Banking and Finance Law Daily Fed issues interpretive letters on HOLA covered savings associations, interplay with banking laws
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Thursday, April 8, 2021

Fed issues interpretive letters on HOLA covered savings associations, interplay with banking laws

By Nadine E. Roddy, J.D.

If a federal savings association were to elect to operate as a covered savings association, the Fed would consider it to be a national bank, with consequences for the parent entities.

The Board of Governors of the Federal Reserve System has issued two Interpretive Letters regarding the effect of an election by a federal savings association (FSA) to operate as a covered savings association (CSA) under Section 5A of the Home Owners’ Loan Act (HOLA). In each case, the Fed opined that if the FSA were to elect to operate as a CSA, the Fed would consider it to be a national bank for purposes of the Bank Holding Company Act (BHC Act). Because each of the parent entities would therefore be treated as a bank holding company, each would cease to be a savings and loan holding company, and each would no longer be able to claim an exemption from commercial affiliation restrictions under Section 10(c)(9)(C) of the HOLA.

Letter on Auto Club companies. The first letter inquiry concerned the effect of an election by an FSA to operate as a CSA under Section 5A of the HOLA. Specifically, the inquiring party asked whether the parent companies of Auto Club Trust, F.S.B. (Auto Club FSB)—the Auto Club Trust (Auto Club), Auto Club Insurance Association (ACIA), and Auto Club Services, Inc. (ACS), all of Dearborn, Michigan—could continue to claim an exception from commercial affiliation restrictions under Section 10(c)(9)(C) of the HOLA if Auto Club FSB were to elect to operate as a CSA. As the Fed explained in its reply, Section 5A of the HOLA permits an FSA that meets certain criteria to elect to operate as a CSA by submitting a notice of election to the Office of the Comptroller of the Currency. With limited exceptions, a CSA has the same rights and privileges, and is subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations, as a national bank that has its main office in the same location as the home office of the CSA. The Fed treats a CSA as a national bank for all purposes under its jurisdiction, including under the Bank Holding Company Act (BHC Act), other than these exceptions.

Thus, if Auto Club FSB were to elect to operate as a CSA, the Fed would consider it to be a national bank for purposes of the BHC Act. Because each of Auto Club, ACIA, and ACS would therefore be treated as a bank holding company, each would cease to be a savings and loan holding company (SLHC), and each would no longer be able to claim an exemption under Section 10(c)(9)(C) of HOLA.

Letter on John Deere companies. The second inquiring party asked the same question regarding the parent companies of John Deere Financial, F.S.B., Madison, Wisconsin (Deere FSB)—Deere & Company, Moline, Illinois (Deere), John Deere Financial Services, Johnston, Iowa (JDFS), and John Deere Capital Corp., Reno, Nevada (JDCC). Additionally, the party inquired whether the affiliate transaction rules applicable to national banks under Sections 23A and 23B of the Federal Reserve Act (FRA) would apply to CSAs, and whether membership in the Federal Reserve System for CSAs would be voluntary. In its reply, the Fed opined that if Deere FSB were to elect to operate as a CSA, the Fed would consider Deere FSB to be a national bank for all purposes—other than those specifically limited by Section 5A—within the Fed’s jurisdiction, including the FRA and the BHC Act. Further, Deere FSB would be required to become a member of the Federal Reserve System, and the affiliate transaction rules applicable to national banks would apply to it.

In addition, because each of Deere, JDFS, and JDCC controls Deere FSB, each would be treated as a bank holding company, each would cease to be a SLHC, and each would no longer be able to claim an exemption under Section 10(c)(9)(C) of the HOLA.

Companies: Auto Club Insurance Association; Auto Club Services, Inc.; Auto Club Trust; Deere & Company; John Deere Capital Corp.; John Deere Financial, F.S.B.; John Deere Financial Services

MainStory: TopStory BankHolding BankingOperations FederalReserveSystem Loans

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