Federal Register / Vol. 70, No. 198 / Friday, October 14, 2005 / Proposed Rules 60019 

1 Generally, an operating subsidiary is a majorityowned subsidiary of a bank or savings association 

that engages only in activities that its parent bank 

or savings association may engage in. 

provide the appropriate Regional 

Director of the FDIC’s Division of 

Supervision and Consumer Protection, 

as defined in 12 CFR 303.2(g), a copy of 

the proposed notice for approval. After 

being approved, the notice shall be 

provided to depositors by the insured 

depository institution at the time and in 

the manner specified by the appropriate 

Regional Director. 

(c) Form of notice. The notice to 

depositors required by paragraph (a) of 

this section shall be provided on the 

official letterhead of the insured 

depository institution, shall bear the 

signature of a duly authorized officer, 

and, unless otherwise specified by the 

appropriate Regional Director, may 

follow the form of the notice contained 

in appendix B of this part. 

(d) Other requirements possible. The 

FDIC may require the insured 

depository institution to take such other 

actions as the FDIC considers necessary 

and appropriate for the protection of 

depositors. 

Appendix A to Part 307—[Transferring 

Institution Letterhead] 

[Date] 

[Name and Address of appropriate FDIC 

Regional Director] 

SUBJECT: Certification of Total Assumption 

of Deposits 

This certification is being provided 

pursuant to 12 U.S.C. 1818(q) and 12 CFR 

307.2. On [state the date the deposit 

assumption took effect], [state the name of 

the depository institution assuming the 

deposit liabilities] assumed all of the deposits 

of [state the name and location of the 

Transferring Institution whose deposits were 

assumed]. [If applicable, state the date and 

method by which the transferring 

institution’s authority to engage in banking 

was or will be terminated.] Please contact the 

undersigned, at [telephone number], if 

additional information is needed. 

Sincerely, 

By: 

[Name and Title of Authorized 

Representative] 

Appendix B to Part 307—[Institution 

Letterhead] 

[Date] 

[Name and Address of Depositor] 

SUBJECT: Notice to Depositor of Voluntary 

Termination of Insured Status 

The insured status of [name of insured 

depository institution] under the provisions 

of the Federal Deposit Insurance Act, will 

terminate as of the close of business on [state 

the date] (‘‘termination date’’). Insured 

deposits in the [name of insured depository 

institution] on the termination date, less all 

withdrawals from such deposits made 

subsequent to that date, will continue to be 

insured by the Federal Deposit Insurance 

Corporation, to the extent provided by law, 

until [state the date]. The Federal Deposit 

Insurance Corporation will not insure any 

new deposits or additions to existing 

deposits made by you after the termination 

date. 

This Notice is being provided pursuant to 

12 U.S.C. 1818(a)(6) and 12 CFR 307.3. 

Please contact [name of institution official 

in charge of depositor inquiries], at [name 

and address of insured depository 

institution] if additional information is 

needed regarding this Notice or the insured 

status of your account(s). 

Sincerely, 

By: [Name and Title of Authorized 

Representative] 

By order of the Board of Directors, at 

Washington DC on this 6th day of October, 

2005. 

Federal Deposit Insurance Corporation. 

Valerie J. Best, 

Assistant Executive Secretary. 

[FR Doc. 05–20590 Filed 10–13–05; 8:45 am] 

BILLING CODE 6714–01–P 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Parts 331 and 362 

RIN 3064–AC95 

Interstate Banking; Federal Interest 

Rate Authority 

AGENCY: Federal Deposit Insurance 

Corporation (FDIC). 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The FDIC received a petition 

for rulemaking to preempt certain state 

laws with the stated purpose of 

establishing parity between national 

banks and state-chartered banks in 

interstate activities and operations. The 

petition also requested rulemaking to 

implement the interest rate authority 

contained in the Federal Deposit 

Insurance Act. Generally, the requested 

rules would provide that the home state 

law of a state bank applies to the 

interstate activities of the bank and its 

operating subsidiaries to the same 

extent that the National Bank Act 

applies to the interstate activities of a 

national bank and its operating 

subsidiaries. They would also 

implement the federal statutory 

provisions addressing interest charged 

by FDIC-insured state banks and insured 

U.S. branches of foreign banks. The 

FDIC is requesting comments on a 

proposed rule to amend the FDIC’s 

regulations in response to the 

rulemaking petition. Issuance of the 

proposed rules would serve as the 

FDIC’s response to the rulemaking 

petition. 

DATES: Comments must be submitted on 

or before December 13, 2005. 

ADDRESSES: You may submit comments 

by any of the following methods: 

• Agency Web site: http:// 

www.FDIC.gov/regulations/laws/ 

federal/propose.html. Follow the 

instructions for submitting comments. 

• E-mail: comments@FDIC.gov. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments/Legal 

ESS, Federal Deposit Insurance 

Corporation, 550 17th Street, NW., 

Washington, DC 20429. 

• Hand Delivered/Courier: The guard 

station at the rear of the 550 17th Street 

Building (located on F Street), on 

business days between 7 a.m. and 5 p.m. 

• Public Inspection: Comments may 

be inspected and photocopied in the 

FDIC Public Information Center, Room 

100, 801 17th Street, NW., Washington, 

DC, between 9 a.m. and 4:30 p.m. on 

business days. 

• Internet Posting: Comments 

received will be posted without change 

to http://www.FDIC.gov/regulations/ 

laws/federal/propose.html, including 

any personal information provided. 

FOR FURTHER INFORMATION CONTACT: 

Robert C. Fick, Counsel, (202) 898–8962; 

Rodney D. Ray, Counsel, (202) 898–

3556; or Joseph A. DiNuzzo, Counsel, 

(202) 898–7349; Legal Division, Federal 

Deposit Insurance Corporation, 

Washington, DC 20429. 

SUPPLEMENTARY INFORMATION: 

I. The Petition 

The Financial Services Roundtable, a 

trade association for integrated financial 

services companies (‘‘Petitioner’’), has 

petitioned the FDIC to adopt rules 

concerning the interstate activities of 

insured state banks and their 

subsidiaries that are intended to provide 

parity between state banks and national 

banks. Generally, the requested rules 

would provide that a state bank’s home 

state law governs the interstate activities 

of state banks and their operating 

subsidiaries (‘‘Op Subs’’) 1 to the same 

extent that the National Bank Act 

(‘‘NBA’’) governs a national bank’s 

interstate business. The Petitioner 

requests that the FDIC adopt rules with 

respect to the following areas: 

• The law applicable to activities 

conducted in a host state by a state bank 

that has a branch in that state, 

• The law applicable to activities 

conducted by a state bank in a state in 

which the state bank does not have a 

branch, 

• The law applicable to activities 

conducted by an Op Sub of a state bank, 

60020 Federal Register / Vol. 70, No. 198 / Friday, October 14, 2005 / Proposed Rules 

2 15 U.S.C. 6701. 

3 12 U.S.C. 1831d. 

4Copies of the petition and all statements we 

received on the petition as well as the transcript of 

the hearing are available on the FDIC’s Web site at: 

http://www.fdic.gov/news/conferences/agency/ 

noticemay162005publichearing.html. 

5Pub. L. 103–328, 108 Stat. 2338 (1994) (codified 

to various sections of title 12 of the United States 

Code); Pub. L. 105–24 (1997). 

6 General Counsel Op. No. 10, 63 FR 19258 (Apr. 

17, 1998) and General Counsel Op. No. 11, 63 FR 

27282 (May 18, 1998). 

• The scope and application of 

section 104(d) of the Gramm-LeachBliley Act (‘‘GLBA’’) 2 regarding 

preemption of certain state laws or 

actions that impose a requirement, 

limitation, or burden on a depository 

institution, or its affiliate, and 

• Implementation of section 27 of the 

Federal Deposit Insurance Act (‘‘FDI 

Act’’) 3 (which permits state depository 

institutions to export interest rates) in a 

manner parallel to the rules issued by 

the Office of the Comptroller of the 

Currency (‘‘OCC’’) and the Office of 

Thrift Supervision (‘‘OTS’’). 

The Petitioner argues that it is both 

necessary and timely for the FDIC to 

adopt rules that clarify the ability of 

state banks operating interstate to be 

governed by a single framework of law 

and regulation to the same extent as 

national banks. According to the 

Petitioner, over the last decade the 

federal charters for national banks and 

federal thrifts have been correctly 

interpreted by the OCC and the OTS, 

with the repeated support of the federal 

courts, to provide broad federal 

preemption of state laws that might 

appear to apply to the activities or 

operations of federally chartered 

banking institutions within a state. The 

result, it asserts, is that national banks 

and federal savings associations now 

can do business across the country 

under a single set of federal rules. In 

contrast, the Petitioner believes that 

there is widespread confusion and 

uncertainty with respect to the law 

applicable to state banks engaged in 

interstate banking activities. 

Furthermore, it argues, this uncertainty 

produces the potential for litigation and 

enforcement actions, deters state banks 

from pursuing profitable business 

opportunities, and causes substantial 

expense to a state bank that decides to 

convert to a national bank in order to 

gain greater legal certainty. Finally, the 

Petitioner asserts that the FDIC has the 

authority, tools and responsibility to 

correct this imbalance. 

II. The Public Hearing 

Overview 

On May 24, 2005, the FDIC held a 

public hearing on the rulemaking 

petition. As indicated in the FDIC’s 

formal announcement of the hearing (70 

FR 13,413 (March 21, 2005)) the 

purpose of the hearing was to obtain 

public insight into the issues presented 

by the petition including how the FDIC 

should respond to the rulemaking 

request. The notice of the public hearing 

provided an overview of the rulemaking 

petition, posed general questions raised 

by the petition, identified legal and 

policy issues raised by the specific 

aspects of the rulemaking petition, and 

asked for the public’s views on these 

and any other issues related to the 

petition. The notice of public hearing 

also included a copy of the rulemaking 

petition. 

The sixteen speakers at the hearing 

presented their views on the legal, 

policy and other issues raised in the 

petition. The speakers also provided 

written statements. In addition, eighteen 

others who chose not to appear at the 

hearing submitted written views on the 

petition. The presenters at the hearing 

consisted of trade group representatives, 

state banking commissioners, 

representatives of consumer groups, and 

bankers. Those commenting who did 

not appear at the hearing consisted of 

the same categories of interested parties 

plus members of Congress and state 

attorneys general. Overall the FDIC 

received thirty-four written statements 

on the rulemaking petition.4

Summary of Statements in Favor of the 

Petition 

Those in favor of the petition argued 

that the requested rulemaking would 

ensure state banks parity with national 

banks in their interstate operations. One 

speaker, representing a group of statechartered commercial banks, stated that 

‘‘[a]t stake is the continued vitality of 

state bank regulation and the structure 

and dynamics of bank regulation at the 

federal level that have served our nation 

so well.’’ A number of state banking 

commissioners agreed with that 

statement. One commented that the dual 

banking system is out of balance 

because of the ‘‘broad OCC rulemaking 

of February 2004 preempting most state 

laws as they relate to national banks and 

their subsidiaries.’’ He argued that 

‘‘most banks do not want the OCC 

[preemption rules] rolled back but want 

the state charter to have parity with the 

federal charter’’ and that an FDIC 

rulemaking would ‘‘re-establish order’’

to preserve the dual banking system. A 

state banking association agreed with 

these views and added that one course 

for the FDIC would be to issue a rule 

codifying the FDIC’s opinions on the 

Riegle-Neal Interstate Banking and 

Branching Efficiency Act of 1994 

(‘‘Riegle-Neal I’’), the Riegle-Neal 

Amendments Act of 1997 (‘‘Riegle-Neal 

II’’) 5 and FDIC General Counsel 

Opinions 10 and 11 6 (‘‘GC–10 and GC–

11’’) on the exportation of interest rates, 

noting that further study might be 

warranted on the other aspects of the 

petition. 

One state banking commissioner 

voiced opposition to the ‘‘broad 

unilateral preemption by chartergranting federal banking agencies’’ and 

argued that an FDIC rule is necessary to 

‘‘maintain the competitiveness of the 

state charter.’’ Another commented that 

the ‘‘greatest problem is a lack of 

certainty for state-chartered interstate 

banks.’’ A large commercial banking 

organization observed that it is 

important to have a ‘‘real choice of 

regulatory regimes under which to 

operate an interstate banking business’’

and noted that its bank’s ‘‘participation 

in the interstate marketplace as a state 

chartered institution may be threatened 

unless the FDIC acts to restore parity in 

the banking regulations.’’

An executive for a large banking 

organization stated that the rules 

applicable to national banks have given 

national banks a ‘‘significant advantage 

in operating multistate and national 

scale lending businesses.’’ He 

maintained that, absent the requested 

rulemaking, state banks will continue to 

contend with an ‘‘extensive patchwork 

of additional state and local laws and 

regulations in crafting any national 

lending program or even a modest cross 

border program.’’ Another banker 

provided an example in which his bank 

could not obtain approval to operate an 

automated teller machine in Florida 

because it was chartered by another 

state. He asserted that a national bank 

would not have been subject to that 

restriction. 

An attorney for a large bank noted 

that the requested rulemaking would 

benefit not only large banks with 

interstate operations but also small 

independent banks located near state 

borders. She argued that, if the FDIC 

adopts the proposed rule, state banking 

supervisors likely would increase the 

cooperation they already have 

demonstrated in existing cooperative 

agreements governing the regulation of 

interstate state-chartered banks. 

Proponents of the petition argued that 

the requested rulemaking would not 

lead to a ‘‘race to the bottom’’ by state 

legislatures. The ‘‘race-to-the-bottom’’

concern is that some states will enact 

minimal consumer protection laws for 

Federal Register / Vol. 70, No. 198 / Friday, October 14, 2005 / Proposed Rules 60021 

7 12 U.S.C. 1818, 1819, and 1831d. 

bank customers in order to lure banks to 

seek charters from those states and 

export those weak home-state consumer 

laws to host states which have more 

encompassing and protective consumer 

laws. One state banking commissioner 

argued that consumers would still be 

protected by home state and federal law 

in areas where host state law has been 

preempted. He also suggested that 

Congress enact national consumer laws 

to counteract the concern about a 

potential for unhealthy competition 

among bank chartering authorities in the 

area of consumer protection. Another 

speaker noted that effective and rigorous 

protection of all consumers no matter 

where they reside perhaps could be 

achieved through a partnership between 

the respective states and the Federal 

Reserve or the FDIC and through 

cooperative agreements between and 

among the states. He also suggested that 

the FDIC could issue regulations 

limiting charter conversions (of statebanks) as a means to address the 

potential consumer protection problem. 

A state banking commissioner 

remarked that state legislators and 

attorneys general are in the business of 

protecting the consumers in their states; 

thus, it is unlikely that any state would 

strive to be at the bottom for consumer 

protection in an attempt to gain a few 

bank charters. Another doubted the 

potential for unhealthy competition 

among bank chartering authorities in the 

area of consumer protection by noting 

that, as to the current preemption of 

host state laws for national banks and 

federal thrifts, this ‘‘wholesale 

relocation of banks hasn’t happened so 

far.’’

As to the FDIC’s legal authority to 

issue the requested rulemaking, one 

speaker asserted that the petition is not 

requesting a comprehensive federal 

preemption of state law, but rather seeks 

to fully implement an existing federal 

statutory framework for determining 

which state law applies when state 

banks operate across state lines. He and 

others argued that the FDIC has ample 

authority to take all the actions 

requested in the petition. In particular, 

they cited sections 8, 9 and 27 of the 

FDI Act,7 Riegle Neal II and section 104 

of the GLBA. One banking 

commissioner argued that the intent of 

federal law is to maintain the 

competitive balance between the state 

and national charter and that the 

petition is asking the FDIC to exercise 

its authority. Another asserted that the 

FDIC is the proper forum and arbiter of 

the questions raised in the petition and 

declared that ‘‘[i]t’s * * * [the FDIC’s] 

law to interpret,’’ emphasizing that the 

Riegle-Neal I and II provisions are 

codified in the FDI Act. 

An attorney for a large banking 

organization asserted that: (i) Section 9 

of the FDI Act vests sufficient power in 

the FDIC to implement regulations to 

carry out the provisions of the FDI Act; 

(ii) the FDIC is the only regulatory body 

that has the authority to issue 

regulations that will carry out the intent 

of the Riegle-Neal II and GLBA to 

provide parity for state-chartered banks; 

and (iii) section 104(d)(4) of the GLBA 

sets forth a broad rule for state banks 

and national banks that covers a full 

range of banking activities and ‘‘[t]he 

FDIC is best equipped to adopt 

regulations that will implement the 

Congressional mandate set forth in 

section 104(d).’’ One state banking 

commissioner expressed uncertainty 

over the constitutionality of the OCC’s 

preemption rules but credited the OCC 

for bringing together ‘‘these various 

laws, interpretations, and analyses in 

one place as an integrated resource.’’ He 

suggested that the FDIC follow suit by 

publishing an interpretation of federal 

law for state banks, including rules on 

section 27 of the FDI Act and RiegleNeal II. 

The president of a financial services 

trade group argued that the requested 

rulemaking would be a natural 

extension of the authority Congress 

granted to state banks under Riegle-Neal 

II and that interpretations of section 104 

of the GLBA and section 27 of the FDI 

Act would clarify the scope of these 

activities. She urged the FDIC to issue 

a rule or interpretation clarifying that: 

(i) Section 104 applies to all lending and 

other activities permitted by the GLBA; 

(ii) the four standards set forth in 

sections 104(d)(4)(D) are to be read in 

the disjunctive as separate standards; 

and (iii) the reference to ‘‘other persons’’

in section 104(d)(4)(D)(i) should be read 

to include other depository institutions. 

Summary of Statements Opposed to the 

Petition 

Those opposed to the rulemaking 

petition generally argued that the 

petition is a response to a competitive 

imbalance attributable to the OCC’s 

preemption regulations. One speaker, 

representing a trade group for realtors, 

stated that the ‘‘cure for any imbalance 

is for Congress or the OCC itself, under 

new leadership, to roll back the OCC 

regulations, not to use them as a model 

for the state banking system.’’ She 

maintained that granting the petition 

would ‘‘further harm the ability of states 

to protect their citizens; result in undue 

concentration of banking services and 

less choice for consumers; open the 

door to the mixing of banking and 

commerce; destroy the state banking 

system, not save it; and disrupt the 

competitive balance among financial 

service providers.’’ In a supplemental 

statement filed in response to a hearing 

officer’s question, another 

representative for the trade group noted 

that issues relating to preemption under 

Riegle-Neal have not been expressly 

delegated to the FDIC and that the 

legislative history contains no mention 

of Congress conferring such authority on 

the FDIC. Citing recent case law, the 

representative also stated that if the 

FDIC were to interpret Riegle-Neal, ‘‘its 

interpretation would not be entitled to 

Chevron deference because the Act 

could also be interpreted by the OCC 

and the Federal Reserve Board.’’

An attorney for a national consumer 

group urged rejection of the petition 

because ‘‘there is no basis in federal law 

for allowing broad preemption of state 

law for state-chartered banks’’ and, she 

argued, ‘‘even if there were room for 

discretionary action on this question by 

the FDIC * * * allowing this petition 

would be terrible public policy, with 

devastating consequences for American 

consumers.’’ As to the FDIC’s legal 

authority to issue the requested 

regulation, she asserted that: (i) RiegleNeal II simply put state-chartered banks 

on par with national banks when a statechartered bank branches into another 

state; (ii) the GLBA as a whole provides 

no support for the position in the 

petition that the GLBA creates new 

preemptive rights to depository 

institutions, beyond insurance and 

securities activities; and (iii) state bank 

operating subsidiaries, agents of the 

banks, or other third parties are not 

entitled to preemptive rights. 

A state banking commissioner agreed 

with others who commented that the 

FDIC does not have the statutory 

authority to issue the requested 

rulemaking and stated that ‘‘many of us 

do not believe the OCC has the statutory 

authority to do what it has done by 

regulation.’’ He suggested that, 

‘‘[i]nstead of adopting legally 

questionable regulations preempting 

state law, the FDIC should urge 

Congress to address the issue.’’ The 

commissioner criticized ‘‘no-rules’’

states that ‘‘have chosen to eliminate 

traditional consumer protections, 

regarding consumer lending practices, 

in favor of economic development.’’ He 

argued that ‘‘[o]nly federal laws that 

establish national rules applicable to all 

consumer lenders should be permitted 

to pre-empt the protection that State 

laws afford to their citizens.’’

Another consumer group spokesman 

reiterated the concern expressed by 

60022 Federal Register / Vol. 70, No. 198 / Friday, October 14, 2005 / Proposed Rules 

8 12 U.S.C. 1831a(j)(1) and 12 U.S.C. 1831d, 

respectively. 

others about the negative effect on 

consumers that might result from the 

requested rulemaking. He said that ‘‘[i]f 

the petitioner’s request is granted, statechartered banks headquartered in states 

with weaker anti-predatory laws will be 

able to override the rigorous and 

comprehensive laws when they make 

loans or buy loans from brokers in states 

like North Carolina and New Mexico. At 

a time when minorities, immigrants, 

and women disproportionately receive 

high cost loans, it is counterproductive 

to strip states of their rights to protect 

citizens who are striving for their 

American dreams of their first time 

homeownership and wealth building.’’

Two members of Congress submitted 

a joint statement in opposition to the 

petition. They asserted that the current 

imbalance with respect to interstate 

banking operations is solely the result of 

the OCC’s recent adoption of its 

preemption and visitorial regulations 

and that the law itself is clear and there 

are no gaps in the law that the FDIC 

needs to, or should, fill. The 

Congressmen offered these options to 

address the issues raised in the petition: 

(i) The OCC should revise its rules to 

eliminate the overly broad ‘‘obstruct, 

impair or condition’’ language to make 

clear what state laws are not preempted, 

and publish any future preemption 

determinations on a case-by-case basis; 

(ii) the relevant parties should negotiate 

a workable solution that identifies what 

national bank core banking areas are not 

affected by state laws, establish a 

mechanism to inform parties when 

individual laws do not apply and why, 

and clearly identify which regulators are 

responsible for policing which practices 

of which institutions; (iii) the courts 

should begin to carefully review the 

OCC’s regulations to determine if they 

are consistent with the statutory 

framework and not so readily defer to 

the OCC; and (iv) Congress should adopt 

the Preservation of Federalism Banking 

Act (H.R. 5251) which is designed to 

clarify when state laws are applicable to 

state banks. 

A state attorney general, writing on 

behalf of his state and the attorneys 

general of six other states, urged the 

FDIC to deny the petition in its entirety. 

He argued that the FDIC does not have 

the authority to adopt the requested 

rules, specifying that: (i) The FDIC’s 

rulemaking authority is significantly 

more limited than the OCC; (ii) the FDIC 

is not the primary regulator of state 

banks and a state bank’s power derives 

primarily from state law; and (iii) if 

there is a gap to fill in Riegle-Neal II and 

the GLBA, it is a legislative gap that 

only Congress can fill. He also asserted 

that section 104 of the GLBA fails to 

provide authority for the requested rules 

because the anti-discrimination 

provisions of section 104(d)(4) have 

nothing to do with establishing parity 

between national and state banks. He 

commented that the requested rules 

would not preserve the dual banking 

system and would undermine the ability 

of states to protect their citizens. In 

addition, he argued that the requested 

rules are not necessary because many 

states have adopted ‘‘wild card’’ statutes 

and have entered into cooperative 

agreements that permit state banks a 

considerable degree of parity with 

national banks. 

Banking commissioners of seven 

states submitted a joint statement in 

opposition to the petition. They 

acknowledged that the ‘‘broad 

preemption by the OCC and the OTS 

has created an imbalance in the dual 

banking system,’’ but voiced 

disagreement ‘‘with the means 

recommended by the Roundtable to 

restore the balance.’’ They argued that 

Congress, not the FDIC, should 

determine whether preemption is 

appropriate, particularly in the light of 

the unsettled status of the OCC and OTS 

preemption rules and activities. 

A consumer group spokeswoman 

argued that the requested rulemaking 

would undermine the dual banking 

system by ‘‘federalizing’’ Delaware’s and 

South Dakota’s banking laws. She noted 

that: In passing Riegle-Neal II Congress 

affirmed the importance of individual 

state banking regulation and Riegle-Neal 

II created a narrow exception to this 

principle by permitting interstate 

branching by state banks; and the 

portions of the GLBA relied on by the 

petition refer largely to the sale of 

insurance, not to all banking and 

financial activities. A representative of 

another consumer group characterized 

the petition as ‘‘audacious’’ and said the 

requested rule would have ‘‘lasting and 

harmful effects on New Yorkers and 

their communities.’’ She suggested that 

the FDIC hold additional hearings at 

each of the FDIC’s regional offices to 

‘‘afford organizations like ours in New 

York City and across the country 

opportunity to comment meaningfully.’’

Summary of Other Views on the Petition 

Some statements we received neither 

supported nor opposed the petition. A 

spokesman for the national trade group 

for state banking supervisors 

commented that ‘‘recent preemption 

rules * * * have significantly altered 

the financial regulatory system, and 

threaten the future of our nation’s dual 

banking system.’’ He said, however, that 

his association hesitates to turn such 

decision-making authority over to any 

one federal agency and suggested that 

Congress address the issues to clarify its 

vision of the dual banking system. A 

state banking commissioner argued that 

the ‘‘regulatory world is out of balance,’’

but that the petition ‘‘would not solve 

what is wrong with our system.’’

Similarly, a spokeswoman for a national 

trade group for community banks said, 

‘‘[t]he balance in the dual banking 

system needs to be restored. However 

* * * we question whether this forum, 

as opposed to the Congress, is the 

appropriate one. Accordingly, we 

neither support nor oppose the 

recommendations of the petition at this 

time.’’ Another national trade group for 

banks suggested that the FDIC and the 

industry undertake a broad, in-depth 

study of the current state of the dual 

banking system—strengths, weaknesses, 

possible remedies and possible 

outcomes. It added that a ‘‘quick fix’’

might be harmful in the long run. 

A banking commissioner stated that 

her agency was presently in litigation on 

the applicability of her state’s law to 

subsidiaries of national banks. She 

commented that ‘‘the issues underlying 

the petition * * * are of such broad 

scope and have such significant 

implications for the financial services 

sector that they warrant a more 

comprehensive review by Congress. 

III. The Proposed Rules 

A. Overview 

The rulemaking petition raises serious 

and complex legal and policy issues 

regarding the preemption of state law in 

the context of interstate banking. From 

the comments made in connection with 

the public hearing, it is clear that there 

is a vast and sometimes strong 

difference of views among many 

bankers, industry trade groups, public 

advocacy groups, state attorneys 

general, and members of Congress on 

how to respond to the petition. Issuance 

of the proposed rules serves as the 

FDIC’s response to the rulemaking 

petition. The proposed rules implement 

sections 24(j) and 27 of the FDI Act 

(‘‘section 24(j) and section 27, 

respectively’’).8

B. Discussion of Section 24(j) 

The Statute 

Subsection (j) of section 24 currently 

provides the following: 

(j) Activities of branches of out-of-state 

banks. 

(1) Application of Host State Law 

The laws of a host State, including laws 

regarding community reinvestment, 

Federal Register / Vol. 70, No. 198 / Friday, October 14, 2005 / Proposed Rules 60023 

9Pub. L. 103–328, 108 Stat. 2338 (Sept. 29, 1994). 

10Pub. L. 103–328, sec. 102(b)(3)(B), 108 Stat. 

2338 (Sept. 29, 1994). 

11Pub. L. 105–24, 111 Stat. 238, (July 3, 1997). 

12As indicated previously, a commenter asserted 

that the FDIC’s interpretation of Riegle-Neal would 

not be entitled to Chevron deference because other 

Federal banking agencies could interpret the 

statute. The FDIC recognizes that there are federal 

court decisions, such as Wachtel v. Office of Thrift 

Supervision, 982 F.2d 581 (DC Cir. 1993), that 

indicate that where the same statute is administered 

by several agencies, deference to the interpretation 

of a statute by one agency is inappropriate. The 

Wachtel decision, however, arose in the context of 

an enforcement proceeding under section 8 of the 

FDI Act (12 U.S.C. 1818) which provides statutory 

enforcement authorities which are administered by 

each of the Federal banking agencies with respect 

to the depository institutions each agency 

supervises. This is distinguishable from the present 

situation because the FDIC is here proposing, 

through rulemaking under sections 9(a) and 10(g) of 

the FDI Act, to implement sections 24(j)(1) and 27 

of the FDI Act, and no other agency has been 

expressly granted such authority. 

consumer protection, fair lending, and 

establishment of intrastate branches, shall 

apply to any branch in the host State of an 

out-of-State State bank to the same extent as 

such State laws apply to a branch in the host 

State of an out-of-State national bank. To the 

extent host State law is inapplicable to a 

branch of an out-of-State State bank in such 

host State pursuant to the preceding 

sentence, home State law shall apply to such 

branch. 

(2) Activities of Branches 

An insured State bank that establishes a 

branch in a host State may conduct any 

activity at such branch that is permissible 

under the laws of the home State of such 

bank, to the extent such activity is 

permissible either for a bank chartered by the 

host State (subject to the restrictions in this 

section) or for a branch in the host State of 

an out-of-State national bank. 

(3) Savings Provision 

No provision of this subsection shall be 

construed as affecting the applicability of—

(A) any State law of any home State under 

subsection (b), (c), or (d) of section 1831u of 

this title; or 

(B) Federal law to State banks and State 

bank branches in the home State or the host 

State. 

(4) Definitions 

The terms ‘‘host State’’, ‘‘home State’’, and 

‘‘out-of-State bank’’ have the same meanings 

as in section 1831u(g) of this title. 

The term ‘‘home State’’ as defined in 

12 U.S.C. 1831u(g)(4) means ‘‘(i) with 

respect to a national bank, the State in 

which the main office of the bank is 

located; and (ii) with respect to a State 

bank, the State by which the bank is 

chartered.’’

The term ‘‘host State’’ as defined in 

section 12 U.S.C. 1831u(g)(5) means, 

‘‘with respect to a bank, a State, other 

than the home State of the bank, in 

which the bank maintains, or seeks to 

establish and maintain, a branch.’’

The term ‘‘out-of-State bank’’ as 

defined in section 12 U.S.C. 1831u(g)(8) 

means, ‘‘with respect to any State, a 

bank whose home State is another 

State.’’

Subsection (j) was originally enacted 

by the Riegle-Neal Interstate Banking 

and Branching Efficiency Act of 1994 

(‘‘Riegle-Neal I’’).9 Riegle-Neal I 

generally established a federal 

framework for interstate branching for 

both State banks and national banks. 

As enacted, paragraph (1) of 

subsection (j) originally stated that: 

The laws of the host state, including laws 

regarding community reinvestment, 

consumer protection, fair lending, and 

establishment of intrastate branches, shall 

apply to any branch in the host state of an 

out-of-state state bank to the same extent as 

such state laws apply to a branch of a bank 

chartered by that state. (emphasis added).10

Pursuant to this paragraph a branch of 

an out-of-state, state bank would be 

subject to host state law to the same 

extent that a branch of a bank chartered 

by the host state would be. 

Three years after Riegle-Neal I, 

Congress enacted the Riegle-Neal 

Amendments Act of 1997 (‘‘Riegle-Neal 

II’’) 11 in an attempt to provide state 

banks that had interstate branches (i.e., 

branches located in states other than the 

bank’s home state) ‘‘parity’’ with 

national banks that had interstate 

branches. Riegle-Neal II revised the 

language of section 24(j)(1) to read as it 

currently does today: 

The laws of a host State, including laws 

regarding community reinvestment, 

consumer protection, fair lending, and 

establishment of intrastate branches, shall 

apply to any branch in the host State of an 

out-of-State State bank to the same extent as 

such State laws apply to a branch in the host 

State of an out-of-State national bank. To the 

extent host State law is inapplicable to a 

branch of an out-of-State State bank in such 

host State pursuant to the preceding 

sentence, home State law shall apply to such 

branch. 

This change made host state law 

apply to a branch of an out-of-state state 

bank only to the extent that it applies to 

a branch of an out-of-state national 

bank. 

Authority To Issue Rules Regarding 

Section 24(j) and Section 27 

The FDIC has the authority to issue 

rules generally to carry out the 

provisions of the FDI Act. Section 9(a) 

of the FDI Act, 12 U.S.C. 1819(a), 

provides that: 

[T]he Corporation * * * shall have power—

* * * * * 

Tenth. To prescribe by its Board of 

Directors such rules and regulations as it may 

deem necessary to carry out the provisions of 

this Act or of any other law which it has the 

responsibility of administering or enforcing 

(except to the extent that authority to issue 

such rules and regulations has been expressly 

and exclusively granted to any other 

regulatory agency). 

In addition, section 10(g) of the FDI 

Act, 12 U.S.C. 1820(g), provides that: 

Except to the extent that authority under 

this Act is conferred on any of the Federal 

banking agencies other than the Corporation, 

the Corporation may—

(1) Prescribe regulations to carry out this 

Act; and 

(2) By regulation define terms as necessary 

to carry out this Act. 

Section 24(j) and section 27 are each, 

of course, provisions in the FDI Act. 

Furthermore, no other agency has been 

granted the authority to issue rules to 

restate, implement, clarify, or otherwise 

carry out, either section 24(j) or section 

27. Consequently, sections 9(a) and 

10(g) of the FDI Act expressly grant the 

FDIC the authority to issue rules with 

respect to sections 24(j) and 27.12

Interpretation of Section 24(j)(1) 

Section 24(j)(1) states that host state 

law ‘‘shall apply to any branch in the 

host state of an out-of-state state bank to 

the same extent as such state laws apply 

to a branch of an out-of-state national 

bank.’’ (emphasis added). The statute 

itself does not provide an explanation of 

what Congress meant by the phrase 

‘‘apply to a branch.’’ Clearly Congress 

was addressing the activities and 

operations of a branch in the host state, 

but it is not clear from the statutory text 

what threshold level of involvement by 

the branch will trigger the operation of 

the statute. The range of potential 

involvements by the branch might, 

under a broad interpretation, run from 

a very minimal involvement in the 

activity to, under a very narrow 

interpretation, performance of the entire 

activity at the branch by branch 

personnel. The proposed rules would 

clarify that host state law is subject to 

preemption when an activity is 

conducted at a branch of the out-of-state 

state bank, and would define ‘‘activity 

conducted at a branch’’ to mean an 

activity of, by, through, in, from, or 

substantially involving, a branch. This 

approach is within the range of 

interpretations permitted by the 

statutory language, but the statute itself 

does not indicate whether this 

interpretation is the most appropriate 

one. Since the language of this provision 

is susceptible to multiple meanings and 

presents important questions about how 

60024 Federal Register / Vol. 70, No. 198 / Friday, October 14, 2005 / Proposed Rules 

13Chapman v. Houston Welfare Rights 

Organization, 441 U.S. 600, 608 (1979). 

14See, Federal Energy Administration v. 

Algonquin SNG, Inc., 426 U.S. 548, 564 (1976). 

15 143 Cong. Rec. H3088–89 (daily ed. May 21, 

1997) (statement of Rep. Roukema). 

16 143 Cong. Rec. H3094 (daily ed. May 21, 1997) 

(statement of Rep. Vento). 

17See, e.g., 143 Cong. Rec. H3094 (daily ed. May 

21, 1997) (statement of Rep. Metcalf); 143 Cong. 

Rec. H3094–95 (daily ed. May 21, 1997) (statement 

of Rep. LaFalce). 

18Riegle-Neal II was originally introduced as the 

Riegle-Neal Clarification Act of 1997; its name was 

later changed in the Senate during deliberations to 

the ‘‘Riegle-Neal Amendments Act of 1997’’. 

19 143 Cong. Rec. H3089–93 (daily ed. May 21, 

1997) (statement of Rep. Roukema). 

20See id. 

21 143 Cong. Rec. S5637 (daily ed. June 12, 1997) 

(statement of Sen. D’Amato). 

22See, Tcherepnin v. Knight, 389 U.S. 332, 336 

(1967). 

23 143 Cong. Rec. H3094, 95 (daily ed. May 21, 

1997) (statement of Rep. LaFalce). 

24See, 143 Cong. Rec. S5637 (daily ed. June 12, 

1997) (statement of Sen. D’Amato); 143 Cong. Rec. 

H3089–93 (daily ed. May 21, 1997) (statement of 

Rep. Roukema). 

it is to be applied, the statute is 

ambiguous. 

In interpreting any ambiguous 

statutory provision the objective is to 

interpret the statute in light of the 

purposes that Congress sought to 

serve.13 Although there are neither 

committee reports nor any conference 

report on Riegle-Neal II, there are 

several statements by the sponsors of 

Riegle-Neal II, and such statements have 

been accorded substantial weight in 

determining legislative intent.14 In this 

case, evidence of Congress’ intent can be 

found in the statements of the sponsors 

of Riegle-Neal II and in the testimony of 

witnesses urging congressional action. 

Specifically, Representative Marge 

Roukema, the principal sponsor of the 

legislation, stated that: 

The essence of this legislation is to provide 

parity between State-chartered bank and 

national banks * * * 

This legislation is critical to the survival of 

the dual banking system. * * * 

This legislation is also important for 

consumers, because if we do not enact this 

legislation, State banks will likely convert to 

a national charter. Certainly the incentive 

will be there. The end result could be that 

there will be no consumer protection at the 

State level * * * 

[T]he bill clarifies [that] the home State law 

of a State bank must be followed in situations 

in which a specific host State [law] does not 

apply to a national bank.15

Representative Bruce Vento echoed 

Representative Roukema’s concerns and 

confirmed her views of how the bill 

would operate. Speaking in support of 

enactment, Representative Vento stated 

that: 

Only under the limited circumstances in 

which the Comptroller preempts host State 

laws for national banks will out-of-State 

State-chartered banks similarly be exempted 

from the laws of the host State. In those 

cases, the out-of-State bank will be required 

to follow its own home State laws as regards 

such activity. 

* * * * * 

In the absence of this measure, however, 

most State banks with out-of-State bank 

branches will likely change to a national 

charter causing the atrophy of the dual 

banking State-national banking [sic] 

system.16

Statements by other co-sponsors 

reinforce the statements of 

Representatives Roukema and Vento 

that Riegle-Neal II was intended to 

provide parity between state banks and 

national banks with regard to interstate 

activities.17 In addition, Federal Reserve 

Board Chairman Alan Greenspan 

expressed the support of the Federal 

Reserve Board for this legislation in a 

letter to Representative Roukema and 

stated that ‘‘[t]he Riegle-Neal 

Clarification Act of 1997 18 is an effort 

to create parity between national and 

state-chartered banks in operating outof-state branches.’’ 19 Other 

endorsements received by 

Representative Roukema that express 

the same understanding of the bill 

include those from the National 

Governors’ Association, the Conference 

of State Bank Supervisors and the 

Independent Bankers’ Association of 

America.20

The debates in the Senate also 

indicate that the Senate understood that 

the purpose of the legislation was to 

provide parity between state banks and 

national banks. In that regard, Senator 

D’Amato stated the following: 

[T]he bill will restore balance to the dual 

banking system by ensuring that neither 

charter operates at an unfair advantage in this 

new interstate environment. 

* * * * * 

[I]t would establish that a host State’s law 

would apply to the out-of-State branches of 

a State-chartered bank only to the same 

extent that that those laws apply to the 

branches of out-of-State national banks 

located in the host State.21

Consequently, legislative history 

indicates that the purpose of Riegle-Neal 

II is to provide state banks parity with 

national banks with regard to interstate 

branches to the maximum extent 

possible. 

Moreover, the very nature of RiegleNeal II as remedial legislation supports 

a broad interpretation. It is a recognized 

canon of statutory construction that 

remedial legislation should be 

interpreted broadly to effectuate its 

purposes.22 The problem that RiegleNeal II sought to correct was accurately 

described by Rep. LaFalce as follows: 

Now when Congress passed the Interstate 

Banking and Branching bill of 1994, it did 

not, in my judgment, adequately anticipate 

the negative impact that it might have on 

State-chartered banks interested in branching 

outside their home States. However * * * it 

has become clear that State-chartered bank 

wanting to branch outside their home States 

are at a significant disadvantage relative 

national banks branching outside their home 

State. 

Why so? Well, it is due to the fact that the 

national bank regulator has the authority to 

permit national banks to conduct operations 

in all the States with some level of 

consistency. In contrast, under the existing 

interstate legislation State banks branching 

outside their home State must comply with 

a multitude of different State banking laws in 

each and every State in which they operate. 

So the complications of complying with so 

many different State laws in order to branch 

interstate has led many State banks to 

conclude * * * that it would be much easier 

to switch to a national Federal charter [sic].23

The problem then, as understood by 

Congress as well as the banking 

industry,24 was that State banks 

operated at a disadvantage to national 

banks when they operated outside their 

home states. The reason is that when 

state banks operated in host states, they 

were subject to all of the laws of each 

host state in which they operated. 

National banks, however, operate in 

host states largely free of host state law 

because many host state laws are 

preempted for national banks. To 

remedy this problem Congress designed 

Riegle-Neal II to eliminate the disparity 

between the treatment of national bank 

branches and state bank branches with 

respect to the applicability of host state 

law. 

The legislative history of Riegle-Neal 

II indicates that Congress wanted to 

provide state banks parity with national 

banks at least with regard to activities 

involving branches outside the bank’s 

home state. As noted above, the 

proposed rules generally clarify that 

host state law is subject to preemption 

when an activity is conducted at a 

branch in the host state of an out-ofstate, state bank. The proposed rules 

also include a definition of the phrase 

‘‘activity conducted at a branch’’ to 

mean ‘‘an activity of, by, through, in, 

from, or substantially involving, a 

branch.’’ Such an interpretation is 

consistent with the legislative intent as 

detailed above. Moreover, Congress 

recognized that state banks are at a 

disadvantage to national banks when it 

comes to interstate activities, and 

Riegle-Neal II was intended to remedy 

that disadvantage by providing a level 

playing field. The language of the 

Federal Register / Vol. 70, No. 198 / Friday, October 14, 2005 / Proposed Rules 60025 

25The powers exercised by state banks are 

naturally those granted by the individual states, and 

generally one state’s laws have not been interpreted 

as preempting any other state’s laws. Section 

24(j)(1) would under certain circumstances make 

one state’s laws (a host state’s laws) inapplicable 

and another’s (a home state’s laws) applicable. 

However, section 24(j)(1) is a federal statute, and it 

is federal law that preempts the host state’s law, not 

another state’s laws. 

26The FDIC has extraordinarily broad authority to 

preempt any state law that prohibits or materially 

obstructs FDIC-assisted, interstate acquisitions of 

BIF-insured institutions in default or in danger of 

default. See section 13(f)(4)(A) of the FDI Act (12 

U.S.C. 1823(f)(4)(A)). See also section 13(k) of the 

FDI Act (12 U.S.C. 1823(k) (preempting state law 

that conflicts with the FDIC’s authority to resolve 

certain savings associations); cf., State of Colorado 

v. Resolution Trust Corporation, 926 F.2d 931 (10th 

Cir. 1991) (Resolution Trust Corporation was 

authorized by FIRREA to override state branch 

banking laws in emergency acquisition under 

section 13(k) of the FDI Act); and section 11(n) of 

the FDI Act (12 U.S.C. 1821(n)) (preempting state 

law that conflicts with the FDIC’s authority to 

transfer assets to a bridge bank); see, e.g., NCNB 

Texas National Bank v. Cowden, 895 F.2d 1488 (5th 

Cir. 1990) (Federal law, including section 11(n) of 

the FDI Act, authorized FDIC to transfer fiduciary 

appointments of a failed bank to a bridge bank and 

preempted conflicting Texas state laws relating to 

such transfers). 

27Also, the preemption afforded state bank 

branches pursuant to section 24(j) and the proposed 

regulation only operates to the extent that national 

bank branches would not be subject to host state 

law. If a court were to rule that host state law did 

apply to a national bank branch in the host state, 

then the host state law would also apply to a state 

bank branch in the host state. 

28The primary OCC rule implementing section 85 

is 12 CFR 7.4001 (2005). The OTS rule 

implementing section 4(g) of HOLA is 12 CFR 

560.110 (2005). 

proposed rules carry out that intention 

by generally ensuring that whenever a 

branch of an out-of-state national bank 

would not be subject to a host state’s 

law, then a branch of an out-of-state, 

state bank would also not be subject to 

that host state’s law. 

In addition, the language of section 

24(j) indicates that it is focused on state 

banks that have interstate branches. The 

first sentence of paragraph (1) of 

subsection (j) describes the extent to 

which host state ‘‘shall apply to any 

branch in the host state of an out-ofstate state bank.’’ Consistent with the 

first sentence of paragraph (1), the 

second sentence provides that when 

host state law does not apply, the bank’s 

home state law shall apply to such 

branch.25 Therefore, the plain language 

of section 24(j)(1) indicates that it 

preempts host state law only with 

respect to a branch in the host state of 

the out-of-state, state bank. 

As noted above, section 24(j)(1) 

provides that host state law applies to 

a branch in the host state of an out-ofstate, state bank to the same extent that 

it applies to a branch in the host state 

of an out-of-state, national bank. 

Therefore, in order to determine if host 

state law is preempted for a branch of 

an out-of-state, state bank, it is 

necessary to first determine if host state 

law applies to a branch of an out-ofstate, national bank. In order to 

determine if host state law applies to a 

branch of an out-of-state, national bank, 

the FDIC expects to consult with the 

OCC. This approach is similar to the 

consultations that the FDIC engages in 

currently when making determinations 

regarding the permissible activities of a 

national bank under section 24(a) of the 

FDI Act, 12 U.S.C. 1831a(a). 

The federal authorities that the FDIC 

has relied upon in making its 

preemption decisions in the past 

generally have been focused on specific 

areas or subjects. For example, section 

27 sets forth the interest rates that state 

banks may charge and expressly 

preempts contrary state law; and section 

44 (12 U.S.C. 1831u) provides that the 

FDIC may approve a merger between 

insured banks with different home 

states notwithstanding contrary state 

law.26 In contrast, section 24(j)(1) is not 

focused on a specific area or subject of 

host state law; rather it is unrestricted 

in its scope. As a result of its 

dependence on the law applicable to 

national banks, the scope of section 

24(j)(1) includes every area or subject 

that does not apply to national bank 

branches in the host state. 

In summary, section 24(j), as amended 

by Riegle-Neal II, preempts the 

application of host state laws to a 

branch of an out-of-state, state bank to 

the extent that those host state laws do 

not apply to a branch of an out-of-state, 

national bank. The scope of the 

preemption is not limited to particular 

areas or subjects, but is broader and 

might preempt host state laws dealing 

with lending, deposit-taking and other 

banking activities. Nevertheless, the 

preemption provided by section 24(j) 

only operates with respect to a branch 

in the host state of an out-of-state, state 

bank. By its terms section 24(j)(1), and 

therefore the proposed regulation, 

would not apply if the out-of-state, state 

bank does not have a branch in the host 

state.27

C. Discussion of Section 27 

The Petitioner has requested that the 

FDIC implement section 27 by adopting 

rules parallel to those adopted by the 

OCC and the OTS. Section 27 is the 

statutory counterpart to section 85 of the 

NBA (12 U.S.C. 85) and section 4(g) of 

the Home Owners’ Loan Act (‘‘HOLA’’) 

(12 U.S.C. 1463(g)), which apply to 

national banks and savings associations, 

respectively. The Petitioner has 

correctly observed that the OCC and 

OTS have adopted rules implementing 

their respective statutory provisions but 

the FDIC has not issued rules 

implementing section 27.28 This may 

create ambiguity or uncertainty about 

the application of the statute. 

Additionally, in their written statements 

or in their testimony at the public 

hearing on the Petition, certain 

representatives of state bank supervisors 

requested that the FDIC ‘‘codify’’ GC–10 

and GC–11 and that the authority 

provided by section 27 be extended to 

operating subsidiaries of state banks. 

Considering Congress’ stated desire to 

provide state banks and insured 

branches of foreign banks (collectively, 

‘‘insured state banks’’) interest rate 

parity with national banks and to 

provide certainty in this area, the FDIC’s 

Board of Directors believes it is 

appropriate to grant the Petitioner’s 

request on this portion of the Petition. 

The FDIC also believes that it is 

appropriate to issue rules concerning 

the application of section 27 to 

interstate state banks. 

Because section 27, as will be more 

fully described below, was patterned 

after sections 85 and 86 of the NBA (12 

U.S.C. 85, 86) to provide insured state 

banks competitive equality with 

national banks, the following 

background information is provided to 

frame the discussion of the proposed 

section 27 rules. 

Section 30 of the NBA was enacted in 

1864 to protect national banks from 

discriminatory state usury legislation. 

To accomplish its goal, the statute 

provided several alternative interest 

rates that national banks were 

permitted, under federal law, to charge 

their customers. At the time of 

enactment, the section also specified 

federal remedies for violations of the 

interest rates provided therein. The 

section was subsequently divided into 

two sections and renumbered, with the 

interest rate and remedy provisions 

becoming sections 85 and 86 of the 

NBA, respectively. In addition to the 

interest rates included in the statute 

when it was enacted, section 85 was 

amended in 1933 to also permit national 

banks to charge their customers an 

alternative rate of one percent above the 

discount rate for 90 day commercial 

paper in effect at the Federal Reserve 

bank for the Federal Reserve district 

where the bank is located. 

Shortly after the 1864 statute was 

enacted, Tiffany v. National Bank of 

Missouri, 85 U.S. 409 (1873), gave rise 

to the ‘‘most favored lender doctrine.’’

In Tiffany, Missouri state law limited 

interest rates for state banks to eight 

60026 Federal Register / Vol. 70, No. 198 / Friday, October 14, 2005 / Proposed Rules 

29Unlike the situation today, all the offices of the 

First National Bank of Omaha were in the State of 

Nebraska and its charter address was in Nebraska 

because national banks could not operate interstate 

branches. 

30Pub. L. 96–221, 94 Stat. 132, 164–168 (1980). 

31Section 27 still contains the express preemptive 

language ‘‘ *** ’’ notwithstanding any State 

constitution or statute which is hereby preempted 

for purposes of this section’’ in subsection (a) and 

‘‘’such State fixed rate is thereby preempted by the 

rate described in subsection (a) of this section’’’ in 

subsection (b). (Emphasis added). 

32 12 U.S.C. 1831d note (Effective and 

Applicability Provisions). 

33H.R. Rep. No. 96–842, 78–79 (1980). 

34 FDIC Advisory Op. No. 81–3, Letter from Frank 

L. Skillern, Jr., General Counsel, February 3, 1981, 

reprinted in [Transfer Binder 1988–1989] Fed. 

Banking L. Rep. (CCH) ¶ 81,006 (‘‘FDIC Advisory 

Op. No. 81–3’’). 

35Senator Proxmire, the Chairman of the Senate 

Banking Committee and a sponsor of DIDMCA, 

expressed a similar intent in his comments 

regarding H.R. 4986, which contained the language 

that became section 27(a) stating: 

‘‘Title V * * * contains a provision which 

provides parity, or competitive equality, between 

national banks and State chartered depository 

institutions on lending limits * * * State chartered 

depository institutions are given the benefits of 12 

U.S.C. 85 unless a State takes specific action to 

deny State chartered institutions that privilege.’’

126 Cong. Rec. S3170 (daily ed. Mar. 27, 1980) 

(remarks of Sen. Proxmire). 

36 Greenwood Trust Co. v. Commonwealth of 

Massachusetts, 971 F.2d 818, 827 (1st Cir. 1992) 

(‘‘The historical record clearly requires a court to 

read the parallel provisions of [DIDMCA] and the 

[NBA] in pari materia. It is, after all, a general rule 

that when Congress borrows language from one 

statute and incorporates it into a second statute, the 

language of the two acts should be interpreted the 

same way. [citations omitted]. So here. What is 

more, when borrowing of this sort occurs, the 

borrowed phrases do not shed their skins like so 

many reinvigorated reptiles. Rather, ‘‘if a word is 

obviously transplanted from another legal source, 

whether the common law or other legislation, it 

brings the old soil with it.’’ [citation omitted]. 

Because we think it is perfectly plain that this 

percent but allowed other lenders to 

charge up to ten percent. The United 

States Supreme Court construed section 

85 as permitting the National Bank of 

Missouri to charge nine percent interest 

because Missouri law allowed other 

lenders to charge a higher interest rate 

than that allowed for state banks. In its 

decision, the Court explained that 

Congress intended to bestow the status 

of ‘‘national favorites’’ on national 

banks by protecting them from 

unfriendly state laws that might make it 

impossible for them to exist within a 

state. Since Tiffany was decided, it has 

become well established that national 

banks are generally permitted to charge 

the highest interest rates permitted for 

any competing state lender by the laws 

of the state where the national bank is 

located. 

Another benefit that national banks 

enjoy under section 85 has become 

known as the ‘‘exportation doctrine.’’

The exportation doctrine is based on the 

United States Supreme Court’s 

interpretation of section 85 in Marquette 

National Bank v. First of Omaha Service 

Corp., 439 U.S. 299 (1978). In Marquette 

the Court was presented with the 

question of where a national bank was 

‘‘located,’’ under section 85, for 

purposes of determining the appropriate 

state law to apply to loans the bank 

made to borrowers residing in another 

state. In construing the statute, the Court 

recognized that adopting an 

interpretation of the statute that would 

make the location of the bank depend 

on the whereabouts of each loan 

transaction (in Marquette the 

transactions at issue involved credit 

cards) would throw confusion into the 

complex system of modern interstate 

banking. The Court also observed that 

national banks could never be certain 

whether their contacts with residents of 

other states were sufficient to alter the 

bank’s location for purposes of applying 

section 85. Instead, the Court focused on 

the physical location of the national 

bank at issue to determine where the 

bank was ‘‘located’’ for purposes of 

applying section 85.29 Since Marquette 

was decided, national banks have been 

allowed to ‘‘export’’ interest rates 

allowed by the state where the national 

bank is located on loans made to out-ofstate borrowers, even though those rates 

may be prohibited by the state laws 

where the borrowers reside. 

Against this backdrop, in the high 

interest rate environment of the late 

1970s, Congress became concerned that 

section 85 provided national banks with 

a competitive advantage over insured 

state banks, whose interest rates were 

constrained by state laws, and other 

federally insured depository 

institutions. To rectify the imbalance 

that had been created, Congress 

included provisions in Title V of the 

Depository Institutions Deregulation 

and Monetary Control Act of 1980 

(‘‘DIDMCA’’) 30 that granted all federally 

insured financial institutions (state 

banks, savings associations, and credit 

unions) similar interest rate authority to 

that provided in section 85 for national 

banks. 

Title V of DIDMCA contained three 

parts that preempt state usury laws. For 

purposes of this discussion, however, 

the most relevant sections are contained 

in Part C. Sections 521–523 of DIDMCA 

amended the FDI Act (for insured state 

banks), the National Housing Act (for 

insured savings associations), and the 

Federal Credit Union Act (for insured 

credit unions), respectively. Each of 

these sections, as enacted, contained 

explicit preemptive language 31 in the 

statutory text, unlike under section 85, 

but were subject to the ‘‘opt-out’’

provision in section 525 of the statute.32

These provisions are described 

generally in the Conference Report for 

the legislation as follows: 

‘‘State usury ceilings on all loans made by 

federally insured depository institutions 

(except national banks) * * * will be 

permanently preempted subject to the right 

of affected states to override at any time 

* * *. In order for a state to override a 

federal preemption of state usury laws 

provided for in this Title the override 

proposal must explicitly and by its terms 

indicate that the state is overriding the 

preemption. Under this requirement the state 

law, constitutional provision, or other 

override proposal must specifically refer to 

this Act and indicate that the state intends 

to override the federal preemption this Act 

provides.’’ 33

Thus, the specific preemptive 

language contained in section 27, the 

accompanying legislative history, and 

the design and structure of Title V, Part 

C of DIDMCA, indicate that Congress 

intended section 27 to have preemptive 

effect, subject to the ability of state 

legislatures to ‘‘opt-out’’ of the statute’s 

coverage by following the prescribed 

statutory procedures. 

Regarding section 27, specifically, 

subsection (a) is patterned after section 

85 and provides that insured state banks 

are permitted to charge the greater of: 

• The rate prescribed for state banks 

under state law, if any; 

• One percent more than the discount 

rate on 90 day commercial paper in 

effect at the Federal Reserve bank for the 

Federal Reserve district where the bank 

is located; and 

• The rate allowed by the laws of the 

state, territory or district where the bank 

is located.34

In addition, the remedial nature of the 

enactment and the Congressional intent 

of providing insured state banks 

competitive equality with respect to 

interest rates are evidenced in the 

statutory language ‘‘[i]n order to prevent 

discrimination against State-chartered 

insured depository institutions * * * 

with respect to interest rates * * * 35

Finally, subsection (b) provides 

virtually identical federal remedies for 

violating subsection (a) of section 27 as 

section 86 of the NBA provides for 

violations of section 85. 

Because of the commonalities in the 

design of section 27 with section 85, the 

use of the identical language in the two 

sections, and the Congressional 

objective of providing insured state 

banks parity with national banks 

regarding interest rates, the courts and 

the FDIC have construed section 27 in 

pari materia with section 85.36 In the 

Federal Register / Vol. 70, No. 198 / Friday, October 14, 2005 / Proposed Rules 60027 

portable soil includes prior judicial interpretations 

of the transplanted language, [citations omitted], 

[NBA] precedents must inform our interpretation of 

words and phrases that were lifted from the [NBA] 

and inserted into [DIDMCA]’s text.’’); General 

Counsel Op. No. 10; FDIC Advisory Op. No. 81–3. 

37OCC Interpretive Letter No. 954, December 16, 

2002, reprinted in [Transfer Binder 2003–2004] Fed. 

Banking L. Rep. (CCH) ¶ 81–479; OCC Interpretive 

Letter No. 968, February 12, 2003, reprinted in 

[Transfer Binder 2003–2004] Fed. Banking L. Rep. 

(CCH), ¶ 81–493; OCC Interpretive Letter No. 974, 

July 21, 2003, reprinted in [Transfer Binder 2003–

2004] Fed. Banking L. Rep. (CCH) ¶ 81–500. 

interest of maintaining parity with 

national banks, the FDIC also believes 

the same rationale applies with regard 

to section 86. 

D. Explanation of the Proposed Rules 

1. Section 24(j) Provisions 

Paragraph (a) is a definitional section 

that corresponds to section 24(j)(4) and 

recites in paragraphs (a)(1) through 

(a)(3) the statutory definitions of ‘‘home 

state,’’ ‘‘host state’’ and ‘‘out-of-state 

bank’’ found in 12 U.S.C. 1831u(g). 

However, the proposed rule also adds in 

paragraph (a)(4) a definition of the 

phrase ‘‘activity conducted at a branch’’

which is used elsewhere in the 

proposed rule. It defines ‘‘activity 

conducted at a branch’’ to mean ‘‘an 

activity of, by, through, in, from, or 

substantially involving, a branch.’’ This 

definition is designed to give effect to 

Congress’ intent to grant state banks full 

parity with national banks with respect 

to interstate branches. As noted above, 

commenters at the FDIC’s public 

hearing stated the need for clarity with 

regard to the applicability of state law 

to branches of out-of-state, state banks. 

Issuing a regulation without defining 

the critical terms used in the regulation 

would provide no clarity and could lead 

to further confusion. Since a national 

bank branch gets the benefit of 

preemption whether or not the entire 

activity is performed in its branch, and 

since Congress intended to grant state 

banks full parity with national banks in 

this area, the definition in the proposed 

rule is designed to clarify that a branch 

of an out-of-state state bank gets the 

benefit of preemption whether or not 

the entire activity is performed in the 

branch. 

Paragraphs (b) and (c) of the proposed 

rule carry out section 24(j)(1). Paragraph 

(b) states that except as provided in 

paragraph (c), host state law applies to 

a branch in the host state of an out-ofstate, state bank. Paragraph (c) clarifies 

that host state law does not apply to an 

activity conducted at a branch in the 

host state of an out-of-state, state bank 

whenever host state law does not apply 

to an activity conducted at a branch in 

the host state of an out-of-state, national 

bank. Paragraph (c) further clarifies that 

when host state law does not apply as 

a result of this preemption, then the 

state bank’s home state law applies. 

Paragraph (d) of the proposed rule 

carries out section 24(j)(2). Paragraph (d) 

states generally that subject to the 

restrictions contained elsewhere in Part 

362 of the FDIC’s rules and regulations, 

an out-of-state, state bank that has a 

branch in a host state may conduct any 

activity at that branch that is both 

permissible under its home state law 

and either permissible for a host state 

bank or permissible for a branch of an 

out-of-state, national bank. Part 362 sets 

forth the prohibitions and restrictions 

that a state bank is subject to when it 

wants to conduct as principal an 

activity that is not permissible for a 

national bank. This paragraph, like the 

statutory provision it is based upon, 

preserves those prohibitions and 

restrictions. 

Paragraph (e) is a savings provision 

that implements the statutory savings 

provision at section 24(j)(3). It basically 

preserves the applicability of a state 

bank’s home state law under the 

interstate merger provisions of section 

44 of the FDI Act (12 U.S.C. 1831u), and 

the applicability of Federal law to state 

banks and state bank branches, whether 

they are in the home state or the host 

state. 

2. Section 27 Provisions 

The portion of the proposed rules 

implementing section 27 would be 

contained in Part 331, which would be 

titled ‘‘Federal Interest Rate Authority.’’

In addition to paralleling the existing 

rules implementing section 85 for 

national banks, as indicated in the 

following section-by-section analysis, 

some additional provisions are being 

proposed for clarification and to address 

issues specifically affecting insured 

state, but not national, banks. 

Section 331.1 addresses the authority, 

purpose, and application of the rules. 

As indicated in the regulatory text, the 

rules would be issued pursuant to the 

FDIC’s rulemaking authority in section 

9(a) (Tenth) and 10(g) of the FDI Act (12 

U.S.C. 1819(a) (Tenth), 1820(g)) to carry 

out the provisions of the FDI Act and 

any other law that the FDIC has the 

responsibility for administering or 

enforcing and to define the terms 

necessary to carry out the provisions of 

the FDI Act. Their purpose would be to 

implement Congress’ explicit statutory 

directive in section 27 of preventing 

discrimination against insured state 

banks with regard to interest rates and 

to address other issues the FDIC 

considers appropriate to implement 

section 27. They would apply to a ‘‘state 

bank’’ and an ‘‘insured branch,’’ as 

defined in section 3(a)(2) and 3(s)(3) (12 

U.S.C. 1813(a)(2); 1813(s)(3)), 

respectively. Where the rules apply 

equally to a ‘‘state bank’’ and an 

‘‘insured branch’’ the rules use the term 

‘‘insured state banks’’ as a collective 

reference to the statutorily defined 

terms. In certain instances, however, the 

treatment under the rules would depend 

on whether the institution at issue is a 

‘‘state bank’’ or an ‘‘insured branch.’’

Where such a distinction is relevant, the 

rules use the appropriate statutorily 

defined term. 

In addition, this section provides a 

rule of construction to ensure that 

section 27 and its implementing rules 

are construed in the same manner as 

section 85 and its implementing rules 

are construed by the OCC. This rule of 

construction is intended to inform the 

public of the authority and benefits 

provided by section 27, as well as 

provide insured state banks assurance 

that the FDIC intends that section 27 

provide the same benefits to insured 

state banks that section 85 provides to 

national banks. It will also provide more 

practical benefits. For example, the 

Federal definition of ‘‘interest’’

contained in § 331.2(a), like 12 CFR 

7.4001(a), contains a noncomprehensive list of charges that do 

and do not constitute ‘‘interest’’ for 

purposes of the statute. Since the OCC 

rule was issued, the OCC has issued 

interpretive letters addressing whether 

other charges that are not listed in the 

regulation, such as prepayment fees, 

constitute ‘‘interest’’ for purposes of 

section 85. The rule of construction 

should make it unnecessary in most 

instances for insured state banks to seek 

confirmation from the FDIC that its 

regulation and statute will be 

interpreted in the same manner, when 

such interpretive letters are issued by 

the OCC. Also, interpretive letters have 

been issued by the OCC advising that 

national bank operating subsidiaries can 

utilize section 85.37 To provide parity, 

this provision will allow section 27 to 

be utilized by insured state bank 

subsidiaries to the same extent as 

section 85 can be utilized by 

subsidiaries of national banks (i.e., to 

the extent the insured state bank 

subsidiaries are majority-owned by the 

insured state bank, subject to 

supervision of the state banking 

authority, and can only engage in 

activities that the bank could engage in 

directly). 

Section 331.2 is essentially identical 

to section 7.4001 of the OCC’s 

regulations interpreting section 85. The 

60028 Federal Register / Vol. 70, No. 198 / Friday, October 14, 2005 / Proposed Rules 

38 GC–10 addressed the question of what charges 

constitute ‘‘interest’’ for purposes of section 27. The 

opinion observed that the OCC and the OTS had 

both adopted virtually the same Federal definition 

of ‘‘interest’’ for purposes of applying their 

respective statutory counterparts to section 27. The 

Federal definition of ‘‘interest’’ contained in 

paragraph (a) of the proposed rule is identical to the 

regulatory definition reviewed in GC–10. The 

opinion concluded that section 85 and section 27 

had been and should be construed in pari materia 

because of the similarities in the two statutes and 

the clear congressional intent of providing 

competitive equality to state-chartered lending 

institutions by the enactment of section 27. Thus, 

it was the Legal Division’s opinion that the term 

‘‘interest,’’ for purposes of section 27, included 

those charges that a national bank was authorized 

to charge under section 85 and the OCC regulation. 

It is anticipated that GC–10 will be withdrawn if 

the proposed regulations are adopted because the 

rules embody the substance of the legal analysis 

and conclusions contained in the opinion. 

39 FDIC Advisory Op. No. 81–3. 

40 Marquette, at 548, note 26. 

41Briefly, in GC–11, the FDIC’s General Counsel 

addressed where an interstate state bank is 

‘‘located,’’ for purposes of applying section 27, 

when it operates interstate branches and 

determined that such a bank could be located in its 

home state and in each host state where it operated 

a branch. The General Counsel also addressed the 

effect of the ‘‘applicable law clause for state banks’’

and the ‘‘usury savings clause’’ enacted in RiegleNeal I and amendments to the ‘‘applicable law 

clause for state banks’’ enacted in Riegle-Neal II, on 

the determination of the appropriate state law to 

apply to loans made by an interstate state bank, 

either through its home office or by a branch of the 

bank located in a host state. In doing so, the opinion 

based some of its conclusions regarding the 

applicability of host state law, rather than home 

state law, on a discussion of the intended effect of 

the ‘‘usury savings clause’’ by Senator Roth, the 

sponsor of the amendment. Finally, the opinion 

addressed other situations that were not addressed 

by the Interstate Banking Statutes, which the OCC 

has also addressed for national banks in OCC 

Interpretive Letter 822, and concluded that similar 

analysis and treatment should apply to interstate 

state banks in the context of section 27. 

42The usury savings clause provides, in pertinent 

part: 

No provision of this title and no amendment 

made by this title to any other provision of law 

shall be construed as affecting in any way—

***** 

(3) The applicability of [section 85] or [section 

1831d] of the Federal Deposit Insurance Act. 

43The discussion appears at 140 Cong. Rec. 

S12789–12790 (daily ed. Sept. 13, 1994)(Remarks of 

Senator Roth). 

44These include providing loan applications, 

assembling documents, providing a location for 

returning documents necessary for making a loan, 

providing account information, and receiving 

payments. 

45These include the approval of credit (i.e., 

decision to extend credit), the extension of credit 

itself, and the disbursal of proceeds of the loan. 

Federal definition of ‘‘interest’’ in 

paragraph (a) was reviewed, with 

approval in GC–10.38 As is the case with 

section 7.4001(a) of the OCC’s 

regulation, the Federal definition in the 

proposed rule is intended to define 

‘‘interest’’ for purposes of determining 

whether a particular charge is ‘‘interest’’

subject to section 27 of the FDI Act and 

its most favored lender and exportation 

rules. Also, like section 7.4001(a), the 

charges specified in the paragraph are 

non-comprehensive and other charges 

may be determined to constitute or not 

constitute ‘‘interest’’ for purposes of 

applying section 27. Paragraph (b) 

would formally recognize that insured 

state banks have the same most favored 

lender authority provided for national 

banks, which is permitted under the 

‘‘rate allowed by the laws of the state, 

territory, or district where the bank is 

located’’ language contained in section 

27. In 1981, shortly after section 27 was 

enacted, the FDIC’s General Counsel 

analyzed section 27 and recognized that 

the most favored lender doctrine 

applied to insured state banks.39

Paragraph (b) of the proposed rule is 

almost identical to the OCC regulatory 

text the FDIC’s General Counsel 

reviewed approvingly in his the 

opinion. The U.S. Supreme Court, in 

Marquette, also reviewed the same 

regulatory text.40 Paragraph (c), like 

section 7.4001(c), confirms that the 

Federal definition of the term ‘‘interest’’

does not change state law definitions of 

‘‘interest’’ (nor how the state definition 

of interest is used) solely for purposes 

of state law. Finally, as with section 

7.4001(d) for national banks, paragraph 

(d) of the proposed rule allows 

corporate borrowers and insured state 

banks to agree to any interest rate if the 

bank is located in a state whose laws 

deny the defense of usury to a corporate 

borrower. 

Section 331.3 addresses where a state 

bank that does not maintain branches in 

another state, or that operates 

exclusively over the Internet, is 

‘‘located’’ and where an insured U.S. 

branch of a foreign bank is ‘‘located.’’

Paragraph (a) addresses state banks and 

determines the location issue for noninterstate state banks and Internet banks 

by reference to the state that issued the 

charter. Paragraph (b) addresses insured 

branches of foreign banks and adopts an 

analogous method for determining the 

location of the insured branch to that 

provided in paragraph (a) for state 

banks. Paragraph (b) is tailored more, 

however, to the unique nature of 

insured branches, which do not operate 

interstate branches, do not operate 

exclusively over the Internet, and are an 

office of the foreign bank that is located 

in the United States operating under a 

license from the appropriate banking 

authority, as opposed to a separate 

incorporated entity. 

Section 331.4 addresses where a state 

bank that maintains interstate branches 

is ‘‘located’’ and the interest rate that 

should be applied to loans made by the 

home office of the bank or its out-ofstate branches. These issues involve the 

application of section 27 in the context 

of Riegle-Neal I and Riegle-Neal II 

(collectively, the ‘‘Interstate Banking 

Statutes’’) and were analyzed in GC–11. 

Except as otherwise indicated, the text 

of the proposed rule is based upon a 

detailed discussion of the interplay 

between section 27 and the relevant 

provisions of Interstate Banking Statutes 

that was contained in GC–11; 41

therefore, the following brief description 

of the proposed rule should be read in 

context with GC–11. 

Paragraph (a) of the proposed rule 

defines ‘‘home state’’ and ‘‘host state,’’

for purposes of the section, without 

reference to national banks because the 

rule exclusively addresses the 

application of section 27 to a state bank. 

The rule would not apply to an insured 

branch of a foreign bank because section 

24(j) (12 U.S.C. 1831a (j)), unlike section 

27, contains no reference to an ‘‘insured 

branch.’’ The definition of ‘‘nonministerial functions,’’ recognizes that 

the non-ministerial functions, discussed 

below, are factors to be considered in 

determining where a loan is made by an 

interstate state bank. The definition of 

the non-ministerial functions also 

contains a description of the three nonministerial functions that is consistent 

with their description in GC–11. 

Paragraph (b) recognizes that a state 

bank that operates interstate branches is 

‘‘located,’’ for purposes of applying 

section 27, in the bank’s home state and 

in each host state where the bank 

maintains a branch. Paragraph (c) is 

based on an explanation by Senator 

Roth of section 111 (the usury savings 

clause) of Riegle-Neal I (12 U.S.C. 1811 

note (Restatement of Existing Law)),42

which he sponsored.43 In explaining the 

provisions, a distinction was made 

between ‘‘ministerial’’ 44 and ‘‘nonministerial’’ 45 functions, with the latter 

being considered the most relevant 

factors for determining the appropriate 

state’s law to apply to a particular loan. 

Senator Roth indicated that there were 

considered to be three non-ministerial 

functions incident to the making of a 

loan by an interstate bank and that if 

those three non-ministerial functions 

occur in a single state, that state’s 

interest rate provisions should be 

applied to the loan (this standard is 

contained in paragraph (c)(1) of the 

proposed rule). GC–11 observed, 

however, that the Interstate Banking 

Statutes did not address other situations 

that could occur in the interstate 

context, such as where the three nonVerDate Aug<31>2005 15:37 Oct 13, 2005 Jkt 208001 PO 00000 Frm 00014 Fmt 4702 Sfmt 4702 E:\FR\FM\14OCP1.SGM 14OCP1
Federal Register / Vol. 70, No. 198 / Friday, October 14, 2005 / Proposed Rules 60029 

46OCC Interpretive Letter 822, February 17, 1998, 

reprinted in [Transfer Binder 1997–1998] Fed. 

Banking L. Rep. (CCH) ¶ 81–265. 

47Section 525 states: 

The amendments made by sections 521 through 

523 of this title shall apply only with respect to 

loans made in any State during the period 

beginning on April 1, 1980, and ending on the date, 

on or after April 1, 1980, on which such State 

adopts a law or certifies that the voters of such State 

have voted in favor of any provision, constitutional 

or otherwise, which states explicitly and by its 

terms that such State does not want the 

amendments made by such sections to apply with 

respect to loans made in such State, except that 

such amendments shall apply to a loan made on or 

after the date such law is adopted or such 

certification is made if such loan is made pursuant 

to a commitment to make such loan which was 

entered into on or after April 1, 1980, and prior to 

the date on which such law is adopted or such 

certification is made. 

48Act of May 10, 1980, ch. 1156, section 32, 1980 

Iowa Acts 537, 547–48 (not codified); Act, ch. 45, 

section 50, 1981 Wis. Laws 586 (not codified); 10 

P.R. Laws Ann. section 9981 (2002). Some states, 

such as Nebraska, Massachusetts, Colorado, Maine 

and North Carolina, opted out for a number of 

years, but either rescinded their respective opt-out 

statutes or allowed them to expire. 

ministerial functions occur in different 

states or where some of the nonministerial functions occur in an office 

that is not considered to be the home 

office or a branch of the bank. In these 

instances, as reflected in GC–11 and 

paragraph (c)(2) of the proposed rule, 

home state rates may be used. 

Alternatively, as reflected in GC–11 and 

paragraph (c)(3) of the proposed rule, 

host state interest rates may be applied 

where a non-ministerial function occurs 

at a branch in a host state, if based on 

an assessment of all of the facts and 

circumstances, the loan has a clear 

nexus to the host state. 

An issue that is not addressed in the 

proposed rules is whether an interstate 

state bank should be required to 

disclose to its borrowers that the interest 

to be charged on a loan is governed by 

applicable federal law and the law of 

the relevant state which will govern the 

transaction. Such a disclosure was 

discussed in GC–11, to prevent 

uncertainty regarding which state’s 

interest rate provisions apply to loans 

made by interstate state banks, and was 

also mentioned in the OCC’s 

corresponding Interpretive Letter 822.46

The FDIC is interested in comments 

concerning whether this issue also 

should be addressed in section 331.4, as 

well as any benefits or burdens that 

would result from requiring such 

disclosure. 

Section 331.5 addresses the effect of 

a state’s election to exercise the 

authority provided by section 525 of 

DIDMCA (12 U.S.C. 1831d note 

(Effective and Applicability Provisions) 

to ‘‘opt-out’’ of the federal authority 

provided by section 27.47 As proposed, 

section 27 would not apply to an 

insured state bank or an interstate 

branch of a state bank that is situated in 

a state that has opted-out of the coverage 

of section 27. The FDIC believes that 

Iowa, Wisconsin and Puerto Rico are the 

only jurisdictions that currently use this 

authority.48 The FDIC welcomes 

additional information concerning these 

states or any other states that may have 

elected to opt-out under section 525. 

Since a state may elect to opt-out 

under section 525 at any time, the FDIC 

is also interested in comments 

addressing whether it would be 

beneficial to include a list of the states 

that have opted-out in the text of the 

rule. The FDIC recognizes that this 

would require revision of the rule 

whenever a state repeals its existing optout or enacts opt-out legislation 

regarding section 27 and that, due to the 

time involved in identifying such 

information and revising the regulation, 

this may result in the rule being 

inaccurate for a period of time. Thus, if 

commenters would like to have this 

information incorporated in the rule, the 

FDIC is also interested in comments or 

suggestions addressing how to assure 

the accuracy of the state information 

that would be contained therein. 

IV. Request for Comment 

The FDIC is interested in comments 

on all aspects of the proposed rules, 

particularly responses to the specific 

questions posed in the above discussion 

of the proposed rule. In particular, we 

are interested in specific comments on 

whether the proposed rules would be 

either helpful or harmful to the industry 

and the public and, if so, how. 

V. Paperwork Reduction Act 

No collections of information 

pursuant to the Paperwork Reduction 

Act (44 U.S.C. 3501 et seq.) are 

contained in the proposed rule. 

Consequently, no information has been 

submitted to the Office of Management 

and Budget for review. 

VI. Regulatory Flexibility Act 

The FDIC certifies that this proposed 

rule would not have a significant 

economic impact on a substantial 

number of small businesses within the 

meaning of the Regulatory Flexibility 

Act (5 U.S.C. 605(b)). The proposed rule 

would clarify sections 24(j) and 27 of 

the FDI Act by indicating the state law 

that would apply in certain interstate 

banking activities conducted by statechartered banks. The proposed rule 

would impose no new requirements or 

burdens on insured depository 

institutions. Also, it would not result in 

any adverse economic impact. 

Accordingly, the Act’s requirements 

relating to an initial regulatory 

flexibility analysis is not applicable. 

VII. The Treasury and General 

Government Appropriations Act, 

1999—Assessment of Federal 

Regulations and Policies on Families 

The FDIC has determined that the 

proposed rule will not affect family 

well-being within the meaning of 

section 654 of the Treasury and General 

Government Appropriations Act, 

enacted as part of the Omnibus 

Consolidated and Emergency 

Supplemental Appropriations Act of 

1999 (Pub. L. 105–277, 112 Stat. 2681). 

List of Subjects 

12 CFR Part 331 

Banks, banking, Deposits, Foreign 

banking, Interest rates. 

12 CFR Part 362 

Administrative practice and 

procedure, Authority delegations 

(Government agencies), Bank deposit 

insurance, Banks, banking, Investments, 

Reporting and recordkeeping 

requirements. 

For the reasons stated above, the 

Board of Directors of the Federal 

Deposit Insurance Corporation hereby 

proposes to amend 12 CFR chapter III as 

follows: 

1. Part 331 is added to read as follows: 

PART 331—FEDERAL INTEREST RATE 

AUTHORITY 

Sec. 

331.1 Authority, purpose and application. 

331.2 Interest permitted for insured state 

banks. 

331.3 Location of non-interstate state bank 

or insured branch. 

331.4 Location and interest rate for 

interstate state bank. 

331.5 Effect of opt-out. 

Authority: 12 U.S.C. 1819(a) (Tenth), 

1820(g), 1831d, 1831d note. 

§ 331.1 Authority, purpose and 

application. 

(a) Authority. The regulations in this 

part are issued by the FDIC under the 

authority contained in sections 

9(a)(Tenth) and 10(g) of the Federal 

Deposit Insurance Act (12 U.S.C. 

1819(a) (Tenth), 1820(g)) to implement 

section 27 of the FDI Act (12 U.S.C. 

1831d) and related provisions of the 

Depository Institution Deregulation and 

Monetary Control Act of 1980, Public 

Law 96–221, 94 Stat. 132 (1980) 

(‘‘DIDMCA’’). 

(b) Purpose. Section 27 of the FDI Act 

was enacted to prevent discrimination 

against insured state-chartered banks 

60030 Federal Register / Vol. 70, No. 198 / Friday, October 14, 2005 / Proposed Rules 

and insured U.S. branches of foreign 

banks with regard to interest rates by 

providing similar interest rate authority 

to that permitted for national banks 

under section 85 of the National Bank 

Act (12 U.S.C. 85). To maintain parity 

with national banks in this area, the 

rules contained in this Part clarify that 

state banks have regulatory authority 

that is parallel to the authority provided 

to national banks under regulations 

issued by the Office of the Comptroller 

of the Currency implementing section 

85. Other issues the FDIC considers 

appropriate to implement section 27 are 

also addressed in the rules. 

(c) Application. This Part applies to a 

‘‘state bank’’ and an ‘‘insured branch,’’

as those terms are defined in section 

3(a)(2) and 3(s)(3) of the FDI Act (12 

U.S.C. 1813(a)(2); 1813(s)(3)), 

respectively. The reference to ‘‘insured 

state banks’’ in this Part, is a collective 

reference to ‘‘state banks’’ and ‘‘insured 

branches.’’ To maintain parity with 

national banks under section 85 of the 

National Bank Act, the FDIC will 

construe section 27 of the FDI Act and 

the regulations in this Part in the same 

manner as section 85 and its 

implementing regulations are construed 

by the Office of the Comptroller of the 

Currency. 

§ 331.2 Interest permitted for insured state 

banks. 

(a) Definition. The term ‘‘interest’’, as 

used in 12 U.S.C. 1831d, includes any 

payment compensating a creditor or 

prospective creditor for an extension of 

credit, making available a line of credit, 

or any default or breach by a borrower 

of a condition upon which credit was 

extended. It includes, among other 

things, the following fees connected 

with credit extension or availability: 

Numerical periodic rates, late fees, 

creditor-imposed not sufficient funds 

(NSF) fees charged when a borrower 

tenders payment on a debt with a check 

drawn on insufficient funds, overlimit 

fees, annual fees, cash advance fees, and 

membership fees. It does not ordinarily 

include appraisal fees, premiums and 

commissions attributable to insurance 

guaranteeing repayment of any 

extension of credit, finders’ fees, fees for 

document preparation or notarization, 

or fees incurred to obtain credit reports. 

(b) Most favored lender. An insured 

state bank located in a state may charge 

interest at the maximum rate permitted 

to any state-chartered or licensed 

lending institution by the law of that 

state. If state law permits different 

interest charges on specified classes of 

loans, an insured state bank making 

such loans is subject only to the 

provisions of state law relating to that 

class of loans that are material to the 

determination of the permitted interest. 

For example, an insured state bank may 

lawfully charge the highest rate 

permitted to be charged by a statelicensed small loan company, without 

being so licensed, but subject to state 

law limitations on the size of loans 

made by small loan companies. 

(c) Effect on state definitions of 

interest. The Federal definition of the 

term ‘‘interest’’ in paragraph (a) of this 

section does not change how interest is 

defined by the individual states (nor 

how the state definition of interest is 

used) solely for purposes of state law. 

For example, if late fees are not 

‘‘interest’’ under state law where an 

insured state bank is located but state 

law permits its most favored lender to 

charge late fees, then an insured state 

bank located in that state may charge 

late fees to its intrastate customers. The 

insured state bank may also charge late 

fees to its interstate customers because 

the fees are interest under the Federal 

definition of interest and an allowable 

charge under state law where the 

insured state bank is located. However, 

the late fees would not be treated as 

interest for purposes of evaluating 

compliance with state usury limitations 

because state law excludes late fees 

when calculating the maximum interest 

that lending institutions may charge 

under those limitations. 

(d) Corporate borrowers. An insured 

state bank located in a state whose state 

law denies the defense of usury to a 

corporate borrower may charge a 

corporate borrower any rate of interest 

agreed upon by the corporate borrower. 

§ 331.3 Location of non-interstate state 

bank or insured branch. 

(a) State bank. A state bank that does 

not maintain interstate branches or 

operates exclusively through the 

Internet is located, for purposes of 

applying 12 U.S.C. 1831d, in the state 

that issued the charter. 

(b) Insured branch. An insured branch 

of a foreign bank is located, for purposes 

of applying 12 U.S.C. 1831d, in the state 

that issued the license. 

§ 331.4 Location and interest rate for 

interstate state bank. 

(a) Definitions. For purposes this 

section, the following terms have the 

following meanings: 

(1) Home state means the state that 

chartered a state bank. 

(2) Host state means a state, other 

than the home state of a state bank, in 

which the bank maintains a branch. 

(3) Non-ministerial functions are 

factors to be considered in determining 

where a loan is made by an interstate 

state bank. The non-ministerial 

functions are: 

(i) Approval. The decision to extend 

credit occurs where the person is 

located who is charged with making the 

final judgment of approval or denial of 

credit. 

(ii) Disbursal. The location where the 

actual physical disbursement of the 

proceeds of the loan occurs, as opposed 

to the delivery of previously disbursed 

funds. 

(iii) Extension of credit. The site from 

which the first communication of final 

approval of the loan occurs. 

(b) Location. An interstate state bank 

is located, for purposes of applying 12 

U.S.C. 1831d, in the home state of the 

state bank and in each host state where 

the state bank maintains a branch. 

(c) Location in more than one state. If 

a state bank is located in more than one 

state, the appropriate interest rate: 

(1) Will be determined by reference to 

the laws of the state where all of the 

non-ministerial functions occur; 

(2) May be determined by reference to 

the laws of the home state of the state 

bank, where the non-ministerial 

functions occur in branches located in 

different host states or any of the nonministerial functions occur in a state 

where the state bank does not maintain 

a branch; or 

(3) May be determined by reference to 

the laws of a host state where a nonministerial function occurs if, based on 

an assessment of all of the relevant facts 

and circumstances, the loan has a clear 

nexus to that host state. 

§ 331.5 Effect of opt-out. 

12 U.S.C. 1831d does not apply to 

loans made to customers by an insured 

state bank or an interstate branch of a 

state bank situated in a state that elects 

to opt-out of the coverage of 12 U.S.C. 

1831d, pursuant to section 525 of 

DIDMCA (12 U.S.C. 1831d note 

(Effective and Applicability Provisions). 

PART 362—ACTIVITIES OF INSURED 

BANKS AND INSURED SAVINGS 

ASSOCIATIONS 

2. Revise the authority citation for 

part 362 to read as follows: 

Authority: 12 U.S.C. 1816, 1818, 

1819(a)(Tenth), 1820(g), 1828(j), 1828 (m), 

1828a, 1831a, 1831d, 1831e, 1831w, 1843(l). 

3. Add new subpart F to read as 

follows: 

Subpart F—Preemption 

§ 362.19 Applicability of State Law. 

(a) Definitions. For purposes of this 

section the following definitions apply. 

(1) The term ‘‘home State’’ means (i) 

with respect to a State bank, the State 

Federal Register / Vol. 70, No. 198 / Friday, October 14, 2005 / Proposed Rules 60031 

1Chairman Hal Stratton and Commissioners 

Thomas H. Moore and Nancy A. Nord issued 

statements, copies of which are available from the 

Commission’s Office of the Secretary or from the 

Commission’s Web site, http://www.cpsc.gov. 

by which the bank is chartered, and (ii) 

with respect to a national bank, the 

State in which the main office of the 

bank is located. 

(2) The term ‘‘host State’’ means with 

respect to a bank, a State, other than the 

home State of the bank, in which the 

bank maintains, or seeks to establish 

and maintain, a branch. 

(3) The term ‘‘out-of-State bank’’

means, with respect to any State, a bank 

whose home State is another State. 

(4) The phrase ‘‘activity conducted at 

a branch’’ means an activity of, by, 

through, in, from, or substantially 

involving, a branch. 

(b) Except as provided in paragraph 

(c) of this section, the laws of a host 

State apply to an activity conducted at 

a branch in the host State by an out-ofState, State bank. 

(c) A host State law does not apply to 

an activity conducted at a branch in the 

host State of an out-of-State, State bank 

to the same extent that a Federal court 

or the Office of the Comptroller of the 

Currency has determined in writing that 

the particular host State law does not 

apply to an activity conducted at a 

branch in the host State of an out-ofState, national bank. If a particular host 

State law does not apply to such activity 

of an out-of-State, State bank because of 

the preceding sentence, the home State 

law of the out-of-State, State bank 

applies. 

(d) Subject to the restrictions of 

subparts A through E of this part 362, 

an out-of-State, State bank that has a 

branch in a host State may conduct any 

activity at such branch that is 

permissible under its home State law, if 

it is either 

(1) Permissible for a bank chartered by 

the host State, or 

(2) Permissible for a branch in the 

host State of an out-of-State, national 

bank. 

(e) Savings provision. No provision of 

this section shall be construed as 

affecting the applicability of—

(1) Any State law of any home State 

under subsection (b), (c), or (d) of 12 

U.S.C. 1831u; or 

(2) Federal law to State banks and 

State bank branches in the home State 

or the host State. 

Dated at Washington DC, this 6th day of 

October, 2005. 

By order of the Board of Directors. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. 05–20582 Filed 10–13–05; 8:45 am] 

BILLING CODE 6714–01–P 

CONSUMER PRODUCT SAFETY 

COMMISSION 

16 CFR Chapter II 

All Terrain Vehicles; Advance Notice of 

Proposed Rulemaking; Request for 

Comments and Information 

AGENCY: Consumer Product Safety 

Commission. 

ACTION: Advance notice of proposed 

rulemaking. 

SUMMARY: The Commission is 

considering whether there may be 

unreasonable risks of injury and death 

associated with some all terrain vehicles 

(‘‘ATVs’’). The Commission is 

considering what actions, both 

regulatory and non-regulatory, it could 

take to reduce ATV-related deaths and 

injuries. As described below, the 

Commission has had extensive 

involvement with ATVs since 1984. 

However, in recent years there has been 

a dramatic increase in both the numbers 

of ATVs in use and the numbers of 

ATV-related deaths and injuries. 

According to the Commission’s 2004 

annual report of ATV deaths and 

injuries (the most recent annual report 

issued by the Commission), on 

December 31, 2004, the Commission 

had reports of 6,494 ATV-related deaths 

that have occurred since 1982. Of these, 

2,019 (31 percent of the total) were 

under age 16, and 845 (13 percent of the 

total) were under age 12. The 2004 

annual report states that in 2004 alone, 

an estimated 129,500 four-wheel ATVrelated injuries were treated in hospital 

emergency rooms nationwide. While 

this represents an increase in injuries in 

2004 compared with 2003, the total 

number of four-wheel ATVs in use in 

the United States has increased and the 

estimated risk of injury per 10,000 fourwheel ATVs in use remained essentially 

level over the previous year. 

This advance notice of proposed 

rulemaking (‘‘ANPR’’) initiates a 

rulemaking proceeding under the 

Consumer Product Safety Act (‘‘CPSA’’) 

and the Federal Hazardous Substances 

Act (‘‘FHSA’’).1 However, the notice 

discusses a broad range of regulatory 

and non-regulatory alternatives that 

could be used to reduce ATV-related 

deaths and injuries. The Commission 

invites public comment on these 

alternatives and any other approaches 

that could reduce ATV-related deaths 

and injuries. The Commission also 

solicits written comments concerning 

the risks of injury associated with ATVs, 

ways these risks could be addressed, 

and the economic impacts of the various 

alternatives discussed. The Commission 

also invites interested persons to submit 

an existing standard, or a statement of 

intent to modify or develop a voluntary 

standard, to address the risk of injury 

described in this ANPR. 

DATES: Written comments and 

submissions in response to this ANPR 

must be received by December 13, 2005. 

ADDRESSES: Comments should be emailed to cpsc-os@cpsc.gov. Comments 

should be captioned ‘‘ATV ANPR.’’

Comments may also be mailed, 

preferably in five copies, to the Office of 

the Secretary, Consumer Product Safety 

Commission, Washington, DC 20207–

0001, or delivered to the Office of the 

Secretary, Consumer Product Safety 

Commission, Room 502, 4330 East-West 

Highway, Bethesda, Maryland; 

telephone (301) 504–7923. Comments 

also may be filed by facsimile to (301) 

504–0127. 

FOR FURTHER INFORMATION CONTACT: 

Elizabeth Leland, Project Manager, ATV 

Safety Review, Directorate for Economic 

Analysis, Consumer Product Safety 

Commission, Washington, DC 20207; 

telephone (301) 504–7706 or e-mail: 

eleland@cpsc.gov. 

SUPPLEMENTARY INFORMATION: 

A. Background 

The Commission’s involvement with 

ATVs is longstanding. ATVs first 

appeared on the market in the early 

1970’s. After a marked increase in their 

sales and in ATV-related incidents, the 

Commission became concerned about 

their safety in the early 1980’s. On May 

31, 1985, the Commission published an 

ANPR stating the Commission’s safety 

concerns and outlining a range of 

options the Commission was 

considering to address ATV-related 

hazards. 50 FR 23139. At that time, the 

Commission had reports of 161 ATVrelated fatalities which had occurred 

between January 1982 and April 1985, 

and the estimated number of emergency 

room treated injuries associated with 

ATVs was 66,956 in 1984. The majority 

of ATVs in use at that time were threewheel models. One of the options 

mentioned in the ANPR was proceeding 

under section 12 of the CPSA to declare 

ATVs an imminently hazardous 

consumer product, see 15 U.S.C. 

2061(b)(1). In 1987, the Commission 

filed such a lawsuit against the five 

companies that were major ATV 

distributors at that time. The lawsuit 

was settled by Consent Decrees filed on