Letter concludes that section 5A of the Home Owners’ Loan Act functions as a statutory exemption from the qualified thrift lender requirements described in section 10(m) of that Act, and a covered savings association operating under section 5A is not subject to the requirements of section 10(m)(3), including the provisions of section 10(m)(3)(B) (06/30/2020)

Interpretive Letter #1169

July 2020

June 30, 2020

Subject: Applicability of Section 10(m)(3) of the Home Owners’ Loan Act to Covered Savings

Associations

Dear [ ]:

This responds to your letter of June 24, 2020, in which you request confirmation that a

Federal savings association that elects to operate as a covered savings association under section

5A of the Home Owners’ Loan Act (HOLA) is exempt from section 10(m) of HOLA and,

accordingly, would not be subject to any provision of section 10(m)(3)(B) in the event the

covered savings association does not meet the qualified thrift lender requirements described in

section 10(m).1

As further explained below, we continue to conclude that section 5A of HOLA functions

as a statutory exemption from the qualified thrift lender requirements described in section 10(m)

of that Act, and a covered savings association operating under section 5A is not subject to the

provisions of section 10(m)(3), including the provisions of section 10(m)(3)(B).

I.

BACKGROUND

Federal savings associations serve an important role in the financial system by providing

“for the deposit of funds and for the extension of credit for homes and other goods and

services.”2 HOLA requires that Federal savings associations maintain this focus by imposing

operational and activities restrictions on savings associations that are not “qualified thrift

lenders.”3 A savings association is a qualified thrift lender if it qualifies as a domestic building

and loan association under section 7701(a)(19) of the Internal Revenue Code or if its investments

in qualified thrift investments equal or exceed 65 percent of its portfolio assets and continue to

equal or exceed 65 percent of its portfolio assets on a monthly average basis in 9 out of every 12

1 12 U.S.C. § 1464a; 12 U.S.C. § 1467a(m).

2 12 U.S.C. § 1464(a).

3 12 U.S.C. § 1467a(m).

)(19) of the Internal Revenue Code or if its investments

in qualified thrift investments equal or exceed 65 percent of its portfolio assets and continue to

equal or exceed 65 percent of its portfolio assets on a monthly average basis in 9 out of every 12

1 12 U.S.C. § 1464a; 12 U.S.C. § 1467a(m).

2 12 U.S.C. § 1464(a).

3 12 U.S.C. § 1467a(m).

2

months (collectively, the QTL test).4 Section 10(m) of HOLA sets out the restrictions that apply

to a savings association that fails to become or remain a qualified thrift lender. The restrictions

include limitations on new investments, branching, and dividends, as well as regulatory

penalties.5

In 2018, Congress provided additional flexibility to Federal savings associations to shape

their business models in response to changes in the financial services landscape. Section 206 of

the Economic Growth, Regulatory Relief, and Consumer Protection Act amended HOLA to add

a new section 5A (12 U.S.C. § 1464a). Section 5A allows a Federal savings association with total

consolidated assets of $20 billion or less, as reported to the OCC as of December 31, 2017, to

elect to operate as a covered savings association.

Under section 5A, a covered savings association has the same rights and privileges as a

national bank that has its main office situated in the same location as the home office of the

covered savings association. A covered savings association is also subject to the same duties,

restrictions, penalties, liabilities, conditions, and limitations that would apply to such a national

bank. However, a covered savings association retains its Federal savings association charter and

continues to be treated as a Federal savings association for purposes of governance, including

procedures and requirements for incorporation, charters and bylaws, boards of directors,

shareholders, and distribution of dividends

lities, conditions, and limitations that would apply to such a national

bank. However, a covered savings association retains its Federal savings association charter and

continues to be treated as a Federal savings association for purposes of governance, including

procedures and requirements for incorporation, charters and bylaws, boards of directors,

shareholders, and distribution of dividends. A covered savings association is also treated as a

Federal savings association for purposes of consolidation, merger, dissolution, conversion,

conservatorship, and receivership, as well as for other purposes determined by OCC regulation.

The OCC is responsible for administering section 5A.6 This responsibility includes

interpreting the statute and issuing implementing rules, such as those that determine the purposes

for which a covered savings association continues to be treated as a Federal savings association.7

The OCC issued a final rule implementing section 5A on May 24, 2019.8 The preamble to the

final rule specifies that “a covered savings association operating under section 5A is not subject

to, among other things, the penalties in 12 U.S.C. 1467a(m)(3) for failing to meet the QTL test.”9

II.

DISCUSSION

The text, purpose, and legislative history of section 5A support the OCC’s previously-

stated conclusion that a covered savings association is not subject to the qualified thrift lender

provisions of section 10(m) of HOLA.10

As the OCC noted in the preamble to the proposed rule implementing section 5A, a key

purpose of the statute is to allow Federal savings associations to adjust their business models

4 12 U.S.C. § 1467a(m)(1).

5 12 U.S.C. § 1467a(m)(3)(B).

6 12 U.S.C. § 1464a(f).

7 12 U.S.C. § 1464a(d)(3). See also, e.g., Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467

U.S

the proposed rule implementing section 5A, a key

purpose of the statute is to allow Federal savings associations to adjust their business models

4 12 U.S.C. § 1467a(m)(1).

5 12 U.S.C. § 1467a(m)(3)(B).

6 12 U.S.C. § 1464a(f).

7 12 U.S.C. § 1464a(d)(3). See also, e.g., Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467

U.S. 837, 844 (1984) (holding that considerable weight should be accorded to an executive department’s

construction of a statutory scheme it is entrusted to administer).

8 84 Fed. Reg. 23991 (May 24, 2019).

9 Id. at 23997.

10 Id.

3

“without the additional burden and expense of changing charters.”11 This purpose is

accomplished by allowing a covered savings association to retain its Federal savings association

charter, while having the powers and responsibilities of a national bank. The retention of the

Federal savings association charter eliminates the burden and expense of converting—at both the

savings association and holding company levels—that would otherwise attend operating as a

national bank.

To ensure that retention of the charter would not be misinterpreted to limit the authority

of a covered savings association to operate as a national bank, section 5A explicitly states:

“Notwithstanding any other provision of law, and except as otherwise provided in this section, a

covered savings association shall…have the same rights and privileges as a national bank….”12

As the OCC explained in the preamble to the final rule, a covered savings association is not able

to exercise the rights and privileges conferred on it under section 5A while simultaneously being

subject to the limitations of the QTL test.13 The QTL test is a key difference between the rights

and privileges of a Federal savings association and a national bank. Federal savings associations

are required to comply with the QTL test set forth in section 10(m) of HOLA

gs association is not able

to exercise the rights and privileges conferred on it under section 5A while simultaneously being

subject to the limitations of the QTL test.13 The QTL test is a key difference between the rights

and privileges of a Federal savings association and a national bank. Federal savings associations

are required to comply with the QTL test set forth in section 10(m) of HOLA. There are no

authorizations, terms, or conditions that require national banks to maintain status as qualified

thrift lenders or that limit their activities or asset composition. If a covered savings association

were subject to the QTL test, it would not “have the same rights and privileges as a national

bank” within the meaning of section 5A.

The text of section 5A acknowledges that section 5A will have the effect of overriding

some provisions of law that would otherwise apply to Federal savings associations, such as the

QTL test. By using the term “notwithstanding any other provision of law” in section 5A(c) to

grant covered savings associations the same rights and privileges as national banks, Congress

explicitly chose to grant the rights and privileges, and apply the restrictions and penalties, of

national banks to covered savings association, rather than the rights, privileges, restrictions, and

penalties of savings associations. In this regard, section 5A operates as a statutory exemption for

covered savings associations from the QTL test.14

This conclusion is consistent with legislative discussions of the purpose of an earlier, but

related, version of section 5A. The House of Representatives passed H.R. 1426, the Federal

Savings Association Charter Flexibility Act of 2017, in January 2018

s of savings associations. In this regard, section 5A operates as a statutory exemption for

covered savings associations from the QTL test.14

This conclusion is consistent with legislative discussions of the purpose of an earlier, but

related, version of section 5A. The House of Representatives passed H.R. 1426, the Federal

Savings Association Charter Flexibility Act of 2017, in January 2018. The report accompanying

the House Financial Services Committee’s consideration of the bill noted that Federal savings

associations historically enjoyed benefits not accorded national banks, but that, in exchange for

these benefits, Federal savings associations were subject to statutory commercial lending limits

and restrictions under the QTL test.15 The committee’s report noted, “Unlike federal savings

associations, national banks enjoy the ability to engage in a wider range of lending activities

because they are not required to focus on a particular area of lending and investment, and do not

have specific asset-type lending constraints.” The report notes approvingly that the proposal

11 83 Fed. Reg. 47102 (September 18, 2018). See also H.R. Rep. No. 115-530 (2018) at 2 (“Under current law, the

only option for federal savings associations that want to offer products and services outside of these HOLA

restrictions is to expend human and financial resources to convert to a national bank charter.”).

12 12 U.S.C. § 1464a(b).

13 84 Fed. Reg. 23997.

14 The OCC is not, by this statement, making a determination under section 10(m)(2) of HOLA.

15 H.R. Rep. No. 115-530 (2018).

rent law, the

only option for federal savings associations that want to offer products and services outside of these HOLA

restrictions is to expend human and financial resources to convert to a national bank charter.”).

12 12 U.S.C. § 1464a(b).

13 84 Fed. Reg. 23997.

14 The OCC is not, by this statement, making a determination under section 10(m)(2) of HOLA.

15 H.R. Rep. No. 115-530 (2018).

4

upon which the bill was based would give Federal savings associations “the ability to exceed the

commercial and consumer loan limits that apply under HOLA.”

Simply stated, a covered savings association is not a savings association subject to the

provisions of section 10(m)(3) of HOLA, including the provisions of subparagraph (B) of section

10(m)(3).16

III.

CONCLUSION

Based on the foregoing, the OCC continues to conclude that section 5A provides covered

savings associations a statutory exemption from the QTL test, and, thus, a covered savings

association operating under section 5A of HOLA is not subject to the provisions of section

10(m)(3) of that Act, including the provisions of section 10(m)(3)(B).

Sincerely,

/s/

Jonathan V. Gould

Senior Deputy Comptroller and Chief Counsel

16 Although covered savings associations are not subject to section 10(m)(3)(B) of HOLA, they are subject to

section 5A of that Act and, as a result, are subject to the same restrictions on activities and branching as national

banks (except as expressly provided in section 5A and 12 CFR part 101).