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4000 - Advisory Opinions
Whether a Loan Production Office of an Insured Non-member Bank
Qualifies as a "Domestic Branch" as Defined in § 3(o) of the
FDI Act
FDIC--95--28
October 4, 1995
Adrienne George, Attorney
This letter is in response to your inquiry as to whether a given
loan production office (LPO) of a "State" FDIC-insured non-member
bank (Bank) would qualify as a "domestic branch" as that term is
defined in Section 3(o) of the Federal Deposit Insurance Act (FDI Act).
I apologize for the lateness of my response.
In your letter, you write that the Bank desires to operate the LPO
outside of the State in order to solicit loans in accordance with State
regulatory approval and limitations and in compliance with applicable
out-of-state laws. The activities of the LPO are subject to State and
FDIC regulatory examination.
As you know, Section 3(o) of the FDI Act defines the term
"domestic branch" to include "any branch bank, branch office,
branch agency, additional office, or any branch place of business
located in any State of the United States . . . at which deposits are
received or checks paid or money lent."
12 U.S.C. § 1813(o). The Bank
is not authorized to take deposits at the LPO; however, the intended
activities of the LPO are as follows:
1. To solicit borrowers;
2. To accept loan applications;
3. To review and process loan applications for underwriting
standard compliance and completeness of documents;
4. To forward to the Bank for final approval or, under certain
conditions, to approve the loan application itself subject to published
Bank guidelines; and
5. To fund the loan by delivering to the borrower the Bank's check,
issued on its State account.
The only relevant FDIC statement on this question that I could find
was an unpublished advisory opinion dated December 16, 1993, signed by
FDIC Regional Counsel Phillip H. Schwartz. (I have enclosed a copy of
that opinion for your reference.) The opinion states that LPO
activities like the acceptance of loan payments, the disbursement of
loan proceeds, and the signing or accepting of notes, security
agreements or other instruments obligating the loan customer to the
financial institution may cause the LPO to be considered a domestic
branch for purposes of Section 3(o) of the FDI Act.
On the basis of this unpublished advisory opinion, I would say that
the activities listed in Numbers 1 through 3 above would not cause the
LPO to be considered a branch. Nor would the first part of Number 4,
wherein the LPO merely forwards the loan application to the Bank for
final approval, be considered the activity of a branch. However, the
second part of Number 4, where the LPO approves a loan application
itself, even though that
{{4-30-96 p.4956}}approval is based on Bank guidelines,
would probably be considered branch activity. Also, the payment of the
loan from the LPO may be considered branch activity. It may be that the
FDIC would distinguish between the situations where the LPO sends a
wire transfer to the borrower from the LPO or where the check is
actually issued by the LPO--branch activities--and the situation where
the borrower picks up his or her check at that LPO simply as a matter
of convenience, after it has been "cut" at an actual branch--not
branch activity. As far as I know, however, the FDIC has never opined
on precisely what it means to "disburse funds."
I hope that this information will prove useful to you. If I can be
of any further help, I can be reached at (202)
898-3859.
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