Senate Business and Commerce Committee
Impact of Texas Usury Laws on Commercial Lending
Texas Department of Banking
Testimony of:
Randall S. James Banking Commissioner
May 3, 2004
A Sound Financial System is Important to Texas Financial institutions are capable of extending loans and other forms of credit to facilitate business growth and consumer purchases.
Small businesses employ 46% of Texas’ nonfarm workers.
(Source: U.S. Small Business Administration)
Banks are a primary source of lending for small and large businesses. Increases in business activity leads to new employment opportunities. Cumbersome usury laws can be an impediment to business lending and growth. Usury laws that only apply to state banks (and other locally based lenders) create a competitive disadvantage for local banks.
Offered by: Texas Department of Banking May 3, 2004 Senate Business and Commerce Committee Page
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Profile of Texas Banking
Who Holds Texas Deposits $336.2 Billion
State Banks COT**, $60,961, 18%
Federal Savings Banks - COT**, $11,164, 3%
State Savings State Banks - CIT*, Banks - CIT*, $48,305, 14% $10,262, 3% State Credit Unions - CIT*, $15,558, 5%
National Banks COT**, $64,382, 19% Federal Credit Unions - CIT*, $23,338, 7%
National Banks CIT*, $81,308, 25% Federal Savings Banks - CIT*, $20,917, 6%
*CIT - Chartered in Texas | **COT - Chartered outside Texas Information is from the FDIC Summary of Deposits as of June 30, 2003 and the NCUA Semi-annual report. Numbers are in millions. State Chartered Banks, Savings Banks and Credit Unions represent 22% of total deposits in Texas. Offered by: Texas Department of Banking May 3, 2004 Senate Business and Commerce Committee Page
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Usury Issues for Commercial Lenders
Rate – A maximum rate set too low might benefit borrowers but limit the availability of funds. Penalties – Harsh penalties for noncompliance discourage lenders to locate their headquarters in Texas and result in lenders paying high legal costs. Complexity – Overly complex usury laws result in higher costs for training and compliance and encourage lenders to contract under other states’ laws. Fees – In the current statute, fees are prohibited unless specifically authorized. This occasionally results in violations of the usury laws when disallowed fees are determined to be interest through court decisions. (See
Gonzales Savings and Loan Case)
Effectiveness – Out of state lenders are not required to comply with Texas’ usury laws.
Offered by: Texas Department of Banking May 3, 2004 Senate Business and Commerce Committee Page
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Most Other States Have No Effective Commercial Usury
Texas
Usury Limit Can vary from 18% to 28% Attorney’s fees plus greater of: (i) 3x overage or (ii) $2,000 or 20% of principal, whichever is less Complex by industry standards If not authorized, fees can be interest Other states’ laws are imported
North D.
No Limit (1)
Alabama
No Practical Limit (2)
Nevada
No Limit
Delaware
No Practical Limit (3)
Illinois
No Limit
Penalties
N/A (4)
N/A (4)
N/A (4)
N/A (4)
N/A (4)
Complexity
Not Complex
Not Complex
Not Complex
Not Complex
Complex
Fees
N/A Other states’ laws are imported
N/A Other states’ laws are imported
N/A Other states’ laws are imported
N/A Other states’ laws are imported
N/A Other states’ laws are imported
Effectiveness
(1) (2) (3) (4)
Usury laws do not apply to regulated lending institutions, which include banks, credit unions, trust companies, and finance companies. Any person, corporation, trust, partnership, or association may agree to pay such rate or rates of interest for the loan or forbearance of money; provided, that the original principal balance of the loan or forbearance of money or credit sales is not less than $2,000. Usury laws do not apply if the borrower is a corporation, LP, business trust, or LLC, or the loan is > $100,000 and not secured by a mortgage against the principal residence of the borrower. Penalties are not applicable to commercial lending in this state, since there is either no limit or no practical limit. Senate Business and Commerce Committee Page
Offered by: Texas Department of Banking May 3, 2004
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Usury Effectiveness
How effective are our usury laws for commercial lending? Do they apply to all the players in the market? Usury rates can be imported from the home state of out-of-state lenders; Equity participation and options are legal circumventions. (See Chapter 306, Subchapter B)
Offered by: Texas Department of Banking May 3, 2004
Senate Business and Commerce Committee
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Preemption of Texas Usury
Federal regulators consistently assert that state law restrictions on lending activities of federally chartered institutions are subject to preemption. Out of state state-chartered banks enjoy these same preemptions.
Offered by: Texas Department of Banking May 3, 2004
Senate Business and Commerce Committee
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Usury Problems
Lenders headquartered in Texas have additional legal expense to comply with usury. Texas lenders cannot be absolutely certain about Constitutional usury issues until the Texas Supreme Court has made a ruling. Lenders headquartered in Texas risk for violations of commercial usury laws: (i) increased litigation costs, (ii) attorney’s fees to the borrower, and (iii) penalties [which can be the greater of three times the amount of overcharge or $2,000 or 20% of the principal amount, whichever is less].
Offered by: Texas Department of Banking May 3, 2004 Senate Business and Commerce Committee Page
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Texas as a Host State
Offered by: Texas Department of Banking May 3, 2004
Senate Business and Commerce Committee
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Senate Business and Commerce Committee – Impact of Texas Usury Laws on Commercial Lending
State Usury Law and Preemption
Interest charges
Under 12 U.S.C. 85 or 1821d, national banks and insured state banks may charge “interest”, as defined under federal law, at the highest rate allowed to competing lenders by the state where the bank is located, without regard to the location of the borrower. The OCC’s regulation at 12 C.F.R. § 7.4001 defines the term “interest” as used in 12 U.S.C. 85, and provides a nonexclusive list of specific fees that are considered “interest”, and a non-exclusive list of fees that ordinarily are not “interest”, under federal law applicable to national banks.1 Charges that fall within the federal definition of “interest” are subject to 12 U.S.C. 85 and its “most favored lender” and exportation rules. The same conclusion can be drawn from 12 U.S.C. 1831d regarding state banks.2 A bank must look to state law to determine what lending charges are permitted for the most favored lender to determine what charges are permitted for a bank, under either 12 U.S.C. 85 or 1821d, as federally defined “interest”.
See Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735 (1996) (upholding the OCC’s regulation defining the term “interest” for purposes of 12 U.S.C. 85). See FDIC General Counsel’s Opinion No. 10, published at 63 Fed. Reg. 19258 (April 17, 1998).
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The federal definition of “interest” is independent of state law definitions of “interest” and is not implicated in the manner in which state law calculates the amount of interest being charged. For example, if late fees are not interest under state law where the bank is located and state law allows late fees, then a national bank located in that state may charge late fees to its intrastate customers. The bank could also charge the fees to its interstate customers because the fees are “interest” under the federal definition in 12 C.F.R. § 7.4001 and an allowable charge under state law where the national bank is located. However, the late fees would not be treated as interest for purposes of evaluating compliance with state usury limitations because state law excludes late fees when calculating the maximum interest that lending institutions may charge under those limitations.
Exportation of Interest
Federal law (12 U.S.C. 85 or 1821d) permits a bank to “export” to customers in other states the rate of “interest” (as federally defined) allowed by the state in which the bank is located.3 For
See Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299 (1978); also see Greenwood Trust Co. v. Massachusetts, 971 F.2d 818 (1st Cir. 1992), cert. denied, 113 S. Ct. 974 (1993).
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Offered by: Texas Department of Banking May 3, 2004
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purposes of 12 U.S.C. 85 or 1831d, an interstate bank may be “located” in both its home state and its host state or states.4 At what location a loan is made by a bank with multiple locations was addressed in OCC Interpretive Letter No. 822 with respect to national banks, and FDIC General Counsel’s Opinion No. 11 with respect to insured state banks and savings banks. Evaluating the non-ministerial functions associated with making a loan (approval of an extension of credit, extension of the credit, and disbursal of loan proceeds to a customer), both the OCC and the FDIC concluded that an interstate bank may charge interest permitted by the laws of its home state unless the loan is made (i.e., the loan is approved, credit is extended, and funds are disbursed) in a branch or branches of the bank in a single host state. If one or two of those three functions occur in a host state, the bank may, alternatively, charge the interest permitted by that state if, based on an assessment of all of the facts and circumstances, the loan has a clear nexus to that state. If a bank is permitted to charge the rates of a particular home or host state, it may charge the most favored lender rates permitted by that state and may charge the permissible interest rates irrespective of the state of residence of the borrower.
Accordingly, a bank with a Texas office may deliberately shift certain functions to another state in which it maintains an office and thereby invoke the usury laws of the other state, regardless of whether the Texas office is a branch or the bank’s home office. This process of shifting functions to another location in order to invoke a jurisdiction of choice is not difficult, but it does create additional costs for the bank — a local bank with interstate offices would ordinarily not attempt to do so unless local usury law is overly restrictive in comparison to the other jurisdiction.
Non-interest charges
The OCC’s regulation regarding non-interest charges and fees, including loan-related charges and fees, is located at 12 C.F.R. § 7.4002, and provides that a national bank is federally authorized to charge its customers non-interest charges and fees, including deposit account service charges. The regulation requires that a national bank derive its non-interest charges and fees on a competitive basis consistent with sound banking judgment and safe and sound banking principles. If a bank adheres to those standards, the OCC will not substitute its judgment about how much a bank should charge for a given product or service. The rule provides that national bank non-interest charges and fees are permissible notwithstanding any state law purporting to limit or prohibit such fees, if established in compliance with the regulation, and judicial determinations to date appear to uphold the rule. However, more often than not national banks Page 11
See Marquette, 439 U.S. at 309, fn. 21; also see Ghiglieri v. Sun World National Association, 117 F.3d 309, 316 (5th Cir. 1997); OCC Interpretive Letter No. 822 (Feb. 17, 1998); FDIC General Counsel’s Opinion No. 11, published at 63 Fed. Reg. 27282 (May 18, 1998). Also see 12 U.S.C. 1831a(j)(1).
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Offered by: Texas Department of Banking May 3, 2004
Senate Business and Commerce Committee – Impact of Texas Usury Laws on Commercial Lending
dimply comply with state law limitations rather than seek preemption. Considerations of ‘safety and soundness’ risks in establishing a fee involves in part an evaluation of risk, including reputation or litigation risk that might result from its imposition. Sometimes compliance with state law is the least costly alternative. “Some” state law may still apply. The OCC has acknowledged that state common law theories of fraud or unconscionability may apply to charges and fees of national banks.
accounts, security interests in property, and disclosure and advertising. With respect to real estate lending, 12 C.F.R. § 34.4(a) specifically states that a national bank may make real estate loans without regard to state law limitations concerning:
(1) The amount of a loan in relation to the appraised value of the real estate; (2) The schedule for the repayment of principal and interest; (3) The term to maturity of the loan; (4) The aggregate amount of funds that may be loaned upon the security of real estate; and (5) The covenants and restrictions that must be contained in a lease to qualify the leasehold as acceptable security for a real estate loan.
Other State Law Limitations on Lending
Recently the OCC had occasion to revisit the issue of state law limitations regarding lending in a broader context, in connection with its recent adoption of regulations regarding preemption. In particular, 12 C.F.R. § 7.4008, regarding nonreal estate lending activities, and 12 C.F.R. § 34.4, regarding real estate lending activities, assert the primacy of federal authorization quite forcefully by listing the types of state laws that wholly or partially obstruct the ability of national banks (and their operating subsidiaries) to fully exercise their lending powers. (The full text of these two rules is attached.) Regarding non-real estate lending, 12 C.F.R. § 7.4008(d)(2) provides that a national bank may make non-real estate loans without regard to state law limitations concerning ten listed areas, including the ability of a creditor to require or obtain insurance for collateral or other credit enhancements or risk mitigants, loan-to-value ratios, the terms of credit, escrow Offered by: Texas Department of Banking May 3, 2004
Finally, both 12 C.F.R. § 7.4008 and § 34.4 set forth a nonexclusive list of state law subjects that are not inconsistent with the lending powers of national banks and apply to national banks “to the extent that they only incidentally affect the exercise” of national banks’ lending powers. These areas of law include contracts, torts, criminal law, rights to collect debts, acquisition and transfer of property, taxation, and zoning. Significantly, “homestead laws specified in 12 U.S.C. 1462a(f)” are listed in 12 C.F.R. § 34.4(b)(4) as laws that will apply to a national bank “to the extent that they only incidentally affect the exercise of national banks’ real estate lending powers”.
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fix maximum rates of interest.7 Every attempt to legislate regarding what is and what is not usury must qualify as falling within the Legislature's authority under the Constitution, and therefore must be either (1) defining interest, or (2) fixing maximum rates of interest.
The reference to 12 U.S.C. 1462a(f) is an unambiguous reference to the Texas homestead laws, which Congress has forbidden the Office of Thrift Supervision to preempt. In discussing the background to a regulation adopted in 2001, the OCC stated that its preemptive authority was generally equivalent to that of the Office of Thrift Supervision, “unless a Federal law provides otherwise,”5 and added the following explanation in a footnote:
See, e.g., 12 U.S.C. 1462a(f) (stating that no provision of law administered by the Director of the Office of Thrift Supervision shall be construed as superseding any homestead provision of any State constitution or implementing statute in effect on September 29, 1994, or any subsequent amendment, that exempts the homestead of any person form foreclosure or forced sale for the payment of debts, other than a purchase money obligation relating to the homestead, taxes due on the homestead, or an obligation arising from work and material used in constructing improvements on the homestead). There is no 6 comparable provision in the laws applicable to national banks.
Prior to 1960, the legal rate limits were found in the Constitution and this arrangement provided no flexibility, although the Legislature was directed to “provide appropriate pains and penalties to prevent and punish usury.” The 1960 amendment (Acts 1959, 56th Leg., H.J.R. No. 6) gave the Legislature authority to (1) classify loans and lenders, (2) license and regulate lenders, (3) define interest, and (4) fix maximum rates of interest. In addition, revised Section 11 granted a right of appeal and trial de novo in the event any regulatory agency cancels or refuses to grant any permit. It was under this 1960 version of Section 11 that the Consumer Credit Code and ultimately the Office of Consumer Credit Commissioner were created. The Constitution was again amended in 2001 (Acts 2001, 77th Leg., H.J.R. No. 75, § 8.03), to delete the statement of authority of the Legislature to “classify loans and lenders, license and regulate lenders,” and to delete the right to appeal an agency permit decision by trial de novo. H.J.R. 75 was an omnibus, clean-up amendment, of which the change to Article XVI, Section 11, was only a small part, “to eliminate obsolete, archaic, redundant, and unnecessary provisions and to clarify, update, and consolidate certain other provisions.” No explanation appears in the legislative record for the amendment to Section 11. As a practical matter, the Legislature has the inherent authority to license and regulate lenders under other provisions of the Constitution, and the power to classify loans is likely subsumed within the power to define interest.
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Texas Constitutional Authority
Any discussion of proposed legislation regarding usury must begin with Article XVI, Section 11 of the Texas Constitution, which authorizes the Legislature to (1) define interest, and (2)
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66 Fed. Reg. 34784, at 34789 (July 2, 2001). Id. at 34789, fn. 21.
Offered by: Texas Department of Banking May 3, 2004
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Summary: Texas Usury and Preemption
Fixing Maximum Rates
Authority to fix maximum rates of interest likely does not include setting the maximum rate at infinity. Therefore, a constitutional amendment would appear to be required to exempt any transaction from the application of usury law, or to deny the defense of usury to any particular class of borrowers.
of the Texas Constitution, state banks and state savings banks are extended equal treatment.
Other State Law Limitations on Lending
According to federal regulators, federal preemption also prohibits Texas from limiting or qualifying the ability of national banks or federal thrifts (or their operating subsidiaries) to engage in lending activities. See, e.g., 12 C.F.R. § 7.008. Under the parity principles of Article XVI, Section 16 of the Texas Constitution, state banks and state savings banks are extended the same treatment.
Defining Interest
The Legislature’s authority to define interest is limited to an extent by federal “most favored lender” law, at least with respect to “interest” (as defined by federal law, see, e.g., 12 C.F.R. § 7.4001) for national banks and federal thrifts (and their operating subsidiaries), and insured state-chartered banks. Insofar as the Legislature’s definition of interest matches the federal definition, no preemption issues arise. The Legislature can in its unfettered discretion limit or prohibit all lenders, on a non-discriminatory basis, from charging a fee that is defined as “interest” under both federal and state law.
Selected Federal Regulations: National Banks and Preemption
12 C.F.R. § 7.4001: Charging interest at rates permitted competing institutions; charging interest to corporate 8 borrowers. (a) Definition. The term “interest” as used in 12 U.S.C. 85 includes any payment compensating a creditor or prospective creditor for an extension of credit, making available of a line of credit, or any default or breach by a borrower of a condition upon which credit was extended. It includes, among other things, the following fees connected with credit extension or availability: numerical periodic rates, late fees, creditor-imposed not sufficient
61 Fed. Reg. 4862 (Feb. 9, 1996), as amended at 66 Fed. Reg. 34791 (July 2, 2001).
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Non-Interest Charges and Fees
According to federal regulators, federal law permits national banks and federal thrifts (and their operating subsidiaries) to charge non-interest charges and fees in connection with their federally authorized lending activities, and Texas does not have authority to restrict or condition those fees. See, e.g., 12 C.F.R. § 7.002. Under the parity principles of Article XVI, Section 16 Offered by: Texas Department of Banking May 3, 2004
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funds (NSF) fees charged when a borrower tenders payment on a debt with a check drawn on insufficient funds, overlimit fees, annual fees, cash advance fees, and membership fees. It does not ordinarily include appraisal fees, premiums and commissions attributable to insurance guaranteeing repayment of any extension of credit, finders’ fees, fees for document preparation or notarization, or fees incurred to obtain credit reports. (b) Authority. A national bank located in a state may charge interest at the maximum rate permitted to any state-chartered or licensed lending institution by the law of that state. If state law permits different interest charges on specified classes of loans, a national bank making such loans is subject only to the provisions of state law relating to that class of loans that are material to the determination of the permitted interest. For example, a national bank may lawfully charge the highest rate permitted to be charged by a state-licensed small loan company, without being so licensed, but subject to state law limitations on the size of loans made by small loan companies. (c) Effect on state definitions of interest. The Federal definition of the term “interest” in paragraph (a) of this section does not change how interest is defined by the individual states (nor how the state definition of interest is used) solely for purposes of state law. For example, if late fees are not “interest” under state law where a national bank is located but state law permits its most favored lender to charge late fees, then a national bank located in that state may charge late fees to its intrastate customers. The national bank may also charge late fees to its interstate customers because the fees are interest under the Federal definition of interest and an allowable charge under state law where the national bank is located. However, the late fees would not be treated as interest for purposes of evaluating compliance with state usury limitations because state law excludes late fees when calculating the maximum interest that lending institutions may charge under those limitations. (d) Usury. A national bank located in a state the law of which denies the defense of usury to a corporate borrower may charge a corporate borrower any rate of interest agreed upon by a corporate borrower. 12 C.F.R. § 7.4002: National bank charges. (a) Authority to impose charges and fees. A national bank may charge its customers non-interest charges and fees, including deposit account service charges. (b) Considerations. (1) All charges and fees should be arrived at by each bank on a competitive basis and not on the basis of any agreement, arrangement, undertaking, understanding, or discussion with other banks or their officers. (2) The establishment of non-interest charges and fees, their amounts, and the method of calculating them are business decisions to be made by each bank, in its discretion, according to sound banking judgment and safe and sound banking principles. A national bank establishes non-interest charges and fees in accordance with safe and sound banking principles if the bank employs a decisionmaking process through which it considers the following factors, among others:
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66 Fed. Reg. 34791 (July 2, 2001).
Offered by: Texas Department of Banking May 3, 2004
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(i) The cost incurred by the bank in providing the service; (ii) The deterrence of misuse by customers of banking services; (iii) The enhancement of the competitive position of the bank in accordance with the bank’s business plan and marketing strategy; and (iv) The maintenance of the safety and soundness of the institution. (c) Interest. Charges and fees that are “interest” within the meaning of 12 U.S.C. 85 are governed by § 7.4001 and not by this section. (d) State law. The OCC applies preemption principles derived from the United States Constitution, as interpreted through judicial precedent, when determining whether State laws apply that purport to limit or prohibit charges and fees described in this section. (e) National bank as fiduciary. This section does not apply to charges imposed by a national bank in its capacity as a fiduciary, which are governed by 12 C.F.R. part 9. 12 C.FR. § 7.4006: Applicability of State law to national bank 10 operating subsidiaries. Unless otherwise provided by Federal law or OCC regulation, State laws apply to national bank operating subsidiaries to the same extent that those laws apply to the parent national bank.
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12 C.F.R. § 7.4008: Lending. (a) Authority of national banks. A national bank may make, sell, purchase, participate in, or otherwise deal in loans and interests in loans that are not secured by liens on, or interests in, real estate, subject to such terms, conditions, and limitations prescribed by the Comptroller of the Currency and any other applicable Federal law. (b) Standards for loans. A national bank shall not make a consumer loan subject to this § 7.4008 based predominantly on the bank’s realization of the foreclosure or liquidation value of the borrower’s collateral, without regard to the borrower’s ability to repay the loan according to its terms. A bank may use any reasonable method to determine a borrower’s ability to repay, including, for example, the borrower’s current and expected income, current and expected cash flows, net worth, other relevant financial resources, current financial obligations, employment status, credit history, or other relevant factors. (c) Unfair and deceptive practices. A national bank shall not engage in unfair or deceptive practices within the meaning of section 5 of the Federal Trade Commission Act, 15 U.S.C. 45(a)(1), and regulations promulgated thereunder in connection with loans made under this § 7.4008. (d) Applicability of state law. (1) Except where made applicable by Federal law, state laws that obstruct, impair, or condition a national bank’s ability to fully exercise its Federally authorized non-real estate lending powers are not applicable to national banks.
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Id.
69 Fed. Reg. 1904 (Jan. 13, 2004).
Offered by: Texas Department of Banking May 3, 2004
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(2) A national bank may make non-real estate loans without regard to state law limitations concerning: (i) Licensing, registration (except for purposes of service of process), filings, or reports by creditors; (ii) The ability of a creditor to require or obtain insurance for collateral or other credit enhancements or risk mitigants, in furtherance of safe and sound banking practices; (iii) Loan-to-value ratios; (iv) The terms of credit, including the schedule for repayment of principal and interest, amortization of loans, balance, payments due, minimum payments, or term to maturity of the loan, including the circumstances under which a loan may be called due and payable upon the passage of time or a specified event external to the loan; (v) Escrow accounts, impound accounts, and similar accounts; (vi) Security property, including leaseholds; (vii) Access to, and use of, credit reports; (viii) Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents; (ix) Disbursements and repayments; and 12 (x) Rates of interest on loans.
The limitations on charges that comprise rates of interest on loans by national banks are determined under Federal law. See 12 U.S.C. 85; 12 C.F.R. § 7.4001. State laws purporting to regulate national bank fees and charges that do not constitute interest are addressed in 12 C.F.R. § 7.4002.
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(e) State laws that are not preempted. State laws on the following subjects are not inconsistent with the non-real estate lending powers of national banks and apply to national banks to the extent that they only incidentally affect the exercise of national banks’ non-real estate lending powers: (1) Contracts; (2) Torts; 13 (3) Criminal law; (4) Rights to collect debts; (5) Acquisition and transfer of property; (6) Taxation; (7) Zoning; and (8) Any other law the effect of which the OCC determines to be incidental to the non-real estate lending operations of national banks or otherwise consistent with the powers set out in paragraph (a) of this section.
But see the distinction drawn by the Supreme Court in Easton v. Iowa, 188 U.S. 220, 238 (1903) between “crimes defined and punishable at common law or by the general statutes of a state and crimes and offences cognizable under the authority of the United States.” The Court stated that “[u]ndoubtedly a state has the legitimate power to define and punish crimes by general laws applicable to all persons within its jurisdiction * * *. But it is without lawful power to make such special laws applicable to banks organized and operating under the laws of the United States.” Id. at 239 (holding that Federal law governing the operations of national banks preempted a state criminal law prohibiting insolvent banks from accepting deposits).
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Offered by: Texas Department of Banking May 3, 2004
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12 C.F.R. § 34.4: Applicability of State law. (a) Specific preemption. A national bank may make real estate loans under 12 U.S.C. 371 and § 34.3 without regard to State law limitations concerning: (1) The amount of a loan in relation to the appraised value of the real estate; (2) The schedule for the repayment of principal and interest; (3) The term to maturity of the loan; (4) The aggregate amount of funds that may be loaned upon the security of real estate; and (5) The covenants and restrictions that must be contained in a lease to qualify the leasehold as acceptable security for a real estate loan. (b) State laws on the following subjects are not inconsistent with the real estate lending powers of national banks and apply to national banks to the extent that they only incidentally affect the exercise of national banks’ real estate lending powers: (1) Contracts; (2) Torts; 15 (3) Criminal law; (4) Homestead laws specified in 12 U.S.C. 1462a(f); (5) Rights to collect debts; (6) Acquisition and transfer of real property;
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(7) Taxation; (8) Zoning; and (9) Any other law the effect of which the OCC determines to be incidental to the real estate lending operations of national banks or otherwise consistent with the powers and purposes set out in § 34.3(a). (c) General standards. The OCC will apply recognized principles of Federal preemption in considering whether State laws apply to other aspects of real estate lending by national banks.
61 Fed. Reg. 11300 (Mar. 20, 1996); as amended by 69 Fed. Reg. 1904 (Jan. 13, 2004).
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See fn. 13, infra.
Offered by: Texas Department of Banking May 3, 2004
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