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104th Congress I
1st Session

^ M M ™ ™ «»«*«
COMMITTEE PRINT

i

CP: 104-1

COMPILATION OF

BASIC BANKING LAWS
REVISED THROUGH MAY 1, 1995

COMMITTEE ON BANKING AND FINANCIAL
SERVICES
HOUSE OF REPRESENTATIVES

Printed for the use of the
Committee on Banking and Financial Services
U.S. GOVERNMENT PRINTING OFFICE
89-335

WASHINGTON : 1996

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402




ISBN 0-16-047091-9

COMMITTEE ON BANKING AND FINANCIAL SERVICES
JIM LEACH, Iowa, Chairman
BILL McCOLLUM, Florida
HENRY B. GONZALEZ, Texas,
MARGE ROUKEMA, New Jersey
JOHN J. LAFALCE, New York
DOUG BEREUTER, Nebraska
BRUCE F. VENTO, Minnesota
THOMAS RIDGE, Pennsylvania
CHARLES E. SCHUMER, New York
TOBY ROTH, Wisconsin
BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana
PAUL E. KANJORSKI, Pennsylvania
RICK LAZIO, New York
JOSEPH P. KENNEDY H, Massachusetts
SPENCER BACHUS, Alabama
FLOYD H. FLAKE, New York
MICHAEL N. CASTLE, Delaware
KWEISI MFUME, Maryland
PETER T. KING, New York
MAXINE WATERS, California
EDWARD R. ROYCE, California
BILL ORTON, Utah
FRANK D. LUCAS, Oklahoma
CAROLYN B. MALONEY, New York
JERRY WELLER, Illinios
LUIS V. GUTIERREZ, Illinois
J.D. HAYWORTH, Arizona
LUCILLE ROYBAL-ALLARD, California
JACK METCALF, Washington
THOMAS M. BARRETT, Wisconsin
SONNY BONO, California
NYDIA M. VELAZQUEZ, New York
ROBERT W. NEY, Ohio
ALBERT RUSSELL WYNN, Maryland
ROBERT L. EHRLICH, JR., Maryland
CLEO FIELDS, Louisiana
BOB BARR, Georgia
MELVIN L. WATT, North Carolina
DICK CHRYSLER, Michigan
MAURICE D. HINCHEY, New York
FRANK A. CREMEANS, Ohio
GARY L. AKERMAN, New York
JON D. FOX, Pennsylvania
KEN BENTSEN, Texas
FREDERICK K. (FRED) HEINEMAN, North BERNARD SANDERS, Vermont
Carolina
STEVE STOCKMAN, Texas
FRNAK A. LOBIONDO, New Jersey
J.C. WATTS, JR., Oklahoma
SUE W. KELLY, New York




(ID

LETTER OF TRANSMITTAL
MAY 1995.
Dear Colleagues:
Transmitted herewith is a Committee Print entitled "Compilation of Basic Banking Laws". The document brings together in one
publication the major statutes affecting insured depository
institutions and their customers.
I would like to commend Mr. Jim Wert, Assistant Counsel in
the Office of the Legislative Counsel of the House of Representatives, for his superb work in preparing and editing the material in
this expanded compilation. lie and his associates and staff in the
Legislative Counsel's Office, working with the staff of this Committee, undertook a mammoth project in attempting to compile the
multitudinous and diverse statutes affecting banking. This document is an excellent work product and should prove to be an
extremely useful tool.
Sincerely,




J I M LEACH,

an)

Chairman.

Notes to the Reader
1. Any material contained within brackets [ ] is not part of the
text of the law but is inserted as an aid to the reader.
2. Citations have been included to enable the reader to locate the
same material in the United States Code (U.S.C). These citations
are not a part of the text of the law in which they appear.




(IV)

CONTENTS
Page

Act of May 1, 1886
Act of September 28, 1962
Act of October 26, 1970
Act of October 28, 1974
Alternative Mortgage Transaction Parity Act of 1982
Bank Conservation Act
Bank Enterprise Act of 1991
Bank Holding Company Act of 1956
Bank Protection Act of 1968
Banking Act of 1933
Community Development Credit Union Revolving Loan Fund Transfer Act
Community Reinvestment Act of 1977
Competitive Equality Banking Act of 1987
Consumer Credit Protection Act
including the following Acts:
Truth In Lending Act
Fair Credit Reporting Act
Equal Credit Opportunity Act
Fair Debt Collection Practices Act
Electronic Fund Transfer Act
Depository Institution Management Interlocks Act
Expedited Funds Availability Act
Federal Credit Union Act
Federal Deposit Insurance Act
Federal Deposit Insurance Corporation Improvement Act of 1991
Federal Home Loan Bank Act
Federal Reserve Act
Financial Institutions Reform, Recovery, and Enforcement Act of 1989
Home Owners' Loan Act
International Banking Act of 1978
International Lending Supervision Act of 1983
National Bank Consolidation and Merger Act
National Bank Receivership Act
Reigle Community Development and Regulatory Improvement Act of 1994
Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994
Right To Financial Privacy Act of 1978
Resolution Trust Corporation Funding Act of 1991
Resolution Trust Corporation Refinancing, Restructuring, and Improvement
Act of 1991
Subtitle IV of Title 31, United States Code
Title LXII of the Revised Statutes of the United States
Truth In Savings Act




(V)

1
5
11
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21
27
35
49
93
97
105
109
117
121
123
187
198
207
217
233
243
263
361
623
633
765
865
899
981
1007
1019
1027
1033
1093
1103
1125
1129
1135
1183
1231




ACT OF MAY 1, 1886

(l)




ACT OF MAY 1, 1886
CHAP. 73.—An Act to enable national banking associations to increase their capital
stock and to change their names or locations.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
[Section 1 was repealed by section 6 of Public Law 86-230,
73 Stat. 457.]
SEC. 2. [12 U.S.C. 30] (a) Any national banking association,
upon written notice to the Comptroller of the Currency, may
change its name, except that such new name shall include the word
"National".
(b) Any national banking association, upon written notice to
the Comptroller of the Currency, may change the location of its
main office to any authorized branch location within the limits of
the city, town, or village in which it is situated, or, with a vote of
shareholders owning two-thirds of the stock of such association for
a relocation outside such Umits and upon receipt of a certificate of
approval from the Comptroller of the Currency, to any other location within or outside the Umits of the city, town, or village in
which it is located, but not more than thirty miles beyond such limits.
(c) COORDINATION WITH REVISED STATUTES.—In the case of a
national bank which relocates the main office of such bank from 1
State to another State after May 31, 1997, the bank may retain
and operate branches within the State from which the bank relocated such office only to the extent authorized in section 5155(e)(2)
of the Revised Statutes.
SEC. 3. [12 U.S.C. 31] That all debts, Uabilities, rights, provisions, and powers of the association under its old name shall devolve upon and inure to the association under its new name.
SEC. 4. [12 U.S.C. 32] That nothing in this act contained shall
be so construed as in any manner to release any national banking
association under its old name or at its old location from any liability, or affect any action or proceeding in law in which said association may be or become a party or interested.




(3)




ACT OF SEPTEMBER 28, 1962

s







ACT OF SEPTEMBER 28, 1962
AN ACT To place authority over the trust powers of national banks in the
Comptroller of the uurrency.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That [12 U.S.C.
92a] (a) the Comptroller of the Currency shall be authorized and
empowered to grant by special permit to national banks applying
therefor, when not in contravention of State or local law, the right
to act as trustee, executor, administrator, registrar of stocks and
bonds, guardian of estates, assignee, receiver, committee of estates
of lunatics, or in any other fiduciary capacity in which State banks,
trust companies, or other corporations which come into competition
with national banks are permitted to act under the laws of the
State in which the national bank is located.
(b) Whenever the laws of such State authorize or permit the
exercise of any or all of the foregoing powers by State banks, trust
companies, or other corporations which compete with national
banks, the granting to and the exercise of such powers by national
banks shall not be deemed to be in contravention of State or local
law within the meaning of this Act.
(c) National banks exercising any or all of the powers enumerating in this section shall segregate all assets held in any fiduciary
capacity from the general assets of the bank and shall keep a separate set of books and records showing in proper detail all transactions engaged in under authority of this section. The State banking authorities may have access to reports of examination made by
the Comptroller of the Currency insofar as such reports relate to
the trust department of such bank, but nothing in this Act shall
be construed as authorizing the State banking authorities to examine the books, records, and assets of such bank.
(d) No national bank shall receive in its trust department deposits of current funds subject to check or the deposit of checks,
drafts, bills of exchange, or other items for collection or exchange
purposes. Funds deposited or held in trust by the bank awaiting investment shall be carried in a separate account and shall not be
used by the bank in the conduct of its business unless it shall first
set aside in the trust department United States bonds or other securities approved by the Comptroller of the Currency.
(e) In the event of the failure of such bank the owners of the
funds held in trust for investment shall have a lien on the bonds
or other securities so set apart in addition to their claim against
the estate of the bank.
(f) Whenever the laws of a State require corporations acting in
a fiduciary capacity to deposit securities with the State authorities
for the protection of private or court trusts, national banks so acting shall be required to make similar deposits and securities so de7




Sec. 1

ACT OF SEPTEMBER 28, 1962

8

posited shall be held for the protection of private or court trusts,
as provided by the State law. National banks in such cases shall
not be required to execute the bond usually required of individuals
if State corporations under similar circumstances are exempt from
this requirement. National banks shall have power to execute such
bond when so required bv the laws of the State.
(g) In any case in which the laws of a State require that a corporation acting as trustee, executor, administrator, or in any capacity specified in this section, shall take an oath or make an affidavit,
the president, vice president, cashier, or trust officer of such national bank may take the necessary oath or execute the necessary
affidavit.
(h) It shall be unlawful for any national banking association to
lend any officer, director, or employee any funds held in trust
under the powers conferred by this section. Any officer, director, or
employee making such loan, or to whom such loan is made, may
be fined not more than $5,000, or imprisoned not more than five
years, or may be both fined and imprisoned, in the discretion of the
court.
(i) In passing upon applications for permission to exercise the
powers enumerated in this section, the Comptroller of the Currency
may take into consideration the amount of capital and surplus of
the applying bank, whether or not such capital and surplus is sufficient under the circumstances of the case, the needs of the community to be served, and any other facts and circumstances that seem
to him proper, and may grant or refuse the application accordingly:
Provided, That no permit shall be issued to any national banking
association having a capital and surplus less than the capital and
surplus required by State law of State banks, trust companies, and
corporations exercising such powers.
(j) Any national banking association desiring to surrender its
right to exercise the powers granted under this section, in order to
relieve itself of the necessity of complying with the requirements of
this section, or to have returned to it any securities which it may
have deposited with the State authorities for the protection of private or court trusts, or for any other purpose, may file with the
Comptroller of the Currency a certifiea copy of a resolution of its
board of directors signifying such desire. Upon receipt of such resolution, the Comptroller of the Currency, after satisfying himself
that such bank has been relieved in accordance with State law of
all duties as trustee, executory, administrator, registrar of stocks
and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics or other fiduciary, under court, private, or other
appointments previously accepted under authority of this section,
may, in his discretion, issue to such bank a certificate certifying
that such bank is no longer authorized to exercise the powers
granted by this section. Upon the issuance of such a certificate by
the Comptroller of the Currency, such bank (1) shall no longer be
subject to the provisions of this section or the regulations of the
Comptroller of the Currency made pursuant thereto, (2) shall be
entitled to have returned to it any securities which i t may have deposited with the State authorities for the protection of private or
court trusts, and (3) shall not exercise thereafter any of the powers
granted by this section without first applying for and obtaming a




9

ACT OF SEPTEMBER 28, 1962

Sec. 2

new permit to exercise such powers pursuant to the provisions of
this section. The Comptroller of the Currency is authorized and
empowered to promulgate such regulations as he may deem necessary to enforce compliance with the provisions of this section and
the proper exercise of the powers granted therein.
(k)(l) In addition to the authority conferred by other law, if, in
the opinion of the Comptroller of the Currency, a national banking
association is unlawfully or unsoundly exercising, or has unlawfully
or unsoundly exercised, or has failed for a period of five consecutive
years to exercise, the powers granted by this section or otherwise
fails or has failed to comply with the requirements of this section,
the Comptroller may issue and serve upon the association a notice
of intent to revoke the authority of the association to exercise the
powers granted by this section. The notice shall contain a statement of the facts constituting the alleged unlawful or unsound exercise of powers, or failure to exercise powers, or failure to comply,
and shall fix a time and place at which a hearing will be held to
determine whether an order revoking authority to exercise such
powers should issue against the association.
(2) Such hearing shall be conducted in accordance with the provisions of subsection (h) of section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818(h)), and subject to judicial review as provided in such section, and shall be fixed for a date not earlier than
thirty days nor later than sixty days after service of such notice unless an earlier or later date is set by the Comptroller at the request
of any association so served.
(3) Unless the association so served shall appear at the hearing
by a duly authorized representative, it shall be deemed to have
consented to the issuance of the revocation order. In the event of
such consent, or if upon the record made at any such hearing, the
Comptroller shall find that any allegation specified in the notice of
charges has been established, the Comptroller may issue and serve
upon the association an order prohibiting it from accepting any
new or additional trust accounts and revoking authority to exercise
any and all powers granted by this section, except that such order
shall permit the association to continue to service all previously accepted trust accounts pending their expeditious divestiture or termination.
(4) A revocation order shall become effective not earlier than
the expiration of thirty days after service of such order upon the
association so served (except in the case of a revocation order issued upon consent, which shall become effective at the time specified therein), and shall remain effective and enforceable, except to
such extent as it is stayed, modified, terminated, or set aside by
action of the Comptroller or a reviewing court.
SEC. 2. [12 U.S.C. 92a note! Nothing contained in this Act
shall be deemed to affect or curtail the right of any national bank
to act in fiduciary capacities under a permit granted before the
date of enactment of this Act by the Board of Governors of the Federal Reserve System, nor to affect the validity of any transactions
entered into at any time by any national bank pursuant to such
permit. On and after the date of enactment of this Act the exercise
of fiduciary powers by national banks shall be subject to the provisions of this Act and the requirements of regulations issued by the




Sec. 2

ACT OF SEPTEMBER 28, 1962

10

Comptroller of the Currency pursuant to the authority granted by
this Act.




ACT OF OCTOBER 26, 1970

it







ACT OF OCTOBER 26, 1970
(Public Law 91*508)
AN ACT To amend the Federal Deposit Insurance Act to require insured banks to
maintain certain records, to require that certain transactions in United States
currency be reported to the Department of the Treasury, and for other purposes.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
TITLE I—FINANCIAL RECORDKEEPING
Chapter

Sec.

1. INSURED BANKS AND INSURED INSTITUTIONS
2. OTHER FINANCIAL INSTITUTIONS

101
121

Chapter 1.—INSURED BANKS 1
AND INSURED
INSTITUTIONS
$

£

#

*

*

*

*

Chapter 2.--OTHER FINANCIAL INSTITUTIONS
Sec.
121. Congressional findings and purpose.
122. Authority of Secretary with respect to reports on ownership and control.
123. Authority of Secretary with respect to recordkeeping and procedures.
124. Injunctions.
125. Civil penalties.
126. Criminal penalty.
127. Additional criminal penalty in certain cases.
128. Compliance.
129. Administrative procedure.

§ 121. [12 U.S.C. 1951] Congressional findings and purposes
(a) The Congress finds that certain records maintained by businesses engaged in the functions described in section 123(b) of this
Act have a high degree of usefulness in criminal, tax, and regulatory investigations and proceedings. The Congress further finds
that the power to require reports of changes in the ownership, control, and managements of types of financial institutions referred to
in section 122 of this Act may be necessary for the same purpose.
(b) It is the purpose of this chapter to require the maintenance
of appropriate types of records and the making of appropriate reports by such businesses in the United States where such records
or reports have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.
1

Chapter 1 amended other laws.
13




ACT OF OCTOBER 26, 1970

§122

14

§ 122. [12 U.S.C. 1952] Authority of Secretary with respect to
reports on ownership and control
Where the Secretary determines that the making of appropriate reports by uninsured banks or uninsured institutions of any
type with respect to their ownership, control, and managements
and any changes therein has a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, he may by regulation require such banks or institutions to make such reports as
he determines in respect of such ownership, control, and managements and changes therein.
§ 123. [12 U.S.C. 1953] Authority of Secretary with respect to
recordkeeping and procedures
(a) Where the Secretary determines that the maintenance of
appropriate records and procedures by any uninsured bank or uninsured institution, or any person engaging in the business of carrying on in the United States any of the functions referred to in
subsection (b) of this section, has a high degree of usefulness in
criminal, tax, or regulatory investigations or proceedings, he may
by regulation require such bank, institution, or person—
(1) to require, retain, or maintain, with respect to its functions as an uninsured bank or uninsured institution or its
functions referred to in subsection (b), any records or evidence
of any type which the Secretary is authorized under section 21
of the Federal Deposit Insurance Act to require insured banks
to require, retain, or maintain; and
(2) to maintain procedures to assure compliance with requirements imposed under this chapter. For the purposes of
any civil or criminal penalty, a separate violation of any reuirement under this paragraph occurs with respect to each
ay and each separate office, branch, or place of business in
which the violation occurs or continues.

a

(b)

INSTITUTIONS

SUBJECT

TO

RECORDKEEPING

REQUIRE-

MENTS.—The authority of the Secretary of the Treasury under subsection (a) extends to any financial institution (as defined in section
5312(a)(2) of title 31, United States Code), other than any insured
bank (as defined in section 3(h) of the Federal Deposit Insurance
Act) and any insured institution (as defined in section 401(a) of the
National Housing Act), and any partner, officer, director, or employee of any such financial institution.
(c) ACCEPTANCE OF AUTOMATED RECORDS.—The Secretary shall
permit an uninsured bank or financial institution to retain or
maintain records referred to in subsection (a) in electronic or automated form, subject to terms and conditions established by the Secretary.
§ 124. [12 U.S.C. 1954] Injunctions
Whenever it appears to the Secretary that any person has engaged, is engaged, or is about to engage in any acts or practices
constituting a violation of any regulation under this chapter, he
may in his discretion bring an action, in the proper district court
of the United States or the proper United States court of any territory or other place subject to the jurisdiction of the United States,




15

ACT OF OCTOBER 26, 1970

§129

to enjoin such acts or practices, and upon a proper showing a permanent or temporary injunction or restraining order shall be granted without bond. Upon application of the Secretary, any such court
may also issue mandatory injunctions commanding any person to
comply with any regulation of the Secretary under mis chapter.
§ 125. [12 U.S.C. 1955] Civil penalties
(a) For each willful or grossly negligent violation of any regulation under this chapter, the Secretary may assess upon any person
to which the regulation applies, or any person willfully causing a
violation of the regulation, and, if such person is a partnership, corporation, or other entity, upon any partner, director, officer, or employee thereof who willfully or through gross negligence participates in the violation, a civil penalty not exceeding $10,000.
(b) In the event of the failure of any person to pay any penalty
assessed under this section, a civil action for the recovery thereof
may, in the discretion of the Secretary, be brought in the name of
the United States.
§ 126. [12 U.S.C. 1956] Criminal penalty
Whoever willfully violates any regulation under this chapter
shall be fined not more than $1,000 or imprisoned not more than
one year, or both.
§ 127. [12 U.S.C. 1957] Additional criminal penalty in certain
cases
Whoever willfully violates, or willfully causes a violation of any
regulation under this chapter, section 21 of the Federal Deposit Insurance Act, or section 411 of the National Housing Act, where the
violation is committed in furtherance of the commission of any violation of Federal law punishable by imprisonment for more than
one year, shall be fined not more than $10,000 or imprisoned not
more than five years, or both.
§ 128. [12 U.S.C. 1958] Compliance
The Secretary shall have the responsibility to assure compliance with the requirements of this title and may delegate such responsibility to the appropriate bank supervisory agency, or other
supervisory agency.
§ 129. [12 U.S.C. 1959] Administrative procedure
The administrative procedure and judicial review provisions of
subchapter II of chapter 5 and chapter 7 of title 5, United States
Code, shall apply to all proceedings under this chapter, section 21
of the Federal Deposit Insurance Act, and section 411 of the National Housing Act.
TITLE II—REPORTS OF CURRENCY AND FOREIGN
TRANSACTIONS1

1
Title II of this Act was repealed by section 5(b) of Public Law 97-258 but the substance of
such title was incorporated into subchapter II of chapter 53 of title 31, United States Code.







ACT OF OCTOBER 28, 1974

17







ACT OF OCTOBER 28, 1974
AN ACT To increase deposit insurance from $20,000 to $40,000, to provide full insurance for public unit deposits of $100,000 per account, to establish a National
Commission on Electronic Fund Transfers, and for other purposes.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
TITLE I—AMENDMENTS TO AND EXTENSIONS OF PROVISIONS OF LAW RELATING TO FEDERAL REGULATION OF
DEPOSITORY INSTITUTIONS
INDEPENDENCE OF FINANCIAL REGULATORY AGENCIES

SEC. 111. 1 [12 U.S.C. 250] No officer or agency of the United
States shall have any authority to require the Securities and Exchange Commission, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, the Federal Home Loan Bank Board, or the
National Credit Union Administration to submit legislative recommendations, or testimony, or comments on legislation, to any officer or agency of the United States for approval, comments, or review, prior to the submission of such recommendations, testimony,
or comments to the Congress if such recommendations, testimony,
or comments to the Congress include a statement indicating that
the views expressed therein are those of the agency submitting
them and do not necessarily represent the views of the President.

1
Section 744(j) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
(P.L. 101-73) amended section 3 of title I of Public Law 93-495 by striking "Federal Home Loan
Bank Board" and inserting "Director of the Office of Thrift Supervision". There is no section 3
in such Public Law. The amendment probably should have been made to section 111 of such
law.

19







ALTERNATIVE MORTGAGE TRANSACTION PARITY ACT
OF 1982







ALTERNATIVE MORTGAGE TRANSACTION PARITY ACT
OF 1982
TITLE VIII—ALTERNATIVE MORTGAGE TRANSACTIONS *
SHORT TITLE

SEC. 801. [12 U.S.C. 3801 note] This title may be cited as the
"Alternative Mortgage Transaction Parity Act of 1982".
FINDINGS AND PURPOSE.

SEC. 802. [12 U.S.C. 3801] (a) The Congress hereby finds
that—
(1) increasingly volatile and dynamic changes in interest
rates have seriously impaired the ability of housing creditors
to provide consumers with fixed-term, fixed-rate credit secured
by interests in real property, cooperative housing, manufactured homes, and other dwellings;
(2) alternative mortgage transactions are essential to the
provision of an adequate supply of credit secured by residential
property necessary to meet the demand expected during the
1980's; and
(3) the Comptroller of the Currency, the National Credit
Union Administration, and the Director of the Office of Thrift
Supervision have recognized the importance of alternative
mortgage transactions and have adopted regulations authorizing federally chartered depository institutions to engage in alternative mortgage financing.
(b) It is the purpose of this title to eliminate the discriminatory
impact that those regulations have upon nonfederallv chartered
housing creditors and provide them with parity with federally chartered institutions by authorizing all housmg creditors to make, purchase, and enforce alternative mortgage transactions so lone as the
transactions are in conformity with the regulations issued by the
Federal agencies.
DEFINITIONS

SEC. 803. [12 U.S.C. 3802] As used in this t i t l e CD the term "alternative mortgage transaction" means a
loan or credit sale secured by an interest in residential real
property, a dwelling, all stock allocated to a dwelling unit in
a residential cooperative housing corporation, or a residential
manufactured home (as that term is defined in section 603(6)
of the National Manufactured Home Construction and Safety
Standards Act of 1974)—
1
The Alternative Mortgage Transaction Parity Act of 1982 was enacted as title VIII of the
Garn-St Germain Depository Institutions Act of 1982.

23




Sec. 804

ALTERNATIVE MORTGAGE TRANSACTION PARITY ACT

24

(A) in which the interest rate or finance charge may
be adjusted or renegotiated;
(B) involving a fixed-rate, but which implicitly permits
rate adjustments by having the debt mature at the end of
an interval shorter than the term of the amortization
schedule; or
(C) involving any similar type of rate, method of determining return, term, repayment, or other variation not
common to traditional fixed-rate, fixed-term transactions,
including without limitation, transactions that involve the
sharing of equity or appreciation;
described and defined by applicable regulation; and
(2) the term "housing creditor" means—
(A) a depository institution, as defined in section
501(a)(2) of the Depository Institutions Deregulation and
Monetary Control Act of 1980;
(B) a lender approved by the Secretary of Housing and
Urban Development for participation in any mortgage insurance program under tne National Housing Act;
(C) any person who regularly makes loans, credit
sales, or advances secured by interests in properties referred to in paragraph (1); or
(D) any transferee of any of them.
A person is not a "housing creditor" with respect to a specific
alternative mortgage transaction if, except for this title, in
order to enter into that transaction, the person would be required to comply with licensing requirements imposed under
State law, unless such person is licensed under applicable
State law and such person remains, or becomes, subject to the
applicable regulatory requirements and enforcement mechanisms provided by State law.
ALTERNATIVE MORTGAGE AUTHORITY.

SEC. 804. [12 U.S.C. 38031 (a) In order to prevent discrimination against State-chartered depository institutions, and other
nonfederally chartered housing creditors, with respect to making,
purchasing, and enforcing alternative mortgage transactions, housing creditors may make, purchase, and enforce alternative mortgage transactions, except that this section shall apply—
(1) with respect to banks, only to transactions made in accordance with regulations governing alternative mortgage
transactions as issued by the Comptroller of the Currency for
national banks, to the extent that such regulations are authorized by rulemaking authority granted to the Comptroller of the
Currency with regard to national banks under laws other than
this section;
(2) with respect to credit unions, only to transactions made
in accordance with regulations governing alternative mortgage
transactions as issued by the National Credit Union Administration Board for Federal credit unions, to the extent that such
regulations are authorized by rulemaking authority granted to
the National Credit Union Administration with regard to Federal credit unions under laws other than this section; and




25

ALTERNATIVE M9IT6A8E THANSACT1M PARITY *CT

S#c. 105

(3) with respect to all other housing creditors, including
without limitation, savings and loan associations, mutual savings banks, and savings banks, only to transactions made in
accordance with regulations governing alternative mortgage
transactions as issued by the Director of the Office of Thrift
Supervision for federally charter savings and loan associations,
to the extent that such regulations are authorized by rulemaking authority granted to the Director of the Office of Thrift
Supervision with regard to federally chartered savings and
loan associations under laws other than this section.
(b) For the purpose of determining the applicability of this section, an alternative mortgage transaction snail be deemed to be
made in accordance with the applicable regulation notwithstanding
the housing creditor's failure to comply with the regulations, if—
(1) the transaction is in substantial compliance with the
regulation; and
(2) within 60 days of discovering any error, the housing
credit correct such error, including making appropriate adjustments, if any, to the account.
(c) An alternative mortgage transaction, may be made by a
housing creditor in accordance with this section, notwithstanding
any State constitution, law, or regulation.
APPLICABILITY

SEC. 805. [12 U.S.C. 3804] (a) The provisions of section 804
shall not apply to any alternative mortgage transaction in any
State made on or after the effective date (if such effective date occurs on or after the effective date of this title and prior to a date
3 years after the effective date of this title) of a State law or a certification that the voters of such State have voted in favor of any
provision, constitutional or otherwise, which states explicitly and
by its terms that such State does not want the preemption provided
in section 804 to apply with respect, to alternative mortgage transactions subject to the laws of such State, except that section 804
shall continue to apply to—
(1) any alternative mortgage transaction undertaken on or
after such date pursuant to an agreement to undertake such
alternative mortgage transaction which was entered into on or
after the effective date of this title and prior to such later date
(the "preemption period"); and
(2) any renewal, extension, refinancing, or other modification of an alternative mortgage transaction that was entered
into during the preemption period.
(b) An alternative mortgage transaction shall be deemed to
have been undertaken during the preemption period to which this
section applied if it—
(1) is funded or extended in whole or in part during the
preemption period, regardless of whether pursuant to a commitment or other agreement therefor made prior to that period;
or
(2) is a renewal, extension, refinancing, or other modification of an alternative mortgage transaction entered into before
the preemption period and such renewal, extension, or other




Sec. 806

ALTERNATIVE MORTGAGE TRANSACTION PARITY ACT

26

modification is made during such period with the written consent of any person obligated to repay such credit.
RELATION TO OTHER LAW

SEC. 806. [12 U.S.C. 3805J Section 501(c)(1) of the Depository
Institutions Deregulation and Monetary Control Act of 1980 shall
not apply to transactions which are subject to this title.
EFFECTIVE DATE

SEC. 807. [12 U.S.C. 3801 note! (a) This title shall be effective
upon enactment.
(b) Within 60 days of the enactment of this title, the Comptroller of the Currency, the National Credit Union Administration, and
the Federal Home Loan Bank Board shall identify, describe, publish those portions or provisions of their respective regulations that
are inappropriate for (and thus inapplicable to), or that need to be
conformed for the use of, the nonfederally chartered housing creditors to which their respective regulations apply, including without
limitation, making necessary changes in terminology to conform
the regulatory and disclosure provisions to those more typically associated with various types of transactions including credit sales.




BANK CONSERVATION ACT

27







BANK CONSERVATION ACT
SEC. 201. [12 U.S.C. 201J This title may be cited as the "Bank
Conservation Act."
SEC. 202. [12 U.S.C. 202] As used in this title, the term
"bank" means (1) any national banking association or any other financial institution chartered or licensed under Federal law and
subject to the supervision of the Comptroller of the Currency, and
(2) any bank or trust company located in the District of Columbia
and operating under the supervision of the Comptroller of the Currency; the term "voluntary dissolution and liquidation" means a
transaction pursuant to section 5220 of the Revised Statutes that
involves the assumption of the bank's insured deposit liabilities
and the sale of the bank, or of control of the bank, as a going concern; and the term "State" means any State, Territory, or possession of the United States, and the Canal Zone.
SEC. 203. [12 U.S.C. 203] APPOINTMENT OF CONSERVATOR.

(a) APPOINTMENT.—The Comptroller of the Currency may,
withoutprior notice or hearings, appoint a conservator 1(which may
be the Federal Deposit Insurance Corporation) to t h e possession
and control of a bank whenever the Comptroller of the Currency
determines that 1 or more of the grounds specified in section
11(c)(5) of the Federal Deposit Insurance Act exist.
(b) JUDICIAL REVIEW.—

(1) IN GENERAL.—Not later than 20 days after the initial
appointment of a conservator pursuant to this section, the
bank may bring an action in the United States district court
for the judicial district in which the home office of such bank
is located, or in the United States District Court for the District of Columbia, for an order requiring the Comptroller to terminate the appointment of the conservator, and the court,
upon the merits, shall dismiss such action or shall direct the
Comptroller to terminate the appointment of such conservator.
The Comptroller's decision to appoint a conservator pursuant
to this section shall be set aside only if the court finds that
such decision was arbitrary, capricious, an abuse of discretion,
or otherwise not in accordance with law.
(2) STAY.—The conservator may request that any judicial
action or proceeding to which the conservator or the bank is or
may become a party be stayed for a period of up to 45 days
after the appointment of the conservator. Upon petition, the
court shall grant such stay as to all parties.
(3) ACTIONS AND ORDERS.—Except as otherwise provided in
this subsection, no court may take any action regarding the removal of a conservator, or restrain, or affect the exercise of
powers or functions of a conservator. A court, upon application
1

So in law. Probably should be "take".
29




Sec. 204

BANK CONSERVATION ACT

30

by the Comptroller, shall have jurisdiction to enforce an order
of the Comptroller relating to—
(A) the conservatorship and the bank in
conservatorship, or
(B) restraining or affecting the exercise of powers or
functions of a conservator.
(c) ADDITIONAL GROUNDS FOR APPOINTMENT.—In addition to
the foregoing provisions, the Comptroller may appoint a conservator for a bank if—
(1) the bank, by an affirmative vote of a majority of its
board of directors or by an affirmative vote of a majority of its
shareholders, consents to such appointment, or
(2) the Federal Deposit Insurance Corporation terminates
the bank's status as an insured bank.
The appointment of a conservator pursuant to this subsection shall
not be subject to review.
(d) EXCLUSIVE AUTHORITY.—The Comptroller shall have exclusive power and jurisdiction to appoint a conservator for a bank.
Whenever the Comptroller appoints a conservator for any bank, the
Comptroller may appoint the Federal Deposit Insurance Corporation conservator for such bank. The Federal Deposit Insurance Corporation, as such conservator, shall have all the powers granted
under the Federal Deposit Insurance Act, and (when not inconsistent therewith) any other rights, powers, and privileges possessed
by conservators of banks under this Act and any other provision of
law. The Comptroller may also appoint another person as conservator, who shall be subject to the provisions of this Act.
(e) REPLACEMENT OF CONSERVATOR.—The Comptroller may,
without notice or hearing, replace a conservator with another conservator. Such replacement shall not affect the bank's right under
subsection (b) to obtain judicial review of the Comptroller s original
decision to appoint a conservator.
SEC. 204. [12 U.S.C. 204] EXAMINATIONS.

The Comptroller of the Currency (in consultation with the
Board of Directors of the Federal Deposit Insurance Corporation
when the Corporation is appointed conservator) is authorized to examine and supervise the bank in conservatorship as long as the
bank continues to operate as a going concern. The Comptroller may
use reports and other information provided by the Federal Deposit
Insurance Corporation for this purpose.
SEC. 205. [12 U.S.C. 205] TERMINATION OF CONSERVATORSHIP.
(a) GENERAL RULE.—At any time the Comptroller becomes

satisfied that it may safely be done and that it would be in the public
interest, the Comptroller (with the agreement of the Board of Directors of the Federal Deposit Insurance Corporation when the Corporation has been appointed conservator) may—
(1) terminate the conservatorship and permit the involved
bank to resume the transaction of its business subject to such
terms, conditions, and limitations as the Comptroller may prescribe; or
(2) terminate the conservatorship upon a sale, merger, consolidation, purchase and assumption, change in control, or voluntary dissolution and liquidation of the involved bank.




31

BANK CONSERVATION ACT

Sec. 206

(b) OTHER GROUNDS FOR TERMINATION.—The Comptroller also
may terminate the conservatorship upon the appointment of a receiver pursuant to the first section of the Act of June 30, 1876 (12
U.S.C. 191).
(c) ENFORCEMENT UNDER FEDERAL DEPOSIT INSURANCE ACT.—

Such terms, conditions, and limitations as may be prescribed under
subsection (a)(1) shall be enforceable under the provisions of section 8(i) of the Federal Deposit Insurance Act, to the same extent
as an order issued pursuant to section 8(b) of the Federal Deposit
Insurance Act which has become final. The bank may bring an action in the United States district court for the judicial district in
which the home office of such bank is located or in the United
States District Court for the District of Columbia for an order requiring the Comptroller to terminate the order. An action for judicial review of the terms, conditions, and limitations may not be
commenced later than 20 days from the date of the termination of
the conservatorship or the imposition of the order, whichever is
later.
(d) ACTION UPON TERMINATION.—

(1) IN GENERAL.—Upon termination of the conservatorship
under subsection (a)(2), the Federal Deposit Insurance Corporation, as conservator, or when another person is appointed
conservator, such other person, shall conclude the affairs of the
conservatorship in accordance with paragraph (2).
(2) 1 DEPOSIT AND DISTRIBUTION OF PROCEEDS.—(A) Within 180
days of the sale, merger, consolidation, purchase and assumption,
change in control, or voluntary dissolution and liquidation, the conservator shall deposit all net proceeds received from the transaction, less any outstanding expenses of the conservatorship, with
the United States district court for the judicial district in which the
home office of such bank is located and shall cause notice to be
published for three consecutive months and notify by mail all
known and remaining creditors and shareholders. Within 60 days
thereafter, any depositor, creditor, or other claimant of the bank,
or any shareholder of the bank may bring an action in interpleader
in that court for distribution of the proceeds. The district court
shall distribute such funds equitably. If no such action is instituted
within one year after the date the funds are deposited with the district court, title to such net proceeds shall revert to the United
States and the district court snail remit the funds to the Treasury
of the United States.
(B) The conservator shall be deemed to have discharged all responsibility of the conservatorship upon the deposit of the proceeds
with the district court and giving the required notifications.
SEC. 206. [12 U.S.C. 206] CONSERVATOR; POWERS AND DUTIES.
(a) GENERAL POWERS.—A conservator shall have all the

powers
of the shareholders, directors, and officers of the bank and may operate the bank in its own name unless the Comptroller in the order
of appointment limits the conservator's authority.
(b) SUBJECT TO RULES OP COMPTROLLER.—The conservator
shall be subject to such rules, regulations, and orders as the Comptroller from time to time deems appropriate; and, except as other1

Indentation so in law




Sec. 209

BANK CONSERVATION ACT

32

wise specifically provided in such rules, regulations, or orders or in
section 209 of this Act, shall have the same rights and privileges
and be subject to the same duties, restrictions, penalties, conditions, and limitations as apply to directors, officers, or employees
of a national bank.
(c) PAYMENT OF DEPOSITORS AND CREDITORS.—The Comptroller
may require the conservator to set aside and make available for
withdrawal by depositors and payment to other creditors such
amounts as in the opinion of the Comptroller may safely be used
for that purpose. All depositors and creditors who are similarly situated shall oe treated in the same manner.
(d)

COMPENSATION OF CONSERVATOR AND EMPLOYEES.—The

conservator and professional employees appointed to represent or
assist the conservator shall not be paid amounts greater than are
payable to employees of the Federal Government for similar services, except that the Comptroller of the Currency may authorize
payment at higher rates (but not in excess of rates prevailing in
the private sector), if the Comptroller determines that paying such
higher rates is necessary in order to recruit and retain competent
personnel.
(e) EXPENSES.—All expenses of any such conservatorship shall
be paid by the bank and shall be a lien upon the bank which shall
be prior to any other lien.
[§207 and §208 repealed by section 808 of P.L. 101-73 (103
Stat. 446).]
SEC. 209. [12 U.S.C. 209] LIABILITY PROTECTION.
(a) FEDERAL AGENCY AND EMPLOYEES.—In

any case in which
the conservator is a Federal agency or an employee of the Government, the provisions of chapters 161 and 171 of title 28, United
States Code, shall apply with respect to such conservator's liability
for acts or omissions performed pursuant to and in the course of
the duties and responsibilities of the conservatorship.
(b) OTHER CONSERVATORS.—In anv case where the conservator
is not a conservator described in subsection (a), the conservator
shall not be liable for damages in tort or otherwise for acts or omissions performed pursuant to and in the course of the duties and responsibilities of the conservatorship, unless such acts or omissions
constitute gross negligence, including any similar conduct or any
form of intentional tortious conduct, as determined by a court.
(c) INDEMNIFICATION.—The Comptroller shall have authority to
indemnify the conservator on such terms as the Comptroller deems
proper.
SEC. 210. [12 U.S.C. 210] Nothing in this title shall be construed to impair in any manner any powers of the President, the
Secretary of the Treasury, the Comptroller of the Currency, or the
Federal Reserve Board x.
SEC. 211. [12 U.S.C. 211] RULES AND REGULATIONS.

(a) IN GENERAL.—The Comptroller of the Currency may prescribe such rules and regulations as the Comptroller may deem
necessary to carry out the provisions of this Act.
1
Since the date of the enactment of the Banking Act of 1935, the Federal Reserve Board has
been known as the Board of Governors of the Federal Reserve System (see section 203(a) of such
Act, 49 Stat. 704).




33

BANK CONSERVATION ACT

Sec. 211

(b) F.D.I.C. AS CONSERVATOR.—In any case in which the Federal Deposit Insurance Corporation is the conservator, any rules or
regulations prescribed by the Comptroller shall be consistent with
any rules and regulations prescribed by the Federal Deposit Insurance Corporation pursuant to the Federal Deposit Insurance Act.







BANK ENTERPRISE ACT OF 1991

35







Subtitle C—Bank Enterprise Act x
SEC. 231. [12 U.S.C. 1811 nt.] SHORT TITLE.

This subtitle may be cited as the "Bank Enterprise Act of
1991".
SEC. 232. [12 U.S.C. 1834] REDUCED ASSESSMENT RATE FOR DEPOSITS ATTRIBUTABLE TO LIFELINE ACCOUNTS.
(a) QUALIFICATION OF LIFELINE ACCOUNTS BY FEDERAL RESERVE BOARD.—

(1) IN GENERAL.—The Board of Governors of the Federal
Reserve System, and the Federal Deposit Insurance Corporation shall establish minimum requirements for accounts providing basic transaction services for consumers at insured depository institutions in order for such accounts to qualify as
lifeline accounts for purposes of this section and section
7(b)(2)(H) of the Federal Deposit Insurance Act.
(2) FACTORS TO BE CONSIDERED.—In determining the minimum requirements under paragraph (1) for lifeline accounts at
insured depository institutions, the Board and the Corporation
shall consider the following factors:
(A) Whether the account is available to provide basic
transaction services for individuals who maintain a balance of less than $1,000 or such other amount which the
Board may determine to be appropriate.
(B) Whether any service charges or fees to which the
account is subject, if any, for routine transactions do not
exceed a minimal amount.
(C) Whether any minimum balance or minimum opening requirement to which the account is subject, if any, is
not more than a minimal amount.
(D) Whether checks, negotiable orders of withdrawal,
or similar instruments for making payments or other
transfers to third parties may be drawn on the account.
(E) Whether the depositor is permitted to make more
than a minimal number of withdrawals from the account
each month by any means described in subparagraph (D)
or any other means.
(F) Whether a monthly statement itemizing all transactions for the monthly reporting period is made available
to the depositor with respect to such account or a passbook
is provided in which all transactions with respect to such
account are recorded.
1
This Act was enacted as subtitle C of title II of the Federal Deposit Insurance Corporation
Improvement Act of 1991.
37




Sec. 233

BANK ENTERPRISE ACT OF 1991

38

(G) Whether depositors are permitted access to tellers
at the institution for conducting transactions with respect
to such account.
(H) Whether other account relationships with the institution are required in order to open any such account.
(I) Whether individuals are required to meet any prerequisite which discriminates against low-income individuals in order to open such account.
(J) Such other factors as the Board may determine to
be appropriate.
(3) DEFINITIONS.—For purposes of this subsection—
(A) BOARD.-—The term "Board" means the Board of
Governors of the Federal Reserve System.
(B) INSURED DEPOSITORY INSTITUTION.—The term "insured depository institution" has the meaning given to
such term in section 3(c)(2) of the Federal Deposit Insurance Act.
(C) LIFELINE ACCOUNT.—The term "lifeline account"
means any transaction account (as defined in section
19(b)(1)(C) of the Federal Reserve Act) which meets the
minimum requirements established by the Board under
this subsection.
[Subsection (b) amended other provisions of law.]
(c) AVAILABILITY OF FUNDS.—The provisions of this section
shall not take effect until appropriations are specifically provided
in advance. There are hereby authorized to be appropriated such
sums as may be necessary to carry out the provisions of this section.
SEC. 233. [12 U.S.C. 1834a] ASSESSMENT CREDITS FOR QUALIFYING
ACTIVITIES RELATING TO DISTRESSED COMMUNITIES.
(a) DETERMINATION OF CREDITS FOR INCREASES IN COMMUNITY
ENTERPRISE ACTIVITIES.—

(1) IN GENERAL.—The Community Enterprise Assessment
Credit Board established under subsection (d) shall issue
guidelines for insured depository institutions eligible under
this subsection for any community enterprise assessment credit with respect to any semiannual period. Such guidelines
shall—
(A) designate the eligibility requirements for any institution meeting applicable capital standards to receive an
assessment credit under section 7(b)(7) of the Federal Deposit Insurance Act; and
(B) determine the community enterprise assessment
credit available to any eligible institution under paragraph
(3).
(2) QUALIFYING ACTIVITIES.—An insured depository institution may apply for * for any community enterprise assessment
credit for any semiannual period for—
(A) the amount, during such period, of new originations of qualified loans and other assistance provided for
low- and moderate-income persons in distressed communities, or enterprises integrally involved with such neighi Probably should strike "for". See section 114(c)(lXA) of P.L. 103-325.




BANK ENTERPRISE ACT OF 1991

3
9

Sec. 233

borhoods, which the Board determines are qualified to be
taken into account for purposes of this subsection;
(B) the amount, during such period, of deposits accepted from persons domiciled in the distressed community, at
any office of the institution (including any branch) located
in any qualified distressed community, and new originations of any loans and other financial assistance made
within that community, except that in no case shall the
credit for deposits at any institution or branch exceed the
credit for loans and other financial assistance by the bank
or branch in the distressed community; and
(C) any increase during the period in the amount of
new equity investments in community development financial institutions.
(3) AMOUNT OF ASSESSMENT CREDIT.—The amount of any
community enterprise assessment credit available under section 7(b)(7) of the Federal Deposit Insurance Act for any insured depository institution, or a qualified portion thereof,
shall be the amount which is equal to 5 percent, in the case
of an institution which does not meet the community development organization requirements under section 234, and 15 percent, in the case of an institution, or a qualified portion thereof, which meets such requirements (or any percentage designated under paragraph (5)) of—
(A) for the first full semiannual period in which community enterprise assessment credits are available, the
sum of—
(i) the amounts of assets described in paragraph
(2)(A); and
(ii) the amounts of deposits, loans, and other financial assistance described in paragraph (2)(B); and
(B) for any subsequent semiannual period, the sum
of—
(i) any increase during such period in the amount
of assets described in paragraph (2)(A) that has been
deemed eligible for credit by the Board; and
(ii) any increase during such period in the
amounts of deposits, loans, and other financial assistance described in paragraph (2)(B) that has been
deemed eligible for credit by the Board.
(4) DETERMINATION OP QUALIFIED LOANS AND OTHER FINANCIAL ASSISTANCE.—Except as provided in paragraph (6), the

types of loans and other assistance which the Board may determine to be qualified to be taken into account under paragraph
(2)(A) for purposes of the community enterprise assessment
credit, may include the following:
(A) Loans insured or guaranteed by the Secretary of
Housing and Urban Development, the Secretary of the Deartment of Veterans Affairs, the Administrator of the
mall Business Administration, and the Secretary of Agriculture.
(B) Loans or financing provided in connection with activities assisted by the Administrator of the Small Business Administration or any small business investment




BANK ENTERPRISE ACT OF 1991

Sec. 233

40

company and investments in small business investment
companies.
(C) Loans or financing provided in connection with any
neighborhood housing service program assisted under the
Neighborhood Reinvestment Corporation Act.
(D) Loans or financing provided in connection with
any activities assisted under the community development
block grant program under title I of the Housing and Community Development Act of 1974.
(E) Loans or financing provided in connection with activities assisted under title II of the Cranston-Gonzalez
National Affordable Housing Act.
(F) Loans or financing provided in connection with a
homeownership program assisted under title III of the
United States Housing Act of 1937 or subtitle B or C of
title IV of the Cranston-Gonzalez National Affordable
Housing Act.
(G) Financial assistance provided through community
development corporations.
(H) Federal and State programs providing interest
rate assistance for homeowners.
(I) Extensions of credit to nonprofit developers or purchasers of low-income housing and small business developments.
(J) In the case of members of any Federal home loan
bank, participation in the community investment fund program established by the Federal home loan banks.
(K) Conventional mortgages targeted to low- or moderate-income persons.
(L) Loans made for the purpose of developing or supporting—
(i) commercial facilities that enhance revitalization, community stability, or job creation and retention
efforts;
(ii) business creation and expansion efforts that—
(I) create or retain jobs for low-income people;
(II) enhance the availability of products and
services to low-income people; or
(III) create or retain businesses owned by lowincome people or residents of a targeted area;
(iii) community facilities that provide benefits to
low-income people or enhance community stability;
(iv) home ownership opportunities that are affordable to low-income households;
(v) rental housing that is principally affordable to
low-income households; and
(vi) other activities deemed appropriate by the
Board.
(M) The provision of technical assistance to residents
of qualified distressed communities in managing their personal finances through consumer education programs either sponsored or offered by insured depository institutions.




41

BANK ENTERPRISE ACT OF 1991

Sec. 233

(N) The provision of technical assistance and consulting services to newly formed small businesses located in
qualified distressed communities.
(O) The provision of technical assistance to, or servicing the loans of low- or moderate-income homeowners and
homeowners located in qualified distressed communities.
(5) ADJUSTMENT OF PERCENTAGE.—The Board may increase or decrease the percentage referred to in paragraph
(3)(A) for determining the amount of any community enterprise
assessment credit pursuant to such paragraph, except that the
percentage established for insured depository institutions
which meet the community development organization requirements under section 234 shall not be less than 3 times the
amount of the percentage applicable for insured depository institutions which do not meet such requirements.
(6) CERTAIN INVESTMENTS NOT ELIGIBLE TO BE TAKEN INTO

ACCOUNT.—Loans, financial assistance, and equity investments
made by any insured depository institution that are not the result of originations by the institution shall not be taken into
account for purposes of determining the amount of any credit
pursuant to this subsection.
(7) QUANTITATIVE ANALYSIS OF TECHNICAL ASSISTANCE.—

The Board may establish guideUnes for analyzing the technical
assistance described in subparagraphs (M), (N), and (0) of
paragraph (4) for the purpose of quantifying the results of such
assistance in determining the amount of any community assessment credit under this subsection.
(b) QUALIFIED DISTRESSED COMMUNITY DEFINED.—

(1) IN GENERAL.—For purposes of this section, the term
"qualified distressed community*' means any neighborhood or
community which—
(A) meets the minimum area requirements under
paragraph (3) and the eligibility requirements of paragraph (4); and
(B) is designated as a distressed community by any insured depository institution in accordance with paragraph
(2) and such designation is not disapproved under such
paragraph.
(2) DESIGNATION REQUIREMENTS.—
(A) NOTICE OF DESIGNATION.—
(i) NOTICE TO AGENCY.—Upon

designating an area
as a qualified distressed community, an insured depository institution shall notify the appropriate Federal
banking agency of the designation.
(ii) PUBLIC NOTICE.—Upon the effective date of
any designation of an area as a qualified distressed
community, an insured depository institution shall
publish a notice of such designation in major newspapers and other community publications which serve
such area.
(B) AGENCY DUTIES RELATING TO DESIGNATIONS.—
(i) PROVIDING INFORMATION.—At the request

of
any insured depository institution, the appropriate
Federal banking agency shall provide to the institu-




Sec. 233

BANK ENTERPRISE ACT OF 1991

42

tion appropriate information to assist the institution
to identify and designate a qualified distressed community.
(ii) PERIOD FOR DISAPPROVAL.—Any notice received
by the appropriate Federal banking agency from any
insured depository institution under subparagraph
(A)(i) shall take effect at the end of the 90-day period
beginning on the date such notice is received unless
written notice of the approval or disapproval of the application by the agency is provided to the institution
before the end of such period.
(3) MINIMUM AREA REQUIREMENTS.—For purposes of this
subsection, an area meets the requirements of this paragraph
if—
(A) the area is within the jurisdiction of 1 unit of general local government;
(B) the boundary of the area is contiguous; and
(C) the area—
(i) has a population, as determined by the most recent census data available, of not less than—
(I) 4,000, if any portion of such area is located
within a metropolitan statistical area (as designated by the Director of the Office of Management and Budget) with a population of 50,000 or
more; or
(II) 1,000, in any other case; or
(ii) is entirely within an Indian reservation (as determined by the Secretary of the Interior).
(4) ELIGIBILITY REQUIREMENTS.—For purposes of this subsection, an area meets the requirements of this paragraph if
the following criteria are met:
(A) At least 30 percent of the residents residing in the
area have incomes which are less than the national poverty level.
(B) The unemployment rate for the area is IV2 times
greater than the national average (as determined by the
Bureau of Labor Statistics' most recent figures).
(C) Such additional eligibility requirements as the
Board may, in its discretion, deem necessary to carry out
the provisions of this subtitle.
[Subsection (c) amended other provisions of law.]
(d) COMMUNITY ENTERPRISE ASSESSMENT CREDIT BOARD.—

(1) ESTABLISHMENT.—There is hereby established the
"Community Enterprise Assessment Credit Board".
(2) NUMBER AND APPOINTMENT.—The Board shall be composed of 5 members as follows:
(A) The Secretary of the Treasury or a designee of the
Secretary.
(B) The Secretary of Housing and Urban Development
or a designee of the Secretary.
(C) The Chairperson of the Federal Deposit Insurance
Corporation or a designee of the Chairperson.




BANK ENTERPRISE ACT OF 1991

4
3

Sec. 233

(D) 2 individuals appointed by the President from
among individuals who represent community organizations.
(3) TERMS.—
(A) APPOINTED MEMBERS.—Each

appointed member
shall be appointed for a term of 5 years.
(B) INTERIM APPOINTMENT.—Any member appointed to
fill a vacancy occurring before the expiration of the term
to which such member's predecessor was appointed shall
be appointed only for the remainder of such term.
(C) CONTINUATION OF SERVICE.—Each appointed member may continue to serve after the expiration of the period
to which such member was appointed until a successor has
been appointed.
(4) CHAIRPERSON.—The Secretary of the Treasury shall
serve as the Chairperson of the Board.
(5) No PAY.—No members of the Commission may receive
any pay for service on the Board.
(6) TRAVEL EXPENSES.—Each member shall receive travel
expenses, including per diem in lieu of subsistence, in accordance with sections 5702 and 5703 of title 5, United States
Code.
(7) MEETINGS.—The Board shall meet at the call of the
Chairperson or a majority of the Board's members.
(e) DUTIES OF THE BOARD.—
(1) PROCEDURE FOR DETERMINING COMMUNITY ENTERPRISE
ASSESSMENT CREDITS.—The Board shall establish procedures

for accepting and considering applications by insured depository institutions under subsection (a)(1) for community enterprise assessment credits and making determinations with respect to such applications.
(2) NOTICE TO FDIC.—The Board shall notify the applicant
and the Federal Deposit Insurance Corporation of any determination of the Board with respect to any application referred
to in paragraph (1) in sufficient time for the Corporation to include the amount of such credit in the computation of the semiannual assessment to which such credit is applicable.
(f) AVAILABILITY OF FUNDS.—The provisions of this section
shall not take effect until appropriations are specifically provided
in advance. There are hereby authorized to be appropriated such
sums as may be necessary to carry out the provisions of this section.
(g) PROHIBITION ON DOUBLE FUNDING FOR SAME ACTIVITIES.—

No community development financial institution may receive a
community enterprise assessment credit if such institution, either
directly or through a community partnership—
(1) has received assistance within the preceding 12-month
period, or has an application for assistance pending, under section 105 of the Community Development Banking and Financial Institutions Act of 1994; or
(2) has ever received assistance, under section 108 of the
Community Development Banking and Financial Institutions
Act of 1994, for the same activity during the same semiannual




BANK ENTERPRISE ACT OF 1991

Sec. 233

44

period for which the institution seeks a community enterprise
assessment credit under this section.
(h) PRIORITY OF AWARDS.—
(1) QUALIFYING LOANS AND SERVICES.—

(A) IN GENERAL.—If the amount of funds appropriated
for purposes of carrying out this section for any fiscal year
are insufficient to award the amount of assessment credits
for which insured depository institutions have applied and
are eligible under this section, the Board shall, in awarding community enterprise assessment credits for qualifying
activities under subparagraphs (A) and (B) of subsection
(a)(2) for any semiannual period for which such appropriation is available, determine which institutions shall receive
an award.
(B) PRIORITY FOR SUPPORT OF EFFORTS OF CDFI.—The

Board shall give priority to institutions that have supported the efforts of community development financial institutions in the qualified distressed community.
(C) OTHER FACTORS.—The Board may also consider the
following factors:
(i) DEGREE OF DIFFICULTY.—The degree of difficulty in carrying out the activities that form the
basis for the institution's application.
(ii) COMMUNITY IMPACT.—The extent to which the
activities that form the basis for the institution's application have benefited the qualified distressed community.
(iii) INNOVATION.—The degree to which the activities that form the basis for the institution's application
have incorporated innovative methods for meeting
community needs.
(iv) LEVERAGE.—The leverage ratio between the
dollar amount of the activities that form the basis for
the institution's application and the amount of the assessment credit calculated in accordance with this section for such activities.
(v) SIZE.—The amount of total assets of the institution.
(vi) NEW ENTRY.—Whether the institution had
provided financial services in the designated distressed community before such semiannual period.
(vii) NEED FOR SUBSIDY.—The degree to which the
qualified activity which forms the basis for the application needs enhancement through an assessment
credit.
(viii) EXTENT OF DISTRESS IN COMMUNITY.—The
degree of poverty and unemployment in the designated
distressed community, the proportion of the total population of the community which are low-income families and unrelated individuals, and the extent of other
adverse economic conditions in such community.
(2) QUALIFYING INVESTMENTS.—If the amount of funds appropriated for purposes of carrying out this section for any fiscal year are insufficient to award the amount of assessment




BANK ENTERPRISE ACT OF 1991

4
5

Sec. 234

credits for which insured depository institutions have applied
and are eligible under this section, the Board shall, in awarding community enterprise assessment credits for qualifying activities under subsection (a)(2)(C) for any semiannual period
for which such appropriation is available, determine which institutions shall receive an award based on the leverage ratio
between the dollar amount of the activities that form the basis
for the institution's application and the amount of the assessment credit calculated in accordance with this section for such
activities.
(i) DETERMINATION OF AMOUNT OF ASSESSMENT CREDIT.—Not-

withstanding any other provision of this section, the determination
of the amount of any community enterprise assessment credit
under subsection (a)(3) for any insured depository institution for
any semiannual period shall be made solely at the discretion of the
Board. No insured depository institution shall be awarded community enterprise assessment credits for any semiannual period in excess of an amount determined by the Board.
(j) DEFINITIONS.—For purposes of this section—
(1) APPROPRIATE FEDERAL BANKING AGENCY.—The term
"appropriate Federal banking agency" has the meaning given
to such term in section 3(q) of the Federal Deposit Insurance
Act.
(2) BOARD.—The term "Board" means the Community Enterprise Assessment Credit Board established under the
amendment made by subsection (d).
(3) INSURED DEPOSITORY INSTITUTION.—The term "insured
depository institution" has the meaning given to such term in
section 3(c)(2) of the Federal Deposit Insurance Act.
(4)

COMMUNITY DEVELOPMENT FINANCIAL INSTITUTION.—

The term "community development financial institution" has
the same meaning as in section 103(5) of the Community Development Banking and Financial Institutions Act of 1994.
(5) AFFILIATE.—The term "affiliate" has the same meaning
as in section 2 of the Bank Holding Company Act of 1956.
SEC. 234. [12 U.S.C. 1834b] COMMUNITY DEVELOPMENT ORGANIZATIONS.
(a) COMMUNITY DEVELOPMENT ORGANIZATIONS DESCRIBED.—

For purposes of this subtitle, any insured depository institution, or
a qualified portion thereof, shall be treated as meeting the community development organization requirements of this section if—
(1) the institution—
(A) is a community development bank, or controls any
community development bank, which meets the requirements of subsection (b);
(B) controls any community development corporation,
or maintains any community development unit within the
institution, which meets the requirements of subsection (c);
(C) invests in accounts in any community development
credit union designated as a low-income credit union, subject to restrictions established for such credit unions by the
National Credit Union Administration Board; or
(D) invests in a community development organization
jointly controlled by two or more institutions;




Sec. 234

BANK ENTERPRISE ACT OF 1991

46

(2) except in the case of an institution which is a community development bank, the amount of the capital invested, in
the form of debt or equity, by the institution in the community
development organization referred to in paragraph (1) (or, in
the case of any community development unit, the amount
which the institution irrevocably makes available to such unit
for the purposes described in paragraph (3)) is not less than
the greater of—
(A) % of 1 percent of the capital, as defined by generally accepted accounting principles, of the institution; or
(B) the sum of the amounts invested in such community development organization; and
(3) the community development organization provides
loans for residential mortgages, home improvement, and community development and other financial services, other than financing for the purchase of automobiles or extension of credit
under any open-end credit plan (as defined in section 103(i) of
the Truth in Lending Act), to low- and moderate-income persons, nonprofit organizations, and small businesses located in
qualified distressed communities in a manner consistent with
the intent of this subtitle.
(b) COMMUNITY DEVELOPMENT BANK REQUIREMENTS.—A community development bank meets the requirements of this subsection if—
(1) the community development bank has a 15-member advisory board designated as the "Community Investment Board"
and consisting entirely of community leaders who—
(A) shall be appointed initially by the board of directors of the community development bank and thereafter by
the Community Investment Board from nominations received from the community; and
(B) are appointed for a single term of 2 years, except
that, of the initial members appointed to the Community
Investment Board, Vb shall be appointed for a term of 8
months, V3 shall be appointed for a term of 16 months, and
V3 shall be appointed for a term of 24 months, as designated by the board of directors of the community development bank at the time of the appointment;
(2) Vz of the members of the community development
bank's board of directors are appointed from among individuals
nominated by the Community Investment Board; and
(3) the bylaws of the community development bank require
that the board of directors of the bank meet with the Community Investment Board at least once every 3 months.
(c) COMMUNITY DEVELOPMENT CORPORATION REQUIREMENTS.—

Any community development corporation, or community development unit within any insured depository institution meets the requirements of this subsection if the corporation or unit provides the
same or greater, as determined by the appropriate Federal banking
agency, community participation in the activities of such corporation or unit as would be provided by a Community Investment
Board under subsection (b) if such corporation or unit were a community development bank.




BANK ENTERPRISE ACT OF 1991

4
7

Sec. 234

(d) ADEQUATE DISPERSAL REQUIREMENT.—The appropriate
Federal banking agency may approve the establishment of a community development organization under this subtitle only upon
finding that the distressed community is not adequately servecl by
an existing community development organization.
(e) DEFINITIONS.—For purposes of this section—
(1) COMMUNITY DEVELOPMENT BANK.—The term "community development bank" means any depository institution (as
defined in section 3(c)(1) of the Federal Deposit Insurance Act).
(2) COMMUNITY DEVELOPMENT ORGANIZATION.—The term
"community development organization" means any community
development bank, community development corporation, community development unit within any insured depository institution, or community development credit union.
(3) Low- AND MODERATE-INCOME PERSONS.—The term "lowand moderate-income persons" has the meaning given such
term in section 102(a)(20) of the Housing and Community Development Act of 1974.
(4)

NONPROFIT

ORGANIZATION;

SMALL

BUSINESS.—The

terms "nonprofit organization" and "small business" have the
meanings given to such terms by regulations which the appropriate Federal banking agency shall prescribe for purposes of
this section.
(5) QUALIFIED DISTRESSED COMMUNITY.—The term "qualified distressed community" has the meaning given to such
term in section 233(b).







BANK HOLDING COMPANY ACT OF 1956

49







BANK HOLDING COMPANY ACT OF 1956
(70 Stat 133; 12 U.S.C. 1841 et seq.)
AN ACT To define bank holding companies, control their future expansion, and
require divestment of their nonbanking interests.

Be is enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That this Act may
be cited as the "Bank Holding Company Act of 1956".
DEFINITIONS

SEC. 2. [12 U.S.C. 1841] (a)(1) Except as provided in paragraph (5) of this subsection, "bank holding company" means any
company which has control over any bank or over any company
that is or becomes a bank holding company by virtue of this Act.
(2) Any company has control over a bank or over any company
if—
(A) the company directly or indirectly or acting through
one or more other persons owns, controls, or has power to vote
25 per centum or more of any class of voting securities of the
bank or company;
(B) the company controls in any manner the election of a
majority of the directors or trustees of the bank or company;
or
(C) the Board determines, after notice and opportunity for
hearing, that the company directly or indirectly exercises a
controlling influence over the management or policies of the
bank or company.
(3) For the purposes of any proceeding under paragraph (2)(C)
of this subsection, there is a presumption that any company which
directly or indirectly owns, controls, or has power to vote less than
5 per centum of any class of voting securities of a given bank or
company does not have control over that bank or company.
(4) In any administrative or judicial proceeding under this Act,
other than a proceeding under paragraph (2)(C) of this subsection,
a company may not be held to have had control over any given
bank or company at any given time unless that companv, at the
time in question, directly or indirectly owned, controlled, or had
power to vote 5 per centum or more of any class of voting securities
of the bank or company, or had already been found to have control
in a proceeding under paragraph (2)(C).
(5) Notwithstanding any other provision of this subsection—
(A) No bank and no company owning or controlling voting
shares of a bank is a bank holding company by virtue of its
ownership or control of shares in a fiduciary capacity, except
as provided in paragraphs (2) and (3) of subsection (g) of this
section. For the purpose of the preceding sentence, bank shares
51




Sec. 2

BANK HOLDING COMPANY ACT OF 1956

52

shall not be deemed to have been acquired in a fiduciary capacity if the acquiring bank or company has sole discretionary authority to exercise voting rights with respect thereto; except
that this limitation is applicable in the case of a bank or company acquiring such shares prior to the date of enactment of
the Bank Holding Company Act Amendments of 1970 only if
the bank or company has the right consistent with its obligations under the instrument, agreement, or other arrangement
establishing the fidiciary relationship to divest itself of such
voting rights and fails to exercise that right to divest within
a reasonable period not to exceed one year after the date of enactment of the Bank Holding Company Act Amendments of
1970.
(B) No company is a bank holding company by virtue of its
ownership or control of shares acquired oy it in connection
with its underwriting of securities if such shares are held only
for such period of time as will permit the sale thereof on a reasonable basis.
(C) No company formed for the sole purpose of participating in a proxy solicitation is a bank holding company by virtue
of its control of voting rights of shares acquired in the course
of such solicitation.
(D) No company is a bank holding company by virtue of its
ownership or control of shares acquired in securing or collecting a debt previously contracted in good faith, until two years
after the date of acquisition. The Board is authorized upon application by a company to extend, from time to time for not
more than one year at a time, the two-year period referred to
herein for disposing of any shares acquired by a company in
the regular course of securing or collecting a debt previously
contracted in good faith, if, in the Board's judgment, such an
extension would not be detrimental to the public interest, but
no such extension shall in the aggregate exceed three years.
(E) No company is a bank holding company by virtue of its
ownership or control of any State-chartered bank or trust company which—
(i) is wholly owned by thrift institutions or savings banks;
and
(ii) is restricted to accepting—
(I) deposits from thrift institutions or savings banks;
(II) deposits arising out of the corporate business of
the thrift institutions or savings banks that own the bank
or trust company; or
(III) deposits of public moneys.
(F) No trust company or mutual savings bank which is an
insured bank under the Federal Deposit Insurance Act is a
bank holding company by virtue of its direct or indirect ownership or control of one bank located in the same State, if (i) such
ownership or control existed on the date of enactment of the
Bank Holding Company Act Amendments of 1970 and is specifically authorized by applicable State law, and (ii) the trust
company or mutual savings bank does not after that date acquire an interest in any company that, together with any other
interest it holds in that company, will exceed 5 per centum of




53

BANK HOLDING COMPANY ACT OF 1956

Sec. 2

any class of the voting shares of that company, except that this
limitation shall not be applicable to investments of the trust
company or mutual savings bank, direct and indirect, which
are otherwise in accordance with the limitations applicable to
national banks under section 5136 of the Revised Statutes. (12
U.S.C. 24)
(6) For the purposes of this Act, any successor to a bank holding company shall be deemed to be a bank holding company from
the date on which the predecessor company became a bank holding
company.
(b) "Company" means any corporation, partnership, business
trust, association, or similar organization, or any other trust unless
by its terms it must terminate within twenty-five years or not later
than twenty-one years and ten months after the death of individuals living on the effective date of the trust, but shall not include
any corporation the majority of the shares of which are owned by
the United States or by any State. "Company covered in 1970"
means a company which becomes a bank holding company as a result of the enactment of the Bank Holding Company Act Amendments of 1970 and which would have been a bank holding company
on June 30, 1968, if those amendments had been enacted on that
date.
(c) BANK DEFINED.—For purposes of this Act—
(1) IN GENERAL.—Except as provided in paragraph (2), the
term "bank" means any of the following:
(A) An insured bank as defined in section 3(h) of the
Federal Deposit Insurance Act.
(B) An institution organized under the laws of the
United States, any State of the United States, the District
of Columbia, any territory of the United States, Puerto
Rico, Guam, American Samoa, or the Virgin Islands which
both—
(i) accepts demand deposits or deposits that the
depositor may withdraw by check or similar means for
payment to third parties or others; and
(ii) is engaged in the business of making commercial loans.
(2) EXCEPTIONS.—The term "bank" does not include any of
the following:
(A) A foreign bank which would be a bank within the
meaning of paragraph (1) solely because such bank has an
insured or uninsured branch in the United States.
(B) An insured institution (as defined in subsection
(j)).
(C) An organization that does not do business in the
United States except as an incident to its activities outside
the United States.
(D) An institution that functions solely in a trust or fiduciary capacity, if—
(i) all or substantially all of the deposits of such
institution are in trust mnds and are received in a
bona fide fiduciary capacity;
(ii) no deposits of such institution which are insured by the Federal Deposit Insurance Corporation




BANK HOLDING COMPANY ACT OF 1956

Sec. 2

54

are offered or marketed by or through an affiliate of
such institution;
(iii) such institution does not accept demand deposits or deposits that the depositor may withdraw by
check or similar means for payment to third parties or
others or make commercial loans; and
(iv) such institution does not—
(I) obtain payment or payment related services from any Federal Reserve bank, including any
service referred to in section 11A of the Federal
Reserve Act; or
(II) exercise discount or borrowing privileges
pursuant to section 19(b)(7) of the Federal Reserve
Act.
(E) A credit union (as described in section
19(b)(l)(A)(iv) of the Federal Reserve Act).
(F) An institution which—
(i) engages only in credit card operations;
(ii) does not accept demand deposits or deposits
that the depositor may withdraw by check or similar
means for payment to third parties or others;
(iii) does not accept any savings or time deposit of
less than $100,000;
(iv) maintains only one office that accepts deposits; and
(v) does not engage in the business of making
commercial loans.
(G) An organization operating under section 25 or section 25(a) of the Federal Reserve Act.
(H) An industrial loan company, industrial bank, or
other similar institution which is—
(i) an institution organized under the laws of a
State which, on March 5, 1987, had in effect or had
under consideration in such State's legislature a statute which required or would require such institution
to obtain insurance under the Federal Deposit Insurance Act—
(I) which does not accept demand deposits
that the depositor may withdraw by check or similar means for payment to third parties;
(II) which has total assets of less than
$100,000,000; or
(III) the control of which is not acquired by
any company after the date of the enactment of
the Competitive Equality Amendments of 1987; or
(ii) an institution which does not, directly, indirectly, or through an affiliate, engage in any activity
in which it was not lawfully engaged as of March 5,
1987,
except that this subparagraph shall cease to apply to any
institution which permits any overdraft (including any
intraday overdraft), or which incurs any such overdraft in
such institution's account at a Federal Reserve bank, on
behalf of an affiliate if such overdraft is not the result of




BANK HOLDING COMPANY ACT OF 1956

5
5

Sec. 2

an inadvertent computer or accounting error that is beyond the control of both the institution and the affiliate.
(I) The Investors Fiduciary Trust Company, located in
Kansas City, Missouri, so long as such institution—
(i) engages only in trust, fiduciary, and agency activities in which it was lawfully engaged on March 5,
1987;
(ii) engages in such activities only at the same
number of locations at which such activities were conducted on such date;
(iii) does not accept demand deposits other than
demand deposits which are maintained by such institution in—
(I) a trust or fiduciary capacity;
(II) the institution's capacity as a custodian or
as a paying, transfer, shareholder servicing, securities clearing, escrow, or dividend disbursing
agent; or
(III) any capacity which is incidental to the
trust or fiduciary activities of the institution;
(iv) does not engage in the business of making
commercial loans;
(v) does not exercise discount or borrowing privileges pursuant to section 19(b)(7) of the Federal Reserve Act; and
(vi) is not directly or indirectly controlled by any
company other than a company which directly or indirectly controlled such institution on March 5, 1987.
(J) A savings bank (as defined in section 3(g) of the
Federal Deposit Insurance Act) which—
(i) is an insured bank (as defined in section 3(h)
of such Act);
(ii) is a subsidiary of the Great Western Financial
Corporation as a result of an approval in writing by
the State bank supervisor of the State of New York before June 30, 1987;
(iii) meets or exceeds the investment requirements
which an insured institution must meet in order to be
a qualified thrift lender under section 408(o) of the
National Housing Act; and
(iv) does not, directly, or through insurance products such savings bank receives from or provides to
the Great Western Financial Corporation, engage in
the sale or underwriting of insurance,
except that this subparagraph shall cease to apply with respect to such savings bank or any successor institution if
any deposits of any other subsidiary or affiliate of the
Great Western Financial Corporation which are subject to
an assessment of an insurance premium under subsection
(b) or (c) of section 404 of the National Housing Act are,
directly or indirectly by any device whatsoever, transferred
to or acquired by such savings bank or any successor institution which would have the effect of materially reducing
such premium assessments. The exemption provided by




Sec. 2

BANK HOLDING COMPANY ACT OF 1956

56

this subparagraph shall cease to apply if Great Western
Financial Corporation uses such savings bank or any successor institution as a vehicle to move such Corporation
from Federal Savings and Loan Insurance Corporation insurance to Federal Deposit Insurance Corporation insurance.
(3) DISTRICT BANK.—The term "District bank" means any
bank operating under the Code of Law for the District of Columbia.
(d) "Subsidiary", with respect to a specified bank holding company, means (1) any company 25 per centum or more of whose voting shares (excluding shares owned by the United States or by any
company wholly owned by the United States) is directly or indirectly owned or controlled by such bank holding company, or is
held by it with power to vote; (2) any company the election of a majority of whose directors is controlled in any manner by such bank
nolding company; or (3) any company with respect to the management or policies of which such bank holding company has the
power, directly or indirectly, to exercise a controlling influence, as
determined by the Board, after notice and opportunity for hearing.
(e) The term "successor" shall include any company which acquires directly or indirectly from a bank holding company shares
of any bank, when and if the relationship between such company
and the bank holding company is such that the transaction effects
no substantial change in the control of the bank or beneficial ownership of such shares of such bank. The Board may, by regulation,
further define the term "successor" to the extent necessary to prevent evasion of the purposes of this Act.
(f) "Board" means the Board of Governors of the Federal Reserve System.
(g) For the purposes of this Act—
(1) shares owned or controlled by any subsidiary of a bank
holding company shall be deemed to be indirectly owned or
controlled by such bank holding company;
(2) shares held or controlled directly or indirectly by trustees for the benefit of (A) a company, (B) the shareholders or
members of a company, or (C) the employees (whether exclusively or not) of a company, shall be deemed to be controlled
by such company; and
(3) shares transferred after January 1, 1966, by any bank
holding company (or by any company which, but for such
transfer, would oe a bank holding company) directly or indirectly to any transferee that is indebted to the transferor, or
has one or more officers, directors, trustees, or beneficiaries in
common with or subject to control by the transferor, shall be
deemed to be indirectly owned or controlled by the transferor
unless the Board, after opportunity for hearing, determines
that the transferor is not in fact capable of controlling the
transferee.
(h)(1) Except as provided by paragraph (2), the application of
this Act and of section 23A of the Federal Reserve Act (12 U.S.C.
371), as amended, shall not be affected by the fact that a transaction takes place wholly or partly outside the United States or
that a company is organized or operates outside the United States.




57

M M NOLMNfi COMPANY ACT I F 1SS8

See. 2

(2) Except as provided in paragraph (3), the prohibitions of section 4 of this Act shall not apply to shares of any company organized under the laws of a foreign country (or to shares held by such
company in any company engaged in the same general line of business as the investor company or in a business related to the business of the investor company) that is principally engaged in business outside the United States if such shares are held or acquired
by a bank holding? company organized under the laws of a foreign
country that is principally engaged in the banking business outside
the United States. For the purpose of this subsection, die term
"section 2(hX2) company" means any company whose shares are
held pursuant to this paragraph.
(3) Nothing in paragraph (2) authorizes a section 2(h)(2) company to engage in (or acquire or hold more than 5 percent of the
outstanding shares of any class of voting securities of a company
engaged in) any banking, securities, insurance, or other financial
activities, as defined bv the Board, in the United States. This paragraph does not prohibit a section 2(h)(2) company from holding
shares that were lawfully acquired before the date of enactment of
the Competitive Equality Banking Act of 1987.
(4) No domestic office or subsidiary of a bank holding company
or subsidiary thereof holding shares of a section 2(h)(2) company
may extend credit to a domestic office or subsidiary of such section
2(h)(2) company on terms more favorable than those afforded similar borrowers in the United States.
(5) No domestic banking office or bank subsidiary of a bank
holding company that controls a section 2(h)(2) company may offer
or market products or services of such section 2(h)(2) company, or
permit its products or services to be offered or marketed by or
through sucn section 2(h)(2) company, unless such products or services were being so offered or marketed as of March 5, 1987, and
then only in the same manner in which they were being offered or
marketed as of that date.
(i) THRIFT INSTITUTION.—For purposes of this Act, the term
"thrift institution" means—
(1) any domestic building and loan or savings and loan association;
(2) any cooperative bank without capital stock organized
and operated for mutual purposes and without profit;
(3) any Federal savings bank; and
(4) any State-chartered savings bank the holding company
of which is registered pursuant to section 408 of the National
Housing Act.
(j)

DEFINITION

OP

SAVINGS ASSOCIATIONS AND RELATED

TERM.—The term "savings association" or "insured institution"
means—
(1) any Federal savings association or Federal savings
bank;
(2) any building and loan association, savings and loan association, homestead association, or cooperative bank if such
association or cooperative bank is a member of the Savings Association Insurance Fund; and
(3) any savings bank or cooperative bank which is deemed
by the Director of the Office of Thrift Supervision to be a sav-




See. 2

BANK HOLDING COMPANY ACT OF 1056

58

ings association under section 10(1) of the Home Owners' Loan
Act.
(k) AFFILIATE.—For purposes of this Act, the term "affiliate"
means any company that controls, is controlled by, or is under common control with another company.
(1) SAVINGS BANK HOLDING COMPANY.—For purposes of this
Act, the term "savings bank holding company" means any company
which controls one or more quaUfied savings banks if the aggregate
total assets of such savings banks constitute, upon formation of the
holding company and at all times thereafter, at least 70 percent of
the total assets of such company.
(m) QUALIFIED SAVINGS BANK.—For purposes of this Act, the
term "qualified savings bank"—
(1) means any savings bank (as defined in section 3(g) of
the Federal Deposit Insurance Act) which was organized on or
before March 5, 1987; and
(2) includes any cooperative bank that is an insured bank
(as defined in section 3(h) of the Federal Deposit Insurance
Act) and any interim savings bank that is established to facilitate a corporate reorganization, or the formation of a holding
company, involving a savings bank described in paragraph (1).
(n) INCORPORATED DEFINITIONS.—For purposes of this Act, the
terms "insured depository institution", "appropriate Federal banking agency", "default", "in danger of default", and "State bank supervisor" have the same meanings as in section 3 of the Federal
Deposit Insurance Act.
(o) OTHER DEFINITIONS.—For purposes of this Act, the following definitions shall apply:
(1) ADEQUATELY CAPITALIZED.—The term "adequately capitalized" means a level of capitalization which meets or exceeds
all applicable Federal regulatory capital standards.
(2) ANTITRUST LAWS.—Except as provided in section 11,
the term "antitrust laws"—
(A) has the same meaning as in subsection (a) of the
first section of the Clayton Act; and
(B) includes section 5 of the Federal Trade Commission Act to the extent that such section 5 relates to unfair
methods of competition.
(3) BRANCH.—The term "branch" means a domestic branch
(as defined in section 3 of the Federal Deposit Insurance Act).
(4) HOME STATE.—The term "home State" means—
(A) with respect to a national bank, the State in which
the main office of the bank is located;
(B) with respect to a State bank, the State by which
the bank is chartered; and
(C) with respect to a bank holding company, the State
in which the total deposits of all banking subsidiaries of
such company are the largest on the later of—
(i) July 1, 1966; or
(ii) the date on which the company becomes a
bank holding company under this Act.
(5) HOST STATE.—The term "host State" means—




59

BANK HOLDING COMPANY ACT OF 1956

Sec. 3

(A) with respect to a bank, a State, other than the
home State of the bank, in which the bank maintains, or
seeks to establish and maintain, a branch; and
(B) with respect to a bank holding company, a State,
other than the home State of the company, in which the
company controls, or seeks to control, a bank subsidiary.
(6) OUT-OF-STATE BANK.—The term "out-of-State bank"
means, with respect to any State, a bank whose home State is
another State.
(7) OUT-OF-STATE BANK HOLDING COMPANY.—The term
"out-of-State bank holding company" means, with respect to
any State, a bank holding company whose home State is another State.
ACQUISITION OF BANK SHARES OR ASSETS

SEC. 3. [12 U.S.C. 1842] (a) It shall be unlawful, except with
the prior approval of the Board, (1) for any action to be taken that
causes any company to become a bank holding company; (2) for any
action to be taken that causes a bank to become a subsidiary of a
bank holding company; (3) for any bank holding company to acquire direct or indirect ownership or control of any voting shares
of any bank if, after such acquisition, such company will directly
or indirectly own or control more than 5 per centum of the voting
shares of such bank; (4) for any bank holding company or subsidiary thereof, other than a bank, to acquire all or substantially all
of the assets of a bank; or (5) for any bank holding company to
merge or consolidate with any other bank holding company. Notwithstanding the foregoing this prohibition shall not apply to (A)
shares acquired by a bank, (i) in good faith in a fiduciary capacity,
except where such shares are held under a trust that constitutes
a company as defined in section 2(b) and except as provided in
paragraphs (2) and (3) of section 2(g), or (ii) in the regular course
of securing or collecting a debt previously contracted in good faith,
but any shares acquired after the date of enactment of this Act in
securing or collecting any such previously contracted debt shall be
disposed of within a period of two years from the date on which
they were acquired; (B) additional shares acquired by a bank holding company in a bank in which such bank holding company owned
or controlled a majority of the voting shares prior to such acquisition; or (C) the acquisition, by a company, of control of a bank in
a reorganization in which a person or group of persons exchanges
their shares of the bank for shares of a newly formed bank holding
company and receives after the reorganization substantially the
same proportional share interest in the holding company as they
held in the bank except for changes in shareholders' interests resulting from the exercise of dissenting shareholders' rights under
State or Federal law if—
(i) immediately following the acquisition—
(I) the bank holding company meets the capital and other financial standards prescribed by
the Board by regulation for such a bank holding
company; and


89-335 9 5 - 3


Sec. 3

BANK HOLDING COMPANY ACT OF 1956

60

(II) the bank is adequately capitalized (as defined in section 38 of the Federal Deposit Insurance Act);
(ii) the holding company does not engage in any
activities other than those of managing and controlling
banks as a result of the reorganization;
(iii) the company provides 30 days prior notice to
the Board and the Board does not object to such transaction during such 30-day period; ana
(iv) the holding company will not acquire control
of any additional bank as a result of the reorganization. The Board is authorized upon application by a
bank to extend, from time to time for not more than
one year at a time, the two-year period referred to
above for disposing of any shares acquired by a bank
in the regular course of securing or collecting a debt
previously contracted in good faith, if, in the Board's
judgment, such an extension would not be detrimental
to the public interest, but no such extension shall in
the aggregate exceed three years. For the purpose of
the preceding sentence, bank shares acquired after the
date of enactment of the Bank Holding Company Act
Amendments of 1970 shall not be deemed to have been
acquired in good faith in a fiduciary capacity if the acuiring bank or company has sole discretionary autiority to exercise voting rights with respect thereto,
but in such instances acquisitions may be made without prior approval of the Board if the Board, upon application filed within ninety days after the shares are
acquired, approves retention or, if retention is disapproved, the acquiring bank disposes of the shares or
its sole discretionary voting rights within two years
after issuance of the order of disapproval.
(b)(1) NOTICE AND HEARING REQUIREMENTS.—Upon receiving
from a company any application for approval under this section,
the Board shall give notice to the Comptroller of the Currency, if
the applicant company or any bank the voting shares or assets of
which are sought to be required * is a national banking association
or a District bank, or to the appropriate supervisory authority of
the interested State, if the applicant company or any bank the voting shares or assets of which are sought to be acquired is a State
bank, in order to provide for the submission of the views and recommendations of the Comptroller of the Currency or the State supervisory authority, as the case may be. The views and recommendations shall be submitted within thirty calendar days of
the date on which notice is given, or within ten calendar days of
such date if the Board advises the Comptroller of the Currency or
the State supervisory authority that an emergency exists requiring
expeditious action. If the thirty-day notice period applies and if the
Comptroller of the Currency or the State supervisory authority so
notified by the Board disapproves the application in writing within
this period, the Board shall forthwith give written notice of that

a

1

So in original. Probably should be "acquired".




61

BANK HOLDING COMPANY ACT OF 1956

Sec. 3

fact to the applicant. Within three days after giving such notice to
the applicant, the Board shall notify in writing the applicant and
the disapproving authority of the date for commencement of a hearing by it on such application. Any such hearing shall be commenced
not less than ten or more than thirty days after the Board has
given written notice to the applicant of the action of the disapproving authority. The length of any such hearing shall be determined
by the Board, but it shall afford all interested parties a reasonable
opportunity to testify at such hearing. At the conclusion thereof,
the Board shall, by order, grant or deny the application on the
basis of the record made at such hearing. In the event of the failure
of the Board to act on any application for approval under this section within the ninety-one-day period which oegins on the date of
submission to the Board of the complete record on that application,
the application shall be deemed to have been granted. Notwithstanding any other provision of this subsection, if the Board finds
that it must act immediately on any application for approval under
this section in order to prevent the probable failure of a bank or
bank holding company involved in a proposed acquisition, merger,
or consolidation transaction, the Board may dispense with the notice requirements of this subsection, and if notice is given, the
Board may request that the views and recommendations of the
Comptroller of the Currency or the State supervisory authority, as
the case may be, be submitted immediately in any form or by any
means acceptable to the Board. If the Board has found pursuant
to this subsection either that an emergency exists requiring expeditious action or that it must act immediately to prevent probable
failure, the Board may grant or deny any such application without
a hearing not withstanding any recommended disapproval by the
appropriate supervisory authority.
(2) WAIVER IN CASE OF BANK IN DANGER OF CLOSING.—If

the

Board receives a certification described in section 13(f)(8)(D) of the
Federal Deposit Insurance Act from the appropriate Federal or
State chartering authority that a bank is in danger of closing, the
Board may dispense with the notice and hearing requirements of
paragraph (1) with respect to any application received by the Board
relating to the acquisition of such bank, the bank holding company
which controls such bank, or any other affiliated bank.
(c) FACTORS FOR CONSIDERATION BY BOARD.—
(1) COMPETITIVE FACTORS.—The Board shall

not approve—
(A)x any acquisition or merger or consolidation under this
section which would result in a monopoly, or which would be
in furtherance of any combination or conspiracy to monopolize
or to attempt to monopolize the business of banking in any
part of the United States, or
(B) 1 any other proposed acquisition or merger or consolidation under this section whose effect in any section of the country may be substantially to lessen competition, or to tend to
create a monopoly, or wnich in any other manner would be in
restraint or2 trade, unless it finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the
1
Indentation
2

so in law.
So in original. Probably should be "of.




BANK HOLDING COMPANY ACT OF 1956

Sec. 3

62

public interest by the probable effect of the transaction in
meeting the convenience and needs of the community to be
served.
(2) BANKING AND COMMUNITY FACTORS.—In every case, the
Board shall take into consideration the financial and managerial resources and future prospects of the company or companies and the banks concerned, and the convenience and needs
of the community to be served.
(3) SUPERVISORY FACTORS.—The Board shall disapprove
any application under this section by any company if—
(A) the company fails to provide the Board with adequate assurances that the company will make available to
tne Board such information on the operations or activities
of the company, and any affiliate of the company, as the
Board determines to be appropriate to determine and enforce compliance with this Act; or
(B) in the case of an application involving a foreign
bank, the foreign bank is not subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in the bank's home country.
(4) TREATMENT OF CERTAIN BANK STOCK LOANS.—Notwith-

standing any other provision of law, the Board shall not follow
any practice or policy in the consideration of any application
for the formation of a one-bank holding company if following
such practice or policy would result in the rejection of such application solely because the transaction to form such one-bank
holding company involves a bank stock loan which is for a period of not more than twenty-five years. The previous sentence
shall not be construed to prohibit the Board from rejecting any
application solely because the other financial arrangements are
considered unsatisfactory. The Board shall consider transactions involving bank stock loans for the formation of a onebank holding company having a maturity of twelve years or
more on a case by case basis and no such transaction shall be
approved if the Board believes the safety or soundness of the
bank may be jeopardized.
(5) MANAGERIAL RESOURCES.—Consideration of the managerial resources of a company or bank under paragraph (2)
shall include consideration of the competence, experience, and
integrity of the officers, directors, and principal shareholders of
the company or bank.
(d) INTERSTATE BANKING.—
(1) APPROVALS AUTHORIZED.—
(A) ACQUISITION OF BANKS.—The

Board may approve
an application under this section by a bank holding company that is adequately capitalized and adequately managed to acquire control of, or acquire all or substantially
all of the assets of, a bank located in a State other than
the home State of such bank holding company, without regard to whether such transaction is prohibited under the
law of any State.
(B) PRESERVATION OF STATE AGE LAWS.—

(i) IN GENERAL.—Notwithstanding subparagraph
(A), the Board may not approve an application pursu-




63

BANK HOLDING COMPANY ACT OF 1956

Sec. 3

ant to such subparagraph that would have the effect
of permitting an out-of-State bank holding company to
acquire a bank in a host State that has not been in
existence for the minimum period of time, if any, specified in the statutory law of the host State.
(ii) SPECIAL RULE FOR STATE AGE LAWS SPECIFYING
A PERIOD OF MORE THAN 5 YEARS.—Notwithstanding

clause (i), the Board may approve, pursuant to subparagraph (A), the acquisition of a bank that has been
in existence for at least 5 years without regard to any
longer minimum period of time specified in a statutory
law of the host State.
(C) SHELL BANKS.—For purposes of this subsection, a
bank that has been chartered solely for the purpose of, and
does not open for business prior to, acquiring control of, or
acquiring all or substantially all of the assets of, an existing bank shall be deemed to have been in existence for the
same period of time as the bank to be acquired.
(D) EFFECT ON STATE CONTINGENCY LAWS.—NO provision of this subsection shall be construed as affecting the
applicability of a State law that makes an acquisition of a
bank contingent upon a requirement to hold a portion of
such bank's assets available for call by a State-sponsored
housing entity established pursuant to State law, if—
(i) the State law does not have the effect of discriminating against out-of-State banks, out-of-State
bank holding companies, or subsidiaries of such banks
or bank holding companies;
(ii) that State law was in effect as of the date of
enactment of the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994;
(iii) the Federal Deposit Insurance Corporation
has not determined that compliance with such State
law would result in an unacceptable risk to the appropriate deposit insurance fund; and
(iv) the appropriate Federal banking agency for
such bank has not found that compliance with such
State law would place the bank in an unsafe or unsound condition.
(2) CONCENTRATION LIMITS.—
(A) NATIONWIDE CONCENTRATION LIMITS.—The

Board
may not approve an application pursuant to paragraph
(1)(A) if the applicant (including all insured depository institutions which are affiliates of the applicant) controls, or
upon consummation of the acquisition for which such application is filed would control, more than 10 percent of the
total amount of deposits of insured depository institutions
in the United States.
(B) STATEWIDE CONCENTRATION LIMITS OTHER THAN
WITH RESPECT TO INITIAL ENTRIES.—The Board may not

approve an application pursuant to paragraph (1)(A) if—
(i) immediately before the consummation of the
acquisition for which such application is filed, the applicant (including any insured depository institution




Sec. 3

BANK HOLDING COMPANY ACT OF 1956

64

affiliate of the applicant) controls any insured depository institution or any branch of an insured depository
institution in the home State of any bank to be acquired or in any host State in which any such bank
maintains a branch; and
(ii) the applicant (including all insured depository
institutions which are affiliates of the applicant), upon
consummation of the acquisition, would control 30 percent or more of the total amount of deposits of insured
depository institutions in any such State.
(C) EFFECTIVENESS OF STATE DEPOSIT CAPS.—NO provision of this subsection shall be construed as affecting the
authority of any State to limit, by statute, regulation, or
order, the percentage of the total amount of deposits of insured depository institutions in the State which may be
held or controlled by any bank or bank holding company
(including all insured depository institutions which are affiliates of the bank or bank holding company) to the extent
the application of such limitation does not discriminate
against out-of-State banks, out-of-State bank holding companies, or subsidiaries of such banks or holding
companies.
(D) EXCEPTIONS TO SUBPARAGRAPH (B).—The Board
may approve an application pursuant to paragraph (1)(A)
without regard to the applicability of subparagraph (B)
with respect to any State if—
(i) there is a limitation described in subparagraph
(C) in a State statute, regulation, or order which has
the effect of permitting a bank or bank holding company (including all insured depository institutions
which are affiliates of the bank or bank holding company) to control a greater percentage of total deposits
of all insured depository institutions in the State than
the percentage permitted under subparagraph (B); or
(ii) the acquisition is approved by the appropriate
State bank supervisor of such State and the standard
on which such approval is based does not have the effect of discriminating against out-of-State banks, outof-State bank holding companies, or subsidiaries of
such banks or holding companies.
(E) DEPOSIT DEFINED.—For purposes of this paragraph, the term "deposit" has the same meaning as in section 3(1) of the Federal Deposit Insurance Act.
(3) COMMUNITY REINVESTMENT COMPLIANCE.—In determining whether to approve an application under paragraph (1)(A),
the Board shall—
(A) comply with the responsibilities of the Board regarding such application under section 804 of the Community Reinvestment Act of 1977; and
(B) take into account the applicant's record of compliance with applicable State community reinvestment laws.
(4) APPLICABILITY OF ANTITRUST LAWS.—NO provision of
this subsection shall be construed as affecting—
(A) the applicability of the antitrust laws; or




65

BANK HOLDING COMPANY ACT OF 1956

Sec. 3

(B) the applicability, if any, of any State law which is
similar to the antitrust laws.
(5) EXCEPTION FOR BANKS IN DEFAULT OR IN DANGER OF

DEFAULT.—The Board may approve an application pursuant to
paragraph (1)(A) which involves—
(A) an acquisition of 1 or more banks in default or in
danger of default; or
(B) an acquisition with respect to which assistance is
provided under section 13(c) of the Federal Deposit Insurance Act;
without regard to subparagraph (B) or (D) of paragraph (1) or
paragraph (2) or (3).
(e) Every bank that is a holding company and every bank that
is a subsidiary of such company shall become and remain an insured depository institution as such term is defined in section 3 1
of the Federal Deposit Insurance Act.
(f) SAVINGS BANK SUBSIDIARIES OF BANK HOLDING COMPANIES.—

(1) IN GENERAL.—Notwithstanding any other provision of
this Act (other than paragraphs (2) and (3)), any qualified savings bank which is a subsidiary of a bank holding company
may engage, directly or through a subsidiary, in any activity
in which such savings bank may engage (as a State chartered
savings bank) pursuant to express, incidental, or implied powers under any statute or regulation, or under any judicial interpretation of any law, of the State in which such savings
bank is located.
(2) INSURANCE ACTIVITIES.—Except as provided in paragraph (3), any insurance activities of any qualified savings
bank which is a subsidiary of a bank holding company shall be
limited to insurance activities allowed under section 4(c)(8).
(3) SAVINGS BANK LIFE INSURANCE.—Any qualified savings
bank permitted, as of March 5, 1987, to engage in the sale or
underwriting of savings bank life insurance may sell or underwrite such insurance after such savings bank is a subsidiary
of a bank holding company if—
(A) the savings bank is located in the State of Connecticut, Massachusetts, or New York;
(B) such activity is expressly authorized by the law of
the State in which such savings bank is located;
(C) the savings bank retains its character as a savings
bank;
(D) such activity is carried out by the savings bank directly and not by—
(i) any subsidiary or affiliate of the savings bank;
or
(ii) the bank holding company which controls such
savings bank;
(E) such activity is carried out by the savings bank in
accordance with any residency or employment limitations
1
Section 602(b) of P.L. 101-73, 103 Stat. 409, amended section 3(e) by striking "an insured
bank as defined in section 3(h)" and inserting "an insured depository institution as defined in
section 3". The amendment probably should have striken "an insured bank as such term is defined in section 3(h)".




BANK HOLDING COMPANY ACT OF 1956

Sec. 4

66

set forth in the savings bank life insurance statute in effect on March 5, 1987, in the State in which such bank is
located; and
(F) such activity is otherwise carried out in the same
manner as savings bank life insurance activity is carried
out in the State in which such bank is located by savings
banks which are not subsidiaries of any bank holding company registered under this Act.
(4) SUBSECTION SHALL CEASE TO APPLY UNDER CERTAIN CIR-

CUMSTANCES.—If any company which is not a savings bank or
a savings bank holding company acquires control of a qualified
savings bank, such savings bank shall cease to engage in any
activity authorized under paragraph (1) or (3) before the end
of the 2-year period beginning on the date such company acquires control, unless such activity is otherwise authorized pursuant to this Act.
(5) SPECIAL ASSET AGGREGATION RULE FOR PURPOSES OF
PARAGRAPH (3).—For the sole purpose of determining whether

a qualified savings bank may continue to sell and underwrite
savings bank life insurance in accordance with this subsection
after control of such savings bank is acquired by a bank holding company, the assets of any other bank affiliated with, or
under contract to affiliate with, such savings bank as of March
5, 1987, shall be treated as assets of the savings bank in determining whether such bank holding company is a savings bank
holding company.
(g) MUTUAL BANK HOLDING COMPANY.—

(1) ESTABLISHMENT.—Notwithstanding any provision of
Federal law other than this Act, a savings bank or cooperative
bank operating in mutual form may reorganize so as to form
a holding company.
(2) REGULATION.—A corporation organized as a holding
company under this subsection shall be regulated on the same
terms and be subject to the same limitations as any other holding company which controls a savings bank.
INTERESTS IN NONBANKING ORGANIZATIONS

SEC. 4. [12 U.S.C. 1843] (a) Except as otherwise provided in
this Act, no bank holding company shall—
(1) after the date of enactment of this Act acquire direct
or indirect ownership or control of any voting shares of any
company which is not a bank, or
(2) after two years from the date as of which it becomes
a bank holding company, or in the case of a company which
has been continuously affiliated since May 15, 1955, with a
company which was registered under the Investment Company
Act of 1940, prior to May 15, 1955, in such a manner as to constitute an affiliated company within the meaning of that Act,
after December 31, 1978, or, in the case of any company which
becomes, as a result of the enactment of the Bank Holding
Company Act Amendments of 1970, a bank holding company
on the date of such enactment, after December 31, 1980, retain
direct or indirect ownership or control of any voting shares of




67

BANK HOLDING COMPANY ACT OF 1956

Sec. 4

any company which is not a bank or bank holding company or
engage in any activities other than (A) those of banking or of
managing or controlling banks and other subsidiaries authorized under this Act or of furnishing services to or performing
services for its subsidiaries, and (B) those permitted under
paragraph (8) of subsection (c) of this section subject to all the
conditions specified in such paragraph or in any order or regulation issued by the Board under such paragraph: Provided,
That a company covered in 1970 may also engage in those activities in which directly or through a subsidiary (i) it was lawfully engaged on June 30, 1968 (or on a date subsequent to
June 30, 1968 in the case of activities carried on as the result
of the acquisition by such company or subsidiary, pursuant to
a binding written contract entered into on or before June 30,
1968, of another company engaged in such activities at the
time of the acquisition), and (ii) it has been continuously engaged since June 30, 1968 (or such subsequent date). The
Board by order, after opportunity for hearing, may terminate
the authority conferred by the preceding proviso on any company to engage directly or through a subsidiary in any activity
otherwise permitted by that proviso if it determines, having
due regard to the purposes of this Act, that such action is necessary to prevent undue concentration of resources, decreased
or unfair competition, conflicts of interest, or unsound banking
practices; and in the case of any such company controlling a
bank having bank assets in excess of $60,000,000 on or after
the date of enactment of the Bank Holding Company Act
Amendments of 1970 the Board shall determine, within two
years after such date (or, if later, within two years after the
date on which the bank assets first exceed $60,000,000),
whether the authority conferred by the preceding proviso with
respect to such company should be terminated as provided in
this sentence. Nothing in this paragraph shall be construed to
authorize any bank holding company referred to in the preceding proviso, or any subsidiary thereof, to engage in activities
authorized by that proviso through the acquisition, pursuant to
a contract entered into after June 30, 1968, of any interest in
or the assets of a going concern engaged in such activities. Any
company which is authorized to engage in any activity pursuant to the preceding proviso or subsection (d) of this section
but, as a result of action of the Board, is required to terminate
such activity may (notwithstanding any otherwise applicable
time limit prescribed in this paragraph) retain the ownership
or control of shares in any company carrying on such activity
for a period of ten years from tne date on which its authority
was so terminated by the Board.
The Board is authorized, upon application by a bank holding company, to extend the two-year period referred to in paragraph (2)
above from time to time as to such bank holding company for not
more than one year at a time, if, in its judgment, such an extension
would not be detrimental to the public interest, but no such extensions shall in the aggregate exceed three years. Notwithstanding
any other provision of this Act, the period ending December 31,
1980, referred to in paragraph (2) above, may be extended by the




Sec. 4

BANK HOLDING COMPANY ACT OF 1956

68

Board of Governors to December 31, 1984, but only for the divestiture by a bank holding company of real estate or interests in real
estate lawfully acquired for investment or development. In making
its decision whether to grant such extension, the Board shall consider whether the company has made a good faith effort to divest
such interests and whether such extension is necessary to avert
substantial loss to the company. Notwithstanding any other provision of this paragraph, if any company that became a bank holding
company as a result of the enactment of the Competitive Equality
Amendments of 1987 acquired, between March 5, 1987, and the
date of the enactment of such Amendments, an institution that became a bank as a result of the enactment of such Amendments,
that company shall, upon the enactment of such Amendments, immediately come into compliance with the requirements of this Act.
(b) After two years from the date of enactment of this Act, no
certificate evidencing shares of any bank holding company shall
bear any statement purporting to represent shares of any other
company except a bank or a bank holding company, nor shall the
ownership, sale, or transfer of shares of any bank holding company
be conditioned in any manner whatsoever upon the ownership,
sale, or transfer of shares of any other company except a bank or
a bank holding company.
(c) The prohibitions in this section shall not apply to (i) any
company that was on January 4, 1977, both a bank holding company and a labor, agricultural, or horticultural organization exempt
from taxation under section 501 of the Internal Revenue Code of
1954, or to any labor, agricultural, or horticultural organization to
which all or substantially all of the assets of such company are
hereafter transferred, or (ii) a company covered in 1970 more than
85 per centum of the voting stock of which was collectively owned
on June 30, 1968, and continuously thereafter, directly or indirectly, by or for members of the same family, or their spouses, who
are lineal descendants of common ancestors; and such prohibitions
shall not, with respect to any other bank holding company, apply
to—
(1) shares of any company engaged or to be engaged solely
in one or more of the following activities: (A) holding or operating properties used wholly or substantially by any banking
subsidiary of such bank holding company in the operations of
such banking subsidiary or acquired for such future use; or (B)
conducting a safe deposit business; or (C) furnishing services
to or performing services for such bank holding company or its
banking subsidiaries; or (D) liquidating assets acquired from
such bank holding company or its banking subsidiaries or acquired from any other source prior to May 9, 1956, or the date
on which such company became a bank holding company,
whichever is later;
(2) shares acquired by a bank holding company or any of
its subsidiaries in satisfaction of a debt previously contracted
in good faith, but such shares shall be disposed of within a period of two years from the date on which they were acquired,
except that the Board is authorized upon application by such
bank holding company to extend such period of two years from
time to time as to such holding company for not more than one




69

BANK HOLDING COMPANY ACT OF 1956

Sec. 4

year at a time if, in its judgment, such an extension would not
be detrimental to the public interest, but no such extensions
shall extend beyond a date five years after the date on which
such shares were acquired;
(3) shares acquired by such bank holding company from
any of its subsidiaries which subsidiary has been requested to
dispose of such shares by any Federal or State authority having statutory power to examine such subsidiary, but such bank
holding company shall dispose of such shares within a period
of two years from the date on which they were acquired;
(4) shares held or acquired by a bank in good faith in a
fiduciary capacity, except where such shares are held under a
trust that constitutes a company as defined in section 2(b) and
except as provided in paragraphs (2) and (3) of section 2(g);
(5) shares which are of the kinds and amounts eligible for
investment by national banking associations under the provisions of section 5136 of the Revised Statutes;
(6) shares of any company which do not include more than
5 per centum of the outstanding voting shares of such company;
(7) shares of an investment company which is not a bank
holding company and which is not engaged in any business
other than investing in securities, which securities do not include more than 5 per centum of the outstanding voting shares
of any company;
(8) shares of any company the activities of which the
Board after due notice and opportunity for hearing has determined (by order or regulation) to be so closely related to banking or managing or controlling banks as to be a proper incident
thereto, but for purposes of this subsection it is not closely related to banking or managing or controlling banks for a bank
holding company to provide insurance as a principal, agent, or
broker except (A) where the insurance is limited to assuring repayment of the outstanding balance due on a specific extension
of credit by a bank holding company or its subsidiary in the
event of the death, disability, or involuntary unemployment of
the debtor; (B) in the case of a finance company which is a subsidiary of a bank holding company, where the insurance is also
limited to assuring repayment of the outstanding balance on
an extension of credit in the event of loss or damage to any
property used as collateral on such extention* of credit and,
during the period beginning on the date of the enactment of
this subparagraph and ending on December 31, 1982, such extension of credit is not more than $10,000 ($25,000 in the case
of an extension of credit which is made to finance the purchase
of a residential manufactured home and which is secured by
such residential manufactured home) and for any given year
after 1982, such extension of credit is not more than an
amount equal to $10,000 ($25,000 in the case of an extension
of credit which is made to finance the purchase of a residential
manufactured home and which is secured by such residential
manufactured home) increased by the percentage increase in
1

So in law. Probably should be "extension".




Sec. 4

BANK HOLDING COMPANY ACT OF 1956

70

the Consumer Price Index for Urban Wage Earners and Clerical Workers published monthly by the Bureau of Labor Statistics for the period beginning on January 1, 1982, and ending
on December 31 of the year preceding trie year in which such
extension of credit is made; (C) any insurance agency activity
in a place that (i) has a population not exceeding five thousand
(as snown by the last preceding decennial census), or (ii) the
bank holding company, after notice and opportunity for a hearing, demonstrates has inadequate insurance agency facilities;
(D) any insurance agency activity which was engaged in by the
bank holding company or any of its subsidiaries on May 1,
1982, or which the Board approved for such company or any
of its subsidiaries on or before May 1, 1982, including (i) sales
of insurance at new locations of the same bank holding company or the same subsidiary or subsidiaries with respect to
which insurance was sold on MOT 1, 1982, or approvea to be
sold on or before May 1, 1982, if such new locations are confined to the State in which the principal place of business of
the bank holding company is located, any State or States immediately adjacent to such State, and any State or States in
which insurance activities were conducted by the bank holding
company or any of its subsidiaries on May 1, 1982, or were approved to be conducted by the bank holding company or any of
its subsidiaries on or before May 1, 1982, and (ii) sales of insurance coverages which may become available after May 1,
1982, so long as those coverages insure against the same types
of risks as, or are otherwise functionally equivalent to, coverages sold on May 1, 1982, or approved to be sold on or before
May 1, 1982 (for purposes of this subparagraph, activities engaged in or approvea by the Board on May 1, 1982, shall include activities carried on subsequent to that date as the result
of an application to engage in such activities pending on May
1, 1982, and approved subsequent to that date or of the acquisition by such company pursuant to a binding written contract
entered into on or before May 1, 1982, of another company engaged in such activities at the time of the acquisition); (E) any
insurance activity where the activity is limited solely to supervising on behalf of insurance underwriters the activities of retail insurance agents who sell (i) fidelity insurance and property and casualty insurance on the real and personal property
used in the operations of the bank holding company or any of
its subsidiaries, and (ii) group insurance that protects the employees of the bank holding company or any of its subsidiaries;
(F) any insurance agency activity engaged in by a bank holding
company, or any of its subsidiaries, which bank holding company has total assets of $50,000,000 or less: Provided, however,
That such a bank holding company and its subsidiaries may
not engage in the sale of life insurance or annuities except as
provided in subparagraph (A), (B), or (C); or (G) where the activity is performed, or shares of the company involved are
owned, directly or indirectly, by a bank holding company which
is registered with the Board of Governors of the Federal Reserve System and which, prior to January 1, 1971, was engaged, directly or indirectly, in insurance agency activities as




71

BANK HOLDING COMPANY ACT OF 1956

Sec. 4

a consequence of approval by the Board prior to January 1,
1971. In determining whether a particular activity is a proper
incident to banking or managing or controlling banks the
Board shall consider whether its performance by an affiliate of
a holding company can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse
effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interests, or unsound banking
practices. In orders and regulation under this subsection, the
Board may differentiate between activities commenced de novo
and activities commenced by the acquisition, in whole or in
part, of a going concern. Notwithstanding any other provision
of this Act, if the Board finds that an emergency exists which
requires the Board to act immediately on any application
under this subsection involving a thrift institution, and the primary Federal regulator of such institution concurs in such
finding, the Board may dispense with the notice and hearing
requirement of this subsection and the Board may approve or
deny any such application without notice or hearing. If an application is filed under this paragraph in connection with an
application to make an acquisition pursuant to section 13(f) of
the Federal Deposit Insurance Act, the Board may dispense
with the notice and hearing requirement of this paragraph and
the Board may approve or deny the application under this
paragraph without notice or hearing. If an application described in the preceding sentence is approved, the Board shall
publish in the Federal Register, not later than 7 days after
such approval is granted, the order approving the application
and a description of the nonbanking activities involved in the
acquisition;
(9) shares held or activities conducted by any company organized under the laws of a foreign country the greater part
of whose business is conducted outside the United States, if the
Board by regulation or order determines that, under the circumstances and subject to the conditions set forth in the regulation or order, the exemption would not be substantially at
variance with the purposes of this Act and would be in the
public interest;
(10) shares lawfully acquired and owned prior to May 9,
1956, by a bank which is a bank holding company, or by any
of its wholly owned subsidiaries;
(11) shares owned directly or indirectly by a company covered in 1970 in a company which does not engage in any activities other than those in which the bank holding company, or
its subsidiaries, may engage by virtue of this section, but nothing in this paragraph authorizes any bank holding company, or
subsidiary thereof, to acquire any interest in or the assets of
any going concern (except pursuant to a binding written contract entered into before June 30, 1968, or pursuant to another
provision of this Act) other than one which was a subsidiary
on June 30, 1968;
(12) shares retained or acquired, or activities engaged in,
by any company which becomes, as a result of the enactment




Sec. 4

BANK HOLDING COMPANY ACT OF 1956

72

of the Bank Holding Company Act Amendments of 1970, a
bank
holding company on the date of such enactment, or by
any subsidiary thereof, if such company—
(A) within the applicable time limits prescribed in subsection (a)(2) of this section (i) ceases to be a bank holding
company, or (ii) ceases to retain direct or indirect owership
or control of those shares and to engage in those activities
not authorized under this section; and
(B) complies with such other conditions as the Board
may by regulation or order prescribe;
(13) shares of, or activities conducted by, any company
which does no business in the United States except as an incident to its international or foreign business, if the Board by
regulation or order determines that, under the circumstances
and subject to the conditions set forth in the regulation or
order, the exemption would not be substantially at variance
with the purposes of this Act and would be in the public interest; or
(14) shares of any company which is an export trading
company whose acquisition (including each acquisition of
shares) or formation by a bank holding company has not been
disapproved by the Board pursuant to this paragraph, except
that such investments, whether direct or indirect, in such
shares shall not exceed 5 per centum of the bank holding company's consolidated capital and surplus.
(A)(i) No bank holding company shall invest in an export trading company under mis paragraph unless the
Board has been given sixty days' prior written notice of
such proposed investment and within such period has not
issued a notice disapproving the proposed investment or
extending for up to another thirty days the period during
which such disapproval may be issued.
(ii) The period for disapproval may be extended for
such additional thirty-day period only if the Board determines that a bank holding company proposing to invest in
an export trading company has not furnished all the information required to be submitted or that in the Board's
judgment any material information submitted is substantially inaccurate.
(iii) The notice required to be filed by a bank holding
company shall contain such relevant information as the
Board shall require by regulation or by specific request in
connection with any particular notice.
(iv) The Board may disapprove any proposed investment only if—
(I) such disapproval is necessary to prevent unsafe
or unsound banking practices, undue concentration of
resources, decreased or unfair competition, or conflicts
of interest;
(II) the Board finds that such investment would
affect the financial or managerial resources of a bank
holding company to an extent which is likely to have
a materially adverse effect on the safety and sound-




BANK HOLDING COMPANY ACT OF 1956

7
3

Sec. 4

ness of any subsidiary bank of such bank holding company, or
(III) the bank holding company fails to furnish the
information required under clause (iii).
(v) LEVERAGE.—The Board may not disapprove any
proposed investment solely on the basis of the anticipated
or proposed asset-to-equity ratio of the export trading company with respect to which such investment is proposed,
unless the anticipated or proposed annual average assetto-equity ratio is greater than 20-to-l.
(vi) Within three days after a decision to disapprove
an investment, the Board shall notify the bank holding
company in writing of the disapproval and shall provide a
written statement of the basis for the disapproval.
(vii) A proposed investment may be made prior to the
expiration of the disapproval period if the Board issues
written notice of its intent not to disapprove the investment.
(B)(i) The total amount of extensions of credit by a
bank holding company which invests in an export trading
company, when combined with all such extensions of credit
by all the subsidiaries of such bank holding company, to
an export trading company shall not exceed at any one
time 10 per centum of tne bank holding company's consolidated capital and surplus. For purposes of the preceding
sentence, an extension of credit shall not be deemed to include any amount invested by a bank holding company in
the shares of an export trading company.
(ii) No provision of any other Federal law in effect on
October 1, 1982, relating specifically to collateral requirements shall apply with respect to any such extension of
credit.
(iii) No bank holding company or subsidiary of such
company which invests in an export trading company may
extend credit to such export trading company or to customers of such export trading company on terms more favorable than those afforded similar borrowers in similar
circumstances, and such extension of credit shall not involve more than the normal risk of repayment or present
other unfavorable features.
(C) For purposes of this paragraph, an export trading
company—
(i) may engage in or hold shares of a company engaged in the business of underwriting, selling, or distributing securities in the United States only to the
extent that any bank holding company which invests
in such export trading company may do so under applicable Federal and State banking laws and regulations; and
(ii) may not engage in agricultural production activities or in manufacturing, except for such incidental
product
modification
including
repackaging,
reassembling or extracting byproducts, as is necessary
to enable United States goods or services to conform




BANK HOLDING COMPANY ACT OF 1956

Sec. 4

74

with requirements of a foreign country and to facilitate their sale in foreign countries.
(D) A bank holding company which invests in an export trading company may be required, by the Board, to
terminate its investment or may be made subject to such
limitations or conditions as may be imposed by the Board,
if the Board determines that the export trading company
has taken positions in commodities or commodity contracts, in securities, or in foreign exchange, other than as
may be necessary in the course of the export trading company's business operations.
(E) Notwithstanding any other provision of law, an
Edge Act corporation, organized under section 25(a) of the
Federal Reserve Act (12 U.S.C. 611-631), which is a subsidiary of a bank holding company, or an agreement corporation, operating subject to section 25 of the Federal Reserve Act (12 U.S.C. 601-604(a)), which is a subsidiary of
a bank holding company, may invest directly and indirectly in the aggregate up to 5 per centum of its consolidated capital and surplus (25 per centum in the case of a
corporation not engaged in banking) in the voting stock of1
other evidences of ownership in one or more export trading
companies.
(F) For purposes of this paragraph—
(i) the term "export trading company" means a
company which does business under the laws of the
United States or any State, which is exclusively engaged in activities related to international trade, and
which is organized and operated principally for purposes of exporting goods or services produced in the
United States or for purposes of facilitating the exportation of goods or services produced in the United
States by unaffiliated persons by providing one or
more export trade services.2
(ii) the term "export trade services" includes, but
is not limited to, consulting, international market research, advertising, marketing, insurance (other than
acting as principal, agent or broker in the sale of insurance on risks resident or located, or activities performed, in the United States, except for insurance covering the transportation of cargo from any point of origin in the United States to a point of final destination
outside the United States), product research and design, legal assistance, transportation, including trade
documentation and freight forwarding, communication
and processing of foreign orders to and for exporters
and foreign purchasers, warehousing, foreign exchange, financing, and taking title to goods, when provided in order to facilitate the export of goods or services produced in the United States;
1
2

So in law. Probably should be "or".
So in original. The period probably should be a semicolon.




BANK HOLDING COMPANY ACT OF 1956

7
5

Sec. 4

(iii) the term ''bank holding company" shall include a bank which (I) is organized solely to do business with other banks and their officers, directors, or
employees; (II) is owned primarily by the banks with
which it does business; and (III) does not do business
with the general public. No such other bank, owning
stock in a bank described in this clause that invests
in an export trading company, shall extend credit to
an export trading company in an amount exceeding at
any one time 10 per centum of such other bank's capital and surplus; and
(iv) the term "extension of credit" shall have the
same meaning given such term in the fourth paragraph of section 23A of the Federal Reserve Act.
(G) DETERMINATION OF STATUS AS EXPORT TRADING
COMPANY.—
(i) TIME PERIOD REQUIREMENTS.—For purposes of

determining whether an export trading company is operated principally for the purposes described in subparagraph (F)(i)—
(I) the operations of such company during the
2-year period beginning on the date such company
commences operations shall not be taken into account in making any such determination; and
(II) not less than 4 consecutive years of operations of such company (not including any portion
of the period referred to in subclause (I)) snail be
taken into account in making any such determination.
(ii) EXPORT REVENUE REQUIREMENTS.—A company
shall not be treated as operated principally for the
purposes described in subparagraph (F)(i) unless—
(I) the revenues of such company from the export, or facilitating the export, of goods or services
produced in the United States exceed the revenues of such company from the import, or facilitating the import, into the United States of goods
or services produced outside the United States;
and
(II) at least Vz of such company's total revenues are revenues from the export, or facilitating
the export, of goods or services produced in the
United States by persons not affiliated with such
company.
(H) INVENTORY.—

(i) No GENERAL LIMITATION.—The Board may not
>rescribe by regulation any maximum dollar amount
imitation on the value of goods which an export trading company may maintain in inventory at any time,

f

(ii)

SPECIFIC LIMITATION BY ORDER.—Notwith-

standing clause (i), the Board may issue an order establishing a maximum dollar amount limitation on the
value of goods which a particular export trading company may maintain in inventory at any time (after




Sec. 4

BANK HOLDING COMPANY ACT OF 1956

76

such company has been operating for a reasonable period of time) if the Board finds that, under the facts
and circumstances, such limitation is necessary to prevent risks that would affect the financial or managerial resources of an investor bank holding company to
an extent which would be likely to have a materially
adverse effect on the safety and soundness of any subsidiary bank of such bank holding company.
The Board shall include in its annual report to the Congress a description and a statement of the reasons for approval of each activity approved by it by order or regulation under such paragraph
during the period covered by the report.
(d) To the extent that such action would not be substantially
at variance with the purposes of this Act and subject to such conditions as it considers necessary to protect the public interest, the
Board by order, after opportunity for hearing, may grant exemptions from the provisions of this section to any bank holding company which controlled one bank prior to July 1, 1968, and has not
thereafter acquired the control of any other bank in order (1) to
avoid disrupting business relationships that have existed over a
long period of years without adversely affecting the banks or communities involved, or (2) to avoid forced sales of small locally
owned banks to purchasers not similarly representative of community interests, or (3) to allow retention of banks that are so small
in relation to the holding company's total interests and so small in
relation to the banking market to be served as to minimize the
likelihood that the bank's powers to grant or deny credit may be
influenced by a desire to further the holding company's other interests.
(e) With respect to shares which were not subject to the prohibitions of this section as originally enacted by reason of any exemption with respect thereto but which were made subject to such prohibitions by the subsequent repeal of such exemption, no bank
holding company shall retain direct or indirect ownership or control
of such shares after five years from the date of the repeal of such
exemption, except as provided in paragraph (2) of subsection (a).
Any bank holding company subject to such five-year limitation on
the retention of nonbanking assets shall endeavor to divest itself
of such shares promptly and such bank holding company shall report its progress in such divestiture to the Board two years after
repeal of the exemption applicable to it and annually thereafter.
(f) CERTAIN COMPANIES NOT TREATED AS BANK HOLDING COMPANIES.—

(1) IN GENERAL.—Except as provided in paragraph (9), any
company which—
(A) on March 5, 1987, controlled an institution which
became a bank as a result of the enactment of the Competitive Equality Amendments of 1987; and
(B) was not a bank holding company on the day before
the date of the enactment of the Competitive Equality
Amendments of 1987,
shall not be treated as a bank holding company for purposes
of this Act solely by virtue of such company's control of such
institution.




77

BANK HOLDING COMPANY ACT OF 1956

Sec. 4

(2) Loss OF EXEMPTION.—Paragraph (1) shall cease to
apply to any company described in such paragraph if—
(A) such company directly or indirectly—
(i) acquires control of an additional bank or an insured institution (other than an insured institution described in paragraph (10) or (12) of this subsection)
after March 5, 1987; or
(ii) acquires control of more than 5 percent of the
shares or assets of an additional bank or an savings
association other than—
(I) shares held as a bona fida fiduciary
(whether with or without the sole discretion to
vote such shares);
(II) shares held by any person as a bona fide
fiduciary solely for the benefit of employees of either the company described in paragraph (1) or
any subsidiary of that company and the beneficiaries of those employees;
(III) shares held temporarily pursuant to an
underwriting commitment in the normal course of
an underwriting business;
(IV) shares held in an account solely for trading purposes;
(V) shares over which no control is held other
than control of voting rights acquired in the normal course of a proxy solicitation;
(VI) loans or other accounts receivable acquired in the normal course of business;
(VII) shares or assets acquired in securing or
collecting a debt previously contracted in good
faith, during the 2-year period beginning on the
date of sucn acquisition or for such additional
time (not exceeding 3 years) as the Board may
permit if the Board determines that such an extension will not be detrimental to the public interest;
(VIII) shares or assets of a savings association
described in paragraph (10) or (12) of this subsection;
(IX) shares of a savings association held by
any insurance company, as defined in section
2(a)(17) of the Investment Company Act of 1940,
except as provided in paragraph (11); and
(X) shares issued in a qualified stock insuance
under section 10(q) of the Home Owners' Loan
Act;
except that the aggregate amount of shares held under this clause
(other than under subclauses (I), (II), (III), (IV), (V), and (VIII))
may not exceed 15 percent of all outstanding shares or of the voting power of a savings association; or
(B) any bank subsidiary of such company fails to comply with the restrictions contained in paragraph (3)(B).
(3) LIMITATION ON BANKS CONTROLLED BY PARAGRAPH (D
COMPANIES.—




BANK HOLDING COMPANY ACT OF 1956

Sec. 4

78

(A) FINDINGS.—The Congress finds that banks controlled by companies referred to in paragraph (1) may, because of relationships with affiliates, be involved in conflicts of interest, concentration of resources, or other effects
adverse to bank safety and soundness, and may also be
able to compete unfairly against banks controlled by bank
holding companies by combining banking services with financial services not permissible for bank holding companies. The purpose of this paragraph is to minimize any
such potential adverse effects or inequities by temporarily
restricting the activities of banks controlled by companies
referred to in paragraph (1) until such time as the Congress has enacted proposals to allow, with appropriate
safeguards, all banks or bank holding companies to compete on a more equal basis with banks controlled by companies referred to in paragraph (1) or, alternatively, proposals to permanently restrict the activities of banks controlled by companies referred to in paragraph (1).
(B) LIMITATIONS.—Until such time as the Congress
has taken action pursuant to subparagraph (A), a bank
controlled by a company described in paragraph (1) shall
not—
(i) engage in any activity in which such bank was
not lawfully engaged as of March 5, 1987;
(ii) offer or market products or services of an affiliate that are not permissible for bank holding companies to provide under subsection (c)(8), or permit its
products or services to be offered or marketed in connection with products and services of an affiliate, unless—
(I) the Board, by regulation, has determined
such products and services are permissible for
bank holding companies to provide under subsection (c)(8);
(II) such products and services are described
in section 20 of the Banking Act of 1933 and the
Board, by regulation, has permitted bank holding
companies to offer or market such products or
services, but has prohibited bank holding companies and their affiliates from principally engaging
in the offering or marketing of such products or
services; or
(III) such products or services were being so
offered or marketed as of March 5, 1987, and then
only in the same manner in which they were
being offered or marketed as of that date;
(iii) after the date of the enactment of the Competitive Equality Amendments of 1987, permit any
overdraft (including an intraday overdraft), or incur
any such overdraft in such bank"s account at a Federal Reserve bank, on behalf of an affiliate, other than
an overdraft described in subparagraph (C); or
(iv) increase its assets at an annual rate of more
than 7 percent during any 12-month period beginning




79

BANK HOLDING COMPANY ACT OF 1956

Sec. 4

after the end of the 1-year period beginning on the
date of the enactment of the Competitive Equality
Amendments of 1987.
(C) PERMISSIBLE OVERDRAFTS DESCRIBED.—For purposes of subparagraph (B)(iii), an overdraft is described in
this subparagraph if—
(i) such overdraft results from an inadvertent comuter or accounting error that is beyond the control of
oth the bank and the affiliate; or
(ii) such overdraftCD is permitted or incurred on behalf of an affiliate which is monitored by, reports to, and is
recognized as a primary dealer by the Federal Reserve Bank of New York; and
(II) is fully secured, as required by the Board,
by bonds, notes, or other obligations which are direct obligations of the United States or on which
the principal and interest are fully guaranteed by
the United States or by securities and obligations
eligible for settlement on the Federal Reserve
book entry system.

E

(4) DIVESTITURE IN CASE OF LOSS OF EXEMPTION.—If

any

company described in paragraph (1) loses the exemption provided under such paragraph by operation of paragraph (2),
such company shall divest control of each bank it controls
within 180 days after such company becomes a bank holding
company due to the loss of such exemption.
(5)

SUBSECTION CEASES TO APPLY UNDER CERTAIN CIR-

CUMSTANCES.—This subsection shall cease to apply to any company described in paragraph (1) if such company—
(A) registers as a bank holding company under section
5(a) of this Act;
(B) immediately upon such registration, complies with
all of the requirements of this Act, and regulations prescribed by the Board pursuant to this Act, including the
nonbanking restrictions of this section; and
(C) does not, at the time of such registration, control
banks in more than one State, the acquisition of which
would be prohibited by section 3(d) of this Act if an application for such acquisition by such company were filed
under section 3(a) of this Act.
(6) INFORMATION REQUIREMENT.—Each company described
in paragraph (1) shall, within 60 days after the date of enactment of the Competitive Equality Amendments of 1987, provide the Board with the name and address of such company,
the name and address of each bank such company controls,
and a description of each such bank's activities.
(7) EXAMINATION.—The Board may, from time to time, examine a company described in paragraph (1), or a bank controlled by such company, or require reports under oath from
appropriate officers or directors of such company or bank solely
for purposes of assuring compliance with the provisions of this
subsection and enforcing such compliance.
(8) ENFORCEMENT.—




BANK HOLDING COMPANY ACT OF 1956

Sec. 4

80

(A) I N GENERAL.—In addition to any other power of
the Board, the Board may enforce compliance with the provisions of this Act which are applicable to any company described in paragraph (1), and any bank controlled by such
company, under section 8 of the Federal Deposit Insurance
Act and such company or bank shall be subject to such section (for such purposes) in the same manner and to the
same extent as if such company or bank were a State
member insured bank.
(B) APPLICATION OF OTHER ACT.—Any violation of this
Act by any company described in paragraph (1), and any
bank controlled by such company, may also be treated as
a violation of the Federal Deposit Insurance Act for purposes of subparagraph (A).
(C) N O EFFECT ON OTHER AUTHORITY.—No p r o v i s i o n o f

this paragraph shall be construed as limiting any authority of the Comptroller of the Currency or the Federal Deposit Insurance Corporation.
(9) TYING PROVISIONS.—A company described in paragraph
(1) shall be—
(A) treated as a bank holding company for purposes of
section 106 of the Bank Holding Company Act Amendments of 1970 and section 22(h) of the Federal Reserve Act
and any regulation prescribed under any such section; and
(B) subject to the restrictions of section 106 of the
Bank Holding Company Act Amendments of 1970, in connection with any transaction involving the products or
services of such company or affiliate and those of a bank
affiliate, as if such company or affiliate were a bank and
such bank were a subsidiary of a bank holding company.
(10) EXEMPTION UNAFFECTED BY CERTAIN EMERGENCY AC-

QUISITIONS.—For purposes of clauses (i) and (ii)(VHI) of paragraph (2)(A), an insured institution is described in this paragraph if—
(A) the insured institution was acquired (or any shares
or assets of such institution were acquired) by a company
described in paragraph (1) in an acquisition under section
408(m) of the National Housing Act or section 13(k) of the
Federal Deposit Insurance Act; and
(B) either—
(i) the insured institution is located in a State in
which such company controlled a bank on March 5,
1987; or
(ii) the insured institution has total assets of
$500,000,000 or more at the time of such acquisition.
(11) SHARES HELD BY INSURANCE AFFILIATES.—Shares de-

scribed in clause (ii)(IX) of paragraph (2)(A) shall not be excluded for purposes of clause (ii) of such paragraph if—
(A) all shares held under such clause (ii)(IX) by all insurance company affiliates of such savings association in
the aggregate exceed 5 percent of all outstanding shares or
of the voting power of the savings association; or




81

BANK HOLDING COMPANY ACT OF 1956

Sec. 4

(B) such shares are acquired or retained with a view
to acquiring, exercising, or transferring control of the savings association.
(12) EXEMPTION UNAFFECTED BY CERTAIN OTHER ACQUISI-

TIONS.—For purposes of clauses (i) and (ii)(VHI) of paragraph
(2)(A), an insured institution is described in this paragraph if
the insured institution was acquired (or any shares or assets
of such institution were acquired) by a company described in
paragraph (1)—
(A) from the Resolution Trust Corporation, the Federal
Deposit Insurance Corporation, or the Director of the Office of Thrift Supervision, in any capacity; or
(B) in an acquisition in which the insured institution
has been found to be in danger of default (as defined in
section 3 of the Federal Deposit Insurance Act) by the appropriate Federal or State authority.
(13) SPECIAL RULE RELATING TO SHARES ACQUIRED IN A
QUALIFIED STOCK ISSUANCE.—A company described in para-

graph (1) that holds shares issued in a qualified stock issuance
pursuant to section 10(q) of the Home Owners' Loan Act by
any savings association or savings and loan holding company
(neither of which is a subsidiary) shall not be deemed to control such savings association or savings and loan holding company solely because such company holds such shares unless—
(A) the company fails to comply with any requirement
or condition imposed by paragraph (2)(A)(ii)(X) or section
10(q) of the Home Owners' Loan Act with respect to such
shares; or
(B) the shares are acquired or retained with a view to
acquiring, exercising, or transferring control of the savings
association or savings and loan holding company.
(g) LIMITATIONS ON CERTAIN BANKS.—

(1) IN GENERAL.—Notwithstanding any other provision of
this section (other than the last sentence of subsection (a)(2)),
a bank holding company which controls an institution that became a bank as a result of the enactment of the Competitive
Equality Amendments of 1987 may retain control of such institution if such institution does not—
(A) engage in any activity after the date of the enactment of such Amendments which would have caused such
institution to be a bank (as defined in section 2(c), as in
effect before such date) if such activities had been engaged
in before such date; or
(B) increase the number of locations from which such
institution conducts business after March 5, 1987.
(2)

LIMITATIONS CEASE TO APPLY UNDER CERTAIN CIR-

CUMSTANCES.—The limitations contained in paragraph (1) shall
cease to apply to a bank described in such paragraph at such
time as the acquisition of such bank, by the bank holding company referred to in such paragraph, would not be prohibited
under section 3(d) of this Act if—
(A) an application for such acquisition were filed
under section 3(a) of this Act; and




BANK HOLDING COMPANY ACT OF 1956

Sec. 4

82

(B) such bank were treated as an additional bank
(under section 3(d)).
(h) TYING PROVISIONS.—
(1) APPLICABLE TO CERTAIN EXEMPT INSTITUTIONS AND PAR-

ENT COMPANIES.—An institution described in subparagraph
(D), (F), (G), (H), (I), or (J) of section 2(c)(2) shall be treated
as a bank, and a company that controls such an institution
shall be treated as a bank holding company, for purposes of
section 106 of the Bank Holding Company Act Amendments of
1970 and section 22(h) of the Federal Reserve Act and any regulation prescribed under any such section.
(2) APPLICABLE WITH RESPECT TO CERTAIN TRANSACTIONS.—

A company that controls an institution described in subparagraph (D), (F), (G), (H), (I), or (J) of section 2(c)(2) and any of
such company's other affiliates, shall be subject to the tying
restrictions of section 106 of the Bank Holding Company Act
Amendments of 1970 in connection with any transaction involving the products or services of such company or affiliate
and those of such institution, as if such company or affiliate
were a bank and such institution were a subsidiary of a bank
holding company.
(i) ACQUISITION OF SAVINGS ASSOCIATIONS.—

(1) I N GENERAL.—The Board may approve an application
by any bank holding company under subsection (c)(8) to acquire any savings association in accordance with the requirements and limitations of this section.
(2) PROHIBITION ON TANDEM RESTRICTIONS.—In approving
an application by a bank holding company to acquire a savings
association, the Board shall not impose any restriction on
transactions between the savings association and its holding
company affiliates, except as required under sections 23A and
23B of the Federal Reserve Act or any other applicable law.
(3) ACQUISITION OF INSOLVENT SAVINGS ASSOCIATIONS.—

(A) I N GENERAL.—Notwithstanding any other provision
of this Act, any qualified savings association which became
a federally chartered stock company in December of 1986
and which is acquired by any bank holding company without Federal financial assistance after June 1, 1991, and
before March 1, 1992, and any subsidiary of any such association, may after such acquisition continue to engage
within the home State of the qualified savings association
in insurance agency activities in which any Federal savings association (or any subsidiary thereof) may engage in
accordance with the Home Owners' Loan Act and regulations pursuant to such Act if the qualified savings association or subsidiary thereof was continuously engaged in
such activity from June 1, 1991, to the date of the acquisition.
(B) DEFINITION OF QUALIFIED SAVINGS ASSOCIATION.—

For purposes of this paragraph, the term "qualified savings association" means any savings association that—
(i) was chartered or organized as a savings association before June 1, 1991;




BANK HOLDING COMPANY ACT OF 1956

8
3

Sec. 4

(ii) had, immediately before the acquisition of such
association by the bank holding company referred to in
subparagraph (A), negative tangible capital and total
insured deposits in excess of $3,000,000,000; and
(iii) will meet all applicable regulatory capital requirements as a result of such acquisition.
(j) NOTICE PROCEDURES FOR NONBANKING ACTIVITIES.—
(1) GENERAL NOTICE PROCEDURE.—
(A) NOTICE REQUIREMENT.—No bank holding company

may engage in any nonbanking activity or acquire or retain ownership or control of the shares of a company engaged in activities based on subsection (c)(8) or (a)(2) without providing the Board with written notice of the proposed transaction or activity at least 60 days before the
transaction or activity is proposed to occur or commence.
(B) CONTENTS OP NOTICE.—The notice submitted to
the Board shall contain such information as the Board
shall prescribe by regulation or by specific request in connection with a particular notice.
(C) PROCEDURE FOR AGENCY ACTION.—
(i) NOTICE OP DISAPPROVAL.—Any

notice filed
under this subsection shall be deemed to be approved
by the Board unless, before the end of the 60-day period beginning on the date the Board receives a complete notice under subparagraph (A), the Board issues
an order disapproving the transaction or activity and
setting forth the reasons for disapproval.
(ii) EXTENSION OF PERIOD.—The Board may extend
the 60-day period referred to in clause (i) for an additional 30 days. The Board may further extend the period with the agreement of the bank holding company
submitting
the
notice
pursuant
to
this
subsection.
(iii) DETERMINATION OF PERIOD IN CASE OF PUBLIC

HEARING.—In the event a hearing is requested or the
Board determines that a hearing is warranted, the
Board may extend the notice period provided in this
subsection for such time as is reasonably necessary to
conduct a hearing and to evaluate the hearing record.
Such extension shall not exceed the 91-day period beginning on the date that the hearing record is complete.
CD) APPROVAL BEFORE END OF PERIOD.—

(i) IN GENERAL.—Any transaction or activity may
commence before the expiration of any period for disapproval established under this paragraph if the
Board issues a written notice of approval.
(ii) SHORTER PERIODS BY REGULATION.—The Board
may prescribe regulations which provide for a shorter
notice period with respect to particular activities or
transactions.
(E) EXTENSION OF PERIOD.—In the case of any notice
to engage in, or to acquire or retain ownership or control
of shares of amy company engaged in, any activity pursu-




Sec. 5

BANK HOLDING COMPANY ACT OF 1956

84

ant to subsection (c)(8) or (a)(2) that has not been previously approved by regulation, the Board may extend the
notice period under this subsection for an additional 90
days. The Board may further extend the period with the
agreement of the bank holding company submitting the
notice pursuant to this subsection.
(2) GENERAL STANDARDS FOR REVIEW.—

(A) CRITERIA.—In connection with a notice under this
subsection, the Board shall consider whether performance
of the activity by a bank holding company or a subsidiary
of such company can reasonably be expected to produce
benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices.
(B) GROUNDS FOR DISAPPROVAL.—The Board may deny
any proposed transaction or activity for which notice has
been submitted pursuant to this subsection if the bank
holding company submitting such notice neglects, fails, or
refuses to furnish the Board all the information required
by the Board.
(C) CONDITIONAL ACTION.—Nothing in this subsection
limits the authority of the Board to impose conditions in
connection with an action under this section.
ADMINISTRATION

SEC. 5. (12 U.S.C. 1844] (a) Within one hundred and eighty
days after the date of enactment of this Act, or within one hundred
and eighty days after becoming a bank holding company, whichever
is later, each bank holding company shall register with the Board
on forms prescribed by the Board, which shall include such information with respect to the financial condition and operations, management, and intercompany relationships of the bank holding company and its subsidiaries, and related matters, as the Board may
deem necessary or appropriate to carry about the purposes of this
Act. The Board may, in its discretion, extend the time within which
a bank holding company shall register and file the requisite information.
(b) The Board is authorized to issue such regulations and orders as may be necessary to enable it to administer and carry out
the purposes of this Act and prevent evasions thereof.
(c) The Board from time to time may require reports under
oath to keep it informed as to whether the provisions of this Act
and such regulations and orders issued thereunder have been complied with; and the Board may make examinations of each bank
holding company and each subsidiary thereof, the cost of which
shall be assessed against, and paid by, such holding company. The
Board shall, as far as possible, use the reports of examinations
made by the Comptroller of the Currency, the Federal Deposit Insurance Corporation, or the appropriate State bank supervisory authority for the purposes of this section.




8
5

BANK HOLDING COMPANY ACT OF 1956

Sec. 5

(d) Before the expiration of two years following the date of enactment of this Act, and each year thereafter in the Board's annual
report to the Congress, the Board shall report to the Congress the
results of the administration of this Act, stating what, if any, substantial difficulties have been encountered in carrying out the pur{>oses of this Act, and any recommendations as to changes in the
aw which in the opinion of the Board would be desirable.
(e)(1) Notwithstanding any other provision of this Act, the
Board may, whenever it has reasonable cause to believe that the
continuation by a bank holding company of any activity or of ownership or control of any of its nonbank subsidiaries, other than a
nonbank subsidiary of a bank, constitutes a serious risk to the financial safety, soundness, or stability of a bank holding company
subsidiary bank and is inconsistent with sound banking principles
or with the purposes of this Act or with the Financial Institutions
Supervisory Act of 1966, order the bank holding company or any
such nonbank subsidiaries, after due notice and opportunity for
hearing, and after considering the views of the bank's primary supervisor, which shall be the Comptroller of the Currency in the
case of a national bank or the Federal Deposit Insurance Corporation and the appropriate State supervisory authority in the case of
an insured nonmember bank, to terminate such activities or to terminate (within one hundred and twenty days or such longer period
as the Board may direct in unusual circumstances) its ownership
or control of any such subsidiary either by sale or by distribution
of the shares of the subsidiary to the shareholders of the bank
holding company. Such distribution shall be pro rata with respect
to all of the shareholders of the distributing bank holding company,
and the holding company shall not make any charge to its snareholders arising out oi such a distribution.
(2) The Board may in its discretion apply to the United States
district court within the jurisdiction of which the principal office of
the holding company is located, for the enforcement of any effective
and outstanding order issued under this section, and such court
shall have "jurisdiction and power to order and require compliance
therewith, but except as provided in section 9 of this Act, no court
shall have jurisdiction to affect by injunction or otherwise the issuance or enforcement of any notice or order under this section, or
to review, modify, suspend, terminate, or set aside any such notice
or order.
(f) In the course of or in connection with an application, examination, investigation or other proceeding under this Act, the
Board, or any member or designated representative thereof, including any person designated to conduct any hearing under this Act,
shall have the power to administer oaths and affirmations, to take
or cause to be taken depositions, and to issue, revoke, quash, or
modify subpenas and subpenas duces tecum; and the Board is empowered to make rules and regulations to effectuate the purposes
of this subsection. The attendance of witnesses and the production
of documents provided for in this subsection may be required from
any place in any State or in any territory or other place subject to
the jurisdiction of the United States at any designated place where
such proceeding is being conducted. Any party to proceedings under
this Act may apply to the United States District Court for the Dis-




BANK HOLDING COMPANY ACT OF 1956

Sec. 6

86

trict of Columbia, or the United States district court for the judicial
district or the United States court in any territory in which such
proceeding is being conducted or where the witness resides or carries on business, for the enforcement of any subpena or subpena
duces tecum issued pursuant to this subsection, and such courts
shall have jurisdiction and power to order and require compliance
therewith. Witnesses subpenaed under this subsection shall be paid
the same fees and mileage that are paid witnesses in the district
courts of the United States. Any service required under this subsection may be made by registered mail, or in such other manner
reasonably calculated to give actual notice as the Board may by
regulation or otherwise provide. Any court having jurisdiction of
any proceeding instituted under this subsection may allow to any
such party such reasonable expenses and attorneys' fees as it
deems just and proper. Any person who willfully shall fail or refuse
to attend and testify or to answer any lawful inquiry or to produce
books, papers, correspondence, memoranda, contracts, agreements,
or other records, if in such person's power so to do, in obedience
to the subpena of the Board, shall be guilty of a misdemeanor and,
upon conviction, shall be subject to a fine of not more than $1,000
or to imprisonment for a term of not more than one year or both.
BORROWING BY BANK HOLDING COMPANY OR ITS SUBSIDIARIES

SEC. 6. [Repealed by Public Law 89-485; 80 Stat. 240.]
RESERVATION OF RIGHTS TO STATES
SEC. 7. [12 U.S.C. 1846] (a) IN GENERAL.—NO provision of this
Act shall be construed as preventing any State from exercising
such powers and jurisdiction which it now has or may hereafter
have with respect to companies, banks, bank holding companies,
and subsidiaries thereof.
(b) STATE TAXATION AUTHORITY NOT AFFECTED.—No provision
of this Act shall be construed as affecting the authority of anv
State or political subdivision of any State to adopt, apply, or administer any tax or method of taxation to any bank, bank holding
company, or foreign bank, or any affiliate of any bank, bank holding company, or foreign bank, to the extent that such tax or tax
method is otherwise permissible by or under the Constitution of the
United States or other Federal law.
PENALTIES

8. [12 U.S.C. 18471 (a) CRIMINAL PENALTY.—
(1) Whoever knowingly violates any provision of this Act
or, being a company, violates any regulation or order issued by
the Board under this Act, shall be imprisoned not more than
1 year, fined not more than $100,000 per day for each day during which the violation continues, or both.
(2) Whoever, with the intent to deceive, defraud, or profit
significantly, knowingly violates any provision of this Act shall
be imprisoned not more than 5 years, fined not more than
$1,000,000 per day for each day during which the violation
continues, or both. Every officer, director, agent, and employee
of a bank holding company shall be subject to the same penSEC.




BANK HOLDING COMPANY ACT OF 1956

87

Sec. 8

alties for false entries in any book, report, or statement of such
bank holding company as are applicable to officers, directors,
agents, and employees of member banks for false entries in
any books, reports, or statements of member banks under section 1005 of title 18, United States Code.
(b) CIVIL MONEY PENALTY.—

(1) PENALTY.—Any company which violates, and any individual who participates in a violation of, any provision of this
Act, or any regulation or order issued pursuant thereto, shall
forfeit and pay a civil penalty of not more than $25,000 for
each day during which such violation continues.
(2) ASSESSMENT; ETC.—Any penalty imposed under paragraph (1) may be assessed and collected by the Board in the
manner provided in subparagraphs (E), (F), (G), and (I) of section 8(i)(2) of the Federal Deposit Insurance Act for penalties
imposed (under such section) and any such assessment shall be
subject to the provisions of such section.
(3) HEARING.—The company or other person against whom
any penalty is assessed under this subsection shall be afforded
an agency hearing if such association or person submits a request for such hearing within 20 days after the issuance of the
notice of assessment. Section 8(h) of the Federal Deposit Insurance Act shall apply to any proceeding under this subsection.
(4) DISBURSEMENT.—All penalties collected under authority of this subsection shall be deposited into the Treasury.
(5) VIOLATE DEFINED.—For purposes of this section, the
term "violate" includes any action (alone or with another or
others) for or toward causing, bringing about, participating in,
counseling, or aiding or abetting a violation.
(6) REGULATIONS.—The Board shall prescribe regulations
establishing such procedures as may be necessary to carry out
this subsection.
(c) NOTICE UNDER THIS SECTION AFTER SEPARATION FROM

SERVICE.—The resignation, termination of employment or participation, or separation of an institution-affiliated party (within the
meaning of section 3(u) of the Federal Deposit Insurance Act) with
respect to a bank holding company (including a separation caused
by the deregistration of such a company) shall not affect the jurisdiction and authority of the Board to issue any notice and proceed
under this section against any such party, if such notice is served
before the end of the 6-year period beginning on the date such
party ceased to be such a party with respect to such holding company (whether such date occurs before, on, or after the date of the
enactment of this subsection).
(d) PENALTY FOR FAILURE TO MAKE REPORTS.—
(1) FIRST TIER.—Any company which—

(A) maintains procedures reasonably adapted to avoid
any inadvertent error and, unintentionally and as a result
of such an error—
(i) fails to make, submit, or publish such reports
or information as may be required under this Act or
under regulations prescribed by the Board pursuant to
this Act, within me period of time specified by the
Board; or




Sec. 9

BANK HOLDING COMPANY ACT OF 1956

88

(ii) submits or publishes any false or misleading
report or information; or
(B) inadvertently transmits or publishes any report
which is minimally late,
shall be subject to a penalty of not more than $2,000 for each
day during which such failure continues or such false or misleading information is not corrected. The company shall have
the burden of proving that an error was inadvertent and that
a report was inadvertently transmitted or published late.
(2) SECOND TIER.—Any company which—
(A) fails to make, submit, or publish such reports or
information as may be required under this Act or under
regulations prescribed by the Board pursuant to this Act,
within the period of time specified by the Board; or
(B) submits or publishes any false or misleading report or information,
in a manner not described in paragraph (1) shall be subject to
a penalty of not more than $20,000 for each day during which
such failure continues or such false or misleading information
is not corrected.
(3) THIRD TIER.—Notwithstanding paragraph (2), if any
company knowingly or with reckless disregard for the accuracy
of any information or report described in paragraph (2) submits or publishes any false or misleading report or information,
the Board may, in its discretion, assess a penalty of not more
than $1,000,000 or 1 percent of total assets of such company,
whichever is less, per day for each day during which such failure continues or such false or misleading information is not
corrected.
(4) ASSESSMENT; ETC.—Any penalty imposed under paragraph (1), (2), or (3) shall be assessed and collected by the
Board in the manner provided in subsection (b) (for penalties
imposed under such subsection) and any such assessment (including the determination of the amount of the penalty) shall
be subject to the provisions of such subsection.
(5) HEARING.—Any company against which any penalty is
assessed under this subsection shall be afforded an agency
hearing if such company submits a request for such hearing
within 20 days after the issuance of the notice of assessment.
Section 8(h) of the Federal Deposit Insurance Act shall apply
to any proceeding under this subsection.
JUDICIAL REVIEW

SEC. 9. [12 U.S.C. 1848] Any party aggrieved by an order of
the Board under this Act may obtain a review of such order in the
United States Court of Appeals within any circuit wherein such
party has its principal place of business, or in the Court of Appeals
in the District of Columbia, by filing in the court, within thirty
days after the entry of the Board's order, a petition praying that
the order of the Board be set aside. A copy of such petition shall
be forthwith transmitted to the Board by the clerk of the court, and
thereupon the Board shall file in the court the record made before
the Board, as provided in section 2112 of title 28, United States




89

BANK HOLDING COMPANY ACT OF 1956

Sec. 11

Code. Upon the filing of such petition the court shall have jurisdiction to affirm, set aside, or modify the order of the Board and to
require the Board to take such action with regard to the matter
under review as the court deems proper. The findings of the Board
as to the facts, if supported by substantial evidence, shall be conclusive.
AMENDMENTS TO INTERNAL REVENUE CODE OF 1954

SEC. 10. [Section 10 contains an amendment to the Internal
Revenue Code of 1954 regarding distributions pursuant to the
Bank Holding Company Act of 1956. Refer to subchapter 0 of chapter 1 of such Code for such amendment]
SAVING PROVISION

SEC. 11. [12 U.S.C. 1849] (a) Nothing herein contained shall
be interpreted or construed as approving any act, action, or conduct
which is or has been or may be in violation of existing law, nor
shall anything herein contained constitute a defense to any action,
suit, or proceeding pending or hereafter instituted on account of
any prohibited antitrust or monopolistic act, action, or conduct, except as specifically provided in this section.
(b) ANTITRUST REVIEW.—

(1) IN GENERAL.—The Board shall immediately notify the
Attorney General of any approval by it pursuant to section 3
of a proposed acquisition, merger, or consolidation transaction.
If the Board has found that it must act immediately in order
to prevent the probable failure of a bank or bank holding company involved in any such transaction, the transaction mav be
consummated immediately upon approval by the Board. If the
Board has advised the Comptroller of the Currency or the
State supervisory authority, as the case may be, of the existence of an emergency requiring expeditious action and has required the submission of views and recommendations within
ten days, the transaction may not be consummated before the
fifth calendar day after the date of approval by the Board. In
all other cases, the transaction may not be consummated before the thirtieth calendar day after the date of approval by the
Board or, if the Board has not received any adverse comment
from the Attorney General of the United States relating to
competitive factors, such shorter period of time as may be prescribed by the Board with the concurrence of the Attorney General, but in no event less than 15 calendar days after the date
of approval. Any action brought under the antitrust laws arising out of an acquisition, merger, or consolidation transaction
approved under section 3 shall be commenced prior to the earliest time under this subsection at which the transaction approval under section 3 might be consummated. The commencement of such an action shall stay the effectiveness of the
Board's approval unless the court shall otherwise specifically
order. In any such action, the court shall review de novo the
issues presented. In any judicial proceeding attacking any acquisition, merger, or consolidation transaction approved pursuant to section 3 on the ground that such transaction alone and




BANK HOLDING COMPANY ACT OF 1956

Sec. 11

90

of itself constituted a violation of any antitrust laws other than
section 2 of the Act of July 2, 1890 (section 2 of the Sherman
Antitrust Act, 15 U.S.C. 2), the standards applied by the court
shall be identical with those that the Board is directed to apply
under section 3 of this Act. Upon the consummation of an acquisition, merger, or consolidation transaction approved under
section 3 in compliance with this Act and after the termination
of any antitrust litigation commenced within the period prescribed in this section, or upon the termination of such period
if no such litigation is commenced therein, the transaction may
not thereafter be attacked in any judicial proceeding on the
ground that it alone and of itself constituted a violation of any
antitrust laws other than section 2 of the Act of July 2, 1890
(section 2 of the Sherman Antitrust Act, 15 U.S.C. 2), but nothing in this Act shall exempt any bank holding company involved in such a transaction from complying with the antitrust
laws after the consummation of such transaction.
(2) SECTION 13(f) CASES.—(A)

If—

(i) the Federal Deposit Insurance Corporation learns
that a bank insured by such Corporation is in danger of
closing; and
(ii) the Corporation is considering assisting the acquisition of such bank and its affiliated banks by another
bank or holding company under section 13(f) of the Federal
Deposit Insurance Act and such acquisition is subject to
the approval of the Board under section 3 of this Act,
the Corporation shall immediately notify the Board of such
facts.
(B) Upon receipt of notice from the Federal Deposit Insurance Corporation under subparagraph (A) or at such earlier
time as deemed appropriate oy the Board, the Board shall immediately notify the Attorney General of the United States of
the facts concerning the possible acquisition.
(C) Within 5 days of receiving notice under subparagraph
(B), the Attorney General shall notify the Board in writing of
the Attorney General's preliminary finding as to the consistency of the possible acquisition with the antitrust laws.
(D) The Board may reduce or eliminate the post-approval
waiting period established under paragraph (1) for an acquisition to which this paragraph applies, except that such period
may not be eliminated or reduced to less tnan 5 days without
the concurrence of the Attorney General.
(c) In any action brought under the antitrust laws arising out
of any acquisition, merger, or consolidation transaction approved by
the Board under section 3 of this Act, the Board and any State
banking supervisory agency having jurisdiction within the State involved, may appear as a party of its own motion and as of right,
and be represented by its counsel.
(d) Any acquisition, merger, or consolidation of the kind described in section 3(a) of this Act which was consummated at any
time prior or subsequent to May 9, 1956, and as to which no litigation was initiated by the Attorney General prior to the date of en-




BANK HOLDING COMPANY ACT OF 1956

91

Sec. 12

actment of this amendment,1 shall be conclusively presumed not to
have been in violation of any antitrust laws other than section 2
of the Act of July 2, 1890 (section 2 of the Sherman Antitrust Act,
15 U.S.C. 2).
(e) Any court having pending before it on or after the date of
enactment of this amendment1 any litigation initiated under the
antitrust laws by the Attorney General with respect to any acquisition, merger, or consolidation of the kind described in section 3(a)
of this Act shall apply the substantive rule of law set forth in section 3 of this Act.
(f) For the purposes of this section, the term "antitrust laws"
means the Act of July 2, 1890 (the Sherman Antitrust Act, 15
U.S.C. 1-7), the Act of October 15, 1914 (the Clayton Act, 15 U.S.C.
12-27), and any other Acts in pari materia.
SEPARABILITY OF PROVISIONS

SEC. 12. If any provision of this Act, or the application of such
provision to any person or circumstance, shall be held invalid, the
remainder of the Act, and the application of such provision to persons or circumstances other than those to which it is held invalid,
shall not be affected thereby.

1

Such date of enactment was July 1, 1966.


89-335 9 5 - 4





BANK PROTECTION ACT OF 1968

S3







BANK PROTECTION ACT OF 1968
AN ACT To provide security measures for banks and other financial institutions,
and to provide for the appointment of the Federal Savings and Loan Insurance
Corporation as receiver

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That this Act may
be cited as the "Bank Protection Act of 1968".
SEC. 2. [12 U.S.C. 1881] As used in this Act the term "Federal
supervisory agency" means—
(1) The Comptroller of the Currency with respect to national banks and district banks,
(2) The Board of Governors of the Federal Reserve System
with respect to Federal Reserve banks and State banks which
are members of the Federal Reserve System,
(3) The Federal Deposit Insurance Corporation with respect to State banks which are not members of the Federal Reserve System but the deposits of which are insured by the Federal Deposit Insurance Corporation and State savings associations, and
(4) The Director of the Office of Thrift Supervision with respect to Federal savings x .
SEC. 3. [12 U.S.C. 1882] (a) Within six months from the date
of this Act, each Federal supervisory agency shall promulgate rules
establishing minimum standards with which each bank or savings
and loan association must comply with respect to the installation,
maintenance, and operation of security devices and procedures, reasonable in cost, to discourage robberies, burglaries, and larcenies
and to assist in the identification and apprehension of persons who
commit such acts.
(b) The rules shall establish the time limits within which
banks and savings and loan associations shall comply with the
standards.
SEC. 4. [12 U.S.C. 1883] The Federal supervisory agencies
shall consult with 2
(1) insurers furnishing insurance protection against losses
resulting from robberies, hurglaries, and larcenies committed
against financial institutions referred to in section 2, and
(2) State agencies having supervisory or regulatory responsibilities with respect to such insurers 2
to determine the feasibility and desirability of premium rate differentials based on the installation, maintenance, and operation of
security devices and procedures. The Federal supervisory agencies
shall report to the Congress the results of their consultations pur1
So in original. The phrase "and State savings associations", which was added at the end of
paragraph (3) by section 744(hX2) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, should probably have been added at the end of paragraph (4).
2
So in original. No punctuation marks.

95




Sec. 5

B N P O E TO A T O 1968
AK R TCI N C F

96

suant to this section not later than two years after the date of enactment of this Act.
SEC. 5. f 12 U.S.C. 1884] A bank or savings and loan association which violates a rule promulgated pursuant to this Act shall
be subject to a civil penalty which shall not exceed $100 for each
day of the violation.




BANKING ACT OF 1933

97







BANKING ACT OF 1933
(Enacted June 16, 1933; 48 Stat. 162)
AN ACT To provide for the safer and more effective use of the assets of banks, to
regulate interbank control, to prevent the undue diversion of funds into speculative operations, and for other purposes.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That the short
title of this Act shall be the "Banking Act of 1933."
SEC. 2. [12 U.S.C. 221a] As used in this Act and in any provision of law amended by this Act—
(a) The terms "banks" "national bank", "national banking association", "member bank", "board", "district", and "reserve bank"
shall have the meanings assigned to them in section 1 of the Federal Reserve Act, as amended.
(b) Except where otherwise specifically provided, the term "affiliate" shall include any corporation, business trust, association, or
other similar organization—
( l ) 1 Of which a member bank, directly or indirectly, owns or
controls either a majority of the voting shares or more than 50 per
centum of the number of shares voted for the election of its directors, trustees, or other persons exercising similar functions at the
preceding election, or controls in any manner the election of a majority of its directors, trustees, or other persons exercising similar
functions; or 2
(2) * Of which control is held, directly or indirectly, through
stock ownership or in any other manner, by the shareholders of a
member bank who own or control either a majority of the shares
of such bank or more than 50 per centum of the number of shares
voted for the election of directors of such bank at the preceding
election, or by trustees for the benefit of the shareholders of any
such bank; or 2
(3) 1 Of which a majority of its directors, trustees, or other persons exercising similar functions are directors of any one member
bank; or
(4)* Which owns or controls, directly or indirectly, either a majority of the shares of capital stock of a member bank or more than
50 per centum of the number of shares voted for the election of directors of a member bank at the preceding election, or controls in
any manner the election of a majority of the directors of a member
bank, or for the benefit of whose shareholders or members all or
substantially all the capital stock of a member bank is held by
trustees.
1
Indentation so in original. The first letter of the first word in paragraphs (1) through (4)
probably should be lower case.
2
So in original. The word "or" probably should not appear.

99




Sec. 20

BANKING ACT OF 1933

100

[Subsection (c) repealed. Section 13(b) of P.L. 89-485, 80 Stat.
236.]
[Sees. 3-19 amend other Acts.]
SEC. 20. [12 U.S.C. 377J After one year from the date of the
enactment of this Act, no member bank shall be affiliated in any
manner described in section 2 (b) hereof with any corporation, association, business trust, or other similar organization engaged principally in the issue, flotation, underwriting, public sale, or distribution at wholesale or retail or through syndicate participation of
stocks, bonds, debentures, notes, or other securities: Provided, That
nothing in this paragraph shall apply to any such organization
which shall have been placed in formal Uquidation and which shall
transact no business except such as may be incidental to the liquidation of its affairs.
For every violation of this section the member bank involved
shall be subject to a penalty not exceeding $1,000 per day for each
day during which such violation continues. Such penalty may be
assessed by the Federal Reserve Board, in its discretion, and, when
so assessed, may be collected by the Federal reserve bank by suit
or otherwise.
If any such violation shall continue for six calendar months
after the member bank shall have been warned by the Federal Reserve Board to discontinue the same, (a) in the case of a national
bank, all the rights, privileges, and franchises granted to it under
the National Bank Act may be forfeited in the manner prescribed
in section 2 of the Federal Reserve Act, as amended (U.S.C, title
12, sees. 141, 222-225, 281-286, and 502) or, (b) in the case of a
State member bank, all of its rights and privileges of membership
in the Federal Reserve System may be forfeited in the manner prescribed in section 9 of the Federal Reserve Act, as amended
(U.S.C., title 12, sees. 321-332).
SEC. 21. 112 U.S.C. 378] (a) After the expiration of one year
after the date of enactment of this Act it shall be unlawful—
(1) For any person, firm, corporation, association, business
trust, or other similar organization, engaged in the business of issuing, underwriting, selling, or distributing, at wholesale or retail,
or through syndicate participation, stocks, bonds, debentures,
notes, or other securities, to engage at the same time to any extent
whatever in the business of receiving deposits subject to check or
to repayment upon presentation of a passbook, certificate of deosit, or other evidence of debt, or upon request of the depositor:
rovided, That the provisions of this paragraph shall not prohibit
national banks or State banks or trust companies (whether or not
members of the Federal Reserve System) or other financial institutions or private bankers from dealing in, underwriting, purchasing,
and selling investment securities, or issuing securities, to the extent permitted to national banking associations by the provisions
of section 5136 of the Revised Statutes, as amended (U.S.C. title
12, sec. 24; Supp. VII, title 12, sec. 24): Provided further, That
nothing in this paragraph shall be construed as affecting in any
way such right as any bank, banking association, savings bank,
trust company, or other banking institution, may otherwise possess
to sell, without recourse or agreement to repurchase, obligations
evidencing loans on real estate; or

?




101

BANKING ACT OF 1933

Sec. 22

(2) For any person, firm, corporation, association, business
trust, or other similar organization to engage, to any extent whatever with others than his or its officers, agents or employees, in the
business of receiving deposits subject to check or to repayment
upon presentation of a pass book, certificate of deposit, or other evidence of debt, or upon request of the depositor, unless such person,
firm, corporation, association, business trust, or other similar organization (A) shall be incorporated under, and authorized to engage
in such business by, the laws of the United States or of any State,
Territory, or District, and subjected, by the laws of the United
States, or of the State, Territory, or District wherein located, to examination and regulation, or (B) shall be permitted by the United
States, any State, territory, or district to engage in such business
and shall be subjected by the laws of the United States, or such
State, territory, or district to examination and regulations or, (C)
shall submit to periodic examination by the banking authority of
the State Territory, or District where such business is carried on
and shall make and publish periodic reports of its condition, exhibiting in detail its resources and liabilities, such examination and
reports to be made and published at the same times and in the
same manner and under the same conditions as required by the
law of such State, Territory, District in the case of incorporated
banking institutions engaged in such business in the same locality.
(b) Whoever shall willfully violate any of the provisions of this
section shall upon conviction be fined not more than $5,000 or imprisoned not more than five years, or both, and any officer, director, employee, or agent of any person, firm, corporation, association, business trust, or other similar organization who knowingly
participates in any such violation shall be punished by a like fine
or imprisonment or both.
SEC. 22. [12 U.S.C. 64aJ The additional liability imposed upon
shareholders in national banking associations by the provisions of
section 5151 of the Revised Statutes, as amended, and section 23
of the Federal Reserve Act, as amended (U.S.C, title 12, sees. 63
and 64),x shall not apply with respect to shares in any such association issued after the date of enactment of this Act. Such additional liability shall cease on July 1, 1937, with respect to all
shares issued by any association which shall be transacting the
business of banking on July 1, 1937. Provided, That not less than
six months prior to such date, such association shall have caused
notice of such prospective termination of liability to be published
in a newspaper published in the city, town, or county in wnich such
association is located, and if no newspaper is published in such
city, town, or county, then in a newspaper of general circulation
therein. If the association fail 2 to give such notice as and when
above provided, a termination of such additional liability may
thereafter be accomplished as of the date six month 3 subsequent
to publication, in the manner above provided. In the case of each
association which has not caused notice of such prospective termination of liability to be published prior to the effective date of this
1
Section 5151 of the Revised Statutes and section 23 of the Federal Reserve Act were repealed
by2section 7 of P.L. 86-230, 73 Stat. 457.
So in original. Probably should be "fails".
3
So in original. Probably should be "months".




Sees. 23-28

BANKING ACT OF 1933

102

amendment, the Comptroller of the Currency shall cause such notice to be published in the manner provided in this section, and on
the date six months subsequent to such publication by the Comptroller of the Currency such additional liability shall cease.
[Sees. 23-28 amended other Acts.]
SEC. 29. [12 U.S.C. 197aJ In any case in which, in the opinion
of the Comptroller of the Currency, it would be to the advantage
of the depositors and unsecured creditors of any national banking
association whose business has been closed, for such association to
resume business upon the retention by the association, for a reasonable period to be prescribed by the Comptroller, of all or any
part of its deposits, the Comptroller is authorized, in his discretion,
to permit the association to resume business if depositors and unsecured creditors of the association representing at least 75 per
centum of its total deposit and unsecured credit liabilities consent
in writing to such retention of deposits. Nothing in this section
shall be construed to affect in any manner any powers of the
Comptroller under the provisions of law in force on the date of enactment of this Act with respect to the reorganization of national
banking associations.
[Sec. 30 was repealed.]
SEC. 31. [12 U.S.C. 71a] After one year from the date of enactment of this Act, notwithstanding any other provision of law, the
board of directors, board of trustees, or other similar governing
body of every national banking association and of every State bank
or trust company which is a member of the Federal Reserve System shall consist of not less than five nor more than twenty-five
members. If any national banking association violates the provisions of this section and continues such violation after thirty days'
notice from the Comptroller of the Currency, the said Comptroller
may appoint a receiver or conservator therefor, in accordance with
the provisions of existing law. If any State bank or trust company
which is a member of the Federal Reserve System violates the provisions of this section and continues such violation after thirty
days' notice from the Board of Governors of the Federal Reserve
System, it shall be subject to the forfeiture of its membership in
the Federal Reserve System in accordance with the provisions of
section 9 of the Federal Reserve Act, as amended.
SEC. 32. [12 U.S.C. 781 No officer, director, or employee of any
corporation or unincorporated association, no partner or employee
of any partnership, and no individual, primarily engaged in the
issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through syndicate participation, of stocks, bonds,
or other similar securities, shall serve the same time as an officer,
director, or employee of any member bank except in limited classes
of cases in which the Board of Governors of the Federal Reserve
System may allow such service by general regulations when in the
judgment of the said Board it would not unduly influence the investment policies of such member bank or the advice it gives its
customers regarding investments.
[Sec. 33 amended another Act]
SEC. 34. The right to alter, amend, or repeal this Act is hereby
expressly reserved. If any provision of this Act, or the application
thereof to any person or circumstances, is held invalid, the remain-




103

BANKING ACT OF 1933

Sec. 34

der of the Act, and the application of such provision to other persons or circumstances, shall not be affected thereby.







COMMUNITY DEVELOPMENT CREDIT UNION REVOLVING
LOAN FUND TRANSFER ACT







COMMUNITY DEVELOPMENT CREDIT UNION
REVOLVING LOAN FUND TRANSFER ACT
AN ACT To transfer the Community Development Credit Union Revolving Loan
Fund to the National Credit Union Administration and to authorize the National
Credit Union Administration Board to administer the Fund.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. [42 U.S.C. 9822 nt J SHORT TITLE.

This Act may be cited as the "Community Development Credit
Union Revolving Loan Fund Transfer Act".)
SEC. 2. [42 U.S.C. 9822 nt.] TRANSFER OF COMMUNITY DEVELOPMENT
CREDIT UNTON REVOLVING LOAN FUND.
(a) ADMINSTRATION OF FUND BY NCUA.—

(1) IN GENERAL.—Beginning on the date of the enactment
of this Act, the National Credit Union Administration Board
shall administer the Community Development Credit Union
Revolving Loan Fund.
(2) TRANSFER OF AUTHORITY.—All authority to carry out
the purposes of the Fund and to prescribe regulations in connection with the administration of the Fund which, on the day
before the date of the enactment of this Act, was vested in the
Secretary of Health and Human Services shall vest on such
date in the Board. Except as provided in subsection (c), the
Secretary shall have no further responsibility with respect to
the Fund.
(b)

CONTINUED AVAILABILITY OF APPROPRIATED FUNDS.—All

funds appropriated to the Fund and interest accumulated in the
Fund which continue to be available under section 633 of the Omnibus Budget Reconciliation Act of 1981 shall continue to be available to the Board to carry out the purposes of the Fund.
(c) TRANSFER OF ASSETS; ETC.—The Secretary shall transfer to
the National Credit Union Administration all assets, liabilities,
grants, contracts, property, records, and funds held, used, arising
from, or available to the Secretary in connection with the administration of the Fund before the end of the 60-day period beginning
on the date of the enactment of this Act.
(d) SAVINGS PROVISIONS.—

(1) REGULATIONS.—Any regulations prescribed by the Secretary in connection with the administration of the Fund shall
continue in effect until superseded by regulations prescribed by
the Board.
(2) EXISTING RIGHTS, DUTIES, AND OBLIGATIONS NOT AF-

FECTED.—Subsection (a) shall not be construed as affecting the
validity of any right, duty, or obligation of the United States
or any other person arising under or pursuant to any contract,
107




Sec. 2

COMMUNITY DEVELOPMENT CREDIT UNION

108

loan, or other instrument or agreement which was in effect on
the day before the date of the enactment of this Act.
(3) CONTINUATION OF SUITS.—NO action or other proceeding commenced by or against the Secretary in connection with
the administration of the Fund shall abate by reason of the enactment of this Act, except that the Board snail be substituted
for the Secretary as a party to any such action or proceeding.
(e) DEFINITIONS.—For purposes of this section—
(1) BOARD.—The term "Board" means the National Credit
Union Administration Board.
(2) FUND.—The term "Fund" means the Community Development Credit Union Revolving Loan Fund estabUshed under
title VII of the Economic Opportunity Act of 1964 (as in effect
before the date of the enactment of the Omnibus Budget Reconciliation Act of 1981).1
(3) SECRETARY.—The term "Secretary" means the Secretary of Health and Human Services.

i Such date was August 13,1981.




COMMUNITY REINVESTMENT ACT OF 1977

IN







COMMUNITY REINVESTMENT ACT OF 1977
[Title VIII of Public Law 95-128; 91 S t a t 1147; 12 U.S.C. 2901 et seq.]

TITLE VIII—COMMUNITY REINVESTMENT
[SHORT TITLE]
1

SEC. 801. [12 U.S.C. 2901 notel This title may be cited as the
"Community Reinvestment Act of 1977".
[FINDINGS AND PURPOSES]
1

SEC. 802. [12 U.S.C. 2901] (a) The Congress finds that—
(1) regulated financial institutions are required by law to
demonstrate that their deposit facilities serve the convenience
and needs of the communities in which they are chartered to
do business;
(2) the convenience and needs of communities include the
need for credit services as well as deposit services; and
(3) regulated financial institutions have continuing and affirmative obligation to help meet the credit needs of the local
communities in which they are chartered.
(b) It is the purpose of this title to require each appropriate
Federal financial supervisory agency to use its authority whon examining financial institutions, to encourage such institutions to
help meet the credit needs of the local communities in which they
are chartered consistent with the safe and sound operation of such
institutions.
[DEFINITIONS]
1

SEC. 803. [12 U.S.C. 2902] For the purposes of this titleCD the term "appropriate Federal financial supervisory
agency" means—
(A) the Comptroller of the Currency with respect to
national banks;
(B) the Board of Governors of the Federal Reserve System with respect to State chartered banks which are members of the Federal Reserve System and bank holding companies;
(C) the Federal Deposit Insurance Corporation with
respect to State chartered banks and savings banks which
are not members of the Federal Reserve System and the
deposits of which are insured by the Corporation; and

1

No section headings in law.
111




Sec. 804

COMMUNITY REINVESTMENT ACT OF 1977

112

(2) 1 section 8 of the Federal Deposit Insurance Act, by the
Director of the Office of Thrift Supervision, in the case of a
savings association (the deposits of which are insured by the
Federal Deposit Insurance Corporation) and a savings and loan
holding company;
(2) the term "regulated financial institution" means an insured depository institution (as defined in section 3 of the Federal Deposit Insurance Act); and
(3) the term "application for a deposit facility means an
application to the appropriate Federal financial supervisory
agency otherwise required under Federal law or regulations
thereunder for—
(A) a charter for a national bank or Federal savings
and loan association;
(B) deposit insurance in connection with a newly chartered State bank, savings bank, savings and loan association or similar institution;
(C) the establishment of a domestic branch or other facility with the ability to accept deposits of a regulated financial institution;
(D) the relocation of the home office or a branch office
of a regulated financial institution;
(E) the merger or consolidation with, or the acquisition
of the assets, or the assumption of the liabilities of a regulated financial institution requiring approval under section
18(c) of the Federal Deposit Insurance Act or under regulations issued under the authority of title IV of the National
Housing Act; or
(F) the acquisition of shares in, or the assets of, a regulated financial institution requiring approval under section 3 of the Bank Holding Company Act of 1956 or section
408 (e) of the National Housing Act.
(4) A2 financial institution whose business predominately
consists of serving the needs of military personnel who are not
located within a defined geographic area may define its "entire
community" to include its entire deposit customer base without
regard to geographic proximity.
[ASSESSMENT OF RECORD OF MEET COMMUNITY CREDIT NEEDS]

SEC. 804.3 [12 U.S.C. 2903] (a) IN GENERAL.—In connection
with its examination of a financial institution, the appropriate Federal financial supervisory agency shall—
(1) assess the institution's record of meeting the credit
needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution; and
(2) take such record into account in its evaluation of an application for a deposit facility by such institution.
(b) MAJORITY-OWNED INSTITUTIONS.—In assessing and taking
into account, under subsection (a), the record of a nonminority1
So in law. Probably should be redesignated as subparagraph (D) and be indented 2 ems to
the right.
2
So in law.
3
No section headings in law.




113

COMMUNITY REINVESTMENT ACT OF 1977

Sec. 807

owned and nonwomen-owned financial institution, the appropriate
Federal financial supervisory agency may consider as a factor capital investment, loan participation, and other ventures undertaken
by the institution in cooperation with minority- and women-owned
financial institutions and low-income credit unions provided that
these activities help meet the credit needs of local communities in
which such institutions and credit unions are chartered.
[REPORT TO CONGRESS]
1

SEC. 805. [12 U.S.C. 29041 Each appropriate Federal financial supervisory agency shall include in its annual report to the
Congress a section outlining the actions it has taken to carry out
its responsibilities under this title.
[REGULATIONS]
1

SEC. 806. [12 U.S.C. 29051 Regulations to carry out the purposes of this title shall be published by each appropriate Federal
financial supervisory agency, and shall take effect no later than
390 days after the date of enactment of this title.2
SEC. 807. [12 U.S.C. 2906] WRITTEN EVALUATIONS.
(a) REQUIRED.—

(1) IN GENERAL.—Upon the conclusion of each examination
of an insured depository institution under section 804, the appropriate Federal financial supervisory agency shall prepare a
written evaluation of the institution's record of meeting the
credit needs of its entire community, including low- and moderate-income neighborhoods.
(2) PUBLIC AND CONFIDENTIAL SECTIONS.—Each written
evaluation required under paragraph (1) shall have a public
section and a confidential section.
(b) PUBLIC SECTION OP REPORT.—
(1) FINDINGS AND CONCLUSIONS.—(A) CONTENTS OF WRIT-

TEN EVALUATION.—The public section of the written evaluation
shall—
(i) state the appropriate Federal financial supervisory
agency's conclusions for each assessment factor identified
in the regulations prescribed by the Federal financial supervisory agencies to implement this Act;
(ii) discuss the facts and data supporting such conclusions; and
(iii) contain the institution's rating and a statement
describing the basis for the rating.
(B) METROPOLITAN AREA DISTINCTIONS.—The information required by clauses (i) and (ii) of subparagraph (A)
shall be presented separately for each metropolitan area in
which a regulated depository institution maintains one or
more domestic branch offices.
(2) ASSIGNED RATING.—The institution's rating referred to
in paragraph (1)(C) shall be one of the following:
1
No
2

section headings in law.
The date of enactment was October 12, 1977.




Sec. 807

COMMUNITY REINVESTMENT ACT OF 1977

114

(A) "Outstanding record of meeting community credit
needs".
(B) "Satisfactory record of meeting community credit
needs".
(C) "Needs to improve record of meeting community
credit needs".
(D) "Substantial noncompliance in meeting community
credit needs".
Such ratings shall be disclosed to the public on and after July
1, 1990.
(c) CONFIDENTIAL SECTION OF REPORT.—
(1) PRIVACY OF NAMED INDIVIDUALS.—The

confidential section of the written evaluation shall contain all references that
identify any customer of the institution, any employee or officer of the institution, or any person or organization that has
provided information in confidence to a Federal or State financial supervisory agency.
(2) TOPICS NOT SUITABLE FOR DISCLOSURE.—The confidential section shall also contain any statements obtained or made
by the appropriate Federal financial supervisory agency in the
course of an examination which, in the judgment of the agency,
are too sensitive or speculative in nature to disclose to the institution or the public.
(3) DISCLOSURE TO DEPOSITORY INSTITUTION.—The confidential section may be disclosed, in whole or part, to the institution, if the appropriate Federal financial supervisory agency determines that such disclosure will promote the objectives
of this Act. However, disclosure under this paragraph shall not
identify a person or organization that has provided information
in confidence to a Federal or State financial supervisory agency.
(d) INSTITUTIONS WITH INTERSTATE BRANCHES.—
(1) STATE-BY-STATE EVALUATION.—In the case

of a regulated financial institution that maintains domestic branches in
2 or more States, the appropriate Federal financial supervisory
agency shall prepare—
(A) a written evaluation of the entire institution's
record of performance under this title, as required by subsections (a), (b), and (c); and
(B) for each State in which the institution maintains
1 or more domestic branches, a separate written evaluation of the institution's record of performance within such
State under this title, as required by subsections (a), (b),
and (c).
(2) MULTISTATE METROPOLITAN AREAS.—In the case of a
regulated financial institution that maintains domestic
branches in 2 or more States within a multistate metropolitan
area, the appropriate Federal financial supervisory agency
shall prepare a separate written evaluation of the institution's
record of performance within such metropolitan area under
this title, as required by subsections (a), (b), and (c). If the
agency prepares a written evaluation pursuant to this paragraph, the scope of the written evaluation required under paragraph (1)(B) shall be adjusted accordingly.




115

COMMUNITY REINVESTMENT ACT OF 1977

Sec. 808

(3) CONTENT OP STATE LEVEL EVALUATION.—A written
evaluation prepared pursuant to paragraph (1KB) shall—
(A) present the information required by subparagraphs
(A) and (B) of subsection (b)(1) separately for each metropolitan area in which the institution maintains 1 or more
domestic branch offices and separately for the remainder
of the nonmetropolitan area of the State if the institution
maintains 1 or more domestic branch offices in such
nonmetropolitan area; and
(B) describe how the Federal financial supervisory
agency has performed the examination of the institution,
including a list of the individual branches examined.
(e) DEFINITIONS.—For purposes of this section the following
definitions shall apply:
(1) DOMESTIC BRANCH.—The term "domestic branch"
means any branch office or other facility of a regulated financial institution that accepts deposits, located in any State.
(2) METROPOLITAN AREA.—The term "metropolitan area"
means any primary metropolitan statistical area, metropolitan
statistical area, or consolidated metropolitan statistical area,
as defined by the Director of the Office of Management and
Budget, with a population of 250,000 or more, and any other
area designated as such by the appropriate Federal financial
supervisory agency.
(3) STATE.—Tiie term "State" has the same meaning as in
section 3 of the Federal Deposit Insurance Act.
SEC. 808. [12 U.S.C. 2907] OPERATION OF BRANCH FACILITIES BY MINORITIES AND WOMEN.

(a) IN GENERAL.—In the case of any depository institution
which donates, sells on favorable terms (as determined by the appropriate Federal financial supervisory agency), or makes available
on a rent-free basis any branch of such institution which is located
in any predominantly minority neighborhood to any minority depository institution or women's depository institution, the amount
of the contribution or the amount of the loss incurred in connection
with such activity may be a factor in determining whether the depository institution is meeting the credit needs of the institution's
community for purposes of this title.
(b) DEFINITIONS.—For purposes of this section—
(1) MINORITY DEPOSITORY INSTITUTION.—The term "minority institution" means a depository institution (as defined in
section 3(c) of the Federal Deposit Insurance Act)—
(A) more than 50 percent of the ownership or control
of which is held by 1 or more minority individuals; and
(B) more than 50 percent of the net profit or loss of
which accrues to 1 or more minority individuals.
(2) WOMEN'S DEPOSITORY INSTITUTION.—The term "women's depository institution" means a depository institution (as
defined in section 3(c) of the Federal Deposit Insurance Act)—
(A) more than 50 percent of the ownership or control
of which is held by 1 or more women;
(B) more than 50 percent of the net profit or loss of
which accrues to 1 or more women; and




Sec. 808

COMMUNITY REINVESTMENT ACT OF 1977

116

(C) a significant percentage of senior management positions of which are held by women.
(3) MINORITY.—The term "minority" has the meaning
given to such term by section 1204(c)(3) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989.




COMPETITIVE EQUALITY BANKING ACT OF 1987

117







COMPETITIVE EQUALITY BANKING ACT OP 1987 *
*

*

*

*

*

*

*

SEC. 1204. [12 U.S.C. 3806] ADJUSTABLE RATE MORTGAGE CAPS.

(a) IN GENERAL.—Any adjustable rate mortgage loan originated
by a creditor shall include a limitation on the maximum interest
rate that may apply during the term of the mortgage loan.
(b) REGULATIONS.—The Board of Governors of the Federal Reserve System shall prescribe regulations to carry out the purposes
of this section.
(c) ENFORCEMENT.—Any violation of this section shall be treated as a violation of the Truth in Lending Act and shall be subject
to administrative enforcement under section 108 or civil damages
under section 130 of such Act, or both.
(d) DEFINITIONS.—For the purpose of this section—
(1) the term "creditor means a person who regularly extends credit for personal, family, or household purposes; and
(2) the term "adjustable rate mortgage loan means any
consumer loan secured by a lien on a one- to four-family dwelling unit, including a condominium unit, cooperative housing
unit, or mobile home, where the loan is made pursuant to an
agreement under which the creditor may, from time to time,
adjust the rate of interest.
(e) EFFECTIVE DATE.—This section shall take effect upon the
expiration of 120 days after the date of enactment of this Act.

1
Note: The Competitive Equality Banking Act of 1987 was largely amendatory. Most of the
free-standing provisions of such Act, while still in effect, did not have a permanent or long-term
application and therefore are not shown in this compilation. Title VI, the Expedited Funds
Availabilty Act, appears under its own heading in this compilation.
119







CONSUMER CREDIT PROTECTION ACT

121







CONSUMER CREDIT PROTECTION ACT
(82 Stat. 146; 15 U.S.C. 1601 et seq.)
AN ACT To safeguard the consumer in connection with the utilization of credit by
requiring full disclosure of the terms and conditions of finance charges in credit
transactions or in offers to extend credit; by restricting the garnishment of wages;
and by creating the National Commission on Consumer Finance to study and
make recommendations on the need for further regulation of the consumer finance
industry; and for other purposes.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
§ 1. Short title of entire Act
This Act may be cited as the Consumer Credit Protection Act.

TITLE I—CONSUMER CREDIT COST
DISCLOSURE
Chapter
1.
2.
3.
4.
5.

Section

GENERAL PROVISIONS
CREDIT TRANSACTIONS
CREDIT ADVERTISING
CREDIT BILLING
CONSUMER LEASES

101
121
141
161
181

CHAPTER 1—GENERAL PROVISIONS
Sec.
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
111.
112.
113.
114.
115.

Short title.
Findings and declaration of purpose.
Definitions and rules of construction.
Exempted transactions.
Regulations.
Determination of finance charge.
Determination of annual percentage rate.
Administrative enforcement.
Views of other agencies.
[Repealed]
Effect on other laws.
Criminal liability for willful and knowing violation.
Effect on governmental agencies.
Reports by-Board and Attorney General.
[Repealed].

§ 101. [15 U.S.C. 1601 note] Short title
This title may be cited as the Truth in Lending Act.
§ 102. [15 U.S.C. 1601] Findings and declaration of purpose
(a) The Congress finds that economic stabilization would be enhanced and the competition among the various financial institu123


89-335 9 5 - 5


Sec. 103

TRUTH IN LENDING ACT

124

tions and other firms engaged in the extension of consumer credit
would be strengthened by the informed use of credit. The informed
use of credit results from an awareness of the cost thereof by consumers. It is the purpose of this title to assure a meaningful disclosure of credit terms so that the consumer will be able to compare
more readily the various credit terms available to him and avoid
the uninformed use of credit; and to protect the consumer against
inaccurate and unfair credit billing and credit card practices.
(b) The Congress also finds that there has been a recent trend
toward leasing automobiles and other durable goods for consumer
use as an alternative to installment credit sales and that these
leases have been offered without adequate cost disclosures. It is the
purpose of this title to assure a meaningful disclosure of the terms
of leases of personal property for personal, family, or household
purposes so as to enable the lessee to compare more readily the
various lease terms available to him, limit balloon payments in
consumer leasing, enable comparison of lease terms with credit
terms where appropriate, and to assure meaningful and accurate
disclosures of lease terms in advertisements.)
§ 103. [15 U.S.C. 1602] Definitions and rules of construction
(a) The definitions and rules of construction set forth in this
section are applicable for the purposes of this title.
(b) The term "Board" refers to the Board of Governors of the
Federal Reserve System.
(c) The term "organization" means a corporation, government
or governmental subdivision or agency, trust, estate, partnership,
cooperative, or association.
(d) The term "person" means a natural person or an organization.
(e) The term "credit" means the right granted by a creditor to
a debtor to defer payment of debt or to incur debt and defer its
payment.
(f) The term "creditor" refers only to a person who both (1) regularly extends, whether in connection with loans, sales of property
or services, or otherwise, consumer credit which is payable by
agreement in more than four installments or for which the payment of a finance charge is or may be required, and (2) is the person to whom the debt arising from the consumer credit transaction
is initially payable on the face of the evidence of indebtedness or,
if there is no such evidence of indebtedness, by agreement. Notwithstanding the preceding sentence, in the case of an open-end
credit plan involving a credit card, the card issuer and any person
who honors the credit card and offers a discount which is a finance
charge are creditors. For the purpose of the requirements imposed
under chapter 4 and sections 127(a)(5), 127(a)(6), 127(a)(7),
127(b)(1), 127(b)(2), 127(b)(3), 127(b)(8), and 127(b)(10) of chapter 2
of this title, the term "creditor" shall also include card issuers
whether or not the amount due is payable by agreement in more
than four installments or the payment of a finance charge is or
may be required, and the Board shall, by regulation, apply these
requirements to such card issuers, to the extent appropriate, even
though the requirements are by their terms applicable only to
creditors offering open-end credit plans. Any person who originates




125

TRUTH IN LENDING ACT

Sec. 103

2 or more mortgages referred to in subsection (aa) in any 12-month
period or any person who originates 1 or more such mortgages
through a mortgage broker shall be considered to be a creditor for
purposes of this title.
(g) The term "credit sale" refers to any sale in which the seller
is a creditor. The term includes any contract in the form of a bailment or lease if the bailee or lessee contracts to pay as compensation for use a sum substantially equivalent to or in excess of the
aggregate value of the property and services involved and it is
agreed that the bailee or lessee will become, or for no other or a
nominal consideration has the option to become, the owner of the
property upon full compliance with his obligations under the contract.
(h) The adjective "consumer", used with reference to a credit
transaction, characterizes the transaction as one in which the party
to whom credit is offered or extended is a natural person, and the
money, property, or services which are the subject of the transaction are primarily for personal, family, or household purposes.
(i) The term "open end credit plan' means a plan under which
the creditor reasonably contemplates repeated transactions, which
prescribes the terms of such transactions, and which provides for
a finance charge which may be computed from time to time on the
outstanding unpaid balance. A credit plan which is an open end
credit plan witnin the meaning of the preceding sentence is an
open end credit plan even if credit information is verified from time
to time.
(j) The term "adequate notice", as used in section 133, means
a printed notice to a cardholder which sets forth the pertinent facts
clearly and conspicuously so that a person against whom it is to
operate could reasonably be expected to have noticed it and understood its meaning. Such notice may be given to a cardholder by
printing the notice on any credit card, or on each periodic statement of account, issued to the cardholder, or by any other means
reasonably assuring the receipt thereof by the cardholder.
(k) The term "credit card" means any card, plate, coupon book
or other credit device existing for the purpose of obtaining money,
property, labor, or services on credit.
(1) The term "accepted credit card" means any credit card
which the cardholder has requested and received or has signed or
has used, or authorized another to use, for the purpose of obtaining
money, property, labor, or services on credit.
(m) The term "cardholder" means any person to whom a credit
card is issued or any person who has agreed with the card issuer
to pay obligations arising from the issuance of a credit card to another person.
(n) The term "card issuer" means any person who issues a
credit card, or the agent of such person with respect to such card.
(o) The term "unauthorized use", as used in section 133, means
a use of a credit card by a person other than the cardholder who
does not have actual, implied, or apparent authority for such use
and from which the cardholder receives no benefit.
(p) The term "discount" as used in section 167 means a reduction made from the regular price. The term "discount" as used in
section 167 shall not mean a surcharge.




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(q) The term "surcharge" as used in section 103 and section
167 means any means of increasing the regular price to a cardholder which is not imposed upon customers paying by cash, check,
or similar means.
(r) The term "State" refers to any State, the Commonwealth of
Puerto Rico, the District of Columbia, and any territory or possession of the United States.
(s) The term "agricultural purposes" includes the production,
harvest, exhibition, marketing, transportation, processing, or manufacture of agricultural products by a natural person who cultivates, plants, propagates, or nurtures those agricultural products,
including but not limited to the acquisition of farmland, real property with a farm residence, and personal property and services
used primarily in farming.
(t) The term "agricultural products" includes agricultural, horticultural, viticultural, and dairy products, livestock, wildlife, poultry, bees, forest products, fish and shellfish, and any products
thereof, including processed and manufactured products, and any
and all products raised or produced on farms and any processed or
manufactured products thereof.
(u) The term "material disclosures" means the disclosure, as
required by this title, of the annual percentage rate, the method of
determining the finance charge and the balance upon which a finance charge will be imposed, the amount of the finance charge,
the amount to be financed, the total of payments, the number and
amount of payments, the due dates or periods of payments scheduled to repay the indebtedness, and the disclosures required by section 129(a).
(v) The term "dwelling" means a residential structure or mobile
home which contains one to four family housing units, or individual
units of condominiums or cooperatives.
(w) The term "residential mortgage transaction" means a
transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or
equivalent consensual security interest is created or retained
against the consumer's dwelling to finance the acquisition or initial
construction of such dwelling.
(x) As used in this section and section 167, the term "regular
price" means the tag or posted price charged for the property or
service if a single price is tagged or posted, or the price charged
for the property or service when payment is made by use of an
open-end credit plan or a credit card if either (1) no price is tagged
or posted, or (2) two prices are tagged or posted, one of which is
charged when payment is made by use of an open-end credit plan
or a credit card and the other when payment is made by use of
cash, check, or similar means. For purposes of this definition, payment by check, draft, or other negotiable instrument which may result in the debiting of an open-end credit plan or a credit cardholder's open-end account shall not be considered payment made by
use of the plan or the account.
(y) Any reference to any requirement imposed under this title
or any provision thereof includes reference to the regulations of the
Board under this title or the provision thereof in question.




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(z) The disclosure of an amount or percentage which is greater
than the amount or percentage required to be disclosed under this
title does not in itself constitute a violation of this title.
(aa)(l) A mortgage referred to in this subsection means a
consumer credit transaction that is secured by the consumer's principal dwelling, other than a residential mortgage transaction, a reverse mortgage transaction, or a transaction under an open end
credit plan, if—
(A) the annual percentage rate at consummation of the
transaction will exceed by more than 10 percentage points the
yield on Treasury securities having comparable periods of maturity on the fifteenth day of the month immediately preceding
the month in which the application for the extension of credit
is received by the creditor; or
(B) the total points and fees payable by the consumer at
or before closing will exceed the greater of—
(i) 8 percent of the total loan amount; or
(ii) $400.
(2)(A) After the 2-year period beginning on the effective date
of the regulations promulgated under section 155 of the Riegle
Community Development and Regulatory Improvement Act of
1994, and no more frequently than biennially after the first increase or decrease under this subparagraph, the Board may by regulation increase or decrease the number of percentage points specified in paragraph (1)(A), if the Board determines that the increase
or decrease is—
(i) consistent with the consumer protections against abusive lending provided by the amendments made by subtitle B
of title I of the Riegle Community Development and Regulatory
Improvement Act of 1994; and
(ii) warranted by the need for credit.
(B) An increase or decrease under subparagraph (A) may not
result in the number of percentage points referred to in subparagraph (A) being—
(i) less that 8 percentage points; or
(ii) greater than 12 percentage points.
(C) In determining whether to increase or decrease the number
of percentage points referred to in subparagraph (A), the Board
shall consult with representatives of consumers, including low-income consumers, and lenders.
(3) The amount specified in paragraph (l)(B)(ii) shall be adjusted annually on January 1 by the annual percentage change in
the Consumer Price Index, as reported on June 1 of the year preceding such adjustment.
(4) For purposes of paragraph (1)(B), points and fees shall include—
(A) all items included in the finance charge, except interest
or the time-price differential;
(B) all compensation paid to mortgage brokers;
(C) each of the charges listed in section 106(e) (except an
escrow for future payment of taxes), unless—
(i) the charge is reasonable;
(ii) the creditor receives no direct or indirect compensation; and




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(iii) the charge is paid to a third party unaffiliated
with the creditor; and
(D) such other charges as the Board determines to be appropriate.
(5) This subsection shall not be construed to limit the rate of
interest or the finance charge that a person may charge a
consumer for any extension of credit.
(bb) The term "reverse mortgage transaction" means a
nonrecourse transaction in which a mortgage, deed of trust, or
equivalent consensual security interest is created against the consumer's principal dwelling—
(1) securing one or more advances; and
(2) with respect to which the payment of any principal, interest, and shared appreciation or equity is due and payable
(other than in the case of default) only after—
(A) the transfer of the dwelling;
(B) the consumer ceases to occupy the dwelling as a
principal dwelling; or
(C) the death of the consumer.
§ 104. [15 U.S.C. 1603] Exempted transactions
This title does not apply to the following:
(1) Credit transactions involving extensions of credit primarily for business, commercial, or agricultural purposes, or to
government or governmental agencies or instrumentalities, or
to organizations.
(2) Transactions in securities or commodities accounts by
a broker-dealer registered with the Securities and Exchange
Commission.
(3) Credit transactions, other than those in which a security interest is or will be acquired in real property, or in personal property used or expected to be used as the principal
dwelling of the consumer, in which the total amount financed
exceeds $25,000.
(4) Transactions under public utility tariffs, if the Board
determines that a State regulatory body regulates the charges
for the public utility services involved, the charges for delayed
payment, and any discount allowed for early payment.
(5) Credit transactions primarily for agricultural purposes
in which the total amount to be financed exceeds $25,000.
(6) 1 Loans made, insured, or guaranteed pursuant to a
program authorized by title IV of the Highr Education Act of
1965 (20 U.S.C. 1070 et seq.).
§ 105. [15 U.S.C. 1604] Regulations
(a) The Board shall prescribe regulations to carry out the purposes of this title. Except in the case of a mortgage referred to in
section 103(aa), these regulations may contain such classifications,
differentiations, or other provisions, and may provide for such adjustments and exceptions for any class of transactions, as in the
judgment of the Board are necessary or proper to effectuate the
1

This paragraph applies to loans made before and after October 15, 1982.




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purposes of this title, to prevent circumvention or evasion thereof,
or to facilitate compliance therewith.
(b) The Board shall publish model disclosure forms and clauses
for common transactions to facilitate compliance with the disclosure requirements of this title and to aid tne borrower or lessee in
understanding the transaction by utilizing readily understandable
language to simplify the technical nature of the disclosures. In devising such forms, the Board shall consider the use by creditors or
lessors of data processing or similar automated equipment. Nothing
in this title may be construed to require a creditor or lessor to use
any such model form or clause prescribed by the Board under this
section. A creditor or lessor shall be deemed to be in compliance
with the disclosure provisions of this title with respect to other
than numerical disclosures if the creditor or lessor (1) uses any appropriate model form or clause as published by the Board, or (2)
uses any such model form or clause and changes it by (A) deleting
any information which is not required by this title, or (B) rearranging the format, if in making such deletion or rearranging the format, the creditor or lessor does not affect the substance, clarity, or
meaningful sequence of the disclosure.
(c) Model disclosure forms and clauses shall be adopted by the
Board after notice duly given in the Federal Register and an opportunity for public comment in accordance with section 553 of title
5, United States Code.
(d) Any regulation of the Board, or any amendment or interpretation thereof, requiring any disclosure which differs from the
disclosures previously required by this chapter, chapter 4, or chapter 5, or by any regulation of the Board promulgated thereunder
shall have an effective date of that October 1 which follows by at
least six months the date of promulgation, except that the Board
may at its discretion take interim action by regulation, amendment, or interpretation to lengthen the period of time permitted for
creditors or lessors to adjust their forms to accommodate new requirements or shorten the length of time for creditors or lessors to
make such adjustments when it makes a specific finding that such
action is necessary to comply with the findings of a court or to prevent unfair or deceptive disclosure practices. Notwithstanding the
previous sentence, any creditor or lessor may comply with any such
newly promulgated disclosure requirements prior to the effective
date of the requirements.
§ 106. [15 U.S.C. 1605] Determination of finance charge
(a) Except as otherwise provided in this section, the amount of
the finance charge in connection with any consumer credit transaction shall be determined as the sum of all charges, payable directly or indirectly by the person to whom the credit is extended,
and imposed directly or indirectly by the creditor as an incident to
the extension of credit. The finance charge does not include charges
of a type payable in a comparable cash transaction. Examples of
charges which are included in the finance charge include any of the
following types of charges which are applicable.
(1) Interest, time price differential, and any amount payable under a point, discount, or other system of additional
charges.




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130

(2) Service or carrying charge.
(3) Loan fee, finder's fee, or similar charge.
(4) Fee for an investigation or credit report.
(5) Premium or other charge for any guarantee or insurance protecting the creditor against the obligor's default or
other credit loss.
(b) Charges or premiums for credit life, accident, or health insurance written in connection with any consumer credit transaction
shall be included in the finance charge unless:
(1) the coverage of the debtor by the insurance is not a factor in the approval by the creditor of the extension of credit,
and this fact is clearly disclosed in writing to the person applying for or obtaining the extension of credit; and
(2) in order to obtain the insurance in connection with the
extension of credit, the person to whom the credit is extended
must give specific affirmative written indication of his desire
to do so after written disclosure to him of the cost thereof.
(c) Charges or premiums for insurance, written in connection
with any consumer credit transaction, against loss of or damage to
property or against liability arising out of the ownership or use of
property, shall be included in the finance charge unless a clear and
specific statement in writing is furnished by the creditor to the person to whom the credit is extended, setting forth the cost of the insurance if obtained from or through the creditor, and stating that
the person to whom the credit is extended may choose the person
through which the insurance is to be obtained.
(d) If any of the following items is itemized and disclosed in accordance with the regulations of the Board in connection with any
transaction, then the creditor need not include that item in the
computation of the finance charge with respect to that transaction:
(1) Fees and charges prescribed by law which actually are
or will be paid to public officials for determining the existence
of or for perfecting or releasing or satisfying any security related to the credit transaction.
(2) The premium payable for any insurance in lieu of perfecting any security interest otherwise required by the creditor
in connection with the transaction, if the premium does not exceed the fees and charges described in paragraph (1) which
would otherwise be payable.
(e) The following items, when charged in connection with any
extension of credit secured by an interest in real property, shall not
be included in the computation of the finance charge with respect
to that transaction:
(1) Fees or premiums for title examination, title insurance,
or similar purposes.
(2) Fees for preparation of a deed, settlement statement, or
other documents.
(3) Escrows for future payments of taxes and insurance.
(4) Fees for notarizing deeds and other documents.
(5) Appraisal fees.
(6) Credit reports.




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Sec. 107

§ 107. [15 U.S.C. 1606] Determination of annual percentage
rate
(a) The annual percentage rate applicable to any extension of
consumer credit shall be determined, in accordance with the regulations of the Board,1
(1) in the case of any extension of credit other than under
an open end credit plan, as
(A) that nominal annual percentage rate which will
yield a sum equal to the amount of the finance charge
when it is applied to the unpaid balances of the amount
financed, calculated according to the actuarial method of
allocating payments made on a debt between the amount
financed and the amount of the finance charge, pursuant
to which a payment is applied first to the accumulated finance charge and the balance is applied to the unpaid
amount financed; or
(B) the rate determined by any method prescribed by
the Board as a method which materially simplifies computation while retaining reasonable accuracy as compared
with the rate determined under subparagraph (A).2
(2) in the case of any extension of credit under an open
end credit plan, as the quotient (expressed as a percentage) of
the total finance charge for the period to which it relates divided by the amount upon which the finance charge for that
period is based, multiplied by the number of such periods in
a year.
(b) Where a creditor imposes the same finance charge for balances within a specified range, the annual percentage rate shall be
computed on the median balance within the range, except that if
the Board determines that a rate so computed would not be meaningful, or would be materially misleading, the annual percentage
rate shall be computed on such other basis as the Board may by
regulation require.
(c) The disclosure of an annual percentage rate is accurate for
the purpose of this title if the rate disclosed is within a tolerance
not greater than one-eighth of 1 per centum more or less than the
actual rate or rounded to the nearest one-fourth of 1 per centum.
The Board may allow a greater tolerance to simplify compliance
where irregular payments are involved.
(d) The Board may authorize the use of rate tables or charts
which may provide for the disclosure of annual percentage rates
which vary from the rate determined in accordance with subsection
(a)(1)(A) by not more than such tolerances as the Board may allow.
The Board may not allow a tolerance greater than 8 per centum
of that rate except to simplify compliance where irregular payments are involved.
(e) In the case of creditors determining the annual percentage
rate in a manner other than as described in subsection (d), the
Board may authorize other reasonable tolerances.
1
2

So in original. Probably should be a dash.
So in original. Probably should be "; and".




Sec. 108

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132

§ 108. [15 U.S.C. 1607] Administrative enforcement
(a) Compliance with the requirements imposed under this title
shall be enforced under x
(1) section 8 of the Federal Deposit Insurance Act, in the
case of—
(A) national banks, and Federal branches and Federal
agencies of foreign banks, by the Office of the Comptroller
of the Currency;
(B) member banks of the Federal Reserve System
(other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies,
and insured State branches of foreign banks), commercial
lending companies owned or controlled by foreign banks,
and organizations operating under section 25 or 25(a) 2 of
the Federal Reserve Act, by the Board; and
(C) banks insured by the Federal Deposit Insurance
Corporation (other than members of the Federal Reserve
System) and insured State branches of foreign banks, by
the Board of Directors of the Federal Deposit Insurance
Corporation;
(2) section 8 of the Federal Deposit Insurance Act, by the
Director of the Office of Thrift Supervision, in the case of a
savings association the deposits of which are insured by the
Federal Deposit Insurance Corporation.3
(3) the Federal Credit Union Act, by the Administrator of
the National Credit Union Administration with respect to any
Federal credit union. 3
(4) the Federal Aviation Act of 1958, by the Secretary of
Transportation with respect to any air carrier or foreign air
carrier subject to that Act.3
(5) the Packers and Stockyards Act, 1921 (except as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any activities subject to that Act.4
(6) the Farm Credit Act of 1971, by the Farm Credit Administration with respect to any Federal land bank, Federal
land bank association. Federal intermediate credit bank, or
production credit association.
The terms used in paragraph (1) that are not defined in this title
or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them
in section 1(b) of the International Banking Act of 1978 (12 U.S.C.
3101).
(b) For the purpose of the exercise by any agency referred to
in subsection (a) of its powers under any Act referred to in that
subsection, a violation of any requirement imposed under this title
shall be deemed to be a violation of a requirement imposed under
that Act. In addition to its powers under any provision of law specifically referred to in subsection (a), each of the agencies referred
to in that subsection may exercise, for the purpose of enforcing
1
2

No punctuation in law. Probably should be a dash.
Section 25(a) of the Federal Reserve Act was redesignated as section 25A by section 142(e)(2)
of 3the Federal Deposit Insurance Corporation Improvement Act of 1991.
So in law. The period probably should be a semicolon.
4
So in law. Probably should be "; and".




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Sec. 108

compliance with any requirement imposed under this title, any
other authority conferred on it by law.
(c) Except to the extent that enforcement of the requirements
imposed under this title is specifically committed to some other
Government agency under subsection (a), the Federal Trade Commission shall enforce such requirements. For the purpose of the exercise by the Federal Trade Commission of its functions and powers
under the Federal Trade Commission Act, a violation of any requirement imposed under this title shall be deemed a violation of
a requirement imposed under that Act. All of the functions and
powers of the Federal Trade Commission under the Federal Trade
Commission Act are available to the Commission to enforce compliance by any person with the requirements imposed under this title,
irrespective of whether that person is engaged in commerce or
meets any other jurisdictional tests in the Federal Trade Commission Act.
(d) The authority of the Board to issue regulations under this
title does not impair the authority of any other agency designated
in this section to make rules respecting its own procedures in enforcing compliance with requirements imposed under this title.
(e)(1) In carrying out its enforcement activities under this section, each agency referred to in subsection (a) or (c), in cases where
an annual percentage rate or finance charge was inaccurately disclosed, shall notify the creditor of such disclosure error and is authorized in accordance with the provisions of this subsection to require the creditor to make an adjustment to the account of the person to whom credit was extended, to assure that such person will
not be required to pay a finance charge in excess of the finance
charge actually disclosed or the dollar equivalent of the annual percentage rate actually disclosed, whichever is lower. For the purposes of this subsection, except where such disclosure error resulted from a willful violation which was intended to mislead the
person to whom credit was extended, in determining whether a disclosure error has occurred and in calculating any adjustment, (A)
each agency shall apply (i) with respect to the annual percentage
rate, a tolerance of one-quarter of 1 percent more or less than the
actual rate, determined without regard to section 107(c) of this
title, and (ii) with respect to the finance charge, a corresponding
numerical tolerance as generated by the tolerance provided under
this subsection for the annual percentage rate; except that (B) with
respect to transactions consummated after two years following the
effective date of section 608 of the Truth in Lending Simplification
and Reform Act, each agency shall apply (i) for transactions that
have a scheduled amortization of ten years or less, with respect to
the annual percentage rate, a tolerance not to exceed one-quarter
of 1 percent more or less than the actual rate, determined without
regard to section 107(c) of this title, but in no event a tolerance of
less than the tolerances allowed under section 107(c), (ii) for transactions that have a scheduled amortization of more than ten years,
with respect to the annual percentage rate, only such tolerances as
are allowed under section 107(c) of this title, and (iii) for all transactions, with respect to the finance charge, a corresponding numerical tolerance as generated by the tolerances provided under this
subsection for the annual percentage rate.




Sec. 108

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134

(2) Each agency shall require such an adjustment when it determines that such disclosure error resulted from (A) a clear and
consistent pattern or practice of violations, (B) gross negligence, or
(C) a willful violation which was intended to mislead the person to
whom the credit was extended. Notwithstanding the preceding sentence, except where such disclosure error resulted from a willful
violation which was intended to mislead the person to whom credit
was extended, an agency need not require such an adjustment if
it determines that such disclosure error—
(A) resulted from an error involving the disclosure of a fee
or charge that would otherwise be excludable in computing the
finance charge, including but not limited to violations involving
the disclosures described in sections 106(b), (c) and (d) of this
title, in which event the agency may require such remedial action as it determines to be equitable, except that for transactions consummated after two years after the effective date of
section 608 of the Truth in Lending Simplification and Reform
Act, such an adjustment shall be ordered for violations of section 106(b);
(B) involved a disclosed amount which was 10 per centum
or less of the amount that should have been disclosed and (i)
in cases where the error involved a disclosed finance charge,
the annual percentage rate was disclosed correctly, and (ii) in
cases where the error involved a disclosed annual percentage
rate, the finance charge was disclosed correctly; in which event
the agency may require such adjustment as it determines to be
equitable;
(C) involved a total failure to disclose either the annual
percentage rate or the finance charge, in which event the agency may require such adjustment as it determines to be equitable; or
(D) resulted from any other unique circumstance involving
clearly technical and nonsubstantive disclosure violations that
do not adversely affect information provided to the consumer
and that have not misled or otherwise deceived the consumer.
In the case of other such disclosure errors, each agency may require such an adjustment.
(3) Notwithstanding paragraph (2), no adjustment shall be ordered (A) if it would have a significantly adverse impact upon the
safety or soundness of the creditor, but in any such case, the agency may require a partial adjustment in an amount which does not
have such an impact, except that with respect to any transaction
consummated after the effective date of section 608 of the Truth in
Lending Simplification and Reform Act, the agency shall require
the full adjustment, but permit the creditor to make the required
adjustment in partial payments over an extended period of time
which the agency considers to be reasonable, (B) if the amount of
the adjustment would be less that $1, except that if more than one
year has elapsed since the date of the violation, the agency may require that such amount be paid into the Treasury of the United
States, or (C) except where such disclosure error resulted from a
willful violation which was intended to mislead the person to whom
credit was extended, in the case of an open-end credit plan, more




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Sec. 108

than two years after the violation, or in the case of any other extension of credit, as follows:
(i) with respect to creditors that are subject to examination
by the agencies referred to in paragraphs (1) through (3) of section 108(a) of this title, except in connection with violations
arising from practices identified in the current examination
and only in connection with transactions that are consummated after the date of the immediately preceding examination, except that where practices giving rise to violations
identified in earlier examinations have not been corrected, adjustments for those violations shall be required in connection
with transactions consummated after the date of the examination in which such practices were first identified;
(ii) with respect to creditors that are not subject to examination by such agencies, except in connection with transactions that are consummated after May 10, 1978; and
(iii) in no event after the later of (I) the expiration of the
life of the credit extension, or (II) two years after the agreement to extend credit was consummated.
(4)(A) Notwithstanding any other provision of this section, an
adjustment under this subsection may be required by an agency referred to in subsection (a) or (c) only by an order issued in accordance with cease and desist procedures provided by the provision of
law referred to in such subsections.
(B) In the case of an agency which is not authorized to conduct
cease and desist proceedings, such an order may be issued after an
agency hearing on the record conducted at least thirty but not more
than sixty days after notice of the alleged violation is served on the
creditor. Such a hearing shall be deemed to be a hearing which is
subject to the provisions of section 8(h) of the Federal Deposit Insurance Act and shall be subject to judicial review as provided
therein.
(5) Except as otherwise specifically provided in this subsection
and notwithstanding any provision of law referred to in subsection
(a) or (c), no agency referred to in subsection (a) or (c) may require
a creditor to make dollar adjustments for errors in any requirements under this title, except with regard to the requirements of
section 165.
(6) A creditor shall not be subject to an order to make an adjustment, if within sixty days after discovering a disclosure error,
whether pursuant to a final written examination report or through
the creditor's own procedures, the creditor notifies the person concerned of the error and adjusts the account so as to assure that
such person will not be required to pay a finance charge in excess
of the finance charge actually disclosed or the dollar equivalent of
the annual percentage rate actually disclosed, whichever is lower.
(7) Notwithstanding the second sentence of subsection (e)(1),
subsection (e)(3)(C)(i), and subsection (e)(3)(C)(ii), each agency referred to in subsection (a) or (c) shall require an adjustment for an
annual percentage rate disclosure error that exceeds a tolerance of
one quarter of one percent less than the actual rate, determined
without regard to section 107(c) of this title, with respect to any
transaction consummated between January 1, 1977, and the effec-




Sec. 109

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136

tive date of section 608 of the Truth in Lending Simplification and
Reform Act.
§ 109. [15 U.S.C. 1608] Views of other agencies
In the exercise of its functions under this title, the Board may
obtain upon request the views of any other Federal agency which,
in the judgment of the Board, exercises regulatory or supervisory
functions with respect to any class of creditors subject to this title.
§ 110. [Repealed by Public Law 94-239 (90 Stat. 253).]
§ 111. [15 U.S.C. 1610] Effect on other laws
(a)(1) Except as provided in subsection (e), chapters 1, 2, and
3 do not x annul, alter, or affect the laws of any State relating to
the disclosure of information in connection with credit transactions,
except to the extent that those laws are inconsistent with the provisions of this title, and then only to the extent of the inconsistency. Upon its own motion or upon the request of any creditor,
State, or other interested party which is submitted in accordance
with procedures prescribed in regulations of the Board, the Board
shall determine whether any such inconsistency exists. If the Board
determines that a State-required disclosure is inconsistent, creditors located in that State may not make disclosures using the inconsistent term or form, and shall incur no liability under the law
of that State for failure to use such term or form, notwithstanding
that such determination is subsequently amended, rescinded, or determined by judicial or other authority to be invalid for any reason.
(2) Upon its own motion or upon the request of any creditor,
State, or other interested party which is submitted in accordance
with procedures prescribed in regulations of the Board, the Board
shall determine whether any disclosure required under the law of
any State is substantially the same in meaning as a disclosure required under this title. If the Board determines that a State-required disclosure is substantially the same in meaning as a disclosure required by this title, then creditors located in that State may
make such disclosure in compliance with such State law in lieu of
the disclosure required by this title, except that the annual percentage rate and finance charge shall be disclosed as required by
section 122, and such State-required disclosure may not be made
in lieu of the disclosures applicable to certain mortgages under section 129. 2
(b) Except as provided in section 129, this title does not x otherwise annul, alter or affect in any manner the meaning, scope or applicability of the laws of any State, including, but not limited to,
laws relating to the types, amounts or rates of charges, or any element or elements of charges, permissible under such laws in connection with the extension or use of credit, nor does this title extend the applicability of those laws to any class of persons or transactions to which they would not otherwise apply. The provisions of
1
So in original. The term "shall not be construed to" probably should be substituted for "does
not" and "do not", respectively.
2
The amendment made by section 152(e)(2XB) of the Reigle Community Development and
Regulatory Improvement Act of 1994 (103-325; 108 Stat. 2194) did not specify which sentence
of this paragraph was being amended. Such amendment was executed to the second sentence
of paragraph (2).




137

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Sec. 113

section 129 do not x annul, alter, or affect the applicability of the
laws of any State or exempt any person subject to the provisions
of section 129 from complying with the laws of any State, with respect to the requirements for mortgages referred to in section
103(aa), except to the extent that those State laws are inconsistent
with any provisions of section 129, and then only to the extent of
the inconsistency.
(c) In any action or proceeding in any court involving a
consumer credit sale, the disclosure of the annual percentage rate
as required under this title in connection with that sale may not
be received as evidence that the sale was a loan or any type of
transaction other than a credit sale.
(d) Except as specified in sections 125, 130, and 166, this title
and the regulations issued thereunder do not affect the validity or
enforceability of any contract or obligation under State or Federal
law.
(e) CERTAIN CREDIT AND CHARGE CARD APPLICATION AND SOLICITATION DISCLOSURE PROVISIONS.—The provisions of subsection

(c) of section 122 and subsections (c), (d), (e), and (f) of section 127
shall supersede any provision of the law of any State relating to
the disclosure of information in any credit or charge card application or solicitation which is subject to the requirements of section
127(c) or any renewal notice which is subject to the requirements
of section 127(d), except that any State may employ or establish
State laws for the purpose of enforcing the requirements of such
sections.
§112. [15 U.S.C. 1611] Criminal liability for willful and
knowing violation
Whoever willfully and knowingly 2
(1) gives false or inaccurate information or fails to provide
information which he is required to disclose under the provisions of this title or any regulation issued thereunder,
(2) uses any chart or table authorized by the Board under
section 107 in such a manner as to consistently understate the
annual percentage rate determined under section 107(a)(1)(A),
or
(3) otherwise fails to comply with any requirement imposed under this title,
shall be fined not more than $5,000 or imprisoned not more than
one year, or both.
§ 113. [15 U.S.C. 1612] Effect on governmental agencies
(a) Any department or agency of the United States which administers a credit program in which it extends, insures, or guarantees consumer credit and in which it provides instruments to a
creditor which contain any disclosures required by this title shall,
prior to the issuance or continued use of such instruments, consult
with the Board to assure that such instruments comply with this
title.
1
2

See footnote 1 on previous page.
No punctuation in law. Probably should be a dash.




Sec. 114

TRUTH IN LENDING ACT

138

(b) No civil or criminal penalty provided under this title for
any violation thereof may be imposed upon the United States or
any department or agency thereof, or upon any State or political
subdivision thereof, or any agency of any State or political subdivision.
(c) A creditor participating in a credit program administered,
insured, or guaranteed by any department or agency of the United
States shall not be held liable for a civil or criminal penalty under
this title in any case in which the violation results from the use
of an instrument required by any such department or agency.
(d) A creditor participating in a credit program administered,
insured, or guaranteed by any department or agency of the United
States shall not be held liable for a civil or criminal penalty under
the laws of any State (other than laws determined under section
111 to be inconsistent with this title) for any technical procedural
failure, such as a failure to use a specific form, to make information available at a specific place on an instrument, or to use a specific typeface, as is required by State law, which is caused by the
use of an instrument required to be used by such department or
agency.
§114. [15 U.S.C. 1614] Reports by Board and Attorney General
Each year the Board shall make a report to the Congress concerning the administration of its functions under this title, including such recommendations as the Board deems necessary or appropriate. In addition, each report of the Board shall include its assessment of the extent to which compliance with the requirements
imposed under this title is being achieved.
§115. [Repealed by section 616(b) of the Depository Institutions Deregulation and Monetary Control Act of
1980 (94 Stat. 182).]

CHAPTER 2—CREDIT TRANSACTIONS
Sec.
121. General requirement of disclosure.
122. Form of disclosure; additional information.
123. Exemption for State-regulated transactions.
124. Effect of subsequent occurrence.
125. Right of rescission as to certain transactions.
126. [Repealed.]
127. Open end consumer credit plans.
127A. Disclosure requirements for open end consumer credit plans secured by the
consumer's principal dwelling.
128. Consumer credit not under open end credit plans.
129. Requirements for certain mortgages.
130. Civil liability.
131. Liability of assignees.
132. Issuance of credit cards.
133. Liability of holder of credit card.
134. Fraudulent use of credit card.
135. Business credit cards.
136. Dissemination of annual percentage rates.
137. Home equity plans.
138. Reverse mortgages.




TRUTH IN LENDING ACT

139

Sec. 122

§ 121. |15 U.S.C. 1631] General requirement of disclosure
(a) Subject to subsection (b), a creditor or lessor shall disclose
to the person who is obligated on a consumer lease or a consumer
credit transaction the information required under this title. In a
transaction involving more than one obligor, a creditor or lessor,
except in a transaction under section 125, need not disclose to more
than one of such obligors if the obligor given disclosure is a primary obligor.
(b) If a transaction involves one creditor as defined in section
103(f), or one lessor as defined in section 181(3), such creditor or
lessor shall make the disclosures. If a transaction involves more
than one creditor or lessor, only one creditor or lessor shall be required to make the disclosures. The Board shall by regulation
specify which creditor or lessor shall make the disclosures.
(c) The Board may provide by regulation that any portion of
the information required to be disclosed by this title may be given
in the form of estimates where the provider of such information is
not in a position to know exact information.
(d) The Board shall determine whether tolerances for numerical disclosures other than the annual percentage rate are necessary
to facilitate compliance with this title, and if it determines that
such tolerances are necessary to facilitate compliance, it shall by
regulation permit disclosures within such tolerances. The Board
shall exercise its authority to permit tolerances for numerical disclosures other than the annual percentage rate so that such tolerances are narrow enough to prevent such tolerances from resulting
in misleading disclosures or disclosures that circumvent the purposes of this title.
§ 122. [15 U.S.C. 1632] Form of disclosures; additional information
(a) Information required by this title shall be disclosed clearly
and conspicuously, in accordance with regulations of the Board.
The terms "annual percentage rate" and "finance charge" shall be
disclosed more conspicuously than other terms, data, or information provided in connection with a transaction, except information
relating to the identity of the creditor. Except as provided in subsection (c), regulations of the Board need not require that disclosures pursuant to this title be made in the order set forth in this
title and, except as otherwise provided, may permit the use of terminology different from that employed in this title if it conveys
substantially the same meaning.
(b) Any creditor or lessor may supply additional information or
explanation with any disclosures required under chapters 4 and 5
and, except as provided in sections 127A(b)(3) and 128(b)(1), under
this chapter.
(c) TABULAR FORMAT REQUIRED FOR CERTAIN DISCLOSURES
UNDER SECTION 127(c).—

(1) IN GENERAL.—The information described in paragraphs
(1)(A), (3)(B)(i)(I), (4)(A), and (4)(C)(i)(I) of section 127(c) shall
be—
(A) disclosed in the form and manner which the Board
shall prescribe by regulations; and




Sec. 123

TRUTH IN LENDING ACT

140

(B) placed in a conspicuous and prominent location on
or with any written application, solicitation, or other document or paper with respect to which such disclosure is required.
(2) TABULAR FORMAT.—
(A) FORM OP TABLE TO BE PRESCRIBED.—In

the regulations prescribed under paragraph (1)(A) of this subsection,
the Board shall require that tne disclosure of such information shall, to the extent the Board determines to be
practicable and appropriate, be in the form of a table
which—
(i) contains clear and concise headings for each
item of such information; and
(ii) provides a clear and concise form for stating
each item of information required to be disclosed
under each such heading.
(B) BOARD DISCRETION IN PRESCRIBING ORDER AND
WORDING OF TABLE.—In prescribing the form of the table

under subparagraph (A), the Board may—
(i) list the items required to be included in the
table in a different order than the order in which such
items are set forth in paragraph (1)(A) or (4)(A) of section 127(c); and
(ii) subject to subparagraph (C), employ terminology which is different than the terminology which is
employed in section 127(c) if such terminology conveys
substantially the same meaning.
(C) GRACE PERIOD.—Either the heading or the statement under the heading which relates to the time period
referred to in section 127(c)(l)(A)(iii) shall contain the
term grace period.
§ 123. [15 U.S.C. 1633] Exemption for State-regulated transactions
The Board shall by regulation exempt from the requirements
of this chapter any class of credit transactions within any State if
it determines that under the law of that State that class of transactions is subject to requirements substantially similar to those imposed under this chapter, and that there is adequate provision for
enforcement.
§ 124. [15 U.S.C. 16341 Effect of subsequent occurrence
If information disclosed in accordance with this chapter is subsequently rendered inaccurate as the result of any act, occurrence,
or agreement subsequent to the delivery of the required disclosures, the inaccuracy resulting therefrom does not constitute a violation of this chapter.
§ 125. [15 U.S.C. 1635] Right of rescission as to certain transactions
(a) Except as otherwise provided in this section, in the case of
any consumer credit transaction (including opening or increasing
the credit limit for an open end credit plan) in which a security interest, including any such interest arising by operation of law, is




141

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or will be retained or acquired in any property which is used as the
principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight
of the third business day following the consummation of the transaction or the delivery of the information and recission forms required under this section together with a statement containing the
material disclosures required under this title, whichever is later, by
notifying the creditor, in accordance with regulations of the Board,
of his intention to do so. The creditor shall clearly and conspicuously disclose, in accordance with regulations of the Board, to any
obligor in a transaction subject to this section the rights of the obligor under this section. The creditor shall also provide, in accordance with regulations of the Board, appropriate forms for the obligor to exercise his right to rescind any transaction subject to this
section.
(b) When an obligor exercises his right to rescind under subsection (a), he is not liable for any finance or other charge, and any
security interest given by the obligor, including any such interest
arising by operation of law, becomes void upon such a rescission.
Within 20 days after receipt of a notice of rescission, the creditor
shall return to the obligor any money or property given as earnest
money, downpayment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction. If the creditor has delivered
any property to the obligor, the obligor may retain possession of it.
Upon the performance of the creditor's obligations under this section, the obligor shall tender the property to the creditor, except
that if return of the property in kind would be impracticable or inequitable, the obligor shall tender its reasonable value. Tender
shall be made at the location of the property or at the residence
of the obligor, at the option of the obligor. If the creditor does not
take possession of the property within 20 days after tender by the
obligor, ownership of the property vests in the obligor without obligation on his part to pay for it. The procedures prescribed by this
subsection shall apply except when otherwise ordered by a court.
(c) Notwithstanding any rule of evidence, written acknowledgment of receipt of any disclosures required under this title by a
person to whom information, forms, and a statement is required to
be given pursuant to this section does no more than create a rebuttable presumption of delivery thereof.
(d) The Board may, if it finds that such action is necessary in
order to permit homeowners to meet bona fide personal financial
emergencies, prescribe regulations authorizing the modification or
waiver of any rights created under this section to the extent and
under the circumstances set forth in those regulations.
(e) This section does not apply to—
(1) a residential mortgage transaction as defined in section
103(w);
(2) a transaction which constitutes a refinancing or consolidation (with no new advances) of the principal balance then
due and any accrued and unpaid finance charges of an existing
extension of credit by the same creditor secured by an interest
in the same property;




Sec. 126

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(3) a transaction in which an agency of a State is the creditor; or
(4) advances under a preexisting open end credit plan if a
security interest has already been retained or acquired and
such advances are in accordance with a previously established
credit limit for such plan.
(f) An obligor's right of rescission shall expire three years after
the date of consummation of the transaction or upon the sale of the
property, whichever occurs first, notwithstanding the fact that the
information and forms required under this section or any other disclosures required under this chapter have not been delivered to the
obligor, except that if (1) any agency empowered to enforce the provisions of this title institutes a proceeding to enforce the provisions
of this section within three years after the date of consummation
of the transaction, (2) such agency finds a violation of section 125,
and (3) the obligor's right to rescind is based in whole or in part
on any matter involved in such proceeding, then the obligor's right
of rescission shall expire three years after the date of consummation of the transaction or upon the earlier sale of the property, or
upon the expiration of one year following the conclusion of the proceeding, or any judicial review or period for judicial review thereof,
whichever is later.
(g) In any action in which it is determined that a creditor has
violated this section, in addition to rescission the court may award
relief under section 130 for violations of this title not relating to
the right to rescind.
§ 126. [Repealed by section 614(e)(1) of the Depository Institutions Deregulation and Monetary Control Act of
1980 (94 Stat. 180).]
§ 127. [15 U.S.C. 1637] Open end consumer credit plans
(a) Before opening any account under an open end consumer
credit plan, the creditor shall disclose to the person to whom credit
is to be extended each of the following items, to the extent applicable;
(1) The conditions under which a finance charge may be
imposed, including the time period (if any) within which any
credit extended may be repaid without incurring a finance
charge, except that the creditor may, at his election and without disclosure, impose no such finance charge if payment is received after the termination of such time period. If no such
time period is provided, the creditor shall disclose such fact.
(2) The method of determining the balance upon which a
finance charge will be imposed.
(3) The method of determining the amount of the finance
charge, including any minimum or fixed amount imposed as a
finance charge.
(4) Where one or more periodic rates may be used to compute the finance charge, each such rate, the range of balances
to which it is applicable, and the corresponding nominal annual percentage rate determined by mutliplying the periodic
rate by the number of periods in a year.




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(5) Identification of other charges which may be imposed
as part of the plan, and their method of computation, in accordance with regulations of the Board.
(6) In cases where the credit is or will be secured, a statement that a security interest has been or will be taken in (A)
the property purchased as part of the credit transaction, or (B)
property not purchased as part of the credit transaction identified by item or type.
(7) A statement, in a form prescribed by regulations of the
Board of the protection provided by sections 161 and 170 to an
obligor and the creditor's responsibilities under sections 162
and 170. With respect to one billing cycle per calendar year, at
intervals of not less than six months or more than eighteen
months, the creditor shall transmit such statement to each obligor to whom the creditor is required to transmit a statement
pursuant to section 127(b) for such billing cycle.
(8) In the case of any account under an open end consumer
credit plan which provides for any extension of credit which is
secured by the consumer's principal dwelling, any information
which—
(A) is required to be disclosed under section 127A(a);
and
(B) the Board determines is not described in any other
paragraph of this subsection.
(b) The creditor of any account under an open end consumer
credit plan shall transmit to the obligor, for each billing cycle at
the end of which there is an outstanding balance in that account
or with respect to which a finance charge is imposed, a statement
setting forth each of the following items to the extent applicable:
(1) The outstanding balance in the account at the beginning of the statement period.
(2) The amount and date of each extension of credit during
the period, and a brief identification, on or accompanying the
statement of each extension of credit in a form prescribed by
the Board sufficient to enable the obligor either to identify the
transaction or to relate it to copies of sales vouchers or similar
instruments previously furnished, except that a creditor's failure to disclose such information in accordance with this paragraph shall not be deemed a failure to comply with this chapter or this title if (A) the creditor maintains procedures reasonably adapted to procure and provide such information, and (B)
the creditor responds to and treats any inquiry for clarification
or documentation as a billing error and an erroneously billed
amount under section 161. In lieu of complying with the requirements of the previous sentence, in the case of any transaction in which the creditor and seller are the same person, as
defined by the Board, and such person's open end credit plan
has fewer than 15,000 accounts, the creditor may elect to provide only the amount and date of each extension of credit during the period and the seller's name and location where the
transaction took place if (A) a brief identification of the transaction has been previously furnished, and (B) the creditor responds to and treats any inquiry for clarification or documenta-




Sec. 127

TRUTH IN LENDING ACT

144

tion as a billing error and an erroneously billed amount under
section 161.
(3) The total amount credited to the account during the period.
(4) The amount of any finance charge added to the account
during the period, itemized to show the amounts, if any, due
to the application of percentage rates and the amount, if any,
imposed as a minimum or fixed charge.
(5) Where one or more periodic rates may be used to compute the finance charge, each such rate, the range of balances
to which it is applicable, and, unless the annual percentage
rate (determined under section 107(a)(2)) is required to be disclosed pursuant to paragraph (6), the corresponding nominal
annual percentage rate determined by mutliplying the periodic
rate by the number of periods in a year.
(6) Where the total finance charge exceeds 50 cents for a
monthly or longer billing cycle, or the pro rata part of 50 cents
for a billing cycle shorter than monthly, the total finance
charge expressed as an annual percentage rate (determined
under section 107(a)(2)), except that if the finance charge is the
sum of two or more products of a rate times a portion of the
balance, the creditor may, in lieu of disclosing a single rate for
the total charge, disclose each such rate expressed as an annual percentage rate, and the part of the balance to which it
is applicable.
(7) The balance on which the finance charge was computed
and a statement of how the balance was determined. If the balance is determined without first deducting all credits during
the period, that fact and the amount of such payments shall
also be disclosed.
(8) The outstanding balance in the account at the end of
the period.
(9) The date by which or the period (if any) within which,
payment must be made to avoid additional finance charges, except that the creditor may, at his election and without disclosure, impose no such additional finance charge if payment is
received after such date or the termination of such period.
(10) The address to be used by the creditor for the purpose
of receiving billing inquiries from the obligor.
(c) DISCLOSURE IN CREDIT AND CHARGE CARD APPLICATIONS
AND SOLICITATIONS.—
(1) DIRECT MAIL APPLICATIONS AND SOLICITATIONS.—
(A) INFORMATION IN TABULAR FORMAT.—Any applica-

tion to open a credit card account for any person under an
open end consumer credit plan, or a solicitation to open
such an account without requiring an application, that is
mailed to consumers shall disclose the following information, subject to subsection (e) and section 122(c):




(i) ANNUAL PERCENTAGE RATES.—

(I) Each annual percentage rate applicable to
extensions of credit under such credit plan.
(II) Where an extension of credit is subject to
a variable rate, the fact that the rate is variable,

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the annual percentage rate in effect at the time of
the mailing, and how the rate is determined.
(Ill) Where more than one rate applies, the
range of balances to which each rate applies.
(ii) ANNUAL AND OTHER FEES.—

(I) Any annual fee, other periodic fee, or membership fee imposed for the issuance or availability of a credit card, including any account maintenance fee or other charge imposed based on activity or inactivity for the account during the billing
cycle.
(II) Any minimum finance charge imposed for
each period during which any extension of credit
which is subject to a finance charge is outstanding.
(III) Any transaction charge imposed in connection with use of the card to purchase goods or
services.
(iii) GRACE PERIOD.—

(I) The date by which or the period within
which any credit extended under such credit plan
for purchases of goods or services must be repaid
to avoid incumng a finance charge, and, if no
such period is offered, such fact shall be clearly
stated.
(II) If the length of such "grace period" varies,
the card issuer may disclose tne range of days in
the grace period, the minimum number of days in
the grace period, or the average number of days in
the grace period, if the disclosure is identified as
such.
(iv) BALANCE CALCULATION METHOD.—

(I) The name of the balance calculation method used in determining the balance on which the
finance charge is computed if the method used has
been defined by the Board, or a detailed explanation of the balance calculation method used if
the method has not been so defined.
(II) In prescribing regulations to carry out
this clause, the Board shall define and name not
more than the 5 balance calculation methods determined by the Board to be the most commonly
used methods.
(B) OTHER INFORMATION.—In addition to the information required to be disclosed under subparagraph (A), each
application or solicitation to which such subparagraph applies shall disclose clearly and conspicuously the following
information, subject to subsections (e) and (f):
(i) CASH ADVANCE FEE.—Any fee imposed for an
extension of credit in the form of cash.
(ii) LATE FEE.—Any fee imposed for a late payment.
(iii) OVER-THE-LIMIT FEE.—Any fee imposed in
connection with an extension of credit in excess of the




TRUTH IN LENDING ACT

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146

amount of credit authorized to be extended with respect to such account.
(2) TELEPHONE SOLICITATIONS.—

(A) IN GENERAL.—In any telephone solicitation to open
a credit card account for any person under an open end
consumer credit plan, the person making the solicitation
shall orally disclose the information described in paragraph (1)(A).
(B) EXCEPTION.—Subparagraph (A) shall not apply to
any telephone solicitation if—
(i) the credit card issuer—
(I) does not impose any fee described in paragraph UXAXiiXI); or
(II) does not impose any fee in connection
with telephone solicitations unless the consumer
signifies acceptance by using the card;
(ii) the card issuer discloses clearly and conspicuously in writing the information described in paragraph (1) within 30 days after the consumer requests
the card, but in no event later than the date of delivery of the card; and
(iii) the card issuer discloses clearly and conspicuously that the consumer is not obligated to accept the
card or account and the consumer will not be obligated
to pay any of the fees or charges disclosed unless the
consumer elects to accept the card or account by using
the card.
(3) APPLICATIONS AND SOLICITATIONS BY OTHER MEANS.—

(A) IN GENERAL.—Any application to open a credit
card account for any person under an open end consumer
credit plan, and any solicitation to open such an account
without requiring an application, that is made available to
the public or contained in catalogs, magazines, or other
publications shall meet the disclosure requirements of subparagraph (B), (C), or (D).
(B) SPECIFIC INFORMATION.—An application or solicitation described in subparagraph (A) meets the requirement
of this subparagraph if such application or solicitation contains—
(i) the information—
(I) described in paragraph (1)(A) in the form
required under section 122(c) of this chapter, subject to subsection (e), and
(II) described in paragraph (1)(B) in a clear
and conspicuous form, subject to subsections (e)
and (f);
(ii) a statement, in a conspicuous and prominent
location on the application or solicitation, that—
(I) the information is accurate as of the date
the application or solicitation was printed;
(II) the information contained in the application or solicitation is subject to change after such
date; and




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(III) the applicant should contact the creditor
for information on any change in the information
contained in the application or solicitation since it
was printed;
(iii) a clear and conspicuous disclosure of the date
the application or solicitation was printed; and
(iv) a disclosure, in a conspicuous and prominent
location on the application or solicitation, of a toll free
telephone number or a mailing address at which the
applicant may contact the creditor to obtain any
change in the information provided in the application
or solicitation since it was printed.
(C)

GENERAL INFORMATION WITHOUT ANY SPECIFIC

TERM.—An application or solicitation described in subparagraph (A) meets the requirement of this subparagraph if
such application or solicitation—
(i) contains a statement, in a conspicuous and
prominent location on the application or solicitation,
that—
(I) there are costs associated with the use of
credit cards; and
(II) the applicant may contact the creditor to
request disclosure of specific information of such
costs by calling a toll free telephone number or by
writing to an address, specified in the application;
(ii) contains a disclosure, in a conspicuous and
prominent location on the application or solicitation, of
a toll free telephone number and a mailing address at
which the applicant may contact the creditor to obtain
such information; and
(iii) does not contain any of the items described in
paragraph (1).
(D) APPLICATIONS OR SOLICITATIONS CONTAINING SUBSECTION (a) DISCLOSURES.—An application or solicitation

meets the requirement of this subparagraph if it contains,
or is accompanied by—
(i) the disclosures required by paragraphs (1)
through (6) of subsection (a);
(ii) the disclosures required by subparagraphs (A)
and (B) of paragraph (1) of this subsection included
clearly and conspiciously (except that the provisions of
section 122(c) shall not apply); and
(iii) a toll free telephone number or a mailing address at which the applicant may contact the creditor
to obtain any change in the information provided.
(E) PROMPT RESPONSE TO INFORMATION REQUESTS.—

Upon receipt of a request for any of the information referred to in subparagraph (B), (C), or (D), the card issuer
or the agent of such issuer shall promptly disclose all of
the information described in paragraph (1).
(4) CHARGE CARD APPLICATIONS AND SOLICITATIONS.—

(A) IN GENERAL.—Any application or solicitation to
open a charge card account shall disclose clearly and con-




TRUTH IN LENDING ACT

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148

spicuously the following information in the form required
by section 122(c) of this chapter, subject to subsection (e):
(i) Any annual fee, other periodic fee, or membership fee imposed for the issuance or availability of the
charge card, including any account maintenance fee or
other charge imposed based on activity or inactivity
for the account during the billing cycle.
(ii) Any transaction charge imposed in connection
with use of the card to purchase goods or services.
(iii) A statement that charges incurred by use of
the charge card are due and payable upon receipt of
a periodic statement rendered for such charge card account.
(B) OTHER INFORMATION.—In addition to the information required to be disclosed under subparagraph (A), each
written application or solicitation to which such subparagraph applies shall disclose clearly and conspicuously the
following information, subject to subsections (e) and (f):
(i) CASH ADVANCE FEE.—Any fee imposed for an
extension of credit in the form of cash.
(ii) LATE FEE.—Any fee imposed for a late payment.
(iii) OVER-THE-LIMIT FEE.—Any fee imposed in
connection with an extension of credit in excess of the
amount of credit authorized to be extended with respect to such account.
(C)

APPLICATIONS

AND

SOLICITATIONS

BY

OTHER

MEANS.—Any application to open a charge card account,
and any solicitation to open such an account without requiring an application, that is made available to the public
or contained in catalogs, magazines, or other publications
shall contain—
(i) the information—
(I) described in subparagraph (A) in the form
required under section 122(c) of this chapter, subject to subsection (e), and
(II) described in subparagraph (B) in a clear
and conspicuous form, subject to subsections (e)
and (f);
(ii) a statement, in a conspicuous and prominent
location on the application or solicitation, that—
(I) the information is accurate as of the date
the application or solicitation was printed;
(II) the information contained in the application or solicitation is subject to change after such
date; and
(III) the applicant should contact the creditor
for information on any change in the information
contained in the application or solicitation since it
was printed;
(iii) a clear and conspicuous disclosure of the date
the application or solicitation was printed; and
(iv) a disclosure, in a conspicuous and prominent
location on the application or solicitation, of a toll free




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telephone number or a mailing address at which the
applicant may contact the creditor to obtain any
change in the information provided in the application
or solicitation since it was printed.
(D) ISSUERS OF CHARGE CARDS WHICH PROVIDE ACCESS
TO OPEN END CONSUMER CREDIT PLANS.—If a charge card

permits the card holder to receive an extension of credit
under an open end consumer credit plan, which is not
maintained oy the charge card issuer, the charge card issuer may provide the information described in subparagraphs (A) and (B) in the form required by such subparagraphs in lieu of the information required to be provided
under paragraph (1), (2), or (3) with respect to any credit
extended under such plan, if the charge card issuer discloses clearly and conspicuously to the consumer in the application or solicitation that—
(i) the charge card issuer will make an independent decision as to whether to issue the card;
(ii) the charge card may arrive before the decision
is made with respect to an extension of credit under
an open end consumer credit plan; and
(iii) approval by the charge card issuer does not
constitute approval by the issuer of the extension of
credit.
The information required to be disclosed under paragraph
(1) shall be provided to the charge card holder by the creditor which maintains such open end consumer credit plan
before the first extension of credit under such plan.
(E) CHARGE CARD DEFINED.—For the purposes of this
subsection, the term "charge card" means a card, plate, or
other single credit device that may be used from time to
time to obtain credit which is not subject to a finance
charge.
(5) REGULATORY AUTHORITY OF THE BOARD.—The Board
may, by regulation, require the disclosure of information in addition to that otherwise required by this subsection or subsection (d), and modify any disclosure of information required
by this subsection or subsection (d), in any application to open
a credit card account for any person under an open end
consumer credit plan or any application to open a charge card
account for any person, or a solicitation to open any such account without requiring an application, if the Board determines that such action is necessary to carry out the purposes
of, or prevent evasions of, any paragraph of this subsection.
(d) DISCLOSURE PRIOR TO RENEWAL.—

(1) IN GENERAL.—Except as provided in paragraph (2), a
card issuer that imposes any fee described in subsection
(c)(l)(A)(ii)(I) or (c)(4)(A)(i) shall transmit to a consumer at
least 30 days prior to the scheduled renewal date of the consumer's credit or charge card account a clear and conspicuous
disclosure of—
(A) the date by which, the month by which, or the billing period at the close of which, the account will expire if
not renewed;




TRUTH IN LENDING ACT

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150

(B) the information described in subsection (c)(1)(A) or
(c)(4)(A) that would apply if the account were renewed,
subject to subsection (e); and
(C) the method by which the consumer may terminate
continued credit availability under the account.
(2) SPECIAL RULE FOR CERTAIN DISCLOSURES.—

(A) IN GENERAL.—The disclosures required by this subsection may be provided—
(i) prior to posting a fee described in subsection
(c)(l)(A)(ii)(I) or (c)(4)(A)(i) to the account, or
(ii) with the periodic billing statement first disclosing that the fee has been posted to the account.
(B) LIMITATION ON USE OF SPECIAL RULE.—Disclosures

may be provided under subparagraph (A) only if—
(i) the consumer is given a 30-day period to avoid
payment of the fee or to have the fee recredited to the
account in any case where the consumer does not wish
to continue the availability of the credit; and
(ii) the consumer is permitted to use the card during such period without incurring an obligation to pay
such fee.
(3) SHORT-TERM RENEWALS.—The Board may by regulation
irovide for fewer disclosures than are required by paragraph
1) in the case of an account which is renewable for a period
of less than 6 months.

f

(e) OTHER RULES FOR DISCLOSURES UNDER SUBSECTIONS (C)
AND (d).—
(1) FEES DETERMINED ON THE BASIS OF A PERCENTAGE.—If

the amount of any fee required to be disclosed under subsection (c) or (d) is determined on the basis of a percentage of
another amount, the percentage used in making such determination and the identification of the amount against which
such percentage is applied shall be disclosed in lieu of the
amount of such fee.
(2) DISCLOSURE ONLY OF FEES ACTUALLY IMPOSED.—If a

credit or charge card issuer does not impose any fee required
to be disclosed under any provision of subsection (c) or (d),
such provision shall not apply with respect to such issuer.
(f) DISCLOSURE OF RANGE OF CERTAIN FEES WHICH VARY BY
STATE ALLOWED.—If the amount of any fee required to be disclosed

by a credit or charge card issuer under paragraph (1)(B),
(3)(B)(i)(H), (4KB), or (4)(C)(i)(II) of subsection (c) varies from State
to State, the card issuer may disclose the range of such fees for
purposes of subsection (c) in lieu of the amount for each applicable
State, if such disclosure includes a statement that the amount of
such fee varies from State to State.
(g) INSURANCE IN CONNECTION WITH CERTAIN OPEN END CREDIT CARD PLANS.—
(1) CHANGE IN INSURANCE CARRIER.—Whenever a card is-

suer that offers any guarantee or insurance for repayment of
all or part of the outstanding balance of an open end credit
card plan proposes to change the person providing that guarantee or insurance, the card issuer shall send each insured
consumer written notice of the proposed change not less than




TRUTH IN LENDING ACT

151

Sec. 127A

30 days prior to the change, including notice of any increase
in the rate or substantial decrease in coverage or service which
will result from such change. Such notice may be included on
or with the monthly statement provided to the consumer prior
to the month in which the proposed change would take effect.
(2) NOTICE OF NEW INSURANCE COVERAGE.—In any case in
which a proposed change described in paragraph (1) occurs, the
insured consumer shall be given the name and address of the
new guarantor or insurer and a copy of the policy or gToup certificate containing the basic terms and conditions, including
the premium rate to be charged.
(3)

RIGHT TO DISCONTINUE GUARANTEE OR INSURANCE.—

The notices required under paragraphs (1) and (2) shall each
include a statement that the consumer has the option to discontinue the insurance or guarantee.
(4) No PREEMPTION OF STATE LAW.—No provision of this
subsection shall be construed as superseding any provision of
State law which is applicable to the regulation of insurance.
(5) BOARD DEFINITION OF SUBSTANTIAL DECREASE IN COV-

ERAGE OR SERVICE.—The Board shall define, in regulations,
what constitutes a "substantial decrease in coverage or service"
for purposes of paragraph (1).
SEC. 127A. [15 U.S.C. 1637a] DISCLOSURE REQUIREMENTS FOR OPEN
END CONSUMER CREDIT PLANS SECURED BY THE CONSUMER'S PRINCIPAL DWELLING.
(a) APPLICATION DISCLOSURES.—In the case of any open end
consumer credit plan which provides for any extension of credit
which is secured by the consumer's principal dwelling, the creditor
shall make the following disclosures in accordance with subsection
(b):
(1) FIXED ANNUAL PERCENTAGE RATE.—Each annual percentage rate imposed in connection with extensions of credit
under the plan and a statement that such rate does not include
costs other than interest.
(2) VARIABLE PERCENTAGE RATE.—In the case of a plan
which provides for variable rates of interest on credit extended
under the plan—
(A) a description of the manner in which such rate will
be computed and a statement that such rate does not include costs other than interest;
(B) a description of the manner in which any changes
in the annual percentage rate will be made, including—
(i) any negative amortization and interest rate
carryover;
(ii) the timing of any such changes;
(iii) any index or margin to which such changes in
the rate are related; and
(iv) a source of information about any such index;
(C) if an initial annual percentage rate is offered
which is not based on an index—
(i) a statement of such rate and the period of time
such initial rate will be in effect; and
(ii) a statement that such rate does not include
costs other than interest;




TRUTH IN LENDING ACT

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152

(D) a statement that the consumer should ask about
the current index value and interest rate;
(E) a statement of the maximum amount by which the
annual percentage rate may change in any 1-year period
or a statement that no such limit exists;
(F) a statement of the maximum annual percentage
rate that may be imposed at any time under the plan;
(G) subject to subsection (b)(3), a table, based on a
$10,000 extension of credit, showing how the annual percentage rate and the minimum periodic payment amount
under each repayment option of the plan would have been
affected during tne preceding 15-year period by changes in
any index used to compute such rate;
(H) a statement of—
(i) the maximum annual percentage rate which
may be imposed under each repayment option of the
plan;
(ii) the minimum amount of any periodic payment
which may be required, based on a $10,000 outstanding balance, under each such option when such maximum annual percentage rate is in effect; and
(iii) the earliest date by which such maximum annual interest rate may be imposed; and
(I) a statement that interest rate information will be
provided on or with each periodic statement.
(3) OTHER FEES IMPOSED BY THE CREDITOR.—An itemization of any fees imposed by the creditor in connection with the
availability or use of credit under such plan, including annual
fees, application fees, transaction fees, and closing costs (including costs commonly described as "points"), and the time
when such fees are payable.
(4) ESTIMATES OF FEES WHICH MAY BE IMPOSED BY THIRD
PARTIES.—
(A) AGGREGATE AMOUNT.—An estimate, based on the

creditor's experience with such plans and stated as a single amount or as a reasonable range, of the aggregate
amount of additional fees that may be imposed by third
parties (such as governmental authorities, appraisers, and
attorneys) in connection with opening an account under
the plan.
(B) STATEMENT OF AVAILABILITY.—A statement that
the consumer may ask the creditor for a good faith estimate by the creditor of the fees that may be imposed by
third parties,
(5) STATEMENT OF RISK OF LOSS OF DWELLING.—A statement that—
(A) any extension of credit under the plan is secured
by the consumer's dwelling; and
(B) in the event of any default, the consumer risks the
loss of the dwelling.
(6) CONDITIONS TO WHICH DISCLOSED TERMS ARE SUBJECT.—
(A) PERIOD DURING WHICH SUCH TERMS ARE AVAIL-

ABLE.—A clear and conspicuous statement—




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TRUTH IN LENDING ACT

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(i) of the time by which an application must be
submitted to obtain the terms disclosed; or
(ii) if applicable, that the? terms are subject to
change.
\
(B) RIGHT OF REFUSAL IF CERTAIN TERMS CHANGE.—A

statement that—
(i) the consumer may elect not to enter into an
agreement to open an account under the plan if any
term changes (other than a change contemplated by a
variable feature of the plan) before any such agreement is final; and
(ii) if the consumer makes an election described in
clause (i), the consumer is entitled to a refund of all
fees paid in connection with the application.
(C) RETENTION OF INFORMATION.—A statement that
the consumer should make or otherwise retain a copy of
information disclosed under this subparagraph.
(7) RIGHTS OF CREDITOR WITH RESPECT TO EXTENSIONS OF

CREDIT.—A statement that—
(A) under certain conditions, the creditor may terminate any account under the plan and require immediate
repayment of any outstanding balance, prohibit any additional extension of credit to the account, or reduce the
credit limit applicable to the account; and
(B) the consumer may receive, upon request, more specific information about the conditions under which the
creditor may take any action described in subparagraph
(A).
(8)

REPAYMENT OPTIONS AND MINIMUM PERIODIC PAY-

MENTS.—The repayment options under the plan, including—
(A) if applicable, any differences in repayment options
with regard to—
(i) any period during which additional extensions
of credit may be obtained; and
(ii) any period during which repayment is required
to be made and no additional extensions of credit may
be obtained;
(B) the length of any repayment period, including any
differences in the length of any repayment period with regard to the periods described in clauses (i) and (ii) of subparagraph (A); and
(C) an explanation of how the amount of any minimum monthly or periodic payment will be determined
under each such option, including any differences in the
determination of any such amount with regard to the periods described in clauses (i) and (ii) of subparagraph (A).
(9) EXAMPLE OF MINIMUM PAYMENTS AND MAXIMUM REPAYMENT PERIOD.—An example, based on a $10,000 outstanding

balance and the interest rate (other than a rate not based on
the index under the plan) which is, or was recently, in effect
under such plan, showing the minimum monthly or periodic
ayment, and the time it would take to repay the entire
10,000 if the consumer paid only the minimum periodic payments and obtained no additional extensions of credit.




Sec. 127A

TRUTH IN LENDING ACT
(10)

STATEMENT CONCERNING BALLOON

154
PAYMENTS.—If,

under any repayment option of the plan, the payment of not
more than the minimum periodic payments required under
such option over the length of the repayment period—
(A) would not repay any of tne principal balance; or
(B) would repay less than the outstanding balance by
the end of such period,
as the case may be, a statement of such fact, including an exlicit statement that at the end of such repayment period a
alloon pavment (as defined in section 147(f)) would result
which would be required to be paid in full at that time.
(11) NEGATIVE AMORTIZATION.—If applicable, a statement
that—
(A) any limitation in the plan on the amount of any
increase in the minimum payments may result in negative
amortization;
(B) negative amortization increases the outstanding
principal balance of the account; and
(C) negative amortization reduces the consumer's equity in the consumer's dwelling.

s

(12) LIMITATIONS AND MINIMUM AMOUNT REQUIREMENTS ON
EXTENSIONS OF CREDIT.—
(A) NUMBER AND DOLLAR AMOUNT LIMITATIONS.—Any

limitation contained in the plan on the number of extensions of credit and the amount of credit which may be obtained during any month or other defined time period.
(B) MINIMUM BALANCE AND OTHER TRANSACTION
AMOUNT REQUIREMENTS.—Any requirement which estab-

lishes a minimum amount for—
(i) the initial extension of credit to an account
under the plan;
(ii) any subsequent extension of credit to an account under the plan; or
(iii) any outstanding balance of an account under
the plan.
(13) STATEMENT REGARDING CONSULTATION OF TAX ADVI-

SOR.—A statement that the consumer should consult a tax advisor regarding the deductibility of interest and charges under
the plan.
(14) DISCLOSURE REQUIREMENTS ESTABLISHED BY BOARD.—

Any other term which the Board requires, in regulations, to be
disclosed.
(b) TIME AND FORM OF DISCLOSURES.—
(1) TIME OF DISCLOSURE.—

(A) IN GENERAL.—The disclosures required under subsection (a) with respect to any open end consumer credit
plan which provides for any extension of credit which is secured by the consumer's principal dwelling and the pamphlet required under subsection (e) shall be provided to
any consumer at the time the creditor distributes an application to establish an account under such plan to such
consumer.
(B) TELEPHONE, PUBLICATIONS, AND 3d PARTY APPLICA-

TIONS.—In the case of telephone applications, applications




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Sec. 127A

contained in magazines or other publications, or applications provided by a third party, the disclosures required
under subsection (a) and the pamphlet required under subsection (e) shall be provided oy the creditor before the end
of the 3-day period beginning on the date the creditor receives a completed application from a consumer.
(2) FORM.—

(A) IN GENERAL.—Except as provided in paragraph
(1)(B), the disclosures required under subsection (a) shall
be provided on or with any application to establish an account under an open end consumer credit plan which provides for any extension of credit which is secured by the
consumer's principal dwelling.
(B) SEGREGATION OF REQUIRED DISCLOSURES FROM
OTHER INFORMATION.—The disclosures required under sub-

section (a) shall be conspicuously segregated from all other
terms, data, or additional information provided in connection with the application, either by grouping the disclosures separately on the application form or by providing
the disclosures on a separate form, in accordance with regulations of the Board.
(C) PRECEDENCE OF CERTAIN INFORMATION.—The disclosures required by paragraphs (5), (6), and (7) of subsection (a) shall precede all of the other required disclosures.
(D) SPECIAL PROVISION RELATING TO VARIABLE INTER-

EST RATE INFORMATION.—Whether or not the disclosures
required under subsection (a) are provided on the application form, the variable rate information described in subsection (a)(2) may be provided separately from the other
information required to be disclosed.
(3) REQUIREMENT FOR HISTORICAL TABLE.—In preparing
the table required under subsection (a)(2)(G), the creditor shall
consistently select one rate of interest for each year and the
manner of selecting the rate from year to year shall be consistent with the plan.
(c) 3d PARTY APPLICATIONS.—In the case of an application to
open an account under any open end consumer credit plan described in subsection (a) which is provided to a consumer by any
person other than the creditor—
(1) such person shall provide such consumer with—
(A) the disclosures required under subsection (a) with
respect to such plan, in accordance with subsection (b);
and
(B) the pamphlet required under subsection (e); or
(2) if such person cannot provide specific terms about the
plan because specific information about the plan terms is not
available, no nonrefundable fee may be imposed in connection
with such application before the end of the 3-day period beginning on the date the consumer receives the disclosures required under subsection (a) with respect to the application.
(d) PRINCIPAL DWELLING DEFINED.—For purposes of this section and sections 137 and 147, the term "principal dwelling" includes any second or vacation home of the consumer.


89-335 9 5 - 6


Sec. 128

TRUTH IN LENDING ACT

156

(e) PAMPHLET.—In addition to the disclosures required under
subsection (a) with respect to an application to open an account
under any open end consumer credit plan described in such subsection, the creditor or other person providing such disclosures to
the consumer shall provide—
(1) a pamphlet published by the Board pursuant to section
4 of the Home Equity Consumer Protection Act of 1988; or
(2) any pamphlet which provides substantially similar information to the information described in such section, as determined by the Board.
§ 128. [15 U.S.C. 1638] Consumer credit not under open end
credit plans
(a) For each consumer credit transaction other than under an
open end credit plan, the creditor shall disclose each of the following items, to the extent applicable:
(1) The identity of the creditor required to make disclosure.
(2)(A) The "amount financed", using that term, which shall
be the amount of credit of which the consumer has actual use.
This amount shall be computed as follows, but the computations need not be disclosed and shall not be disclosed with the
disclosures conspicuously segregated in accordance with subsection (b)(1):
(i) take the principal amount of the loan or the cash
price less downpayment and trade-in;
(ii) add any charges which are not part of the finance
charge or of the principal amount of the loan and which
are financed by the consumer, including the cost of any
items excluded from the finance charge pursuant to section
106; and
(iii) subtract any charges which are part of the finance
charge but which will be paid by the consumer before or
at the time of the consummation of the transaction, or
have been withheld from the proceeds of the credit.
(B) In conjunction with the disclosure of the amount financed, a creditor shall provide a statement of the consumer's
right to obtain, upon a written request, a written itemization
of the amount financed. The statement shall include spaces for
a "yes" and "no" indication to be initialed by the consumer to
indicate whether the consumer wants a written itemization of
the amount financed. Upon receiving an affirmative indication,
the creditor shall provide, at the time other disclosures are required to be furnished, a written itemization of the amount financed. For the purposes of this subparagraph, "itemization of
the amount financed" means a disclosure of the following
items, to the extent applicable:
(i) the amount that is or will be paid directly to the
consumer;
(ii) the amount that is or will be credited to the consumer's account to discharge obligations owed to the creditor;
(iii) each amount that is or will be paid to third persons by the creditor on the consumer's behalf, together




157

TRUTH IN LENDING ACT

Sec. 128

with an identification of or reference to the third person;
and
(iv) the total amount of any charges described in the
preceding subparagraph (A)(iii).
(3) The "finance charge", not itemized, using that term.
(4) The finance charge expressed as a "annual percentage
rate", using that term. This shall not be required if the amount
financed does not exceed $75 and the finance charge does not
exceed $5, or if the amount financed exceeds $75 and the finance charge does not exceed $7.50.
(5) The sum of the amount financed and the finance
charge, which shall be termed the "total of payments".
(6) The number, amount, and due dates or period of payments scheduled to repay the total of payments.
(7) In a sale of property or services in which the seller is
the creditor required to disclose pursuant to section 121(b), the
"total sale price," using that term, which shall be the total of
the cash price of the property or services, additional charges,
and the finance charge.
(8) Descriptive explanations of the terms "amount financed", "finance charge", "annual percentage rate", "total of
payments", and "total sale price" as specified by the Board. The
descriptive explanation of "total sale price" shall include reference to the amount of the downpayment.
(9) Where the credit is secured, a statement that a security
interest has been taken in (A) the property which is purchased
as part of the credit transaction, or (B) property not purchased
as part of the credit transaction identified by item or type.
(10) Any dollar charge or percentage amount which may be
imposed by a creditor solely on account of a late payment,
other than a deferral or extension charge.
(11) A statement indicating whether or not the consumer
is entitled to a rebate of any finance charge upon refinancing
or prepayment in full pursuant to acceleration or otherwise, if
the obligation involves a precomputed finance charge. A statement indicating whether or not a penalty will be imposed in
those same circumstances if the obligation involves a finance
charge computed from time to time by application of a rate to
the unpaid principal balance.
(12) A statement that the consumer should refer to the appropriate contract document for any information such document provides about nonpayment, default, the right to accelerate the maturity of the debt, and prepayment rebates and penalties.
(13) In any residential mortgage transaction, a statement
indicating whether a subsequent purchaser or assignee of the
consumer may assume the debt obligation on its original terms
and conditions.
(b)(1) Except as otherwise provided in this chapter, the disclosures required under subsection (a) shall be made before the credit
is extended. Except for the disclosures required by subsection (a)(1)
of this section, all disclosures required under subsection (a) and
any disclosure provided for in subsection (b), (c), or (d) of section
106 shall be conspicuously segregated from all other terms, data,




Sec. 129

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158

or information provided in connection with a transaction, including
any computations or itemization.
(2) In the case of a residential mortgage transaction, as defined
in section 103(w), which is also subject to the Real Estate Settlement Procedures Act, good faith estimates of the disclosures required under subsection (a) shall be made in accordance with regulations of the Board under section 121(c) before the credit is extended, or shall be delivered or placed in the mail not later than
three business days after the creditor receives the consumer's written application, whichever is earlier. If the disclosure statement
furnished within three days of the written application contains an
annual percentage rate which is subsequently rendered inaccurate
within the meaning of section 107(c), the creditor shall furnish another statement at the time of settlement or consummation.
(c)(1) If a credit receives a purchase order by mail or telephone
without personal solicitation, and the cash price and the total sale
price and the terms of financing, including the annual percentage
rate, are set forth in the creditor's catalog or other printed material
distributed to the public, then the disclosures required under subsection (a) may be made at any time not later than the date the
first payment is due.
(2) If a creditor receives a request for a loan by mail or telephone without personal solicitation and the terms of financing, including the annual percentage rate for representative amounts of
credit, are set forth in the creditor's printed material distributed to
the public, or in the contract of loan or other printed material delivered to the obligor, then the disclosures required under subsection (a) may be made at any time not later than the date the
first payment is due.
(d) If a consumer credit sale is one of a series of consumer
credit sales transactions made pursuant to an agreement providing
for the addition of the deferred payment price of that sale to an existing outstanding balance, and the person to whom the credit is
extended has approved in writing both the annual percentage rate
or rates and the method of computing the finance charge or
charges, and the creditor retains no security interest in any property as to which he has received payments aggregating the amount
of the sales price including any finance charges attributable thereto, then the disclosure required under subsection (a) for the particular sale may be made at any time not later than the date the
first payment for that sale is due. For the purposes of this subsection, in the case of items purchased on different dates, the first
purchased shall be deemed first paid for, and in the case of items
purchased on the same date, the lowest priced shall be deemed
first paid for.
SEC. 129. [15 U.S.C. 1639] REQUIREMENTS FOR CERTAIN MORTGAGES.
(a) DISCLOSURES.—
(1) SPECIFIC DISCLOSURES.—In addition to other disclo-

sures required under this title, for each mortgage referred to
in section 103(aa), the creditor shall provide the following disclosures in conspicuous type size:




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(A) 'Tou are not required to complete this agreement
merely because you have received these disclosures or
have signed a loan application.".
(B) "If you obtain this loan, the lender will have a
mortgage on your home. You could lose your home, and
any money you have put into it, if you do not meet your
obligations under the loan.".
(2) ANNUAL PERCENTAGE RATE.—In addition to the disclosures required under paragraph (1), the creditor shall disclose—
(A) in the case of a credit transaction with a fixed rate
of interest, the annual percentage rate and the amount of
the regular monthly payment; or
(B) in the case of any other credit transaction, the annual percentage rate of the loan, the amount of the regular
monthly payment, a statement that the interest rate and
monthly payment may increase, and the amount of the
maximum monthly payment, based on the maximum interest rate allowed pursuant to section 1204 of the Competitive Equality Banking Act of 1987.
(b) TIME OF DISCLOSURES.—

(1) IN GENERAL.—The disclosures required by this section
shall be given not less than 3 business days prior to consummation of the transaction.
(2) NEW DISCLOSURES REQUIRED.—

(A) IN GENERAL.—After providing the disclosures required by this section, a creditor may not change the terms
of the extension of credit if such changes make the disclosures inaccurate, unless new disclosures are provided that
meet the requirements of this section.
(B) TELEPHONE DISCLOSURE.—A creditor may provide
new disclosures pursuant to subparagraph (A) by telephone, if—
(i) the change is initiated by the consumer; and
(ii) at the consummation of the transaction under
which the credit is extended—
(I) the creditor provides to the consumer the
new disclosures, in writing; and
(II) the creditor and consumer certify in writing that the new disclosures were provided by
telephone, by not later than 3 days prior to the
date of consummation of the transaction.
(3) MODIFICATIONS.—The Board may, if it finds that such
action is necessary to permit homeowners to meet bona fide
personal financial emergencies, prescribe regulations authorizing the modification or waiver oi rights created under this subsection, to the extent and under the circumstances set forth in
those regulations.
(c) No PREPAYMENT PENALTY.—
(1) IN GENERAL.—
(A) LIMITATION ON TERMS.—A

mortgage referred to in
section 103(aa) may not contain terms under which a
consumer must pay a prepayment penalty for paying all or




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160

part of the principal before the date on which the principal
is due.
(B) CONSTRUCTION.—For purposes of this subsection,
any method of computing a refund of unearned scheduled
interest is a prepayment penalty if it is less favorable to
the consumer than the actuarial method (as that term is
defined in section 933(d) of the Housing and Community
Development Act of 1992).
(2) EXCEPTION.—Notwithstanding paragraph (1), a mortgage referred to in section 103(aa) may contain a prepayment
penalty (including terms calculating a refund by a method that
is not prohibited under section 933(D) of the Housing and Community Development Act of 1992 for the transaction in question) if—
(A) at the time the mortgage is consummated—
(i) the consumer is not liable for an amount of
monthly indebtedness payments (including the amount
of credit extended or to be extended under the transaction) that is greater than 50 percent of the monthly
gross income of the consumer; and
(ii) the income and expenses of the consumer are
verified by a financial statement signed by the
consumer, by a credit report, and in the case of employment income, by payment records or by verification from the employer of the consumer (which verification may be in the form of a copy of a pay stub
or other payment record supplied by tne consumer);
(B) the penalty applies only to a prepayment made
with amounts obtained by the consumer by means other
than a refinancing by the creditor under the mortgage, or
an affiliate of that creditor;
(C) the penalty does not apply after the end of the 5year period beginning on the date on which the mortgage
is consummated; and
(D) the penalty is not prohibited under other applicable law.
(d) LIMITATIONS AFTER DEFAULT.—A mortgage referred to in
section 103(aa) may not provide for an interest rate applicable after
default that is higher than the interest rate that applies before default. If the date of maturity of a mortgage referred to in subsection1 103(aa) is accelerated due to default and the consumer is
entitled to a rebate of interest, that rebate shall be computed by
any method that is not less favorable than the actuarial method (as
that term is defined in section 933(d) of the Housing and Community Development Act of 1992).
(e) No BALLOON PAYMENTS.—A mortgage referred to in section
103(aa) having a term of less than 5 years may not include terms
under which the aggregate amount of the regular periodic payments would not fully amortize the outstanding principal balance.
(f) No NEGATIVE AMORTIZATION.—A mortgage referred to in
section 103(aa) may not include terms under which the outstanding
principal balance will increase at any time over the course of the
1

So in law. Probably should be "section".




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loan because the regular periodic payments do not cover the full
amount of interest due.
(g) No PREPAID PAYMENTS.—A mortgage referred to in section
103(aa) may not include terms under which more than 2 periodic
payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the consumer.
(h) PROHIBITION ON EXTENDING CREDIT WITHOUT REGARD TO
PAYMENT ABILITY OF CONSUMER.—A creditor shall not engage in a

pattern or practice of extending credit to consumers under mortgages referred to in section 103(aa) based on the consumers' collateral without regard to the consumers' repayment ability, including
the consumers' current and expected income, current obligations,
and employment.
(i) REQUIREMENTS FOR PAYMENTS UNDER HOME IMPROVEMENT

CONTRACTS.—A creditor shall not make a payment to a contractor
under a home improvement contract from amounts extended as
credit under a mortgage referred to in section 103(aa), other than—
(1) in the form of an instrument that is payable to the
consumer or jointly to the consumer and the contractor; or
(2) at the election of the consumer, by a third party escrow
agent in accordance with terms established in a written agreement signed by the consumer, the creditor, and the contractor
before the date of payment.
(j) CONSEQUENCE OF FAILURE TO COMPLY.—Any mortgage that
contains a provision prohibited by this section shall be deemed a
failure to deliver the material disclosures required under this title,
for the purpose of section 125.
(k) DEFINITION.—For purposes of this section, the term "affiliate" has the same meaning as in section 2(k) of the Bank Holding
Company Act of 1956.
(1) DISCRETIONARY REGULATORY AUTHORITY OF BOARD.—

(1) EXEMPTIONS.—The Board may, by regulation or order,
exempt specific mortgage products or categories of mortgages
from any or all of the prohibitions specified in subsections (c)
through (i), if the Board finds that the exemption—
(A) is in the interest of the borrowing public; and
(B) will apply only to products that maintain and
strengthen home ownership and equity protection.
(2) PROHIBITIONS.—The Board, by regulation or order,
shall prohibit acts or practices.in connection with—
(A) mortgage loans that the Board finds to be unfair,
deceptive, or designed to evade the provisions of this section; and
(B) refinancing of mortgage loans that the Board finds
to be associated with abusive lending practices, or that are
otherwise not in the interest of the borrower.
§ 130- [15 U.S.C. 1640] Civil liability
(a) Except as otherwise provided in this section, any creditor
who fails to comply with any requirement imposed under this chapter, including any requirement under section 125, or chapter 4 or
5 of this title with respect to any person is liable to such person
in an amount equal to the sum of—




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162

(1) any actual damage sustained by such person as a result
of the failure;
(2)(A)(i) in the case of an individual action twice the
amount of any finance charge in connection with the transaction, or (ii) in the case of an individual action relating to a
consumer lease under chapter 5 of this title, 25 per centum of
the total amount of monthly payments under the lease, except
that the liability under this subparagraph shall not be less
than $100 nor greater than $1,000; or
(B) in the case of a class action, such amount as the court
may allow, except that as to each member of the class no minimum recovery snail be applicable, and the total recovery under
this subparagraph in any class action or series of class actions
arising out of the same failure to comply by the same creditor
shall not be more than the lesser of $500,000 or 1 per centum
of the net worth of the creditor;
(3) in the case of any successful action to enforce the foregoing liability or in any action in which a person is determined
to have a right of rescission under section 125, the costs of the
action, together with a reasonable attorney's fee as determined
by the court; and
(4) in the case of a failure to comply with any requirement
under section 129, an amount equal to the sum of all finance
charges and fees paid by the consumer, unless the creditor
demonstrates that the failure to comply is not material.
In determining the amount of award in any class action, the court
shall consider, among other relevant factors, the amount of any actual damages awarded, the frequency and persistence of failures of
compliance by the creditor, the resources of the creditor, the number of persons adversely affected, and the extent to which the creditor's failure of compliance was intentional. In connection with the
disclosures referred to in subsection (a) and (b) of section 127, a
creditor shall have a liability determined under paragraph (2) only
for failing to comply with the requirements of section 125, section
127(a), or of paragraph (4), (5), (6), (7), (8), (9), or (10) of section
127(b) or for failing to comply with disclosure requirements under
State law for any term or item which the Board has determined to
be substantially the same in meaning under section 111(a)(2) as
any of the terms or items referred to in section 127(a) or any of
those paragraphs of section 127(b). In connection with the disclosures referred to in subsection (c) or (d) of section 127, a card issuer shall have a liability under this section only to a cardholder
who pays a fee described in section 127(c)(l)(A)(ii)(I) or section
127(c)(4)(A)(i) or who uses the credit card or charge card. In connection with the disclosures referred to in section 128, a creditor
shall have a liability determined under paragraph (2) only for failing to comply with the requirements of section 125 or of paragraph
(2) (insofar as it requires a disclosure of the "amount financecr),
(3), (4), (5), (6), or (9) of section 128(a), or for failing to comply with
disclosure requirements under State law for any term which the
Board has determined to be substantially the same in meaning
under section 111(a)(2) as any of the terms referred to in any of
those paragraphs of section 128(a). With respect to any failure to
make disclosures required under this chapter or chapter 4 or 5 of




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this title, liability shall be imposed only upon the creditor required
to make disclosure, except as provided in section 131.
(b) A creditor or assignee has no liability under this section or
section 108 or section 112 for any failure to comply with any requirement imposed under this chapter or chapter 5, if within sixty
days after discovering an error, whether pursuant to a final written
examination report or notice issued under section 108(e)(1) or
through the creditor's or assignee's own procedures, and prior to
the institution of an action under this section or the receipt of written notice of the error from the obligor, the creditor or assignee notifies the person concerned of the error and makes whatever adjustments in the appropriate account are necessary to assure that the
person will not be required to pay an amount in excess of the
charge actually disclosed, or the dollar equivalent of the annual
percentage rate actually disclosed, whichever is lower.
(c) A creditor or assignee may not be held liable in any action
brought under this section or section 125 for a violation of this title
if the creditor or assignee shows by a preponderance of evidence
that the violation was not intentional and resulted from a bona fide
error notwithstanding the maintenance of procedures reasonably
adapted to avoid any such error. Examples of a bona fide error include, but are not limited to, clerical, calculation, computer malfunction and programing, and printing errors, except that an error
of legal judgment with respect to a person's obligations under this
title is not a bona fide error.
(d) When there are multiple obligors in a consumer credit
transaction or consumer lease, there shall be no more than one recovery of damages under subsection (a)(2) for a violation of this
title.
(e) Any action under this section may be brought in any United
States district court, or in any other court of competent
juridisdiction, within one year from the date of the occurrence of
the violation. This subsection does not bar a person from asserting
a violation of this title in an action to collect the debt which was
brought more than one year from the date of the occurrence of the
violation as a matter of defense by recoupment or set-off in such
action, except as otherwise provided by State law. An action to enforce a violation of section 129 may also be brought by the appropriate State attorney general in any appropriate United States district court, or any other court of competent jurisdiction, not later
than 3 years after the date on which the violation occurs. The State
attorney general shall provide prior written notice of any such civil
action to the Federal agency responsible for enforcement under section 108 and shall provide the agency with a copy of the complaint.
If prior notice is not feasible, the State attorney general shall provide notice to such agency immediately upon instituting the action.
The Federal agency may—
(1) intervene in the action;
(2) upon intervening—
(A) remove the action to the appropriate United States
district court, if it was not originally brought there; and
(B) be heard on all matters arising in the action; and
(3) file a petition for appeal.




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164

(£) No provision of this section, section 108(b), section 108(c),
section 108(e), or section 112 imposing any liability shall apply to
any act done or omitted in good faith in conformity with any rule,
regulation, or interpretation thereof by the Board or in conformity
with any interpretation or approval by an official or employee of
the Federal Reserve System duly authorized by the Board to issue
such interpretations or approvals under such procedures as the
Board may prescribe therefor, notwithstanding that after such act
or omission has occurred, such rule, regulation, interpretation, or
approval is amended, rescinded, or determined by judicial or other
authority to be invalid for any reason.
(g) The multiple failure to disclose to any person any information required under this chapter or chapter 4 or 5 of this title to
be disclosed in connection with a single account under an open end
consumer credit plan, other single consumer credit sale, consumer
loan, consumer lease, or other extension of consumer credit, shall
entitle the person to a single recovery under this section but continued failure to disclose after a recovery has been granted shall
give rise to rights to additional recoveries. This subsecton does not
bar any remedy permitted by section 125.
(h) A person may not take any action to offset any amount for
which a creditor or asignee is potentially liable to such person
under subsection (a)(2) against any amount owed by such person,
unless the amount of the creditor's or assignee's liability under this
title has been determined by judgment of a court of competent jurisdiction in an action of which such person was a party. This subsection does not bar a consumer then in default on the obligation
from asserting a violation of this title as an original action, or as
a defense or counterclaim to an action to collect amounts owed by
the consumer brought by a person liable under this title.
§ 131. [15 U.S.C. 1641] Liability of assignees
(a) Except as otherwise specifically provided in this title, any
civil action for a violation of this title or proceeding under section
108 which may be brought against a creditor may be maintained
against any assignee of such creditor only if the violation for which
such action or proceeding is brought is apparent on the face of the
disclosure statement, except where the assignment was involuntary. For the purpose of this section, a violation apparent on the
face of the disclosure statement includes, but is not limited to (1)
a disclosure which can be determined to be incomplete or inaccurate from the face of the disclosure statement or other documents
assigned, or (2) a disclosure which does not use the terms required
to be used by this title.
(b) Except as provided in section 125(c), in any action or proceeding by or against any subsequent assignee of the original creditor without knowledge to the contrary by the assignee when he acquires the obligation, written acknowledgement of receipt by a person to whom a statement is required to be given pursuant to this
title shall be conclusive proof of the delivery thereof and, except as
provided in subsection (a), of compliance with this chapter. This
section does not affect the rights of the obligor in any action
against the original creditor.




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Sec. 133

(c) Any consumer who has the right to rescind a transaction
under section 125 may rescind the transaction as against any assignee of the obligation.
(d) RIGHTS UPON ASSIGNMENT OF CERTAIN MORTGAGES.—

(1) IN GENERAL.—Any person who purchases or is otherwise assigned a mortgage referred to in section 103(aa) shall
be subject to all claims and defenses with respect to that mortgage that the consumer could assert against the creditor of the
mortgage, unless the purchaser or assignee demonstrates, by a
preponderance of the evidence, that a reasonable person exercising ordinary due diligence, could not determine, based on
the documentation required by this title, the itemization of the
amount financed, and other disclosure of disbursements that
the mortgage was a mortgage referred to in section 103(aa).
The preceding sentence does not affect rights of a consumer
under subsection (a), (b), or (c) of this section or any other provision of this title.
(2) LIMITATION ON DAMAGES.—Notwithstanding any other
provision of law, relief provided as a result of any action made
permissible by paragraph (1) may not exceed—
(A) with respect to actions based upon a violation of
this title, the amount specified in section 130; and
(B) with respect to all other causes of action, the sum
of—
(i) the amount of all remaining indebtedness; and
(ii) the total amount paid by the consumer in connection with the transaction.
(3) OFFSET.—The amount of damages that may be awarded under paragraph (2)(B) shall be reduced by the amount of
any damages awarded under paragraph (2)(A).
(4) NOTICE.—Any person who sells or otherwise assigns a
mortgage referred to in section 103(aa) shall include a prominent notice of the potential liability under this subsection as
determined by the Board.
§ 132. [15 U.S.C. 1642] Issuance of credit cards
No credit card shall be issued except in response to a request
or application therefor. This prohibition does not apply to the issuance of a credit card in renewal of, or in substitution for, an accepted credit card.
§ 133. [15 U.S.C. 1643] Liability of holder of credit card
(a)(1) A cardholder shall be liable for the unauthorized use of
a credit card only if—
(A) the card is an accepted credit card;
(B) the liability is not in excess of $50;
(C) the card issuer give adequate notice to the cardholder
of the potential liability;
(D) the card issuer has provided the cardholder with a description of a means by which the card issuer may be notified
of loss or theft of the card, which description may be provided
on the face or reverse side of the statement required by section
127(b) or on a separate notice accompanying such statement;




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166

(E) the unauthorized use occurs before the card issuer has
been notified that an unauthorized use of the credit card has
occurred or may occur as the result of loss, theft, or otherwise;
and
(F) the card issuer has provided a method whereby the
user of such card can be identified as the person authorized to
use it.
(2) For purposes of this section, a card issuer has been notified
when such steps as may be reasonably required in the ordinary
course of business to provide the card issuer with the pertinent information have been taken, whether or not any particular officer,
employee, or agent of the card issuer does in fact receive such information.
(b) In any action by a card issuer to enforce liability for the use
of a credit card, the burden of proof is upon the card issuer to show
that the use was authorized or, if the use was unauthorized, then
the burden of proof is upon the card issuer to show that the conditions of liability for the unauthorized use of a credit card, as set
forth in subsection (a), have been met.
(c) Nothing in this section imposes liability upon a cardholder
for the unauthorized use of a credit card in excess of his liability
for such use under other applicable law or under any agreement
with the card issuer.
(d) Except as provided in this section, a cardholder incurs no
liability from the unauthorized use of a credit card.
§ 134. [15 U.S.C. 1644] Fraudulent use of credit card
(a) Whoever knowingly in a transaction affecting interstate or
foreign commerce, uses or attempts or conspires to use any counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained credit card to obtain money, goods, services, or anything else
of value which within any one-year period has a value aggregating
$1,000 or more; or
(b) Whoever, with unlawful or fraudulent intent, transports or
attempts or conspires to transport in interstate or foreign commerce a counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained credit card knowing the same to be counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained; or
(c) Whoever, with unlawful or fraudulent intent, uses any instrumentality of interstate or foreign commerce to sell or transport
a counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently
obtained credit card knowing the same to be counterfeit, fictitious,
altered, forged, lost, stolen, or fraudulently obtained; or
(d) Whoever knowingly receives, conceals, uses, or transports
money, goods, services, or anything else of value (except tickets for
interstate or foreign transportation) which (1) within any one-year
period has a value aggregating $1,000 or more, (2) has moved in
or is part of, or which constitutes interstate or foreign commerce,
and (3) has been obtained with a counterfeit, fictitious, altered,
forged, lost, stolen, or fraudulently obtained credit card; or
(e) Whoever knowingly receives, conceals, uses, sells, or transports in interstate or foreign commerce one or more tickets for
interstate or foreign transportation, which (1) within any one-year
period have a value aggregating $500 or more, and (2) have Been




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Sec. 136

purchased or obtained with one or more counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained credit cards; or
(f) Whoever in a transaction affecting interstate or foreign commerce furnishes money, property, services, or anything else of
value, which within any one-year period has a value aggregating
$1,000 or more, through the use of any counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained credit card
knowing the same to be counterfeit, fictitious, altered, forged, lost,
stolen, or fraudulently obtained—
shall be fined not more than $10,000 or imprisoned not more than
ten years, or both.
§ 135. [15 U.S.C. 1645] Business credit cards
The exemption provided by section 104(1) does not apply to the
provisions of sections 132, 133, and 134, except that a card issuer
and a business or other organization which provides credit cards issued by the same card issuer to ten or more of its employees may
by contract agree as to liability of the business or other organization with respect to unauthorized use of such credit cards without
regard to the provisions of section 133, but in no case may such
business or other organization or card issuer impose liability upon
any employee with respect to unauthorized use of such a credit
card except in accordance with and subject to the limitations of section 133.
§ 136. [15 U.S.C. 1646] Dissemination of annual percentage
rates
(a) The Board shall collect, publish, and disseminate to the
public, on a demonstration basis in a number of standard metropolitan statistical areas to be determined by the Board, the annual
percentage rates charged for representative types of nonsale credit
by creditors in such areas. For the purpose of this section, the
Board is authorized to require creditors in such areas to furnish information necessary for the Board to collect, publish, and disseminate such information.
(b) CREDIT CARD PRICE AND AVAILABILITY INFORMATION.—
(1) COLLECTION REQUIRED.—The Board shall collect,

on a
semiannual basis, credit card price and availability information, including the information required to be disclosed under
section 127(c) of this chapter, from a broad sample of financial
institutions which offer credit card services.
(2) SAMPLE REQUIREMENTS.—The broad sample of financial
institutions required under paragraph (1) shall include—
(A) the 25 largest issuers of credit cards; and
(B) not less than 125 additional financial institutions
selected by the Board in a manner that ensures—
(i) an equitable geographical distribution within
the sample; and
(ii) the representation of a wide spectrum of institutions within the sample.
(3) REPORT OP INFORMATION PROM SAMPLE.—Each financial
institution in the broad sample established pursuant to paragraph (2) shall report the information to the Board in accord-




TRUTH IN LENDING ACT

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168

ance with such regulations or orders as the Board may prescribe.
(4) PUBLIC AVAILABILITY OF COLLECTED INFORMATION, REPORT TO CONGRESS.—The Board shall—

(A) make the information collected pursuant to this
subsection available to the public upon request; and
(B) report such information semiannually to Congress.
(c) The Board is authorized to enter into contracts or other arrangements with appropriate persons, organizations, or State agencies to carry out its functions under subsections (a) and (b) and to
furnish financial assistance in support thereof.
SEC. 137. [15 U.S.C. 1648] HOME EQUITY PLANS.
(a) INDEX REQUIREMENT.—In the case of

extensions of credit
under an open end consumer credit plan which are subject to a
variable rate and are secured by a consumer's principal dwelling,
the index or other rate of interest to which changes in the annual
percentage rate are related shall be based on an index or rate of
interest which is publicly available and is not under the control of
the creditor.
(b) GROUNDS FOR ACCELERATION OF OUTSTANDING BALANCE.—

A creditor may not unilaterally terminate any account under an
open end consumer credit plan under which extensions of credit are
secured by a consumer's principal dwelling and require the immediate repayment of any outstanding balance at such time, except in
the case of—
(1) fraud or material misrepresentation on the part of the
consumer in connection with the account;
(2) failure by the consumer to meet the repayment terms
of the agreement for any outstanding balance; or
(3) any other action or failure to act by the consumer
which adversely affects the creditor's security for the account
or any right of the creditor in such security.
This subsection does not apply to reverse mortgage transactions.
(c) CHANGE IN TERMS.—

(1) IN GENERAL.—No open end consumer credit plan under
which extensions of credit are secured by a consumer's principal dwelling may contain a provision which permits a creditor to change unilaterally any term required to be disclosed
under section 127A(a) or any other term, except a change in insignificant terms such as the address of the creditor for billing
purposes.
(2) CERTAIN CHANGES NOT PRECLUDED.—Notwithstanding

the provisions of subsection (1) 1 , a creditor may make any of
the following changes:
(A) Change the index and margin applicable to extensions of credit under such plan if the index used by the
creditor is no longer available and the substitute index and
margin would result in a substantially similar interest
rate.
(B) Prohibit additional extensions of credit or reduce
the credit limit applicable to an account under the plan
during any period in which the value of the consumer's
1

So in original. Probably should be "paragraph (1)".




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Sec. 137

principal dwelling which secures any outstanding balance
is significantly less than the original appraisal value of the
dwelling.
(C) Prohibit additional extensions of credit or reduce
the credit limit applicable to the account during any period
in which the creditor has reason to believe that the
consumer will be unable to comply with the repayment requirements of the account due to a material change in the
consumer's financial circumstances.
(D) Prohibit additional extensions of credit or reduce
the credit limit applicable to the account during any period
in which the consumer is in default with respect to any
material obligation of the consumer under the agreement.
(E) Prohibit additional extensions of credit or reduce
the credit limit applicable to the account during any period
in which—
(i) the creditor is precluded by government action
from imposing the annual percentage rate provided for
in the account agreement; or
(ii) any government action is in effect which adversely affects the priority of the creditor's security interest in the account to the extent that the value of
the creditor's secured interest in the property is less
than 120 percent of the amount of the credit limit applicable to the account.
(F) Any change that will benefit the consumer.
(3) MATERIAL OBLIGATIONS.—Upon the request of the
consumer and at the time an agreement is entered into by a
consumer to open an account under an open end consumer
credit plan under which extensions of credit are secured by the
consumer's principal dwelling, the consumer shall be given a
list of the categories of contract obligations which are deemed
by the creditor to be material obligations of the consumer
under the agreement for purposes of paragraph (2)(D).
(4) CONSUMER BENEFIT.—

(A) IN GENERAL.—For purposes of paragraph (2)(F), a
change shall be deemed to benefit the consumer if the
change is unequivocally beneficial to the borrower and the
change is beneficial through the entire term of the
agreement.
(B) BOARD CATEGORIZATION.—The Board may, by regulation, determine categories of changes that benefit the
consumer.
(d) TERMS CHANGED AFTER APPLICATION.—If any term or condition described in section 127A(a) which is disclosed to a consumer
in connection with an application to open an account under an open
end consumer credit plan described in such section (other than a
variable feature of the plan) changes before the account is opened,
and if, as a result of such change, the consumer elects not to enter
into the plan agreement, the creditor shall refund all fees paid by
the consumer in connection with such application.
(e) ADDITIONAL REQUIREMENTS RELATING TO REFUNDS AND IMPOSITION OF NONREFUNDABLE FEES.—




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170

(1) IN GENERAL.—No nonrefundable fee may be imposed by
a creditor or any other person in connection with any application by a consumer to establish an account under any open end
consumer credit plan which provides for extensions of credit
which are secured by a consumer's principal dwelling before
the end of the 3-day period beginning on the date such
consumer receives the disclosure required under section
127A(a) and the pamphlet required under section 127A(e) with
respect to such application.
(2) CONSTRUCTIVE RECEIPT.—For purposes of determining
when a nonrefundable fee may be imposed in accordance with
this subsection if the disclosures and pamphlet referred to in
paragraph (1) are mailed to the consumer, the date of the receipt of the disclosures by such consumer shall be deemed to
be 3 business days after the date of mailing by the creditor.
SEC. 138. [15 U.S.C. 1648] REVERSE MORTGAGES.

(a) IN GENERAL.—In addition to the disclosures required under
this title, for each reverse mortgage, the creditor shall, not less
than 3 days prior to consummation of the transaction, disclose to
the consumer in conspicuous type a good faith estimate of the projected total cost of the mortgage to the consumer expressed as a
table of annual interest rates. Each annual interest rate shall be
based on a projected total future credit extension balance under a
projected appreciation rate for the dwelling and a term for the
mortgage. The disclosure shall include—
(1) statements of the annual interest rates for not less
than 3 projected appreciation rates and not less than 3 credit
transaction periods, as determined by the Board, including—
(A) a short-term reverse mortgage;
(B) a term equaling the actuarial life expectancy of the
consumer; and
(C) such longer term as the Board deems appropriate;
and
(2) a statement that the consumer is not obligated to complete the reverse mortgage transaction merely because the
consumer has received the disclosure required under this section or has signed an application for the reverse mortgage.
(b) PROJECTED TOTAL COST.—In determining the projected
total cost of the mortgage to be disclosed to the consumer under
subsection (a), the creditor shall take into account—
(1) any shared appreciation or equity that the lender will,
by contract, be entitled to receive;
(2) all costs and charges to the consumer, including the
costs of any associated annuity that the consumer elects or is
required to purchase as part of the reverse mortgage transaction;
(3) all payments to and for the benefit of the consumer, including, in the case in which an associated annuity is purchased (whether or not required by the lender as a condition
of making the reverse mortgage), the annuity payments received by the consumer and financed from the proceeds of the
loan, instead of the proceeds used to finance the annuity; and




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Sec. 144

(4) any limitation on the liability of the consumer under
reverse mortgage transactions (such as nonrecourse limits and
equity conservation agreements).
CHAPTER 3—CREDIT ADVERTISING
Sec.
141.
142.
143.
144.
145.
146.
147.

Catalogs and multiple-page advertisements.
Advertising of downpayments and installments.
Advertising of open end credit plans.
Advertising of credit other than open end plans.
Nonliability of media.
Use of annual percentage rate in oral disclosures.
Advertising of open end consumer credit plans secured by the consumer's principal dwelling.

§ 141. [15 U.S.C. 1661] Catalogs and multiple-page advertisements
For the purposes of this chapter, a catalog or other multiplepage advertisement shall be considered a single advertisement if it
clearly and conspicuously displays a credit terms table on which
the information required to be stated under this chapter is clearly
set forth.
§ 142, [15 U.S.C. 1662] Advertising of downpayments and installments
No advertisement to aid, promote, or assist directly or indirectly any extension of consumer credit may state
(1) that a specific periodic consumer credit amount or installment amount can be arranged, unless the creditor usually
and customarily arranges credit payments or installments for
that period and in that amount.
(2) that a specified downpayment is required in connection
with any extension of consumer credit, unless the creditor usually and customarily arranges downpayments in that amount.
§ 143. [15 U.S.C. 1663] Advertising of open end credit plans
No advertisement to aid, promote, or assist directly or indirectly the extension of consumer credit under an open end credit
plan may set forth any of the specific terms of that plan unless it
also clearly and conspicuouly sets forth all of the following items:
(1) Any minimum or fixed amount which could be imposed.
(2) In any case in which periodic rates may be used to
compute the finance charge, the periodic rates expressed as annual percentage rates.
(3) Any other term that the Board may by regulation require to be disclosed.
§ 144. [15 U.S.C. 1664] Advertising of credit other than open
end plans
(a) Except as provided in subsection (b), this section applies to
any advertisement to aid, promote, or assist directly or indirectly
any consumer credit sale, loan, or other extension of credit subject
to the provisions of this title, other than an open end credit plan.




Sec. 145

TRUTH IN LENDING ACT

172

(b) The provisions of this section do not apply to advertisements of residential real estate except to the extent that the Board
may by regulation require.
(c) If any advertisement to which this section applies states the
rate of a finance charge, the advertisement shall state the rate of
that charge expressed as an annual percentage rate.
(d) If any advertisement to which this section applies states
the amount of the downpayment, if any, the amount of any installment payment, the dollar amount of any finance charge, or the
number of installments or the period of repayment, then the advertisement shall state all of the following items:
(1) The downpayment, if any.
(2) The terms of repayment.
(3) The rate of the finance charge expressed as an annual
percentage rate.
§ 145. [15 U.S.C. 1665] Nonliability of media
There is no liability under this chapter on the part of any
owner or personnel, as such, of any medium in which an advertisement appears or through which it is disseminated.
§146. [15 U.S.C. 1665a] Use of annual percentage rate in
oral disclosures
In responding orally to any inquiry about the cost of credit, a
creditor, regardless of the method used to compute finance charges,
shall state rates only in terms of the annual percentage rate, except that in the case of an open end credit plan, the periodic rate
also may be stated and, in the case of an other than open end credit plan where a major component of the finance charge consists of
interest computed at a simple annual rate, the simple annual rate
also may be stated. The Board may, by regulation, modify the requirements of this section or provide an exception from this section
for a transaction or class of transactions for which the creditor cannot determine in advance the applicable annual percentage rate.
SEC. 147. [15 U.S.C. 1665b] ADVERTISING OF OPEN END CONSUMER
CREDIT PLANS SECURED BY THE CONSUMER'S PRINCIPAL DWELLING.

(a) IN GENERAL.—If any advertisement to aid, promote, or assist, directly or indirectly, the extension of consumer credit through
an open end consumer credit plan under which extensions of credit
are secured by the consumer's principal dwelling states, affirmatively or negatively, any of the specific terms of the plan, including
any periodic payment amount required under such plan, such advertisement shall also clearly and conspicuously set forth the following information, in such form and manner as the Board may require:
(1) LOAN PEES AND OPENING COST ESTIMATES.—Any loan
fee the amount of which is determined as a percentage of the
credit limit applicable to an account under the plan and an estimate of the aggregate amount of other fees for opening the
account, based on the creditor's experience with the plan and
stated as a single amount or as a reasonable range.




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(2) PERIODIC RATES.—In any case in which periodic rates
may be used to compute the finance charge, the periodic rates
expressed as an annual percentage rate.
(3) HIGHEST ANNUAL PERCENTAGE RATE.—The highest annual percentage rate which may be imposed under the plan.
(4) OTHER INFORMATION.—Any other information the
Board may by regulation require.
(b) TAX DEDUCTIBILITY.—If any advertisement described in
subsection (a) contains a statement that any interest expense
incurred with respect to the plan is or may be tax deductible, the
advertisement shall not be misleading with respect to such
deductibility.
(c) CERTAIN TERMS PROHIBITED.—No advertisement described
in subsection (a) with respect to any home equity account may refer
to such loan as "free money" or use other terms determined by the
Board by regulation to be misleading.
(d) DISCOUNTED INITIAL RATE.—

(1) IN GENERAL.—If any advertisement described in subsection (a) includes an initial annual percentage rate that is
not determined by the index or formula used to make later interest rate adjustments, the advertisement shall also state
with equal prominence the current annual percentage rate that
would have been applied using the index or formula if such initial rate had not been offered.
(2) QUOTED RATE MUST BE REASONABLY CURRENT.—The an-

nual percentage rate required to be disclosed under the paragraph (1) rate must be current as of a reasonable time given
the media involved.
(3) PERIOD DURING WHICH INITIAL RATE IS IN EFFECT.—Any

advertisement to which paragraph (1) applies shall also state
the period of time during which the initial annual percentage
rate referred to in such paragraph will be in effect.
(e) BALLOON PAYMENT.—If any advertisement described in subsection (a) contains a statement regarding the minimum monthly
payment under the plan, the advertisement shall also disclose, if
applicable, the fact that the plan includes a balloon payment.
(f) BALLOON PAYMENT DEFINED.—For purposes of this section
and section 12 7A, the term "balloon payment" means, with respect
to any open end consumer credit plan under which extensions of
credit are secured by the consumer s principal dwelling, any repayment option under which—
(1) the account holder is required to repay the entire
amount of any outstanding balance as of a specified date or at
the end of a specified period of time, as determined in accordance with the terms of the agreement pursuant to which such
credit is extended; and
(2) the aggregate amount of the minimum periodic payments required would not fully amortize such outstanding balance by such date or at the end of such period.
CHAPTER 4—CREDIT BILLING
Sec.
161. Correction of billing errors.
162. Regulation of credit reports.




Sec. 161
163.
164.
165.
166.
167.
168.
169.
170.
171.

TRUTH IN LENDING ACT

14
7

Length of billing period.
Prompt crediting of payments.
Treatment of credit balances.
Prompt notification of returns.
Use of cash discounts.
Prohibition of tie-in services.
Prohibition of offsets.
Rights of credit card customers.
Relation to State laws.

§ 161. [15 U.S.C. 16661 Correction of billing errors
(a) If a creditor, within sixty days after having transmitted to
an obligor a statement of the obligor's account in connection with
an extension of consumer credit, receives at the address disclosed
under section 127(b)(10) a written notice (other than notice on a
payment stub or other payment medium supplied by the creditor
if the creditor so stipulates with the disclosure required under section 127(a)(7)) from the obligor in which the obligor—
(1) sets forth or otherwise enables the creditor to identify
the name and account number (if any) of the obligor,
(2) indicates the obligor's belief that the statement contains a billing error and the amount of such billing error, and
(3) sets forth the reasons for the obligor's belief (to the extent applicable) that the statement contains a billing error,
the creditor shall, unless the obligor has, after giving such written
notice and before the expiration of the time limits herein specified,
agreed that the statement was correct—
(A) not later than thirty days after the receipt of the notice, send a written acknowledgement thereof to the obligor,
unless the action required in subparagraph (B) is taken witnin
such thirty-day period, and
(B) not later than two complete billing cycles of the creditor (in no event later than ninety days) after the receipt of the
notice and prior to taking any action to collect the amount, or
any part thereof, indicated by the obligor under paragraph (2)
either—
(i) make appropriate corrections in the account of the
obligor, including tne crediting of any finance charges on
amounts erroneously billed, and transmit to the obligor a
notification of such corrections and the creditor's explanation of any change in the amount indicated by the obligor under paragraph (2) and, if any such change is made
and the obligor so requests, copies of documentary evidence of the obligor's indebtedness; or
(ii) send a written explanation or clarification to the
obligor, after having conducted an investigation, setting
forth to the extent applicable the reasons why the creditor
believes the account of the obligor was correctly shown in
the statement and, upon request of the obligor, provide
copies of documentary evidence of the obligor s indebtedness. In the case of a billing error where the obligor alleges
that the creditor's billing statement reflects goods not delivered to the obligor or his designee in accordance with
the agreement made at the time of the transaction, a creditor may not construe such amount to be correctly shown
unless he determines that such goods were actually deliv-




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Sec. 161

ered, mailed, or otherwise sent to the obligor and provides
the obligor with a statement of such determination.
After complying with the provisions of this subsection with respect
to an alleged billing error, a creditor has no further responsibility
under this section if the obligor continues to make substantially the
same allegation with respect to such error.
(b) For the purpose of this section, a "billing error" consists of
any of the following:
(1) A reflection on a statement of an extension of credit
which was not made to the obligor or, if made, was not in the
amount reflected on such statement.
(2) A reflection on a statement of an extension of credit for
which the obligor requests additional clarification including
documentary evidence thereof.
(3) A reflection on a statement of goods or services not accepted by the obligor or his designee or not delivered to the obligor or his designee in accordance with the agreement made
at the time of a transaction.
(4) The creditor's failure to reflect properly on a statement
a payment made by the obligor or a credit issued to the obligor.
(5) A computation error or similar error of an accounting
nature of the creditor on a statement.
(6) Failure to transmit the statement required under section 127(b) of this Act to the last address of the obligor which
has been disclosed to the creditor, unless that address was furnished less than twenty days before the end of the billing cycle
for which the statement is required.
(7) Any other error described in regulations of the Board.
(c) For the purposes of this section, "action to collect the
amount, or any part thereof, indicated by an obligor under paragraph (2)" does not include the sending of statements of account,
which may include finance charges on amounts in dispute, to the
obligor following written notice from the obligor as specified under
subsection (a), if—
(1) the obligor's account is not restricted or closed because
of the failure of the obligor to pay the amount indicated under
paragraph (2) of subsection (a), and
(2) the creditor indicates the payment of such amount is
not required pending the creditor's compliance with this section.
Nothing in this section shall be construed to prohibit any action by
a creditor to collect any amount which has not been indicated by
the obligor to contain a billing error.
(d) Pursuant to regulations of the Board, a creditor operating
an open end consumer credit plan may not, prior to the sending of
the written explanation or clarification required under paragraph
(B)(ii), restrict or close an account with respect to which the obligor
has indicated pursuant to subsection (a) that he believes such account to contain a billing error solely because of the obligor's failure to pay the amount indicated to be in error. Nothing in this subsection shall be deemed to prohibit a creditor from applying against
the credit limit on the obligor's account the amount indicated to be
in error.




Sec. 162

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176

(e) Any creditor who fails to comply with the requirements of
this section or section 162 forfeits any right to collect from the obligor the amount indicated by the obligor under paragraph (2) of
subsection (a) of this section, and any finance charges thereon, except that the amount required to be forfeited under this subsection
may not exceed $50.
§ 162. [15 U.S.C. 1666a] Regulation of credit reports
(a) After receiving a notice from an obligor as provided in section 161(a), a creditor or his agent may not directly or indirectly
threaten to report to any person adversely on the obligor's credit
rating or credit standing because of the obligor's failure to pay the
amount indicated by the obligor under section 161(a)(2), and such
amount may not be reported as delinquent to any third party until
the creditor has met the requirements of section 161 and has allowed the obligor the same number of days (not less than ten)
thereafter to make payment as is provided under the credit agreement with the obligor for the payment of undisputed amounts.
(b) If a creditor receives a further written notice from an obligor that an amount is still in dispute within the time allowed for
payment under subsection (a) of this section, a creditor may not report to any third party that the amount of the obligor is delinquent
because the obligor has failed to pay an amount which he has indicated under section 161(a)(2), unless the creditor also reports that
the amount is in dispute and, at the same time, notifies the obligor
of the name and address of each party to whom the creditor is reporting information concerning the delinquency.
(c) A creditor shall report any subsequent resolution of any delinquencies reported pursuant to subsection (b) to the parties to
whom such delinquencies were initially reported.
§ 163. [15 U.S.C. 1666b] Length of billing period
(a) If an open end consumer credit plan provides a time period
within which an obligor may repay any portion of the credit extended without incurring an additional finance charge, such additional finance charge may not be imposed with respect to such portion of the credit extended for the billing cycle of which such period
is a part unless a statement which includes the amount upon
which the finance charge for that period is based was mailed at
least fourteen days prior to the date specified in the statement by
which payment must be made in order to avoid imposition of that
finance charge.
(b) Subsection (a) does not apply in any case where a creditor
has been prevented, delayed, or hindered in making timely mailing
or delivery of such periodic statement within the time period specified in such subsection because of an act of God, war, natural disaster, strike, or other excusable or justifiable cause, as determined
under regulations of the Board.
§ 164. [15 U.S.C. 1666c] Prompt crediting of payments
Payments received from an obligor under an open end
consumer credit plan by the creditor shall be posted promptly to
the obligor's account as specified in regulations of the Board. Such
regulations shall prevent a finance charge from being imposed on




177

TRUTH IN LENDING ACT

Sec. 167

any obligor if the creditor has received the obligor's payment in
readily identifiable form in the amount, manner, location, and time
indicated by the creditor to avoid the imposition thereof.
§ 165. [15 U.S.C. 1666d] Treatment of credit balances
Whenever a credit balance in excess of $1 is created in connection with a consumer credit transaction through (1) transmittal of
funds to a creditor in excess of the total balance due on an account,
(2) rebates of unearned finance charges or insurance premiums, or
(3) amounts otherwise owed to or held for the benefit of an obligor,
the creditor shall—
(A) credit the amount of the credit balance to the consumer's account;
(B) refund any part of the amount of the remaining credit
balance, upon request of the consumer; and
(C) make a good faith effort to refund to the consumer by
cash, check, or money order any part of the amount of the
credit balance remaining in the account for more than six
months, except that no further action is required in any case
in which the consumer's current location is not known by the
creditor and cannot be traced through the consumer's last
known address or telephone number.
§ 166. [15 U.S.C. 1666e] P r o m p t notification of r e t u r n s
With respect to any sales transaction where a credit card has
been used to obtain credit, where the seller is a person other than
the card issuer, and where the seller accepts or allows a return of
the goods or forgiveness of a debit for services which were the subject of such sale, the seller shall promptly transmit to the credit
card issuer, a credit statement with respect thereto and the credit
card issuer shall credit the account of the obligor for the amount
of the transaction.
§ 167. [15 U.S.C. 1666f] Use of cash discounts
(a)(1) With respect to a credit card which may be used for extensions of credit in sales transaction in which the seller is a person other than the card issuer, the card issuer may not, by contract
or otherwise, prohibit any such seller from offering a discount to
a cardholder to induce the cardholder to pay by cash, check, or
similar means rather than use a credit card.
(2)* No seller in any sales transaction may impose a surcharge
on a cardholder who elects to use a credit card in lieu of payment
by cash, check, or similar means.
(b) With respect to any sales transaction, any discount not in
excess of 5 per centum offered by the seller for the purpose of inducing payment by cash, check, or other means not involving the
use of a credit card shall not constitute a finance charge as determined under section 106, if such discount is offered to all prospective buyers and its availability is disclosed to all prospective buyers
clearly and conspicuously in accordance with regulations of the
Board.
1

This paragraph ceased to be effective on February 27, 1984.




Sec. 168

TRUTH IN LENDING ACT

178

§ 168. [15 U.S.C. 1666g] Prohibition of tie-in services
Notwithstanding any agreement to the contrary, a card issuer
may not require a seller, as a condition to participating in a credit
card plan, to open an account with or procure any other service
from the card issuer or its subsidiary or agent.
§ 169. [15 U.S.C. 1666h] Prohibition of offsets
(a) A card issuer may not take any action to offset a cardholder's indebtedness arising in connection with a consumer credit
transaction under the relevant credit card plan against funds of the
cardholder held on deposit with the card issuer unless—
(1) such action was previously authorized in writing by the
cardholder in accordance with a credit plan whereby the cardholder agrees periodically to pay debts incurred in his open end
credit account by permitting the card issuer periodically to deduct all or a portion of such debt from the cardholder's deposit
account, and
(2) such action with respect to any outstanding disputed
amount not be taken by the card issuer upon request of the
cardholder.
In the case of any credit card account in existence on the effective
date of this section, the previous written authorization referred to
in clause (1) shall not be required until the date (after such effective date) when such account is renewed, but in no case later than
one year after such effective date. Such written authorization shall
be deemed to exist if the card issuer has previously notified the
cardholder that the use of his credit card account will subject any
funds which the card issuer holds in deposit accounts of such cardholder to offset against any amounts due and payable on his credit
card account which have not been paid in accordance with the
terms of the agreement between the card issuer and the cardholder.
(b) This section does not alter or affect the right under State
law of a card issuer to attach or otherwise levy upon funds of a
cardholder held on deposit with the card issuer if that remedy is
constitutionally available to creditors generally.
§ 170. [15 U.S.C. 1666i] Rights of credit card customers
(a) Subject to the limitation contained in subsection (b), a card
issuer who has issued a credit card to a cardholder pursuant to an
open end consumer credit plan shall be subject to all claims (other
than tort claims) and defenses arising out of any transaction in
which the credit card is used as a method of payment or extension
of credit if (1) the obligor has made a good faith attempt to obtain
satisfactory resolution of a disagreement or problem relative to the
transaction from the person honoring the credit card; (2) the
amount of the initial transaction exceeds $50; and (3) the place
where the initial transaction occurred was in the same State as the
mailing address previously provided by the cardholder or was within 100 miles from such address, except that the limitations set
forth in clauses (2) and (3) with respect to an obligor's right to assert claims and defenses against a card issuer shall not be applicable to any transaction in which the person honoring the credit card




TRUTH IN LENDING ACT

179

Sec. 171

(A) is the same person as the card issuer, (B) is controlled by the
card issuer, (C) is under direct or indirect common control with the
card issuer, (D) is a franchised dealer in the card issuer's products
or services, or (E) has obtained the order for such transaction
through a mail solicitation made by or participated in by the card
issuer in which the cardholder is solicited to enter into such transaction by using the credit card issued by the card issuer.
(b) The amount of claims or defenses asserted by the cardholder may not exceed the amount of credit outstanding with respect to such transaction at the time the cardholder first notifies
the card issuer or the person honoring the credit card of such claim
or defense. For the purpose of determining the amount of credit
outstanding in the preceding sentence, payments and credits to the
cardholder's account are deemed to have been applied, in the order
indicated, to the payment of: (1) late charges in the order of their
entry to the account; (2) finance charges in order of their entry to
the account; and (3) debits to the account other than those set forth
above, in the order in which each debit entry to the account was
made.
§ 171. [15 U.S.C. 1666j] Relation to State laws
(a) This chapter does not annul, alter, or affect, or exempt any
person subject to the provisions of this chapter from complying
with, the laws of any State with respect to credit billing practices,
except to the extent that those laws are inconsistent with any provision of this chapter, and then only to the extent of the inconsistency. The Board is authorized to determine whether such inconsistencies exist. The Board may not determine that any State law is
inconsistent with any provision of this chapter if the Board determines that such law gives greater protection to the consumer.
(b) The Board shall by regulation exempt from the requirements of this chapter any class of credit transactions within any
State if it determines that under the law of that State that class
of transactions is subject to requirements substantially similar to
those imposed under this chapter or that such law gives greater
protection to the consumer, and that there is adequate provision for
enforcement.
(c) Notwithstanding any other provisions of this title, any discount offered under section 167(b) of this title shall not be considered a finance charge or other charge for credit under the usury
laws of any State or under the laws of any State relating to disclosure of information in connection with credit transactions, or relating to the types, amounts or rates of charges, or to any element or
elements of charges permissible under such laws in connection with
the extension or use of credit.
CHAPTER 5—CONSUMER LEASES
Sec.
181.
182.
183.
184.
185.
186.

Definitions.
Consumer lease disclosures.
Lessee's liability on expiration or termination of lease.
Consumer lease advertising.
Civil liability.
Relation to State laws.




Sec. 181

TRUTH IN LENDING ACT

180

§ 181. [15 U.S.C. 1667] Definitions
For purposes of this chapter—
(1) The term "consumer lease" means a contract in the
form of a lease or bailment for the use of personal property by
a natural person for a period of time exceeding four months,
and for a total contractual obligation not exceeding $25,000,
primarily for personal, family, or household purposes, whether
or not the lessee has the option to purchase or otherwise become the owner of the property at the expiration of the lease,
except that such term shall not include any credit sale as defined in section 103(g). Such term does not include a lease for
agricultural, business, or commerical purposes, or to a government or governmental agency or instrumentality, or to an organization.
(2) The term "lessee" means a natural person who leases
or is offered a consumer lease.
(3) The term "lessor" means a person who is regularly engaged in leasing, offering to lease, or arranging to lease under
a consumer lease.
(4) The term "personal property" means any property
which is not real property under the laws of the State where
situated at the time offered or otherwise made available for
lease.
(5) The terms "security" and "security interest" mean any
interest in property which secures payment or performance of
an obligation.
§ 182. [15 U.S.C. 1667a] Consumer lease disclosures
Each lessor shall give a lessee prior to the consummation of
the lease a dated written statement on which the lessor and lessee
are identified setting out accurately and in a clear and conspicuous
manner the following information with respect to that lease, as applicable:
(1) A brief description or identification of the leased property;
(2) The amount of any payment by the lessee required at
the inception of the lease;
(3) The amount paid or payable by the lessee for official
fees, registration, certificate of title, or license fees or taxes;
(4) The amount of other charges payable by the lessee not
included in the periodic payments, a description of the charges
and that the lessee shall be liable for the differential, if any,
between the anticipated fair market value of the leased property and its appraised actual value at the termination of the
lease, if the lessee has such liability;
(5) A statement of the amount or method of determining
the amount of any liabilities the lease imposes upon the lessee
at the end of the term and whether or not the lessee has the
option to purchase the leased property and at what price and
time;
(6) A statement identifying all express warranties and
guarantees made by the manufacturer or lessor with respect to
the leased property, and identifying the party responsible for




181

TRUTH IN LENDING ACT

Sec. 183

maintaining or servicing the leased property together with a
description of the responsibility;
(7) A brief description of insurance provided or paid for by
the lessor or required of the lessee, including the types and
amounts of the coverages and costs;
(8) A description of any security interest held or to be retained by the lessor in connection with the lease and a clear
identification of the property to which the security interest relates;
(9) The number, amount, and due dates or periods of payments under the lease and the total amount ot such periodic
payments;
(10) Where the lease provides that the lessee shall be liable for the anticipated fair market value of the property on expiration of the lease, the fair market value of the property at
the inception of the lease, the aggregate cost of the lease on expiration, and the differential between them; and
(11) A statement of the conditions under which the lessee
or lessor may terminate the lease prior to the end of the term
and the amount or method of determining any penalty or other
charge for delinquency, default, late payments, or early termination.
The disclosures required under this section may be made in the
lease contract to be signed by the lessee. The Board may provide
by regulation that any portion of the information required to be
disclosed under this section may be given in the form of estimates
where the lessor is not in a position to know exact information.
§ 183. [15 U.S.C. 1667b] Lessee's liability on expiration or
termination of lease
(a) Where the lessee's liability on expiration of a consumer
lease is based on the estimated residual value of the property such
estimated residual value shall be a reasonable approximation of
the anticipated actual fair market value of the property on lease
expiration. There shall be a rebuttable presumption that the estimated residual value is unreasonable to the extent that the estimated residual value exceeds the actual residual value by more
than three times the average payment allocable to a monthly period under the lease. In addition, where the lessee has such liability on expiration of a consumer lease there shall be a rebuttable
presumption that the lessor's estimated residual value is not in
good faith to the extent that the estimated residual value exceeds
the actual residual value by more than three times the average
monthly period under the
such
{>ayment allocable to a from the lessee the amount lease andexcess
essor shall not collect
of such
liability on expiration of a consumer lease unless the lessor brings
a successful action with respect to such excess liability. In all actions, the lessor shall pay the lessee's reasonable attorney's fees.
The presumptions stated in this section shall not apply to the extent the excess of estimated over actual residual value is due to
physical damage to the property beyond reasonable wear and use,
or to excessive use, and the lease may set standards for such wear
and use if such standards are not unreasonable. Nothing in this
subsection shall preclude the right of a willing lessee to make any




Sec. 184

TRUTH IN LENDING ACT

182

mutually agreeable final adjustment with respect to such excess residual liability, provided such an agreement is reached after termination of the lease.
(b) Penalties or other charges for delinquency, default, or early
termination may be specified in the lease but only at an amount
which is reasonable in the light of the anticipated or actual harm
caused by the delinquency, default, or early termination, the difficulties of proof of loss, and the inconvenience or nonfeasibility of
otherwise obtaining an adequate remedy.
(c) If a lease has a residual value provision at the termination
of the lease, the lessee may obtain at his expense, a professional
appraisal of the leased property by an independent third party
agreed to by both parties. Such appraisal shall be final and binding
on the parties.
§ 184. [15 U.S.C. 1667c] Consumer lease advertising
(a) No advertisement to aid, promote, or assist directly or indirectly any consumer lease shall state the amount of any payment,
the number of required payments, or that any or no downpayment
or other payment is required at inception of the lease unless the
advertisement also states clearly and conspicuously and in accordance with regulations issued by the Board each of the following
items of information which is applicable:
(1) That the transaction advertised is a lease.
(2) The amount of any payment required at the inception
of the lease or that no such payment is required if that is the
case.
(3) The number, amounts, due dates or periods of scheduled payments, and the total of payments under the lease.
(4) That the lessee shall be liable for the differential, if
any, between the anticipated fair market value of the leased
property and its appraised actual value at the termination of
the lease, if the lessee has such liability.
(5) A statement of the amount or method of determining
the amount of any liabilities the lease imposes upon the lessee
at the end of the term and whether or not the lessee has the
option to purchase the leased property and at what price and
time.
(b) RADIO ADVERTISEMENTS.—

(1) IN GENERAL.—An advertisement by radio broadcast to
aid, promote, or assist, directly or indirectly, any consumer
lease shall be deemed to be in compliance with the requirements of subsection (a) if such advertisement clearly and conspicuously—
(A) states the information required by paragraphs (1)
and (2) of subsection (a);
(B) states the number, amounts, due dates or periods
of scheduled payments, and the total of such payments
under the lease;
(C) includes—
(i) a referral to—
(I) a toll-free telephone number established in
accordance with paragraph (2) that may be used




TRUTH IN LENDING ACT

183

Sec. 185

by consumers to obtain the information required
under subsection (a); or
(II) a written advertisement that—
(aa) appears in a publication in general
circulation in the community served by the
radio station on which such advertisement is
broadcast during the period beginning 3 days
before any such broadcast and ending 10 days
after such broadcast; and
(bb) includes the information required to
be disclosed under subsection (a); and
(ii) the name and dates of any publication referred
to in clause (i)(II); and
(D) includes any other information which the Board
determines necessary to carry out this chapter.
(2) ESTABLISHMENT OP TOLL-FREE NUMBER.—

(A) IN GENERAL.—In the case of a radio broadcast advertisement described in paragraph (1) that includes a referral to a toll-free telephone number, the lessor who offers
the consumer lease shall—
(i) establish such a toll-free telephone number not
later than the date on which the advertisement including the referral is broadcast;
(ii) maintain such telephone number for a period
of not less than 10 days, beginning on the date of any
such broadcast; and
(iii) provide the information required under subsection (a) with respect to the lease to any person who
calls such number.
(B) FORM OF INFORMATION.—The information required
to be provided under subparagraph (A)(iii) shall be provided verbally or, if requested by the consumer, in written
form.
(3) No EFFECT ON OTHER LAW.—Nothing in this subsection
shall affect the requirements of Federal law as such requirements apply to advertisement by any medium other than radio
broadcast.
(c) There is no liability under this section on the part of any
owner or personnel, as such, of any medium in which an advertisement appears or through which it is disseminated.
§ 185. [15 U.S.C. 1667d] Civil liability
(a) Any lessor who fails to comply with any requirement imposed under section 182 or 183 of this chapter with respect to any
person is liable to such person as provided in section 130.
(b) Any lessor who fails to comply with any requirement imposed under section 184 of this chapter with respect to any person
who suffers actual damage from the violation is liable to such person as provided in section 130. For the purposes of this section, the
term "creditor" as used in sections 130 and 131 shall include a lessor as defined in this chapter.
(c) Notwithstanding section 130(e), any action under this section may be brought in any United States district court or in any
other court of competent jurisdiction. Such actions alleging a fail-




TRUTH IN LENDING ACT

Sec. 186

184

ure to disclose or otherwise comply with the requirements of this
chapter shall be brought within one year of the termination of the
lease agreement.
§ 186. [15 U.S.C. 1667e] Relation to State laws
(a) This chapter does not annul, alter, or affect, or exempt any
person subject to the provisions of this chapter from complying
with, the laws of any State with respect to consumer leases, except
to the extent that those laws are inconsistent with any provision
of this chapter, and then only to the extent of the inconsistency.
The Board is authorized to determine whether such inconsistencies
exist. The Board may not determine that any State law is inconsistent with any provision of this chapter if the Board determines
that such law gives greater protection and benefit to the consumer.
(b) The Board shall by regulation exempt from the requirements of this chapter any class of lease transactions within any
State if it determines that under the law of that State that class
of transactions is subject to requirements substantially similar to
those imposed under this chapter or that such law gives greater
protection and benefit to the consumer, and that there is adequate
provision for enforcement.

TITLE II—EXTORTIONATE CREDIT
TRANSACTIONS
[See 82 Stat. 159, 82 Stat. 162, and Chapter 42 of title 18,
United States Code.]

TITLE III—RESTRICTION ON GARNISHMENT
Sec.
301.
302.
303.
304.
305.
306.
307.

Findings and purpose.
Definitions.
Restriction on garnishment.
Restriction on discharge from employment by reason of garnishment.
Exemption for State-regulated garnishments.
Enforcement by Secretary of Labor.
Effect on State laws.

§301. [15 U.S.C. 1671] Findings and purpose
(a) The Congress finds:
(1) The unrestricted garnishment of compensation due for
personal services encourages the making of predatory extensions of credit. Such extensions of credit divert money into excessive credit payments and thereby hinder the production and
flow of goods in interstate commerce.
(2) The application of garnishment as a creditors' remedy
frequently results in loss of employment by the debtor, and the
resulting disruption of employment, production, and consumption constitutes a substantial burden on interstate commerce.
(3) The great disparities among the laws of the several
States relating to garnishment have, in effect, destroyed the
uniformity of the bankruptcy laws and frustrated the purposes
thereof in many areas of the country.




185

TRUTH IN LENDING ACT

Sec. 303

(b) On the basis of the findings stated in subsection (a) of this
section, the Congress determines that the provisions of this title
are necessary and proper for the purpose of carrying into execution
the powers of the Congress to regulate commerce and to establish
uniform bankruptcy laws.
§302. [15 U.S.C. 1672] Definitions
For the purposes of this title:
(a) The term "earnings" means compensation paid or payable
for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program.
(b) The term "disposable earnings" means that part of the
earnings of any individual remaining after the deduction from
those earnings of any amounts required by law to be withheld.
(c) The term "garnishment" means any legal or equitable procedure through which the earnings of any individual are required
to be withheld for payment of any debt.
§303. [15 U.S.C. 1673] Restriction on garnishment
(a) Except as provided in subsection (b) and in section 305, the
maximum part of the aggregate disposable earnings of an individual for x any workweek which is subjected to garnishment may not
exceed
(1) 25 per centum of his disposable earnings for that week,
or
(2) the amount by which his disposable earnings for that
week exceed thirty times the Federal minimum hourly wage
prescribed by section 6(a)(1) of the Fair Labor Standards Act
of 1938 in effect at the time the earnings are payable,
whichever is less. In the case of earnings for any pay period other
than a week, the Secretary of Labor shall by regulation prescribe
a multiple of the Federal minimum hourly wage equivalent in effect to that set forth in paragraph (2).
(b)(1) The restrictions of subsection (a) do not apply in the case
of—
(A) any order for the support of any person issued by a
court of competent jurisdiction or in accordance with an administrative procedure, which is established by State law, which
affords substantial due process, and which is subject to judicial
review. 2
(B) any order of any court of bankruptcy under chapter
XIII of the Bankruptcy Act. 3
(C) any debt due for any State or Federal tax.
(2) The maximum part of the aggregate disposable earnings of
an individual for any workweek which is subject to garnishment to
enforce any order for the support of any person shall not exceed—
(A) where such individual is supporting his spouse or dependent child (other than a spouse or child with respect to
whose support such order is used), 50 per centum of such individual's disposable earnings for that week; and
1
So
2
So
3

in original. Probably should be "exceed—".
in original. The period probably should be a semicolon.
So in original. The period probably should be "; and".




Sec. 304

TRUTH IN LENDING ACT

186

(B) where such individual is not supporting such a spouse
or dependent child described in clause (A), 60 per centum of
such individual's disposable earnings for that week;
except that, with respect to the disposable earnings of any individual ior any workweek, the 50 per centum specified in clause (A)
shall be deemed to be 55 per centum and the 60 per centum specified in clause (B) shall be deemed to be 65 per centum, if and to
the extent that such earnings are subject to garnishment to enforce
a support order with respect to a period which is prior to the
twelve-week period which ends with the beginning of such workweek.
(c) No court of the United States or any State, and no State
(or officer or agency thereof), may make, execute, or enforce any
order or process in violation of this section.
§ 304. [15 U.S.C. 1674] Restriction on discharge from employment by reason of garnishment
(a) No employer may discharge any employee by reason of the
fact that his earnings have been subjected to garnishment for any
one indebtedness.
(b) Whoever willfully violates subsection (a) of this section
shall be fined not more than $1,000, or imprisoned not more than
one year, or both.
§305. [15 U.S.C. 1675] Exemption for State-regulated garnishments
The Secretary of Labor may by regulation exempt from the
provisions of section 303(a) and (b)(2) garnishments issued under
the laws of any State if he determines that the laws of that State
provide restrictions on garnishment which are substantially similar
to those provided in section 303(a) and (b)(2).
§ 306. [15 U.S.C. 1676] Enforcement by Secretary of Labor
The Secretary of Labor, acting through the Wage and Hour Division of the Department of Labor, shall enforce the provisions of
this title.
§307. [15 U.S.C. 1677] Effect on State laws
This title does not annul, alter, or affect, or exempt any person
from complying with, the laws of any State x
(1) prohibiting garnishments or providing for more limited
garnishments than are allowed under this title, or
(2) prohibiting the discharge of any employee by reason of
the fact that his earnings have been subjected to garnishment
for more than one indebtedness.

TITLE IV—NATIONAL COMMISSION ON
CONSUMER FINANCE
[The National Commission on Consumer Finance was to submit a final report by December 31, 1972, and was to cease to exist
after submission of such report. See 82 Stat. 164.]
1

So in original. Probably should be "State—".




FAIR CREDIT REPORTING ACT

187

Sec. 504

TITLE V—GENERAL PROVISIONS
Sec.
501.
502.
503.
504.

Severability.
Captions and catchlines for reference only.
Grammatical usages.
Effective dates.

§501.

[15 U.S.C. 1602 note] Severability
If a provision enacted by this Act is held invalid, all valid provisions that are severable from the invalid provision remain in effect. If a provision enacted by this Act is held invalid in one or
more of its applications, the provision remains in effect in all valid
applications that are severable from the invalid application or applications.
§ 502. [15 U.S.C. 1602 note] Captions and catchlines for reference only
Captions and catchlines are intended solely as aids to convenient reference, and no inference as to the legislative intent with respect to any provision enacted by this Act may be drawn from
tnem.
§ 503. [15 U.S.C. 1602 note] Grammatical usages
In this Act:
(1) The word "may" is used to indicate that an action either is authorized or is permitted.
(2) The word "shall" is used to indicate that an action is
both authorized and required.
(3) The phrase "may not" is used to indicate that an action
is both unauthorized and forbidden.
(4) Rules of law are stated in the indicative mood.
§ 504. [15 U.S.C. 1602 n o t e l ] Effective dates
(a) Except as otherwise specified, the provisions of this Act
take effect upon enactment.
(b) Chapters 2 and 3 of title I take effect on July 1, 1969.
(c) Title III takes effect on July 1, 1970.
(d) Title VI takes effect upon the expiration of one hundred
and eighty days following the date of its enactment.

TITLE VI—CONSUMER CREDIT REPORTING
Sec.
601.
602.
603.
604.
605.
606.
607.
608.
609.
610.
611.
612.
613.

Short title.
Findings and purpose.
Definitions and rules of construction.
Permissible purposes of reports.
Obsolete information.
Disclosure of investigative consumer reports.
Compliance procedures.
Disclosures to governmental agencies.
Disclosure to consumers.
Conditions of disclosure to consumers.
Procedure in case of disputed accuracy.
Charges for certain disclosures.
Public record information for employment purposes.


http://fraser.stlouisfed.org/ 9 5 - 7
89-335
Federal Reserve Bank of St. Louis

Sec. 601
614.
615.
616.
617.
618.
619.
620.
621.
622.
623.

FAIR CREDIT REP0RTIN6 ACT

188

Restrictions on investigative consumer reports.
Requirements on users of consumer reports.
Civil liability for willful noncompliance.
Civil liability for negligent noncompliance.
Jurisdiction of courts; limitation ofactions.
Obtaining information under false pretenses.
Unauthorized disclosures by officers or employees.
Administrative enforcement.
Information on overdue child support obligations.
Relation to State laws.

§601. [15 U.S.C. 1601 note] Short title
This title may be cited as the Fair Credit Reporting Act.1
§602. [15 U.S.C. 1681] Findings and purpose
(a) The Congress makes the following findings:
(1) The banking system is dependent upon fair and accurate
credit reporting. Inaccurate credit reports directly impair the efficiency of the banking system, and unfair credit reporting methods
undermine the public confidence which is essential to the continued
functioning of the banking system.
(2) An elaborate mechanism has been developed for investigating and evaluating the credit worthiness, credit standing, credit capacity, character, and general reputation of consumers.
(3) Consumer reporting agencies have assumed a vital role in
assembling and evaluating consumer credit and other information
on consumers.
(4) There is a need to insure that consumer reporting agencies
exercise their grave responsibilities with fairness, impartiality, and
a respect for the consumer's right to privacy.
(b) It is the purpose of this title to require that consumer reporting agencies adopt reasonable procedures for meeting the needs
of commerce for consumer credit, personnel, insurance, and other
information in a manner which is fair and equitable to the
consumer, with regard to the confidentiality, accuracy, relevancy,
and proper utilization of such information in accordance with the
requirements of this title.
§603. [15 U.S.C. 1681a] Definitions and rules of construction
(a) Definitions and rules of construction set forth in this section are applicable for the purposes of this title.
(b) The term "person" means any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity.
(c) The term "consumer" means an individual.
(d) The term "consumer report" means any written, oral, or
other communication of any information by a consumer reporting
agency bearing on a consumer's credit worthiness, credit standing,
credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in
establishing the consumer's eligibility for (1) credit or insurance to
be used primarily for personal, family, or household purposes, or
1

So in law. The short title probably should be within quotation marks.




189

FAIR CREDIT REPORTING ACT

Sec. 603

(2) employment purposes, or (3) other purposes authorized under
section 604. The term does not include (A) any report containing
information solely as to transactions or experiences between the
consumer and the person making the report; (B) any authorization
or approval of a specific extension of credit directly or indirectly by
the issuer of a credit card or similar device; or (C) any report in
which a person who has been requested by a third party to make
a specific extension of credit directly or indirectly to a consumer
conveys his decision with respect to such request, if the third party
advises the consumer of the name and address of the person to
whom the request was made and such person makes the disclosures to the consumer required under section 615.
(e) The term "investigative consumer report" means a
consumer report or portion thereof in which information on a consumer's character, general reputation, personal characteristics, or
mode of living is obtained through personal interviews with neighbors, friends, or associates of the consumer reported on or with others with whom he is acquainted or who may have knowledge concerning any such items of information. However, such information
shall not include specific factual information on a consumer's credit
record obtained directly from a creditor of the consumer or from a
consumer reporting agency when such information was obtained directly from a creditor of the consumer or from the consumer.
(f) The term "consumer reporting agency" means any person
which, for monetary fees, dues, or on a cooperative nonprofit basis,
regularly engages in whole or in part in the practice of assembling
or evaluating consumer credit information or other information on
consumers for the purpose of furnishing consumer reports to third
parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.
(g) The term "file", when used in connection with information
on any consumer, means all of the information on that consumer
recorded and retained by a consumer reporting agency regardless
of how the information is stored.
(h) The term "employment purposes" when used in connection
with a consumer report means a report used for the purpose of
evaluating a consumer for employment, promotion, reassignment or
retention as an employee.
(i) The term "medical information" means information or
records obtained, with the consent of the individual to whom it relates, from licensed physicians or medical practitioners, hospitals,
clinics, or other medical or medically related facilities.
(j) DEFINITIONS RELATING TO CHILD SUPPORT OBLIGATIONS.—
(1) OVERDUE SUPPORT.—The term "overdue support" has

the meaning given to such term in section 466(e) of the Social
Security Act.
(2) STATE OR LOCAL CHILD SUPPORT ENFORCEMENT AGEN-

CY.—The term "State or local child support enforcement agenc y means a State or local agency which administers a State
or local program for establishing and enforcing child support
obligations.




Sec. 604

FAIR CREDIT REPORTING ACT

190

§604. [15 U.S.C. 1681b] Permissible purposes of reports
A consumer reporting agency may furnish a consumer report
under the following circumstances and no other:
(1) In response to the order of a court having jurisdiction to
issue such an order, or a subpoena issued in connection with proceedings before a Federal grand jury.
(2) In accordance with the written instructions of the consumer
to whom it relates.
(3) To a person which it has reason to believe—
(A) intends to use the information in connection with a
credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit
to, or review or collection of an account of, the consumer; or
(B) intends to use the information for employment purposes; or
(C) intends to use the information in connection with the
underwriting of insurance involving the consumer; or
(D) intends to use the information in connection with a determination of the consumer's eligibility for a license or other
benefit granted by a governmental instrumentality required by
law to consider an applicant's financial responsibility or status;
or
(E) otherwise has a legitimate business need for the information in connection with a business transaction involving the
consumer.
§605. [15 U.S.C. 1681c] Obsolete information
(a) Except as authorized under subsection (b), no consumer reporting agency may make any consumer report containing any of
the following items of information:
(1) cases 1 under title 11 of the United States Code or under
the Bankruptcy Act that, from the date of entry of the order for relief or the date of adjudication, as the case may be, antedate the
report by more than 10 years.
(2) Suits and judgments which, from date of entry, antedate
the report by more than seven years or until the governing statute
of limitations has expired, whichever is the longer period.
(3) Paid tax liens which, from date of payment, antedate the
report by more than seven years.
(4) Accounts placed for collection or charged to profit and loss
which antedate the report by more than seven years.
(5) Records of arrest, indictment, or conviction of crime which,
from date of disposition, release, or parole, antedate the report by
more than seven years.
(6) Any other adverse item of information which antedates the
report by more than seven years.
(b) The provisions of subsection (a) are not applicable in the
case of any consumer credit report to be used in connection with—
(1) a credit transaction involving, or which may reasonably
be expected to involve, a principal amount of $50,000 or more;
1

So in original. Probably should be "Cases".




191

FAIR CREDIT REPORTING ACT

Sec. 607

(2) the underwriting of life insurance involving, or which
may reasonably be expected to involve, a face amount of
$50,000 or more; or
(3) the employment of any individual at an annual salary
which equals, or which may reasonably be expected to equal
$20,000, or more.
§606. [15 U.S.C. 1681d] Disclosure of investigative consumer
reports
(a) A person may not procure or cause to be prepared an investigative consumer report on any consumer unless—
(1) it is clearly and accurately disclosed to the consumer
that an investigative consumer report including information as
to his character, general reputation, personal characteristics,
and mode of living, whichever are applicable, may be made,
and such disclosure (A) is made in a writing mailed, or otherwise delivered, to the consumer, not later than three days after
the date on which the report was first requested, and (B) includes a statement informing the consumer of his right to request the additional disclosures provided for under subsection
(b) of this section; or
(2) the report is to be used for employment purposes for
which the consumer has not specifically applied.
(b) Any person who procures or causes to oe prepared an investigative consumer report on any consumer shall, upon written request made by the consumer within a reasonable period of time
after the receipt by him of the disclosure required by subsection
(a)(1), shall 1 make a complete and accurate disclosure of the nature and scope of the investigation requested. This disclosure shall
be made in a writing mailed, or otherwise delivered, to the
consumer not later than five days after the date on which the request for such disclosure was received from the consumer or such
report was first requested, whichever is the later.
(c) No person may be held liable for any violation of subsection
(a) or (b) of this section if he shows by a preponderance of the evidence that at the time of the violation he maintained reasonable
procedures to assure compliance with subsection (a) or (b).
§ 607. [15 U.S.C. 1681e] Compliance procedures
(a) Every consumer reporting agency shall maintain reasonable
procedures designed to avoid violations of section 605 and to limit
the furnishing of consumer reports to the purposes listed under
section 604. These procedures shall require that prospective users
of the information identify themselves, certify the purposes for
which the information is sought, and certify that the information
will be used for no other purpose. Every consumer reporting agency
shall make a reasonable effort to verify the identity of a new prospective user and the uses certified by such prospective user prior
to furnishing such user a consumer report. No consumer reporting
agency may furnish a consumer report to any person if it has reasonable grounds for believing that the consumer report will not be
used for a purpose listed in section 604.
1

So in original. The word "shall" probably should be omitted.




Sec. 608

FAIR CREDIT REPORTING ACT

192

(b) Whenever a consumer reporting agency prepares a
consumer report it shall follow reasonable procedures to assure
maximum possible accuracy of the information concerning the individual about whom the report relates.
§608. [15 U.S.C. 168 If] Disclosures to governmental agencies
Notwithstanding the provisions of section 604, a consumer reporting agency may furnish identifying information respecting any
consumer, limited to his name, address, former addresses, places of
employment, or former places of employment, to a governmental
agency.
§609. [15 U.S.C. 1681g] Disclosures to consumers
(a) Every consumer reporting agency shall, upon request and
proper identification of any consumer, clearly and accurately disclose to the consumer:
(l) 1 The nature and substance of all information (except medical information) in its files on the consumer at the time of the request. 1
(2) The sources of the information; except that the sources of
information acquired solely for use in preparing an investigative
consumer report and actually used for no other purpose need not
be disclosed: Provided, That in the event an action is brought
under this title, such sources shall be available to the plaintiff
under appropriate discovery procedures in the court in which the
action is brought.
(3) x The recipients of any consumer report on the consumer
which it has furnished—
(A) for employment purposes within the two-year period
preceding the request, and
(B) for any other purposes within the six-month period
preceding the request.
(4) The dates, original payees, and amounts of any checks
upon which is based any adverse characterization of the
consumer, included in the file at the time of the disclosure.
(b) The requirements of subsection (a) respecting the disclosure
of sources of information and the recipients of consumer reports do
not apply to information received or consumer reports furnished
prior to the effective date of this title except to the extent that the
matter involved is contained in the files of the consumer reporting
agency on that date.
§610. [15 U.S.C. 1681h] Conditions of disclosure to consumers
(a) A consumer reporting agency shall make the disclosures required under section 609 during normal business hours and on reasonable notice.
(b) The disclosures required under section 609 shall be made
to the consumer—
(1) in person if he appears in person and furnishes proper
identification; or
1

Indentation so in law.




193

FAIR CREDIT REPORTING ACT

Sec. 611

(2) by telephone if he has made a written request, with
proper identification, for telephone disclosure and the toll
charge, if any, for the telephone call is prepaid by or charged
directly to the consumer.
(c) Any consumer reporting agency shall provide trained personnel to explain to the consumer any information furnished to nim
pursuant to section 609.
(d) The consumer shall be permitted to be accompanied by one
other person of his choosing, who shall furnish reasonable identification. A consumer reporting agency may require the consumer to
furnish a written statement granting permission to the consumer
reporting agency to discuss the consumer's file in such person's
presence.
(e) Except as provided in sections 616 and 617, no consumer
may bring any action or proceeding in the nature of defamation, invasion of privacy, or negligence with respect to the reporting of information against any consumer reporting agency, any user of information, or any person who furnishes information to a consumer
reporting agency, based on information disclosed pursuant to section 609, 610, or 615, except as to false information furnished with
malice or willful intent to injure such consumer.
§611.

[15 U.S.C. 16811] Procedure in case of disputed accuracy
(a) If the completeness or accuracy of any item of information
contained in his file is disputed by a consumer, and such dispute
is directly conveyed to the consumer reporting agency by the
consumer, the consumer reporting agency shall within a reasonable
period of time reinvestigate and record the current status of that
information unless it has reasonable grounds to believe that the
dispute by the consumer is frivolous or irrelevant. If after such
reinvestigation such information is found to be inaccurate or can no
longer be verified, the consumer reporting agency shall promptly
delete such information. The presence of contradictory information
in the consumer's file does not in and of itself constitute reasonable
grounds for believing the dispute is frivolous or irrelevant.
(b) If the reinvestigation does not resolve the dispute, the
consumer may file a brief statement setting forth the nature of the
dispute. The consumer reporting agency may limit such statements
to not more than one hundred words if it provides the consumer
with assistance in writing a clear summary of the dispute.
(c) Whenever a statement of a dispute is filed, unless there is
reasonable grounds to believe that it is frivolous or irrevelant, the
consumer reporting agency shall, in any subsequent consumer report containing the information in question, clearly note that it is
disputed by the consumer and provide either the consumer's statement or a clear and accurate codification or summary thereof.
(d) Following any deletion of information which is found to be
inaccurate or whose accuracy can no longer be verified or any notation as to disputed information, the consumer reporting agency
shall, at the request of the consumer, furnish notification that the
item has been deleted or the statement, codification or summary
pursuant to subsection (b) or (c) to any person specifically designated by the consumer who has within two years prior thereto re-




Sec. 612

FAIR CREDIT REPORTING ACT

194

ceived a consumer report for employment purposes, or within six
months prior thereto received a consumer report for any other purpose, which contained the deleted or disputed information. The
consumer reporting agency shall clearly and conspicuously disclose
to the consumer his rights to make such a request. Such disclosure
shall be made at or prior to the time the information is deleted or
the consumer's statement regarding the disputed information is received.
§ 612. [15 U.S.C. 1681j] Charges for certain disclosures
A consumer reporting agency shall make all disclosures pursuant to section 609 and furnish all consumer reports pursuant to
section 611(d) without charge to the consumer if, within thirty days
after receipt by such consumer of a notification pursuant to section
615 or notification from a debt collection agency affiliated with
such consumer reporting agency stating that the consumer's credit
rating may be or has been adversely affected, the consumer makes
a request under section 609 or 611(d). Otherwise, the consumer reporting agency may impose a reasonable charge on the consumer
for making disclosure to such consumer pursuant to section 609,
the charge for which shall be indicated to the consumer prior to
making disclosure; and for furnishing notifications, statements,
summaries, or codifications to person designated by the consumer
pursuant to section 611(d), the charge for which shall be indicated
to the consumer prior to furnishing such information and shall not
exceed the charge that the consumer reporting agency would impose on each designated recipient for a consumer report except that
no charge may be made for notifying such persons of the deletion
of information which is found to be inaccurate or which can no
longer be verified.
§613.

[15 U.S.C. 1681k] Public record information for employment purposes
A consumer reporting agency which furnishes a consumer report for employment purposes and which for that purpose compiles
and reports items of information on consumers which are matters
of public record and are likely to have an adverse effect upon a consumer's ability to obtain employment shall—
(1) at the time such public record information is reported
to the user of such consumer report, notify the consumer of the
fact that public record information is being reported by the
consumer reporting agency, together with the name and address of the person to whom such information is being reported; or
(2) maintain strict procedures designed to insure that
whenever public record information which is likely to have an
adverse effect on a consumer's ability to obtain employment is
reported it is complete and up to date. For purposes of this
paragraph, items of public record relating to arrests, indictments, convictions, suits, tax liens, and outstanding judgments
shall be considered up to date if the current public record status of the item at the time of the report is reported.




195

FAIR CREDIT REPORTING ACT

Sec. 616

§614.

[15 U.S.C. 1681/] Restrictions on investigative
consumer reports
Whenever a consumer reporting agency prepares an investigative consumer report, no adverse information in the consumer report (other than information which is a matter of public record)
may be included in a subsequent consumer report unless such adverse information has been verified in the process of making such
subsequent consumer report, or the adverse information was received within the three-month period preceding the date the subsequent report is furnished.
§615.

[15 U.S.C. 1681m] Requirements on users of consumer
reports
(a) Whenever credit or insurance for personal, family, or household purposes, or employment involving a consumer is denied or
the charge for such credit or insurance is increased either wholly
or partly because of information contained in a consumer report
from a consumer reporting agency, the user of the consumer report
shall so advise the consumer against whom such adverse action has
been taken and supply the name and address of the consumer reporting agency making the report.
(b) Whenever credit for personal, family, or household purposes
involving a consumer is denied or the charge for suchrcredit is increased either wholly or partly because of information obtained
from a person other than a consumer reporting agency bearing
upon the consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or
mode of living, the user of such information shall, within a reasonable period of time, upon the consumer's written request for the
reasons for such adverse action received within sixty days after
learning of such adverse action, disclose the nature of the information to the consumer. The user of such information shall clearly
and accurately disclose to the consumer his right to make such
written request at the time such adverse action is communicated
to the consumer.
(c) No person shall be held liable for any violation of this section if he shows by a preponderance of the evidence that at the
time of the alleged violation he maintained reasonable procedures
to assure compliance with the provisions of subsections (a) and (b).
§616. [15 U.S.C. 1681n] Civil liability for willful noncompliance
Any consumer reporting agency or user of information which
willfully fails to comply with any requirement imposed under this
title with respect to any consumer is liable to that consumer in an
amount equal to the sum of—
(1) any actual damages sustained by the consumer as a result of the failure;
(2) such amount of punitive damages as the court may
allow; and
(3) in the case of any successful action to enforce any liability under this section, the costs of the action together with
reasonable attorney's fees as determined by the court.




Sec. 617

FAIR CREDIT REPORTING ACT

196

§617. [15 U.S.C. 1681o] Civil liability for negligent noncompliance
Any consumer reporting agency or user of information which is
negligent in failing to comply with any requirement imposed under
this title with respect to any consumer is Uable to that consumer
in an amount equal to the sum of—
(1) any actual damages sustained by the consumer as a result of the failure; x
(2) in the case of any successful action to enforce any liability under this section, the costs of the action together with
reasonable attorney's fees as determined by the court.
§ 618. [15 U.S.C. 1681p] Jurisdiction of courts; limitation of
actions
An action to enforce any liability created under this title may
be brought in any appropriate United States district court without
regard to the amount in controversy, or in any other court of competent jurisdiction, within two years from the date on which the liability arises, except that where a defendant has materially and
willfully misrepresented any information required under this title
to be disclosed to an individual and the information so misrepresented is material to the establishment of the defendant's liability
to that individual under this title, the action may be brought at
any time within two years after discovery by the individual of the
misrepresentation.
§619.

[15 U.S.C. 1681q] Obtaining information under false
pretenses
Any person who knowingly and willfully obtains information
on a consumer from a consumer reporting agency under false pretenses shall be fined not more than $5,000 or imprisoned not more
than one year, or both.
§620. [15 U.S.C. 1681r] Unauthorized disclosures by officers
or employees
Any officer or employee of a consumer reporting agency who
knowingly and willfully provides information concerning an individual from the agency's files to a person not authorized to receive
that information snail be fined not more than $5,000 or imprisoned
not more than one year, or both.
§ 621. [15 U.S.C. 1681s] Administrative enforcement
(a) Compliance with the requirements imposed under this title
shall be enforced under the Federal Trade Commission Act by the
Federal Trade Commission with respect to consumer reporting
agencies and all other persons subject thereto, except to the extent
that enforcement of the requirements imposed under this title is
specifically committed to some other government agency under subsection (b) hereof. For the purpose of the exercise by the Federal
Trade Commission of its functions and powers under the Federal
Trade Commission Act, a violation of any requirement or prohibition imposed under this title shall constitute an unfair or deceptive
1

So in original. Probably should be "; and".




197

FAIR CREDIT REPORTING ACT

Sec. 621

act or practice in commerce in violation of section 5(a) of the Federal Trade Commission Act and shall be subject to enforcement by
the Federal Trade Commission under section 5(b) thereof with respect to any consumer reporting agency or person subject to enforcement by the Federal Trade Commission pursuant to this subsection, irrespective of whether that person is engaged in commerce
or meets any other jurisdictional tests in the Federal Trade Commission Act. The Federal Trade Commission shall have such procedural, investigative, and enforcement powers, including the power
to issue procedural rules in enforcing compliance with the requirements imposed under this title and to require the filing of reports,
the production of documents, and the appearance of witnesses as
though the applicable terms and conditions of the Federal Trade
Commission Act were part of this title. Any person violating any
of the provisions of this title shall be subject to the penalties and
entitled to the privileges and immunities provided in the Federal
Trade Commission Act as though the applicable terms and provisions thereof were part of this title.
(b) Compliance with the requirements imposed under this title
with respect to consumer reporting agencies and persons who use
consumer reports from such agencies shall be enforced under—
(1) section 8 of the Federal Deposit Insurance Act, in the
case of—
(A) national banks, and Federal branches and Federal
agencies of foreign banks, by the Office of the Comptroller
of the Currency;
(B) member banks of the Federal Reserve System
(other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies,
and insured State branches of foreign banks), commercial
lending companies owned or controlled by foreign banks,
and organizations operating under section 25 or 25(a)x of
the Federal Reserve Act, by the Board of Governors of the
Federal Reserve System; and
(C) banks insured by the Federal Deposit Insurance
Corporation (other than members of the Federal Reserve
System) and insured State branches of foreign banks, by
the Board of Directors of the Federal Deposit Insurance
Corporation;
(2) section 8 of the Federal Deposit Insurance Act, by the
Director of the Office of Thrift Supervision, in the case of a
savings association the deposits of which are insured by the
Fejderal Deposit Insurance Corporation;
(3) the Federal Credit Union Act, by the Administrator of
the National Credit Union Administration with respect to any
Federal credit union;
(4) the Acts to regulate commerce, by the Interstate Commerce Commission with respect to any common carrier subject
to those Acts;
1
Section 25(a) of the Federal Reserve Act was redesignated as section 25A by section 142(eX2)
of the Federal Deposit Insurance Corporation Improvement Act of 1991.




Sec. 622

EQUAL CREDIT OPPORTUNITY ACT

198

(5) the Federal Aviation Act of 1958, by the Secretary of
Transportation with respect to any air carrier or foreign air
carrier subject to that Act; and
(6) the Packers and Stockyards Act, 1921 (except as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any activities subject to that Act.
The terms used in paragraph (1) that are not defined in this title
or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them
in section 1(b) of the International Banking Act of 1978 (12 U.S.C.
3101).
(c) For the purpose of the exercise by any agency referred to
in subsection (b) of its powers under any Act referred to in that
subsection, a violation of any requirement imposed under this title
shall be deemed to be a violation of a requirement imposed under
that Act. In addition to its powers under any provision of law specifically referred to in subsection (b), each of the agencies referred
to in that subsection may exercise, for the purpose of enforcing
compliance with any requirement imposed under this title any
other authority conferred on it by law.
§ 622. [15 U.S.C. 1681s-l] Information on overdue child support obligations
Notwithstanding any other provision of this title, a consumer
reporting agency shall include in any consumer report furnished by
the agency in accordance with section 604, any information on the
failure of the consumer to pay overdue support which—
(1) is provided—
(A) to the consumer reporting agency by a State or
local child support enforcement agency; or
(B) to the consumer reporting agency and verified by
any local, State, or Federal Government agency; and
(2) antedates the report by 7 years or less.
§623. [15 U.S.C. 1681t] Relation to State laws
This title does not annul, alter, affect, or exempt any person
subject to the provisions of this title from complying with the laws
of any State with respect to the collection, distribution, or use of
any information on consumers, except to the extent that those laws
are inconsistent with any provision of this title, and then only to
the extent of the inconsistency.

TITLE VII—EQUAL CREDIT OPPORTUNITY
Sec.
701.
702.
703.
704.
705.
706.
707.
708.
709.

Prohibited discrimination.
Definitions.
Regulations.
Administrative enforcement.
Relation to State laws.
Civil liability.
Annual reports to Congress.
Effective date.
Short title.




199

EQUAL CREDIT OPPORTUNITY ACT

Sec. 701

§ 701. [15 U.S.C. 1691] Prohibited discrimination; reasons for
adverse action
(a) It shall be unlawful for any creditor to discriminate against
any applicant, with respect to any aspect of a credit transaction—
(1) on the basis of race, color, religion, national origin, sex
or marital status, or age (provided the applicant has the capacity to contract);
(2) because all or part of the applicant's income derives
from any public assistance program; or
(3) because the applicant has in good faith exercised any
right under the Consumer Credit Protection Act.
(b) It shall not constitute discrimination for purposes of this
title for a creditor—
(1) to make an inquiry of marital status if such inquiry is
for the purpose of ascertaining the creditor's rights and remedies applicable to the particular extension of credit and not to
discriminate in a determination of credit-worthiness;
(2) to make an inquiry of the applicant's age or of whether
the applicant's income derives from any public assistance program if such inquiry is for the purpose of determining the
amount and probable continuance of income levels, credit history, or other pertinent element of credit-worthiness as provided in regulations of the Board;
(3) to use any empirically derived credit system which considers age if such system is demonstrably and statistically
sound in accordance with regulations of the Board, except that
in the operation of such system the age of an elderly applicant
may not be assigned a negative factor or value; or
(4) to make an inquiry or to consider the age of an elderly
applicant when the age of such applicant is to be used by the
creditor in the extension of credit in favor of such applicant.
(c) It is not a violation of this section for a creditor to refuse
to extend credit offered pursuant to—
(1) any credit assistance program expressly authorized by
law for an economically disadvantaged class of persons;
(2) any credit assistance program administered by a nonprofit organization for its members or an economically disadvantaged class of persons; or
(3) any special purpose credit program offered by a profitmaking organization to meet special social needs which meets
standards prescribed in regulations by the Board;
if such refusal is required by or made pursuant to such program.
(d)(1) Within thirty days (or such longer reasonable time as
specified in regulations of the Board for any class of credit transaction) after receipt of a completed application for credit, a creditor
shall notify the applicant of its action on the application.
(2) Each applicant against whom adverse action is taken shall
be entitled to a statement of reasons for such action from the creditor. A creditor satisfies this obligation by—
(A) providing statements of reasons in writing as a matter
of course to applicants against whom adverse action is taken;
or




Sec. 702

EQUAL CREDIT OPPORTUNITY ACT

200

(B) giving written notification of adverse action which discloses (i) the applicant's right to a statement of reasons within
thirty days after receipt DV the creditor of a request made
within sixty days after such notification, and (ii) tne identity
of the person or office from which such statement may be obtained. Such statement may be given orally, if the written notification advises the applicant of nis right to have the statement
of reasons confirmed in writing on written request.
(3) A statement of reasons meets the requirements of this section only if it contains the specific reasons for the adverse action
taken.
(4) Where a creditor has been requested by a third party to
make a specific extension of credit directly or indirectly to an applicant, the notification and statement of reasons required by this
subsection may be made directly by such creditor, or indirectly
through the third party, provided in either case that the identity
of the creditor is disclosed.
(5) The requirements of paragraphs (2), (3), or (4) may be satisfied by verbal statements or notifications in the case of any creditor
who aid not act on more than one hundred and fifty applications
during the calendar year preceding the calendar year in which the
adverse action is taken, as determined under regulations of the
Board.
(6) For purposes of this subsection, the term "adverse action"
means a denial or revocation of credit, a change in the terms of an
existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the terms requested. Such
term does not include a refusal to extend additional credit under
an existing credit arrangement where the applicant is delinquent
or otherwise in default, or where such additional credit would exceed a previously established credit limit.
(e) Each creditor shall promptly furnish an applicant, upon
written request by the applicant made within a reasonable period
of time of the application, a copy of the appraisal report used in
connection with the applicant's application for a loan that is or
would have been secured by a lien on residential real property. The
creditor may require the applicant to reimburse the creditor for the
cost of the appraisal.
§702. [15 U.S.C. 1691a] Definitions
(a) The definitions and rules of construction set forth in this
section are applicable for the purposes of this title.
(b) The term "applicant" means any person who applies to a
creditor directly for an extension, renewal, or continuation of credit,
or applies to a creditor indirectly by use of an existing credit plan
for an amount exceeding a previously established credit limit.
(c) The term "Board" refers to the Board of Governors of the
Federal Reserve System.
(d) The term "credit" means the right granted by a creditor to
a debtor to defer payment of debt or to incur debts and defer its
payment or to purchase property or services and defer payment
therefor.
(e) The term "creditor" means any person who regularly extends, renews, or continues credit; any person who regularly ar-




201

EQUAL CREDIT OPPORTUNITY ACT

Sec. 703

ranges for the extension, renewal, or continuation of credit; or any
assignee of an original creditor who participates in the decision to
extend, renew, or continue credit.
(f) The term "person" means a natural person, a corporation,
government or governmental subdivision or agency, trust, estate,
partnership, cooperative, or association.
(g) Any reference to any requirement imposed under this title
or any provision thereof includes reference to the regulations of the
Board under this title or the provision thereof in question.
§703. [15 U.S.C. 1691b] Regulations
(a)(1) The Board shall prescribe regulations to carry out the
mrposes of this title. These regulations may contain but are not
imited to such classifications, differentiation, or other provision,
and may provide for such adjustments and exceptions for any class
of transactions, as in the judgment of the Board are necessary or
proper to effectuate the purposes of this title, to prevent circumvention or evasion thereof, or to facilitate or substantiate compliance
therewith.
(2) Such regulations may exempt from the provisions of this
title any class of transactions that are not primarily for personal,
family, or household purposes, or business or commercial loans
made available by a financial institution, except that a particular
type within a class of such transactions may be exempted if the
Board determines, after making an express finding that the application of this title or of any provision of this title of such transaction would not contribute substantially to effecting the purposes
of this title.
(3) An exemption granted pursuant to paragraph (2) shall be
for no longer than five years and shall be extended only if the
Board makes a subsequent determination, in the manner described
by such paragraph, that such exemption remains appropriate.
(4) Pursuant to Board regulations, entities making business or
commercial loans shall maintain such records or other data relating to such loans as may be necessary to evidence compliance with
this subsection or enforce any action pursuant to the authority of
this Act. In no event shall such records or data be maintained for
a period of less than one year. The Board shall promulgate regulations to implement this paragraph in the manner prescribed by
chapter 5 of title 5, United States Code.
(5) The Board shall provide in regulations that an applicant for
a business or commercial loan shall be provided a written notice of
such applicant's right to receive a written statement of the reasons
for the denial of such loan.
(b) The Board shall establish a Consumer Advisory Council to
advise and consult with it in the exercise of its functions under the
Consumer Credit Protection Act and to advise and consult with it
concerning other consumer related matters it may place before the
Council. In appointing the members of the Council, the Board shall
seek to achieve a fair representation of the interests of creditors
and consumers. The Council shall meet from time to time at the
call of the Board. Members of the Council who are not regular fulltime employees of the United States shall, while attending meetings of sucn Council, be entitled to receive compensation at a rate

f




Sec. 704

EQUAL CREDIT OPPORTUNITY ACT

202

fixed by the Board, but not exceeding $100 per day, including travel time. Such members may be allowed travel expenses, including
transportation and subsistence, while away from their homes or
regular place of business.
§ 704. [15 U.S.C. 1691c] Administrative enforcement
(a) Compliance with the requirements imposed under this title
shall be enforced under: x
(l) 2 section 8 of the Federal Deposit Insurance Act, in the
case of—
(A) national banks, and Federal branches and Federal
agencies of foreign banks, by the Office of the Comptroller
of the Currency;
(B) member banks of the Federal Reserve System
(other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies,
and insured State branches of foreign banks), commercial
lending companies owned or controlled by foreign banks,
and organizations operating under section 25 or 25(a) 3 of
the Federal Reserve Act, by the Board; and
(C) banks insured by the Federal Deposit Insurance
Corporation (other than members of the Federal Reserve
System) and insured State branches of foreign banks, by
the Board of Directors of the Federal Deposit Insurance
Corporation;4
(2) Section 8 of the Federal Deposit Insurance Act, by the
Director of the Office of Thrift Supervision, in the case of a
savings association the deposits of which are insured by the
Federal Deposit Insurance Corporation.
(3) The Federal Credit Union Act, by the Administrator of
the National Credit Union Administration with respect to any
Federal Credit Union.
(4) The Acts to regulate commerce, by the Interstate Commerce Commission with respect to any common carrier subject
to those Acts.
(5) The Federal Aviation Act of 1958, by the Secretary of
Transportation with respect to any air carrier or foreign air
carrier subject to that Act.
(6) The Packers and Stockyards Act, 1921 (except as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any activities subject to that Act.
(7) The Farm Credit Act of 1971, by the Farm Credit Administration with respect to any Federal land bank, Federal
land bank association, Federal intermediate credit bank, and
production credit association;4
(8) The Securities Exchange Act of 1934, by the Securities
and 4Exchange Commission with respect to brokers and dealers;
and
1
So in law. The term "the following provisions of law" should probably be inserted before the
colon.
2
So in law. The 1st letter probably should be uppercase.
3
Section 25(a) of the Federal Reserve Act was redesignated as section 25A by section 142(eX2)
of 4the Federal Deposit Insurance Corporation Improvement Act of 1991.
So in law. Probably should be a period.




203

EQUAL CREDIT OPPORTUNITY ACT

Sec. 705

(9) The Small Business Investment Act of 1958, by the
Small Business Administration, with respect to small business
investment companies.
The terms used in paragraph (1) that are not defined in this title
or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them
in section 1(b) of the International Banking Act of 1978 (12 U.S.C.
3101).
(b) For the purpose of the exercise by any agency referred to
in subsection (a) of its powers under any Act referred to in that
subsection, a violation of any requirement imposed under this title
shall be deemed to be a violation of a requirement imposed under
that Act. In addition to its powers under any provision of law specifically referred to in subsection (a), each of the agencies referred
to in that subsection may exercise for the purpose of enforcing compliance with any requirement imposed under this title, any other
authority conferred on it by law. The exercise of the authorities of
any of the agencies referred to in subsection (a) for the purpose of
enforcing compliance with any requirement imposed under this
title shall in no way preclude the exercise of such authorities for
the purpose of enforcing compliance with any other provision of law
not relating to the prohibition of discrimination on the basis of sex
or marital status with respect to any aspect of a credit transaction.
(c) Except to the extent that enforcement of the requirements
imposed under this title is specifically committed to some other
Government agency under subsection (a), the Federal Trade Commission shall enforce such requirements. For the purpose of the exercise by the Federal Trade Commission of its functions and powers
under the Federal Trade Commission Act, a violation of any requirement imposed under this title shall be deemed a violation of
a requirement imposed under that Act. All of the functions and
powers of the Federal Trade Commission under the Federal Trade
Commission Act are available to the Commission to enforce compliance by any person with the requirements imposed under this title,
irrespective of whether that person is engaged in commerce or
meets any other jurisdictional tests in the Federal Trade Commission Act, including the power to enforce any Federal Reserve Board
regulation promulgated under this title in the same manner as if
the violation had been a violation of a Federal Trade Commission
trade regulation rule.
(d) The authority of the Board to issue regulations under this
title does not impair the authority of any other agency designated
in this section to make rules respecting its own procedures in enforcing compliance with requirements imposed under this title.
§705. [15 U.S.C. 1691d] Relation to State laws
(a) A request for the signature of both parties to a marriage
for the purpose of creating a valid lien, passing clear title, waiving
inchoate rights to property, or assigning earnings, shall not constitute discrimination under this title: Provided, however, That this
provision shall not be construed to permit a creditor to take sex or
marital status into account in connection with the evaluation of
creditworthiness of any applicant.




Sec. 706

EQUAL CREDIT OPPORTUNITY ACT

204

(b) Consideration or application of State property laws directly
or indirectly affecting creditworthiness shall not constitute discrimination for purposes of this title.
(c) Any provision of State law which prohibits the separate extension of consumer credit to each party to a marriage shall not
apply in any case where each party to a marriage voluntarily applies for separate credit from tne same creditor: Provided, That in
any case where such a State law is so preempted, each party to the
marriage shall be solely responsible for the debt so contracted.
(d) When each party to a marriage separately and voluntarily
applies for and obtains separate credit accounts with the same
creditor, those accounts shall not be aggregated or otherwise combined for purposes of determining permissible finance charges or
ermissible loan ceilings under the laws of any State or of the
Fnited States.
(e) Where the same act or omission constitutes a violation of
this title and of applicable State law, a person aggrieved by such
conduct may bring a legal action to recover monetary damages either under this title or under such State law, but not both. This
election of remedies shall not apply to court actions in which the
relief sought does not include monetary damages or to administrative actions.
(f) This title does not annul, alter, or affect, or exempt any person subject to the provisions of this title from complying with, the
laws of any State with respect to credit discrimination, except to
the extent that those laws are inconsistent with any provision of
this title, and then only to the extent of the inconsistency. The
Board is authorized to determine whether such inconsistencies
exist. The Board may not determine that any State law is inconsistent with any provision of this title if the Board determines that
such law gives greater protection to the applicant.
(g) The Board shall by regulation exempt from the requirements of sections 701 and 702 of this title any class of credit transactions within any State if it determines that under the law of that
State that class of transactions is subject to requirements substantially similar to those imposed under this title or that such law
gives greater protection to the applicant, and that there is adequate provision for enforcement. Failure to comply with any requirement of such State law in any transaction so exempted shall
constitute a violation of this title for the purposes of section 706.

E

§706. [15 U.S.C. 1691e] Civil liability
(a) Any creditor who fails to comply with any requirement imposed under this title shall be liable to the aggrieved applicant for
any actual damages sustained by such applicant acting either in an
individual capacity or as a member of a class.
(b) Any creditor, other than a government or governmental
subdivision or agency, who fails to comply with any requirement
imposed under this title shall be liable to the aggrieved applicant
for punitive damages in an amount not greater than $10,000, in addition to any actual damages provided in subsection (a), except that
in the case of a class action the total recovery under this subsection
shall not exceed the lesser of $500,000 or 1 per centum of the net
worth of the creditor. In determining the amount of such damages




205

EQUAL CREDIT OPPORTUNITY ACT

Sec. 706

in any action, the court shall consider, among other relevant factors, the amount of any actual damages awarded, the frequency
and persistence of failures of compliance by the creditor, tne resources of the creditor, the number of persons adversely affected,
and the extent to which the creditor's failure of compliance was intentional.
(c) Upon application by an aggrieved applicant, the appropriate
United States district court or any other court of competent jurisdiction may grant such equitable and declaratory relief as is necessary to enforce the requirements imposed under this title.
(d) In the case of any successful action under subsection (a),
(b), or (c), the costs of the action, together with a reasonable attorney's fee as determined by the court, shall be added to any damages awarded by the court under such subsection.
(e) No provision of this title imposing liability shall apply to
any act done or omitted in good faith in conformity with any official
rule, regulation, or interpretation thereof by the Board or in conformity with any interpretation or approval by an official or employee of the Federal Reserve System duly authorized by the Board
to issue such interpretations or approvals under such procedures as
the Board may prescribe therefor, notwithstanding that after such
act or omission has occurred, such rule, regulation, interpretation,
or approval is amended, rescinded, or determined by judicial or
other authority to be invalid for any reason.
(f) Any action under this section may be brought in the appropriate United States district court without regard to the amount in
controversy, or in any other court of competent jurisdiction. No
such action shall be brought later than two years from the date of
the occurrence of the violation, except that—
(1) whenever any agency having responsibility for administrative enforcement under section 704 commences an enforcement proceeding within two years from the date of the occurrence of the violation,
(2) whenever the Attorney General commences a civil action under this section within two years from the date of the
occurrence of the violation,
then any applicant who has been a victim of the discrimination
which is the subject of such proceeding or civil action may bring
an action under this section not later than one year after the commencement of that proceeding or action.
(g) The agencies having responsibility for administrative enforcement under section 704, if unable to obtain compliance with
section 701, are authorized to refer the matter to the Attorney General with a recommendation that an appropriate civil action be instituted. Each agency referred to in paragraphs (1), (2), and (3) of
section 704(a) shall refer the matter to the Attorney General whenever the agency has reason to believe that 1 or more creditors has
engaged in a pattern or practice of discouraging or denying applications for credit in violation of section 701(a). Each such agency may
refer the matter to the Attorney General whenever the agency has
reason to believe that 1 or more creditors has violated section
701(a).
(h) When a matter is referred to the Attorney General pursuant to subsection (g), or whenever he has reason to believe that one




Sec. 707

FAIR DEBT COLLECTION PRACTICES ACT

206

or more creditors are engaged in a pattern or practice in violation
of this title, the Attorney General may bring a civil action in any
appropriate United States district court for such relief as may be
appropriate, including actual and punitive damages and injunctive
relief.
(i) No person aggrieved by a violation of this title and by a violation of section 805 of the Civil Rights Act of 1968 shall recover
under this title and section 812 of tne Civil Rights Act of 1968, if
such violation is based on the same transaction.
(j) Nothing in this title shall be construed to prohibit the discovery of a creditor's credit granting standards under appropriate
discovery procedures in the court or agency in which an action or
proceeding is brought.
(k) NOTICE TO HUD OF VIOLATIONS.—Whenever an agency referred to in paragraph (1), (2), or (3) of section 704(a)—
(1) has reason to believe, as a result of receiving a
consumer complaint, conducting a consumer compliance examination, or otherwise, that a violation of this title has occurred;
(2) has reason to believe that the alleged violation would
be a violation of the Fair Housing Act; and
(3) does not refer the matter to the Attorney General pursuant to subsection (g),
the agency shall notify the Secretary of Housing and Urban Development of the violation, and shall notify the applicant that the Secretary of Housing and Urban Development has been notified of the
alleged violation and that remedies for the violation may be available under the Fair Housing Act.
§ 707. [15 U.S.C. 1691f] Annual reports to Congress
Each year, the Board and the Attorney General shall, respectively, make reports to the Congress concerning the administration
of their functions under this title, including such recommendations
as the Board and the Attorney General, respectively, deem necessary or appropriate. In addition, each report of the Board shall
include its assessment of the extent to which compliance with the
requirements of this title is being achieved, and a summary of the
enforcement actions taken by each of the agencies assigned administrative enforcement responsibilities under section 704.
§708. [15 U.S.C. 1691 note] Effective date
This title takes effect upon the expiration of one year after the
date of its enactment. The amendments made by the Equal Credit
Opportunity Act Amendments of 1976 shall take effect on the date
of enactment thereof and shall apply to any violation occurring on
or after such date, except that the amendments made to section
701 of the Equal Credit Opportunity Act shall take effect 12
months after the date of enactment.
§709. [15 U.S.C. 1691 note] Short title
This title may be cited as the "Equal Credit Opportunity Act".

TITLE VIII—DEBT COLLECTION PRACTICES
Sec.




FAIR DEBT COLLECTION PRACTICES ACT

207
801.
802.
803.
804.
805.
806.
807.
808.
809.
810.
811.
812.
813.
814.
815.
816.
817.
818.

Sec. 803

Short title.
Findings and purpose.
Definitions.
Acquisition of location information.
Communication in connection with debt collection.
Harassment or abuse.
False or misleading representations.
Unfair practices.
Validation of debts.
Multiple debts.
Legal actions by debt collectors.
Furnishing certain deceptive forms.
Civil liability.
Administrative enforcement.
Reports to Congress by the Commission.
Relation to State laws.
Exemption for State regulation.
Effective date.

§801.

[15 U.S.C. 1601 note] Short title
This title may be cited as the "Fair Debt Collection Practices
Act".
§802. [15 U.S.C. 1692] Findings and purpose
(a) There is abundant evidence of the use of abusive, deceptive,
and unfair debt collection practices by many debt collectors. Abusive debt collection practices contribute to the number of personal
bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.
(b) Existing laws and procedures for redressing these injuries
are inadequate to protect consumers.
(c) Means other than misrepresentation or other abusive debt
collection practices are available for the effective collection of debts.
(d) Abusive debt collection practices are carried on to a substantial extent in interstate commerce and through means and instrumentalities of such commerce. Even where abusive debt collection practices are purely intrastate in character, they nevertheless
directly affect interstate commerce.
(e) It is the purpose of this title to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are
not competitively disadvantaged, and to promote consistent State
action to protect consumers against debt collection abuses.
§803. [15 U.S.C. 1692a] Definitions
As used in this title—
(1) The term "Commission" means the Federal Trade Commission.
(2) The term "communication" means the conveying of information regarding a debt directly or indirectly to any person
through any medium.
(3) The term "consumer" means any natural person obligated or allegedly obligated to pay any debt.
(4) The term "creditor" means any person who offers or extends credit creating a debt or to whom a debt is owed, but
such term does not include any person to the extent that he
receives an assignment or transfer of a debt in default solely




Sec. 803

FAIR DEBT COLLECTION PRACTICES ACT

208

for the purpose of facilitating collection of such debt for another.
(5) The term "debt" means any obligation or alleged obligation of a consumer to pay money arising out of a transaction
in which the money, property, insurance, or services which are
the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has
been reduced to judgment.
(6) The term "debt collector" means any person who uses
any instrumentality of interstate commerce or the mails in any
business the principal purpose of which is the collection of any
debts, or who regularly collects or attempts to collect, directly
or indirectly, debts owed or due or asserted to be owed or due
another. Notwithstanding the exclusion provided by clause (F)
of the last sentence of this paragraph, the term includes any
creditor who, in the process of collecting his own debts, uses
any name other than his own which would indicate that a
third person is collecting or attempting to collect such debts.
For the purpose of section 808(6), such term also includes any
person who uses any instrumentality of interstate commerce or
the mails in any business the principal purpose of which is the
enforcement of security interests. The term does not include—
(A) any officer or employee of a creditor while, in the
name of the creditor, collecting debts for such creditor;
(B) any person while acting as a debt collector for another person, both of whom are related by common ownership or affiliated by corporate control, if the person acting
as a debt collector does so only for persons to whom it is
so related or affilated and if the principal business of such
person is not the collection of debts;
(C) any officer or employee of the United States or any
State to the extent that collecting or attempting to collect
any debt is in the performance of his official duties;
(D) any person while serving or attempting to serve
legal process on any other person in connection with the
judicial enforcement of any debt;
(E) any nonprofit organization which, at the request of
consumers, performs bona fide consumer credit counseling
and assists consumers in the liquidation of their debts by
receiving payments from such consumers and distributing
such amounts to creditors;
(F) any person collecting or attempting to collect any
debt owed or due or asserted to be owed or due another to
the extent such activity (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement; (ii)
concerns a debt which was originated by such person; (iii)
concerns a debt which was not in default at the time it
was obtained by such person; or (iv) concerns a debt obtained by such person as a secured party in a commercial
credit transaction involving the creditor.
(7) The term "location information" means a consumer's
place of abode and his telephone number at such place, or his
place of employment.




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FAIR DEBT COLLECTION PRACTICES ACT

Sec. 805

(8) The term "State" means any State, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any political subdivision of any
of the foregoing.
§ 804. [15 U.S.C. 1692b] Acquisition of location information
Any debt collector communicating with any person other than
the consumer for the purpose of acquiring location information
about the consumer shall—
(1) identify himself, state that he is confirming or correcting location information concerning the consumer, and, only if
expressly requested, identify his employer;
(2) not state that such consumer owes any debt;
(3) not communicate with any such person more than once
unless requested to do so by such person or unless the debt collector reasonably believes that the earlier response of such person is erroneous or incomplete and that such person now has
correct or complete location information;
(4) not communicate by post card;
(5) not use any language or symbol on any envelope or in
the contents of any communication effected by the mails or
telegram that indicates that the debt collector is in the debt
collection business or that the communication relates to the
collection of a debt; and
(6) after the debt collector knows the consumer is represented by an attorney with regard to the subject debt and
has knowledge of, or can readily ascertain, such attorney's
name and address, not communicate with any person other
than that attorney, unless the attorney fails to respond within
a reasonable period of time to communication from the debt
collector.
§805. [15 U.S.C. 1692c] Communication in connection with
debt collection
(a) COMMUNICATION WITH THE CONSUMER GENERALLY.—With-

out the prior consent of the consumer given directly to the debt collector or the express permission of a court of competent jurisdiction, a debt collector may not communicate with a consumer in connection with the collection of any debt—
(1) at any unusual time or place or a time or place known
or which should be known to be inconvenient to the consumer.
In the absence of knowledge of circumstances to the contrary,
a debt collector shall assume that the convenient time for communicating with a consumer is after 8 o'clock antimeridian and
before 9 o'clock postmeridian, local time at the consumer's location;
(2) if the debt collector knows the consumer is represented
by an attorney with respect to such debt and has knowledge
of, or can readily ascertain, such attorney's name and address,
unless the attorney fails to respond within a reasonable period
of time to a communication from the debt collector or unless
the attorney consents to direct communication with the
consumer; or




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FAIR DEBT COLLECTION PRACTICES ACT

210

(3) at the consumer's place of employment if the debt collector knows or has reason to know that the consumer's employer prohibits the consumer from receiving such communication.
(b) COMMUNICATION WITH THIRD PARTIES.—Except as provided
in section 804, without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of
competent jurisdiction, or as reasonably necessary to effectuate a
post judgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting
agency if otherwise permitted by law, the creditor, the attorney of
the creditor, or the attorney of the debt collector.
(c) CEASING COMMUNICATION.—If a consumer notifies a debt
collector in writing that the consumer refuses to pay a debt or that
the consumer wishes the debt collector to cease furth er communication with the consumer, the debt collector shall not communicate
further with the consumer with respect to such debt, except—
(1) to advise the consumer that the debt collector's further
efforts are being terminated:
(2) to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked
by such debt collector or creditor; or
(3) where applicable, to notify the consumer that the debt
collector or creditor intends to invoke a specified remedy.
If such notice from the consumer is made by mail, notification shall
be complete upon receipt.
(d) For the purpose of this section, the term "consumer" includes the consumer's spouse, parent (if the consumer is a minor),
guardian, executor, or administrator.
§ 806. [15 U.S.C. 1692d] Harassment or abuse
A debt collector may not engage in any conduct the natural
consequence of which is to harass, oppress, or abuse any person in
connection with the collection of a debt. Without limiting the general application of the foregoing, the following conduct is a violation
of this section:
(1) The use or threat of use of violence or other criminal
means to harm the physical person, reputation, or property of
any person.
(2) The use of obscene or profane language or language the
natural consequence of which is to abuse the hearer or reader.
(3) The publication of a list of consumers who allegedly
refuse to pay debts, except to a consumer reporting agency or
to persons meeting the requirements of section 603(f) or 604(3)
of this Act.
(4) The advertisement for sale of any debt to coerce payment of the debt.
(5) Causing a telephone to ring or engaging any person in
telephone conversation repeatedly or continuously with intent
to annoy, abuse, or harass any person at the called number.
(6) Except as provided in section 804, the placement of
telephone calls without meaningful disclosure of the caller's
identity.




211

FAIR DEBT COLLECTION PRACTICES ACT

Sec. 807

§ 807. [15 U.S.C. 1692e] False or misleading representations
A debt collector may not use any false, deceptive, or misleading
representation or means in connection with the collection of any
debt. Without limiting the general application of the foregoing, the
following conduct is a violation of this section:
(1) The false representation or implication that the debt
collector is vouched for, bonded by, or affiliated with the United States or any State, including the use of any badge, uniform, or facsimile thereof.
(2) The false representation of—
(A) the character, amount, or legal status of any debt;
or
(B) any services rendered or compensation which may
be lawfully received by any debt collector for the collection
of a debt.
(3) The false representation or implication that any individual is an attorney or that any communication is from an attorney.
(4) The representation or implication that nonpayment of
any debt will result in the arrest or imprisonment of any person or the seizure, garnishment, attachment, or sale of any
property or wages of any person unless such action is lawful
and the debt collector or creditor intends to take such action.
(5) The threat to take any action that cannot legally be
taken or that is not intended to be taken.
(6) The false representation or implication that a sale, referral, or other transfer of any interest in a debt shall cause
the consumer to—
(A) lose any claim or defense to payment of the debt;
or
(B) become subject to any practice prohibited by this
title.
(7) The false representation or implication that the
consumer committed any crime or other conduct in order to
disgrace the consumer.
(8) Communicating or threatening to communicate to any
person credit information which is known or which should be
known to be false, including the failure to communicate that
a disputed debt is disputed.
(9) The use or distribution of any written communication
which simulates or is falsely represented to be a document authorized, issued, or approved by any court, official, or agency
of the United States or any State, or which creates a false impression as to its source, authorization, or approval.
(10) The use of any false representation or deceptive
means to collect or attempt to collect any debt or to obtain information concerning a consumer.
(11) Except as otherwise provided for communications to
acquire location information under section 804, the failure to
disclose clearly in all communications made to collect a debt or
to obtain information about a consumer, that the debt collector
is attempting to collect a debt and that any information obtained will be used for that purpose.




Sec. 808

FAIR DEBT COLLECTION PRACTICES ACT

212

(12) The false representation or implication that accounts
have been turned over to innocent purchasers for value.
(13) The false representation or implication that documents are legal process.
(14) The use of any business, company, or organization
name other than the true name of the debt collector's business,
company, or organization.
(15) The false representation or implication that documents are not legal process forms or do not require action by
the consumer.
(16) The false representation or implication that a debt collector operates or is employed by a consumer reporting agency
as defined by section 603(f) of this Act.
§808. [15 U.S.C. 1692fJ Unfair practices
A debt collector may not use unfair or unconscionable means
to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation
of this section:
(1) The collection of any amount (including any interest,
fee, charge, or expense incidental to the principal obligation)
unless such amount is expressly authorized by the agreement
creating the debt or permitted by law.
(2) The acceptance by a debt collector from any person of
a check or other payment instrument postdated by more than
five days unless such person is notified in writing of the debt
collector's intent to deposit such check or instrument not more
than ten nor less than three business days prior to such deposit.
(3) The solicitation by a debt collector of any postdated
check or other postdated payment instrument for the purpose
of threatening or instituting criminal prosecution.
(4) Depositing or threatening to deposit any postdated
check or other postdated payment instrument prior to the date
on such check or instrument.
(5) Causing charges to be made to any person for communications by concealment of the true purpose of the communication. Such charges include, but are not limited to, collect
telephone calls and telegram fees.
(6) Taking or threatening to take any nonjudicial action to
effect dispossession or disablement of property if—
(A) there is no present right to possession of the property claimed as collateral through an enforceable security
interest;
(B) there is no present intention to take possession of
the property; or
(C) the property is exempt by law from such dispossession or disablement.
(7) Communicating with a consumer regarding a debt by
post card.
(8) Using any language or symbol, other than the debt collector's address, on any envelope when communicating with a
consumer by use of the mails or by telegram, except that a




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FAIR DEBT COLLECTION PRACTICES ACT

Sec. 811

debt collector may use his business name if such name does
not indicate that he is in the debt collection business.
§809. [15 U.S.C. 1692g] Validation of debts
(a) Within five days after the initial communication with a
consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the
initial communication or the consumer has paid the debt, send the
consumer a written notice containing—
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty
days after receipt of the notice, disputes the validity of the
debt, or any portion thereof, the debt will be assumed to be
valid by the debt collector;
(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or
any portion thereof, is disputed, the debt collector will obtain
verification of the debt or a copy of a judgment against the
consumer and a copy of such verification or judgment will be
mailed to the consumer by the debt collector; and
(5) a statement that, upon the consumer's written request
within the thirty-day period, the debt collector will provide the
consumer with the name and address of the original creditor,
if different from the current creditor.
(b) If the consumer notifies the debt collector in writing within
the thirty-day period described in subsection (a) that the debt, or
any portion thereof, is disputed, or that the consumer requests the
name and address of the original creditor, the debt collector shall
cease collection of the debt, or any disputed portion thereof, until
the debt collector obtains verification of the debt or a copy of a
judgment, or the name and address of the original creditor, and a
copy of such verification or judgment, or name and address of the
original creditor, is mailed to the consumer by the debt collector.
(c) The failure of a consumer to dispute the validity of a debt
under this section may not be construed by any court as an admission of liability by the consumer.
§810. [15 U.S.C. 1692h] Multiple debts
If any consumer owes multiple debts and makes any single
payment to any debt collector with respect to such debts, such debt
collector may not apply such payment to any debt which is disputed by the consumer and where applicable, shall apply such payment in accordance with the consumer's directions.
§811.

[15 U.S.C. 1692i] Legal actions by debt collectors
(a) Any debt collector who brings any legal action on a debt
against any consumer shall—
(1) in the case of an action to enforce an interest in real
property securing the consumer's obligation, bring such action
only in a judicial district or similar legal entity in which such
real property is located; or




Sec. 812

FAIR DEBT COLLECTION PRACTICES ACT

214

(2) in the case of an action not described in paragraph (1),
bring such action only in the judicial district or similar legal
entity—
(A) in which such consumer signed the contract sued
upon; or
(B) in which such consumer resides at the commencement of the action.
(b) Nothing in this title shall be construed to authorize the
bringing of legal actions by debt collectors.
§ 812. [15 U.S.C. 1692j] Furnishing certain deceptive forms
(a) It is unlawful to design, compile, and furnish any form
knowing that such form would be used to create the false belief in
a consumer that a person other than the creditor of such consumer
is participating in tne collection of or in an attempt to collect a debt
such consumer allegedly owes such creditor, when in fact such person is not so participating.
(b) Any person who violates this section shall be liable to the
same extent and in the same manner as a debt collector is liable
under section 813 for failure to comply with a provision of this title.
§813. [15 U.S.C. 1692k] Civil liability
(a) Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this title with respect to any person is liable to such person in an amount equal to
the sum of—
(1) any actual damage sustained by such person as a result
of such failure;
(2)(A) in the case of any action by an individual, such additional damages as the court may allow, but not exceeding
$1,000; or
(B) in the case of a class action, (i) such amount for each
named plaintiff as could be recovered under subparagraph (A),
and (ii) such amount as the court may allow for all other class
members, without regard to a minimum individual recovery,
not to exceed the lesser of $500,000 or 1 per centum of the net
worth of the debt collector; and
(3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorne/s fee as determined by the court. On a finding by
the court that an action under this section was brought in bad
faith and for the purpose of harassment, the court may award
to the defendant attorney's fees reasonable in relation to the
work expended and costs.
(b) In determining the amount of liability in any action under
subsection (a), the court shall consider, among other relevant factors—
(1) in any individual action under subsection (a)(2)(A), the
frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, and the extent to which
such noncompliance was intentional; or
(2) in any class action under subsection (a)(2)(B), the frequency and persistence of noncompliance by the debt collector,
tne nature of such noncompliance, the resources of the debt




215

FAIR DEBT COLLECTION PRACTICES ACT

Sec. 814

collector, the number of persons adversely affected, and the extent to which the debt collector's noncompliance was intentional.
(c) A debt collector may not be held liable in any action
brought under this title if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted
from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.
(d) An action to enforce any liability created by this title may
be brought in any appropriate United States district court without
regard to the amount in controversy, or in any other court of com>etent jurisdiction, within one year from the date on which the vioation occurs.
(e) No provision of this section imposing any liability shall
apply to any act done or omitted in good faith in conformity with
any advisory opinion of the Commission, notwithstanding that after
such act or omission has occurred, such opinion is amended, rescinded, or determined by judicial or other authority to be invalid
for any reason.

f

§814.

[15 U.S.C. 1692/] Administrative enforcement
(a) Compliance with this title shall be enforced by the Commission, except to the extent that enforcement of the requirements imposed under this title is specifically committed to another agency
under subsection (b). For purpose of the exercise by the Commission of its functions and powers under the Federal Trade Commission Act, a violation of this title shall be deemed an unfair or deceptive act or practice in violation of that Act. All of the functions
and powers of the Commission under the Federal Trade Commission Act are available to the Commission to enforce compliance by
any person with this title, irrespective of whether that person is
engaged in commerce or meets any other jurisdictional tests in the
Federal Trade Commission Act, including the power to enforce the
rovisions of this title in the same manner as if the violation had
een a violation of a Federal Trade Commission trade regulation
rule.
(b) Compliance with any requirements imposed under this title
shall be enforced under—
(1) section 8 of the Federal Deposit Insurance Act, in the
case of—
(A) national banks, and Federal branches and Federal
agencies of foreign banks, by the Office of the Comptroller
of the Currency;
(B) member banks of the Federal Reserve System
(other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies,
and insured State branches of foreign banks), commercial
lending companies owned or controlled by foreign banks,
and organizations operating under section 25 or 25(a) 1 of
the Federal Reserve Act, by the Board of Governors of the
Federal Reserve System; and

E

1
Section 25(a) of the Federal Reserve Act was redesignated as section 25A by section 142(e)(2)
of the Federal Deposit Insurance Corporation Improvement Act of 1991.




Sec. 815

FAIR DEBT COLLECTION PRACTICES ACT

216

(C) banks insured by the Federal Deposit Insurance
Corporation (other than members of the Federal Reserve
System) and insured State branches of foreign banks, by
tne Board of Directors of the Federal Deposit Insurance
Corporation;
(2) section 8 of the Federal Deposit Insurance Act, by the
Director of the Office of Thrift Supervision, in the case of a
savings association the deposits of which are insured by the
Federal Deposit Insurance Corporation;
(3) the Federal Credit Union Act, by the Administrator of
the National Credit Union Administration with respect to any
Federal credit union;
(4) the Acts to regulate commerce, by the Interstate Commerce Commission with respect to any common carrier subject
to those Acts;
(5) the Federal Aviation Act of 1958, by the Secretary of
Transportation with respect to any air carrier or any foreign
air carrier subject to that Act; and
(6) the Packers and Stockyards Act, 1921 (except as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any activities subject to that Act.
The terms used in paragraph (1) that are not defined in this title
or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them
in section 1(b) of the International Banking Act of 1978 (12 U.S.C.
3101).
(c) For the purpose of the exercise by any agency referred to
in subsection (b) of its powers under any Act referred to in that
subsection, a violation of any requirement imposed under this title
shall be deemed to be a violation of a requirement imposed under
that Act. In addition to its powers under any provision of law specifically referred to in subsection (b), each of the agencies referred
to in that subsection may exercise, for the purpose of enforcing
compliance with any requirement imposed under this title any
other authority conferred on it by law, except as provided in subsection (d).
(d) Neither the Commission nor any other agency referred to
in subsection (b) may promulgate trade regulation rules or other
regulations with respect to the collection of debts by debt collectors
as defined in this title.
§815.

[15 U.S.C. 1692m] Reports to Congress by the Commission
(a) Not later than one year after the effective date of this title
and at one-year intervals thereafter, the Commission shall make
reports to the Congress concerning the administration of its functions under this title, including such recommendations as the Commission deems necessary or appropriate. In addition, each report of
the Commission shall include its assessment of the extent to which
compliance with this title is being achieved and a summary of the
enforcement actions taken by the Commission under section 814 of
this title.
(b) In the exercise of its functions under this title, the Commission may obtain upon request the views of any other Federal agen-




217

ELECTRONIC FUND TRANSFER ACT

Sec. 903

cy which exercises enforcement functions under section 814 of this
title.
§816. [15 U.S.C. 1692n] Relation to State laws
This title does not annul, alter, or affect, or exempt any person
subject to the provisions of this title from complying with the laws
of any State with respect to debt collection practices, except to the
extent that those laws are inconsistent with any provision of this
title, and then only to the extent of the inconsistency. For purposes
of this section, a State law is not inconsistent with this title if the
protection such law affords any consumer is greater than the protection provided by this title.
§817. [15 U.S.C. 1692o] Exemption for State regulation
The Commission shall by regulation exempt from the requirements of this title any class of debt collection practices within any
State if the Commission determines that under the law of that
State that class of debt collection practices is subject to requirements substantially similar to those imposed by this title, and that
there is adequate provision for enforcement.
§818.

[15 U.S.C. 1692 note] Effective date
This title takes effect upon the expiration of six months after
the date of its enactment, but section 809 shall apply only with respect to debts for which the initial attempt to collect occurs after
such effective date.

TITLE IX—ELECTRONIC FUND TRANSFERS
§901.

[15 U.S.C. 1601 note] Short title
This title may be cited as the "Electronic Fund Transfer Act".
§ 902. [15 U.S.C. 1693] Findings and purpose
(a) The Congress finds that the use of electronic systems to
transfer funds provides the potential for substantial benefits to consumers. However, due to the unique characteristics of such systems, the application of existing consumer protection legislation is
unclear, leaving the rights and liabilities of consumers, financial institutions, and intermediaries in electronic fund transfers undefined.
(b) It is the purpose of this title to provide a basic framework
establishing the rights, liabilities, and responsibilities of participants in electronic fund transfer systems. The primary objective of
this title, however, is the provision of individual consumer rights.
§903. [15 U.S.C. 1693a] Definitions
As used in this title—
(1) the term "accepted card or other means of access"
means a card, code, or other means of access to a consumer's
account for the purpose of initiating electronic fund transfers
when the person to whom such card or other means of access
was issued has requested and received or has signed or has
used, or authorized another to use, such card or other means




Sec. 903

ELECTRONIC FUND TRANSFER ACT

218

of access for the purpose of transferring money between accounts or obtaining money, property, labor, or services;
(2) the term "account" means a demand deposit, savings
deposit, or other asset account (other than an occasional or incidental credit balance in an open end credit plan as defined
in section 103(i) of this Act), as described in regulations of the
Board, established primarily for personal, family, or household
purposes, but such term does not include an account held by
a financial institution pursuant to a bona fide trust agreement;
(3) the term "Board" means the Board of Governors of the
Federal Reserve System;
(4) the term "business day" means any day on which the
offices of the consumer's financial institution involved in an
electronic fund transfer are open to the public for carrying on
substantially all of its business functions;
(5) the term "consumer" means a natural person;
(6) the term "electronic fund transfer" means any transfer
of funds, other than a transaction originated by check, draft,
or similar paper instrument, which is initiated through an
electronic terminal, telephonic instrument, or computer or
magnetic tape so as to order, instruct, or authorize a financial
institution to debit or credit an account. Such term includes,
but is not limited to, point-of-sale transfers, automated teller
machine transactions, direct deposits or withdrawals of funds,
and transfers initiated by telephone. Such term does not include—
(A) any check guarantee or authorization service
which does not directly result in a debit or credit to a consumer's account:1
(B) any transfer of funds, other than those processed
by automated clearinghouse, made by a financial institution on behalf of a consumer by means of a service that
transfers funds held at either Federal Reserve banks or
other depository institutions and which is not designed primarily to transfer funds on behalf of a consumer;
(C) any transaction the primary purpose of which is
the purchase or sale of securities or commodities through
a broker-dealer registered with or regulated by the Securities and Exchange Commission;
(D) any automatic transfer from a savings account to
a demand deposit account pursuant to an agreement between a consumer and a financial institution for the purpose of covering an overdraft or maintaining an agreed
upon minimum balance in the consumer's demand deposit
account; or
(E) any transfer of funds which is initiated by a telephone conversation between a consumer and an officer or
employee of a financial institution which is not pursuant
to a prearranged plan and under which periodic or recurring transfers are not contemplated;
as determined under regulations of the Board;
1

So in original. The colon probably should be a semicolon.




ELECTRONIC FUND TRANSFER ACT

219

Sec. 904

(7) the term "electronic terminal" means an electronic device, other than a telephone operated by a consumer, through
which a consumer may initiate an electronic fund transfer.
Such term includes, but is not limited to, point-of-sale terminals, automated teller machines, and cash dispensing machines;
(8) the term "financial institution" means a State or National bank, a State or Federal savings and loan association,
a mutual savings bank, a State or Federal credit union, or any
other person who, directly or indirectly, holds an account belonging to a consumer;
(9) the term "preauthorized electronic fund transfer"
means an electronic fund transfer authorized in advance to
recur at substantially regular intervals;
(10) the term "State" means any State, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any political subdivision of any
of the foregoing; and
(11) the term "unauthorized electronic fund transfer"
means an electronic fund transfer from a consumer's account
initiated by a person other than the consumer without actual
authority to initiate such transfer and from which the
consumer receives no benefit, but the term does not include
any electronic fund transfer (A) initiated by a person other
than the consumer who was furnished with the card, code, or
other means of access to such consumer's account by such
consumer, unless the consumer has notified the financial institution involved that transfers by such other person are no
longer authorized, (B) initiated with fraudulent intent by the
consumer or any person acting in concert with the consumer,
or (C) which constitutes an error committed by a financial institution.
§904. [15 U.S.C. 1693b] Regulations
(a) The Board shall prescribe regulations to carry out the purposes of this title. In prescribing such regulations, the Board shall:
(1) consult with the other agencies referred to in section
917 and take into account, and allow for, the continuing evolution of electronic banking services and the technology utilized in such services,
(2) prepare an analysis of economic impact which considers
the costs and benefits to financial institutions, consumers, and
other users of electronic fund transfers, including the extent to
which additional documentation, reports, records, or other
paper work would be required, and the effects upon competition in the provision of electronic banking services among large
and small financial institutions and the availability of such
services to different classes of consumers, particularly low income consumers,
(3) to the extent practicable, the Board shall demonstrate
that the consumer protections of the proposed regulations outweigh the compliance costs imposed upon consumers and financial institutions, and


89-335 9 5 - 8


Sec. 905

ELECTRONIC FUND TRANSFER ACT

220

(4) any proposed regulations and accompanying analyses
shall be sent promptly to Congress by the Board.
(b) The Board shall issue model clauses for optional use by financial institutions to facilitate compliance with the disclosure reuirements of section 905 and to aid consumers in understanding
lie rights and responsibilities of participants in electronic fund
transfers by utilizing readily understandable language. Such model
clauses shall be adopted after notice duly given in the Federal Register and opportunity for public comment in accordance with section 553 of title 5, United States Code. With respect to the disclosures required by section 905(a) (3) and (4), the Board shall take
account of variations in the services and charges under different
electronic fund transfer systems and, as appropriate, shall issue alternative model clauses for disclosure of these differing account
terms.
(c) Regulations prescribed hereunder may contain such classifications, differentiations, or other provisions, and may provide for
such adjustments and exceptions for any class of electronic fund
transfers, as in the judgment of the Board are necessary or proper
to effectuate the purposes of this title, to prevent circumvention or
evasion thereof, or to facilitate compliance therewith. The Board
shall by regulation modify the requirements imposed by this title
on small financial institutions if the Board determines that such
modifications are necessary to alleviate any undue compliance burden on small financial institutions and such modifications are consistent with the purpose and objective of this title.
(d) In the event that electronic fund transfer services are made
available to consumers by a person other than a financial institution holding a consumer's account, the Board shall by regulation
assure that the disclosures, protections, responsibilities, and remedies created by this title are made applicable to such persons and
services.
§905. [15 U.S.C. 1693c] Terms and conditions of transfers
(a) The terms and conditions of electronic fund transfers involving a consumer's account shall be disclosed at the time the
consumer contracts for an electronic fund transfer service, in accordance with regulations of the Board. Such disclosures shall be
in readily understandable language and shall include, to the extent
applicable—
(1) the consumer's liability for unauthorized electronic
fund transfers and, at the financial institution's option, notice
of the advisability of prompt reporting of any loss, theft, or unauthorized use of a card, code, or other means of access;
(2) the telephone number and address of the person or office to be notified in the event the consumer believes than x an
unauthorized electronic fund transfer has been or may be effected;
(3) the type and nature of electronic fund transfers which
the consumer may initiate, including any limitations on the
frequency or dollar amount of such transfers, except that the
details of such limitations need not be disclosed if their con-

a

1

So in original. Probably should be "that".




221

ELECTRONIC FUND TRANSFER ACT

Sec. 906

fidentiality is necessary to maintain the security of an electronic fund transfer system, as determined by the Board;
(4) any charges for electronic fund transfers or for the
right to make sucn transfers;
(5) the consumer's right to stop payment of a
preauthorized electronic fund transfer and the procedure to initiate such a stop payment order;
(6) the consumer's right to receive documentation of electronic fund transfers under section 906;
(7) a summary, in a form prescribed by regulations of the
Board, of the error resolution provisions of section 908 and the
consumer's rights thereunder. The financial institution shall
thereafter transmit such summary at least once per calendar
year;
(8) the financial institution's liability to the consumer
under section 910; and
(9) under what circumstances the financial institution will
in the ordinary course of business disclose information concerning the consumer's account to third persons.
(b) A financial institution shall notify a consumer in writing at
least twenty-one days prior to the effective date of any change in
any term or condition of the consumer's account required to be disclosed under subsection (a) if such change would result in greater
cost or liability for such consumer or decreased access to the consumer's account. A financial institution may, however, implement
a change in the terms or conditions of an account without prior notice when such change is immediately necessary to maintain or restore the security of an electronic fund transfer system or a consumer's account. Subject to subsection (a)(3), the Board shall require subsequent notification if such a change is made permanent.
(c) For any account of a consumer made accessible to electronic
fund transfer prior to the effective date of this title, the information
required to be disclosed to the consumer under subsection (a) shall
be disclosed not later than the earlier of—
(1) the first periodic statement required by section 906(c)
after the effective date of this title; or
(2) thirty days after the effective date of this title.
§ 906. [15 U.S.C. 1693d] Documentation of tranfers; periodic
statements
(a) For each electronic fund transfer initiated by a consumer
from an electronic terminal, the financial institution holding such
consumer's account shall, directly or indirectly, at the time the
transfer is initiated, make available to the consumer written documentation of such transfer. The documentation shall clearly set
forth to the extent applicable—
(1) the amount involved and date the transfer is initiated;
(2) the type of transfer;
(3) the identity of the consumer's account with the financial institution from which or to which funds are transferred;
(4) the identity of any third party to whom or from whom
funds are transferred; and
(5) the location or identification of the electronic terminal
involved.




Sec. 906

ELECTRONIC FUND TRANSFER ACT

222

(b) For a consumer's account which is scheduled to be credited
by a preauthorized electronic fund transfer from the same payor at
least once in each successive sixty-day period, except where the
payor provides positive notice of the transfer to the consumer, the
financial institution shall elect to provide promptly either positive
notice to the consumer when the credit is made as scheduled, or
negative notice to the consumer when the credit is not made as
scheduled, in accordance with regulations of the Board. The means
of notice elected shall be disclosed to the consumer in accordance
with section 905.
(c) A financial institution shall provide each consumer with a
periodic statement for each account of such consumer that may be
accessed by means of an electronic fund transfer. Except as provided in subsections (d) and (e), such statement shall be provided
at least monthly for each monthly or shorter cycle in which an electronic fund transfer affecting the account has occurred, or every
three months, whichever is more frequent. The statement, which
may include information regarding transactions other than electronic fund transfers, shall clearly set forth—
(1) with regard to each electronic fund transfer during the
period, the information described in subsection (a), which may
be provided on an accompanying document;
(2) the amount of any fee or charge assessed by the financial institution during the period for electronic fund transfers
or for account maintenance;
(3) the balances in the consumer's account at the beginning of the period and at the close of the period; and
(4) the address and telephone number to be used by the financial institution for the purpose of receiving any statement
inquiry or notice of account error from the consumer. Such address and telephone number shall be preceded by the caption
"Direct Inquires To:" or other similar language indicating that
the address and number are to be used for such inquiries or
notices.
(d) In the case of a consumer's passbook account which may
not be accessed by electronic fond transfers other than
preauthorized electronic fund transfers crediting the account, a financial institution may, in lieu of complying with the requirements
of subsection (c), upon presentation of the passbook provide the
consumer in writing with the amount and date of each such transfer involving the account since the passbook was last presented.
(e) In the case of a consumer's account, other than a passbook
account, which may not be accessed by electronic fund transfers
other than preauthorized electronic fund transfers crediting the account, the financial institution may provide a periodic statement on
a quarterly basis which otherwise complies with the requirements
of subsection (c).
(f) In any action involving a consumer, any documentation reuired by this section to be given to the consumer which indicates
iat an electronic fund transfer was made to another person shall
be admissible as evidence of such transfer and shall constitute
prima facie proof that such transfer was made.

a




23
2

ELECTRONIC FUND TRANSFER ACT

Sec. 908

§ 907. [15 U.S.C. 1693e] Preauthorized transfers
(a) A preauthorized electronic fund transfer from a consumer's
account may be authorized by the consumer only in writing, and
a copy of such authorization shall be provided to the consumer
when made. A consumer may stop payment of a preauthorized electronic fund transfer by notifying the financial institution orally or
in writing at any time up to three business days preceding the
scheduled date of such transfer. The financial institution may require written confirmation to be provided to it within fourteen davs
of an oral notification if, when the oral notification is made, the
consumer is advised of such requirement and the address to which
such confirmation should be sent.
(b) In the case of preauthorized transfers from a consumer's account to the same person which may vary in amount, the financial
institution or designated payee shall, prior to each transfer, provide
reasonable advance notice to the consumer, in accordance with regulations of the Board, of the amount to be transferred and the
scheduled date of the transfer.
§908. [15 U.S.C. 1693f] Error resolution
(a) If a financial institution, within sixty days after haying
transmitted to a consumer documentation pursuant to section 906
(a), (c), or (d) or notification pursuant to section 906(b), receives
oral or written notice in which the consumer—
(1) sets forth or otherwise enables the financial institution
to identify the name and account number of the consumer;
(2) indicates the consumer's belief that the documentation,
or, in the case of notification pursuant to section 906(b), the
consumer's account, contains an error and the amount of such
error; and
(3) sets forth the reasons for the consumer's belief (where
applicable) that an error has occurred,
the financial institution shall investigate the alleged error, determine whether an error has occurred, and report or mail the results
of such investigation and determination to the consumer within ten
business days. The financial institution may require written confirmation to be provided to it within ten business days of an oral
notification of error if, when the oral notification is made, the
consumer is advised of such requirement and the address to which
such confirmation should be sent. A financial institution which requires written confirmation in accordance with the previous sentence need not provisionally recredit a consumer's account in accordance with subsection (c), nor shall the financial institution be
liable under subsection (e) if the written confirmation is not received within the ten-day period referred to in the previous sentence.
(b) If the financial institution determines that an error did
occur, it shall promptly, but in no event more than one business
day after such determination, correct the error, subject to section
909, including the crediting of interest where applicable.
(c) If a financial institution receives notice of an error in the
manner and within the time period specified in subsection (a), it
may, in lieu of the requirements of suosections (a) and (b), within




Sec. 909

ELECTRONIC FUND TRANSFER ACT

224

ten business days after receiving such notice provisionally recredit
the consumer's account for the amount alleged to be in error, subject to section 909, including interest where applicable, pending the
conclusion of its investigation and its determination of whether an
error has occurred. Such investigation shall be concluded not later
than forty-five days after receipt of notice of the error. During the
pendency of the investigation, the consumer shall have full use of
the funcfs provisionally recredited.
(d) If the financial institution determines after its investigation
pursuant to subsection (a) or (c) that an error did not occur, it shall
deliver or mail to the consumer an explanation of its findings within 3 business days after the conclusion of its investigation, and
upon request of the consumer promptly deliver or mail to the
consumer reproductions of all documents which the financial institution relied on to conclude that such error did not occur. The financial institution shall include notice of the right to request reproductions with the explanation of its findings.
(e) If in any action under section 915, the court finds that—
(1) the financial institution did not provisionally recredit a
consumer's account within the ten-day period specified in subsection (c), and the financial institution (A) did not make a
good faith investigation of the alleged error, or (B) did not have
a reasonable basis for believing that the consumer's account
was not in error; or
(2) the financial institution knowingly and willfully concluded that the consumer's account was not in error when such
conclusion could not reasonably have been drawn from the evidence available to the financial institution at the time of its investigation,
then the consumer shall be entitled to treble damages determined
under section 915(a)(1).
(f) For the purpose of this section, an error consists of—
(1) an unauthorized electronic fund transfer;
(2) an incorrect electronic fund transfer from or to the consumer's account;
(3) the omission from a periodic statement of an electronic
fund transfer affecting the consumer's account which should
have been included;
(4) a computational error by the financial institution;
(5) the consumer's receipt of an incorrect amount of money
from an electronic terminal;
(6) a consumer's request for additional information or clarification concerning an electronic fund transfer or any documentation required by this title; or
(7) any other error described in regulations of the Board.
§ 909. [15 U.S.C. 1693g] Consumer liability for unauthorized
transfers
(a) A consumer shall be liable for any unauthorized electronic
fund transfer involving the account of such consumer only if the
card or other means of access utilized for such transfer was an accepted card or other means of access and if the issuer of such card,
code, or other means of access has provided a means whereby the




225

ELECTRONIC FUND TRANSFER ACT

Sec. 909

user of such card, code, or other meana 1 of access can be identified
as the person authorized to use it, such as by signature, photograph, or fingerprint or by electronic or mechanical confirmation.
In no event, however, shall a consumer's liability for an unauthorized transfer exceed the lesser of—
(1) $50; or
(2) the amount of money or value of property or services
obtained in such unauthorized electronic fund transfer prior to
the time the financial institution is notified of, or otherwise becomes aware of, circumstances which lead to the reasonable belief that an unauthorized electronic fund transfer involving the
consumer's account has been or may be effected. Notice under
this paragraph is sufficient when such steps have been taken
as may be reasonably required in the ordinary course of business to provide the financial institution with the pertinent information, whether or not any particular officer, employee, or
agent of the financial institution does in fact receive such information.
Notwithstanding the foregoing, reimbursement need not be made
to the consumer for losses the financial institution establishes
would not have occurred but for the failure of the consumer to report within sixty days of transmittal of the statement (or in extenuating circumstances such as extended travel or hospitalization,
within a reasonable time under the circumstances) any unauthorized electronic fund transfer or account error which appears on the
periodic statement provided to the consumer under section 906. In
addition, reimbursement need not be made to the consumer for
losses which the financial institution establishes would not have occurred but for the failure of the consumer to report any loss or
theft of a card or other means of access within two business days
after the consumer learns of the loss or theft (or in extenuating circumstances such as extended travel or hospitalization, within a
longer period which is reasonable under the circumstances), but the
consumer's liability under this subsection in any such case may not
exceed a total of $500, or the amount of unauthorized electronic
fund transfers which occur following the close of two business days
(or such longer period) after the consumer learns of the loss or
theft but prior to notice to the financial institution under this subsection, whichever is less.
(b) In any action which involves a consumer's liability for an
unauthorized electronic fund transfer, the burden of proof is upon
the financial institution to show that the electronic nind transfer
was authorized or, if the electronic fund transfer was unauthorized,
then the burden of proof is upon the financial institution to establish that the conditions of liability set forth in subsection (a) have
been met, and, if the transfer was initiated after the effective date
of section 905, that the disclosures required to be made to the
consumer under section 905(a) (1) and (2) were in fact made in accordance with such section.
(c) In the event of a transaction which involves both an unauthorized electronic fund transfer and an extension of credit as defined in section 103(e) of this Act pursuant to an agreement be1

So in original. Probably should be "means".




Sec. 910

ELECTRONIC FUND TRANSFER ACT

226

tween the consumer and the financial institution to extend such
credit to the consumer in the event the consumer's account is overdrawn, the limitation on the consumer's liability for such transaction shall be determined solely in accordance with this section.
(d) Nothing in this section imposes liability upon a consumer
for an unauthorized electronic fund transfer in excess of his liability for such a transfer under other appUcable law or under any
agreement with the consumer's financial institution.
(e) Except as provided in this section, a consumer incurs no liability from an unauthorized electronic fund transfer.
§910. [15 U.S.C. 1693h] Liability of financial institutions
(a) Subject to subsections (b) and (c), a financial institution
shall be liable to a consumer for all damages proximately caused
by(1) the financial institution's failure to make an electronic
fund transfer, in accordance with the terms and conditions of
an account, in the correct amount or in a timely manner when
properly instructed to do so by the consumer, except where—
(A) the consumer's account has insufficient funds;
(B) the funds are subject to legal process or other encumbrance restricting such transfer;
(C) such transfer would exceed an established credit
limit;
(D) an electronic terminal has insufficient cash to complete the transaction; or
(E) as otherwise provided in regulations of the Board;
(2) the financial institution's failure to make an electronic
fund transfer due to insufficient funds when the financal1 institution failed to credit, in accordance with the terms and conditions of an account, a deposit of funds to the consumer's account which would have provided sufficient funds to make the
transfer, and
/
/
(3) the financial institution's failure to stop payment of a
preauthorized transfer from a consumer's account when instructed to do so in accordance with the terms and conditions
of the account.
(b) A financial institution shall not be liable under subsection
(a)(1) or (2) if the financial institution shows by a preponderance
of the evidence that its action or failure to act resulted from—
(1) an act of God or other circumstance beyond its control,
that it exercised reasonable care to prevent such an occurrence,
and that it exercised such diligence as the circumstances required; or
(2) a technical malfunction which was known to the
consumer at the time he attempted to initiate an electronic
fund transfer or, in the case of a preauthorized transfer, at the
time such transfer should have occurred.
(c) In the case of a failure described in subsection (a) which
was not intentional and which resulted from a bona fide error, notwithstanding the maintenance of procedures reasonably adapted to
1

So in original. Probably should be "financial".




27
2

ELECTRONIC FUND TRANSFER ACT

Sec. 913

avoid any such error, the financial institution shall be liable for actual damages proved.
§911. [15 U.S.C. 1693i] Issuance of cards or other means of
access
(a) No person may issue to a consumer any card, code, or other
means of access to such consumer's account for the purpose of initiating an electronic fund transfer other than—
(1) in response to a request or application therefor; or
(2) as a renewal of, or in substitution for, an accepted card,
code, or other means of access, whether issued by the initial issuer or a successor.
(b) Notwithstanding the provisions of subsection (a), a person
may distribute to a consumer on an unsolicited basis a card, code,
or other means of access for use in initiating an electronic fund
transfer from such consumer's account, if—
(1) such card, code, or other means of access is not validated;
(2) such distribution is accompanied by a complete disclosure, in accordance with section 905, of the consumer's rights
and liabilities which will apply if such card, code, or other
means of access is validated;
(3) such distribution is accompanied by a clear explanation, in accordance with regulations of the Board, that such
card, code, or other means of access is not validated and how
the consumer may dispose of such code, card, or other means
of access if validation is not desired; and
(4) such card, code, or other means of access is validated
only in response to a request or application from the consumer,
upon verification of the consumer s identity.
(c) For the purpose of subsection (b), a card, code, or other
means of access is validated when it may be used to initiate an
electronic fund transfer.
§912. [15 U.S.C. 1693j] Suspension of obligations
If a system malfunction prevents the effectuation of an electronic fund transfer initiated by a consumer to another person, and
such other person has agreed to accept payment by such means,
the consumer's obligation to the other person shall be suspended
until the malfunction is corrected and tne electronic fund transfer
may be completed, unless such other person has subsequently, by
written request, demanded payment by means other than an electronic fund transfer.
§ 913. [15 U.S.C. 1693k] Compulsory use of electronic fund
transfers
No person may—
(1) condition the extension of credit to a consumer on such
consumer's repayment by means of preauthorized electronic
fund transfers; or
(2) require a consumer to establish an account for receipt
of electronic fund transfers with a particular financial institution as a condition of employment or receipt of a government
benefit.




Sec. 914

ELECTRONIC FUND TRANSFER ACT

228

§914.

[15 U.S.C. 1693/] Waiver of rights
No writing or other agreement between a consumer and any
other person may contain any provision which constitutes a waiver
of any right conferred or cause of action created by this title. Nothing in this section prohibits, however, any writing or other agreement which grants to a consumer a more extensive right or remedy
or greater protection than contained in this title or a waiver given
in settlement of a dispute or action.
§915.

[15 U.S.C. 1693m] Civil liability
(a) Except as otherwise provided by this section and section
910, any person who fails to comply with any provision of this title
with respect to any consumer, except for an error resolved in accordance with section 908, is liable to such consumer in an amount
equal to the sum of—
(1) any actual damage sustained by such consumer as a result of such failure;
(2)(A) in the case of an individual action, an amount not
less than $100 nor greater than $1,000; or
(B) in the case of a class action, such amount as the court
may allow, except that (i) as to each member of the class no
minimum recovery shall be applicable, and (ii) the total recovery under this subparagraph in any class action or series of
class actions arising out of the same failure to comply by the
same person shall not be more than the lesser of $500,000 or
1 per centum of the net worth of the defendant; and
(3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorneys fee as determined by the court.
(b) In determining the amount of liability in any action under
subsection (a), the court shall consider, among other relevant factors—
(1) in any individual action under subsection (a)(2)(A), the
frequency and persistence of noncompliance, the nature of such
noncompliance, and the extent to which the noncompliance was
intentional; or
(2) in any class action under subsection (a)(2)(B), the frequency and persistence of noncompliance, the nature of such
noncompliance, the resources of the defendant, the number of
persons adversely affected, and the extent to which the noncompliance was intentional.
(c) Except as provided in section 910, a person may not be held
liable in any action brought under this section for a violation of
this title if the person shows by a preponderance of evidence that
the violation was not intentional and resulted from a bona fide
error notwithstanding the maintenance of procedures reasonably
adapted to avoid any such error.
(d) No provision of this section or section 916 imposing any liability shall apply to—
(1) any act done or omitted in good faith in conformity
with any rule, regulation, or interpretation thereof by the
Board or in conformity with any interpretation or approval by
an official or employee of the Federal Keserve System duly au-




29
2

ELECTRONIC FUND TRANSFER ACT

Sec. 916

thorized by the Board to issue such interpretations or approvals under such procedures as the Board may prescribe therefor;
or
(2) any failure to make disclosure in proper form if a financial institution utilized an appropriate model clause issued by
the Board,
notwithstanding that after such act, omission, or failure has occurred, such rule, regulation, approval, or model clause is amended,
rescinded, or determined by judicial or other authority to be invalid
for any reason.
(e) A person has no liability under this section for any failure
to comply with any requirement under this title if, prior to the institution of an action under this section, the person notifies the
consumer concerned of the failure, complies with the requirements
of this title, and makes an appropriate adjustment to the consumer's account and pays actual damages or, where applicable, damages in accordance with section 910.
(f) On a finding by the court that an unsuccessful action under
this section was brought in bad faith or for purposes of harassment, the court shall award to the defendant attorney's fees reasonable in relation to the work expended and costs.
(g) Without regard to the amount in controversy, any action
under this section may be brought in any United States district
court, or in any other court of competent jurisdiction, within one
year from the date of the occurrence of the violation.
§916. [15 U.S.C. 1693n] Criminal liability
(a) Whoever knowingly and willfully—
(1) gives false or inaccurate information or fails to provide
information which he is required to disclose by this title or any
regulation issued thereunder; or
(2) otherwise fails to comply with any provision of this
title;
shall be fined not more than $5,000 or imprisoned not more than
one year, or both.
(b) Whoever—
(1) knowingly, in a transaction affecting interstate or foreign commerce, uses or attempts or conspires to use any counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently
obtained debit instrument to obtain money, goods, services, or
anything else of value which within any one-year period has a
value aggregating $1,000 or more; or
(2) with unlawful or fraudulent intent, transports or attempts or conspires to transport in interstate or foreign commerce a counterfeit, fictitious, altered, forged, lost, stolen, or
fraudulently obtained debit instrument knowing the same to be
counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained; or
(3) with unlawful or fraudulent intent, uses any instrumentality of interstate or foreign commerce to sell or transport
a counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained debit instrument knowing the same to be counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently
obtained; or




Sec. 917

ELECTRONIC FUND TRANSFER ACT

230

(4) knowingly receives, conceals, uses, or transports,
money, goods, services, or anything else of value (except tickets
for interstate or foreign transportation) which (A) within any
one-year period has a value aggregating $1,000 or more, (B)
has moved in or is part of, or which constitutes interstate or
foreign commerce, and (C) has been obtained with a counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained debit instrument; or
(5) knowingly receives, conceals, uses, sells, or transports
in interstate or foreign commerce one or more tickets for interstate or foreign transportation, which (A) within any one-year
eriod have a value aggregating $500 or more, and (B) have
een purchased or obtained with one or more counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained
debit instrument; or
(6) in a transaction affecting interstate or foreign commerce, furnishes money, property, services, or anything else of
value, which within any one-year period has a value aggregating $1,000 or more, through the use of any counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained
debit instrument knowingly the same to be counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained—
shall be fined not more than $10,000 or imprisoned not more than
ten years, or both.
(c) As used in this section, the term "debit instrument" means
a card, code, or other device, other than a check, draft, or similar
paper instrument, by the use of which a person may initiate an
electronic fund transfer.
§ 917. [15 U.S.C. 1693o] Administrative enforcement
(a) Compliance with the requirements imposed under this title
shall be enforced under—
(1) section 8 of the Federal Deposit Insurance Act, in the
case of—
(A) national banks, and Federal branches and Federal
agencies of foreign banks, by the Office of the Comptroller
of the Currency;
(B) member banks of the Federal Reserve System
(other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies,
and insured State branches of foreign banks), commercial
lending companies owned or controlled by foreign banks,
and organizations operating under section 25 or 25(a) * of
the Federal Reserve Act, by the Board; and
(C) banks insured by the Federal Deposit Insurance
Corporation (other than members of the Federal Reserve
System) and insured State branches of foreign banks, by
the Board of Directors of the Federal Deposit Insurance
Corporation;
(2) section 8 of the Federal Deposit Insurance Act, by the
Director of the Office of Thrift Supervision, in the case of a

E

1
Section 25(a) of the Federal Reserve Act was redesignated as section 25A by section 142(eX2)
of the Federal Deposit Insurance Corporation Improvement Act of 1991.




231

ELECTRONIC FUND TRANSFER ACT

Sec. 918

savings association the deposits of which are insured by the
Federal Deposit Insurance Corporation;
(3) the Federal Credit Union Act, by the Administrator of
the National Credit Union Administration with respect to any
Federal credit union. 2
(4) the Federal Aviation Act of 1958, by the Civil Aero- .
nautics Board, with respect to any air carrier or foreign air
carrier subject to that Act; and
(5) the Securities Exchange Act of 1934, by the Securities
and Exchange Commission, with respect to any broker or dealer subject to that Act.
The terms used in paragraph (1) that are not defined in this title
or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them
in section Kb) of the International Banking Act of 1978 (12 U.S.C.
3101).
(b) For the purpose of the exercise by any agency referred to
in subsection (a) of its powers under any Act referred to in that
subsection, a violation of any requirement imposed under this title
shall be deemed to be a violation of a requirement imposed under
that Act. In addition to its powers under any provision of law specifically referred to in subsection (a), each of the agencies referred
to in that subsection may exercise, for the purpose of enforcing
compliance with any requirement imposed under this title, any
other authority conferred on it by law.
(c) Except to the extent that enforcement of the requirements
imposed under this title is specifically committed to some other
Government agency under subsection (a), the Federal Trade Commission shall enforce such requirements. For the purpose of the exercise by the Federal Trade Commission of its functions and powers
under the Federal Trade Commission Act, a violation of any requirement imposed under this title shall be deemed a violation of
a requirement imposed under that Act. All of the functions and
powers of the Federal Trade Commission under the Federal Trade
Commission Act are available to the Commission to enforce compliance by any person subject to the jurisdiction of the Commission
with the requirements imposed under this title, irrespective of
whether that person is engaged in commerce or meets any other jurisdictional tests in the Federal Trade Commission Act.
§918. [15 U.S.C. 1693p] Reports to Congress
(a) Not later than twelve months after the effective date of this
title and at one-year intervals thereafter, the Board shall make reports to the Congress concerning the administration of its functions
under this title, including sucn recommendations as the Board
deems necessary and appropriate. In addition, each report of the
Board shall include its assessment of the extent to which compliance with this title is being achieved, and a summary of the enforcement actions taken under section 917 of this title. In such report, the Board shall particularly address the effects of this title on
the costs and benefits to financial institutions and consumers, on
competition, on the introduction of new technology, on the oper2

So in original. The period probably should be a semicolon.




Sec. 919

ELECTRONIC FUND TRANSFER ACT

232

ations of financial institutions, and on the adequacy of consumer
protection.
(b) In the exercise of its functions under this title, the Board
may obtain upon request the views of any other Federal agency
which, in the judgment of the Board, exercises regulatory or supervisory functions with respect to any class of persons subject to this
title.
§919. [15 U.S.C. 1693q] Relation to State laws
This title does not annul, alter, or affect the laws of any State
relating to electronic fund transfers, except to the extent that those
laws are inconsistent with the provisions of this title, and then only
to the extent of the inconsistency. A State law is not inconsistent
with this title if the protection such law affords any consumer is
greater than the protection afforded by this title. The Board shall,
upon its own motion or upon the request of any financial institution, State, or other interested party, submitted in accordance with
procedures prescribed in regulations of the Board, determine
whether a State requirement is inconsistent or affords greater protection. If the Board determines that a State requirement is inconsistent, financial institutions shall incur no liability under the law
of the State for a good faith failure to comply with that law, notwithstanding that such determination is subsequently amended, rescinded, or determined by judicial or other authority to be invalid
for any reason. This title does not extend the applicability of any
such law to any class of persons or transactions to which it would
not otherwise apply.
§920. [15 U.S.C. 1693r] Exemption for State regulation
The Board shall by regulation exempt from the requirements
of this title any class of electronic fund transfers within any State
if the Board determines that under the law of that State that class
of electronic fund transfers is subject to requirements substantially
similar to those imposed by this title, and that there is adequate
provision for enforcement.
§921. [15 U.S.C. 1693 note] Effective date
This title takes effect upon the expiration of eighteen months
from the date of its enactment, except that sections 909 and 911
take effect upon the expiration of ninety days after the date of
enactment.




DEPOSITORY INSTITUTION MANAGEMENT
INTERLOCKS ACT







DEPOSITORY INSTITUTION MANAGEMENT
INTERLOCKS ACT
SEC. 201. [12 U.S.C. 3201 note] This title may be cited as the
"Depository Institution Management Interlocks Act".
SEC. 202. [12 U.S.C. 3201] As used in this title—
(1) the term "depository institution ,, means a commercial
bank, a savings bank, a trust company, a savings and loan association, a building and loan association, a homestead association, a cooperative Dank, an industrial bank, or a credit union;
(2) the term "depository holding company" means a bank
holding company as defined in section 2(a) of the Bank Holding
Company Act of 1956, a company which would be a bank holding company as defined in section 2(a) of the Bank Holding
Company Act of 1956 but for the exemption contained in section 2(a)(5)(F) thereof, or a savings and loan holding company
as defined in section ^OSfaXDd)1 of the National Housing Act;
(3) the characterization of any corporation (including depository institutions and depository holding companies), as an
affiliate of," or as "affiliated" with any other corporation
means that—
(A) one of the corporations is a depository holding company and the other is a subsidiary thereof, or both corporations are subsidiary of the same depository holding company, as the term "subsidiary" is denned in either section
2(d) of the Bank Holding Company Act of 1956 in the case
of a bank holding company or section 408(a)(1)(H)1 of the
National Housing Act in the case of a savings and loan
holding company; or 2
(B) more than 25 percent of the voting stock of one
corporation is beneficially owned in the aggregate by one
or more persons who also beneficially own in the aggregate
more than 25 percent of the voting stock of the other corporation; or 2
(C) one of the corporations is a trust company all of
the stock of which, except for directors qualifying shares,
was owned by one or more mutual savings banks on the
date of enactment of this Act, and the other corporation is
a mutual savings bank; or 2
(D) one of the corporations is a bank, insured by the
Federal Deposit Insurance Corporation and chartered
under State law, and is a bankers' bank, described in
Paragraph Seventh of section 5136 of the Revised Statutes;
or
1
Repealed by Public Law 101-73, §407, 103 Stat. 363. The term "section 10(aXlXD) of the
Home Owners' Loan Act" should probably be substituted for such reference.
2
So in original. The word "or" probably should not appear.

235




Sec. 203

DEPOSITORY INSTITUTION MANAGEMENT INTERLOCKS ACT

236

(E) one of the corporations is a bank, chartered under
State law and insured by the Federal Deposit Insurance
Corporation, the voting securities of which are held only by
persons who are officers of other banks, as permitted bv
State law, and which bank is primarily engaged in providing banking services for other banks and not the public:
Provided, however, That in no case shall the voting securities of such corporation be held by such officers of other
banks in excess of 6 per centum of the paid-in capital and
6 per centum of the surplus of such a bank.1
(4) the term "management official" means an employee or
officer with management functions, a director (including an advisory or honorary director, except in the case of a depository
institution with total assets of less than $100,000,000), a trustee of a business organization under the control of trustee, or
any person who has a representative or nominee serving in any
such capacity: Provided, That if a corporator, trustee, director,
or other officer of a State-chartered savings bank or cooperative bank in specifically authorized under the laws of the State
in which said institution is located to serve as a trustee, director, or other officer of a State-chartered trust company which
does not make real estate mortgage loans and does not accept
savings from natural persons, then, for the purposes of this
title, such corporator, trustee, director, or other officer shall
not be deemed to be a management official of such trust company; And provided further, That if a management official of
a State-chartered trust company which does not make real estate mortgage loans and does not accept savings deposits from
natural persons is specifically authorized under the laws of the
State in which said institution is located to serve as a corporator, trustee, director, or other officer of a State-chartered savings bank or cooperative bank, then, for the purposes of this
title, such management official shall not be deemed to be a
management official of any such savings bank or cooperative
bank;
(5) the term "office" used with reference to a depository institution means either a principal office or a branch; and
(6) the term "appropriate Federal depository institutions
regulatory agency" means, with respect to any depository institution or depository holding company, the agency referred to in
section 209 in connection with such institution or company.
SEC. 203. [12 U.S.C. 3202] A management official of a depository institution or a depository holding company may not serve as
a management official of any other depository institution or depository holding company not affiliated therewith if an office of one of
the institutions or any depository institution that is an affiliate of
such institutions is located within either—
(1) the same primary metropolitan statistical area, the
same metropolitan statistical area, or the same consolidated
metropolitan statistical area that is not comprised of designated primary metropolitan statistical areas as defined by
the Office of Management and Budget, except in the case of de1

So in original. The period probably should be a semicolon.




237

DEPOSITORY INSTITUTION MANAGEMENT INTERLOCKS ACT

Sec. 205

pository institutions with less than $20,000,000 in assets in
which case the provision of paragraph (2) shall apply, as that
in which an office of the other institution or any depository institution that is an affiliate of such institution is located, or
(2) the same city, town, or village as that in which an office of the other institution or any depository institution that
is an affiliate of such other institution is located, or in any city,
town, or village contiguous or adjacent thereto.
SEC. 204. [12 U.S.C. 3203] If a depository institution or a deository holding company has total assets
exceeding
1,000,000,000, a management official of such institution or any affiliate thereof may not serve as a management official of any other
nonaffiliated depository institution or depository holding company
having total assets exceeding $500,000,000 or as a management official of any affiliate of such other institution.
SEC. 205. [12 U.S.C. 3204] The prohibitions contained in sections 203 and 204 shall not apply in the case of any one or more
of the following or subsidiary thereof:
(1) A depository institution or depository holding company
which has been placed formally in liquidation, or which is in
the hands of a receiver, conservator, or other official exercising
a similar function.
(2) A corporation operating under section 25 or 25(a) 1 of
the Federal Reserve Act.
(3) a credit union being served by a management official
of another credit union.
(4) A depository institution or depository holding company
which does not do business within any State of the United
States, the District of Columbia, any territory of the United
States, Puerto Rico, Guam, American Samoa, or the Virgin Islands except as in incident to its activities outside the United
States.
(5) A State-chartered savings and loan guaranty corporation.
(6) A Federal Home Loan Bank or any other bank organized specifically to serve depository institutions.
(7) A depository institution or a depository holding company which—
(A) is closed or is in danger of closing, as determined
by the appropriate Federal depository institutions regulatory agency in accordance with regulations prescribed by
such agency; and
(B) is acquired by another depository institution or depository holding company,
during the 5-year period beginning on the date of the acquisition of the depository institution or depository holding company described in subparagraph (A).
(8)(A) A diversified savings and loan holding company (as
defined in section 408(a)(1)(F)2 of the National Housing Act)
1
Section 25(a) of the Federal Reserve Act was redesignated as section 25A by section 142(eX2)
of 2the Federal Deposit Insurance Corporation Improvement Act of 1991.
Repealed by Public Law 101-73, §407, 103 Stat. 363. The term "section 10(aXlXF) of the
Home Owners' Loan Act" should probably be substituted for such reference.




Sec. 205

DEPOSITORY INSTITUTION MANAGEMENT INTERLOCKS ACT

238

with respect to the service of a director of such company who
is also a director of any nonaffiliated depository institution or
depository holding company (including a savings and loan holding company) if—
(i) notice of the proposed dual service is given by such
diversified savings and loan holding company to—
(I) the appropriate Federal depository institutions
regulatory agency for such company; and
(II) the appropriate Federal depository institutions
regulatory agency for the nonaffiliated depository institution or depository holding company of which such
person is also a director,
not less than 60 days before such dual service is proposed
to begin; and
(ii) the proposed dual service is not disapproved by
any such appropriate Federal depository institutions regulatory agency before the end of such 60-day period.
(B) Any appropriate Federal depository institutions regulatory agency may disapprove, under subparagraph (A)(ii), a
notice of proposed dual service by any individual if such agency
finds that—
(i) the dual service cannot be structured or limited so
as to preclude the dual service's resulting in a monopoly
or substantial lessening of competition in financial services
in any part of the United States;
(ii) the dual service would lead to substantial conflicts
of interest or unsafe or unsound practices; or
(iii) the diversified savings and loan holding company
has neglected, failed, or refused to furnish all the information required by such agency.
(C) Any appropriate Federal depository institutions regulatory agency may, at any time after the end of the 60-day period referred to in subparagraph (A), require that any dual
service by any individual which was not disapproved by such
agency during such period be terminated if a change in circumstances occurs with respect to any depository institution or
depository holding company of which such individual is a director that would have provided a basis for disapproval of the
dual service during such period.
(9) Any savings association (as defined in section
10(a)(1)(A) of the Home Owners' Loan Act or any savings and
loan holding company (as defined in section 10(a)(1)(D) of such
Act) which has issued stock in connection with a qualified
stock issuance pursuant to section 10(q) of such Act, except
that this paragraph shall apply only with respect to service as
a single management official of such savings association or
holding company, or any subsidiary of such savings association
or holding company, by a single management official of the
savings and loan holding company which purchased the stock
issued in connection with such qualified stock issuance, and
shall apply only when the Director of the Office of Thrift Supervision has determined that such service is consistent with
the purposes of this Act and the Home Owners' Loan Act.




239

DEPOSITORY INSTITUTION MANAGEMENT INTERLOCKS ACT

Sec. 206

SEC. 206. [12 U.S.C. 3205J (a) A person whose service in a position as a management official began prior to the date of enactment of this title and who was not immediately prior to the date
of enactment of this title in violation of section 8 of the Clayton Act
is not prohibited by section 203 or section 204 of this title from continuing to serve in that position for a period of, subject to the requirements of subsection (c), 20 years after the date of enactment
of this title. The appropriate Federal depository institutions regulatory agency may provide a reasonable period of time for compliance with this title, not exceeding fifteen months, after any change
in circumstances which makes service described in the preceding
sentence prohibited by this title, except that a merger, acquisition,
increase in total assets, establishment of one or more offices, or
change in management responsibilities shall not constitute changes
in circumstances which would make such service prohibited by section 203 or section 204 of this title.
(b) Effective on the date of enactment of this title, a person
who serves as a management official of a company which is not a
depository institution or a depository holding company and as a
management official of that depository institution or depository
holding company as a result of that company which is not a depository institution or depository holding company becoming a diversified savings and loan holding company as that term is defined in
section 408(a)x of the National Housing Act. This subsection shall
expire, subject to the requirements of subsection (c), 20 years after
the date of enactment of this title.
(c) REVIEW OF EXISTING MANAGEMENT INTERLOCKS.—Upon the

timely filing of a submission by a person petitioning to serve as a
management official in more than 1 position pursuant to subsection
(a) or (b), each appropriate Federal depository institutions regulatory agency shall, not later than 6 months after the date of enactment of this Act—
(1) review, on a case-by-case basis, the circumstances
under which such person has served as a management official
under the provisions of subsection (a) or (b); and
(2) permit the management official to continue to serve in
such position only if—
(A) such person has provided a resolution from the
boards of directors of each affected depository institution,
depository holding company, or company described in subsection (b), certifying to the appropriate Federal depository
institutions regulatory agency for each of the institutions
involved that there is no other qualified candidate from
the community described in paragraph (1) or (2) of section
203 who—
(i) possesses the level of expertise necessary for
such service with respect to the affected depository institution, depository holding company, or company described in subsection (b); and
1
Repealed by Public Law 101-73, §407, 103 Stat. 363. The term "section 10(aXlXP) of the
Home Owners' Loan Act" should probably be substituted for such reference.




Sec. 207

DEPOSITORY INSTITUTION MANAGEMENT INTERLOCKS ACT

240

(ii) is willing to serve as a management official at
the affected depository institution, depository holding
company, or company described in subsection (b); and
(B) the appropriate Federal depository institutions
regulatory agency determines that continuation of service
by the management official does not produce an anticompetitive effect with respect to each affected depository
institution, depository holding company, or company described in subsection (b).
SEC. 207. [12 U.S.C. 3206] This title shall be administered
and enforced by—
(1) the Comptroller of the Currency with respect to national banks and banks located in the District of Columbia,
(2) the Board of Governors of the Federal Reserve System
with respect to State banks which are members of the Federal
Reserve System, and bank holding companies,
(3) the Board of Directors of the Federal Deposit Insurance
Corporation with respect to State banks which are not members of the Federal Reserve System but the deposits of which
are insured by the Federal Deposit Insurance Corporation,
(4) the Director of the Office of Thrift Supervision with respect to a savings association (the deposits of which are insured by the Federal Deposit Insurance Corporation) and savings and loan holding companies,
(5) the National Credit Union Administration with respect
to credit unions the accounts of which are insured by the National Credit Union Administration, and
(6) Upon * referral by the agencies named in the foregoing
paragraphs (1) through (5), the Attorney General shall have
the authority to enforce compliance by any person with this
title.
[Section 208 amended other Acts]
SEC. 209. [12 U.S.C. 3207] (a) IN GENERAL.—Rules and regulations to carry out this title may be prescribed by—
(1) the Comptroller of the Currency with respect to national banks and banks located in the District of Columbia,
(2) the Board of Governors of the Federal Reserve System
with respect to State banks which are members of the Federal
Reserve System, and bank holding companies,
(3) the Board of Directors of the Federal Deposit Insurance
Corporation with respect to State banks which are not members of the Federal Reserve System but the deposits of which
are insured by the Federal Deposit Insurance Corporation,
(4) the Federal Home Loan Bank Board with respect to intitutions the accounts of which are insured by the Federal Savings and Loan Insurance Corporation, and savings and loan
holding companies, and 2
1
So
2

in law. Probably should be "upon".
The Federal Home Loan Bank Board and Federal Savings and Loan Insurance Corporation
abolished by section 401 of the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989.




241

DEPOSITORY INSTITUTION MANAGEMENT INTERLOCKS ACT

Sac. 209

(5) the National Credit Union Administration with respect
to credit unions the accounts of which are insured by the National Credit Union Administration.
(b) REGULATORY STANDARDS.—An appropriate Federal depository institution regulatory agency may permit, on a case-by-case
basis, service by a management official which would otherwise be
prohibited by section 203 or 204 only if—
(1) the board of directors of the affected depository institution, depository institution holding company, or company described in section 206(b), provides a resolution to the appropriate Federal depository institutions regulatory agency certifying that there is no other candidate from the community described in paragraph (1) or (2) of section 203 who—
(A) possesses the level of expertise necessary for such
service with respect to the affected depository institution,
depository institution holding company, or company described in section 206(b) and is not prohibited from service
under section 203 or 204; and
(B) is willing to serve as a management official at the
affected depository institution, depository institution holding company, or company described in section 206(b); and
(2) the appropriate Federal depository institutions regulatory agency determines that—
(A) the management official is critical to the safe and
sound operations of the affected depository institution, depository institution holding company, or company described in section 206(b);
(B) continuation of service by the management official
does not produce an anticompetitive effect with respect to
the affected depository institution, depository institution
holding company, or company described in section 206(b);
and
(C) the management official meets such additional requirements as the agency may impose.
(c) LIMITED EXCEPTION FOR MANAGEMENT OFFICIAL CONSIGNMENT PROGRAM.—

(1) IN GENERAL.—Notwithstanding the requirements of
subsection (b), an appropriate Federal depository institutions
regulatory agency may establish a program to permit, on a
case-by-case basis, service by a management official which
would otherwise be prohibited by section 203 or 204, for a period of not more than 2 years, if the agency determines that
such service would—
(A) improve the provision of credit to low- and moderate-income areas;
(B) increase the competitive position of minority- and
woman-owned institutions; or
(C) strengthen the management of newly chartered institutions that are in an unsafe or unsound condition.
(2) EXTENSION OF SERVICE PERIOD.—The appropriate Federal depository institutions regulatory agency may extend the
2-year period referred to in paragraph (1) for one additional period of not more than 2 years, subject to making a new deter-




Sec. 210

DEPOSITORY INSTITUTION MANAGEMENT INTERLOCKS ACT

242

mination described in subparagraphs (A) through (C) of paragraph (1).
SEC. 210. [12 U.S.C. 3208] (a) For the purpose of the exercise
by the Attorney General of his enforcement functions under section
207(6) of this title, all of the functions and powers of the Attorney
General under the Clayton Act are available to the Attorney General, irrespective of any jurisdictional tests in the Clayton Act, including the power to take enforcement actions in the same manner
as if the violation had been a violation of the Clayton Act.
(b) All of the functions and powers of the Attorney General or
the Assistant Attorney General in charge of the Antitrust Division
of the Department of Justice are available to the Attorney General
or to such Assistant Attorney General to investigate possible violations under section 207(6) of the title in the same manner as if
such possible violations were possible violations of the Clayton Act.




EXPEDITED FUNDS AVAILABILITY ACT

243







EXPEDITED FUNDS AVAILABILITY ACT *

TITLE VI—EXPEDITED FUNDS
AVAILABILITY
SEC. 601. [12 U.S.C. 4001 nt.] SHORT TITLE.

This title may be cited as the "Expedited Funds Availability
Act".
SEC. 602. [12 U.S.C. 4001] DEFINITIONS.

For purposes of this title—
(1) ACCOUNT.—The term "account" means a demand deposit account or other similar transaction account at a depository institution.
(2) BOARD.—The term "Board" means the Board of Governors of the Federal Reserve System.
(3) BUSINESS DAY.—The term "business day" means any
day other than a Saturday, Sunday, or legal holiday.
(4) CASH.—The term "cash" means United States coins and
currency, including Federal Reserve notes.
(5) CASHIER'S CHECK.—The term "cashier's check" means
any check which—
(A) is drawn on a depository institution;
(B) is signed by an officer or employee of such depository institution; and
(C) is a direct obligation of such depository institution.
(6) CERTIFIED CHECK.—The term "certified check" means
any check with respect to which a depository institution certifies that—
(A) the signature on the check is genuine; and
(B) such depository institution has set aside funds
which—
(i) are equal to the amount of the check; and
(ii) will be used only to pay such check.
(7) CHECK.—The term "check" means any negotiable demand draft drawn on or payable through an office of a depository institution located in the United States. Such term does
not include noncash items.
(8) CHECK CLEARINGHOUSE ASSOCIATION.—The term "check
clearinghouse association" means any arrangement by which
participant depository institutions exchange deposited checks
on a local basis, including an entire metropolitan area, without
1
The Expedited Funds Availability Act was enacted as title VI of the Competitive Equality
Banking Act of 1987.
245




EXPEDITED FUNDS AVAILABILITY ACT

Sec. 602

246

using the check processing facilities of the Federal Reserve
System.
(9) CHECK PROCESSING REGION.—The term "check processing region" means the geographical area served by a Federal
Reserve bank check processing center or such larger area as
the Board may prescribe by regulations.
(10) CONSUMER ACCOUNT.—The term "consumer account"
means any account used primarily for personal, family, or
household purposes.
(11) DEPOSITORY CHECK.—The term "depository check"
means any cashier's check, certified check, teller's check, and
any other functionally equivalent instrument as determined by
the Board.
(12) DEPOSITORY INSTITUTION.—The term "depository institution" has the meaning given such term in clauses (i) through
(vi) of section 19(b)(1)(A) of the Federal Reserve Act. Such term
also includes an office, branch, or agency of a foreign bank located in the United States.
(13)

LOCAL ORIGINATING DEPOSITORY INSTITUTION.—The

term "local originating depository institution" means any originating depository institution which is located in the same
check processing region as the receiving depository institution.
(14) NONCASH ITEM.—-The term "noncash item" means—
(A) a check or other demand item to which a passbook,
certificate, or other document is attached;
(B) a check or other demand item which is accompanied by special instructions, such as a request for special
advise of payment or dishonor; or
(C) any similar item which is otherwise classified as a
noncash item in regulations of the Board.
(15)

NONLOCAL ORIGINATING DEPOSITORY INSTITUTION.—

The term "nonlocal originating depository institution" means
any originating depository institution which is not a local depository institution.
(16) PROPRIETARY ATM.—The term "proprietary ATM"
means an automated teller machine which is—
(A) located—
(i) at or adjacent to a branch of the receiving depository institution; or
(ii) in close proximity, as defined by the Board, to
a branch of the receiving depository institution; or
(B) owned by, operated exclusively for, or operated by
the receiving depository institution.
(17) ORIGINATING DEPOSITORY INSTITUTION.—The term
"originating depository institution" means the branch of a depository institution on which a check is drawn.
(18) NONPROPRIETARY ATM.—The term "nonproprietary
ATM" means an automated teller machine which is not a proprietary ATM.
(19) PARTICIPANT.—The term "participant" means a depository institution which—
(A) is located in the same geographic area as that
served by a check clearinghouse association; and




247

EXPEDITED FUNDS AVAILABILITY ACT

Sec. 603

(B) exchanges checks through the check clearinghouse
association, either directly or through an intermediary.
(20) RECEIVING DEPOSITORY INSTITUTION.—The term "receiving depository institution" means the branch of a depository institution or the proprietary ATM in which a check is
first deposited.
(21) STATE.—The term "State" means any State, the District of Columbia, the Commonwealth of Puerto Rico, or the
Virgin Islands.
(22) TELLER'S CHECK.—The term "teller's check" means
any check issued by a depository institution and drawn on another depository institution.
(23) UNITED STATES.—The term "United States" means the
several States, the District of Columbia, the Commonwealth of
Puerto Rico, and the Virgin Islands.
(24) UNIT OF GENERAL LOCAL GOVERNMENT.—The term
"unit of general local government" means any city, county,
town, township, parish, village, or other general purpose political subdivision of a State.
(25) WIRE TRANSFER.—The term "wire transfer" has such
meaning as the Board shall prescribe by regulations.
SEC. 603. [12 U.S.C. 4002] EXPEDITED FUNDS AVAILABILITY SCHEDULES.
(a) NEXT BUSINESS DAY AVAILABILITY FOR CERTAIN DEPOSITS.—
(1) CASH DEPOSITS; WIRE TRANSFERS.—Except as provided

in subsection (e) and in section 604, in any case in which—
(A) any cash is deposited in an account at a receiving
depository institution staffed by individuals employed by
such institution, or
(B) funds are received by a depository institution by
wire transfer for deposit in an account at such institution,
such cash or funds shall be available for withdrawal not later
than the business day after the business day on which such
cash is deposited or such funds are received for deposit.
(2) GOVERNMENT CHECKS; CERTAIN OTHER CHECKS.—Funds

deposited in an account at a depository institution by check
shall be available for withdrawal not later than the business
day after the business day on which such funds are deposited
in the case of—
(A) a check which—
(i) is drawn on the Treasury of the United States;
and
(ii) is endorsed only by the person to whom it was
issued.
(B) a check which—
(i) is drawn by a State;
(ii) is deposited in a receiving depository institution which is located in such State and is staffed by
individuals employed by such institution;
(iii) is deposited with a special deposit slip which
indicates it is a check drawn by a State; and
(iv) is endorsed only by the person to whom it was
issued;




EXPEDITED FUNDS AVAILABILITY ACT

Sec. 603

248

(C) a check which—
(i) is drawn by a unit of general local government;
(ii) is deposited in a receiving depository institution which is located in the same State as such unit
of general local government and is staffed by individuals employed by such institution;
(iii) is deposited with a special deposit slip which
indicates it is a check drawn by a unit of general local
government; and
(iv) is endorsed only by the person to whom it was
issued;
(D) the first $100 deposited by check or checks on any
one business day;
(E) a check deposited in a branch of a depository institution and drawn on the same or another branch of the
same depository institution if both such branches are located in the same State or the same check processing region;
(F) a cashier's check, certified check, teller's check, or
depository check which—
(i) is deposited in a receiving depository institution which is staffed by individuals employed by such
institution;
(ii) is deposited with a special deposit slip which
indicates it is a cashier's check, certified check, teller's
check, or depository check, as the case may be; and
(iii) is endorsed only by the person to whom it was
issued,
(b) PERMANENT SCHEDULE.—
(1) AVAILABILITY OF FUNDS DEPOSITED BY LOCAL CHECKS.—

Subject to paragraph (3) of this subsection, subsections (a)(2),
(d), and (e) of this section, and section 604, not more than 1
business day shall intervene between the business day on
which funds are deposited in an account at a depository institution by a check drawn on a local originating depository institution and the business day on which the funds involved are
available for withdrawal.
(2)

AVAILABILITY OF FUNDS DEPOSITED BY NONLOCAL

CHECKS.—Subject to paragraph (3) of this subsection, subsections (a)(2), (d), and (e) of this section, and section 604, not
more than 4 business days shall intervene between the business day on which funds are deposited in an account at a depository institution by a check drawn on a nonlocal originating
depository institution and the business day on which such
funds are available for withdrawal.
(3) TIME PERIOD ADJUSTMENTS FOR CASH WITHDRAWAL OF
CERTAIN CHECKS.—

(A) IN GENERAL.—Except as provided in subparagraph
(B), funds deposited in an account in a depository institution by check (other than a check described in subsection
(a)(2)) shall be available for cash withdrawal not later
than the business day after the business day on which
such funds otherwise are available under paragraph (1) or
(2).




249

EXPEDITED FUNDS AVAILABILITY ACT

Sec. 603

(B) 5 P.M. CASH AVAILABILITY.T-Not more than $400 (or
the maximum amount allowable in the case of a withdrawal from an automated teller machine but not more
than $400) of funds deposited by one or more checks to
which this paragraph applies shall be available for cash
withdrawal not later than 5 o'clock post meridian of the
business day on which such funds are available under
paragraph (1) or (2). If funds deposited by checks described
in both paragraph (1) and paragraph (2) become available
for cash withdrawal under this paragraph on the same
business day, the limitation contained in this subparagraph shall apply to the aggregate amount of such funds.
(C) $100 AVAILABILITY.—Any amount available for
withdrawal under this paragraph shall be in addition to
the amount available under subsection (a)(2)(D).
(4) APPLICABILITY.—This subsection shall apply with respect to funds deposited by check in an account at a depository
institution on or after September 1, 1990, except that the
Board may, by regulation, make this subsection or any part of
this subsection applicable earlier than September 1, 1990.
(c) TEMPORARY SCHEDULE.—
(1) AVAILABILITY OF LOCAL CHECKS.—

(A) IN GENERAL.—Subject to subparagraph (B) of this
paragraph, subsections (a)(2), (d), and (e) of this section,
and section 604, not more than 2 business days shall intervene between the business day on which funds are deposited in an account at a depository institution by a check
drawn on a local originating depository institution and the
business day on which such funds are available for withdrawal.
(B) TIME PERIOD ADJUSTMENT FOR CASH WITHDRAWAL
OF CERTAIN CHECKS.—

(i) IN GENERAL.—Except as provided in clause (ii),
funds deposited in an account in a depository institution by check drawn on a local depository institution
that is not a participant in the same check clearinghouse association as the receiving depository institution (other than a check described in subsection (a)(2))
shall be available for cash withdrawal not later than
the business day after the business day on which such
funds otherwise are available under subparagraph (A),
(ii) 5 P.M. CASH AVAILABILITY.—Not more than
$400 (or the maximum amount allowable in the case
of a withdrawal from an automated teller machine but
not more than $400) of funds deposited by one or more
checks to which this subparagraph applies shall be
available for cash withdrawal not later than 5 o'clock
post meridian of the business day on which such funds
are available under subparagraph (A),
(iii) $100 AVAILABILITY.—Any amount available for
withdrawal under this subparagraph shall be in addition
to the amount available under subsection (aX2)(D).
(2) AVAILABILITY OF NONLOCAL CHECKS.—Subject to subsections (a)(2), (d), and (e) of this section and section 604, not




EXPEDITED FUNDS AVAILABILITY ACT

Sec. 603

250

more than 6 business days shall intervene between the business day on which funds are deposited in an account at a depository institution by a check drawn on a nonlocal originating
depository institution and the business day on which such
funds are available for withdrawal.
(3) APPLICABILITY.—This subsection shall apply with respect to funds deposited by check in an account at a depository
institution after August 31, 1988, and before September 1,
1990, except as may be otherwise provided under subsection
(b)(4).
(d) TIME PERIOD ADJUSTMENTS.—
(1) REDUCTION GENERALLY.—Notwithstanding

any other
provision of law, the Board shall, by regulation, reduce the
time periods established under subsections (b), (c), and (e) to
as short a time as possible and equal to the period of time
achievable under the improved check clearing system for a receiving depository institution to reasonably expect to learn of
the nonpayment of most items for each category of checks.
(2) EXTENSION FOR CERTAIN DEPOSITS IN NONCONTIGUOUS
STATES OR TERRITORIES.—Notwithstanding any other provision

of law, any time period established under subsection (b), (c), or
(e) shall be extended by 1 business day in the case of any deposit which is both—
(A) deposited in an account at a depository institution
which is located in Alaska, Hawaii, Puerto Rico, or the Virgin Islands; and
(B) deposited by a check drawn on an originating depository institution which is not located in the same State,
commonwealth, or territory as the receiving depository institution.
(e) DEPOSITS AT AN ATM.—
(1) NONPROPRIETARY ATM.—

(A) IN GENERAL.—Not more than 4 business days shall
intervene between the business day a deposit described in
subparagraph (B) is made at a nonproprietary automated
teller machine (for deposit in an account at a depository
institution) and the business day on which funds from
such deposit are available for withdrawal.
(B) DEPOSITS DESCRIBED IN THIS PARAGRAPH.—A de-

posit is described in this subparagraph if it is—
(i) a cash deposit;
(ii) a deposit made by a check described in subsection (a)(2);
(iii) a deposit made by a check drawn on a local
originating depository institution (other than a check
described in subsection (a)(2)); or
(iv) a deposit made by a check drawn on a
nonlocal originating depository institution (other than
a check described in subsection (a)(2)).
(2) PROPRIETARY ATM—TEMPORARY AND PERMANENT SCHED-

ULES.—The provisions of subsections (a), (b), and (c) shall
apply with respect to any funds deposited at a proprietary
auto- mated teller machine for deposit in an account at a depository institution.




EXPEDITED FUNDS AVAILABILITY ACT

251

Sec. 604

(3) STUDY AND REPORT ON ATM'S.—The Board shall, either
directly or through the Consumer Advisory Council, establish
and maintain a dialogue with depository institutions and their
suppliers on the computer software and hardware available for
use by automated teller machines, and shall, not later than
September 1 of each of the first 3 calendar years beginning
after the date of the enactment of this title, report to the Congress regarding such software and hardware and regarding the
potential for improving the processing of automated teller machine deposits.
(f) CHECK RETURN; NOTICE OF NONPAYMENT.—No provision of
this section shall be construed as requiring that, with respect to all
checks deposited in a receiving depository institution—
(1) such checks be physically returned to such depository
institution; or
(2) any notice of nonpayment of any such check be given
to such depository institution within the times set forth in subsection (a), (b), (c), or (e) or in the regulations issued under any
such subsection.
SEC. 604. [12 U.S.C. 4003] SAFEGUARD EXCEPTIONS.

(a) NEW ACCOUNTS.—Notwithstanding section 603, in the case
of any account established at a depository institution by a new depositor, the following provisions shall apply with respect to any deposit in such account during the 30-day period (or such shorter period as the Board may establish) beginning on the date such account is established—
(1) NEXT BUSINESS DAY AVAILABILITY OF CASH AND CERTAIN

ITEMS.—Except as provided in paragraph (3), in the case of—
(A) any casn deposited in such account;
(B) any funds received by such depository institution
by wire transfer for deposit in such account;
(C) any funds deposited in such account by cashier's
check, certified check, teller's check, depository check, or
traveler's check; and
(D) any funds deposited by a government check which
is described in subparagraph (A), (B), or (C) of section
603(a)(2),
such cash or funds shall be available for withdrawal on the
business day after the business day on which such cash or
funds are deposited or, in the case of a wire transfer, on the
business day after the business day on which such funds are
received for deposit.
(2) AVAILABILITY OF OTHER ITEMS.—In the case of any
funds deposited in such account by a check (other than a check
described in subparagraph (C) or (D) of paragraph (1)), the
availability for withdrawal of such funds shall not be subject
to the provisions of section 603(b), 603(c), or paragraphs1 (1)
of section 603(e).
(3) LIMITATION RELATING TO CERTAIN CHECKS IN EXCESS OF

$5,000.—In the case of funds deposited in such account during
1
Section 227(bX2) of the Federal Deposit Insurance Corporation Improvement Act of 1991
amended subsection (a)(2) by striking "and (2)". An amendment probably should have been made
striking out "paragraphs" and inserting "paragraph".

89-335 9 5 - 9



Sec. 604

EXPEDITED FUNDS AVAILABILITY ACT

252

such period by checks described in subparagraph (C) or (D) of
paragraph (1) the aggregate amount of which exceeds $5,000—
(A) paragraph (1) shall apply only with respect to the
first $5,000 of such aggregate amount; and
(B) not more than 8 business days shall intervene between the business day on which any such funds are deposited and the business day on which such excess amount
shall be available for withdrawal.
(b) LARGE OR REDEPOSITED CHECKS; REPEATED OVERDRAFTS.—

The Board may, by regulation, establish reasonable exceptions to
any time limitation established under subsection (a)(2), (b), (c), or
(e) of section 603 for—
(1) the amount of deposits by one or more checks that exceeds the amount of $5,000 in any one day;
(2) checks that have been returned unpaid and redeposited; and
(3) deposit accounts which have been overdrawn repeatedly.
(c) REASONABLE CAUSE EXCEPTION.—

(1) IN GENERAL.—In accordance with regulations which the
Board shall prescribe, subsections (a)(2), (b), (c), and (e) of section 603 shall not apply with respect to any check deposited in
an account at a depository institution if the receiving depository institution has reasonable cause to believe that the check
is uncollectible from the originating depository institution. For
purposes of the preceding sentence, reasonable cause to believe
requires the existence of facts which would cause a wellgrounded belief in the mind of a reasonable person. Such
reasons shall be included in the notice required under subsection (f).
(2) BASIS FOR DETERMINATION.—No determination under
this subsection may be based on any class of checks or persons.
(3) OVERDRAFT FEES.—If the receiving depository institution determines that a check deposited in an account is a check
described in paragraph (1), the receiving depository institution
shall not assess any fee for any subsequent overdraft with respect to such account, if—
(A) the depositor was not provided with the written
notice required under subsection (f) (with respect to such
determination) at the time the deposit was made;
(B) the overdraft would not have occurred but for the
fact that the funds so deposited are not available; and
(C) the amount of the check is collected from the originating depository institution.
(4) COMPLIANCE.—Each agency referred to in section
610(a) shall monitor compliance with the requirements of this
subsection in each regular examination of a depository institution and shall describe in each report to the Congress the extent to which this subsection is being complied with. For the
purpose of this paragraph, each depository institution shall retain a record of each notice provided under subsection (f) as a
result of the application of this subsection.
(d) EMERGENCY CONDITIONS.—Subject to such regulations as
the Board may prescribe, subsections (a)(2), (b), (c), and (e) of sec-




253

EXPEDITED FUNDS AVAILABILITY ACT

Sec. 604

tion 603 shall not apply to funds deposited by check in any receiving depository institution in the case of—
(1) any interruption of communication facilities;
(2) suspension of payments by another depository institution;
(3) any war; or
(4) any emergency condition beyond the control of the receiving depository institution,
if the receiving depository institution exercises such diligence as
the circumstances require.
(e) PREVENTION OP FRAUD LOSSES.—

(1) IN GENERAL.—The Board may, by regulation or order,
suspend the applicability of this title, or any portion thereof,
to any classification of checks if the Board determines that—
(A) depository institutions are experiencing an unacceptable level of losses due to check-related fraud, and
(B) suspension of this title, or such portion of this title,
with regard to the classification of checks involved in such
fraud is necessary to diminish the volume of such fraud.
(2) SUNSET PROVISION.—No regulation prescribed or order
issued under paragraph (1) shall remain in effect for more
than 45 days (excluding Saturdays, Sundays, legal holidays, or
any day either House of Congress is not in session).
(3) REPORT TO CONGRESS.—
(A) NOTICE OP EACH SUSPENSION.—Within

10 days of
prescribing any regulation or issuing any order under
paragraph (1), the Board shall transmit a report of such
action to the Committee on Banking, Finance and Urban
Affairs of the House of Representatives and the Committee
on Banking, Housing, and Urban Affairs of the Senate.
(B) CONTENTS OF REPORT.—Each report under subparagraph (A) shall contain—
(i) the specific reason for prescribing the regulation or issuing the order;
(ii) evidence considered by the Board in making
the determination under paragraph (1) with respect to
such regulation or order; and
(iii) specific examples of the check-related fraud
giving rise to such regulation or order.
(f) NOTICE OF EXCEPTION; AVAILABILITY WITHIN REASONABLE
TIME.—

(1) IN GENERAL.—If any exception contained in this section
(other than subsection (a)) applies with respect to funds deposited in an account at a depository institution—
(A) the depository institution shall provide notice in
the manner provided in paragraph (2) of—
(i) the time period within which the funds shall be
made available for withdrawal; and
(ii) the reason the exception was invoked; and
(B) except where other time periods are specifically
provided in this title, the availability of the funds deposited shall be governed by the policy of the receiving depository institution, but shall not exceed a reasonable period
of time as determined by the Board.




Sec. 605

EXPEDITED FUNDS AVAILABILITY ACT

254

(2) TIME FOR NOTICE.—The notice required under paragraph (1)(A) with respect to a deposit to which an exception
contained in this section applies shall be made by the time provided in the following subparagraphs:
(A) In the case of a deposit made in person by the depositor at the receiving depository institution, the depository institution shall immediately provide such notice in
writing to the depositor.
(B) In the case of any other deposit (other than a deposit described in subparagraph (C)), the receiving depository institution shall mail the notice to the depositor not
later than the close of the next business day following the
business day on which the deposit is receivea.
(C) In the case of a deposit to which subsection (d) or
(e) applies, notice shall be provided by the depository institution in accordance with regulations of the Board.
(D) In the case of a deposit to which subsection (b)(1)
or (b)(2) applies, the depository institution may, for
nonconsumer accounts and other classes of accounts, as defined by the Board, that generally have a large number of
such deposits, provide notice at or before the time it first
determines that the subsection applies.
(E) In the case of a deposit to which subsection (b)(3)
applies, the depository institution may, subject to regulations of the Board, provide notice at the beginning of each
time period it determines that the subsection applies. In
addition to the requirements contained in paragraph
(1)(A), the notice shall specify the time period for which
the exception will apply.
(3) SUBSEQUENT DETERMINATIONS.—If the facts upon which
the determination of the applicability of an exception contained
in subsection (b) or (c) to any deposit only become known to the
receiving depository institution after the time notice is reuired under paragraph (2) with respect to such deposit, the
§ epository institution shall mail such notice to the depositor as
soon as practicable, but not later than the first business day
following the day such facts become known to the depository
institution.
SEC. 605. [12 U.S.C. 4004] DISCLOSURE OF FUNDS AVAILABILITY POLICIES.
(a) NOTICE FOR NEW ACCOUNTS.—Before an account is opened

at a depository institution, the depository institution shall provide
written notice to the potential customer of the specific policy of
such depository institution with respect to when a customer may
withdraw funds deposited into the customer's account.
(b) PREPRINTED DEPOSIT SLIPS.—All preprinted deposit slips
that a depository institution furnishes to its customers shall contain a summary notice, as prescribed by the Board in regulations,
that deposited items may not be available for immediate withdrawal.
(c) MAILING OF NOTICE.—
(1) FIRST MAILING AFTER ENACTMENT.—In

the first regularly scheduled mailing to customers occurring after the effective date of this section, but not more than 60 days after such




255

EXPEDITED FUNDS AVAILABILITY ACT

Sec. 605

effective date, each depository institution shall send a written
notice containing the specific policy of such depository institution with respect to when a customer may withdraw funds deposited into such customer's account, unless the depository institution has provided a disclosure which meets trie requirements of this section before such effective date.
(2) SUBSEQUENT CHANGES.—A depository institution shall
send a written notice to customers at least 30 days before implementing any change to the depository institution's policy
with respect to when customers may withdraw funds deposited
into consumer accounts, except that any change which expedites the availability of such funds shall be disclosed not later
than 30 days after implementation.
(3) UPON REQUEST.—Upon the request of any person, a depository institution shall provide or send such person a written
notice containing the specific policy of such depository institution with respect to when a customer may withdraw funds deposited into a customer's account.
(d) POSTING OF NOTICE.—
(1) SPECIFIC NOTICE AT MANNED TELLER STATIONS.—Each

depository institution shall post, in a conspicuous place in each
location where deposits are accepted by individuals employed
by such depository institution, a specific notice which describes
the time periods applicable to the availability of funds deposited in a consumer account.
(2) GENERAL NOTICE AT AUTOMATED TELLER MACHINES.—In

the case of any automated teller machine at which any funds
are received for deposit in an account at any depository institution, the Board shall prescribe, by regulations, that the owner
or operator of such automated teller machine shall post or provide a general notice that funds deposited in such machine
may not be immediately available for withdrawal.
(e) NOTICE OF INTEREST PAYMENT POLICY.—If a depository institution described in section 606(b) begins the accrual of interest
or dividends at a later date than the date described in section
606(a) with respect to all funds, including cash, deposited in an interest-bearing account at such depository institution, any notice required to be provided under subsections (a) and (c) shall contain a
written description of the time at which such depository institution
begins to accrue interest or dividends on such funds.
(f) MODEL DISCLOSURE FORMS.—
(1) PREPARED BY BOARD.—The

Board shall publish model
disclosure forms and clauses for common transactions to facilitate compliance with the disclosure requirements of this section and to aid customers by utilizing readily understandable language.
(2) U S E OF FORMS TO ACHIEVE COMPLIANCE.—A depository
institution shall be deemed to be in compliance with the requirements of this section if such institution—
(A) uses any appropriate model form or clause as published by the Board, or
(B) uses any such model form or clause and changes
such form or clause by—




Sec. 606

EXPEDITED FUNDS AVAILABILITY ACT

256

(i) deleting any information which is not required
by this title; or
(ii) rearranging the format.
(3) VOLUNTARY USE.—Nothing in this title requires the use
of any such model form or clause prescribed by the Board
under this subsection.
(4) NOTICE AND COMMENT.—Model disclosure forms and
clauses shall be adopted by the Board only after notice duly
given in the Federal Register and an opportunity for public
comment in accordance with section 553 of title 5, United
States Code.
SEC. 606. [12 U.S.C. 4005] PAYMENT OF INTEREST.

(a) IN GENERAL.—Except as provided in subsection (b) or (c)
and notwithstanding any other provision of law, interest shall accrue on funds deposited in an interest-bearing account at a depository institution beginning not later than the business day on which
the depository institution receives provisional credit for such funds.
(b) SPECIAL RULE FOR CREDIT UNIONS.—Subsection (a) shall
not apply to an account at a depository institution described in
section 19(b)(l)(A)(iv) of the Federal Reserve Act if the depository
institution—
(1) begins the accrual of interest or dividends at a later
date than the date described in subsection (a) with respect to
all funds, including cash, deposited in such account; and
(2) provides notice of tne interest payment policy in the
manner required under section 605(e).
(c) EXCEPTION FOR CHECKS RETURNED UNPAID.—No provision
of this title shall be construed as requiring the payment of interest
or dividends on funds deposited by a check which is returned unpaid.
SEC. 607. [12 U.S.C. 4006] MISCELLANEOUS PROVISIONS.
(a) AFTER-HOURS DEPOSITS.—For purposes of this title, any de-

posit which is made on a Saturday, Sunday, legal holiday, or after
the close of business on any business day shall be deemed to have
been made on the next business day.
(b) AVAILABILITY AT START OF BUSINESS DAY.—Except as provided in subsections (b)(3) and (c)(1)(B) of section 603, if any provision of this title requires that funds be available for withdrawal on
any business day, such funds shall be available for withdrawal at
the start of such business day.
(c) EFFECT ON POLICIES OF DEPOSITORY INSTITUTIONS.—NO provision of this title shall be construed as—
(1) prohibiting a depository institution from making funds
available for withdrawal in a shorter period of time than the
period of time required by this title; or
(2) affecting a depository institution's right—
(A) to accept or reject a check for deposit;
(B) to revoke any provisional settlement made by the
depository institution with respect to a check accepted by
such institution for deposit;
(C) to charge back the depositor's account for the
amount of such check; or
(D) to claim a refund of such provisional credit.




257

EXPEDITED FUNDS AVAILABILITY ACT
(d)

Sec. 609

PROHIBITION ON FREEZING CERTAIN FUNDS IN AN AC-

COUNT.—In any case in which a check is deposited in an account
at a depository institution and the funds represented by such check
are not yet available for withdrawal pursuant to this title, the depository institution may not freeze any other funds in such account
(which are otherwise available for withdrawal pursuant to this
title) solely because the funds so deposited are not yet available for
withdrawal.
(e) EMPLOYEE TRAINING ON AND COMPLIANCE WITH THE REQUIREMENTS OF THIS TITLE.—Each depository institution shall—

(1) take such actions as may be necessary fully to inform
each employee (who performs duties subject to the requirements of this title) of the requirements of this title; and
(2) establish and maintain procedures reasonably designed to assure and monitor employee compliance with
such requirements.
SEC. 608. [12 U.S.C. 4007] EFFECT ON STATE LAW.

(a) IN GENERAL.—Any law or regulation of any State in effect
on September 1, 1989, which requires that funds deposited or received for deposit in an account at a depository institution chartered by such State be made available for withdrawal in a shorter
period of time than the period of time provided in this title or in
regulations prescribed by the Board under this title (as in effect on
September 1, 1989) shall—
(1) supersede the provisions of this title and any regulations by the Board to the extent such provisions relate to the
time by which funds deposited or received for deposit in an account shall be available for withdrawal; and
(2) apply to all federally insured depository institutions
located within such State.
(b) OVERRIDE OF CERTAIN STATE LAWS.—Except as provided in
subsection (a), this title and regulations prescribed under this title
shall supersede any provision of the law of any State, including the
Uniform Commercial Code as in effect in such State, which is inconsistent with this title or such regulations.
SEC. 609. [12 U.S.C. 4008] REGULATIONS AND REPORTS BY BOARD.

(a) IN GENERAL.—After notice and opportunity to submit comment in accordance with section 553(c) of title 5, United States
Code, the Board shall prescribe regulations—
(1) to carry out the provisions of this title;
(2) to prevent the circumvention or evasion of such provisions; and
(3) to facilitate compliance with such provisions.
(b) REGULATIONS RELATING TO IMPROVEMENT OF CHECK PROCESSING SYSTEM.—In order to improve the check processing system,

the Board shall consider (among other proposals) requiring, by regulation, that—
(1) depository institutions be charged based upon notification that a check or similar instrument will be presented for
payment;
(2) the Federal Reserve banks and depository institutions
provide for check truncation;




Sec. 609

EXPEDITED FUNDS AVAILABILITY ACT

258

(3) depository institutions be provided incentives to return
items promptly to the depository institution of first deposit;
(4) the Federal Reserve banks and depository institutions
take such actions as are necessary to automate the process of
returning unpaid checks,
(5) each depository institution and Federal Reserve bank—
(A) place its endorsement, and other notations specified in regulations of the Board, on checks in the positions
specified in such regulations; and
(B) take such actions as are necessary to—
(i) automate the process of reading endorsements;
and
(ii) eliminate unnecessary endorsements;
(6) within one business dav after an originating depository
institution is presented a check (for more than such minimum
amount as the Board may prescribe)—
(A) such originating depository institution determine
whether it will pay such check; and
(B) if such originating depository institution determines that it will not pay such check, such originating depository institution directly notify the receiving depository
institution of such determination;
(7) regardless of where a check is cleared initially, all returned checks be eligible to be returned through the Federal
Reserve System;
(8) Federal Reserve banks and depository institutions participate in the development and implementation of an electronic clearinghouse process to the extent the Board determines, pursuant to the study under subsection (f), that such a
process is feasible; and
(9) originating depository institutions be permitted to return unpaid checks directly to, and obtain reimbursement for
such checks directly from, the receiving depository institution.
(c) REGULATORY RESPONSIBILITY OF BOARD FOR PAYMENT SYSTEM.—
(1) RESPONSIBILITY FOR PAYMENT SYSTEM.—In order to

carry out the provisions of this title, the Board of Governors of
the Federal Reserve System shall have the responsibility to
regulate—
(A) any aspect of the payment system, including the
receipt, payment, collection, or clearing of checks; and
(B) any related function of the payment system with
respect to checks.
(2) REGULATIONS.—The Board shall prescribe such regulations as it may determine to be appropriate to carry out its responsibility under paragraph (1).
(d) REPORTS.—
(1) IMPLEMENTATION PROGRESS REPORTS.—
(A) REQUIRED REPORTS.—The Board shall

transmit a
report to both Houses of the Congress not later than 18,
30, and 48 months after the date of the enactment of this
title.
(B) CONTENTS OF REPORT.—Each such report shall
describe—




259

EXPEDITED FUNDS AVAILABILITY ACT

Sec. 610

(i) the actions taken and progress made by the
Board to implement the schedules established in section 603, and
(ii) the impact of this title on consumers and depository institutions.
(2) EVALUATION OF TEMPORARY SCHEDULE REPORT.—
(A) REPORT REQUIRED.—The Board shall transmit

a report to both Houses of the Congress not later than 2 years
after the date of the enactment of this title regarding the
effects the temporary schedule established under section
603(c) have had on depository institutions and the public.
(B) CONTENTS OF REPORT.—Such report shall also assess the potential impact the implementation of the schedule established in section 603(b) will have on depository institutions and the public, including an estimate of the
risks to and losses of depository institutions and the benefits to consumers. Such report shall also contain such recommendations for legislative or administrative action as
the Board may determine to be necessary.
(3)

COMPTROLLER GENERAL EVALUATION REPORT.—Not

later than 6 months after section 603(b) takes effect, the
Comptroller General of the United States shall transmit a report to the Congress evaluating the implementation and administration of this title.
(e) CONSULTATION.—In prescribing regulations under subsections (a) and (b), the Board shall consult with the Comptroller
of the Currency, the Board of Directors of the Federal Deposit Insurance Corporation, the Federal Home Loan Bank Board, and the
National Credit Union Administration Board.
(f) ELECTRONIC CLEARINGHOUSE STUDY.—
(1) STUDY REQUIRED.—The Board shall

study the feasibility of modernizing and accelerating the check payment system
through the development of an electronic clearinghouse process
utilizing existing telecommunications technology to avoid the
necessity of actual presentment of the paper instrument to a
payor institution before such institution is charged for the
item.
(2) CONSULTATION; FACTORS TO BE STUDIED.—In connection
with the study required under paragraph (1), the Board shall—
(A) consult with appropriate experts in telecommunications technology; and
(B) consider all practical and legal impediments to the
development of an electronic clearinghouse process.
(3) REPORT REQUIRED.—The Board shall report its conclusions to the Congress within 9 months of the date of the enactment of this title.
SEC. 610. [12 U.S.C. 4009] ADMINISTRATIVE ENFORCEMENT.
(a) ADMINISTRATIVE ENFORCEMENT.—Compliance with

the requirements imposed under this title, including regulations prescribed by and orders issued by the Board of Governors of the Federal Reserve System under this title, shall be enforced under—
(1) section 8 of the Federal Deposit Insurance Act in the
case of—




EXPEDITED FUNDS AVAILABILITY ACT

Sec. 610

260

(A) national banks, and Federal branches and Federal
agencies of foreign banks, by the Office of the Comptroller
of the Currency;
(B) member banks of the Federal Reserve System
(other than national banks), and offices, branches, and
agencies of foreign banks located in the United States
(other than Federal branches, Federal agencies, and insured State branches of foreign banks), by the Board of
Governors of the Federal Reserve System; and
(C) banks insured by the Federal Deposit Insurance
Corporation (other than members of the Federal Reserve
System) and insured State branches of foreign banks, by
the Board of Directors of the Federal Deposit Insurance
Corporation;
(2) section 8 of the Federal Deposit Insurance Act, by the
Director of the Office of Thrift Supervision in the case of savings associations the deposits of wnich are insured by the Federal Deposit Insurance Corporation; and
(3) the Federal Credit Union Act, by the National Credit
Union Administration Board with respect to any Federal credit
union or insured credit union.
The terms used in paragraph (1) that are not defined in this title
or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them
in section 1(b) of the International Banking Act of 1978 (12 U.S.C.
3101).
(b) ADDITIONAL POWERS.—
(1) VIOLATION OF THIS TITLE TREATED AS VIOLATION OF
OTHER ACTS.—For purposes of the exercise by any agency re-

ferred to in subsection (a) of this section of its powers under
any Act referred to in that subsection, a violation of any requirement imposed under this title shall be deemed to be a violation of a requirement imposed under that Act.
(2) ENFORCEMENT AUTHORITY UNDER OTHER ACTS.—In ad-

dition to its powers under any provision of law specifically referred to in subsection (a) of this section, each of the agencies
referred to in such subsection may exercise, for purposes of enforcing compliance with any requirement imposed under this
title, any other authority conferred on it by law.
(c) ENFORCEMENT BY THE BOARD.—

(1) IN GENERAL.—Except to the extent that enforcement of
the requirements imposed under this title is specifically committed to some other Government agency under subsection (a)
of this section, the Board of Governors of the Federal Reserve
System shall enforce such requirements.
(2) ADDITIONAL REMEDY.—If the Board determines that—
(A) any depository institution which is not a depository institution described in subsection (a), or
(B) any other person subject to the authority of the
Board under this title, including any person subject to the
authority of the Board under section 605(d)(2) or 609(c),
has failed to comply with any requirement imposed by this
title or by the Board under this title, the Board may issue an
order prohibiting any depository institution, any Federal Re-




261

EXPEDITED FUNDS AVAILABILITY ACT

Sec. 611

serve bank, or any other person subject to the authority of the
Board from engaging in any activity or transaction which directly or indirectly involves such noncomplying depository institution or person (including any activity or transaction involving the receipt, payment, collection, and clearing of checks
and any related function of the payment system with respect
to checks).
(d) PROCEDURAL RULES.—The authority of the Board to prescribe regulations under this title does not impair the authority of
any other agency designated in this section to make rules regarding its own procedures in enforcing compliance with requirements
imposed under this title.
SEC. 611. [12 U.S.C. 4010] CIVIL LIABILITY.
(a) CIVIL LIABILITY.—Except as otherwise

provided in this section, any depository institution which fails to comply with any requirement imposed under this title or any regulation prescribed
under this title with respect to any person other than another depository institution is liable to such person in an amount equal to
the sum of—
(1) any actual damage sustained by such person as a result
of the failure;
(2)(A) in the case of an individual action, such additional
amount as the court may allow, except that the liability under
this subparagraph shall not be less than $100 nor greater than
$1,000; or
(B) in the case of a class action, such amount as the court
may allow, except that—
(i) as to each member of the class, no minimum recovery shall be applicable; and
(ii) the total recovery under this subparagraph in any
class action or series of class actions arising out of the
same failure to comply by the same depository institution
shall not be more than the lesser of $500,000 or 1 percent
of the net worth of the depository institution involved; and
(3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorneys fee as determined by the court.
(b) CLASS ACTION AWARDS.—In determining the amount of any
award in any class action, the court shall consider, among other
relevant factors—
(1) the amount of any actual damages awarded;
(2) the frequency and persistence of failures of compliance;
(3) the resources of the depository institution;
(4) the number of persons adversely affected; and
(5) the extent to which the failure of compliance was
intentional.
(c) BONA FIDE ERRORS.—
(1) GENERAL RULE.—A

depository institution may not be
held liable in any action brought under this section for a violation of this title if the depository institution demonstrates by
a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error, notwithstanding




Sec. 613

EXPEDITED FUNDS AVAILABILITY ACT

262

the maintenance of procedures reasonably adapted to avoid
any such error.
(2) EXAMPLES.—Examples of a bona fide error include clerical, calculation, computer malfunction and programming, and
printing errors, except that an error of legal judgment with respect to a depository institution's obligation under this title is
not a bona fiae error.
(d) JURISDICTION.—Any action under this section may be
brought in any United States district court, or in any other court
of competent jurisdiction, within one year after the date of the occurrence of the violation involved.
(e) RELIANCE ON BOARD RULINGS.—No provision of this section
imposing any liability shall apply to any act done or omitted in
good faith in conformity with any rule, regulation, or interpretation
thereof by the Board of Governors of the Federal Reserve System,
notwithstanding the fact that after such act or omission has occurred, such rule, regulation, or interpretation is amended, rescinded, or determined by judicial or other authority to be invalid
for any reason.
(f) AUTHORITY TO ESTABLISH RULES REGARDING LOSSES AND
LIABILITY AMONG DEPOSITORY INSTITUTIONS.—The Board is author-

ized to impose on or allocate among depository institutions the
risks of loss and liability in connection with any aspect of the payment system, including the receipt, payment, collection, or clearing
of checks, and any related function of the payment system with respect to checks. Liability under this subsection shall not exceed the
amount of the check giving rise to the loss or liability, and, where
there is bad faith, other damages, if any, suffered as a proximate
consequence of any act or omission giving rise to the loss or liability.
[Section 612 of P.L. 100-86 amended another Act]
SEC. 613. [12 U.S.C. 4001 nt.] EFFECTIVE DATES.
(a) DATE OF ENACTMENT.—Except as provided

in subsection
(b), this title shall take effect on the date of the enactment of this
title.
(b) 1 YEAR AFTER DATE OF ENACTMENT.—Sections 603,

605, 606, 610, and 611 shall take effect on September 1, 1988.




604,

FEDERAL CREDIT UNION ACT

263







FEDERAL CREDIT UNION ACT
(48 Stat. 1216; 12 U.S.C. 1751 et seq.)
AN ACT To establish a Federal Credit Union System, to establish a further market
for securities of the United States and to make more available to people of small
means credit for provident purposes through a national system of cooperative
credit, thereby helping to stabilize the credit structure of the United States.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SHORT TITLE
SECTION 1. [12 U.S.C. 1751J This Act may be cited as the
"Federal Credit Union Act".

TITLE I—FEDERAL CREDIT UNIONS
DEFINITIONS

SEC. 101. [12 U.S.C. 1752J As used in this Act—
(1) the term "Federal credit union" means a cooperative association organized in accordance with the provisions of this
Act for the purpose of promoting thrift among its members and
creating a source of credit for provident or productive purposes;
(2) the term "Chairman" means the Chairman of the National Credit Union Administration;
(3) the term "Administration" means the National Credit
Union Administration; and x
(4) the term "Board" means the National Credit Union Administration Board;
(5) The terms "member account" and "account" mean a
share, share certificate, or share draft account account 2 of a
member of a credit union of a type approved by the Board
which evidences money or its equivalent received or held by a
credit union in the usual course of business and for which it
has given or is obligated to give credit to the account of the
member, and, in the case of a credit union serving predominantly low-income members (as defined by the Board), such
terms (when referring to the account of a nonmember served
by such credit union) 2
mean a share, share certificate, or share
draft account account of such nonmember which is of a type
approved by the Board and evidences money or its equivalent
received or held bv such credit union in the usual course of
business and for which it has given or is obligated to give credit to the account of such nonmember, and such terms mean
1
2

So in original.
So in original. Probably should be "or share draft account".
265




Sec. 102

FEDERAL CREDIT UNION ACT

266

share, share certificate, or share draft account accounts1 of
nonmember credit unions and nonmember units of Federal,
State, or local governments and political subdivisions thereof
enumerated in section 207 of this Act, and such terms mean
custodial accounts established for loans sold in whole or in part
pursuant to section 107(13): Provided, That for purposes of insured State credit unions, reference in this paragraph to
"share", "share certificate", or "share draft" accounts includes,
as determined by the Board, the equivalent of such accounts
under State law;
(6) The terms "State credit union" and "State-chartered
credit union" mean a credit union organized and operated according to the laws of any State, the District of Columbia, the
several territories and possessions of the United States, the
Panama Canal Zone, or the Commonwealth of Puerto Rico,
which laws provide for the organization of credit unions similar
in principle and objectives to Federal credit unions;
(7) The term "insured credit union" means any credit
union the member accounts of which are insured in accordance
with the provisions of title II of this Act, and the term
"noninsured credit union" means any credit union the member
accounts of which are not so insured;
(8) The term "Fund" means the National Credit Union
Share Insurance Fund; and
(9) The term "branch" includes any branch credit union,
branch office, branch agency, additional office, or any branch
lace of business located in any State of the United States, the
district of Columbia, the several territories, including the trust
territories, and possessions of the United States, the Panama
Canal Zone, or the Commonwealth of Puerto Rico, at which
member accounts are established or money lent. The term
"branch" also includes a suboffice, operated by a Federal credit
union or by a credit union authorized by the Department of
Defense, located on an American military installation in a foreign country or in the trust territories of the United States.

E

CREATION OF ADMINISTRATION

SEC. 102. [12 U.S.C. 1752a] (a) There is hereby established in
the executive branch of the Government an independent agency to
be known as the National Credit Union Administration. The Administration shall be under the management of a National Credit
Union Administration Board.
(b) The Board shall consist of three members, who are broadly
representative of the public interest, appointed by the President, by
and with the advice and consent of the Senate. In appointing the
members of the Board, the President shall designate the Chairman.
Not more than two members of the Board shall be members of the
same political party.
(c) The term of office of each member of the Board shall be six
years, except that the terms of the two members, other than the
Chairman, initially appointed shall expire one upon the expiration
of two years after the date of appointment, and the other upon the
1

So in original. Probably should be "or share draft account".




267

FEDERAL CREDIT UNION ACT

Sec. 103

expiration of four years after the date of appointment. Board members shall not be appointed to succeed themselves except the initial
members appointed for less than a six-year term may be
reappointed for a full six-year term and future members appointed
to fill unexpired terms may be reappointed for a full six-year term.
Any Board member may continue to serve as such after the expiration of said member's term until a successor has qualified.
(d) The management of the Administration shall be vested in
the Board. The Board shall adopt such rules as it sees fit for the
transaction of its business and shall keep permanent and complete
records and minutes of its acts and proceedings. A majority of the
Board shall constitute a quorum. Not later than April 1 of each calendar year, and at such other times as the Congress shall determine, the Board shall make a report to the President and to the
Congress. Such a report shall summarize the operations of the Administration and set forth such information as is necessary for the
Congress to review the financial program approved by the Board.
(e) The Chairman of the Board shall be the spokesman for the
Board and shall represent the Board and the National Credit
Union Administration in its official relations with other branches
of the Government. The Chairman shall determine each Board
member's area of responsibility and shall review such assignments
biennially. It shall be the Chairman's responsibility to direct the
implementation of the adopted policies and regulations of the
Board.
(f) The financial transactions of the Administration shall be
subject to audit by the General Accounting Office in accordance
with the principles and procedures applicable to commercial corporate transactions and under such rules and regulations as may
be prescribed by the Comptroller General of the United States. The
audit shall be conducted at the place or places where the accounts
of the Administration are kept.
FEDERAL CREDIT UNION ORGANIZATION

SEC. 103. [12 U.S.C. 1753J Any seven or more natural persons
who desire to form a Federal credit union shall each subscribe either individually or collectively before some officer competent to administer oaths an organization certificate in duplicate which shall
specifically state—
(1) the name of the association;
(2) the location of the proposed Federal credit union and
the territory in which it will operate;
(3) the names and addresses of the subscribers to the certificate and the number of shares subscribed by each;
(4) the initial par value of the shares;
(5) the proposed field of membership, specified in detail;
(6) the term of the existence of the corporation, which may
be perpetual; and
(7) the fact that the certificate is made to enable such persons to avail themselves of the advantages of this Act.
Such organization certificate may also contain any provisions approved by the Board for the management of the business of the as-




Sec. 104

FEDERAL CREDIT UNION ACT

268

sociation and for the conduct of its affairs and relative to the powers of its directors, officers, or stockholders.
APPROVAL OF ORGANIZATION CERTIFICATE

SEC. 104. [12 U.S.C. 1754J The organization certificate shall
be presented to the Board for approval. Before any organization
certificate is approved, an appropriate investigation shall be made
for the purpose of determining (1) whether the organization certificate conforms to the provisions of this Act; (2) the general character and fitness of the subscribers thereto; and (3) the economic
advisability of establishing the proposed Federal credit union.
Upon approval of such organization certificate by the Board it shall
be the charter of the corporation, and one of the originals thereof
shall be delivered to the corporation after the payment of the fee
required therefor. Upon such approval the Federal credit union
shall be a body corporate and as such, subject to the limitations
herein contained, shall be vested with all of the powers and
charged with all of the liabilities conferred and imposed by this Act
upon corporations organized hereunder.
FEES

SEC. 105. [12 U.S.C. 1755] (a) In accordance with rules prescribed by the Board, each Federal credit union shall pay to the
Administration an annual operating fee which may be composed of
one or more charges identified as to the function or functions for
which assessed.
(b) The fee assessed under this section shall be determined according to a schedule, or schedules, or other method determined by
the Board to be appropriate, which gives due consideration to the
expenses of the Administration in carrying out its responsibilities
under this Act and to the ability of Federal credit unions to pay
the fee. The Board shall, among other things, determine the periods for which the fee shall be assessed and the date or dates for
the payment of the fee or increments thereof.
(c) If the annual operating fee is composed of separate charges,
no supervision charge shall be payable by a Federal credit union,
and the Board may waive payment of any or all other charges comprising the fee, with respect to the year in which its charter is issued, or in which final distribution is made in its liquidation or the
charter is canceled.
(d) All operating fees shall be deposited with the Treasurer of
the United States for the account of the Administration and may
be expended by the Board to defray the expenses incurred in carrying out the provisions of this Act including the examination and supervision of Federal credit unions.
(e)(1) Upon request of the Board, the Secretary of the Treasury
shall invest and reinvest such portions of the annual operating fees
deposited under subsection (d) as the Board determines are not
needed for current operations.
(2) Such investments may be made only in interest bearing securities of the United States with maturities requested by the
Board bearing interest at rates determined by the Secretary of the
Treasury, taking into consideration current market yields on out-




269

FEDERAL CREDIT UNION ACT

Sec. 107

standing marketable obligations of the United States of comparable
maturities.
(3) All income derived from such investments and reinvestments shall be deposited to the account of the Administration described in subsection (d).
REPORTS AND EXAMINATIONS

SEC. 106. [12 U.S.C. 1756] Federal credit unions shall be
under the supervision of the Board, and shall make financial reports to it as and when it may require, but at least annually. Each
Federal credit union shall be subject to examination by, and for
this purpose shall make its books and records accessible to, any
person designated by the Board.
POWERS

SEC. 107. [12 U.S.C. 1757J A Federal credit union shall have
succession in its corporate name during its existence and shall
have power—
(1) to make contracts;
(2) to sue and be sued;
(3) to adopt and use a common seal and alter the same at
pleasure;
(4) to purchase, hold, and dispose of property necessary or
incidental to its operations;
(5) to make loans, the maturities of which shall not exceed
twelve years except as otherwise provided herein, and extend
lines of credit to its members, to other credit unions, and to
credit union organizations and to participate with other credit
unions, credit union organizations, or financial organizations in
making loans to credit union members in accordance with the
following:
(A) Loans to members shall be made in conformity
with criteria established by the board of directors: Provided, That—
(i) a residential real estate loan on a one-to-fourfamily dwelling, including an individual cooperative
unit, that is or will be the principal residence of a
credit union member, and which is secured by a first
lien upon such dwelling, may have a maturity not exceeding thirty years or such other limits as shall be
set by the National Credit Union Administration
Board (except that a loan on an individual cooperative
unit shall be adequately secured as defined by the
Board), subject to the rules and regulations of the
Board;
(ii) a loan to finance the purchase of a mobile
home, which shall be secured by a first lien on such
mobile home, to be used by the credit union member
as his residence, or a second mortgage loan secured bv
a residential dwelling which is the residence of a credit union member shall have a maturity not to exceed
15 years or any longer term which the Board may
allow;




Sec. 107

FEDERAL CREDIT UNION ACT

270

(iii) a loan secured by the insurance or guarantee
of, or with advance commitment to purchase the loan
by, the Federal Government, a State government, or
any agency of either may be made for the maturity
and under the terms and conditions specified in the
law under which such insurance, guarantee, or commitment is provided;
(iv) a loan or aggregate of loans to a director or
member of the supervisory or credit committee of the
credit union making the loan which exceeds $10,000
plus pledged shares, be approved by the board of directors;
(v) loans to other members for which directors or
members of the supervisory or credit committee act as
guarantor or endorser be approved by the board of directors when such loans standing alone or when added
to any outstanding loan or loans of the guarantor or
endorser exceeds $10,000;
(vi) the rate of interest may not exceed 15 per centum per annum on the unpaid balance inclusive of all
finance charges, except tnat the Board may establish—
(I) after consultation with the appropriate
committees of the Congress, the Department of
Treasury, and the Federal financial institution
regulatory agencies, an interest rate ceiling exceeding such 15 per centum per annum rate, for
periods not to exceed 18 months, if it determines
that money market interest rates have risen over
the preceding six-month period and that prevailing interest rate levels threaten the safety and
soundness of individual credit unions as evidenced
by adverse trends in liquidity, capital, earnings,
and growth; and
(II) a higher interest rate ceiling for Agent
members of the Central Liquidity Facility in carrying out the provisions of title III for such periods as the Board may authorize;
(vii) the taking, receiving, reserving, or charging
of a rate of interest greater than is allowed by this
paragraph, when knowingly done, shall be deemed a
forfeiture of the entire interest which the note, bill, or
other evidence of debt carries with it, or which has
been agreed to be paid thereon. If such greater rate of
interest has been paid, the person by whom it has
been paid, or his legal representatives, may recover
back from the credit union taking or receiving the
same, in an action in the nature of an action of debt,
the entire amount of interest paid; but such action
must be commenced within two years from the time
the usurious collection was made;
(viii) a borrower may repay his loan, prior to maturity in whole or in part on any business day without
penalty, except that on a first or second mortgage loan




271

FEDERAL CREDIT UNION ACT

Sec. 107

a Federal credit union may require that any partial
prepayments (I) be made on the date monthly installments are due, and (II) be in the amount of that part
of one or more monthly installments which would be
applicable to principal;
(ix) loans shall be paid or amortized in accordance
with rules and regulations prescribed by the Board
after taking into account the needs or conditions of the
borrowers, the amounts and duration of the loans, the
interests of the members and the credit unions, and
such other factors as the Board deems relevant;x
(x) loans must be approved by the credit committee or a loan officer, but no loan may be made to any
member if, upon the making of that loan, the member
would be indebted to the Federal credit union upon
loans made to him in an aggregate amount which
would exceed 10 per centum of the credit union's
unimpaired capital and surplus.
(B) A self-replenishing line of credit to a borrower may
be established to a stated maximum amount on certain
terms and conditions which mav be different from the
terms and conditions established for another borrower.
(C) Loans to other credit unions shall be approved by
the board of directors.
(D) Loans to credit union organizations shall be approved by the board of directors and shall not exceed 1 per
centum of the paid-in and unimpaired capital and surplus
of the credit union. A credit union organization means any
organization as determined by the Board, which is established primarily to serve the needs of its member credit
unions, and whose business relates to the daily operations
of the credit unions they serve.
(E) Participation loans with other credit unions, credit
union organizations, or financial organizations shall be in
accordance with written policies of the board of directors:
Provided, That a credit union which originates a loan for
which participation arrangements are made in accordance
with this subsection shall retain an interest of at least 10
per centum of the face amount of the loan. 2
(6) to receive from its members, from other credit unions,
from an officer, employee, or agent of those nonmember units
of Federal, Indian tribal, State, or local governments and political subdivisions thereof enumerated in section 207 of this Act
and in the manner so prescribed, from the central liquidity facility, and from nonmembers in the case of credit unions serving predominately low-income members (as defined by the
Board) payments, representing equity, on—
(A) shares which may be issued at varying dividend
rates;
(B) share certificates which may be issued at varying
dividend rates and maturities; and
1
2

So in original. Probably should be "and" preceded by the semicolon.
So in original. The period probably should be a semicolon.




Sec. 107

FEDERAL CREDIT UNION ACT

272

(C) share draft accounts authorized under section
205(f);
subject to such terms, rates, and conditions as may be established by the board of directors, within limitations prescribed
by the Board. *
(7) to invest its funds (A) in loans exclusively to members;
(B) in obligations of the United States of America, or securities
fully guaranteed as to principal and interest thereby; (C) in accordance with rules and regulations prescribed by the Board,
in loans to other credit unions in the total amount not exceeding 25 per centum of its paid-in and unimpaired capital and
surplus; (D) in shares or accounts of savings and loan associations or mutual savings banks, the accounts of which are insured by the Federal Savings and Loan Insurance Corporation 2 or the Federal Deposit Insurance Corporation; (E) in obligations issued by banks for cooperatives, Federal land banks,
Federal intermediate credit banks, Federal home loan banks,
the Federal Home Loan Bank Board,3 or any corporation designated in section 101 of the Government Corporation Control
Act as a wholly owned Government corporation; or in obligations, participations, or other instruments of or issued by, or
fully guaranteed as to principal and interest by, the Federal
National Mortgage Association or the Government National
Mortgage Association; or in mortgages, obligations, or other securities which are or ever have been sold by the Federal Home
Loan Mortgage Corporation pursuant to section 305 or section
306 of the Federal Home Loan Mortgage Corporation Act; or in
obligations, participations, securities, or other instruments of,
or issued by, or fully guaranteed as to principal and interest
by any other agency of the United States and a Federal credit
union may issue and sell securities which are guaranteed pursuant to section 306(g) of the National Housing Act; (F) in participation certificates evidencing beneficial interests in obligations, or in the right to receive interest and principal collections therefrom, which obligations have been subjected by one
or more Government agencies to a trust or trusts for which any
executive department, agency, or instrumentality of the United
States (or the head thereof) has been named to act as trustee;
(G) in shares or deposits of any central credit union in which
such investments are specifically authorized by the board of directors of the Federal credit union making the investment; (H)
in shares, share certificates, or share deposits of federally insured credit unions; (I) in the shares, stocks, or obligations of
any other organization, providing services which are associated
with the routine operations of credit unions, up to 1 per centum of the total paid in and unimpaired capital and surplus of
the credit union with the approval of the Board: Provided, however, That such authority does not include the power to acquire
1
2

So in original. The period probably should be a semicolon.
The Federal Savings and Loan Insurance Corporation was abolished by section 401 of the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (P.L. 101-73; 103 Stat.
354).
3
The Federal Home Loan Bank Board was abolished by section 401 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (P.L. 101-73; 103 Stat. 354). The Board's
successor with respect to Federal home loan banks is the Federal Housing Finance Board.




273

FEDERAL CREDIT UNION ACT

Sec. 107

control directly or indirectly, of another financial institution,
nor invest in shares, stocks or obligations of an insurance company, trade association, liquidity facility or any other similar
organization, corporation, or association, except as otherwise
expressly provided by this Act; (J) in the capital stock of the
National Credit Union Central Liquidity Facility (K) investments in obligations of, or issued by, any State or political subdivision thereof (including any agency, corporation, or instrumentality of a State or political subdivision), except that no
credit union may invest more than 10 per centum of its
unimpaired capital and surplus in the obligations of any one
issuer (exclusive of general obligations of the issuer). 1
(8) to make deposits in national banks and in State banks,
trust companies, and mutual savings banks operating in accordance with the laws of the State in which the Federal credit
union does business, or in banks or institutions the accounts
of which are insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation, and for Federal credit unions or credit unions authorized
by the Department of Defense operating suboffices on American military installations in foreign countries or trust territories of the United States to maintain demand deposit accounts in banks located in those countries or trust territories,
subject to such regulations as may be issued by the Board and
provided such banks are correspondents of banks described in
this paragraph;
(9) to borrow, in accordance with such rules and regulations as may be prescribed by the Board, from any source, in
an aggregate amount not exceeding, except as authorized by
the Board in carrying out the provisions of subchapter III, 2 50
per centum of its paid-in and unimpaired capital and surplus:
Provided, That any Federal credit union may discount with or
sell to any Federal intermediate credit bank any eligible obligations up to the amount of its paid-in and unimpaired capital;
(10) to levy late charges, in accordance with the bylaws, for
failure of members to meet promptly their obligations to the
Federal credit union;
(11) to impress and enforce a lien upon the shares and
dividends of any member, to the extent of any loan made to
him and any dues or charges payable by him;
(12) in accordance with rules and regulations prescribed by
the Board, to sell to members negotiable checks (including
travelers checks), money orders, and other similar money
transfer instruments, and to cash checks and money orders for
members, for a fee;
(13) in accordance with rules and regulations prescribed by
the Board, to purchase, sell, pledge, or discount or otherwise
receive or dispose of, in whole or in part, any eligible obligations (as defined by the Board) of its members and to purchase
from any liquidating credit union notes made by individual
members of the liquidating credit union at such prices as may
1
2

So in original. The period should probably be a semicolon.
So in original. Probably should be "title III".




Sec. 108

FEDERAL CREDIT UNION ACT

274

be agreed upon by the board of directors of the liquidating
credit union and the board of directors of the purchasing credit
union, but no purchase may be made under authority of this
paragraph if, upon the making of that purchase, the aggregate
of the unpaid balances of notes purchased under authority of
this paragraph would exceed 5 per centum of the unimpaired
capital and surplus of the credit union; and1
(14) to sell all or a part of its assets to another credit
union, to purchase all or part of the assets of another credit
union and to assume the liabilities of the selling credit union
and those of its members subject to regulations of the Board;
(15) to invest in securities that—
(A) are offered and sold pursuant to section 4(5) of the
Securities Act of 1933 (15 U.S.C. 77d(5));
(B) are mortgage related securities (as that term is defined in section 3(a)(41) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(41))), subject to such regulations as
the Board may prescribe, including regulations prescribing
minimum size of the issue (at the time of initial distribution) or minimum aggregate sales prices, or both; or
(C) are small business related securities (as defined in
section 3(a)(53) of the Securities Exchange Act of 1934),
subject to such regulations as the Board may prescribe, including regulations prescribing the minimum size of the
issue (at the time of the initial distribution), the minimum
aggregate sales price, or both;
(16) subject to such regulations as the Board may prescribe, to provide technical assistance to credit unions in Poland and Hungary; and
(17) to exercise such incidental powers as shall be necessary or requisite to enable it to carry on effectively the business for which it is incorporated.
BYLAWS

SEC. 108. [12 U.S.C. 1758) In order to simplify the organization of Federal credit unions the Board shall from time to time
cause to be prepared a form of organization certificate and a form
of bylaws, consistent with this Act, which shall be used by Federal
credit union incorporators, and shall be supplied to them on request. At the time of presenting the organization certificate the
incorporators shall also submit proposed bylaws to the Board for its
approval.
MEMBERSHIP

SEC. 109. [12 U.S.C. 1759] Federal credit union membership
shall consist of the incorporators and^such other persons and incororated and unincorporated organizations, to the extent permitted
y rules and regulations prescribed by the Board, as may be elected
to membership and as such shall each, subscribe to at least one
share of its stock and pay the initial installment thereon and a uniform entrance fee if required by the board of directors, except that

E

1

So in law. The "and" should probably be omitted.




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FEDERAL CREDIT UNION ACT

Sec. 112

Federal credit union membership shall be limited to groups having
a common bond of occupation or association, or to groups within a
well-defined neighborhood, community, or rural district. Shares
may be issued in joint tenancy with right of survivorship with any
persons designated by the credit union member, but no joint tenant
shall be permitted to vote, obtain loans, or hold office, unless he is
within the field of membership and is a qualified member.
MEMBERS' MEETINGS

SEC. 110. [12 U.S.C. 1760J The fiscal year of all Federal credit
unions shall end December 31. The annual meeting of each Federal
credit union shall be held at such place as its bylaws shall prescribe. Special meetings may be held in the manner indicated in
the bylaws. No member shall be entitled to vote by proxy, but a
member other than a natural person may vote through an agent
designated for the purpose. Irrespective of the number of shares
held, no member shall have more than one vote.
MANAGEMENT

SEC. 111. [12 U.S.C. 1761] (a) The management of a Federal
credit union shall be by a board of directors, a supervisory committee, and where the bylaws so provide, a credit committee. The
board shall consist of an odd number of directors, at least five in
number, to be elected annually by and from the members as the
bylaws provide. Any vacancy occurring on the board shall be filled
until the next annual election by appointment by the remainder of
the directors.
(b) The supervisory committee shall be appointed by the board
of directors and shall consist of not less than three members nor
more than five members, one of whom may be a director other than
the compensated officer of the board. A record of the names and addresses of the executive officers, members of the supervisory committee, credit committee, and loan officers, shall be filed with the
administration within ten days after their election or appointment.
(c) No member of the board or of any other committee shall,
as such, be compensated, except that reasonable health, accident,
similar insurance protection, and the reimbursement of reasonable
expenses incurred in the execution of the duties of the position
shall not be considered compensation.
OFFICERS OF THE BOARD

SEC. 112. [12 U.S.C. 1761a] At their first meeting after the
annual meeting of the members, the directors shall elect from their
number the board officers specified in the bylaws. Only one board
officer may be compensated as an officer of the board and the bylaws shall specify such position as well as the specific duties of
each of the board officers. The board shall elect from their number
a financial officer who shall give adequate fidelity coverage in accordance with section 113(2) of this Act.




Sec. 113

FEDERAL CREDIT UNION ACT

26
7

BOARD OF DIRECTORS; MEETINGS; POWERS AND DUTIES EXECUTIVE
COMMITTEE; MEMBERSHIP OFFICERS; MEMBERSHIP APPLICATIONS

SEC. 113. [12 U.S.C. 1761b] The board of directors shall meet
at least once a month and shall have the general direction and control of the affairs of the Federal credit union. Minutes of all meetings shall be kept. Among other things, the board of directors
shall—
(1) act upon applications for membership or appoint membership officers from among the members of the credit union,
other than the board member paid as an officer, the financial
board officer, any assistant to the paid officer of the board or
to the financial officer, or any loan officer;
(2) provide adequate fidelity coverage for officers and employees having custody of or handling funds according to regulations issued by the Board;
(3) fill vacancies on the board of directors until successors
elected at the next annual meeting have qualified;
(4) if the bylaws provide for an elected credit committee,
fill vacancies on the credit committee until successors elected
at the next annual meeting have qualified;
(5) appoint the members of the supervisory committee and,
if the bylaws so provide, appoint the members of the credit
committee;
(6) have charge of investments including the right to designate an investment committee of not less than two to act on
its behalf;
(7) determine the maximum number of shares, share certificates, and share draft accounts, and the classes of shares,
share certificates, and share draft accounts;
(8) subject to any limitations of this subchapter, determine
the interest rates on loans, the security, and the maximum
amount which may be loaned and provided in lines of credit;
(9) authorize interest refunds to members of record at the
close of business on the last day of any dividend period from
income earned and received in proportion to the interest paid
by them during that dividend period;
(10) if the bylaws so provide, appoint one or more loan officers and delegate to these officers the power to approve or disapprove loans, lines of credit, or advances from lines of credit;
(11) establish the par value of the share;
(12) subject to the limitations of this title and the bylaws
of the credit union, provide for the hiring and compensation of
officers and employees;
(13) if the bylaws so provide, appoint an executive committee of not less than three directors to act on its behalf and any
other committees to which it can delegate specific functions;
(14) prescribe conditions and limitations for any committee
which it appoints;
(15) review at each monthly meeting a list of approved or
pending applications for membership received since the previous monthly meeting together with such other related information as it or the bylaws require;




277

FEDERAL CREDIT UNION ACT

Sec. 115

(16) provide for the furnishing of the written reasons for
any denial of a membership application to the applicant upon
the written request of the applicant;
(17) in the absence of a credit committee, and upon the
written request of a member, review a loan application denied
by a loan officer;
(18) declare the dividend rate to be paid on shares, share
certificates, and share draft accounts pursuant to the terms
and conditions of section 117;
(19) establish and maintain a system of internal controls
consistent with the regulations of the Board;
(20) establish lending policies; and
(21) do all other things that are necessary and proper to
carry out all the purposes and powers of the Federal credit
union, subject to regulations issued by the Board.
CREDIT COMMITTEE

SEC. 114. [12 U.S.C. 1761c] (a) If the bylaws provide for a
credit committee, then pursuant to the provisions of the bylaws,
the board of directors may appoint or the members may elect a
credit committee which shall consist of an odd number of members
of the credit union, but which shall not include more than one loan
officer. The method used shall be set forth in the bylaws. The credit
committee shall hold such meetings as the business of the Federal
credit union may require, not less frequently than once a month,
to consider applications for loans or lines of credit. Reasonable notice of such meetings shall be given to all members of the committee. Except for those loans or lines of credit required to be approved
by the board of directors in section 107(5) of this Act, approval of
an application shall be by majority of the committee who are
present at the meeting at which it is considered provided that a
majority of the full committee is present. The credit committee may
appoint and delegate to loan officers the authority to approve applications.
(b) If the bylaws provide for a credit committee, all applications
not approved by the loan officer shall be reviewed by the credit
committee, and the approval of a majority of the members who are
present at the meeting when such review is undertaken shall be reuired to reverse the loan officer's decision provided a majority of
le full committee is present. If there is not a credit committee, a
member shall have the right upon written request of review by the
board of directors of a loan application which has been denied. No
individual shall have authority to disburse funds of the Federal
credit union with respect to any loan or line of credit for which the
application has been approved by him in his capacity as a loan officer.

S

SUPERVISORY COMMITTEE

SEC. 115. [12 U.S.C. 1761dJ The supervisory committee shall
make or cause to be made a semi-annual audit and shall submit
a report of that audit to the board of directors and a summary of
the report to the members at the next annual meeting of the credit
union; shall make or cause to be made such supplementary audits




Sec. 116

FEDERAL CREDIT UNION ACT

278

as it deems necessary or as may be ordered by the Board, and submit reports of the supplementary audits to the board of directors;
may by a unanimous vote suspend any officer of the credit union
or any member of the credit committee or of the board of directors,
until the next members' meeting, which shall be held not less than
seven nor more than fourteen days after any such suspension, at
which meeting any such suspension shall be acted upon by the
members; and may call by a majority vote a special meeting of the
members to consider any violation of this Act, the charter, or the
bylaws, or any practice of the credit union deemed by the supervisory committee to be unsafe or unauthorized. Any member of the
supervisory committee may be suspended by a majority vote of the
board of directors. The members shall decide, at a meeting held not
less than seven nor more than fourteen days after any such suspension, whether the suspended committee member shall be removed from or restored to the supervisory committee. The supervisory committee shall cause the passbooks and accounts of the
members to be verified with the records of the treasurer from time
to time, and not less frequently than once every two years. As used
in this section, the term "passbook" shall include any book, statement of account, or other record approved by the Board for use by
Federal credit unions.
RESERVES

SEC. 116. [12 U.S.C. 1762] (a) At the end of each accounting
period the gross income shall be determined. From this amount,
there shall be set aside, as a regular reserve against losses on
loans and against such other losses as may be specified in regulations prescribed under this Act, sums in accordance with the following schedule:
(1)A credit union in operation for more than four years
and having assets of $500,000 or more shall set aside (A) 10
per centum of gross income until the regular reserve shall
equal 4 per centum of the total of outstanding loans and risk
assets, then (B) 5 per centum of gross income until the regular
reserve shall equal 6 per centum of the total of outstanding
loans and risk assets.
(2) A credit union in operation less than four years or having assets of less than $500,000 shall set aside (A) 10 per centum of gross income until the regular reserve shall equal IVT.
per centum of the total of outstanding loans and risk assets,
then (B) 5 per centum of gross income until the regular reserve
shall equal 10 per centum of the total of outstanding loans and
risk assets.
(3) Whenever the regular reserve falls below the stated per
centum of the total of outstanding loans and risk assets, it
shall be replenished by regular contributions in such amounts
as may be needed to maintain the stated reserve goals.
(b) The Board may decrease the reserve requirement set forth
in subsection (a) of this section when in its opinion such a decrease
is necessary or desirable. The Board may also require special reserves to protect the interests of members either by regulation or
for an individual credit union in any special case.




279

FEDERAL CREDIT UNION ACT

Sec. 120

DIVIDENDS

SEC. 117. [12 U.S.C. 17631 At such intervals as the board of
directors may authorize, and after provision for required reserves,
the board of directors may declare, pursuant to such regulations as
may be issued by the Board, a dividend to be paid at different rates
on different types of shares, at different rates and maturity dates
in the case of share certificates, and at different rates on different
types of share draft accounts. Dividends credited may be accrued
on various types of shares, share certificates, and share draft accounts as authorized by the board of directors. If the par value of
a share exceeds $5, dividends shall be paid on all funds in the regular share account once a full share has been purchased.
EXPULSION AND WITHDRAWAL

SEC. 118. [12 U.S.C. 1764] (a) Except as provided in subsection (b) of this section, a member may be expelled by a twothirds vote of the members of a Federal credit union present at a
special meeting called for the purpose, but only after opportunity
has been given him to be heard.
(b) The board of directors of a Federal credit union may, by
majority vote of a quorum of directors, adopt and enforce a policy
with respect to expulsion from membership based on
nonparticipation by a member in the affairs of the credit union. In
establishing its policy, the board should consider a member's failure to vote in annual credit union elections or failure to purchase
shares from, obtain a loan from, or lend to the Federal credit
union. If such a policy is adopted, written notice of the policy as
adopted and the effective date of such policy shall be mailed to
each member of the credit union at the member's current address
appearing on the records of the credit union not less than thirty
days prior to the effective date of such policy. In addition, each new
member shall be provided written notice of any such policy prior
to or upon applying for membership.
(c) Withdrawal or expulsion of a member pursuant to either
subsection (a) or (b) of this section shall not operate to relieve him
from liability to the Federal credit union. The amount to be paid
a withdrawing or expelled member by a Federal credit union shall
be determined and paid in a manner specified in the bylaws.
MINORS

SEC. 119. [12 U.S.C. 1765] Shares may be issued in the name
of a minor or in trust, subject to such conditions as may be prescribed by the bylaws. When shares are issued in trust, the name
of the beneficiary shall be disclosed to the Federal credit union.
CERTAIN POWERS OP BOARD

SEC. 120. [12 U.S.C. 1766] (a) The Board may prescribe rules
and regulations for the administration of this Act (including, but
not by way of limitation, the merger, consolidation, and dissolution
of corporations organized under this Act). Any central credit union
chartered by the Board shall be subject to such rules, regulations,
and orders as the Board deems appropriate and, except as other-




Sec. 120

FEDERAL CREDIT UNION ACT

280

wise specifically provided in such rules, regulations, or orders, shall
be vested with or subject to the same rights, privileges, duties, restrictions, penalties, liabilities, conditions, and limitations that
would apply to all Federal credit unions under this Act.
(b)(1) The Board may suspend or revoke the charter of any
Federal credit union, or place the same in involuntary liquidation
and appoint a liquidating agent therefor, upon its finding that the
organization is bankrupt or insolvent, or has violated any of the
provisions of its charter, its bylaws, this Act, or any regulations issued thereunder.
(2) The Board, through such persons as it shall designate, may
examine any Federal credit union in voluntary liquidation and,
upon its finding that such voluntary liquidation is not being conducted in an orderly or efficient manner or in the best interests of
its members, may terminate such voluntary liquidation and place
such organization in involuntary liquidation and appoint a liquidating agent therefor.
(3) Such liquidating agent shall have power and authority, subject to the control and supervision of the Board and under such
rules and regulations as the Board may prescribe, (A) to receive
and take possession of the books, records, assets, and property of
every description of the Federal credit union in liquidation, to sell,
enforce collection of, and liquidate all such assets and property, to
compound all bad or doubtful debts, and to sue in his own name
or in the name of the Federal credit union in liquidation, and defend such actions as may be brought against him as liquidating
agent or against the Federal credit union; (B) to receive, examine,
and pass upon all claims against the Federal credit union in liquidation, including claims of members on member accounts; (C) to
make distribution and payment to creditors and members as their
interests may appear; and (D) to execute such documents and papers and to do such other acts and things which he may deem necessary or desirable to discharge his duties hereunder.
(4) Subject to the control and supervision of the Board and
under such rules and regulations as the Board may prescribe, the
liquidating agent of a Federal credit union in involuntary liquidation shall (A) cause notice to be given to creditors and members to
present their claims and make legal proof thereof, which notice
shall be published once a week in each of three successive weeks
in a newspaper of general circulation in each county in which the
Federal credit union in liquidation maintained an office or branch
for the transaction of business on the date it ceased unrestricted
operations; except that whenever the aggregate book value of the
assets and property of a Federal credit union in involuntary liquidation is less than $1,000, unless the Board shall find that its
books and records do not contain a true and accurate record of its
liabilities, he shall declare such Federal credit union in liquidation
to be a "no publication" liquidation, and publication of notice to
creditors and members shall not be required in such case; (B) from
time to time make a ratable dividend on all such claims as may
have been proved to his satisfaction or adjudicated in a court of
competent jurisdiction and, after the assets of such organization
have been liquidated, make further dividends on all claims previously proved or adjudicated, and he may accept in lieu of a for-




281

FEDERAL CREDIT UNION ACT

Sec. 120

mal proof of claim on behalf of any creditor or member the statement of any amount due to such creditor or member as shown on
the books and records of the credit union; but all claims not filed
before payment of the final dividend shall be barred and claims rejected or disallowed by the liquidating agent shall be likewise
barred unless suit be instituted thereon within three months after
notice of rejection or disallowance; and (C) in a "no publication" liquidation, determine from all sources available to him, and within
the limits of available funds of die Federal credit union, the
amounts due to creditors and members, and after sixty days shall
have elapsed from the date of his appointment distribute the funds
of the Federal credit union to creditors and members ratably and
as their interests may appear.
(5) Upon certification by the liquidating agent in the case of an
involuntary liquidation, and upon such proof as shall be satisfactory to the Board in the case of a voluntary liquidation, that distribution has been made and that liquidation has been completed,
as provided herein, the Board shall cancel the charter of such Federal credit union; but the corporate existence of the Federal credit
union shall continue for a period of three years from the date of
such cancellation of its charter, during which period the liquidating
agent, or his duly appointed successor, or such persons as the
Board shall designate, may act on behalf of the Federal credit
union for the purpose of paying, satisfying, and discharging any existing liabilities or obligations, collecting and distributing its assets, and doing all other acts required to adjust and wind up its
business and affairs, and it may sue and be sued in its corporate
name.
(c) After the expiration of five years from the date of cancellation of the charter of a Federal credit union the Board may, in its
discretion, destroy any or all books and records of such Federal
credit union in its possession or under its control.
(d) The Board is authorized and empowered to execute any and
all functions and perform any and all duties vested in them hereby,
through such persons as it shall designate or employ; and it may
delegate to any person or persons, including any institution operating under the general supervision of the Administration, the performance and discharge of any authority, power, or function vested
in them by this Act.
(e) All books and records of Federal credit unions shall be kept
and reports shall be made in accordance with forms approved by
the Board.
(f)(1) The Board is authorized to make investigations and to
conduct researches and studies of the problems of persons of small
means in obtaining credit at reasonable rates of interest, and of the
methods and benefits of cooperative saving and lending among
such persons. It is further authorized to make reports of such investigations and to publish and disseminate the same.
(2)(A) The Board is authorized to conduct directly, or to make
grants to or contracts with colleges or universities, State or local
educational agencies, or other appropriate public or private nonprofit organizations to conduct, programs for the training of persons engaged, or preparing to engage, in the operation of credit
unions, and in related consumer counseling programs, serving the




Sec. 120

FEDERAL CREDIT UNION ACT

282

poor. It is authorized to establish a program of experimental, developmental, demonstration, and pilot projects, either directly or by
grants to public or private nonprofit organizations, including credit
unions, or by contracts with such organizations or other private organizations, designed to promote more effective operation of credit
unions, and related consumer counseling programs, serving the
poor.
(B) In carrying out its authority under this paragraph, the
Board shall consult with officials of the Office of Economic Opportunity and other appropriate Federal agencies responsible for the
administration of projects or programs concerned with problems of
the poor. The development and operation of programs and projects
under this paragraph shall involve maximum feasible participation
of residents of the areas and members of the groups served by such
programs and projects, with community action agencies established
under the provisions of the Economic Opportunity Act of 1964 serving, to the extent feasible, as the means through which such participation is achieved.
(C) In order to carry out the purposes of this paragraph, there
is authorized to be appropriated, as a supplement to any funds that
may be expended by the Board pursuant to sections 105 and 106
for such purposes, not to exceed $300,000 for the fiscal year ending
June 30, 1970, and not to exceed $1,000,000 for the fiscal year ending June 30, 1971.
(g) Any officer or employee of the Administration is authorized,
when designated for the purpose by the Board, to administer oaths
and affirmations and to take affidavits and depositions touching
upon any matter within the jurisdiction of the Administration.
(h) The Board is authorized, empowered, and directed to require that every person appointed or elected by any Federal credit
union to any position requiring the receipt, payment, or custody of
money or other personal property owned Tby a Federal credit union,
or in its custody or control as collateral or otherwise, give bond in
a corporate surety company holding a certificate of authority from
the Secretary of the Treasury under the Act approved July 30,
1947 (6 U.S.C., sees. 6-13), 1 as an acceptable surety on Federal
bonds. Any such bond or bonds shall be in a form approved by the
Board with a view to providing surety coverage to the Federal credit union with reference to loss by reason of acts of fraud or dishonesty including forgery, theft, embezzlement, wrongful abstraction,
or misapplication on the part of the person, directly or through connivance with others, and such other surety coverages as the Board
may determine to be reasonably appropriate or as elsewhere required by this Act. Any such bond or bonds shall be in such an
amount in relation to the money or other personal property involved or in relation to the assets of the Federal credit union as
the Board may from time to time prescribe by regulation for the
urpose of requiring reasonable coverage. In lieu of individual
onds the Board may approve the use of a form of schedule or blanket bond which covers all of the officers and employees of a Federal
credit union whose duties include the receipt, payment, or custody

E

1
Sections 6-13 of the Act of July 30, 1947 (Chap. 390, 61 Stat. 646) were repealed by P.L.
97-258 (96 Stat. 1068, 1085) but the substance of such sections appears in chapter 93 of title
31, United States Code.




283

FEDERAL CREDIT UNION ACT

Sec. 121

of money or other personal property for or on behalf of the Federal
credit union. The Board may also approve the use of a form of excess coverage bond whereby a Federal credit union may obtain an
amount of coverage in excess of the basic surety coverage.
(i) In addition to the authority conferred upon them by other
sections of this Act, the Board is authorized in carrying out its
functions under this Act—
(1) to appoint such personnel as may be necessary to enable the Administration to carry out its functions;
(2) to expend such funds, enter into such contracts with
public and private organizations and persons, make such payments in advance or by way of reimbursement, acquire and
dispose of, by lease or purchase, real or personal property,
without regard to the provisions of any other law applicable to
executive or independent agencies of the United States, and
perform such other functions or acts as it may deem necessary
or appropriate to carry out the provisions of this Act, in accordance with the rules and regulations or policies established by
the Board not inconsistent with this Act; and
(3) to pay stipends, including allowances for travel to and
from the place of residence, to any individual to study in a program assisted under this Act upon a determination by the
Board that assistance to such individual in such studies will be
in furtherance of the purposes of this Act.
(j) STAFF.—
(1) APPOINTMENT AND COMPENSATION.—The

Board shall fix
the compensation and number of, and appoint and direct, employees of the Board. Rates of basic pay for employees of the
Board may be set and adjusted by the Board without regard
to the provisions of chapter 51 or subchapter III of chapter 53
of title 5, United States Code.
(2) ADDITIONAL COMPENSATION AND BENEFITS.—The Board
may provide additional compensation and benefits to employees of the Board if the same type of compensation or benefits
are then being provided by any other Federal bank regulatory
agency or, if not then being provided, could be provided by
such an agency under applicable provisions of law, rule, or regulation. In setting and adjusting the total amount of compensation and benefits for employees of the Board, the Board shall
seek to maintain comparability with other Federal bank regulatory agencies.
(3) FUNDING.—The salaries and expenses of the Board and
employees of the Board shall be paid from fees and assessments (including income earned on insurance deposits) levied
on insured credit unions under this Act.
FISCAL AGENTS AND DEPOSITORIES

SEC. 121. (a) [12 U.S.C. 1767] Each Federal credit union organized under this Act, when requested by the Secretary of the
Treasury, shall act as fiscal agent of the United States and shall
perform such services as the Secretary of the Treasury may require
in connection with the collection of taxes and other obligations due
the United States and the lending, borrowing, and repayment of


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FEDERAL CREDIT UNION ACT

Sec. 122

284

money by the United States, including the issue, sale, redemption,
or repurchase of bonds, notes, Treasury certificates of indebtedness,
or other obligations of the United States; and to facilitate such purposes the Board shall furnish to the Secretary of the Treasury from
time to time the names and addresses of all Federal credit unions
with such other available information concerning them as may be
requested by the Secretary of the Treasury. Any Federal credit
union organized under this Act, when designated for that purpose
by the Secretary of the Treasury, shall be a depository of public
money, except receipts from customs, under such regulations as
may be prescribed by the Secretary of the Treasury.
(b) Any Federal credit union, upon the deposit with it of any
funds by the Federal Government, an Indian tribe, or any State or
local government or political subdivision thereof as otherwise authorized by this Act, is authorized to pledge any of its assets securing the payment of the funds so deposited.
TAXATION

SEC. 122. [12 U.S.C. 1768] The Federal credit unions organized hereunder, their property, their franchises, capital, reserves,
surpluses, and other funds, and their income shall be exempt from
all taxation now or hereafter imposed by the United States or by
any State, Territorial, or local taxing authority; except that any
real property and any tangible personal property of such Federal
credit unions shall be subject to Federal, State, Territorial, and
local taxation to the same extent as other similar property is taxed.
Nothing herein contained shall prevent holdings in any Federal
credit union organized hereunder from being included in the valuation of the personal property of the owners or holders thereof in
assessing taxes imposed by authority of the State or political subdivision thereof in which the Federal credit union is located; but
the duty or burden of collecting or enforcing the payment of such
a tax shall not be imposed upon any such Federal credit union and
the tax shall not exceed the rate of taxes imposed upon holdings
in domestic credit unions.
PARTIAL INVALIDITY; RIGHT TO AMEND

SEC. 123. [12 U.S.C. 1769] (a) If any provision of this Act, or
the application thereof to any person or circumstance, is held invalid, the remainder of the Act, and the application of such provision to other persons or circumstances, shall not be affected thereby.
(b) The right to alter, amend, or repeal this Act or any part
thereof, or any charter issued pursuant to the provisions of this
Act, is expressly reserved.
SPACE IN FEDERAL BUILDINGS

SEC. 124. [12 U.S.C. 1770J Upon application by any credit
union organized under State law or oy any Federal credit union or-




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FEDERAL CREDIT UNION ACT

Sec. 125

ganized in accordance with the terms of this Act,x which application shall be addressed to the officer or agency of the United States
charged with the allotment of space in the Federal buildings in the
community or district in which such credit union does business,
such officer or agency may in his or its discretion allot space to
such credit union without charge for rent or services if at least 95
percent of the membership of tne credit union to be served by the
allotment of space is composed of persons who either are presently
Federal employees or were Federal employees at the time of admission into the credit union, and members of their families, and if
space is available. For the purpose of this section, the term "services" includes, but is not limited to, the providing of lighting, heating, cooling, electricity, office furniture, office machines and equipment, telephone service (including installation lines and equipment
and other expenses associated with telephone service), and security
systems (including installation of and other expenses associated
with security systems). Where there is an agreement for the payment of costs associated with the provision of space or services,
nothing in title 31, United States Code, or any other provision of
law, shall be construed to prohibit or restrict payment by reimbursement to the miscellaneous receipts or other appropriate account of the Treasury.
CONVERSION FROM FEDERAL TO STATE CREDIT UNION AND FROM
STATE TO FEDERAL CREDIT UNION

SEC. 125. [12 U.S.C. 1771] (a) A Federal credit union may be
converted into a State credit union under the laws of any State, the
District of Columbia, the several Territories and possessions of the
United States, the Panama Canal Zone, or the Commonwealth of
Puerto Rico, by complying with the following requirements:
(1) The proposition for such conversion shall first be approved,
and a date set for a vote thereon by the members (either at a meeting to be held on such date or by written ballot to be filed on or
before such date), by a majority of the directors of the Federal credit union. Written notice of the proposition and of the date set for
the vote shall then be delivered in person to each member, or
mailed to each member at the address for such member appearing
on the records of the credit union, not more than thirty nor less
than seven days prior to such date. Approval of the proposition for
conversion shall be by the affirmative vote of a majority of the
members of the credit union who vote on the proposal. The written
notice of the proposition shall in boldface type state that the issue
will be decided by a majority of the members who vote.
(2) A statement of the results of the vote, verified by the affidavits of the president or vice president and the secretary, shall be
filed with the Administration within ten days after the vote is
taken.
(3) Promptly after the vote is taken and in no event later than
ninety days thereafter, if the proposition for conversion was approved by such vote, the credit union shall take such action as may
1
Error in amendment made by section 2854(1) of Public Law 103-160 (107 Stat. 1908). The
amendment attempted to strike "at least 95 per centum" and all that follows through "and the
members of their families,". The word "the" between "and" and "members" does not appear.




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FEDERAL CREDIT UNION ACT

286

be necessary under the applicable State law to make it a State
credit union, and within ten days after receipt of the State credit
union charter there shall be filed with the Administration a copy
of the charter thus issued. Upon such filing the credit union shall
cease to be a Federal credit union.
(4) Upon ceasing to be a Federal credit union, such credit
union shall no longer be subject to any of the provisions of this Act.
The successor State credit union shall be vested with all of the assets and shall continue responsible for all of the obligations of the
Federal credit union to the same extent as though the conversion
had not taken place.
(b)(1) A State credit union, organized under the laws of any
State, the District of Columbia, the several Territories and possessions of the United States, the Panama Canal Zone, or the Commonwealth of Puerto Rico, may be converted into a Federal credit
union by (A) complying with all State requirements requisite to enabling it to convert to a Federal credit union or to cease being a
State credit union, (B) filing with the Administration proof of such
compliance, satisfactory to the Board, and (C) filing with the Administration an organization certificate as required by this Act.
(2) When the Board has been satisfied that all of such requirements, and all other requirements of this Act, have been complied
with, the Board shall approve the organization certificate. Upon
such approval, the State credit union shall become a Federal credit
union as of the date it ceases to be a State credit union. The Federal credit union shall be vested with all of the assets and shall
continue responsible for all of the obligations of the State credit
union to the same extent as though the conversion had not taken
place. (12 U.S.C. 1771)
TERRITORIAL APPLICABILITY OF ACT

SEC. 126. [12 U.S.C. 1772] The provisions of this Act shall
apply to the several States, the District of Columbia, the several
Territories, including the trust territories, and possessions of the
United States, the Panama Canal Zone, and the Commonwealth of
Puerto Rico.
GIFTS

SEC. 127. [12 U.S.C. 1772a] The Board is authorized to accept
gifts of money made unconditionally by will or otherwise for the
carrying out of any of the functions under this Act. A conditional
gift of money made by will or otherwise for such purposes may be
accepted and used in accordance with its conditions, but no such
gift shall be accepted which is conditioned upon any expenditure
not to be met therefrom or from income thereof unless the Board
determines that supplementation of such gift from the fees it may
expend pursuant to sections 105 and 106 or from any funds appropriated pursuant to section 120(f)(2)(C) for the purpose of making
such expenditure will not adversely affect the sound administration
of this Act. Any such gift shall be deposited in the Treasury of the
United States for the account of the Administration and may be expended in accordance with section 6 or as provided in the preceding
sentence.




287

FEDERAL CREDIT UNION ACT

Sec. 131

SEC. 128. [12 U.S.C. 1772b] APPORTIONMENT.

Notwithstanding any other provision of law, funds received by
the Board pursuant to any method provided by this Act, and interest, dividend, or other income thereon, shall not be subject to apportionment for the purpose of chapter 15 of title 31, United States
Code, or under any other authority.
SEC. 129. [12 U.S.C. 1772c] TRUST FUND.

Notwithstanding any other provision of law, all moneys of the
Board shall be treated as trust funds for the purpose of section
256(a)(2) of the Balanced Budget and Emergency Deficit Control
Act of 1985. This section is effective for fiscal year 1986 and every
fiscal year thereafter.
SEC. 130. [12 U.S.C. 1772c-l] COMMUNITY DEVELOPMENT REVOLVING
LOAN FUND FOR CREDIT UNIONS.

(a) IN GENERAL.—The Board may exercise the authority granted to it by the Community Development Credit Union Revolving
Loan Fund Transfer Act, including any additional appropriation
made or earnings accrued, subject only to this section and to regulations prescribed by the Board.
(b) INVESTMENT.—The Board may invest any idle Fund moneys
in United States Treasury securities. Any interest accrued on such
securities shall become a part of the Fund.
(c) LOANS.—The Board may require that any loans made from
the Fund be matched by increased shares in the borrower credit
union.
(d) INTEREST.—Interest earned by the Fund may be allocated
by the Board for technical assistance to community development
credit unions, subject to an appropriations Act.
(e) DEFINITION.—As used in this section, the term "Fund"
means the Community Development Credit Union Revolving Loan
Fund.
SEC. 131. [12 U.S.C. 1772d] FORFEITURE OF ORGANIZATION CERTIFICATE FOR MONEY LAUNDERING OR CASH TRANSACTION
REPORTING OFFENSES.
(a) FORFEITURE OF FRANCHISE FOR MONEY LAUNDERING OR
CASH TRANSACTION REPORTING OFFENSES.—
(1) CONVICTION OF TITLE IS OFFENSES.—
(A) DUTY TO NOTIFY.—If a credit union has been con-

victed of any criminal offense under section 1956 or 1957
of title 18, United States Code, the Attorney General shall
provide to the Board a written notification of the conviction and shall include a certified copy of the order of conviction from the court rendering the decision.
(B) NOTICE OF TERMINATION; PRETERMINATION HEAR-

ING.—After receiving written notification from the Attorney General of such a conviction, the Board shall issue to
such credit union a notice of its intention ttf- terminate all
rights, privileges, and franchises of the credit union and
schedule a pretermination hearing.
(2) CONVICTION OF TITLE 3i OFFENSES.—If a credit union is
convicted of any criminal offense under section 5322 or 5324 of
title 31, United States Code, after receiving written notification
from the Attorney General, the Board may issue to such credit




FEDERAL CREDIT UNION ACT

Sec. 201

288

union a notice of its intention to terminate all rights, privileges, and franchises of the credit union and schedule a
pretermination hearing.
(3) JUDICIAL REVIEW.—Section 206(j) shall apply to any
proceeding under this section.
(b) FACTORS TO BE CONSIDERED.—In determining whether a
franchise shall be forfeited under subsection (a), the Board shall
take into account the following factors:
(1) The extent to which directors, committee members, or
senior executive officers (as defined by the Board in regulations
which the Board shall prescribe) of the credit union Knew of,
or were involved in, the commission of the money laundering
offense of which the credit union was found guilty.
(2) The extent to which the offense occurred despite the existence of policies and procedures within the credit union
which were designed to prevent the occurrence of any such offense.
(3) The extent to which the credit union has fully cooperated with law enforcement authorities with respect to the investigation of the money laundering offense of which the credit
union was found guilty.
(4) The extent to which the credit union has implemented
additional internal controls (since the commission of the offense of which the credit union was found guilty) to prevent
the occurrence of any other money laundering offense.
(5) The extent to which the interest of the local community
in having adequate deposit and credit services available would
be threatened by the forfeiture of the franchise.
(c) SUCCESSOR LIABILITY.—This section shall not apply to a
successor to the interests of, or a person who acquires, a credit
union that violated a provision of law described in subsection (a),
if the successor succeeds to the interests of the violator, or the acquisition is made, in good faith and not for purposes of evading this
section or regulations prescribed under this section.
TITLE II—SHARE INSURANCE
INSURANCE OF MEMBER ACCOUNTS AND ELIGIBILITY PROVISIONS

SEC. 201. [12 U.S.C. 1781] (a) The Board, as hereinafter provided, shall insure the member accounts of all Federal credit
unions and it may insure the member accounts of (1) credit unions
organized and operated according to the laws of any State, the District of Columbia, the several territories, including trust territories,
and possessions of the United States, the Panama Canal Zone, or
the Commonwealth of Puerto Rico, and (2) credit unions organized
and operating under the jurisdiction of the Department of Defense
if such credit unions are operating in compliance with the requirements of title I of this Act and regulations issued thereunder.
(b) Application for insurance of member accounts shall be made
immediately by each Federal credit union and may be made at any
time by a State credit union or a credit union operating under the
jurisdiction of the Department of Defense. Applications for such insurance shall be in such form as the Board shall provide and shall
contain an agreement by the applicant—




289

FEDERAL CREDIT UNION ACT

Sec. 201

(1) to pay the reasonable cost of such examinations as the
Board may deem necessary in connection with determining the
eligibility of the applicant for insurance: Provided, That examinations required under title I of this Act shall be so conducted
that the information derived therefrom may be utilized for
share insurance purposes, and examinations conducted by
State regulatory agencies shall be utilized by the Board for
such purposes to the maximum extent feasible;
(2) to permit and pay the reasonable cost of such examinations as in the judgment of the Board may from time to time
be necessary for the protection of the fund and of other insured
credit unions;
(3) to permit the Board to have access to any information
or report with respect to any examination made by or for any
public regulatory authority, including any commission, board,
or authority having supervision of a State-chartered credit
union, and furnish such additional information with respect
thereto as the Board may require;
(4) to provide protection and indemnity against burglary,
defalcation, and other similar insurable losses, of the type, in
the form, and in an amount at least equal to that required by
the laws under which the credit union is organized and operates;
(5) to maintain such regular reserves as may be required
by the laws of the State, district, territory, or other jurisdiction
pursuant to which it is organized and operated, in the case of
a State-chartered credit union, or as may be required by section 116 of this Act, in the case of a Federal credit union;
(6) to maintain such special reserves as the Board, by regulation or in special cases, may require for protecting the interest of members or to assure that all insured credit unions
maintain regular reserves which are not less than those required under title I of this Act;
(7) not to issue or have outstanding any account or security the form of which, by regulation or in special cases, has
not been approved by the Board except for accounts authorized
by State law for State credit unions;
(8) to pay and maintain its deposit and to pay the premium charges for insurance imposed by this title; and
(9) to comply with the requirements of this title and of regulations prescribed by the Board pursuant thereto.
(c)(1) Before approving the application of any credit union for
insurance of its member accounts, the Board shall consider—
(A) the history, financial condition, and management policies of the applicant;
(B) the economic advisability of insuring the applicant
without undue risk of the fund;
(C) the general character and fitness of the applicant's
management;
(D) the convenience and needs of the members to be served
by the applicant; and
(E) whether the applicant is a cooperative association organized for the purpose of promoting thrift among its members




Sec. 202

FEDERAL CREDIT UNION ACT

290

and creating a source of credit for provident or productive purposes.
(2) The Board shall disapprove the application of any credit
union for insurance of its member accounts if it finds that its reserves are inadequate, that its financial condition and policies are
unsafe or unsound, that its management is unfit, that insurance of
its member accounts would otherwise involve undue risk to the
fund, or that its powers and purposes are inconsistent with the promotion of thrift among its members and the creation of a source of
credit for provident or productive purposes.
(d) Upon the approval of any application for insurance, the
Board shall notify the applicant and shall issue to it a certificate
evidencing the fact that it is, as of the date of issuance of the certificate, an insured credit union under the provisions of this title.
REPORTS OF CONDITION; CERTIFIED STATEMENTS; PREMIUMS FOR
INSURANCE

SEC. 202. [12 U.S.C. 1782] (a)(1) Each insured credit union
shall make reports of condition to the Board upon dates which
shall be selected by them. Such reports of condition shall be in such
form and shall contain such information as the Board may require.
The reporting dates selected for reports of condition shall be the
same for all insured credit unions except that when any of said reporting dates is a nonbusiness day for any credit union the preceding business day shall be its reporting date. The total amount of
the member accounts of each insured credit union as of each reporting date shall be reported in such reports of condition in accordance with regulations prescribed by the Board. Each report of
condition shall contain a declaration by the president, by a vice
president, by the treasurer, or by any other officer designated by
the board of directors of the reporting credit union to make such
declaration, that the report is true and correct to the best of such
officer's knowledge and belief. Unless such requirement is waived
by the Board, the correctness of each report of condition shall be
attested by the signatures of three of the officers of the reporting
credit union with the declaration that the report has been examined by them and to the best of their knowledge and belief is true
and correct.
(2) The Board may call for such other reports as it may from
time to time require.
(3) The Board may require reports of condition to be published
in such manner, not inconsistent with any applicable law, as it
may direct. Any insured credit union which maintains procedures
reasonably adapted to avoid any inadvertent error and, unintentionally and as a result of such an error, fails to submit or publish
any report required under this subsection or section 106, within the
period of time specified by the Board, or submits or publishes any
false or misleading report or information, or inadvertently transmits or publishes any report which is minimally late, shall be subject to a penalty of not more than $2,000 for each day during which
such failure continues or such false or misleading information is
not corrected. The insured credit union shall have the burden of
proving that an error was inadvertent and that a report was inad-




291

FEDERAL CREDIT UNION ACT

Sec. 202

vertently transmitted or published late. Any insured credit union
which fails to submit or publish any report required under this
subsection or section 106, within the period of time specified by the
Board, or submits or publishes any false or misleading report or information, in a manner not described in the 2nd preceding sentence
shall be subject to a penalty of not more than $20,000 for each day
during which such failure continues or such false or misleading information is not corrected. Notwithstanding the preceding sentence,
if any insured credit union knowingly or with reckless disregard for
the accuracy of any information or report described in such sentence submits or publishes any false or misleading report or information, the Board may assess a penalty of not more than
$1,000,000 or 1 percent of total assets of such credit union, whichever is less, per day for each day during which such failure continues or such false or misleading information is not corrected. Any
penalty imposed under any of the 4 preceding sentences shall be
assessed and collected by the Board in the manner provided in section 206(k)(2) (for penalties imposed under such section) and any
such assessment (including the determination of the amount of the
penalty) shall be subject to the provisions of such section. Any insured credit union against which any penalty is assessed under
this subsection shall be afforded an agency hearing if such insured
credit union submits a request for such hearing within 20 days
after the issuance of the notice of assessment. Section 206(j) shall
apply to any proceeding under this subsection.
(4) The Board may accept any report of condition made to any
commission, board, or authority having supervision of a State-chartered credit union and may furnish to any such commission, board,
or authority reports of condition made to the Board.
(5) Reports required under title I of this Act shall be so prepared that they can be used for share insurance purposes. To the
maximum extent feasible, the Board shall use for insurance purposes reports submitted to State regulatory agencies by State-chartered credit unions.
(6) x AUDIT REQUIREMENT.—

(A) IN GENERAL.—Before the end of the 120-day period
beginning on the date of the enactment of the Financial
Institutions Reform, Recovery, and Enforcement Act of
1989 and notwithstanding any other provision of Federal
or State law, the Board shall prescribe, by regulation,
audit standards which require an outside, independent
audit of any insured credit union by a certified public accountant for any fiscal year (of such credit union)—
(i) for which such credit union has not conducted
an annual supervisory committee audit;
(ii) for which such credit union has not received a
complete and satisfactory supervisory committee
audit; or
(iii) during which such credit union has experienced persistent and serious recordkeeping deficiencies, as determined by the Board.
1

Indentation so in law.




FEDERAL CREDIT UNION ACT

Sec. 202

292

(B) UNSAFE OR UNSOUND PRACTICE.—The Board may
treat the failure of any insured credit union to obtain an
outside, independent audit for any fiscal year for which
such audit is required under subparagraph (A) as an unsafe or unsound practice within the meaning of section
206(b).
(7) x REPORT TO INDEPENDENT AUDITOR.—

(A) IN GENERAL.—Each insured credit union which has
engaged the services of an independent auditor to audit
such depository institution within the past 2 years shall
transmit to such auditor a copy of the most recent report
of condition made by such credit union (pursuant to this
Act or any other provision of law) and a copy of the most
recent report of examination received by such credit union.
(B) ADDITIONAL INFORMATION.—In addition to the copies of the reports required to be provided to an auditor
under subparagraph (A), each insured credit union shall
provide such auditor with—
(i) a copy of any supervisory memorandum of understanding with such credit union and any written
agreement between the Board or a State regulatory
agency and the credit union which is in effect during
the period covered by the audit; and
(ii) a report of any action initiated or taken by the
Board during such period under subsection (e), (f), (g),
(i), (1), or (q) of section 206, or any similar action taken
by a State regulatory agency under State law, or any
other civil money penalty assessed by the Board under
this Act, with respect to—
(I) the credit union; or
(II) any institution-affiliated party.
(b)(1) For each insurance year, each insured credit union which
became insured prior to the beginning of that year shall file with
the Board, at such time as the Board prescribes, a certified statement showing the total amount of the insured shares in the credit
union at the close of the preceding insurance year and both the
amount of its deposit or adjustment thereof and the amount of the
premium charge for insurance due to the fund for that year, both
as computed under subsection (c) of this section.
(2) The certified statements required to be filed with the Board
pursuant to this subsection shall be in such form and shall set
forth such supporting information as the Board shall require.
(3) Each such statement shall be certified by the president of
the credit union, or by any officer of the credit union designated by
its board of directors, that to the best of his knowledge and belief
the statement is true, correct, and complete and in accordance with
this title and regulations issued thereunder.
(c)(l)(A)(i) Each insured credit union shall pay to and maintain
with the National Credit Union Share Insurance Fund a deposit in
an amount equaling 1 per centum of the credit union's insured
shares.
1

Indentation so in law.




FEDERAL CREDIT UNION ACT

293

Sec. 202

(ii) The Board may, in its discretion, authorize insured credit
unions to initially fund such deposit over a period of time in excess
of one year if necessary to avoid adverse effects on the condition
of insured credit unions.
(iii) The amount of each insured credit union's deposit shall be
adjusted annually, in accordance with procedures determined by
the Board, to reflect changes in the credit union's insured shares.
(B)(i) The deposit shall be returned to an insured credit union
in the event that its insurance coverage is terminated, it converts
to insurance coverage from another source, or in the event the operations of the fund are transferred from the National Credit
Union Administration Board.
(ii) The deposit shall be returned in accordance with procedures and valuation methods determined by the Board, but in no
event shall the deposit be returned any later than one year after
the final date on which no shares of the credit union are insured
by the Board.
(iii) The deposit shall not be returned in the event of liquidation on account of bankruptcy or insolvency.
(iv) The deposit funds may be used by the fund if necessary to
meet its expenses, in which case the amount so used shall be expensed and shall be replenished by insured credit unions in accordance with procedures established by the Board.
(2) Each insured credit union, at such times as the Board prescribes, shall pay to the fund a premium charge for insurance equal
to one-twelfth of 1 per centum of the total amount of the insured
shares in such credit union at the close of the preceding insurance
year.
(3) When, at the end of a given insurance year, any loans to
the fund from the Federal Government and the interest thereon
have been repaid and the equity of the fund exceeds the normal operating level, the Board shall effect for that insurance year a pro
rata distribution to insured credit unions of an amount sufficient
to reduce the equity in the fund to its normal operating level.
(d)(1) Any insured credit union which fails to make any report
of condition under subsection (a) of this section or to file any certified statement required to be filed by it in connection with determining the amount of its deposit or any premium charge for insurance may be compelled to make such report or to file such statement by mandatory injunction or other appropriate remedy in a
suit brought for such purpose by the Board against the credit union
and any officer or officers thereof. Any such suit may be brought
in any court of the United States of competent jurisdiction in the
district or territory in which the principal office of the credit union
is located.
(2) PENALTY FOR FAILURE TO MAKE ACCURATE CERTIFIED
STATEMENT OR TO PAY DEPOSIT OR PREMIUM.—
(A) FIRST TIER.—Any insured credit union which—

(i) maintains procedures reasonably adapted to
avoid any inadvertent error and, unintentionally and
as a result of such an error, fails to submit any certified statement under subsection (b)(1) within the period of time required or submits a false or misleading
certified statement under such subsection; or




Sec. 202

FEDERAL CREDIT UNION ACT

294

(ii) submits the statement at a time which is minimally after the time required,
shall be subject to a penalty of not more than $2,000 for
each day during which such failure continues or such false
and misleading information is not corrected. The insured
credit union shall have the burden of proving that an error
was inadvertent or that a statement was inadvertently
submitted late.
(B) SECOND TIER.—Any insured credit union which—
(i) fails to submit any certified statement under
subsection (b)(1) within the period of time required or
submits a false or misleading certified statement in a
manner not described in subparagraph (A); or
(ii) fails or refuses to pay any deposit or premium
for insurance required under this title,
shall be subject to a penalty of not more than $20,000 for
each day during which such failure continues, such false
and misleading information is not corrected, or such deposit or premium is not paid.
(C) THIRD TIER.—Notwithstanding subparagraphs (A)
and (B), if any insured credit union knowingly or with
reckless disregard for the accuracy of any certified statement under subsection (b)(1) submits a false or misleading
certified statement under such subsection, the Board may
assess a penalty of n6t more than $1,000,000 or not more
than 1 percent of the total assets of the credit union,
whichever is less, per day for each day during which the
failure continues or the false or misleading information in
such statement is not corrected.
(D) ASSESSMENT PROCEDURE.—Any penalty imposed
under this paragraph shall be assessed and collected by
the Board in the manner provided in section 206(k)(2) (for
penalties imposed under such section) and any such assessment (including the determination of the amount of
the penalty) shall be subject to the provisions of such section.
(E) HEARING.—Any insured credit union against which
any penalty is assessed under this paragraph shall be afforded an agency hearing if the credit union submits a request for such hearing within 20 days after the issuance
of the notice of the assessment. Section 206(j) shall apply
to any proceeding under this subparagraph.
(F) SPECIAL RULE FOR DISPUTED PAYMENTS.—NO penalty may be assessed for the failure of any insured credit
union to pay any deposit or premium for insurance if—
(i) the failure is due to a dispute between the
credit union and the Board over the amount of the deposit or premium which is due from the credit union;
and
(ii) the credit union deposits security satisfactory
to the Board for payment of the deposit or insurance
premium upon final determination of the dispute.
(3) No insured credit union shall pay any dividends on its insured shares or distribute any of its assets while it remains in de-




295

FEDERAL CREDIT UNION ACT

Sec. 202

fault in the payment of its deposit or any premium charge for insurance due to the fund. Any director or officer of any insured credit union who knowingly participates in the declaration or payment
of any such dividend or in any such distribution shall, upon conviction, be fined not more than $1,000 or imprisoned not more than
one year, or both. The provisions of this paragraph shall not be applicable in any case in which the default is due to a dispute between the credit union and the Board over the amount of its deposit or the premium charge due to the fund if the credit union deposits security satisfactory to the Board for payment of its deposit
or the premium charge upon final determination of the issue.
(e) The Board, in a suit brought at law or in equity in any
court of competent jurisdiction, shall be entitled to recover from
any insured credit union the amount of any unpaid deposit or premium charge for insurance lawfully payable by the credit union to
the fund, wnether or not such credit union shall have made any report of condition under subsection (a) of this section or filed any
certified statement required under subsection (b) of this section and
whether or not suit snail have been brought to compel the credit
union to make any such report or to file any such statement. No
action or proceeding shall be brought for the recovery of any deposit or premium charge due to the fund, or for the recovery of any
amount paid to the fund in excess of the amount due it, unless
such action or proceeding shall have been brought within five years
after the right accrued for which the claim is made. Where the insured credit union has made or filed with the Board a false or
fraudulent certified statement with the intent to evade, in whole or
in part, the payment of its deposit or any premium charge, the
claim shall not be deemed to have accrued until the discovery by
the Board of the fact that the certified statement is false or fraudulent.
(f) Should any Federal credit union fail to make any report of
condition under subsection (a) of this section or to file any certified
statement required to be filed under subsection (b) of this section
or to pay its deposit or any premium charge for insurance required
to be paid under any provision of this title, and should the credit
union fail to correct such failure within thirty days after written
notice has been given by the Board to an officer of the credit union,
citing this subsection and stating that the credit union has failed
to make any such report or file any such statement or pay any such
deposit or premium charge as required by law, all the rights, privileges, and franchises of the credit union granted to it under title
I of this Act shall be thereby forfeited. Whether or not the penalty
provided in this subsection has been incurred shall be determined
and adjudged by any court of the United States of competent jurisdiction in a suit brought for that purpose in the district or territory
in which the principal office of such credit union is located, under
direction of and by the Board in its own name, before the credit
union shall be declared dissolved. The remedies provided in this
subsection and in subsections (d) and (e) of this section shall not
be construed as limiting any other remedies against any insured
credit union but shall be in addition thereto.
(g) Each insured credit union shall maintain such records as
will readily permit verification of the correctness of its reports of




FEDERAL CREDIT UNION ACT

Sec. 203

296

condition, certified statements, and deposit and premium charges
for insurance. However, no insured credit union shall be required
to retain such records for such purpose for a period in excess of five
years from the date of the making of any such report, the filing of
any such statement, or the payment of any deposit or adjustment
thereof or any premium charge, except that when there is a dispute
between the insured credit union and the Board over the amount
of any deposit or adjustment thereof or any premium charge for insurance the credit union shall retain such records until final determination of the issue.
(h) Fcr the purposes of this section—
(1) the term "insurance year" means the period beginning
on January 1 and ending on the following December 31, both
dates inclusive, unless otherwise prescribed by the Board;
(2) the term "normal operating level", when applied to the
Fund, means an amount equal to 1.3 per centum of the aggregate amount of the insued shares in all insured credit unions,
or such lower level as the Board may determine; and
(3) the term "insured shares" when applied to this section
includes share, share draft, share certificate and other similar
accounts as determined by the Board, but does not include
amounts in excess of the insured account limit set forth in section 207(c)(1).
NATIONAL CREDIT UNION SHARE INSURANCE FUND

SEC. 203. [12 U.S.C. 1783] (a) There is hereby created in the
Treasury of the United States a National Credit Union Share Insurance Fund which shall be used by the Board as a revolving fund
for carrying out the purposes of this title. Money in the fund shall
be available upon requisition by the Board, without fiscal year limitation, for making payments of insurance under section 207 of this
title, for providing assistance and making expenditures under section 208 of this title in connection with the liquidation or threatened liquidation of insured credit unions, and for such administrative and other expenses incurred in carrying out the purposes of
this title as it may determine to be proper.
(b) All deposit and premium charges for insurance paid pursuant to the provisions of section 202 of this title and all fees for examinations and all penalties collected by the Board under any provision of this title shall be deposited in the National Credit Union
Share Insurance Fund. The Board shall report annually to the
Committee on Banking, Housing, and Urban Affairs of the Senate
and the Committee on Banking, Finance and Urban Affairs of the
House of Representatives with respect to the operating level of the
fund. Such report shall also include the results of an independent
audit of the fund.
(c) The Board may authorize the Secretary of the Treasury to
invest and reinvest such portions of the fund as the Board may determine are not needed for current operations in any interest-bearing securities of the United States or in any securities guaranteed
as to both principal and interest by the United States or in bonds
or other obligations which are lawful investments for fiduciary,




FEDERAL CREDIT UNION ACT

297

Sec. 204

trust, and public funds of the United States, and the income therefrom shall constitute a part of the fund.
(d)(1) If, in the judgment of the Board, a loan to the fund is
required at any time for carrying out the purposes of this title, the
Secretary of the Treasury shall make the loan, but loans under this
paragraph shall not exceed in the aggregate $100,000,000 outstanding at any one time. Except as otherwise provided in this subsection and in subsection (e) of this section, each loan under this
paragraph shall be made on such terms as may be fixed by agreement between the Board and the Secretary of the Treasury.
(2) Interest shall accrue to the Treasury on the amount of any
outstanding loans made to the fund pursuant to paragraph (1) of
this subsection on the basis of the average daily amount of such
outstanding loans determined at the close of each fiscal year with
respect to such year, and the Board shall pay the interest so accruing into the Treasury as miscellaneous receipts annually from the
fund. The Secretary of the Treasury shall determine the applicable
interest rate in advance by calculating the average yield to maturity (on the basis of daily closing market bid quotations during the
month of June of the preceding fiscal year) on outstanding marketable public debt obligations of the United States having a maturity
date of five or less years from the first day of such month of June
and by adjusting such yield to the nearest one-eighth of 1 per centum.
(3) For the purpose of making loans under paragraph (1) of
this subsection, the Secretary of the Treasury is authorized to use
as a public debt transaction the proceeds of the sale of any securities issued under the Second Liberty Bond Act, as amended, and
the purposes for which securities may be issued under the Second
Liberty Bond Act, as amended, are hereby extended to include such
loans. All loans and repayments under this section shall be treated
as public debt transactions of the United States. x
(e) So long as any loans to the fund are outstanding, the Board
shall from time to time, not less often than annually, determine
whether the balance in the fund is in excess of the amount which,
in its judgment, is needed to meet the requirements of the fund
and shall pay such excess to the Secretary of the Treasury, to be
credited against the loans to the fund.
(f) In addition to the authority to borrow from the Secretary of
the Treasury provided in subsection (d), if in the judgment of the
Board, a loan to the fund is required at any time for carrying out
the purposes of this title, the fund is authorized to borrow from the
National Credit Union Administration Central Liquidity Facility.
EXAMINATION OF INSURED CREDIT UNIONS

SEC. 204. [12 U.S.C. 1784] (a) The Board shall appoint examiners who shall have power, on its behalf, to examine any insured
credit union, any credit union making application for insurance of
its member accounts, or any closed insured credit union whenever
in the judgment of the Board an examination is necessary to determine the condition of any such credit union for insurance purposes.
1
The Second Liberty Bond Act was repealed by section 5 of P.L. 97-258. The substance of
such Act was reenacted as subchapter 1 of chapter 31 of title 31, United States Code.




Sec. 204

FEDERAL CREDIT UNION ACT

298

Each examiner shall have power to make a thorough examination
of all of the affairs of the credit union and shall make a full and
detailed report of the condition of the credit union to the Board.
The Board in like manner shall appoint claim agents who shall
have power to investigate and examine all claims for insured member accounts. Each claim agent shall have power to administer
oaths and affirmations, to examine and to take and preserve testimony under oath as to any matter in respect to claims for insured
accounts, and to issue subpenas and subpenas duces tecum and, for
the enforcement thereof, to apply to the United States district court
for the iudicial district or the United States court in any territory
in which the principal office of the credit union is located or in
which the witness resides or carries on business. Such courts shall
have jurisdiction and power to order and require compliance with
any such subpena.
(b) In connection with examinations of insured credit unions,
or with other types of investigations to determine compliance with
applicable law and regulations, the Board, or its designated representatives, shall have power to administer oaths and affirmations, to examine and to take and preserve testimony under oath
as to any matter in respect of the affairs of any such credit union,
and to issue subpenas and subpenas duces tecum and to exercise
such others x powers as are set forth in section 206(p) and, for the
enforcement thereof, to apply to the United States district court for
the judicial district or the United States court in any territory in
which the principal office of the credit union is located or in which
the witness resides or carries on business. Such courts shall have
jurisdiction and power to order and require compliance with any
such subpena.
(c) In cases of refusal to obey a subpena issued to, or contumacy by, any person, the Board may invoke the aid of any court
of the United States within the jurisdiction of which such hearing,
examination, or investigation is carried on, or where such person
resides or carries on business, in requiring the attendance and testimony of witnesses and the production of books, records, or other
papers. Such court may issue an order requiring such person to appear before the Board, or before a person designated by them, there
to produce records, if so ordered, or to give testimony touching the
matter in question. Any failure to obey such order of the court may
be punished by such court as a contempt thereof. All process in any
such case may be served in the judicial district whereof such person is an inhabitant or carries on business or wherever he may be
found. No person shall be excused from attending and testifying or
from producing books, records, or other papers in obedience to a
subpena issued under the authority of this title on the ground that
the testimony or evidence, documentary or otherwise, required of
him may tend to incriminate him or subject him to penalty or forfeiture, but no individual shall be prosecuted or subject to any penalty or forfeiture for or on account of any transaction, matter, or
thing concerning which he is compelled to testify or produce evidence, documentary or otherwise, after having claimed nis privilege
against self-incrimination, except that such individual so testifying
1

So in original. Probably should be "other".




299

FEDERAL CREDIT UNION ACT

Sec. 205

shall not be exempt from prosecution and punishment for perjury
committed in so testifying.
(d) The Administration may accept any report of examination
made by or to any commission, board, or authority having supervision of a State-chartered credit union and may furnish to any
such commission, board, or authority reports of examination made
on behalf of the Board.
(e) FLOOD
UNIONS.—

INSURANCE

COMPLIANCE BY

INSURED

CREDIT

(1) EXAMINATION.—The Board shall, during each examination conducted under this section, determine whether the insured credit union is complying with the requirements of the
national flood insurance program.
(2) REPORT.—

(A) REQUIREMENT.—Not later than 1 year after the
date of enactment of the Riegle Community Development
and Regulatory Improvement Act of 1994 and biennially
thereafter for the next 4 years, the Board shall submit a
report to the Congress on compliance by insured credit
unions with the requirements of the national flood insurance program.
(B) CONTENTS.—The report shall include a description
of the methods used to determine compliance, the number
of insured credit unions examined during the reporting
year, a listing and total number of insured credit unions
found not to be in compliance, actions taken to correct incidents of noncompliance, and an analysis of compliance, including a discussion of any trends, patterns, and problems,
and recommendations regarding reasonable actions to improve the efficiency of the examinations processes.
REQUIREMENTS GOVERNING INSURED CREDIT UNIONS

SEC. 205. [12 U.S.C. 1785] (a) Every insured credit union shall
display at each place of business maintained by it a sign or signs
indicating that its member accounts are insured by the Board and
shall include in all of its advertisements a statement to the effect
that its member accounts are insured by the Board. The Board may
exempt from this requirement advertisements which do not relate
to member accounts or advertisements in which it is impractical to
include such a statement. The Board shall prescribe by regulation
the forms of such signs, the manner of display, the substance of
any such statement, and the manner of use.
(b)(1) Except with the prior written approval of the Board, no
insured credit union shall—
(A) merge or consolidate with any noninsured credit union
or institution;
(B) assume liability to pay any member accounts in, or
similar liabilities of, any noninsured credit union or institution;
(C) transfer assets to any noninsured credit union or institution in consideration of the assumption of liabilities for any
portion of the member accounts in such insured credit union;
or
(D) convert into a noninsured credit union or institution.




Sec. 205

FEDERAL CREDIT UNION ACT

300

(2) Except with the prior written approval of the Board, no insured credit union shall merge or consolidate with any other insured credit union or, either directly or indirectly, acquire the assets of, or assume liability to pay any member accounts in, any
other insured credit union.
(c) In granting or withholding approval or consent under subsection (b) of this section, the Board shall consider—
(1) the history, financial condition, and management policies of the credit union;
(2) the adequacy of the credit union's reserves;
(3) the economic advisability of the transaction;
(4) the general character and fitness of the credit union's
management;
(5) the convenience and needs of the members to be served
by the credit union; and
(6) whether the credit union is a cooperative association
organized for the purpose of promoting thrift among its members and creating a source of credit for provident or productive
purposes.
(d) PROHIBITION.—

(1) IN GENERAL.—Except with prior written consent of the
Board—
(A) any person who has been convicted of any criminal
offense involving dishonesty or a breach of trust, or has
agreed to enter into a pretrial diversion or similar program
in connection with a prosecution for such offense, may
not—
(i) become, or continue as, an institution-affiliated
party with respect to any insured credit union; or
(ii) otherwise participate, directly or indirectly, in
the conduct of the affairs of any insured credit union;
and
(B) any insured credit union may not permit any person referred to in subparagraph (A) to engage in any conduct or continue any relationship prohibited under such
subparagraph.
(2) MINIMUM IO-YEAR PROHIBITION PERIOD FOR CERTAIN OFFENSES.—

(A) IN GENERAL.—If the offense referred to in paragraph (1)(A) in connection with any person referred to in
such paragraph is—
(i) an offense under—
(I) section 215, 656, 657, 1005, 1006, 1007,
1008, 1014, 1032, 1344, 1517, 1956, or 1957 of
title 18, United States Code; or
(II) section 1341 or 1343 of such title which
affects any financial institution (as defined in section 20 of such title); or
(ii) the offense of conspiring to commit any such
offense,
the Board may not consent to any exception to the application of paragraph (1) to such person during the 10-year period beginning on the date the conviction or the agreement
of the person becomes final.




301

FEDERAL CREDIT UNION ACT

Sec. 205

(B) EXCEPTION BY ORDER OF SENTENCING COURT.—

(i) IN GENERAL.—On motion of the Board, the
court in which the conviction or the agreement of a
person referred to in subparagraph (A) has been entered may grant an exception to the application of
paragraph (1) to such person if granting the exception
is in the interest of justice.
(ii) PERIOD FOR FILING.—A motion may be filed
under clause (i) at any time during the 10-year period
described in subparagraph (A) with regard to the person on whose behalf such motion is made.
(3) PENALTY.—Whoever knowingly violates paragraph (1)
or (2) shall be fined not more than $1,000,000 for eacn day
such prohibition is violated or imprisoned for not more than 5
years, or both.
(e)(1) The Board shall promulgate rules establishing minimum
standards with which each insured credit union must comply with
respect to the installation, maintenance, and operation of security
devices and procedures, reasonable in cost, to discourage robberies,
burglaries, and larcenies and to assist in the identification and apprehension of persons who commit such acts.
(2) The rules shall establish the time limits within which insured credit unions shall comply with the standards and shall require the submission of periodic reports with respect to the installation, maintenance, and operation of security devices and procedures.
(3) An insured credit union which violates a rule promulgated
pursuant to this subsection shall be subject to a civil penalty which
shall not exceed $100 for each day of the violation.
(f)(1) Every insured credit union is authorized to maintain, and
make loans with respect to, share draft accounts in accordance
with rules and regulations prescribed by the Board. Except as provided in paragraph (2), an insured credit union may pay dividends
on share draft accounts and may permit the owners of such share
draft accounts to make withdrawals by negotiable or transferable
instruments or other orders for the purpose of making transfers to
third parties.
(2) Paragraph (1) shall apply only with respect to share draft
accounts in which the entire beneficial interest is held by one or
more individuals or members or by an organization which is operated primarily for religious, philanthropic, charitable, educational,
or other similar purposes and which is not operated for profit, and
with respect to deposits of public funds by an officer, employee, or
agent of the United States, any State, county, municipality, or political subdivision thereof, the District of Columbia, tne Commonwealth of Puerto Rico, American Samoa, Guam, any territory or
possession of the United States, or any political subdivision thereof.
(g)(1) If the applicable rate prescribed in this subsection exceeds the rate an insured credit union would be permitted to
charge in the absence of this subsection, such credit union may,
notwithstanding any State constitution or statute which is hereby
preempted for the purposes of this subsection, take, receive, reserve, and charge on any loan, interest at a rate of not more than
1 per centum in excess of the discount rate on ninety-day commer-




Sec. 206

FEDERAL CREDIT UNION ACT

302

cial paper in effect at the Federal Reserve bank in the Federal Reserve district where such insured credit union is located or at the
rate allowed by the laws of the State, territory, or district where
such credit union is located, whichever may be greater.
(2) If the rate prescribed in paragraph (1) exceeds the rate
such credit union would be permitted to charge in the absence of
this subsection, and such State fixed rate is thereby preempted by
the rate described in paragraph (1), the taking, receiving, reserving, or charging a greater rate than is allowed by paragraph (1),
when knowingly done, shall be deemed a forfeiture of the entire interest which the loan carries with it, or which has been agreed to
be paid thereon. If such greater rate of interest has been paid, the
person who paid it may recover, in a civil action commenced in a
court of appropriate jurisdiction not later than two years after the
date of such payment, an amount equal to twice the amount of interest paid from the credit union taking or receiving such interest.
TERMINATION OF INSURANCE; CEASE-AND-DESIST PROCEEDINGS; SUSPENSION AND/OR REMOVAL OF DIRECTORS, OFFICERS, AND COMMITTEE MEMBERS; TAKING POSSESSION OF COMMITTEE MEMBERS

SEC. 206. [12 U.S.C. 1786] (a)(1) Any insured credit union
other than a Federal credit union may, upon not less than ninety
days' written notice to the Board and upon the affirmative vote of
a majority of its members within one year prior to the giving of
such notice, terminate its status as an insured credit union.
(2) Any insured credit union, other than a Federal credit
union, which has obtained a new certificate of insurance from a
corporation authorized and duly licensed to insure member accounts may upon not less than ninety days' written notice to the
Board convert from status as an insured credit union under this
Act: Provided, That at the time of giving notice to the Board the
provisions of paragraph (b)(1) of this section are not being invoked
against the credit union.
(b)(1) Whenever, in the opinion of the Board, any insured credit union is engaging or has engaged in unsafe or unsound practices
in conducting the business of such credit union, or is in an unsafe
or unsound condition to continue operations as an insured credit
union, or is violating or has violated an applicable law, rule, regulation, order, or any condition imposed in writing by the Board in
connection with the granting of any application or other request by
the credit union, or is violating or has violated any written agreement entered into with the Board, the Board shall serve upon the
credit union a statement with respect to such practices or conditions or violations for the purpose of securing the correction thereof. In the case of an insured State-chartered credit union, the
Board shall send a copy of such statement to the commission,
board, or authority, if any, having supervision of such credit union.
Unless such correction shall be made within one hundred and
twenty days after service of such statement, or within such shorter
period of not less than twenty days after such service as the Board
shall require in any case where it determines that the insurance
risk with respect to such credit union could be unduly jeopardized
by further delay in the correction of such practices or conditions or




303

FEDERAL CREDIT UNION ACT

Sec. 206

violations, or as the commission, board, or authority having supervision of such credit union, if any, shall require in the case of an
insured State-chartered credit union, the Board, if it shall determine to proceed further, shall give to the credit union not less than
thirty days' written notice of its intention to terminate the status
of the credit union as an insured credit union. Such notice shall
contain a statement of the facts constituting the alleged unsafe and
unsound practices or conditions or violations and shall fix a time
and place for a hearing thereon. Such hearing shall be fixed for a
date not earlier than thirty days nor later than sixty days after
service of such notice unless an earlier or a later date is set by the
Board at the reauest of the credit union. Unless the credit union
shall appear at tne hearing by a duly authorized representative, it
shall be deemed to have consented to the termination of its status
as an insured credit union. In the event of such consent, or if upon
the record made at any such hearing the Board shall find that any
unsafe or unsound practice or condition or violation specified in the
notice has been established and has not been corrected within the
time above-prescribed in which to make such correction, the Board
may issue and serve upon the credit union an order terminating its
status as an insured credit union on a date subsequent to the date
of such finding and subsequent to the expiration of the time specified in the notice.
(2) Any credit union whose insured status has been terminated
by order of the Board under this subsection shall have the right of
judicial review of such order only to the same extent as provided
for the review of orders under subsection (j) of this section.
(c) In the event of the termination of a credit union's status as
an insured credit union as provided under subsection (a)(2) or (b)
of this section, the credit union shall give prompt and reasonable
notice to all of its members whose accounts are insured that it has
ceased to be an insured credit union. It may include in such notice
a statement of the fact that member accounts insured on the effective date of such termination, to the extent not withdrawn, remain
insured for one year from the date of such termination, but it shall
not further represent itself in any manner as an insured credit
union. In the event of failure to give the notice as herein provided
to members whose accounts are insured, the Board is authorized to
give reasonable notice.
(d)(1) After the termination of the insured status of any credit
union as provided under subsection (aXl) or (b) of this section, insurance of its member accounts to the extent that they were insured on the effective date of such termination, less any amounts
thereafter withdrawn which reduce the accounts below the amount
covered by insurance on the effective date of such termination,
shall continue for a period of one year, but no shares issued by the
credit union or deposits made after the date of such termination
shall be insured by the Board. The credit union shall continue to
pay premiums to the Board during such period as in the case of
an insured credit union and the Board shall have the right to examine such credit union from time to time during the period during
which such insurance continues. Such credit union shall, in all
other respects, be subject to the duties and obligations of an insured credit union for the period of one year from the date of such




Sec. 206

FEDERAL CREDIT UNION ACT

304

termination. In the event that such credit union shall be closed for
liquidation within such period of one year, the Board shall have the
same powers and rights with respect to such credit union as in the
case of an insured credit union.
(2) No credit union shall convert from status as an insured
credit union under this Act as provided under subsection (a)(2) of
this section until the proposition for such conversion has been aproved by a majority of all the directors of the credit union, and
y affirmative vote of a majority of the members of the credit union
who vote on the proposition in a vote in which at least 20 per centum of the total membership of the credit union participates. Following approval by the directors, written notice of the proposition
and of the date set for the membership vote shall be delivered in
person to each member, or mailed to each member at the address
for such member appearing on the records of the credit union, not
more than thirty nor less than seven days prior to such date. The
membership shall be given the opportunity to vote by mail ballot.
If the proposition is approved by the membership, prompt and reasonable notice of insurance conversion shall be given to all members.
(3) In the event of a conversion of a credit union from status
as an insured credit union under this Act as provided under
subection (a)(2) of this section, premium charges payable under section 202(c) of this Act shall be reduced by an amount proportionate
to the number of calendar months for which the converting credit
union will no longer be insured under this Act. As long as a converting credit union remains insured under this Act, it shall remain subject to all of the provisions of chapter II of this Act.
(e)(1) If, in the opinion of the Board, any insured credit union,
credit union which has insured accounts, or any institution-affiliated party is engaging or has engaged, or the Board has reasonable
cause to believe that the credit union or any institution-affiliated
party is about to engage, in an unsafe or unsound practice in conducting the business of such credit union, or is violating or has violated, or the Board has reasonable cause to believe that the credit
union or any institution-affiliated party is about to violate, a law,
rule, or regulation, or any condition imposed in writing by the
Board in connection with the granting of any application or other
request by the credit union or any written agreement entered into
with the Board, the Board may issue and serve upon the credit
union or such party a notice of charges in respect thereof. The notice shall contain a statement of the facts constituting the alleged
violation or violations or the unsafe or unsound practice or practices, and shall fix a time and place at which a hearing will be held
to determine whether an order to cease and desist therefrom
should issue against the credit union or the institution-affiliated
party. Such hearing shall be fixed for a date not earlier than thirty
days nor later than sixty days after service of such notice unless
an earlier or a later date is set by the Board at the request of any
party so served. Unless the party or parties so served shall appear
at the hearing by a duly authorized representative, they shall be
deemed to have consented to the issuance of the cease-and-desist
order. In the event of such consent, or if upon the record made at
any such hearing, the Board shall find that any violation or unsafe

E




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FEDERAL CREDIT UNION ACT

Sec. 206

or unsound practice specified in the notice of charges has been established, the Board may issue and serve upon the credit union or
the institution-affiliated party an order to cease and desist from
any such violation or practice. Such order may, by provisions which
may be mandatory or otherwise, require the credit union or its institution-affiliated parties x to cease and desist from the same, and,
further, to take affirmative action to correct the conditions resulting from any such violation or practice.
(2) A cease-and-desist order shall become effective at the expiration of thirty days after the service of such order upon the credit
union or other person concerned (except in the case of a cease-anddesist order issued upon consent, which shall become effective at
the time specified therein), and shall remain effective and enforceable as provided therein, except to such extent as it is stayed,
modified, terminated, or set aside by action of the Board or a reviewing court.
(3) 2 AFFIRMATIVE ACTION TO CORRECT CONDITIONS RESULTING PROM VIOLATIONS OR PRACTICES.-—The authority to issue

an order under this subsection and subsection (f) which requires an insured credit union or any institution-affiliated
party to take affirmative action to correct any conditions resulting from any violation or practice with respect to which
such order is issued includes the authority to require such insured credit union or such party to—
(A) make restitution or provide reimbursement, indemnification, or guarantee against loss if—
(i) such credit union or such party was unjustly
enriched in connection with such violation or practice;
or
(ii) the violation or practice involved a reckless
disregard for the law or any applicable regulations or
prior order of the Board;
(B) restrict the growth of the institution;
(C) rescind agreements or contracts;
(D) dispose of any loan or asset involved; and 3
(E) employ qualified officers or employees (who may be
subject to approval by the Board at the direction of such
Board); and
(F) take such other action as the Board determines to
be2 appropriate.
(4) AUTHORITY TO LIMIT ACTIVITIES.—The authority to
issue an order under this subsection or subsection (f) includes
the authority to place limitations on the activities or functions
of an insured credit union or any institution-affiliated party.
(f)(1) Whenever the Board shall determine that the violation or
threatened violation or the unsafe or unsound practice or practices,
specified in the notice of charges served upon the credit union or
any institution-affiliated party pursuant to paragraph (1) of subi Section 901(bX2XAXii) of P.L. 101-73, 103 Stat. 448, amended section 206(eXD by striking
out "directors, officers, committee members, employees, agents, or other persons participating
in the conduct of the affairs of such credit union and inserting in lieu thereof "institution-affiliated parties". The amendment probably should have used the word "and" rather than "or" following "employees, agents,".
2
Indentation so inlaw.
3
So in original. The word "and" probably should not appear.




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FEDERAL CREDIT UNION ACT

306

section (e) of this section, or the continuation thereof, is likely to
cause insolvency or significant dissipation of assets or earnings of
the credit union, or is likely to weaken the condition of the credit
union or otherwise prejudice the interests of its insured members
prior to the completion of the proceedings conducted pursuant to
paragraph (1) of subsection (e) of this section, the Board may issue
a temporary order requiring the credit union or such party to cease
and desist from any such violation or practice and to take affirmative action to prevent such insolvency, dissipation, condition, or
prejudice pending completion of such proceedings. Such order may
include any requirement authorized under subsection (e)(3)(B).
Such order shall become effective upon service upon the credit
union or institution-affiliated party and, unless set aside, limited,
or suspended by a court in proceedings authorized by paragraph (2)
of this subsection, shall remain effective and enforceable pending
the completion of the administrative proceedings pursuant to such
notice and until such time as the Administration shall dismiss the
charges specified in such notice, or if a cease-and-desist order is issued against the credit union or such party, until the effective date
of such order.
(2) Within ten days after the credit union concerned or any institution-affiliated party has been served with a temporary ceaseand-desist order, the credit union or such party may apply to the
United States district court for the judicial district in wnich the
home office of the credit union is located, or the United States District Court for the District of Columbia, for an injunction setting
aside, limiting, or suspending the enforcement, operation, or effectiveness of such order pending the completion of the administrative
proceedings pursuant to the notice of charges served upon the credit union or such party under paragraph (1) of subsection (e) of this
section, and such court shall have jurisdiction to issue such injunction.
(3) 1 INCOMPLETE OR INACCURATE RECORDS.—
(A) TEMPORARY ORDER.—If a notice of charges

served
under subsection (e)(1) specifies, on the basis of particular
facts and circumstances, that an insured credit union's
books and records are so incomplete or inaccurate that the
Board is unable, through the normal supervisory process,
to determine the financial condition of that insured credit
union or the details or purpose of any transaction or transactions that may have a material effect on the financial
condition of that insured credit union, the Board may issue
a temporary order requiring—
(i) the cessation of any activity or practice which
gave rise, whether in whole or in part, to the incomplete or inaccurate state of the books or records; or
(ii) affirmative action to restore such books or
records to a complete and accurate state, until the
completion of the proceedings under subsection (e)(1).
(B) EFFECTIVE PERIOD.—Any temporary order issued
under subparagraph (A)—
(i) shall become effective upon service; and
1

Indentation so in law.




FEDERAL CREDIT UNION ACT

307

Sec. 206

(ii) unless set aside, limited, or suspended by a
court in proceedings under paragraph (2), shall remain
in effect and enforceable until the earlier of—
(I) the completion of the proceeding initiated
under subsection (e)(1) in connection with the notice of charges; or
(II) the date the Board determines, by examination or otherwise, that the insured credit
union's books and records are accurate and reflect
the financial condition of the credit union.
(4) In the case of violation or threatened violation of, or failure
to obey, a temporary cease-and-desist order, the Board may apply
to the United States district court, or the United States court of
any territory, within the jurisdiction of which the principal office
of the credit union is located for an injunction to enforce such
order, and, if the court shall determine that there has been such
violation or threatened violation or failure to obey, it shall be the
duty of the court to issue such injunction.
(g) REMOVAL AND PROHIBITION AUTHORITY.—
(1) AUTHORITY TO ISSUE ORDER.—Whenever

the Board determines that—
(A) any any institution-affiliated party has, directly or
indirectly—
(i) violated—
(I) any law or regulation;
(II) any cease-and-desist order which has become final;
(HI) any condition imposed in writing by the
Board in connection with the grant of any application or other request by such credit union; or
(IV) any written agreement between such
credit union and the Board;
(ii) engaged or participated in any unsafe or unsound practice in connection with any insured credit
union or business institution; or
(iii) committed or engaged in any act, omission, or
practice which constitutes a breach of such party's fiduciary duty;
(B) by reason of the violation, practice, or breach described in any clause of subparagraph (A)—
(i) such insured credit union or business institution has suffered or will probably suffer financial loss
or other damage;
(ii) the interests of the insured credit union's
members have been or could be prejudiced; or
(iii) such party has received financial gain or other
benefit by reason of such violation, practice or breach;
and
(C) such violation, practice, or breach—
(i) involves personal dishonesty on the part of
such party; or
(ii) demonstrates such party's unfitness to serve
as a director or officer of, or to otherwise participate




FEDERAL CREDIT UNION ACT

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308

in the conduct of the affairs of, an insured credit
union,
the Board may serve upon such party a written notice of the
Board's intention to remove such party from office or to prohibit any further participation, by such party, in any manner
in the conduct of the affairs of any insured credit union.
(2) SPECIFIC VIOLATIONS.—

(A) IN GENERAL.—Whenever the Board determines
that—
(i) an institution-affiliated party has committed a
violation of any provision of subchapter II of chapter
53 of title 31, United States Code, unless such violation was inadvertent or unintentional;
(ii) an officer or director of an insured credit union
has knowledge that an institution-affiliated narty of
the insured credit union has violated any such provision or any provision of law referred to in subsection
(i)(l)(A)(ii); or
(iii) an officer or director of an insured credit
union has committed any violation of the Depository
Institution Management Interlocks Act,
the Board may serve upon such party, officer, or director
a written notice of the Board's intention to remove such officer or director from office.
(B) FACTORS TO BE CONSIDERED.—In determining
whether an officer or director should be removed as a result of the application of subparagraph (A)(ii), the Board
shall consider whether the officer or director took appro)riate action to stop, or to prevent the recurrence of, a vioation described in such subparagraph.

f(3) * SUSPENSION ORDER.—

(A) SUSPENSION OR PROHIBITION AUTHORIZED.—If the

Board serves written notice under paragraph (1) or (2) to
any institution-affiliated party of the Board's intention to
issue an order under such paragraph, the Board may suspend such party from office or prohibit such party from
further participation in any manner in the conduct of the
affairs of the institution, if the Board—
(i) determines that such action is necessary for the
protection of the credit union or the interests of the
credit union's members; and
(ii) serves such person with written notice of the
suspension order.
(B) EFFECTIVE PERIOD.—Any suspension order issued
under subparagraph (A)—
(i) shall become effective upon service; and
(ii) unless a court issues a stay of such order
under paragraph (6), shall remain in effect and enforceable until—
(I) the date the Board dismisses the charges
contained in the notice served under paragraph
(1) or (2) with respect to such party; or
1

Indentation so in law.




309

FEDERAL CREDIT UNION ACT

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(II) the effective date of an order issued by the
Board to such person under paragraph (1) or (2).
(C) COPY OF ORDER.—If the Board issues a suspension
order under subparagraph (A) to any institution-affiliated
party, the Board shall serve a copy of such order on any
insured credit union with which such party is associated
at the time such order is issued.
(4) A notice of intention to remove a director, committee member, officer, or other person from office or to prohibit his participation in the conduct of the affairs of an insured credit union, shall
contain a statement of the facts constituting grounds therefor, and
shall fix a time and place at which a hearing will be held thereon.
Such hearing shall be fixed for a date not earlier than thirty days
nor later than sixty days after the date of service of such notice,
unless an earlier or a later date is set by the Board at the request
of (A) such director, committee member, or officer or other person,
and for good cause shown, or (B) the Attorney General of the United States. Unless such director, committee member, officer, or
other person shall appear at the hearing in person or by a duly authorized representative, he shall be deemed to have consented to
the issuance of an order of such removal or prohibition. In the
event of such consent, or if upon the record made at any such hearing the Board shall find that any of the grounds specified in such
notice have been established, the Board may issue such orders of
suspension or removal from office, or prohibition from participation
in the conduct of the affairs of the credit union, as it may deem
appropriate. Any such order shall become effective at the expiration of thirty days after service upon such credit union and the director, committee member, officer, or other person concerned (except in the case of an order issued upon consent, which shall become effective at the time specified therein). Such order shall remain effective and enforceable except to such extent as it is stayed,
modified, terminated, or set aside oy action of the Board or a reviewing court.
(5) PROHIBITION OF CERTAIN SPECIFIC ACTIVITIES.—Any person
subject to an order issued under this subsection shall not—
(A) participate in any manner in the conduct of the affairs of any institution or agency specified in paragraph
(7)(A);
(B) solicit, procure, transfer, attempt to transfer, vote,
or attempt to vote any proxy, consent, or authorization
with respect to any voting rights in any institution described in subparagraph (A);
(C) violate any voting agreement previously approved
by the appropriate Federal banking agency; or
(D) vote for a director, or serve or act as an institution-affiliated party.
(6) Within ten days after any director, officer, committee member, or other person has been suspended from office and/or prohibited from participation in the conduct of the affairs of an insured
credit union under paragraph (3) of this subsection, such director,
officer, committee member, or other person may apply to the United States district court for the judicial district in which the principal office of the credit union is located, or the United States Dis-




Sec. 206

FEDERAL CREDIT UNION ACT

310

trict Court for the District of Columbia, for a stay of such suspension and/or prohibition pending the completion of the administrative proceedings pursuant to tne notice served upon such director,
officer, committee member, or other person under paragraph (1) or
(2) of this subsection, and such court shall have jurisdiction to stay
such suspension and/or prohibition.
(7) INDUSTRYWIDE PROHIBITION.—

(A) \IN GENERAL.—Except as provided in subparagraph (B),
any person who, pursuant to an order issued under this subsection or subsection (i), has been removed or suspended from
office in an insured credit union or prohibited from participating in the conduct of the affairs of an insured credit union may
not, while such order is in effect, continue or commence to hold
any office in, or participate in any manner in the conduct of
the affairs of—
(i) any insured depository institution;
(ii) any institution treated as an insured bank under
paragraph (3) or (4) of section 8(b) of the Federal Deposit
Insurance Act, or as a savings association under section
8(b)(8) of such Act;
(iii) any insured credit union;
(iv) any institution chartered under the Farm Credit
Act of 1971;
(v) any appropriate Federal depository institution regulatory agency;
(vi) the Federal Housing Finance Board and any Federal home loan bank; and
(vii) the Resolution Trust Corporation.
(B)

EXCEPTION IF AGENCY PROVIDES WRITTEN CON-

SENT.—If, on or after the date an order is issued under
this subsection which removes or suspends from office any
institution-affiliated partv or prohibits such party from
participating in the conduct of the affairs of an insured
credit union, such party receives the written consent of—
(i) the Board; and
(ii) the appropriate Federal financial institutions
regulatory agency of the institution described in any
clause of subparagraph (A) with respect to which such
party proposes to become an institution-affiliated
party,
subparagraph (A) shall, to the extent of such consent,
cease to apply to such party with respect to the institution
described in each written consent. If any person receives
such a written consent from the Board, the Board shall
publicly disclose such consent. If the agency referred to in
clause (ii) grants such a written consent, such agency shall
report such action to the Board and publicly disclose such
consent.
(C) VIOLATION OF PARAGRAPH TREATED AS VIOLATION

OP ORDER.—Any violation of subparagraph (A) by any person who is subject to an order described in such subparagraph shall be treated as a violationfyfthe order.
(D) APPROPRIATE FEDERAL FINANCIAL INSTITUTIONS
REGULATORY AGENCY DEFINED.—For purposes of this para-




311

FEDERAL CREDIT UNION ACT

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graph and subsection (1), * the term "appropriate Federal
financial institutions regulatory agency" means—
(i) the appropriate Federal banking agency, as
provided in section 3(q) of the Federal Deposit Insurance Act;
(ii) the Farm Credit Administration, in the case of
an institution chartered under the Farm Credit Act of
1971;
(iii) the National Credit Union Administration
Board, in the case of an insured credit union (as defined in section 101(7) of the Federal Credit Union
Act);
(iv) the Secretary of the Treasury, in the case of
the Federal Housing Finance Board and any Federal
home loan bank; ana
(v) the Oversight Board, in the case of the Resolution Trust Corporation.
(E) CONSULTATION BETWEEN AGENCIES.—The agencies
referred to in clauses (i) and (ii) of subparagraph (B) shall
consult with each other before providing any written consent described in subparagraph (B).
(F) APPLICABILITY.—This paragraph shall only apply
to a person who is an individual, unless the Board specifically finds that it should apply to a corporation, firm, or
other business enterprise.
(h)(1) The Board may, ex parte without notice, appoint itself as
conservator and immediately take possession and control of the
business and assets of any insured credit union in any case in
which—
(A) the Board determines that such action is necessary to
conserve the assets of any insured credit union or to protect
the Fund or the interests of the members of such insured credit union;
(B) an insured credit union, by a resolution of its board of
directors, consents to such an action by the Board;
(C)2 the Attorney General notifies the Board in writing that an insured credit union has been found guilty of
a criminal offense under section 1956 or 1957 of title 18,
United States Code, or section 5322 or 5324 of title 31,
United States Code;
(D) there is a willful violation of a cease-and-desist order
which has become final; or
(E) there is concealment of books, papers, records, or assets of the credit union or refusal to submit books, papers,
records, or affairs of the credit union for inspection to any examiner or to any lawful agent of the Board.
(2)(A) In the case of a State-chartered insured credit union, the
authority conferred by paragraph (1) shall not be exercised without
the written approval of the State official having jurisdiction over
the State-chartered credit union that the grounds specified for such
exercise exist.
1
So in original. There is no subsection (1) and the term does not appear to be used anywhere
in 2this Act outside this paragraph.
Indentation so in law.




Sec. 206

FEDERAL CREDIT UNION ACT

312

(B) If such approval has not been received by the Board within
30 days of receipt of notice by the State that the Board has determinecl such grounds exist, and the Board has responded in writing
to the States written reasons, if any, for withholding approval,
then the Board may proceed without State approval only by a
unanimous vote of the Board.
(3) Not later than ten days after the date on which the Board
takes possession and control of the business and assets of an insured credit union pursuant to paragraph (1), such insured credit
union may apply to the United States district court for the judicial
district in wnich the principal office of such insured credit union
is located or the United States District Court for the District of Columbia, for an order requiring the Board to show cause why it
should not be enjoined from continuing such possession and control. Except as provided in this paragraph, no court may take any
action, except at the request of the Board by regulation or order,
to restrain or affect the exercise of powers or functions of the Board
as conservator.
(4) Except as provided in paragraph (3), in the case of a Federal credit union, the Board may maintain possession and control
of the business and assets of such credit union and may operate
such credit union until such time—
(A) as the Board shall permit such credit union to continue
business subject to such terms and conditions as may be imposed by the Board; or
(B) as such credit union is liquidated in accordance with
the provisions of section 207.
(5) Except as provided in paragraph (3), in the case of an insured State-chartered credit union, the Board may maintain possession and control of the business and assets of such credit union
and may operate such credit union until such time—^
(A) as the Board shall permit such credit union to continue
business, subject to such terms and conditions as may be imposed by the Board;
(B) as the Board shall permit the transfer of possession
and control of such credit union to any commission, board, or
authority which has supervisory authority over such credit
union and which is authorized by State law to operate such
credit union; or
(C) as such credit union is liquidated in accordance with
the provisions of section 207.
(6) The Board may appoint such agents as it considers necessary in order to assist the Board in carrying out its duties as a
conservator under this subsection.
(7) All expenses incurred by the Board in exercising its authority under this subsection with respect to any credit union shall be
paid out of the assets of such credit union.
(8) The conservator shall have all the powers of the members,
the directors, the officers, and the committees of the credit union
and shall be authorized to operate the credit union in its own name
or to conserve its assets in the manner and to the extent authorized by the Board.
(9) The authority granted by this subsection is in addition to
all other authority granted to the Board under this Act.




313

FEDERAL CREDIT UNION ACT

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(i) 1
(1) SUSPENSION OR PROHIBITION AUTHORIZED.—

(A) IN GENERAL.—Whenever any institution-affiliated
party is charged in any information, indictment, or complaint, with the commission of or participation in—
(i) a crime involving dishonesty or breach of trust
which is punishable by imprisonment for a term exceeding one year under State or Federal law, or
(ii) a criminal violation of section 1956, 1957, or
1960 of title 18, United States Code, or section 5322
or 5324 of title 31, United States Code,
the Board may, if continued service or participation by
such party may pose a threat to the interests of the credit
unions members or may threaten to impair public confidence in the credit union, by written notice served upon
such party, suspend such party from office or prohibit such
party from further participation in any manner in the conduct of the affairs of the credit union.
(B) PROVISIONS APPLICABLE TO NOTICE.—

(i) COPY.—A copy of any notice under subparagraph (A) shall also be served upon the credit union.
(ii) EFFECTIVE PERIOD.—A suspension or prohibition under subparagraph (A) shall remain in effect
until the information, indictment, or complaint referred to in such subparagraph is finally disposed of or
until terminated by the Board.
(C) REMOVAL OR PROHIBITION.—

(i) IN GENERAL.—If a judgment of conviction or an
agreement to enter a pretrial diversion or other similar program is entered against an institution-affiliated
party in connection with a crime described in subparagraph (A)(i), at such time as such judgment is not subject to further appellate review, the Board may, if continued service or participation by such party may pose
a threat to the interests of the credit union s members
or may threaten to impair public confidence in the
credit union, issue and serve w o n such party an order
removing such party from office or prohibiting such
party from further participation in any manner in the
conduct of the affairs of the credit union without the
prior written consent of the Board.
(ii) REQUIRED FOR CERTAIN OFFENSES—In the case
of a judgment of conviction or agreement against an
institution-affiliated party in connection with a violation described in subparagraph (A)(ii), the Board shall
issue and serve upon such party an order removing
such party from office or prohibiting such party from
further participation in any manner in the conduct of
the affairs of the credit union without the prior written consent of the Board.
(D) PROVISIONS APPLICABLE TO ORDER.—
1
Subsection (i) does not have a heading. Section 1504(bX2) of the Housing and Community
Development Act of 1992 (P.L. 102-550; 106 Stat. 4054) amends paragraph (1) to read as follows. The old paragraph (1) ran into the subsection designation.




Sec. 206

FEDERAL CREDIT UNION ACT

314

(i) COPY.—A copy of any order under subparagraph (C) shall also be served upon such credit union,
whereupon such party (if a director or an officer) shall
cease to be a director or officer of such credit union.
(ii) EFFECT OF ACQUITTAL.—A finding of not guilty
or other disposition of the charge shall not preclude
the Board from instituting proceedings after such finding or disposition to remove such party from office or
to prohibit further participation in credit union affairs,
pursuant to paragraph (1), (2), or (3) of subsection (g)
of this section.
(iii) EFFECTIVE PERIOD.—Any notice of suspension
or order of removal issued under this paragraph shall
remain effective and outstanding until the completion
of any hearing or appeal authorized under paragraph
(3) unless terminated by the Board.
(2) If at any time, because of the suspension of one or more directors pursuant to this section, there shall be on the board of directors of a Federal credit union less than a quorum of directors
not so suspended, all powers and functions vested in or exercisable
by such board shall vest in and be exercisable by the director or
directors on the board not so suspended, until such time as there
shall be a quorum of the board of directors. In the event all of the
directors of a Federal credit union are suspended pursuant to this
section, the Board shall appoint persons to serve temporarily as directors in their place and stead pending the termination of such
suspensions, or until such time as those who have been suspended
cease to be directors of the credit union and their respective successors have been elected by the members at an annual or special
meeting and have taken office. Directors appointed temporarily by
the Board shall, within thirty days following their appointment,
call a special meeting for the election of new directors, unless during the thirty-day period (A) the regular annual meeting is scheduled, or (B) the suspensions giving rise to the appointment of temporary directors are terminated.
(c) In connection with the liquidation of any insured credit
union, the Board shall have the power to carry on the business of
and collect all obligations to the credit union, to settle, compromise,
or release claims in favor of or against the credit union, and to do
all other things that may be necessary in connection therewith,
subject to the regulation of the court or other public body having
jurisdiction over the matter.
(3) Within thirty days from service of any notice of suspension
or order of removal issued pursuant to paragraph (1) of this subsection, the institution-affiliated party concerned may request in
writing an opportunity to appear before the Board to show that the
continued service to or participation in the conduct of the affairs
of the credit union by such party does not, or is not likely to, pose
a threat to the interests of the credit union's members or threaten
to impair public confidence in the credit union. Upon receipt of any
such request, the Board shall fix a time (not more than thirty days
after receipt of such request, unless extended at the request of such
party) and place at which such party may appear, personally or
through counsel, before the Board or its designee to submit written




315

FEDERAL CREDIT UNION ACT

Sec. 206

materials (or, at the discretion of the Board, oral testimony) and
oral argument. Within sixty days of such hearing, the Board shall
notify such party whether the suspension or prohibition from participation in any manner in the conduct of the affairs of the credit
union will be continued, terminated or otherwise modified, or
whether the order removing such party from office or prohibiting
such party from further participation in any manner in the conduct
of the affairs of the credit union will be rescinded or otherwise
modified. Such notification shall contain a statement of the basis
for the Board's decision, if adverse to such party. The Board is authorized to prescribe such rules as may be necessary to effectuate
the purposes of this subsection.
(j)(l) Any hearing provided for in this section (other than the
hearing provided for in subsection (i)(3) of this section) shall be
held in the Federal judicial district or in the territory in which the
principal office of the credit union is located, unless the party afforded the hearing consents to another place, and shall be conducted in accordance with the provisions of chapter 5 of title 5 of
the United States Code.1 After such hearing, and within ninety
days after the Board has notified the parties that the case has been
submitted to them for final decision, it shall render its decision
(which shall include findings of fact upon which its decision is
predicated) and shall issue and serve upon each party to the proceeding an order or orders consistent with the provisions of this
section. Judicial review of any such order shall oe exclusively as
>rovided in
Unless a petition for
{y filed in athis subsection (j).of the United States, review is timecourt of appeals
as provided in
paragraph (2) of this subsection, and thereafter until the record in
the proceeding has been filed as so provided, the Board may at any
time, upon such notice and in such manner as it may deem proper,
modify, terminate, or set aside any such order. Upon such filing of
the record, the Board may modify, terminate, or set aside any such
order with permission of the court.
(2) Any party to any proceeding under paragraph (1) may obtain a review of any order served pursuant to paragraph (1) of this
subsection (other than an order issued with the consent of the credit union or the institution-affiliated party concerned or an order issued under subsection (i)(l) of this section) by filing in the court
of appeals of the United States for the circuit in which the principal office of the credit union is located, or in the United States
Court of Appeals for the District of Columbia Circuit, within thirty
days after the date of service of such order, a written petition praying that the order of the Board be modified, terminated, or set
aside. A copy of such petition shall be forthwith transmitted by the
clerk of the court to tne Board, and thereupon the Board shall file
in the court the record in the proceeding, as provided in section
2112 of title 28, United States Code. Upon the filing of such petition, such court shall have jurisdiction, which upon the filing of the
record shall, except as provided in the last sentence of said paragraph (1), be exclusive, to affirm, modify, terminate, or set aside,
in whole or in part, the order of the Board. Review of such proceed1
Section 2547(bX2) of P.L. 101-647 (104 Stat. 4888) struck the second sentence of 206(j)(l)
by quoting such sentence. The quotation of such sentence probably should not have included a
comma after the word "private".


89-335
http://fraser.stlouisfed.org/ 9 5 - 1 1
Federal Reserve Bank of St. Louis

FEDERAL CREDIT UNION ACT

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316

ings shall be had as provided in chapter 7 of title 5, United States
Code. The judgment and decree of the court shall be final, except
that the same shall be subject to review by the Supreme Court
upon certiorari, as provided in section 1254 of title 28, United
States Code.
(3) The commencement of proceedings for judicial review under
paragraph (2) of this subsection shall not, unless specifically ordered by the court, operate as a stay of any order issued by the
Board.
(k)(l) The Board may in its discretion apply to the United
States district court, or the United States court of any territory
within the jurisdiction of which the principal office of the credit
union is located, for the enforcement of any effective and outstanding notice or order issued under this section, and such courts shall
have jurisdiction and power to order and require compliance therewith. However, except as otherwise provided in this section, no
court shall have jurisdiction to affect by injunction or otherwise the
issuance or enforcement of any notice or order under this section
or to review, modify, suspend, terminate, or set aside any such notice or order.
(2) 1 CIVIL MONEY PENALTY.—
(A) FIRST TIER.—Any insured

credit union which, and
any institution-affiliated party who—
(i) violates any law or regulation;
(ii) violates any final order or temporary order issued pursuant to subsection (e), (f), (g), (i), or (q);
(iii) violates any condition imposed in writing by
the Board in connection with the grant of any application or other request by such credit union; or
(iv) violates any written agreement between such
credit union and such agency,
shall forfeit and pay a civil penalty of not more than
$5,000 for each day during which such violation continues.
(B) SECOND TIER.—Notwithstanding subparagraph (A),
any insured credit union which, and any institution-affiliated party who—
(i)(I) commits any violation described in any
clause of subparagraph (A);
(II) recklessly engages in an unsafe or unsound
practice in conducting the affairs of such credit union;
or
(III) breaches any fiduciary duty;
(ii) which violation, practice, or breach—
(I) is part of a pattern of misconduct;
(II) causes or is likely to cause more than a
minimal loss to such credit union; or
(III) results in pecuniary gain or other benefit
to such party,
shall forfeit and pay a civil penalty of not more than
$25,000 for each day during which such violation, practice,
or breach continues.

1

Indentation so in law.




317

FEDERAL CREDIT UNION ACT

Sec. 206

(C) THIRD TIER.—Notwithstanding subparagraphs (A)
and (B), any insured credit union which, and any institution-affiliated party who—
(i) knowingly—
(I) commits any violation described in any
clause of subparagraph (A);
(II) engages in any unsafe or unsound practice
in conducting the affairs of such credit union; or
(III) breaches any fiduciary duty; and
(ii) knowingly or recklessly causes a substantial
loss to such credit union or a substantial pecuniary
gain or other benefit to such party by reason of such
violation, practice, or breach,
shall forfeit and pay a civil penalty in an amount not to
exceed the applicable maximum amount determined under
subparagraph (D) for each day during which such violation, practice, or breach continues.
(D) MAXIMUM AMOUNTS OF PENALTIES FOR ANY VIOLATION DESCRIBED IN SUBPARAGRAPH (c).—The maximum

daily amount of any civil penalty which may be assessed
pursuant to subparagraph (C) for any violation, practice,
or breach described in such subparagraph is—
(i) in the case of any person other than an insured
credit union, an amount to not exceed $1,000,000; and
(ii) in the case of any insured credit union, an
amount not to exceed the lesser of—
(I) $1,000,000; or
(II) 1 percent of the total assets of such credit
union.
(E) ASSESSMENT.—
(i) WRITTEN NOTICE.—Any penalty imposed under

subparagraph (A), (B), or (C) may be assessed and collected by the Board by written notice.
(ii) FINALITY OF ASSESSMENT.—If, with respect to
any assessment under clause (i), a hearing is not requested pursuant to subparagraph (H) within the period of time allowed under such subparagraph, the assessment shall constitute a final and unappealable
order.
(F) AUTHORITY TO MODIFY OR REMIT PENALTY.—The

Board may compromise, modify, or remit any penalty
which such agency may assess or had already assessed
under subparagraph (A), (B), or (C).
(G) MITIGATING FACTORS.—In determining the amount
of any penalty imposed under subparagraph (A), (B), or
(C), the Board shall take into account the appropriateness
of the penalty with respect to—
(i) the size of financial resources and good faith of
the insured credit union or the person charged;
(ii) the gravity of the violation;
(iii) the history of previous violations; and
(iv) such other matters as justice may require.
(H) HEARING.—The insured credit union or other person against whom any penalty is assessed under this para-




318

FEDERAL CREDIT UNION ACT

Sec. 206

graph shall be afforded an agency hearing if such institution or person submits a request for such hearing within
20 days after the issuance of the notice of assessment.
(I) COLLECTION.—

(i) REFERRAL.—If any insured credit union or
other person fails to pay an assessment after any penalty assessed under this paragraph has become final,
the Board shall recover the amount assessed by action
in the appropriate United States district court.
(ii)

APPROPRIATENESS

OF

PENALTY

NOT

REVIEWABLE.—In any civil action under clause (i), the
validity and appropriateness of the penalty shall not
be subject to review.
(J) DISBURSEMENT.—All penalties collected under authority of this paragraph shall be deposited into the Treasury.
(K) VIOLATE DEFINED.—For purposes of this section,
the term "violate" includes any action (alone or with another or others) for or toward causing, bringing about, participating in, counseling, or aiding or abetting a violation.
(L) REGULATIONS.—The Board shall prescribe regulations establishing such procedures as may be necessary to
carry out this paragraph.
(3) NOTICE UNDER THIS SECTION AFTER SEPARATION FROM

SERVICE.—The resignation, termination of employment or participation, or separation of a institution-affiliated party (including a separation caused by the closing of an insured credit
union) shall not affect the jurisdiction and authority of the
Board to issue any notice and proceed under this section
against any such party, if such notice is served before the end
of the 6-year period beginning on the date such party ceased
to be such a partv with respect to such credit union (whether
such date occurs before, on, or after the date of the enactment
of this paragraph).
(1) CRIMINAL PENALTY FOR VIOLATION OF CERTAIN ORDERS.—

Whoever—
(1) under this Act, is suspended or removed from, or prohibited from participating in the affairs of any credit union described in section 206(g)(5); and
(2) knowingly participates, directly or indirectly, in any
manner (including by engaging in an activity specifically prohibited in such an order or in subsection (g)(5)) in the conduct
of the affairs of such a credit union;
shall be fined not more than $1,000,000, imprisoned for not more
than 5 years, or both.
(m) As used in this section (1) the terms "cease-and-desist
order which has become final" and "order which has become final"
means a cease-and-desist order, or an order issued by the Board
with the consent of the credit union or the director, officer, committee member, or other person concerned, or with respect to which no
petition for review of the action of the Board has been filed and
perfected in a court of appeals as specified in paragraph (2) of subsection (j) of this section, or with respect to which the action of the
court in which said petition is so filed is not subject to fiirther re-




319

FEDERAL CREDIT UNION ACT

Sec. 206

view by the Supreme Court of the United States in proceedings
provided for in said paragraph, or an order issued under subsection
(i) of this section, and (2) the term "violation" includes without limitation any action (alone or with another or others) for or toward
causing, bringing about, participating in, counseling, or aiding or
abetting a violation.
(n) Any service required or authorized to be made by the Board
under this section may be made by registered mail or in such other
manner reasonably calculated to give actual notice as the Board
may by regulation or otherwise provide. Copies of any notice or
order served by the Board upon any State-cnartered credit union
or any director, officer, or committee member thereof or other person participating in the conduct of its affairs, pursuant to the provisions of this section, shall also be sent to the commission, board,
or authority, if any, having supervision of such credit union.
(o) In connection with any proceeding under subsection (e),
(f)(1), or (g) of this section involving an insured State-chartered
credit union or any institution-affiliated party, the Board shall provide the commission, board, or authority, if any, having supervision
of such credit union, with notice of its intent to institute such a
proceeding and the grounds thereof. Unless within such time as the
Board deems appropriate in the light of the circumstances of the
case (which time must be specified in the notice prescribed in the
preceding sentence) satisfactory corrective action is effectuated by
action of such commission, board, or authority, the Board may proceed as provided in this section. No credit union or other party who
is the subject of any notice or order issued by the Board under this
section shall have standing to raise the requirements of this subsection as ground for attacking the validity of any such notice or
order.
(p) In the course of or in connection with any proceeding under
this section or in connection with any claim for insured deposits or
any examination or investigation under section 204(b), the Board,
in conducting the proceeding, examination, or investigation or considering the claim for insured deposits,,1 or any designated representative thereof, including any person designated to conduct any
hearing under this section, shall have the power to administer
oaths and affirmations, to take or cause to be taken depositions,
and to issue, revoke, quash, or modify subpenas and subpenas
duces tecum, and the Board is empowered to make rules and regulations with respect to any such proceedings, claims, examinations,
or investigations. The attendance of witnesses and the production
of documents provided for in this subsection may be required from
any place in any State or in any territory or other place subject to
the jurisdiction of the United States at any designated place where
such proceeding is being conducted. Any party to proceedings under
this section may apply to the United States District Court for the
District of Columbia, or the United States district court for the judicial district or the United States court in any territory in which
such proceeding is being conducted, or where the witness resides
or carries on business, for enforcement of any subpena or subpena
duces tecum issued pursuant to this subsection, and such courts
1

So in original.




Sec. 206

FEDERAL CREDIT UNION ACT

320

shall have jurisdiction and power to order and require compliance
therewith. Witnesses subpenaed under this section shall be paid
the same fees and mileage that are paid witnesses in the district
courts of the United States. Any court having jurisdiction of any
proceeding instituted under this section by an insured credit union
or a director, officer, or committee member thereof may allow to
any such party such reasonable expenses and attorneys' fees as it
deems just and proper, and such expenses and fees shall be paid
by the credit union or from its assets.
(q) COMPLIANCE WITH MONETARY TRANSACTION RECORDKEEPING AND REPORT REQUIREMENTS.—
(1) COMPLIANCE PROCEDURES REQUIRED.—The Board shall

regulations requiring insured credit unions to estabErescribe maintain procedures such credit unions with the resh and
reasonably designed to assure
and monitor the compliance of
tates Code.
iuirements of subchapter II of chapter 53 of title 31, United
(2) EXAMINATIONS OF CREDIT UNIONS TO INCLUDE REVIEW
OF COMPLIANCE PROCEDURES.—

(A) IN GENERAL.—Each examination of an insured
credit union by the Board shall include a review of the procedures required to be established and maintained under
paragraph (1).
(B) EXAM REPORT REQUIREMENT.—The report of examination shall describe any problem with the procedures
maintained by the credit union.
(3) ORDER TO COMPLY WITH REQUIREMENTS.—If the Board
determines that an insured credit union—
(A) has failed to establish and maintain the procedures described in paragraph (1); or
(B) has failed to correct any problem with the procedures maintained by such credit union which was previously reported to the credit union by the Board,
the Board shall issue an order in the manner prescribed in
subsection (e) or (f) requiring such credit union to cease and
desist from its violation of this subsection or regulations prescribed under this subsection.
(r) INSTITUTION-AFFILIATED PARTY DEFINED.—For purposes of
this Act, the term "institution-affiliated part/' means—
(1) any committee member, director, officer, or employee
of, or agent for, an insured credit union;
(2) any consultant, joint venture partner, and any other
erson as determined by the Board (by regulation or on a casey-case basis) who participates in the conduct of the affairs of
an insured credit union; and
(3) any independent contractor (including any attorney, appraiser, or accountant) who knowingly or recklessly participates in—
(A) any violation of any law or regulation;
(B) any breach of fiduciary duty; or
(C) any unsafe or unsound practice,
which caused or is likely to cause more than a minimal financial loss to, or a significant adverse effect on, the insured credit
union.




321

FEDERAL CREDIT UNION ACT

Sec. 206

(s) PUBLIC DISCLOSURE OF AGENCY ACTION.—

(1) IN GENERAL.—The Board shall publish and make available to the public on a monthly basis—
(A) any written agreement or other written statement
for which a violation may be enforced by the Board, unless
the Board, in its discretion, determines that publication
would be contrary to the public interest;
(B) any final order issued with respect to any administrative enforcement proceeding initiated by the Board
under this section or any other law; and
(C) any modification to or termination of any order or
agreement made public pursuant to this paragraph.
(2) HEARINGS.—All hearings on the record with respect to
any notice of charges issued by the Board shall be open to the
ublic, unless the agency, in its discretion, determines that
olding an open hearing would be contrary to the public interest.
(3) REPORTS TO CONGRESSC^-A written report shall be
made part of a determination not to hold a public hearing pursuant to paragraph (2) or not to publish a aocument pursuant
to paragraph (1)(A). At the end of each calendar quarter, all
such reports shall be transmitted to the Congress.
(4) TRANSCRIPT OF HEARING.—A transcript that includes
all testimony and other documentary evidence shall be prepared for all hearings commenced pursuant to subsection (k).
A transcript of public hearings shall be made available to the
public pursuant to section 552 of title 5, United States Code.

E

(5)

DELAY OP PUBLICATION UNDER EXCEPTIONAL CIR-

CUMSTANCES.—If the Board makes a determination in writing
that the publication of a final order pursuant to paragraph
(1)(B) would seriously threaten the safety and soundness of an
insured depository institution, the agency may delay the publication of the document for a reasonable time.
(6) DOCUMENTS PILED UNDER SEAL IN PUBLIC ENFORCEMENT HEARINGS.—The Board may file any document or part of

a document under seal in any administrative enforcement
hearing commenced by the agency if disclosure of the document
would be contrary to the public interest. A written report shall
be made part of any determination to withhold any part of a
document from the transcript of the hearing required by paragraph (2).
(7) RETENTION OF DOCUMENTS.—The Board shall keep and
maintain a record, for a period of at least 6 years, of all documents described in paragraph (1) and all informal enforcement
agreements and other supervisory actions and supporting documents issued with respect to or in connection with any administrative enforcement proceeding initiated by such agency
under this section or any other laws.
(8) DISCLOSURES TO CONGRESS.—NO provision of this subsection may be construed to authorize the withholding, or to
prohibit the disclosure, of any information to the Congress or
any committee or subcommittee of the Congress.
(t) REGULATION OF CERTAIN FORMS OF BENEFITS TO INSTITUTION-AFFILIATED PARTIES.—




FEDERAL CREDIT UNION ACT

Sec. 206
(1)

GOLDEN

PARACHUTES AND

322

INDEMNIFICATION PAY-

MENTS.—The Board mav prohibit or limit, by regulation or
order, any golden parachute payment or indemnification payment.
(2) FACTORS TO BE TAKEN INTO ACCOUNT.—The Board shall
prescribe, by regulation, the factors to be considered by the
Board in taking any action pursuant to paragraph (1) which
may include such factors as the following:
(A) Whether there is a reasonable basis to believe that
the institution-affiliated party has committed any fraudulent act or omission, breach of trust or fiduciary duty, or
insider abuse with regard to the credit union that has had
a material affect on the financial condition of the credit
union.
(B) Whether there is a reasonable basis to believe that
the institution-affiliated party is substantially responsible
for the insolvency of the credit union, the appointment of
a conservator or liquidating agent for the credit union, or
the credit union's troubled condition (as defined in prescribed by the Board pursuant to paragraph (4)(A)(ii)(HI)).
(C) Whether there is a reasonable basis 4» believe that
the institution-affiliated party has materially violated any
applicable Federal or State banking law or regulation that
has had a material affect on the financial condition of the
credit union.
(D) Whether there is a reasonable basis to believe that
the institution-affiliated party has violated or conspired to
violate—
(i) section 215, 656, 657, 1005, 1006, 1007, 1014,
1032, or 1344 of title 18, United States Code; or
(ii) section 1341 or 1343 of such title affecting a financial institution.
(E) Whether the institution-affiliated party was in a
position of managerial or fiduciary responsibility.
(F) The length of time the party was affiliated with
the credit union and the degree to which—
(i) the payment reasonably reflects compensation
earned over the period of employment; and
(ii) the compensation involved represents a reasonable payment for services rendered.
(3) CERTAIN PAYMENTS PROHIBITED.—No credit union may
prepay the salary or any liability or legal expense of any institution-affiliated party if such payment is made—
(A) in contemplation of the insolvency of such credit
union or after the commission of an act of insolvency; and
(B) with a view to, or has the result of—
(i) preventing the proper application of the assets
of the credit union; or
(ii) preferring one creditor over another.
(4) GOLDEN PARACHUTE PAYMENT DEFINED.—For purposes
of this subsection—
(A) IN GENERAL.—The term "golden parachute payment" means any payment (or any agreement to make any
payment) in the nature of compensation by any credit




FEDERAL CREDIT UNION ACT

323

Sec. 206

union for the benefit of any institution-affiliated party pursuant to an obligation of such credit union that—
(i) is contingent on the termination of such party's
affiliation with the credit union; and
(ii) is received on or after the date on which—
(I) the credit union is insolvent;
(II) any conservator or liquidating agent is appointed for such credit union; or
(III) the Board determines that the credit
union is in a troubled condition (as defined in regulations which the Board shall prescribe);
(IV) the credit union has been assigned a composite rating by the Board of 4 or 5 under the
Uniform Financial Institutions Rating System (as
applicable with respect to credit unions); or
(V) the credit union is subject to a proceeding
initiated by the Board to terminate or suspend deposit insurance for such credit union.
(B)

CERTAIN PAYMENTS IN CONTEMPLATION OF AN

EVENT.—Any payment which would be a golden parachute
payment but for the fact that such payment was made before the date referred to in subparagraph (A)(ii) shall be
treated as a golden parachute payment if the payment was
made in contemplation of the occurrence of an event described in any subclause of such subparagraph.
(C) CERTAIN PAYMENTS NOT INCLUDED.—The term
"golden parachute payment" shall not include—
(i) any payment made pursuant to a retirement
plan which is qualified (or is intended to be qualified)
under section 401 of the Internal Revenue Code of
1986 or other nondiscriminatory retirement or severance benefit plan;
(ii) any payment made pursuant to a bona fide deferred compensation plan or arrangement which the
Board determines, by regulation or order, to be permissible; or
(iii) any payment made by reason of the death or
disability of an institution-affiliated party.
(5) OTHER DEFINITIONS.—For purposes of this subsection—
(A) INDEMNIFICATION PAYMENT.—Subject to paragraph
(6), the term "indemnification payment" means any payment (or any agreement to make any payment) by any
credit union for the benefit of any person who is or was an
institution-affiliated party, to pay or reimburse such person for any liability or legal expense with regard to any
administrative proceeding or civil action instituted by the
Board which results in a final order under which such person—
(i) is assessed a civil money penalty;
(ii) is removed or prohibited from participating in
conduct of the affairs of the credit union; or
(iii) is required to take any affirmative action described in section 206(e)(3) with respect to such credit
union.




FEDERAL CREDIT UNION ACT

Sec. 206

324

(B) LIABILITY OR LEGAL EXPENSE.—The term "liability
or legal expense" means—
(i) any legal or other professional expense incurred in connection with any claim, proceeding, or action;
(ii) the amount of, and any cost incurred in connection with, any settlement of any claim, proceeding,
or action; and
(iii) the amount of, and any cost incurred in connection with, any judgment or penalty imposed with
respect to any claim, proceeding, or action.
(C) PAYMENT.—The term "payment" includes—
(i) any direct or indirect transfer of any funds or
any asset; and
(ii) any segregation of any funds or assets for the
purpose of making, or pursuant to an agreement to
make, any payment after the date on which such
funds or assets are segregated, without regard to
whether the obligation to make such payment is contingent on—
(I) the determination, after such date, of the
liability for the payment of such amount; or
(II) the liquidation, after such date, of the
amount of such payment.
(6) CERTAIN COMMERCIAL INSURANCE COVERAGE NOT
TREATED AS COVERED BENEFIT PAYMENT.—No p r o v i s i o n o f t h i s

subsection shall be construed as prohibiting any credit union
from purchasing any commercial insurance policy or fidelity
bond, except that, subject to any requirement described in
paragraph (5)(A)(iii), such insurance policy or bond shall not
cover any legal or liability expense of the credit union which
is described in paragraph (5)(A).
(u) FOREIGN INVESTIGATIONS.—
(1) REQUESTING ASSISTANCE FROM FOREIGN BANKING AU-

THORITIES.—In conducting any investigation, examination, or
enforcement action under this Act, the Board may—
(A) request the assistance of any foreign banking authority; and
(B) maintain an office outside the United States.
(2) PROVIDING ASSISTANCE TO FOREIGN BANKING AUTHORITIES.—

(A) IN GENERAL.—The Board may, at the request of
any foreign banking authority, assist such authority if
such authority states that the requesting authority is conducting an investigation to determine whether any person
has violated, is violating, or is about to violate any law or
regulation relating to banking matters or currency transactions administered or enforced by the requesting authority.
(B) INVESTIGATION BY FEDERAL BANKING AGENCY.—The

Board may, in the Board's discretion, investigate and collect information and evidence pertinent to a request for assistance under subparagraph (A). Any such investigation




325

FEDERAL CREDIT UNION ACT

Sec. 206

shall comply with the laws of the United States and the
policies and procedures of the Board.
(C) FACTORS TO CONSIDER.—In deciding whether to
provide assistance under this paragraph, the Board shall
consider—
(i) whether the requesting authority has agreed to
provide reciprocal assistance with respect to banking
matters within the jurisdiction of the Board or any appropriate Federal banking agency; and
(ii) whether compliance with the request would
prejudice the public interest of the United States.
(D) TREATMENT OF FOREIGN BANKING AUTHORITY.—For

purposes of any Federal law or Board regulation relating
to the collection or transfer of information by the Board or
any appropriate Federal banking agency, the foreign banking authority shall be treated as another appropriate Federal banking agency.
(3) RULE OF CONSTRUCTION.—Paragraphs (1) and (2) shall
not be construed to limit the authority of the Board or any
other Federal agency to provide or receive assistance or information to or from any foreign authority with respect to any
matter.
(v) TERMINATION OF INSURANCE FOR MONEY LAUNDERING OR
CASH TRANSACTION REPORTING OFFENSES.—
(1) IN GENERAL.—
(A) CONVICTION OF TITLE IS OFFENSES.—
(i) DUTY TO NOTIFY.—If an insured State credit

union has been convicted of any criminal offense
under section 1956 or 1957 of title 18, United States
Code, the Attorney General shall provide to the Board
a written notification of the conviction and shall include a certified copy of the order of conviction from
the court rendering the decision.
(ii) NOTICE OF TERMINATION.—After written notification from the Attorney General to the Board of such
a conviction, the Board shall issue to such insured
credit union a notice of its intention to terminate the
insured status of the insured credit union and schedule a hearing on the matter, which shall be conducted
as a termination hearing pursuant to subsection (b) of
this section, except that no period for correction shall
apply to a notice issued under this subparagraph.
(B) CONVICTION OF TITLE 31 OFFENSES.—If a credit
union is convicted of any criminal offense under section
5322 or 5324 of title 31, United States Code, after prior
written notification from the Attorney General, the Board
may initiate proceedings to terminate the insured status of
such credit union in the manner described in subparagraph (A).
(C) NOTICE TO STATE SUPERVISOR.—The Board shall simultaneously transmit a copy of any notice under this
paragraph to the appropriate State financial institutions
supervisor.




FEDERAL CREDIT UNION ACT

Sec. 206

326

(2) FACTORS TO BE CONSIDERED.—In determining whether
to terminate insurance under paragraph (1), the Board shall
take into account the following factors:
(A) The extent to which directors, committee members,
or senior executive officers (as defined by the Board in regulations which the Board shall prescribe) of the credit
union knew of, or were involved in, the commission of the
money laundering offense of which the credit union was
found guilty.
(B) The extent to which the offense occurred despite
the existence of policies and procedures within the credit
union which were designed to prevent the occurrence of
any such offense.
(C) The extent to which the credit union has fully cooperated with law enforcement authorities with respect to
the investigation of the money laundering offense oi which
the credit union was found guilty.
(D) The extent to which the credit union has implemented additional internal controls (since the commission
of the offense of which the credit union was found guilty)
to prevent the occurrence of any other money laundering
offense.
(E) The extent to which the interest of the local community in having adequate deposit and credit services
available would be threatened by the termination of insurance.
(3) NOTICE TO STATE CREDIT UNION SUPERVISOR AND PUB-

LIC.—When the order to terminate insured status initiated
pursuant to this subsection is final, the Board shall—
(A) notify the commission, board, or authority (if any)
having supervision of the credit union described in paragraph (1) at least 10 days prior to the effective date of the
order of the termination of the insured status of such credit union; and
(B) publish notice of the termination of the insured
status of the credit union.
(4) TEMPORARY INSURANCE OF PREVIOUSLY INSURED DEPOS-

ITS.—Upon termination of the insured status of any State credit union pursuant to paragraph (1), the deposits of such credit
union shall be treated in accordance with section 206(d)(2).
(5) SUCCESSOR LIABILITY.—This subsection shall not apply
to a successor to the interests of, or a person who acquires, an
insured credit union that violated a provision of law described
in paragraph (1), if the successor succeeds to the interests of
the violator, or the acquisition is made, in good faith and not
for purposes of evading this subsection or regulations prescribed under this subsection.
PAYMENT OF INSURANCE

SEC. 207. [12 U.S.C. 1787] (a)(1)(A) Upon its finding that a
Federal credit union insured under this title is bankrupt or insol-




327

FEDERAL CREDIT UNION ACT

Sec. 207

vent, the Board shall close such credit union for liquidation and appoint himself1 liquidating agent therefor.
(B) Not later than 10 days after the date on which the Board
closes a credit union for liquidation pursuant to paragraph (1), or
accepts appointment as liquidating agent pursuant to subsection
(b), such insured credit union may apply to the United States district court for the judicial district in which the principal office of
such insured credit union is located or the United States District
Court for the District of Columbia, for an order requiring the Board
to show cause why it should not be prohibited from continuing such
liquidation. Except as otherwise provided in this subparagraph, no
court may take any action for or toward the removal of any liquidating agent or, except at the instance of the Board, restrain or
affect the exercise of powers or functions of a liquidating agent.
(2) Notwithstanding any other provision of law, the Board as
liquidating agent of a closed Federal credit union insured under
this title shall not be required to furnish bond and shall have the
right to appoint an agent or agents to assist them in its duties as
such liquidating agent. All fees, compensation, and expenses of liquidation and administration thereof shall be fixed by the Board
and may be paid by them out of funds coming into its possession
as such liquidating agent.
(b) POWERS AND DUTIES OF BOARD AS CONSERVATOR OR LIQUIDATING AGENT.—
(1) RULEMAKING AUTHORITY OF BOARD.—The Board may

prescribe such regulations as the Board determines to be ap{>ropriate regarding the conduct of the Board as conservator or
iquidating agent.
(2) GENERAL POWERS.—
(A) SUCCESSOR TO CREDIT UNION.—The

Board shall, as
conservator or liquidating agent, and by operation of law,
succeed to—
(i) all rights, titles, powers, and privileges of the
credit union, and of any member, accountholder, officer, or director of such credit union with respect to the
credit union and the assets of the credit union; and
(ii) title to the books, records, and assets of any
previous conservator or other legal custodian of such
credit union.
(B) OPERATE THE CREDIT UNION.—The Board may, as
conservator or liquidating agent—
(i) take over the assets of and operate the credit
union with all the powers of the members or shareholders, the directors, and the officers of the credit
union and shall be authorized to conduct all business
of the credit union;
(ii) collect all obligations and money due the credit
union;
(iii) perform all functions of the credit union in the
name of the credit union which is consistent with the
appointment as conservator or liquidating agent; and

1

So in original. Probably should be "itself.




Sec. 207

FEDERAL CREDIT UNION ACT

328

(iv) preserve and conserve the assets and property
of such credit union.
(C) FUNCTIONS OF CREDIT UNION'S OFFICERS, DIRECTORS, AND SHAREHOLDERS.—The Board may, by regulation

or order, provide for the exercise of any function by any
member or stockholder, director, or officer of any credit
union for which the Board has been appointed conservator
or liquidating agent.
(D) POWERS AS CONSERVATOR.—The Board may, as
conservator, take such action as may be—
(i) necessary to put the credit union in a sound
and solvent condition; and
(ii) appropriate to carry on the business of the
credit union and preserve and conserve the assets and
property of the credit union.
(E) ADDITIONAL POWERS AS LIQUIDATING AGENT.—The

Board may, as liquidating agent, place the credit union in
liquidation and proceed to realize upon the assets of the
credit union, having due regard to the conditions of credit
in the locality.
(F) PAYMENT OF VALID OBLIGATIONS.—The Board, as
conservator or liquidating agent, shall pay all valid obligations of the credit union in accordance with the prescriptions and limitations of this Act.
(G) ATTACHMENT OF ASSETS AND INJUNCTIVE RELIEF.—

Subject to subparagraph (H), any court of competent iurisdiction may, at the request of the Board (in the Board's capacity as conservator or liquidating agent for any insured
credit union or in the Board's corporate capacity in the exercise of any authority under section 207), issue an order
in accordance with Rule 65 of the Federal Rules of Civil
Procedure, including an order placing the assets of any
person designated by the Board under the control of the
court and appointing a trustee to hold such assets.
(H) STANDARDS.—

(i) SHOWING.—Rule 65 of the Federal Rules of
Civil Procedure shall apply with respect to any proceeding under subparagraph (G) without regard to the
requirement of such rule that the applicant show that
the injury, loss, or damage is irreparable and immediate.
(ii) STATE PROCEEDING.—If, in the case of any proceeding in a State court, the court determines that
rules of civil procedure available under the laws of
such State provide substantially similar protections to
such party's right to due process as Rule 65 (as modified with respect to such proceeding by clause (i)), the
relief sought by the Board pursuant to subparagraph
(G) may be requested under the laws of such State.
(I) SUBPOENA AUTHORITY.—

(i) IN GENERAL.—The Board may, as conservator
or liquidating agent and for purposes of carrying out
any power, authority, or duty with respect to an insured credit union (including determining any claim



329

FEDERAL CREDIT UNION ACT

Sec. 207

against the credit union and determining and realizing
upon any asset of any person in the course of collecting money due the credit union), exercise any power
established under section 206(p), and the provisions of
such section shall apply with respect to the exercise of
any such power under this subparagraph in the same
manner as such provisions apply under such section.
(ii) AUTHORITY OF BOARD.—A subpoena or suboena duces tecum may be issued under clause (i) only
y, or with the written approval of, the Board or their
designees.
(iii) RULE OF CONSTRUCTION.—This subsection
shall not be construed as limiting any rights that the
Board, in any capacity, might otherwise have under
section 206(p).
(J) INCIDENTAL POWERS.—The Board may, as conservator or liquidating agent—
(i) exercise all powers and authorities specifically
granted to conservators or liquidating agents, respectively, under this Act and such incidental powers as
shall be necessary to carry out such powers; and
(ii) take any action authorized by this Act,
which the Board determines is in the best interests of the
credit union, its account holders, or the Board.

E

(3) AUTHORITY OF LIQUIDATING AGENT TO DETERMINE
CLAIMS.—

(A) IN GENERAL.—The Board may, as liquidating
agent, determine claims in accordance with the requirements of this subsection and regulations prescribed under
para- graph (4).
(B) NOTICE REQUIREMENTS.—The liquidating agent, in
any case involving the liquidation or winding up of the affairs of a closed credit union, shall—
(i) promptly publish a notice to the credit union's
creditors to present their claims, together with proof,
to the liquidating agent by a date specified in the notice which shall be not less than 90 days after the publication of such notice; and
(ii) republish such notice approximately 1 month
and 2 months, respectively, after the publication under
clause (i).
(C) MAILING REQUIRED.—The liquidating agent shall
mail a notice similar to the notice published under subparagraph (B)(i) at the time of such publication to any
creditor shown on the credit union's books—
(i) at the creditor's last address appearing in such
books; or
(ii) upon discovery of the name and address of a
claimant not appearing on the credit union's books
within 30 days after the discovery of such name and
address.
(4) RULEMAKING AUTHORITY RELATING TO DETERMINATION

OF CLAIMS.—The Board may prescribe regulations regarding
the allowance or disallowance of claims by the liquidating




Sec. 207

FEDERAL CREDIT UNION ACT

330

agent and providing for administrative determination of claims
and review of such determination.
(5) PROCEDURES FOR DETERMINATION OF CLAIMS.—
(A) DETERMINATION PERIOD.—
(i) IN GENERAL.—Before the end of the 180-day pe-

riod beginning on the date any claim against a credit
union is filed with the Board as liquidating agent, the
Board shall determine whether to allow or disallow
the claim and shall notify the claimant of any determination with respect to such claim.
(ii) EXTENSION OF TIME.—The period described in
clause (i) may be extended by a written agreement between the claimant and the Board.
(iii) MAILING OF NOTICE SUFFICIENT.—The requirements of clause (i) shall be deemed to be satisfied if
the notice of any determination with respect to any
claim is mailed to the last address of the claimant
which appears—
(I) on the credit union's books;
(II) in the claim filed by the claimant; or
(III) in documents submitted in proof of the
claim.
(iv) CONTENTS OF NOTICE OF DISALLOWANCE.—If

any claim filed under clause (i) is disallowed, the notice to the claimant shall contain—
(I) a statement of each reason for the disallowance; and
(II) the procedures available for obtaining
agency review of the determination to disallow the
claim or judicial determination of the claim.
(B) ALLOWANCE OF PROVEN CLAIMS.—The liquidating
agent shall allow any claim received on or before the date
specified in the notice published under paragraph (3)(B)(i)
by the liquidating agent from any claimant which is
proved to the satisfaction of the liquidating agent.
(C) DISALLOWANCE OF CLAIMS FILED AFTER END OF FILING PERIOD.—

(i) IN GENERAL.—Except as provided in clause (ii),
claims filed after the date specified in the notice published under paragraph (3)(B)(i) shall be disallowed
and such disallowance shall be final.
(ii) CERTAIN EXCEPTIONS.—Clause (i) shall not
apply with respect to any claim filed by any claimant
after the date specified in the notice published under
paragraph (3)(B)(i) and such claim may be considered
by the liquidating agent if—
(I) the claimant did not receive notice of the
appointment of the liquidating agent in time to
file such claim before such date; and
(II) such claim is filed in time to permit payment of such claim.
(D) AUTHORITY TO DISALLOW CLAIMS.—The liquidating
agent may disallow any portion of any claim by a creditor



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FEDERAL CREDIT UNION ACT

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or claim of security, preference, or priority which is not
proved to the satisfaction of the liquidating agent.
(E) NO JUDICIAL REVIEW OP DETERMINATION PURSUANT
TO SUBPARAGRAPH (D).—No court may review the Board's
determination pursuant to subparagraph (D) to disallow a
claim.
(F) LEGAL EFFECT OF FILING.—
(i) STATUTE OF LIMITATION TOLLED.—For

purposes
of any applicable statute of limitations, the filing of a
claim with the liquidating agent shall constitute a
commencement of an action.
(ii) No PREJUDICE TO OTHER ACTIONS.—Subject to

paragraph (12), the filing of a claim with the liquidating agent shall not prejudice any right of the claimant
to continue any action which was filed before the appointment of the liquidating agent.
(6) PROVISION FOR AGENCY REVIEW OR JUDICIAL DETERMINATION OF CLAIMS.—

(A) IN GENERAL.—Before the end of the 60-day period
beginning on the earlier of—
(i) the end of the period described in paragraph
(5)(A)(i) with respect to any claim against a credit
union for which the Board is liquidating agent; or
(ii) the date of any notice of disallowance of such
claim pursuant to paragraph (5)(A)(i),
the claimant may request administrative review of the
claim in accordance with subparagraph (A) or (B) of paragraph (7) or file suit on such claim (or continue an action
commenced before the appointment of the liquidating
agent) in the district or territorial court of the United
States for the district within which the credit union's principal place of business is located or the United States District Court for the District of Columbia (and such court
shall have jurisdiction to hear such claim).
(B) STATUTE OF LIMITATIONS.—If any claimant fails
to—
(i) request administrative review of any claim in
accordance with subparagraph (A) or (B) of paragraph
(7); or
(ii) file suit on such claim (or continue an action
commenced before the appointment of the liquidating
agent),
before the end of the 60-day period described in subparaaph (A), the claim shall be deemed to be disallowed
ther than any portion of such claim which was allowed
by the liquidating agent) as of the end of such period, such
disallowance shall be final, and the claimant shall have no
further rights or remedies with respect to such claim.

S

(7) REVIEW OF CLAIMS.—
(A) ADMINISTRATIVE HEARING.—If

any claimant requests review under this subparagraph in lieu of filing or
continuing any action under paragraph (6) and the Board
agrees to such request, the Board shall consider the claim
after opportunity for a hearing on the record. The final de-




FEDERAL CREDIT UNION ACT

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332

termination of the Board with respect to such claim shall
be subject to judicial review under chapter 7 of title 5,
United States Code.
(B) OTHER REVIEW PROCEDURES.—

(i) IN GENERAL.—The Board shall also establish
such alternative dispute resolution processes as may
be appropriate for the resolution of claims filed under
paragraph (5)(A)(i).
(ii) CRITERIA.—In establishing alternative dispute
resolution processes, the Board shall strive for procedures which are expeditious, fair, independent, and
low cost.
(iii) VOLUNTARY BINDING OR NONBINDING PROCE-

DURES.—The Board may establish both binding and
nonbinding processes, which may be conducted by any
overnment or private party, but all parties, including
he claimant and the Board, must agree to the use of
the process in a particular case.
(iv) CONSIDERATION OF INCENTIVES.—The Board
shall seek to develop incentives for claimants to participate in the alternative dispute resolution process.

g

(8) EXPEDITED DETERMINATION OP CLAIMS.—
(A) ESTABLISHMENT REQUIRED.—The Board

shall establish a procedure for expedited relief outside of the routine claims process established under paragraph (5) for
claimants who—
(i) allege the existence of legally valid and enforceable or perfected security interests in assets of any
credit union for which the Board has been appointed
liquidating agent; and
(ii) alllege that irreparable injury will occur if the
routine claims procedure is followed.
(B) DETERMINATION PERIOD.—Before the end of the 90-

day period beginning on the date any claim is filed in accordance with the procedures established pursuant to subparagraph (A), the Board shall—
(i) determine—
(I) whether to allow or disallow such claim; or
(II) whether such claim should be determined
pursuant to the procedures established pursuant
to paragraph (5); or
(ii) notify the claimant of the determination, and
if the claim is disallowed, a statement of each reason
for the disallowance and the procedure for obtaining
agency review or judicial determination.
(C)

PERIOD FOR PILING OR RENEWING SUIT.—Any

claimant who files a request for expedited relief shall be
permitted to file a suit, or to continue a suit filed before
the appointment of the liquidating agent, seeking a determination of the claimant's rights with respect to such security interest after the earlier of—
(i) the end of the 90-day period beginning on the
date of the filing of a request for expedited relief; or
(ii) the date the Board denies the claim.




333

FEDERAL CREDIT UNION ACT

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(D) STATUTE OP LIMITATIONS.—If an action described
in subparagraph (C) is not filed, or the motion to renew a
previously filed suit is not made, before the end of the 30day period beginning on the date on which such action or
motion may be filed in accordance with subparagraph (B),
the claim shall be deemed to be disallowed as of the end
of such period (other than any portion of such claim which
was allowed by the liquidating agent), such disallowance
shall be final, and the claimant shall have no further
rights or remedies with respect to such claim.
(E) LEGAL EFFECT OF FILING.—
(i) STATUTE OF LIMITATION TOLLED.—For purposes

of any applicable statute of limitations, the filing of a
claim with the liquidating agent shall constitute a
commencement of an action.
(ii) No PREJUDICE TO OTHER ACTIONS.—Subject to

paragraph (12), the filing of a claim with the liquidating agent shall not prejudice any right of the claimant
to continue any action which was filed before the appointment of the liquidating agent.
(9) AGREEMENT AS BASIS OF CLAIM.—

(A) REQUIREMENTS.—Except as provided in subparagraph (B), any agreement whicn does not meet the requirements set forth in section 208(a)(3) shall not form the
basis of, or substantially comprise, a claim against the liquidating agent or the Board.
(B) EXCEPTION TO CONTEMPORANEOUS EXECUTION RE-

QUIREMENT.—Notwithstanding section 208(a)(3), any
agreement between a Federal home loan bank or Federal
Reserve bank and any insured credit union which was executed before the extension of credit by such bank to such
credit union shall be treated as having been executed contemporaneously with such extension of credit for purposes
of subparagraph (A).
(10) PAYMENT OF CLAIMS.—

(A) IN GENERAL.—The liquidating agent may, in the
liquidating agent's discretion and to the extent funds are
available, pay creditor claims which are allowed by the liquidating agent, approved by the Board pursuant to a final
determination pursuant to paragraph (7) or (8), or determined by the final judgment of any court of competent jurisdiction in such manner and amounts as are authorized
under this Act.
(B) PAYMENT OF DIVIDENDS ON CLAIMS.—The liquidating agent may, in the liquidating agent's sole discretion,
pay dividends on proved claims at any time, and no liability shall attach to the Board (in such Board's corporate capacity or as liquidating agent), by reason of any such payment, for failure to pay dividends to a claimant whose
claim is not proved at the time of any such payment.
(11) DISTRIBUTION OF ASSETS.—
(A) SUBROGATED CLAIMS; CLAIMS OF UNINSURED
ACCOUNTHOLDERS AND OTHER CREDITORS.—The liquidating

agent shall—



FEDERAL CREDIT UNION ACT

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334

(i) retain for the account of the Board such portion
of the amounts realized from any liquidation as the
Board may be entitled to receive in connection with
the subrogation of the claims of accountholders; and
(ii) pay to accountholders and other creditors the
net amounts available for distribution to them.
(B) DISTRIBUTION TO SHAREHOLDERS OF AMOUNTS REMAINING AFTER PAYMENT OF ALL OTHER CLAIMS AND EX-

PENSES.—In any case in which funds remain after all
accountholders, creditors, other claimants, and administrative expenses are paid, the liquidating agent shall distribute such funds to the credit union's shareholders or members together with the accounting report required under
paragraph (14)(C).
(12) SUSPENSION OF LEGAL ACTIONS.—

(A) IN GENERAL.—After the appointment of a conservator or liquidating agent for an insured credit union, the
conservator or liquidating agent may request a stay for a
period not to exceed—
(i) 45 days, in the case of any conservator; and
(ii) 90 days, in the case of any liquidating agent,
in any judicial action or proceeding to which such credit
union is or becomes a party.
(B) GRANT OF STAY BY ALL COURTS REQUIRED.—Upon

receipt of a request by any conservator or liquidating agent
pursuant to subparagraph (A) for a stay of any judicial action or proceeding in any court with jurisdiction of such action or proceeding, the court shall grant such stay as to all
parties.
(13) ADDITIONAL RIGHTS AND DUTIES.—
(A) PRIOR FINAL ADJUDICATION.—The

Board shall
abide by any final unappealable judgment of any court of
competent jurisdiction which was rendered before the appointment of the Board as conservator or liquidating
agent.

(B) RIGHTS AND REMEDIES OF CONSERVATOR OR LIQUIDATING AGENT.—In the event of any appealable judg-

ment, the Board as conservator or liquidating agent
shall—
(i) have all the rights and remedies available to
the credit union (before the appointment of such conservator or liquidating agent) and the Board in its corporate capacity, including removal to Federal court
and all appellate rights; and
(ii) not be required to post any bond in order to
pursue such remedies.
(C) No ATTACHMENT OR EXECUTION.—No attachment
or execution may issue by any court upon assets in the
possession of the liquidating agent.
(D) LIMITATION ON JUDICIAL REVIEW.—Except as otherwise provided in this subsection, no court shall have jurisdiction over—
(i) any claim or action for payment from, or any
action seeking a determination of rights with respect




35
3

FEDERAL CREDIT UNION ACT

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to, the assets of any credit union for which the Board
has been appointed liquidating agent, including assets
which the Board may acquire from itself as such liquidating agent; or
(ii) any claim relating to any act or omission of
such credit union or the Board as liquidating agent.
(14) STATUTE OF LIMITATIONS FOR ACTIONS BROUGHT BY
CONSERVATOR OR LIQUIDATING AGENT.—

(A) IN GENERAL.—Notwithstanding any provision of
any contract, the applicable statute of limitations with regard to any action brought by the Board as conservator or
liquidating agent shall be—
(i) in the case of any contract claim, the longer
of—
(I) the 6-year period beginning on the date the
claim accrues; or
(II) the period applicable under State law; and
(ii) in the case of any tort claim, the longer of—
(I) the 3-year period beginning on the date the
claim accrues; or
(II) the period applicable under State law.
(B) DETERMINATION OF THE DATE ON WHICH A CLAIM

ACCRUES.—For purposes of subparagraph (A), the date on
which the statute of limitation begins to run on any claim
described in such subparagraph shall be the later of—
(i) the date of the appointment of the Board as
conservator or liquidating agent; or
(ii) the date on which the cause of action accrues.
(15) ACCOUNTING AND RECORDKEEPING REQUIREMENTS.—

(A) IN GENERAL.—The Board as conservator or liquidating agent shall, consistent with the accounting and
reporting practices and procedures established by the
Board, maintain a full accounting of each conservatorship
and liquidation or other disposition of credit unions in default.
(B) ANNUAL ACCOUNTING OR REPORT.—With respect to
each conservatorship or liquidation to which the Board
was appointed, the Board shall make an annual accounting or report, as appropriate, available to the Comptroller
General of the United States or, in the case of a Statechartered credit union, the authority which appointed the
Board as conservator or liquidating agent.
(C) AVAILABILITY OF REPORTS.—Any report prepared
pursuant to subparagraph (B) shall be made available by
the Board upon request to any shareholder of the credit
union for which the Board was appointed conservator or
liquidating agent or any other member of the public.
(D) RECORDKEEPING REQUIREMENT.—After the end

of

the 6-year period beginning on the date the Board is appointed as liquidating agent of an insured credit union, the
Board may destroy any records of such credit union which
the Board, in the Board's discretion, determines to be unnecessary unless directed not to do so by a court of com-




FEDERAL CREDIT UNION ACT

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336

petent jurisdiction or governmental agency, or prohibited
by law.
(16) FRAUDULENT TRANSFERS.—

(A) IN GENERAL.—The Board, as conservator or liquidating agent for any insured credit union, may avoid a
transfer of any interest of an institution-affiliated party, or
any person who the Board determines is a debtor of the institution, in property, or any obligation incurred by such
party or person, that was made within 5 years of the date
on which the Board becomes conservator or liquidating
agent if such party or person voluntarily or involuntarily
made such transfer or incurred such liability with the intent to hinder, delay, or defraud the insured credit union
or the Board.
(B) RIGHT OF RECOVERY.—To the extent a transfer is
avoided under subparagraph (A), the Board may recover,
for the benefit of the insured credit union, the property
transferred, or, if a court so orders, the value of such property (at the time of such transfer) from—
(i) the initial transferee of such transfer or the institution-affiliated party or person for whose benefit
such transfer was made; or
(ii) any immediate or mediate transferee of any
such initial transferee.
(C) RIGHTS OF TRANSFEREE OR OBLIGEE.—The Board
may not recover under subparagraph (B) from—
(i) any transferee that takes for value, including
satisfaction or securing of a present or antecedent
debt, in good faith; or
(ii) any immediate or mediate good faith transferee of such transferee.
(D) RIGHTS UNDER THIS PARAGRAPH.—The rights of the
Board under this paragraph shall be superior to any rights
of a trustee or any other party (other than any party
which is a Federal agency) under title 11, United States
Code.
(c) PROVISIONS RELATING TO CONTRACTS ENTERED INTO BEFORE APPOINTMENT OF CONSERVATOR OR LIQUIDATING AGENT.—
(1) AUTHORITY TO REPUDIATE CONTRACTS.—In addition to

any other rights a conservator or liquidating agent may have,
the conservator or liquidating agent for any insured credit
union may disaffirm or repudiate any contract or lease—
(A) to which such credit union is a party;
(B) the performance of which the conservator or hquidating agent, in the conservator's or liquidating agent's
discretion, determines to be burdensome; and
(C) the disaffirmance or repudiation of which the conservator or liquidating agent determines, in the conservator's or liquidating agent's discretion, will promote the orderly administration of the credit union's affairs.
(2) TIMING OF REPUDIATION.—The conservator or liquidating agent appointed for any insured credit union shall determine whether or not to exercise the rights of repudiation under




337

FEDERAL CREDIT UNION ACT

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this subsection within a reasonable period following such appointment.
(3) CLAIMS FOR DAMAGES FOR REPUDIATION.—

(A) IN GENERAL.—Except as otherwise provided in subparagraph (C) and paragraphs (4), (5), and (6), the liability
of the conservator or liquidating agent for the
disaffirmance or repudiation of any contract pursuant to
paragraph (1) shall be—
(i) limited to actual direct compensatory damages;
and
(ii) determined as of—
(I) the date of the appointment of the conservator or liquidating agent; or
(II) in the case of any contract or agreement
referred to in paragraph (8), the date of the
disaffirmance or repudiation of such contract or
agreement.
( B ) N O LIABILITY FOR OTHER DAMAGES.—For p u r p o s e s

of subparagraph (A), the term "actual direct compensatory
damages" does not include—
(i) punitive or exemplary damages;
(ii) damages for lost profits or opportunity; or
(iii) damages for pain and suffering.
(C) MEASURE OF DAMAGES FOR REPUDIATION OF FINANCIAL CONTRACTS.—In the case of any qualified financial

contract or agreement to which paragraph (8) applies, compensatory damages shall be—
(i) deemed to include normal and reasonable costs
of cover or other reasonable measures of damages utilized in the industries for such contract and agreement
claims; and
(ii) paid in accordance with this subsection and
subsection (f) except as otherwise specifically provided
in this section.
(4) LEASES UNDER WHICH THE CREDIT UNION IS THE LESSEE.—

(A) IN GENERAL.—If the conservator or liquidating
agent disaffirms or repudiates a lease under which the
credit union was the lessee, the conservator or liquidating
agent shall not be liable for any damages (other than damages determined pursuant to subparagraph (B)) for the
disaffirmance or repudiation of such lease.
(B) PAYMENTS OF RENT.—Notwithstanding subparagraph (A), the lessor under a lease to which such subparagraph applies shall—
(i) be entitled to the contractual rent accruing before the later of the date—
(I) the notice of disaffirmance or repudiation
is mailed; or
(II) the disaffirmance or repudiation becomes
effective,
unless the lessor is in default or breach of the terms
of the lease;




FEDERAL CREDIT UNION ACT

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338

(ii) have no claim for damages under any acceleration clause or other penalty provision in the lease; and
(iii) have a claim for any unpaid rent, subject to
all appropriate offsets and defenses, due as of the date
of the appointment which shall be paid in accordance
with this subsection and subsection (b).
(5) LEASES UNDER WHICH THE CREDIT UNION IS THE LESSOR.—

(A) IN GENERAL.—If the conservator or liquidating
agent repudiates an unexpired written lease of real property of the credit union under which the credit union is the
lessor and the lessee is not, as of the date of such repudiation, in default, the lessee under such lease may either—
(i) treat the lease as terminated by such repudiation; or
(ii) remain in possession of the leasehold interest
for the balance of the term of the lease unless the lessee defaults under the terms of the lease after the
date of such repudiation.
(B) PROVISIONS APPLICABLE TO LESSEE REMAINING IN

POSSESSION.—If any lessee under a lease described in subparagraph (A) remains in possession of a leasehold interest
pursuant to clause (ii) of such subparagraph—
(i) the lessee—
(I) shall continue to pay the contractual rent
pursuant to the terms of the lease after the date
of the repudiation of such lease;x
(II) may offset against any rent payment
which accrues after the date of the repudiation of
the lease, any damages which accrue after such
date due to the nonperformance of any obligation
of the credit union under the lease after such
date; and
(ii) the conservator or liquidating agent shall not
be liable to the lessee for any damages arising after
such date as a result of the repudiation other than the
amount of any offset allowed under clause (i)(II).
(6) CONTRACTS FOR THE SALE OF REAL PROPERTY.—

(A) IN GENERAL.—If the conservator or liquidating
agent repudiates any contract (which meets the requirements of each paragraph of section 208(a)(3)) for the sale
of real property and the purchaser of such real property
under such contract is in possession and is not, as of the
date of such repudiation, in default, such purchaser may
either—
(i) treat the contract as terminated by such repudiation; or
(ii) remain in possession of such real property.
(B) PROVISIONS APPLICABLE TO PURCHASER REMAINING

IN POSSESSION.—If any purchaser of real property under
any contract described in subparagraph (A) remains in
1

So in original. Probably should end with "and".




339

FEDERAL CREDIT UNION ACT

Sec. 207

possession of such property pursuant to clause (ii) of such
subparagraph—
(i) the purchaser—
(I) shall continue to make all payments due
under the contract after the date of the repudiation of the contract; and
(II) may offset against any such payments any
damages which accrue after such date due to the
nonperformance (after such date) of any obligation
of the credit union under the contract; and
(ii) the conservator or liquidating agent shall—
(I) not be liable to the purchaser for any damages arising after such date as a result of the remdiation other than the amount of any offset alowed under clause (i)(H);
(II) deliver title to the purchaser in accordance with the provisions of the contract; and
(III) have no obligation under the contract
other than the performance required under
subclause (II).

f

(C) ASSIGNMENT AND SALE ALLOWED.—

(i) IN GENERAL.—No provision of this paragraph
shall be construed as limiting the right of the conservator or liquidating agent to assign the contract described in subparagraph (A) and sell the property subject to the contract and the provisions of this paragraph.
(ii) NO LIABILITY AFTER ASSIGNMENT AND SALE.—

If an assignment and sale described in clause (i) is
consummated, the conservator or liquidating agent
shall have no further liability under the contract described in subparagraph (A) or with respect to the real
property which was the subject of such contract.
(7) PROVISIONS APPLICABLE TO SERVICE CONTRACTS.—
(A) SERVICES PERFORMED BEFORE APPOINTMENT.—In

the case of any contract for services between any person
and any insured credit union for which the Board has been
appointed conservator or liquidating agent, any claim of
such person for services performed before the appointment
of the conservator or the liquidating agent shall be—
(i) a claim to be paid in accordance with subsection (b); and
(ii) deemed to have arisen as of the date the conservator or liquidating agent was appointed.
(B) SERVICES PERFORMED AFTER APPOINTMENT AND
PRIOR TO REPUDIATION.—If, in the case of any contract for

services described in subparagraph (A), the conservator or
liquidating agent accepts performance by the other person
before the conservator or liquidating agent makes any determination to exercise the right of repudiation of such
contract under this section—
(i) the other party shall be paid under the terms
of the contract for the services performed; and




FEDERAL CREDIT UNION ACT

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340

(ii) the amount of such payment shall be treated
as an administrative expense of the conservatorship or
liquidation.
(C) ACCEPTANCE OF PERFORMANCE NO BAR TO SUBSEQUENT REPUDIATION.—The acceptance by any conservator

or liquidating agent of services referred to in subparagraph (B) in connection with a contract described in such
subparagraph shall not affect the right of the conservator
or liquidating agent to repudiate such contract under this
section at any time after such performance.
(8) CERTAIN QUALIFIED FINANCIAL CONTRACTS.—
(A) RIGHTS OF PARTIES TO CONTRACTS.—Subject to

paragraph (12) of this subsection and notwithstanding any
other provision of this Act (other than subsection (b)(9) of
this section and section 208(a)(3)), any other Federal law,
or the law of any State, no person shall be stayed or prohibited from exercising—
(i) any right to cause the termination or liquidation of any qualified financial contract with an insured
credit union which arises upon the appointment of the
Board as liquidating agent for such credit union at
any time after such appointment;
(ii) any right under any security arrangement relating to any contract or agreement described in clause
(i); or
(iii) any right to offset or net out any termination
value, payment amount, or other transfer obligation
arising under or in connection with 1 or more contracts and agreements described in clause (i), including any master agreement for such contracts or agreements.
(B) APPLICABILITY OF OTHER PROVISIONS.—Subsection

(b)(12) shall apply in the case of any judicial action or proceeding brought against any liquidating agent referred to
in subparagraph (A), or the credit union for which such
liquidating agent was appointed, by any party to a contract or agreement described in subparagraph (A)(i) with
such credit union.
(C) CERTAIN TRANSFERS NOT AVOIDABLE.—

(i) IN GENERAL.—Notwithstanding paragraph (11),
the Board, whether acting as such or as conservator or
liquidating agent of an insured credit union, may not
avoid any transfer of money or other property in connection with any qualified financial contract with an
insured credit union.
(ii) EXCEPTION FOR CERTAIN TRANSFERS.—Clause

(i) shall not apply to any transfer of money or other
property in connection with any qualified financial
contract with an insured credit union if the Board determines that the transferee had actual intent to
hinder, delay, or defraud such credit union, the creditors of such credit union, or any conservator or liquidating agent appointed for such credit union.




341

FEDERAL CREDIT UNION ACT

Sec. 207

(D) CERTAIN CONTRACTS AND AGREEMENTS DEFINED.—

For purposes of this subsection—
(i) QUALIFIED FINANCIAL CONTRACT.—The term
"qualified financial contract" means any securities contract, forward contract, repurchase agreement, and
any similar agreement that the Board determines by
regulation to be a qualified financial contract for purposes of this paragraph.
(ii) SECURITIES CONTRACT.—The term "securities
contract"—
(I) has the meaning given to such term in section 741 of title 11, United States Code, except
that the term "security" (as used in such section)
shall be deemed to include any mortgage loan, any
mortgage-related security (as defined in section
3(a)(41) of the Securities Exchange Act of 1934 \
and any interest in any mortgage loan or mortgage-related security; and
(II) does not include any participation in a
commercial mortgage loan unless the Board determines by regulation, resolution, or order to include any such participation within the meaning
of such term.
(iii) FORWARD CONTRACT.—The term "forward contract" has the meaning given to such term in section
101 of title 11, United States Code.
(iv) REPURCHASE AGREEMENT.—The term "repurchase agreement"—
(I) has the meaning given to such term in section 101 of title 11, the United States Code, except
that the items (as described in such section) which
may be subject to any such agreement shall be
deemed to include mortgage-related securities (as
such term is defined in section 3(a)(41) of the Securities Exchange Act of 1934, any mortgage loan,
and any interest in any mortgage loan; and
(II) does not include any participation in a
commercial mortgage loan unless the Board determines by regulation, resolution, or order to include any such participation within the meaning
of such term.
(v) TRANSFER.—The term "transfer" has the meaning given to such term in section 101 of title 11, United States Code.
(E) CERTAIN PROTECTIONS IN EVENT OF APPOINTMENT

OF CONSERVATOR.—Notwithstanding any other provision of
this Act (other than paragraph (12) of this subsection, subsection (b)(9) of this section, and section 208(a)(3) of this
Act), any other Federal law, or the law of any State, no
person shall be stayed or prohibited from exercising—
(i) any right such person has to cause the termination, liquidation, or acceleration of any qualified fi1

So in original. A closing parenthesis probably should precede the comma.




FEDERAL CREDIT UNION ACT

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342

nancial contract with a credit union in a
conservatorship based upon a default under such financial contract which is enforceable under applicable
noninsolvency law;
(ii) any right under any security arrangement relating to such qualified financial contracts; or
(iii) any right to offset or net out any termination
values, payment amounts, or other transfer obligations
arising under or in connection with such qualified financial contracts.
(9)

TRANSFER OF QUALIFIED FINANCIAL CONTRACTS.—In

making any transfer of assets or liabilities of a credit union in
default which includes any qualified financial contract, the conservator or liquidating agent for such credit union shall either—
(A) transfer to 1 credit union (other than a credit
union in default)—
(i) all qualified financial contracts between—
(I) any person or any affiliate of such person;
and
(II) the credit union in default;
(ii) all claims of such person or any affiliate of
such person against such credit union under any such
contract (other than any claim which, under the terms
of any such contract, is subordinated to the claims of
general unsecured creditors of such credit union);
(iii) all claims of such credit union against such
person or any affiliate of such person under any such
contract; and
(iv) all property securing any claim described in
clause (ii) or (iii) under any such contract; or
(B) transfer none of the financial contracts, claims, or
property referred to in subparagraph (A) (with respect to
such person and any affiliate of such person).
(10) NOTIFICATION OF TRANSFER.—
(A) IN GENERAL.—If—

(i) the conservator or liquidating agent for an insured credit union in default makes any transfer of
the assets and liabilities of such credit union; and
(ii) the transfer includes any qualified financial
contract,
the conservator or liquidating agent shall use such conservator's or liquidating agent's best efforts to notify any
erson who is a partv to any such contract of such transfer
y 12:00, noon (local time), on the business day following
such transfer.
(B) BUSINESS DAY DEFINED.—For purposes of this
paragraph, the term "business day* means any day other
than any Saturday, Sunday, or any day on which either
the New York Stock Exchange or the Federal Reserve
Bank of New York is closed.

i

(11)

CERTAIN SECURITY INTERESTS NOT AVOIDABLE.—NO

provision of this subsection shall be construed as permitting
the avoidance of any legally enforceable or perfected security




343

FEDERAL CREDIT UNION ACT

Sec. 207

interest in any of the assets of any credit union except where
such an interest is taken in contemplation of the credit union's
insolvency or with the intent to hinder, delay, or defraud the
credit union or the creditors of such credit union.
(12) AUTHORITY TO ENFORCE CONTRACTS.—

(A) IN GENERAL.—The conservator or liquidating agent
may enforce any contract, other than a director's or officer's liability insurance contract or a credit union bond, entered into by the credit union notwithstanding any provision of the contract providing for termination, default, acceleration, or exercise of rights upon, or solely by reason
of, insolvency or the appointment of a conservator or liquidating agent.
(B) CERTAIN RIGHTS NOT AFFECTED.—NO provision of
this paragraph may be construed as impairing or affecting
any right of the conservator or liquidating agent to enforce
or recover under a directors or officers liability insurance
contract or credit union bond under other applicable law.
(13) EXCEPTION FOR FEDERAL RESERVE AND FEDERAL HOME
LOAN BANKS.—No provision of this subsection shall apply with

respect to—
(A) any extension of credit from any Federal home
loan bank or Federal Reserve bank to any insured depository institution; or
(B) any security interest in the assets of the institution securing any such extension of credit.
(d) PAYMENT OF INSURED DEPOSITS.—

(1) IN GENERAL.—In case of the liquidation of any insured
credit union, payment of the insured deposits in such credit
union shall be made by the Board as soon as possible, subject
to the provisions of subsection (e) of this section, either by cash
or by making available to each accountholder a transferred deposit in a new credit union in the same community or in another insured credit union in an amount equal to the insured
deposit of such accountholder.
(2) PROOF OF CLAIMS.—The Board, in its discretion, may
require proof of claims to be filed and may approve or reject
such claims for insured deposits.
(3) RESOLUTION OF DISPUTES.—
(A) RESOLUTIONS IN ACCORDANCE TO 1 BOARD REGULA-

TIONS.—In the case of any disputed claim relating to any
insured deposit or any determination of insurance coverage
with respect to any deposit, the Board may resolve such
disputed claim in accordance with regulations prescribed
by the Board establishing procedures for resolving such
claims.
(B) ADJUDICATION OF CLAIMS.—If the Board has not
prescribed regulations establishing procedures for resolving disputed claims, the Board may require the final determination of a court of competent jurisdiction before paying
any such claim.
1

So in original. Probably should be "WITH".




FEDERAL CREDIT UNION ACT

Sec. 207

344

(4) REVIEW OF BOARD'S DETERMINATION.—Final determination made by the Board shall be reviewable in accordance with
chapter 7 of title 5, United States Code, by the United States
Court of Appeals for the District of Columbia or the court of
appeals for the Federal judicial circuit where the principal
place of business of the credit union is located.
(5) STATUTE OF LIMITATIONS.—Any request for review of a
final determination by the Board shall be filed with the appropriate circuit court of appeals not later than 60 days after such
determination is ordered.
(e) SUBROGATION OF BOARD.—

(1) IN GENERAL.—Notwithstanding any other provision of
Federal law, the law of any State, or the constitution of any
State, the Board, upon the payment to any accountholder as
provided in subsection (d) in connection with any insured credit union described in such subsection or the assumption of any
deposit in such credit union by another insured credit union
pursuant to this section, shall be subrogated to all rights of the
accountholder against such credit union to the extent of such
payment or assumption.
(2) DIVIDENDS ON SUBROGATED AMOUNTS.—The subrogation of the Board under paragraph (1) with respect to any insured credit union shall include the right on the part of the
Board to receive the same dividends from the proceeds of the
assets of such credit union as would have been payable to the
accountholder on a claim for the insured deposit, but such
accountholder shall retain such claim for any uninsured or
unassumed portion of the deposit.
(f) VALUATION OF CLAIMS IN DEFAULT.—

(1) IN GENERAL.—Notwithstanding any other provision of
Federal law or the law of any State, this subsection shall govern the rights of the creditors (other than insured
accountholders) of such credit union.
(2) MAXIMUM LIABILITY.—The maximum liability of the
Board, acting as liquidating agent or in any other capacity, to
any person having a claim against the liquidating agent or the
insured credit union for which such liquidating agent is appointed shall equal the amount such claimant would have received if the Board had liquidated the assets and liabilities of
such credit union without exercising the Board's authority
under subsection (n) of this section.
(3) ADDITIONAL PAYMENTS AUTHORIZED.—

(A) IN GENERAL.—The Board may, in its discretion and
in the interests of minimizing its losses, use its own resources to make additional payments or credit additional
amounts to or with respect to or for the account of any
claimant or category of claimants. The Board shall not be
obligated, as a result of having made any such payment or
credited any such amount to or with respect to or for the
account of any claimant or category of claimants, to make
payments to any other claimant or category or x claimants.
1

So in original. Probably should be "of.




345

FEDERAL CREDIT UNION ACT

Sec. 207

(B) MANNER OP PAYMENT.—The Board may make the
payments or credit the amounts specified in subparagraph
(A) directly to the claimants or may make such payments
or credit such amounts to an open insured credit union to
induce the open insured credit union to accept liability for
such claims.
(g) LIMITATION ON COURT ACTION.—Except as provided in this
section, no court may take any action, except at the request of the
Board of Directors by regulation or order, to restrain or affect the
exercise of powers or functions of the Board as a conservator or a
liquidating agent.
(h) LIABILITY OF DIRECTORS AND OFFICERS.—A director or officer of an insured credit union may be held personally liable for
monetary damages in any civil action by, on behalf of, or at the request or direction of the Board, which action is prosecuted wholly
or partially for the benefit of the Board—
(1) acting as conservator or liquidating agent of such insured credit union,
(2) acting based upon a suit, claim, or cause of action purchased from, assigned by, or otherwise conveyed by such liquidating agent or conservator, or
(3) acting based upon a suit, claim, or cause of action purchased from, assigned by, or otherwise conveyed in whole or in
part by an insured credit union or its affiliate in connection
with assistance provided under section 208,
for gross negligence, including any similar conduct or conduct that
demonstrates a greater disregard of a duty of care (than gross negligence) including intentional tortious conduct, as such terms are
defined and determined under applicable State law. Nothing in this
paragraph shall impair or affect any right, if any, of the Board
under other applicable law.
(i) DAMAGES.—In any proceeding related to any claim against
an insured credit union's director, officer, employee, agent, attorney, accountant, appraiser, or any other party employed by or providing services to an insured credit union, recoverable damages determined to result from the improvident or otherwise improper use
or investment of any insured credit union's assets shall include
principal losses and appropriate interest.
(j) Whenever any insured State-chartered credit union shall
have been closed by action of its board of directors or by the commission, board, or authority having supervision of such credit
union, as the case may be, or by a court of competent jurisdiction,
on account of bankruptcy or insolvency, the Board shall accept appointment as liquidating agent therefor, if such appointment is tendered by the commission, board, or authority having supervision of
such credit union, or by a court of competent jurisdiction, and is
authorized or permitted by State law. With respect to any such
State-chartered credit union, the Board as such liquidating agent
shall possess all the rights, powers, and privileges granted by State
law to a liquidating agent of a State-chartered credit union. For the
purposes of this subsection, the term "liquidating agent" includes
a liquidating agent, receiver, conservator, commission, person, or
other agency charged by law with the duty of winding up the affairs of a credit union.




Sec. 207

FEDERAL CREDIT UNION ACT

346

(k)(l) Subject to the provisions of paragraph (2), for the purposes of this subsection, the term "insured account" means the
total amount of the account in the member's name (after deducting
offsets) less any part thereof which is in excess of $100,000. Such
amount shall be determined according to such regulations as the
Board may prescribe, and, in determining the amount due to any
member, there shall be added together all accounts in the credit
union maintained by him for his own benefit either in his own
name or in the names of others. The Board may define, with such
classifications and exceptions as it may prescribe, the extent of the
insurance coverage provided for member accounts, including member accounts in tne name of a minor, in trust, or in joint tenancy.
(2)(A) Notwithstanding any limitation in this Act or in any
other provision of law relating to the amount of insurance available
for the account of any one depositor or member, in the case of a
depositor or member who is—
(i) an officer, employee, or agent of the United States having official custody of public funds and lawfully investing the
same in a credit union insured in accordance with this title;
(ii) an officer, employee, or agent of any State of the United States, or of any county, municipality, or political subdivision thereof having official custody of public funds and lawfully
investing the same in a credit union insured in accordance
with this title in such State;
(iii) an officer, employee, or agent of the District of Columbia having official custody of public funds and lawfully investing the same in a credit union insured in accordance with this
title in the District of Columbia;
(iv) an officer, employee, or agent of the Commonwealth of
Puerto Rico, of the Panama Canal Zone, or of any territory or
possession of the United States, or of any county, municipality,
or political subdivision thereof having official custody of public
funds and lawfully investing the same in a credit union insured in accordance with this title in the Commonwealth of
Puerto Rico, the Panama Canal Zone, or any such territory or
possession, respectively; or
(v) an officer, employee, or agent of any Indian tribe (as
defined in section 3(c) of the Indian Financing Act of 1974) or
agency thereof having official custody of tribal funds and lawfully investing the same in a credit union insured in accordance with this title;
his account shall be insured in an amount not to exceed $100,000
per account.
(B) The Board may limit the aggregate amount of funds that
may be invested or deposited in any credit union insured in accordance with this title by any depositor or member referred to in subparagraph (A) on the basis of the size of any such credit union in
terms of its assets.
(3) Notwithstanding any limitation in this title or in any other
provision of law relating to the amount of insurance available for
the account of any one depositor or member, funds invested in a
credit union insured in accordance with this title pursuant to a
pension or profit-sharing plan described in section 401(d) of the Internal Revenue Code of 1954, as amended, and funds invested in




347

FEDERAL CREDIT UNION ACT

Sec. 207

such an insured credit union in the form of individual retirement
accounts as described in section 408(a) of the Internal Revenue
Code of 1954, as amended, shall be insured in the amount of
$100,000 per account. As to any plan qualifying under section
401(d) or section 408(a) of the Internal Revenue Code of 1954, the
term "per account" means the present vested and ascertainable interest of each beneficiary under the plan, excluding any remainder
interest created by, or as a result of, the plan.
(1) Payment of an insured account to any person by the Board
shall discharge the Board to the same extent that payment to such
person by the closed insured credit union would have discharged it
from liability for the insured account.
(m) Except as otherwise prescribed by the Board, the Board
shall not be required to recognize as the owner of any portion of
an account appearing on the records of the closed credit union
under a name other than that of the claimant any person whose
name or interest as such owner is not disclosed on the records of
such closed credit union as part owner of such account, if such recognition would increase the aggregate amount of the insured accounts in such closed credit union.
(n) The Board may withhold payment of such portion of the insured account of any member of a closed credit union as may be
required to provide for the payment of any direct or indirect liability of such member to the closed credit union or its liquidating
agent, which is not offset against a claim due from such credit
union, pending the determination and payment of such liability by
such member or any other person liable therefor.
(o) If, after the Board shall have given at least four months'
notice to the member by mailing a copy thereof to his last-known
address appearing on the records of the closed credit union, any
member of the closed credit union shall fail to claim his insured account from the Board within 18 months after the appointment of
the liquidating agent for the closed credit union, all rights of the
member against the Board with respect to the insured account
shall be barred, and all rights of the member against the closed
credit union, or the estate to which the Board may have become
subrogated, shall thereupon revert to the member.
(p)(l) Liquidating agents of insured credit unions closed for liquidation on account of bankruptcy or insolvency may offer the assets of such credit unions for sale to the Board or as security for
loans from the Board, upon receiving permission from the commission, board, or authority having supervision of such credit union,
in the case of an insured State-chartered credit union, in accordance with express provisions of State law. The proceeds of every
such sale or loan shall be utilized for the same purposes and in the
same manner as other funds realized from the liquidation of the assets of such credit unions. The Board, in its discretion, may make
loans on the security of or may purchase and liquidate or sell any
part of the assets of an insured credit union closed for liquidation
on acount of bankruptcy or insolvency, but in any case in which the
Board is acting as liquidating agent of a closed insured credit
union, no such loan or purchase shall be made without the approval of a court of competent jurisdiction.


http://fraser.stlouisfed.org/9 5 - 1 2
89-335
Federal Reserve Bank of St. Louis

Sec. 208

FEDERAL CREDIT UNION ACT

348

(2) No agreement which tends to diminish or defeat the right,
title, or interest of the Board in any asset acquired by them under
this subsection, either as security for a loan or by purchase, shall
be valid against the Board unless such agreement—
(A) shall be in writing;
(B) shall have been executed by the credit union and the
person or persons claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of
the asset by the credit union;
(C) shall have been approved by the board of directors of
the credit union, which approval shall be reflected in the minutes of such board; and
(D) shall have been, continuously, from the time of its execution, an official record of the credit union.
(q) PROHIBITION ON CERTAIN ACQUISITIONS OF ASSETS.—
(1) CONVICTED DEBTORS.—Except as provided in paragraph

(2), any individual who—
(A) has been convicted of an offense under section 215,
657, 1006, 1014, 1032, 1341, 1343, or 1344 of title 18,
United States Code, or of conspiring to commit any such
offense, affecting any insured credit union for which the
Board is appointed conservator or liquidating agent; and
(B) is in default on any loan or other extension of credit from such insured credit union which, if not paid, will
cause substantial loss to the credit union, the National
Credit Union Share Insurance Fund, or the Board,
may not purchase any asset of such credit union from the conservator or liquidating agent.
(2) SETTLEMENT OP CLAIMS.—Paragraph (1) shall not apply
to the sale or transfer by the Board of any asset of any insured
credit union to any individual if the sale or transfer of the
asset resolves or settles, or is part of the resolution or settlement, of—
(A) 1 or more claims that have been, or could have
been, asserted by the Board against the individual; or
(B) obligations owed by the individual to the insured
credit union or the Board.
(r) FOREIGN INVESTIGATIONS.—The Board, as conservator or
liquidating agent of any insured credit union and for purposes of
carrying out any power, authority, or duty with respect to an insured credit union—
(1) may request the assistance of any foreign banking authority and provide assistance to any foreign banking authority
in accordance with section 206(u); and
(2) may maintain an office to coordinate foreign investigations or investigations on behalf of foreign banking authorities.
SPECIAL ASSISTANCE FOR FEDERALLY INSURED CREDIT UNIONS

SEC. 208. [12 U.S.C. 1788] (a)(1) In order to reopen a closed
insured credit union or in order to prevent the closing of an insured
credit union which the Board has determined is in danger of closing or in order to assist in the voluntary liquidation of a solvent
credit union, the Board, in its discretion, is authorized to make




349

FEDERAL CREDIT UNION ACT

Sec. 208

loans to, or purchase the assets of, or establish accounts in such
insured credit union upon such terms and conditions as it may prescribe. Except with respect to the voluntary liquidation of a solvent
credit union, such loans shall be made and such accounts shall be
established only when, in the opinion of the Board, such action is
necessary to protect the fund or the interests of the members of the
credit union.
(2) Whenever in the judgment of the Board such action will reduce the risk or avert a threatened loss to the fund and will facilitate a merger or consolidation of an insured credit union with another insured credit union, or will facilitate the sale of the assets
of an open or closed insured credit union to and assumption of its
liability by another person the Board may, upon such terms and
conditions as it may determine, make loans secured in whole or in
>art by assets of an open or closed insured credit union, which
oans may be in subordination to the rights of members and creditors of such credit union, or the Board may purchase any of such
assets or may guarantee any person against loss by reason of its
assuming the liabilities and purchasing the assets of an open or
closed insured credit union. For purposes of this paragraph, the
term "person" means any credit union, individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity.
(3) No agreement which tends to diminish or defeat the right,
title, or interest of the Board, in any asset acquired by them under
this subsection, either as security for a loan or by purchase, shall
be valid against the Board unless such agreement—
(A) shall be in writing;
(B) shall have been executed by the credit union and the
person or persons claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of
the asset by the credit union;
(C) shall have been approved by the board of directors of
the credit union, which approval shall be reflected in the minutes of such board; and
(D) shall have been continuously, from the time of its execution, an official record of the credit union.
(b) For the protection of the Fund, the Board, without regard
to the Federal Property and Administrative Services Act of 1949,
mayCD deal with, complete, reconstruct, rent, renovate, modernize, insure, make contracts for the management of, sell for
cash or credit, or lease, in its discretion, any real property acquired or held by them under this section; and
(2) assign or sell at public or private sale, or otherwise dispose of, any evidence of debt, contract, claim, personal property, or security assigned to or held by them under this section.
Section 3709 of the Revised Statutes of the United States shall not
apply to any purchase or contract for services or supplies made or
entered into by the Board under this section if the amount thereof
does not exceed $1,000, or to any contract for hazard insurance on
any real property acquired or held by them under this section.
(c) Money received by the Board in carrying out this section
shall be paid into the Fund.

f




Sec. 209

FEDERAL CREDIT UNION ACT

350

ADMINISTRATIVE PROVISIONS

SEC. 209. [12 U.S.C. 1789] (a) In carrying out the purposes of
this title, the Board may—
(1) make contracts;
(2) sue and be sued, complain and defend, in any court of
law or equity, State or Federal. All suits of a civil nature at
common law or in equity to which the Board shall be a party
shall be deemed to arise under the laws of the United States,
and the United States district courts shall have original jurisdiction thereof, without regard to the amount in controversy.
The Board may, without bond or security, remove any such action, suit, or proceeding from a State court to the United
States district court for the district or division embracing the
place where the same is pending by following any procedure for
removal now or hereafter in effect, except that any such suit
to which the Board is a party in its capacity as liquidating
agent of a State-chartered credit union and which involves only
the rights or obligations of members, creditors, and such State
credit union under State law shall not be deemed to arise
under the laws of the United States. No attachment or execution shall be issued against the Board or its property before
final judgment in any suit, action, or proceeding in any State,
county, municipal, or United States court. The Board shall designate an agent upon whom service of process may be made in
any State, territory, or jurisdiction in which any insured credit
union is located;
(3) pursue to final disposition by way of compromise or
otherwise claims both for and against the United States (other
than tort claims, claims involving administrative expenses, and
claims in excess of $5,000 arising out of contracts for construction, repairs, and the purchase of supplies and materials)
which are not in litigation and have not been referred to the
Department of Justice;
(4) to appoint such officers and employees as are not otherwise provided for in this Act, to define their duties, fix their
compensation, require bonds of them and fix the penalty thereof, and to dismiss at pleasure such officers or employees. Nothing in this or any other Act shall be construed to prevent the
appointment and compensation as an officer or employee of the
Administration of any officer or employee of the United States
in any board, commission, independent establishment, or executive department thereof;
(5) employ experts and consultants or organizations thereof, as authorized by section 15 of the Administrative Expenses
Act of 1946 (5 U.S.C. 55a);
(6) prescribe the manner in which its general business
may be conducted and the privileges granted to them by law
may be exercised and enjoyed;
(7) exercise all powers specifically granted by the provisions of this title and such incidental powers as shall be necessary to carry out the powers so granted;




351

FEDERAL CREDIT UNION ACT

Sec. 212

(8) make examinations of and require information and reports from insured credit unions, as provided in this title. x
(9) act as liquidating agent;
(10) delegate to any officer or employee of the Administration such of its functions as it deems appropriate; and
(11) prescribe such rules and regulations as it may deem
necessary or appropriate to carry out the provisions of this
title.
(b) With respect to the financial operations arising by reason
of this title, the Board shall—
(1) prepare annually and submit a business-type budget as
provided for wholly owned Government corporations by the
Government Corporation Control Act; and
(2) maintain an integral set of accounts, which shall be audited annually by the General Accounting Office in accordance
with principles and procedures applicable to commercial corporate transactions, as provided by section 105 of the Government Corporation Control Act.
[DEPOSITARY OF PUBLIC MONEY] 2

SEC. 210. [12 U.S.C. 1789a] Any credit union the accounts of
which are insured under this title shall be a depositary of public
money and may be employed as fiscal agent of the United States.
The Secretary of the Treasury is authorized to deposit public
money in any such insured credit union, and shall prescribe such
regulations as may be necessary to enable such credit unions to become depositaries of public money and fiscal agents of the United
States. Each credit union shall perform all such reasonable duties
as depositaries of public money and fiscal agent of the United
States as may be required of it including services in connection
with the collection of taxes and other obligations owed the United
States.
NONDISCRIMINATORY PROVISION

SEC. 211. [12 U.S.C. 1790) It is not the purpose of this title
to discriminate in any manner against State-chartered credit
unions and in favor of Federal credit unions, but it is the purpose
of this title to provide all credit unions with the same opportunity
to obtain and enjoy the benefits of this title.
SEC. 212. [12 U.S.C. 1790a] BOARD DISAPPROVAL OF DIRECTORS, COMMITTEE MEMBERS, AND SENIOR EXECUTIVE OFFICERS OF
INSURED CREDIT UNIONS.
(a) PRIOR NOTICE REQUIRED.—An insured credit union shall

notify the Board of the proposed addition of any individual to the
board of directors or committee or the employment of any individual as a senior executive officer of such credit union at least 30
days before such addition or employment becomes effective, if the
insured credit union—
(1) has been chartered less than 2 years; or
1
2

So in original. The period probably should be a semicolon.
Section heading does not appear in the original.




Sec. 213

FEDERAL CREDIT UNION ACT

352

(2) is in troubled condition, as determined on the basis of
such credit union's most recent report of condition or report of
examination.
(b) DISAPPROVAL BY THE BOARD.—An insured credit union may
not add any individual to the board of directors or employ any individual as a senior executive officer if the Board issues a notice of
disapproval of such addition or employment before the end of the
30-day period beginning on the date the agency receives notice of
the proposed action pursuant to subsection (a).
(c) EXCEPTION IN EXTRAORDINARY CIRCUMSTANCES.—

(1) IN GENERAL.—The Board may prescribe by regulation
conditions under which the prior notice requirement of subsection (a) may be waived in the event of extraordinary circumstances.
(2) No EFFECT ON DISAPPROVAL AUTHORITY OF BOARD.—

Such waivers shall not affect the authority of the Board to
issue notices of disapproval of such additions or employment of
such individuals within 30 days after each such waiver.
(d) ADDITIONAL INFORMATION.—Any notice submitted to the
Board by any insured credit union pursuant to subsection (a) shall
include—
(1) the information described in section 7(j)(6)(A) of the
Federal Deposit Insurance Act about the individual; and
(2) sucn other information as the Board may prescribe by
regulation.
(e) STANDARD FOR DISAPPROVAL.—The Board shall issue a notice of disapproval with respect to a notice submitted pursuant to
subsection (a) if the competence, experience, character, or integrity
of the individual with respect to whom such notice is submitted indicates that it would not be in the best interests of the depositors
of the insured credit union or in the best interests of the public to
permit the individual to be employed by, or associated with, such
insured credit union.
(f) DEFINITION REGULATIONS.—The Board shall prescribe by
regulation a definition for the terms "troubled condition" and "senior executive officer" for purposes of subsection (a).
SEC. 213. [12 U.S.C. 1790b] CREDIT UNION EMPLOYEE PROTECTION
REMEDY.
(a) IN GENERAL.—
(1) EMPLOYEES OF CREDIT UNIONS.—NO insured credit

union may discharge or otherwise discriminate against any
employee with respect to compensation, terms, conditions, or
privileges of employment because the employee (or any person
acting pursuant to the request of the employee) provided information to the Board or the Attorney General regarding any
possible violation of any law or regulation by the credit union
or any director, officer, or employee of the credit union.
(2) EMPLOYEES OF THE ADMINISTRATION.—The Administration may not discharge or otherwise discriminate against any
employee (including any employee of the National Credit
Union Central Liquidity Facility) with respect to compensation,
terms, conditions, or privileges of employment because the employee (or any person acting pursuant to the request of the employee) provided information to the Administration or the At-




353

FEDERAL CREDIT UNION ACT

Sec. 302

torney General regarding any possible violation of any law or
regulation by—
(A) any credit union or the Administration;
(B) any director, officer, committee member, or employee of any credit union; or
(C) any officer or employee of the Administration.
(b) ENFORCEMENT.—Any employee or former employee who believes he has been discharged or discriminated against in violation
of subsection (a) may file a civil action in the appropriate United
States district court before the close of the 2-year period beginning
on the date of such discharge or discrimination. The complainant
shall also file a copy of the complaint initiating such action with
the Board.
(c) REMEDIES.—If the district court determines that a violation
of subsection (a) has occurred, it may order the credit union or the
Administration which committed the violation—
(1) to reinstate the employee to his former position,
(2) to pay compensatory damages, or
(3) take other appropriate actions to remedy any past discrimination.
(d) LIMITATIONS.—The protections of this section shall not
apply to any employee who—
(1) deliberately causes or participates in the alleged violation of law or regulation, or
(2) knowingly or recklessly provides substantially false information to such an agency or the Attorney General.
SEC. 214. [12 U.S.C. 1790c] REWARD FOR INFORMATION LEADING TO
RECOVERIES OR CIVIL PENALTIES.

The Board may pay rewards in connection with an offense affecting an insured credit union, under the same circumstances and
subject to the same limitations that a Federal banking agency may
pay rewards under section 33 of the Federal Deposit Insurance Act
in connection with an offense affecting a depository institution insured by the Federal Deposit Insurance Corporation.
TITLE III—CENTRAL LIQUIDITY FACILITY
SEC. 301. [12 U.S.C. 1795] The Congress finds that the establishment of a National Credit Union Central Liquidity Facility is
needed to improve general financial stability by meeting the liquidity needs of credit unions and thereby encourage savings, support
consumer and mortgage lending, and provide basic financial resources to all segments of the economy.
DEFINITIONS

SEC. 302. [12 U.S.C. 1795a] As used in this title, the term—
(1) "liquidity needs" means the needs of credit unions primarily serving natural persons for—
(A) short-term adjustment credit available to assist in
meeting temporary requirements for funds or to cushion
more persistent outflows of funds pending an orderly adjustment of credit union assets and liabilities;
(B) seasonal credit available for longer periods to assist in meeting seasonal needs for funds arising from a




Sec. 303

FEDERAL CREDIT UNION ACT

354

combination of expected patterns of movement in share
and deposit accounts and loans; and
(C) protracted adjustment credit available in the event
of unusual or emergency circumstances of a longer term
nature resulting from national, regional or local difficulties;
(2) "Central Liquidity Facility" or "Facility'' means the National Credit Union Central Liquidity Facility;
(3) "paid-in and unimpaired capital and surplus" means
the balance of the paid-in share accounts and deposits as of a
given date, less any loss that may have been incurred for
which there is no reserve or which has not been charged
against undivided earnings, plus the credit balance (or less the
debit balance) of the undivided earnings account as of a given
date, after all losses have been provided for and net earnings
or net losses have been added thereto or deducted therefrom.
Reserves shall not be considered as part of surplus; and
(4) "member" means a Regular or an Agent member of the
Facility.
ESTABLISHMENT OF THE NATIONAL CREDIT UNION ADMINISTRATION
CENTRAL LIQUIDITY FACILITY

SEC. 303. [12 U.S.C. 1795b] There is hereby created the National Credit Union Administration Central Liquidity Facility. The
Central Liquidity Facility, an intrumentality of the United States,
shall exist within the National Credit Union Administration and be
managed by the Board. The United States district court shall have
original jurisdiction over any case to which the Board on behalf of
the Facility is a party, without regard to the amount in controversy.
MEMBERSHIP

SEC. 304. [12 U.S.C. 1795c] (a) A credit union primarily serving natural persons may be a Regular member of the Facility by
subscribing to the capital stock of the Facility in an amount not
less than one-half of 1 per centum of the credit union's paid-in and
unimpaired capital and surplus.
(b) A credit union or group of credit unions, primarily serving
other credit unions, may be an Agent member of the Facility by—
(1) obtaining the approvafof the Board;
(2) subscribing to the capital stock of the Facility in an
amount not less than one-half of 1 per centum of the paid-in
and unimpaired capital and surplus of all those credit unions
which primarily serve natural persons, which are members of
such credit union or of any credit union comprising such credit
union group, and which are not regular members;
(3) agreeing to comply with rules and regulations the
Board shall prescribe with respect to, but not limited to, management quality, asset and liability safety and soundness, internal operating and control practices and procedures, and par-




355

FEDERAL CREDIT UNION ACT

Sec. 305

ticipation of natural persons in the affairs or 1 such credit
union or credit union group; and
(4) agreeing to submit to the supervision of the Board
which shall include, but not be limited to, reporting requirements and periodic unrestricted examinations.
(c) Stock subscriptions provided for in subsections (a) and (b)(2)
of this section shall be—
(1) based on an arithmetic average of paid-in capital and
surplus over the six months preceding application and membership; and
(2) adjusted at the close of each calendar year in accordance with an arithmetic average of paid-in capital and surplus
over a period determined by the Board.
(d) An Agent member of the Facility shall perform for its member credit unions those functions required by the Board to carry out
this title.
(e)(1) A member of the Facility whose capital stock subscription
constitutes less than 5 per centum of such stock outstanding, may
withdraw from membership in the Facility six months after notifying the Board of its intention to do so.
(2) A member of the Facility whose capital stock subscription
constitutes 5 per centum or more of such stock outstanding, may
withdraw from membership in the Facility twenty-four months
after notifying the Board of its intention to do so.
(3) The Board may terminate membership in the Facility if,
after opportunity for a hearing, the Board determines a member
has failed to comply with any provision of this title or regulation
issued pursuant thereto.
CAPITAL STOCK

SEC. 305. [12 U.S.C. 1795d] (a) As soon as practicable, the
Board shall open books for subscriptions to the capital stock of the
Facility. The mininum subscription shall be $50.
(b) The capital stock of the Facility—
(1) shall be divided into shares having a par value of $50
each;
(2) shall be paid for with cash or with securities of the
United States or any Agency thereof in accordance with requirements the Board may impose;
(3) shall share in dividend distributions at rates determined by the Board. However, rates on the required capital
stock shall be without preference; and
(4) shall not be transferred or hypothecated except as provided for herein.
(c) When circumstances require that all or a portion of a member's stock be redeemed by the Facility, the Board shall pay an
amount equal to what the member originally paid for the stock less
any amount owed by the member to the Facility.
(d) At least one-half of the payment for the subscription
amount required for membership under section 304 of this title
shall be transferred to the Facility. The remainder may be held by
1

So in original. Probably should be "of.




Sec. 306

FEDERAL CREDIT UNION ACT

356

the member on call of the Board and shall be invested in assets
designated by the Board.
(e) A credit union or credit union group that becomes a member of the Facility later than six months after the date the Board
opens books for capital stock subscriptions, may not borrow or receive advances from the Facility without approval by the Board for
a period of six months after becoming a member.
EXTENSIONS OF CREDIT

SEC. 306. [12 U.S.C. 1795e] (a)(1) A member may apply for an
extension of credit from the Facility to meet its liquidity needs. The
Board shall approve or deny any such application within five working days after receiving it. The Board shall not approve an application for credit the intent of which is to expand credit union portfolios.
(2) The Board may advance funds to a member on terms and
conditions prescribed by the Board after giving due consideration
to creditworthiness.
(3) The Board shall not advance funds for the benefit of a credit union whose share or deposit accounts are insured by a State
share or deposit guaranty credit union, insurance corporation, or
guaranty association, without consultation with the appropriate
State snare or deposit guaranty credit union, insurance corporation, or guaranty association.
(b) The Secretary of the Treasury is authorized to lend to the
Facility up to $500,000,000, in the event the Board certifies to the
Secretary that the Facihty does not have sufficient funds to meet
liquidity needs of credit unions. Any such loan shall bear an interest rate not greater than one-eighth of 1 per centum above the current average market yield on outstanding obligations of the United
States with remaining time to maturity comparable to the maturity
of such loan. The authority of the Secretary to lend under this subsection shall be limited to such extent or in such amounts as are
provided in advance in appropriation Acts.
POWERS OF THE ADMINISTRATOR

SEC. 307. [12 U.S.C. 1795fJ (a) The Board on behalf of the Facility shall have the ability to—
(1) prescribe the manner in which the general business of
the Facility shall be conducted;
(2) prescribe rules and regulations to carry out this title;
(3) determine the expenditures incurred by the Administration to carry out this title, and the expenditures incurred by
the Facility to carry out titles I and II of this Act, and annually
assess the Facility and the Administration accordingly;
(4) borrow from—
(A) any source, provided that the total face value of
these obligations shall not exceed twelve times the subscribed capital stock and surplus of the Facility; and
(B) the National Credit Union Share Insurance Fund
up to $500,000 to defray initial organizational and operating expenses of the Facility at such rates and terms consistent with prevailing market conditions;




357

FEDERAL CREDIT UNION ACT

Sec. 307

(5) guarantee performance of the terms of any financial obligation of a member but only when such obligation bears a
clear and conspicuous notice on its face that only the resources
of the Facility underlie such guarantee;
(6) purchase any asset from a member with the member's
endorsement;
(7) invest in obligations of the United States or any agency
thereof;
(8) make deposits in federally insured financial institutions
and make investments in shares or deposits of credit unions;
(9) sue and be sued, complain, and defend, in any State or
Federal court;
(10 adopt a seal;
(11) pursue to final disposition by way of compromise or
otherwise claims both for and against the United States (other
than tort claims, claims involving administrative expenses, and
claims in excess of $5,000 arising out of contracts for construction, repairs, and the purchase of supplies and materials)
which are not in litigation and have not been referred to the
Department of Justice;
(12) appoint officers and employees to assist in carrying
out this title, who shall be appointed subject to the provisions
of title 5, United States Code;
(13) conduct business, carry on operations, have offices,
and exercise the powers granted by this title in any State or
territory;
(14) lease, purchase, or otherwise acquire and own, hold,
improve, use, or otherwise deal in and with property, real, personal, or mixed, or any interest therein, wherever situated;
(15) enter into contracts with any public or private organization, partnership, corporation, or individual;
(16) advance funds on a fully secured basis to a State credit union share or deposit insurance corporation, guaranty credit union, or guaranty association. Such advance shall not exceed twelve months in maturity, shall be relent at an interest
rate not exceeding that imposed by the Facility, and shall not
be renewable;
(17) exercise such incidental powers as shall be necessary
or requisite to enable it to carry out effectively the purposes for
which the facility is incorporated; and
(18) advance funds to the National Credit Union Share Insurance Fund under such terms and conditions as may be established by the Board.
(b)(1) The Board may authorize the Central Liquidity Facility
or its Agent members, suoject to such rules and regulations, including definitions of terms used in this subsection, as the Board shall
from time to time prescribe, to be drawees of, and to engage in, or
be agents or intermediaries for, or otherwise participate or assist
in, the collection and settlement of (including presentment, clearing, and payment of, and remitting for), checks, share drafts, or
any other negotiable or nonnegotiable items or instruments of payment drawn on or issued by members of the Central Liquidity Facility, any of its Agent members, or any other credit union eligible
to become a member of the Central Liquidity Facility, and to have




Sec. 308

FEDERAL CREDIT UNION ACT

358

such incidental powers as the Board shall find necessary for the exercise of any such authorization.
(2) The Central Liquidity Facility or its Agent members shall
make charges, to be determined and regulated by the Board consistent with the principles set forth in section llA(c) of the Federal
Reserve Act, or utilize the services of, or act as agent for, or be a
member of, a Federal Reserve bank, clearinghouse, or any other
public or private financial institution or other agency, in the exercise of any powers or functions pursuant to this subsection.
(3) The Board is authorized, with respect to participation in
the collection and settlement of any items by the Central Liquidity
Facililty or by its Agent members, and with respect to the collection and settlement (including payment by the payor institution) of
items payable by members of the Central Liquidity Facility or of
any of its Agent members, to prescribe rules and regulations regarding the rights, powers, responsibilities, duties, and liabilities,
including standards relating thereto, of such entities and other parties to any such items or their collection and settlement. In prescribing such rules and regulations, the Board may adopt or apply,
in whole or in part, general banking usage and practices, and, in
instances or respects in which they would otherwise not be applicable, Federal Reserve regulations and operating letters, the Uniform
Commercial Code, and clearinghouse rules.
DEPOSITORIES, CUSTODIANS, AND FISCAL AGENTS

SEC. 308. [12 U.S.C. 1795g] The Federal Reserve Banks are
authorized to act as depositories, custodians and/or fiscal agents for
the Central Liquidity Facility in the general performance of its
powers conferred by this title. Each Federal Reserve Bank when
designated by the Board as fiscal agent for the Central Liquidity
Facility, shall be entitled to be reimbursed for all expenses incurred as such fiscal agent.
AUDIT OF FINANCIAL TRANSACTIONS

SEC. 309. [12 U.S.C. 1795hJ The Comptroller General of the
United States shall audit the Central Liquidity Facility under such
rules and regulations as the Comptroller may prescribe.
ANNUAL REPORT

SEC. 310. [12 U.S.C. 1795i] The annual report required by section 102(e)* shall include a full report of the activities of the Facility.
AGENT OF THE FEDERAL RESERVE SYSTEM

SEC. 311. [12 U.S.C. 1795JJ The facility is authorized to act
upon the request of the Board of Governors of the Federal Reserve
System as an agent of the Federal Reserve System in matters pertaining to credit unions under such terms and conditions as may
be established by the Board of Governors of the Federal Reserve
System.
1

So in original. Probably should be "section 102(d)".




359

FEDERAL CREDIT UNION ACT

Sec. 312

STATE AND LOCAL TAX EXEMPTION

SEC. 312. (a) [12 U.S.C. 1795k] The Cental Liquidity Facility,
and its franchise, activities, capital reserves, surplus, and income,
shall be exempt from all State and local taxation now or hereafter
imposed, other than taxes on real property held by the Facility (to
the same extent, according to its value, as other similar property
held by other persons is taxed).
(b)(1) Except as provided in paragraph (2), the notes, bonds,
debentures, and other obligations issued on behalf of the Central
Liquidity Facility and the income therefrom shall be exempt from
all State and local taxation now or hereafter imposed.
(2) Any obligation described in paragraph (1) shall not be exempt from State or local gift, estate, inheritance, legacy, succession,
or other wealth transfer taxes.
(c) For purposes of this section—
(1) the term "State" includes the District of Columbia; and
(2) taxes imposed by counties or muncipalities, or any territory, dependency, or possession of the United States shall be
treated as local taxes.







FEDERAL DEPOSIT INSURANCE ACT

361







FEDERAL DEPOSIT INSURANCE ACT
(64 Stat. 873; 12 U.S.C. 1811 et seq.)
SECTION l . i [12 U.S.C. 1811] FEDERAL DEPOSIT INSURANCE CORPORATION.
(a) ESTABLISHMENT OF CORPORATION.—There is hereby estab-

lished a Federal Deposit Insurance Corporation (hereinafter referred to as the "Corporation") which shall insure, as hereinafter
provided, the deposits of all banks and savings associations which
are entitled to the benefits of insurance under this Act, and which
shall have the powers hereinafter granted.
(b) ASSET DISPOSITION DIVISION.—

(1) ESTABLISHMENT.—The Corporation shall have a separate division of asset disposition.
(2) MANAGEMENT.—The division of asset disposition shall
have an administrator who shall be appointed by the Board of
Directors.
(3) RESPONSIBILITIES OF DIVISION.—The division of asset
disposition shall carry out all of the responsibilities of the Corporation under this Act relating to the liquidation of insured
depository institutions and the disposition of assets of such institutions.
SEC. 2. MANAGEMENT. [12 U.S.C. 1812]
(a) BOARD OF DIRECTORS.—

(1) IN GENERAL.—The management of the Corporation
shall be vested in a Board of Directors consisting of 5 members—
(A) 1 of whom shall be the Comptroller of the Currency;
(B) 1 of whom shall be the Director of the Office of
Thrift Supervision; and
(C) 3 of whom shall be appointed by the President, by
and with the advice and consent of the Senate, from
among individuals who are citizens of the United States.
(2) POLITICAL AFFILIATION.—After February 28, 1993, not
more than 3 of the members of the Board of Directors may be
members of the same political party.
(b) CHAIRPERSON AND VICE CHAIRPERSON.—

(1) CHAIRPERSON.—1 of the appointed members shall be
designated by the President, by and with the advice and con1
Section 1, as shown, becomes effective on July 1, 1995. Until such date, section 1 is in effect
as follows:
SEC. 1. There is hereby created a Federal Deposit Insurance Corporation (hereinafter referred
to as the "Corporation") which shall insure, as hereinafter provided, the deposits of all banks
and savings associations which are entitled to the benefits of insurance under this ^ct, and
which shall have the powers hereinafter granted.
363




FEDERAL DEPOSIT INSURANCE ACT

Sec. 2

364

sent of the Senate, to serve as Chairperson of the Board of Directors for a term of 5 years.
(2) VICE CHAIRPERSON.—1 of the appointed members shall
be designated by the President, by ana with the advice and
consent of the Senate, to serve as Vice Chairperson of the
Board of Directors.
(3) ACTING CHAIRPERSON.—In the event of a vacancy in the
position of Chairperson of the Board of Directors or during the
absence or disability of the Chairperson, the Vice Chairperson
shall act as Chairperson.
(c) TERMS.—
(1) APPOINTED MEMBERS.—Each

appointed member shall
be appointed for a term of 6 years.
(2) INTERIM APPOINTMENTS.—Any member appointed to fill
a vacancy occurring before the expiration of the term for which
such member's predecessor was appointed shall be appointed
only for the remainder of such term.
(3) CONTINUATION OF SERVICE.—The Chairperson, Vice
Chairperson, and each appointed member may continue to
serve after the expiration of the term of office to which such
member was appointed until a successor has been appointed
and qualified.
(d) VACANCY.—

(1) IN GENERAL.—Any vacancy on the Board of Directors
shall be filled in the manner in which the original appointment
was made.
(2) ACTING OFFICIALS MAY SERVE.—In the event of a vacancy in the office of the Comptroller of the Currency or the
office of Director of the Office of Thrift Supervision and pending the appointment of a successor, or during the absence or
disability of the Comptroller or such Director, the acting Comptroller of the Currency or the acting Director of the Office of
Thrift Supervision, as the case may be, shall be a member of
the Board of Directors in the place of the Comptroller or Director.
(e) INELIGIBILITY FOR OTHER OFFICES.—
(1) POSTSERVICE RESTRICTION.—

(A) IN GENERAL.—No member of the Board of Directors may hold any office, position, or employment in any
insured depository institution or any depository institution
holding company during—
(i) tne time such member is in office; and
(ii) the 2-year period beginning on the date such
member ceases to serve on the Board of Directors.
(B) EXCEPTION FOR MEMBERS WHO SERVE FULL TERM.—

The limitation contained in subparagraph (A)(ii) shall not
apply to any member who has ceased to serve on the
Board of Directors after serving the full term for which
such member was appointed.
(2) RESTRICTION DURING SERVICE.—NO member of the
Board of Directors may—
(A) be an officer or director of any insured depository
institution, depository institution holding company, Federal Reserve bank, or Federal home loan bank; or




365

FEDERAL DEPOSIT INSURANCE ACT

Sec. 3

(B) hold stock in any insured depository institution or
depository institution holding company.
(3) CERTIFICATION.—Upon taking office, each member of
the Board of Directors shall certify under oath that such member has complied with this subsection and such certification
shall be filed with the secretary of the Board of Directors.
(f) STATUS OP EMPLOYEES.—

(1) IN GENERAL.—A director, member, officer, or employee
of the Corporation has no liabiUty under the Securities Act of
1933 with respect to any claim arising out of or resulting from
any act or omission by such person within the scope of such
person's employment in connection with any transaction involving the disposition of assets (or any interests in any assets
or any obligations backed by any assets) by the Corporation.
This subsection shall not be construed to limit personal liability for criminal acts or omissions, willful or malicious misconduct, acts or omissions for private gain, or any other acts
or omissions outside the scope of such person's employment.
(2) DEFINITION.—For purposes of this subsection, the term
"employee of the Corporation includes any employee of the Office of the Comptroller of the Currency or of the Office of Thrift
Supervision who serves as a deputy or assistant to a member
of the Board of Directors of the Corporation in connection with
activities of the Corporation.
(3) EFFECT ON OTHER LAW.—This subsection does not affect—
(A) any other immunities and protections that may be
available to such person under applicable law with respect
to such transactions, or
(B) any other right or remedy against the Corporation,
against the United States under applicable law, or against
any person other than a person described in paragraph (1)
participating in such transactions.
This subsection shall not be construed to limit or alter in any
way the immunities that are available under applicable law for
Federal officials and employees not described in this subsection.
SEC. 3. [12 U.S.C. 1813] As used in this Act—
(a) DEFINITIONS OF BANK AND RELATED TERMS.—

(1) BANK.—The term "bank"—
(A) means any national bank, State bank, and District
bank, and any Federal branch and insured branch;
(B) includes any former savings association that—
(i) has converted from a savings association charter; and
(ii) is a Savings Association Insurance Fund member.
(2) STATE BANK.—The term "State bank" means any bank,
banking association, trust company, savings bank, industrial
bank (or similar depository institution which the Board of Directors finds to be operating substantially in the same manner
as an industrial bank), or other banking institution which—
(A) is engaged in the business of receiving deposits,
other than trust funds (as defined in this section); and




FEDERAL DEPOSIT INSURANCE ACT

Sec. 3

366

(B) is incorporated under the laws of any State or
which is operating under the Code of Law for the District
of Columbia (except a national bank),
including any cooperative bank or other unincorporated bank
the deposits of which were insured by the Corporation on the
day before the date of the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
(3) STATE.—The term "State" means any State of the United States, the District of Columbia, any territory of the United
States, Puerto Rico, Guam, American Samoa, the Trust Territory of the Pacific Islands, the Virgin Islands, and the Northern Mariana Islands.
(4) DISTRICT BANK.—The term "District bank" means any
State bank operating under the Code of Law of the District of
Columbia.
(b) DEFINITION OF SAVINGS ASSOCIATIONS AND RELATED
TERMS.—
(1) SAVINGS ASSOCIATION.—The term "savings association"

means—
(A) any Federal savings association;
(B) any State savings association; and
(C) any corporation (other than a bank) that the Board
of Directors and the Director of the Office of Thrift Supervision jointly determine to be operating in substantially
the same manner as a savings association.
(2) FEDERAL SAVINGS ASSOCIATION.—The term "Federal
savings association" means any Federal savings association or
Federal savings bank which is chartered under section 5 of the
Home Owners' Loan Act.
(3) STATE SAVINGS ASSOCIATION.—The term "State savings
association" means—
(A) any building and loan association, savings and
loan association, or homestead association; or
(B) any cooperative bank (other than a cooperative
bank which is a State bank as defined in subsection (a)(2)),
which is organized and operating according to the laws of the
State (as defined in subsection (a)(3)) in which it is chartered
or organized.
(c) DEFINITIONS RELATING TO DEPOSITORY INSTITUTIONS.—
(1) DEPOSITORY INSTITUTION.—The term "depository insti-

tution" means any bank or savings association.
(2) INSURED DEPOSITORY INSTITUTION.—The term "insured
depository institution" means any bank or savings association
the deposits of which are insured by the Corporation pursuant
to this Act.
(3) INSTITUTIONS INCLUDED FOR CERTAIN PURPOSES.—The

term "insured depository institution" includes any uninsured
branch or agency of a foreign bank or a commercial lending
company owned or controlled by a foreign bank for purposes of
section 8 of this Act.
(4) FEDERAL DEPOSITORY INSTITUTION.—The term "Federal
depository institution" means any national bank, any Federal
savings association, and any Federal branch.




FEDERAL DEPOSIT INSURANCE ACT

367

Sec. 3

(5) STATE DEPOSITORY INSTITUTION.—The term "State depository institution" means any State bank, any State savings
association, and any insured branch which is not a Federal
branch.
(d) DEFINITIONS RELATING TO MEMBER BANKS.—
(1) NATIONAL MEMBER BANK.—The term "national

member
bank" means any national bank which is a member of the Federal Reserve System.
(2) STATE MEMBER BANK.—The term "State member bank"
means any State bank which is a member of the Federal Reserve System.
(e) DEFINITIONS RELATING TO NONMEMBER BANKS.—
(1) NATIONAL NONMEMBER BANK.—The term

"national
nonmember bank" means any national bank which—
(A) is located in any territory of the United States,
Puerto Rico, Guam, American Samoa, the Virgin Islands,
or the Northern Mariana Islands; and
(B) is not a member of the Federal Reserve System.
(2) STATE NONMEMBER BANK.—The term "State
nonmember bank" means any State bank which is not a member of the Federal Reserve System.
(f) The term "mutual savings bank" means a bank without capital stock transacting a savings bank business, the net earnings of
which inure wholly to the benefit of its depositors after payment
of obligations for any advances by its organizers.
(g) SAVINGS BANK.—The term "savings bank" means a bank
(including a mutual savings bank) which transacts its ordinary
banking business strictly as a savings bank under State laws imposing special requirements on such banks governing the manner
of investing their funds and of conducting their business.
(h) The term "insured bank" means any bank (including a foreign bank having an insured branch) the deposits of which are insured in accordance with the provisions of this Act; and the term
"noninsured bank" means any bank the deposits of which are not
so insured.
(i) NEW BANK AND BRIDGE BANK DEFINED.—

(1) NEW BANK.—The term "new bank" means a new national bank, other than a bridge bank, organized by the Corporation in accordance with section (ll)(m).
(2) BRIDGE BANK.—The term "bridge bank" means a new
national bank organized by the Corporation in accordance with
section ll(n).
(j) The term "receiver" includes a receiver, liquidating agent,
conservator, commission, person, or other agency charged by law
with the duty of winding up the affairs of a Dank or savings association or of a branch of a foreign bank.
(k) The term "Board of Directors" means the Board of Directors
of the Corporation.
(1) The term "deposit" means—
(1) the unpaid balance of money or its equivalent received
or held by a bank or savings association in the usual course
of business and for which it has given or is obligated to give
credit, either conditionally or unconditionally, to a commercial,
checking, savings, time, or thrift account, or which is evidenced




Sec. 3

FEDERAL DEPOSIT INSURANCE ACT

368

by its certificate of deposit, thrift certificate, investment certificate, certificate of indebtedness, or other similar name, or a
check or draft drawn against a deposit account and certified by
the bank or savings association, or a letter of credit or a traveler's check on which the bank or savings association is primarily liable: Provided, That, without limiting the generality of
the term "money or its equivalent", any such account or instrument must be regarded as evidencing the receipt of the equivalent of money when credited or issued in exchange for checks
or drafts or for a promissory note upon which the person obtaining any such credit or instrument is primarily or secondarily liable, or for a charge against a deposit account, or in settlement of checks, drafts, or other instruments forwarded to such
bank or savings association for collection,
(2) trust funds as defined in this Act received or held by
such bank or savings association, whether held in the trust department or held or deposited in any other department of such
bank or savings association,
(3) money received or held by a bank or savings association, or the credit given for money or its equivalent received or
held by a bank or savings association, in the usual course of
business for a special or specific purpose, regardless of the
legal relationship thereby established, including without being
limited to, escrow funds, funds held as security for an obligation due to the bank or savings association or others (including
funds held as dealers reserves) or for securities loaned by the
bank or savings association, funds deposited by a debtor to
meet maturing obligations, funds deposited as advance payment on subscriptions to United States Government securities,
funds held for distribution or purchase of securities, funds held
to meet its acceptances or letters of credit, and withheld taxes:
Provided, That there shall not be included funds which are received by the bank or savings association for immediate application to the reduction of an indebtedness to the receiving
bank or savings association, or under condition that the receipt
thereof immediately reduces or extinguishes such an indebtedness,
(4) outstanding draft (including advice or authorization to
charge a bank's or a savings association's balance in another
bank or savings association), cashier's check, money order, or
other officer's check issued in the usual course of business for
any purpose, including without being limited to those issued in
payment for services, dividends, or purchases, and
(5) such other obligations of a bank or savings association
as the Board of Directors, after consultation with the Comptroller of the Currency, Director of the Office of Thrift Supervision, and the Board of Governors of the Federal Reserve System, shall find and prescribe by regulation to be deposit liabilities by general usage, except that the following shall not be
a deposit for any of the purposes of this Act or be included as
part of the total deposits or of an insured deposit:
(A) any obligation of a depository institution which is
carried on the books and records of an office of such bank




369

FEDERAL DEPOSIT INSURANCE ACT

Sec. 3

or savings association located outside of any State, unless—
(i) such obligation would be a deposit if it were
carried on the books and records of the depository institution, and would be payable at, an office located in
any State; and
(ii) the contract evidencing the obligation provides
by express terms, and not by implication, for payment
at an office of the depository institution located in any
State; and
(B) any international banking facility deposit, including an international banking facility time deposit, as such
term is from time to time defined by the board of Governors of the Federal Reserve System in regulation D or
any successor regulation issued by the Board of Governors
of the Federal Reserve System.
(m) INSURED DEPOSIT.—

(1) IN GENERAL.—Subject to paragraph (2), the term "insured deposit" means the net amount due to any depositor for
deposits in an insured depository institution as determined
under sections 7(i) and 11(a).
(2) x In the case of any deposit in a branch of a foreign bank,
the term "insured deposit" means an insured deposit as defined in
paragraph (1) of this subsection which—
(A) is payable in the United States to—
(i) an individual who is a citizen or resident of the
United States,
(ii) a partnership, corporation, trust, or other legally
cognizable entity created under die laws of the United
States or any State and having its principal place of business within the United States or any State, or
(iii) an individual, partnership, corporation, trust, or
other legally cognizable entity which is determined by the
Board of Directors in accordance with its regulations to
have such business or financial relationships in the United
States as to make the insurance of such deposit consistent
with the purposes of this Act; and
(B) meets any other criteria prescribed by the Board of Directors by regulation as necessary or appropriate in its judgment to carry out the purposes of this Act or to facilitate the
administration thereof.
(3) UNINSURED DEPOSITS.—The term "uninsured deposit"
means the amount of any deposit of any depositor at any insured depository institution in excess of the amount of the insured deposits of such depositor (if any) at such depository institution.
(4) PREFERRED DEPOSITS.—The term "preferred deposits"
means deposits of any public unit (as defined in paragraph (1))
at any insured depository institution which are secured or
collateralized as required under State law.
(n) The term "transferred deposit" means a deposit in a new
bank or other insured depository institution made available to a de1

Indentation so in law.




Sec. 3

FEDERAL DEPOSIT INSURANCE ACT

370

positor by the Corporation as payment of the insured deposit of
such depositor in a closed bank, and assumed by such new bank
or other insured depository institution.
(o) The term domestic branch" includes any branch bank,
branch office, branch agency, additional office, or any branch place
of business located in any State of the United States or in any Territory of the United States, Puerto Rico, Guam, American Samoa,
the Trust Territory of the Pacific Islands, or the Virgin Islands at
which deposits are received or checks paid or money lent; and the
term "foreign branch" means any office or place of business located
outside the United States, its territories, Puerto Rico, Guam, American Samoa, or the Virgin Islands, at which banking operations are
conducted.
(p) The term "trust funds" means funds held by an insured deository institution in a fiduciary capacity and includes, without
eing limited to, funds held as trustee, executor, administrator,
guardian, or agent.
(q) APPROPRIATE FEDERAL BANKING AGENCY.—The term "appropriate Federal banking agency" means—
(1) the Comptroller of the Currency, in the case of any national banking association, any District bank, or any Federal
branch or agency of a foreign bank;
(2) the Board of Governors of the Federal Reserve System,
in the case of—
(A) any State member insured bank (except a District
bank),
(B) any branch or agency of a foreign bank with respect to any provision of the Federal Reserve Act which is
made applicable under the International Banking Act of
1978,
(C) any foreign bank which does not operate an insured branch,
(D) any agency or commercial lending company other
than a Federal agency,
(E) supervisory or regulatory proceedings arising from
the authority given to the Board of Governors under section 7(c)(1) of the International Banking Act of 1978, including such proceedings under the Financial Institutions
Supervisory Act of 1966, and
(F) any bank holding company and any subsidiary of
a bank holding company (other than a bank);
(3) the Federal Deposit Insurance Corporation in the case
of a State nonmember insured bank (except a District bank),
or a foreign bank having an insured branch; and
(4) the Director of the Office of Thrift Supervision in the
case of any savings association or any savings and loan holding
company.
Under tne rule set forth in this subsection, more than one agency
may be an appropriate Federal banking agency with respect to any
given institution.

E

(r) 1 STATE BANK SUPERVISOR.—
1
Section 1603(b)(2) of P.L. 102-550 (106 Stat. 4079) amended section 112 of the Federal Deposit Insurance Corporation Improvement Act of 1992 by redesignating existing (b) as (c) and
by inserting a new subsection (b). The new subsection (b) amends section 3(r) of the Federal




371

Sec. 3

FEDERAL DEPOSIT INSURANCE ACT

(1) IN GENERAL.—The term "State bank supervisor'' means
any officer, agency, or other entity of any State which has primary regulatory authority over State banks or State savings
associations in such State.
(2) INTERSTATE APPLICATION.—The State bank supervisors
of more than 1 State may be the appropriate State bank supervisor for any insured depository institution.
(s)
DEFINITIONS
RELATING
BRANCHES.—
(1) FOREIGN BANK.—The

TO

FOREIGN

BANKS

AND

term "foreign bank" has the
meaning given to such term by section 1(b)(7) of the International Banking Act of 1978.
(2) FEDERAL BRANCH.—The term "Federal branch" has the
meaning given to such term by section 1(b)(6) of the International Banking Act of 1978.
(3) INSURED BRANCH.—The term "insured branch" means
any branch (as defined in section 1(b)(3) of the International
Banking Act of 1978) of a foreign bank any deposits in which
are insured pursuant to this Act.
(t) INCLUDES, INCLUDING.—

(1) IN GENERAL.—The terms "includes" and "including"
shall not be construed more restrictively than the ordinary
usage of such terms so as to exclude any other thing not referred to or described.
(2) RULE OP CONSTRUCTION.—Paragraph (1) shall not be
construed as creating any inference that the term "includes" or
"including" in any other provision of Federal law may be
deemed to exclude any other thing not referred to or described.
(u) INSTITUTION-AFPILIATED PARTY.—The term "institution-affiliated party" means—
(1) any director, officer, employee, or controlling stockholder (other than a bank holding company) of, or agent for,
an insured depository institution;
(2) any other person who has filed or is required to file a
change-in-control notice with the appropriate Federal banking
agency under section 7(j);
(3) any shareholder (other than a bank holding company),
consultant, joint venture partner, and any other person as determined by the appropriate Federal banking agency (by regulation or case-by-case) who participates in the conduct of the
affairs of an insured depository institution; and
(4) any independent contractor (including any attorney, appraiser, or accountant) who knowingly or recklessly participates in—
(A) any violation of any law or regulation;
(B) any breach offiduciaryduty; or
(C) any unsafe or unsound practice,
which caused or is likely to cause more than a minimal financial loss to, or a significant adverse effect on, the insured depository institution.
Deposit Insurance Act to read above as follows. The instructions made by section 1603(b)(2) of
P.L. 102-550 probably should have been to the Federal Deposit Insurance Corporation Improvement Act of 1991.




Sec. 3

FEDERAL DEPOSIT INSURANCE ACT

372

(v) VIOLATION.—The term "violation" includes any action (alone
or with another or others) for or toward causing, bringing about,
participating in, counseling, or aiding or abetting a violation.
(w) DEFINITIONS RELATING TO AFFILIATES OF DEPOSITORY INSTITUTIONS.—
(1) DEPOSITORY INSTITUTION HOLDING COMPANY.—The term

"depository institution holding company" means a bank holding
company or a savings and loan holding company.
(2) BANK HOLDING COMPANY.—The term "bank holding
company" has the meaning given to such term in section 2 of
the Bank Holding Company Act of 1956.
(3) SAVINGS AND LOAN HOLDING COMPANY.—The term "savings and loan holding company" has the meaning given to such
term in section 10 of the Home Owners' Loan Act.
(4) SUBSIDIARY.—The term "subsidiary"—
(A) means any company which is owned or controlled
directly or indirectly by another company; and
(B) includes any service corporation owned in whole or
in part by an insured depository institution or any subsidiary of such a service corporation.
(5) CONTROL.—The term "control" has the meaning given
to such term in section 2 of the Bank Holding Company Act
of 1956.
(6) AFFILIATE.—The term "affiliate" has the meaning given
to such term in section 2(k) of the Bank Holding Company Act
of 1956.
(7) COMPANY.—The term "company" has the same meaning
as in section 2(b) of the Bank Holding Company Act of 1956.
(x) DEFINITIONS RELATING TO DEFAULT.—

(1) DEFAULT.—The term "default" means, with respect to
an insured depository institution, any adjudication or other official determination by any court of competent jurisdiction, the
appropriate Federal banking agency, or other public authority
pursuant to which a conservator, receiver, or other legal custodian is appointed for an insured depository institution or, in
the case of a foreign bank having an insured branch, for such
branch.
(2) IN DANGER OF DEFAULT.—The term "in danger of default" means an insured depository institution with respect to
which (or in the case of a foreign bank having an insured
branch, with respect to such insured branch) the appropriate
Federal banking agency or State chartering authority has advised the Corporation (or, if the appropriate Federal banking
agency is the Corporation, the Corporation has determined)
that^(A) in the opinion of such agency or authority—
(i) the depository institution or insured branch is
not likely to be able to meet the demands of the institution's or branch's depositors or pay the institution's
or branch's obligations in the normal course of business; and
(ii) there is no reasonable prospect that the depository institution or insured branch will be able to meet




373

FEDERAL DEPOSIT INSURANCE ACT

Sec. 5

such demands or pay such obligations without Federal
assistance; or
(B) in the opinion of such agency or authority—
(i) the depository institution or insured branch
has incurred or is likely to incur losses that will deplete all or substantially all of its capital; and
(ii) there is no reasonable prospect that the capital
of the depository institution or insured branch will be
replenished without Federal assistance.
(y) The term "deposit insurance fund" means the Bank Insurance Fund or the Savings Association Insurance Fund, as appropriate.
(z) FEDERAL BANKING AGENCY.—The term "Federal banking
agency" means the Comptroller of the Currency, the Director of the
Office of Thrift Supervision, the Board of Governors of the Federal
Reserve System, or the Federal Deposit Insurance Corporation.
SEC. 4. [12 U.S.C. 1814] (a) CONTINUATION OF INSURANCE.—
(1) BANKS.—Each bank, which is an insured depository institution on the effective date of this amendment,1 shall be and
continue to be, without application or approval, an insured depository institution and shall be subject to the provisions of
this Act.
(2) SAVINGS ASSOCIATIONS.—Each savings association the
accounts of which were insured by the Federal Savings and
Loan Insurance Corporation on the day before the date of the
enactment of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, shall be, without application or ap>roval, an insured depository institution,

?

b) CONTINUATION OF INSURANCE UPON BECOMING A MEMBER

BANK.—In the case of an insured bank which is admitted to membership in the Federal Reserve System or an insured State bank
which is converted into a national member bank, the bank shall
continue as an insured bank.
(c) CONTINUATION OP INSURANCE AFTER CONVERSION.—Subject

to section 5(d)—
(1) any State depository institution which results from the
conversion of any insured Federal depository institution; and
(2) any Federal depository institution which results from
the conversion of any insured State depository institution,
shall continue as an insured depository institution.
(d) CONTINUATION OP INSURANCE AFTER MERGER OR CONSOLI-

DATION.—Any State depository institution or any Federal depository institution which results from the merger or consoUdation of
insured depository institutions, or from the merger or consolidation
of a noninsured depository institution with an insured depository
institution, shall continue as an insured depository institution.
SEC. 5. [12 U.S.C. 1815] DEPOSIT INSURANCE.
(a) APPLICATION TO CORPORATION REQUIRED.—

(1) IN GENERAL.—Except as provided in paragraphs (2) and
(3), any depository institution which is engaged in the business
of receiving deposits other than trust funds (as defined in section 3(p)), upon application to and examination by the Corpora1

Such effective date was August 9, 1989.




Sec. 5

FEDERAL DEPOSIT INSURANCE ACT

374

tion and approval by the Board of Directors, may become an
insured depository institution.
(2) INTERIM DEPOSITORY INSTITUTIONS.—In the case of any
interim Federal depository institution that is chartered by the
appropriate Federal banking agency and will not open for business, the depository institution shall be an insured depository
institution upon the issuance of the institution's charter by the
agency.
(3) APPLICATION AND APPROVAL NOT REQUIRED IN CASES OF
CONTINUED INSURANCE.—Paragraph (1) shall not apply in the

case of any depository institution whose insured status is continued pursuant to section 4.
(4) REVIEW REQUIREMENTS.—In reviewing any application
under this subsection, the Board of Directors shall consider the
factors described in section 6 in determining whether to approve the application for insurance.
(5) NOTICE OF DENIAL OF APPLICATION FOR INSURANCE.—If

the Board of Directors votes to deny any application for insurance by any depository institution, the Board of Directors shall
promptly notify the appropriate Federal banking agency and,
in the case of any State depository institution, the appropriate
State banking supervisor of the denial of such application, giving specific reasons in writing for the Board of Directors' determination with reference to trie factors described in section 6.
(6) NONDELEGATION REQUIREMENT.—The authority of the
Board of Directors to make any determination to deny any application under this subsection may not be delegated by the
Board of Directors.
(b) Subject to the provisions of this Act and to such terms and
conditions as the Board of Directors may impose, any branch of a
foreigTi bank, upon application by the bank to the Corporation, and
examination by the Corporation of the branch, and approval by the
Board of Directors, may become an insured branch. Before approving any such application, the Board of Directors shall give consideration to—
(1) the financial history and condition of the bank,
(2) the adequacy of its capital structure,
(3) its future earnings prospects,
(4) the general character and fitness of its management,
including but not limited to the management of the branch
proposed to be insured,
(5) the risk presented to the Bank Insurance Fund or the
Savings Association Insurance Fund,
(6) the convenience and needs of the community to be
served by the branch,
(7) whether or not its corporate powers, insofar as they
will be exercised through the proposed insured branch, are consistent with the purposes of this Act, and
(8) the probable adequacy and reliability of information
supplied and to be supplied by the bank to the Corporation to
enable it to carry out its functions under this Act.
(c)(1) Before any branch of a foreign bank becomes an insured
branch, the bank shall deliver to the Corporation or as the Corporation may direct a surety bond, a pledge of assets, or both, in




375

FEDERAL DEPOSIT INSURANCE ACT

Sec. 5

such amounts and of such types as the Corporation may require or
approve, for the purpose set forth in paragraph (4) of this subsection.
(2) After any branch of a foreign bank becomes an insured
branch, the bank shall maintain on deposit with the Corporation,
or as the Corporation may direct, surety bonds or assets or both,
in such amounts and of such types as shall be determined from
time to time in accordance with such regulations as the Board of
Directors may prescribe. Such regulations may impose differing requirements on the basis of any factors which in the judgment of the
Board of Directors are reasonably related to the purpose set forth
in paragraph (4).
(3) The Corporation may require of any given bank larger deposits of bonds and assets than required under paragraph (2) of
this subsection if, in the judgment of the Corporation, tne situation
of that bank or any branch thereof is or becomes such that the deposits of bonds and assets otherwise required under this section
would not adequately fulfill the purpose set forth in paragraph (4).
The imposition of any such additional requirements may be without notice or opportunity for hearing, but the Corporation shall afford an opportunity to any such bank to apply for a reduction or
removal of any such additional requirements so imposed.
(4) The purpose of the surety bonds and pledges of assets required under this subsection is to provide protection to the deposit
insurance fund against the risks entailed in insuring the domestic
deposits of a foreign bank whose activities, assets, and personnel
are in large part outside the jurisdiction of the United States. In
the implementation of its authority under this subsection, however,
the Corporation shall endeavor to avoid imposing requirements on
such banks which would unnecessarily place them at a competitive
disadvantage in relation to domestically incorporated banks.
(5) In the case of any failure or threatened failure of a foreign
bank to comply with any requirement imposed under this subsection (c), the Corporation, in addition to all other administrative
and judicial remedies, may apply to any United States district
court, or United States court of any territory, within the jurisdiction of which any branch of the bank is located, for an injunction
to compel such bank and any officer, employee, or agent thereof, or
any other person having custody or control of any of its assets, to
deliver to the Corporation such assets as may be necessary to meet
such requirement, and to take any other action necessary to vest
the Corporation with control of assets so delivered. If the court
shall determine that there has been any such failure or threatened
failure to comply with any such requirement, it shall be the duty
of the court to issue such injunction. The propriety of the requirement may be litigated only as provided in chapter 7 of title 5 of
the United States Code, and may not be made an issue in an action
for an injuction under this paragraph.
(d) INSURANCE FEES.—
(1) UNINSURED INSTITUTIONS.—

(A) IN GENERAL.—Any institution that becomes insured by the Corporation, and any noninsured branch that
becomes insured by the Corporation, shall pay the Corporation any fee which the Corporation may by regulation




FEDERAL DEPOSIT INSURANCE ACT

Sec. 5

376

prescribe, after giving due consideration to the need to establish and maintain reserve ratios in the Bank Insurance
Fund and the Savings Association Insurance Fund as required by section 7.
(B)

FEE CREDITED TO APPROPRIATE FUND.—The

fee

paid by the depository institution shall be credited to the
Bank Insurance Fund if the depository institution becomes
a Bank Insurance Fund member, and to the Savings Association Insurance Fund if the depository institution becomes a Savings Association Insurance Fund member.
(C)

EXCEPTION FOR CERTAIN DEPOSITORY INSTITU-

TIONS.—Any depository institution that becomes an insured depository institution by operation of section 4(a)
shall not pay any fee.
(2) CONVERSIONS.—
(A) IN GENERAL.—
(i) PRIOR APPROVAL REQUIRED.—No

insured depository institution may participate in a conversion transaction without the prior approval of the Corporation.
(ii) 5-YEAR MORATORIUM ON CONVERSIONS.—Except

as provided in subparagraph (C), the Corporation may
not approve any conversion transaction before the
later of the end of the 5-year period beginning on the
date of the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 or the
date on which the Savings Association Insurance Fund
first meets or exceeds the designated reserve ratio for
such fund.
(B) CONVERSION DEFINED.—For purposes of this paragraph, the term "conversion transaction" means—
(i) the change of status of an insured depository
institution from a Bank Insurance Fund member to a
Savings Association Insurance Fund member or from
a Savings Association Insurance Fund member to a
Bank Insurance Fund member;
(ii) the merger or consolidation of a Bank Insurance Fund member with a Savings Association Insurance Fund member;
(iii) the assumption of any liability by—
(I) any Bank Insurance Fund member to pay
any deposits of a Savings Association Insurance
Fund member; or
(II) any Savings Association Insurance Fund
member to pay any deposits of a Bank Insurance
Fund member;
(iv) the transfer of assets of—
(I) any Bank Insurance Fund member to any
Savings Association Insurance Fund member in
consideration of the assumption of liabilities for
any portion of the deposits of such Bank Insurance Fund member; or
(II) any Savings Association Insurance Fund
member to any Bank Insurance Fund member in
consideration of the assumption of liabilities for




377

FEDERAL DEPOSIT INSURANCE ACT

Sec. 5

any portion of the deposits of such Savings Association Insurance Fund member; and
(v) the transfer of deposits—
(I) from a Bank Insurance Fund member to a
Savings Association Insurance Fund member; or
(II) from a Savings Association Insurance
Fund member to a Bank Insurance Fund member;
in a transaction in which the deposit is received from
a depositor at an insured depository institution for
which a receiver has been appointed and the receiving
insured depository institution is acting as agent for
the Corporation in connection with the payment of
such deposit to the depositor at the institution for
which a receiver has been appointed.
(C) APPROVAL DURING MORATORIUM.—The Corporation
may approve a conversion transaction at any time if—
(i) the conversion transaction affects an insubstantial portion, as determined by the Corporation, of the
total deposits of each depository institution participating in the conversion transaction;
(ii) the conversion occurs in connection with the
acquisition of a Savings Association Insurance Fund
member in default or in danger of default, and the
Corporation determines that the estimated financial
benefits to the Savings Association Insurance Fund or
Resolution Trust Corporation equal or exceed the Corporation's estimate of loss of assessment income to
such insurance fund over the remaining balance of the
moratorium period established by subparagraph (A),
and the Resolution Trust Corporation concurs in the
Corporation's determination; or
(iii) the conversion occurs in connection with the
acquisition of a Bank Insurance Fund member in default or in danger of default and the Corporation determines that the estimated financial benefits to the
Bank Insurance Fund equal or exceed the Corporation's estimate of the loss of assessment income to the
insurance fund over the remaining balance of the moratorium period established by subparagraph (A).
(D) CERTAIN TRANSFERS DEEMED TO AFFECT INSUBSTANTIAL PORTION OF TOTAL DEPOSITS.—For purposes of

subparagraph (C)(i), any conversion transaction shall be
deemed to affect an insubstantial portion of the total deposits of an insured depository institution, to the extent
the aggregate amount of the total deposits transferred in
such transaction and in all conversion transactions occurring after the date of the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
does not exceed 35 percent of the lesser of—
(i) the amount which is equal to the sum of—
(I) the total deposits of such insured depository institution on May 1, 1989; and
(II) the total amount of net interest credited
to the depository institution's deposits during the




FEDERAL DEPOSIT INSURANCE ACT

Sec. 5

378

period beginning on May 1, 1989, and ending on
the date of the transfer of deposits in connection
with such transaction; or
(ii) the amount which is equal to the total deposits
of such insured depository institution on the date of
the transfer of deposits in connection with such transaction.
(E) EXIT AND ENTRANCE FEES.—Each insured depository institution participating in a conversion transaction
shall pay—
(i) in the case of a conversion transaction in which
the resulting or acquiring depository institution is not
a Savings Association Insurance Fund member, an
exit fee (in an amount to be determined and assessed
in accordance with subparagraph (F)) which—
(I) shall be deposited in the Savings Association Insurance Fund; or
(II) shall be paid to the Financing Corporation, if the Secretary of the Treasury determines
that the Financing Corporation has exhausted all
other sources of funding for interest payments on
the obligations of the Financing Corporation and
orders that such fees be paid to the Financing
Corporation;
(ii) in the case of a conversion transaction in
which the resulting or acquiring depository institution
is not a Bank Insurance Fund member, an exit fee in
an amount to be determined by the Corporation (and
assessed in accordance with subparagraph (F)(ii))
which shall be deposited in the Bank Insurance Fund;
and
(iii) an entrance fee in an amount to be determined by the Corporation (and assessed in accordance
with subparagraph (F)(ii)), except that—
(I) in the case of a conversion transaction in
which the resulting or acquiring depository institution is a Bank Insurance Fund member, the fee
shall be the approximate amount which the Corporation calculates as necessary to prevent dilution of the Bank Insurance Fund, and shall be
paid to the Bank Insurance Fund; and
(II) in the case of a conversion transaction in
which the resulting or acquiring depository institution is a Savings Association Insurance Fund
member, the fee shall be the approximate amount
which the Corporation calculates as necessary to
prevent dilution of the Savings Association Insurance Fund, and shall be paid to the Savings Association Insurance Fund.
(F) ASSESSMENT OF EXIT AND ENTRANCE FEES.—
(i) DETERMINATION OF AMOUNT OF EXIT FEES.—
(I) CONVERSIONS BEFORE JANUARY I, 1997.—In

the case of any exit fee assessed under subparagraph (E)(i) for any conversion transaction con-




FEDERAL DEPOSIT INSURANCE ACT

379

Sec. 5

summated before January 1, 1997, the amount of
such fee shall be determined jointly by the Corporation and the Secretary of the Treasury.
(II) ASSESSMENTS AFTER DECEMBER, 31, 1996.—

In the case of any exit fee assessed under subparagraph (E)(i) for any conversion transaction
consummated after December 31, 1996, the
amount of such fee shall be determined by the
Corporation.
(ii) PROCEDURES.—The Corporation shall prescribe, by regulation, procedures for assessing any exit
or entrance fee under subparagraph (E).
(G)

CHARTER CONVERSION OF SAIF

MEMBERS.—This

subsection shall not be construed as prohibiting any savings association which is a Savings Association Insurance
Fund member from converting to a bank charter during
the period described in subparagraph (A)(ii) if the resulting bank remains a Savings Association Insurance Fund
member.
(3) OPTIONAL CONVERSIONS SUBJECT TO SPECIAL RULES ON
DEPOSIT INSURANCE PAYMENTS.—
(A) CONVERSIONS ALLOWED.—Notwithstanding para-

graph (2)(A), and subject to the requirements of this paragraph, any insured depository institution may participate
in a transaction described in clause (ii), (iii), or (iv) of paragraph (2)(B) with the prior written approval of the responsible agency under section 18(c)(2).
(B) ASSESSMENTS ON DEPOSITS
FORMER DEPOSITORY INSTITUTION.—
(i) ASSESSMENTS BY SAIF.—In

ATTRIBUTABLE

TO

the case of any acquiring, assuming, or resulting depository institution
which is a Bank Insurance Fund member, that portion
of the deposits of such member for any semiannual period which is equal to the adjusted attributable deposit
amount (determined under subparagraph (C) witn respect to the transaction) shall be treated as deposits
which are insured by the Savings Association Insurance Fund.
(ii) ASSESSMENTS BY BIF.—In the case of any acquiring, assuming, or resulting depository institution
which is a Savings Association Insurance Fund member, that portion of the deposits of such member for
any semiannual period which is equal to the adjusted
attributable deposit amount (determined under subparagraph (C) with respect to the transaction) shall be
treated as deposits which are insured by the Bank Insurance Fund.

(C)* DETERMINATION OF ADJUSTED ATTRIBUTABLE DEPOSIT AMOUNT.—The adjusted attributable deposit amount

which shall be taken into account for purposes of determining the amount of the assessment under subparagraph
1
Section 501(b) of the Federal Deposit Insurance Corporation Improvement Act of 1991, provides that section 5(dX3)(C) shall apply with respect to semiannual periods beginning after December 19, 1991.


89-335 9
http://fraser.stlouisfed.org/ 5 - 1 3
Federal Reserve Bank of St. Louis

Sec. 5

FEDERAL DEPOSIT INSURANCE ACT

380

(B) for any semiannual period by any acquiring, assuming,
or resulting depository institution in connection with a
transaction under subparagraph (A) is the amount which
is equal to the sum of—
(i) the amount of any deposits acquired by the institution in connection with the transaction (as determined at the time of such transaction);
(ii) the total of the amounts determined under
clause (iii) for semiannual periods preceding the semiannual period for which the determination is being
made under this subparagraph; and
(iii) the amount by which the sum of the amounts
described in clauses (i) and (ii) would have increased
during the preceding semiannual period (other than
any semiannual period beginning oefore the date of
such transaction) if such increase occurred at a rate
equal to the annual rate of growth of deposits of the
acquiring, assuming, or resulting depository institution minus the amount of any deposits acquired
through the acquisition, in whole or in part, of another
insured depository institution.
(D) DEPOSIT OP ASSESSMENT.—That portion of any assessment under section 7 which—
(i) is determined in accordance with subparagraph
(B)(i) shall be deposited in the Savings Association Insurance Fund; and
(ii) is determined in accordance with subparagraph (B)(ii) shall be deposited in the Bank Insurance
Fund.
(E) CONDITIONS FOR APPROVAL, GENERALLY.—
(i) FACTORS TO BE CONSIDERED; APPROVAL PROC-

ESS.—In reviewing any application for a proposed
transaction under subparagraph (A), the responsible
agency shall follow the procedures and consider the
factors set forth in section 18(c).
(ii) INFORMATION REQUIRED.—An application to
engage in any transaction under this paragraph shall
contain such information relating to the factors to be
considered for approval as the responsible agency may
require, by regulation or by specific request, in connection with any particular application.
(iii)

No

TRANSFER OF DEPOSIT INSURANCE PER-

MITTED.—This paragraph shall not be construed as authorizing transactions which result in the transfer of
any insured depository institution's Federal deposit insurance from 1 Federal deposit insurance fund to the
other Federal deposit insurance fund.
(iv) MINIMUM CAPITAL.—The responsible agency
shall disapprove any application for any transaction
under this paragraph unless such agency determines
that the acquiring, assuming, or resulting depository
institution will meet all applicable capital requirements upon consummation of the transaction.




381

FEDERAL DEPOSIT INSURANCE ACT

Sec. 5

(F) CERTAIN INTERSTATE TRANSACTIONS.—A Bank Insurance Fund member which is a subsidiary of a bank
holding company may not be the acquiring, assuming, or
resulting depository institution in a transaction under subparagraph (A) unless the transaction would comply with
the requirements of section 3(d) of the Bank Holding Company Act of 1956 if, at the time of such transaction, the
Savings Association Insurance Fund member involved in
such transaction was a State bank that the bank holding
company was applying to acquire.
(G) EXPEDITED APPROVAL OF ACQUISITIONS.—

(i) IN GENERAL.—Any application by a State
nonmember insured bank to acquire another insured
depository institution that is required to be filed with
the Corporation by subparagraph (A) or any other applicable law or regulation shall be approved or disapproved in writing by the Corporation oefore the end
of the 60-day period beginning on the date such application is filed with the Corporation.
(ii) EXTENSIONS OF PERIOD.—The period for approval or disapproval referred to in clause (i) may be
extended for an additional 30-day period if the Corporation determines that—
(I) an applicant has not furnished all of the
information required to be submitted; or
(II) in the Corporation's judgment, any material information submitted is substantially inaccurate or incomplete.
(H) ALLOCATION OF COSTS IN EVENT OF DEFAULT.—If

any acquiring, assuming, or resulting depository institution is in default or danger of default at any time before
this paragraph ceases to apply, any loss incurred by the
Corporation shall be allocated between the Bank Insurance
Fund and the Savings Association Insurance Fund, in
amounts reflecting the amount of insured deposits of such
acquiring, assuming, or resulting depository institution assessed by the Bank Insurance Fund and the Savings Association Insurance Fund, respectively, under subparagraph
(B).
(I)

SUBSEQUENT APPROVAL OF CONVERSION TRANS-

ACTION.—This paragraph shall cease to apply if—
(i) after the end of the moratorium period established by paragraph (2)(A), the Corporation approves
an application by any acquiring, assuming, or resulting depository institution to treat the transaction described in subparagraph (A) as a conversion transaction; and
(ii) the acquiring, assuming, or resulting depository institution pays the amount of any exit and entrance fee assessed by the Corporation under subparagraph (E) of paragraph (2) with respect to such transaction.
(J) ACQUIRING, ASSUMING, OR RESULTING DEPOSITORY
INSTITUTION DEFINED.—For purposes of this paragraph,




FEDERAL DEPOSIT INSURANCE ACT

Sec. 5

382

the term "acquiring, assuming, or resulting depository institution" means any insured depository institution
which—
(i) results from any transaction described in paragraph (2)(B)(ii) and approved under this paragrapn;
(ii) in connection with a transaction described in
paragraph (2)(B)(iii) and approved under this paragrapn, assumes any liability to pay deposits of another
insured depository institution; or
(iii) in connection with a transaction described in
paragraph (2)(B)(iv) and approved under this paragraph, acquires assets from any insured depository institution in consideration of the assumption of liability
for any deposits of such institution.
(e) LIABILITY OF COMMONLY CONTROLLED DEPOSITORY INSTITUTIONS.—
(1) IN GENERAL.—
(A) LIABILITY ESTABLISHED.—Any insured depository

institution shall be liable for any loss incurred by the Corporation, or any loss which the Corporation reasonably anticipates incurring, after the date of the enactment of the
Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 in connection with—
(i) the default of a commonly controlled insured
depository institution; or
(ii) any assistance provided by the Corporation to
any commonly controlled insured depository institution in danger of default.
(B) PAYMENT UPON NOTICE.—An insured depository institution shall pay the amount of any liability to the Corporation under subparagraph (A) upon receipt of written
notice by the Corporation in accordance with this subsection.
(C) NOTICE REQUIRED TO BE PROVIDED WITHIN 2 YEARS

OF LOSS.—No insured depository institution shall be liable
to the Corporation under subparagraph (A) if written notice with respect to such liability is not received by such
institution before the end of the 2-year period beginning on
the date the Corporation incurred the loss.
(2) AMOUNT OF COMPENSATION; PROCEDURES.—

(A) USE OF ESTIMATES.—When an insured depository
institution is in default or requires assistance to prevent
default, the Corporation shall—
(i) in good faith, estimate the amount of the loss
the Corporation will incur from such default or assistance;
(ii) if, with respect to such insured depository institution, there is more than 1 commonly controlled insured depository institution, estimate the amount of
each such commonly controlled depository institution's
share of such liability; and
(iii) advise each commonly controlled depository
institution of the Corporation's estimate of the amount
of such institution's liability for such losses.




383

FEDERAL DEPOSIT INSURANCE ACT

Sec. 5

(B) PROCEDURES; IMMEDIATE PAYMENT.—The Corporation, after consultation with the appropriate Federal banking agency and the appropriate State chartering agency,
shall—
(i) on a case-by-case basis, establish the procedures and schedule under which any insured depository institution shall reimburse the Corporation for
such institution's liability under paragraph (1) in connection with any commonly controlled insured depository institution; or
(ii) require any insured depository institution to
make immediate payment of the amount of such institution's liability under paragraph (1) in connection
with any commonly controlled insured depository institution.
(C) PRIORITY.—The liability of any insured depository
institution under this subsection shall have priority witn
respect to other obligations and liabilities as follows:
(i) SUPERIORITY.—The liability shall be superior to
the following obligations and liabilities of the depository institution:
(I) Any obligation to shareholders arising as a
result of their status as shareholders (including
any depository institution holding company or any
shareholder or creditor of such company).
(II) Any obligation or liability owed to any affiliate of the depository institution (including any
other insured depository institution), other than
any secured obligation which was secured as of
May 1, 1989.
(ii) SUBORDINATION.—The liability shall be subordinate in right and payment to the following obligations and liabilities of the depository institution:
(I) Any deposit liability (which is not a liability described in clause (i)(II)).
(II) Any secured obligation, other than any obligation owed to any affiliate of the depository institution (including any other insured depository
institution) which was secured after May 1, 1989.
(III) Any other general or senior liability
(which is not a liability described in clause (i)).
(IV) Any obligation subordinated to depositors
or other general creditors (which is not an obligation described in clause (i)).
(D) ADJUSTMENT OF ESTIMATED PAYMENT.—
(i) OVERPAYMENT.—If the amount of compensation

estimated by and paid to the Corporation by 1 or more
such commonly controlled depository institutions is
greater than the actual loss incurred by the Corporation, the Corporation shall reimburse each such commonly controlled depository institution its pro rata
share of any overpayment.
(ii) UNDERPAYMENT.—If the amount of compensa-

tion estimated by and paid to the Corporation by 1 or




Sec. 5

FEDERAL DEPOSIT INSURANCE ACT

384

more such commonly controlled depository institutions
is less than the actual loss incurred by the Corporation, the Corporation shall redetermine in its discretion the liability of each such commonly controlled depository institution to the Corporation and shall require each such commonly controlled depository institution to make payment of any additional liability to
the Corporation.
(3) REVIEW.—

(A) JUDICIAL.—Actions of the Corporation shall be
reviewable pursuant to chapter 7 of title 5, United States
Code.
(B) ADMINISTRATIVE.—The Corporation shall prescribe
regulations and establish administrative procedures which
provide for a hearing on the record for the review of—
(i) the amount of any loss incurred by the Corporation in connection with any insured depository institution;
(ii) the liability of individual commonly controlled
depository institutions for the amount of such loss;
and
(iii) the schedule of payments to be made by such
commonly controlled depository institutions.
(4) LIMITATION ON RIGHTS OF PRIVATE PARTIES.—TO the ex-

tent the exercise of any right or power of any person would impair the ability of any insured depository institution to perform
such institution's obligations under this subsection—
(A) the obligations of such insured depository institution shall supersede such right or power; and
(B) no court may give effect to such right or power
with respect to such insured depository institution.
(5) WAIVER AUTHORITY.—

(A) IN GENERAL.—The Corporation, in its discretion,
may exempt any insured depository institution from the
provisions of this subsection if the Corporation determines
that such exemption is in the best interests of the Bank
Insurance Fund or the Savings Association Insurance
Fund.
(B) CONDITION.—During the period any exemption
granted to any insured depository institution under subparagraph (A) or (C) is in effect, such insured depository
institution and all other insured depository institution affiliates of such depository institution shall comply fully
with the restrictions of sections 23A and 23B of the Federal Reserve Act without regard to section 23A(d)(l).
(C) LIMITED PARTNERSHIPS.—

(i) IN GENERAL.—The Corporation may, in its discretion, exempt any limited partnership and any affiliate of any limited partnership (other than any insured
depository institution which is a majority owned subsidiary of such partnership) from the provisions of this
subsection if such limited partnership or affiliate has
filed a registration statement with the Securities and
Exchange Commission on or before April 10, 1989, in-




FEDERAL DEPOSIT INSURANCE ACT

385

Sec. 5

dicating that as of the date of such filing such partnership intended to acquire 1 or more insured depository
institutions.
(ii) REVIEW AND NOTICE.—Within 10 business days
after the date of submission of any request for an exemption under this subparagraph together with such
information as shall be reasonably requested by the
Corporation, the Corporation shall make a determination on the request and shall so advise the applicant.
(6) 5-YEAR TRANSITION RULE.—During the 5-year period beginning on the date of the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989—
(A) no Savings Association Insurance Fund member
shall have any liability to the Corporation under this subsection arising out of assistance provided by the Corporation or any loss incurred by the Corporation as a result of
the default of a Bank Insurance Fund member which was
acquired by such Savings Association Insurance Fund
member or any affiliate of such member before the date of
the enactment of such Act; and
(B) no Bank Insurance Fund member shall have such
liability with respect to assistance provided by or loss incurred by the Corporation as a result of the default of a
Savings Association Insurance Fund member which was
acquired by such Bank Insurance Fund member or any affiliate of such member before the date of the enactment of
such Act.
(7) EXCLUSION FOR INSTITUTIONS ACQUIRED IN DEBT COL-

LECTIONS.—Any depository institution shall not be treated as
commonly controlled, for purposes of this subsection, during
the 5-year period beginning on the date of an acquisition described in subparagraph (A) or such longer period as the
Corporation may determine after written application by the
acquirer, if—
(A) 1 depository institution controls another by virtue
of ownership of voting shares acquired in securing or collecting a debt previously contracted in good faith; and
(B) during the period beginning on the date of the enactment of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 and ending upon the expiration of the exclusion, the controlling bank and all other insured depository institution affiliates of such controlling
bank comply fully with the restrictions of sections 23A and
23B of the Federal Reserve Act, without regard to section
23A(d)(l) of such Act, in transactions with the acquired insured depository institution.
(8)

EXCEPTION FOR CERTAIN FSLIC ASSISTED INSTITU-

TIONS.—No depository institution shall have any liability to the
Corporation under this subsection as the result of the default
of, or assistance provided with respect to, an insured depository institution wnich is an affiliate of such depository institution if—
(A) such affiliate was receiving cash payments from
the Federal Savings and Loan Insurance Corporation




Sec. 7

FEDERAL DEPOSIT INSURANCE ACT

386

under an assistance agreement or note entered into before
the date of the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989;
(B) the Federal Savings and Loan Insurance Corporation, or such other entity which has succeeded to the payment obligations of such Corporation with respect to such
assistance agreement or note, is unable to continue such
payments; and
(C) such affiliate—
(i) is in default or in need of assistance solely as
a result of the failure to meet the payment obligations
referred to in subparagraph (B); and
(ii) is not otherwise in breach of the terms of any
assistance agreement or note which would authorize
the Federal Savings and Loan Insurance Corporation
or such other successor entity, pursuant to the terms
of such assistance agreement or note, to refuse to
make such payments.
(9) COMMONLY CONTROLLED DEFINED.—For purposes of
this subsection, depository institutions are commonly controlled if—
(A) such institutions are controlled by the same depository institution holding company (including any company
required to file reports pursuant to section 4(f)(6) of the
Bank Holding Company Act of 1956); or
(B) 1 depository institution is controlled by another depository institution.
SEC.

6. [12 U.S.C. 1816] FACTORS TO BE CONSIDERED.

The factors that are required, under section 4, to be considered
in connection with, and enumerated in, any certificate issued pursuant to section 4 and that are required, under section 5, to be considered by the Board of Directors in connection with any determination by such Board pursuant to section 5 are the following:
(1) The financial history and condition of the depository institution.
(2) The adequacy of the depository institution's capital
structure.
(3) The future earnings prospects of the depository institution.
(4) The general character and fitness of the management
of the depository institution.
(5) The risk presented by such depository institution to the
Bank Insurance Fund or the Savings Association Insurance
Fund.
(6) The convenience and needs of the community to be
served by such depository institution.
(7) Whether the depository institution's corporate powers
are consistent with the purposes of this Act.
SEC. 7. [12 U.S.C. 1817] (a)(1) Each insured State nonmember
bank (except a District bank) and each foreign bank having an insured branch which is not a Federal branch shall make to the Corporation reports of condition which shall be in such form and shall
contain such information as the Board of Directors may require.




387

FEDERAL DEPOSIT INSURANCE ACT

Sec. 7

Such reports shall be made to the Corporation on the dates selected
as provided in paragraph (3) of this subsection and the deposit liabilities shall be reported therein in accordance with and pursuant
to paragraphs (4) and (5) of this subsection. The Board of Directors
may call for additional reports of condition on dates to be fixed by
it and may call for such other reports as the Board may from time
to time require. Any such bank which (A) maintains procedures
reasonably adapted to avoid any inadvertent error and, unintentionally and as a result of such an error, fails to make or publish
any report required under this paragraph, within the period of time
specified by the Corporation, or submits or publishes any false or
misleading report or information, or (B) inadvertently transmits or
publishes any report which is minimally late, shall be subject to a
penalty of not more than $2,000 for each day during which such
failure continues or such false or misleading information is not corrected. Such bank shall have the burden of proving that an error
was inadvertent and that a report was inadvertently transmitted
or published late. Any such bank which fails to make or publish
any report required under this paragraph, within the period of time
specified by the Corporation, or suomits or publishes any false or
misleading report or information, in a manner not described in the
2nd preceding sentence shall be subject to a penalty of not more
than $20,000 for each day during which such failure continues or
such false or misleading information is not corrected. Notwithstanding the preceding sentence, if any such bank knowingly or
with reckless disregard for the accuracy of any information or report described in such sentence submits or publishes any false or
misleading report or information, the Corporation may assess a
penalty of not more than $1,000,000 or 1 percent of total assets of
such bank, whichever is less, per day for each day during which
such failure continues or such false or misleading information is
not corrected. Any penalty imposed under any of the 4 preceding
sentences shall be assessed and collected by the Corporation in the
manner provided in subparagraphs (E), (F), (G), and (I) of section
8(i)(2) (for penalties imposed under such section) and any such assessment (including the determination of the amount of the penalty) shall be subject to the provisions of such section. Any such
bank against which any penalty is assessed under this subsection
shall be afforded an agency hearing if such bank submits a request
for such hearing within 20 days after the issuance of the notice of
assessment. Section 8(h) shall apply to any proceeding under this
paragraph.
(2)(A) The Corporation and, with respect to any State depository institution, any appropriate State bank supervisor for such institution, shall have access to reports of examination made by, and
reports of condition made to, the Comptroller of the Currency, the
Director of the Office of Thrift Supervision, the Federal Housing Finance Board, any Federal home loan bank, or any Federal Reserve
bank and to all revisions of reports of condition made to any of
them, and they shall promptly advise the Corporation of any
revisons or changes in respect to deposit liabilities made or required to be made in any report of condition. The Corporation may
accept any report made by or to any commission, board, or authority having supervision of a depository institution, and may furnish




Sec. 7

FEDERAL DEPOSIT INSURANCE ACT

388

to the Comptroller of the Currency, the Director of the Office of
Thrift Supervision, the Federal Housing Finance Board, any Federal home loan bank, to any Federal Reserve bank, and to any such
commission, board, or authority, reports of examinations made on
behalf of, and reports of condition made to, the Corporation.1
(B) 2 ADDITIONAL REPORTS.—The Board of Directors may
from time to time require any insured depository institution to
file such additional reports as the Corporation, after agreement
with the Comptroller of the Currency, the Board of Governors
of the Federal Reserve System, and the Director of the Office
of Thrift Supervision, as appropriate, may deem advisable for
insurance purposes.
(3) Each insured depository institution shall make to the appropriate Federal banking agency 4 reports of condition annually
upon dates which shall be selected by the Chairman of the Board
of Directors, the Comptroller of the Currency, the Chairman of the
Board of Governors of the Federal Reserve System, and the Director of the Office of Thrift Supervision. The dates selected shall be
the same for all insured depository institutions, except that when
any of said reporting dates is a nonbusiness day for any depository
institution, the preceding business day shall be its reporting date.
Two dates shall be selected within die semiannual period of January to June inclusive, and the reports on such dates shall be the
basis for the certified statement to be filed in July pursuant to subsection (c) of this section, and two dates shall be selected within
the semiannual period of July to December inclusive, and the reports on such dates shall be the basis for the certified statement
to be filed in January pursuant to subsection (c) of this section. The
deposit liabilities shall be reported in said reports of condition in
accordance with and pursuant to paragraphs (4) and (5) of this subsection, and such other information shall be reported therein as
may be required by the respective agencies. Each said report of
condition shall contain a declaration by the president, a vice president, the cashier or the treasurer, or by any other officer designated by the board of directors or trustees of the reporting depository institution to make such declaration, that the report is true
and correct to the best of his knowledge and belief. The correctness
of said report of conditions shall be attested by the signatures of
at least two directors or trustees of the reporting depository institution other than the officer making such declaration, with a declaration that the report has been examined by them and to be the best
of their knowledge and belief is true and correct. At the time of
making said reports of condition each insured depository institution
shall furnish to the Corporation a copy thereof containing such
signed declaration and attestations. Nothing herein shall preclude
any of the foregoing agencies from requiring the banks or savings
associations under its jurisdiction to make additional reports of
condition at any time.
(4) In the reports of condition required to be made by paragraph (3) of this subsection, each insured depository institution
1
Section 208(1 )(D) of the Financial Institutions Improvement, Reform, and Enforcement Act
of 1989 amended the last sentence of 7(aX2XA) by inserting "or savings associations" after
"banks". This amendment could not be executed.
2
Indentation so in law.




389

FEDERAL DEPOSIT INSURANCE ACT

Sec. 7

shall report the total amount of the liability of the depository institution for deposits in the main office and in any branch located in
any State of the United States, the District of Columbia, any Territory of the United States, Puerto Rico, Guam, American Samoa, the
Trust Territory of the Pacific Islands, or the Virgin Islands, according to the definition of the term "deposit" in and pursuant to subsection (1) of section 3 of this Act, without any deduction for indebtedness of depositors or creditors or any deduction for cash
items in the process of collection drawn on others than the reporting depository institution: Provided, That the depository institution
in reporting such deposits may (i) subtract from the deposit balance
due to any depository institution the deposit balance due from the
same depository institution (other than trust funds deposited by either depository institution) and any cash items in the process of
collection due from or due to such depository institutions shall be
included in determining such net balance, except that balances of
time deposits of any depository institution and any balances standing to tne credit of private depository institutions, of depository institutions in foreign countries, of foreign branches of other American depository institutions, and of American branches of foreign
banks snail be reported gross without any such subtraction, and (ii)
exclude any deposits received in any office of the depository institution for deposit in any other office of the depository institution: And
provided further, That outstanding drafts (including advices and
authorizations to charge depository institution's balance in another
depository institution) drawn in the regular course of business by
the reporting depository institution on depository institutions need
not be reported as deposit liabilities. The amount of trust funds
held in the depository institution's own trust department, which
the reporting depository institution keeps segregated and apart
from its general assets and does not use in the conduct of its business, shall not be included in the total deposits in such reports, but
shall be separately stated in such reports. Deposits which are accumulated for the payment of personal loans and are assigned or
pledged to assure payment of loans at maturity shall not be included in the total deposits in such reports, but shall be deducted
from the loans for which such deposits are assigned or pledged to
assure repayment.
(5) Tne deposits to be reported on such reports of condition
shall be segregated between (i) time and savings deposits and (ii)
demand deposits. For this purpose, the time and savings deposits
shall consist of time certificates of deposit, time deposits-open account and savings deposits; and demand deposits shall consist of
all deposits x other than time and savings deposits.
(6) LIFELINE ACCOUNT DEPOSITS.—In the reports of condition required to be reported under this subsection, the deposits
in lifeline accounts (as defined in section 232(a)(3)(C) of the
Bank Enterprise Act of 1991) shall be reported separately.
(7) The Board of Directors, after consultation with the Comptroller of the Currency, the Director of the Office of Thrift Supervision, and the Board of Governors of the Federal Reserve System,
may by regulation define the terms "cash items" and "process of
1

Indentation so in law.




Sec. 7

FEDERAL DEPOSIT INSURANCE ACT

390

collection", and shall classify deposits as "time," "savings," and "demand" deposits, for the purposes of this section.
(8) In respect of any report required or authorized to be supplied or published pursuant to this subsection or any other provision of law, the Board of Directors or the Comptroller of the Currency, as the case may be, may differentiate between domestic
banks and foreign banks to such extent as, in their judgment, may
be reasonably required to avoid hardship and can be done without
substantial compromise of insurance risk or supervisory and regulatory effectiveness.
(9) 1 DATA COLLECTIONS.—In addition to or in connection
with any other report required under this subsection, the Corporation shall take such action as may be necessary to ensure
that—
(A) each insured depository institution maintains; and
(B) the Corporation receives on a regular basis from
such institution,
information on the total amount of all insured deposits, preferred deposits, and uninsured deposits at the institution. In
prescribing reporting and other requirements for the collection
of actual and accurate information pursuant to this paragraph,
the Corporation shall minimize the regulatory burden imposed
upon insured depository institutions that are well capitalized
(as defined in section 38) while taking into account the benefit
of the information to the Corporation, including the use of the
information to enable the Corporation to more accurately determine the total amount of insured deposits in each insured
depository institution for purposes of compliance with this Act.
(10) A Federal banking agency may not, by regulation or
otherwise, designate, or require an insured institution or an affiliate to designate, a corporation as highly leveraged or a
transaction with a corporation as a highly leveraged transaction solely because such corporation is or has been a debtor
or bankrupt under title 11, United States Code, if, after confirmation of a plan of reorganization, such corporation would
not otherwise be highly leveraged,
(b) ASSESSMENTS.—
(1) RISK-BASED ASSESSMENT SYSTEM.—
(A) RISK-BASED ASSESSMENT SYSTEM REQUIRED.—The

Board of Directors shall, by regulation, establish a riskbased assessment system for insured depository
institutions.
(B) PRIVATE REINSURANCE AUTHORIZED.—In carrying
out this paragraph, the Corporation may—
(i) obtain private reinsurance covering not more
than 10 percent of any loss the Corporation incurs
with respect to an insured depository institution; and
(ii) base that institution's semiannual assessment
(in whole or in part) on the cost of the reinsurance.
(C)

RISK-BASED ASSESSMENT SYSTEM DEFINED.—For

purposes of this paragraph, the term "risk-based assess1

Indentation so in law.




391

FEDERAL DEPOSIT INSURANCE ACT

Sec. 7

ment system" means a system for calculating a depository
institution's semiannual assessment based on—
(i) the probability that the deposit insurance fund
will incur a loss with respect to the institution, taking
into consideration the risks attributable to—
(I) different categories and concentrations of
assets;
(II) different categories and concentrations of
liabilities, both insured and uninsured, contingent
and noncontingent; and
(III) any other factors the Corporation determines are relevant to assessing such probability;
(ii) the likely amount of any such loss; and
(iii) the revenue needs of the deposit insurance
fund.
(D) SEPARATE ASSESSMENT SYSTEMS.—The Board of Directors may establish separate risk-based assessment systems for large and small members of each deposit insurance fund.
(2) SETTING ASSESSMENTS.—
(A) ACHIEVING AND MAINTAINING DESIGNATED RESERVE
RATIO.—

(i) IN GENERAL.—The Board of Directors shall set
semiannual assessments for insured depository
institutions—
(I) to maintain the reserve ratio of each deposit insurance fund at the designated reserve
ratio; or
(II) if the reserve ratio is less than the designated reserve ratio, to increase the reserve ratio
to the designated reserve ratio as provided in
paragraph (3).
(ii) FACTORS TO BE CONSIDERED.—In carrying out
clause (i), the Board of Directors shall consider the deposit insurance fund's—
(I) expected operating expenses,
(II) case resolution expenditures and income,
(III) the effect of assessments on members'
earnings and capital, and
(IV) any other factors that the Board of Directors may deem appropriate.
(iii) MINIMUM ASSESSMENT.—The semiannual assessment for each member of a deposit insurance fund
shall be not less than $1,000.
(iv)

DESIGNATED RESERVE RATIO DEFINED.—The

designated reserve ratio of each deposit insurance
fund for each year shall be—
(I) 1.25 percent of estimated insured deposits;
or
(II) a higher percentage of estimated insured
deposits that the Board of Directors determines to
be justified for that year by circumstances raising
a significant risk of substantial future losses to
the fund.




FEDERAL DEPOSIT INSURANCE ACT

Sec. 7

392

(B) INDEPENDENT TREATMENT OF FUNDS.—The Board
of Directors shall—
(i) set semiannual assessments for members of
each deposit insurance fund independently from semiannual assessments for members of any other deposit
insurance fund; and
(ii) set the designated reserve ratio of each deposit
insurance fund independently from the designated
reserve ratio of any other deposit insurance fund.
(C) NOTICE OF ASSESSMENTS.—The Corporation shall
notify each insured depository institution of that institution's semiannual assessment.
ING

(D) PRIORITY OF FINANCING CORPORATION AND FUNDCORPORATION ASSESSMENTS.—Notwithstanding any

other provision of this paragraph, amounts assessed by the
Financing Corporation under section 21 of the Federal
Home Loan Bank Act against Savings Association Insurance Fund members shall be subtracted from the amounts
authorized to be assessed by the Corporation under this
paragraph.
(E) MINIMUM ASSESSMENTS.—The Corporation shall
design the risk-based assessment system for any deposit
insurance fund so that, if the Corporation has borrowings
outstanding under section 14 on behalf of that fund or the
reserve ratio of that fund remains below the designated reserve ratio, the total amount raised by semiannual assessments on members of that fund shall be not less than the
total amount that would have been raised if—
(i) section 7(b) as in effect on July 15, 1991 remained in effect; and
(ii) the assessment rate in effect on July 15, 1991
remained in effect.
(F) TRANSITION RULE FOR SAVINGS ASSOCIATION INSURANCE FUND.—With respect to the Savings Association In-

surance Fund, during the period beginning on the effective
date of the amendments made by section 302(a) of the Federal Deposit Insurance Corporation Improvement Act of
1991 and ending on December 31, 1997—
(i) subparagraph (A)(i)(II) shall apply as if such
subparagraph did not include "as provided in paragraph (3)"; and
(ii) subparagraph (E) shall be applied by substituting "if section 7(b) as in effect on July 15, 1991
remained in effect." for "if—" and all that follows
through clause (ii).
(G) SPECIAL RULE UNTIL THE INSURANCE FUNDS
ACHIEVE THE DESIGNATED RESERVE RATIO.—Until a deposit

insurance fund achieves the designated reserve ratio, the
Corporation may limit the maximum assessment on insured depository institutions under the risk-based assessment system authorized under paragraph (1) to not less
than 10 basis points above the average assessment on insured depository institutions under that system.




393

FEDERAL DEPOSIT INSURANCE ACT

Sec. 7

(H) BANK ENTERPRISE ACT REQUIREMENT.—The Corporation shall design the risk-based assessment system so
that, insofar as the system bases assessments, directly or
indirectly, on deposits, the portion of the deposits of any
insured depository institution which are attributable to
lifeline accounts established in accordance with the Bank
Enterprise Act of 1991 shall be subject to assessment at a
rate determined in accordance with such Act.
(3) SPECIAL RULE FOR RECAPITALIZING UNDERCAPITALIZED
FUNDS.—

(A) IN GENERAL.—Except as provided in paragraph
(2)(F), if the reserve ratio of any deposit insurance fund is
less than the designated reserve ratio under paragraph
(2)(A)(iv), the Board of Directors shall set semiannual assessment rates for members of that fund—
(i) that are sufficient to increase the reserve ratio
for that fund to the designated reserve ratio not later
than 1 year after such rates are set; or
(ii) in accordance with a schedule promulgated by
the Corporation under subparagraph (B).
(B) RECAPITALIZATION SCHEDULES.—For purposes of
subparagraph (A)(ii), the Corporation shall by regulation
promulgate a schedule that specifies, at semiannual intervals, target reserve ratios for that fund, culminating in a
reserve ratio that is equal to the designated reserve ratio
not later than 15 years after the date on which the schedule is implemented.
(C) AMENDING SCHEDULE.—The Corporation may, by
regulation, amend a schedule promulgated under subparagraph (B) and such amendment may extend the date specified in subparagraph (B) to such later date as the Corporation determines will, over time, maximize the amount of
semiannual assessments received by the Savings Association Insurance Fund, net of insurance losses incurred by
the Fund.
(D) APPLICATION TO SAIF MEMBERS.—This paragraph
shall become applicable to Savings Association Insurance
Fund members on January 1, 1998.
(4) SEMIANNUAL PERIOD DEFINED.—For purposes of this
section, the term "semiannual period" means a period beginning on January 1 of any calendar year and ending on June
30 of the same year, or a period beginning on July 1 of any
calendar year and ending on December 31 of the same year.
(5) RECORDS TO BE MAINTAINED.—Each insured depository
institution shall maintain all records that the Corporation may
require for verifying the correctness of the institution's semiannual assessments. No insured depository institution shall be
required to retain those records for that purpose for a period
of more than 5 years from the date of the filing of any certified
statement, except that when there is a dispute between the insured depository institution and the Corporation over the
amount of any assessment, the depository institution shall retain the records until final determination of the issue.




FEDERAL DEPOSIT INSURANCE ACT

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394

(6) EMERGENCY SPECIAL ASSESSMENTS.—In addition to the
other assessments imposed on insured depository institutions
under this subsection, the Corporation may impose 1 or more
special assessments on insured depository institutions in an
amount determined by the Corporation if the amount of any
such assessment—
(A) is necessary—
(i) to provide sufficient assessment income to
repay amounts borrowed from the Secretary of the
Treasury under section 14(a) in accordance with the
repayment schedule in effect under section 14(c) during the period with respect to which such assessment
is imposed;
(ii) to provide sufficient assessment income to
repay obligations issued to and other amounts borrowed from Bank Insurance Fund members under section 14(d); or
(iii) for any other purpose the Corporation may
deem necessary; and
(B) is allocated between Bank Insurance Fund members and Savings Association Insurance Fund members in
amounts which reflect the degree to which the proceeds of
the amounts borrowed are to be used for the benefit of the
respective insurance funds.
(7) COMMUNITY ENTERPRISE CREDITS.—The Corporation
shall allow a credit against any semiannual assessment to any
insured depository institution which satisfies the requirements
of the Community Enterprise Assessment Credit Board under
section 233(a)(1) of the Bank Enterprise Act of 1991 in the
amount determined by such Board by regulation.
(c) CERTIFIED STATEMENTS; PAYMENTS.—
(1) CERTIFIED STATEMENTS REQUIRED.—

(A) IN GENERAL.—Each insured depository institution
shall file with the Corporation a certified statement containing such information as the Corporation may require
for determining the institution's semiannual assessment.
(B) FORM OF CERTIFICATION.—The certified statement
required under subparagraph (A) shall—
(i) be in such form and set forth such supporting
information as the Board of Directors shall prescribe;
and
(ii) be certified by the president of the depository
institution or any other officer designated by its board
of directors or trustees that to the best of his or her
knowledge and belief, the statement is true, correct
and complete, and in accordance with this Act and
regulations issued hereunder.
(2) PAYMENTS REQUIRED.—

(A) IN GENERAL.—Each insured depository institution
shall pay to the Corporation the semiannual assessment
imposed under subsection (b).
(B) FORM OF PAYMENT.—The payments required under
subparagraph (A) shall be made in such manner and at




395

FEDERAL DEPOSIT INSURANCE ACT

Sec. 7

such time or times as the Board of Directors shall prescribe by regulation.
(3) NEWLY INSURED INSTITUTIONS.—TO facilitate the administration of this section, the Board of Directors may waive
the requirements of paragraphs (1) and (2) for the semiannual
period in which a depository institution becomes insured.
(4) PENALTY FOR FAILURE TO MAKE ACCURATE CERTIFIED
STATEMENT.—
(A) FIRST TIER.—Any insured depository institution

which—
(i) maintains procedures reasonably adapted to
avoid any inadvertent error and, unintentionally and
as a result of such an error, fails to submit the certified statement under paragraph (1) within the period
of time required under paragraph (1) or submits a
false or misleading certified statement; or
(ii) submits the statement at a time which is minimally after the time required in such paragraph,
shall be subject to a penalty of not more than $2,000 for
each day during which such failure continues or such false
and misleading information is not corrected. The institution shall have the burden of proving that an error was inadvertent or that a statement was inadvertently submitted
late.
(B) SECOND TIER.—Any insured depository institution
which fails to submit the certified statement under paragraph (1) within the period of time required under paragraph (1) or submits a false or misleading certified statement in a manner not described in subparagraph (A) shall
be subject to a penalty of not more than $20,000 for each
day during which such failure continues or such false and
misleading information is not corrected.
(C) THIRD TIER.—Notwithstanding subparagraphs (A)
and (B), if any insured depository institution knowingly or
with reckless disregard for the accuracy of any certified
statement described in paragraph (1) submits a false or
misleading certified statement under paragraph (1), the
Corporation may assess a penalty of not more than
$1,000,000 or not more than 1 percent of the total assets
of the institution, whichever is less, per day for each day
during which the failure continues or the false or misleading information in such statement is not corrected.
(D) ASSESSMENT PROCEDURE.—Any penalty imposed
under this paragraph shall be assessed and collected by
the Corporation in the manner provided in subparagraphs
(E), (F), (G), and (I) of section 8(i)(2) (for penalties imposed
under such section) and any such assessment (including
the determination of the amount of the penalty) shall be
subject to the provisions of such section.
(E) HEARING.—Any insured depository institution
against which any penalty is assessed under this paragraph shall be afforded an agency hearing if the institution submits a request for such hearing within 20 days
after the issuance of the notice of the assessment. Section




FEDERAL DEPOSIT INSURANCE ACT

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396

8(h) shall apply to any proceeding under this subparagraph.
(d)

CORPORATION EXEMPT FROM

APPORTIONMENT.—Notwith-

standing any other provision of law, amounts received pursuant to
any assessment under this section and any other amounts received
by the Corporation shall not be subject to apportionment for the
purposes of chapter 15 of title 31, United States Code, or under any
other authority.
(e) The Corporation (1) may refund to an insured depository institution any payment of assessment in excess of the amount due
to the Corporation or (2) may credit such excess toward the payment of the assessment next becoming due from such depository institution and upon succeeding assessments until the credit is exhausted.
(f) Any insured depository institution which fails to make any
report of condition under subsection (a) of this section or to file any
certified statement required to be filed by it in connection with determining the amount of any assessment payable by the depository
institution to the Corporation may be compelled to make such report or file such statement by mandatory injunction or other appropriate remedy in a suit brought for such purpose by the Corporation against the depository institution and any officer or officers
thereof in any court of the United States of competent jurisdiction
in the District or Territory in which such depository institution is
located.
(g) The Corporation, in a suit brought at law or in equity in
any court of competent jurisdiction, shall be entitled to recover
from any insured depository institution the amount of any unpaid
assessment lawfully payable by such insured depository institution
to the Corporation, whether or not such depository institution shall
have made any such report of condition under subsection (a) of this
section or filed any such certified statement and whether or not
suit shall have been brought to compel the depository institution
to make any such report or file any such statement. No action or
proceeding shall be brought for the recovery of any assessment due
to the Corporation, or for the recovery of any amount paid to the
Corporation in excess of the amount due to it, unless such action
or proceeding shall have been brought within five years after the
right accrued for which the claim is made, except where the insured depository institution has made or filed with the Corporation
a false or fraudulent certified statement with the intent to evade,
in whole or in part, the payment of assessment, in which case the
claim shall not be deemed to have accrued until the discovery by
the Corporation that the certified statement is false or fraudulent:
Provided, however, That where a cause of action has already accrued, and the period herein prescribed within which an action
may be brought has expired, or will expire within one year from
the date this amendment becomes effective,1 an action may be
brought on such cause of action within one year from the effective
date of this amendment: And provided further, That no action or
proceeding shall be brought for the recovery of any assessment on
deposits alleged to have been omitted from the assessment base of
iSuch effective date was Sept. 21, 1950.




397

FEDERAL DEPOSIT INSURANCE ACT

Sec. 7

any insured depository institution for any year prior to 1945 except
that any claim of the Corporation for the payment of any assessment may be offset by it against any claim of the depository institution for the overpayment of any assessment.
(h) Should any national member bank or any insured national
nonmember bank fail to make any report of condition under subsection (a) of this section or to file any certified statement required
to be filed by such bank under any provision of this section, or fail
to pay any assessment required to be paid by such bank under any
provision of this Act, and should the bank not correct such failure
within thirty days after written notice has been given by the Corporation to an officer of the bank, citing this subsection, and stating that the bank has failed to file or pay as required by law, all
the rights, privileges, and franchises of the bank granted to it
under the National Bank Act, as amended, the Federal Reserve
Act, as amended, or this Act, shall be thereby forfeited. Whether
or not the penalty provided in this subsection has been incurred
shall be determined and adjudged in the manner provided in the
sixth paragraph of section 2 of the Federal Reserve Act, as amended. The remedies provided in this subsection and in the two preceding subsections shall not be construed as limiting any other remedies against any insured depository institution, but shall be in addition thereto.
(i) INSURANCE OF TRUST FUNDS.—

(1) IN GENERAL.—Trust funds held on deposit by an insured depository institution in a fiduciary capacity as trustee
pursuant to any irrevocable trust established pursuant to any
statute or written trust agreement shall be insured in an
amount not to exceed $100,000 for each trust estate.
(2) INTERBANK DEPOSITS.—Trust funds described in paragraph (1) which are deposited by the fiduciary depository institution in another insured depository institution shall be similarly insured to the fiduciary depository institution according
to the trust estates represented.
(3) BANK DEPOSIT FINANCIAL ASSISTANCE PROGRAM.—Not-

withstanding paragraph (1), funds deposited by an insured depository institution pursuant to the Bank Deposit Financial
Assistance Program of the Department of Energy shall be separately insurea in an amount not to exceed $100,000 for each
insured depository institution depositing such funds.
(4) REGULATIONS.—The Board of Directors may prescribe
such regulations as may be necessary to clarify the insurance
coverage under this subsection and to prescribe the manner of
reporting and depositing such trust funds.
(jXl) No person, acting directly or indirectly or through or in
concert with one or more other persons, shall acquire control of any
insured depository institution through a purchase, assignment,
transfer, pledge, or other disposition of voting stock of such insured
depository institution unless the appropriate Federal banking agency has been given sixty days* prior written notice of such proposed
acquisition and within that time period the agency has not issued
a notice disapproving the proposed acquisition or, in the discretion




Sec. 7

FEDERAL DEPOSIT INSURANCE ACT

398

of the agency, extending for an additional 30 days x the period during which such a disapproval may issue.The period for disapproval
under the preceding sentence may be extended not to exceed 2 additional times for not more than 45 days each time if—
(A) the agency determines that any acquiring party has
not famished all the information required under paragraph (6);
(B) in the agency's judgment, any material information
submitted is substantially inaccurate;
(C) the agency has been unable to complete the investigation of an acquiring party under paragraph (2)(B) because of
any delay caused by, or the inadequate cooperation of, such acquiring party; or
(D) the agency determines that additional time is needed
to investigate and determine that no acquiring party has a
record of failing to comply with the requirements oi subchapter
II of chapter 53 of title 31, United States Code.
An acquisition may be made prior to expiration of the disapproval
period if the agency issues written notice of its intent not to disapprove the action.
(2)(A) NOTICE TO STATE AGENCY.—Upon receiving any notice
under this subsection, the appropriate Federal banking agency
shall forward a copy thereof to the appropriate State depository institution supervisory agency if the depository institution the voting
shares of which are sought to be acquired is a State depository institution, and shall allow thirty days within which the views and
recommendations of such State depository institution supervisory
agency may be submitted. The appropriate Federal banking agency
shall give due consideration to the views and recommendations of
such State agency in determining whether to disapprove any proposed acquisition. Notwithstanding the provisions of this paragraph, if the appropriate Federal banking agency determines that
it must act immediately upon any notice of a proposed acquisition
in order to prevent the probable default of the depository institution involved in the proposed acquisition, such Federal banking
agency may dispense with the requirements of this paragraph or,
if a copy of the notice is forwarded to the State depository institution supervisory agency, such Federal banking agency may request
that the views and recommendations of such State depository institution supervisory agency be submitted immediately in any form or
by any means acceptable to such Federal banking agency.
(B) INVESTIGATION OF PRINCIPALS REQUIRED.—Upon receiving
any notice under this subsection, the appropriate Federal banking
agency shall—
(i) conduct an investigation of the competence, experience,
integrity, and financial ability of each person named in a notice
of a proposed acquisition as a person by whom or for whom
such acquisition is to be made; and
(ii) make an independent determination of the accuracy
and completeness of any information described in paragraph
(6) with respect to such person.
(C) REPORT.—The appropriate Federal banking agency shall
prepare a written report of any investigation under subparagraph
iRL. 99-570, section 1360(a)(1), 100 Stat. 3207-29, left out the "for" in the phrase it deleted.




FEDERAL DEPOSIT INSURANCE ACT

39
9

Sec. 7

(B) which shall contain, at a minimum, a summary of the results
of such investigation. The agency shall retain such written report
as a record of the agency.
(D) PUBLIC COMMENT.—Upon receiving notice of a proposed acquisition, the appropriate Federal banking agency snail, unless
such agency determines that an emergency exists, within a reasonable period of time—
(i) publish the name of the insured depository institution
proposed to be acquired and the name of each person identified
in such notice as a person by whom or for whom such acquisition is to be made; and
(ii) solicit public comment on such proposed acquisition,
articularly from persons in the geographic area where the
ank proposed to be acquired is located, oefore final consideration of such notice by the agency,
unless the agency determines in writing that such disclosure or solicitation would seriously threaten the safety or soundness of such
bank.
(3) Within three days after its decision to disapprove any proposed acquisition, the appropriate Federal banking agency shall notify the acquiring party in writing of the disapproval. Such notice
shall provide a statement of the basis for the disapproval.
(4) Within ten days of receipt of such notice of disapproval, the
acquiring party may request an agency hearing on the proposed acquisition. In such hearing all issues shall be determined on the
record pursuant to section 554 of title 5, United States Code. The
length of the hearing shall be determined by the appropriate Federal banking agency. At the conclusion thereof, the appropriate
Federal banking agency shall by order approve or disapprove the
proposed acquisition on the basis of the record made at such hearing.
(5) Any person whose proposed acquisition is disapproved after
agency hearings under this subsection may obtain review by the
United States court of appeals for the circuit in which the home office of the bank to be acquired is located, or the United States
Court of Appeals for the District of Columbia Circuit, by filing a
notice of appeal in such court within ten days from the date of such
order, and simultaneously sending a copy of such notice by registered or certified mail to the appropriate Federal banking agency.
The appropriate Federal banking agency shall promptly certify and
file in such court the record upon which the disapproval was based.
The findings of the appropriate Federal banking agency shall be set
aside if found to be arbitrary or capricious or if found to violate
procedures established by this subsection.
(6) Except as otherwise provided by regulation of the appropriate Federal banking agency, a notice filed pursuant to this subsection shall contain the following information:
(A) The identity, personal history, business background
and experience of each person by whom or on whose behalf the
acquisition is to be made, including his material business activities and affiliations during the past five years, and a description of any material pending legal or administrative proceedings in which he is a party and any criminal indictment
or conviction of such person by a State or Federal court.

E




Sec. 7

FEDERAL DEPOSIT INSURANCE ACT

400

(B) A statement of the assets and liabilities of each person
by whom or on whose behalf the acquisition is to be made, as
of the end of the fiscal year for each of five fiscal years immediately preceding the date of the notice, together with related
statements of income and source and application of funds for
each of the fiscal years then concluded, all prepared in accordance with generally accepted accounting principles consistently
applied, and an interim statement of the assets and liabilities
for each such person, together with related statements of income and source and application of funds, as of a date not
more than ninety days prior to the date of the filing of the notice.
(C) The terms and conditions of the proposed acquisition
and the manner in which the acquisition is to be made.
(D) The identity, source and amount of the funds or other
consideration used or to be used in making the acquisition, and
if any part of these funds or other consideration has been or
is to be borrowed or otherwise obtained for the purpose of making the acquisition, a description of the transaction, the names
of the parties, and any arrangements, agreements, or understandings with such persons.
(E) Any plans or proposals which any acquiring party making the acquisition may have to liquidate the bank, to sell its
assets or merge it with any company or to make any other
major change in its business or corporate structure or management.
(F) The identification of any person employed, retained, or
to be compensated by the acquiring party, or by any person on
his behalf, to make solicitations or recommendations to stockholders for the purpose of assisting in the acquisition, and a
brief description of the terms of such employment, retainer, or
arrangement for compensation.
(G) Copies of all invitations or tenders or advertisements
making a tender offer to stockholders for purchase of their
stock to be used in connection with the proposed acquisition.
(H) Any additional relevant information in such form as
the appropriate Federal banking agency may require by regulation or by specific request in connection with any particular
notice.
(7) The appropriate Federal banking agency may disapprove
any proposed acquisition if—
(A) the proposed acquisition of control would result in a
monopoly or would be in furtherance of any combination or
conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States;
(B) the effect of the proposed acquisition of control in any
section of the country may be substantially to lessen competition or to tend to create a monopoly or the proposed acquisition
of control would in any other manner be in restraint of trade,
and the anticompetitive effects of the proposed acquisition of
control are not clearly outweighed in the public interest by the
probable effect of the transaction in meeting the convenience
and needs of the community to be served;




401

FEDERAL DEPOSIT INSURANCE ACT

Sec. 7

(C) the financial condition of any acquiring person is such
as might jeopardize the financial stability of the bank or prejudice the interests of the depositors of the bank;
(D) the competence, experience, or integrity of any acquiring person or of any of the proposed management personnel indicates that it would not be in the interest of the depositors of
the bank, or in the interest of the public to permit such person
to control the bank;
(E) any acquiring person neglects, fails, or refuses to furnish the appropriate Federal banking agency all the information required by the appropriate Federal banking agency; or
(F) the appropriate Federal banking agency determines
that the proposed transaction would result in an adverse effect
on the Bank Insurance Fund or the Savings Association Insurance Fund.
(8) For the purposes of this subsection, the term—
(A) "person" means an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, or any other form of
entity not specifically listed herein; and
(B) "control" means the power, directly or indirectly, to direct the management or policies of an insured depository institution or to vote 25 per centum or more of any class of voting
securities of an insured depository institution.
(9) l REPORTING OP STOCK LOANS.—
(A) REPORT REQUIRED.—Any financial

institution and
any affiliate of any financial institution that has credit
outstanding to any person or group of persons which is secured, directly or indirectly, by shares of an insured depository institution shall file a consolidated report with the
appropriate Federal banking agency for such insured depository institution if the extensions of credit by the financial institution and such institution's affiliates, in the aggregate, are secured, directly or indirectly, by 25 percent
or more of any class of shares of the same insured depository institution.
(B) DEFINITIONS.—For purposes of this paragraph—
(i) FINANCIAL INSTITUTION.—The term "financial
institution" means any insured depository institution
and any foreign bank that is subject to the provisions
of the Bank Holding Company Act of 1956 by virtue
of section 8(a) of trie International Banking Act of
1978.
(ii) CREDIT OUTSTANDING.—The term "credit outstanding" includes—
(I) any loan or extension of credit,
(II) the issuance of a guarantee, acceptance,
or letter of credit, including an endorsement or
standby letter of credit, and
(III) any other type of transaction that extends credit or financing to the person or group of
persons.

1

Indentation so in law.




FEDERAL DEPOSIT INSURANCE ACT

Sec. 7

402

(iii) G R O U P O F PERSONS.—The term "group of persons" includes any number of persons t h a t the financial institution reasonably believes—
(I) are acting together, in concert, or with one
another to acquire or control shares of the same
insured depository institution, including an acquisition of shares of the same insured depository institution at approximately the same time under
substantially the same terms; or
(II) have made, or propose to make, a joint filing untier section 13 of tne Securities Exchange
Act of 1934 regarding ownership of the shares of
the same insured depository institution.
(C) INCLUSION O F SHARES HELD BY THE FINANCIAL IN-

STITUTION.—Any shares of the insured depository institution held by the financial institution or any of its affiliates
as principal shall be included in the calculation of the
number of shares in which the financial institution or its
affiliates h a s a security interest for purposes of subparagraph (A).
(D) REPORT REQUIREMENTS.—
(i) T I M I N G O F REPORT.—The report required under

this paragraph shall be a consolidated report on behalf
of the financial institution and all affiliates of the institution, and shall be filed in writing within 30 days
of the date on which the financial institution or any
such affiliate first believes that the security for any
outstanding credit consists of 25 percent or more of
any class of shares of an insured depository institution.
(ii) CONTENT O F REPORT.—The report under this
paragraph shall indicate the number and percentage
of shares securing each applicable extension of credit,
the identity of the borrower, and the number of shares
held as principal by the financial institution and any
affiliate of sucn institution.
(iii) COPY TO OTHER AGENCIES.—A copy of any report under this paragraph shall be filed with the appropriate Federal banking agency for the financial institution (if other than the agency receiving the report
under this paragraph).
(iv) O T H E R INFORMATION.—Each appropriate Federal banking agency may require any additional information necessary to carry out the agency's supervisory
responsibilities.
(E) EXCEPTIONS.—
(i) EXCEPTION WHERE INFORMATION PROVIDED BY

BORROWER.—Notwithstanding subparagraph (A), a financial institution and the affiliates of such institution shall not be required to report a transaction
under this paragraph if the person or group of persons
referred to in such subparagraph h a s disclosed the
amount borrowed from such institution or affiliate and
the security interest of the institution or affiliate to




FEDERAL DEPOSIT INSURANCE ACT

403

Sec. 7

the appropriate Federal banking agency for the insured depository institution in connection with a notice filed under this subsection, an application filed
under the Bank Holding Company Act of 1956, section
10 of the Home Owners' Loan Act, or any other application filed with the appropriate Federal banking
agency for the insured depository institution as a substitute for a notice under this subsection, such as an
application for deposit insurance, membership in the
Federal Reserve System, or a national bank charter.
(ii) EXCEPTION FOR SHARKS OWNED FOR MORE
THAN l YEAR.—Notwithstanding subparagraph (A), a

financial institution and any affiliate of such institution shall not be required to report a transaction involving—
(I) a person or group of persons that has been
the owner or owners of record of the stock for a
period of 1 year or more; or
(II) stock issued by a newly chartered bank
before the bank's opening.
(10) The reports required by paragraph (9) of this subsection
shall contain such of the information referred to in paragraph (6)
of this subsection, and such other relevant information, as the appropriate Federal banking agency may require by regulation or by
specific request in connection with any particular report.
(11) The Federal banking agency receiving a notice or report
filed pursuant to paragraph (1) or (9) shall immediately furnish to
the other Federal banking agencies a copy of such notice or report.
(12) Whenever such a change in control occurs, each insured
depository institution shall report promptly to the appropriate Federal banking agency any changes or replacement of its chief executive officer or of any director occurring in the next twelve-month
period, including in its report a statement of the past and current
business and professional affiliations of the new chief executive officer or directors.
(13) The appropriate Federal banking agencies are authorized
to issue rules and regulations to carry out this subsection.
(14) Within two years after the effective date of the Change in
Bank Control Act of 1978, and each year thereafter in each appropriate Federal banking agency's annual report to the Congress, the
appropriate Federal banking agency shall report to the Congress
the results of the administration of this subsection, and make any
recommendations as to changes in the law which in the opinion of
the appropriate Federal banking agency would be desirable.
(15) INVESTIGATIVE AND ENFORCEMENT AUTHORITY.—

(A) INVESTIGATIONS.—The appropriate Federal banking
agency may exercise any authority vested in such agency
under section 8(n) in the course of conducting any investigation
under paragraph (2KB) or any other investigation which the
agency, in its discretion, determines is necessary to determine
whether any person has filed inaccurate, incomplete, or misleading information under this subsection or otherwise is vio-




404

FEDERAL DEPOSIT INSURANCE ACT

Sec. 7

lating, has violated, or is about to violate any provision of this
subsection or any regulation prescribed under this subsection.
(B) ENFORCEMENT.—Whenever it appears to the appropriate Federal banking agency that any person is violating, has
violated, or is about to violate any provision of this subsection
or any regulation prescribed under this subsection, the agency
may, in its discretion, apply to the appropriate district court of
the United States or the United States court of any territory
for—
(i) a temporary or permanent injunction or restraining
order enjoining such person from violating this subsection
or any regulation prescribed under this subsection; or
(ii) such other equitable relief as may be necessary to
prevent any such violation (including divestiture).
(C) JURISDICTION.—

(i) The district courts of the United States and the
United States courts in any territory shall have the same
jurisdiction and power in connection with any exercise of
any authority by the appropriate Federal banking agency
under subparagraph (A) as such courts have under section
8(n).
(ii) The district courts of the United States and the
United States courts of any territory shall have jurisdiction and power to issue any injunction or restraining order
or grant any equitable relief described in subparagraph
(B). When appropriate, any injunction, order, or other equitable relief granted under this paragraph shall be granted without requiring the posting of any bond. The resignation, termination of employment or participation, divestiture of control, or separation of or by an institution-affiliated party (including a separation caused by the closing of
a depository institution) shall not affect the jurisdiction
and authority of the appropriate Federal banking agency
to issue any notice and proceed under this subsection
against any such party, if such notice is served before the
end of the 6-year period beginning on the date such party
ceased to be such a party with respect to such depository
institution (whether such date occurs before, on, or after
the date of the enactment of this sentence).
(16) l

CIVIL MONEY PENALTY.—

(A) FIRST TIER.—Any person who violates any provision of this subsection, or any regulation or order issued
by the appropriate Federal banking agency under this subsection, shall forfeit and pay a civil penalty of not more
than $5,000 for each day during which such violation continues.
(B) SECOND TIER.—Notwithstanding subparagraph (A),

any person who—
(i)(I) commits any violation
clause of subparagraph (A);
1

Indentation so in law.




described

in

any

405

FEDERAL DEPOSIT INSURANCE ACT

Sec. 7

(II) recklessly engages in an unsafe or unsound
practice in conducting the affairs of a depository institution; or
(III) breaches any fiduciary duty;
(ii) which violation, practice, or breach—
(I) is part of a pattern of misconduct;
(II) causes or is likely to cause more than a
minimal loss to such institution; or
(III) results in pecuniary gain or other benefit
to such person,
shall forfeit ana pay a civil penalty of not more than
$25,000 for each day during which such violation, practice,
or breach continues.
(C) THIRD TrER.—Notwithstanding subparagraphs (A)
and (B), any person who—
(i) knowingly—
(I) commits any violation described in any
clause of subparagraph (A);
(II) engages in any unsafe or unsound practice
in conducting the affairs of a depository institution; or
(III) breaches any fiduciary duty; and
(ii) knowingly or recklessly causes a substantial
loss to such institution or a substantial pecuniary gain
or other benefit to such person by reason of such violation, practice, or breach,
shall forfeit and pay a civil penalty in an amount not to
exceed the applicable maximum amount determined under
subparagraph (D) for each day during which such violation, practice, or breach continues.
(D) MAXIMUM AMOUNTS OP PENALTIES FOR ANY VIOLATION DESCRIBED IN SUBPARAGRAPH (c).—The maximum

daily amount of any civil penalty which may be assessed
pursuant to subparagraph (C) for any violation, practice,
or breach described in such subparagraph is—
(i) in the case of any person other than a depository institution, an amount to not exceed $1,000,000;
and
(ii) in the case of a depository institution, an
amount not to exceed the lesser of—
(I) $1,000,000; or
(II) 1 percent of the total assets of such institution.
(E) ASSESSMENT; ETC.—Any penalty imposed under
subparagraph (A), (B), or (C) shall be assessed and collected by the appropriate Federal banking agency in the
manner provided in subparagraphs (E), (F), (G), and (I) of
section 8(i)(2) for penalties imposed (under such section)
and any such assessment shall he subject to the provisions
of such section.
(F) HEARING.—The depository institution or other person against whom any penalty is assessed under this paragraph shall be afforded an agency hearing if such institution or other person submits a request for such hearing




FEDERAL DEPOSIT INSURANCE ACT

Sec. 7

406

within 20 days after the issuance of the notice of assessment. Section 8(h) shall apply to any proceeding under this
paragraph.
(G) DISBURSEMENT.—All penalties collected under authority of this paragraph shall be deposited into the Treasury.
(17) EXCEPTIONS.—This subsection shall not apply with respect to a transaction which is subject to—
(A) section 3 of the Bank Holding Company Act of
1956;
(B) section 18(c) of this Act; or
(C) section 10 of the Home Owners' Loan Act.
(18) APPLICABILITY OF CHANCE IN CONTROL PROVISIONS TO
OTHER INSTITUTIONS.—For purposes of this subsection, the

term "insured depository institution" includes—
(A) any depository institution holding company; and
(B) any other company which controls an insured depository institution and is not a depository institution
holding company.
(k) The appropriate Federal banking agencies are authorized to
issue rules and regulations, including definitions of terms, to require the reporting and public disclosure of information by a bank
or any executive officer or prinicipal shareholder thereof concerning
extensions of credit by the bank to any of its executive officers or
principal shareholders, or the related interests of such persons.
(1) DESIGNATION OP F U N D MEMBERSHIP FOR NEWLY INSURED
DEPOSITORY INSTITUTIONS; DEFINITIONS.—For purposes of this sec-

tion:
(1) BANK INSURANCE FUND.—Any institution which—

(A) becomes an insured depository institution; and
(B) does not become a Savings Association Insurance
Fund member pursuant to paragraph (2),
shall be a Bank Insurance Fund member.
(2) SAVINGS ASSOCIATION INSURANCE FUND.—Any savings

association, other than any Federal savings bank chartered
ursuant to section 5(o) of the Home Owners' Loan Act, which
ecomes an insured depository institution shall be a Savings
Association Insurance Fund member.
(3) TRANSITION PROVISION.—
(A) BANK INSURANCE FUND.—Any

depository institution the deposits of which were insured by the Federal Deposit Insurance Corporation on the day before the date of
the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, including—
(i) any Federal savings bank chartered pursuant
to section 5(o) of the Home Owners' Loan Act; and
(ii) any cooperative bank,
shall be a Bank Insurance Fund member as of such date
of enactment.
(B) SAVINGS ASSOCIATION INSURANCE FUND.—Any savings association which is an insured depository institution
by operation of section 4(a)(2) shall be a Savings Association Insurance Fund member as of the date of the enact-




407

Sec. 7

FEDERAL DEPOSIT INSURANCE ACT

ment of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989.
(4) BANK INSURANCE FUND MEMBER.—The term "Bank Insurance Fund member^ means any depository institution the
deposits of which are insured by the Bank Insurance Fund.
(5) SAVINGS ASSOCIATION INSURANCE FUND MEMBER.—The

term "Savings Association Insurance Fund member" means
any depository institution the deposits of which are insured by
the Savings Association Insurance Fund.
(6) BANK INSURANCE FUND RESERVE RATIO.—The term
"Bank Insurance Fund reserve ratio" means the ratio of the
net worth of the Bank Insurance Fund to the value of the aggregate estimated insured deposits held in all Bank Insurance
Fund members.
(7)

SAVINCS

ASSOCIATION

INSURANCE

FUND

RESERVE

RATIO.—The term "Savings Association Insurance Fund reserve
ratio" means the ratio of the net worth of the Savings Association Insurance Fund to the value of the aggregate estimated
insured deposits held in all Savings Association Insurance
Fund members.
(m) SECONDARY RESERVE OFFSETS ACAINST PREMIUMS.—
(1) OFFSETS IN CALENDAR YEARS BECINNINO BEFORE 1993.—

Subject to the maximum amount limitation contained in paragraph (2) and notwithstanding any other provision of law, any
insured savings association may offset such association's pro
rata share of the statutorily prescribed amount against any
premium assessed against such association under subsection
(b) of this section for any calendar year beginning before 1993.
(2) ANNUAL MAXIMUM AMOUNT LIMITATION.—The amount of
any offset allowed for any savings association under paragraph
(1) for any calendar year beginning before 1993 shall not exceed an amount which is equal to 20 percent of such association's pro rata share of the statutorily prescribed amount (as
computed for such calendar year).
(3) OFFSETS IN CALENDAR YEARS BEGINNING AFTER 1992.—
Notwithstanding any other provision of law, a savings association may offset such association's pro rata share of the statutorily prescribed amount against any premium assessed
against such association under subsection (D) for any calendar
year beginning after 1992.
(4) TRANSFERABILITY.—No right, title, or interest of any insured depository institution in or with respect to its pro rata
share of the secondary reserve shall be assignable or transferable whether by operation of law or otherwise, except to the extent that the Corporation may provide for transfer of such pro
rata share in cases of merger or consolidation, transfer of bulk
assets or assumption of liabilities, and similar transactions, as
defined by the Corporation for purposes of this paragraph.
(5) PRO RATA DISTRIBUTION ON TERMINATION OF INSURED
STATUS.—If—

(A) the status of any savings association as an insured
depository institution is terminated pursuant to any provision of section 8 or the insurance of accounts of any such
institution is otherwise terminated;




Sec. 7

FEDERAL DEPOSIT INSURANCE ACT

408

(B) a receiver or other legal custodian is appointed for
the purpose of liquidation or winding up the affairs of any
savings association; or
(C) the Corporation makes a determination t h a t for
the purposes of this subsection any savings association h a s
otherwise gone into liquidation,
the Corporation shall pay in cash to such institution its pro
r a t a share of the secondary reserve, in accordance with such
terms and conditions as the Corporation may prescribe, or, at
the option of the Corporation, the Corporation may apply the
whole or any part of the amount which would otherwise be
paid in cash toward the payment of any indebtedness or obligation, whether matured or not, of such institution to the Corporation, existing or arising before such payment in cash. Such
payment or such application need not be made to the extent
t h a t the provisions of the exception in paragraph (4) are applicable.
(6) STATUTORILY PRESCRIBED AMOUNT DEFINED.—For purposes of this subsection, the term "statutorily prescribed
amount" means, with respect to any calendar year which ends
after the date of the enactment of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989—
(A) $823,705,000, minus
(B) the sum of—
(i) the aggregate amount of offsets made before
such date of enactment by all insured institutions
under section 404(e)(2) of the National Housing Act
(as in effect before such date of enactment); and
(ii) the aggregate amount of offsets made by all
savings associations under this subsection before the
beginning of such calendar year.
(7) SAVINGS ASSOCIATION'S PRO RATA AMOUNT.—For purposes of this subsection, any savings association's pro r a t a
share of the statutorily prescribed amount is the percentage
which is equal to such association's share of the secondary reserve as determined under section 404(e) of the National Housing Act on the day before the date on which the Federal Savings and Loan Insurance Corporation ceased to recognize the
secondary reserve (as such Act was in effect on the day before
such date).
(8) YEAR O F ENACTMENT RULE.—With respect to the calendar year in which the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 is enacted, the Corporation
shall make such adjustments as may be necessary—
(A) in the computation of the statutorily prescribed
amount which shall be applicable for the remainder of
such calendar year after taking into account the aggregate
amount of offsets by all insured institutions under section
404(e)(2) of the National Housing Act (as in effect before
the date of the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989) after the beginning of such calendar year and before such date of enactment; and




409

FEDERAL DEPOSIT INSURANCE ACT

Sec. 8

(B) in the computation of the maximum amount of any
savings association's offset for such calendar year under
paragraph (1) after taking into account—
(i) the amount of any offset by such savings association under section 404(e)(2) of the National Housing
Act (as in effect before such date of enactment) after
the beginning of such calendar year and before such
date of enactment; and
(ii) the change of such association's premium year
from the 1-year period applicable under section 404(b)
of the National Housing Act (as in effect before such
date of enactment) to a calendar year basis.
(n) COLLECTIONS ON BEHALF OF THE DIRECTOR OF THE OFFICE
OF THRIFT SUPERVISION.—When requested by the Director of the

Office of Thrift Supervision, the Corporation shall collect on behalf
of the Director assessments on savings associations levied by the
Director under section 9 of the Home Owners' Loan Act. The Corporation shall be reimbursed for its actual costs for the collection
of such assessments. Any such assessments by the Director shall
be in addition to any amounts assessed by the Corporation, the Financing Corporation, and the Resolution Funding Corporation.
SEC. 8. [12 U.S.C. 1818] (a) TERMINATION OF INSURANCE.—
(1) VOLUNTARY TERMINATION.—Any insured depository institution which is not—
(A) a national member bank;
(B) a State member bank;
(C) a Federal branch;
(D) a Federal savings association; or
(E) an insured branch which is required to be insured
under subsection (a) or (b) of section 6 of the International
Banking Act of 1978,
may terminate such depository institution's status as an insured depository institution if such insured institution provides
written notice to the Corporation of the institution's intent to
terminate such status not less than 90 days before the effective
date of such termination.
(2) INVOLUNTARY TERMINATION.—
(A) NOTICE TO PRIMARY REGULATOR.—If

the Board of
Directors determines that—
(i) an insured depository institution or the directors or trustees of an insured depository institution
have engaged or are engaging in unsafe or unsound
practices in conducting the business of the depository
institution;
(ii) an insured depository institution is in an unsafe or unsound condition to continue operations as an
insured institution; or
(iii) an insured depository institution or the directors or trustees of the insured institution have violated
any applicable law, regulation, order, condition imposed in writing by the Corporation in connection with
the approval of any application or other request by the
insured depository institution, or written agreement




Sec. 8

FEDERAL DEPOSIT INSURANCE ACT

410

entered into between the insured depository institution and the Corporation,
the Board of Directors shall notify the appropriate Federal
banking agency with respect to such institution (if other
than the Corporation) or the State banking supervisor of
such institution (if the Corporation is the appropriate Federal banking agency) of the Board's determination and the
facts and circumstances on which such determination is
based for the purpose of securing the correction of such
practice, condition, or violation. Such notice shall be given
to the appropriate Federal banking agency not less than
30 days before the notice required by subparagraph (B),
except that this period for notice to the appropriate Federal banking agency may be reduced or eliminated with
the agreement of such agency.
(B) NOTICE OF INTENTION TO TERMINATE INSURANCE.—

If, after giving the notice required under subparagraph (A)
with respect to an insured depository institution, the
Board of Directors determines that any unsafe or unsound
practice or condition or any violation specified in such notice requires the termination of the insured status of the
insured depository institution, the Board shall—
(i) serve written notice to the insured depository
institution of the Board's intention to terminate the
insured status of the institution;
(li) provide the insured depository institution with
a statement of the charges on the basis of which the
determination to terminate such institution's insured
status was made (or a copy of the notice under subparagraph (A)); and
(iii) notify the insured depository institution of the
date (not less than 30 days after notice under this subparagraph) and place for a hearing before the Board of
Directors (or any person designated by the Board)
with respect to the termination of the institution's insured status.
(3) HEARING; TERMINATION.—If, on the basis of the evidence presented at a hearing before the Board of Directors (or
any person designated by the Board for such purpose), in
which all issues shall be determined on the record pursuant to
section 554 of title 5, United States Code, and the written findings of the Board of Directors (or such person) with respect to
such evidence (which shall be conclusive), the Board of Directors finds that any unsafe or unsound practice or condition or
any violation specified in the notice to an insured depository
institution under paragraph (2KB) or subsection (w) has been
established, the Board of Directors may issue an order terminating the insured status of such depository institution effective as of a date subsequent to such finding.
(4) APPEARANCE; CONSENT TO TERMINATION.—Unless

the

depository institution shall appear at the hearing by a duly authorized representative, it shall be deemed to have consented
to the termination of its status as an insured depository insti-




411

FEDERAL DEPOSIT INSURANCE ACT

Sec. 8

tution and termination of such status thereupon may be ordered.
(5) JUDICIAL REVIEW.—Any insured depository institution
whose insured status has been terminated by order of the
Board of Directors under this subsection shall have the right
of iudicial review of such order only to the same extent as provided for the review of orders under subsection (h) of this section.
(6) PUBLICATION OF NOTICE OF TERMINATION.—The Corporation may publish notice of such termination and the depository institution shall give notice of such termination to each
of its depositors at his last address of record on the books of
the depository institution, in such manner and at such time as
the Board of Directors may find to be necessary and may order
for the protection of depositors.
(7) TEMPORARY INSURANCE OF DEPOSITS INSURED AS OF

TERMINATION.—After the termination of the insured status of
any depository institution under the provisions of this subsection, the insured deposits of each depositor in the depository
institution on the date of such termination, less all subsequent
withdrawals from any deposits of such depositor, shall continue for a period of at least 6 months or up to 2 years, within
the discretion of the Board of Directors, to be insured, and the
depository institution shall continue to pay to the Corporation
assessments as in the case of an insured depository institution
during such period. No additions to any such deposits and no
new deposits in such depository institution made after the date
of such termination shall be insured by the Corporation, and
the depository institution shall not advertise or hold itself out
as having insured deposits unless in the same connection it
shall also state with equal prominence that such additions to
deposits and new deposits made after such date are not so insured. Such depository institution shall, in all other respects,
be subject to the duties and obligations of an insured depository institution for the period referred to in the 1st sentence
from the date of such termination, and in the event that such
depository institution shall be closed on account of inability to
meet the demands of its depositors within such period, the Corporation shall have the same powers and rights with respect
to such depository institution as in case of an insured depository institution.
(8) TEMPORARY SUSPENSION OF INSURANCE.—

(A) IN GENERAL.—If the Board of Directors initiates a
termination proceeding under paragraph (2), and the
Board of Directors, after consultation witn the appropriate
Federal banking agency, finds that an insured depository
institution (other than a savings association to which subparagraph (B) applies) has no tangible capital under the
capital guidelines or regulations of the appropriate Federal
banking agency, the Corporation may issue a temporary
order suspending deposit insurance on all deposits received
by the institution.
(B) SPECIAL RULE FOR CERTAIN SAVINGS INSTITUTIONS.—


89-335 9 5 - 1 4


Sec. 8

FEDERAL DEPOSIT INSURANCE ACT

412

(i) CERTAIN GOODWILL INCLUDED IN TANGIBLE CAP-

ITAL.—In determining the tangible capital of a savings
association for purposes of this paragraph, the Board
of Directors shall include goodwill to the extent it is
considered a component of capital under section 5(t) of
the Home Owners' Loan Act. Any savings association
which would be subject to a suspension order under
subparagraph (A) but for the operation of this subparagraph, shall be considered by the Corporation to
be a "special supervisory association".
(ii) SUSPENSION ORDER.—The Corporation may
issue a temporary order suspending deposit insurance
on all deposits received by a special supervisory association whenever the Board of Directors determines
that—
(I) the capital of such association, as comuted utilizing applicable accounting standards,
as suffered a material decline;
(II) that such association (or its directors or
officers) is engaging in an unsafe or unsound practice in conducting the business of the association;
(III) that such association is in an unsafe or
unsound condition to continue operating as an insured association; or
(IV) that such association (or its directors or
officers) has violated any applicable law, rule, regulation, or order, or any condition imposed in
writing by a Federal banking agency, or any written agreement including a capital improvement
plan entered into with any Federal banking agency, or that the association has failed to enter into
a capital improvement plan which is acceptable to
the Corporation within the time period set forth in
section 5(t) of the Home Owners' Loan Act.
Nothing in this paragraph limits the right of the Corporation or the Director of the Office of Thrift Supervision to enforce a contractual provision which authorizes the Corporation or the Director of the Office of
Thrift Supervision, as a successor to the Federal Savings and Loan Insurance Corporation or the Federal
Home Loan Bank Board, to require a savings association to write down or amortize goodwill at a faster
rate than otherwise required under this Act or under
applicable accounting standards.

E

(C) EFFECTIVE PERIOD OF TEMPORARY ORDER.—Any

order issued under subparagraph (A) shall become effective not earlier than 10 days from the date of service upon
the institution and, unless set aside, limited, or suspended
by a court in proceedings authorized hereunder, such temporary order shall remain effective and enforceable until
an order of the Board under paragraph (3) becomes final
or until the Corporation dismisses the proceedings under
paragraph (3).




413

FEDERAL DEPOSIT INSURANCE ACT

Sec. 8

(D) JUDICIAL REVIEW.—Before the close of the 10-day
eriod beginning on the date any temporary order has
een served upon an insured depository institution under
subparagraph (A), such institution may apply to the United States District Court for the District of Columbia, or
the United States district court for the judicial district in
which the home office of the institution is located, for an
injunction setting aside, limiting, or suspending the enforcement, operation, or effectiveness of such order, and
such court shall have jurisdiction to issue such injunction.

E

(E) CONTINUATION OF INSURANCE FOR PRIOR DEPOS-

ITS.—The insured deposits of each depositor in such depository institution on the effective date of the order issued
under this paragraph, minus all subsequent withdrawals
from any deposits of such depositor, shall continue to be
insured, subject to the administrative proceedings as provided in this Act.
(F) PUBLICATION OF ORDER.—The depository institution shall give notice of such order to each of its depositors
in such manner and at such times as the Board of Directors may find to be necessary and may order for the protection of depositors.
(G) NOTICE BY CORPORATION.—If the Corporation determines that the depository institution has not substantially complied with the notice to depositors required by
the Board of Directors, the Corporation may provide such
notice in such manner as the Board of Directors may find
to be necessary and appropriate.
(H) LACK OF NOTICE.—Notwithstanding subparagraph
(A), any deposit made after the effective date of a suspension order issued under this paragraph shall remain
insured to the extent that the depositor establishes that—
(i) such deposit consists of additions made by
automatic deposit the depositor was unable to prevent;
or
(ii) such depositor did not have actual knowledge
of the suspension of insurance.
(9) FINAL DECISIONS TO TERMINATE INSURANCE.—Any decision by the Board of Directors to—
(A) issue a temporary order terminating deposit insurance; or
(B) issue a final order terminating deposit insurance
(other than under subsection (p) or (q));
shall be made by the Board of Directors and may not be delegated.
(10)

Low-

TO MODERATE-INCOME HOUSING LENDER.—In

making any determination regarding the termination of insurance of a solvent savings association, the Corporation may consider the extent of the association's low- to moderate-income
housing loans.
(b)(1) If, in the opinion of the appropriate Federal banking
agency, any insured depository institution, depository institution
which has insured deposits, or any institution-affiliated party is engaging or has engaged, or the agency has reasonable cause to be-




Sec. 8

FEDERAL DEPOSIT INSURANCE ACT

414

lieve that the depository institution or any institution-affiliated
party is about to engage, in an unsafe or unsound practice in conducting the business of such depository institution, or is violating
or has violated, or the agency has reasonable cause to believe that
the depository institution or any institution-affiliated party is
about to violate, a law, rule, or regulation, or any condition imposed in writing by the agency in connection with the granting of
any application or other request by the depository institution or
any written agreement entered into with tne agency, the agency
may issue and serve upon the depository institution or such party
a notice of charges in respect thereof. The notice shall contain a
statement of the facts constituting the alleged violation or violations or the unsafe or unsound practice or practices, and shall fix
a time and place at which a hearing will be held to determine
whether an order to cease and desist therefrom should issue
against the depository institution or the institution-affiliated party.
Such hearing shall be fixed for a date not earlier than thi