Section 1151.298. Consumer loans, commercial paper, and corporate debt securities

An association may invest in consumer loans, commercial paper, and corporate debt securities subject to the limitations of this section; however, at any one time the total investment made under this section shall not exceed twenty per cent of an association's assets.

(A) An association may make, originate, purchase, sell, service, and participate in direct or indirect consumer loans provided that before indirect loans are made through a dealer, the dealer is approved by the association's board of directors.

(1) If a loan that may be made under this division is also authorized to be made under another section, which may have different percentage-of-assets and other limitations or requirements, an association shall have the option of choosing under which applicable section the loan shall be made.

(2) The total balances of all outstanding unsecured loans to one borrower is limited to the lesser of one-fourth of one per cent of an association's assets or five per cent of its net worth, provided that an association may make up to three thousand dollars in unsecured loans to any one borrower.

For the purposes of this division, "consumer loan" is a secured or unsecured loan to a natural person for personal, family, or household purposes.

(B) An association may invest in, sell, or hold commercial paper and corporate debt securities, including corporate debt securities convertible into stock, subject to the limitations set forth in divisions (B)(1) and (2) of this section.

(1) An investment under this section includes the investing in, redeeming, or holding of shares in any open-end management investment company which is registered with the securities and exchange commission under the "Investment Company Act of 1940," 54 Stat. 847, 15 U.S.C. 80a-1, and amendments thereto, and whose portfolio is restricted by such management company's investment policy, changeable only if authorized by shareholder vote, solely to the investments that an association is authorized to invest in under this division and other rules or law.

(2) Investments under this division are limited as follows:

(a) As of the date of purchase, as shown by the most recently published rating made of such investments by at least one nationally recognized investment rating service, the commercial paper must be rated in one of the two highest grades and the corporate debt securities must be rated in one of the four highest grades.

(b) The commercial paper or corporate debt securities must be denominated in dollars and the issuer must be domiciled in the United States.

(c) At any one time, an association's total investment in the commercial paper and corporate debt securities of any one issuer, or issued by any person or entity affiliated with such issuer, must not exceed one per cent of the association's assets, but, this provision does not apply to investments in the shares of an open-end management investment company. In such cases, an association's total investment in the shares of any one such company must not exceed five per cent of the association's assets.

(d) Investments in corporate debt securities convertible into stock are subject to the following additional limitations:

(i) Purchase of securities convertible into stock at the option of the issuer is prohibited;

(ii) At the time of purchase, the cost of such securities must be written down to an amount which represents the investment value of the securities considered independently of the conversion feature;

(iii) Such securities must be traded on a national securities exchange;

(iv) Associations are prohibited from exercising the conversion feature.

(e) At any one time, the average maturity of an association's portfolio of corporate debt securities must not exceed six years.

(f) An association must maintain information in its files adequate to demonstrate that it has exercised prudent judgment in making investments under this division.

For the purposes of this division, "commercial paper" is any note, draft, or bill of exchange which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which has maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited. A "corporate debt security" is a marketable obligation, evidencing the indebtedness of any corporation in the form of a bond, note or debenture which is commonly regarded as a debt security and is not predominantly speculative in nature. A security is marketable if it may be sold with reasonable promptness at a price which corresponds reasonably to its fair value.

(C) Notwithstanding the limitations set forth in divisions (A) and (B) of this section, the superintendent may permit an association to invest in corporate debt securities of another institution in connection with the purchase or sale of a branch office, or in connection with a supervisory merger or acquisition.

Effective Date: 07-14-1987