34784 Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Rules and Regulations

defines key terms; and (6) addresses

other important issues affecting clarity

and general draftsmanship under any

guidelines issued by the Attorney

General. Section 3(c) of Executive Order

12988 requires Executive agencies to

review regulations in light of applicable

standards in section 3(a) and section

3(b) to determine whether they are met

or it is unreasonable to meet one or

more of them. DOE has completed the

required review and determined that, to

the extent permitted by law, this final

rule meets the relevant standards of

Executive Order 12988.

G. Review Under the Unfunded

Mandates Reform Act

Title II of the Unfunded Mandates

Reform Act of 1995 (Pub. L. No. 104–4)

requires each Federal agency to prepare

a written assessment of the effects of

any Federal mandate in a proposed or

final rule that may result in the

expenditure by State, local, and tribal

governments, in the aggregate, or by the

private sector, of $100 million in any

one year. The Act also requires a

Federal agency to develop an effective

process to permit timely input by

elected officers of State, local, and tribal

governments on a proposed ‘‘significant

intergovernmental mandate,’’ and it

requires an agency to develop a plan for

giving notice and opportunity for timely

input to potentially affected small

governments before establishing any

requirement that might significantly or

uniquely affect small governments. The

rule published today does not contain

any Federal mandate, so these

requirements do not apply.

H. Review Under the Treasury and

General Government Appropriations

Act, 1999

Section 654 of the Treasury and

General Government Appropriations

Act, 1999 (Pub. L. 105–277), requires

Federal agencies to issue a Family

Policymaking Assessment for any

proposed rule or policy that may affect

family well-being. This rulemaking is

not subject to a requirement to propose

for public comment, and section 654

therefore does not apply.

List of Subjects in 10 CFR Part 600

Administrative practice and

procedure.

Issued in Washington, on June 20, 2001.

Spencer Abraham,

Secretary of Energy.

For the reasons set out in the

preamble, part 600 of Chapter II, Title

10 of the Code of Federal Regulations,

is amended as follows:

PART 600—FINANCIAL ASSISTANCE

RULES

1. The authority citation for part 600

is revised to read as follows:

Authority: 42 U.S.C. 7101 et seq; 31 U.S.C.

6301–6308; 50 U.S.C. 2401 et seq., unless

otherwise noted.

2. Section 600.6 is amended by

revising paragraph (c)(8) to read as

follows:

§ 600.6 Eligibility.

* * * * *

(c) * * *

(8) The responsible program Assistant

Secretary, Deputy Administrator, or

other official of equivalent authority

determines that a noncompetitive award

is in the public interest. This authority

may not be delegated.

* * * * *

[FR Doc. 01–16553 Filed 6–29–01; 8:45 am]

BILLING CODE 6450–01–P

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Parts 1, 7, and 23

[Docket No. 01–13]

RIN 1557–AB94

Investment Securities; Bank Activities

and Operations; Leasing

AGENCY: Office of the Comptroller of the

Currency, Treasury.

ACTION: Final rule.

SUMMARY: The Office of the Comptroller

of the Currency (OCC) is publishing this

final rule to amend its rules governing

investment securities, bank activities

and operations, and leasing. The

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 final rule also makes the

following revisions to the bank activities

and operations regulations: it

establishes 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; it revises the

OCC’s regulation governing bank

holidays so that the wording of the rule

conforms with the statute that

authorizes the Comptroller to declare

mandatory bank closings; it clarifies 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; it simplifies the

OCC’s current regulation governing

national banks’ non-interest charges and

fees; and it provides that State law

applies to a national bank operating

subsidiary to the same extent as it

applies to the parent national bank.

Finally, the 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.

EFFECTIVE DATE: August 1, 2001.

FOR FURTHER INFORMATION CONTACT: For

questions concerning 12 CFR 1.2,

contact Beth Kirby, Special Counsel,

Securities and Corporate Practices

Division, (202) 874–5210. For questions

concerning 12 CFR 7.3000, contact

Michele Meyer, Counsel, Legislative and

Regulatory Activities Division, (202)

874–5090. For questions concerning 12

CFR 7.1021, 7.4001, 7.4002 and 7.4006,

contact Michele Meyer, Counsel, or

Mark Tenhundfeld, Assistant Director,

Legislative and Regulatory Activities

Division, (202) 874–5090. For questions

concerning 12 CFR 23.21, contact

Steven Key, Senior Attorney, Bank

Activities and Structure Division, (202)

874–5300.

SUPPLEMENTARY INFORMATION:

Introduction and Overview of

Comments Received

On January 30, 2001, the OCC

published in the Federal Register a

notice of proposed rulemaking (the

NPRM, proposed rules, or the proposal)

concerning its rules governing

investment securities, bank activities

and operations, and leasing. See 66 FR

8178. The proposed revisions to the

investment securities regulations

incorporated 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 rules also

contained several revisions to the OCC’s

bank activities and operations

regulations. First, it established 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. Second, it revised the

OCC’s regulation governing bank

holidays so that the wording of the rule

conforms with the statute that

Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Rules and Regulations 34785

1Pub. L. 106–102, section 151, 113 Stat. 1338,

1384 (November 12, 1999).

2 12 U.S.C. 1831o (statutory prompt corrective

action standards); 12 CFR part 6 (OCC’s

implementing regulation).

3See, 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 percent capital and surplus

limit); 12 CFR 1.2(j) and 1.3 (defining Type II

securities and describing the quantitative limit);

and, 12 CFR 1.2(k) and 1.3(c) (defining Type III

securities and describing the quantitative limit).

4See 12 CFR 6.4(b)(1) (defining the term ‘‘well

capitalized’’).

5While a bank’s transactions in either Type II and

Type III securities are limited to 10 percent of the

bank’s capital and surplus (see 12 CFR 1.3(b) and

(c)), a national bank may deal in, underwrite,

purchase, and sell for its own account Type II

securities while the bank may only purchase and

sell for its own account Type III securities.

Regardless of how a municipal bond is designated,

it must satisfy the requirement set out in part 1 that

the bond be an ‘‘investment security,’’ as that term

is defined. See 12 CFR 1.2(e).

authorizes the Comptroller to declare

mandatory bank closings. Third, the

proposal clarified 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.

Fourth, it simplified the OCC’s current

regulation governing national banks’

non-interest charges and fees. Fifth, it

provided that State law applies to a

national bank operating subsidiary to

the same extent as it applies to the

parent national bank. The proposal also

contained revisions to the leasing

regulations that authorized 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 OCC received approximately 30

comments in response to the proposed

rules. Commenters included national

banks, bank trade associations,

consumer groups, members of Congress,

State regulators, and individuals. The

OCC received only one comment on the

proposal to amend part 1 and three on

the proposed revision to part 23. The

majority of the comments concerned the

proposed revisions to part 7. A number

of these comments addressed the

definition of ‘‘interest’’ for purposes of

12 U.S.C. 85 (revised § 7.4001(a)) and

whether that definition should include

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. The remaining part 7

comments addressed the proposed

changes to the OCC’s current regulation

governing national banks’ non-interest

charges and fees (revised § 7.4002) and

proposed new § 7.4006, which

addresses the applicability of State law

to a national bank operating subsidiary.

The OCC is adopting most of the

provisions we proposed without

substantive changes. We have, however,

modified certain provisions of the

proposal in light of the comments we

received. The most significant

comments, and the OCC’s responses, are

discussed in the following section-bysection analysis.

Section-by-Section Description of the

Final Rule

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 percent of the bank’s capital

and surplus. Section 24(Seventh),

however, exempts certain types of

securities from this limitation and

permits a bank to underwrite, deal in,

and purchase those securities without

quantitative restriction. Section 151 of

GLBA 1 amended section 24(Seventh) to

exempt certain municipal bonds from

the 10-percent limit and to permit a

national bank to underwrite, deal in and

purchase those securities without limit,

if the national bank is well capitalized

under the statutory and regulatory

prompt corrective action standards.2 In

the NPRM, we proposed to amend part

1 of our regulations, which implements

the statutory investment securities

provisions, to reflect this change in the

statute.

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 made several changes to part 1.

First, it added new § 1.2(g), which

defines the municipal bonds described

in section 151 of GLBA. As defined, the

term ‘‘municipal bonds’’ means

obligations of a State or political

subdivision other than general

obligations, and includes, inter alia,

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.

Second, we proposed amending the

list of Type I securities, which appears

in redesignated § 1.2(j) of the regulation,

to add the municipal bonds as defined

in new § 1.2(g), subject to the

requirement that the bank be well

capitalized. The proposal applied the

definition of well capitalized that the

OCC uses for purposes of prompt

corrective action standards.4

In addition, we proposed modifying

the section that defines certain Type II

securities, newly designated as § 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 (which

would result if the subject bank is not

well capitalized under prompt

corrective action standards). We also

proposed modifying the paragraph that

defines Type III securities (newly

redesignated as § 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

(again, as a result of the national bank

not being well capitalized). As we noted

in the preamble to the proposal,

regardless of the treatment of municipal

bonds, safe and sound underwriting

practices require a national bank to

understand the fiscal condition of any

municipality in whose bonds the bank

invests.

The OCC received only one comment

on the proposed changes to Part 1. The

commenter pointed out that municipal

bonds can be Type II securities as well

as Type I or Type III securities. The

commenter suggested that the OCC

revise section 1.2 to clarify that

municipal bonds that are Type III

securities would include only those

municipal bonds that do not satisfy the

definition of Type I or Type II securities.

We agree with this commenter, and

the final rule reflects this change from

the proposal. Thus, under the final rule,

a national bank that is well capitalized

may deal in, underwrite, purchase, and

sell municipal bonds for its own

account without any limit tied to the

bank’s capital and surplus. This

authority applies to all municipal

bonds. If the bank is not well

capitalized, then the universe of

municipal bonds is divided into two

types: (a) Municipal bonds that are

investment securities representing

obligations issued by a State, or a

political subdivision or agency of a

State, for housing, university, or

dormitory purposes, and (b) all other

types of municipal bonds. The former

are treated as Type II securities, while

the latter are treated as Type III

securities.5

34786 Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Rules and Regulations

6This 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 caseby-case basis. This rulemaking simply clarifies a

situation that falls outside the branching

restrictions imposed by section 36.

7See 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.’’).

8See, e.g., First National Bank in Plant City v.

Dickinson, 396 U.S. 122, 126–29, 134–37 (1969);

Cades v. H & R Block, Inc., 43 F.3d 869, 874 (4th

Cir. 1994).

9Students 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 moderateincome 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. 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 25.12(j),

228.23(j), 345.23(j), and 563e.12(i) (examples of

community development services)).

10 Interpretive Letter No. 452 (Aug. 11, 1988),

reprinted in [1988–89 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 85,676 (IL 452).

The other proposed changes to part 1

are adopted without modification in the

final rule.

B. Part 7—Bank Activities and

Operations

The final rule makes five changes to

part 7. First, it adds new § 7.1021,

which defines the circumstances under

which a bank that participates in a

financial literacy program at a school is

not considered to have established a

branch of the bank under the McFadden

Act. Second, the final rule amends

§ 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 final rule revises current § 7.4001 to

clarify the scope of the term ‘‘NSF fees’’

for purposes of 12 U.S.C. 85. Fourth, the

final rule revises current § 7.4002,

which governs non-interest charges and

fees, to remove language that may be

confusing. Finally, the final rule adds

new § 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. These

changes are discussed below.

Bank Participation in Financial Literacy

Programs (New § 7.1021)

The proposal added new § 7.1021(b)

to provide that a school’s 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 6 if the

bank does not ‘‘establish and operate’’

the school premises or facility. The

proposal was derived 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,’’ 7 and from Federal judicial

precedents determining when an offpremises 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 offpremises location in question. If not,

then the location will not be considered

a ‘‘branch’’ for purposes of 12 U.S.C.

36.8

Consistent with the statute and

applicable precedent, the proposed rule

stated that a bank may participate in a

financial literacy program if the bank

does not establish or operate the school

premises or facility on which the

program is conducted and the principal

purpose of the program is educational.

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.9

The OCC received only supportive

comments on proposed new § 7.1021(b)

and adopts it without modification in

the final rule.

Bank Holidays (Revised § 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 NPRM proposed amending 12

CFR 7.3000, which implements 12

U.S.C. 95(b)(1), to more closely conform

with the statute. The OCC received no

comments on this portion of the

proposal, and the final rule adopts

§ 7.3000 without change. Thus, under

the final rule, 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 § 7.4001(a))

The OCC proposed revising § 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, and 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

Interpretive Letter 452, issued in 1988.10

IL 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. The charges were referred to as

‘‘NSF charges’’ in the letter. The term,

however,is also is 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 § 7.4001(a).

The proposal invited comments on a

change to § 7.4001(a) that would 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’’ as that term is

used in § 7.4001(a). The OCC received

no objections on that proposed change,

and, therefore, we adopt it in the final

rule as proposed. change. Thus, we are

clarifying the definition of ‘‘interest’’ by

stating in the final rule that interest

Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Rules and Regulations 34787

11 In the most recent Federal case related to this

issue of which the OCC is aware, the court held that

overdraft fees were not ‘‘interest’’ within the

meaning of 12 U.S.C. 85 and current § 7.4001(a).

Video Trax, Inc. v. NationsBank, N.A., 33 F. Supp.

2d 1041 (S.D. Fla. 1998); aff’d per curiam 205 F.3d

1358 (11th Cir. 2000); cert. denied, 121 S.Ct. 66

(2000).

12See 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.

includes creditor-imposed NSF fees that

are charged when a borrower tenders

payment on a debt with a check drawn

on insufficient funds.

We also invited comment on whether

the term ‘‘NSF fees’’ as used in

§ 7.4001(a) should include at least some

portion of the fee imposed by a national

bank in the more common scenario

when it pays a check notwithstanding

that its customer’s account contains

insufficient funds to cover the check.

We received numerous comments on

this issue, the majority of which

opposed including in the definition of

‘‘interest’’ any portion of the fee

imposed by a national bank when it

pays an overdraft.11 Commenters raised

a number of complex and fact-specific

concerns related to inclusion of any

portion of a charge imposed in

connection with paying an overdraft

constitutes ‘‘interest’’ for purposes of

section 85. Accordingly, we have not

amended § 7.4001(a) to address this

issue.

National Bank Non-Interest Charges

(Revised § 7.4002)

Current § 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 the determination

of the amounts of charges and fees are

business decisions 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. As noted in the preamble to

the proposal, the OCC construes

§ 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 requirement that

the charges and fees be set according to

safe and sound banking principles and,

therefore, faces no supervisory

impediment to exercising the authority

to set charges and fees that the

regulation describes.12

The proposal was intended to

eliminate certain ambiguities in the text

of § 7.4002 without altering the

substance of the regulation or the way

in which the OCC intends that it

operate. First, the proposal eliminated

two examples in § 7.4002(a) of the types

of non-interest charges and fees that

national banks may impose: charges a

bank’s board determines to be

reasonable on dormant accounts and

reasonable fees for credit reports or

investigations. The OCC removed these

examples in the proposal because the

explicit reference to the two types of

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.

One commenter objected to the

removal of the examples concerning the

imposition of reasonable deposit

account service charges and reasonable

fees for credit reports or investigations.

This commenter believed that removing

these examples removed a requirement

that non-interest charges and fees be

reasonable. However, as noted below in

the discussion of the proposed changes

to § 7.4002(b), this comment

misconstrues the OCC’s regulation. The

imposition of non-interest charges and

fees is governed by the standards set out

in § 7.4002(b), as revised (namely, that

the charges and fees be arrived at on a

competitive basis and be made

according to sound banking judgment

and safe and sound banking principles).

If a bank adheres to those standards, the

OCC will not substitute its judgment

about how much a bank should charge

for a given product or service. Thus, we

have concluded that it is unnecessary to

retain the examples in § 7.4002(a), and

have, accordingly, adopted the changes

as proposed.

We also proposed to amend

§ 7.4002(b), to clarify what a bank’s

obligations are under that section.

Previously, the sentence in § 7.4002(b)

that introduces the four factors provided

that a bank ‘‘reasonably establishes’’

non-interest charges and fees if it

considers those factors among others.

The proposal revised that sentence 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 new 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.

As proposed, § 7.4002(b) was 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

§ 7.4002.

The OCC received several comments

on the proposed change to § 7.4002(b),

both from those favoring its adoption

and those opposed. The latter were

concerned that removing the

‘‘reasonably establishes’’ language

eliminates an implied limitation on the

fees a national bank may charge. We

have never construed this language to

permit the OCC to substitute its

judgment about the appropriate pricing

of a product or service for a bank’s

judgment, however. As the current text

of the regulation says, the amount and

type of fees established by a national

bank are decisions committed to the

business judgment of the bank. The

‘‘reasonably establishes’’ language was

intended to describe the process of

exercising that judgment; it was never

intended to limit a national bank’s

authority to exercise its business

judgment.

Accordingly, like the proposal, the

final rule 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 § 7.4002(b) has

been retained in the final rule in order

to avoid creating any doubt about a

national bank’s ability to rely on factors

34788 Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Rules and Regulations

13Although no substantive change is effected by

the proposed revisions to § 7.4002(d), we note that

the Supreme Court has held that the OCC may

revise a rule during the pendency of litigation over

matters governed by that rule. See Smiley v.

Citibank (South Dakota), N.A., 517 U.S. 735, 741

(1996) (upholding the OCC’s regulation defining the

term ‘‘interest’’ for purposes of 12 U.S.C. 85).

14Several commenters also requested that the

final rule include, as an example, the express

statement that 12 CFR 34 (Real Estate Lending and

Appraisals) applies to operating subsidiaries.

Inclusion of this statement in new § 7.4006 is

unnecessary, however, because current § 34.1(b)

already provides that part 34 applies to national

banks and their operating subsidiaries.

15Pub. L. 106–102, § 121, 113 Stat. at 1378,

codified at 12 U.S.C. 24a(g)(3).

16 12 CFR 5.34(e)(3).

17See, e.g., Letter to Thomas A. Plant and Daniel

Morton from Julie L. Williams, dated May 16, 2001

(published at 66 FR 28593 (May 23, 2001))

(Michigan law requiring national banks to obtain

license to finance sales of motor vehicles would be

preempted); letter to Thomas Vartanian from Julie

L. Williams, dated March 7, 2000 (State licensing

laws would be preempted to the extent that they

apply to auction of certificates of deposit by

in addition to those stated in the

regulation.

The OCC also proposed to amend

§ 7.4002(d), which addresses our

evaluations of whether Federal law

preempts State laws that purport to

limit or prohibit a national bank’s

ability to impose a charge or fee. The

first clause of former § 7.4002(d) stated

that the OCC evaluates on a case-by-case

basis whether a national bank may

establish fees pursuant to § 7.4002(a)

and (b); the second clause provided 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. While the first clause simply

underscored that a national bank’s

establishment of fees is governed by the

preceding paragraphs of § 7.4002, it has

been construed by some as requiring the

OCC’s confirmation prior to a bank

charging a fee that the process followed

by the bank in setting the fee conformed

to the § 7.4002(b) factors and raises no

safety and soundness concerns. To

clarify that OCC confirmation is not

required, we proposed to remove the

first clause from § 7.4002(d) and retain

only a statement that is intended to

convey that the law as articulated by the

Supreme Court and the lower Federal

courts governs issues of Federal

preemption.

We received a number of comments

on proposed § 7.4002(d), many of which

expressed concern that the proposed

clarifying changes were, in fact,

substantive changes to the rule. Several

questioned whether the removal of the

case-by-case evaluation language in

former § 7.4002(d) meant that the OCC

is seeking to eliminate case-by-case

analyses of preemption questions. As

previously noted, the reference in

former § 7.4002(d) to paragraphs (a) and

(b) have caused some to interpret

§ 7.4002(d) as requiring banks to seek

our confirmation that the process

followed by a given bank raises no

safety and soundness concerns. In order

to avoid this confusion going forward,

the OCC proposed to remove the

reference to the case-by-case evaluation

of whether a national bank establishes

its non-interest charges and fees

pursuant to paragraphs (a) and (b) of

§ 7.4002. This does not, however,

modify the OCC’s practice of responding

to requests for opinions on preemption

questions on a case-by-case basis. We

will continue to review these requests

on a case-by-case basis and, in so doing,

we will continue to apply the

preemption standards articulated by the

United States Supreme Court in Barnett

Bank of Marion County, N.A. v. Nelson,

517 U.S. 25 (1996) and other applicable

Federal judicial precedents. Minor

changes to the language of the proposal

have been made to clarify that point and

to retain language from the former rule

regarding the types of State laws at

issue.

Several commenters also questioned

the timing of the proposed changes to

§ 7.4002(d) in light of the pending

appeal, in the U.S. Court of Appeals for

the Ninth Circuit, of Bank of America v.

City of San Francisco, Docket No. 00–

16394. These commenters believe that

by modifying the rule during litigation

over its meaning, the OCC’s proposal

would have a chilling effect on State

and municipal efforts to regulate

national banks’ fees. As explained

above, our revisions to § 7.4002(d) do

not change the OCC’s process for

evaluating whether State laws that limit

or prohibit national banks’ fees are

preempted by the National Bank Act.13

Applicability of State Law to National

Bank Subsidiaries (New § 7.4006)

Proposed § 7.4006 clarified that State

laws apply to a national bank operating

subsidiary to the same extent as those

laws apply to the parent national bank.

The majority of commenters who

addressed this issue supported the

proposal. Many of these commenters

said that it is a permissible exercise of

the authority granted by the National

Bank Act for national banks to create

operating subsidiaries that exercise both

direct and incidental powers under 12

U.S.C. Section 24(Seventh). These

commenters noted that operating

subsidiaries have long been authorized

for national banks and provide national

banks with a convenient alternative to

conduct activities that the bank could

conduct directly. Further, they agreed

that operating subsidiaries are, in

essence, incorporated departments or

divisions of the bank and, accordingly,

should not be treated differently than

their parent banks under State laws.14

A number of commenters, however,

were opposed to the provision. These

commenters read proposed § 7.4006 to

mean that the OCC has concluded that

certain types of State laws—several

commenters mentioned licensing,

corporate governance, and consumer

protection laws in particular—do not

apply to national bank operating

subsidiaries. Some commenters also

expressed a more general concern that

Federal oversight of national bank

operating subsidiaries is inadequate,

and that States should be permitted to

enforce compliance with State laws to

protect the parent bank from any

reputation or safety and soundness risks

that may result from operating

subsidiaries’ noncompliance with those

laws.

In our view, these comments do not

warrant modification of proposed

§ 7.4006. For decades national banks

have been authorized to use the

operating subsidiary as a convenient

and useful corporate form for

conducting activities that the parent

bank could conduct directly. Operating

subsidiaries often have been described

as the equivalent of departments or

divisions of their parent banks.

Recent legislation has recognized this

status of national bank operating

subsidiaries. In GLBA, for example,

Congress expressly acknowledged 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.’’15

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.16 A

fundamental component of these

descriptions of the characteristics of

operating subsidiaries in GLBA and the

OCC’s rule is that state laws apply to

operating subsidiaries to the same

extent as they apply to the parent

national bank. Thus, unless otherwise

provided by Federal law or OCC

regulation, State laws, such as licensing

requirements, are applicable to a

national bank operating subsidiary only

to the extent that they are applicable to

national banks.17

Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Rules and Regulations 34789

national bank over the Internet) (published at 65 FR

15037 (March 20, 2000)); OCC Interpr. Ltr. No. 749

(Sept. 13, 1996), reprinted in [1996–1997 Transfer

Binder] Fed. Banking L. Rep. (CCH) P 81–114 (State

law requiring national banks to be licensed by the

state to sell annuities would be preempted); OCC

Interpr. Ltr. 644 (March 24, 1994) reprinted in [1994

Transfer Binder] Fed. Banking L. Rep. (CCH) P

83,553 (State registration and fee requirements

imposed on mortgage lenders would be preempted).

18Pub. L. 106–102, section; 301, 113 Stat. at 1407,

15 U.S.C. 6711.

19 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’’).

20See 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).

21See, e.g., 12 U.S.C. 1462a(f) (stating that no

provision of law administered by the Director of the

Office of Thrift Supervision shall be construed as

superseding any homestead provision of any State

constitution or implementing statute in effect on

September 29, 1994, or any subsequent amendment,

that exempts the homestead of any person form

foreclosure or forced sale for the payment of debts,

other than a purchase money obligation relating to

the homestead, taxes due on the homestead, or an

obligation arising from work and material used in

constructing improvements on the homestead).

There is no comparable provision in the laws

applicable to national banks.

22 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).

We disagree with those commenters

who believe that new § 7.4006 will

adversely affect the oversight of

operating subsidiaries either from a

consumer protection or a safety and

soundness standpoint. The OCC

considers the overall risk exposure of a

national bank as part of its supervisory

processes, including safety and

soundness and compliance risk

originating in, or resulting from, the

bank’s operating subsidiaries. Moreover,

in specified cases, State law standards

do apply both to a national bank and its

operating subsidiary. For example,

GLBA provides that insurance activities

are to be functionally regulated by the

States.18 In its so-called safe-harbor

provisions, section 104 of GLBA

describes certain State insurance laws

that are immune from preemption and

that, therefore, apply to the conduct of

insurance sales activities by either a

depository institution or its subsidiary.

The preamble to the proposal noted

that the Office of Thrift Supervision

(OTS) has taken a similar approach with

respect to the applicability of State law

to the operating subsidiaries of Federal

savings associations,19 and that several

courts have upheld this OTS rule.20

Although the national banking laws

differ in particular respects from the

HOLA, national banks and Federal

thrifts share the characteristics of a

Federal charter. Like national banks,

Federal thrifts are instrumentalities

created by Congress for a national

purpose—the HOLA was enacted in

1933 for the purpose of promoting home

ownership in the United States. See,

e.g., Fidelity Federal Savings and Loan

Ass’n v. de la Cuesta, 458 U.S. 141,

152–53 (1982). Like national banks, the

charter and powers of Federal thrifts

derive exclusively from Federal law.

The same preemption principles

developed in Federal judicial

precedents under the Supremacy Clause

apply to both national banks and

Federal thrifts. See First National Bank

of McCook v. Fulkerson, No. 98–D–1024

(D. Co. March 7, 2000) slip op. at 7

(principle of Federal preemption applies

similarly to national banks and Federal

savings associations). Moreover, as with

national banks, consideration of the

special Federal character of Federal

thrifts has informed courts’ application

of these traditional preemption

principles. See Conference of State

Bank Supervisors v. Conover, 710 F.2d

878, 881–83 (D.C. Cir. 1983) (per

curiam) (applying de la Cuesta to

conclude that OCC regulations

governing adjustable rate mortgages

preempted State law).

In view of these similarities,

differences in outcome on questions

about what State laws apply to national

banks and Federal thrifts are not

warranted unless a Federal law provides

otherwise,21 and similar conclusions

should be reached regarding the

application of State laws to national

banks and their operating subsidiaries

as are reached for Federal thrifts and

their operating subsidiaries.

For these reasons, § 7.4006 is adopted

as proposed.

C. Part 23—Leasing

Estimated Residual Value for Section 24

(Seventh) Leases (Revised § 23.21)

Twelve CFR 23 authorizes national

banks to engage in leasing activities

pursuant to two distinct sources of

authority: 12 U.S.C. 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 may conduct; and 12

U.S.C. 24 (Seventh), which authorizes

leasing as an activity that is part of the

business of banking without imposing a

percentage-of-assets limit.22 These

leases must 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. See 12 CFR 23.3, 23.2(e), and

former § 23.21.

Because the OCC’s experience

supervising national banks that engage

in the leasing business suggested that

the 25% residual value limit may not be

appropriate for all types of personal

property leasing, we proposed to modify

former § 23.21 to provide that the limit

on the unguaranteed 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. This

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. In the proposal, we stated that 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.

The OCC received several comments

on the proposed changes to part 23 from

national banks and bank trade groups

questioning whether the proposal was

establishing 25% as a floor or whether

the OCC might intend to reduce the

residual value limit. Those commenters

argued, as a matter of policy, that the

OCC should not lower the residual

value limit below 25% and, as a matter

of law, that the OCC would be required

by the Administrative Procedure Act

(APA), 5 U.S.C. 553(b), to use noticeand-comment rulemaking to effect any

such reduction.

The OCC did not intend in the

proposal to establish 25% as a floor. We

believe that some types of leased

property may warrant use of a higher or

lower residual value. Establishing a

25% floor in § 23.21 would deprive the

OCC of flexibility it may need in the

future to respond to changes in the

leasing business. Moreover, we do not

believe that the APA’s rulemaking

requirements would be triggered by

34790 Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Rules and Regulations

23When adopting a rule, the APA requires that an

agency provide notice to the public of: (1) what it

proposes to do; and (2) the bases for its proposed

actions. Kenneth Culp Davis & Richard J. Pierce, Jr.

Administrative Law § 7.3. We have complied with

these requirements in this rulemaking by providing

public notice of the OCC’s intention to modify

former § 23.21, for the reasons discussed above, in

such a way that will permit the OCC to establish

a different percentage requirement than 25% if a

different limit is warranted in the future.

24Executive Order 13132 provides that a

‘‘federalism summary impact statement’’ consists of

a description of the extent of the agency’s prior

consultation with State and local officials, a

summary of the nature of their concerns, the

agency’s position reflecting the need to issue the

regulation, and a statement of the extent to which

the concerns of State and local officials have been

met. The following discussion, together with the

preamble discussion concerning the provisions

mentioned by the commenters on this issue,

satisfies those requirements.

such a supervisory response.23 Pursuant

to this rulemaking, we are amending our

rule in a way that preserves flexibility

for the OCC to apply a different limit

when faced with a given set of facts.

This enables the OCC to apply a

different limit without having to amend

its rule. Interested parties are, as a result

of this rulemaking, informed that the

OCC may exercise its discretion to apply

the limit that it thinks appropriate in a

given circumstance. Accordingly, we

have adopted the rule as proposed.

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 final

rule will not have a significant

economic impact on a substantial

number of small entities. The final rule

implements statutory provisions and

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

final rule 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

final rule 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.

As noted above, the final rule adds no

new requirements.

Executive Order 13132—Federalism

Summary Impact Statement 24

Executive Order 13132 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.

In general, the Executive 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 Executive Order

13132 applies to this rulemaking. The

proposed change to § 7.4002(d) and the

proposed addition of new § 7.4006 were

cited by some commenters as having the

effect of preempting State law. However,

as previously discussed, the changes to

§ 7.4002(d) are not intended to affect

any substantive change in our rule

governing non-interest charges and fees.

Rather, those changes remove language

that created the misimpression that the

OCC must approve the process a bank

used when deciding to impose a noninterest charge or fee. The changes do

not affect the OCC’s intention to address

questions of preemption on a case-bycase basis, according to preemption

principles derived from the United

States Constitution, as interpreted

through judicial precedent. Section

7.4006 generally provides that national

bank operating subsidiaries are subject

to State law to the extent State law

applies to their parent bank. The section

itself does not effect preemption of any

State law; it reflects the conclusion we

believe a Federal court would reach,

even in the absence of the regulation,

pursuant to the Supremacy Clause and

applicable Federal judicial precedent.

Even if the Executive Order were

applicable to this rule, the final rule

satisfies the requirements of that Order.

If an agency promulgates a regulation

that has federalism implications and

preempts State law, the Executive Order

requires the agency 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 addition to publishing our proposal

for comment by all interested parties,

including State and local officials, we

also brought the proposal to the

attention of the Conference of State

Bank Supervisors and specifically

invited its views, and the views of its

constituent members, on the revisions

we proposed. In the preamble to this

final rule, we have described the

comments we received from State

officials or their representatives and our

responses thereto. Finally, we have

made those written comments we

received from State or local officials

available to the Director of OMB.

Effective Date

Any new regulation that imposes

‘‘additional reporting, disclosure, or

other requirements on insured

depository institutions shall take effect

on the first day of a calendar quarter

which begins on or after the date on

which the regulations are published in

final form,’’ unless certain exceptions

apply. Riegle Community Development

and Regulatory Improvement Act of

1994, Pub. L. 103–325, § 302(b)

(September 23, 1994). This rulemaking

imposes no such additional reporting,

disclosure, or other requirements.

Accordingly, the requirement to delay

the effective date until the first day of

the next calendar quarter does not

apply, and the rule will become

effective 30 days after publication, in

accordance with 5 U.S.C. 553(d).

Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Rules and Regulations 34791

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 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 § 1.2, current paragraphs (g)

through (m) are redesignated as (h)

through (n), a new paragraph (g) is

added, and newly designated

paragraphs (j)(4), (k)(1), and (l) are

revised to read as follows:

§ 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 § 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

§ 1.2 or the definition of Type II

securities pursuant to paragraph (k) of

§ 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.

4. A new § 7.1021 is added to subpart

A to read as follows:

§ 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 § 7.3000, the last sentence of

paragraph (b) is removed and two

sentences are added in its place to read

as follows:

§ 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 § 7.4001, the second sentence of

paragraph (a) is revised to read as

follows:

§ 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,

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.***

* * * * *

7. Section 7.4002 is revised to read as

follows:

§ 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;

(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 § 7.4001 and

not by this section.

(d) State law. The OCC applies

preemption principles derived from the

United States Constitution, as

interpreted through judicial precedent,

when determining whether State laws

apply that purport to limit or prohibit

charges and 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 § 7.4006 is added to read as

follows:

34792 Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Rules and Regulations

1OCC Interpretive Letter No. 872 (Oct. 28, 1999)

reprinted in [1999–2000 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶81–366 (IL 872); OCC

Interpretive Letter No. 866 (Oct. 8, 1999) reprinted

in (1999–2000 Transfer Binder] Fed. Banking L.

Rep. (CCH) ¶81–360 (IL 866); and OCC Interpretive

Letter No. 695 (Dec. 8, 1995), reprinted in [1995–

1996 Transfer Binder] Fed. Banking L. Rep. (CCH)

¶ 81–010 (IL 695).

§ 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.

10. In § 23.21, paragraph (a)(2) is

revised to read as follows:

§ 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: June 21, 2001.

John D. Hawke, Jr.,

Comptroller of the Currency.

[FR Doc. 01–16328 Filed 6–29–01; 8:45 am]

BILLING CODE 4810–33–P

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Parts 5 and 9

[Docket No. 01–14]

RIN 1557–AB79

Fiduciary Activities of National Banks

AGENCY: Office of the Comptroller of the

Currency, Treasury.

ACTION: Final rule.

SUMMARY: The Office of the Comptroller

of the Currency (OCC) is publishing its

final rule regarding the authority and

standards for national banks to conduct

multi-state trust operations. The

purpose of these changes is to provide

enhanced guidance to national banks

engaging in fiduciary activities.

EFFECTIVE DATE: August 1, 2001.

FOR FURTHER INFORMATION CONTACT: Lisa

Lintecum, Director, or Joel Miller,

Senior Advisor, Asset Management,

(202) 874–4447; Richard Cleva, Senior

Counsel, Bank Activities and Structure

Division, (202) 874–5300; Andra

Shuster, Counsel, Legislative and

Regulatory Activities Division, (202)

874–5090; or William Dehnke, Assistant

Director, Securities and Corporate

Practices Division, (202) 874–5210.

SUPPLEMENTARY INFORMATION: On

December 5, 2000, the OCC published a

notice of proposed rulemaking (NPRM)

in the Federal Register (65 FR 75872) to

amend 12 CFR part 9 to add provisions

addressing the application of 12 U.S.C.

92a in the context of a national bank

engaging in fiduciary activities in more

than one state. The purpose of the

rulemaking was to provide clarity and

certainty for national banks’ multi-state

fiduciary activities. The standards

contained in the NPRM reflected

positions taken in three earlier OCC

Interpretive Letters.1 Interpretive Letter

No. 695 found that a national bank

authorized to engage in fiduciary

activities may act in a fiduciary capacity

in any state that permits its own in-state

fiduciaries to act in that capacity,

including at trust offices. Interpretive

Letters Nos. 866 and 872 clarified that

a national bank that acts in a fiduciary

capacity in one state may market its

fiduciary services to customers in other

states, solicit business from them, and

act as fiduciary for customers located in

other states. The NPRM and the final

rule are based upon the detailed

analysis contained in these Interpretive

Letters.

Along with the NPRM, we also

published an advance notice of

proposed rulemaking (ANPR) inviting

comments on whether the OCC should

establish uniform national standards for

the conduct of fiduciary activities by

national banks. The ANPR invited

comments on whether uniform

standards of care generally applicable to

national bank trustees’ administration of

private trusts and investment of private

trust property should be established.

We received comments on both the

NPRM and the ANPR. As discussed

further below, comments on the NPRM

predominantly were favorable.

Comments on the ANPR were more

mixed, raising a significant number of

issues that will require additional

analysis before any determination is

made concerning how to proceed.

Rather than delay addressing the issues

covered by the OCC interpretations, we

are issuing this final rule, which covers

only the matters included in the NPRM,

and are reserving a decision whether to

proceed with a proposal to establish

uniform fiduciary standards pending

completion of our analysis of the issues

raised by the commenters.

The OCC received 25 comments on

the NPRM. These comments included 4

from state bank supervisors’ offices, 1

from a state bank supervisors’

organization, 6 from banking trade

associations, 13 from banks and bank

holding companies, and 1 from a law

firm. Most of the commenters supported

the proposed changes, although several

offered additional suggestions for

changes. The state bank supervisors

disagreed with the proposal and

expressed concern about the effect the

rule would have on the application of

state laws to national banks engaged in

fiduciary activities.

For the reasons discussed below, we

have adopted the provisions of the

NPRM substantially as proposed, but

have made a number of changes in

response to the comments received to

clarify certain provisions.

Description of Proposal, Comments

Received, and Final Rule

Definitions (Revised § 9.2)

Proposed § 9.2 defined ‘‘trust office’’

and ‘‘trust representative office’’ in

§§ 9.2(j) and (k), respectively. A ‘‘trust

office’’ was defined as an office of a

national bank, other than a main office

or a branch, at which the bank acts in

a fiduciary capacity. A ‘‘trust

representative office’’ was defined as an

office of a national bank, other than a

main office, branch, or trust office, at

which the bank performs activities

ancillary to its fiduciary business, but

does not act in a fiduciary capacity.

The final rule modifies the definition

of trust office to clarify that it includes

all offices where the bank engages in

one or more of the key fiduciary

activities specified in § 9.7(d)—i.e.,

accepting the fiduciary appointment,

executing the documents that create the

fiduciary relationship, or making

discretionary decisions regarding the

investment or distribution of fiduciary

assets. The definition in the proposal

focused on where the bank acted in a

fiduciary capacity (where the key

fiduciary activities were performed) and

implicitly assumed that all of the key

fiduciary activities would be performed

in one state for each fiduciary

relationship (so that ‘‘acting in a

fiduciary capacity’’ and performing the

key activities were the same). However,

as discussed in detail below in

connection with § 9.7(d), in some

instances, the key activities may be

performed at offices in different states

for some fiduciary relationships. In

those instances, as provided in § 9.7(d)