
[Code of Federal Regulations]
[Title 12, Volume 1]
[Revised as of January 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR7]

[Page 121-127]
 
                       TITLE 12--BANKS AND BANKING
 
   CHAPTER I--COMPTROLLER OF THE CURRENCY, DEPARTMENT OF THE TREASURY
 
PART 7--BANK ACTIVITIES AND OPERATIONS--Table of Contents
 
Subpart A--Bank Powers

Sec. 7.1000  National bank ownership of property.

    (a) Investment in real estate necessary for the transaction of 
business--(1) General. Under 12 U.S.C. 29(First), a national bank may 
invest in real estate that is necessary for the transaction of its 
business.
    (2) Type of real estate. For purposes of 12 U.S.C. 29(First), this 
real estate includes:
    (i) Premises that are owned and occupied (or to be occupied, if 
under construction) by the bank, its branches, or its consolidated 
subsidiaries;
    (ii) Real estate acquired and intended, in good faith, for use in 
future expansion;
    (iii) Parking facilities that are used by customers or employees of 
the bank, its branches, and its consolidated subsidiaries;
    (iv) Residential property for the use of bank officers or employees 
who are:
    (A) Located in remote areas where suitable housing at a reasonable 
price is not readily available; or
    (B) Temporarily assigned to a foreign country, including foreign 
nationals temporarily assigned to the United States; and
    (v) Property for the use of bank officers, employees, or customers, 
or for the temporary lodging of such persons in areas where suitable 
commercial lodging is not readily available, provided that the purchase 
and operation of the property qualifies as a deductible business expense 
for Federal tax purposes.
    (3) Permissible means of holding. A national bank may acquire and 
hold real estate under this paragraph (a) by any reasonable and prudent 
means, including ownership in fee, a leasehold estate, or in an interest 
in a cooperative. The bank may hold this real estate directly or through 
one or more subsidiaries. The bank may organize a bank premises 
subsidiary as a corporation, partnership, or similar entity (e.g., a 
limited liability company).
    (b) Fixed assets. A national bank may own fixed assets necessary for 
the transaction of its business, such as fixtures, furniture, and data 
processing equipment.
    (c) Investment in bank premises--(1) Investment limitation; 
approval. 12 U.S.C. 371d governs when OCC approval is required for 
national bank investment in bank premises. A bank may seek approval from 
the OCC in accordance with the procedures set forth in 12 CFR 5.37.
    (2) Option to purchase. An unexercised option to purchase bank 
premises or stock in a corporation holding bank premises is not an 
investment in bank premises. A national bank must receive OCC approval 
to exercise the option if the price of the option and the bank's other 
investments in bank premises exceed the amount of the bank's capital 
stock.
    (d) Other real property--(1) Lease financing of public facilities. A 
national bank may purchase or construct a municipal building, school 
building, or other similar public facility and, as holder of legal 
title, lease the facility to a municipality or other public authority 
having resources sufficient to make all rental payments as they become 
due. The lease agreement must provide that the lessee will become the 
owner of the building or facility upon the expiration of the lease.
    (2) Purchase of employee's residence. To facilitate the efficient 
use of bank personnel, a national bank may purchase the residence of an 
employee who has been transferred to another area in order to spare the 
employee a loss in the prevailing real estate market. The bank must 
arrange for early divestment of title to such property.

[61 FR 4862, Feb. 9, 1996, as amended at 61 FR 60387, Nov. 27, 1996]

Sec. 7.1001  National bank acting as general insurance agent.

    Pursuant to 12 U.S.C. 92, a national bank may act as an agent for 
any fire, life, or other insurance company in any place the population 
of which does not exceed 5,000 inhabitants. This provision is applicable 
to any office of a national bank when the office is located in a 
community having a population of less than 5,000, even though the 
principal office of such bank is located in a community whose population 
exceeds 5,000.

[[Page 122]]

Sec. 7.1002  National bank acting as finder.

    (a) General. A national bank may act as a finder in bringing 
together a buyer and seller.
    (b) Qualification. Acting as a finder includes, without limitation, 
identifying potential parties, making inquiries as to interest, 
introducing or arranging meetings of interested parties, and otherwise 
bringing parties together for a transaction that the parties themselves 
negotiate and consummate. Acting as a finder does not include activities 
that would characterize the bank as a broker under applicable Federal 
law.
    (c) Advertisement and fee. Unless otherwise prohibited, a national 
bank may advertise the availability of, and accept a fee for, the 
services provided pursuant to this section.

Sec. 7.1003  Money lent at banking offices or at other than banking 
          offices.

    (a) General. For purposes of what constitutes a branch within the 
meaning of 12 U.S.C. 36(j) and 12 CFR 5.30, ``money'' is deemed to be 
``lent'' only at the place, if any, where the borrower in-person 
receives loan proceeds directly from bank funds:
    (1) From the lending bank or its operating subsidiary; or
    (2) At a facility that is established by the lending bank or its 
operating subsidiary.
    (b) Receipt of bank funds representing loan proceeds. Loan proceeds 
directly from bank funds may be received by a borrower in person at a 
place that is not the bank's main office and is not licensed as a branch 
without violating 12 U.S.C. 36, 12 U.S.C. 81 and 12 CFR 5.30, provided 
that a third party is used to deliver the funds and the place is not 
established by the lending bank or its operating subsidiary. A third 
party includes a person who satisfies the requirements of 
Sec. 7.1012(c)(2), or one who customarily delivers loan proceeds 
directly from bank funds under accepted industry practice, such as an 
attorney or escrow agent at a real estate closing.

Sec. 7.1004  Loans originating at other than banking offices.

    (a) General. A national bank may use the services of, and compensate 
persons not employed by, the bank for originating loans.
    (b) Approval. An employee or agent of a national bank or of its 
operating subsidiary may originate a loan at a site other than the main 
office or a branch office of the bank. This action does not violate 12 
U.S.C. 36 and 12 U.S.C. 81 if the loan is approved and made at the main 
office or a branch office of the bank or at an office of the operating 
subsidiary located on the premises of, or contiguous to, the main office 
or branch office of the bank.

Sec. 7.1005  Credit decisions at other than banking offices.

    A national bank and its operating subsidiary may make a credit 
decision regarding a loan application at a site other than the main 
office or a branch office of the bank without violating 12 U.S.C. 36 and 
12 U.S.C. 81, provided that ``money'' is not deemed to be ``lent' at 
those other sites within the meaning of Sec. 7.1003.

Sec. 7.1006  Loan agreement providing for a share in profits, income, or 
          earnings or for stock warrants.

    A national bank may take as consideration for a loan a share in the 
profit, income, or earnings from a business enterprise of a borrower. A 
national bank also may take as consideration for a loan a stock warrant 
issued by a business enterprise of a borrower, provided that the bank 
does not exercise the warrant. The share or stock warrant may be taken 
in addition to, or in lieu of, interest. The borrower's obligation to 
repay principal, however, may not be conditioned upon the value of the 
profit, income, or earnings of the business enterprise or upon the value 
of the warrant received.

Sec. 7.1007  Acceptances.

    A national bank is not limited in the character of acceptances it 
may make in financing credit transactions. Bankers' acceptances may be 
used for such purpose, since the making of acceptances is an essential 
part of banking authorized by 12 U.S.C. 24.

[[Page 123]]

Sec. 7.1008  Preparing income tax returns for customers or public.

    A national bank may not serve as an expert tax consultant. However, 
a national bank may assist its customers in preparing their tax returns, 
either gratuitously or for a reasonable fee.

Sec. 7.1009  National bank holding collateral stock as nominee.

    A national bank that accepts stock as collateral for a loan may have 
such stock transferred to the bank's name as nominee.

Sec. 7.1010  Postal service by national bank.

    (a) General. A national bank may maintain and operate a postal 
substation on banking premises and receive income from it. The services 
performed by the substation are those permitted under applicable rules 
of the United States Postal Service and may include meter stamping of 
letters and packages, and the sale of related insurance. The bank may 
advertise, develop, and extend the services of the substation for the 
purpose of attracting customers to the bank.
    (b) Postal regulations. A national bank operating a postal 
substation shall do so in accordance with the rules and regulations of 
the United States Postal Service. The national bank shall keep the books 
and records of the substation separate from those of other banking 
operations. Under 39 U.S.C. 404 and any regulations issued pursuant 
thereto, the United States Postal Service may inspect the books and 
records of the substation.

Sec. 7.1011  National bank acting as payroll issuer.

    A national bank may disburse to an employee of a customer payroll 
funds deposited with the bank by that customer. The bank may disburse 
those funds by direct payment to the employee, by crediting an account 
in the employee's name at the disbursing bank, or by forwarding funds to 
another institution in which an employee maintains an account.

Sec. 7.1012  Messenger service.

    (a) Definition. For purposes of this section, a ``messenger 
service'' means any service, such as a courier service or armored car 
service, used by a national bank and its customers to pick up from, and 
deliver to, specific customers at locations such as their homes or 
offices, items relating to transactions between the bank and those 
customers.
    (b) Pick-up and delivery of items constituting nonbranching 
activities. Pursuant to 12 U.S.C. 24 (Seventh), a national bank may 
establish and operate a messenger service, or use, with its customers, a 
third party messenger service. The bank may use the messenger service to 
transport items relevant to the bank's transactions with its customers 
without regard to the branching limitations set forth in 12 U.S.C. 36, 
provided the service does not engage in branching functions within the 
meaning of 12 U.S.C. 36(j). In establishing or using such a facility, 
the national bank may establish terms, conditions, and limitations 
consistent with this section and appropriate to assure compliance with 
safe and sound banking practices.
    (c) Pick-up and delivery of items constituting branching functions 
by a messenger service established by a third party. (1) Pursuant to 12 
U.S.C. 24 (Seventh), a national bank and its customers may use a 
messenger service to pick up from, and deliver to customers items that 
relate to branching functions within the meaning of 12 U.S.C. 36, 
provided the messenger service is established and operated by a third 
party. In using such a facility, a national bank may establish terms, 
conditions, and limitations, consistent with this section and 
appropriate to assure compliance with safe and sound banking practices.
    (2) The OCC reviews whether a messenger service is established by a 
third party on a case-by-case basis, considering all of the 
circumstances. However, a messenger service is clearly established by a 
third party if:
    (i) A party other than the national bank owns or rents the messenger 
service and its facilities and employs the persons who provide the 
service;
    (ii)(A) The messenger service retains the discretion to determine in 
its own business judgment which customers and geographic areas it will 
serve; or

[[Page 124]]

    (B) If the messenger service and the bank are under common ownership 
or control, the messenger service actually provides its services to the 
general public, including other depository institutions, and retains the 
discretion to determine in its own business judgment which customers and 
geographic areas it will serve;
    (iii) The messenger service maintains ultimate responsibility for 
scheduling, movement, and routing;
    (iv) The messenger service does not operate under the name of the 
bank, and the bank and the messenger service do not advertise, or 
otherwise represent, that the bank itself is providing the service, 
although the bank may advertise that its customers may use one or more 
third party messenger services to transact business with the bank;
    (v) The messenger service assumes responsibility for the items 
during transit and for maintaining adequate insurance covering thefts, 
employee fidelity, and other in-transit losses; and
    (vi) The messenger service acts as the agent for the customer when 
the items are in transit. The bank deems items intended for deposit to 
be deposited when credited to the customer's account at the bank's main 
office, one of its branches, or another permissible facility, such as a 
back office facility that is not a branch. The bank deems items 
representing withdrawals to be paid when the items are given to the 
messenger service.
    (3) A national bank may defray all or part of the costs incurred by 
a customer in transporting items through a messenger service. Payment of 
those costs may only cover expenses associated with each transaction 
involving the customer and the messenger service. The national bank may 
impose terms, conditions, and limitations that it deems appropriate with 
respect to the payment of such costs.
    (d) Pickup and delivery of items pertaining to branching activities 
where the messenger service is established by the national bank. A 
national bank may establish and operate a messenger service to transport 
items relevant to the bank's transactions with its customers if such 
transactions constitute one or more branching functions within the 
meaning of 12 U.S.C. 36(j), provided the bank receives approval to 
establish a branch pursuant to 12 CFR 5.30.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60098, Nov. 4, 1999]

Sec. 7.1013  Debt cancellation contracts.

    A national bank may enter into a contract to provide for loss 
arising from cancellation of an outstanding loan upon the death or 
disability of a borrower. The imposition of an additional charge and the 
establishment of necessary reserves in order to enable the bank to enter 
into such debt cancellation contracts are a lawful exercise of the 
powers of a national bank.

Sec. 7.1014  Sale of money orders at nonbanking outlets.

    A national bank may designate bonded agents to sell the bank's money 
orders at nonbanking outlets. The responsibility of both the bank and 
its agent should be defined in a written agreement setting forth the 
duties of both parties and providing for remuneration of the agent. The 
bank's agents need not report on sales and transmit funds from the 
nonbanking outlets more frequently than at the end of the third business 
day following receipt of the funds.

Sec. 7.1015  Receipt of stock from a small business investment company.

    A national bank may purchase the stock of a small business 
investment company (SBIC) (see 15 U.S.C. 682(b)), and may receive the 
benefits of such stock ownership (e.g., stock dividends). The receipt 
and retention of a dividend by a national bank from an SBIC in the form 
of stock of a corporate borrower of the SBIC is not a purchase of stock 
within the meaning of 12 U.S.C. 24 (Seventh).

Sec. 7.1016  Independent undertakings to pay against documents.

    (a) General authority. A national bank may issue and commit to issue 
letters of credit and other independent undertakings within the scope of 
the applicable laws or rules of practice recognized by law.\30\ Under 
such letters of credit

[[Page 125]]

and other independent undertakings, the bank's obligation to honor 
depends upon the presentation of specified documents and not upon 
nondocumentary conditions or resolution of questions of fact or law at 
issue between the applicant and the beneficiary. A national bank may 
also confirm or otherwise undertake to honor or purchase specified 
documents upon their presentation under another person's independent 
undertaking within the scope of such laws or rules.
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    \30\ Examples of such laws or rules of practice include: The 
applicable version of Article 5 of the Uniform Commercial Code (UCC) 
(1962, as amended 1990) or revised Article 5 of the UCC (as amended 
1995) (available from West Publishing Co., 1/800/328-4880); the Uniform 
Customs and Practice for Documentary Credits (International Chamber of 
Commerce (ICC) Publication No. 500) (available from ICC Publishing, 
Inc., 212/206-1150; http://www.iccwbo.org); the International Standby 
Practices (ISP98) (ICC Publication No. 590) (available from the 
Institute of International Banking Law & Practice, 301/869-9840; http://
www.iiblp.org); the United Nations Convention on Independent Guarantees 
and Stand-by Letters of Credit (adopted by the U.N. General Assembly in 
1995 and signed by the U.S. in 1997) (available from the U.N. Commission 
on International Trade Law, 212/963-5353); and the Uniform Rules for 
Bank-to-Bank Reimbursements Under Documentary Credits (ICC Publication 
No. 525) (available from ICC Publishing, Inc., 212/206-1150; http://
www.iccwbo.org); as any of the foregoing may be amended from time to 
time.
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    (b) Safety and soundness considerations--(1) Terms. As a matter of 
safe and sound banking practice, banks that issue independent 
undertakings should not be exposed to undue risk. At a minimum, banks 
should consider the following:
    (i) The independent character of the undertaking should be apparent 
from its terms (such as terms that subject it to laws or rules providing 
for its independent character);
    (ii) The undertaking should be limited in amount;
    (iii) The undertaking should:
    (A) Be limited in duration; or
    (B) Permit the bank to terminate the undertaking either on a 
periodic basis (consistent with the bank's ability to make any necessary 
credit assessments) or at will upon either notice or payment to the 
beneficiary; or
    (C) Entitle the bank to cash collateral from the applicant on demand 
(with a right to accelerate the applicant's obligations, as 
appropriate); and
    (iv) The bank either should be fully collateralized or have a post-
honor right of reimbursement from the applicant or from another issuer 
of an independent undertaking. Alternatively, if the bank's undertaking 
is to purchase documents of title, securities, or other valuable 
documents, the bank should obtain a first priority right to realize on 
the documents if the bank is not otherwise to be reimbursed.
    (2) Additional considerations in special circumstances. Certain 
undertakings require particular protections against credit, operational, 
and market risk:
    (i) In the event that the undertaking is to honor by delivery of an 
item of value other than money, the bank should ensure that market 
fluctuations that affect the value of the item will not cause the bank 
to assume undue market risk;
    (ii) In the event that the undertaking provides for automatic 
renewal, the terms for renewal should be consistent with the bank's 
ability to make any necessary credit assessments prior to renewal;
    (iii) In the event that a bank issues an undertaking for its own 
account, the underlying transaction for which it is issued must be 
within the bank's authority and comply with any safety and soundness 
requirements applicable to that transaction.
    (3) Operational expertise. The bank should possess operational 
expertise that is commensurate with the sophistication of its 
independent undertaking activities.
    (4) Documentation. The bank must accurately reflect the bank's 
undertakings in its records, including any acceptance or deferred 
payment or other absolute obligation arising out of its contingent 
undertaking.
    (c) Coverage. An independent undertaking within the meaning of this 
section is not subject to the provisions of Sec. 7.1017.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60099, Nov. 4, 1999]

[[Page 126]]

Sec. 7.1017  National bank as guarantor or surety on indemnity bond.

    A national bank may lend its credit, bind itself as a surety to 
indemnify another, or otherwise become a guarantor (including, pursuant 
to 12 CFR 28.4, guaranteeing the deposits and other liabilities of its 
Edge corporations and Agreement corporations and of its corporate 
instrumentalities in foreign countries), if:
    (a) The bank has a substantial interest in the performance of the 
transaction involved (for example, a bank, as fiduciary, has a 
sufficient interest in the faithful performance by a cofiduciary of its 
duties to act as surety on the bond of such cofiduciary); or
    (b) The transaction is for the benefit of a customer and the bank 
obtains from the customer a segregated deposit that is sufficient in 
amount to cover the bank's total potential liability. A segregated 
deposit under this section includes collateral:
    (1) In which the bank has perfected its security interest (for 
example, if the collateral is a printed security, the bank must have 
obtained physical control of the security, and, if the collateral is a 
book entry security, the bank must have properly recorded its security 
interest); and
    (2) That has a market value, at the close of each business day, 
equal to the bank's total potential liability and is composed of:
    (i) Cash;
    (ii) Obligations of the United States or its agencies;
    (iii) Obligations fully guaranteed by the United States or its 
agencies as to principal and interest; or
    (iv) Notes, drafts, or bills of exchange or bankers' acceptances 
that are eligible for rediscount or purchase by a Federal Reserve Bank; 
or
    (3) That has a market value, at the close of each business day, 
equal to 110 percent of the bank's total potential liability and is 
composed of obligations of a State or political subdivision of a State.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60099, Nov. 4, 1999]

Sec. 7.1018  Automatic payment plan account.

    A national bank may, for the benefit and convenience of its savings 
depositors, adopt an automatic payment plan under which a savings 
account will earn dividends at the current rate paid on regular savings 
accounts. The depositor, upon reaching a previously designated age, 
receives his or her accumulated savings and earned interest in 
installments of equal amounts over a specified period.

Sec. 7.1019  Furnishing of products and services by electronic means and 
          facilities.

    A national bank may perform, provide, or deliver through electronic 
means and facilities any activity, function, product, or service that it 
is otherwise authorized to perform, provide, or deliver. A national bank 
may also, in order to optimize the use of the bank's resources, market 
and sell to third parties electronic capacities acquired or developed by 
the bank in good faith for banking purposes.

Sec. 7.1020  Purchase of open accounts.

    (a) General. The purchase of open accounts is a part of the business 
of banking and within the power of a national bank.
    (b) Export transactions. A national bank may purchase open accounts 
in connection with export transactions; the accounts should be protected 
by insurance such as that provided by the Foreign Credit Insurance 
Association and the Export-Import Bank.

Sec. 7.1021  National bank participation in financial literacy programs.

    A national bank may participate in a financial literacy program on 
the premises of, or at a facility used by, a school. The school premises 
or facility will not be considered a branch of the bank if:
    (a) The bank does not establish and operate the school premises or 
facility on which the financial literacy program is conducted; and
    (b) The principal purpose of the financial literacy program is 
educational. For example, a program is educational if it is designed to 
teach

[[Page 127]]

students the principles of personal economics or the benefits of saving 
for the future, and is not designed for the purpose of profit-making.

[66 FR 34791, July 2, 2001]
