The Office of the Comptroller of the Currency (OCC) has issued a notice of proposed rulemaking (NPR) addressing the permissibility standards for real estate used as national bank or federal savings associations premises.
“The OCC periodically reviews its regulations to eliminate outdated or otherwise unnecessary regulatory provisions and, where possible, to clarify or revise requirements imposed on national banks and federal savings associations,” the NPR stated.
“As part of the periodic review that resulted in recent amendments to 12 CFR part 7, the OCC determined that it would propose revisions to the rules governing national bank and federal savings association bank premises currently codified at 12 CFR 7.1024. The OCC determined that the regulation may need significant revision and that such revisions may involve significant policy considerations.”
National banks are generally prohibited by statute from purchasing, holding, or conveying real estate, with four general exceptions. The proposed rule would only affect the one of these exceptions, which allows banks to hold property as necessary for its accommodation in the transaction of its business.
Federal savings association ownership of property is governed by the Home Owners Loan Act (HOLA), which does not contain the same prohibition language as the statute governing national banks. However, agencies in the past have interpreted HOLA to permit federal savings associations to “hold real estate only for their offices and related facilities with permission to rent or sell excess space in their offices and facilities….”
The rule would provide general standards the OCC would use in determining whether a national bank’s or federal savings association’s acquisition and holding of real estate is necessary for the transaction of their business. The NPR stated it would include implementing an occupancy test and excess capacity standards that would allow national banks and federal savings associations to ascertain better whether an acquisition of holding of real estate is permissible under the governing statutes.
“Current §7.1024 and various legal interpretations provided examples of permissible holdings, but the OCC has determined that…these examples do not provide general principles national banks could apply to new acquisitions,” the NPR stated. “Without clear principles, there is the potential for inconsistent application of 12 U.S.C. 29, the HOLA, and 12 CFR 7.1024. The proposed revisions are intended to provide for more consistent application of 12 U.S.C. 29, the HOLA, and 12 CFR 7.1024.”
Though the OCC encourages any comments regarding the NPR, the agency did provide several specific questions for targeted feedback, including but not limited to:
- Although current OCC regulations and the proposal cover both the national bank and federal savings association charters in one section, there are differences in the statutory regimes covering each charter. Would it be preferable to apply different requirements to federal savings association premises? Specifically, should the proposed rule apply only to national banks?
- The OCC requests comment on whether 50 percent is the appropriate percentage for bank occupied premises. Should the percentage be higher, such as 75 percent, or lower, such as 25 percent? Why?
- Should ground floor retail space rented to a third party be treated differently under the occupancy percentage calculation?
- Should the OCC permit a national bank or federal savings association to lease out more than 50 percent of its premises on a temporary basis, provided that the national bank brings its percentage of occupancy back to at least 50 percent by a certain time period?
The comment period will be open for 45 days after the NPR is published in the Federal Register.