2 July 2001
Source: http://www.access.gpo.gov/su_docs/aces/fr-cont.html
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[Federal Register: July 2, 2001 (Volume 66, Number 127)]
[Proposed Rules]
[Page 34855-34864]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jy01-34]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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[[Page 34855]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 7
[Docket No. 01-15]
RIN 1557-AB76
Electronic Banking
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
proposing to amend its regulations in order to facilitate national
banks' ability to conduct business using electronic technologies,
consistent with safety and soundness. This proposal groups together new
and revised regulations addressing: National banks' exercise of their
Federally authorized powers through electronic means; the location, for
purposes of the Federal banking laws, of a national bank that engages
in electronic activities; and the disclosures required when a national
bank provides its customers with access to other service providers
through hyperlinks in the bank's website or other shared electronic
``space.''
DATES: Comments must be received by August 31, 2001.
ADDRESSES: Please send your comments to: Office of the Comptroller of
the Currency, Public Information Room, 250 E Street, SW., Mail Stop 1-
5, Washington, DC 20219, Attention: Docket No. 01-15. You may make an
appointment to inspect and photocopy comments at the same location by
calling (202) 874-5043. In addition, you may fax your comments to (202)
874-4448 or electronic mail them to [email protected].
FOR FURTHER INFORMATION CONTACT: Stuart Feldstein, Assistant Director,
or Heidi M. Thomas, Counsel, Legislative and Regulatory Activities, at
(202) 874-5090; James Gillespie, Assistant Chief Counsel, at (202) 874-
5200; or Clifford Wilke, Director, Bank Technology, at (202) 874-5920.
SUPPLEMENTARY INFORMATION:
Background
Automation, the Internet, wireless communications, and other
technologies are impacting not just how financial products and services
are delivered, but also the substantive characteristics of those
products and services.\1\ By the end of 2000, approximately 37 percent
of national banks offered Internet banking via transactional World Wide
Web (Web) sites, with another 18 percent expecting to offer Internet
banking services in the future.\2\ By the end of 2003, an estimated 25
million to 40 million households will bank on-line.\3\
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\1\ John D. Hawke, Jr., ``The Internet Impact,'' Independent
Banker, March 2001; Veronica Agosta, ``Nation's Small Banks Have Big
Plans for the Internet,'' The American Banker, March 9, 2001, at 5;
Leslie Walker, ``E-Mail Money Gains Currency,'' The Washington Post,
October 5, 2000, at E1; Steve Marlin, ``B2B: Swirling E-Marketplace
Pulls in Banks,'' Bank Systems & Technology, June 2000, at 32;
``Online Finance Survey: Paying Respects,'' The Economist, May 20,
2000, at 24; Carol Power, ``Banks Start to Click into Wireless
Banking,'' The American Banker, June 7, 2000, at 16.
\2\ See OCC Internet Banking Questionnaire, December 31, 2000.
\3\ ``Online Finance Survey: Branching Out,'' The Economist, May
20, 2000, at 19.
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The OCC has approved a number of activities involving innovative
uses of new technology, including the establishment of transactional
Web sites, virtual marketplaces, Internet access services, and
electronic payment systems. We have also permitted national banks to
provide digital certification and electronic correspondent banking
services.\4\
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\4\ The OCC has established a website that contains information
relating to electronic banking activities. See www.occ.treas.gov/
netbank/netbank.htm (Electronic Banking website). The site includes
a listing of opinions, approval letters, supervisory guidance, and
other issuances on this subject and provides links to the documents
listed.
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To ensure that electronic banking activities are conducted
consistent with bank safety and soundness, we have issued guidance
addressing supervisory issues relating to banks' use of technology.\5\
Together with the other Federal banking agencies, we have recently
issued guidelines prescribing information security standards that
implement the requirements of the Gramm-Leach-Bliley Act (GLBA).\6\ We
also have issued a comprehensive handbook on Internet banking that
discusses business and technical issues associated with providing goods
and services via the World Wide Web, the risks presented by these
activities, and the OCC's procedures for Internet-related
examinations.\7\ In addition, we recently issued ``The Internet and the
National Bank Charter,'' as part of the Comptroller's Corporate Manual
(January 2001). These and other issuances, including Internet-related
regulatory updates, are available on our Electronic Banking website.
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\5\ See, e.g., OCC Bulletin 98-3, Technology Risk Management--
Guidance for Bankers and Examiners (February 4, 1998).
\6\ 66 FR 8616 (Feb. 1, 2001) (information security guidelines
issued jointly by the OCC, the Board of Governors of the Federal
Reserve, the Federal Deposit Insurance Corporation, and the Office
of Thrift Supervision). These guidelines implement the requirements
of section 501(b) of GLBA, Pub. L. 106-102, sec. 501(b), 113 Stat.
1338, 1436-37 (Nov. 12, 1999), codified at 15 U.S.C. 6801.
\7\ Comptroller's Handbook, Other Income Producing Activities:
Internet Banking (Oct. 1999).
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Finally, we have initiated a review of the OCC's regulations with a
view toward removing unnecessary impediments to national banks' use of
technology. In an advance notice of proposed rulemaking (ANPR)
published on February 2, 2000,\8\ the OCC invited public comment on
issues involving Internet banking and other uses of electronic
technology. Specifically, the ANPR focused on three issues: (1) How
should the OCC adapt its regulations and supervisory policies to
facilitate national banks' use of electronic technology consistent with
bank safety and soundness? (2) What statutes can the OCC interpret more
flexibly to accommodate new technologies? and (3) How can the OCC
enhance the operational flexibility of banks engaging in electronic
banking consistent with bank safety and soundness? \9\
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\8\ 65 FR 4895 (Feb. 2, 2000).
\9\ Section 729 of GLBA requires the OCC and the other Federal
banking agencies to conduct a study of banking regulations
pertaining to the delivery of on-line financial services and to make
recommendations on adapting existing regulations and legislative
requirements to on-line banking and lending. We noted in the ANPR
that commenters' suggestions would be helpful in formulating
recommendations for legislative action or for actions that may be
appropriately undertaken on an interagency basis. We continue to
invite commenters to address these points.
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The OCC received 16 comments on the ANPR, including 7 from banks, 6
from trade associations, 2 from individuals, and 1 from a company that
provides information processing
[[Page 34856]]
management, outsourcing services, and application software to banks.
The commenters strongly supported the OCC's initiative, emphasizing
that outdated and inflexible regulations are one of the largest
obstacles banks face as they attempt to adopt new technologies. The
comments offered suggestions in each of the three areas identified in
the ANPR and raised a wide variety of additional issues.
After reviewing these comments, the OCC has developed a proposed
rule to update its regulations to reflect national banks' use of new
technologies and to provide simpler, clearer guidance to banks engaging
in electronic activities.
Shortly after the ANPR was published, Congress passed the
Electronic Signatures in Global and National Commerce Act (the E-Sign
Act), which was enacted on June 30, 2000.\10\ Among other provisions,
the E-Sign Act establishes certain uniform Federal rules concerning the
use of electronic signatures and records in commercial and consumer
transactions and establishes certain requirements for making
disclosures to consumers electronically. Although it does not require
implementing regulations, the E-Sign Act gives the OCC (and other
Federal and state regulatory agencies) authority to interpret the Act's
requirements with respect to the statutes they administer, subject to
specified limitations. The OCC is considering whether it would be
appropriate to further revise its regulations in light of the E-Sign
Act. Any such revisions would be undertaken in a separate rulemaking,
however, and are, accordingly, not covered by this proposal.
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\10\ Pub. L. 106-2299, 114 Stat. 464 (June 30, 2000).
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Section-by-Section Analysis of the Proposal
In the following discussion, the changes included in this proposal
are grouped in three categories: national bank powers, location with
respect to the conduct of electronic activities, and safety and
soundness requirements for shared electronic ``space.''
A. National Bank Powers
1. National Bank Finder Authority (revised Sec. 7.1002)
The OCC has long permitted a national bank to act as a finder to
bring together buyers and sellers of financial and nonfinancial
products and services. Under our current rules, a national bank, acting
as a finder, may identify potential parties, make inquiries as to
interest, introduce or arrange meetings of interested parties, and
otherwise bring parties together for a transaction that the parties
themselves negotiate and consummate.\11\ National banks have used the
finder authority to engage in several new activities made possible by
technological developments, particularly the Internet.\12\
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\11\ 12 CFR 7.1002.
\12\ See OCC Conditional Approval No. 369 (Feb. 25, 2000)
(national bank may, incidental to its hosting of a virtual mall,
provide at that site access to a limited amount of nonfinancial
information (e.g., information on current events and weather) that
is necessary to attract persons to the virtual mall site); OCC
Interpretive Letter No. 875, reprinted in [Current Transfer Binder]
Fed. Banking L.Rep. (CCH) para. 81-369 (Oct. 31, 1999) (the
components of Internet services package that involve hosting of
commercial web sites, registering merchants with search engines and
obtaining URLs, and electronic storage and retrieval of the data set
for a merchant's on-line catalog are permissible finders activities
authorized for national banks pursuant to 12 U.S.C. 24(Seventh));
OCC Conditional Approval No. 221 (Dec. 4, 1996) (national banks, in
the exercise of their finder authority, may establish hyperlinks
between their home pages and the Internet pages of third party
providers so that bank customers will be able to access those non-
bank web sites from the bank site); Letter from Julie L. Williams,
Chief Counsel, October 2, 1996 (unpublished) (national bank as
finder could use electronic means to facilitate contacts between
third party providers and potential buyers); OCC Interpretive Letter
No. 611, reprinted in [1992-1993 Transfer Binder] Fed. Banking L.
Rep. (CCH) P 83,449 (Nov. 23, 1992) (national bank linking non-bank
service providers to its communications platform of smart phone
banking services was within its authority as a finder ``in bringing
together a buyer and seller;'' national banks may act as finders by
providing to their customers links to non-banking, third-party
vendors' Internet web sites); OCC Interpretive Letter No. 516,
reprinted in [1990-1991 Transfer Binder] Fed. Banking L. Rep. (CCH)
P 83,220 (July 12, 1990) (national banks as finder may provide
electronic communications channels for persons participating in
securities transactions).
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The proposal makes several changes to section 7.1002. First, the
proposal clarifies that it is part of the business of banking for a
national bank to engage in finder activities. This provision codifies
the position the OCC has taken in recent interpretative letters.\13\
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\13\ See, e.g., OCC Interpretive Letter No. 824 (Feb. 27, 1998)
(determining, in the context of insurance activities, that the
``finder function is an activity authorized for national banks under
12 U.S.C. 24(Seventh) as part of the business of banking.''). The
OCC makes this determination pursuant to its authority under section
24(Seventh) to authorize activities as part of the business of
banking. NationsBank v. Variable Annuity Life Insurance Co., 513
U.S. 251, 258 n.2 (1995) (VALIC) (``We expressly hold that the
``business of banking'' is not limited to the enumerated powers in
[section] 24(Seventh) and that the Comptroller therefore has
discretion to authorize activities beyond those specifically
enumerated.''). In VALIC, the Court noted that the Comptroller's
exercise of discretion is subject to a reasonableness standard. Id.
It is clear that our determination that finder activities are part
of the business of banking satisfies this standard. See Norwest Bank
v. Sween Corporation, 118 F.3d 1255 (8th Cir. 1997) (determining
that finder activities were authorized for a national bank because
``allowing banks to use their expertise as an intermediary
effectuating transactions between parties facilitates the flow of
money and credit through the economy.''). The Sween court did not
distinguish between activities that are ``part of'' the business of
banking and those that are ``incidental to'' that business, relying,
instead, on the pre-VALIC formulation of the analysis as whether an
activity is ``closely related to an express power and is useful in
carrying out the business of banking.'' Id. at 1260. The court's
conclusions are nonetheless clear that finder activities are
authorized pursuant to section 24(Seventh) and that the
Comptroller's determination to that effect, embodied in the OCC's
regulations, was a reasonable construction of the statute.
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Second, the proposal adds a number of specific examples
illustrating the full range of finder activities that we have
authorized. For example, the proposal states that a national bank may
communicate information about third-party providers, their services and
products, and proposed offering prices and terms to potential markets.
These examples are illustrative and not exclusive, and the OCC may find
new activities to be authorized under the finder authority that are not
included in the examples.
Finally, the current rule contains the express statement that
acting as a finder does not include activities that would characterize
the bank as a broker under applicable Federal law. Like other aspects
of the financial services business, the concept of what constitutes
acting as a broker is changing in response to technology and is
expanding in some Federal regulatory regimes.\14\ Accordingly, the
proposed rule restates the exclusion contained in the current rule to
provide that the authority to act as a finder does not enable a
national bank to engage in activities that would characterize the bank
as a broker under Federal law that are not otherwise permissible for
national banks. This change is prompted in response to changes in the
definition of ``broker'' under Federal law and does not affect whether
activities regulated as brokerage under state law are permissible for a
national bank. In addition, as under the current regulation, a national
bank acting as finder may not represent or bind either of the parties
to a transaction, nor may it take title to goods as finder.
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\14\ See, e.g., ``SEC Redefines What Triggers B/D
Registration,'' VII Compliance Rep. 1 (April 10, 2000) and ``On-line
Brokerage: Keeping Apace of Cyberspace,'' Report of Laura S. Unger,
Commissioner, U.S. Securities and Exchange Commission 98-106 (Nov.
1999).
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2. Electronic Banking--Scope (new Subpart E and Sec. 7.5000)
The proposal creates a new Subpart E to part 7, which collects
regulations pertaining to electronic activities. New section 7.5000
describes the scope of Subpart E, which addresses national
[[Page 34857]]
banks' use of electronic technology to deliver products and services,
consistent with safety and soundness.
3. Electronic Banking Activities That Are Part of, or Incidental to,
the Business of Banking (Sec. 7.5001)
The rapid development of new technologies requires banks to be able
to respond quickly and effectively to changing customer needs. As they
take up the new lines of business and offer the new financial products
needed to serve their customers, national banks must continually
evaluate their authority, pursuant to 12 U.S.C. 24(Seventh), to conduct
electronic activities that are part of, or incidental to, the business
of banking.\15\ Proposed new Sec. 7.5001 assists banks that are
contemplating new electronic activities by identifying the factors the
OCC uses to determine whether the electronic activity would be
authorized pursuant to section 24(Seventh).
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\15\ VALIC, 513 U.S. at 258.
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Section 7.5001(a) provides the purpose and scope of the new section
and describes the general parameters of national banks' ability to
engage in electronic activities. First, it sets out expressly the OCC's
authority to impose conditions on the exercise of newly authorized
activities if necessary to ensure that they are conducted safely and
soundly and in accordance with applicable law and supervisory policies.
Second, it clarifies that state law applies to a national bank's
conduct of electronic activities to the extent it would apply if the
activity were conducted through traditional means. The provision
clarifies that the same analysis governs the applicability of state law
to Federally authorized activities that national banks conduct whether
using new technologies or using more traditional means.\16\
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\16\ In brief, state law applies to a national bank's exercise
of a Federally authorized activity if a Federal statute directs that
result or if the state law is found to apply under principles of
Federal preemption derived from the Supremacy Clause of the U.S.
Constitution and applicable judicial precedent. See, e.g., Barnett
Bank v. Nelson, 517 U.S. 25 (1996).
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Electronic banking activities that are part of the business of
banking (new Sec. 7.5001(b)). Proposed Sec. 7.5001(b) provides that an
electronic activity is authorized for national banks as part of the
business of banking if the activity is permitted under 12 U.S.C.
24(Seventh) or other statutory authority applicable to national banks,
or otherwise constitutes part of the business of banking. The proposal
sets forth four factors the OCC considers in determining whether an
electronic activity is part of the business of banking. A proposed
activity does not necessarily have to satisfy all four criteria in
order to be permissible. Rather, we recognize that one or more of these
factors may predominate, depending on the specific facts and
circumstances presented.\17\
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\17\ See, e.g., Conditional Approval No. 267 (January 12, 1998)
(A national bank may engage in certification authority activities
that are the functional equivalent to and a logical outgrowth of
established banking functions) and Conditional Approval No. 220
(December 2, 1996) (The creation, sale and redemption of electronic
stored value in exchange for dollars are part of the business of
banking because these activities comprise the electronic equivalent
of issuing circulating notes or other paper-based payment devices
like travelers checks).
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The first factor is whether the electronic activity is functionally
equivalent to, or a logical outgrowth of, a recognized banking
activity. This factor is based on judicial precedents approving
activities that have traditionally been performed by banks, that are
functionally similar to recognized banking activities, or that
represent advances in recognized banking practices.\18\
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\18\ See, e.g., M&M Leasing v. Seattle First National Bank, 563
F.2d 1377 (9th Cir. 1977), cert. denied, 436 U.S. 956 (1978)
(national bank leasing of personal property permissible because it
was functionally interchangeable with loaning money on personal
security and therefore incidental to the express power of loaning
money on personal security); VALIC, 513 U.S. at 259-60 (national
bank annuity sales are permissible because they are functionally
similar to other financial investment products banks have long been
authorized to sell).
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The second factor that we consider is whether the proposed activity
strengthens the bank by benefitting its customers or its business.
Courts have long recognized that banks' ability to serve the needs of
their customers by offering appropriate products and services is
crucial to the capability of national banks to compete successfully.
Therefore, the courts have also approved many activities on the basis
that they benefit a bank's customers or the bank's business itself.\19\
Examples of the types of activities the OCC would look to that would
benefit bank customers or may be useful or convenient to banks include
those where the activity increases service, convenience, or options for
bank customers or lowers the cost to banks of providing a product or
service.
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\19\ Merchants' Bank v. State Bank, 77 U.S. 604, 648 (1871)
(``The practice of certifying checks has grown out of the business
needs of the country.'') See Clement National Bank v. Vermont, 231
U.S. 120, 140 (1923) (``the bank should be free to make * *
*reasonable [depositors'] agreements, and thus promote the
convenience of its business * * * .'').
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The third factor that we consider in determining whether an
electronic activity is part of the business of banking is whether the
activity presents the types of risk that banks are experienced in
managing.\20\
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\20\ See Merchants' Bank, 77 U.S. at 648 (``A bank incurs no
greater risk in certifying a check than in giving a certificate of
deposit.''); M&M Leasing, 563 F. 2d at 1383 (leasing personal
property functionally equivalent to secured lending because the
risks to the bank of such leasing were essentially the same as if
the bank had made secured loans to buyers of the same property). See
also Decision of the Comptroller of the Currency on the Operating
Subsidiary Application by Zions First National Bank, Salt Lake City,
Utah, OCC Conditional Approval No. 267 (January 12, 1998) at 13
(acting as a certification authority involves core competencies of
national banks and thus entails risks similar to those that banks
are already expert in handling).
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Finally, the proposal recognizes the relevance of state law in the
analysis the OCC conducts when it receives requests regarding the
permissibility of new electronic activities for national banks. Since
the statutory reference to the ``business of banking'' does not imply
that there are two distinct businesses of banking, one for Federally-
chartered and another for state-chartered banks, activities that are
recognized as permissible for state banks are at least a relevant
factor in determining whether an electronic activity is part of the
business of banking.\21\
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\21\ The U.S. Supreme Court has relied upon the permissibility
of an activity for state banks as a factor in the analysis of
permissible national bank powers. See Colorado National Bank v.
Bedford, 310 U.S. 41 (1940), in which the Court, concluding that
national banks had the authority to conduct a safe-deposit business,
stated that ``State banks, quite usually, are given the power to
conduct a safe-deposit business. We agree with the appellant bank
that such a generally adopted method of safeguarding valuables must
be considered a banking function authorized by Congress.'' 310 U.S.
at 51.
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Electronic activities that are incidental to the business of
banking (new Sec. 7.5001(c)). We are also proposing to set forth the
factors the OCC considers in determining whether an electronic activity
is incidental to the business of banking. In Arnold Tours, Inc. v.
Camp, 472 F.2d 427, 432 (1st Cir. 1972), the court held that a national
bank's activity is authorized as an incidental power if it is
convenient or useful in connection with the performance of one of the
bank's established activities pursuant to the five express powers
enumerated in 12 U.S.C. 24(Seventh). Consistent with the Supreme
Court's holding in VALIC that national banks' authority to engage in
the business of banking is not limited to the five express powers,
proposed Sec. 7.5001(c) updates this standard to provide that an
activity is incidental to the business of banking if it is convenient
or useful to an activity that is specifically authorized for national
banks or to an activity that is otherwise part of the business of
banking.
[[Page 34858]]
Proposed Sec. 7.5001(c) relies on Federal incidental powers precedents
to identify the factors the OCC uses in determining whether an activity
is convenient or useful to the business of banking. As with
determinations about whether an activity is part of the business of
banking, specific facts may implicate one or more factors, and the
activity need not satisfy each factor to be permissible as incidental
to that business.
The first factor listed in the proposal as part of the OCC's
determination as to whether an electronic banking activity is
incidental to the business of banking is whether the activity
facilitates the production or delivery of a bank's products or
services, enhances the bank's ability to sell or market its products or
services, or improves the effectiveness or efficiency of the bank's
operations in light of risks presented, innovations, strategies,
techniques and new technologies for providing financial products and
services. For example, relying on well established judicial
precedents,\22\ the OCC has determined that the provision of certain
products and services is permissible as incidental to the business of
banking when needed to package successfully or promote other banking
services. \23\
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\22\ See Franklin Nat'l Bank v. New York, 347 U.S. 373 (1954)
(national bank may advertise savings accounts); Clement National
Bank, 231 U.S. at 140 (national bank may promote its deposit
services by computing, reporting and paying the state tax levied
upon the interest earned by bank customers on their deposits).
\23\ See OCC Interpretative Letter No. 754, reprinted in [1996-
97 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 81-118 (Nov. 6,
1996) (national bank operating subsidiary may sell general purpose
computer hardware to other financial institutions as part of larger
product or service when necessary, convenient, and useful to bank
permissible activities.)
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In addition to incidental activities based on specific banking
services or products, proposed Sec. 7.5001(c)(1) also recognizes a
category of incidental activities based on the operation of the bank
itself as a business concern. Banking activities that fall in this
category may include hiring employees, issuing stock to raise capital,
owning or renting equipment, borrowing money for operations, purchasing
the assets and assuming the liabilities of other financial
institutions, and operating through optimal corporate structures, such
as subsidiary corporations or joint ventures. Various Federal statutes
have implicitly recognized national banks' authority to perform the
activities necessary to conduct their business. For example, Federal
laws refer to limits on persons who can serve as bank employees, to the
permissible disposition of bank stock, and to the existence of bank
subsidiaries.\24\ In each case, the statutes presume the existence of
corporate power to conduct the bank's business under 12 U.S.C.
24(Seventh).
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\24\ See, e.g., 12 U.S.C. 78 (defining persons ineligible to be
bank employees); 12 U.S.C. 83 (limiting national bank's purchase of
its own stock); 12 U.S.C. 24 (Seventh) (limiting presupposed
authority of national bank to own a subsidiary engaged in the safe
deposit business; 12 U.S.C. 371d(1994) (defining ``affiliates'' to
include subsidiaries owned by national banks); GLBA section 121
(defining financial subsidiary as a subsidiary ``other than'' a
subsidiary that conducts bank-permissible activities under the same
terms and conditions as apply to the parent bank or a subsidiary
expressly authorized by Federal statute).
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The authority of banks to deliver and sell products and services or
improve the effectiveness of its operations must be viewed in light of
innovations, strategies, techniques and new technologies for marketing
financial products and services. For example, in VALIC, the Supreme
Court recognized that the concepts of the ``business of banking'' and
of activities ``incidental'' to that business must be sufficiently
flexible to accommodate the constant evolution of banking services.
These grants of power must be given a broad and flexible interpretation
to allow national banks to utilize modern methods and meet modern
needs. The court in the M&M Leasing case also focused on this point
noting that ``commentators uniformly have recognized that the National
Bank Act did not freeze the practices of national banks in their
nineteenth century form* * *. [W]e believe the powers of national banks
must be construed so as to permit the use of new ways of conducting the
very old business of banking.'' \25\ Proposed Sec. 7.5001(c)(1)
recognizes that market and technological changes that will affect the
banking industry will shape the OCC's future determinations of whether
an activity is incidental to the business of banking.
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\25\ 563 F.2d at 1382.
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The second factor is whether the activity enables the bank to
profitably use capacity acquired for its banking operations or
otherwise avoid economic waste or loss. For example, it is well settled
that a nonbanking activity can be validly incidental when it enables a
bank to realize gain or avoid loss from activities that are part of, or
necessary to, its banking business. Federal statutes and case law also
recognize national banks' need to optimize the value of bank property
by authorizing banks to sell excess space or capacity in that
property.\26\ Proposed Sec. 7.5004, which pertains to excess capacity,
is a specific application of this general principal.
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\26\ See 12 U.S.C. 24(Seventh) and 29; Perth Amboy National Bank
v. Brodsky, 207 F.Supp. 785, 788 (S.D.N.Y. 1962) (``It is clear
beyond cavil that the statute [12 U.S.C. 29] permits a national bank
to lease or construct a building, in good faith, for banking
purposes, even though it intends to occupy only a part thereof and
to rent out a large part of the building to others.'')
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4. Furnishing of Products or Services by Electronic Means and
Facilities (Sec. 7.5002).
The OCC's rules currently provide that a national bank may perform,
provide, or deliver through electronic means and facilities any
function, product, or service that it is otherwise authorized to
perform, provide or deliver.\27\ This so-called ``transparency
doctrine'' is a key provision for national banks engaging in electronic
activities because it requires the OCC to look through the means by
which the product is delivered and focus instead on the authority of
the national bank to offer the underlying product or service.
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\27\ 12 CFR 7.1019.
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The proposed rule moves the transparency rule to new subpart E and
expands it to include examples of permissible activities under the
rule. For example, we have relied on the transparency doctrine in
Sec. 7.1019 to approve a number of technology-based activities, such as
web site hosting and the operation of a ``virtual mall,'' that are
otherwise permissible under a national bank's finder authority.
Similarly, we have approved electronic bill presentment activities
because billing and collecting services are permissible for national
banks.\28\ We believe that moving this section under new subpart E and
providing concrete examples of how it may be used will provide clearer
guidance to national banks that wish to engage in new electronic
activities.\29\
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\28\ OCC Conditional Approval No. 304 (Mar. 5, 1999).
\29\ See also, Conditional Approval No. 220 (December 2, 1996)
(The creation, sale and redemption of electronic stored value in
exchange for dollars is part of the business of banking because it
is the electronic equivalent of issuing circulating notes or other
paper based payment devices like travelers checks); Conditional
Approval No. 267 (January 12, 1998) (A national bank may store
electronic encryption keys as an expression of the established
safekeeping function of banks.)
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5. Composite Authority To Engage in Electronic Banking Activities
(Sec. 7.5003)
An electronic banking activity may appear to be novel but may
actually comprise a collection of interrelated activities, each of
which is permissible under well-settled authority. For example, the
authority for a national bank to offer a commercially enabled web site
service to merchants is actually
[[Page 34859]]
a blend of established authorities to offer the constituent parts of
the service, including the authorities to act as finder, to process
banking or financial data, and to engage in payments processing and
collection. To clarify national banks' conduct of this type of
``composite'' activity, proposed Sec. 7.5003 codifies the approach we
have used in our approval letters by providing that an electronic
product or service that comprises several elements, or activities, is
authorized if each of the constituent elements or activities is
authorized. This provision does not authorize activities that are not
otherwise permissible for national banks under Federal law.
6. Excess Electronic Capacity (Sec. 7.5004)
The OCC has long permitted national banks to rely on the ``excess
capacity'' doctrine to avoid waste and deploy resources efficiently.
The excess capacity doctrine holds that a bank acquiring an asset in
good faith to conduct its banking business is permitted, under its
incidental powers, to make full economic use of the property if using
the property solely for banking purposes would leave the property
underutilized.\30\ While the doctrine originated to allow banks to use
excess real property efficiently, it has taken on particular
significance as banks conduct more business through developing
technologies. We have applied the excess capacity doctrine to a broad
range of electronic products and services, including Internet access,
software production and distribution, long line telecommunications and
data processing equipment, electronic security systems and a call
center.\31\
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\30\ OCC Conditional Approval No. 361 (Mar. 3, 2000).
\31\ See OCC Interpretative Letter No. 742, reprinted in [1996-
1997 Transfer Binder] Fed. Banking L. Rep. (CCH) para.81-106 (Aug.
19, 1996); OCC Interpretative Letter No. 677, reprinted in [1994-
1995 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 83,625 (June
28, 1885); unpublished letter from William Glidden (June 6, 1986);
unpublished letter from Stephen Brown (Dec. 20, 1989); and OCC
Conditional Approval No. 361 (Mar. 3, 2000).
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The OCC's rules currently recognize the excess capacity doctrine
with respect to excess electronic capacities acquired or developed by a
bank in good faith for banking purposes. The proposal relocates the
excess electronic capacity rule from current Sec. 7.1019 to new subpart
E and adds specific examples. These examples, while not exclusive,
illustrate uses of excess electronic capacity that we have approved.
The proposal retains the requirement that the excess capacity must be
acquired in good-faith for banking purposes.\32\ As our approvals to
date demonstrate, the determination that a particular use of excess
electronic capacity is permissible is fact specific. Accordingly, we
encourage banks considering appropriate uses of excess electronic
capacity to consult with the OCC.
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\32\ See OCC Interpretive Letter No. 888 (Mar.14, 2000).
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This proposal does not affect other bases upon which the OCC has
approved similar types of activities. For example, this proposal does
not affect the so-called `` by-product theory,'' where a national bank
may sell by-products, such as software, developed by the bank for or
during the performance of its permissible data processing
functions.\33\
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\33\ Until 1984, the OCC's data processing rule specifically
recognized the by-product theory. 12 CFR 7.3500 (1983). Although
this language was deleted from the rule in 1984, see 49 FR 11157
(Mar. 26, 1984), this deletion did not indicate a change in the
OCC's position regarding this theory. The 1984 revision was merely a
non-substantive format change in the rule. Id; see also 47 FR 46526
(Oct. 19, 1982).
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7. National Bank Acting as a Digital Certification Authority
(Sec. 7.5005).
Digital signatures are a form of electronic authentication that
permit the recipient of an electronic message to verify the sender's
identity. In order for a digital signature system to operate
successfully, the message recipient must have assurance that the public
key \34\ used to decode a message is uniquely associated with the
sender. One method of providing that assurance is for a trusted third
party--called a certification authority--to issue a digital certificate
attesting to this association. The certification authority generates
and signs digital certificates to verify the identity of the person
transmitting a message electronically.
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\34\ The mathematical function the sender uses to encode a
message is called the sender's private key. The related function
that the recipient of the message uses to decode the message is
called the sender's public key. In public key infrastructure systems
based on asymmetric encryption, each private key is uniquely
associated with a particular counterpart public key. Thus, if one
has assurance that a specific private key is associated with a
person and under their sole control, any message that can be decoded
using that person's public key may be assumed to have been sent by
that person.
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To date, we have permitted a national bank to act as a
certification authority that issues certificates verifying the identity
of the certificate holder.\35\ The proposed rule would codify this
position.
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\35\ See OCC Conditional Approval No. 267 (Jan. 12, 1998).
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National banks also have demonstrated increasing interest in
issuing certificates that verify the authority or financial capacity of
the certificate holder. In these instances, for example, the bank could
issue a certificate that the individual has the authority to debit a
particular account (account authority digital certificates) or has the
financial capacity to make a purchase or engage in a particular
transaction. We invite comment on the extent to which national banks
propose to engage in these activities, how they will be structured, and
whether permitting national banks to issue certificates to verify
authority or financial capacity presents unique risks.
8. Data Processing (Sec. 7.5006)
We have repeatedly confirmed that a national bank may collect,
process, transcribe, analyze and store banking, financial and economic
data for itself and its customers as part of the business of
banking.\36\ The proposed rule would codify these interpretations.
Commenters are invited to address whether more modern terminology
should be used to better describe what functions should be considered
to be (or not to be) ``data processing'' in light of advances in
technology.
---------------------------------------------------------------------------
\36\ See, e.g., OCC Conditional Approval No. 289 (Oct. 2, 1998);
OCC Interpretative Letter No. 805 (Oct. 9, 1997). A prior OCC
interpretive ruling on electronic banking specifically stated that
``as part of the business of banking and incidental thereto, a
national bank may collect, transcribe, process, analyze and store
for itself and others, banking, financial, or related economic
data.'' 39 FR 14192, 14195 (Apr. 22, 1974). This language was
deleted from former 12 CFR 7.3500 because the OCC was concerned that
the specific examples of permissible activities in the ruling, such
as the marketing of excess time, by-products, and the processing of
``banking, financial, or related economic data'' had led to
confusion and misinterpretation. See 47 FR at 46526, 46529 (Oct. 19,
1982). However, the preamble to the proposal to simplify the rule
stated that ``the Office wishes to make clear that it does not
intend to indicate any change in its position regarding the
permissibility of data processing services.'' Id. Since 1982, the
risk of confusion and misinterpretation of a regulation has
significantly diminished due to, among other reasons, the
substantial number of interpretive letters the OCC has issued on
permissible data processing that can provide a context for
understanding the proposed rule if it is adopted.
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We have also found that national banks, under their authority to
conduct activities incidental to the business of banking, may provide
limited amounts of nonfinancial information processing to their
customers to enhance marketability or use of a banking service.\37\ We
typically inquire whether the processing of nonfinancial data is
convenient or useful to the specific processing of financial data or
other business of banking activities in a specific contract or
relationship. In the final rule, we could codify this case-
[[Page 34860]]
specific approach to incidental nonfinancial data processing.
---------------------------------------------------------------------------
\37\ See, e.g., OCC Conditional Approval No. 369 (Feb. 25,
2000).
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However, we also are considering whether to issue a rule on
incidental data processing that would recognize that a national bank
may generally derive a certain specified percentage of its total annual
data processing revenue from processing nonfinancial data as incidental
to its financial data processing services. We are aware of anecdotal
evidence suggesting that national banks attempting to market financial
data processing services are frequently confronted with customer
demands that the bank also process some nonfinancial data so that the
customer can avoid the inconvenience of having to use two different
processors: the bank for financial data and some other firm for
nonfinancial data. Indeed, one commenter to the ANPR suggested that
bank customers would like their banks to offer broader processing
services and that competitors in the marketplace are providing these
services. We are interested in comments and evidence on the extent of
this phenomenon so we can determine whether it is so pervasive as to
warrant a general rule establishing a limited and specific safe harbor
for processing nonfinancial data in connection with financial data
processing in lieu of our current case by case approach.\38\
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\38\ We note that the Board of Governors of the Federal Reserve
System's Regulation Y currently authorizes bank holding companies to
conduct data processing and data transmission activities where the
data to be processed or furnished is not financial, banking, or
economic if the total annual revenue derived from those activities
does not exceed 30% of the company's total annual revenue derived
from data processing and data transmission activities. 12 CFR
225.28(b)(14) (2000). Further, the Board of Governors recently
proposed amending this rule to expand the permissible nonfinancial
revenue percentage to 49%. 65 FR 80384 (Dec. 21, 2000).
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We invite comment on all aspects of this provision. We specifically
invite commenters to provide any evidence indicating whether or not
national banks' data processing customers need incidental nonfinancial
data processing services on a routine basis. We also invite comment on
what percentage of nonfinancial data revenue would be appropriate for
such a safe harbor if it were adopted.
9. Correspondent Banking (Sec. 7.5007)
The OCC has long permitted national banks to perform for other
entities an array of activities called ``correspondent services'' as
part of the business of banking.\39\ These activities include any
corporate or banking service that a national bank may perform for
itself.\40\ A national bank may perform these activities for any of its
affiliates or for other financial institutions.\41\ The proposed rule
would codify this position.
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\39\ See, e.g., OCC Interpretative Letter No. 875, reprinted in
[1999-2000 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 81-369
(Oct. 31, 1999); OCC Interpretative Letter No. 811, reprinted in
[1997-1998 Transfer Binder] Fed. Banking L. Rep. para. 81-259 (Dec.
18, 1997); Corporate Decision 97-79 (July 11, 1997).
\40\ See OCC Interpretative Letter No. 467, reprinted in [1988-
1989 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 85,691 (Jan.
24, 1989) (national bank may offer wide range of correspondent
services); Letter from Wallace S. Nathan, Regional Counsel (Dec. 3,
1982) (unpublished) (microfiche services); Letter from John E.
Shockey, Chief Counsel (July 31, 1978) (unpublished) (advertising
services).
\41\ E.g., OCC Interpretative Letter No. 875, supra; OCC
Interpretative Letter No. 513, reprinted in [1990-1991 Transfer
Binder] Fed. Banking L. Rep. para. 83,215 (June 18, 1990).
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In addition, the OCC has approved a number of electronic- and
technology-related activities as permissible correspondent services for
national banks. These activities have included:
Providing computer networking packages and related
hardware that meet the banking needs of financial institution
customers; \42\
---------------------------------------------------------------------------
\42\ See OCC Interpretative Letter No. 754, reprinted in [1996-
1997 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 81-118 (Nov.
6, 1996).
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Processing bank, accounting, and financial data, such as
check data, other bookkeeping tasks, and general assistance of
correspondents' internal operating, bookkeeping, and data processing;
\43\
---------------------------------------------------------------------------
\43\ See, e.g., Letter from Vernon E. Fasbender, Director for
Analysis, Southeastern District (Dec. 6, 1990); OCC Interpretative
Letter No. 345, reprinted in [1985-1987 Transfer Binder] Fed.
Banking L. Rep. (CCH) para. 85,515 (July 9, 1985); Letter from Joe
H. Selby, Deputy Comptroller (November 22, 1978); Letter from Vernon
E. Fasbender, Director for Analysis, Southeastern District (Dec. 6,
1990).
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Selling data processing software; \44\
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\44\ See, e.g., OCC Interpretative Letter No. 868, reprinted in
[Current Transfer Binder] Fed. Banking L. Rep. (CCH) para. 81-362
(Aug. 16, 1999).
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Developing, operating, managing, and marketing products
and processing services for transactions conducted at electronic
terminal devices including, but not limited to, ATMs, POS terminals,
scrip terminals, and similar devices; \45\
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\45\ See, e.g., OCC Interpretative Letter No. 890, reprinted in
[1999-2000 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 81-409
(May 15, 2000).
---------------------------------------------------------------------------
Item processing services and related software development;
\46\
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\46\ See, e.g., Letter from Vernon E. Fasbender, Director for
Analysis, Southeastern District (Dec. 6, 1990); and Letter from J.T.
Watson, Deputy Comptroller of the Currency (Mar. 22, 1973).
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Document control and record keeping through the use of
electronic imaging technology; \47\
---------------------------------------------------------------------------
\47\ See OCC Interpretative Letter No. 805, reprinted in [1997-
1998 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 81-252 (Oct.
9, 1997).
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Internet merchant hosting services for resale to merchant
customers; \48\ and
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\48\ See Corporate Decision No. 2000-08 (June 1, 2000); and OCC
Interpretative Letter No. 875, reprinted in [Current Transfer
Binder] Fed. Banking L. Rep. (CCH) para. 81-369 (Oct. 31, 1999).
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Communication support services through electronic means,
such as the provision of electronic ``gateways'' in order to
communicate and receive financial information and to conduct
transactions; creating, leasing, and licensing communications systems,
computers, analytic software, and related equipment and services for
sharing information concerning financial instruments and economic
information and news; and the provision of electronic information and
transaction services and linkage for financial settlement services.\49\
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\49\ OCC Interpretative Letter No. 611, reprinted in [1992-1993
Transfer Binder] Fed. Banking L. Rep. (CCH) para. 83,449 (Nov. 23,
1992); OCC Interpretative Letter No. 516, reprinted in [1990-1991
Transfer Binder] Fed. Banking L. Rep. (CCH) para. 83,220 (July 12,
1990); and OCC Interpretative Letter No. 346, reprinted in [1985-
1987 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 85,516 (July
31, 1985).
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This proposal would codify these interpretations and include these
activities in the text of the regulation as examples of electronic
activities that banks may offer as correspondent services.
B. Location
1. Location of a national bank conducting electronic banking activities
(Sec. 7.5008)
The effect of several statutes affecting national banks turns in
part on where the bank in question is ``located.'' The scope of this
term--specifically, whether it refers only to the bank's main office,
includes branches as well, or means something different--varies from
statute to statute and depends on the specific statutory context.\50\
Moreover, national banks often conduct a significant portion of their
operations in locations that are distinct from their main office and
branches. For example, a bank that has a branch in State A and its main
office in State B may have an automated loan processing center in State
C and depend on a third party vendor in State D for certain ministerial
lending functions.
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\50\ See, 12 U.S.C. 24(8) (charitable contributions); 12 U.S.C.
29 (authority to hold real estate); 12 U.S.C. 36 (branching); 12
U.S.C. 72 (director qualifications); 12 U.S.C. 92a (trust powers);
12 U.S.C. 94 (venue); and 12 U.S.C. 548 (State taxation).
---------------------------------------------------------------------------
One commenter on the ANPR said that a national bank's location for
Federal banking law purposes should not be determined by the physical
site of its technology-related equipment. The OCC agrees with that
result, and the
[[Page 34861]]
proposal, accordingly, provides that a national bank will not be
considered located in a state solely because it physically maintains
technology, such as a server or automated loan center, in that state,
or because the bank's products or services are accessed through
electronic means by customers located in the state. This is consistent
with evolving case authority.\51\
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\51\ See, e.g., Amberson Holdings LLC v. Westside Story
Newspaper, 110 F. Supp. 2d 332 (D.N.J. 2000).
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2. Location of Internet-only bank under 12 U.S.C. 85 (Sec. 7.5009)
Twelve U.S.C. 85 authorizes a national bank to charge interest in
accordance with the laws of the state in which it is located. In
interpreting section 85, the Supreme Court has held that a national
bank is ``located'' in the state where it has its main office (its home
state).\52\ Thus, a national bank may charge the interest rates
permitted by its home state no matter where the borrower resides or
what contacts with the bank occur in another state.
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\52\ Marquette National Bank v. First of Omaha Service Corp.,
439 U.S. 299 (1978).
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The OCC has chartered several Internet-only national banks that
operate without physical branches and that make loans or extend credit
primarily through the Internet. The proposal provides that, for
purposes of 12 U.S.C. 85, the main office of a national bank that
operates exclusively through the Internet is the office identified by
the bank under 12 U.S.C. 22(Second) or as relocated pursuant to 12
U.S.C. 30 or other appropriate authority.
C. Safety and Soundness
Shared electronic space (Sec. 7.5010).
The advent of Internet technology has dramatically increased the
ability of banks to enter into joint marketing relationships with third
parties. For example, national banks are becoming increasingly involved
in electronic marketing arrangements that involve providing bank
customers with access to providers of retail or financial services
through hyperlinks on the bank's web site or through other shared
electronic ``space.'' Under current OCC rules, a national bank may
lease space on bank premises to other businesses and share space
jointly with other businesses subject to certain conditions.\53\ These
conditions, set forth in section 7.3001(c), are intended to minimize
customer confusion about the nature of the products offered and promote
the safe and sound operation of the bank.
The proposal would extend the same general principles set forth in
section 7.3001 to situations where banks share co-branded web sites or
other electronic space with subsidiaries or unaffiliated third parties.
Under the proposal, the bank would be required to take reasonable steps
to enable customers to distinguish between products and services
offered by the bank and those offered by the bank's subsidiary or a
third party. The bank also should disclose its limited role with
respect to the third party product or service.
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\53\ 12 CFR 7.3001.
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The proposal also recognizes that the way disclosures are displayed
and the context in which they are displayed may vary significantly.
Thus, the proposal requires disclosures to be conspicuous, simple,
direct, readily understandable, and designed to call attention to the
fact that the bank does not provide, endorse, or guarantee any of the
products or services available through third party web pages.
Comment Solicitation
The OCC requests comment on all aspects of this proposal, including
the specific issues that follow.
The OCC seeks comment on the impact of this proposal on community
banks. The OCC recognizes that community banks operate with more
limited resources than larger institutions and may present a different
risk profile. Thus, the OCC specifically requests comment on the impact
of the proposal on community banks' current resources and available
personnel with the requisite expertise, and whether the goals of the
proposal could be achieved, for community banks, through an alternative
approach.
Solicitation of Comments on Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act, Pub. L. 106-102, sec.
722, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the Federal banking
agencies to use plain language in all proposed and final rules
published after January 1, 2000. We invite your comments on how to make
this proposal easier to understand. For example:
Have we organized the material to suit your needs? If not,
how could this material be better organized?
Are the requirements in the proposed regulation clearly
stated? If not, how could the regulation be more clearly stated?
Does the proposed regulation contain language or jargon
that is not clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes to the format would make the regulation
easier to understand?
What else could we do to make the regulation easier to
understand?
Regulatory Analysis
A. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act, the
Comptroller of the Currency certifies that this proposal will not have
a significant economic impact on a substantial number of small
entities.
B. Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.
104-4 (Unfunded Mandates Act) requires that an agency prepare a
budgetary impact statement before promulgating a rule that includes a
Federal mandate that may result in expenditure by State, local, and
tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year. If a budgetary impact statement is
required, section 205 of the Unfunded Mandates Act also requires an
agency to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule. The OCC has determined that
the proposal will not result in expenditures by State, local, or tribal
governments or by the private sector of $100 million or more.
Accordingly, the OCC has not prepared a budgetary impact statement or
specifically addressed the regulatory alternatives considered.
C. Executive Order 12866
The Comptroller of the Currency has determined that this rule does
not constitute a ``significant regulatory action'' for the purposes of
Executive Order 12866.
D. Paperwork Reduction Act of 1995
For purposes of compliance with the Paperwork Reduction Act of
1995, 44 U.S.C. 3501 et seq., the OCC invites comment on:
(1) Whether the proposed collection of information contained in
this notice of proposed rulemaking is necessary for the proper
performance of the OCC's functions, including whether the information
has practical utility;
(2) The accuracy of the OCC's estimate of the burden of the
proposed information collection;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(4) Ways to minimize the burden of the information collection on
the
[[Page 34862]]
respondents, including the use of automated collection techniques or
other forms of information technology; and
(5) Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
Respondents are not required to respond to this collection of
information unless the final regulation displays a currently valid
Office of Management and Budget (OMB) control number.
The collection of information requirements contained in this notice
of proposed rulemaking have been submitted to the OMB for review in
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(d)). Comments on the collection of information should be sent to
the Office of Information and Regulatory Affairs, Office of Management
and Budget, Attention: Alexander Hunt, Desk Officer, Washington, DC
20503, with a copy to Jessie Dunaway, Legislative and Regulatory
Activities Division, Office of the Comptroller of the Currency, 250 E
Street, SW., Mailstop 8-4, Washington, DC 20219.
Section 7.5010 of the proposed rule requires a national bank that
shares a co-branded website or other electronic space with a bank
subsidiary or a third party to make certain disclosures designed to
enable its customers to distinguish its products and services from
those of the subsidiary or third party.
The likely respondents are national banks.
Estimated number of respondents: 1,609 respondents.
Estimated number of responses: 1,609 responses.
Estimated burden hours per response: 1 hour.
Estimated total annual burden hours: 1,609 hours.
List of Subjects in 12 CFR Part 7
Credit, Insurance, Investments, National banks, Reporting and
recordkeeping requirements, Securities, Surety bonds.
Authority and Issuance
For reasons set forth in the preamble, part 7 of chapter I of the
Code of Federal Regulations is proposed to be amended as follows:
PART 7--BANK ACTIVITIES AND OPERATIONS
1. The authority citation for part 7 continues to read as follows:
Authority: 12 U.S.C. 1 et seq. and 93a.
2. Revise Sec. 7.1002 to read as follows:
Sec. 7.1002 National bank acting as finder.
(a) General. It is part of the business of banking under 12 U.S.C.
24(Seventh) for a national bank to act as a finder bringing together
buyers and sellers.
(b) Permissible finder activities. A national bank that acts as a
finder may identify potential parties, make inquiries as to interest,
introduce or arrange contacts or meetings of interested parties, and
otherwise bring parties together for a transaction that the parties
themselves negotiate and consummate. For example, permissible finder
activities include:
(1) Communicating information about providers of products and
services, their products and services, and proposed offering prices and
terms to potential markets for these products and services;
(2) Communicating to the seller an offer to purchase or a request
for information, including forwarding completed applications,
application fees, and requests for information to third-party service
providers;
(3) Arranging for third-party providers to offer reduced rates to
those customers referred by the bank;
(4) Providing administrative, clerical, and record keeping
functions related to the bank's finder activity, including retaining
copies of documents, instructing and assisting individuals in the
completion of documents, scheduling sales calls on behalf of retailers,
and conducting market research to identify potential new customers for
retailers;
(5) Conveying between interested parties expressions of interest,
bids, offers, orders, and confirmations relating to a transaction; and
(6) Conveying other types of information between potential buyers
and sellers.
(c) Limitation. The authority to act as a finder does not enable a
national bank to engage in brokerage activities that have not been
found to be permissible for national banks.
(d) Advertisement and fee. Unless otherwise prohibited, a national
bank may advertise the availability of, and accept a fee for, the
services provided pursuant to this section.
Sec. 7.1019 [Removed]
3. Remove Sec. 7.1019.
4. Add new subpart E to read as follows:
Subpart E--Electronic Banking
Sec.
7.5000 Scope.
7.5001 Electronic banking activities that are part of, or
incidental to, the business of banking.
7.5002 Furnishing of products and services by electronic means and
facilities.
7.5003 Composite authority to engage in electronic banking
activities.
7.5004 Excess electronic capacity.
7.5005 National bank acting as digital certification authority.
7.5006 Data processing.
7.5007 Correspondent banking.
7.5008 Location of national bank conducting electronic banking
activities.
7.5009 Location of Internet-only bank under 12 U.S.C. 85.
7.5010 Shared electronic space.
Sec. 7.5000 Scope.
This subpart applies to a national bank's use of technology to
deliver services and products consistent with safety and soundness.
Sec. 7.5001 Electronic activities that are part of, or incidental to,
the business of banking.
(a) Purpose and scope. This section identifies the criteria that
the OCC uses to determine whether an electronic activity is authorized
as part of, or incidental to, the business of banking under 12 U.S.C.
24(Seventh). The OCC may restrict or condition activities that are
permissible under the statutory standard in order to ensure that they
are conducted safely and soundly, and in accordance with applicable
statutes, regulations, or supervisory policies. State laws may be
applicable to the provision of activities by a national bank through
electronic means to the extent that they apply to the activity
otherwise conducted by the national bank.
(b) Activities that are part of the business of banking. An
activity is authorized for national banks as part of the business of
banking if the activity is described in 12 U.S.C. 24(Seventh) or other
statutory authority, or is otherwise part of the business of banking.
In determining whether an electronic activity is part of the business
of banking, the OCC considers the following factors:
(1) Whether the activity is the functional equivalent to, or a
logical outgrowth of, a recognized banking activity;
(2) Whether the activity strengthens the bank by benefitting its
customers or its business;
(3) Whether the activity involves risks similar in nature to those
already assumed by banks; and
(4) Whether the activity is expressly authorized by law for state-
chartered banks.
(c) Activities that are incidental to the business of banking. An
electronic banking activity is authorized for a national bank as
incidental to the business of banking if it is convenient or useful to
an activity that is specifically authorized for national
[[Page 34863]]
banks or to an activity that is otherwise part of the business of
banking. In determining whether an activity is convenient or useful to
such activities, the OCC considers the following factors:
(1) Whether the activity facilitates the production or delivery of
a bank's products or services, enhances the bank's ability to sell or
market its products or services, or improves the effectiveness or
efficiency of the bank's operations, in light of risks presented,
innovations, strategies, techniques and new technologies for producing
and delivering financial products and services; and
(2) Whether the activity enables the bank to profitably use
capacity acquired for its banking operations or otherwise avoid
economic loss or waste.
Sec. 7.5002 Furnishing of products and services by electronic means
and facilities.
(a) Use of electronic means and facilities. A national bank may
perform, provide, or deliver through electronic means and facilities
any activity, function, product, or service that it is otherwise
authorized to perform, provide, or deliver. For example, permissible
activities under this authority include:
(1) Acting as an electronic finder by:
(i) Establishing, registering, and hosting commercially enabled web
sites in the name of retailers;
(ii) Establishing hyperlinks between the bank's site and a third
party site, including acting as a ``virtual mall'' by providing a
collection of links to web sites of third party vendors, organized by
product type and made available to bank customers;
(iii) Hosting an electronic marketplace on the bank's Internet web
site by providing links to the web sites of third party buyers or
sellers through the use of hypertext or other similar means;
(iv) Hosting on the bank's servers the Internet web site of:
(A) A buyer (or seller) that provides information concerning the
buyer (or seller) and the products or services it seeks to buy (or
sell) and allows sellers (or buyers) to submit expressions of interest,
bids, offers, orders and confirmations relating to such products or
services; or
(B) A governmental entity that provides information concerning the
services or benefits made available by the governmental entity, assists
persons in completing applications to receive such services or benefits
from the governmental entity, and permits persons to transmit their
applications for services or benefits to the governmental entity;
(v) Operating an Internet web site that permits numerous buyers and
sellers to exchange information concerning the products and services
that they are willing to purchase or sell, locate potential counter
parties for transactions, aggregate orders for goods or services with
those made by other parties, and enter into transactions between
themselves; and
(vi) Operating a telephone call center that provides permissible
finder services;
(2) Providing electronic bill presentment services;
(3) Offering electronic stored value systems; and
(4) Safekeeping for personal information or valuable confidential
trade or business information, such as encryption keys.
(b) State laws. State laws are applicable to the activities of a
national bank conducted through electronic means only to the extent
that they would apply to the activities conducted otherwise by a
national bank.
Sec. 7.5003 Composite authority to engage in electronic banking
activities.
Unless otherwise prohibited by law, a national bank may engage in
an electronic activity that is comprised of several component
activities if each of the component activities is itself permissible as
part of or incidental to the business of banking.
Sec. 7.5004 Excess electronic capacity.
A national bank may, in order to optimize the use of the bank's
resources or avoid economic loss or waste, market and sell to third
parties excess electronic capacities acquired or developed by the bank
in good faith for its banking business. Examples of permissible excess
electronic capacity that banks have acquired or developed in good faith
for banking purposes include:
(a) Data processing services;
(b) Production and distribution of nonfinancial software;
(c) Providing periodic back-up call answering services;
(d) Providing full Internet access;
(e) Providing electronic security system support services;
(f) Providing long line communications services; and
(g) Electronic imaging and storage.
Sec. 7.5005 National bank acting as digital certification authority.
It is part of the business of banking under 12 U.S.C. 24(Seventh)
for a national bank to act as a certificate authority and to issue
digital certificates verifying the persons associated with a particular
public/private key pair. As part of this service, the bank may also
maintain a listing or repository of public keys.
Sec. 7.5006 Data processing.
It is part of the business of banking under 12 U.S.C. 24(Seventh)
for a national bank to collect, transcribe, process, analyze, and store
for itself and others, banking, financial, or economic data. A national
bank also may collect, transcribe, process, and analyze other types of
data if the derivative or resultant product is banking, financial, or
economic data.
Sec. 7.5007 Correspondent banking.
It is part of the business of banking for a national bank to offer
as a correspondent service to any of its affiliates or to other
financial institutions any service it may perform for itself. Examples
of electronic activities that banks may offer correspondents under this
authority include the following:
(a) The provision of computer networking packages and related
hardware;
(b) Data processing services;
(c) The sale of software that performs data processing functions;
(d) The development, operation, management, and marketing of
products and processing services for transactions conducted at
electronic terminal devices;
(e) Item processing services and related software;
(f) Document control and record keeping through the use of
electronic imaging technology;
(g) The provision of Internet merchant hosting services for resale
to merchant customers; and
(h) The provision of communication support services through
electronic means.
Sec. 7.5008 Location of a national bank conducting electronic banking
activities.
A national bank shall not be considered located in a state solely
because it physically maintains technology, such as a server or
automated loan center, in that state, or because the bank's products or
services are accessed through electronic means by customers located in
the state.
Sec. 7.5009 Location of Internet-only bank under 12 U.S.C. 85.
For purposes of 12 U.S.C. 85, the main office of a national bank
that operates exclusively through the Internet is the office identified
by the bank under 12 U.S.C. 22(Second) or as relocated under 12 U.S.C.
30 or other appropriate authority.
[[Page 34864]]
Sec. 7.5010 Shared electronic space.
A national bank that shares a co-branded web site or other
electronic space with a bank subsidiary, affiliate, or a third party
must take reasonable steps to enable customers to distinguish between
products and services offered by the bank and those offered by the
bank's subsidiary, affiliate, or the third party. The bank also should
disclose its limited role with respect to the third party product or
service. This disclosure should be conspicuous, simple, direct, readily
understandable, and designed to call attention to the fact that the
bank does not provide, endorse, or guarantee any of the products or
services available through third party web pages.
Dated: June 19, 2001.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 01-16330 Filed 6-29-01; 8:45 am]
BILLING CODE 4810-33-P