4000 - Advisory Opinions
Whether a Loan Production Office of an Insured Non-member Bank Qualifies as a "Domestic Branch" as Defined in § 3(o) of the FDI Act
October 4, 1995
Adrienne George, Attorney
This letter is in response to your inquiry as to whether a given loan production office (LPO) of a "State" FDIC-insured non-member bank (Bank) would qualify as a "domestic branch" as that term is defined in Section 3(o) of the Federal Deposit Insurance Act (FDI Act). I apologize for the lateness of my response.
In your letter, you write that the Bank desires to operate the LPO outside of the State in order to solicit loans in accordance with State regulatory approval and limitations and in compliance with applicable out-of-state laws. The activities of the LPO are subject to State and FDIC regulatory examination.
As you know, Section 3(o) of the FDI Act defines the term "domestic branch" to include "any branch bank, branch office, branch agency, additional office, or any branch place of business located in any State of the United States . . . at which deposits are received or checks paid or money lent." 12 U.S.C. § 1813(o). The Bank is not authorized to take deposits at the LPO; however, the intended activities of the LPO are as follows:
1. To solicit borrowers;
2. To accept loan applications;
3. To review and process loan applications for underwriting standard compliance and completeness of documents;
4. To forward to the Bank for final approval or, under certain conditions, to approve the loan application itself subject to published Bank guidelines; and
5. To fund the loan by delivering to the borrower the Bank's check, issued on its State account.
The only relevant FDIC statement on this question that I could find was an unpublished advisory opinion dated December 16, 1993, signed by FDIC Regional Counsel Phillip H. Schwartz. (I have enclosed a copy of that opinion for your reference.) The opinion states that LPO activities like the acceptance of loan payments, the disbursement of loan proceeds, and the signing or accepting of notes, security agreements or other instruments obligating the loan customer to the financial institution may cause the LPO to be considered a domestic branch for purposes of Section 3(o) of the FDI Act.
On the basis of this unpublished advisory opinion, I would say that the activities listed in Numbers 1 through 3 above would not cause the LPO to be considered a branch. Nor would the first part of Number 4, wherein the LPO merely forwards the loan application to the Bank for final approval, be considered the activity of a branch. However, the second part of Number 4, where the LPO approves a loan application itself, even though that approval is based on Bank guidelines, would probably be considered branch activity. Also, the payment of the loan from the LPO may be considered branch activity. It may be that the FDIC would distinguish between the situations where the LPO sends a wire transfer to the borrower from the LPO or where the check is actually issued by the LPO--branch activities--and the situation where the borrower picks up his or her check at that LPO simply as a matter of convenience, after it has been "cut" at an actual branch--not branch activity. As far as I know, however, the FDIC has never opined on precisely what it means to "disburse funds."
I hope that this information will prove useful to you. If I can be of any further help, I can be reached at (202) 898-3859.