[Federal Register Volume 62, Number 64 (Thursday, April 3, 1997)]
[Rules and Regulations]
[Pages 15819-15825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8011]
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 560
[No. 97-28]
RIN 1550-AB05
Amendments Implementing Economic Growth and Regulatory Paperwork
Reduction Act
AGENCY: Office of Thrift Supervision, Treasury.
ACTION: Final rule.
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SUMMARY: The Office of Thrift Supervision (OTS) today is issuing a
final rule implementing provisions of the Economic Growth and
Regulatory Paperwork Reduction Act of 1996 (EGRPRA). Among other
actions, EGRPRA: expanded and clarified federal thrifts' lending and
investment authority; amended the Qualified Thrift Lender (QTL) test;
authorized OTS to grant anti-tying exceptions conforming to exceptions
granted to banks by the Board of Governors of the Federal Reserve
System (FRB); and modified OTS's oversight authority over bank holding
companies that own savings associations. Today's rule implements these
statutory changes in final form and enables thrifts to take advantage
of the expanded flexibility and burden reduction afforded by EGRPRA.
EFFECTIVE DATE: April 3, 1997.
FOR FURTHER INFORMATION CONTACT: William J. Magrini, Senior Project
Manager, (202) 906-5744, Supervision Policy; Ellen J. Sazzman, Counsel
(Banking and Finance), (202) 906-7133, or Karen Osterloh, Assistant
Chief Counsel, (202) 906-6639, Regulations and Legislation Division,
Chief Counsel's Office. For information about holding company issues,
contact Kevin A. Corcoran, Assistant Chief Counsel, (202) 906-6962,
Business Transactions Division, Chief Counsel's Office, Office of
Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Background
On September 30, 1996, Congress enacted the EGRPRA 1 which
amended and clarified thrifts' lending and investment powers under
sections 5 and 10 of the Home Owners' Loan Act (HOLA).2 EGRPRA
confirmed that federal savings associations may engage in credit card
lending without limitation; enabled federal savings associations to
engage in education lending without investment restrictions; 3
increased the 10% of assets limitation on federal savings associations'
commercial lending to 20% of assets, provided that amounts in excess of
10% are used for small business loans as defined by the OTS Director;
and amended the QTL test to provide that investments in education,
small business, credit card, and credit card account loans are
includable
[[Page 15820]]
without limit for purposes of satisfying the QTL test.4
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\1\ P.L. 104-208, tit. 12, 110 Stat. 3009 (September 30, 1996).
\2\ 12 U.S.C. 1464, 1467a, respectively.
\3\ HOLA, Sec. 5, previously limited education loans to 5% of a
thrift's total assets. 12 U.S.C. 1464(c)(3)(A).
\4\ EGRPRA also permitted savings associations to substitute the
tax code's ``domestic building and loan association'' test for
compliance with the amended QTL test. See Section 2303(e) of EGRPRA.
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EGRPRA also authorized the OTS Director to issue regulations
granting exceptions to anti-tying provisions in section 5(q) of the
HOLA,5 provided the exceptions are consistent with the HOLA and
conform to exceptions granted by the FRB to banks. Finally, EGRPRA
eliminated OTS supervision of holding companies that control both a
bank and a savings association and that are registered as bank holding
companies with the FRB.
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\5\ 12 U.S.C. 1464(q).
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On November 27, 1996, OTS issued an interim final rule enabling
thrifts to take immediate advantage of the expanded flexibility and
burden reduction afforded by EGRPRA.6 The interim final rule
included definitions of credit card, credit card account, small
business, and small business loans. These definitions enabled thrifts
to apply the newly modified QTL test and to exercise new investment
authorities. OTS also streamlined its regulations by removing certain
unnecessary QTL provisions from the Code of Federal Regulations, and
added a new regulatory anti-tying exception that conformed to the FRB's
safe harbor for combined balance accounts. OTS requested comment on any
issues raised by the newly implemented regulations.
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\6\ 61 FR 60179 (November 27, 1996).
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II. Summary of Comments and Description of the Final Rule
A. General Discussion of the Comments
The public comment period on the interim final rule closed on
January 27, 1997. Nine commenters, including five financial institution
trade associations and four federal savings associations, responded to
the request for comment. Commenters generally supported OTS's efforts
to implement expeditiously EGRPRA's new provisions. Several commenters
suggested that OTS modify some provisions, including adopting a safe
harbor for loans to small businesses. Specific comments addressing
various sections are discussed where appropriate in the section by
section analysis below.
B. Section-by-Section Analysis
Section 560.3--Definitions of Credit Card and Credit Card Account
Section 2303(g) of EGRPRA requires the OTS Director to issue
regulations defining the term ``credit card'' in order to enable
thrifts to apply the newly modified QTL test.7 This modified QTL
test permits loans ``made through credit cards or credit card
accounts'' to be counted as qualified thrift investments (QTI) without
restriction. The definition of ``credit card'' and ``credit card
account'' also provides federal thrifts with guidance in exercising
their authority to ``invest in, sell, or otherwise deal in * * * loans
made through credit cards or credit card accounts'' under section 5(c)
of the HOLA. As revised by section 2303(b) of EGRPRA, section 5(c)
authorizes federal thrifts to engage in credit card lending without any
percentage of assets investment limitation.8 Commenters generally
agreed that it was appropriate for OTS to consistently define ``credit
card'' and ``credit card account'' for both section 5(c) and section
10(m) of the HOLA.
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\7\ See 12 U.S.C. 1467a(m).
\8\ EGRPRA, section 2303(b), amending HOLA Sec. 5(c), to be
codified at 12 U.S.C. 1464(c)(1)(T).
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Credit card. OTS based the regulatory definition of ``credit card''
on the plain language definition of ``credit card'' in Black's Law
Dictionary.9 Four commenters addressed the substance of this
definition. Two commenters supported the use of the Black's Law
Dictionary definition. These commenters asserted that this definition
is easy to understand and consistent with EGRPRA's goal of providing
thrifts greater investment flexibility. Two other commenters suggested
that OTS employ the similar, but not identical, definition of ``credit
card'' in the FRB's Truth in Lending Regulation at 12 CFR Part 226
(Regulation Z). Regulation Z defines credit card as ``any card, plate,
coupon book, or other single credit device that may be used from time
to time to obtain credit.'' 12 CFR 226.2(a)(15). These commenters noted
that the banking industry is familiar with Regulation Z and that
uniform regulations would reduce the complexity of Federal regulation
of the banking industry.
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\9\ Black's Law Dictionary 367 (6th ed. 1990).
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To enhance uniformity and consistency among the federal banking
agencies, the OTS has adopted the definition of ``credit card'' in
Regulation Z for purposes of the final EGRPRA amendments.
Credit Card Account. The interim rule defined ``credit card
account'' as a credit account established in conjunction with the
issuance of, or the extension of credit through, a credit card. The
term includes loans made to consolidate credit card debt, including
credit card debt held by other lenders, and participation certificates,
securities and similar instruments secured by credit card receivables.
Two commenters supported including investments in loan pools that
issue securities backed by credit card loans in the definition. These
commenters noted that HOLA specifies that ``any reference to a loan
[herein] * * * includes an interest in such loan * * *'' 10 and,
thus, implicitly includes securities backed by credit card accounts and
receivables. One commenter argued that the inclusion of securities
backed by credit card loans is beyond congressional intent because such
debt instruments are essentially securities rather than loans.
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\10\ 12 U.S.C. 1464(c)(6)(B).
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OTS and its predecessor agency have long authorized federal savings
associations to make a loan secured by an assignment of loans to the
extent that the thrift may make or purchase the underlying
loans.11 Thus, the final rule continues to provide that loans made
through credit cards and credit card accounts encompass investments in
loan pools that issue securities backed by credit card loans.
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\11\ 12 CFR 560.31(c), as added 61 FR 50951, 50974 (September
30, 1996).
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Two commenters agreed with OTS's inclusion of credit card debt
consolidation loans in the definition of ``credit card account.'' These
commenters argued that such loans are, in economic substance, credit
card loans. One commenter requested OTS to clarify that consolidation
loans include other consumer debt such as personal or automobile loans.
Another commenter argued against the inclusion of credit card debt
consolidation loans, asserting that credit card debt consolidation
loans, in essence, are consumer installment loans that may include non-
credit card debt.
OTS believes that, in enacting EGRPRA, Congress intended to give
thrifts the flexibility for innovation with respect to the terms and
conditions of particular credit card products. Accordingly, OTS
believes that a broad definition of credit card account within the
limits of safety and soundness is consistent with congressional intent
of EGRPRA and HOLA. Additionally, OTS does not consider loans that are
used to consolidate other consumer debt such as personal or automobile
loans to be credit card debt consolidation loans and would object to a
thrift's treatment of loans consolidating both credit card and non-
credit card related debt as a credit card account loan. Accordingly,
the definition of credit card account is unchanged in the final rule.
OTS reiterates that Sec. 560.30 of OTS's regulations, which
implements the statutory credit card authority, permits
[[Page 15821]]
federal thrifts to engage in the full range of credit card operations
authorized by HOLA. Under this regulation, however, OTS reserves the
right to establish investment limits on a case-by-case basis if an
institution's concentration in credit-card-related loans presents a
safety and soundness concern.12 As with any expansion of a line of
business, institutions that expand their credit card lending pursuant
to today's rule must do so in a safe and sound manner. Institutions
planning any significant increase in these types of loans should
prepare thorough business plans, acquire the necessary personnel and
expertise, and establish adequate systems to identify and control risks
associated with these products. OTS will monitor these lending
activities, utilizing off-site surveillance and the on-site examination
process.
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\12\ 12 CFR 560.30, n. 5, 61 FR 50951, 50973 (September 30,
1996).
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Section 560.3--Definitions of Small Business and Small Business Loans
Section 2303(g) of EGRPRA requires the OTS Director to issue
regulations defining ``small business'' for the purposes of the newly
modified QTL test, which permits savings association to count small
business loans as QTI without restriction under section 10(m) of the
HOLA. Section 2303(c) of EGRPRA also directs the OTS Director to define
``small business loans'' in connection with the newly amended section
5(c) of the HOLA, which expands federal thrifts' commercial lending
authority from 10% to 20% of assets, provided the amount in excess of
10% of assets is used solely for small business loans.13
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\13\ Federal thrifts have long been authorized to make loans
secured by business or agricultural real estate in amounts up to
400% of capital, 12 U.S.C. 1464(c)(2)(B). Prior to EGRPRA, federal
thrifts could only make additional secured and unsecured loans to
businesses and farms in amounts up to 10% of total assets. 12 U.S.C.
1464(c)(2)(A).
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To promote a harmonious interpretation of the statute, the interim
final regulation defined ``small business'' and ``small business loan''
once for purposes of both HOLA provisions. OTS tied these regulatory
definitions to the eligibility criteria established by the Small
Business Administration (SBA) under section 3(a) of the Small Business
Act, 15 U.S.C. 632(a), as implemented by SBA's regulations at 13 CFR
Part 121. OTS specifically solicited comment whether these SBA
standards were the most appropriate basis for the definitions of small
business or small business loans under the HOLA. The OTS also solicited
comment on whether the agency should, for the sake of simplicity,
include in its definition a de minimis safe harbor based on annual
sales or some other criteria.14
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\14\ The SBA Reauthorization Act of 1994, 15 U.S.C.
632(a)(2)(C), provides that unless specifically authorized by
statute, no federal agency may prescribe a size standard for
categorizing a business concern as a small business unless such size
standard is made subject to public notice and comment, makes certain
size determinations, and is approved by the SBA Administrator. OTS
solicited comment regarding whether EGRPRA Sec. 2303(g) constitutes
a specific authorization within the meaning of 15 U.S.C.
632(a)(2)(C). Commenters addressing this issue believed that EGRPRA
gave OTS authorization to define ``small business'' for purposes of
the HOLA. Section 2303(g) of EGRPRA requires the Director to ``issue
such regulations as may be necessary to define the term `small
business' '' for the purposes of the QTL requirements at section
10(m) of the HOLA. Similarly, under section 5(c)(2)(A) of the HOLA,
as amended by section 2303(c) of EGRPRA, savings associations are
authorized to invest in ``small business loans, as that term is
defined by the Director.'' OTS believes that these statutes
constitute specific authorizations to define ``small business''
within the meaning of 15 U.S.C. 632(a)(2)(C).
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Of the seven commenters addressing the small business definitions,
four supported the use of SBA's regulatory definitions (either alone or
in combination with a de minimis safe harbor). These commenters
indicated that most lenders and small businesses are familiar with
SBA's size eligibility standards, and asserted that the use of SBA's
standards would promote regulatory uniformity among the agencies and
would reduce regulatory compliance burdens.
Three other commenters contended that thrifts are unfamiliar with
SBA's size eligibility standards. These commenters also asserted that
the SBA definitions are too complex to apply in day-to-day commercial
lending decisions since the SBA's criteria require knowledge of the
borrower's precise line of business, as categorized and subcategorized
by SBA's regulations. For some businesses, SBA's regulations rely on a
firm's number of employees. For other businesses, the SBA definitions
are based on the company's asset size or annual receipts. These
commenters contended that the application of SBA definitions would
require thrifts to gather additional data unrelated to lending
decisions, and to make time-consuming determinations of SBA industrial
classifications. They concluded that the use of the SBA definitions
would impose additional burdens on thrifts' commercial lending
activities, and would limit thrifts' incentive to pursue small business
lending, contrary to the spirit of EGRPRA.
Six of the seven commenters suggested that OTS adopt a safe harbor
in place of or as an alternative to the SBA definitions. These
commenters reasoned that a safe harbor threshold would provide
additional flexibility in qualifying businesses as eligible for small
business loan categorization. The commenters suggested a variety of
safe harbor standards, expressed in terms of annual receipts, number of
employees, and/or loan amount of a business borrower.
One commenter noted that savings associations are required to
report the aggregate number of loans made to businesses with gross
annual revenues of $1 million or less pursuant to the OTS's Community
Reinvestment Act (CRA) regulations.15 This commenter also asserted
that FRB Regulation B,16 which implements the Women's Business
Ownership Act of 1988, also uses the $1 million annual receipts
standard to determine whether a business constitutes a small business.
For consistency, the commenter suggested that OTS adopt the same
standard. A second commenter, a bank trade association, did not support
the safe harbor, but also recommended that if OTS decided to establish
a threshold, it should use the $1 million sales standard to be
consistent with the CRA and FRB regulations.
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\15\ 12 CFR 563e.42(b)(1)(iv). Small business loans for purposes
of the CRA regulations, however, are defined by reference to the
Thrift Financial Report, which is based on the amount of the loan.
See 12 CFR 563e.12(t).
\16\ 12 CFR 202.9(a)(3).
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A third commenter preferred a safe harbor of $20 million in annual
sales. This commenter represented that this amount was within the range
of dollar amounts that SBA currently uses in its definitions. The
commenter also observed that small businesses with $20 million or less
in annual sales typically employed fewer employees and borrowed smaller
amounts.
Two commenters suggested that OTS adopt a safe harbor based on
annual receipts or the number of employees of a business. In other
words, if a business has $5 million or less in annual receipts or 500
or fewer employees, it should automatically be deemed a small business
regardless of its line of business. These commenters indicated that
these thresholds were predominant among the myriad business types
included in SBA regulations.
Finally, one commenter suggested that OTS define small business
loans as business loans of $1 million or less that are made to
borrowers that do not have more than 1,000 employees at the time such
loans were made. This commenter explained that large and medium sized
businesses are unlikely to negotiate
[[Page 15822]]
loans of $1 million or less and described the 1,000-employee level as
the most representative level of employment in SBA regulations.
After reviewing these comments, OTS has determined to adopt
alternative standards for determining when an extension of credit
qualifies as a ``small business loan'' for purposes of thrifts' small
business lending authority and the QTL test. OTS believes that this
alternative approach will afford thrifts maximum flexibility to
participate in small business lending activities consistent with safety
and soundness.
First, OTS will continue to tie its definition of ``small
business'' to the eligibility criteria established by SBA and
implemented by SBA's regulations at 13 CFR Part 121. A loan to a
business qualifying as a ``small business'' under SBA's regulations
will qualify as a ``small business loan'' for purposes of HOLA
Sec. 5(c) lending authority and as a ``loan to a small business'' for
purposes of the QTL test at HOLA Sec. 10(m). For lenders and small
businesses familiar with SBA's size eligibility standards, this
alternative will provide a well-established mechanism for thrifts to
expand their small business lending. By relying on SBA's definition,
OTS also will promote regulatory uniformity among the agencies and will
lessen the regulatory compliance burden on the small business
community.
As an alternative mechanism, OTS is adopting a safe harbor
threshold based on loan amount. Under the final rule, a loan of $1
million or less will generally be deemed a small business loan (or a
loan to a small business) for purposes of thrifts' small business
lending authority and the QTL test. This safe harbor provides thrifts
with a simple, easy to apply, mechanism for qualifying loans as small
business loans. This standard should enhance small business lending
without adding an unnecessary layer of complexity to day-to-day
commercial lending.
OTS believes that a threshold loan amount would be an appropriate
safe harbor. OTS already uses a $1 million loan amount to define small
business loan for purposes of its CRA regulations.17 OTS also
relies on a $1 million loan threshold for purposes of reporting small
business loans to Congress pursuant to requirements of the Federal
Deposit Insurance Corporation Improvement Act (FDICIA).18 OTS's
Thrift Financial Report (TFR) currently requires thrifts to annually
report ``Loans to Small Businesses and Small Farms'' described in the
TFR instructions as business loans in the amount of $1 million or
less.19 Furthermore, as noted by at least one commenter, large and
medium sized businesses are unlikely to negotiate loans of $1 million
or less. Indeed, a recently issued FRB report states that ``[s]urvey
data indicates a high correlation between loan size and borrower size,
and most small loans likely are to small businesses.'' 20
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\17\ 12 CFR 563e.12(t). The CRA regulations of the other federal
banking agencies contain the same definition.
\18\ FDICIA Sec. 122, 12 USC 1817 note, requires the federal
banking agencies to collect annually from insured institutions
information on small business and small farm lending as the agencies
may need to assess the availability of credit to these sectors of
the economy. The Bank Call Report contains the same $1 million loan
threshold for bank reporting purposes.
\19\ Pursuant to TFR instructions, loans to small farms are
considered to be farm loans with ``original amounts'' of $500,000 or
less.
\20\ ``Information on Depository Credit for Small Businesses and
Small Farms'' (October 1996) p. 1. FDICIA Sec. 477, 12 USC 251,
requires the FRB to collect and publish annually information on the
availability of credit to small businesses and small farms.
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Accordingly, the final rule defines small business loans and loans
to small businesses, in part, by cross-reference to the TFR
instructions. The use of these loan thresholds is consistent with OTS
regulatory and reporting requirements and, additionally, does not pose
any threat to safety and soundness.21
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\21\ OTS may reevaluate this threshold after thrifts have had
some experience with its application.
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The final rule defines small business loans and loans to small
businesses to include a loan (including a group of loans to one
borrower) that meets the original amount restrictions and other
criteria for loans to small businesses and small farms under the TFR.
Savings associations must combine and report multiple loans to one
borrower on an aggregate basis, rather than as separate loans in
determining whether the loans fall within the threshold. Accordingly,
multiple loans made by a savings association to the same borrower would
not qualify as small business loans or loans to small businesses, if
the aggregated loans would exceed the TFR threshold amounts.
OTS determined not to base the safe harbor threshold on annual
receipts or sales. Unlike loan amount, which information is readily
available to thrifts, the concept of annual receipts or sales may
require some careful and potentially complex determinations with regard
to the amount and timing of income.22 OTS also determined not to
base the safe harbor threshold on employee level. Unlike loan amount,
thrifts do not necessarily obtain data regarding employee level as part
of the typical loan underwriting process. Nor is this information
readily available to thrifts. Employee levels are also subject to
greater fluctuation and more difficult to substantiate than loan
amount.
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\22\ See 13 CFR 121.104, which defines ``annual receipts'' for
SBA purposes.
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OTS believes that the alternative mechanisms for qualifying
borrowers for small business loans will provide thrifts with the
flexibility needed to pursue small business lending. This approach
should also increase available credit to small businesses by creating
incentives for thrifts to expand small business lending in a safe and
sound manner.
Sections 563.50, 563.51, 563.52--Revisions to the QTL Test
Section 2303 (e) and (g) of EGRPRA substantially amended the QTL
test. As a result of these statutory reforms, savings associations can
now engage in substantial small business, agricultural, credit card,
educational, and other consumer lending and remain in QTL
compliance.23
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\23\ For a more complete discussion of EGRPRA's amendments to
the QTL test as well as the federal thrifts' branching authority,
refer to the preamble to the interim final rule, 61 FR 60179-60180.
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The interim final rule did not codify the statutory amendments in
OTS regulations. Instead, OTS removed all QTL provisions from its
regulations and chose to rely directly on section 10(m) of the HOLA to
govern this area. OTS believed that HOLA's detailed QTL requirements,
combined with relevant handbook guidance and the new regulatory
definitions discussed above, provide adequate direction to the thrift
industry and OTS examination staff with respect to QTL compliance. This
approach is consistent with OTS's effort to streamline its regulations
and remove duplicative requirements pursuant to section 303 of the
Community Development and Regulatory Improvement Act of 1994
(CDRIA).24
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\24\ 12 U.S.C. 4803.
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No commenter addressed this issue. Accordingly, OTS is adopting its
final rule without change.
Section 563.36--Tying Restrictions
Section 5(q) of the HOLA prohibits a savings association from,
inter alia, varying the price charged for a product or service (the
tying product) based on whether the customer obtains an additional
product or service (the tied product) offered by the association or its
service corporation or affiliate, unless the additional product or
service is a loan, discount, deposit or trust service (``traditional
bank products''). The Bank Holding Company Act Amendments of 1970 (BHCA
Amendments) contain a similar anti-tying provision applicable
[[Page 15823]]
to banks and authorizes the FRB to grant exemptions by regulation or
order from such provisions.25 Prior to EGRPRA, the HOLA did not
grant exemptive authority to OTS.
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\25\ 12 U.S.C. 1972.
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Section 2216 of EGRPRA amended section 5(q) of the HOLA to
authorize the OTS Director to issue regulations or orders permitting
exceptions to the anti-tying prohibitions. These exceptions must not be
contrary to the purposes of section 5(q) of the HOLA, and must conform
to exceptions granted by the FRB to banks under the BCHA Amendments.
When the interim rule was issued, the FRB had promulgated four
regulatory exceptions. For the reasons discussed in the interim rule,
the OTS determined that there was no need to issue regulatory
exceptions comparable to three of these exceptions.26 These
included FRB exceptions permitting: (1) a bank holding company, bank,
or nonbank subsidiary to vary the consideration charged for a
traditional bank product on the condition or requirement that a
customer also obtain a traditional bank product from an affiliate;
27 (2) a bank holding company, bank or nonbank subsidiary to vary
the consideration charged for securities brokerage services on the
condition or requirement that a customer also obtain a traditional bank
product from that bank holding company or bank or nonbank subsidiary,
or from any affiliate of such company; 28 and (3) a bank holding
company or nonbank subsidiary to vary the consideration for any
extension of credit, lease or sale of property of any kind, or service,
on the condition or requirement that the customer obtain some
additional credit, property or service from itself or a nonbank
affiliate.29 Four commenters addressed the three FRB exemptions.
All agreed that comparable OTS exceptions were unnecessary. The final
rule is unchanged on this point.
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\26\ For a more detailed discussion of the three FRB exemptions
and the OTS decision not to promulgate similar regulatory
exemptions, see 61 FR 60181-82.
\27\ 12 CFR 225.7(b)(1) (1996).
\28\ 12 CFR 225.7(b)(2) (1996).
\29\ 12 CFR 225.7(b)(3) (1996).
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The fourth FRB exception permits banks to vary the consideration
for any product or package of products based on a customer's
maintenance of a combined minimum balance in certain products specified
by the bank varying the consideration (defined as ``eligible
products''), if (i) that bank offers deposits, and all such deposits
are eligible products, and (ii) balances in deposits count at least as
much as non-deposit products toward the minimum balance.30
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\30\ 12 CFR 225.7(b)(4) (1996).
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This regulatory exception permits banks to offer discounts to
customers maintaining a combined minimum balance in deposit and non-
deposit accounts, including brokerage and mutual fund accounts. As
such, this regulatory ``safe harbor'' authorizes tying arrangements
that, absent an exception, would be prohibited for savings
associations, because the tied products would not necessarily be
traditional bank products. In addition, savings and loan holding
companies or affiliates are prohibited from offering such arrangements
where one of the products involved is a savings association product
(other than a traditional bank product).
The interim final rule included a comparable ``safe harbor''
exception for savings associations, savings and loan holding companies,
and affiliates.31 OTS concluded that this exception was not
contrary to the purposes of section 5(q) of the HOLA because it did not
present the anti-competitive effects that the HOLA's anti-tying
provisions were intended to eliminate. Rather, the safe harbor enabled
savings associations and their affiliates to offer a greater variety of
banking products and services to their customers, and could enhance
competition in the market place. This exception also ensured parity
between savings associations and banks by enabling these institutions
to offer a comparable range of products and services and, thus,
enhanced competition among financial institutions consistent with the
purposes of section 5(q) and the BHCA Amendments.
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\31\ The exception authority granted to OTS by amended HOLA
Sec. 5(q) is indirectly applicable to savings and loan holding
companies and affiliates, because HOLA Sec. 10(n) provides that, in
connection with transactions involving the products or services of a
savings and loan holding company or affiliate and those of an
affiliated savings association, Sec. 5(q) shall apply to savings and
loan holding companies and their affiliates in the same manner as if
they were savings associations.
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The OTS anti-tying exception at 12 CFR 563.36 conforms to the FRB's
``safe harbor'' for combined balance discounts. This safe harbor
permits savings associations and their affiliates to offer discounts to
customers maintaining certain combined minimum balance accounts. OTS
also indicated that it may permit other exceptions under section 5(q)
on a case-by-case basis upon determination that the exception is not
contrary to the purposes of section 5(q), conforms to an exception
granted by the FRB, and is consistent with safe and sound practices.
Three commenters supported OTS's adoption of this safe harbor
exception. These commenters also agreed with OTS's decision to permit
other exceptions on a case-by-case basis. Commenters believed that this
flexible approach could expand the variety of products offered to
customers in a rapidly changing marketplace and would enable thrifts to
take full advantage of their holding company structure.
OTS's interim final rule did not require that all products offered
pursuant to the safe harbor must be separately available for purchase.
Although this condition applied to the FRB safe harbor,32 the FRB
had proposed to eliminate the condition in a proposed rule issued
September 6, 1996.33 OTS indicated it would reexamine this issue
if the FRB's final rule did not eliminate the condition.
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\32\ 12 CFR 225.7(c)(1)(1996).
\33\ 61 FR 47242 (September 6, 1996).
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At least one commenter, a bank trade association, criticized the
safe harbor for combined minimum balance accounts because it did not
require that all products be offered separately for sale, contrary to
the FRB safe harbor. Another commenter contended that there was no need
for all items in a combined balance to be separately offered because
there may be a rational economic need to offer certain products and
services in a package form and that not offering each product
separately does not necessarily raise anticompetitive issues.
In its final rule issued on February 28, 1997, the FRB in fact
eliminated the separate availability requirement for combined balance
discounts.34 Accordingly the OTS is adopting the antitying safe
harbor in its interim rule without change.
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\34\ 62 FR 9290, 9323 (February 28, 1997).
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In the interim rule, OTS also solicited comment as to whether the
agency should adopt regulatory amendments parallel to additional
revisions proposed by the FRB. The FRB had proposed to rescind the
provision in its regulation that extended the tying prohibitions to
bank holding companies and their nonbank affiliates,35 and had
proposed that bank holding companies and their nonbank affiliates could
engage in tying practices other than discounting, such as conditioning
the availability of a
[[Page 15824]]
product on the purchase of another product.36
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\35\ 12 CFR 225.7(a)(1996). Other aspects of the FRB's new rule
need not be discussed here because they concern practices not
prohibited for savings associations and their affiliates.
\36\ The FRB noted that any tying arrangements permitted under
these changes would be subject to the general provisions of the
antitrust laws.
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OTS requested comment on whether savings and loan holding companies
and their non-bank affiliates should also be completely exempted from
the tying restrictions. As noted above, the provision of law applying
the tying restriction to savings and loan holding companies is
statutory, not regulatory (as is the case for bank holding companies).
Thus, OTS also requested comment on whether it would have legal
authority to grant a complete exemption from section 10(n) of the HOLA.
Several commenters addressed this issue. Commenters generally
agreed that OTS does not have authority to eliminate entirely
restrictions on tying by savings and loan holding companies, because
OTS does not have authority to grant exemptions from section 10(n) of
the HOLA. However, none of the commenters disputed that OTS has
authority to grant exceptions to savings associations pursuant to OTS's
authority under section 5(q) of the HOLA to savings and loan holding
companies.
The FRB, in its final rule, adopted its proposal to rescind that
agency's regulatory extension of the tying prohibitions to bank holding
companies and their nonbank affiliates.37 Pursuant to section
10(n) of the HOLA, OTS does not presently appear to have the authority
to except savings and loan holding companies and their affiliates
entirely from all tying restrictions. Because OTS cannot completely
except savings associations and their affiliates from tying
prohibitions, OTS cannot adopt an exception precisely conforming to the
FRB's elimination of regulatory restrictions on tying by bank holding
companies. Nevertheless, the effects of OTS's inability to grant
exceptions from section 10(n) are limited for two reasons. First, as
previously noted, the section 10(n) restrictions do not apply unless
the tying arrangement involves a savings association. Second, the
exceptions promulgated under new section 5(q)(6) apply to savings and
loan holding companies (and affiliates) as if they were savings
associations.
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\37\ 62 FR at 9312-9315, 9323.
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As a final matter, one commenter noted that OTS has published no
policies or guidance concerning the tying restrictions applicable to
savings associations and their holding companies. This commenter
recommended that OTS issue such a policy statement or guidance. This
commenter suggested that the guidance should reflect OTS's position
that section 5(q) permits the arrangements addressed in the first three
FRB exceptions set forth at 12 CFR 225.7, and should contain examples
of permissible practices under these exceptions. This commenter also
suggested that FRB orders on tying arrangements could be used by
thrifts as guidance.
OTS will consider these suggestions, particularly if thrifts
indicate a need for such assistance after implementation of this final
rule. In light of the differences between anti-tying statutes
applicable to savings associations and banks, OTS does not believe it
appropriate to adopt automatically orders issued by the FRB.
Sections 574.1, 574.2, 574.3, 575.2, 583.20, 584.2a--Regulation of
Holding Companies
Section 2203 of EGRPRA eliminated OTS supervision of holding
companies that control both a bank and a thrift, and are registered as
a bank holding company with the FRB under the BHCA of 1956.38
Accordingly, the interim final rule included: (1) revisions to OTS
acquisition of control and holding company regulations to conform to
EGRPRA's amendments to the Savings and Loan Holding Company Act; (2) an
exception to the acquisition of control regulations clarifying that
when a person acquires control of a bank holding company and the person
is required to file a change of control notice with the FRB, no change
of control notice is required to be filed with OTS; and (3) minor
revisions to the Mutual Holding Company regulations to reflect the OTS
position that section 2203 of EGRPRA does not affect its authority to
regulate mutual holding companies, including mutual holding companies
that have acquired a bank.
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\38\ 12 U.S.C. 1841 et seq.
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The one commenter addressing the issue concurred with OTS's
implementation of EGRPRA. Accordingly, OTS adopts the described
modifications without change.
III. Administrative Procedure Act
OTS has determined that the 30-day delay of effectiveness
provisions of the Administrative Procedure Act (APA), 5 U.S.C. 553, may
be waived in this rulemaking. Section 553(d) of the APA permits waiver
of the 30 day delayed effective date requirement for, inter alia, good
cause or where a rule relieves a restriction. OTS finds that good cause
exists because the rule is substantially identical to the interim final
rule that has been in effect since November 1996. The rule relieves
various lending, investment, and tying restrictions for thrifts and
merely conforms OTS regulations to EGRPRA's statutory changes.
Accordingly, the final rule will be immediately effective upon
publication in the Federal Register.
IV. Executive Order 12866
OTS has determined that this final rule does not constitute a
``significant regulatory action'' for the purposes of Executive Order
12866.
V. Regulatory Flexibility Act
Because no notice of proposed rulemaking is required for this rule,
the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.
do not apply. The final rule does not impose any additional burdens or
requirements upon small entities and reduces burdens on all savings
associations. The regulatory amendments implement statutory changes to
the HOLA that relieve various lending, investment, and tying
restrictions on thrifts and otherwise conform OTS regulations to
EGRPRA.
VI. Unfunded Mandates Act of 1995
OTS has determined that the requirements of this final rule will
not result in expenditures by State, local, and tribal governments, or
by the private sector, of more than $100 million in any one year.
Accordingly, a budgetary impact statement is not required under section
202 of the Unfunded Mandates Act of 1995, Pub. L. 104-4, 109 Stat. 48
(1995).
VII. Effective Date
Section 302 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (CDRIA), 12 U.S.C. 4802, requires that new
regulations and amendments to regulations that impose additional
reporting, disclosures, or other new requirements take effect on the
first date of the calendar quarter following publication of the rule
unless, among other things, the agency determines, for good cause, that
the regulations should become effective on a day other than the first
day of the next quarter. OTS believes that CDRIA does not apply to this
final rule because it imposes no new burden on thrifts. For these
reasons, OTS has determined that an immediate effective date is
appropriate for this final rule.
List of Subjects 12 CFR Part 560
Consumer protection, Investments, Manufactured homes, Mortgages,
Reporting and recordkeeping
[[Page 15825]]
requirements, Savings associations, Securities.
Accordingly, the Office of Thrift Supervision hereby amends title
12, chapter V of the Code of Federal Regulations by adopting as final
the interim rule published at 61 FR 60179 (November 27, 1996), with the
following changes.
PART 560--LENDING AND INVESTMENT
1. The authority citation for part 560 continues to read as
follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1701j-3,
1828, 3803, 3806; 42 U.S.C. 4106.
2. Section 560.3 is amended by revising the introductory text and
the definitions for credit card and small business loans and loans to
small businesses to read as follows:
Sec. 560.3 Definitions.
For purposes of this part and any determination under 12 U.S.C.
1467a(m):
* * * * *
Credit card is any card, plate, coupon book, or other single credit
device that may be used from time to time to obtain credit.
* * * * *
Small business loans and loans to small businesses include any loan
to a small business as defined in this section; or a loan (including a
group of loans to one borrower) that meets the original amount
restrictions and other criteria for ``loans to small businesses and
small farms'' as defined in the instructions for preparation of the
Thrift Financial Report.
Dated: March 24, 1997.
By the Office of Thrift Supervision.
Nicolas P. Retsinas,
Director.
[FR Doc. 97-8011 Filed 4-2-97; 8:45 am]
BILLING CODE 6720-01-P
