Pennsylvania Enacts Package of Bills to Modernize Banking Law

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On October 24, Pennsylvania enacted three bills that together make numerous substantive and technical changes to upgrade and modernize the state’s banking code, all of which take effect December 23, 2012. HB 2368 updates commercial, mortgage, and consumer lending provisions of the code by, among other things, removing conflicting and outdated lending provisions, and reflecting current lending interest rates and fees. This bill also (i) adds provisions required by the Dodd-Frank Act with regard to lending limits that require state financial regulators to consider credit exposure to derivative transactions, (ii) increases penalties for unlawful lending and trust activities to a felony and a $10,000 to $500,000 fine, and (iii) removes the current two-person cap on the number of individuals who can be beneficiaries of deposit accounts. HB 2369 provides for greater public disclosure and enforcement by the Department of Banking, and clarifies the Department’s examination authority over bank subsidiaries. It also allows the Department to assess civil money penalties against individuals and institutions for conduct that causes the institution to suffer substantial financial loss, is willful, flagrant or evidences bad faith, involves an insider who benefits in a substantial way, or does not comply with previous supervisory actions involving violations. The bill allows the Department to publicly disclose enforcement actions against depository institutions and their employees, and expands the Department’s authority to remove officers and employees from bank management and boards whenever such individuals violate any law or Department order. HB 2369 also requires any state or local government agency that proposes civil enforcement of a law or ordinance against a bank to consult with and receive approval from the Department prior to enforcement. HB 2370 repeals certain sections of the state’s general usury law that duplicate TILA’s variable rate mortgage loan disclosures. It also adds savings banks to the list of institutions subject to maximum interest rate provisions and clarifies that the maximum rate is the rate authorized by federal or state law.