OCC Finalizes Rule on Permissible Interest on Transferred Loans
OCC issued a final rule to clarify that when a national bank or savings association sells, assigns, or otherwise transfers a loan, interest permissible before the transfer continues to be permissible after the transfer. The final rule goes into effect on August 03, 2020. Additionally, US Agencies (FDIC, FED, and OCC) issued the host state loan-to-deposit ratios that they will use to determine compliance with section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. The new ratios replace ratios from the prior year (released on May 28, 2019).
Final Rule on Permissible Interest on Loans—Federal law establishes that banks may charge interest on loans at the maximum rate permitted to any state-chartered or licensed lending institution in the state where the bank is located. In addition, banks are generally authorized to transfer loans and to enter into and assign loan contracts. Despite these clear authorities, recent developments have created legal uncertainty about the ongoing permissibility of the interest term after a bank transfers a loan. OCC is issuing this rule to clarify that a bank may transfer a loan without impacting the permissibility or enforceability of the interest term in the loan contract. The proposal on this rule was issued in November 2019 and OCC received over sixty comments on its proposal, including comments from industry trade associations, non-bank lenders, community groups, academics, state government representatives, and members of the public.
Host State Loan-to-Deposit Ratios—Due to the legislative intent against imposing regulatory burden, no additional data were collected from institutions to implement section 109. However, since insufficient lending data were available on a geographic basis to calculate the host state loan-to-deposit ratios directly, the agencies used a proxy to estimate the ratios. Accordingly, the agencies calculated the host state loan-to-deposit ratios using data obtained from the Call Reports and the Summary of Deposits Surveys as of June 30, 2019. Section 109 provides a process to test compliance with the statutory requirements. The first step in the process involves a loan-to-deposit ratio test that compares a bank's statewide loan-to-deposit ratio to the host state loan-to-deposit ratio for banks in a particular state. A second step is conducted if a bank's statewide loan-to-deposit ratio is less than one-half of the published ratio for that state or if data are not available at the bank to conduct the first step. The second step requires the appropriate agency to determine whether a bank is reasonably helping to meet credit needs of the communities served by its interstate branches. A bank that fails both steps is in violation of section 109 and is subject to sanctions by the appropriate agency.
Related Links
- OCC Bulletin on Rule on Permissible Interest on Loans
- Federal Register Notice (PDF)
- News Release on Host State Loan-to-Deposit Ratios
- Host State Loan-to-Deposit Ratios (PDF)
Effective Date: August 03, 2020
Keywords: Americas, US, Banking, Loan to Deposit Ratio, Call Reports, Interest on Loan, Credit Risk, US Agencies
Previous Article
FCA Guidance Confirms Support for Mortgage Customers Amid CrisisRelated Articles
EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.10
EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.
FASB Proposes to Delay Implementation of Insurance Contracts Standard
FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).
APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis
APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.
BCBS and FSB Set Out Recommendations for Benchmark Transition
BCBS and FSB published a report on supervisory issues associated with benchmark transition.
IAIS Sets Out Recommendations for Benchmark Transition for Insurers
IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.
ESMA Updates Reporting Manual on European Single Electronic Format
ESMA updated the reporting manual on the European Single Electronic Format (ESEF).
EBA Calls on Resolution Authorities to Consider Impact of COVID Crisis
EBA published a statement on resolution planning in light of the COVID-19 pandemic.
ECB Guideline on Materiality Threshold for Credit Obligations Past Due
ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions.
FED Temporarily Revises FR Y-14 With Respect to PPP and CARES Act
FED temporarily revised the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes in response to the COVID-19 pandemic.
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
