## Facts

- Otero Savings and Loan Association, a Colorado state-chartered thrift insured by the Federal Savings and Loan Insurance Corporation (FSLIC), began offering a “Check-In” checking service in April 1980.
- The program used an automatic transfer system (ATS): customers held an interest-bearing savings account and a noninterest checking account; when a check was presented, funds were automatically transferred from savings to checking so the checking balance would ordinarily be zero.
- At the time, 12 U.S.C. § 1832(a) generally barred depository institutions from permitting withdrawals from interest-bearing accounts by negotiable or transferable instruments used to pay third parties, subject to narrow statutory exceptions.
- FSLIC initiated an administrative proceeding under 12 U.S.C. § 1730(e), resulting in a Federal Home Loan Bank Board order finding the Check-In program unlawful as operated before December 31, 1980.
- The order required Otero to close Check-In checking accounts held by for-profit corporations and partnerships and to cease offering new Check-In/ATS/NOW accounts for 268 days, matching the period Otero had offered the service before it would have been generally authorized.
- Otero petitioned for judicial review, arguing (1) its two-account ATS structure did not fall within § 1832(a), and (2) the agency lacked authority to impose a prospective, time-limited ban on new accounts.

## Issues

1. Whether a two-account ATS arrangement that automatically funds checks from an interest-bearing savings account violates 12 U.S.C. § 1832(a)’s prohibition on withdrawals by negotiable instruments for third-party transfers.
2. Whether 12 U.S.C. § 1730(e) authorizes FSLIC and the Bank Board to impose a forward-looking remedial order temporarily barring an insured institution from opening new ATS/NOW accounts to offset a competitive advantage obtained through unlawful conduct.

## Decision

- The Tenth Circuit denied the petition for review and upheld the Bank Board’s order.
- The court held that Otero’s Check-In program, as operated before December 31, 1980, violated § 1832(a).
- The court held that § 1730(e) permitted the agency to impose the 268-day prohibition on opening new Check-In/ATS/NOW accounts as a remedial measure.
- The court sustained the agency’s closure requirement for affected corporate and partnership accounts and the time-limited new-account restriction.

## Legal Principles

- Section 1832(a) reaches the functional effect of an arrangement; a depository institution may not permit interest-bearing funds to be used for third-party payments by negotiable instruments through a two-account bookkeeping device that replicates interest-bearing checking.
- Statutory exceptions to § 1832(a) support a broad prohibition outside the specified exceptions; institutions cannot avoid the ban by restructuring accounts while preserving the same economic transaction-account feature.
- Under § 1730(e), FSLIC and the Bank Board have broad cease-and-desist and corrective authority that may include equitable, prospective restrictions tailored to neutralize competitive advantages gained from unlawful practices.
- A remedial order may do more than stop the specific unlawful activity; it may include time-limited conditions reasonably designed to restore lawful competitive conditions.

## Conclusion

The court upheld an agency finding that a two-account ATS system enabling customers to earn interest until checks are paid violated § 1832(a), and it affirmed the agency’s authority under § 1730(e) to impose a temporary ban on opening new ATS/NOW accounts as corrective relief aimed at eliminating an unlawfully obtained competitive lead.


Otero Sav. & Loan Ass’n v. Fed. Home Loan Bank Bd., 665 F.2d 279 (10th Cir. 1981)