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FDIC Issues Final Rule Clarifying the Interest Rates State-Chartered Banks and Insured Branches of Foreign Banks May Charge

Regulations
June 25, 2020

Summary:

On June 25, 2020, the FDIC Board of Directors authorized publication of a final rule that would clarify the law governing the interest rates that state-chartered banks and insured branches of foreign banks may charge. The final rule will take effect 30 days after publication in the Federal Register .

A copy of the final rule can be found on the FDIC’s website: https://www.fdic.gov/news/board/2020/2020-06-25-notice-dis-c-fr.pdf

An overview of the final rule can also be found on the FDIC’s website: https://fdic.gov/news/interest-6-25-20.pdf

Statement of Applicability to Institutions with Total Assets under $1 Billion: The final rule is applicable to all state-chartered banks and insured branches of foreign banks.

Highlights:

  • The final rule codifies certain guidance contained in FDIC General Counsel"s Opinion No. 11, which was adopted by the FDIC"s Board of Directors in 1998, and addresses legal uncertainty that followed the decision of the U.S. Court of Appeals for the Second Circuit in Madden v. Midland Funding, LLC .
  • Consistent with section 27 of the Federal Deposit Insurance Act, the final rule allows a state-chartered bank or insured branch of a foreign bank to charge interest of up to the greater of 1 percent more than the rate on 90-day commercial paper rate or the rate allowed by the law of the State where the bank is located.
  • Under the final rule, whether interest on a loan is permissible under section 27 will be determined as of the date the loan was made.
  • Interest on a loan permissible under section 27 would not be affected by changes in state law, changes in the commercial paper rate after the loan was made, or the sale, assignment, or other transfer of the loan, in whole or in part.

Distribution:

State-Chartered Banks
Insured Branches of Foreign Banks

Suggested Routing:

Chief Executive Officer
Compliance Officer
Chief Lending Officer

Attachment(s)

Last Updated: June 25, 2020