Alert April 03, 2012

OCC Issues Interpretive Letter Concluding that a Capital Maintenance Agreement is a Formal Enforcement Order that Limits the Conversion Rights of a Federal Savings Association under Section 612(c) of the Dodd-Frank Act

The OCC issued an interpretive letter (“Letter #1136”) concluding that when a federal savings association (“FSA”) is required to abide by the terms of a capital maintenance agreement (“CMA”), the FSA is subject to the restriction on charter conversion imposed by Section 612(c) of the Dodd-Frank Act (“Section 612(c)”).  Section 612(c) states that an FSA may not convert to a state bank or state savings association during any period when the FSA is subject to “a cease and desist order (or other formal enforcement order) issued by, or a memorandum of understanding entered into with, [the OTS or OCC] with respect to a significant supervisory matter.”

The OCC said in Letter #1136 that although Section 612(c) does not explicitly reference a CMA or written enforcement agreement, both logic and legislative history make it clear that a CMA, which as a matter of law is a written enforcement agreement entered into within the meaning and for the purposes of Section 8 of the Federal Deposit Insurance Act, is a type of enforcement agreement covered by Section 612(c).  The OCC noted in Letter #1136 that it would make no sense to allow an FSA to convert to a state charter if it were subject to a formal written enforcement agreement such as a CMA, while at the same prohibiting the conversion (as Section 612(c) does) if the FSA is subject to an informal memorandum of understanding.