TO THE CHIEF EXECUTIVE OFFICER OF THE STATE CHARTERED BANK ADDRESSED:
RE: Loan Production FacilitiesThe Office of the Superintendent of Banking has recently received several inquiries asking whether the establishment and operation of a loan production facility by a state chartered bank is prohibited by Iowa Code § 524.1201 (1987). The Comptroller of the Currency presently authorizes loan production facilities which perform limited functions. According to a January 1974 opinion of the Iowa Attorney General's Office, the establishment of a loan production facility would violate the state's bank office law. However, since that opinion, the IBAA, in the case of Independent Bankers Association of America v. John G. Heimann, 627 F.2d 486 (D.C. Cir. 1980), challenged the Comptroller of the Currency's interpretive ruling, which concluded that loan production facilities engaged in certain limited activities were not "branches" within the meaning of 12 U.S.C. 36(f). The U.S. Court of Appeals dismissed the challenge on the basis that IBAA failed to seek timely relief. Thus, the Comptroller's ruling is still in effect. Therefore, we requested the Attorney General's Office to review its previous opinion in light of the stated purpose of Iowa Code § 524.102(5) of providing state banks competitive equality with national banks. We now have received that opinion which states the Superintendent of Banking has the discretion under his supervisory powers to authorize state chartered banks to establish loan production facilities at any geographic location in the state of Iowa. Furthermore, a loan production facility which does not perform any core banking functions (deposit taking, paying checks or lending money) does not violate Iowa Code § 524.1201 (1987).
In keeping with the spirit of competitive equality, we have adopted a position similar to that of the Comptroller of the Currency with regard to loan production facilities. In view of that position, only the following limited activities may be performed at a loan production facility of a state bank:1) soliciting loan business;
2) interviewing and counseling potential applicants regarding loans;3) providing information as to loan rates and terms;
4) preparing loan applications;5) assembling credit information;
6) making property inspections and appraisals; and7) advertising which discloses the nature and limitations of the loan production facility.
A loan production facility is prohibited from engaging in core banking functions including, but not limited to, the following:1) approving loans;
2) executing notes, security agreements or other documents obligating the loan customer to the bank;3) disbursing loan funds;
4) accepting loan payments;5) providing forms enabling the customer to open deposit accounts directly or by mail;
6) counseling customers regarding any banking service other than loan origination;7) providing information to customers concerning the status of their deposit accounts;
8) accepting funds for delivery to the main bank or authorized bank office;9) paying checks or drafts; and
10) advertising which states or implies that loan production facilities provide more than loan origination services.A loan production facility that complies with the requirements of this interpretive bulletin will not be considered an authorized bank office under Iowa Code § 524.1201 (1987) and, therefore, will not be subject to its restrictions on location or number. Upon 30-day prior notification to this office, a state chartered bank may establish such a facility. The Office of the Superintendent reserves the right to prohibit the establishment of such a facility by a state chartered bank on a case-by-case basis if such establishment would constitute an unsafe and unsound banking practice. A copy of the Attorney General's opinion is available upon request.
Sincerely yours,Edward L. Tubbs
Superintendent