The Banking Code of 1965 provides powers and duties to state-chartered banks, savings banks and trust companies, and regulates those powers and duties.  House Bill 2368 simplifies and modernizes the commercial, mortgage and consumer lending provisions of the Code.  In the Bill, the General Assembly removed all of the conflicting and inapplicable lending provisions contained in the Code.  The new law reflects the current, deregulated commercial, mortgage and consumer lending interest rates and fees.

The legislation includes new sections to the Code, including a section that allows savings banks to pledge assets as security for deposits of specific types of funds; a section that permits institutions that are subsidiaries of banks to receive deposits, renew time deposits, close loans, service loans and receive payments on loans as an agent for an institution affiliate; a section that permits the extension of credit by an institution for personal, family, household, business or agricultural purposes; a section that permits the organization of banks and trust companies as limited liability companies; and a section that permits a nonbank subsidiary to merge into an institution with the approval from the department as long as the institution can engage in activities conducted by the subsidiary as principal.  Also, the Bill includes a new section imposing a limit (fifteen percent of the capital accounts of the savings bank) on the amount of indebtedness that a savings bank may acquire for one customer.

In addition, the legislation includes several revisions to the Code.  The new law increases the prior approval threshold for ownership in some types of real property from 25% to 100% of the aggregate of surplus, unallocated reserves, undivided profits and subordinated securities in the case of mutual savings banks, and from 25% to 100% of the aggregate of capital, surplus, undivided profits and capital securities for all other institutions.  The Bill allows multiple beneficiaries of deposit accounts, (whereas the Code limited the number of beneficiaries of deposit accounts to two individuals), and allows an auditor general to be a director or trustee of an institution.  Lastly, the General Assembly revised the Code to toughen penalties for unlawful lending and trust activities for financial institutions.  The Bill holds its violators guilty of a felony and subject to imprisonment for a period not exceeding two years, with fines ranging from $10,000 to $500,000.

                                   House Bill 2369

The Department of Banking Code of 1933 gives the Department of Banking the authority to supervise institutions throughout the Commonwealth.  House Bill 2369 not only broadens the authority granted to the Department of Banking in the Banking Code but also provides for greater public disclosure.  For example, under the Bill, the Department may disclose adverse information regarding licensees, institutions and credit unions to any person, corporation or Federal, State or local government agency.  In addition, the Bill provides the Department with examination authority over bank subsidiaries.  Furthermore, the Department is allowed to directly remove and/or suspend unscrupulous individuals who violate any law or order relating to such institution from bank employment, management and boards.  The Department may impose civil penalties of up to twenty-five thousand dollars ($25,000) against such individuals and their institutions.

House Bill 2369 provides for implementation of the Consumer Financial Protection Act of 2010 (CFPA).  Under the CFPA, the Attorney General, agencies of the commonwealth and political subdivisions may engage in civil investigations, administrative enforcement actions, examinations or any other civil or administrative proceedings against institutions to determine compliance with a state statute, regulation, order or ordinance, resolution or federal law or regulation.  However, prior to such activity, the Attorney General, agency or political subdivision must first give notice and consult with the Department.