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Exclusive lease arrangements in which a bank is a party
State-chartered banks have powers in parity with national banks under Mass. Gen. Laws chapter 167F, section 2(31) and its implementing regulations at 209 CMR 47.00 et seq. Said section 2, paragraph 31 provides that a state-chartered bank may "exercise any power and engage in any activity that is permissible for a national banking association with its main office located in the Commonwealth in accordance with regulations promulgated by the commissioner pursuant to this section; provided, however, that any such activity is not otherwise prohibited under the laws of the Commonwealth." The Division's promulgation of 209 CMR 47.00 et seq. did not include any authority for permitting exclusive lease arrangements. Neither statute nor regulations currently permit such a lease arrangement; thus, the bank may not utilize an exclusive lease provision.
Authority to offer unemployment insurance to a co-borrower
It is the position of the Division of Banks that Mass. Gen. Laws ch. 255 § 12G authorizes a creditor to offer optional involuntary unemployment insurance in connection with a consumer loan to a "borrower" or "borrowers" in the loan transaction. The words "borrower" or "borrowers" would include a co-borrower in such a transaction. Therefore, an entity may offer optional involuntary unemployment insurance to co-borrowers in connection with a loan transaction for personal, family, or household purposes under Mass. Gen. Laws ch. 255 § 12G.
Mobile branch offices
Mobile branch banking by a state-chartered bank is authorized in the county where the main office of the bank is located with approval and under such conditions as the Commissioner of Banks may impose pursuant to Mass. Gen. Laws chapter 167C, § 6. The Commissioner has established certain conditions which will likely be imposed at any mobile branch office. See Opinion # 97-134.
A related issue to mobile branch banking is the operation of an independent courier service. Under this alternative, a bank would contract with a third party for the purpose of collecting deposits from customers at locations other than bank branch offices. State-chartered banks are permitted to engage in any activity or power permissible for a national bank in accordance with regulations promulgated by the Commissioner pursuant to Mass. Gen. Laws chapter 167F, § 2(31). State-chartered banks are authorized to operate a courier service without regard to branching limitations with approval by the Commissioner under 209 CMR 47.00 et seq., implementing the parity with national banks statute.
Federal Reserve's single account structure
The Riegle-Neal Interstate Banking Statute allows for increased activity across Federal Reserve District lines as well as across state lines. As a result, beginning in January 1998, the Federal Reserve System implemented a "single account structure" that enables an interstate bank with offices across District lines to maintain a single Reserve Bank account in the District where its head office is located. The Division of Banks has reviewed Massachusetts banking and trust law, statutes governing the investment of the Commonwealth's funds, and municipal finance laws. The Division has also consulted other agencies. The Massachusetts laws most applicable to this change are Mass. Gen. Laws ch. 167, 167D, 167G on bank and trust law provisions; ch. 29 §§ 34, 34A, and 38 on general funds of the Commonwealth; ch. 44 on municipal finance; and ch. 203 on trusts in general. It is the position of the Division that no statute conflicts with the Federal Reserve's new single account structure. Accordingly, no statutory amendments to the Massachusetts General Laws will be filed regarding the single account structure.
Limitations on bank deposit contracts
It is the position of the Division of Banks that the relationship between a bank and a proposed customer seeking to establish a deposit account is voluntary and fundamentally a contractual matter. Such relationships may be initiated "upon such terms and conditions as may be agreed upon between the depositor and the bank...," pursuant to Mass. Gen. Laws chapter 167D, § 2(1). Accordingly, a Massachusetts-chartered savings bank may decline to enter into a deposit account relationship with any individual so long as such denial is not based on the proposed depositor's race, color, religion, national origin, sex, sexual orientation, marital status, age, or other protected class without violating the equal protection clause of the Massachusetts Constitution. See Mass. Gen. Laws chapter 151B, § 3(6); see also 24 CFR 202.2(z)(Regulation B). In addition, it remains the position of the Division that neither the Massachusetts Constitution nor any other law under the Division's jurisdiction would be violated by such bank practices regardless of whether the individual or entity seeking to establish any such deposit account resided in the Commonwealth or any other location in a bank's market area or delineated community for purposes of the Community Reinvestment Act.
Bank holding company acquisitions of certain limited purpose banks
It is the position of the Division of Banks that under Mass. Gen. Laws chapter 167A, a "banking institution" would include any entity that has the same powers as those banks listed in Mass. Gen. Laws chapter 167A, § 1(a). Because all the banks listed in the statute are authorized to receive deposits, make loans and investments, an entity would have to be empowered to perform such activities to be considered a "banking institution" under the statute. Therefore, a limited purpose credit card bank which is not authorized to make commercial loans or accept demand deposits does not meet the definition of a banking institution and thus a bank holding company's acquisition of such an entity would not be subject to the approval process set out in the provisions of Mass. Gen. Laws chapter 167A, §§ 2 and 4.
Using the word bank within the name of a corporate licensee
A foreign corporation is prohibited from transacting business in the Commonwealth under any name or title which contains the word "bank", "banker", or "banking" pursuant to Mass. Gen. Laws chapter 167, § 37. The purpose of this statute is to prohibit the practice of unauthorized banking in the Commonwealth and to prevent an entity from creating the impression that might lead the public to believe that its business is that of a bank. However, certain entities, such as bank holding companies, may be exempt from this statutory prohibition. Also, it has been the position of the Division of Banks that when the term, "bank", is used as part of a corporate name of an entity not engaged in banking business and such term is not a separate and distinct word in that name, the prohibition of Mass. Gen. Laws chapter 167, § 37 is not triggered. Furthermore, the Commonwealth's Office of the Secretary of State has ultimate jurisdiction over the use of corporate names.
Bank sales or distribution of pre-paid telephone cards and postage stamps
It is the position of the Division of Banks that a state-chartered bank may act as an agent for the sale of prepaid telephone cards through its ATMs under Mass. Gen. Laws chapters 167B, § 3 and 167F, § 2(25). In addition, the Division has also determined that a state-chartered bank may act as an agent for the U.S. Postal Service by selling and dispensing postage stamps through its ATMs.
Permissibility of a Massachusetts-chartered bank investing in securities which are less than investment grade
Under Mass. Gen. Laws chapter 167F, section 3(4), a state-chartered bank may invest up to four percent of its deposits in the preferred or common stock of any corporation organized under the laws of any state, or any association not controlled by the bank, the business of which is conducted or transacted by trustees under a written instrument or declaration of trust. Such stock need not qualify as a prudent investment as defined by section 3(4), paragraph 5. The Division is unaware of any Massachusetts laws which authorize a trust to issue preferred stock. However, it is the position of the Division that a state-chartered savings bank, co-operative bank or trust company may invest in trust preferred securities issued by a corporation not controlled by the bank, which are less than investment grade, subject to the limitation of four percent of the bank's deposits found in M.G.L. ch. 167F § 3(4). However, of equal concern to the Division is the safety and soundness of an institution considering such authority or investment. Such investments may be the subject of review and comment by examiners during the course of a regularly scheduled examination.
Bank denials of equipment lease applications made by small businesses
Any applicant receiving a small business loan denial is eligible to have the loan application reviewed by the Small Loan Review Board pursuant to 209 CMR 39.10. It is the position of the Division of Banks that the denial of equipment lease financing to a small business does not constitute a small business loan denial. Therefore, banks engaged in business equipment lease financing would not be subject to the same requirements triggered by the denial of small business loan applications under Mass. Gen. Laws chapter 167, § 14C and 209 CMR 39.00. Accordingly, no appeals on denials for such equipment lease financing will be heard by the Small Business Loan Review Board.
Maintaining a banking office at the same site where another bank has an ATM
Banks are prohibited from occupying the same office or suite of offices or any office directly connected by doors or other openings in partitions with the office or suite of offices used or occupied by another bank, whether state or federally-chartered, under Mass. Gen. Laws chapter 167C § 5. However, banks may occupy a portion of the same building or hold certain meetings in the same office or suite of offices occupied by any other bank. It is the position of the Division of Banks that the provisions of Mass. Gen. Laws chapter 167C § 5 are not triggered by maintaining an ATM at the same site occupied by a state-chartered bank office because ATM's are governed by Mass. Gen. Laws chapter 167B while branch offices are governed by Mass. Gen. Laws chapter 167C.
Limitations on banking deposit contracts
It is the position of the Division of Banks that the relationship between a bank and a proposed customer seeking to establish a deposit account is voluntary and fundamentally a contractual matter. Such relationships may be initiated "upon such terms and conditions as may be agreed upon between the depositor and the bank...," pursuant to Mass. Gen. Laws chapter 167D § 2(1). Accordingly, a bank in stock or mutual form may decline to enter into a deposit relationship with any individual or person as long as such denial is not based on the proposed depositor's race, color, religion, national origin, sex, sexual orientation, marital status, age, and other protected classes without violating the equal protection clause of the Massachusetts Constitution. See Mass. Gen. Laws chapter 151B § 3(6); see also 12 CFR 202.2(z) (Regulation B). The Division continues to view this general rule as applicable to any deposit account including certificates of deposit. In addition, it remains the position of the Division that neither the Massachusetts Constitution nor any other Massachusetts law under the Division's jurisdiction would be violated by such bank practices regardless of whether the individual or entity seeking to establish any such deposit account resided in the Commonwealth or any other location in a bank's market area or delineated community for purposes of the Community Reinvestment Act.
Out-of-state banks making mortgage loans in the Commonwealth
Any person or entity which makes 5 or more residential mortgage loans in a consecutive 12 month period must obtain a mortgage lender's license from the Commissioner of Banks under Mass. Gen. Laws chapter 255E. However, any bank, trust company, savings bank, savings and loan association, credit union or insurance company organized under the laws of any other state is exempt from the license requirement under Mass. Gen. Laws chapter 255E § 2. In regard to the separate issue of registering to conduct business in Massachusetts, the Office of the Secretary of State registers foreign corporations doing business in the Commonwealth. For information regarding foreign corporation registration contact the Secretary of State's Corporations Division at (617) 727-2850.
License requirements for entities which sell, distribute, & maintain ATMs
A corporation which provides services to merchants in order to make available electronic transfers would be required to obtain a license from the Commissioner of Banks under Mass. Gen. Laws chapter 167B § 5. Each independent sales organization selling and distributing ATMs in the Commonwealth would also require a license under Mass. Gen. Laws chapter 167B § 5, unless such an entity had an exclusive relationship with a licensed ATM seller/ distributor and did not sell or distribute ATMs for other corporations. Also, merchants which purchase or lease an ATM must be licensed to do so under Mass. Gen. Laws chapter 167B §§ 4 & 5.
Reciprocity with Connecticut banking merger laws
In the Commonwealth, Chapter 238 of the Acts of 1996, effective August 2, 1996, authorized among other things, interstate branching, mergers and acquisitions as provided for in the federal Riegle-Neal Interstate Banking and Branching Efficiency Act. Based upon a review of applicable law, it is the position of the Division of Banks that a state or federally-chartered bank located in Connecticut may acquire a Massachusetts bank through merger or consolidation because the terms imposed by the laws of Connecticut are no more restrictive than those required under Mass. Gen. Laws chapter 167, § 39B for such transactions.
Applicability small loans act and small loans rate order on banks
Generally, Mass. Gen. Laws ch. 140 § 114A has been considered to exempt financial institutions from the licensing requirements of the Small Loans Law and to subject such financial institutions to the Small Loans Rate Order governing licensees. On the latter issue, said Section 114A specifically provides that such an institution shall "not take, receive, reserve or charge interest, expenses and other considerations for making or securing a loan of six thousand dollars or less in excess of those permitted by section one hundred." Other provisions of the statute provide that charges in excess of the Small Loan Rate Order by a financial institution could be declared void but that split rates on different portions of a loan are allowed provided that the composite rate does not exceed the maximum. The last sentence of Section 114A provides that "[e]xtension, default or deferment charges shall not be deemed to be interest, expenses and other considerations in determining the maximum rate of charge that may be taken, received, reserved or charged for said loan." No such similar provision exists in Section 100 or the regulation establishing the Small Loans Rate Order. It is the position of the Division of Banks that a licensee is not permitted to make any charge other than as specifically permitted by Section 100. Accordingly, licensees are not permitted to charge a late charge on simple interest loans of six thousand dollars or less. Additionally, the Division concludes that a bank or credit union governed by Section 114A may charge a default or late fee and that such charge is not to be calculated as interest toward the maximum amount allowed by the Small Loan Rate Order. The Division negates, in part, that portion of Opinion # 97-087 regarding the imposition of a late charge to borrowers whose loans are simple interest and subject to the Small Loans Law and the Small Loans Rate Order. However, licensees are not permitted to charge a default or late fee on simple interest consistent with that portion of Opinion # 97-087.
Permissibility of pre-setting personal identification numbers for bank telephone banking services
A consumer's Social Security number cannot be used as a central information file number, personal identification number (PIN), primary financial account number, or a subpart thereof, under Mass. Gen. Laws chapter 167B § 14. However, it is the position of the Division of Banks that under the statute, a bank may pre-set the last four digits of a consumer's Social Security number as the initial PIN for its telephone banking service because four digits alone do not constitute a person's Social Security number. However, such bank practice could trigger significant privacy and security issues. For example, the Federal Financial Institutions Examination Council's Information Systems Handbook states that bank employees with access to PIN information must be subject to security clearance and be covered by an adequate surety bond. Such employees should not be involved in card issuance operations in any way. Therefore, banks intending to implement such practices should consult with their counsel to ensure compliance with any other applicable laws and regulations outside of the Division's jurisdiction.
Dividend anticipation loan notice requirements
State-chartered banks which offer dividend anticipation loans must post a notice in their banking offices containing the substance of Mass. Gen. Laws chapter 167E § 8. It has been the position of the Division of Banks that no notice requirement exists for such banks which do not offer dividend anticipation loans.
Permissibility of offering home equity loans
Under Mass. Gen. Laws chapter 167E, § 2B(7)(B), a bank may make an open-end first mortgage loan "not exceeding in the aggregate eighty percent of the value of the real estate pursuant to an agreement to make loans to the mortgagor from time to time." In addition, state-chartered banks may make an open-end mortgage loan which is a second or subsequent lien pursuant to Mass. Gen. Laws chapter 167E, § 11. However, such loans would be limited to the greater of either $25,000.00 or "the amount by which the loan limitation applicable to the particular class . . . exceeds the principal balance outstanding on any first mortgage loan secured by a mortgage on the property loaned upon." Such loans may also be made pursuant to Mass. Gen. Laws chapter 167F, § 2(8), subject to the limitations therein. Furthermore, a bank may apply to the Division for approval to make home equity loans on owner-occupied residential property with a loan-to-value ratio in the aggregate of up to one hundred percent pursuant to 209 CMR 47.00 et seq., implementing the parity with national banks statute.
Permissibility of providing courier services
Under 209 CMR 47.00 et seq., state-chartered banks are permitted to establish and use a messenger service to transport items relevant to the bank's transactions with its customers without regard to branching limitations found in applicable State and Federal law, provided such service does not receive deposits, pay checks, or lend money. However, under the new regulations, such a bank may choose to employ an independent third party messenger service for the purpose of picking up from, and delivering to, customers items including deposits, check payments, and loan money without regard to other branching limitations. The Division of Banks agrees with the federal regulations at 12 CFR 7.1012 that a messenger service is clearly established by a third party: (i) if a party other than the bank owns the service and its facilities (or rents them from a party other than the bank) and employs the person engaged in the provision of service; and (ii) the messenger service makes its services available to the public, including other depository institutions; retains ultimate discretion to determine which customers and geographical areas it will serve; maintains ultimate responsibility for scheduling, movement and routing; does not operate under the name of the bank; and the bank and the messenger service do not advertise or otherwise represent that the bank itself is providing the service, although the bank may advertise that its customers may use one or more third party messenger services to transact business with the bank; assumes responsibility for the items during transit and for maintaining adequate insurance covering thefts, employee fidelity, and other in-transit losses; and acts as the agent for the customer when the items are in transit.
Other factors which the Division will consider include whether the bank deems items intended for deposit not to be deposited until credited to the customer's account at an established bank office or other permissible non-branch facility, or whether the bank deems items representing withdrawals to be paid when the items are given to the messenger service.
Unauthorized electronic funds transfers disclosures regarding customer liability
In 1983, the Board of Governors of the Federal Reserve System determined that Mass. Gen. Laws chapter 167B was not pre-empted by the federal Electronic Funds Transfer Act or Regulation E. Accordingly, the terms and conditions of electronic funds transfers involving a consumer's account shall be disclosed in writing under Mass. Gen. Laws chapter 167B § 8. Such disclosures must include the customer's liability for unauthorized electronic funds transfers and notice of the advisability of prompt reporting of any loss, theft, or unauthorized use of an access device. In total, sixteen items must be addressed in a bank's consumer disclosure material. The applicable error resolution procedure for a financial institution to follow when oral or written notice of an account error is received from a consumer is set forth by Mass. Gen. Laws chapter 167B § 17. These procedures apply if the bank receives oral or written notice from a consumer with 60 days after providing a periodic statement or other required notification of an electronic funds transfer. The condition under which a consumer may be liable for unauthorized transfers are set forth under Mass. Gen. Laws chapter 167B § 18. A consumer may be liable for a maximum of $50.00 provided specific conditions of liability are met and the unauthorized transfer occurs before the consumer has notified the issuer that such a transfer has occurred or may occur.
The consumer liability provisions differ between state and federal law. Banks are subject to compliance with state law provisions and should tailor their consumer disclosures to reflect these provisions. Accordingly, banks cannot use the liability chart which depicts the liability levels imposed under the federal Regulation E.
Notifying passbook account holders of their rights under the "18-65" law
Banks are prohibited from imposing any fee, charge or other assessment against the savings account or checking account of any persons sixty-five years of age or older or eighteen years of age or younger under Mass. Gen. Laws chapter 167D § 2. However, a reasonable charge, as determined by the Division of Banks, may be assessed against any such account when payment has been refused because of insufficient funds on a check drawn thereon. It is the position of the Division that the requirement for providing an annual mailing of a notice under Administrative Bulletin 24-2 only applies to passbook accounts for which banks provide periodic statements. A separate annual notice mailing is not required for passbook accounts which do not have a periodic statement. However, banks are required to provide sufficient notification of the law to passbook account holders. Affixing a label on passbooks along with the conspicuous posting in all bank offices, is an acceptable option for banks to demonstrate compliance with the statute and the notice requirements set forth in Administrative Bulletins 24-1 and 24-2.
Assets qualifying for co-operative bank minimum reserve requirements
Co-operative banks must maintain at least 6½% of their share liability as a minimum reserve to meet withdrawals of shares and accounts, and applications for loans on shares and accounts, and payments of taxes received from mortgagors under Mass. Gen. Laws chapter 170 § 22. Such reserve may consist of investments listed in the statute including bonds and certain obligations of the United States; bonds and notes of the Commonwealth or any political subdivision; and certificates of deposit. State-chartered banks are examined by the Division of Banks on a consolidated basis along with their wholly-owned subsidiaries pursuant to Mass. Gen. Laws chapter 167F § 2(7). Thus, it is the position of the Division that assets qualifying under Mass. Gen. Laws chapter 170 § 22 and transferred by a co-operative bank to its wholly-owned securities subsidiary will be calculated towards the bank's minimum reserve requirements.
Bank authority to invest in the capital stock of a banker's bank
Under Mass. Gen. Laws chapter 167F § 2(4), Massachusetts-chartered savings banks, co-operative banks and trust companies may invest in the capital stock of any bank, national banking association, federal savings bank, federal or state savings and loan association or bank holding company. This authority was extended to any such corporations located in any other New England state under Mass. Gen. Laws 167E § 14(C)(7). Accordingly, it is the position of the Division that Massachusetts-chartered savings banks, co-operative banks, and trust companies may invest in the capital stock of a banker's bank which will not conduct business with the public, but will offer a variety of correspondent banking services to investor and client banks. The determination whether to make such an investment remains the responsibility of each state-chartered bank and its management. The Division's analysis does not constitute an approval or recommendation to invest in any particular banker's bank.
Deposit solicitation in Massachusetts by out-of-state banks
Any domestic or foreign corporation not having a charter to do business as a savings bank, co-operative bank, savings and loan association, credit union, trust company or banking company cannot solicit or receive deposits in any manner so as to lead the public to believe that its business is that of a bank under Mass. Gen. Laws chapter 167 § 37. It is the position of the Division of Banks that this statute applies only to non-banking corporations. Therefore, a bank chartered by a state other than Massachusetts would not be violating the statute by soliciting deposits in Massachusetts provided that the laws of the bank's home state authorize such solicitations. Out-of-state banks, however, may not establish a physical presence in Massachusetts in order to solicit deposits unless they receive the Commissioner's approval pursuant to Mass. Gen. Laws chapter 167 § 39C.
Federal pre-emption of the Massachusetts Electronic Funds Act
It is the position of the Division of Banks that the Commonwealth's Electronic Funds Transfer Act, Mass. Gen. Laws chapter 167B, is a registration and consumer protection statute which is a valid exercise of the Commonwealth's police powers designed to protect the public health, safety and welfare notwithstanding the pre-emption provisions of 12 CFR § 545.2. In addition, the Board of Governors of the Federal Reserve System has specifically determined that the consumer protection provisions of Mass. Gen Laws chapter 167B are not pre-empted by the federal Electronic Funds Transfer Act, 15 U.S.C. § 1693 et seq. or its implementing regulations at 12 CFR Part 205.
Laws applicable to insider loans
Under Mass. Gen. Laws chapter 170 § 19, all loans made by a bank to its officers and directors must have the prior approval of the bank's Board of Directors. The statute does not provide for an exception based on either the type or dollar amount of the loan. The amounts set forth in Mass. Gen. Laws chapter 170 § 19 represent the maximum loan amounts that a bank may make for the specified loan types to officers. A loan to a director is governed by the lending limit to one person set out in Mass. Gen. Laws chapter 167E § 14. Administrative Bulletin 9-1 (AB 9-1) defines assets as all loans or other extensions of credit exclusive of credit card transactions. Accordingly, residential mortgage loans are subject to AB 9-1. Under AB 9-1, a credit transaction must be specifically approved prior to being executed. Ratification of a prior action would not satisfy the requirements of AB 9-1.
Under AB 9-1, a "Vice President" does not include individuals who do not participate in major policy making functions and whose authority is limited by policy set by senior management. Thus, an individual whose title is "Vice President" may not be subject to AB 9-1. Mass. Gen. Laws chapter 170 § 19 also states that the term does not include a person who may have an official title and may exercise a certain measure of discretion in the performance of duties but does not participate in the determination of major policies of the corporation and whose decisions are limited by policy standards fixed by senior management of the corporation.
Federal Regulation O has no effect on the duty of a state-chartered bank to comply with requirements of Massachusetts law regarding loans to insiders. The requirements of each are separate and distinct bodies of law.