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.

Sources of Regulation

There are four major sources of banking law. First is the United States Congress, which 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).

The third and fourth sources of banking law are at the state level and mirror those at the federal level. Many state legislatures pass laws that regulate state banks, and there are state agencies tasked with overseeing state banks and enforcing the laws their legislatures have passed.


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.

Mortgage Lending

For decades, the government has adopted the public policy of encouraging home ownership. Thus, Congress has over the years passed several laws that protect consumers throughout the mortgage lending process.

The Fair Housing Act prohibits discrimination against loan applicants on the basis of race, color, sex, national origin, and other protected personal traits. A law called the Real Estate Settlement Procedures Act (RESPA) prohibits those who refer a settlement service from receiving a fee or other portion of the proceeds. It also requires that lenders provide certain disclosures throughout the loan origination process and give the consumer a good faith estimate of the closing costs expected to finalize the loan.


Several federal statutes address banking fraud. For instance, 18 U.S.C. § 215 prohibits bank employees from taking bribes, fees, or gifts in exchange for approving a bank loan or extension of credit. Likewise, Section 214 prohibits the offering of these types of bribes. Furthermore, bank officers, agents, or employees who create false bank reports or execute unauthorized transactions face a fine of up to $1 million and a prison term of up to 30 years.

These laws not only regulate the behavior of banks, but there are several laws that protect banks from being defrauded. A person who attempts to defraud a bank or obtain money or property owned by a bank by means of fraud faces up to 30 years in jail and a fine of up to $1 million. Also, the same penalties exist for those who knowingly make false statements to obtain loans or extensions of credit.

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