September 18, 1973
Page 5

The Senate and House Banking and Currency Committee reports on this provision demonstrate that, while not highly controversial, the provision was clearly intended to permit national banks to charge 1 percent more than the applicable discount rate, as an alternative to whatever rate State banks might be charging.

Limits the interest that may be charged by a national bank

to that which may be charged by local banks in the State where the
national bank is located, or to a rate 1 per cent higher than the
discount rate on 90-day commercial paper in effect at the Federal
reserve bank in the district where the national bank is located,
whichever is greater. If no rate is fixed by State law, the maxi-
mum rate the national bank may charge is limited to 7 per cent,
or 1 percent in excess of such discount rate, whichever is greater. 5/

The House Banking and Currency Committee included this interest rate
ceiling provision in its bill, and in the Conference Report the provisions
now in the section with respect to charging interest at 1 percent above the
applicable discount rate were included as section 25 of the Banking Act
of 1933.6/

5/From Senate Report No. 584, 72nd Congress, 1st Session, April 22, 1932, to accompany S. 4412 (House Banking and Currency Committee Print, Federal Reserve Act, etc., February 10, 1958). Identical descriptions of the provision were contained in Senate Report No. 77, 73rd Congress, 1st Session, May 15, 1933, to accompany S. 1631 and in House Report No. 150, 73rd Congress, 1st Session, May 19, 1933, to accompany H. R. 5661 (House Banking and Currency Committee Print, Federal Reserve Act. etc., February 10, 1958).

House Report No. 254, 73rd Congress, 1st Session, June 12, 1933, to accompany H. R. 5661 (House Banking and Currency Committee Print, Federal Reserve Act, etc., February 10, 1958).

September 18, 1973
Page 6

The only change in 12 U. S. C. §85 since 1933 was the insertion of the third sentence by the Banking Act of 1935, relating to interest charges by branches located outside the States of the United States and the District of Columbia. Such foreign branches would, of course, not be in any Federal reserve district and consequently the 1 percent provision would be meaningless; in any event, international comity would obviously make it improper for branches of U. S. banks to charge more than local banks were permitted to charge.

While no Federal court cases have construed the 1933 Glass amendment to 12 U. S. C. §85, I have been informed of an unreported opinion rendered last year in the Court of Common Pleas of York County, Pennsylvania: National Central Bank v. Heindel (Civ. Actions Nos. 2064, 2065, 2066 and 2067, May Term 1970). The Pennsylvania usury statute contained a 6 percent ceiling for mortgages. The national bank involved charged 7 percent interest at a time when the discount rate in effect at the Federal Reserve Bank of Philadelphia was 6 percent. The Court held that 12 U. S. C. §85 permitted a national bank to charge 7 percent under these circumstances.

Accordingly, it is my opinion that 12 U. S. C. §85 can and should be interpreted to permit national banks to charge interest rates 1 percent in excess of the discount rate on 90-day commercial paper in effect at Federal reserve banks in the Federal reserve district where the bank is located, even though this may exceed the interest rate generally allowed by the laws of the applicable State, or the rate limited for State banks or 7 percent when no rate is fixed by the laws of the applicable State.

The Comptroller of the Currency expressed the same opinion as that expressed above in Banking Circular No. 1, dated April 29, 1968. In a letter of September 13, 1973 to me, Mr. Robert Bloom, the Chief Counsel of the Comptroller of the Currency, advised me that Banking Circular No. 1 is still in full force and effect.

Matthew Hale

Matthew Hale
General Counsel

41

This is in reply to your letter of April 22, 1968, requesting an interpretation by this Office of Title 12 U.S.C., Section 85, which deals with the question of the maximum rates of interest permitted to be charged on loens by national banks.

You state that present maximum rate of interest allowed under the laws of the State of Tennessee is 6% per annum. You request confirmation of your understanding that since the recent rise in the discount rate to 5, that pursuant to the applicable provisions of Federal law (12 U.S.C. 85), a national bank located in Tennessee may charge up to 6% on loans or other extensions of credit.

Please be advised that in the opinion of our Law Department your interpretation is correct. National banks, located in states wherein the maximum rate allowed by state law is lower than 6, are permitted to charge up to 61% by virtue of the applicable provisions of Federal law. See Tiffany v. National Pank 85 U.S. 409.

You are advised to consult with your own counsel as to the provisions of state law which are to be considered in conjunction with the above ruling.

Sincerely,

Wille B. Comp

Comptroller of the Currency

United States Treasury

This is to advise that Banking Circular No. 1, dated
April 29, 1968, heretofore issued by this office, dealing
with the question of maximum rates of interest on loans
permitted to be charged by national banks is still in
full force and effect.

Sincerely yours,

38-252 O 74-8

Robert Bloom

Chief Counsel

We have your letter of August 27, 1973, in which you inquire whether Michigan National bank may charge interest at a rate 1% in excess of the discount rate quoted by the Federal Reserve Bank of Chicago for discounts of eligible paper under sections 13 and 13A of the Federal Reserve Act.

The rate of interest which may be charged by a national bank is governed by 12 U.S.C. 85. That statute reads, in pertinent part:

Any association may take, receive, reserve, and charge
on any loan or discount made, or upon any notes, bills
of exchange, or other evidences of debt, interest at the
rate allowed by the laws of the State, Territory, or
District where the bank is located, or at a rate of 1
per centum in excess of the discount rate on ninety-day
commercial paper in effect at the Federal reserve bank in
the Federal reserve district where the bank is located,
whichever may be the greater, and no more, except that
where by the laws of any State a different rate is limited
for banks organized under State laws, the rate so limited
shall be allowed for associations organized or existing
in any such State under this chapter.

The original version of 12 U.S.C. 85, as enacted in the National Bank Act of 1864, intended to place national banks in a position at least as advantageous as that held by any lender within the state in which the national bank was located. Thus, prior to the 1933 amendment ("or at a rate of 1 per centum ... may be the greater"), national banks