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4000 - Advisory Opinions

Interest Rate on Loans to Customers Residing in States That Have Rejected the Federal Preemption Provision


October 20, 1983

Peter M. Kravitz, Senior Attorney

This is in response to your letter to Thomas A. Brooks, General Counsel, dated September 28, 1983. Your client, a state nonmember bank, is chartered in a state that has not exercised its right under 12 U.S.C. § 1730g note to reject the federal preemptive provisions contained in 12 U.S.C. § 1831d. It will be offering credit products to the residents of states that have rejected the federal preemption. You wish to know whether your client may look to and rely upon the usury laws of the state "where the bank is located" in accordance with 12 U.S.C. § 1831d when making loans to citizens of states that have rejected the federal preemption.

We have previously determined that 12 U.S.C. § 1831d should be interpreted in the same manner as 12 U.S.C. § 85. Thus, we believe the bank may rely on the federal law that incorporates the interest provisions of the state where the bank is located in extending credit to the residents of its state and of other states.

The Supreme Court has determined that 12 U.S.C. § 85 allows a national bank to charge interest on loans at the rate "allowed by the laws of the State in which the bank is "located." Therefore, the question before the court was "narrowed' to whether Omaha Bank . . . are located' in Nebraska and for that reason entitled to charge its Minnesota customers at the rate of interest authorized by Nebraska law." Marquette National Bank v. First of Omaha Service Corporation, 439 U.S. 299, 309 (1978). The issue of whether a bank is automatically "located" in the state where it is chartered for purposes of 12 U.S.C. § 1831d or whether a factual analysis must be applied to determine where it is "located'' is not addressed by this letter, and the FDIC takes no position on that issue.

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