[Federal Register Volume 62, Number 64 (Thursday, April 3, 1997)]
[Rules and Regulations]
[Pages 15819-15825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8011]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 560

[No. 97-28]
RIN 1550-AB05


Amendments Implementing Economic Growth and Regulatory Paperwork 
Reduction Act

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Thrift Supervision (OTS) today is issuing a 
final rule implementing provisions of the Economic Growth and 
Regulatory Paperwork Reduction Act of 1996 (EGRPRA). Among other 
actions, EGRPRA: expanded and clarified federal thrifts' lending and 
investment authority; amended the Qualified Thrift Lender (QTL) test; 
authorized OTS to grant anti-tying exceptions conforming to exceptions 
granted to banks by the Board of Governors of the Federal Reserve 
System (FRB); and modified OTS's oversight authority over bank holding 
companies that own savings associations. Today's rule implements these 
statutory changes in final form and enables thrifts to take advantage 
of the expanded flexibility and burden reduction afforded by EGRPRA.

EFFECTIVE DATE: April 3, 1997.

FOR FURTHER INFORMATION CONTACT: William J. Magrini, Senior Project 
Manager, (202) 906-5744, Supervision Policy; Ellen J. Sazzman, Counsel 
(Banking and Finance), (202) 906-7133, or Karen Osterloh, Assistant 
Chief Counsel, (202) 906-6639, Regulations and Legislation Division, 
Chief Counsel's Office. For information about holding company issues, 
contact Kevin A. Corcoran, Assistant Chief Counsel, (202) 906-6962, 
Business Transactions Division, Chief Counsel's Office, Office of 
Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    On September 30, 1996, Congress enacted the EGRPRA <SUP>1 which 
amended and clarified thrifts' lending and investment powers under 
sections 5 and 10 of the Home Owners' Loan Act (HOLA).<SUP>2 EGRPRA 
confirmed that federal savings associations may engage in credit card 
lending without limitation; enabled federal savings associations to 
engage in education lending without investment restrictions; <SUP>3 
increased the 10% of assets limitation on federal savings associations' 
commercial lending to 20% of assets, provided that amounts in excess of 
10% are used for small business loans as defined by the OTS Director; 
and amended the QTL test to provide that investments in education, 
small business, credit card, and credit card account loans are 
includable

[[Page 15820]]

without limit for purposes of satisfying the QTL test.<SUP>4
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    \1\ P.L. 104-208, tit. 12, 110 Stat. 3009 (September 30, 1996).
    \2\ 12 U.S.C. 1464, 1467a, respectively.
    \3\ HOLA, Sec. 5, previously limited education loans to 5% of a 
thrift's total assets. 12 U.S.C. 1464(c)(3)(A).
    \4\ EGRPRA also permitted savings associations to substitute the 
tax code's ``domestic building and loan association'' test for 
compliance with the amended QTL test. See Section 2303(e) of EGRPRA.
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    EGRPRA also authorized the OTS Director to issue regulations 
granting exceptions to anti-tying provisions in section 5(q) of the 
HOLA,<SUP>5 provided the exceptions are consistent with the HOLA and 
conform to exceptions granted by the FRB to banks. Finally, EGRPRA 
eliminated OTS supervision of holding companies that control both a 
bank and a savings association and that are registered as bank holding 
companies with the FRB.
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    \5\ 12 U.S.C. 1464(q).
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    On November 27, 1996, OTS issued an interim final rule enabling 
thrifts to take immediate advantage of the expanded flexibility and 
burden reduction afforded by EGRPRA.<SUP>6 The interim final rule 
included definitions of credit card, credit card account, small 
business, and small business loans. These definitions enabled thrifts 
to apply the newly modified QTL test and to exercise new investment 
authorities. OTS also streamlined its regulations by removing certain 
unnecessary QTL provisions from the Code of Federal Regulations, and 
added a new regulatory anti-tying exception that conformed to the FRB's 
safe harbor for combined balance accounts. OTS requested comment on any 
issues raised by the newly implemented regulations.
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    \6\ 61 FR 60179 (November 27, 1996).
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II. Summary of Comments and Description of the Final Rule

A. General Discussion of the Comments

    The public comment period on the interim final rule closed on 
January 27, 1997. Nine commenters, including five financial institution 
trade associations and four federal savings associations, responded to 
the request for comment. Commenters generally supported OTS's efforts 
to implement expeditiously EGRPRA's new provisions. Several commenters 
suggested that OTS modify some provisions, including adopting a safe 
harbor for loans to small businesses. Specific comments addressing 
various sections are discussed where appropriate in the section by 
section analysis below.

B. Section-by-Section Analysis

Section 560.3--Definitions of Credit Card and Credit Card Account

    Section 2303(g) of EGRPRA requires the OTS Director to issue 
regulations defining the term ``credit card'' in order to enable 
thrifts to apply the newly modified QTL test.<SUP>7 This modified QTL 
test permits loans ``made through credit cards or credit card 
accounts'' to be counted as qualified thrift investments (QTI) without 
restriction. The definition of ``credit card'' and ``credit card 
account'' also provides federal thrifts with guidance in exercising 
their authority to ``invest in, sell, or otherwise deal in * * * loans 
made through credit cards or credit card accounts'' under section 5(c) 
of the HOLA. As revised by section 2303(b) of EGRPRA, section 5(c) 
authorizes federal thrifts to engage in credit card lending without any 
percentage of assets investment limitation.<SUP>8 Commenters generally 
agreed that it was appropriate for OTS to consistently define ``credit 
card'' and ``credit card account'' for both section 5(c) and section 
10(m) of the HOLA.
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    \7\ See 12 U.S.C. 1467a(m).
    \8\ EGRPRA, section 2303(b), amending HOLA Sec. 5(c), to be 
codified at 12 U.S.C. 1464(c)(1)(T).
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    Credit card. OTS based the regulatory definition of ``credit card'' 
on the plain language definition of ``credit card'' in Black's Law 
Dictionary.<SUP>9 Four commenters addressed the substance of this 
definition. Two commenters supported the use of the Black's Law 
Dictionary definition. These commenters asserted that this definition 
is easy to understand and consistent with EGRPRA's goal of providing 
thrifts greater investment flexibility. Two other commenters suggested 
that OTS employ the similar, but not identical, definition of ``credit 
card'' in the FRB's Truth in Lending Regulation at 12 CFR Part 226 
(Regulation Z). Regulation Z defines credit card as ``any card, plate, 
coupon book, or other single credit device that may be used from time 
to time to obtain credit.'' 12 CFR 226.2(a)(15). These commenters noted 
that the banking industry is familiar with Regulation Z and that 
uniform regulations would reduce the complexity of Federal regulation 
of the banking industry.
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    \9\ Black's Law Dictionary 367 (6th ed. 1990).
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    To enhance uniformity and consistency among the federal banking 
agencies, the OTS has adopted the definition of ``credit card'' in 
Regulation Z for purposes of the final EGRPRA amendments.
    Credit Card Account. The interim rule defined ``credit card 
account'' as a credit account established in conjunction with the 
issuance of, or the extension of credit through, a credit card. The 
term includes loans made to consolidate credit card debt, including 
credit card debt held by other lenders, and participation certificates, 
securities and similar instruments secured by credit card receivables.
    Two commenters supported including investments in loan pools that 
issue securities backed by credit card loans in the definition. These 
commenters noted that HOLA specifies that ``any reference to a loan 
[herein] * * * includes an interest in such loan * * *'' <SUP>10 and, 
thus, implicitly includes securities backed by credit card accounts and 
receivables. One commenter argued that the inclusion of securities 
backed by credit card loans is beyond congressional intent because such 
debt instruments are essentially securities rather than loans.
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    \10\ 12 U.S.C. 1464(c)(6)(B).
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    OTS and its predecessor agency have long authorized federal savings 
associations to make a loan secured by an assignment of loans to the 
extent that the thrift may make or purchase the underlying 
loans.<SUP>11 Thus, the final rule continues to provide that loans made 
through credit cards and credit card accounts encompass investments in 
loan pools that issue securities backed by credit card loans.
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    \11\ 12 CFR 560.31(c), as added 61 FR 50951, 50974 (September 
30, 1996).
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    Two commenters agreed with OTS's inclusion of credit card debt 
consolidation loans in the definition of ``credit card account.'' These 
commenters argued that such loans are, in economic substance, credit 
card loans. One commenter requested OTS to clarify that consolidation 
loans include other consumer debt such as personal or automobile loans. 
Another commenter argued against the inclusion of credit card debt 
consolidation loans, asserting that credit card debt consolidation 
loans, in essence, are consumer installment loans that may include non-
credit card debt.
    OTS believes that, in enacting EGRPRA, Congress intended to give 
thrifts the flexibility for innovation with respect to the terms and 
conditions of particular credit card products. Accordingly, OTS 
believes that a broad definition of credit card account within the 
limits of safety and soundness is consistent with congressional intent 
of EGRPRA and HOLA. Additionally, OTS does not consider loans that are 
used to consolidate other consumer debt such as personal or automobile 
loans to be credit card debt consolidation loans and would object to a 
thrift's treatment of loans consolidating both credit card and non-
credit card related debt as a credit card account loan. Accordingly, 
the definition of credit card account is unchanged in the final rule.
    OTS reiterates that Sec. 560.30 of OTS's regulations, which 
implements the statutory credit card authority, permits

[[Page 15821]]

federal thrifts to engage in the full range of credit card operations 
authorized by HOLA. Under this regulation, however, OTS reserves the 
right to establish investment limits on a case-by-case basis if an 
institution's concentration in credit-card-related loans presents a 
safety and soundness concern.<SUP>12 As with any expansion of a line of 
business, institutions that expand their credit card lending pursuant 
to today's rule must do so in a safe and sound manner. Institutions 
planning any significant increase in these types of loans should 
prepare thorough business plans, acquire the necessary personnel and 
expertise, and establish adequate systems to identify and control risks 
associated with these products. OTS will monitor these lending 
activities, utilizing off-site surveillance and the on-site examination 
process.
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    \12\ 12 CFR 560.30, n. 5, 61 FR 50951, 50973 (September 30, 
1996).
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Section 560.3--Definitions of Small Business and Small Business Loans

    Section 2303(g) of EGRPRA requires the OTS Director to issue 
regulations defining ``small business'' for the purposes of the newly 
modified QTL test, which permits savings association to count small 
business loans as QTI without restriction under section 10(m) of the 
HOLA. Section 2303(c) of EGRPRA also directs the OTS Director to define 
``small business loans'' in connection with the newly amended section 
5(c) of the HOLA, which expands federal thrifts' commercial lending 
authority from 10% to 20% of assets, provided the amount in excess of 
10% of assets is used solely for small business loans.<SUP>13
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    \13\ Federal thrifts have long been authorized to make loans 
secured by business or agricultural real estate in amounts up to 
400% of capital, 12 U.S.C. 1464(c)(2)(B). Prior to EGRPRA, federal 
thrifts could only make additional secured and unsecured loans to 
businesses and farms in amounts up to 10% of total assets. 12 U.S.C. 
1464(c)(2)(A).
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    To promote a harmonious interpretation of the statute, the interim 
final regulation defined ``small business'' and ``small business loan'' 
once for purposes of both HOLA provisions. OTS tied these regulatory 
definitions to the eligibility criteria established by the Small 
Business Administration (SBA) under section 3(a) of the Small Business 
Act, 15 U.S.C. 632(a), as implemented by SBA's regulations at 13 CFR 
Part 121. OTS specifically solicited comment whether these SBA 
standards were the most appropriate basis for the definitions of small 
business or small business loans under the HOLA. The OTS also solicited 
comment on whether the agency should, for the sake of simplicity, 
include in its definition a de minimis safe harbor based on annual 
sales or some other criteria.<SUP>14
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    \14\ The SBA Reauthorization Act of 1994, 15 U.S.C. 
632(a)(2)(C), provides that unless specifically authorized by 
statute, no federal agency may prescribe a size standard for 
categorizing a business concern as a small business unless such size 
standard is made subject to public notice and comment, makes certain 
size determinations, and is approved by the SBA Administrator. OTS 
solicited comment regarding whether EGRPRA Sec. 2303(g) constitutes 
a specific authorization within the meaning of 15 U.S.C. 
632(a)(2)(C). Commenters addressing this issue believed that EGRPRA 
gave OTS authorization to define ``small business'' for purposes of 
the HOLA. Section 2303(g) of EGRPRA requires the Director to ``issue 
such regulations as may be necessary to define the term `small 
business' '' for the purposes of the QTL requirements at section 
10(m) of the HOLA. Similarly, under section 5(c)(2)(A) of the HOLA, 
as amended by section 2303(c) of EGRPRA, savings associations are 
authorized to invest in ``small business loans, as that term is 
defined by the Director.'' OTS believes that these statutes 
constitute specific authorizations to define ``small business'' 
within the meaning of 15 U.S.C. 632(a)(2)(C).
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    Of the seven commenters addressing the small business definitions, 
four supported the use of SBA's regulatory definitions (either alone or 
in combination with a de minimis safe harbor). These commenters 
indicated that most lenders and small businesses are familiar with 
SBA's size eligibility standards, and asserted that the use of SBA's 
standards would promote regulatory uniformity among the agencies and 
would reduce regulatory compliance burdens.
    Three other commenters contended that thrifts are unfamiliar with 
SBA's size eligibility standards. These commenters also asserted that 
the SBA definitions are too complex to apply in day-to-day commercial 
lending decisions since the SBA's criteria require knowledge of the 
borrower's precise line of business, as categorized and subcategorized 
by SBA's regulations. For some businesses, SBA's regulations rely on a 
firm's number of employees. For other businesses, the SBA definitions 
are based on the company's asset size or annual receipts. These 
commenters contended that the application of SBA definitions would 
require thrifts to gather additional data unrelated to lending 
decisions, and to make time-consuming determinations of SBA industrial 
classifications. They concluded that the use of the SBA definitions 
would impose additional burdens on thrifts' commercial lending 
activities, and would limit thrifts' incentive to pursue small business 
lending, contrary to the spirit of EGRPRA.
    Six of the seven commenters suggested that OTS adopt a safe harbor 
in place of or as an alternative to the SBA definitions. These 
commenters reasoned that a safe harbor threshold would provide 
additional flexibility in qualifying businesses as eligible for small 
business loan categorization. The commenters suggested a variety of 
safe harbor standards, expressed in terms of annual receipts, number of 
employees, and/or loan amount of a business borrower.
    One commenter noted that savings associations are required to 
report the aggregate number of loans made to businesses with gross 
annual revenues of $1 million or less pursuant to the OTS's Community 
Reinvestment Act (CRA) regulations.<SUP>15 This commenter also asserted 
that FRB Regulation B,<SUP>16 which implements the Women's Business 
Ownership Act of 1988, also uses the $1 million annual receipts 
standard to determine whether a business constitutes a small business. 
For consistency, the commenter suggested that OTS adopt the same 
standard. A second commenter, a bank trade association, did not support 
the safe harbor, but also recommended that if OTS decided to establish 
a threshold, it should use the $1 million sales standard to be 
consistent with the CRA and FRB regulations.
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    \15\ 12 CFR 563e.42(b)(1)(iv). Small business loans for purposes 
of the CRA regulations, however, are defined by reference to the 
Thrift Financial Report, which is based on the amount of the loan. 
See 12 CFR 563e.12(t).
    \16\ 12 CFR 202.9(a)(3).
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    A third commenter preferred a safe harbor of $20 million in annual 
sales. This commenter represented that this amount was within the range 
of dollar amounts that SBA currently uses in its definitions. The 
commenter also observed that small businesses with $20 million or less 
in annual sales typically employed fewer employees and borrowed smaller 
amounts.
    Two commenters suggested that OTS adopt a safe harbor based on 
annual receipts or the number of employees of a business. In other 
words, if a business has $5 million or less in annual receipts or 500 
or fewer employees, it should automatically be deemed a small business 
regardless of its line of business. These commenters indicated that 
these thresholds were predominant among the myriad business types 
included in SBA regulations.
    Finally, one commenter suggested that OTS define small business 
loans as business loans of $1 million or less that are made to 
borrowers that do not have more than 1,000 employees at the time such 
loans were made. This commenter explained that large and medium sized 
businesses are unlikely to negotiate

[[Page 15822]]

loans of $1 million or less and described the 1,000-employee level as 
the most representative level of employment in SBA regulations.
    After reviewing these comments, OTS has determined to adopt 
alternative standards for determining when an extension of credit 
qualifies as a ``small business loan'' for purposes of thrifts' small 
business lending authority and the QTL test. OTS believes that this 
alternative approach will afford thrifts maximum flexibility to 
participate in small business lending activities consistent with safety 
and soundness.
    First, OTS will continue to tie its definition of ``small 
business'' to the eligibility criteria established by SBA and 
implemented by SBA's regulations at 13 CFR Part 121. A loan to a 
business qualifying as a ``small business'' under SBA's regulations 
will qualify as a ``small business loan'' for purposes of HOLA 
Sec. 5(c) lending authority and as a ``loan to a small business'' for 
purposes of the QTL test at HOLA Sec. 10(m). For lenders and small 
businesses familiar with SBA's size eligibility standards, this 
alternative will provide a well-established mechanism for thrifts to 
expand their small business lending. By relying on SBA's definition, 
OTS also will promote regulatory uniformity among the agencies and will 
lessen the regulatory compliance burden on the small business 
community.
    As an alternative mechanism, OTS is adopting a safe harbor 
threshold based on loan amount. Under the final rule, a loan of $1 
million or less will generally be deemed a small business loan (or a 
loan to a small business) for purposes of thrifts' small business 
lending authority and the QTL test. This safe harbor provides thrifts 
with a simple, easy to apply, mechanism for qualifying loans as small 
business loans. This standard should enhance small business lending 
without adding an unnecessary layer of complexity to day-to-day 
commercial lending.
    OTS believes that a threshold loan amount would be an appropriate 
safe harbor. OTS already uses a $1 million loan amount to define small 
business loan for purposes of its CRA regulations.<SUP>17 OTS also 
relies on a $1 million loan threshold for purposes of reporting small 
business loans to Congress pursuant to requirements of the Federal 
Deposit Insurance Corporation Improvement Act (FDICIA).<SUP>18 OTS's 
Thrift Financial Report (TFR) currently requires thrifts to annually 
report ``Loans to Small Businesses and Small Farms'' described in the 
TFR instructions as business loans in the amount of $1 million or 
less.<SUP>19 Furthermore, as noted by at least one commenter, large and 
medium sized businesses are unlikely to negotiate loans of $1 million 
or less. Indeed, a recently issued FRB report states that ``[s]urvey 
data indicates a high correlation between loan size and borrower size, 
and most small loans likely are to small businesses.'' <SUP>20
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    \17\ 12 CFR 563e.12(t). The CRA regulations of the other federal 
banking agencies contain the same definition.
    \18\ FDICIA Sec. 122, 12 USC 1817 note, requires the federal 
banking agencies to collect annually from insured institutions 
information on small business and small farm lending as the agencies 
may need to assess the availability of credit to these sectors of 
the economy. The Bank Call Report contains the same $1 million loan 
threshold for bank reporting purposes.
    \19\ Pursuant to TFR instructions, loans to small farms are 
considered to be farm loans with ``original amounts'' of $500,000 or 
less.
    \20\ ``Information on Depository Credit for Small Businesses and 
Small Farms'' (October 1996) p. 1. FDICIA Sec. 477, 12 USC 251, 
requires the FRB to collect and publish annually information on the 
availability of credit to small businesses and small farms.
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    Accordingly, the final rule defines small business loans and loans 
to small businesses, in part, by cross-reference to the TFR 
instructions. The use of these loan thresholds is consistent with OTS 
regulatory and reporting requirements and, additionally, does not pose 
any threat to safety and soundness.<SUP>21
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    \21\ OTS may reevaluate this threshold after thrifts have had 
some experience with its application.
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    The final rule defines small business loans and loans to small 
businesses to include a loan (including a group of loans to one 
borrower) that meets the original amount restrictions and other 
criteria for loans to small businesses and small farms under the TFR. 
Savings associations must combine and report multiple loans to one 
borrower on an aggregate basis, rather than as separate loans in 
determining whether the loans fall within the threshold. Accordingly, 
multiple loans made by a savings association to the same borrower would 
not qualify as small business loans or loans to small businesses, if 
the aggregated loans would exceed the TFR threshold amounts.
    OTS determined not to base the safe harbor threshold on annual 
receipts or sales. Unlike loan amount, which information is readily 
available to thrifts, the concept of annual receipts or sales may 
require some careful and potentially complex determinations with regard 
to the amount and timing of income.<SUP>22 OTS also determined not to 
base the safe harbor threshold on employee level. Unlike loan amount, 
thrifts do not necessarily obtain data regarding employee level as part 
of the typical loan underwriting process. Nor is this information 
readily available to thrifts. Employee levels are also subject to 
greater fluctuation and more difficult to substantiate than loan 
amount.
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    \22\ See 13 CFR 121.104, which defines ``annual receipts'' for 
SBA purposes.
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    OTS believes that the alternative mechanisms for qualifying 
borrowers for small business loans will provide thrifts with the 
flexibility needed to pursue small business lending. This approach 
should also increase available credit to small businesses by creating 
incentives for thrifts to expand small business lending in a safe and 
sound manner.

Sections 563.50, 563.51, 563.52--Revisions to the QTL Test

    Section 2303 (e) and (g) of EGRPRA substantially amended the QTL 
test. As a result of these statutory reforms, savings associations can 
now engage in substantial small business, agricultural, credit card, 
educational, and other consumer lending and remain in QTL 
compliance.<SUP>23
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    \23\ For a more complete discussion of EGRPRA's amendments to 
the QTL test as well as the federal thrifts' branching authority, 
refer to the preamble to the interim final rule, 61 FR 60179-60180.
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    The interim final rule did not codify the statutory amendments in 
OTS regulations. Instead, OTS removed all QTL provisions from its 
regulations and chose to rely directly on section 10(m) of the HOLA to 
govern this area. OTS believed that HOLA's detailed QTL requirements, 
combined with relevant handbook guidance and the new regulatory 
definitions discussed above, provide adequate direction to the thrift 
industry and OTS examination staff with respect to QTL compliance. This 
approach is consistent with OTS's effort to streamline its regulations 
and remove duplicative requirements pursuant to section 303 of the 
Community Development and Regulatory Improvement Act of 1994 
(CDRIA).<SUP>24
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    \24\ 12 U.S.C. 4803.
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    No commenter addressed this issue. Accordingly, OTS is adopting its 
final rule without change.

Section 563.36--Tying Restrictions

    Section 5(q) of the HOLA prohibits a savings association from, 
inter alia, varying the price charged for a product or service (the 
tying product) based on whether the customer obtains an additional 
product or service (the tied product) offered by the association or its 
service corporation or affiliate, unless the additional product or 
service is a loan, discount, deposit or trust service (``traditional 
bank products''). The Bank Holding Company Act Amendments of 1970 (BHCA 
Amendments) contain a similar anti-tying provision applicable

[[Page 15823]]

to banks and authorizes the FRB to grant exemptions by regulation or 
order from such provisions.<SUP>25 Prior to EGRPRA, the HOLA did not 
grant exemptive authority to OTS.
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    \25\ 12 U.S.C. 1972.
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    Section 2216 of EGRPRA amended section 5(q) of the HOLA to 
authorize the OTS Director to issue regulations or orders permitting 
exceptions to the anti-tying prohibitions. These exceptions must not be 
contrary to the purposes of section 5(q) of the HOLA, and must conform 
to exceptions granted by the FRB to banks under the BCHA Amendments.
    When the interim rule was issued, the FRB had promulgated four 
regulatory exceptions. For the reasons discussed in the interim rule, 
the OTS determined that there was no need to issue regulatory 
exceptions comparable to three of these exceptions.<SUP>26 These 
included FRB exceptions permitting: (1) a bank holding company, bank, 
or nonbank subsidiary to vary the consideration charged for a 
traditional bank product on the condition or requirement that a 
customer also obtain a traditional bank product from an affiliate; 
<SUP>27 (2) a bank holding company, bank or nonbank subsidiary to vary 
the consideration charged for securities brokerage services on the 
condition or requirement that a customer also obtain a traditional bank 
product from that bank holding company or bank or nonbank subsidiary, 
or from any affiliate of such company; <SUP>28 and (3) a bank holding 
company or nonbank subsidiary to vary the consideration for any 
extension of credit, lease or sale of property of any kind, or service, 
on the condition or requirement that the customer obtain some 
additional credit, property or service from itself or a nonbank 
affiliate.<SUP>29 Four commenters addressed the three FRB exemptions. 
All agreed that comparable OTS exceptions were unnecessary. The final 
rule is unchanged on this point.
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    \26\ For a more detailed discussion of the three FRB exemptions 
and the OTS decision not to promulgate similar regulatory 
exemptions, see 61 FR 60181-82.
    \27\ 12 CFR 225.7(b)(1) (1996).
    \28\ 12 CFR 225.7(b)(2) (1996).
    \29\ 12 CFR 225.7(b)(3) (1996).
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    The fourth FRB exception permits banks to vary the consideration 
for any product or package of products based on a customer's 
maintenance of a combined minimum balance in certain products specified 
by the bank varying the consideration (defined as ``eligible 
products''), if (i) that bank offers deposits, and all such deposits 
are eligible products, and (ii) balances in deposits count at least as 
much as non-deposit products toward the minimum balance.<SUP>30
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    \30\ 12 CFR 225.7(b)(4) (1996).
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    This regulatory exception permits banks to offer discounts to 
customers maintaining a combined minimum balance in deposit and non-
deposit accounts, including brokerage and mutual fund accounts. As 
such, this regulatory ``safe harbor'' authorizes tying arrangements 
that, absent an exception, would be prohibited for savings 
associations, because the tied products would not necessarily be 
traditional bank products. In addition, savings and loan holding 
companies or affiliates are prohibited from offering such arrangements 
where one of the products involved is a savings association product 
(other than a traditional bank product).
    The interim final rule included a comparable ``safe harbor'' 
exception for savings associations, savings and loan holding companies, 
and affiliates.<SUP>31 OTS concluded that this exception was not 
contrary to the purposes of section 5(q) of the HOLA because it did not 
present the anti-competitive effects that the HOLA's anti-tying 
provisions were intended to eliminate. Rather, the safe harbor enabled 
savings associations and their affiliates to offer a greater variety of 
banking products and services to their customers, and could enhance 
competition in the market place. This exception also ensured parity 
between savings associations and banks by enabling these institutions 
to offer a comparable range of products and services and, thus, 
enhanced competition among financial institutions consistent with the 
purposes of section 5(q) and the BHCA Amendments.
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    \31\ The exception authority granted to OTS by amended HOLA 
Sec. 5(q) is indirectly applicable to savings and loan holding 
companies and affiliates, because HOLA Sec. 10(n) provides that, in 
connection with transactions involving the products or services of a 
savings and loan holding company or affiliate and those of an 
affiliated savings association, Sec. 5(q) shall apply to savings and 
loan holding companies and their affiliates in the same manner as if 
they were savings associations.
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    The OTS anti-tying exception at 12 CFR 563.36 conforms to the FRB's 
``safe harbor'' for combined balance discounts. This safe harbor 
permits savings associations and their affiliates to offer discounts to 
customers maintaining certain combined minimum balance accounts. OTS 
also indicated that it may permit other exceptions under section 5(q) 
on a case-by-case basis upon determination that the exception is not 
contrary to the purposes of section 5(q), conforms to an exception 
granted by the FRB, and is consistent with safe and sound practices.
    Three commenters supported OTS's adoption of this safe harbor 
exception. These commenters also agreed with OTS's decision to permit 
other exceptions on a case-by-case basis. Commenters believed that this 
flexible approach could expand the variety of products offered to 
customers in a rapidly changing marketplace and would enable thrifts to 
take full advantage of their holding company structure.
    OTS's interim final rule did not require that all products offered 
pursuant to the safe harbor must be separately available for purchase. 
Although this condition applied to the FRB safe harbor,<SUP>32 the FRB 
had proposed to eliminate the condition in a proposed rule issued 
September 6, 1996.<SUP>33 OTS indicated it would reexamine this issue 
if the FRB's final rule did not eliminate the condition.
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    \32\ 12 CFR 225.7(c)(1)(1996).
    \33\ 61 FR 47242 (September 6, 1996).
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    At least one commenter, a bank trade association, criticized the 
safe harbor for combined minimum balance accounts because it did not 
require that all products be offered separately for sale, contrary to 
the FRB safe harbor. Another commenter contended that there was no need 
for all items in a combined balance to be separately offered because 
there may be a rational economic need to offer certain products and 
services in a package form and that not offering each product 
separately does not necessarily raise anticompetitive issues.
    In its final rule issued on February 28, 1997, the FRB in fact 
eliminated the separate availability requirement for combined balance 
discounts.<SUP>34 Accordingly the OTS is adopting the antitying safe 
harbor in its interim rule without change.
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    \34\  62 FR 9290, 9323 (February 28, 1997).
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    In the interim rule, OTS also solicited comment as to whether the 
agency should adopt regulatory amendments parallel to additional 
revisions proposed by the FRB. The FRB had proposed to rescind the 
provision in its regulation that extended the tying prohibitions to 
bank holding companies and their nonbank affiliates,<SUP>35 and had 
proposed that bank holding companies and their nonbank affiliates could 
engage in tying practices other than discounting, such as conditioning 
the availability of a

[[Page 15824]]

product on the purchase of another product.<SUP>36
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    \35\  12 CFR 225.7(a)(1996). Other aspects of the FRB's new rule 
need not be discussed here because they concern practices not 
prohibited for savings associations and their affiliates.
    \36\  The FRB noted that any tying arrangements permitted under 
these changes would be subject to the general provisions of the 
antitrust laws.
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    OTS requested comment on whether savings and loan holding companies 
and their non-bank affiliates should also be completely exempted from 
the tying restrictions. As noted above, the provision of law applying 
the tying restriction to savings and loan holding companies is 
statutory, not regulatory (as is the case for bank holding companies). 
Thus, OTS also requested comment on whether it would have legal 
authority to grant a complete exemption from section 10(n) of the HOLA.
    Several commenters addressed this issue. Commenters generally 
agreed that OTS does not have authority to eliminate entirely 
restrictions on tying by savings and loan holding companies, because 
OTS does not have authority to grant exemptions from section 10(n) of 
the HOLA. However, none of the commenters disputed that OTS has 
authority to grant exceptions to savings associations pursuant to OTS's 
authority under section 5(q) of the HOLA to savings and loan holding 
companies.
    The FRB, in its final rule, adopted its proposal to rescind that 
agency's regulatory extension of the tying prohibitions to bank holding 
companies and their nonbank affiliates.<SUP>37 Pursuant to section 
10(n) of the HOLA, OTS does not presently appear to have the authority 
to except savings and loan holding companies and their affiliates 
entirely from all tying restrictions. Because OTS cannot completely 
except savings associations and their affiliates from tying 
prohibitions, OTS cannot adopt an exception precisely conforming to the 
FRB's elimination of regulatory restrictions on tying by bank holding 
companies. Nevertheless, the effects of OTS's inability to grant 
exceptions from section 10(n) are limited for two reasons. First, as 
previously noted, the section 10(n) restrictions do not apply unless 
the tying arrangement involves a savings association. Second, the 
exceptions promulgated under new section 5(q)(6) apply to savings and 
loan holding companies (and affiliates) as if they were savings 
associations.
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    \37\  62 FR at 9312-9315, 9323.
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    As a final matter, one commenter noted that OTS has published no 
policies or guidance concerning the tying restrictions applicable to 
savings associations and their holding companies. This commenter 
recommended that OTS issue such a policy statement or guidance. This 
commenter suggested that the guidance should reflect OTS's position 
that section 5(q) permits the arrangements addressed in the first three 
FRB exceptions set forth at 12 CFR 225.7, and should contain examples 
of permissible practices under these exceptions. This commenter also 
suggested that FRB orders on tying arrangements could be used by 
thrifts as guidance.
    OTS will consider these suggestions, particularly if thrifts 
indicate a need for such assistance after implementation of this final 
rule. In light of the differences between anti-tying statutes 
applicable to savings associations and banks, OTS does not believe it 
appropriate to adopt automatically orders issued by the FRB.

Sections 574.1, 574.2, 574.3, 575.2, 583.20, 584.2a--Regulation of 
Holding Companies

    Section 2203 of EGRPRA eliminated OTS supervision of holding 
companies that control both a bank and a thrift, and are registered as 
a bank holding company with the FRB under the BHCA of 1956.<SUP>38 
Accordingly, the interim final rule included: (1) revisions to OTS 
acquisition of control and holding company regulations to conform to 
EGRPRA's amendments to the Savings and Loan Holding Company Act; (2) an 
exception to the acquisition of control regulations clarifying that 
when a person acquires control of a bank holding company and the person 
is required to file a change of control notice with the FRB, no change 
of control notice is required to be filed with OTS; and (3) minor 
revisions to the Mutual Holding Company regulations to reflect the OTS 
position that section 2203 of EGRPRA does not affect its authority to 
regulate mutual holding companies, including mutual holding companies 
that have acquired a bank.
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    \38\ 12 U.S.C. 1841 et seq.
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    The one commenter addressing the issue concurred with OTS's 
implementation of EGRPRA. Accordingly, OTS adopts the described 
modifications without change.

III. Administrative Procedure Act

    OTS has determined that the 30-day delay of effectiveness 
provisions of the Administrative Procedure Act (APA), 5 U.S.C. 553, may 
be waived in this rulemaking. Section 553(d) of the APA permits waiver 
of the 30 day delayed effective date requirement for, inter alia, good 
cause or where a rule relieves a restriction. OTS finds that good cause 
exists because the rule is substantially identical to the interim final 
rule that has been in effect since November 1996. The rule relieves 
various lending, investment, and tying restrictions for thrifts and 
merely conforms OTS regulations to EGRPRA's statutory changes. 
Accordingly, the final rule will be immediately effective upon 
publication in the Federal Register.

IV. Executive Order 12866

    OTS has determined that this final rule does not constitute a 
``significant regulatory action'' for the purposes of Executive Order 
12866.

V. Regulatory Flexibility Act

    Because no notice of proposed rulemaking is required for this rule, 
the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. 
do not apply. The final rule does not impose any additional burdens or 
requirements upon small entities and reduces burdens on all savings 
associations. The regulatory amendments implement statutory changes to 
the HOLA that relieve various lending, investment, and tying 
restrictions on thrifts and otherwise conform OTS regulations to 
EGRPRA.

VI. Unfunded Mandates Act of 1995

    OTS has determined that the requirements of this final rule will 
not result in expenditures by State, local, and tribal governments, or 
by the private sector, of more than $100 million in any one year. 
Accordingly, a budgetary impact statement is not required under section 
202 of the Unfunded Mandates Act of 1995, Pub. L. 104-4, 109 Stat. 48 
(1995).

VII. Effective Date

    Section 302 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (CDRIA), 12 U.S.C. 4802, requires that new 
regulations and amendments to regulations that impose additional 
reporting, disclosures, or other new requirements take effect on the 
first date of the calendar quarter following publication of the rule 
unless, among other things, the agency determines, for good cause, that 
the regulations should become effective on a day other than the first 
day of the next quarter. OTS believes that CDRIA does not apply to this 
final rule because it imposes no new burden on thrifts. For these 
reasons, OTS has determined that an immediate effective date is 
appropriate for this final rule.

List of Subjects 12 CFR Part 560

    Consumer protection, Investments, Manufactured homes, Mortgages, 
Reporting and recordkeeping

[[Page 15825]]

requirements, Savings associations, Securities.

    Accordingly, the Office of Thrift Supervision hereby amends title 
12, chapter V of the Code of Federal Regulations by adopting as final 
the interim rule published at 61 FR 60179 (November 27, 1996), with the 
following changes.

PART 560--LENDING AND INVESTMENT

    1. The authority citation for part 560 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1701j-3, 
1828, 3803, 3806; 42 U.S.C. 4106.

    2. Section 560.3 is amended by revising the introductory text and 
the definitions for credit card and small business loans and loans to 
small businesses to read as follows:


Sec. 560.3  Definitions.

    For purposes of this part and any determination under 12 U.S.C. 
1467a(m):
* * * * *
    Credit card is any card, plate, coupon book, or other single credit 
device that may be used from time to time to obtain credit.
* * * * *
    Small business loans and loans to small businesses include any loan 
to a small business as defined in this section; or a loan (including a 
group of loans to one borrower) that meets the original amount 
restrictions and other criteria for ``loans to small businesses and 
small farms'' as defined in the instructions for preparation of the 
Thrift Financial Report.

    Dated: March 24, 1997.

    By the Office of Thrift Supervision.
Nicolas P. Retsinas,
Director.
[FR Doc. 97-8011 Filed 4-2-97; 8:45 am]
BILLING CODE 6720-01-P