32 MARCH / APRIL 2019 COMPLIANCE CONNECTION Brett J. Ashton Partner Krieg DeVault LLP Submit Compliance Connection questions to Eric J. Augustus, Indiana Bankers Association: eaugustus@indianabankers.org Krieg DeVault LLP is a Diamond Associate Member of the Indiana Bankers Association. Permissible Fees and Charges Based on bank location Question: My bank is state-chartered, regulated by the Indiana Department of Financial Institutions and the Federal Deposit Insurance Corp. We recently came across a consumer loan mar- keting piece from one of our competitors – a national bank regulated by the Office of the Comptroller of the Currency – and were surprised by the fees and charges advertised. Do national banks have to comply with Indiana laws? Answer: Yes, although where the national bank is located will determine exactly which Indiana laws will apply. All banks, regardless of charter or location, conducting business in Indiana must comply with Indiana laws with respect to consumer protection, unfair and deceptive acts, commercial and real estate law, and any other law that does not restrict activities incidental to the business of banking. Indiana-chartered banks are subject to the aforementioned laws, in addition to all Indiana laws with respect to banking. Among the many laws impacting Indiana banks are provisions of the Indiana Uniform Consumer Credit Code (IUCCC, or the “Code”). The IUCCC dictates permissible fees and charges for consumer loans. For example, an Indiana-chartered bank can assess a late fee on a consumer loan of up to $19 under the Code.* For national banks, however, the issue of what law will apply depends entirely on where the national bank is located. Under the National Bank Act and principles of federal preemption, a bank located outside of Indiana is permitted to charge consumer loan rates to Indiana residents based on the permissible rates and fees in its home state, regardless of what the IUCCC may provide. Similarly, state-chartered banks in other states are permitted to “export” the rates of their home states to Indiana, regardless of what the IUCCC provides. It is this basic principle of federal preemption that has incentivized many of the nation’s credit card banks to locate operations in states such as Utah, Nevada or Delaware, where interest rate and fee limitations are scarce, and the ability to export rates and fees is most profitable. These banks have been known to charge late fees on consumer loans of as much as $40, while Indiana banks remain limited to $19 under the Code. While additional fee income may be appealing to some, it is important to note that the permissible fees in the example above are driven by the location of the bank, not the charter. An Indiana-based national bank can charge no more for a late fee than a state-chartered bank, because the permissible fees and charges by a national bank are limited to those of the state in which it is located. For this reason, we often see banks with an Indiana charter choosing to offer credit cards offered through a partner bank in another jurisdiction. If the competitor bank you referenced is an out-ofstate bank, it is permitted to charge higher fees. If the competitor is an Indiana-based bank, however, its fees are likely out of compliance with Indiana law. HB * Ind. Code § 24-4.5-3-203.5 This information is provided for general education purposes and is not intended to be legal advice. Please consult legal counsel for specific guidance as to how this information applies to your institution’s circumstances or situation.
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