number of years, but either rescinded
their respective opt-out statutes or allowed them to expire.
---------------------------------------------------------------------------
Since a state may elect to opt-out under section 525 at any time,
the FDIC is also interested in comments addressing whether it would be
beneficial to include a list of the states that have opted-out in the
text of the rule. The FDIC recognizes that this would require revision
of the rule whenever a state repeals its existing opt-out or enacts
opt-out legislation regarding section 27 and that, due to the time
involved in identifying such information and revising the regulation,
this may result in the rule being inaccurate for a period of time.
Thus, if commenters would like to have this information incorporated in
the rule, the FDIC is also interested in comments or suggestions
addressing how to assure the accuracy of the state information that
would be contained therein.
IV. Request for Comment
The FDIC is interested in comments on all aspects of the proposed
rules, particularly responses to the specific questions posed in the
above discussion of the proposed rule. In particular, we are interested
in specific comments on whether the proposed rules would be either
helpful or harmful to the industry and the public and, if so, how.
V. Paperwork Reduction Act
No collections of information pursuant to the Paperwork Reduction
Act (44 U.S.C. 3501 et seq.) are contained in the proposed rule.
Consequently, no information has been submitted to the Office of
Management and Budget for review.
VI. Regulatory Flexibility Act
The FDIC certifies that this proposed rule would not have a
significant economic impact on a substantial number of small businesses
within the meaning of the Regulatory Flexibility Act (5 U.S.C. 605(b)).
The proposed rule would clarify sections 24(j) and 27 of the FDI Act by
indicating the state law that would apply in certain interstate banking
activities conducted by state-chartered banks. The proposed rule would
impose no new requirements or burdens on insured depository
institutions. Also, it would not result in any adverse economic impact.
Accordingly, the Act's requirements relating to an initial regulatory
flexibility analysis is not applicable.
VII. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
The FDIC has determined that the proposed rule will not affect
family well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, enacted as part of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act of 1999
(Pub. L. 105-277, 112 Stat. 2681).
List of Subjects
12 CFR Part 331
Banks, banking, Deposits, Foreign banking, Interest rates.
12 CFR Part 362
Administrative practice and procedure, Authority delegations
(Government agencies), Bank deposit insurance, Banks, banking,
Investments, Reporting and recordkeeping requirements.
For the reasons stated above, the Board of Directors of the Federal
Deposit Insurance Corporation hereby proposes to amend 12 CFR chapter
III as follows:
1. Part 331 is added to read as follows:
PART 331--FEDERAL INTEREST RATE AUTHORITY
Sec.
331.1 Authority, purpose and application.
331.2 Interest permitted for insured state banks.
331.3 Location of non-interstate state bank or insured branch.
331.4 Location and interest rate for interstate state bank.
331.5 Effect of opt-out.
Authority: 12 U.S.C. 1819(a) (Tenth), 1820(g), 1831d, 1831d
note.
Sec. 331.1 Authority, purpose and application.
(a) Authority. The regulations in this part are issued by the FDIC
under the authority contained in sections 9(a)(Tenth) and 10(g) of the
Federal Deposit Insurance Act (12 U.S.C. 1819(a) (Tenth), 1820(g)) to
implement section 27 of the FDI Act (12 U.S.C. 1831d) and related
provisions of the Depository Institution Deregulation and Monetary
Control Act of 1980, Public Law 96-221, 94 Stat. 132 (1980)
(``DIDMCA'').
(b) Purpose. Section 27 of the FDI Act was enacted to prevent
discrimination against insured state-chartered banks
[[Page 60030]]
and insured U.S. branches of foreign banks with regard to interest
rates by providing similar interest rate authority to that permitted
for national banks under section 85 of the National Bank Act (12 U.S.C.
85). To maintain parity with national banks in this area, the rules
contained in this Part clarify that state banks have regulatory
authority that is parallel to the authority provided to national banks
under regulations issued by the Office of the Comptroller of the
Currency implementing section 85. Other issues the FDIC considers
appropriate to implement section 27 are also addressed in the rules.
(c) Application. This Part applies to a ``state bank'' and an
``insured branch,'' as those terms are defined in section 3(a)(2) and
3(s)(3) of the FDI Act (12 U.S.C. 1813(a)(2); 1813(s)(3)),
respectively. The reference to ``insured state banks'' in this Part, is
a collective reference to ``state banks'' and ``insured branches.'' To
maintain parity with national banks under section 85 of the National
Bank Act, the FDIC will construe section 27 of the FDI Act and the
regulations in this Part in the same manner as section 85 and its
implementing regulations are construed by the Office of the Comptroller
of the Currency.
Sec. 331.2 Interest permitted for insured state banks.
(a) Definition. The term ``interest'', as used in 12 U.S.C. 1831d,
includes any payment compensating a creditor or prospective creditor
for an extension of credit, making available a line of credit, or any
default or breach by a borrower of a condition upon which credit was
extended. It includes, among other things, the following fees connected
with credit extension or availability: Numerical periodic rates, late
fees, creditor-imposed not sufficient funds (NSF) fees charged when a
borrower tenders payment on a debt with a check drawn on insufficient
funds, overlimit fees, annual fees, cash advance fees, and membership
fees. It does not ordinarily include appraisal fees, premiums and
commissions attributable to insurance guaranteeing repayment of any
extension of credit, finders' fees, fees for document preparation or
notarization, or fees incurred to obtain credit reports.
(b) Most favored lender. An insured state bank located in a state
may charge interest at the maximum rate permitted to any state-
chartered or licensed lending institution by the law of that state. If
state law permits different interest charges on specified classes of
loans, an insured state bank making such loans is subject only to the
provisions of state law relating to that class of loans that are
material to the determination of the permitted interest. For example,
an insured state bank may lawfully charge the highest rate permitted to
be charged by a state-licensed small loan company, without being so
licensed, but subject to state law limitations on the size of loans
made by small loan companies.
(c) Effect on state definitions of interest. The Federal definition
of the term ``interest'' in paragraph (a) of this section does not
change how interest is defined by the individual states (nor how the
state definition of interest is used) solely for purposes of state law.
For example, if late fees are not ``interest'' under state law where an
insured state bank is located but state law permits its most favored
lender to charge late fees, then an insured state bank located in that
state may charge late fees to its intrastate customers. The insured
state bank may also charge late fees to its interstate customers
because the fees are interest under the Federal definition of interest
and an allowable charge under state law where the insured state bank is
located. However, the late fees would not be treated as interest for
purposes of evaluating compliance with state usury limitations because
state law excludes late fees when calculating the maximum interest that
lending institutions may charge under those limitations.
(d) Corporate borrowers. An insured state bank located in a state
whose state law denies the defense of usury to a corporate borrower may
charge a corporate borrower any rate of interest agreed upon by the
corporate borrower.
Sec. 331.3 Location of non-interstate state bank or insured branch.
(a) State bank. A state bank that does not maintain interstate
branches or operates exclusively through the Internet is located, for
purposes of applying 12 U.S.C. 1831d, in the state that issued the
charter.
(b) Insured branch. An insured branch of a foreign bank is located,
for purposes of applying 12 U.S.C. 1831d, in the state that issued the
license.
Sec. 331.4 Location and interest rate for interstate state bank.
(a) Definitions. For purposes this section, the following terms
have the following meanings:
(1) Home state means the state that chartered a state bank.
(2) Host state means a state, other than the home state of a state
bank, in which the bank maintains a branch.
(3) Non-ministerial functions are factors to be considered in
determining where a loan is made by an interstate state bank. The non-
ministerial functions are:
(i) Approval. The decision to extend credit occurs where the person
is located who is charged with making the final judgment of approval or
denial of credit.
(ii) Disbursal. The location where the actual physical disbursement
of the proceeds of the loan occurs, as opposed to the delivery of
previously disbursed funds.
(iii) Extension of credit. The site from which the first
communication of final approval of the loan occurs.
(b) Location. An interstate state bank is located, for purposes of
applying 12 U.S.C. 1831d, in the home state of the state bank and in
each host state where the state bank maintains a branch.
(c) Location in more than one state. If a state bank is located in
more than one state, the appropriate interest rate:
(1) Will be determined by reference to the laws of the state where
all of the non-ministerial functions occur;
(2) May be determined by reference to the laws of the home state of
the state bank, where the non-ministerial functions occur in branches
located in different host states or any of the non-ministerial
functions occur in a state where the state bank does not maintain a
branch; or
(3) May be determined by reference to the laws of a host state
where a non-ministerial function occurs if, based on an assessment of
all of the relevant facts and circumstances, the loan has a clear nexus
to that host state.
Sec. 331.5 Effect of opt-out.
12 U.S.C. 1831d does not apply to loans made to customers by an
insured state bank or an interstate branch of a state bank situated in
a state that elects to opt-out of the coverage of 12 U.S.C. 1831d,
pursuant to section 525 of DIDMCA (12 U.S.C. 1831d note (Effective and
Applicability Provisions).
PART 362--ACTIVITIES OF INSURED BANKS AND INSURED SAVINGS
ASSOCIATIONS
2. Revise the authority citation for part 362 to read as follows:
Authority: 12 U.S.C. 1816, 1818, 1819(a)(Tenth), 1820(g),
1828(j), 1828 (m), 1828a, 1831a, 1831d, 1831e, 1831w, 1843(l).
3. Add new subpart F to read as follows:
Subpart F--Preemption
Sec. 362.19 Applicability of State Law.
(a) Definitions. For purposes of this section the following
definitions apply.
(1) The term ``home State'' means (i) with respect to a State bank,
the State
[[Page 60031]]
by which the bank is chartered, and (ii) with respect to a national
bank, the State in which the main office of the bank is located.
(2) The term ``host State'' means with respect to a bank, a State,
other than the home State of the bank, in which the bank maintains, or
seeks to establish and maintain, a branch.
(3) The term ``out-of-State bank'' means, with respect to any
State, a bank whose home State is another State.
(4) The phrase ``activity conducted at a branch'' means an activity
of, by, through, in, from, or substantially involving, a branch.
(b) Except as provided in paragraph (c) of this section, the laws
of a host State apply to an activity conducted at a branch in the host
State by an out-of-State, State bank.
(c) A host State law does not apply to an activity conducted at a
branch in the host State of an out-of-State, State bank to the same
extent that a Federal court or the Office of the Comptroller of the
Currency has determined in writing that the particular host State law
does not apply to an activity conducted at a branch in the host State
of an out-of-State, national bank. If a particular host State law does
not apply to such activity of an out-of-State, State bank because of
the preceding sentence, the home State law of the out-of-State, State
bank applies.
(d) Subject to the restrictions of subparts A through E of this
part 362, an out-of-State, State bank that has a branch in a host State
may conduct any activity at such branch that is permissible under its
home State law, if it is either
(1) Permissible for a bank chartered by the host State, or
(2) Permissible for a branch in the host State of an out-of-State,
national bank.
(e) Savings provision. No provision of this section shall be
construed as affecting the applicability of--
(1) Any State law of any home State under subsection (b), (c), or
(d) of 12 U.S.C. 1831u; or
(2) Federal law to State banks and State bank branches in the home
State or the host State.
Dated at Washington DC, this 6th day of October, 2005.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 05-20582 Filed 10-13-05; 8:45 am]
BILLING CODE 6714-01-P