[Federal Register Volume 66, Number 20 (Tuesday, January 30, 2001)]
[Proposed Rules]
[Pages 8178-8184]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1614]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 1, 7, and 23

[Docket No. 01-01]
RIN 1557-AB94


Investment Securities; Bank Activities and Operations; Leasing

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
proposing to amend its rules governing investment securities, bank 
activities and operations, and leasing. The proposed revisions to the 
investment securities regulations incorporate the authority to 
underwrite, deal in, and purchase certain municipal bonds that is 
provided to well capitalized national banks by the Gramm-Leach-Bliley 
Act (GLBA). The proposed revisions to the bank activities and 
operations regulations: Establish the conditions under which a school 
where a national bank participates in a financial literacy program is 
not considered a branch under the McFadden Act; revise the OCC's 
regulation governing bank holidays to conform it with the wording of 
the statute that authorizes the Comptroller to proclaim mandatory bank 
closings; clarify the scope of the term ``NSF fees'' for purposes of 12 
U.S.C. 85, the statute that governs the rate of interest that national 
banks may charge; simplify the OCC's current regulation governing 
national banks' non-interest charges and fees; and provide that state 
law applies to a national bank operating subsidiary to the same extent 
as it applies to the parent national bank. The proposed revisions to 
the leasing regulations authorize the OCC to vary the percentage limit 
on the extent to which a national bank may rely on estimated residual 
value to recover its costs in personal property leasing arrangements. 
The purpose of these changes is to update and revise the OCC's 
regulations to keep pace with developments in the law and in the 
national banking system.

DATES: Comments must be received by April 2, 2001.

ADDRESSES: Direct your comments to: Public Information Room, Office of 
the Comptroller of the Currency, 250 E Street, SW, Mailstop 1-5, 
Washington, DC 20219, Attention: Docket No. 01-01. Comments will be 
available for public inspection and photocopying at the same location. 
In addition, you may send comments by fax to (202) 874-4448, or by 
electronic mail to <a href="/cdn-cgi/l/email-protection#e391868490cd808c8e8e868d9790a38c8080cd9791868290cd848c95"><span class="__cf_email__" data-cfemail="b5c7d0d2c69bd6dad8d8d0dbc1c6f5dad6d69bc1c7d0d4c69bd2dac3">[email protected]</span></a>.

FOR FURTHER INFORMATION CONTACT: For questions concerning proposed 12 
CFR 1.2, contact Beth Kirby, Senior Attorney, Securities and Corporate 
Practices Division, (202) 874-5210, or Mark Tenhundfeld, Assistant 
Director, Legislative and Regulatory Activities Division, (202) 874-
5090. For questions concerning proposed 12 CFR 7.3000, contact Stuart 
Feldstein, Assistant Director, or Andra Shuster, Senior Attorney, 
Legislative and Regulatory Activities Division, (202) 874-5090. For 
questions concerning proposed 12 CFR 7.1021, 7.4001, 7.4002 and 7.4006, 
contact Mark Tenhundfeld, Assistant Director, or Andra Shuster, Senior 
Attorney, Legislative and Regulatory Activities Division, (202) 874-
5090. For questions concerning 12 CFR 23.21, contact Steven Key, 
Attorney, Bank Activities and Structure Division, (202) 874-5300.

SUPPLEMENTARY INFORMATION:

Background

    The OCC proposes to revise 12 CFR parts 1, 7, and 23 in order to 
address changing industry practices and recent statutory amendments. 
This proposal reflects the OCC's continuing commitment to assess the 
effectiveness of our rules and to make changes where necessary to 
improve our regulations.

Section-by-Section Description of the Proposal

A. Part 1--Investment Securities

    Pursuant to 12 U.S.C. 24(Seventh), the total amount of investment 
securities of any one obligor held by a national bank for its own 
account generally may not exceed 10 per cent of the bank's capital

[[Page 8179]]

and surplus. Section 24(Seventh), however, exempts certain types of 
securities from this limitation and permits a bank to underwrite, deal 
in, and purchase them without quantitative restriction. Section 151 of 
the Gramm-Leach-Bliley Act (GLBA) \1\ amended Sec. 24(Seventh) to 
exempt certain municipal bonds from the 10 per cent limit if the 
national bank is well capitalized under the statutory prompt corrective 
action standards.\2\ We propose to amend part 1 of our regulations, 
which implements the statutory investment securities provisions, to 
reflect this change in the statute.
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    \1\ Pub. L. 106-102, Sec. 151, 113 Stat. 1338, 1384 (November 
12, 1999).
    \2\ 12 U.S.C. 1831o.
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    The proposal adds new Sec. 1.2(g), which defines the municipal 
bonds described in Sec. 151 of GLBA. Thus, the term ``municipal bonds'' 
means obligations of a State or political subdivision other than 
general obligations, and includes limited obligation bonds, revenue 
bonds, and obligations that satisfy the requirements of section 
142(b)(1) of the Internal Revenue Code of 1986 issued by or on behalf 
of any State or political subdivision of a State, including any 
municipal corporate instrumentality of 1 or more States, or any public 
agency or authority of any State or political subdivision of a State.
    Part 1 classifies permissible national bank investment securities 
into several categories, or types.\3\ Type I securities are 
securities--such as obligations issued by, or backed by the full faith 
and credit of, the United States--that a national bank may purchase, 
sell, deal in, and underwrite without regard to any capital and surplus 
limitation. The proposal amends the list of Type I securities that a 
national bank may underwrite, deal in, and purchase without 
quantitative limit, which appears in redesignated Sec. 1.2(j) of the 
regulation, to add the municipal bonds as defined in new Sec. 1.2(g), 
subject to the requirement that the bank be well capitalized. The 
regulation refers to the definition of well capitalized that the OCC 
uses for purposes of compliance with the prompt corrective action 
standards.\4\
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    \3\ See, e.g., 12 CFR 1.2(i) and 1.3(a) defining Type I 
securities and providing that Type I securities are not subject to 
the 10 per cent capital and surplus limit); 12 CFR Secs. 1.2(j) and 
1.3 (defining Type II securities and describing the quantitative 
limit); and 12 CFR Secs. 1.2(k) and 1.3(c) (defining Type III 
securities and describing the quantitative limit).
    \4\ See 12 CFR 6.4(b)(1) (defining the term ``well 
capitalized'').
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    In addition, the proposal modifies the section that defines certain 
Type II securities, newly designated as Sec. 1.2(k), to make it clear 
that obligations issued by a State or political subdivision or agency 
of a State, for housing, university, or dormitory purposes are Type II 
securities only when they do not qualify as Type I securities (for 
example, when the subject bank is not well capitalized under prompt 
corrective action standards). The proposal also modifies the paragraph 
that defines Type III securities, newly redesignated as Sec. 1.2(l), 
and uses municipal bonds as an example of that type, to make clear that 
municipal bonds are Type III securities only when they do not qualify 
as Type I securities. Regardless of the treatment of municipal bonds as 
Type I or Type III securities, a national bank must understand the 
fiscal condition of any municipality in whose bonds the bank invests.

B. Part 7--Bank Activities and Operations

    The proposal makes five changes to part 7. First, it adds new 
Sec. 7.1021, which defines the circumstances under which a school where 
a bank participates in a financial literacy program is not considered a 
branch of the bank under the McFadden Act. Second, the proposal amends 
Sec. 7.3000 to conform it with the Comptroller's statutory authority to 
declare mandatory bank closings, as provided in 12 U.S.C. 95(b)(1). 
Third, the proposed rule revises current Sec. 7.4001 to clarify the 
scope of the term ``NSF fees'' for purposes of 12 U.S.C. 85. Fourth, 
the proposal revises current Sec. 7.4002, which governs non-interest 
charges and fees, to remove language that may be confusing. Finally, 
the proposal adds new Sec. 7.4006, which provides that state laws apply 
to a national bank operating subsidiary to the same extent that they 
apply to the parent national bank.

Bank Participation in Financial Literacy Programs (New Sec. 7.1021)

    Proposed new Sec. 7.1021(b) provides that a school premises or 
facility where a national bank participates in a financial literacy 
program is not a branch of the national bank under the McFadden Act if 
the conditions set out in the rule are satisfied.\5\ Pursuant to these 
conditions, the bank must not ``establish and operate'' the school 
premises or facility. This requirement derives from the text of the 
statute, which describes the circumstances under which a national bank 
may ``establish and operate'' new branches and defines the term 
``branch,'' \6\ and from Federal judicial precedents determining when 
an off-premises location is a branch under these standards. Under those 
precedents, the court first determines whether the national bank has 
``establish[ed] and operate[d]'' the off-premises location in question. 
If so, the court goes on to determine whether the off-premises location 
is covered by the definition of the term ``branch'' that the statute 
provides because it accepts deposits, pays checks, or lends money at 
that location.\7\
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    \5\ This proposal is consistent with the limitation, found in 12 
U.S.C. 93a, which states that the general rulemaking authority 
vested in the OCC by that section ``does not apply to section 36 of 
[Title 12 of the United States Code].'' This limitation simply makes 
clear that section 93a does not expand whatever authority the OCC 
has pursuant to other statutes to adopt regulations affecting 
national bank branching. Congress clearly contemplated that the OCC 
would implement section 36, as is evidenced by the repeated 
references to obtaining the OCC's approval throughout that section 
(see, e.g., paragraphs (b)(1), (b)(2), (c), (g), and (i) of section 
36). It would be illogical to conclude that the OCC, in implementing 
the provisions requiring national banks to obtain the OCC's prior 
approval under the sections cited, cannot interpret what the terms 
of the statute mean or that the interpretation must be made on a 
case-by-case basis. This rulemaking simply clarifies a situation 
that falls outside the branching restrictions imposed by section 36.
    \6\ 12 U.S.C. 36(c) (describing the circumstances under which a 
national bank may ``establish and operate'' new branches); 12 U.S.C. 
36(j) (defining the term ``branch'' to include ``any branch bank, 
branch office, branch agency, additional office, or any branch place 
of business located in any State or Territory of the United States 
or in the District of Columbia at which deposits are received, or 
checks paid, or money lent.'').
    \7\ In First National Bank in Plant City v. Dickinson, 396 U.S. 
122, 126-29, 134-37 (1969), the Supreme Court used a two-stage 
analysis to reach the conclusion that an armored car service was a 
branch within the meaning of the McFadden Act. The Court looked 
first at whether the off-premises facility was ``established and 
operated'' by the national bank. It then looked at whether the bank 
was using the off-premises facility to take deposits within the 
meaning of the McFadden Act's definition of a ``branch.'' Subsequent 
lower Federal court decisions using the same two-stage analysis 
employed by the Supreme Court in Plant City have concluded that 
certain off-premises locations are not branches under the McFadden 
Act. For example, in Cades v. H & R Block, Inc., 43 F.3d 869, 874 
(4th Cir. 1994), the U.S. Court of Appeals for the Fourth Circuit 
articulated the Supreme Court's two-stage analysis as a two-part 
test and used that test to determine that an office of the tax 
preparation firm H & R Block was not a branch. The court looked at 
key indicators of the bank's relationship with Block to determine 
whether the Block offices were established and operated by the bank. 
These indicators included the facts that the bank had no ownership 
or leasehold interest in the Block offices; no bank employees worked 
there; and the bank exercised no authority or control over Block's 
employees or methods of operation. The court held that, under these 
circumstances, the bank did not ``establish or operate'' the Block 
offices, that there was no need to go on to consider whether bank 
business--such as taking deposits--was transacted at Block offices, 
and that, accordingly, the Block offices were not branches.
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    In construing the phrase ``establish and operate,'' the courts have 
looked at

[[Page 8180]]

the nature of the bank's interest in the location in question and at 
the degree of control the bank maintains over the employees who work at 
the location or the business conducted there. A bank would usually have 
no property interest in the school location. Its employees would 
typically work at the school only in connection with their 
participation in the financial literacy program. Finally, the bank 
would exercise no control over the school, its teachers, or its 
curriculum.
    The proposed regulation also requires that the financial literacy 
program be principally intended to educate students. As noted in the 
proposal, a program would be considered principally educational if it 
is designed to teach students the principles of personal economics or 
the benefits of saving for the future, without being designed for the 
purpose of making profits.
    Students in the financial literacy program need not be of any 
particular age or income background in order for the program to be 
eligible under this proposal. If the students are low- or moderate-
income individuals, however, a bank's participation in a school savings 
program may also be given positive consideration under the Community 
Reinvestment Act as a community development service.\8\
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    \8\ See Community Reinvestment Act; Interagency Questions and 
Answers Regarding Community Reinvestment, 64 FR 23, 618 (May 3, 
1999) (Q and A 3 addressing 12 CFR Secs. 25.12(j), 228.23(j), 
345.23(j), and 563e.12(i) (examples of community development 
services)).
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Bank Holidays (Revised Sec. 7.3000)

    Under 12 U.S.C. 95(b)(1), in the event of natural or other 
emergency conditions existing in any State, the Comptroller may 
proclaim any day a legal holiday for national banks located in that 
State or affected area. In such a case, the Comptroller may require 
national banks to close on the day or days designated. If a State or 
State official designates any day as a legal holiday for ceremonial or 
emergency reasons, a national bank may either close or remain open 
unless the Comptroller directs otherwise by written order.
    The OCC has issued a regulation implementing this authority that is 
set forth at 12 CFR 7.3000. The wording of Sec. 7.3000 does not follow 
that of the statute precisely, however. Currently, Sec. 7.3000 requires 
the Comptroller to issue a proclamation authorizing the emergency 
closing in accordance with 12 U.S.C. 95 at the time of the emergency 
condition, or soon thereafter. When the Comptroller, a State, or a 
legally authorized State official declares a day to be a legal holiday 
due to emergency conditions, the regulation permits a national bank to 
choose to remain open or to close any of its banking offices in the 
affected geographic area.\9\ Thus, unlike the statute, Sec. 7.3000 does 
not authorize the Comptroller to require national banks to close in the 
event the Comptroller declares a legal holiday but, instead, gives 
national banks discretion to remain open during either a Comptroller- 
or State-declared holiday.
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    \9\ The regulation also provides that when a State or a legally 
authorized State official designates any day to be a legal holiday 
for ceremonial reasons, a national bank may choose to remain open or 
to close. 12 CFR 7.3000(c). Finally, it provides that a national 
bank should assure that all liabilities or other obligations under 
the applicable law due to the bank's closing are satisfied. 12 CFR 
7.3000(d).
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    This proposed rule amends Sec. 7.3000 to conform it with the 
Comptroller's statutory authority to proclaim mandatory bank closings, 
as provided in 12 U.S.C. 95(b)(1). It provides that if the Comptroller 
or a State declares a legal holiday due to emergency conditions, a 
national bank may temporarily limit or suspend operations at its 
affected offices or it may choose to continue its operations unless the 
Comptroller by written order directs otherwise.

Definition of ``Interest'' for Purposes of 12 U.S.C. 85 (Revised 
Sec. 7.4001(a))

    The proposed rule revises current Sec. 7.4001 to clarify the scope 
of the term ``NSF fees'' for purposes of 12 U.S.C. 85. Section 85 
governs the interest rates that national banks may charge, but it does 
not define the term ``interest.'' Section 7.4001 generally defines the 
charges that are considered ``interest'' for purposes of section 85, 
then sets out a nonexclusive list of charges covered by that 
definition. The list includes ``NSF fees.''
    The inclusion of ``NSF fees'' in the definition of ``interest'' was 
intended to codify a position the OCC took in an interpretive letter 
issued in 1988. Interpretive Letter No. 452 concluded that charges 
imposed by a credit card bank on its customers who paid their accounts 
with checks drawn on insufficient funds were ``interest'' within the 
meaning of section 85.\10\ IL No. 452 referred to the charges in 
question as ``NSF charges.'' The term, however, is also commonly used 
to refer to fees imposed by a bank on its checking account customers 
whenever a customer writes a check against insufficient funds, 
regardless of whether the check was intended to pay an obligation due 
to the bank. These different uses of the term ``NSF fees'' have created 
ambiguity about the scope of the term as used in Sec. 7.4001(a).
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    \10\ Interpretive Letter No. 452 (Aug. 11, 1988), reprinted in 
[1988-89 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 85,676 
(IL 452).
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    The proposal amends Sec. 7.4001(a) to clarify that the term ``NSF 
fees'' includes only those fees imposed by a creditor bank when a 
borrower attempts to pay an obligation to that bank with a check drawn 
on insufficient funds. Fees that a bank charges for its deposit account 
services--including overdraft and returned check charges--are not 
covered by the term ``NSF fees.'' These fees are therefore not 
``interest'' but, rather, are charges covered by 12 CFR 7.4002.
    We also invite comment on whether the term ``NSF fees'' should also 
include at least some portion of the fee imposed by a national bank 
when it pays a check notwithstanding that its customer's account 
contains insufficient funds to cover the check. As a matter of 
practice, banks often vary the amount of the charges they impose 
depending on whether they honor the customer's check. A bank that pays 
a check drawn against insufficient funds may be viewed as having 
extended credit to the accountholder. Consistent with that approach, 
the difference between what the bank charges a customer when it pays 
the check and what it charges when it dishonors the check and returns 
it could be viewed as interest within the meaning of 12 U.S.C. 85. 
Currently, the OCC's regulation does not expressly resolve this issue.

National Bank Non-Interest Charges (Revised Sec. 7.4002)

    Current Sec. 7.4002 sets out the basic authority to impose non-
interest charges and fees, including deposit account service charges. 
It provides that the decision to do so and to determine the amounts of 
charges and fees is a business decision to be made by each bank, in its 
discretion, according to sound banking judgment and safe and sound 
banking principles. It also provides that a bank ``reasonably 
establishes'' non-interest charges and fees if it considers, among 
other factors, the four factors enumerated in the regulation. The OCC 
construes Sec. 7.4002 to mean that a national bank that considers at 
least these four factors in setting its non-interest charges and fees 
has satisfied the safety and soundness concerns in the regulation and 
faces no supervisory impediment to exercising the authority to set 
charges and fees that the regulation describes.\11\
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    \11\ See Brief Amicus Curiae of the Office of the Comptroller of 
the Currency in Support of National Bank Plaintiffs, Bank of 
America, N.A. v. San Francisco, No. C 99 4817 VRW (N.D. Ca.) (citing 
OCC opinion letters construing and describing the operation of 12 
CFR 7.4002). On July 11, 2000, the U.S. District Court for the 
Northern District of California granted the plaintiffs in this case 
permanent injunctive relief against San Francisco and Santa Monica 
city ordinances that purported to prohibit national banks from 
charging fees for providing banking services through automatic 
teller machines (ATMs). The case is currently pending appeal in the 
U.S. Court of Appeals for the Ninth Circuit.

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[[Page 8181]]

    The proposal eliminates certain ambiguities in the text of 
Sec. 7.4002 without altering the substance of the regulation or the way 
in which the OCC intends that it operate. First, current Sec. 7.4002(a) 
gives two examples of the types of non-interest charges and fees that 
national banks may impose: Charges on dormant accounts and fees for 
credit reports or investigations. We have removed these examples in the 
proposal, given that the explicit reference to the two types fees is 
unnecessary and could be misinterpreted as a limitation on a national 
bank's ability to charge other types of fees. We note, however, that 
dormant account charges and fees for credit reports and investigations 
continue to be permissible non-interest charges and fees even though 
they are no longer specifically mentioned in the rule.
    We also propose to amend Sec. 7.4002(b) to clarify what a bank's 
obligations are under that section. The sentence in Sec. 7.4002(b) that 
currently introduces the four factors says that a bank ``reasonably 
establishes'' non-interest charges and fees if it considers those 
factors among others. This language was intended to convey that the 
bank must exercise sound banking judgment and rely on safe and sound 
banking principles in setting charges and fees. In order to clarify 
that intent, we have revised the sentence in Sec. 7.4002(b) that 
currently introduces the four factors to say that a bank establishes 
non-interest charges and fees ``in accordance with safe and sound 
banking principles'' if it employs a decision-making process through 
which it considers the four factors. This revision clarifies that 
consideration of the four factors is a process requirement to be 
implemented by the bank and more clearly establishes the connection 
between the required process and the safety and soundness 
considerations that underlie it.
    The four factors are the same as under the current regulation, 
including the factor addressing the maintenance of the bank's safety 
and soundness. We expect that, pursuant to this factor, a bank would 
consider any risks, such as reputation or litigation risk, that would 
be affected by the imposition of a particular fee. We note that 
consideration of the four factors is relevant both when establishing a 
new fee and when changing a fee that already has been established. The 
reference to factors other than the four that are enumerated in 
Sec. 7.4002(b) has been retained in order to avoid creating any doubt 
about a national bank's ability to rely on factors in addition to those 
stated in the regulation.
    Section 7.4002(a) is also revised to clarify that the authorization 
it contains to establish fees and charges necessarily includes the 
authorization to decide the amount and method by which they are 
computed. Thus, for example, fees resulting from the method the bank 
employs to post checks presented for payment are included within the 
authorization provided by Sec. 7.4002.
    Finally, current Sec. 7.4002(d) addresses the OCC's issuance of 
opinions concerning whether state laws purporting to limit or prohibit 
national bank non-interest charges and fees are preempted. The first 
clause of current paragraph (d) states that the OCC evaluates on a 
case-by-case basis whether a national bank may establish fees pursuant 
to paragraphs (a) and (b) of Sec. 7.4002; the second clause provides 
that, in determining whether a state law purporting to limit or 
prohibit such fees is preempted, the OCC applies preemption principles 
derived from the Supremacy Clause of the United States Constitution and 
applicable judicial precedent. The first clause simply underscores that 
a national bank's establishment of fees is governed by the preceding 
paragraphs of Sec. 7.4002; the second clause was intended to convey 
that the law as articulated by the Supreme Court and the lower Federal 
courts governs issues of federal preemption. The proposal revises 
Sec. 7.4002(d) to rephrase and restate these two points more directly 
and succinctly.

Applicability of State Law to National Bank Subsidiaries (New 
Sec. 7.4006)

    Proposed Sec. 7.4006 clarifies that state laws apply to a national 
bank operating subsidiary to the same extent as those laws apply to the 
parent national bank.
    Operating subsidiaries have been authorized for national banks for 
decades, recognizing that, under various circumstances, it may be 
convenient or useful for the bank to conduct activities that the bank 
could conduct directly, through the alternate form of a controlled 
subsidiary company. Thus, operating subsidiaries and the activities 
they conduct are an embodiment of the incidental powers of their parent 
bank, and often have been described as the equivalent of a department 
or division of their parent bank--organized for convenience in a 
different corporate form.
    Consistent with the concept underlying this authority for operating 
subsidiaries, and recent legislation recognizing the status of national 
bank operating subsidiaries, the proposal provides that state law 
applies to the activities of an operating subsidiary to the same extent 
it would apply if those activities were conducted by its parent bank. 
In GLBA, for example, Congress recognized the authority of national 
banks to own subsidiaries that engage ``solely in activities that 
national banks are permitted to engage in directly and are conducted 
subject to the same terms and conditions that govern the conduct of 
such activities by national banks.'' \12\ Similarly, the OCC operating 
subsidiary regulation provides that an operating subsidiary conducts 
its activities subject to the same authorization, terms, and conditions 
that apply to the conduct of those activities by its parent bank.\13\ 
Fundamental to the description of the characteristics of operating 
subsidiaries in GLBA and the OCC's rule is that, unless otherwise 
provided by Federal law or OCC regulation, State laws apply to 
operating subsidiaries to the same extent as they apply to the parent 
national bank.
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    \12\ Pub. L. 106-102, Sec. 121, 113 Stat. at 1378, codified at 
12 U.S.C. 24a(g)(3).
    \13\ 12 CFR 5.34(e)(3).
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    The Office of Thrift Supervision (OTS) has already taken this 
approach with respect to the operating subsidiaries of Federal savings 
associations. An OTS rule also provides that state law applies to 
Federal savings associations' operating subsidiaries, which are limited 
to engaging in activities permissible for the parent thrift, to the 
extent it applies to the parent thrift.\14\ A Federal district court 
has recently upheld this OTS rule.\15\
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    \14\ 12 CFR 559.3(n). See 61 FR 66561, 66563 (December 18, 1996) 
(preamble to OTS final rule adopting section 559.3(n); explaining 
that the basis for the OTS rule is that the operating subsidiary of 
a Federal savings association ``is treated as the equivalent of a 
department of the parent thrift for regulatory and reporting 
purposes'').
    \15\ See WPS Financial, Inc. v. Dean, No. 99 C 0345 C (W.D. Wi. 
Nov. 26, 1999); Chaires v. Chevy Chase Bank, FSB, 131 Md. App. 64, 
748 A.2d 34, 44 (Md. Ct. Sp. App. 2000).
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    For the reasons stated above, the OCC proposes to add a new 
Sec. 7.4006, stating that, except where Federal law or an OCC rule 
provides otherwise, State law applies to operating subsidiaries only to 
the extent that the law applies to the parent bank.

[[Page 8182]]

C. Part 23--Leasing

Estimated Residual Value for Section 24 (Seventh) Leases (Revised 
Sec. 23.21)

    The OCC's regulations at 12 CFR part 23 currently authorize 
national banks to engage in leasing activities pursuant to two distinct 
sources of authority: section 24 (Tenth), which expressly authorizes 
leasing subject to certain conditions specified in that statute, 
including a 10% of assets limit on the amount of the activity that the 
national bank can conduct; and section 24 (Seventh), which authorizes 
leasing as an activity that is part of the business of banking without 
imposing a percentage-of-assets limit.\16\ The rules require that 
leases be ``full-payout leases.'' That term is defined to mean a lease 
in which the national bank reasonably expects to recover its investment 
in the leased property, plus its cost of financing, from rental 
payments, estimated tax benefits, and the estimated residual value of 
the leased property at the expiration of the lease term. The rules for 
section 24 (Seventh) leases further provide that the bank's estimate of 
the residual value of the leased property must be reasonable in light 
of the nature of the property and all the circumstances surrounding the 
lease transaction and that, in any event, the unguaranteed amount of 
residual value relied upon may not exceed 25% of the bank's original 
cost of the property. 12 CFR 23.3, 23.2(e), 23.21.
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    \16\ M&M Leasing v. Seattle First National Bank, 563 F.2d 1377 
(9th Cir. 1977), cert. denied, 436 U.S. 956 (1978) (bank leasing of 
personal property permissible because it was functionally equivalent 
to loaning money on personal security).
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    The OCC last revised the leasing rules in 1996. Since then, our 
experience supervising national banks that engage in the leasing 
business has suggested that the 25% residual value limit may not be 
appropriate for all types of personal property leasing. We are 
therefore proposing to modify current Sec. 23.21 to provide that the 
limit on the amount of estimated residual value is either 25% or the 
percentage for a particular type of personal property that is specified 
in guidance published by the OCC. As revised, Sec. 23.21 would permit 
the OCC to establish a different percentage requirement than 25% if a 
different limit is warranted. If the OCC does not specify a different 
limit, the 25% limit would continue to apply. We would apprise national 
banks of any different limit or limits established under this provision 
by publishing an OCC bulletin, which would subsequently be incorporated 
into the Comptroller's Handbook booklet on Lease Financing.

Request for Comments

    The OCC invites comment on all aspects of the proposed regulation.
    Specifically, we invite your comments on how to make this proposed 
rule easier to understand. For example:
    Have we organized the material to suit your needs?
    Are all the requirements in the rule clearly stated?
    Does the rule contain technical language or jargon that is not 
clear?
    Would a different format (grouping and order of sections, use of 
headings, paragraphing) make the rule easier to understand?
    Would more (but shorter) sections be better?
    What else could we do to make the rule easier to understand?
    In addition, we invite your comments on the impact of this proposal 
on community banks. The OCC recognizes that community banks operate 
with more limited resources than larger institutions and may present a 
different risk profile. Thus, the OCC specifically requests comments on 
the impact of this proposal on community banks' current resources and 
available personnel with the requisite expertise, and whether the goals 
of the proposed regulation could be achieved, for community banks, 
through an alternative approach.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 
U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise 
required under section 604 of the RFA is not required if the agency 
certifies that the rule will not have a significant economic impact on 
a substantial number of small entities and publishes its certification 
and a short, explanatory statement in the Federal Register along with 
its rule.
    Pursuant to section 605(b) of the RFA, the OCC hereby certifies 
that this proposal will not have a significant economic impact on a 
substantial number of small entities. The proposal codifies caselaw and 
OCC interpretations, but adds no new requirements. Accordingly, a 
regulatory flexibility analysis is not needed.

Executive Order 12866

    The OCC has determined that this proposal is not a significant 
regulatory action under Executive Order 12866.

Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 
1532 (Unfunded Mandates Act), requires that the agency prepare a 
budgetary impact statement before promulgating any rule likely to 
result in a Federal mandate that may result in the expenditure by 
State, local, and tribal governments, in the aggregate or by the 
private sector, of $100 million or more in any one year. If a budgetary 
impact statement is required, section 205 of the Unfunded Mandates Act 
also requires the agency to identify and consider a reasonable number 
of regulatory alternatives before promulgating the rule. The OCC has 
determined that this proposal will not result in expenditures by State, 
local, and tribal governments, or by the private sector, of $100 
million or more in any one year. Accordingly, the OCC has not prepared 
a budgetary impact statement or specifically addressed any regulatory 
alternatives. The proposal codifies caselaw and OCC interpretations, 
but adds no new requirements.

Executive Order 13132

    Executive Order 13132 (Order) requires Federal agencies, including 
the OCC, to certify their compliance with that Order when they transmit 
to the Office of Management and Budget (OMB) any draft final regulation 
that has Federalism implications. Under the Order, a regulation has 
Federalism implications if it has ``substantial direct effects on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government.'' In the case of a regulation that has 
Federalism implications and that preempts State law, the Order imposes 
certain specific requirements that the agency must satisfy, to the 
extent practicable and permitted by law, prior to the formal 
promulgation of the regulation.
    Executive Order 13132 imposes certain requirements when an agency 
issues a regulation that has federalism implications or that preempts 
State law. Under the Order, a regulation has federalism implications if 
it has substantial direct effects on the States, on the relationship 
between the national government and the States, or on the distribution 
of power and responsibilities among the various levels of government. 
In general, the Order requires the agency to adhere strictly to federal 
constitutional principles in developing rules that have federalism 
implications; provides guidance about an agency's interpretation of 
statutes that authorize regulations that preempt State law; and 
requires consultation with State officials before the agency issues a 
final rule that has federalism implications or that preempts State law.
    It is not clear that the Order applies to this proposal. Proposed 
Sec. 7.4006

[[Page 8183]]

addresses the applicability of state law to national bank operating 
subsidiaries, but, in the opinion of the OCC, it reflects the 
conclusion that a federal court would reach, even in the absence of the 
regulation, pursuant to the Supremacy Clause and applicable federal 
judicial precedent. Nonetheless, the OCC plans for its final rule to 
satisfy the requirements of the Order. If an agency promulgates a 
regulation that has federalism implications and preempts State law, the 
Order imposes upon the agency requirements to consult with State and 
local officials, to publish a ``federalism summary impact statement,'' 
and to make written comments from State and local officials available 
to the Director of OMB. In the preamble to any final rule that results 
from our proposal, we will describe the results of our consultation 
with State or local officials and include a federalism summary impact 
statement. Moreover, we will make any written comments we receive from 
State or local officials available to the Director of OMB.

List of Subjects

12 CFR Part 1

    Banks, banking, National banks, Reporting and recordkeeping 
requirements, Securities.

12 CFR Part 7

    Credit, Insurance, Investments, National banks, Reporting and 
recordkeeping requirements, Securities, Surety bonds.

12 CFR Part 23

    National banks.

Authority and Issuance

    For the reasons set forth in the preamble, parts 1, 7, and 23 of 
chapter I of title 12 of the Code of Federal Regulations are proposed 
to be amended as follows:

PART 1--INVESTMENT SECURITIES

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

    Authority: 12 U.S.C. 1, et seq., 12 U.S.C. 24 (Seventh) and 93a.

    2. In Sec. 1.2, current paragraphs (g) through (m) are redesignated 
as (h) through (n), a new paragraph (g) is added, newly designated 
paragreaphs (j)(4), (k)(1), and (l) are revised to read as follows:


Sec. 1.2  Definitions.

* * * * *
    (g) Municipal bonds means obligations of a State or political 
subdivision other than general obligations, and includes limited 
obligation bonds, revenue bonds, and obligations that satisfy the 
requirements of section 142(b)(1) of the Internal Revenue Code of 1986 
issued by or on behalf of any State or political subdivision of a 
State, including any municipal corporate instrumentality of 1 or more 
States, or any public agency or authority of any State or political 
subdivision of a State.
* * * * *
    (j) * * *
    (4) General obligations of a State of the United States or any 
political subdivision thereof; and municipal bonds if the national bank 
is well capitalized as defined in 12 CFR 6.4(b)(1);
* * * * *
    (k) * * *
    (1) Obligations issued by a State, or a political subdivision or 
agency of a State, for housing, university, or dormitory purposes that 
would not satisfy the definition of Type I securities pursuant to 
paragraph (j) of Sec. 1.2.
* * * * *
    (l) Type III security means an investment security that does not 
qualify as a Type I, II, IV, or V security. Examples of Type III 
securities include corporate bonds and municipal bonds that do not 
satisfy the definition of Type I securities pursuant to paragraph (j) 
of Sec. 1.2.
* * * * *

PART 7--BANK ACTIVITIES AND OPERATIONS

    3. The authority citation for part 7 is revised to read as follows:

    Authority: 12 U.S.C. 1 et seq., 92, 92a, 93, 93a, 481, 484, 
1818.

Subpart A--Bank Powers

    4. A new Sec. 7.1021 is added to read as follows:


Sec. 7.1021  National bank participation in financial literacy 
programs.

    A national bank may participate in a financial literacy program on 
the premises of, or at a facility used by, a school. The school 
premises or facility will not be considered a branch of the bank if:
    (a) The bank does not establish and operate the school premises or 
facility on which the financial literacy program is conducted; and
    (b) The principal purpose of the financial literacy program is 
educational. For example, a program is educational if it is designed to 
teach students the principles of personal economics or the benefits of 
saving for the future, and is not designed for the purpose of profit-
making.
    5. In Sec. 7.3000, the last sentence of paragraph (b) is removed 
and two sentences are added in its place to read as follows:


Sec. 7.3000  Bank hours and legal holidays.

* * * * *
    (b) * * * When the Comptroller, a State, or a legally authorized 
State official declares a legal holiday due to emergency conditions, a 
national bank may temporarily limit or suspend operations at its 
affected offices. Alternatively, the national bank may continue its 
operations unless the Comptroller by written order directs otherwise.
* * * * *
    6. In Sec. 7.4001, the second sentence of paragraph (a) is revised 
to read as follows:


Sec. 7.4001  Charging interest at rates permitted competing 
institutions; charging interest to corporate borrowers.

    (a) * * * It includes, among other things, the following fees 
connected with credit extension or availability: numerical periodic 
rates, late fees, not sufficient funds (NSF) fees that are imposed by a 
creditor when a borrower tenders payment on a debt with a check drawn 
on insufficient funds, overlimit fees, annual fees, cash advance fees, 
and membership fees.* * *
* * * * *
    7. Section 7.4002 is revised to read as follows:


Sec. 7.4002  National bank charges.

    (a) Authority to impose charges and fees. A national bank may 
charge its customers non-interest charges and fees, including deposit 
account service charges.
    (b) Considerations. (1) All charges and fees should be arrived at 
by each bank on a competitive basis and not on the basis of any 
agreement, arrangement, undertaking, understanding, or discussion with 
other banks or their officers.
    (2) The establishment of non-interest charges and fees, their 
amounts, and the method of calculating them are business decisions to 
be made by each bank, in its discretion, according to sound banking 
judgment and safe and sound banking principles. A national bank 
establishes non-interest charges and fees in accordance with safe and 
sound banking principles if the bank employs a decision-making process 
through which it considers the following factors, among others:
    (i) The cost incurred by the bank in providing the service;
    (ii) The deterrence of misuse by customers of banking services;

[[Page 8184]]

    (iii) The enhancement of the competitive position of the bank in 
accordance with the bank's business plan and marketing strategy; and
    (iv) The maintenance of the safety and soundness of the 
institution.
    (c) Interest. Charges and fees that are ``interest'' within the 
meaning of 12 U.S.C. 85 are governed by Sec. 7.4001 and not by this 
section.
    (d) State law. Preemption principles derived from the United States 
Constitution, as interpreted through judicial precedent, govern 
determinations regarding the applicability of State law to fees 
described in this section.
    (e) National bank as fiduciary. This section does not apply to 
charges imposed by a national bank in its capacity as a fiduciary, 
which are governed by 12 CFR part 9.
    8. A new Sec. 7.4006 is added to read as follows:


Sec. 7.4006  Applicability of State law to national bank operating 
subsidiaries.

    Unless otherwise provided by Federal law or OCC regulation, State 
laws apply to national bank operating subsidiaries to the same extent 
that those laws apply to the parent national bank.

PART 23--LEASING

    9. The authority citation for part 23 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 24 (Seventh), 24 (Tenth), and 
93a.

Subpart C--Section 24(Seventh) Leases

    10. In Sec. 23.21, current paragraph (a)(2) is revised to read as 
follows:


Sec. 23.21  Estimated residual value.

* * * * *
    (a) * * *
    (2) Any unguaranteed amount must not exceed 25 percent of the 
original cost of the property to the bank or the percentage for a 
particular type of property specified in published OCC guidance.
* * * * *

    Dated: January 8, 2001.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 01-1614 Filed 1-29-01; 8:45 am]
BILLING CODE 4810-33-P


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