A Guide to Bank Compliance Research
Do you ever find yourself thinking "Help! I didn't go to law school. How am I supposed to understand all these statutes and regulations and know where to find them?" If so, this guide is for you.It will explain in simple language the differences between laws and rules, where advisory opinions, interpretive opinions and court decisions come into play, how to cite them, and how to find them.
When it comes to doing compliance research on the Internet, there's one address you need to remember.From it, you can get to everywhere you want to go.
STATUTES AS THE STARTING PLACE
The starting point for banking regulation and other matters which affect banking is statutes. Statutes, also called laws, are enacted by Congress at the federal level with the approval of the President, while state laws are enacted at the state level by the legislature with the approval of the Governor. You remember from high school civics class the passage of a bill through the legislative system and on to the President/Governor where it is either vetoed, signed, or allowed to become law by inaction.
Within a bill you may have some sections which amend existing sections of law, and others which add new sections of law.On the federal level, the USA PATRIOT Act is a good example.It included some new sections of law (such as a new Section 626 added to the Fair Credit Reporting Act), and it also makes amendments to various existing laws, such as the Right to Financial Privacy Act.
The federal statutes/laws are collectively organized into a set referred to as the United States Code. It is abbreviated U.S.C. [You sometimes also see U.S.C.A. That stands for United States Code Annotated. The United States Code Annotated contains not only the statutes, but also summaries of court cases which have relied upon or interpreted those statutes. Those summaries are called "annotations" and they appear following the statute they pertain to.]
The federal statutes have long been available in book form. The complete set takes many rows of shelves. It is also available on CD ROM and, even better, on the Internet.
The U.S.C. is broken down into broad subjects. Each subject is contained in a different "title" and each title has a number. For example, the Internal Revenue Code is found at Title 26 of the U.S.C.
Banking laws are generally found at Title 12. Within each title, the material is broken down into sections. The symbol for "section" which you will see frequently is "?". The symbol for multiple sections is ??. To cite to a statute which appears at Section 84 of Title 12 of the United States Code, you would write 12 U.S.C. ?84. The first number always signifies the Title where the law will be found. It is followed by the name of the source (in this case, U.S.C.) and then the number for the section. This uniform system for citation gives a type of shorthand that is easy to use and easy to decipher.
If you are ever using the actual U.S.C. or U.S.C.A. books to perform research in (rather than a secondary source that has reprinted the laws in it), you should know that updates are placed in the back of the books. The updates are called "pocket parts" and it is crucial that you check them. You do this by locating the statute in the main part of the book. Then look in the pocket part under the same section number. There will be material there if the statute has been recently repealed or amended or if there are recent cases involving its application. The pocket part material supersedes the main volume. If the pocket part contains nothing on your subject, you can assume the material in the main volume on that subject is current.
If you are doing legal research on the Internet, you will want to ascertain how frequently the site updates its information.You do not end up in the position of making a bad decision based upon outdated information.
When you look at a statute, do the following:
- Take special note of the subject matter of the entire Chapter the section is included in. If you are doing research on lending limits, for example, you won't want to be doing research in a chapter dealing with trust powers. You will be wasting your time. Narrow your search.
- Don't take sections out of context!!! You may find a section which defines a term to mean a particular thing. That definition will only apply within the context of that particular law. Always keep in mind the big picture of what you're looking for, as well as the details, and don't get confused.
- Read the statute carefully. Who does it apply to? When and how does it apply? You may have to go back to the beginning of the chapter to determine that answer, but it's well worth it. It doesn't do you any good to research lending limits only to learn that the sections you're looking at only apply to savings and loans when you are interested in banks.
- If you are doing research on a recently passed bill, check the effective date of the legislation to see when it applies.Many new laws have a delayed effective date.
With federal legislation, it is possible to learn more about the intent of Congress by studying the "legislative history." The legislative history captures information about what was said during debates on the bill, how it was amended as it passed through Congress, and other items of interest. Legislative history can be gleaned from committee reports of the House and Senate, conference committee reports, and the Congressional Record. [Fortunately, it is rarely necessary to go to those lengths to ascertain the meaning of a statute, but you should know legislative history is available, should you ever need it.] That legislative history is found on the Congress.gov (formerly know as Thomas.gov) legislative section of the Library of Congress, described below.
Between the time a law is passed and the time that it is incorporated into the United States Code (a process known as "codification"), it is assigned a public law number and it may be referred to as such. The citation for a public law begins with "PL". It then has the number assigned to the current session of Congress, such as "108", and finally, the number for the specific law. An example would be PL-108-532. Copies of public laws can be obtained at your local law library or through your Senator or Representative. They may also be obtained on the Internet via the Congress.gov site. You can access current legislative activities through Congress.gov.
To perform research into pending legislation, or recently enacted laws, if what you are looking for is a pending bill, or something that has been enacted into law.Narrow down the timeframe.If you're searching for pending legislation, you will click on the link near the top of the page that says "Search by Number". Above that you can enter numbers, names or other keywords.
If you want to search for a public law, you click the Public Law link. There, you can search by PL number, or can view an entire list of public laws for a particular year.
There are three excellent sources for the federal statutes on the Internet (all found on the Launch Pad.)The first is through the House of Representatives Law Library. Use it only as a last resort, for it is the least user-friendly.
The second source is from Cornell Law School statutes collection. It allows you to access/search the statutes four different ways:
- by typing in keywords;
- through a Popular Name table that lists acts (such as the Bank Secrecy Act) in alphabetical order, with links to them;
- by drilling down, clicking first on the Title the statute is located in, then on the appropriate chapter, then on the section;
- by typing in the Title and section number.
The third source is the FDIC collection of laws and regulations. It is essentially the old FDIC brown manuals in hypertext format. Amazing!
STATE STATUTES vs. FEDERAL STATUTES
At the state level, there are many similarities and a few differences. Once again, in most states, the laws are grouped by subject matter and assigned to different "Titles". They appear together in a set of volumes cited as the ___________ (fill in the name of the state) Statutes.
It is important to understand the types of matters which are addressed by state law versus those that are addressed by federal statutes. Among the areas covered by state law are the following. Note that this list is not, in any way, intended to be all-inclusive.
- Mortgages, including recordation, release, and foreclosure;
- branch banking;
- powers of attorney;
- account ownership;
- interest rate limits on loans;
- stop payments, postdated checks, forgeries, alterations, and other check matters.
Tip: When you are researching a statute or regulation on the Internet, pull up the pertinent page, then use your "Find in page" feature on your browser to quickly locate the text you are looking for. For example, if you are looking for the provision in Regulation O which relates to payment of overdrafts, type in the word overdraft in the "Find in page" command and let it show you where that is located. [Your browser may call it something different, but it will have a similar feature. If you haven't used it, find it! It will save you an incredible amount of time.
Tip: Always use the lowest form of a word. If you typed in "overdrafts" and only the word "overdraft" (singular) was used in the regulation, the Find command would not locate it.
Tip:If the document you are searching is a PDF document, click on the binoculars icon in the Adobe toolbar, then type in a word or term you are looking for.Then click the smaller set of binoculars to keep searching through the document.
Tip:Many state banking departments now have their state banking codes and rules on their web page..
Regulations (also called rules) are creatures of administrative agencies. Most federal agencies have been given the authority to promulgate regulations. Many state agencies have rulemaking authority as well.At the federal level, agencies are required to follow the procedures outlined in the Administrative Procedures Act to adopt regulations. Generally, the procedures involve giving advance notice, and an opportunity for hearing. The reason for the procedures is to guard against arbitrary and capricious rulemaking by agencies. In certain extreme circumstances, expedited procedures can be used.
When I use the term "administrative agencies," this includes such entities as:
- the Consumer Financial Protection Bureau;
- the OCC;
- the Federal Reserve Board;
- the FDIC;
- the Federal Trade Commission;
- the IRS,
- as well as many others.
In order for these entities to have the power to make rules, they must receive authorization from Congress. In FDICIA, for example, in the Truth in Savings part, Congress explicitly gives the Federal Reserve Board the authority to promulgate regulations to carry out the Truth in Savings Act except for credit unions.The statute gives the NCUA the power to adopt TISA regulations for credit unions. Throughout federal and state banking law you will find similar grants of authority.
Challenges sometimes arise when the agency exceeds its rulemaking authority. For example, in the early 1990s, the Environmental Protection Agency issued a new rule on environmental lender liability. The agency was sued by some environmental groups who alleged that the EPA exceeded (went beyond) its rulemaking authority. The court agreed and the rule was struck down.
More recently, the U.S. Court of Appeals for the Sixth Circuit held that despite the language of Reg Z that expressly excludes fees charged for exceeding a credit limit from the definition of the "finance charge" such fees were within the statutory definition of "finance charge" found in TILA and must be disclosed as, and treated as, finance charges.
One important general principle is that an agency cannot alter or amend the clear meaning of a statute by passing a rule. By way of example, if a law said that a bank could only have two de novo branches, an administrative agency could not pass a rule saying they could have three.
There is a system of organization for rules, just as there is for statutes. On the federal level, all rules, once duly adopted by the agency (after proper adherence to the rulemaking procedures) are published in final form in a publication called the Federal Register. This is usually the quickest place to find any new rule you may be trying to locate. The Federal Register has an index in the front of each volume which lists each agency. Under the agency's name is a list of rulemaking or notice activity which that agency has conducted, along with a citation to the appropriate page in the Federal Register. A quarterly index is published separately, making research quite easy.
The Federal Register used to only be available in paper form for an annual subscription fee of close to $500 per year. For that amount, you would get a huge pile of paperback publications each year, with a delay of up to two weeks between the publication date and their arrival.
Fortunately, the Federal Register is now available free online and you can access the publication online the day it goes up.That link is also under "Legal" on the Launch Pad, by the way.
The easiest way to keep track of compliance developments published in the Federal Register is to subscribe to the free daily email Compliance Briefings form BankersOnline.com.We get up at pre-dawn and check the Federal Register as soon as it comes on line - so you don't have to!You get an email that tells you about the relevant information published in the Federal Register, as well as on the agencies' sites.
Eventually, all federal rules are codified to (organized in) a set of volumes called The Code of Federal Regulations. That is abbreviated C.F.R. The Code of Federal Regulations is indexed by Title, just like the statutes are and, once again, the banking matters are found in Title 12.
Similarly, there are section numbers for rules, although they generally will refer to an entire regulation by the term "part." For example, Regulation Z is Part 226 of Title 12 of the Code of Federal Regulations. You would cite that as 12 C.F.R. 226 or 12 C.F.R. Part 226.
Thus, if you see a citation to ___ C.F.R. -, you know you are dealing with a regulation, while if the citation is to __ U.S.C. ___, you know that a statute is at issue.If it's not either one, you may be dealing with a state statute or regulation.
ALPHABET REGS AND MORE
As we noted in the first part of this series, most of the federal banking regulations are contained in Title 12 of the Code of Federal Regulations. Within that Title, however, the regs are further organized in a way that makes them easier to research. The Federal Reserve regulations are, as you know, an alphabet soup, staring with Regulation A, going through Regulation Z, and staring all over again with Regulation AA and ending with Regulation EE. Each of these regulations is assigned a portion of the CFR which corresponds to the position of the letter in the alphabet.(That's why we call the section of BankersOnline which features the regulations Alphabet Soup!)
Here's how it works. Regulation A has Part 201 of 12 C.F.R. Regulation B has part 202. Regulation C is - you guessed it - Part 203, and so on, all the way to Reg Z at Part 226, then to Reg AA at Part 227, etc. Each of those regulations is broken down into sections, such as 12 C.F.R. 203.4, etc.
It is smart to keep the following numbering sequences in mind for regulations:
- The regulations of the OCC appear at 12 C.F.R. 1-99;
- The regulations of the FRB appear at 12 C.F.R. 200-299;
- The regulations of the FDIC appear at 12 C.F.R. 300-399.
- The regulations of the CFPB appear at 12 C.F.R. 1000-1099.
Thus, if you are a state-chartered bank and someone tells you that you are in violation of 12 C.F.R. 24, you know that the regulation (because of its numbering sequence) is a regulation that is pertinent only to national banks and your bank would not be affected (unless there is a parallel regulation of the FDIC, or the Federal Reserve, if your bank is a state member bank.)
National banks must adhere to the regulations of the OCC, the FRB, and, in some instances, the FDIC. State member banks must adhere to the rules of the FRB and, in some instances, the FDIC. State nonmember banks (banks that are not members of the Federal Reserve system) must adhere to the rules of the FDIC, as well as some FRB rules. Because of the overlaps, it is crucial to determine whether the rule applies to your bank or not. Read the language carefully. Does it just say "member banks"? If so, unless there is an FDIC statute or rule which is parallel (does the same thing, in other words) or one that makes the FRB rule applicable, it will not apply to nonmember banks.
Because many of the Federal Reserve Regulations (such as Reg E, Reg Z, Reg DD) are applicable to all banks, BankersOnline.com has developed hypertext versions of all the Federal Reserve Regulations and they are available online in our Alphabet Soup section. You won't believe how easy it is to quickly locate answers with the rules laid out in the format they are in! The FDIC also has a number of regulations available on its site.
In addition to the FRB rules, the Alphabet Soup section of BankersOnline.comalso includes hypertext versions of the deposit insurance regs, the BSA regs, and HUD's Regulation X, which implements RESPA.
ADVISORY OPINIONS/INTERPRETIVE LETTERS
In doing research, it is also helpful to know that the federal regulatory agencies issue advisory opinions, interpretive letters and similar pronouncements. I once received a question as follows:
"Our bank wants to make a loan to Customer A. Customer A will be using the proceeds of the loan to buy a package of real estate loans from the RTC. Will this be considered a real-estate related financial transaction for purposes of the appraisal regulations so that we would be required to obtain appraisals on the real estate securing the loans being purchased by our borrower?"
The bank that called was a state nonmember bank. I first went to the FDIC appraisal regulation to answer the question. When the regulation didn't give me enough information, I looked through the index to the FDIC advisory opinlons. Under the category of real estate transactions, I read through the index until I found an opinion that related to the application of the appraisal requirements to the financing of the purchase of real estate loans. Bingo! The information I needed was right there, much clearer than in the regulation. Those advisory opinions are also enormously helpful on issues relating to FDIC insurance coverage, insider loans, and all the other tricky areas.
The FDIC advisory opinions are now online in their FDIC Laws and Regs pages. The name of the pages (Laws and Regs) would never tip you off to the fact that the advisory opinions and general counsel opinions are included, but they are.
And, you can access the current advisory opinions, interpretive letters, etc. of the three bank regulatory agencies, soon after they are issued, on the Web sites for each agency. You can link to each agency's site from the Web Sites Road Map section of BankersOnline.com, and there are specific links there to the regulatory and supervisory bulletins.
Some days I'm convinced that the key to successful legal research is good mind reading. The reason I say that is because everything hinges on divining the correct search words. If you cannot figure out what the writer of the statute or regulation or index would have called something, you're going to find it very difficult to locate, whether you're looking in the books or on the Internet.
One of my favorite examples is ATM's. When a person wants to determine what kind of notice/approval is required on the state level to establish an automated teller machine, he has to be highly creative. The law and regulation are tucked away in my state under something like "consumer banking electronic facility." In federal law the term is just as obscure. In fact, I can't even remember what they call it. I only remember that I had to sneak up on it to find it.
My point is that it is sometimes helpful to pause before you research to write down some key words to start with. Above all, be creative.
When you are looking at statutes or regulations, look at who enforces them and what the penalties are for noncompliance.
When a regulation is published in the Federal Register, the publication will include a background of the regulation, a summary, and other information which provides valuable insights. If you get a copy of the Federal Register version reference (either in hard copy or printed from the Internet) it is wise to save it for later. Usually, that helpful background material doesn't appear in the version that goes into the banking manuals.
When you are researching a particular area, check to see if there are both statutes and rules on point. Sometimes, the Regulation can be much more detailed than the statute. You will want to make sure you have familiarized yourself with both. Some Acts, however, do not have implementing regulations. Examples are the Fair Credit Reporting Act and the Fair Collection Act.
Now that the Internet is available, various federal agencies are making information available on it that was previously difficult to access. For example, the Federal Trade Commission, which oversees enforcement of the Fair Credit Reporting Act, has placed online its staff opinion letters which interpret various sections of the FCRA. Those can be accessed by going to the Launch Pad on BankersOnline.comand clicking on the category for Fair Credit Reporting Act, or by typing inhttp://www.ftc.gov
Sometimes, when the word "title" is used, rather than referring to a particular part of the statute it refers to a special purpose act as a whole. An example would be Title VII of the Civil Rights Act. When that term is used within something you are reading, be careful about determining what is meant by it.
Also note that sometimes things are referred to by a couple of different descriptions. For example, the section of law that deals with restrictions on transactions with affiliates was originally contained in Section 23A of the Federal Reserve Act and many people refer to it as Section 23A. However, Section 23A of that Act was actually codified to (i.e., ended up being contained in) 12 U.S.C. ? 371c-1. So, if you were doing research in the United States Code and were trying to find it, you would look in Title 12, section 371c-1 -- NOT in Section 23A of Title 12.
Don't take definitions for granted. The same term can have very different meanings, depending on the statute or rule it appears in. Be sure you understand what the term means in the context in which it is used. Most statutes and rules have their own definitional sections.
Over the years, I have found it extremely helpful to make my own personal Rolodex of citations. When I find where a particular provision of law is located, I write it on a card and put it in the Rolodex. If a question arises about transfer restrictions under Regulation D, for example, and there is a specific section of the Reg or commentary that is helpful, I'll make a note of the citation on a Rolodex card so I can quickly and easily locate the information next time the question arises.
As more and more information has appeared on the Internet, that has become less necessary. Searching out the information on the Internet is usually as quick and easy as finding it on a Rolodex card and it can be done from any computer anywhere in the world that has Internet access, so if you are away from your desk and don't have your Rolodex handy, you can still get the information you need by using a nearby Net connection.
Knowing where to look can sometimes be a daunting task. For it, there's really no substitute for just learning which laws cover which subjects so you know the right place to start.
As you learn where to look for different things, make notes to yourself. Here are a few examples:
-Perfecting security interests in non-real estate collateral. Look in the Uniform Commercial Code, Article 9. That's a state law.
For the rules on check deposits and collections of checks, see state law. It's found in the U.C.C. ("Uniform Commercial Code"), Articles 3 and 4. There is a source for the standard version of the Uniform Commercial Code on the Internet through Cornell Law School. You can access it from Launch Pad. Let's say you want to research something about stop payments. Go to BOL's Launch Pad . Click on UCC. Click on Article 4 (Bank Deposits and Collections). Click on the part that deals with the bank's relationship with its customer (part 4 of article 4), then click on the stop payments section - 4-403. In less than a minute, you are right where you want to be.
Learn what each CFPB regulation covers. Summaries are shown in the Regulations section of BankersOnline.com.
No discussion of legal research would be complete without a mention of court cases. Many, many times, judges get to expand on and expound on the law through reported decisions. When I say "reported" I mean that the case went high enough to be decided by a court whose decisions are published in an official publication. These court cases contain what is called the "common law" - law made through judicial decisions. By reading the annotations following statutes, you can get some idea of what the court decisions have done to enhance our understanding of the statutes' meaning and application.
To keep up with the latest federal court decisions that could affect your institution, go to the BankersOnline.com Court Watch section.
To summarize, we have learned that statutes are at the root of bank regulation. Statutes are passed by either Congress or the State legislature. In some instances, the statutes will give an administrative agency, such as the FDIC, the power to make rules to carry out the intent and purpose of the statute. In those cases, the agency will, generally after following the Administrative Procedures Act proposed rulemaking guidelines, adopt a rule, first giving you time to comment on it. To help you understand the rules, the agencies issue interpretive letters and advisory opinlons. The statutes, rules, advisory opinions and interpretive letters should be used along with relevant court cases to determine what your rights and responsibilities are.
First published on BankersOnline.com 4/1/03. (Updates to sources and links 12/14/15)
First published on 01/15/2005