Banking Law

Banking law in the United States has evolved over the years from a lightly regulated system of state and national banks to the more regulated, insured system that exists today. The biggest introduction of banking regulations occurred in the aftermath of the Great Depression. Today, banking law regulates nearly every activity in which a bank might participate.

The U.S. Congress generally passes broad and far-reaching pieces of legislation. Congress then delegates the duty of enforcing these laws to federal agencies—the second source of litigation. There are three major federal agencies that regulate the banking industry: the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of Currency. These agencies have the power to make rules and enforce laws. Certain subsections of the banking industry are further regulated by other agencies, such as the U.S. Department of Housing and Urban Development (HUD) and the Federal Trade Commission (FTC).

One of the primary roles of banks is lending money to consumers and businesses, and U.S. law regulates many aspects of the lending process. Federal law limits the amount of money a bank can lend. The law, codified at 12 U.S.C. § 84, limits sets the cap at 15 percent of the bank’s capital plus surplus for unsecured loans and 10 percent of the total for secured loans. This law is designed to prevent banks from becoming too concentrated in terms of loan account risk. Federal law also regulates what information must be disclosed to consumers who take out loans. The Consumer Credit Protection Act’s truth-in-lending provisions require banks to disclose the interest rate, finance charges, total payments, and other information associated with each loan. Consumers enjoy a right of action to help enforce these requirements. Banks or other lenders who violate the disclosure requirements risk a judgment for twice the amount of finance charges—from a minimum of $100 to a maximum of $2,000—plus attorney fees for each violation of the truth-in-lending law.