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4000 - Advisory Opinions

Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980 Authorizes Insured State-Chartered Banks to Export Same Fees and Charges on Interstate Loans That National Banks May Under 12 U.S.C. § 85


July 8, 1992

Douglas H. Jones, Deputy General Counsel

You have requested that we confirm our interpretation that section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980 ("DIDA"), Pub. L. No. 96--221, 94 Stat. 132 (1980), codified as section 27 of the Federal Deposit Insurance Act (12 U.S.C. § 1831d), authorizes state-chartered banks insured by the Federal Deposit Insurance Corporation ("FDIC") to "export" the same fees and charges on interstate loans that national banks can export under 12 U.S.C. § 85 ("Section 85''). In this regard, you have asked us to assume that the state in which the loans are made has not exercised the right provided under Section 525 of DIDA to "opt-out" of the Section 521 preemption. For the reasons stated below, and on the basis of this assumption, we confirm that section 521 provides the same exportation rights as Section 85.

It is well established that Section 85 provides national banks with "most favored lender" powers (Tiffany v. Nat'l Bank of Missouri, 85 U.S. (18 Wall.) 409 (1874)) and the ability to export interest on interstate loans (Marquette National Bank of Minneapolis v. First of Omaha Service Corporation, 439 U.S. 299 (1978)). Moreover, the FDIC consistently has interpreted Section 521 to provide state-chartered banks with the same most favored lender status and right to export interest enjoyed by national banks under Section 85. See e.g. Letter from Frank L. Skillern, Jr., General Counsel, FDIC, #81--3, [1988--89 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81,006 at 55,107 (February 2, 1981) (most favored lender); Letter from Kathy A. Johnson, Attorney, FDIC, #81--7 [1988-89 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81,008 at 55,110 (March 17, 1981) (exportation).

Accordingly, it is our position that Section 521 authorizes state-chartered FDIC-insured banks to charge interest at the rate allowed to the "most favored lender" by the laws of the state in which the bank is chartered, even if that rate exceeds the maximum permitted by an out-of-state borrower's state of residence. That authorization necessarily includes the right to charge late fees and other charges permitted by the bank's home state which are either a component of interest or material to the determination of the interest rate.

There are several bases for our interpretations of Section 521. First, the operative language of Sections 521 and 85 is identical and Congress is presumed to intend to adopt the judicial construction of a phrase from an existing statute when it uses the same phrase in a new statute. Fusco v. Perini North River Associates, 601 F.2d 659, 664 (2d Cir. 1979), vacated on other grounds, 444 U.S. 1028 (1980). Second, Section 521 expressly provides that the purpose of the statute was to prevent discrimination against state-chartered banks. State banks would suffer such discrimination if they did not enjoy the same exportation rights provided to national banks under Section 85. Third, and finally, the legislative history of Section 521 clearly indicates that Congress intended to provide state-chartered banks with the same interest authority that is granted to national banks under Section 85.

We are aware that our interpretation of Section 521 is inconsistent in some respects with the recent decision in Greenwood Trust Co. v. Commonwealth of Massachusetts, 776 F.Supp. 21 (D. Mass. 1991), appeal pending, Nos. 91--2205, 91--8096 and 92--1065 (1st Cir. argued June 3, 1992). However, as we have already explained to the First Circuit Court of Appeals in connection with the appeal of that case,1 we believe that the Greenwood Trust case did not properly recognize (i) the compelling evidence that Congress intended that Section 521 provide state banks with the same interest authority national banks enjoy under Section 85, or (ii) the scope of the interest authority under Section 85 as interpreted by the Office of the Comptroller of the Currency and the courts. See, e.g., OCC Interpretive Letter No. 452 from Robert Serino, Deputy Chief Counsel, [1988--89 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,676 at 78,063 (August 11, 1988). Moreover, we disagree with at least two bases that apparently underpinned the District Court's interpretation of Section 521.

First, we do not believe that legislative history and cases relating to Section 501 of DIDA, 12 U.S.C. § 1735f--7a, are instructive in interpreting Section 521 because the genesis, purpose, scope and language of Sections 501 and 521 are radically different. Section 501 originated as part of S.1347, 96th Cong., 1st Sess. (125 Cong. Rec. 14889 (1979)), while Section 521 originated as Section 101 of S.1988, 96th Cong., 1st Sess. (125 Cong. Rec. 14887) (1979)). See Usury Lending Limits: Hearings Before the Committee on Banking, Housing and Urban Affairs, United States Senate, on S. 1988, To Equalize Competition Between State and National Banks and For Other Purposes, 96th Cong., 1st Sess. 8--10 (December 17, 1979). Section 501 was intended to facilitate a national residential mortgage lending market (125 Cong. Rec. 14887 (1979) (Statement of Senator Cranston)), while Section 521 was intended to provide parity in the interest that could be collected by state-chartered and national banks (126 Cong. Rec. 4217 (1980) (Statement of Senator Bumpers)). Section 501 applies to first-lien mortgage loans made by various types of lenders while Section 521 applies to any loan made by FDIC-insured state-chartered banks.

Second, we do not believe that the existence of an opt-out right under Section 525 of DIDA, in and of itself, affects the scope of the exportation rights provided by Section 521. We believe that the scope of Section 521 must first be determined by reference to interpretations of the identical language in Section 85 before the effect (if any) of Section 525 on a particular transaction can be determined. In the question you have presented, the loans are not made in a state that has opted-out under Section 525. Thus, Section 525 has no effect in such a state on the scope of exportation rights provided under Section 521.

This letter sets forth our interpretation of Section 521. However, notwithstanding our position on this issue, the possibility remains that the Greenwood decision may be upheld on appeal or that other courts may ultimately adopt a different interpretation of the statute. Accordingly, you should consult with your counsel regarding the status of the Greenwood case and any other decisions that may be rendered by a court of competent jurisdiction with respect to the issues discussed in this letter.

I trust that this letter is responsive to your inquiry. If you have any further questions, you may contact me or Assistant General Counsel, Thomas A. Schulz.

1The FDIC filed an amicus curiae brief with the First Circuit in the Greenwood appeal setting forth more fully its interpretation of Section 521. See Brief for the Federal Deposit Insurance Corporation As Amicus Curiae, Greenwood Trust Co. v. Commonwealth of Massachusetts and L. Scott Harshbarger, Attorney General of the Commonwealth of Massachusetts, Nos. 91--2205, 91--8096 and 92--1065 (1st Cir. argued June 3, 1992). Go back to Text

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