12 U.S.C. § 1972 — Certain tying arrangements prohibited; correspondent accounts

submitted 56 years ago by Pub. L. 91-607 to r/title-12-BANKS-AND-BANKING · 1,663 words · no verdicts yet

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This section generally bars banks from tying one product or service to another and sets rules for certain correspondent accounts and insider credit. It also creates civil penalties and related enforcement rules.

(1) A bank may not provide credit, lease or sell property, provide a service, or set the price of any of those things on the condition that: (A) the customer obtain another product or service from that bank, except a loan, discount, deposit, or trust service; (B) the customer obtain another product or service from the bank holding company or another subsidiary; (C) the customer provide another product or service to the bank, except one related to and normally provided with a loan, discount, deposit, or trust service; (D) the customer provide another product or service to the bank holding company or another subsidiary; or (E) the customer not obtain another product, property, or service from a competitor of the bank, its holding company, or a subsidiary, except a credit condition reasonably imposed to ensure sound credit. The Board may issue implementing regulations and, consulting the Comptroller and the Federal Deposit Insurance Corporation, may allow exceptions by regulation or order if consistent with this chapter’s purposes. (2)(A) A bank with a correspondent account in another bank may not extend credit to that other bank’s executive officer, director, person who owns, controls, or can vote more than 10% of a voting-security class, or related interest, unless the terms—including interest and collateral—are substantially those for comparable transactions with others and the credit has no more than normal repayment risk or other unfavorable feature. (B) A bank may not open a correspondent account at another bank while it has such an extension of credit to an officer, director, 10%-plus owner or related interest of the bank seeking the account, unless that credit met the same terms and risk conditions. (C) A bank with such an account may not make the described extension of credit to a person connected with the other bank unless those conditions are met. (D) A bank with such an extension of credit to a person connected with another bank may not open a correspondent account there unless those conditions were met. (E) “Extension of credit” has the Board’s section 375b meaning, and “executive officer” has section 375a’s meaning. (F) Civil penalties: (i) first tier—a bank or its institution-affiliated party that violates this paragraph forfeits up to $5,000 per day; (ii) second tier—if it commits such a violation, recklessly engages in an unsafe or unsound practice, or breaches a fiduciary duty, and the conduct is patterned, causes or is likely to cause more than minimal loss, or gives the party a financial gain or other benefit, the penalty is up to $25,000 per day; (iii) third tier—if it knowingly commits a violation, unsafe practice, or fiduciary breach and knowingly or recklessly causes substantial loss to the bank or substantial financial gain or other benefit to the party, the penalty is up to the applicable maximum per day. (iv) The maximum for a nonbank person is $1,000,000 per day; for a bank it is the lesser of $1,000,000 or 1% of total assets per day. (v) The Comptroller assesses penalties for national banks, the Board for State member banks, and the FDIC for insured nonmember State banks, using section 1818(i)(2)(E), (F), (G), and (I); those assessments are subject to that section. (vi) The bank or person may request an agency hearing within 20 days after the assessment notice; section 1818(h) applies. (vii) Collected penalties go into the Treasury. (viii) “Violate” includes acting alone or with others to cause, bring about, participate in, counsel, or aid or abet a violation. (ix) The three agencies must issue procedural regulations. (G) Here, “bank” includes a mutual savings bank, savings bank, and savings association as section 1813 defines them. “Related interests” includes a company controlled by the officer, director, or person, and a political or campaign committee whose funds or services benefit or are controlled by that person. “Control of a company” and “company” have section 375b’s meanings. (H) Leaving employment or participation, or separation caused by a bank’s closing, does not remove the appropriate federal banking agency’s authority over an institution-affiliated party if notice is served within six years after the party ceased being such a party, whether that date was before, on, or after August 9, 1989.

the actual law source: uscode.house.gov ↗public domain

(1)

A bank shall not in any manner extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition or requirement—

(A)

that the customer shall obtain some additional credit, property, or service from such bank other than a loan, discount, deposit, or trust service;

(B)

that the customer shall obtain some additional credit, property, or service from a bank holding company of such bank, or from any other subsidiary of such bank holding company;

(C)

that the customer provide some additional credit, property, or service to such bank, other than those related to and usually provided in connection with a loan, discount, deposit, or trust service;

(D)

that the customer provide some additional credit, property, or service to a bank holding company of such bank, or to any other subsidiary of such bank holding company; or

(E)

that the customer shall not obtain some other credit, property, or service from a competitor of such bank, a bank holding company of such bank, or any subsidiary of such bank holding company, other than a condition or requirement that such bank shall reasonably impose in a credit transaction to assure the soundness of the credit.

The Board may issue such regulations as are necessary to carry out this section, and, in consultation with the Comptroller of the Currency and the Federal Deposit Insurance Company, may by regulation or order permit such exceptions to the foregoing prohibition and the prohibitions of section 1843(f)(9) and 1843(h)(2) of this title as it considers will not be contrary to the purposes of this chapter.

(2)

(A)

No bank which maintains a correspondent account in the name of another bank shall make an extension of credit to an executive officer or director of, or to any person who directly or indirectly or acting through or in concert with one or more persons owns, controls, or has the power to vote more than 10 per centum of any class of voting securities of, such other bank or to any related interest of such person unless such extension of credit is made on substantially the same terms, including interest rates and collateral as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features.

(B)

No bank shall open a correspondent account at another bank while such bank has outstanding an extension of credit to an executive officer or director of, or other person who directly or indirectly or acting through or in concert with one or more persons owns, controls, or has the power to vote more than 10 per centum of any class of voting securities of, the bank desiring to open the account or to any related interest of such person, unless such extension of credit was made on substantially the same terms, including interest rates and collateral as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features.

(C)

No bank which maintains a correspondent account at another bank shall make an extension of credit to an executive officer or director of, or to any person who directly or indirectly acting through or in concert with one or more persons owns, controls, or has the power to vote more than 10 per centum of any class of voting securities of, such other bank or to any related interest of such person, unless such extension of credit is made on substantially the same terms, including interest rates and collateral as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features.

(D)

No bank which has outstanding an extension of credit to an executive officer or director of, or to any person who directly or indirectly or acting through or in concert with one or more persons owns, controls, or has the power to vote more than 10 per centum of any class of voting securities of, another bank or to any related interest of such person shall open a correspondent account at such other bank, unless such extension of credit was made on substantially the same terms, including interest rates and collateral as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features.

(E)

For purposes of this paragraph, the term “extension of credit” shall have the meaning prescribed by the Board pursuant to section 375b of this title, and the term “executive officer” shall have the same meaning given it under section 375a of this title.

(F)Civil money penalty.—

(i)First tier.—

Any bank which, and any institution-affiliated party (within the meaning of section 1813(u) of this title) with respect to such bank who, violates any provision of this paragraph shall forfeit and pay a civil penalty of not more than $5,000 for each day during which such violation continues.

(ii)Second tier.—

Notwithstanding clause (i), any bank which, and any institution-affiliated party (within the meaning of section 1813(u) of this title) with respect to such bank who—

(I)

(aa)

commits any violation described in clause (i);

(bb)

recklessly engages in an unsafe or unsound practice in conducting the affairs of such bank; or

(cc)

breaches any fiduciary duty;

(II)

which violation, practice, or breach—

(aa)

is part of a pattern of misconduct;

(bb)

causes or is likely to cause more than a minimal loss to such bank; or

(cc)

results in pecuniary gain or other benefit to such party,

shall forfeit and pay a civil penalty of not more than $25,000 for each day during which such violation, practice, or breach continues.

(iii)Third tier.—

Notwithstanding clauses (i) and (ii), any bank which, and any institution-affiliated party (within the meaning of section 1813(u) of this title) with respect to such bank who—

(I)

knowingly—

(aa)

commits any violation described in clause (i);

(bb)

engages in any unsafe or unsound practice in conducting the affairs of such bank; or

(cc)

breaches any fiduciary duty; and

(II)

knowingly or recklessly causes a substantial loss to such bank or a substantial pecuniary gain or other benefit to such party by reason of such violation, practice, or breach,

shall forfeit and pay a civil penalty in an amount not to exceed the applicable maximum amount determined under clause (iv) for each day during which such violation, practice, or breach continues.

(iv)Maximum amounts of penalties for any violation described in clause (iii).—

The maximum daily amount of any civil penalty which may be assessed pursuant to clause (iii) for any violation, practice, or breach described in such clause is—

(I)

in the case of any person other than a bank, an amount to not exceed $1,000,000; and

(II)

in the case of a bank, an amount not to exceed the lesser of—

(aa)

$1,000,000; or

(bb)

1 percent of the total assets of such bank.

(v)Assessment; etc.—

Any penalty imposed under clause (i), (ii), or (iii) may be assessed and collected—

(I)

in the case of a national bank, by the Comptroller of the Currency;

(II)

in the case of a State member bank, by the Board; and

(III)

in the case of an insured nonmember State bank, by the Federal Deposit Insurance Corporation,

in the manner provided in subparagraphs (E), (F), (G), and (I) of section 1818(i)(2) of this title for penalties imposed (under such section) and any such assessment shall be subject to the provisions of such section.

(vi)Hearing.—

The bank or other person against whom any penalty is assessed under this subparagraph shall be afforded an agency hearing if such bank or person submits a request for such hearing within 20 days after the issuance of the notice of assessment. Section 1818(h) of this title shall apply to any proceeding under this subparagraph.

(vii)Disbursement.—

All penalties collected under authority of this subsection shall be deposited into the Treasury.

(viii)“Violate” defined.—

For purposes of this paragraph, the term “violate” includes any action (alone or with another or others) for or toward causing, bringing about, participating in, counseling, or aiding or abetting a violation.

(ix)Regulations.—

The Comptroller of the Currency, the Board, and the Federal Deposit Insurance Corporation shall prescribe regulations establishing such procedures as may be necessary to carry out this subparagraph.

(G)

For the purpose of this paragraph—

(i)

the term “bank” includes a mutual savings bank, a savings bank, and a savings association (as those terms are defined in section 1813 of this title);

(ii)

the term “related interests of such persons” includes any company controlled by such executive officer, director, or person, or any political or campaign committee the funds or services of which will benefit such executive officer, director, or person or which is controlled by such executive officer, director, or person; and

(iii)

the terms “control of a company” and “company” have the same meaning as under section 375b of this title.

(H)Notice Under This Section After Separation From Service.—

The resignation, termination of employment or participation, or separation of an institution-affiliated party (within the meaning of section 1813(u) of this title) with respect to such a bank (including a separation caused by the closing of such a bank) shall not affect the jurisdiction and authority of the appropriate Federal banking agency to issue any notice and proceed under this section against any such party, if such notice is served before the end of the 6-year period beginning on the date such party ceased to be such a party with respect to such bank (whether such date occurs before, on, or after August 9, 1989).

Source credit: (Pub. L. 91–607, title I, § 106(b), Dec. 31, 1970, 84 Stat. 1766; Pub. L. 95–630, title VIII, § 801, Nov. 10, 1978, 92 Stat. 3690; Pub. L. 97–320, title IV, §§ 410(f), 424(c), (d)(11), (e), 428, Oct. 15, 1982, 96 Stat. 1520, 1523, 1526; Pub. L. 101–73, title IX, §§ 905(h), 907(i), Aug. 9, 1989, 103 Stat. 461, 473; Pub. L. 102–242, title III, § 306(j), Dec. 19, 1991, 105 Stat. 2359; Pub. L. 104–208, div. A, title II, § 2216(a), Sept. 30, 1996, 110 Stat. 3009–413; Pub. L. 109–351, title VI, § 601(b), Oct. 13, 2006, 120 Stat. 1978; Pub. L. 111–203, title III, § 355, July 21, 2010, 124 Stat. 1547.)

history & why it existsrecord from the source credit

1970Enacted · Pub. L. 91-607 · 84 Stat. 1766
1978Amended · Pub. L. 95-630 · 92 Stat. 3690
1982Amended · Pub. L. 97-320 · 96 Stat. 1520, 1523, 1526
1989Amended · Pub. L. 101-73 · 103 Stat. 461, 473
1991Amended · Pub. L. 102-242 · 105 Stat. 2359
1996Amended · Pub. L. 104-208 · 110 Stat. 3009
2006Amended · Pub. L. 109-351 · 120 Stat. 1978
2010Amended · Pub. L. 111-203 · 124 Stat. 1547

A history note hasn’t been published yet. The record shows enactment by Pub. L. 91-607 on 1970-12-31.

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