Superintendent of Banking issues updated LPO guidance

On June 8, 2015, Iowa's Superintendent of Banking issued an updated Loan Production Office (LPO) guidance letter. This letter supersedes the Superintendent of Banking's last letter on LPOs, published April 7, 1988. In the updated letter, the Superintendent reiterated and affirmed its previous opinion that it has the discretion, pursuant to its supervisory powers, to authorize state-chartered banks to establish LPOs at any location in Iowa. Likewise, the Superintendent affirmed that an LPO which does not perform any core banking functions does not violate Iowa Code § 524.1201. The Superintendent subsequently clarified the permissible and prohibited activities that may take place at an LPO, the only differences between the former and current opinion being that (a) advertising which discloses the nature and limitations of the LPO is no longer expressly permissible and (b) executing mortgages is now expressly forbidden. Because both the former and current letter (a) prohibit advertising that the LPO provides services beyond those which are permissible and (b) prohibit LPOs from executing any documents obligating the loan customer to the bank, these alterations seem aimed to clarify, rather than substantively amend, the permissible and prohibited activities delineated in the previous letter. The updated list of permissible and prohibited activities is as follows: Permissible: 

• Credit information may be assembled and loan applications may be solicited or processed;

• Property inspections and appraisals may be conducted;

• Information as to loan rates and terms may be provided; and

• Potential applicants may be counseled regarding loans.

Prohibited:

• Loans may not be approved;

• Promissory notes, mortgages, security agreements, and other documents obligating the loan customer to the bank may not be executed;

• Loan proceeds may not be disbursed;

• Loan payments may not be accepted;

• Forms enabling a customer to open a deposit account may not be provided;

• Customers may not be counseled regarding any banking service other than loan activities;

• Checks or drafts may not be paid;

• LPOs may not advertise, explicitly or implicitly, that they provide services beyond those which are permissible;

• Information may not be provided to customers regarding the status of their deposit account; and

• Funds for delivery to the main bank or authorized bank office may not be accepted by the LPO.

In response to inquiries about other permissible LPO activities, the Superintendent set forth additional conduct in which an LPO can engage without being consider a bank. This conduct includes (a) installing an Automated Teller Machine (ATM) or Intelligent Teller Machine (ITM), so long as an informational statement regarding any such installation is sent to the Superintendent prior to installation, (b) installing a computer terminal to facilitate online banking, and (c) performing remote deposit capture (RDC), so long as it is performed at a customer's location and not the LPO. Finally, the Superintendent affirmed its previous opinion that a state-chartered bank may establish an LPO upon 30-day notification to the Superintendent, though the Superintendent reserves the right to prohibit the establishment of an LPO if it would constitute an unsafe and unsound banking practice. Unlike the former letter, the Superintendent sets forth specific criteria that the notification letter must address, including (a) the condition of the bank, (b) the location of the proposed LPO, (c) a brief description of personnel and the expected volume of business, (d) a description of future plans for the location, and (e) a confirmation that the bank will comply with the Superintendent Guidance regarding LPOs.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

- Laura Wasson