IDFPR Interpretive Letters Issued in 2010 (Through August 9, 2010)

IDFPR Interpretive Letters issued in 2010 (through August 9, 2010)

Interpretive Letter10-01 (April, 2010): The Illinois Banking Act permits a bank with a trust department to invite one or more employees from affiliated banks (without trust departments) to attend trust committee meetings for the purpose of staying informed about trust services and coordinating the marketing of such trust services to their customers. Although customers’ 401K plans and related or underlying financial information fall within the broad definition of “financial records” that are entitled to statutory confidentiality protections under Section 48.1 of the Illinois Banking Act, Section 48.1(b)(15) carves out an exception allowing a bank to share otherwise confidential information in the “regular course of business” with any “commonly owned affiliate” of that bank. This Interpretive Letter concludes that the coordinated development, promotion and marketing of trust services to be provided by one bank on behalf of its affiliates constitute an exchange or disclosure of information “in the regular course of business.”

Interpretive Letter10-02 (June, 2010): Subject to the same prudential and procedural requirements imposed on national banks by the OCC’s Interpretive Letter #1123 (October, 2009), Section 5(11) of Illinois Banking Act permits the board of directors of an Illinois state- chartered bank to authorize an exchange of a participation interest in OREO for an interest in a limited liability company (“LLC”) to be co-owned with other participants in the OREO loan/property. Section 5(11)’s “wild card” or “parity” authority provides an exception to the Illinois Banking Act’s typical requirement [found in Section 5(12)] that a state bank may only have an ownership interest in a subsidiary that is “controlled” (defined as more than 50% ownership) by the state bank. The conditions imposed in OCC Interpretive Letter #1123 include: I. Prior to making the exchange, the bank’s board must determine (and document its determination) that the exchange is in the best interest of the bank and should improve the bank’s ability to recover or to otherwise limit its loan loss The exchange must not be entered into for speculative profit purposes; II. Prior to the exchange, a national bank must submit written notification to its Examiner- in-Charge and must receive written notice of “No Objection” from the OCC [Note: Although this notice requirement applicable to national banks is included in OCC Interpretive Letter #1123, it is waived with respect to Illinois state banks in IDFPR Interpretive Letter #10-02, unless the state bank will own a controlling interest in the LLC subsidiary, in which case the state bank must comply with the 60-days advance notice requirement found in Section 5(12) of the Illinois Banking Act.]; III. The bank is prohibited from further exchanging its LLC interest for an interest in any other real or personal property, since such a subsequent or additional exchange would be too distant from the bank’s underlying OREO interest related to a debt previously contracted; IV. The bank must ensure that the LLC complies with the provisions of the OCC’s OREO regulation (12 C.F.R. Part 34, Subpart E), including maintenance of a current appraisal on the OREO property/properties; and V. The bank must dispose of its interest in the LLC no later than five years from the date it acquired title to the OREO property/properties, unless granted an extension by IDFPR.

Interpretive Letter #10-03 (July, 2010)

Illinois state-chartered banks are authorized to purchase advertisements and advertising services as activities that are “incidental to (the) general banking business.” Neither the Illinois Banking Act nor Illinois’ Electronic Funds Transfer Act (“Illinois EFT Act”) expressly authorizes or prohibits “branding agreements” by which a state bank could advertise its name or logo on an ATM terminal or terminal receipt, even if the ATM is not established or owned by the advertising bank. Subject to specific limitations in the Illinois EFT Act and suggested customer- friendly disclosures, an advertising bank may enter into such branding agreements. The specific limitations in the Illinois EFT Act include a prohibition against the acceptance of deposits at an ATM terminal that is not established or owned by a “financial institution” ( e.g., bank, savings and loan association, savings bank or credit union) or by an affiliate of a financial institution. Also, although he Illinois EFT Act also prohibits the advertising of products and services not offered at that ATM terminal, applicable federal law does not define “products and services” in a manner that includes a bank’s name and logo, and thus the name and/or logo of the advertising bank may be placed on an ATM terminal or receipt from an ATM terminal that is not owned by a financial institution or financial institution affiliate. Finally, the Illinois EFT Act limits a bank’s advertisement of products and services on the ATM terminal screen to customers of that bank who have accessed the terminal screen with the use of an “access device” issued by that bank.

In addition to the statutory limitations in the Illinois EFT Act, Interpretive Letter #10-03 recommends that banks choosing to enter into ATM terminal “branding agreements” should provide and/or post disclosures to avoid customer confusion, including notification that the customers’ use of the ATM terminal does not come with the service expectations or warranties that the customer might expect from the bank’s own terminals and that the ATM terminal is not serviced or maintained by the bank.

Interpretive Letter #10-04 (July, 2010)

Mortgage lenders employed by state-chartered banks and thrifts are not subject to the licensure requirements of the federal S.A.F.E. Act, but are subject to the federal regulators’ requirements regarding registration with the Nationwide Mortgage Licensing System and Registry.