BANKING

DEPARTMENT OF BANKING AND INSURANCE

DIVISION OF BANKING

General Provisions

State Bank and Savings Bank Parity

Proposed Repeal and New Rule: N.J.A.C. 3:6-12.1

Proposed Repeals: N.J.A.C. 3:6-12.2 and 12.3

Authorized by: Holly C. Bakke, Commissioner, Department of Banking and Insurance

Authority: N.J.S.A. 17:1-8.1, 17:1-15e and 17:9A-24b.1

Calendar Reference: See Summary below for explanation of exception to calendar requirement.

Proposal Number: PRN 2002-150

Submit comments by June 14, 2002 to:

Karen Garfing, Assistant Commissioner

Regulatory Affairs

New Jersey Department of Banking and Insurance

P.O. Box 325

Trenton, NJ 08625-0325

Fax: (609) 292-0896

Email: Legsregs@dobi.state.nj.us

The agency proposal follows:

Summary

The Department of Banking and Insurance ("Department") proposes to amend N.J.A.C. 3:6-12.1 to implement the new parity provisions enacted in P.L. 2000, c. 69, ß 3 (known as the "Parity Act"), and codified at N.J.S.A. 17:9A-24b.1. The grant of parity contained in the statutory amendment involves powers, rights, benefits and privileges that are possessed by Federal or out-of-State chartered financial institutions. The Department has carefully reviewed the underlying policy decisions that have led to the current regulatory system and the series of laws enacted by the Legislature to protect consumers and maintain the safety and soundness of New Jersey State chartered banks and savings banks.

After careful review and consideration, the Department has concluded that the grant of parity was not intended to free New Jersey banks and savings banks from operating within the general regulatory structure that currently exists through the Department. The Department has also concluded that the grant of parity by the Legislature was not intended to repeal by implication important New Jersey State consumer protection laws, such as usury laws.

Consistent with the Parity Act, the rule proposed for repeal and new rule address both New Jersey State chartered bank and savings bank parity with Federally chartered and out-of-State banks, savings banks, and savings associations. Any such power must be exercised upon the same terms and subject to the same conditions as are authorized for Federally chartered or out-of-State banks, savings banks, and savings associations. To exercise a power, right, benefit, or privilege afforded to an out-of-State bank, savings bank, or savings association, the exercise of which the Commissioner of the Department of Banking and Insurance ("Commissioner") has not previously approved by rule, banks and savings banks will be required to submit a notice of intent to the Department, supported by information specified in the new rule, which the Commissioner may, within 45 days, approve, disapprove, or condition on safety and soundness grounds or on other grounds established in the new rule.

The proposed new rule makes it clear that certain areas of this Stateís regulation of banks and savings banks are not included in the scope of application of the Parity Act. These proposed limitations apply to both Federal and out-of-State powers, rights, benefits, and privileges. The Department notes, for example, that some national banks operating in New Jersey have claimed that they are exempt from the requirement of offering consumer checking accounts established in N.J.S.A. 17:16N-1 et seq. Consumer checking accounts are low cost personal checking accounts that require only minimal amounts of money to open and maintain. The accounts provide a substantial benefit to young, low income, and elderly people. The Department does not believe that the Legislature intended to permit New Jersey State chartered banks and savings banks to use parity to avoid their responsibilities to comply with this or certain other consumer protection laws. Accordingly, in the proposed new rule, the Department has identified the type of consumer protection laws and administrative rules that shall not be subject to parity. The Department views these proposed limitations on the exercise of parity as reasonable and necessary generally to discharge the Commissionerís statutory responsibility to promulgate rules for the appropriate regulation of institutions within the Departmentís jurisdiction. In addition, the new rule implements the legislative authorization to promulgate rules with the objective of achieving substantially competitive parity, while preserving the existing framework of the dual banking system, which there is no evident intent to disrupt, especially with respect to consumer protections enacted by the Legislature over many years.

The limitations also serve to establish grounds for disapproving a notice of intent, in accordance with rulemaking authority specifically granted in the Parity Act.

The application of the proposed new rule to N.J.A.C. 3:6-12.1 to both banks and savings banks would make unnecessary the provisions set forth in recently readopted N.J.A.C. 3:6-12.2 and 12.3 (see 33 N.J.R. 2079 June 18, 2001), and those sections are, therefore, proposed for repeal.

The Department believes that the limitations on parity set forth in the proposed rule are consistent not only with legislative intent, but also with provisions of Federal law, including the 1999 Gramm-Leach-Bliley Act which reconfirmed the principle of functional regulation of certain activities traditionally regulated by the states. The Department welcomes public comment on these provisions of the proposed new rule so that the final rule adopted will provide the appropriate balance between the grant of powers under the Parity Act and reasonable restrictions on their exercise, consistent with applicable state laws for the protection of consumers and the administration of the Departmentís regulatory responsibilities.

A 60 day comment period is provided in this notice of proposal and, therefore, pursuant to N.J.A.C. 1:30-2.2(a)5, the notice is not subject to the provisions of N.J.A.C. 1:30-3.1 and 3.2 governing rulemaking calendars.

Social Impact

The proposed new rule and repeals would apply to all New Jersey chartered banks and savings banks, assuring them substantially competitive parity with their Federal and out-of-State counterparts. The proposed new rule will permit the Department to continue to require banks and savings banks to adhere to safe and sound banking practices and key consumer protections, while enjoying such substantially competitive parity. The new rule and repeals therefore, should have a beneficial social impact on the industry and consumers. Consumer reaction is expected to be positive.

Economic Impact

The Department expects that the ability to exercise powers, rights, benefits, and privileges authorized now or in the future for Federal or out-of-State institutions will have a positive economic impact. Banks and savings banks will be able to offer services and products that may not be specifically authorized by applicable New Jersey statutes and rules, but which may enable banks and savings banks to increase their business, their market share and, therefore, their profitability and competitiveness with their Federal and out-of-State counterparts.

Banks and savings banks that seek to exercise parity with out-of-State institutions will incur costs in order to submit a notice of intent with the required supporting information. The Department expects that associated administrative costs will be marginal. Consumers should benefit economically from resulting increases in service and product options and marketplace competition.

Federal Standards Analysis

Banks and savings banks may, in the future, become subject to Federal standards pursuant to a proper exercise of parity in accordance with the proposed new rule and repeals. While the Federal standards applicable in such cases cannot be identified at this time, there will be no applicable State standards that may exceed them because parity with Federal institutions entails application of the pertinent Federal standards.

The proposed new rule, however, also removes certain State statutory and regulatory consumer protections from the scope of parity. In some cases, these limitations may exceed Federal standards applicable to Federally chartered banks, savings banks, and savings associations, in the sense that the limitations may restrict New Jersey banks and savings banks from certain types or levels of activity in which their Federal counterparts may conceivably be permitted to engage at present or in the future. Notwithstanding the proposed limitations, under parity, banks and savings banks should soon be able to offer services and products not specifically authorized by applicable New Jersey statutes and rules, and reap the resulting economic benefits.

As a matter of policy, however, the Department views the proposed limitations as reasonable and necessary generally to discharge the Commissionerís statutory responsibility to promulgate rules for the appropriate regulation of banks and savings banks, and specifically to implement the legislative authorization in the Parity Act to promulgate rules with the objective of achieving substantially competitive parity while preserving the existing framework of the dual banking system, which there is no evident intent to disrupt, especially with respect to consumer protections ratified by the Legislature over many years. The costs that may result from promulgating the proposed limitations are speculative at best. Such costs, even if realized, are outweighed by the solid benefits afforded to New Jersey consumers by, for example, the continued viability of laws addressing consumer checking accounts, criminal usury, mortgage loan prepayment penalties, medical and financial records privacy, and the safety and soundness of state-chartered banks and savings banks. In addition, the Department sees no technological obstacle to the regulated industryís continued compliance with these limitations.

Jobs Impact

The Department does not anticipate that any jobs will be lost as a result of the proposed new rule and repeals. If banks or savings banks increase their business or market share as a result of the parity permitted by the proposed new rule, additional jobs may be generated.

The Department invites commenters to submit any data or studies concerning the jobs impact of the proposed new rule and repeals together with their written comments on other aspects of this proposal.

 

Agriculture Industry Impact

The Department does not expect any agriculture industry impact from the proposed new rule and repeals.

Regulatory Flexibility Analysis

Some New Jersey banks and savings banks are small businesses as defined in the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq. The proposed new rule will impose compliance requirements on these entities if they seek to exercise a power, right, benefit or privilege authorized for out-of-State banks, savings banks or savings associations. The compliance required will consist of requiring the bank or savings bank to provide notice to the Commissioner of its intent to exercise such power, right, benefit or privilege and will require the bank or savings bank to provide a description of the intended activity, a copy of the regulatory authority that governs the out-of-State institution that the bank or savings bank proposes as the basis of parity, and a business plan and statement describing the general or specific experience of the bank or savings bank that establishes how the proposed exercise of parity will be conducted in a manner consistent with safe and sound banking practices. If banks or savings banks seek to exercise parity with out-of-State banks, savings banks or savings associations, professional assistance in the form of attorneys and accountants may be necessary. The cost of compliance will vary from professional to professional depending on the services needed.

The proposed new rule and repeals will grant New Jersey banks and savings banks flexibility yet require them to operate in a manner that is responsible to the industry, its customers and the general public. The Department does not believe that the compliance requirements are unduly burdensome and finds that they are consistent with prudent banking practices. The purpose of these requirements does not vary based upon business size. Accordingly, no differentiation based on business size is provided.

Smart Growth Impact Statement

The proposed new rule and repeals have no impact on the achievement of smart growth and implementation of the State Development and Redevelopment plan.

Full text of the proposed repeals of N.J.A.C. 3:6-12.2 and 12.3 may be found in the New Jersey Administrative Code at N.J.A.C. 3:6-12.2 and 12.3.

Full text of the proposed repeal and new rule N.J.A.C. 3:6-12.1 follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):

3:6-12.1 State bank and savings bank parity with [national banks] and Federal and out-of-State institutions

[In addition to other authority granted by law, and unless contrary to State law, a bank may exercise any power, right, benefit or privilege which is now or hereafter authorized for national banks pursuant to Federal law or rules or regulations of the Comptroller of the Currency, the Federal Reserve Board and the Federal Deposit Insurance Corporation. Any such power shall be exercised upon the same terms and subject to the same conditions as are authorized for national banks. The powers, rights, benefits or privileges shall be automatically exercisable upon the expiration of 30 days from the date of adoption by the Federal regulatory agency, except if the Commissioner of Banking and Insurance within that 30 day period provides notice that the power shall not be granted to State banks. Such notice shall be provided to each bank, and to the trade publications of the New Jersey Bankers Association and the New Jersey League Community and Savings Bankers, and/or their successor organizations, if any, for publication. The Commissioner of Banking and Insurance may permit banks to begin exercise of a power prior to the expiration of the 30 day period by providing notice of permission to each bank and to the above mentioned trade publications.]

(a) Banks and savings banks may exercise those powers, rights, benefits or privileges authorized as of (the effective date of this rule) and thereafter for national banks, Federal savings banks or Federal savings associations, either directly or through a financial subsidiary or other subsidiary, to the same extent and subject to the same limitations as national banks, Federal savings banks or Federal savings associations may exercise those powers, rights, benefits or privileges. Except as otherwise provided in this subchapter, pursuant to N.J.S.A. 17:9A-24b.1, banks and savings banks may exercise such powers, rights, benefits or privileges, notwithstanding the provisions of N.J.S.A. 17:9A-1 et seq. or any other law.

(b) Banks and savings banks may exercise those powers, rights, benefits or privileges as of (the effective date of this rule) and thereafter authorized for out-of-State banks, savings banks or savings associations either directly or through a financial subsidiary or other subsidiary, to the same extent and subject to the same limitations as out-of-State banks, savings banks or savings associations may exercise those powers, rights, benefits or privileges, provided that before exercising any such power, right, benefit or privilege, the Commissioner has approved, by rule, the exercise of such a power, right, benefit or privilege by banks and savings banks generally, or the bank or savings bank provides notice of its intent to exercise such a power, right, benefit or privilege to the Commissioner and, on a case by case basis, the Commissioner either approves the activity or does not determine within 45 days of such notice that the power, right, benefit or privilege is not to be exercised by the bank or savings bank on grounds of safety and soundness or on other grounds designated by the Commissioner by rule. Except as otherwise provided in this subchapter, pursuant to N.J.S.A. 17:9A-24b.1, banks and savings banks may exercise such powers, rights, benefits or privileges, notwithstanding the provisions of N.J.S.A. 17:9A-1 et seq. or any other law.

(c) The parity provided by N.J.S.A. 17:9A-24b.1 shall not permit a violation of:

1. Any provision of the New Jersey Code of Criminal Justice, N.J.S.A. 2C:1-1 et seq., including, but not limited to, the criminal usury limits established at N.J.S.A. 2C:21-19 as applied to loan products.

2. New Jersey statutes and rules providing for the structure and corporate governance of banks and savings banks, including, but not limited to, those governing amendment of a certificate of incorporation and adoption of bylaws, and those establishing rights of shareholders and members and the membership of a board of directors;

3. New Jersey statutes and rules providing for the safety and soundness of banks and savings banks, including, but not limited to, the limitations on liability to a bank as set forth at N.J.S.A. 17:9A-60 et seq., limitations on leeway investments set forth at N.J.S.A. 17:9A-24.12, and those providing for reports to and examination by the Department, including, but not limited to, N.J.S.A. 17:9A-252 et seq.;

4. New Jersey statutes and rules providing the Department with supervisory powers over banks and savings banks, including, but not limited to, the power to issue orders and apply for relief from a court of competent jurisdiction established at N.J.S.A. 17:9A-266 et seq.;

5. New Jersey statutes and rules regulating real estate appraisers, real estate brokers, real estate salespersons, and real estate broker-salespersons, including, but not limited to, the licensing and other provisions of the Real Estate Appraisers Act, N.J.S.A. 45:14F-1 et seq., and the licensing and other provisions of the Real Estate License Act, N.J.S.A. 45:15-1 et seq.;

6. New Jersey statutes and rules regulating insurance companies and insurers, including, but not limited to, the authorization and other provisions of N.J.S.A. 17:17-1 et seq., N.J.S.A. 17:46B-1 et seq., and N.J.S.A. 17B:17-1 et seq., provisions of the trade practices acts, N.J.S.A. 17:29B-1 et seq. and N.J.S.A. 17B:30-1 et seq., and provisions of the Insurance Information Practices Act, N.J.S.A. 17:23A-1 et seq.;

7. New Jersey statutes and rules generally regulating insurance producers, including, but not limited to, the licensing and other provisions of the New Jersey Insurance Producer Licensing Act, N.J.S.A. 17:22A-1 et seq.;

8. New Jersey statutes and rules regulating health maintenance organizations, including, but not limited to, the Health Maintenance Organizations Act, N.J.S.A. 26:2J-1 et seq. and the Health Care Carrier Accountability Act, N.J.S.A. 2A:53A-30 et seq.;

9. New Jersey statutes and rules regulating viatical settlement brokers, representatives, and providers including, but not limited to, N.J.S.A. 17B:30A-1 et seq.;

10. The prepayment penalty prohibition established at N.J.S.A. 46:10B-1 et seq. as applied to mortgage loan products;

11. The provisions of N.J.A.C. 3:1-16 as applied to the processing of mortgage loan applications and loans;

12. The provisions of N.J.A.C. 3:1-2.15 as applied to the closing of an office;

13. The provisions of N.J.S.A. 17:9A-316 prohibiting the establishment of a de novo branch office by a foreign bank;

    1. The provisions of N.J.S.A. 17:16N-1 et seq. regarding Consumer Checking Accounts;
    2. The provisions of N.J.S.A. 17:9A-1 et seq. and 17:12B-1 et seq. requiring any application or approval process; and
    3. The provisions of the Uniform Commercial Code as adopted in New Jersey at N.J.S.A. 12A:1-1 et seq.

    1. Prior to the exercise of any power, right, benefit, or privilege exercised by an out-of-State bank, savings bank, or savings association, a bank or savings bank shall submit a notice of intent for the Commissionerís approval. Such notice of intent shall include: a description of the intended activity and a copy of the statutory or regulatory authority, including any pertinent regulatory interpretation of such authority, that governs the out-of-State institution that the applicant bank or savings bank proposes as the basis for such exercise of parity, and a business plan and statement of the general or specific experience of the applicant that establishes how such exercise of parity would be conducted in a manner consistent with safe and sound banking practices. The items submitted as part of the business plan and the statement of exposure shall be treated as confidential by the Department and shall not be public records pursuant to N.J.S.A. 47:1A-1 et seq. The Commissioner may disapprove the exercise of any power, right, benefit or privilege on the grounds of: an incomplete notice of intent; safety and soundness; or other grounds as provided in this subchapter. The Commissioner may condition the exercise of any power, right, benefit or privilege on the grounds of safety and soundness; or on other grounds as provided in this subchapter.
    2. A bank or savings bank that violates the provisions of this subchapter shall be subject to the enforcement provisions of N.J.S.A. 17: 9A-267, 268 and 269.

 

 

 

 

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