[Federal Register: January 30, 2001 (Volume 66, Number 20)]
[Proposed Rules]
[Page 8178-8184]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ja01-18]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 1, 7, and 23
[Docket No. 01-01]
RIN 1557-AB94
Investment Securities; Bank Activities and Operations; Leasing
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
proposing to amend its rules governing investment securities, bank
activities and operations, and leasing. The proposed revisions to the
investment securities regulations incorporate the authority to
underwrite, deal in, and purchase certain municipal bonds that is
provided to well capitalized national banks by the Gramm-Leach-Bliley
Act (GLBA). The proposed revisions to the bank activities and
operations regulations: Establish the conditions under which a school
where a national bank participates in a financial literacy program is
not considered a branch under the McFadden Act; revise the OCC's
regulation governing bank holidays to conform it with the wording of
the statute that authorizes the Comptroller to proclaim mandatory bank
closings; clarify the scope of the term ``NSF fees'' for purposes of 12
U.S.C. 85, the statute that governs the rate of interest that national
banks may charge; simplify the OCC's current regulation governing
national banks' non-interest charges and fees; and provide that state
law applies to a national bank operating subsidiary to the same extent
as it applies to the parent national bank. The proposed revisions to
the leasing regulations authorize the OCC to vary the percentage limit
on the extent to which a national bank may rely on estimated residual
value to recover its costs in personal property leasing arrangements.
The purpose of these changes is to update and revise the OCC's
regulations to keep pace with developments in the law and in the
national banking system.
DATES: Comments must be received by April 2, 2001.
ADDRESSES: Direct your comments to: Public Information Room, Office of
the Comptroller of the Currency, 250 E Street, SW, Mailstop 1-5,
Washington, DC 20219, Attention: Docket No. 01-01. Comments will be
available for public inspection and photocopying at the same location.
In addition, you may send comments by fax to (202) 874-4448, or by
electronic mail to regs.comments@occ.treas.gov.
FOR FURTHER INFORMATION CONTACT: For questions concerning proposed 12
CFR 1.2, contact Beth Kirby, Senior Attorney, Securities and Corporate
Practices Division, (202) 874-5210, or Mark Tenhundfeld, Assistant
Director, Legislative and Regulatory Activities Division, (202) 874-
5090. For questions concerning proposed 12 CFR 7.3000, contact Stuart
Feldstein, Assistant Director, or Andra Shuster, Senior Attorney,
Legislative and Regulatory Activities Division, (202) 874-5090. For
questions concerning proposed 12 CFR 7.1021, 7.4001, 7.4002 and 7.4006,
contact Mark Tenhundfeld, Assistant Director, or Andra Shuster, Senior
Attorney, Legislative and Regulatory Activities Division, (202) 874-
5090. For questions concerning 12 CFR 23.21, contact Steven Key,
Attorney, Bank Activities and Structure Division, (202) 874-5300.
SUPPLEMENTARY INFORMATION:
Background
The OCC proposes to revise 12 CFR parts 1, 7, and 23 in order to
address changing industry practices and recent statutory amendments.
This proposal reflects the OCC's continuing commitment to assess the
effectiveness of our rules and to make changes where necessary to
improve our regulations.
Section-by-Section Description of the Proposal
A. Part 1--Investment Securities
Pursuant to 12 U.S.C. 24(Seventh), the total amount of investment
securities of any one obligor held by a national bank for its own
account generally may not exceed 10 per cent of the bank's capital
[[Page 8179]]
and surplus. Section 24(Seventh), however, exempts certain types of
securities from this limitation and permits a bank to underwrite, deal
in, and purchase them without quantitative restriction. Section 151 of
the Gramm-Leach-Bliley Act (GLBA) \1\ amended Sec. 24(Seventh) to
exempt certain municipal bonds from the 10 per cent limit if the
national bank is well capitalized under the statutory prompt corrective
action standards.\2\ We propose to amend part 1 of our regulations,
which implements the statutory investment securities provisions, to
reflect this change in the statute.
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\1\ Pub. L. 106-102, Sec. 151, 113 Stat. 1338, 1384 (November
12, 1999).
\2\ 12 U.S.C. 1831o.
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The proposal adds new Sec. 1.2(g), which defines the municipal
bonds described in Sec. 151 of GLBA. Thus, the term ``municipal bonds''
means obligations of a State or political subdivision other than
general obligations, and includes limited obligation bonds, revenue
bonds, and obligations that satisfy the requirements of section
142(b)(1) of the Internal Revenue Code of 1986 issued by or on behalf
of any State or political subdivision of a State, including any
municipal corporate instrumentality of 1 or more States, or any public
agency or authority of any State or political subdivision of a State.
Part 1 classifies permissible national bank investment securities
into several categories, or types.\3\ Type I securities are
securities--such as obligations issued by, or backed by the full faith
and credit of, the United States--that a national bank may purchase,
sell, deal in, and underwrite without regard to any capital and surplus
limitation. The proposal amends the list of Type I securities that a
national bank may underwrite, deal in, and purchase without
quantitative limit, which appears in redesignated Sec. 1.2(j) of the
regulation, to add the municipal bonds as defined in new Sec. 1.2(g),
subject to the requirement that the bank be well capitalized. The
regulation refers to the definition of well capitalized that the OCC
uses for purposes of compliance with the prompt corrective action
standards.\4\
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\3\ See, e.g., 12 CFR 1.2(i) and 1.3(a) defining Type I
securities and providing that Type I securities are not subject to
the 10 per cent capital and surplus limit); 12 CFR Secs. 1.2(j) and
1.3 (defining Type II securities and describing the quantitative
limit); and 12 CFR Secs. 1.2(k) and 1.3(c) (defining Type III
securities and describing the quantitative limit).
\4\ See 12 CFR 6.4(b)(1) (defining the term ``well
capitalized'').
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In addition, the proposal modifies the section that defines certain
Type II securities, newly designated as Sec. 1.2(k), to make it clear
that obligations issued by a State or political subdivision or agency
of a State, for housing, university, or dormitory purposes are Type II
securities only when they do not qualify as Type I securities (for
example, when the subject bank is not well capitalized under prompt
corrective action standards). The proposal also modifies the paragraph
that defines Type III securities, newly redesignated as Sec. 1.2(l),
and uses municipal bonds as an example of that type, to make clear that
municipal bonds are Type III securities only when they do not qualify
as Type I securities. Regardless of the treatment of municipal bonds as
Type I or Type III securities, a national bank must understand the
fiscal condition of any municipality in whose bonds the bank invests.
B. Part 7--Bank Activities and Operations
The proposal makes five changes to part 7. First, it adds new
Sec. 7.1021, which defines the circumstances under which a school where
a bank participates in a financial literacy program is not considered a
branch of the bank under the McFadden Act. Second, the proposal amends
Sec. 7.3000 to conform it with the Comptroller's statutory authority to
declare mandatory bank closings, as provided in 12 U.S.C. 95(b)(1).
Third, the proposed rule revises current Sec. 7.4001 to clarify the
scope of the term ``NSF fees'' for purposes of 12 U.S.C. 85. Fourth,
the proposal revises current Sec. 7.4002, which governs non-interest
charges and fees, to remove language that may be confusing. Finally,
the proposal adds new Sec. 7.4006, which provides that state laws apply
to a national bank operating subsidiary to the same extent that they
apply to the parent national bank.
Bank Participation in Financial Literacy Programs (New Sec. 7.1021)
Proposed new Sec. 7.1021(b) provides that a school premises or
facility where a national bank participates in a financial literacy
program is not a branch of the national bank under the McFadden Act if
the conditions set out in the rule are satisfied.\5\ Pursuant to these
conditions, the bank must not ``establish and operate'' the school
premises or facility. This requirement derives from the text of the
statute, which describes the circumstances under which a national bank
may ``establish and operate'' new branches and defines the term
``branch,'' \6\ and from Federal judicial precedents determining when
an off-premises location is a branch under these standards. Under those
precedents, the court first determines whether the national bank has
``establish[ed] and operate[d]'' the off-premises location in question.
If so, the court goes on to determine whether the off-premises location
is covered by the definition of the term ``branch'' that the statute
provides because it accepts deposits, pays checks, or lends money at
that location.\7\
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\5\ This proposal is consistent with the limitation, found in 12
U.S.C. 93a, which states that the general rulemaking authority
vested in the OCC by that section ``does not apply to section 36 of
[Title 12 of the United States Code].'' This limitation simply makes
clear that section 93a does not expand whatever authority the OCC
has pursuant to other statutes to adopt regulations affecting
national bank branching. Congress clearly contemplated that the OCC
would implement section 36, as is evidenced by the repeated
references to obtaining the OCC's approval throughout that section
(see, e.g., paragraphs (b)(1), (b)(2), (c), (g), and (i) of section
36). It would be illogical to conclude that the OCC, in implementing
the provisions requiring national banks to obtain the OCC's prior
approval under the sections cited, cannot interpret what the terms
of the statute mean or that the interpretation must be made on a
case-by-case basis. This rulemaking simply clarifies a situation
that falls outside the branching restrictions imposed by section 36.
\6\ 12 U.S.C. 36(c) (describing the circumstances under which a
national bank may ``establish and operate'' new branches); 12 U.S.C.
36(j) (defining the term ``branch'' to include ``any branch bank,
branch office, branch agency, additional office, or any branch place
of business located in any State or Territory of the United States
or in the District of Columbia at which deposits are received, or
checks paid, or money lent.'').
\7\ In First National Bank in Plant City v. Dickinson, 396 U.S.
122, 126-29, 134-37 (1969), the Supreme Court used a two-stage
analysis to reach the conclusion that an armored car service was a
branch within the meaning of the McFadden Act. The Court looked
first at whether the off-premises facility was ``established and
operated'' by the national bank. It then looked at whether the bank
was using the off-premises facility to take deposits within the
meaning of the McFadden Act's definition of a ``branch.'' Subsequent
lower Federal court decisions using the same two-stage analysis
employed by the Supreme Court in Plant City have concluded that
certain off-premises locations are not branches under the McFadden
Act. For example, in Cades v. H & R Block, Inc., 43 F.3d 869, 874
(4th Cir. 1994), the U.S. Court of Appeals for the Fourth Circuit
articulated the Supreme Court's two-stage analysis as a two-part
test and used that test to determine that an office of the tax
preparation firm H & R Block was not a branch. The court looked at
key indicators of the bank's relationship with Block to determine
whether the Block offices were established and operated by the bank.
These indicators included the facts that the bank had no ownership
or leasehold interest in the Block offices; no bank employees worked
there; and the bank exercised no authority or control over Block's
employees or methods of operation. The court held that, under these
circumstances, the bank did not ``establish or operate'' the Block
offices, that there was no need to go on to consider whether bank
business--such as taking deposits--was transacted at Block offices,
and that, accordingly, the Block offices were not branches.
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In construing the phrase ``establish and operate,'' the courts have
looked at
[[Page 8180]]
the nature of the bank's interest in the location in question and at
the degree of control the bank maintains over the employees who work at
the location or the business conducted there. A bank would usually have
no property interest in the school location. Its employees would
typically work at the school only in connection with their
participation in the financial literacy program. Finally, the bank
would exercise no control over the school, its teachers, or its
curriculum.
The proposed regulation also requires that the financial literacy
program be principally intended to educate students. As noted in the
proposal, a program would be considered principally educational if it
is designed to teach students the principles of personal economics or
the benefits of saving for the future, without being designed for the
purpose of making profits.
Students in the financial literacy program need not be of any
particular age or income background in order for the program to be
eligible under this proposal. If the students are low- or moderate-
income individuals, however, a bank's participation in a school savings
program may also be given positive consideration under the Community
Reinvestment Act as a community development service.\8\
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\8\ See Community Reinvestment Act; Interagency Questions and
Answers Regarding Community Reinvestment, 64 FR 23, 618 (May 3,
1999) (Q and A 3 addressing 12 CFR Secs. 25.12(j), 228.23(j),
345.23(j), and 563e.12(i) (examples of community development
services)).
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Bank Holidays (Revised Sec. 7.3000)
Under 12 U.S.C. 95(b)(1), in the event of natural or other
emergency conditions existing in any State, the Comptroller may
proclaim any day a legal holiday for national banks located in that
State or affected area. In such a case, the Comptroller may require
national banks to close on the day or days designated. If a State or
State official designates any day as a legal holiday for ceremonial or
emergency reasons, a national bank may either close or remain open
unless the Comptroller directs otherwise by written order.
The OCC has issued a regulation implementing this authority that is
set forth at 12 CFR 7.3000. The wording of Sec. 7.3000 does not follow
that of the statute precisely, however. Currently, Sec. 7.3000 requires
the Comptroller to issue a proclamation authorizing the emergency
closing in accordance with 12 U.S.C. 95 at the time of the emergency
condition, or soon thereafter. When the Comptroller, a State, or a
legally authorized State official declares a day to be a legal holiday
due to emergency conditions, the regulation permits a national bank to
choose to remain open or to close any of its banking offices in the
affected geographic area.\9\ Thus, unlike the statute, Sec. 7.3000 does
not authorize the Comptroller to require national banks to close in the
event the Comptroller declares a legal holiday but, instead, gives
national banks discretion to remain open during either a Comptroller-
or State-declared holiday.
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\9\ The regulation also provides that when a State or a legally
authorized State official designates any day to be a legal holiday
for ceremonial reasons, a national bank may choose to remain open or
to close. 12 CFR 7.3000(c). Finally, it provides that a national
bank should assure that all liabilities or other obligations under
the applicable law due to the bank's closing are satisfied. 12 CFR
7.3000(d).
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This proposed rule amends Sec. 7.3000 to conform it with the
Comptroller's statutory authority to proclaim mandatory bank closings,
as provided in 12 U.S.C. 95(b)(1). It provides that if the Comptroller
or a State declares a legal holiday due to emergency conditions, a
national bank may temporarily limit or suspend operations at its
affected offices or it may choose to continue its operations unless the
Comptroller by written order directs otherwise.
Definition of ``Interest'' for Purposes of 12 U.S.C. 85 (Revised
Sec. 7.4001(a))
The proposed rule revises current Sec. 7.4001 to clarify the scope
of the term ``NSF fees'' for purposes of 12 U.S.C. 85. Section 85
governs the interest rates that national banks may charge, but it does
not define the term ``interest.'' Section 7.4001 generally defines the
charges that are considered ``interest'' for purposes of section 85,
then sets out a nonexclusive list of charges covered by that
definition. The list includes ``NSF fees.''
The inclusion of ``NSF fees'' in the definition of ``interest'' was
intended to codify a position the OCC took in an interpretive letter
issued in 1988. Interpretive Letter No. 452 concluded that charges
imposed by a credit card bank on its customers who paid their accounts
with checks drawn on insufficient funds were ``interest'' within the
meaning of section 85.\10\ IL No. 452 referred to the charges in
question as ``NSF charges.'' The term, however, is also commonly used
to refer to fees imposed by a bank on its checking account customers
whenever a customer writes a check against insufficient funds,
regardless of whether the check was intended to pay an obligation due
to the bank. These different uses of the term ``NSF fees'' have created
ambiguity about the scope of the term as used in Sec. 7.4001(a).
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\10\ Interpretive Letter No. 452 (Aug. 11, 1988), reprinted in
[1988-89 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 85,676
(IL 452).
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The proposal amends Sec. 7.4001(a) to clarify that the term ``NSF
fees'' includes only those fees imposed by a creditor bank when a
borrower attempts to pay an obligation to that bank with a check drawn
on insufficient funds. Fees that a bank charges for its deposit account
services--including overdraft and returned check charges--are not
covered by the term ``NSF fees.'' These fees are therefore not
``interest'' but, rather, are charges covered by 12 CFR 7.4002.
We also invite comment on whether the term ``NSF fees'' should also
include at least some portion of the fee imposed by a national bank
when it pays a check notwithstanding that its customer's account
contains insufficient funds to cover the check. As a matter of
practice, banks often vary the amount of the charges they impose
depending on whether they honor the customer's check. A bank that pays
a check drawn against insufficient funds may be viewed as having
extended credit to the accountholder. Consistent with that approach,
the difference between what the bank charges a customer when it pays
the check and what it charges when it dishonors the check and returns
it could be viewed as interest within the meaning of 12 U.S.C. 85.
Currently, the OCC's regulation does not expressly resolve this issue.
National Bank Non-Interest Charges (Revised Sec. 7.4002)
Current Sec. 7.4002 sets out the basic authority to impose non-
interest charges and fees, including deposit account service charges.
It provides that the decision to do so and to determine the amounts of
charges and fees is a business decision to be made by each bank, in its
discretion, according to sound banking judgment and safe and sound
banking principles. It also provides that a bank ``reasonably
establishes'' non-interest charges and fees if it considers, among
other factors, the four factors enumerated in the regulation. The OCC
construes Sec. 7.4002 to mean that a national bank that considers at
least these four factors in setting its non-interest charges and fees
has satisfied the safety and soundness concerns in the regulation and
faces no supervisory impediment to exercising the authority to set
charges and fees that the regulation describes.\11\
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\11\ See Brief Amicus Curiae of the Office of the Comptroller of
the Currency in Support of National Bank Plaintiffs, Bank of
America, N.A. v. San Francisco, No. C 99 4817 VRW (N.D. Ca.) (citing
OCC opinion letters construing and describing the operation of 12
CFR 7.4002). On July 11, 2000, the U.S. District Court for the
Northern District of California granted the plaintiffs in this case
permanent injunctive relief against San Francisco and Santa Monica
city ordinances that purported to prohibit national banks from
charging fees for providing banking services through automatic
teller machines (ATMs). The case is currently pending appeal in the
U.S. Court of Appeals for the Ninth Circuit.
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[[Page 8181]]
The proposal eliminates certain ambiguities in the text of
Sec. 7.4002 without altering the substance of the regulation or the way
in which the OCC intends that it operate. First, current Sec. 7.4002(a)
gives two examples of the types of non-interest charges and fees that
national banks may impose: Charges on dormant accounts and fees for
credit reports or investigations. We have removed these examples in the
proposal, given that the explicit reference to the two types fees is
unnecessary and could be misinterpreted as a limitation on a national
bank's ability to charge other types of fees. We note, however, that
dormant account charges and fees for credit reports and investigations
continue to be permissible non-interest charges and fees even though
they are no longer specifically mentioned in the rule.
We also propose to amend Sec. 7.4002(b) to clarify what a bank's
obligations are under that section. The sentence in Sec. 7.4002(b) that
currently introduces the four factors says that a bank ``reasonably
establishes'' non-interest charges and fees if it considers those
factors among others. This language was intended to convey that the
bank must exercise sound banking judgment and rely on safe and sound
banking principles in setting charges and fees. In order to clarify
that intent, we have revised the sentence in Sec. 7.4002(b) that
currently introduces the four factors to say that a bank establishes
non-interest charges and fees ``in accordance with safe and sound
banking principles'' if it employs a decision-making process through
which it considers the four factors. This revision clarifies that
consideration of the four factors is a process requirement to be
implemented by the bank and more clearly establishes the connection
between the required process and the safety and soundness
considerations that underlie it.
The four factors are the same as under the current regulation,
including the factor addressing the maintenance of the bank's safety
and soundness. We expect that, pursuant to this factor, a bank would
consider any risks, such as reputation or litigation risk, that would
be affected by the imposition of a particular fee. We note that
consideration of the four factors is relevant both when establishing a
new fee and when changing a fee that already has been established. The
reference to factors other than the four that are enumerated in
Sec. 7.4002(b) has been retained in order to avoid creating any doubt
about a national bank's ability to rely on factors in addition to those
stated in the regulation.
Section 7.4002(a) is also revised to clarify that the authorization
it contains to establish fees and charges necessarily includes the
authorization to decide the amount and method by which they are
computed. Thus, for example, fees resulting from the method the bank
employs to post checks presented for payment are included within the
authorization provided by Sec. 7.4002.
Finally, current Sec. 7.4002(d) addresses the OCC's issuance of
opinions concerning whether state laws purporting to limit or prohibit
national bank non-interest charges and fees are preempted. The first
clause of current paragraph (d) states that the OCC evaluates on a
case-by-case basis whether a national bank may establish fees pursuant
to paragraphs (a) and (b) of Sec. 7.4002; the second clause provides
that, in determining whether a state law purporting to limit or
prohibit such fees is preempted, the OCC applies preemption principles
derived from the Supremacy Clause of the United States Constitution and
applicable judicial precedent. The first clause simply underscores that
a national bank's establishment of fees is governed by the preceding
paragraphs of Sec. 7.4002; the second clause was intended to convey
that the law as articulated by the Supreme Court and the lower Federal
courts governs issues of federal preemption. The proposal revises
Sec. 7.4002(d) to rephrase and restate these two points more directly
and succinctly.
Applicability of State Law to National Bank Subsidiaries (New
Sec. 7.4006)
Proposed Sec. 7.4006 clarifies that state laws apply to a national
bank operating subsidiary to the same extent as those laws apply to the
parent national bank.
Operating subsidiaries have been authorized for national banks for
decades, recognizing that, under various circumstances, it may be
convenient or useful for the bank to conduct activities that the bank
could conduct directly, through the alternate form of a controlled
subsidiary company. Thus, operating subsidiaries and the activities
they conduct are an embodiment of the incidental powers of their parent
bank, and often have been described as the equivalent of a department
or division of their parent bank--organized for convenience in a
different corporate form.
Consistent with the concept underlying this authority for operating
subsidiaries, and recent legislation recognizing the status of national
bank operating subsidiaries, the proposal provides that state law
applies to the activities of an operating subsidiary to the same extent
it would apply if those activities were conducted by its parent bank.
In GLBA, for example, Congress recognized the authority of national
banks to own subsidiaries that engage ``solely in activities that
national banks are permitted to engage in directly and are conducted
subject to the same terms and conditions that govern the conduct of
such activities by national banks.'' \12\ Similarly, the OCC operating
subsidiary regulation provides that an operating subsidiary conducts
its activities subject to the same authorization, terms, and conditions
that apply to the conduct of those activities by its parent bank.\13\
Fundamental to the description of the characteristics of operating
subsidiaries in GLBA and the OCC's rule is that, unless otherwise
provided by Federal law or OCC regulation, State laws apply to
operating subsidiaries to the same extent as they apply to the parent
national bank.
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\12\ Pub. L. 106-102, Sec. 121, 113 Stat. at 1378, codified at
12 U.S.C. 24a(g)(3).
\13\ 12 CFR 5.34(e)(3).
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The Office of Thrift Supervision (OTS) has already taken this
approach with respect to the operating subsidiaries of Federal savings
associations. An OTS rule also provides that state law applies to
Federal savings associations' operating subsidiaries, which are limited
to engaging in activities permissible for the parent thrift, to the
extent it applies to the parent thrift.\14\ A Federal district court
has recently upheld this OTS rule.\15\
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\14\ 12 CFR 559.3(n). See 61 FR 66561, 66563 (December 18, 1996)
(preamble to OTS final rule adopting section 559.3(n); explaining
that the basis for the OTS rule is that the operating subsidiary of
a Federal savings association ``is treated as the equivalent of a
department of the parent thrift for regulatory and reporting
purposes'').
\15\ See WPS Financial, Inc. v. Dean, No. 99 C 0345 C (W.D. Wi.
Nov. 26, 1999); Chaires v. Chevy Chase Bank, FSB, 131 Md. App. 64,
748 A.2d 34, 44 (Md. Ct. Sp. App. 2000).
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For the reasons stated above, the OCC proposes to add a new
Sec. 7.4006, stating that, except where Federal law or an OCC rule
provides otherwise, State law applies to operating subsidiaries only to
the extent that the law applies to the parent bank.
[[Page 8182]]
C. Part 23--Leasing
Estimated Residual Value for Section 24 (Seventh) Leases (Revised
Sec. 23.21)
The OCC's regulations at 12 CFR part 23 currently authorize
national banks to engage in leasing activities pursuant to two distinct
sources of authority: section 24 (Tenth), which expressly authorizes
leasing subject to certain conditions specified in that statute,
including a 10% of assets limit on the amount of the activity that the
national bank can conduct; and section 24 (Seventh), which authorizes
leasing as an activity that is part of the business of banking without
imposing a percentage-of-assets limit.\16\ The rules require that
leases be ``full-payout leases.'' That term is defined to mean a lease
in which the national bank reasonably expects to recover its investment
in the leased property, plus its cost of financing, from rental
payments, estimated tax benefits, and the estimated residual value of
the leased property at the expiration of the lease term. The rules for
section 24 (Seventh) leases further provide that the bank's estimate of
the residual value of the leased property must be reasonable in light
of the nature of the property and all the circumstances surrounding the
lease transaction and that, in any event, the unguaranteed amount of
residual value relied upon may not exceed 25% of the bank's original
cost of the property. 12 CFR 23.3, 23.2(e), 23.21.
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\16\ M&M Leasing v. Seattle First National Bank, 563 F.2d 1377
(9th Cir. 1977), cert. denied, 436 U.S. 956 (1978) (bank leasing of
personal property permissible because it was functionally equivalent
to loaning money on personal security).
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The OCC last revised the leasing rules in 1996. Since then, our
experience supervising national banks that engage in the leasing
business has suggested that the 25% residual value limit may not be
appropriate for all types of personal property leasing. We are
therefore proposing to modify current Sec. 23.21 to provide that the
limit on the amount of estimated residual value is either 25% or the
percentage for a particular type of personal property that is specified
in guidance published by the OCC. As revised, Sec. 23.21 would permit
the OCC to establish a different percentage requirement than 25% if a
different limit is warranted. If the OCC does not specify a different
limit, the 25% limit would continue to apply. We would apprise national
banks of any different limit or limits established under this provision
by publishing an OCC bulletin, which would subsequently be incorporated
into the Comptroller's Handbook booklet on Lease Financing.
Request for Comments
The OCC invites comment on all aspects of the proposed regulation.
Specifically, we invite your comments on how to make this proposed
rule easier to understand. For example:
Have we organized the material to suit your needs?
Are all the requirements in the rule clearly stated?
Does the rule contain technical language or jargon that is not
clear?
Would a different format (grouping and order of sections, use of
headings, paragraphing) make the rule easier to understand?
Would more (but shorter) sections be better?
What else could we do to make the rule easier to understand?
In addition, we invite your comments on the impact of this proposal
on community banks. The OCC recognizes that community banks operate
with more limited resources than larger institutions and may present a
different risk profile. Thus, the OCC specifically requests comments on
the impact of this proposal on community banks' current resources and
available personnel with the requisite expertise, and whether the goals
of the proposed regulation could be achieved, for community banks,
through an alternative approach.
Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act, 5
U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise
required under section 604 of the RFA is not required if the agency
certifies that the rule will not have a significant economic impact on
a substantial number of small entities and publishes its certification
and a short, explanatory statement in the Federal Register along with
its rule.
Pursuant to section 605(b) of the RFA, the OCC hereby certifies
that this proposal will not have a significant economic impact on a
substantial number of small entities. The proposal codifies caselaw and
OCC interpretations, but adds no new requirements. Accordingly, a
regulatory flexibility analysis is not needed.
Executive Order 12866
The OCC has determined that this proposal is not a significant
regulatory action under Executive Order 12866.
Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C.
1532 (Unfunded Mandates Act), requires that the agency prepare a
budgetary impact statement before promulgating any rule likely to
result in a Federal mandate that may result in the expenditure by
State, local, and tribal governments, in the aggregate or by the
private sector, of $100 million or more in any one year. If a budgetary
impact statement is required, section 205 of the Unfunded Mandates Act
also requires the agency to identify and consider a reasonable number
of regulatory alternatives before promulgating the rule. The OCC has
determined that this proposal will not result in expenditures by State,
local, and tribal governments, or by the private sector, of $100
million or more in any one year. Accordingly, the OCC has not prepared
a budgetary impact statement or specifically addressed any regulatory
alternatives. The proposal codifies caselaw and OCC interpretations,
but adds no new requirements.
Executive Order 13132
Executive Order 13132 (Order) requires Federal agencies, including
the OCC, to certify their compliance with that Order when they transmit
to the Office of Management and Budget (OMB) any draft final regulation
that has Federalism implications. Under the Order, a regulation has
Federalism implications if it has ``substantial direct effects on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government.'' In the case of a regulation that has
Federalism implications and that preempts State law, the Order imposes
certain specific requirements that the agency must satisfy, to the
extent practicable and permitted by law, prior to the formal
promulgation of the regulation.
Executive Order 13132 imposes certain requirements when an agency
issues a regulation that has federalism implications or that preempts
State law. Under the Order, a regulation has federalism implications if
it has substantial direct effects on the States, on the relationship
between the national government and the States, or on the distribution
of power and responsibilities among the various levels of government.
In general, the Order requires the agency to adhere strictly to federal
constitutional principles in developing rules that have federalism
implications; provides guidance about an agency's interpretation of
statutes that authorize regulations that preempt State law; and
requires consultation with State officials before the agency issues a
final rule that has federalism implications or that preempts State law.
It is not clear that the Order applies to this proposal. Proposed
Sec. 7.4006
[[Page 8183]]
addresses the applicability of state law to national bank operating
subsidiaries, but, in the opinion of the OCC, it reflects the
conclusion that a federal court would reach, even in the absence of the
regulation, pursuant to the Supremacy Clause and applicable federal
judicial precedent. Nonetheless, the OCC plans for its final rule to
satisfy the requirements of the Order. If an agency promulgates a
regulation that has federalism implications and preempts State law, the
Order imposes upon the agency requirements to consult with State and
local officials, to publish a ``federalism summary impact statement,''
and to make written comments from State and local officials available
to the Director of OMB. In the preamble to any final rule that results
from our proposal, we will describe the results of our consultation
with State or local officials and include a federalism summary impact
statement. Moreover, we will make any written comments we receive from
State or local officials available to the Director of OMB.
List of Subjects
12 CFR Part 1
Banks, banking, National banks, Reporting and recordkeeping
requirements, Securities.
12 CFR Part 7
Credit, Insurance, Investments, National banks, Reporting and
recordkeeping requirements, Securities, Surety bonds.
12 CFR Part 23
National banks.
Authority and Issuance
For the reasons set forth in the preamble, parts 1, 7, and 23 of
chapter I of title 12 of the Code of Federal Regulations are proposed
to be amended as follows:
PART 1--INVESTMENT SECURITIES
1. The authority citation for part 1 continues to read as follows:
Authority: 12 U.S.C. 1, et seq., 12 U.S.C. 24 (Seventh) and 93a.
2. In Sec. 1.2, current paragraphs (g) through (m) are redesignated
as (h) through (n), a new paragraph (g) is added, newly designated
paragreaphs (j)(4), (k)(1), and (l) are revised to read as follows:
Sec. 1.2 Definitions.
* * * * *
(g) Municipal bonds means obligations of a State or political
subdivision other than general obligations, and includes limited
obligation bonds, revenue bonds, and obligations that satisfy the
requirements of section 142(b)(1) of the Internal Revenue Code of 1986
issued by or on behalf of any State or political subdivision of a
State, including any municipal corporate instrumentality of 1 or more
States, or any public agency or authority of any State or political
subdivision of a State.
* * * * *
(j) * * *
(4) General obligations of a State of the United States or any
political subdivision thereof; and municipal bonds if the national bank
is well capitalized as defined in 12 CFR 6.4(b)(1);
* * * * *
(k) * * *
(1) Obligations issued by a State, or a political subdivision or
agency of a State, for housing, university, or dormitory purposes that
would not satisfy the definition of Type I securities pursuant to
paragraph (j) of Sec. 1.2.
* * * * *
(l) Type III security means an investment security that does not
qualify as a Type I, II, IV, or V security. Examples of Type III
securities include corporate bonds and municipal bonds that do not
satisfy the definition of Type I securities pursuant to paragraph (j)
of Sec. 1.2.
* * * * *
PART 7--BANK ACTIVITIES AND OPERATIONS
3. The authority citation for part 7 is revised to read as follows:
Authority: 12 U.S.C. 1 et seq., 92, 92a, 93, 93a, 481, 484,
1818.
Subpart A--Bank Powers
4. A new Sec. 7.1021 is added to read as follows:
Sec. 7.1021 National bank participation in financial literacy
programs.
A national bank may participate in a financial literacy program on
the premises of, or at a facility used by, a school. The school
premises or facility will not be considered a branch of the bank if:
(a) The bank does not establish and operate the school premises or
facility on which the financial literacy program is conducted; and
(b) The principal purpose of the financial literacy program is
educational. For example, a program is educational if it is designed to
teach students the principles of personal economics or the benefits of
saving for the future, and is not designed for the purpose of profit-
making.
5. In Sec. 7.3000, the last sentence of paragraph (b) is removed
and two sentences are added in its place to read as follows:
Sec. 7.3000 Bank hours and legal holidays.
* * * * *
(b) * * * When the Comptroller, a State, or a legally authorized
State official declares a legal holiday due to emergency conditions, a
national bank may temporarily limit or suspend operations at its
affected offices. Alternatively, the national bank may continue its
operations unless the Comptroller by written order directs otherwise.
* * * * *
6. In Sec. 7.4001, the second sentence of paragraph (a) is revised
to read as follows:
Sec. 7.4001 Charging interest at rates permitted competing
institutions; charging interest to corporate borrowers.
(a) * * * It includes, among other things, the following fees
connected with credit extension or availability: numerical periodic
rates, late fees, not sufficient funds (NSF) fees that are imposed by a
creditor 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.* * *
* * * * *
7. Section 7.4002 is revised to read as follows:
Sec. 7.4002 National bank charges.
(a) Authority to impose charges and fees. A national bank may
charge its customers non-interest charges and fees, including deposit
account service charges.
(b) Considerations. (1) All charges and fees should be arrived at
by each bank on a competitive basis and not on the basis of any
agreement, arrangement, undertaking, understanding, or discussion with
other banks or their officers.
(2) The establishment of non-interest charges and fees, their
amounts, and the method of calculating them are business decisions to
be made by each bank, in its discretion, according to sound banking
judgment and safe and sound banking principles. A national bank
establishes non-interest charges and fees in accordance with safe and
sound banking principles if the bank employs a decision-making process
through which it considers the following factors, among others:
(i) The cost incurred by the bank in providing the service;
(ii) The deterrence of misuse by customers of banking services;
[[Page 8184]]
(iii) The enhancement of the competitive position of the bank in
accordance with the bank's business plan and marketing strategy; and
(iv) The maintenance of the safety and soundness of the
institution.
(c) Interest. Charges and fees that are ``interest'' within the
meaning of 12 U.S.C. 85 are governed by Sec. 7.4001 and not by this
section.
(d) State law. Preemption principles derived from the United States
Constitution, as interpreted through judicial precedent, govern
determinations regarding the applicability of State law to fees
described in this section.
(e) National bank as fiduciary. This section does not apply to
charges imposed by a national bank in its capacity as a fiduciary,
which are governed by 12 CFR part 9.
8. A new Sec. 7.4006 is added to read as follows:
Sec. 7.4006 Applicability of State law to national bank operating
subsidiaries.
Unless otherwise provided by Federal law or OCC regulation, State
laws apply to national bank operating subsidiaries to the same extent
that those laws apply to the parent national bank.
PART 23--LEASING
9. The authority citation for part 23 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 24 (Seventh), 24 (Tenth), and
93a.
Subpart C--Section 24(Seventh) Leases
10. In Sec. 23.21, current paragraph (a)(2) is revised to read as
follows:
Sec. 23.21 Estimated residual value.
* * * * *
(a) * * *
(2) Any unguaranteed amount must not exceed 25 percent of the
original cost of the property to the bank or the percentage for a
particular type of property specified in published OCC guidance.
* * * * *
Dated: January 8, 2001.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 01-1614 Filed 1-29-01; 8:45 am]
BILLING CODE 4810-33-P