Federal Deposit
Insurance Corporation

December 13, 2005

Mr. Robert E. Feldman
Executive Secretary
Attn: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, DC 20429

Re: Notice of Proposed Rulemaking, 70 Fed. Reg. 198, 60019 (October 14, 2005);

RIN3064-AC95

Dear Mr. Feldman:

I am pleased to comment on behalf of First-Citizens Bank & Trust Company on the proposed rules that, if adopted, will (i) preempt certain state laws and thereby establish parity between national banks and state-chartered banks in interstate banking activities and operations, and (ii) implement the interest rate authority contained in the Federal Deposit Insurance Act.

First-Citizens Bank & Trust Company is a state bank chartered under the laws of North Carolina that maintains branches in North Carolina, Virginia, West Virginia, Tennessee and Maryland.

First Citizens Bank strongly supports the proposed rulemaking. We believe it is an important first step in bringing relative certainty and clarity to issues that are potentially devastating to a state-chartered bank engaged in interstate banking operations.

Having stated our strong support, we nonetheless believe the language in the proposed regulations should be strengthened and clarified in the following respects:

1. Proposed § 331.2(d). As proposed, § 331.2(d) applies only to corporate borrowers. There is no reason why the scope of that section should not be broadened to cover other situations where state law denies the defense of usury. I suggest that § 331.2(d) be revised to read as follows:

(d) Usury Defenses. An insured state bank located in a state whose state law denies the defense of usury based on the identity of the borrower, the loan amount, the loan purpose, or any other basis may charge a borrower to whom the defense of usury is denied any rate of interest agreed upon by the borrower.

By way of example, North Carolina law denies the defense of usury if (i) the loan amount is $300,000 or more, (ii) the borrower is a person other than a natural person, or (iii) the loan is obtained by a natural person primarily for a purpose other than a personal, family or household purpose. Broadening the language of § 331.2(d) will ensure that state-chartered banks receive the full benefit of state law usury exemptions.

2. Proposed § 331.4(a)(3). The definitions of the three non-ministerial functions need to be expanded and examples need to be given. Indeed, it is often difficult to establish where the three non-ministerial functions (approval, disbursal, and extension of credit) occur. For example, assume that a consumer applies in person for a home equity line of credit at a bank branch in Maryland. The loan officer transmits information about the consumer to the bank's loan operations center in North Carolina, the bank's home state. The loan application is approved using an automated credit scoring system. The loan documents are prepared at a data center in a third state and are remote-printed at the branch for the consumer to sign. The borrower controls when (and how) loan proceeds are disbursed by writing checks, overdrafting a related deposit account, or accessing the line of credit by use of a credit card. Under these circumstances, in what state or states does the loan approval, loan disbursal, and the extension of credit occur? The difficulty of this analysis is compounded significantly if the borrower applies for the loan by mail, over the internet, or by telephone. In short, greater clarity is needed with respect to these issues. Although Interpretative Letter No. 822 issued by the Comptroller of the Currency touched on these issues, more guidance is desperately needed.

3. Proposed § 331.4(c). Proposed § 331.4(c) does not cover some of the situations addressed in FDIC General Council Opinion 11, which is in many respects easier to understand. In particular, § 331.4(c)(2) could be clarified by amending it to read as follows:

(2) May be determined by reference to the laws of the home state of the state bank, where the non-ministerial functions occur in different states, where one or more of the non-ministerial functions occur in a state where the state bank does not maintain a branch, or where one or more of the non-ministerial functions occur in an office that is not considered to be the home office or branch office of the bank.

4. Proposed § 331.5. The Depository Institutions Deregulation and Monetary Control Act of 1980 permitted states to opt out of certain requirements of the Act. Because several states exercised that authority, we recommend that the FDIC amend § 331.5 to include a list of those states that have opted out of the provisions of the Act. Having a list included with the rules (along with appropriate language indicating the date that the list was created or last revised) will be an extremely useful resource.

5. Applicable State Law Disclosure. In the Notice of Proposed Rulemaking, the FDIC invited comment as to whether a state-chartered 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. While we do not believe this should be required, we nonetheless recognize that many documents contain a "controlling law" provision. While the issue would appear to be straightforward, it is deceptively complex, in part because preemption does not necessarily result in the application of a particular state's law. For example, § 501 of the Depository Institutions Deregulation and Monetary Control Act of 1980 deregulated home loan rates and fees by providing that any financial institution can charge "interest, discount points, finance charges or other charges" for home loans without regard to limitations imposed by any state's law. Moreover, the laws of more than one state may apply within a single instrument, depending upon the specific issue involved. For example, assume that a state-chartered bank engaged in interstate banking operations takes a deed of trust on real property located in the host state and that one or more of the non-ministerial functions are performed in the home state. Under these circumstances, issues relating to the due-on-sale clause may be subject to the federal regulations codified in 12 CFR Part 591, while foreclosure procedures may be governed by the host state's law and consumer protection issues by the home state's law.

I suggest these issues can best be resolved by adding a new § 331.6 to the proposed regulation, to read as follows:

§ 331.6 Applicable Law Provision.

An provision in an instrument that states the instrument is governed by federal law and, to the extent not preempted by federal law, by the law of a particular state, shall be construed in all instances to invoke the provisions of Part 331 and 362, such that the effect of federal preemption may result in the application of the law of a state other than the designated state.

6. Proposed § 362.19. Subsection (c) of proposed § 362.19 is particularly problematic because it is susceptible to an extremely narrow interpretation that would have a devastating impact on a state bank's interstate banking activities. As proposed, a host state law is preempted "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 . . . ." (Emphasis added). The language used in the proposed regulation requires that there must be a written determination that identifies the particular state law that is preempted, and it provides that the determination may only be made by a federal court or the Office of the Comptroller of the Currency. These requirements go significantly beyond the language and the intent of the Riegle-Neal Amendments Act of 1997. For example, the proposed language arguably prevents state-chartered banks form relying on the recent preemption regulations adopted by the OCC that are codified in 12 CFR § 7.4007 - § 7.4009 and § 34.3 - § 34.4. State-chartered banks are effectively denied parity if this language is retained in the regulation. I suggest this potential pitfall can be resolved by rewording § 331.1(c) to track more closely the language Riegle-Neal Amendments Act of 1997:

(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 the host State law does not apply to an activity conducted at a branch in the host State of an out-of-State national bank. If a 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.

Thank you for the opportunity to submit these comments. If you have questions, please contact me directly.

Yours very truly,

James E. Creekman
Group Vice President
Legal Services Department
First-Citizens Bank & Trust Company
PO Box 27131
Raleigh, NC 27611