BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

OFFICE OF THE COMPTROLLER OF THE CURRENCY 

FEDERAL DEPOSIT INSURANCE CORPORATION 

OFFICE OF THRIFT SUPERVISION 

November 13.2001 

The Honorable Richard B. Cheney 

President of the United States Senate 

Washington, D.C. 205 IO 

Dear Mr. President. 

The Board of Governors of the Federal Reserve System, the Office of the 

Comptroller of the Currency, the Federal Deposit tnsurance Corporation, and the Office 

of Thrift Supervision are submitting the enclosed joint report to Congress as required by 

Section 729 of the Gramm-Leach-Bliley Act of 1999. The report addresses banking 

regulations with respect to the online delivery of financial products and services and 

outlines those areas that the agencies plan to consider further for possible modifications. 

Chairman I 

Board of Gov&rs of the Of&e of the Comptroller 

of the Currency 

Chairman 

Federal Deposit Insurance Corporation 

Director 

Office of Thrift Supervision 
Board of Governors of the Federal Reserve System

Federal Deposit Insurance Corporation

Office of the Comptroller of the Currency

Office of Thrift Supervision

Report to the Congress 

on Review of Regulations Affecting

Online Delivery of Financial Products and Services

November 2001
Board of Governors of the Federal Reserve System

Federal Deposit Insurance Corporation

Office of the Comptroller of the Currency

Office of Thrift Supervision

Report to the Congress 

on Review of Regulations Affecting

Online Delivery of Financial Products and Services

Submitted to the Congress pursuant to section 729 of the Gramm-Leach-Bliley Act

November 2001
i

Contents

Introduction ..............................................................................................................................1

Summary of Conclusions .........................................................................................................1

Part I Background and Methodology ..................................................................................2

A. Background ................................................................................................................2

B. Methodology ..............................................................................................................3

Part II Jointly Administered Regulations .............................................................................5

A. Appraisal Standards for Federally Related Transactions ........................................5

1. Analysis .................................................................................................................5

2. Conclusion .............................................................................................................6

B. Community Reinvestment .........................................................................................6

1. Analysis .................................................................................................................6

2. Conclusion .............................................................................................................7

C. Consumer Protections for Depository Institution Sales of Insurance .....................7

1. Analysis .................................................................................................................8

2. Conclusion .............................................................................................................8

D. Loans in Areas Having Special Flood Hazards ........................................................9

1. Analysis .................................................................................................................9

2. Conclusion ...........................................................................................................10

E. Management Official Interlocks .............................................................................10

1. Analysis ...............................................................................................................10

2. Conclusion ...........................................................................................................11

F. Privacy of Consumer Financial Information ..........................................................11

1. Analysis ...............................................................................................................11

2. Conclusion ...........................................................................................................13
ii

Part III Regulations Administered by the Board of Governors of the Federal Reserve 

System ......................................................................................................................15

A. Electronic Delivery of Disclosures under Various Consumer Financial Services 

Regulations Administered by the Board .................................................................15

1. Overview .............................................................................................................15

2. Analysis ...............................................................................................................16

3. Conclusion ...........................................................................................................19

B. Regulation B (Equal Credit Opportunity) and Regulation C (Home Mortgage 

Disclosure) ................................................................................................................20

1. Overview .............................................................................................................20

2. Analysis ...............................................................................................................20

3. Conclusion ...........................................................................................................21

C. Regulation E (Electronic Fund Transfer), Regulation Z (Truth in Lending), 

and Regulation DD (Truth in Savings) ...................................................................21

1. Overview .............................................................................................................21

2. Analysis ...............................................................................................................22

D. Regulation D (Reserve Requirements of Depository Institutions) .........................26

1. Overview .............................................................................................................26

2. Analysis ...............................................................................................................26

3. Conclusion ...........................................................................................................27

E. Regulations T and U (Securities Margin Lending) .................................................28

1. Overview .............................................................................................................28

2. Analysis ...............................................................................................................28

3. Conclusion ...........................................................................................................28

F. Regulation CC (Availability of Funds and Collection of Checks) ..........................28

1. Overview .............................................................................................................28

2. Analysis ...............................................................................................................29

3. Conclusion ...........................................................................................................30

Part IV Regulations Administered by the Federal Deposit Insurance Corporation ..........31

Part V Regulations Administered by the Office of the Comptroller of the Currency ......34
iii

Part VI Regulations Administered by the Office of the Thrift Supervision .......................39

A. Summary of Conclusions .........................................................................................39

B. Report Methodology and Information Learned .....................................................39

1. Request for Comment on Study of Banking Regulations Regarding the 

Online Delivery of Financial Services ...............................................................40

2. Examiner Survey ................................................................................................41

3. Interdisciplinary Headquarters Review ............................................................42

C. OTS’s Previous Initiatives .......................................................................................43

Appendices – Relevant Federal Register Publications ..........................................................45

A. Board of Governors of the Federal Reserve System – Study of Banking 

Regulations Regarding the Online Delivery of Financial Services 

(66 Fed. Reg. 27,912)

B. Federal Deposit Insurance Corporation – Request for Comment on Study of 

Banking Regulations Regarding the Online Delivery of Banking Services 

(66 Fed. Reg. 37,029)

C. Office of the Comptroller of the Currency – Electronic Banking NPRM 

(66 Fed. Reg. 34,855); Electronic Banking ANPR (65 Fed. Reg. 4895) 

D. Office of Thrift Supervision – Request for Comment on Study of Banking 

Regulations Regarding the Online Delivery of Financial Services 

(66 Fed. Reg. 31,186); Electronic Operations (63 Fed. Reg. 65,673)

1

Introduction

The Board of Governors of the Federal Reserve System (Board), Federal Deposit 

Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), 

and Office of Thrift Supervision (OTS) (collectively, the Agencies), jointly issue 

this report about banking regulations that affect the online delivery of financial 

products and services. The Agencies prepared the report pursuant to section 729 of 

the Gramm-Leach-Bliley Act (the GLB Act or Act).1

The Agencies’ report consists of several parts: Part I summarizes the statutory 

mandate and the methods the Agencies used to conduct the studies and prepare this 

report; Part II discusses the Agencies’ review of the regulations that the Agencies 

must administer jointly; and Parts III – VI describe each Agency’s review of the 

regulations that it solely administers. 

Summary of Conclusions

This report concludes that the Agencies’ regulations generally accommodate online 

banking and lending. The report outlines those few areas that the Agencies plan to 

consider further for possible modifications.

The Agencies will continue to monitor developments in banking practices and 

technology. The Agencies are committed to updating their respective regulations 

and guidance as the need arises, both individually and in conjunction with each 

other and the Federal Financial Institutions Examination Council (FFIEC). In 

doing so, the Agencies will continue to seek to minimize impediments to the 

electronic delivery of financial products and services even as other regulations may 

be required to ensure the lawful uses of those products or services, such as the 

provisions that will be implemented under the Uniting and Strengthening America

by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act 

of 2001 (USA PATRIOT ACT). The Agencies will foster growth of these 

activities in a manner that is safe and sound and helps ensure consumer acceptance 

and protection.

 

1

 Pub. L. 106-102, 113 Stat. 1338, 1476 (1999).
2

Part I

Background and Methodology

A. Background

Section 729 of the GLB Act requires the Board, FDIC, OCC, and OTS to conduct 

a study of banking regulations regarding the delivery of financial products and 

services. Section 729 further requires the Agencies to report their 

recommendations on adapting existing legislative or regulatory requirements to 

online banking and lending.

Even prior to the enactment of section 729 of the GLB Act, each Agency had 

undertaken several initiatives to adapt its regulations to facilitate and support the 

online delivery of financial products and services. Moreover, following the Act, 

the Agencies jointly developed regulations and guidance that are designed to 

facilitate the electronic delivery of financial products and services. For example, 

the Agencies recently issued the Interagency Guidelines Establishing Standards for 

Safeguarding Customer Information, under section 501 of the Act, that 

accommodate the needs for financial institutions to adopt new electronic 

technologies to provide financial products and services to their customers.2 In 

addition, through the FFIEC, the Agencies issued guidance on authentication in the 

electronic banking environment.3

Finally, on June 30, 2000, the President signed into law the Electronic Signatures 

in Global and National Commerce Act (E-Sign Act),4 which was designed to 

encourage the continued expansion of electronic commerce. The E-Sign Act 

generally provides that a record or signature will not be invalid solely because it is 

in electronic form, rather than in a paper or customarily handwritten form. In 

addition, the E-Sign Act provides that maintaining electronic records may satisfy 

record retention requirements, provided that those records meet certain conditions. 

The E-Sign Act also contains special rules applicable to some consumer disclosure 

requirements that permit the use of electronic records. The E-Sign Act is 

 

2

 66 Fed. Reg. 8616 (Feb. 1, 2001). These guidelines implement the requirements of section 

501(b) of the GLB Act, 113 Stat. at 1436-37, codified at 15 U.S.C. § 6801. 

3 Board of Governors’ Division of Banking Supervision and Regulation, SR Letter 01-20 (SUP) 

(Aug. 15, 2001), FDIC FIL-69-2001 (Aug. 24, 2001), OCC Advisory Letter No. 2001-8 (July 30, 

2001), OTS CEO Memorandum No. 143 (Aug. 8, 2001).

4

 Pub. L. 106-229, 114 Stat. 464 (2000), codified at 15 U.S.C. § 7001 et seq.
3

enforceable by its own terms; implementing regulations are not required. In 

fulfilling their obligations under other statutes, including the promotion of safe and 

sound banking practices, the Agencies will act consistent with the terms and 

purposes of the E-Sign Act.

B. Methodology

To satisfy the requirements of section 729 of the Act, each Agency conducted a 

full review and analysis of its regulations that could affect the online delivery of 

financial services. Each of the Agencies separately reviewed its regulations and 

certain supervisory policies that relate to the delivery of financial products or 

services to assess their suitability for transactions that are conducted through 

electronic media. The Agencies jointly reviewed interagency regulations.

To assist this review, each Agency published in the Federal Register a request for 

comment on a wide range of issues that bear on delivering financial products and 

services over the Internet to assess whether any of its respective regulations should 

be amended to facilitate online banking and lending.5 In addition, the Agencies 

sought comment on how particular statutory provisions affect the online delivery 

of financial products and services. 

After reviewing their respective regulations, the Agencies determined that the 

report should focus on those regulations (or other supervisory policies) that present 

issues with respect to the online delivery of financial products or services to 

individual or business customers. In this way, the Agencies have endeavored to 

tailor the report to address key issues, common problems raised by the comments, 

and other aspects of banking regulations with respect to the electronic delivery of 

financial products and services, instead of a wide-ranging examination of all of the 

Agencies’ regulations. Furthermore, the Agencies determined that, absent any 

compelling issues raised by the comments, the report should not address other 

 

5

 65 Fed. Reg. 4895 (Feb. 2, 2000) (OCC); 66 Fed. Reg. 27,912 (May 21, 2001) (Board); 

66 Fed. Reg. 31,186 (June 11, 2001) (OTS); 66 Fed. Reg. 34,855 (July 2, 2001) (OCC); 

66 Fed. Reg. 37,029 (July 16, 2001) (FDIC). The Appendix includes copies of the Federal 

Register publications. The Board also solicited comments relating to the section 729 study and 

report as part of its publication of interim final rules to establish uniform standards for the 

electronic delivery of disclosures to consumers under the consumer financial services regulations 

administered by the Board (Regulations B, E, M, Z and DD). 66 Fed. Reg. 17,779; 

66 Fed. Reg. 17,786; 66 Fed. Reg. 17,322; 66 Fed. Reg. 17,329; 66 Fed. Reg. 17,795 (Mar. 30 

and Apr. 4, 2001).
4

regulations, such as those that will be issued under the recently enacted USA 

PATRIOT ACT, that will be the subject of a future rulemaking proceeding.
5

Part II

Jointly Administered Regulations 

A. Appraisal Standards for Federally Related Transactions

Under title XI of the Financial Institutions Reform, Recovery, and Enforcement 

Act of 1989, 12 U.S.C. § 3331 et seq., the Agencies promulgated regulations that 

provide protection for federal financial and public policy interests in real estaterelated transactions by requiring appraisers to perform written real estate appraisals 

in accordance with uniform standards.6 For the sake of simplicity in this report, we 

refer to the rule as the “Appraisal Rule.” Under the rule, appraisers must 

demonstrate competency and their professional conduct must be subject to 

effective supervision. The Appraisal Rule applies to all federally related 

transactions entered into by the Agencies or by institutions regulated by the 

Agencies. The Appraisal Rule generally: 

• Identifies the real estate-related financial transactions that require the 

services of an appraiser; 

• Prescribes the categories of federally related transactions that a State 

certified appraiser must appraise and the categories a State licensed 

appraiser must appraise; and

• Prescribes minimum standards for the performance of real estate appraisals 

in connection with federally related transactions under the jurisdiction of the 

Agencies. 

1. Analysis

Some commenters recommended that the Agencies exempt from the written 

appraisal requirement loans processed using an automated underwriting system 

selected pursuant to an institution’s required board-approved real estate lending 

policy. Commenters also asserted that the $250,000 threshold for requiring the use 

of state licensed or certified appraisals is outmoded. However, under existing 

rules, any loan underwritten to standards established by Fannie Mae and Freddie 

Mac is exempt. Moreover, a commenter who has studied the industry commented 

 

6

 12 C.F.R. parts 34 (OCC), 225 (subpart G) (Board), 323 (FDIC), and 564 (OTS).
6

that simply switching from a paper-based format to an automated, paperless one 

would not solve all appraisal issues about whether the current system of appraisals 

is the optimal one. 

2. Conclusion

The Agencies have not identified any provisions of the Appraisal Rule that impede 

online banking or that need amendment to facilitate online banking.

B. Community Reinvestment

In 1977, Congress enacted the Community Reinvestment Act (CRA), 12 U.S.C. 

§ 2901 et seq., to encourage federally insured banks and thrifts to help meet the 

credit needs of their entire communities, including low- and moderate-income 

neighborhoods, consistent with safe and sound banking practices. The Agencies’ 

joint rule implements the CRA.7 

1. Analysis

In connection with this study and report, a few commenters noted that the CRA 

regulations have implications for online banking and lending. For example, one 

commenter observed that geographical proximity to a financial institution’s service 

facility, such as an institution’s branch, may not serve as an appropriate criterion 

for evaluating whether the institution is able to serve the credit needs of a 

particular group of consumers. 

On July 19, 2001, the Agencies issued a Joint Advance Notice of Proposed 

Rulemaking (ANPR) as part of their review of the CRA regulations.8 The 

Agencies sought public comment on a wide range of issues concerning the CRA, 

including suggestions for revising the CRA regulations and on other steps the 

Agencies might undertake instead of, or in addition to, revising the regulations. 

One of the issues discussed in the Joint ANPR is how to define the assessment 

areas. 

The CRA regulations provide that an assessment area is the geographic area in 

which the Agencies evaluate an institution’s record of meeting the credit needs of 

 

7

 See 12 C.F.R. parts 25 (OCC), 228 (Board), 345 (FDIC), and 563e (OTS). 

8

 66 Fed. Reg. 37,602. 
7

its community under the CRA. An institution’s assessment area generally consists 

of one or more metropolitan statistical areas or one or more contiguous political 

subdivisions, and include geographies where the institution has its main office, 

branches, and deposit-taking ATMs, as well as surrounding geographies where the 

institution has originated or purchased a substantial portion of its loans. Through 

the Joint ANPR, the Agencies sought comment on whether the assessment area 

provisions provide a reasonable and sufficient standard for designating the 

communities within which the institution’s activities will be evaluated during an 

examination. The Agencies noted that members of the public have questioned the 

continued appropriateness of delineating geographically defined assessment areas 

in light of the increasing use of channels such as the Internet to serve widely 

dispersed markets and to gather deposits and deliver products and services without 

using deposit-taking branches or ATMs.

2. Conclusion 

The Agencies are addressing CRA issues, including the appropriate standards for 

defining assessment areas, in the separate CRA rulemaking. Accordingly, the 

Agencies make no recommendation about regulatory or legislative changes to the 

CRA in this report. Such recommendations, if any, may emerge as a result of the 

CRA rulemaking.

C. Consumer Protections for Depository Institution Sales of Insurance 

Section 305 of the GLB Act generally requires the Agencies to prescribe customer 

protection regulations that govern the retail sales practices of any insurance 

product by a depository institution or any person engaged in insurance sales at an 

office of or on behalf of the institution. The Agencies implemented section 305 of 

the GLB Act through regulations that were jointly developed and issued in 

consultation with the National Association of Insurance Commissioners (NAIC).9 

The Agencies’ respective rules are substantively identical; for the sake of 

simplicity in this report, we refer to the rule as the “Insurance Rule.”

 

9

 65 Fed. Reg. 75,821 (Dec. 4, 2000). The Agencies’ rules are codified at 12 C.F.R. parts 14 

(OCC), 208 (subpart H) (Board), 343 (FDIC), and 536 (OTS) respectively.
8

1. Analysis

The Insurance Rule prohibits any institution, or anyone acting on its behalf (a 

“covered person”), from engaging in any practice that could mislead someone or 

otherwise cause a reasonable person to reach an erroneous belief about: 

• The uninsured nature of any insurance product or annuity; 

• The investment risk associated with certain products; and 

• The fact that the approval of a credit extension cannot be conditioned on the 

purchase of an insurance product or annuity from the financial institution, 

and that the consumer is free to purchase the insurance product or annuity 

from another source. 

The Insurance Rule requires that the covered person provide appropriate insurance 

disclosures before the completion of the initial sale of an insurance product or 

annuity to the consumer, as well as a credit disclosure at the time the consumer 

applies for an extension of credit in connection with which insurance is solicited, 

offered, or sold. The covered person must obtain from the consumer a written 

acknowledgement of receipt of the disclosures at the time the consumer receives 

the disclosures or before the initial purchase of an insurance product or annuity by 

the consumer. Disclosures must be made orally and in writing, except that oral 

disclosures are not required for applications received or sales conducted by mail. 

Similarly, any disclosures provided by electronic media do not have to be provided 

orally.

 

The rule specifically authorizes the covered person to provide disclosures 

electronically, subject to the requirements of section 101(c) of the E-Sign Act, if 

the consumer affirmatively consents and the covered person makes the disclosures 

in a format that allows the consumer to retain the disclosures or obtain them later. 

2. Conclusion

The Agencies believe that no change to the Insurance Rule is necessary to adapt its 

requirements to online banking and lending. In the notice of proposed rulemaking, 

the Agencies specifically invited comment on issues of sales, disclosure, and 

acknowledgment of receipt of disclosure by electronic means. After considering 

the comments submitted with respect to those issues, the Agencies addressed those 

issues in the Supplementary Material published with the final rule and in the rule 
9

itself.10 The GLB Act mandates that the regulations include requirements to 

provide disclosures and obtain an acknowledgment by the consumer and permits 

the Agencies to adjust those requirements to suit transactions conducted in 

electronic media. The Agencies believe that, in accordance with the statute, the 

final rule contains appropriate adjustments to the disclosure and acknowledgment 

requirements to facilitate online banking and lending as discussed above. 

D. Loans in Areas Having Special Flood Hazards

Pursuant to the National Flood Insurance Act of 1968 and the Flood Disaster 

Protection Act of 1973, as amended, the Agencies promulgated regulations that 

prohibit financial institutions from making certain loans if the collateral is located 

in a special flood hazard area unless the collateral is covered by flood insurance.11 

The Agencies’ regulations also prescribe requirements about how a financial 

institution must inform a borrower of the insurance requirement for the loan.

1. Analysis

The Agencies’ flood insurance regulations expressly permit a financial institution 

to use a computerized or electronic flood hazard determination form. Similarly, an 

institution may deliver electronically the notice of changes in servicer to the 

insurance company issuing the flood insurance policy, if acceptable to the 

insurance company. However, the regulations require the institution to provide the 

borrower with a written, physical copy of the notice of special flood hazards.12 

The Agencies note that the requirement to provide a written notice of special flood 

hazards to a borrower is affected by the E-Sign Act. That statute, by its own force, 

permits a financial institution to satisfy that notice requirement by providing the 

notice in electronic form in lieu of a physical, written copy. Before the financial 

institution may do so, it must comply with the provisions of section 101(c) of the 

E-Sign Act. Among other requirements, section 101(c) mandates that the 

 

10 65 Fed. Reg. at 75,827-29; see, e.g., 12 C.F.R. § 14.40(c)(4). 

11 42 U.S.C. § 4104a. The Agencies’ regulations are codified at 12 C.F.R. parts 22 (OCC), 339 

(FDIC) and 572 (OTS) and § 208.25 (Board), respectively.

12 Notwithstanding this requirement with respect to the borrower, the lender may provide the 

servicer an electronic copy of the notice of special flood hazards.
10

consumer must have “affirmatively consented” to the use of an electronic record in 

lieu of a physical, written notice. 

2. Conclusion

The Agencies have determined that, at this time, the flood insurance regulations do 

not impose any undue burden that limits a financial institution’s ability to provide 

loans or other financial products or services on line. Nevertheless, the Agencies 

may consider amending the interagency rule to clarify the conditions for providing 

an electronic, instead of written, notice of special flood hazards to a borrower.

E. Management Official Interlocks

The Agencies jointly implemented regulations under the Depository Institutions 

Management Interlocks Act. 12 U.S.C. § 3201 et seq. The Agencies’ respective 

rules are substantively identical; for the sake of simplicity in this report, we refer to 

the rule as the “Management Interlocks Rule.”13 

1. Analysis

The Management Interlocks Rule generally prohibits a management official of a 

depository organization from serving as a management official of an unaffiliated 

depository organization if the depository organizations in question or its affiliate 

have offices in the same community or relevant metropolitan statistical area. See, 

e.g., 12 C.F.R. § 212.3(a). The rule defines a “community” as “a city, town, or 

village, and contiguous and adjacent cities, towns, or villages.” See, e.g., 12 

C.F.R. § 212.2(c). Similarly, the rule defines a “relevant metropolitan statistical 

area” as a primary or consolidated metropolitan statistical area, as defined and 

applied by the Office of Management and Budget.

One commenter noted that the definitions of “community” and “relevant 

metropolitan statistical area” are predicated on conceptions of geography. The 

commenter suggested that the Agencies should consider revising these geographic 

limitations to suit financial institutions that deliver products and services through 

the Internet. 

 

13

 See 12 C.F.R. parts 26 (OCC), 212 (Board), 348 (FDIC), and 563f (OTS).
11

2. Conclusion 

The Agencies recognize that the Management Interlocks Rule is based upon 

conceptions of geography, as mandated by the statute, that may not apply to 

financial institutions engaged in online banking and lending. Nevertheless, the 

Agencies believe that the geographic limitations have a minimal impact, if any, 

upon the online delivery of financial products and services. The Agencies believe 

that the Management Interlocks Rule sufficiently suits the purpose of preventing 

anti-competitive practices as determined by customary measures of banking 

products and services in a local market. Because an alternative analysis of the 

competitive effects of institutions that offer financial products and services over 

the Internet has not been developed, the Agencies believe that it would be 

premature to consider changes to the Management Interlocks Rule that would 

apply to a competitive environment that includes online banking and lending. 

Accordingly, the Agencies have determined that amendments to the statute or the 

rule would be unnecessary at this time. 

F. Privacy of Consumer Financial Information

The Agencies implemented the privacy provisions of Subtitle A of Title V of the 

GLB Act through regulations that were jointly developed and issued in 

coordination with the National Credit Union Administration, the Federal Trade 

Commission, and the Securities and Exchange Commission. The Agencies’ 

respective rules are substantively identical; for the sake of simplicity in this report, 

we refer to the rule as the “Privacy Rule.”14 

1. Analysis

The GLB Act generally requires a financial institution to provide notices to its

consumers that describe its privacy policies and practices and, where applicable, 

allow a consumer to opt out of disclosures of nonpublic personal information to 

nonaffiliated third parties. The GLB Act requires that a financial institution 

provide notices “in writing or in electronic form or other form permitted by the 

regulations.” See, e.g., 15 U.S.C. § 6803(a). The Privacy Rule facilitates the 

electronic delivery of financial products and services by allowing a financial 

institution to deliver its notices online, provided that it satisfies certain conditions. 

 

14

 See 12 C.F.R. parts 40 (OCC), 216 (Board), 332 (FDIC), and 573 (OTS).
12

In particular, the Privacy Rule generally allows a financial institution to deliver the 

applicable notices electronically only if the consumer agrees. 

The Agencies received several comments regarding the Privacy Rule; we address 

those issues below. 

a. Providing “clear and conspicuous” notices over the Internet

Section 503 of the GLB Act (15 U.S.C. § 6803) requires a financial institution to 

deliver a notice of its privacy policies and practices to a consumer at the time of 

establishing a customer relationship and annually thereafter. The Privacy Rule 

refers to these notices as an “initial notice” and “annual notice,” respectively. 

Section 502 (15 U.S.C. § 6802) generally prohibits a financial institution from 

disclosing nonpublic personal information about a consumer to any nonaffiliated 

third party unless the institution provides the consumer with an initial notice and a 

reasonable opportunity to opt out of that disclosure. The privacy regulation refers 

to the notice that describes the consumer’s right to opt out of disclosures to 

nonaffiliated third parties as an “opt out notice.”

The Privacy Rule mandates that the initial, annual, and opt out notices be “clear 

and conspicuous,” and defines that requirement as “reasonably understandable and 

designed to call attention to the nature and significance of the information in the 

notice.” This provision does not prescribe specific requirements for written or 

online notices. Rather, several examples illustrate how a financial institution may 

comply in various media, such as the use of a “plain-language heading to call 

attention to the notice” and the use of “distinctive type size, style, and graphic 

devices, such as shading or sidebars” when the notice is combined with other 

information. The rule also includes an example that is tailored to notices that a 

financial institution provides on its web site(s).15 

 

15 Section __.3(b)(2)(iii) of the Agencies’ Privacy Rule provides: “If you provide a notice on a 

web page, you design your notice to call attention to the nature and significance of the 

information in it if you use text or visual cues to encourage scrolling down the page if necessary 

to view the entire notice and ensure that other elements on the web site (such as text, graphics, 

hyperlinks, or sound) do not distract attention from the notice, and you either: (A) Place the 

notice on a screen that consumers frequently access, such as a page on which transactions are 

conducted; or (B) Place a link on a screen that consumers frequently access, such as a page on 

which transactions are conducted, that connects directly to the notice and is labeled appropriately 

to convey the importance, nature, and relevance of the notice.”
13

Several commenters urged the Agencies to modify the “clear and conspicuous” 

standard to accommodate the delivery of financial products and services via nontraditional computing devices, such as wireless handheld computers. Relative to 

standard desktop computers, handheld devices have smaller screens that require 

information to be displayed in smaller or altered formats. One commenter believed 

that the Agencies should clarify the Privacy Rule to state where notices are 

available to consumers via customary personal computers, a financial institution 

should not have to ensure that secondary access through wireless devices meets the 

same standard of “clear and conspicuous” as would apply to notices that are 

accessed via a personal computer. 

As noted above, the Privacy Rule does not prescribe specific requirements for 

written or online notices. Nevertheless, the Agencies may consider providing 

guidance to illustrate how the standard of “clear and conspicuous” applies to 

delivering notices over smaller computing devices. 

b. Applicability of the E-Sign Act 

One commenter asked the Agencies to address whether the consumer consent 

provisions of the E-Sign Act apply to the notices required under the privacy 

provisions of the GLB Act. The commenter asserted that “[s]ome confusion” has 

arisen over whether an institution must comply with the E-Sign Act when it is 

required to provide a notice under the GLB Act and the Privacy Rule. The 

commenter urged the Agencies to amend the Privacy Rule to expressly state that 

the E-Sign Act does not apply to any notices required under the GLB Act that are 

delivered electronically in accordance with the Privacy Rule.

The provisions of the E-Sign Act that regulate disclosures to consumers apply “if a 

statute, regulation, or other rule of law requires that information relating to a 

transaction or transactions in or affecting interstate or foreign commerce be 

provided or made available to a consumer in writing.” 15 U.S.C. § 7001(c). After 

gathering more experience implementing the Privacy Rule, the Agencies will be 

prepared to assess whether any additional actions would be appropriate to clarify 

the applicability of the E-Sign Act to the privacy provisions of the GLB Act. 

2. Conclusion

Based upon the review of the privacy provisions of the GLB Act and the Privacy 

Rule, and the comments submitted in connection with this study, the Agencies 

conclude that none of the provisions of the GLB Act or the regulation impose any 
14

undue burden that limits a financial institution’s ability to provide financial 

products or services on line. The Agencies may consider including additional 

examples or issuing other guidance that aims to clarify how a financial institution 

may satisfy its obligations under the Privacy Rule through various electronic 

media. 
15

Part III

Regulations Administered by the Board of Governors 

of the Federal Reserve System 

A. Electronic Delivery of Disclosures under Various Consumer Financial 

Services Regulations Administered by the Board 

1. Overview

As early as the mid-1990s, the Board recognized the potential benefits of electronic 

commerce to both consumers and the financial services industry. In 1996, the 

Board amended Regulation E (Electronic Fund Transfers) to permit electronic 

authorizations for preauthorized debits from consumers’ deposit and other asset 

accounts. Since that time, the Board has exercised its authority under the 

consumer financial services laws that it administers to permit electronic delivery of 

certain disclosures. For example, in 1997, the Board interpreted the writtendisclosure requirement under Regulation CC (Expedited Funds Availability) to 

permit electronic disclosures, and interpreted Regulation Z (Truth in Lending) to 

permit the electronic delivery of periodic statements. In 1998, the Board issued an 

interim rule permitting all disclosures under Regulation E to be provided 

electronically and, in 1999, the Board issued an interim rule under Regulation DD 

(Truth in Savings) permitting deposit account disclosures on periodic statements to 

be provided electronically. 

In August 1999, the Board issued proposed rules permitting electronic delivery of 

all disclosures (for example, via e-mail or at a web site) that under the Board’s 

consumer financial services regulations are required to be in writing. The 

proposals required institutions to obtain consumers’ consent to receive electronic 

disclosures by requiring a standardized consent form identifying the types of 

disclosures to be delivered electronically, how to access them, and other 

information deemed necessary for consumers to make informed decisions about 

electronic delivery. 

The E-Sign Act, which became law in June 2000, established the legal validity and 

enforceability of electronic signatures, contracts, and other records (including 

consumer disclosures). The E-Sign Act superseded much of the Board’s 

rulemakings but contained a consent requirement similar to that proposed by the 

Board. The E-Sign Act authorizes the electronic delivery of written records 
16

required by law to be provided or made available to a consumer if an institution 

obtains the consumer’s consent in accordance with the E-Sign Act’s requirements. 

In March 2001, the Board published interim final rules under Regulations B, E, M 

(Consumer Leasing), Z, and DD to incorporate the requirements of the E-Sign Act 

by reference. Under the interim final rules, financial institutions, creditors, lessors, 

and others may use electronic disclosures if they obtain consumers’ consent in 

accordance with the requirements of section 101(c) of the E-Sign Act. The 

Board’s interim final rules also establish uniform requirements for satisfying the 

timing and delivery requirements of the consumer financial services laws when 

electronic disclosures are used. 

Under the interim final rules, electronic disclosures may be provided by e-mail or 

they can be made available at another location, such as an institution’s web site. If 

a disclosure—such as an account statement or a notice of a change in account 

terms—is provided at a web site, an institution must notify the consumer of the 

disclosure’s availability by e-mail. The disclosure must remain available for 90 

days, not necessarily at the same location, to allow consumers adequate time to 

access and retain the information. In addition, when a disclosure sent by e-mail to 

a consumer is returned undelivered, the interim rule requires the institution to take 

reasonable steps to attempt redelivery using the information in its files. This 

requirement is satisfied if, for example, the institution sends the disclosure or 

notice to a different e-mail or postal address that the institution has on file.

2. Analysis

In connection with the March 2001 interim final rules, the Board also requested 

comment on whether other regulatory or legislative changes are needed to facilitate 

online banking and lending. Only a few comments were received on the study, 

which mostly focused on the Board’s interim final rules. In May, the Board 

solicited comments specifically on the section 729 study. The Board received 

approximately twenty-five comment letters; most of the comments concerning the 

Board’s consumer financial services regulations focused on the March 2001 

interim final rules and mirrored the comments received earlier.

The Board’s consumer financial services regulations generally require that 

institutions “send,” “provide,” or “deliver” disclosures to consumers as opposed to 

merely making the disclosures available. The requirement typically is satisfied by 

mailing disclosures to a postal address designated by the consumer. Where 
17

disclosures are provided electronically, sending disclosures to a consumer’s e-mail 

address would satisfy this requirement. 

The Board has recognized, however, that because of security and privacy concerns 

associated with data transmissions, institutions may choose to make the disclosures 

available at their web sites, where consumers may retrieve them under secure 

conditions. The Board’s rulemakings on electronic disclosures, therefore, have not 

required institutions to send the required disclosures by e-mail, but have also 

allowed institutions to make the disclosures available at another location, such as 

an Internet web site.

In allowing disclosures to be made available in this manner, the Board also 

considered whether additional rules might be necessary to ensure their effective 

delivery. For example, the Board believes that consumers should not be required 

to initiate a search of the web site of each financial institution with which an 

account is held to determine whether a disclosure has been made available. 

Consumers who receive disclosures by accessing an institution’s web site should 

be alerted when the information is first available in order to ensure that they have 

the opportunity to access the information before it is removed.

Accordingly, to ensure effective delivery, when disclosures are not sent to the 

consumer’s e-mail address, a notice alerting the consumer of the disclosures’ 

availability must be sent to the consumer’s e-mail address in a timely fashion. The 

consumer’s e-mail address is defined as a location where the consumer can also 

receive messages from parties other than the institution. 

a. Alert notices

Several commenters objected to the interim final rules’ requirement that alert 

notices be sent to the consumer’s e-mail address when disclosures are posted on a 

web site. Commenters that were opposed to the alert notice requirement asserted 

that some consumers do not have an e-mail address (and may not want to sign up 

for one, due to cost or other reasons), or they may have an e-mail address but 

prefer not to receive account information there. Commenters were also concerned 

that some consumers would not update their e-mail address on file with the 

institution when their address changes, causing problems with attempts to send 

disclosures or notices via e-mail. Some commenters thought that the costs of 

developing an e-mail system for alert notices could be prohibitive for certain 

institutions. Some large institutions, however, have stated that they already use email to send notices and disclosures to consumers.
18

Several commenters believe the requirement for sending alert notices when 

disclosures are made available at a web site is inconsistent with the E-Sign Act 

because it imposes an additional requirement for using electronic disclosures. 

They also believe that alert notices are unnecessary where a consumer receives a 

disclosure at the time the consumer completes an online transaction such as 

consummating a loan or opening a credit card or deposit account. 

b. Redelivery requirement

A related area of concern was the requirement to redeliver a disclosure sent to a 

consumer’s e-mail that was returned undelivered. The institution must take 

reasonable steps to attempt redelivery using the information in its files. Some 

commenters believe that institutions should not be required to send disclosures to 

another address on file that has not been designated by the consumer for that 

purpose. These commenters also stated that if the only other address on file is a 

postal address, the interim rule would result in a requirement for paper disclosures, 

which they believe is inconsistent with the E-Sign Act.

Other commenters expressed the view that the burden should rest with the 

consumer to ensure that the institution has the consumer’s correct e-mail address 

and that financial institutions should be allowed to rely on procedures that allow 

consumers to provide the updated address information. At a minimum, 

commenters urged the Board to clarify that financial institutions may make a 

second attempt to deliver the disclosure to the same e-mail address because the email service could have been temporarily unavailable.

c. “Reasonable demonstration”

The Board’s interim final rules permit financial institutions to deliver disclosures 

electronically, provided that the consumer consents in accordance with the E-Sign 

Act’s requirements. Under the E-Sign Act, the consumer must consent 

electronically, or confirm his or her consent electronically, in a manner that 

“reasonably demonstrates” that the consumer can access the electronic record in 

the format used by the institution. One commenter requested that the Board 

provide additional clarification of the E-Sign Act’s “reasonable demonstration” 

requirement. The commenter believes that the need to ensure that the consumer 

can access electronic disclosures should not create undue burdens that might 

discourage consumers from obtaining financial products and services online. 

Another commenter observed that the requirement for consumers to reasonably 

demonstrate that they have the ability to access the disclosures is counter to the E-
19

Sign Act’s premise that electronic and paper disclosures should be treated the 

same. Accordingly, this commenter suggested that the Congress delete this 

requirement.

d. Preemption

Several commenters urged the Board to confirm that financial institutions that 

comply with the E-Sign Act do not need to comply with additional or different 

requirements imposed under state law when providing electronic disclosures under 

the Board’s consumer financial services regulations. Commenters also asked the 

Board to clarify that where the Board has determined that the E-Sign Act’s 

consumer consent provision (§ 101(c)) does not apply to certain disclosures (e.g., 

disclosures in connection with advertisements, or credit and charge card 

applications and solicitations), state law may not require consumer consent with 

respect to those disclosures. They believe that uniform federal law would promote 

electronic commerce.

One commenter noted that section 102(a) of the E-Sign Act grants limited 

authority to states, with respect to their own laws, to enact their own electronic 

writing and signature requirements under certain conditions. This commenter 

believes that this authority could result in state law requirements that create 

significant impediments for institutions that conduct electronic transactions in 

multiple states that have varying writing and signature requirements.

3. Conclusion

In general, comments received on the section 729 study have raised the same 

issues that were raised in connection with the March 2001 interim final rules and 

request for comment. The Board lifted the October 1, 2001 mandatory effective 

date for compliance with the interim final rules in response to comments received 

on the March 2001 rules stating that additional time was needed to make 

operational changes. Furthermore, the Board may consider adjustments to the 

rules to provide additional flexibility. Financial institutions may continue to 

provide electronic disclosures under their existing policies and practices (in 

accordance with the E-Sign Act), or they may follow the interim final rules until 

permanent final rules are issued.

With respect to the preemption issues raised, the Board believes that it is premature 

to make any recommendation concerning whether Federal law should preempt 

State law in these areas.
20

B. Regulation B (Equal Credit Opportunity) and Regulation C (Home 

Mortgage Disclosure)

1. Overview

Regulation B prohibits discrimination in any aspect of a credit transaction on the 

basis of national origin, marital status, religion, gender, color, age, race, receipt of 

public assistance funds, and exercise of any right under the Consumer Credit 

Protection Act. 

Regulation C requires mortgage lenders in metropolitan areas to disclose to the 

public data about home purchase and home improvement loans (including 

refinancings) that lenders originate or purchase and about the disposition of 

applications for such loans. Lenders collect and report data about each application 

or loan, each applicant or borrower (including national origin or race, gender, and 

annual income), and each property (including occupancy status and location).

2. Analysis

Section 202.13 of Regulation B generally requires a creditor that receives an 

application for credit for the purchase or refinancing of a consumer’s primary 

residence to collect as part of the application certain information about the 

applicant (e.g., national origin or race, marital status, and gender). Similarly, 

section 203.4 of Regulation C generally requires financial institutions to collect 

data about the national origin, gender, and race of applicants for home purchase 

and home improvement loans. The commentaries for both regulations provide that 

if an application is taken over the phone, creditors need not collect monitoring 

information under Regulations B and C. If an application is taken by mail, the 

creditor must request the information, but the applicant need not provide it. One 

commenter noted that if online credit applications are treated like mail or telephone 

applications, then information about applicant characteristics may not be reported 

and thus it will be more difficult to identify discriminatory lending practices. 

The collection of monitoring information is essential in enhancing the transparency 

of creditor lending practices. As more applications are being taken by telephone, 

by mail, and over the Internet, however, less information about applicant 

characteristics is being provided by consumers, while at the same time, lenders

cannot make visual observations. In August 1999, as part of a comprehensive 

review of Regulation B, the Board proposed to treat online credit applications 

similarly to applications taken by mail. Therefore, a creditor would have to request 
21

monitoring information on the online application form, but if the consumer chose 

not to provide the information, the creditor would not be required to make an 

additional request to the applicant. (This interpretation is consistent with the 

current interpretation under Regulation C.) No final action has been taken on this 

rulemaking. 

3. Conclusion

The Board will monitor developments in online credit applications for both 

Regulations B and C reporting requirements and will consider adjustments to the 

rules where appropriate.

C. Regulation E (Electronic Fund Transfer Act), Regulation Z 

(Truth in Lending Act), and Regulation DD (Truth in Savings Act)

1. Overview

Regulation E establishes rules about the disclosure of terms and conditions of 

electronic fund transfer (EFT) services; limitations on a consumer’s liability for 

unauthorized use of debit cards; restrictions on the unsolicited issuance of debit 

cards; documentation of EFTs by means of receipts and periodic account activity 

statements; and procedures for error resolution. The regulation covers transactions 

at automated teller machines, point-of-sale terminals in stores, telephone billpayment plans, and preauthorized transfers to and from a customer’s account, such 

as direct deposit of salary and social security benefits.

Regulation Z promotes the informed use of consumer credit by requiring 

disclosures about its terms and cost. The regulation also gives consumers the right 

to cancel certain credit transactions that involve a lien on a consumer’s principal 

dwelling, regulates certain credit card practices, and provides a means for fair and 

timely resolution of credit billing disputes.

Regulation DD requires institutions to disclose yields, fees, and other terms 

concerning deposit accounts to consumers at account opening, upon request, when 

changes in terms occur, and in periodic statements. The regulation also covers 

advertising for deposit accounts and prohibits certain methods of calculating 

interest.
22

2. Analysis

In responding to the Board’s request for comment on whether additional legislative 

or regulatory changes are needed to further facilitate the electronic delivery of 

consumer financial services, many commenters raised issues that apply to more 

than one regulation. For example, many commenters addressed requirements for 

periodic statements and advertising under Regulations Z and DD. To streamline 

the discussion on issues that apply to multiple regulations, the discussion of 

Regulations E, Z, and DD has been consolidated in this subsection. Where 

appropriate, comments received on issues that are unique to a specific regulation 

are also addressed.

a. Periodic statements under Regulations E, Z and DD

The Board specifically solicited comment on whether the rules for periodic account 

activity statements on deposit and credit accounts should be modified for online 

banking and lending. Several commenters stated that it was not necessary at this 

time to modify the rules for periodic statements to specifically apply to the 

electronic environment. One commenter noted that periodic statements perform 

multiple functions in addition to providing transaction summaries which are 

typically available online. This commenter stated, for example, that it would be 

difficult to manage the error resolution process under Regulations E and Z without 

actual statement cycle dates and beginning and ending balances. In addition, it 

would be unclear how an annual percentage yield earned under Regulation DD 

could be calculated if beginning and ending balances were not provided on a 

statement cycle basis. 

In contrast, a few commenters urged the Board to modify or eliminate the rules for 

periodic statements when institutions provide transaction information on a daily 

basis. These commenters believed that the value of providing disclosures based on 

a particular “statement period” or beginning and ending dates is questionable when 

customers can view their account and transaction history online at any time. 

Other commenters suggested that it would be appropriate to permit financial 

institutions to deliver modified periodic statements electronically that provide links 

or access instructions to disclosures that are continuously available. For example, 

to comply with periodic statement requirements under Regulations E and Z, a 

financial institution could provide links to error resolution disclosures that are 

posted on a continuous basis on a web site. Similarly, a link between a daily 

transaction summary and the periodic statement could be used. In addition, one 
23

commenter recommended that consumers should have a legal right to waive 

delivery of periodic statements if they already have this information available in 

their online banking history.

Two commenters argued that the Board’s periodic statement requirements under 

Regulation E are hindering the development of certain electronic products and 

services such as stored-value cards, account aggregation services, and electronic/ 

Internet cash exchange. In particular, these commenters argue that the periodic 

statement requirements in connection with these services presented unnecessary 

technical and compliance burdens that have slowed the development and 

maintenance of these emerging products and services. 

The Electronic Fund Transfer Act (EFTA) requires the Board in issuing regulations 

to take into account, and allow for, the continuing evolution of electronic banking 

services and the technology used in such services. The Board is aware that the 

application of certain provisions of the EFTA and Regulation E, including the 

requirement to provide periodic account activity statements, could impose 

significant compliance costs and impact the development of electronic payment 

products, such as stored-value cards. The Board has modified Regulation E 

periodic statement and other requirements to accommodate the development of 

specific EFT services, such as electronic benefit transfer accounts. 

The Board does not believe that there is a need to modify the general statutory 

requirements under Regulations E, Z, and DD concerning disclosures in periodic 

statements at this time. The daily transaction summaries that consumers may 

access online are not adequate substitutes for the periodic statements required by 

statute. These disclosure statements provide uniform information to consumers 

about the overall costs of credit, EFT services, or interest earned on an account for 

a particular period and thus allows consumers to evaluate, for example, whether a 

particular credit card or deposit account continues to suit their financial needs. 

In recent rulemakings, the Board has provided guidance on the electronic delivery 

of periodic statements. The Board will provide additional guidance in this area as 

necessary and provide additional flexibility as warranted. 

b. Error resolution and preauthorized transfers under Regulation E

Commenters addressed issues concerning error resolution and liability for 

unauthorized transfers. The EFTA and section 205.11 of Regulation E sets out 

detailed error-resolution procedures. Several commenters observed that any new 
24

kinds of statements and electronic methods of delivering statements might require 

an adjustment to the error resolution timing requirements. For example, one 

commenter suggested that for online banking, it may be appropriate to begin the 

time period by which a consumer would be required to notify his or her financial 

institution of a billing error or unauthorized transfer after some reasonable period 

of time in which the consumer would be expected to view his or her daily online 

statements.

Section 205.10(b) of Regulation E requires a consumer’s financial institution or 

payee to provide advance notice to the consumer whenever a preauthorized EFT 

from the consumer’s account will vary in amount from the previous transfer under 

the same authorization or from the preauthorized amount. The consumer may have 

the option, however, of receiving notice only when a transfer falls outside an 

agreed-upon range or when a transfer differs from the most recent transfer by more 

than an agreed-upon amount. 

One commenter believes that this notice requirement may impede electronic 

initiatives. The commenter asks the Board to consider revising the rule to allow 

institutions to debit a consumer’s account based on a computable amount or 

percentage, as opposed to a specific dollar amount or range of dollar amounts, or 

by reference to the entire balance or the total amount currently due. 

The Board believes that the rule currently provides sufficient flexibility for 

financial institutions. The Board has not observed a significant compliance 

problem to date with the current provisions of the rule, but will consider this issue 

as part of a future review of the regulation. 

c. Issues that apply to Regulation Z

1) “Clear and conspicuous” and format requirements for 

electronic credit card solicitations

Section 226.5a of Regulation Z requires credit card issuers to provide clear and 

conspicuous disclosures of the terms of the credit account on or with a card 

solicitation or application. Some commenters observed that it was unclear how to 

meet certain of the provision’s format requirements in an electronic environment. 

In particular, section 226.5a(b)(1) requires the annual percentage rate for purchases 

to be disclosed in at least 18-point type to the consumer. These commenters noted 

that because creditors have no control over how disclosures will appear on the 

consumer’s computer screen, they should not have a duty to ensure that a 
25

consumer views the disclosures in the context of the format and type size 

requirements.

The Board has addressed this concern in a prior rulemaking. See 65 Fed. Reg. at 

58,906 (Oct. 3, 2000). The Board’s official staff commentary to Regulation Z 

generally provides that disclosures transmitted electronically satisfy the clear and 

conspicuous standard based on the form in which the disclosures are provided. 

Thus, a creditor may satisfy the clear and conspicuous standard by displaying the 

disclosures in a credit card solicitation at its web site in a large type size, regardless 

of the size of the device used by a consumer to view the disclosures.

2) Prompt crediting of payments

Section 226.10 of Regulation Z requires a creditor to credit a payment to a 

consumer’s account as of the date of receipt. The rule permits a creditor to specify 

the requirements for making payments, including setting a cut-off hour for 

payments to be considered received on a particular day. Given the emerging 

technologies for processing electronic payments, the Board may in the future 

consider whether adjustments to the rule for crediting payments are necessary.

3) Advertising

Regulations Z and DD contain provisions that ensure that advertisements are not 

misleading or inaccurate, with regard to the account terms actually offered by the 

institution. For example, the regulations specify that if an advertisement contains 

certain account terms, then the advertisement must also include other specified 

terms. There are special rules permitting abbreviated disclosures for broadcast 

media advertisements to account for time and space restrictions. 

Some commenters urged the Board to extend the rules for broadcast media 

advertising to Internet advertisements. Several commenters cautioned against 

applying the advertising requirements to disclosures accessed by hand-held

wireless devices because of the potential cost and the difficulty in presenting the 

disclosures in an easy to read format. One commenter believes that because 

Internet technology allows institutions to provide a wealth of information to 

consumers, the Board should amend its advertising regulations to require 

institutions to provide more information about terms in advertisements.
26

More generally, one commenter urged the Board to publish a compliance guide 

containing the rules for electronic advertising that would apply to all the consumer 

financial services regulations administered by the Board. 

The Board has considered certain aspects of electronic advertisements in 

connection with its interim final rules on electronic delivery of disclosures. For 

example, the Board has previously determined that rules for broadcast media 

advertisements in Regulation DD do not apply to web sites. 66 Fed. Reg. 17,795 

(Apr. 4, 2001). Nevertheless, additional guidance on aspects of electronic 

advertisements not covered in the proposals may be appropriate for future 

regulatory reviews. For disclosures provided on hand-held wireless devices, 

however, the Board notes that it would be difficult to streamline the required 

disclosures for such devices without diminishing the effectiveness of the 

disclosures. 

D. Regulation D (Reserve Requirements of Depository Institutions)

1. Overview

Regulation D implements section 19 of the Federal Reserve Act.16 Regulation D 

generally requires depository institutions to distinguish between “transaction 

accounts” and “savings deposits” and to maintain reserves against transaction 

accounts. Reserve requirements aid in the conduct of open market operations for 

monetary policy purposes by helping to ensure a stable, predictable demand for 

reserves, thereby increasing the Board’s control over short-term interest rates. 

Regulation D also defines “demand deposit” for the purposes of the prohibition of 

paying interest on demand deposits under Regulation Q. 

2. Analysis

Regulation D requires depository institutions to hold reserves against their 

transaction accounts, generally defined as accounts from which the depositor is 

permitted to make payments or transfers to third parties. 

Depository institutions are not required to hold reserves against savings deposits. 

Regulation D defines a “savings deposit,” in part, as a deposit or account from 

which the depositor is limited to no more than six preauthorized, automatic, or 

telephonic transfers or withdrawals, or combination thereof, per calendar month or 

 

16 12 CFR part 204; 12 U.S.C. § 461.
27

statement cycle. In addition, the regulation provides that “no more than three of 

the six such transfers may be made by check, draft, debit card, or similar order 

made by the depositor and payable to third parties.”

Regulation D permits unlimited transfers or withdrawals from savings deposits 

when such transfers or withdrawals are made by mail, messenger, automated teller 

machine, in person, or by telephone (via check mailed to the depositor).17 

Commenters noted that the regulation limits the number of transactions from a 

savings account that a customer may initiate on line because this exception applies 

only to postal, ATM, or physical means of transfer or withdrawal rather than 

electronic means, such as a transfer or withdrawal initiated through a bank’s web 

site. One commenter explained that customers who maintain the bulk of their 

funds in savings accounts are constrained by Regulation D from making online 

transfers to transaction accounts to cover possible overdrafts or meeting other 

unexpected expenses paid to third parties from the transaction accounts. 

3. Conclusion

The Board recognizes that Regulation D imposes limitations on the extent to which 

depositors may make transfers or withdrawals from their savings accounts using 

online services. To implement section 19 of the Federal Reserve Act, however, the 

Board must distinguish between transaction accounts and savings accounts. It has 

made this distinction based on the ease with which the depositor may transfer 

funds to third parties. The Board recognizes that depository institutions are 

generally able to offer more attractive interest rates to consumers on savings 

accounts than on transaction accounts because depository institutions do not have 

to maintain reserves on savings accounts. (Currently, business customers that are 

not eligible for NOW accounts are not able to obtain interest-bearing transaction 

accounts.) 

The Board believes that the interest-rate differential between transaction accounts 

and savings accounts could be reduced by legislation that would permit the 

payment of interest on reserve and clearing balances held by depository institutions 

at Federal Reserve Banks. The Board has long supported such a change. In 

addition, the Board has also long advocated repeal of the prohibition against 

payment of interest on demand deposits, which would permit businesses to obtain 

interest-bearing transaction accounts. Legislation is currently pending before the 

Congress that would accomplish both of these changes. 

 

17 12 C.F.R. § 204.2(d)(2). 
28

E. Regulations T and U (Securities Margin Lending)

1. Overview

Regulations T and U implement section 7 of the Securities Act of 1934.18 

Regulation T applies to extensions of credit by brokers and dealers. Regulation U 

applies to persons other than brokers and dealers who extend credit for the purpose 

of buying or carrying margin stock if the credit is secured directly or indirectly by 

margin stock. The regulations impose, among other obligations, initial margin 

requirements and payment rules on certain securities transactions. 

2. Analysis

Regulation T provides, in general, that every extension of credit shall be deemed to 

be purpose credit unless the creditor “accepts in good faith from the customer a 

written statement that it is not purpose credit.”19 Presently, the Board requires a 

creditor to collect (and validate) a purpose statement (form T-4). 

Regulation U similarly requires a lender that extends credit secured by margin 

stock to collect and validate a purpose statement. Presently, the Board requires a 

creditor to file a purpose statement (form U-1 or G-3). Unlike Regulation T, which 

requires a “written statement,” Regulation U does not specify how that statement 

must be executed. 

3. Conclusion

The Board may consider amendments to Regulation T and U to clarify the purpose 

statement requirements of the respective regulations under the E-Sign Act.

F. Regulation CC (Availability of Funds and Collection of Checks)

1. Overview

Regulation CC implements the Expedited Funds Availability Act.20 Regulation

CC requires a bank to make funds deposited into transaction accounts available for 

 

18 12 C.F.R. parts 220 and 221; 15 U.S.C. § 78g.

19 12 C.F.R. § 220.6(e)(2). 

20 12 C.F.R. part 229; 12 U.S.C. §§ 4001-10.
29

withdrawal in accordance with prescribed schedules. The regulation also sets forth 

rules that govern the collection and return of checks by banks, same-day settlement 

for certain checks, and liability of banks for failure to comply with its provisions. 

In the request for comment, the Board noted that laws or regulations that contain 

concepts of time may not be relevant in an online environment. The Board asked 

whether the provisions of Regulation CC that define a “banking day” are 

appropriate in the context of a customer that opened an account and performs all 

banking functions online.

2. Analysis

a. Schedule of funds availability and the definition of 

“banking day”

Regulation CC generally requires funds deposited or received for deposit to be 

available on specified business days after the “banking day” on which the funds are 

deposited or received. The term “banking day” is defined as that part of any 

business day on which an office of a bank is open to the public for carrying on 

substantially all of its banking functions.21 Several commenters agreed with the 

Board’s suggestion that the term “banking day” may be incompatible with services 

that may be obtained electronically at any time and on any day. One commenter 

contended that traditional accounting principles, including definitions of time, may 

require modification as financial institutions develop continuous processing 

systems. Nevertheless, customers’ demands for services that would require such 

continuous processing systems have not emerged at this time. Because reengineering computer systems to implement continuous processing will be costly, 

particularly in view of customers’ current expectations about banking services, 

commenters urged the Board to retain the regulatory provisions that define time. 

Commenters explained that the definition of “banking day” allows institutions to 

schedule certain banking functions, such as batch processing of ACH transactions, 

in a manner that efficiently uses their available resources. 

b. Disclosure requirements

Regulation CC contains several provisions that require depository institutions to 

provide notices to their customers. For example, section 229.16 requires a bank to 

provide a notice that describes the bank’s policy as to when funds deposited in an 

 

21 12 C.F.R. § 229.2(f).
30

account are available for withdrawal. Under the general requirements, contained in 

section 229.15, a bank must provide most notices in writing and in a form that the 

customer may keep. The commentary to section 229.15 explains that a bank 

“satisfies the written-disclosure requirement by sending an electronic disclosure 

that displays the text and is in a form that the customer may keep, if the customer 

agrees to such means of disclosure.”22 Other notice requirements, such as the 

notice to a customer when the bank receives a returned check or a notice of 

nonpayment of a check under section 229.33(d), do not specify the form of the 

notice. 

3. Conclusion

The Board believes that changes to the regulatory definition of “banking day” are 

not appropriate at this time. Although certain online banking services may be 

available outside the hours of a normal banking day, most banks are generally not 

open to the public for carrying on substantially all of their banking functions on a 

24-hour basis. Furthermore, most banks have not upgraded to continuous 

processing systems that would accommodate a more expansive definition of 

“banking day.” Accordingly, the Board concludes that, at this time, such an 

amendment is not warranted. The Board will continue to monitor developments in 

banking practices and technology that may affect such issues. In addition, the 

Board may consider clarifications to Regulation CC or its commentary regarding 

the interaction of the regulation’s notice provisions and the E-Sign Act. 

The report also summarizes the few suggestions of commenters that certain 

provisions of the Board’s consumer financial services regulations be modified to 

better accommodate online lending and banking. The report states that the Board 

will continue to provide compliance guidance and will consider additional 

flexibility in the rules as appropriate. 

 

22 12 C.F.R. part 229, App. E, at IX.A.1., FRRS 9-190. 
31

Part IV

Regulations Administered by the Federal Deposit Insurance Corporation

As required by section 729 of the GLB Act, the FDIC has reviewed all of its 

regulations that could affect the online delivery of financial services to ensure that 

they do not impede online or other forms of electronic banking. As part of this 

review, on July 16, 2001, the FDIC published in the Federal Register a request for 

comment on how its banking regulations affect the online delivery of banking 

services. 66 Fed. Reg. 37,029. (See Appendix B.) The FDIC asked the public to 

respond to certain general questions: 

• Are there specific regulations the FDIC should modify because they impede 

the use of a new technology that would allow financial institutions to offer 

improved products or services in a more efficient manner and at a lower 

cost? 

• Are there areas where financial institutions would benefit from additional 

clarification of rules or guidance concerning the risks associated with 

electronic banking activities? 

• Are there specific areas in which regulatory changes are needed to enhance 

consumer acceptance of, confidence in, or access to, electronic banking? 

In addition, the FDIC specifically asked for comments on hyperlinking; whether 

certain terms in its regulations regarding physical location requirements, such as 

the definition of a bank “branch,” should be revised to deal with electronic 

banking; whether regulations involving appraisals should be amended to provide 

for the possibility of online appraisals; and whether the FDIC should promulgate 

regulations or publish guidance setting forth standards for the use of electronic 

signatures and records. 

The FDIC received comments from 3 associations of financial services providers, 

6 financial services firms, a firm that provides software to financial services firms, 

3 individuals, and the Conference of State Bank Supervisors (CSBS). Some of the 

submissions also responded to requests for comment by the other Federal banking 

agencies, and addressed regulations that the other agencies have that the FDIC 

does not. 
32

Most commenters cautioned the FDIC not to amend or issue new regulations until 

this developing area of financial activity has had more time to develop on its own. 

Only two commenters suggested changes to specific FDIC-only rules. One 

commenter suggested that the FDIC should amend part 303 of the FDIC’s rules to 

exclude online banking services from the definition of “branch” in 12 C.F.R. 

§ 303.41(a). CSBS recommended that the FDIC work on a joint interagency basis 

to clarify where a depository institution’s Internet banking operations are located. 

CSBS believes that such an approach would maintain competitive equality among 

all depository institutions.

In addition, commenters suggested that guidance, or as one commenter termed it, 

“practical information resources,” be issued in certain areas. Commenters cited, as 

examples of existing helpful guidance, the FDIC’s June 4, 2001 Bank Technology 

Bulletin On Outsourcing (FIL-50-2001) and the FFIEC’s July 30, 2001 guidance 

on Authentication in an Electronic Banking Environment (see FDIC FIL-69-2001, 

Aug. 24, 2001). 

 

As commenters have suggested, electronic banking is a dynamic area that needs an 

opportunity to develop as much as possible without formal regulation. This has 

been a guiding principle in the FDIC’s review of its regulations, and in the FDIC’s 

approach to electronic banking, predating the enactment of the GLB Act. When 

the FDIC has been required to issue or amend regulations, the FDIC has tried to 

structure them so as to avoid obstacles to the growth of online and electronic 

banking. Otherwise, the FDIC has tried to foster online banking through the 

training of its own employees and, when necessary, by issuing non-regulation 

guidance. The purpose of such guidance is to ensure that electronic banking does 

not engender unreasonable risks without creating impediments to its development. 

The FDIC issued electronic banking examination procedures in January 1997 and 

implemented an electronic banking subject matter expert program in April 1997. 

The Division of Supervision created an Electronic Banking Branch to focus 

attention on electronic banking supervisory issues in September 2000. In addition, 

the FDIC has issued a variety of written guidance concerning risks and appropriate 

procedures for electronic banking. See, e.g., FIL 81-2000, Risk Management of 

Technology Outsourcing (Nov. 29, 2000); FIL 77-2000, Bank Technology 

Bulletin, Internet Domain Names (Nov. 9, 2000); FIL 72-2000, Electronic 

Signatures in Global and National Commerce Act (Nov. 2, 2000); FIL 67-2000, 

Security Monitoring of Computer Networks (Oct. 3, 2000); FIL 63-2000, Online 

Banking (Sept. 21, 2000); FIL 131-97, Security Risks Associated with the Internet 

(Dec. 18, 1997). 

 
33

The FDIC has not identified any of its rules that would, by its terms, impede online 

banking. When rulemaking is required, the FDIC will continue to craft rules to 

avoid unnecessarily impeding online banking, and in individual cases, such as the 

review of applications, the FDIC will attempt to find interpretations of its rules that 

will accommodate legitimate activities while fulfilling the rule’s purpose. In 

addition, the FDIC will continue to issue guidance, individually or in conjunction 

with the other Federal banking agencies and the FFIEC, as necessary to foster 

online banking without interfering with its safe and sound growth. 
34

Part V

Regulations Administered by the Office of the Comptroller of the Currency

Prior to enactment of section 729, the OCC had made a concerted effort to 

facilitate and support online delivery of financial services. Recognizing that 

uncertainty over permissible electronic bank activities could hinder the delivery of 

online financial services, the OCC sought to provide clear guidance on the scope of 

these activities through its decisions on bank licensing applications and its legal 

interpretive letters. 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. The OCC has also permitted national banks to provide digital 

certification, electronic correspondent banking services, and electronic 

safekeeping. These opinions and decisions are summarized and are made available 

on the OCC web site.23

Further, to ensure that electronic banking activities are conducted consistent with 

bank safety and soundness and to reduce uncertainty over supervisory expectations 

on the delivery of online financial services, OCC has issued guidance addressing 

supervisory issues relating to banks’ use of technology.24 With the other Federal 

banking agencies, the OCC recently issued guidelines prescribing information 

security standards that implement the requirements of the GLB Act25 and guidance 

on authentication in the electronic banking environment.26 The OCC also issued a 

comprehensive handbook on Internet banking that discusses business and technical 

issues associated with providing banking services via the World Wide Web, the 

risks presented by these activities, and the OCC’s procedures for Internet-related 

 

23 The OCC established a web site that contains information relating to electronic banking 

activities. See www.occ.treas.gov/netbank/netbank.htm (Electronic Banking web site). The site 

includes a listing of opinions, approval letters, supervisory guidance, and other issuances on this 

subject and provides links to the documents listed. 

24

 See, e.g., OCC Bulletin 98-3, Technology Risk Management – Guidance for Bankers and 

Examiners (Feb. 4, 1998).

25 66 Fed. Reg. 8616 (Feb. 1, 2001) (information security guidelines issued jointly by the OCC, 

the Board, the FDIC, and OTS). These guidelines implement the requirements of section 501(b) 

of the GLB Act, 113 Stat. at 1436-37 codified at 15 U.S.C. 6801.

26 OCC Advisory Letter No. 2001-8 (July 30, 2001).
35

examinations.27 In addition, the OCC issued “The Internet and the National Bank 

Charter,” as part of the Comptroller’s Corporate Manual (Jan. 2001) and guidance 

on weblinking activities and aggregation activities.28 These and other issuances, 

including Internet-related regulatory updates, are available on OCC’s Electronic 

Banking web site. 

Finally, the OCC has conducted a comprehensive review of the OCC’s regulations 

with a view toward removing impediments to national banks’ use of technology. 

In an advance notice of proposed rulemaking (ANPR) published on February 2, 

2000,29 the OCC invited public comment on issues involving Internet banking and 

other uses of electronic technology. (See Appendix C.) Specifically, the ANPR 

focused on three issues: 

• How should the OCC adapt its regulations and supervisory policies to 

facilitate national banks’ use of electronic technology consistent with bank 

safety and soundness?; 

• What statutes can the OCC interpret more flexibly to accommodate new 

technologies?; and 

• How can the OCC enhance the operational flexibility of banks engaging in 

electronic banking consistent with bank safety and soundness?30

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 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 

variety of additional issues.

 

27 Comptroller’s Handbook, Other Income Producing Activities: Internet Banking (Oct. 1999). 

28 “Weblinking,” OCC Bulletin 2001-31 (July 3, 2001) and “Bank-Provided Account 

Aggregation Services,” OCC Bulletin 2001-12 (Feb. 28, 2001).

29 65 Fed. Reg. 4895 (Feb. 2, 2000).

30 The ANPR also solicited suggestions that would be helpful in formulating recommendations 

for legislative action or for actions that may be appropriately undertaken on an interagency basis. 
36

After reviewing these comments, the OCC developed a proposed rule to update its 

regulations to reflect national banks’ use of new technology. On July 2, 2001 the 

OCC published in the Federal Register a notice of proposed rulemaking (NPRM) 

that would provide simpler and clearer guidance for national banks using electronic 

and developing technologies to conduct their activities and, also, would codify 

positions that the OCC has taken previously in published interpretive letters to 

national banks.31 (See Appendix C.) The NPRM also solicited additional 

suggestions under section 729 either for legislative action or for actions that may 

be appropriately undertaken on an interagency basis. 

The proposed rule would create a new subpart E to part 7 of the OCC’s regulations 

to house these and other OCC provisions related to the conduct of national bank 

activities through electronic means. Among its most significant provisions, the 

proposed rule would: 

• Codify recent OCC interpretative letters approving the use of the finder 

authority by national banks to engage in several new activities made possible by 

technological developments. The proposed regulation includes examples, both 

in the electronic banking context and in the non-electronic banking context, 

illustrating the range of finder activities that the OCC has authorized.

 

• Set forth the factors the OCC considers in determining whether an electronic 

activity is part of, or incidental to, the business of banking. These factors are 

based on OCC and Federal judicial precedent and will provide better guidance 

to national banks seeking to engage in new electronic activities. 

• Clarify that State law applies to a national bank’s conduct of activities 

electronically only to the same extent it would apply if the activity were 

conducted through traditional means.

• Codify OCC interpretations that permit national banks as part of a digital 

signature transaction to act as a certification authority that issues certificates 

verifying the identity of the certificate holder. The proposal also requested 

comments on whether this authority should include the ability of a national 

bank to issue a digital certificate that verifies that the holder has certain 

authority or the financial capacity to make a purchase or engage in a 

transaction, how these activities will be structured, and whether these activities 

present unique risks.

 

31 66 Fed. Reg. 34,855.
37

• Codify OCC interpretations that permit a national bank to collect, process, 

transcribe, analyze and store banking, financial and economic data for itself and 

its customers as part of the business of banking. The proposal also requested 

comments on whether the OCC should 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 non-financial data as incidental to its financial data processing 

services.

• Clarify that a national bank will not be considered “located” in a state simply 

because it maintains technology, such as a server or an automated loan center, 

in that state or because customers in that state electronically access a bank’s 

products and services. 

• Require, as a matter of safety and soundness, that banks that share co-branded 

web sites or other electronic space with affiliated or unaffiliated third parties 

take reasonable steps to enable customers to distinguish between products and 

services offered by the bank and those offered by the third party. National 

banks must disclose their limited role with respect to the third party product or 

service, and ensure that these disclosures are 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.

The comment period on the proposed rule closed on August 31, 2001. OCC 

received 26 comments. The comments included 16 from financial institutions, 8 

from trade and government associations, 1 from an individual, and 1 from a law 

firm. The comments were generally supportive of the proposed rule, but suggested 

some refinements. The OCC is currently studying these comments and may issue 

a final rule before the end of this year. 

The OCC also stated in the NPRM that it is considering whether to further revise 

its regulations in light of the E-Sign Act32 in a separate project, and that any such 

 

32 Shortly after the ANPR was published, Congress passed the E-Sign Act, which was enacted 

on June 30, 2000. 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 E-Sign Act’s 

requirements with respect to the statutes they administer, subject to specified limitations.
38

revisions would be undertaken in a separate rulemaking. To that end, the OCC has 

completed an initial review of the regulations and statutory provisions 

administered by the OCC that require banks: (1) to provide signatures or written 

documents to (or obtain them from) consumers or other third parties or (2) to give 

notices or disclosures to consumers or other third parties. The OCC is considering 

various actions to clarify the effect of the E-Sign Act on these regulations and 

provisions, including the possibility of commencing a rulemaking project or 

issuing guidance. In this context, the OCC is consulting with other federal banking 

agencies to determine how to interpret and apply various words and phrases in 

OCC administered regulations and laws that arguably appear to contemplate 

written documents or signatures. These words and phrases include “execute,” 

“written agreement,” “agreement,” “form,” “instrument,” “copy,” “make 

available,” “notice,” “legend,” “notify,” “inform,” “report,” “publish,” “post,” 

“inform,” “mail,” and “by mail.” Likewise, OCC is consulting with the other 

agencies on how to administer provisions that require information to be posted in a 

particular place or locality, for example in a lobby or in an office.
39

Part VI

Regulations Administered by the Office of Thrift Supervision

OTS makes the following conclusions based upon its review:

A. Summary of Conclusions

There is not a need, at this time, for legislative amendments to the statutes that 

OTS’s regulations implement in order to adapt requirements to online banking and 

lending. Nor is there a need, at this time, for OTS to revise its regulations in order 

to adapt requirements to online banking and lending. 

As discussed in more detail in subpart C below, OTS already has a very flexible 

regulatory framework that permits savings associations to conduct banking and 

lending electronically. See 12 C.F.R. part 555. OTS also reviewed its other 

regulations but found none that would impede electronic delivery of products or 

services.

OTS has established processes for periodically reviewing the need for new 

legislation and legislative amendments, as well as regulatory changes. OTS will 

consider the information learned through this study as part of those processes.

OTS is committed to updating its regulations and guidance as the need arises, both 

individually and in conjunction with the other Federal banking agencies and the 

FFIEC. In doing so, OTS will continue to avoid impediments to online banking 

and lending. OTS will foster growth of these activities in a manner that is safe and 

sound and helps ensure consumer acceptance and protection.

B. Report Methodology and Information Learned

An interdisciplinary team OTS established in April 2001 derived the above 

conclusions. Representatives from OTS’s Offices of Supervision Policy, 

Compliance Policy, Technology Risk Management, and Chief Counsel comprised 

the team. This team used three methods, described below, to contribute to its 

thorough review of its regulations on the delivery of financial services for this 

study: (1) a request for public comment published in the Federal Register; (2) a 

survey of OTS examiners; and (3) a headquarters review of OTS regulations. 
40

1. Request for Comment on Study of Banking Regulations Regarding 

the Online Delivery of Financial Services

On June 11, 2001, OTS published in the Federal Register a request for comment 

on a variety of issues relating to the electronic delivery of financial products and 

services by savings associations.33 (See Appendix D.) OTS received eight 

comments. Three were from trade associations: America’s Community Bankers 

(ACB), American Bankers Association (ABA), and Electronic Financial Services 

Counsel (EFSC). The others were from MasterCard International (MasterCard), 

VISA U.S.A. (VISA), JPMorganChase (JPM), a law firm, and an appraiser. The 

OTS interdisciplinary team reviewed the public comments. 

ACB, ABA, EFSC, MasterCard, and VISA commented against further federal 

restrictions on electronic transactions, including in the area of Internet link 

arrangements. ACB and MasterCard urged OTS to continue to provide flexible 

guidance rather than mandates. ACB and EFSC specifically discouraged OTS 

from issuing regulations or guidance on the E-Sign Act. MasterCard specifically 

discouraged OTS from providing guidance on the application of Most Favored 

Lender rules to electronic banking. These commenters asserted that action by OTS 

in these areas would be premature and unnecessary.

ACB, EFSC, MasterCard, and VISA encouraged OTS to help ensure that states do 

not impose a patchwork of requirements burdening electronic commerce. EFSC 

raised specific concerns about state privacy legislation, state licensing provisions 

for banking and other financial products and services, and state requirements that 

financial service providers maintain offices in state or employ local residents. 

ABA raised the issue of the extent to which the E-Sign Act may preempt state law. 

ABA, MasterCard, and the law firm advocated greater flexibility to provide 

disclosures electronically under federal consumer protection statutes and 

regulations. VISA argued that if an institution provides disclosures on a web site, 

the federal banking agencies should not also require the institution to e-mail the 

disclosure to the consumer. VISA specifically asked the agencies to revise their 

Privacy rules so as not to require consumer consent before providing privacy 

notices electronically instead of on paper. A few commenters addressed 

regulations under the purview of other agencies. JPM focused on disclosures 

 

33

 Request for Comment on Study of Banking Regulations Regarding the Online Delivery of 

Financial Services, 66 Fed. Reg. 31,186 (June 11, 2001).
41

under Regulations E, DD, and Z, VISA focused on Regulations E and the Truth in 

Lending Act (TILA), and MasterCard also focused on TILA, all of which are under 

the Board’s purview. The law firm focused on the Real Estate Settlement 

Procedures Act (RESPA), which is under the Department of Housing and Urban 

Development’s purview.

ACB urged the agencies to allow automated underwriting systems to substitute for 

the written appraisals currently required for certain real estate loans, an alternative 

EFSC also suggested the agencies consider through a separate process. ACB also 

encouraged OTS to raise the current $250,000 regulatory threshold for loans 

requiring the use of state licensed or certified appraisers to the conforming GSE 

loan limit (now $275,000 for most parts of the country). In contrast, the appraiser 

who commented urged OTS to retain the written appraisal requirement, arguing 

that appraisals are necessary to ensure that the collateral for mortgage loans is 

sufficient. VISA also called for some increased flexibility in using electronic 

appraisals.

ACB encouraged OTS to consider how to address “location” under the CRA, 

management interlocks, and branching. It suggested that OTS allow use of 

something like a CRA strategic plan for management interlocks and branching but 

did not provide further elaboration on how this option would work. In contrast, 

ABA and VISA advised the agencies not to revise rules with geographic or time 

components.

Consistent with the comments, this report does not recommend any new federal 

restrictions on electronic transactions. Part II of this report, which discusses jointly 

administered regulations, addresses Appraisal Standards (Part II.A), CRA (Part 

II.B), and Management Official Interlocks (Part II.E). In Part III of this report, the 

Board discusses providing disclosures electronically under a variety of federal 

consumer protection statutes and regulations. 

2. Examiner Survey

During July and August 2001, OTS surveyed examiners who are directly involved 

in examining our savings associations that offer electronic banking and lending 

services. The questions pertained to the following:

• Examiners’ observations of associations and customers that encounter 

difficulties or barriers with online banking and lending arising from OTS 

regulations or guidance. 
42

• Whether there are specific regulatory requirements in an association’s 

delivery of financial services, including those regulations that assume 

person-to-person contact, that OTS should adapt to online banking and 

lending.

• Whether OTS lacks, or could improve upon, guidance or regulation of online 

banking and lending. 

The interdisciplinary team reviewed the examiners’ survey responses. The 

examiners provided insightful responses regarding their examination experience 

with online banking and lending. OTS will consider the information learned from 

the examiners’ responses in ongoing agency efforts to ensure that examinations are 

conducted in a thorough and efficient manner and to enhance employee guidance 

and training. 

3. Interdisciplinary Headquarters Review

The OTS interdisciplinary team, in addition to participating in the interagency 

review of joint regulations as discussed in this report, also reviewed OTS-specific 

regulations. In performing this review, the team consulted with those OTS staff 

most familiar with particular regulations.

The first step of the review was to review all of OTS’s regulations to determine 

which regulations address the delivery of financial services, including those 

regulations that may assume that there will be person-to-person contact during the 

course of a financial transaction, as indicated in section 729(a). 

The second step was to identify in what way the assumption manifested itself in 

the particular regulation. For example, some regulations require that certain 

information be provided in writing through the mail or designate certain types of 

activities to be provided in separate areas of an office from where other activities 

are conducted. See, e.g., 12 C.F.R. § 563b.3 (conversions) and § 563.76 (securities 

sales).

The third step was to identify whether any of the regulations, or the statutes they 

implement, would need to be revised to adapt the requirements to online banking 

and lending so as not to impede the electronic delivery of financial products and 

services. The review uncovered no statutes or regulations impeding the electronic 

delivery of financial products and services.
43

C. OTS’s Previous Initiatives

Through the end of the 1990’s, OTS periodically revised its regulations to better 

enable savings associations to use new technologies for electronic banking and 

lending. In 1998, OTS streamlined and updated its regulations relating to 

electronic operations to make it easier for Federal savings associations to develop 

new ways of delivering products and services through the prudent and innovative 

use of emerging technology.34 (See Appendix D.) The revised rule permits 

Federal savings associations to use, or participate with others to use, electronic 

means or facilities to perform any function, or provide any product or service, as 

part of an authorized activity. The rule also requires each savings association 

(federally chartered or state-chartered) to notify OTS 30 days before it establishes 

a transactional web site. It provides that savings associations that present 

supervisory or compliance concerns may be subject to additional procedural 

requirements. 

In promulgating the rule, OTS emphasized the importance of enabling regulations 

in this area. At the same time, OTS designed its regulations to help ensure that it 

would have sufficient information to understand developing technologies, to 

provide appropriate guidance on these technologies, and to supervise electronic 

operations effectively. OTS designed the final rule to provide both the industry 

and the agency with the appropriate amount of flexibility to adapt to changing 

conditions.

The preamble to the final rule noted that the agency had issued, and would 

continue to issue, guidance as electronic operations evolve. This guidance has 

taken the form of letters to chief executive officers of savings associations, 

interagency examiner guidelines, revisions to the Thrift Activities and Compliance 

Activities Handbooks, conditions on the approval of applications, and responses to 

requests for legal interpretations.35 Since the publication of the final rule, OTS has

 

34

 See 63 Fed. Reg. 65,673 (Nov. 30, 1998). 

35

 See, e.g., Memorandum from Richard M. Riccobono, Deputy Director, for Chief Executive 

Officers (Nov. 3, 1998) (Policy Statement on Privacy and Accuracy of Personal Customer 

Information); Memorandum from Richard M. Riccobono, Deputy Director, for Chief Executive 

Officers (July 23, 1998) (Interagency Guidance on Electronic Financial Services and Consumer 

Compliance); Memorandum from John Downey, Executive Director, Supervision, for Chief 

Executive Officers (June 23, 1997) (Statement on Retail On-Line Personal Computer Banking); 

Thrift Activities Regulatory Handbook, Section 341, Information Technology (Oct. 1997) 
44

continued to provide additional guidance in this area and post it on its web site at 

<www.ots.treas.gov>.36

 

(Regulatory Bulletin 32-6, Oct. 15, 1997); Federal Financial Institutions Examinations Council 

(FFIEC) Information Systems Examination Handbook (1996); OTS Order No. 95-88 (May 8, 

1995) (application approval of Internet bank); OTS Op. Chief Counsel (Oct. 1, 1998) (authority 

of federal savings associations to provide payroll processing services); OTS Op. Chief Counsel 

(July 1, 1998) (preemption of state ATM restrictions); OTS Op. Chief Counsel (Sept. 19, 1997) 

(establishment of automated loan machines).

36

 See, e.g., Memorandum from Richard M. Riccobono, Deputy Director, for Chief Executive 

Officers (June 10, 1999) (Transactional Web Sites); OTS Op. Chief Counsel (Dec. 7, 1999) (San 

Francisco ATM fee ordinance); OTS Op. Chief Counsel (Nov. 22, 1999) (preemption of local 

ATM fee restrictions); OTS Op. Chief Counsel (Jan. 15, 1999) (New York State ATM Safety 

Act); OTS Mem. Chief Counsel (Dec. 22, 1998) (Massachusetts Electronic Branch Restrictions).
45

APPENDICES

Relevant Federal Register Publications
APPENDIX A

Board of Governors of the Federal Reserve System – Request for Comment 

on Study of Banking Regulations Regarding the Online Delivery of 

Financial Services 

(66 Fed. Reg. 27,912)
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.

Proposed Rules Federal Register

27912

Vol. 66, No. 98

Monday, May 21, 2001

DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Parts 1773

RIN 0572–AB66

Policy on Audits of RUS Borrowers;

Management Letter

AGENCY: Rural Utilities Service, USDA.

ACTION: Proposed rule.

SUMMARY: The Rural Utilities Service

(RUS) is proposing to amend its

regulations by revising certain

requirements regarding the management

letter to be provided to RUS by certified

public accountants (CPAs) as part of

audits of RUS borrowers.

In the final rule section of this

Federal Register, RUS is publishing this

action as a direct final rule without

prior proposal because RUS views this

as a non-controversial action and

anticipates no adverse comments. If no

adverse comments are received in

response to the direct final rule, no

further action will be taken on this

proposed rule and the action will

become effective at the time specified in

the direct final rule. If RUS receives

adverse comments, a timely document

will be published withdrawing the

direct final rule and all public

comments received will be addressed in

a subsequent final rule based on this

action. Any parties interested in

commenting on this proposed action

should do so at this time.

DATES: Comments on this proposed

action must be received on or before

June 20, 2001.

ADDRESSES: Submit adverse comments

or notice of intent to submit adverse

comments to F. Lamont Heppe, Jr.,

Director, Program Development and

Regulatory Analysis, Staff, Rural

Utilities Service, U.S. Department of

Agriculture, 1400 Independence Ave.,

SW., STOP 1522, Washington, DC

20250–1522. RUS requests a signed

original and three copies of all

comments (7 CFR 1700.4). All

comments received will be made

available for public inspection at room

4030, South Building, Washington, DC,

between the 8 a.m. and 4 p.m. (7 CFR

part 1.27(b)).

FOR FURTHER INFORMATION CONTACT:

Richard Annan, Chief, Technical

Accounting and Auditing Staff, Program

Accounting Services Division, Rural

Utilities Service, U.S. Department of

Agriculture, 1400 Independence Ave.,

SW., STOP 1523, Washington, DC

20250–1523. Telephone: 202–720–5227.

SUPPLEMENTARY INFORMATION: See the

Supplementary Information provided in

the direct final rule located in the final

rule section of this Federal Register for

the applicable supplementary

information on this action.

Dated: May 8, 2001.

Blaine D. Stockton,

Acting Administrator, Rural Utilities Service.

[FR Doc. 01–12130 Filed 5–18–01; 8:45 am]

BILLING CODE 3410–15–P

DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Parts 1773

RIN 0572–AB62

Policy on Audits of RUS Borrowers;

Generally Accepted Government

Auditing Standards (GAGAS)

AGENCY: Rural Utilities Service, USDA.

ACTION: Proposed rule.

SUMMARY: The Rural Utilities Service

(RUS) is proposing to amend its

regulations to include in its audit

requirements for electric and

telecommunications borrowers recent

amendments to the Generally Accepted

Government Auditing Standards

(GAGAS) issued by the Government

Accounting Office (GAO) and to make

other minor changes and corrections.

In the final rule section of this

Federal Register, RUS is publishing this

action as a direct final rule without

prior proposal because RUS views this

as a non-controversial action and

anticipates no adverse comments. If no

adverse comments are received in

response to the direct final rule, no

further action will be taken on this

proposed rule and the action will

become effective at the time specified in

the direct final rule. If RUS receives

adverse comments, a timely document

will be published withdrawing the

direct final rule and all public

comments received will be addressed in

a subsequent final rule based on this

action. Any parties interested in

commenting on this proposed action

should do so at this time.

DATES: Comments on this proposed

action must be received on or before

June 20, 2001.

ADDRESSES: Submit adverse comments

or notice of intent to submit adverse

comments to F. Lamont Heppe, Jr.,

Director, Program Development and

Regulatory Analysis, Staff, Rural

Utilities Service, U.S. Department of

Agriculture, 1400 Independence Ave.,

SW., STOP 1522, Washington, DC

20250–1522. RUS requests a signed

original and three copies of all

comments (7 CFR 1700.4). All

comments received will be made

available for public inspection at room

4030, South Building, Washington, DC,

between the 8 a.m. and 4 p.m. (7 CFR

part 1.27(b)).

FOR FURTHER INFORMATION CONTACT:

Richard Annan, Chief, Technical

Accounting and Auditing Staff, Program

Accounting Services Division, Rural

Utilities Service, U.S. Department of

Agriculture, 1400 Independence Ave.,

SW., STOP 1523, Washington, DC

20250–1523. Telephone: 202–720–5227.

SUPPLEMENTARY INFORMATION: See the

Supplementary Information provided in

the direct final rule located in the final

rule section of this Federal Register for

the applicable supplementary

information on this action.

Dated: May 8, 2001.

Blaine D. Stockton,

Acting Administrator, Rural Utilities Service.

[FR Doc. 01–12128 Filed 5–18–01; 8:45 am]

BILLING CODE 3410–15–P

FEDERAL RESERVE SYSTEM

12 CFR Chapter II

[Docket No. R–1105]

Study of Banking Regulations

Regarding the Online Delivery of

Financial Services

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Study of regulations; request for

comment.

Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Proposed Rules 27913

1Pub. L. 106–102, 113 Stat. 1476 (1999).

2The OCC issued an advance notice of proposed

rulemaking and requested comment on a wide

range of electronic banking issues to determine

whether the OCC’s regulations should be changed

to facilitate national banks’ use of new technologies.

65 FR 4895 (February 2, 2000). The Board notes that

the OCC specifically requested comment in

connection with its study of its regulations under

section 729, and the Board will review those

comments in connection with the Board’s own

study.

3 66 FR 17779 (April 4, 2001); 66 FR 17786 (April

4, 2001); 66 FR 17322 (March 30, 2001); 66 FR

17329 (March 30, 2001); 66 FR 17795 (April 4,

2001).

SUMMARY: Pursuant to section 729 of the

Gramm-Leach-Bliley Act (the GLB Act

or Act), the Board is conducting a study

and preparing a report about its banking

regulations with respect to the online

delivery of financial services. To assist

this review of its regulations, the Board

requests comment on whether any of its

regulations should be amended or

removed in order to facilitate online

banking.

DATES: Comments must be received by

August 20, 2001.

ADDRESSES: Comments should refer to

Docket No. R–1105 and may be mailed

to Ms. Jennifer J. Johnson, Secretary,

Board of Governors of the Federal

Reserve System, 20th and C Streets,

NW., Washington, DC 20551, or mailed

electronically to

regs.comments@federalreserve.gov.

Comments addressed to Ms. Johnson

also may be delivered to the Board’s

mail room between 8:45 a.m. and 5:15

p.m. and to the security control room

accessible from the courtyard entrance

on 20th Street between Constitution

Avenue and C Street, NW. Comments

may be inspected in Room MP–500

between 9 a.m. and 5 p.m., pursuant to

§ 261.12, except as provided in § 216.14,

of the Board’s Rules Regarding the

Availability of Information, 12 CFR

261.12 and 261.14.

FOR FURTHER INFORMATION CONTACT:

Stephanie Martin, Assistant General

Counsel, Legal Division, (202) 452–

3198; Thomas E. Scanlon, Senior

Attorney, Legal Division, (202) 452–

3594; Heidi Richards, Assistant

Director, Division of Banking

Supervision and Regulation, (202) 452–

3598; Jane Ahrens, Senior Counsel,

Division of Consumer and Community

Affairs, (202) 452–2412; Minh-Duc Le,

Attorney, Division of Consumer and

Community Affairs, (202) 452–3667; Jeff

Stehm, Assistant Director, Division of

Reserve Bank Operations and Payment

Systems, (202) 452–2217.

SUPPLEMENTARY INFORMATION:

Background

Section 729 of the GLB Act requires

the Board, the Federal Deposit

Insurance Corporation, Office of the

Comptroller of the Currency (OCC), and

Office of Thrift Supervision (the

Agencies), to conduct a study of banking

regulations regarding the online

delivery of financial services.1 Section

729 further requires the Agencies to

report their recommendations on

adapting existing legislative or

regulatory requirements to online

banking and lending.

In accordance with section 729, the

Board is reviewing its regulations that

relate to the delivery of financial

services to assess their suitability for

transactions that are conducted through

the Internet. The Board plans to consult

with the other Federal banking agencies

about the appropriate aims and scope of

its review and will coordinate its report

with those that will be produced by the

other Federal banking agencies.2 The

purpose of this document is to invite

public comment on a wide range of

issues that bear on delivering financial

products and services over the Internet

to assess whether any Board regulations

should be amended in order to facilitate

online banking. In addition, the Board

requests comment on how particular

statutory provisions affect the online

delivery of financial products or

services.

The Board recently requested

comment on five interim final rules to

establish uniform standards for the

electronic delivery of notices to

consumers, namely: Regulations B

(Equal Credit Opportunity), E

(Electronic Fund Transfers), M

(Consumer Leasing), Z (Truth in

Lending), and DD (Truth in Savings).3 In

connection with comments sought on

those interim final rules, the Board also

requested comment on whether other

legislative or regulatory changes are

needed to adapt current requirements to

online banking and lending. In

particular, the Board has requested

comment on revising its regulations to

facilitate electronic delivery of financial

products and services to individual

consumers, such as the provisions

regarding periodic statements under

Regulations E, Z, and DD. (Comments

on those interim final rules must be

received by June 1, 2001.) Any

comments submitted in connection with

the review of those regulations to

facilitate electronic delivery of financial

products and services for individual

consumers shall also be considered for

the study and report under section 729

of the GLB Act.

Issues for Comment

The Board recognizes that using

electronic technology to deliver

financial products and services poses

distinct challenges to financial

institutions and their customers. Much

of the legislative and regulatory

framework that governs banking was

developed based on social, cultural, and

technological practices that existed

before the advent of widespread

computer-based communications. The

prospect of conducting banking

transactions over the Internet has forced

reconsideration of the existing

legislative and regulatory framework

that governs banking businesses.

The Board invites comment on how

particular statutes, regulations, or

supervisory policies specifically affect

financial institutions and their

customers’ uses of new technologies.

The following discussion identifies

topics that the Board believes are

appropriate for the design of the study

and report required under section 729.

Commenters are invited to respond to

the questions presented and to offer

comments or suggestions on any other

issues related to financial products or

services delivered online that are not

described herein.

Laws and Regulations That Affect

Transactions

Do any of the Board’s regulations,

such as those governing payment

transactions, negatively affect the ability

of financial institutions to offer certain

online financial services? Which

regulations, if any, negatively affect the

likelihood that an individual or

business customer would choose to

obtain financial products or services

through the Internet?

The ways in which financial

institutions themselves obtain services

from other financial institutions,

including Federal Reserve Banks,

significantly affects the products and

services that financial institutions may,

in turn, provide to their non-bank

customers. The Board also requests

comment on the specific ways in which

laws, regulations, and other supervisory

policies affect the online delivery of

financial products and services between

financial institutions.

Geography and Time Considerations

Some aspects of the Board’s banking

regulations, as well as other banking

laws, are predicated on conceptions of

geography. For example, bank mergers

and acquisitions are regulated, in part,

by legal standards that have been

developed to determine whether a

transaction poses anti-competitive

27914 Federal Register / Vol. 66, No. 98 / Monday, May 21, 2001 / Proposed Rules

4United States v. Philadelphia Nat’l Bank, 374

U.S. 321 (1963) (In an action challenging a

proposed merger of banks under the antitrust laws,

the Court held, in relevant part, that the geographic

market for the cluster of banking products and

services is local in nature).

5 12 U.S.C. 321 (requiring, in relevant part, a state

member bank to obtain the Board’s approval to

establish certain new branches ‘‘beyond the limits

of the city, town, or village in which the parent

bank is located’’).

6 12 CFR 229.2(f).

7 12 CFR 229.19(b).

8Pub. L. 106–229, 114 Stat. 464 (2000).

9Sec. 101(d), 114 Stat. 466–67.

consequences in the relevant geographic

market for the cluster of banking

products.4 Similarly, the legal standards

that apply to the location of bank

branches depend on certain conceptions

of geography.5 How should these kinds

of regulatory provisions be revised (if at

all) to more appropriately govern the

location of online banking and lending

activities?

Other laws or regulations contain

concepts of time that may not be

relevant in an online environment. For

example, the term ‘‘banking day’’ in

Regulation CC is defined as that part of

any business day on which an office of

a bank is open to the public for carrying

on substantially all of its banking

functions.6 Regulation CC requires

funds that must be available for

withdrawal on a business day to be

available at the start of business, which

may be as late as 9 a.m. local time of the

depositary bank.7 Are these provisions

appropriate in the context of a customer

that opened an account and performs all

banking functions online?

The Board recognizes that these

traditional boundaries of geography and

time may need to be reexamined in light

of online banking practices that enable

customers to obtain financial products

and services relatively free from

customary time or place constraints.

Comments are invited on how particular

laws and regulations may be modified to

accommodate the online delivery of

financial products and services under

these varying conditions.

Banking and Supervisory Regulations

and Policies

The Board invites comment on how

particular regulations or supervisory

policies specifically affect financial

institutions and their customers’ uses of

new technologies. For example, are

there any specific Board regulations that

unreasonably interfere with the use of

online technologies? Are there any

supervisory policies that impose

unreasonable burdens on a financial

institution’s design or adaptation of

online technologies? Are there any

regulations or other supervisory policies

regarding risk management that should

be clarified or amended to adequately

address any particular risks associated

with methods of online banking?

Electronic Signatures in Global and

National Commerce Act and Other

Federal Laws That Affect Online

Banking

The Board recognizes that the

enactment of the Electronic Signatures

in Global and National Commerce Act

(E-Sign Act) has addressed several

important legal and regulatory issues

regarding the uses of electronic media in

commercial transactions.8 For example,

the E-Sign Act permits the retention of

certain types of records in electronic

form (subject to specified conditions) if

such records are required by any other

law or regulation.9 Do any of the Board’s

regulations or supervisory policies

require a banking organization to use or

retain written forms, notices, or other

records in a manner that hinders its

ability to deliver financial products or

services over the Internet? The Board

requests comment on how particular

provisions of the E-Sign Act, or any

other law, affect financial institutions

and their customers’ ability to use (or

ease of using) new technologies.

Differing Legal Requirements

Do certain provisions of Federal law

that apply to online banking and

lending practices make compliance with

other provisions of State law (or laws

enforced by foreign states) more costly?

Are there particular aspects of

conducting online banking and lending

activities that could benefit from a

single set of legal standards that can be

applied uniformly nationwide?

Are there any inconsistencies between

Federal and State laws or regulations

that impede the electronic provision or

use of financial products or services?

For example, do State laws or

regulations apply differently to statechartered financial institutions, relative

to federally chartered institutions, that

conduct online banking and lending?

Are there any State laws or regulations,

such as licensing provisions for banking

and other financial products and

services, that affect the nationwide

provision of financial products or

services over the Internet?

By order of the Board of Governors of the

Federal Reserve System, May 16, 2001.

Jennifer J. Johnson,

Secretary of the Board.

[FR Doc. 01–12689 Filed 5–18–01; 8:45 am]

BILLING CODE 6210–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 97–ANE–59–AD]

Airworthiness Directives; Pratt &

Whitney JT8D Series Turbofan Engines

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Proposed rule; withdrawal.

SUMMARY: This action withdraws a

notice of proposed rulemaking (NPRM)

that proposed a new airworthiness

directive (AD), applicable to Pratt &

Whitney (PW) JT8D series turbofan

engines. That action would have

superseded an existing AD to require

initial and repetitive borescope

inspections for loss of fuel nozzle nut

torque and nozzle support wear, and

replacement or modification of the fuel

nozzles at the next accessibility of the

diffuser build group as terminating

action to the inspections. That proposal

was prompted by reports of loss of fuel

nozzle nut torque and nozzle support

wear. Since the issuance of that NPRM,

the FAA has reevaluated the likelihood

that the unsafe condition will exist or

develop on other products of the same

type design. Accordingly, the proposed

rule is withdrawn.

FOR FURTHER INFORMATION CONTACT: Tara

Goodman, Aerospace Engineer, Engine

Certification Office, FAA, Engine and

Propeller Directorate, 12 New England

Executive Park, Burlington, MA 01803;

telephone (781) 238–7130; fax (781)

238–7199.

SUPPLEMENTARY INFORMATION: A

proposal to amend part 39 of the Federal

Aviation Regulations (14 CFR part 39) to

add a new airworthiness directive (AD),

applicable to PW JT8D series turbofan

engines, was published in the Federal

Register on May 1, 1998 (63 FR 24138).

The proposed rule would have required

initial and repetitive borescope

inspections for loss of fuel nozzle nut

torque and nozzle support wear, and

replacement or modification of the fuel

nozzles at the next accessibility of the

diffuser build group as terminating

action to the inspections. That action

was prompted by reports of loss of fuel

nozzle nut torque and nozzle support

wear. The proposed actions were

intended to prevent loss of fuel nozzle

nut torque and nozzle support wear,

which could result in a fuel leak and

possible engine fire.

Since issuing that NPRM, the FAA

has reevaluated the safety concerns that

the proposed actions would have

APPENDIX B

Federal Deposit Insurance Corporation – Request for Comment on Study of 

Banking Regulations Regarding the Online Delivery of Banking Services 

(66 Fed. Reg. 37,029)
Federal Register / Vol. 66, No. 136 / Monday, July 16, 2001 / Notices 37029

1The FDIC issued electronic banking examination

procedures in January 1997 and implemented an

electronic banking subject matter expert program in

April 1997. The Division of Supervision created an

Electronic Banking Branch to focus attention on

electronic banking supervisory issues in September

2000. In addition, the FDIC has issued a variety of

written guidance concerning risks and appropriate

procedures for electronic banking. See e.g., FIL 81–

2000, Risk Management of Technology Outsourcing

(November 29, 2000); FIL 77–2000, Bank

Technology Bulletin, Internet Domain Names

(November 9, 2000); FIL 72–2000, Electronic

Signature in Global and National Commerce Act

(November 2, 2000); FIL 67–2000, Security

Monitoring of Computer Networks (October 3,

2000); FIL 63–2000, Online Banking (September 21,

2000); FIL 131–97, Security Risks Associated with

the Internet (December 18, 1997).

For further information, contact

Kenneth Hogan at (202) 208–0434.

Linwood A. Watson, Jr.,

Acting Secretary.

[FR Doc. 01–17682 Filed 7–13–01; 8:45 am]

BILLING CODE 6717–01–P

FEDERAL COMMUNICATIONS

COMMISSION

[Report No. 2495]

Petitions for Reconsideration and

Clarification of Action in Rulemaking

Proceeding

July 10, 2001.

Petitions for Reconsideration and

Clarification have been filed in the

Commission’s rulemaking proceeding

listed in this Public Notice and

published pursuant to 47 CFR Section

1.429(e). The full text of these

documents are available for viewing and

copying in Room CY–A257, 445 12th

Street, SW., Washington, DC or may be

purchased from the Commission’s copy

contractor, ITS, Inc. (202) 857–3800.

Oppositions to these petitions must be

filed by July 31, 2001. See Section

1.4(b)(1) of the Commission’s rules (47

CFR 1.4(b)(1)). Replies to an opposition

must be filed within 10 days after the

time for filing oppositions has expired.

Subject:

Federal-State Joint Board on Universal

Service (CC Docket No. 96–45)

Multi-Association Group (MAG) Plan

for Regulation of Interstate Services

of Non-Price Cap Incumbent Local

Exchange Carriers and

Interexchange Carriers (CC Docket

No. 00–256)

Number of Petitions Filed: 4.

Magalie Roman Salas,

Secretary.

[FR Doc. 01–17664 Filed 7–13–01; 8:45 am]

BILLING CODE 6712–01–M

FEDERAL DEPOSIT INSURANCE

CORPORATION

Request for Comment on Study of

Banking Regulations Regarding the

Online Delivery of Banking Services

AGENCY: Federal Deposit Insurance

Corporation (FDIC).

ACTION: Request for comment.

SUMMARY: The FDIC is reviewing its

regulations regarding the delivery of

financial services. The purpose of this

review is to identify changes or

additions to its regulations that would

facilitate the use of new technologies by

financial institutions. This Request for

Comment solicits comment on issues

arising from the electronic delivery of

financial products and services.

DATES: Comments must be received by

September 14, 2001.

ADDRESSES: Send written comments to

Robert E. Feldman, Executive Secretary,

Attention: Comments/OES, Federal

Deposit Insurance Corporation, 550 17th

Street, NW., Washington, DC 20429.

Comments may be hand-delivered to the

guard station at the rear of the 550 17th

Street Building (located on F Street), on

business days between 7 a.m. and 5 p.m.

(facsimile number (202) 898–3838;

Internet address: comments@fdic.gov

<mailto:comments@fdic.gov>).

Comments may be posted on the FDIC

internet site at http://www.fdic.gov/

regulations/laws/federal/propose.html

and may be inspected and photocopied

in the FDIC Public Information Center,

Room 100, 801 17th Street, NW.,

Washington, DC 20429, between 9 a.m.

and 4:30 p.m. on business days.

FOR FURTHER INFORMATION CONTACT:

Jeffrey M. Kopchik, Senior Policy

Analyst, Division of Supervision (202)

898–3872; or Robert A. Patrick, Counsel,

Legal Division (202) 898–3757.

SUPPLEMENTARY INFORMATION:

Introduction

Section 729 of the Gramm-LeachBliley Act, Public Law 106–102 (GLBA),

requires the FDIC, and other federal

bank regulatory agencies, to review

regulations regarding the delivery of

financial services and report to Congress

recommendations for adapting existing

requirements to online banking and

lending. The purpose of this Request for

Comment is to invite public comment

on issues regarding financial

institutions’ involvement in electronic

banking, before submission of the

Corporation’s report to Congress. Public

comment will help determine whether

any FDIC regulations should be revised

to remove regulatory impediments to

financial institutions’ use of new

technologies. The FDIC also would like

to know whether it should consider

promulgating regulations that would

facilitate financial institutions’ use of

new technologies. Based on the

comments received, the FDIC, in its

report to Congress, may identify

possible revisions or additions to FDIC

regulations or supervisory guidance.

Background

The application of new technologies

to traditional banking products and

services is dramatically altering the

ways in which financial institutions

conduct business. Advances in

telecommunications provide financial

institutions with faster and more

efficient communication and data

transmission. The Internet provides

financial institutions with a vehicle to

reach a global market area without an

investment in ‘‘brick and mortar’’

offices. Developments in technology are

causing financial institutions to

reevaluate existing delivery channels

and business practices, develop new

products and services, and serve

customers more efficiently.

Through the issuance of supervisory

guidelines such as the Standards for

Safeguarding Customer Information, 12

CFR part 364, Appendix B (66 FR 8616,

Feb. 1, 2001) (FIL 22–2001, March 14,

2001), the FDIC is working to identify

and educate banks about the risks

presented by electronic banking and to

ensure that its regulations appropriately

address these risks.1

General Comments

Commenters are invited to submit

comments and recommendations in

connection with any of the following

questions or any other issues relating to

the FDIC’s policies or procedures for

supervising financial institutions’ use of

electronic delivery channels.

• Are there specific regulations the

FDIC should modify because they

impede the use of a new technology that

would allow financial institutions to

offer improved products or services in a

more efficient manner and at a lower

cost?

• Are there areas where financial

institutions would benefit from

additional clarification of rules or

guidance concerning the risks

associated with electronic banking

activities?

• Are there specific areas in which

regulatory changes are needed to

enhance consumer acceptance of,

confidence in, or access to, electronic

banking?

37030 Federal Register / Vol. 66, No. 136 / Monday, July 16, 2001 / Notices

Hyperlinking

The Internet has made it possible for

financial institutions and non-financial

commercial enterprises to partner in

ways that may not be apparent to

customers visiting a web site. For

example, a financial institution’s web

site may include hyperlinks that transfer

the customer to the web sites of one or

more non-financial institutions. These

other web sites may provide nonfinancial information or sell nonfinancial products or services. Sites

differ in the degree to which they

inform a person that products or

services accessible through the selection

of a hyperlink are, or are not, offered,

sponsored, or endorsed by the bank,

which may be confusing to site visitors.

• Should the FDIC promulgate a

regulation or publish guidance setting

forth standards for state nonmember

banks concerning the use of hyperlinks?

• Are there technology solutions to

address these issues?

Physical Location

Internet banking raises issues with

respect to how the FDIC should

interpret existing laws and regulations

that reference geographic terms or rely

on concepts of physical presence. For

example, the definition of ‘‘branch’’

contained in § 303.41(a) of the FDIC’s

regulations (12 CFR 303.41(a)) assumes

the existence of a building permanently

or temporarily located at a specific

physical location. It does not address

banking transactions conducted over the

Internet where the consumer and a bank

representative do not meet face to face.

See 12 CFR part 303, subpart C.

• Does reliance on these terms and

concepts create an impediment to

financial institutions conducting

operations on the Internet? If so, how

should the FDIC clarify its regulations?

• Are there other instances in which

online banking or lending would benefit

from a clarification of references to

physical location in FDIC regulations? If

so, how should the FDIC address those

instances?

Appraisals

Certain loans must be supported by

written real estate appraisals performed

in accordance with uniform standards,

supported by the presentation and

analysis of relevant market information.

See 12 CFR part 323.

• Would online lending benefit from

any clarification of the FDIC’s

application of this regulation in terms of

what constitutes a written appraisal, or

the presentation of relevant market

information. If so, what clarifications

should the FDIC make to facilitate the

use of appraisals in electronic form?

• What types of controls regarding

authentication of an electronic

appraisal, certification of the appraiser,

or other standards would be appropriate

to assure authenticity and integrity in

connection with filing electronic

appraisals?

Electronic Signatures

The Electronic Signatures in Global

and National Commerce Act, 15 U.S.C.

7001, et seq. (E-Sign Act), provides that

contracts and signatures with respect to

any transaction affecting interstate

commerce may not be denied validity

solely because they are in electronic

form. The E-Sign Act also provides that

records of such contracts may be

maintained in electronic form, subject to

certain requirements, i.e., they must

accurately reflect the information in the

contract, be accessible to all persons

who are entitled to access them, and be

capable of being accurately reproduced

for later reference.

• Should the FDIC promulgate

regulations or publish guidance setting

forth standards for the use of electronic

signatures and records? See 15 U.S.C.

7004.

By order of the Board of Directors.

Dated at Washington, DC, this 10th day of

July, 2001.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 01–17666 Filed 7–13–01; 8:45 am]

BILLING CODE 6714–01–P

FEDERAL EMERGENCY

MANAGEMENT AGENCY

[FEMA–1370–DR]

Minnesota; Amendment No. 6 to Notice

of a Major Disaster Declaration

AGENCY: Federal Emergency

Management Agency (FEMA).

ACTION: Notice.

SUMMARY: This notice amends the notice

of a major disaster declaration for the

State of Minnesota, (FEMA–1370–DR),

dated May 16, 2001, and related

determinations.

EFFECTIVE DATE: June 26, 2001

FOR FURTHER INFORMATION CONTACT:

Madge Dale, Readiness, Response and

Recovery Directorate, Federal

Emergency Management Agency,

Washington, DC 20472, (202) 646–5920.

SUPPLEMENTARY INFORMATION: The notice

of a major disaster declaration for the

State of Minnesota is hereby amended to

include the following areas among those

areas determined to have been adversely

affected by the catastrophe declared a

major disaster by the President in his

declaration of May 16, 2001:

Dodge, Faribault, and Isanti Counties for

Public Assistance.

Beltrami County for Public Assistance

(already designated for Individual

Assistance).

McLeod and Pope Counties for Individual

Assistance (already designated for Public

Assistance).

(The following Catalog of Federal Domestic

Assistance Numbers (CFDA) are to be used

for reporting and drawing funds: 83.537,

Community Disaster Loans; 83.538, Cora

Brown Fund Program; 83.539, Crisis

Counseling; 83.540, Disaster Legal Services

Program; 83.541, Disaster Unemployment

Assistance (DUA); 83.542, Fire Suppression

Assistance; 83.543, Individual and Family

Grant (IFG) Program; 83.544, Public

Assistance Grants; 83.545, Disaster Housing

Program; 83.548, Hazard Mitigation Grant

Program.)

Lacy E. Suiter,

Assistant Director, Readiness, Response and

Recovery Directorate.

[FR Doc. 01–17642 Filed 7–13–01; 8:45 am]

BILLING CODE 6718–02–P

FEDERAL EMERGENCY

MANAGEMENT AGENCY

[FEMA–1384–DR]

Oklahoma; Major Disaster and Related

Determinations

AGENCY: Federal Emergency

Management Agency (FEMA).

ACTION: Notice.

SUMMARY: This is a notice of the

Presidential declaration of a major

disaster for the State of Oklahoma

(FEMA–1384–DR), dated June 29, 2001,

and related determinations.

EFFECTIVE DATE: June 29, 2001.

FOR FURTHER INFORMATION CONTACT:

Madge Dale, Response and Recovery

Directorate, Federal Emergency

Management Agency, Washington, DC

20472, (202) 646–5920.

SUPPLEMENTARY INFORMATION: Notice is

hereby given that, in a letter dated June

29, 2001, the President declared a major

disaster under the authority of the

Robert T. Stafford Disaster Relief and

Emergency Assistance Act, 42 USC

5121, as follows:

I have determined that the damage in

certain areas of the State of Oklahoma,

resulting from severe storms, flooding, and

tornadoes on May 27–30, 2001, is of

sufficient severity and magnitude to warrant

a major disaster declaration under the Robert

T. Stafford Disaster Relief and Emergency

Assistance Act, 42 USC 5121 (Stafford Act).

I, therefore, declare that such a major disaster

exists in the State of Oklahoma.

APPENDIX C

Office of the Comptroller of the Currency – Electronic Banking Notice of 

Proposed Rulemaking (66 Fed. Reg. 34,855); 

Electronic Banking Advanced Notice of Proposed Rulemaking 

(65 Fed. Reg. 4895)
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.

Proposed Rules Federal Register

34855

Vol. 66, No. 127

Monday, July 2, 2001

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.

2See OCC Internet Banking Questionnaire,

December 31, 2000.

3 ‘‘Online Finance Survey: Branching Out,’’ The

Economist, May 20, 2000, at 19.

4The 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.

5See, 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.

7Comptroller’s Handbook, Other Income

Producing Activities: Internet Banking (Oct. 1999).

8 65 FR 4895 (Feb. 2, 2000).

9Section 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.

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.

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

regs.comments@occ.treas.gov.

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

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

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 Internetrelated 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.

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

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

34856 Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Proposed Rules

10Pub. L. 106–2299, 114 Stat. 464 (June 30, 2000).

11 12 CFR 7.1002.

12See 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) ¶ 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).

13See, 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 preVALIC 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.

14See, 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).

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 ESign 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 ESign 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.

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 § 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

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

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 thirdparty 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.

2. Electronic Banking—Scope (new

Subpart E and § 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

Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Proposed Rules 34857

15 VALIC, 513 U.S. at 258.

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).

17See, 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).

18See, 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).

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 * * * .’’).

20See 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).

21The 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 safedeposit 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.

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 (§ 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 § 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).

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

Electronic banking activities that are

part of the business of banking (new

§ 7.5001(b)). Proposed § 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

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

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.

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

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

Electronic activities that are

incidental to the business of banking

(new § 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

§ 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.

34858 Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Proposed Rules

22See 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).

23See OCC Interpretative Letter No. 754,

reprinted in [1996–97 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 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.)

24See, 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).

25 563 F.2d at 1382.

26See 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.’’)

27 12 CFR 7.1019.

28OCC Conditional Approval No. 304 (Mar. 5,

1999).

29See 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.)

Proposed § 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

In addition to incidental activities

based on specific banking services or

products, proposed § 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).

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 § 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.

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 § 7.5004, which

pertains to excess capacity, is a specific

application of this general principal.

4. Furnishing of Products or Services by

Electronic Means and Facilities

(§ 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.

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 § 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

5. Composite Authority To Engage in

Electronic Banking Activities (§ 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

Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Proposed Rules 34859

30OCC Conditional Approval No. 361 (Mar. 3,

2000).

31See OCC Interpretative Letter No. 742,

reprinted in [1996–1997 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶81–106 (Aug. 19, 1996);

OCC Interpretative Letter No. 677, reprinted in

[1994–1995 Transfer Binder] Fed. Banking L. Rep.

(CCH) ¶ 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).

32See OCC Interpretive Letter No. 888 (Mar.14,

2000).

33Until 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).

34The 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.

35See OCC Conditional Approval No. 267 (Jan.

12, 1998).

36See, 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.

37See, e.g., OCC Conditional Approval No. 369

(Feb. 25, 2000).

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 § 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 (§ 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

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 § 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.

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 byproducts, such as software, developed

by the bank for or during the

performance of its permissible data

processing functions.33

7. National Bank Acting as a Digital

Certification Authority (§ 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.

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.

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 (§ 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.

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 caseVerDate 11<MAY>2000 16:24 Jun 29, 2001 Jkt 194001 PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 E:\FR\FM\02JYP1.SGM pfrm01 PsN: 02JYP1
34860 Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Proposed Rules

38We 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).

39See, e.g., OCC Interpretative Letter No. 875,

reprinted in [1999–2000 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 81–369 (Oct. 31, 1999);

OCC Interpretative Letter No. 811, reprinted in

[1997–1998 Transfer Binder] Fed. Banking L. Rep.

¶ 81–259 (Dec. 18, 1997); Corporate Decision 97–79

(July 11, 1997).

40See OCC Interpretative Letter No. 467,

reprinted in [1988–1989 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 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).

41E.g., OCC Interpretative Letter No. 875, supra;

OCC Interpretative Letter No. 513, reprinted in

[1990–1991 Transfer Binder] Fed. Banking L. Rep.

¶ 83,215 (June 18, 1990).

42See OCC Interpretative Letter No. 754,

reprinted in [1996–1997 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 81–118 (Nov. 6, 1996).

43See, 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) ¶ 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).

44See, e.g., OCC Interpretative Letter No. 868,

reprinted in [Current Transfer Binder] Fed. Banking

L. Rep. (CCH) ¶ 81–362 (Aug. 16, 1999).

45See, e.g., OCC Interpretative Letter No. 890,

reprinted in [1999–2000 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 81–409 (May 15, 2000).

46See, 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).

47See OCC Interpretative Letter No. 805,

reprinted in [1997–1998 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 81–252 (Oct. 9, 1997).

48See Corporate Decision No. 2000–08 (June 1,

2000); and OCC Interpretative Letter No. 875,

reprinted in [Current Transfer Binder] Fed. Banking

L. Rep. (CCH) ¶ 81–369 (Oct. 31, 1999).

49OCC Interpretative Letter No. 611, reprinted in

[1992–1993 Transfer Binder] Fed. Banking L. Rep.

(CCH) ¶ 83,449 (Nov. 23, 1992); OCC Interpretative

Letter No. 516, reprinted in [1990–1991 Transfer

Binder] Fed. Banking L. Rep. (CCH) ¶ 83,220 (July

12, 1990); and OCC Interpretative Letter No. 346,

reprinted in [1985–1987 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 85,516 (July 31, 1985).

50See, 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).

specific approach to incidental

nonfinancial data processing.

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

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 (§ 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.

In addition, the OCC has approved a

number of electronic- and technologyrelated 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

• 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

• Selling data processing software; 44

• 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

• Item processing services and related

software development; 46

• Document control and record

keeping through the use of electronic

imaging technology; 47

• Internet merchant hosting services

for resale to merchant customers; 48 and

• 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

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

(§ 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.

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

Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Proposed Rules 34861

51See, e.g., Amberson Holdings LLC v. Westside

Story Newspaper, 110 F. Supp. 2d 332 (D.N.J. 2000).

52 Marquette National Bank v. First of Omaha

Service Corp., 439 U.S. 299 (1978).

53 12 CFR 7.3001.

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

2. Location of Internet-only bank under

12 U.S.C. 85 (§ 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.

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 (§ 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.

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-LeachBliley 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

34862 Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Proposed Rules

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 § 7.1002 to read as follows:

§ 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.

§ 7.1019 [Removed]

3. Remove § 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.

§ 7.5000 Scope.

This subpart applies to a national

bank’s use of technology to deliver

services and products consistent with

safety and soundness.

§ 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

Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Proposed Rules 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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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.

34864 Federal Register / Vol. 66, No. 127 / Monday, July 2, 2001 / Proposed Rules

§ 7.5010 Shared electronic space.

A national bank that shares a cobranded 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

COMMODITY FUTURES TRADING

COMMISSION

17 CFR Part 41

RIN 3038–AB77

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Part 240

[Release No. 34–44475; File No. S7–11–01]

RIN 3235–AI13

Method for Determining Market

Capitalization and Dollar Value of

Average Daily Trading Volume;

Application of the Definition of NarrowBased Security Index

AGENCIES: Commodity Futures Trading

Commission and Securities and

Exchange Commission.

ACTION: Proposed rule; reopening and

extension of comment period.

SUMMARY: The Commodity Futures

Trading Commission (‘‘CFTC’’) and

Securities and Exchange Commission

(‘‘SEC’’) (collectively the

‘‘Commissions’’) are extending the

comment period for proposed Subparts

A and B of Part 41 of the CFTC’s

regulations under the Commodity

Exchange Act (‘‘CEA’’) and SEC Rules

3a55–1 through 3a55–3 under the

Securities Exchange Act of 1934

(‘‘Exchange Act’’), contained in Release

No. 34–44288 (May 10, 2001), 66 FR

27560 (May 17, 2001). The original

comment period ended on June 18,

2001. The new deadline for submitting

public comments is July 11, 2001.

DATES: Public comments are due on or

before July 11, 2001.

ADDRESSES: Comments should be sent to

both agencies at the addresses listed

below.

CFTC: Comments should be sent to

the Commodity Futures Trading

Commission, Three Lafayette Centre,

1155 21st Street, N.W., Washington, DC

20581, Attention: Office of the

Secretariat. Comments may be sent by

facsimile transmission to (202) 418–

5521, or by e-mail to secretary@cftc.gov.

Reference should be made to ‘‘NarrowBased Security Indexes.’’

SEC: Please send three copies of your

comment letter to Jonathan G. Katz,

Secretary, Securities and Exchange

Commission, 450 5th Street, NW.,

Washington, DC 20549–0609.

Comments can also be sent

electronically to the following e-mail

address: rule-comments@sec.gov. Your

comment letter should refer to File No.

S7–11–01. If e-mail is used, include this

file number on the subject line. Anyone

can inspect and copy the comment

letters in the Commission’s Public

Reference Room at 450 5th Street, NW.,

Washington, DC 20549–0102.

Electronically submitted comments will

be posted on the Commission’s Internet

web site (http://www.sec.gov). The SEC

does not edit personal identifying

information, such as names or e-mail

addresses, from electronic submissions.

Submit only the information you wish

to make publicly available.

FOR FURTHER INFORMATION CONTACT:

CFTC: Elizabeth L.R. Fox, Acting

Deputy General Counsel; Richard A.

Shilts, Acting Director; or Thomas M.

Leahy, Jr., Financial Instruments Unit

Chief, Division of Economic Analysis,

Commodity Futures Trading

Commission, Three Lafayette Centre,

1155 21st Street, N.W., Washington, DC

20581. Telephone: (202) 418–5000. Email: (EFox@cftc.gov),

(RShilts@cftc.gov), or (TLeahy

@cftc.gov).

SEC: Nancy J. Sanow, Assistant

Director, at (202) 942–0771; Ira L.

Brandriss, Special Counsel, at (202)

942–0148, or Sapna C. Patel, Attorney,

at (202) 942–0166, Office of Market

Supervision, Division of Market

Regulation, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–1001.

SUPPLEMENTARY INFORMATION: On May

17, 2001, the Commissions published

for public comment proposed Subparts

A and B of Part 41 of the CFTC’s

regulations under the CEA and SEC

Rules 3a55–1 through 3a55–3 under the

Exchange Act. These proposed rules

would implement new statutory

provisions of the Commodity Futures

Modernization Act of 2000 (‘‘CFMA’’)

concerning the definition of ‘‘narrowbased security index.’’ The CFMA

directed the Commissions jointly to

specify by rule or regulation the method

to be used to determine ‘‘dollar value of

average daily trading volume’’ and

‘‘market capitalization’’ for purposes of

the new definition of ‘‘narrow-based

security index’’ in the CEA and the

Exchange Act.

The proposing release established a

deadline of June 18, 2001 for submitting

public comments. The Commissions

have received requests to extend the

deadline. Therefore, the Commissions

are extending the comment period to

July 11, 2001 so that commenters will

have adequate time to address the issues

raised by the proposing release.

Dated: June 26, 2001.

By the Commodity Futures Trading

Commission.

Jean A. Webb,

Secretary.

Dated: June 26, 2001.

By the Securities and Exchange

Commission.

Jonathan G. Katz,

Secretary.

[FR Doc. 01–16501 Filed 6–29–01; 8:45 am]

BILLING CODE 6351–01–P; 8010–01–P

ENVIRONMENTAL PROTECTION

AGENCY

40 CFR Part 52

[IN 131a; FRL–7005–9]

Approval and Promulgation of Air

Quality Implementation Plans; Indiana;

Oxides of Nitrogen Regulations

AGENCY: Environmental Protection

Agency (EPA).

ACTION: Proposed rule.

SUMMARY: On March 30, 2001, Indiana

submitted and requested parallel

processing on a draft plan to control

emissions of oxides of nitrogen (NOX)

throughout the State. The plan consists

of two proposed rules, a preliminary

budget demonstration, and supporting

documentation. The plan will

contribute to attainment and

maintenance of the 1-hour ozone

standard in several 1-hour ozone

nonattainment areas including the

Chicago-Gary-Lake County and

Louisville areas. Indiana’s plan, which

focuses on electric generating units,

large industrial boilers, turbines and

cement kilns, was developed to achieve

the majority of reductions required by

EPA’s October 27, 1998, NOX State

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.

Proposed Rules Federal Register

4895

Vol. 65, No. 22

Wednesday, February 2, 2000

1As of mid-September 1999, 541 national banks

had transactional Web sites.

2This Handbook and others in the Comptroller’s

Handbook series are available on the OCC’s Web

site at www.occ.treas.gov.

3OCC Advisory Letter No. 97–9, ‘‘Reporting

Computer-Related Crimes’’ (Nov. 19, 1997); OCC

Advisory Letter No. 99–6, ‘‘Guidance to National

Banks on Web Site Privacy Statements’’ (May 4,

1999); OCC Bulletin 98–3, ‘‘Technology Risk

Management’’ (Feb. 4, 1998); OCC Bulletin 98–31,

‘‘Guidance on Electronic Financial Services and

Consumer Compliance’’ (July 30, 1998); OCC

Bulletin 98–38, ‘‘Technology Risk Management: PC

Banking’’ (Aug. 24, 1998); OCC Bulletin 99–9,

‘‘Infrastructure Threats from Cyber-Terrorists’’ (Mar.

5, 1999); OCC Bulletin 99–20, ‘‘Certification

Authority Systems’’ (May 6, 1999). All of these

issuances are available on the OCC’s Web site at

www.occ.treas.gov.

4OCC Interpretive Letter No. 742, [1996–1997

Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81–

106 (Aug. 19, 1996) (allowing a national bank to

offer Internet banking services); OCC Conditional

Approval No. 253 (Aug. 20, 1997) (chartering a

national bank to deliver products and services to

customers primarily through electronic means);

Interpretive Letter No. 856, [1998–1999 Transfer

Binder] Fed. Banking L. Rep. (CCH) ¶ 81–313 (Mar.

5, 1999) (permitting a national bank to host

commercially enabled Web sites for small retailers);

Interpretive Letter No. 875 (Oct. 31, 1999) (to be

published in the January 2000 issue of

‘‘Interpretations and Actions’’) (opining that a

national bank may offer a bank-hosted set of Web

pages with a collection of links to third party Web

sites organized according to product type so that

bank customers can shop for a range of financial

and non-financial products and services via these

links to third party vendors); OCC Corporate

Decision No. 99–35 (Oct. 20, 1999) (permitting a

national bank operating subsidiary to provide links

to merchant processing-related third party vendors

on its Internet site); OCC Corporate Decision No.

97–60 (July 1, 1997) (authorizing a national bank to

operate a Web site providing consumers and dealers

with detailed information on used cars offered by

third party sellers that meet purchaser preferences);

OCC Interpretive Letter No. 742, [1996–1997

Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81–

106 (Aug. 19, 1996) (permitting a national bank to

provide full Internet access service in connection

with its Internet banking services and, incidental to

that, the national bank may sell good faith excess

capacity in access service to persons who are not

Internet banking customers). In addition to being

available through the Federal Banking Law Reporter

(CCH), most of the OCC staff opinions and decisions

cited in this ANPR are available on the OCC’s Web

Continued

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Chapter I

[Docket No. 00–02]

RIN 1557–AB76

Electronic Banking

AGENCY: Office of the Comptroller of the

Currency, Treasury.

ACTION: Advance notice of proposed

rulemaking.

SUMMARY: The Office of the Comptroller

of the Currency (OCC) is undertaking a

review of its regulations with a view

toward identifying changes or additions

to its rules that would facilitate national

banks’ use of new technologies. This

advance notice of proposed rulemaking

(ANPR) solicits comment on a wide

range of issues arising from national

bank involvement in electronic

activities.

DATES: Comments must be received by

April 3, 2000.

ADDRESSES: Please send your comments

to: Office of the Comptroller of the

Currency, Communications Division,

250 E Street, SW, Washington, DC

20219, Attention: Docket No. 00–02.

You may inspect and photocopy

comments at the same location. In

addition, you may fax your comments to

(202) 874–5274 or electronic mail them

to regs.comments@occ.treas.gov.

FOR FURTHER INFORMATION CONTACT:

Stuart Feldstein, Assistant Director, or

Karl Betz, Attorney, 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

Technological developments are

dramatically altering the ways in which

national banks conduct their business.

Telecommunications advances offer

banks faster and more efficient

communication and data transmission.

Improvements in computer hardware

and software are opening up new

banking applications. These rapid

developments in new technologies are

causing banks to reevaluate existing

delivery channels and business

practices and to develop new products

and services in order to reach new

customers, better serve existing

customers, and take advantage of cost

efficiencies.

The explosive growth of the Internet

also is prompting banks to reconsider

business strategies and adopt alternative

distribution and marketing systems. The

recent chartering of Internet-only banks

that operate without a conventional

brick and mortar physical presence and

the use of the Internet by existing banks

to establish transactional World Wide

Web (Web) sites 1 present new

opportunities and challenges for

national banks.

The OCC has already taken a number

of steps to facilitate national banks’ use

of developing technology, including the

Internet. For example, in 1996, we

revised our data processing regulation to

reflect the fact that banks today use

technology to engage in a range of

electronic activities. 61 FR 4849 (Feb. 9,

1996). As revised, the regulation

authorizes national banks to conduct

through electronic means or facilities

any activity that they are otherwise

authorized to conduct and permits

banks to sell excess electronic capacities

acquired or developed in good faith for

banking purposes. 12 CFR 7.1019.

The OCC has also recently issued a

comprehensive handbook that addresses

the risks presented by Internet banking

activities. Comptroller’s Handbook,

Other Income Producing Activities,

Internet Banking (Oct. 1999)

(Handbook).2 The Handbook describes

procedures for examining Internet

banking activities in national banks. It

also provides guidance to national

banks that are conducting, or

considering, Internet banking activities

by outlining business and technical

issues associated with offering banking

products and services through the

Internet. The Handbook follows

previous OCC guidance on electronic

banking issues, including certification

authority systems, technology risk

management, retail personal computer

banking, Web privacy statements, cyberterrorism, reporting computer-related

crime, and consumer compliance.3

In addition, on a case-by-case basis,

the OCC reviews specific bank uses of

technology. To date, we have approved

a number of Internet applications,

including transactional Web sites,

commercial Web site hosting services, a

virtual mall, an electronic marketplace

for non-financial products, and Internet

access services.4 The OCC also has

4896 Federal Register / Vol. 65, No. 22 / Wednesday, February 2, 2000 / Proposed Rules

site. The OCC published redacted versions of these

letters and decisions in its monthly publication

‘‘Interpretations and Actions.’’ Beginning with the

May 1996 issue, the OCC’s Web site provides

electronic access to issues of ‘‘Interpretations and

Actions.’’ See www.occ.treas.gov.

5OCC Conditional Approval No. 304 (Mar. 5,

1999) (stating that electronic bill presentment is

part of the business of banking); OCC Conditional

Approval No. 332 (Oct. 18, 1999) (allowing national

bank subsidiaries to invest in an electronic

interbank switch to support electronic bill

presentment services over the Internet); OCC

Conditional Approval No. 220 (Dec. 2, 1996)

(concluding that the creation, sale and redemption

of electronic stored value in exchange for dollars is

part of the business of banking); OCC Interpretive

Letter No. 732, [1995–1996 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 81–049 (May 10, 1996)

(opining that EDI services are ‘‘part of or incidental

to business of banking’’); OCC Interpretive Letter

No. 718, [1995–1996 Transfer Binder] Fed. Banking

L. Rep. (CCH) ¶ 81–033 (Mar. 14, 1996) (finding that

a national bank may dispense alternate media, such

as prepaid phone cards, public transportation

system tickets, and promotional and advertising

materials, from ATM machines).

6OCC Conditional Approval No. 267 (Jan. 12,

1998) (allowing a national bank to act as a

certification authority to enable subscribers to

generate digital signatures that verify the identity of

a sender of an electronic message); OCC Conditional

Approval No. 339 (Nov. 16, 1999) (permitting

national banks to invest in a multiple bank venture

to establish an entity that will support a multiple

bank certification authority system); OCC

Interpretive Letter No. 754, [1996–1997 Transfer

Binder] Fed. Banking L. Rep. (CCH) ¶81–118 (Nov.

6, 1996) (approving a national bank operating

subsidiary that sells computer network services and

related hardware to other financial institutions as

a correspondent banking service).

7 Section 729 of the Gramm-Leach-Bliley Act

(GLBA) requires the OCC and the other Federal

banking agencies to conduct a study of banking

regulations pertaining to the delivery of financial

services and make recommendations on adapting

existing regulations to on-line banking and lending.

A report to Congress detailing these

recommendations is due by November 12, 2001.

Public Law 106–102, section 729, 113 Stat. 1338

(Nov. 12, 1999). The OCC will not delay making

changes to its rules or supervisory policies during

the pendency of the § 729 study and report.

Commenters’ responses to this ANPR will, however,

help the OCC formulate recommendations for

legislative action or for actions that may

appropriately be undertaken on an interagency

basis.

We also note that on November 29, 1999,

President Clinton issued a memorandum for the

heads of executive departments and agencies

announcing an initiative to update laws and

regulations developed before the advent of the

Internet that may have unintended negative effects

on electronic commerce. The memorandum asks

each Federal agency to identify any provision of

law administered by such agency, or any regulation

issued by such agency, that may impose a barrier

to electronic transactions, and to recommend how

such laws or regulations may be modified to allow

electronic commerce to proceed while ensuring that

consumers and the general public continue to enjoy

the same degree of protection that they do under

current law. Memorandum on Facilitating the

Growth of Electronic Commerce, Nov. 29, 1999, 35

Weekly Comp. Pres. Doc. 2457–2458 (Dec. 6, 1999).

8Not within the scope of this ANPR are privacy

issues, which are being addressed on an interagency

basis pursuant to Title V of the GLBA, and issues

concerning the Community Reinvestment Act.

9E.g., 12 U.S.C. 24 (Eighth) (charitable

contributions), 29 (real estate holding period), 72

(directors’ residency requirement), 75 (impact of

permitted national banks to engage in a

number of electronic payment systems

activities. For example, we have

allowed national banks to provide

electronic bill payment and presentment

services, stored value systems,

electronic data interchange (EDI)

services, and to dispense prepaid

alternate media (such as stamps and

prepaid phone cards) from automated

teller machines (ATMs).5 Finally, the

OCC has authorized national banks to

offer additional technology-based

services, such as digital certification

authority services and electronic

correspondent banking services.6

We periodically review and

reevaluate our regulations to ensure that

they encourage national banks’

efficiency and competitiveness,

consistent with safety and soundness.

The purpose of this ANPR is to invite

public comment on a wide range of

issues involving national bank

involvement in electronic banking to

determine whether the OCC’s

regulations should be revised to remove

regulatory impediments and

unnecessary burdens, if any, to bank use

of technology, or add new provisions

that would facilitate national banks’ use

of new technologies. Based on the

comments we receive, we may propose

specific revisions to our rules for

comment or issue additional

supervisory guidance.7

Issues for Comment

The following discussion identifies

some areas where modification of the

OCC’s regulations or supervisory

policies may be useful to national banks

that provide financial services

electronically. Commenters are invited

to respond to the questions presented

and to offer comments or suggestions on

any other issues related to electronic

banking that are not specifically

mentioned here, including whether OCC

initiatives other than regulatory changes

are appropriate.8

1. Electronic Banking in General: How

Should the OCC Adapt its Regulations

or Supervisory Policies To Facilitate

National Banks’ Use of Electronic

Technology, Consistent With Safety and

Soundness?

Recognizing the fluid, fast-evolving

nature of bank use of technology, the

OCC wants to ensure that its regulations

are flexible enough to address emerging

trends and new banking activities. To

this end, we invite commenters to

describe how national banks want to use

new technologies and how these

technologies will impact the ways in

which national banks operate under the

OCC’s current regulations. For example,

are there specific regulations that the

OCC should modify because they

impede the use of developing

technology?

Technology also enables national

banks to reach nationwide markets for

the financial products and services they

provide. Are there areas where

conducting electronic banking activities

could particularly benefit from a single

set of standards that can be applied

uniformly on a nationwide basis?

Electronic banking activities of all

forms expose banks to new

combinations of risks from different

sources. Through the issuance of the

Internet Banking Handbook and other

supervisory guidance, the OCC is

working to identify, and educate

national banks about, the risks

presented by electronic banking and to

ensure that its regulations appropriately

address these risks. We invite comment

on whether existing OCC regulations

adequately address the risks presented

by current or future electronic banking

activities. Are there areas where banks

would benefit from additional

clarification in our rules or in other

guidance on the risks associated with

electronic banking activities? For

example, are banks experiencing

problems related to the permissibility,

validity, and enforceability of electronic

transactions? What could the OCC do to

provide greater legal certainty in these

or other areas?

Electronic banking also provides

consumers with more convenient access

to a wider variety of financial services.

Studies indicate that a significant

percentage of households in the United

States will do their banking online as a

growing number of consumers conduct

their banking and other financial

transactions through automated teller

machines and over the Internet. We

invite comment on whether there are

specific areas in which regulatory

changes are needed to enhance

consumer acceptance of, confidence in,

or access to, electronic banking.

2. Adapting Existing Law to Electronic

Banking: What Statutes That the OCC

Administers Could Be Interpreted More

Flexibly To Accommodate New

Technologies?

Internet banking raises legal issues

with respect to how the OCC should

construe references in existing law to

the ‘‘location’’ of a national bank. A

number of statutes applicable to

national banks refer to the state or place

where the bank is ‘‘located’’ or use

similar terms. 9 In some of these

Federal Register / Vol. 65, No. 22 / Wednesday, February 2, 2000 / Proposed Rules 4897

legal holiday on shareholders’ meeting), 85

(allowable interest rate), 90 (pledging security for

deposits of state funds), 92 (insurance sales), 92a

(fiduciary powers), 95 (state-declared bank

holidays), 182 (publication of notice of voluntary

liquidation), 214a & 214c (national bank

conversions and mergers into state banks) & 215a

(national bank and state bank mergers into national

banks); 28 U.S.C. 1348 (citizenship of state for

federal court jurisdiction).

10The OCC recently defined an RSU as ‘‘an

automated facility, operated by a customer of a

bank, that conducts banking functions, such as

receiving deposits, paying withdrawals, or lending

money.’’ The term RSU includes ATMs, automated

loan machines, and automated devices for receiving

deposits, and may be equipped with a telephone or

televideo device that allows contact with bank

personnel. 64 FR 60,092, 60,100 (Nov. 4, 1999)

(adding 12 CFR 7.4003).

statutes, the activities and operations of

a national bank depend on the laws of

the state in which the bank is located.

Generally, for many of these statutes,

banks have been considered located in

a state where they have a main office or

a branch. For some statutes, only the

main office is considered. For others, a

bank has been considered located in a

state with a non-branch office, as well

as the states of its main office and

branches. Moreover, the determination

of the bank’s location focuses on the

location of the bank’s offices and

activities, not the location of the bank’s

customers.

We invite comment on whether new

developments in bank technology

require the OCC to address how

‘‘location’’ applies in the context of

activities conducted via the Internet.

Specifically, is the determination of

‘‘location’’ for purposes of the statutes

an impediment to national banks

conducting all or part of their operations

on the Internet? If so, should we further

clarify our regulations on this issue? Is

there a uniform approach to ‘‘location’’

that works for all the relevant statutes or

should we address each statute

separately?

3. Operational Issues: How Can the OCC

Enhance the Operational Flexibility of

Banks Engaging in Electronic Banking,

Consistent With Safety and Soundness?

A. Marketing Access Arrangements

The rapid growth of electronic

commerce has resulted in many

marketing arrangements involving

providing bank customers with access to

providers of retail or financial services

through hypertext links on the bank’s

Web site. Under some marketing

arrangements, the bank is the dominant

brand and refers its customers to nonbank third parties for additional

products and services not provided by

the bank directly. In other cases, the

non-bank is the dominant brand and it

uses a bank to provide its customers

with access to bank services while

minimizing the bank’s brand.

It is well settled that a national bank

may lease excess space on bank

premises to other businesses and share

space jointly with other businesses,

subject to certain conditions. These

conditions, which are currently set forth

in the OCC’s regulation governing the

sharing of space and employees, are

intended to minimize customer

confusion about the nature of the

products offered and promote the safe

and sound operation of the bank. See 12

CFR 7.3001.

We invite comment on whether the

OCC should issue a regulation similar to

§ 7.3001 that would apply to these types

of electronic marketing arrangements.

Commenters are specifically requested

to address whether any or all of the

supervisory conditions set forth in

§ 7.3001(c) are relevant in the electronic

banking context and whether other

conditions intended to minimize

customer confusion should apply to

these arrangements.

B. Branching

National banks may receive deposits

and pay withdrawals in a variety of

ways that are not subject to geographical

restrictions or the need to apply for

branch certification. For example, it is

well settled that national banks may

arrange to have their customers use

ATMs established by third parties in

order to undertake transactions with the

bank. In 1996, Congress passed

legislation permitting national banks to

establish ATMs and remote service

units (RSUs) without geographical

limits or the need to seek approval to

establish these types of facilities. 10

Both Congress, through legislation,

and the OCC, through interpretation,

also permit national banks to arrange for

their customers to undertake banking

transactions with the national bank

through offices of affiliated banks and

thrifts without implicating branching

restrictions. Additionally, the OCC has

established guidelines to enable

national banks and their customers to

transact business with each other

through messenger services without

implicating branching restrictions. Of

course, national banks and their

customers can transact business

electronically without raising branching

concerns.

The OCC seeks comment on whether

these forms of delivery systems are

flexible enough to permit technologybased banks to serve the transactionrelated needs of their retail, as well as

their commercial, customers.

Specifically, are existing regulations

sufficient to permit customers of

technology-based banks to make

deposits in the bank by cash or check

in an efficient and expeditious manner?

Additionally, are there other types of

transactions that banks are considering

where geographical restrictions create

impediments or that could benefit from

the development of alternative delivery

systems not within the scope of

branching restrictions?

Dated: January 21, 2000.

John D. Hawke, Jr.,

Comptroller of the Currency.

[FR Doc. 00–2199 Filed 2–1–00; 8:45 am]

BILLING CODE 4810–33–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 99–NM–203–AD]

RIN 2120–AA64

Airworthiness Directives; Empresa

Brasileira de Aeronautica, S.A.

(EMBRAER), Model EMB–145 Series

Airplanes

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Notice of proposed rulemaking

(NPRM).

SUMMARY: This document proposes the

supersedure of an existing airworthiness

directive (AD), applicable to all Empresa

Brasileira de Aeronautica, S.A.

(EMBRAER), Model EMB–145 series

airplanes, that currently requires

repetitive emergency extension (freefall) functional tests of the nose landing

gear (NLG), and lubrication of all NLG

hinge points, to ensure that the NLG

extends and locks down properly; and

corrective action, if necessary. This

action would require a terminating

modification that includes replacement

of the NLG door solenoid valve with an

improved valve; replacement of the

landing gear (LG) safety pins holder

with an improved holder; and

replacement of the NLG maneuvering

actuator with an improved actuator.

This proposed action would also limit

the applicability of the existing AD.

This proposal is prompted by issuance

of mandatory continuing airworthiness

information by a foreign civil

airworthiness authority. The actions

specified by the proposed AD are

intended to prevent failure of the NLG

to extend and lock down properly,

which could result in damage to the

airplane structure, and consequent

APPENDIX D

Office of Thrift Supervision – Request for Comment on Study of Banking 

Regulations Regarding the Online Delivery of Financial Services 

(66 Fed. Reg. 31,186); Electronic Operations (63 Fed. Reg. 65,673)
31186 Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Proposed Rules

Submitted by: Associated Milk

Producers, Inc. et.al., First District

Association, and Lakeshore Federated

Dairy Cooperative

Proposal No. 1

1. Amend § 1030.12 by adding a new

paragraph (b)(5) to read as follows:

§ 1030.12 Producer

* * * * *

(b) * * *

Notice of Hearing—Upper Midwest

Marketing Area—DA–01–03

(5) A dairy farmer whose milk is

pooled on a state order with a

marketwide pool.

Submitted by: Land O’Lakes, Inc.

Proposal No. 2

Proposes that California milk

previously qualified for pooling on the

Upper Midwest Order be

‘‘grandfathered’’ or exempt from any

change in the marketing order that

would provide for its exclusion.

Proposal No. 3

Proposes that quota milk from

California be excluded from being

pooled on the Upper Midwest Order.

Submitted by: Dairy Farmers of

America

Proposal No. 4

1. Amend § 1030.13 by designating

paragraph (d)(3) as (d)(4); adding a new

paragraph (d)(3); and adding a new

paragraph (e) to read as follows:

§ 1030.13 Producer Milk

* * * * *

(d) * * *

(3) The quantity of milk diverted to

nonpool plants by a pool plant operator

as described in § 1030.7(a) or (b) may

not exceed 90 percent of each reporting

unit of the handler’s receipts made

pursuant to § 1030.30(a). This

percentage is subject to adjustments that

may be made pursuant to § 1030.7(g).

(e) Milk from producers physically

located outside of the states of Illinois,

Iowa, Minnesota, North Dakota, South

Dakota, Wisconsin and the Upper

Peninsula portion of Michigan shall be

grouped by individual state units and

each state unit shall be:

(1) Reported on separate report(s)

pursuant to § 1030.30; and

(2) At least 10 percent of each

reporting unit of the handler shall be

delivered to pool plants as described in

§ 1030.7(a) or (b), and such deliveries

shall not be used by the handler in

meeting the minimum shipping

percentages required pursuant to

§ 1030.7(c) or (f) or § 1030.13(d); and

(3) The percentages of § 1030.13(e)(2)

are subject to any adjustments that may

be made pursuant to § 1030.7(g).

Proposal No. 5

Proposes that the rate for advance

payments be set at a percentage of the

prior month’s lowest class price,

expected to be between 103 and 108

percent; or the rate for advance payment

be set between 93 and 96 percent of the

Class I price mover for the month.

Proposed by Dairy Programs,

Agricultural Marketing Service:

Proposal No. 6

Make such changes as may be

necessary to make the entire marketing

agreement and the order conform with

any amendments thereto that may result

from this hearing.

Copies of this notice of hearing and

the order may be procured from the

Market Administrator of the Upper

Midwest Milk Marketing Area, or from

the Hearing Clerk, Room 1083, South

Building, United States Department of

Agriculture, Washington, DC 20250, or

may be inspected there.

Copies of the transcript of testimony

taken at the hearing will not be available

for distribution through the Hearing

Clerk’s Office. If you wish to purchase

a copy, arrangements may be made with

the reporter at the hearing.

From the time that a hearing notice is

issued and until the issuance of a final

decision in a proceeding, Department

employees involved in the decisionmaking process are prohibited from

discussing the merits of the hearing

issues on an ex parte basis with any

person having an interest in the

proceeding. For this particular

proceeding, the prohibition applies to

employees in the following

organizational units:

Office of the Secretary of Agriculture

Office of the Administrator, Agricultural

Marketing Service

Office of the General Counsel

Dairy Programs, Agricultural Marketing

Service (Washington office) and the

Office of the Market Administrator for

the Upper Midwest Milk Marketing

Area.

Procedural matters are not subject to

the above prohibition and may be

discussed at any time.

Dated: June 5, 2001.

Kenneth C. Clayton,

Acting Administrator, Agricultural Marketing

Service.

[FR Doc. 01–14539 Filed 6–8–01; 8:45 am]

BILLING CODE 3410–02–P

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Chapter V

[No. 2001–41]

RIN 1550–AB50

Request for Comment on Study of

Banking Regulations Regarding the

Online Delivery of Financial Services

AGENCY: Office of Thrift Supervision,

Treasury.

ACTION: Study of regulations; request for

comment.

SUMMARY: Pursuant to section 729 of the

Gramm-Leach-Bliley Act (GLBA), OTS

and the other federal banking agencies

are studying their regulations on the

delivery of financial services. The

purpose of the study is to report

findings and conclusions to Congress,

together with recommendations for

appropriate legislative or regulatory

action to adapt existing requirements to

online banking and lending. To assist in

this review, OTS requests comment on

a variety of issues relating to the

electronic delivery of financial products

and services by savings associations

(federally-chartered or state-chartered).

DATES: Comments must be received by

August 10, 2001.

ADDRESSES: Mail: Send comments to

Regulation Comments, Chief Counsel’s

Office, Office of Thrift Supervision,

1700 G Street, NW., Washington, DC

20552, Attention Docket No. 2001–41.

Delivery: Hand deliver comments to

the Guard’s Desk, East Lobby Entrance,

1700 G Street, NW., from 9 a.m. to 4

p.m. on business days, Attention

Regulation Comments, Chief Counsel’s

Office, Docket No. 2001–41.

Facsimiles: Send facsimile

transmissions to FAX Number (202)

906–6518, Attention Docket No. 2001–

41.

E-Mail: Send e-mails to

regs.comments@ots.treas.gov, Attention

Docket No. 2001–41, and include your

name and telephone number.

Public Inspection: Comments and the

related index will be posted on the OTS

Internet Site at www.ots.treas.gov. In

addition, you may inspect comments at

the Public Reading Room, 1700 G Street,

NW., by appointment. To make an

appointment for access, call (202) 906–

5922, send an e-mail to

public.info@ots.treas.gov, or send a

facsimile transmission to (202) 906–

7755. (Prior notice identifying the

materials you will be requesting will

assist us in serving you.) Appointments

will be scheduled on business days

Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Proposed Rules 31187

1 12 U.S.C. 4801 note.

2The OCC issued an advance notice of proposed

rulemaking and requested comment on a wide

range of electronic banking issues to determine

whether the OCC’s regulations should be changed

to facilitate national banks’ use of new technologies,

citing section 729. See 65 FR 4895, 4896 n.7

(February 2, 2000).

3See Lending and Investment; Proposed Rule, 61

FR 1162, 1172 (January 17, 1996), and Deposits and

Electronic Banking; Proposed Rule and Advance

Notice of Proposed Rulemaking, 62 FR 15,626,

15,629 (April 2, 1997).

4See Electronic Operations; Final Rule, 63 FR

65673 (November 30, 1998).

5See, e.g., Memorandum from Richard M.

Riccobono, Deputy Director, for Chief Executive

Officers (November 3, 1998) (Policy Statement on

Privacy and Accuracy of Personal Customer

Information); Memorandum from Richard M.

Riccobono, Deputy Director, for Chief Executive

Officers (July 23, 1998) (Interagency Guidance on

Electronic Financial Services and Consumer

Compliance); Memorandum from John Downey,

Executive Director, Supervision, for Chief Executive

Officers (June 23, 1997) (Statement on Retail OnLine Personal Computer Banking); Thrift Activities

Regulatory Handbook, Section 341, Information

Technology (October 1997) (Regulatory Bulletin 32–

6, October 15, 1997); Federal Financial Institutions

Examinations Council (FFIEC) Information Systems

Examination Handbook (1996); OTS Order No. 95–

88 (May 8, 1995) (application approval of Internet

bank); OTS Op. Chief Counsel (October 1, 1998)

(authority of federal savings associations to provide

payroll processing services); OTS Op. Chief Counsel

Continued

between 10:00 a.m. and 4:00 p.m. In

most cases, appointments will be

available the next business day

following the date a request is received.

FOR FURTHER INFORMATION CONTACT:

Mary Jo Johnson, Project Manager,

Supervision Policy, (202) 906–5739;

Richard Bennett, Counsel (Banking and

Finance), (202) 906–7409; or Paul J.

Robin, Assistant Chief Counsel, (202)

906–6648; Office of Thrift Supervision,

1700 G Street, NW., Washington, DC

20552.

SUPPLEMENTARY INFORMATION:

I. Background

Section 729 of GLBA,1 titled ‘‘Study

and Report on Adapting Existing

Legislative Requirements to Online

Banking and Lending,’’ requires OTS,

the Office of the Comptroller of the

Currency (OCC), the Federal Deposit

Insurance Corporation, and the Board of

Governors of the Federal Reserve

System, to conduct a study of banking

regulations regarding the online

delivery of financial services.2 Section

729 further requires these Federal

banking agencies to report their

recommendations on adapting existing

legislative or regulatory requirements to

online banking and lending.

In accordance with section 729, OTS

is reviewing its regulations on the

delivery of financial services to assess

their suitability for transactions

conducted through electronic

technologies such as the Internet. The

purpose of this Request for Comment is

to invite public comment on a variety of

issues regarding savings association

involvement in electronic banking. OTS

will use these comments to help it

determine whether it should revise any

of its regulations to facilitate online

banking and lending. OTS also requests

comment on how particular statutory

provisions affect the online delivery of

financial products or services and

whether OTS should propose any

legislative changes.

II. OTS’s Regulatory Approach to New

Technologies

OTS recognizes that technological

developments are dramatically altering

the ways in which savings associations

conduct their business.

Telecommunication advances offer

savings associations faster and more

efficient communication and data

transmission. Improvements in

computer hardware and software are

opening up new applications. The

Internet has greatly expanded the

market available to financial

institutions. These rapid developments

in technology are causing savings

associations to reevaluate existing

delivery channels and business

practices, develop new products and

services, expand market reach, and

serve existing customers more

efficiently.

The explosive growth of the Internet

also is prompting savings associations to

reconsider business strategies and adopt

alternative distribution and marketing

systems. The rapid establishment of

transactional World Wide Web (web)

sites by savings associations and the

continued operation of some Internetonly savings associations without a

conventional brick-and-mortar physical

presence present new opportunities and

challenges for savings associations.

Recent estimates suggest that more than

2,100 financial institutions in the

United States have established

transactional web sites. To date,

approximately 350 savings associations

have filed notices with OTS indicating

their intent to establish a transactional

web site.

Through the end of the 1990s, OTS

periodically revised its regulations to

better enable savings associations to use

new technologies for electronic banking

and lending. In 1996, OTS revised its

lending and investment regulations to

eliminate obsolete loan documentation

requirements. In 1997, OTS replaced

specific requirements to use written

agreements and receipts for deposit

accounts with a more general

recordkeeping requirement. The

purpose of these changes was to provide

sufficient flexibility for savings

associations to participate in telephone

and electronic banking and take better

advantage of technological and

marketplace advances.3

In 1998, OTS streamlined and

updated its regulations relating to

electronic operations to make it easier

for Federal savings associations to

develop new ways of delivering

products and services through the

prudent and innovative use of emerging

technology.4 The revised rule permits

Federal savings associations to use, or

participate with others to use, electronic

means or facilities to perform any

function, or provide any product or

service, as part of an authorized activity.

The rule also requires each savings

association (federally-chartered or statechartered) to notify OTS thirty days

before it establishes a transactional web

site. It provides that savings associations

that present supervisory or compliance

concerns may be subject to additional

procedural requirements.

In crafting the Electronic Operations

rule, OTS was guided by two broad

principles:

• The public and insured depository

institutions are best served if statutory

and regulatory restrictions are kept to a

minimum. The premature imposition of

restrictive operational standards could

impede the development of improved

financial services.

• Federal savings associations should

be permitted to compete effectively with

other regulated financial institutions

and unregulated firms offering financial

and related services.

In promulgating the rule, OTS

emphasized the importance of enabling

regulations in this area. At the same

time, OTS designed its regulations to

help ensure that it would have sufficient

information to understand developing

technologies, to provide appropriate

guidance on these technologies, and to

supervise electronic operations

effectively. OTS designed the final rule

to provide both the industry and the

agency with the appropriate amount of

flexibility to adapt to changing

conditions.

The preamble to the final rule noted

that the agency had issued, and would

continue to issue, guidance as electronic

operations evolve. This guidance has

taken the form of letters to chief

executive officers of savings

associations, interagency examiner

guidelines, revisions to the Thrift

Activities Handbook, conditions on the

approval of applications, and responses

to requests for legal interpretations.5

31188 Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Proposed Rules

(July 1, 1998) (preemption of state ATM

restrictions); OTS Op. Chief Counsel (September 19,

1997) (establishment of automated loan machines).

6See, e.g., Memorandum from Richard M.

Riccobono, Deputy Director, for Chief Executive

Officers (June 10, 1999) (Transactional Web Sites);

OTS Op. Chief Counsel (December 7, 1999) (San

Francisco ATM fee ordinance); OTS Op. Chief

Counsel (November 22, 1999) (preemption of local

ATM fee restrictions); OTS Op. Chief Counsel

(January 15, 1999) (New York State ATM Safety

Act); OTS Mem. Chief Counsel (December 22, 1998)

(Massachusetts Electronic Branch Restrictions).

7See 66 FR 8616 (February 1, 2001) (to be

codified at 12 CFR part 570, Appendix B).

Since the publication of the final rule,

OTS has continued to provide

additional guidance in this area and

post it on its web site at

www.ots.treas.gov.6

III. Issues for Comment

OTS recognizes that using electronic

technology to deliver financial products

and services poses distinct challenges to

financial institutions and their

customers. Much of the legislative and

regulatory framework that governs

banking was developed based on social,

cultural, and technological practices

that existed before the advent of

widespread computer-based

communications. The prospect of

conducting banking transactions over

the Internet forces the federal banking

agencies to reconsider the existing

legislative and regulatory framework

that governs banking businesses.

OTS invites comment on how

particular statutes, regulations, or

supervisory policies specifically affect

financial institutions and their

customers’ uses of new technologies.

The following discussion identifies

topics that OTS believes are appropriate

for the design of the study and report

required under section 729. OTS invites

commenters to respond to the questions

presented and to offer comments or

suggestions on any other issues related

to financial products or services

delivered through electronic

technologies that we do not specifically

mention here.

A. How May OTS Facilitate the Use of

Technology in Financial Operations

Consistent With Safety and Soundness?

1. Mitigating Burdens

Savings associations have evolved in

their use of technology, not only to

provide financial services more

efficiently, but also to offer new

financial services and reach nationwide

markets. Are there any specific OTS

regulations that unreasonably interfere

with the use of online technologies? Are

there any supervisory policies that

impose unreasonable burdens on a

financial institution’s design or

adaptation of online technologies?

2. Addressing Risks

Electronic banking activities expose

savings associations to new

combinations of risks from different

sources. OTS’s Electronic Operations

rule addresses some of those risks by

requiring savings associations to inform

OTS before establishing transactional

web sites and follow any additional

procedures the OTS regional office may

impose in writing. Further, through the

issuance of supervisory guidelines such

as the interagency Standards for

Safeguarding Customer Information,7

OTS is working to identify and educate

savings associations about the risks

electronic banking presents and to

ensure that its policies appropriately

address these risks.

Do OTS regulations adequately

address the risks presented by current or

anticipated electronic banking

activities? Do any OTS regulations

impose unnecessary burdens? Are there

any regulations or other supervisory

policies regarding risk management that

OTS should clarify or amend to address

any particular risks associated with

methods of online banking?

3. Consumer Acceptance and Protection

Electronic banking provides

consumers with convenient access to a

wide variety of financial services.

Studies indicate that a significant

percentage of households in the United

States will do their banking online as a

growing number of consumers conduct

their banking and other financial

transactions through automated teller

machines and over the Internet. Are

there specific areas in which regulatory

changes are needed to enhance

consumer acceptance of, confidence in,

access to, or protections in using

electronic banking?

B. How May OTS Enhance the

Electronic Operational Flexibility of

Savings Associations, Consistent With

Safety and Soundness?

1. Internet Link Arrangements

The rapid growth of electronic

commerce has resulted in many

marketing arrangements that provide

customers with access to providers of

both financial and non-financial retail

products or services through a hypertext

link on the savings association’s web

site. The link transfers the customer to

another entity’s web site. Under some

marketing arrangements, the savings

association’s name remains apparent on

the linked site even though the products

or services are sold by a non-thrift third

party. In other situations, once this

transfer occurs, the non-thrift’s name is

the dominant brand. The non-thrift web

site may include a link back to the

savings association’s web site to provide

its customers with access to savings

association services while minimizing

the savings association’s brand on its

site.

Does the current situation create

customer confusion as to which

products savings associations actually

offer (and which are FDIC-insured) that

impairs the development of electronic

banking? Should OTS create a

regulation or other supervisory guidance

setting forth standards for savings

association identification in connection

with the use of hypertext links? Are

there technology solutions that can be

used to address these issues?

2. Transactions

Savings associations may receive

deposits, pay withdrawals, and lend in

a variety of ways that are not subject to

geographical restrictions (or the need to

file branch applications). For example,

savings associations may arrange to

have their customers use ATMs

established by third parties in order to

conduct transactions with the savings

association. OTS regulations permit

savings associations to transact business

with their customers through electronic

and other means not involving face-toface contact.

Are OTS regulations flexible enough

to permit savings associations operating

on the Internet to serve the transaction

related needs of their retail, as well as

their commercial, customers? For

example, do any OTS regulations

impede the development or use of

technologies that would enable

customers efficiently and expeditiously

to deposit cash or checks in, or borrow

money from, savings associations

operating on the Internet?

3. Location Considerations

Internet banking raises legal issues

with respect to how OTS should

construe references in existing laws and

regulations, including those related to

filing requirements and management

interlocks, to the ‘‘location’’ of a savings

association. Should OTS address how

‘‘location’’ applies in the context of

activities conducted via the Internet?

Specifically, is the determination of

‘‘location’’ for purposes of any statute or

regulation an impediment to savings

associations conducting all or part of

their operations on the Internet? If so,

should we further clarify our regulations

or suggest statutory changes on this

issue?

Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Proposed Rules 31189

8 12 CFR part 564.

9 15 U.S.C. 7001 et seq.

4. Appraisals

Written appraisals must support

certain loans.8 Does the requirement for

written appraisals impair or impede

online lending operations? If so, what

modifications to the existing regulation

would facilitate the use of appraisals in

electronic form? What types of controls

would be appropriate to assure record

authenticity and integrity in connection

with the filing of electronic appraisals

(e.g., authentication of an electronic

appraisal, certification of the appraiser)?

5. Electronic Signatures

The Electronic Signatures in Global

and National Commerce Act (E-Sign

Act) 9 provides that certain contracts

and signatures may not be denied

validity solely because they are in

electronic form. The E-Sign Act also

provides that certain records may be

maintained in electronic form, subject to

certain requirements. OTS recognizes

that the enactment of the E-Sign Act has

resolved several important legal and

regulatory issues regarding the uses of

electronic media in commercial

transactions. Nevertheless, the E-Sign

Act has left some legal issues

unresolved and, indeed, may have

created new ones, particularly for online

banking.

What issues are savings associations

facing as a result of the E-Sign Act?

Would it facilitate implementation of

the E-Sign Act if OTS were to issue

regulations or other supervisory

guidance? If so, which aspects of the ESign Act should OTS address? Are there

any written forms or notices required by

OTS’s regulations or other supervisory

policies that could be obtained or

transmitted over the Internet in a

manner that would facilitate the online

delivery of financial products or

services? How do particular provisions

of the E-Sign Act, or any other law,

affect financial institutions and their

customers’ ability to use (or ease of

using) new technologies?

6. Differing Legal Requirements

OTS recognizes that a variety of

federal, state, and foreign laws regulate

the use of electronic technologies. Are

there areas where conducting electronic

banking activities could particularly

benefit from a single set of standards

that can be applied uniformly on a

nationwide basis? Are there any

inconsistencies between Federal and

State laws or regulations that impede

the electronic provision or use of

financial products or services? Do

certain provisions of Federal law that

apply to online banking and lending

practices make compliance with

provisions of State law (or laws

enforced by foreign states) more costly?

Dated: June 4, 2001.

By the Office of Thrift Supervision.

Ellen Seidman,

Director.

[FR Doc. 01–14562 Filed 6–8–01; 8:45 am]

BILLING CODE 6720–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 99–SW–34–AD]

RIN 2120–AA64

Airworthiness Directives; Eurocopter

France Model SA–365N1, AS–365N2,

and SA–366G1 Helicopters

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document proposes

revising an existing airworthiness

directive (AD) for Eurocopter France

(ECF) Model SA–365N1, AS–365N2,

and SA–366G1 helicopters. That AD

currently requires inspecting each tail

rotor blade for bonding separation,

measuring the clearance between the tip

of each tail rotor blade and the

circumference of the air duct, and

replacing the blade if necessary. This

action would contain the same

requirements but would allow the pilot

to perform the daily visual check and

would contain a damage allowance for

certain blades. This proposal is

prompted by FAA determination that

the pilot can check for a cracked,

blistered, or wrinkled blade and that

some debonding of the blade is

acceptable. The actions specified by the

proposed AD are intended to allow a

pilot check, to prevent unacceptable

damage to a tail rotor blade, and to

prevent loss of tail rotor control and

subsequent loss of control of the

helicopter.

DATES: Comments must be received by

August 10. 2001.

ADDRESSES: Submit comments in

triplicate to the Federal Aviation

Administration (FAA), Office of the

Regional Counsel, Southwest Region,

Attention: Rules Docket No. 99–SW–34–

AD, 2601 Meacham Blvd., Room 663,

Fort Worth, Texas 76137. You may also

send comments electronically to the

Rules Docket at the following address:

9-asw-adcomments@faa.gov. Comments

may be inspected at the Office of the

Regional Counsel between 9 a.m. and 3

p.m., Monday through Friday, except

Federal holidays.

FOR FURTHER INFORMATION CONTACT:

Sharon Miles, Aviation Safety Engineer,

FAA, Rotorcraft Directorate, Regulations

Group, Fort Worth, Texas 76193–0111,

telephone (817) 222–5122, fax (817)

222–5961.

SUPPLEMENTARY INFORMATION:

Comments Invited

Interested persons are invited to

participate in the making of the

proposed rule by submitting such

written data, views, or arguments as

they may desire. Communications

should identify the Rules Docket

number and be submitted in triplicate to

the address specified above. All

communications received on or before

the closing date for comments will be

considered before taking action on the

proposed rule. The proposals contained

in this document may be changed in

light of the comments received.

Comments are specifically invited on

the overall regulatory, economic,

environmental, and energy aspects of

the proposed rule. All comments

submitted will be available in the Rules

Docket for examination by interested

persons. A report summarizing each

FAA-public contact concerned with the

substance of this document will be filed

in the Rules Docket.

Commenters wishing the FAA to

acknowledge receipt of their mailed

comments submitted in response to this

proposal must submit a self-addressed,

stamped postcard on which the

following statement is made:

‘‘Comments to Docket No. 99–SW–34–

AD.’’ The postcard will be date stamped

and returned to the commenter.

Availability of NPRMs

Any person may obtain a copy of this

NPRM by submitting a request to the

FAA, Office of the Regional Counsel,

Southwest Region, Attention: Rules

Docket No. 99–SW–34–AD, 2601

Meacham Blvd., Room 663, Fort Worth,

Texas 76137.

Discussion

On May 9, 2000, the FAA issued AD

2000–10–08, Amendment No. 39–11732

(65 FR 31256) to require inspecting each

tail rotor blade for bonding separation,

measuring the clearance between the tip

of each tail rotor blade and the

circumference of the air duct, and

replacing a blade if necessary. That

action was prompted by an inflight

incident in which the tail rotor blades

were significantly damaged due to

bonding separation. That condition, if

Federal Register / Vol. 63, No. 229 / Monday, November 30, 1998 /Rules and Regulations 65673

1 62 FR 15626 (April 2, 1997).

2See 62 FR at 15631 and 15633.

3 62 FR 51817 (October 3, 1997). The NPR

contains a summary of the comments received on

the ANPR.

4See ‘‘Framework for Global Electronic

Commerce’’ (July 1, 1997).

5 62 FR at 51820.

By the Office of Thrift Supervision.

Ellen Seidman,

Director.

[FR Doc. 98–31745 Filed 11–27–98; 8:45 am]

BILLING CODE 6720–01–P

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 545, 555, and 559

[No. 98–119]

RIN 1550–AB00

Electronic Operations

AGENCY: Office of Thrift Supervision,

Treasury.

ACTION: Final rule.

SUMMARY: The Office of Thrift

Supervision (OTS) is issuing a final rule

that streamlines and updates its

regulations relating to electronic

operations. Under this rule, Federal

savings associations may engage in

prudent innovation through the use of

emerging technology. The rule permits

Federal savings associations to use, or

participate with others to use, electronic

means or facilities to perform any

function, or provide any product or

service, as part of an authorized activity.

The rule also requires each savings

association (state- or federallychartered) to notify OTS 30 days before

it establishes a transactional web site.

Savings associations that present

supervisory or compliance concerns

may be subject to additional procedural

requirements. Finally, the rule includes

a conforming change to OTS’s service

corporation regulation, reflecting a

recent statutory change.

EFFECTIVE DATE: January 1, 1999.

FOR FURTHER INFORMATION CONTACT:

Richard Bennett, Counsel (Banking and

Finance), (202) 906–7409; Karen A.

Osterloh, Assistant Chief Counsel, (202)

906–6639; Paul D. Glenn, Special

Counsel, Chief Counsel’s Office, (202)

906–6203; Paul J. Robin, Program

Analyst, Compliance Policy, (202) 906–

6648; or Paul R. Reymann, Senior Policy

Analyst, Supervision Policy, (202) 906–

5645, Office of Thrift Supervision, 1700

G Street NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

A. Advance Notice of Proposed

Rulemaking

On April 2, 1997, OTS published an

advance notice of proposed rulemaking

(ANPR) seeking comment on all aspects

of banking affected by electronic

operations.1 The ANPR was designed to

elicit information to enhance OTS’s

understanding of new electronic

banking technologies and the impact of

these technologies on the regulation of

Federal savings associations.2 The

ANPR asked a series of questions

concerning the types of restrictions or

requirements OTS should impose on

electronic operations, including Internet

banking.

B. Notice of Proposed Rulemaking

Based on the comments received on

the ANPR, on October 3, 1997, OTS

published a notice of proposed

rulemaking (NPR) to streamline and

update its regulations relating to

electronic operations.3 The NPR

proposed to amend OTS’s electronicrelated regulations to address advances

in technology and to permit prudent

innovation through the use of emerging

technology by Federal savings

associations. In crafting the proposed

rule, OTS was guided by two broad

principles suggested by commenters on

the ANPR:

• The public and insured depository

institutions will be best served if

statutory and regulatory restrictions are

kept to a minimum. The premature

imposition of restrictive operational

standards could impede the

development of improved financial

services.

• Federal savings associations should

be permitted to compete effectively with

other regulated financial institutions

and unregulated firms offering financial

and related services.

Consistent with these principles, OTS

proposed a broad enabling regulation

designed to allow Federal savings

associations to engage in any activity

through electronic means that they may

conduct through more traditional

delivery mechanisms. OTS proposed to

eliminate three existing regulations:

§ 545.138 (Data-Processing Services),

§ 545.141 (Remote Services Units), and

§ 545.142 (Home Banking Services). The

elimination of these sections would not

take away the authority to engage in any

activities described in these sections.

OTS made the proposal to enhance

the ability of Federal savings

associations to serve as financial

intermediaries and to permit Federal

savings associations to utilize fully their

capacities and by-products generated in

providing financial services. The

proposal was consistent with the

principles established in the

Administration’s electronic commerce

policy statement.4 The NPR noted,

however, that OTS would continue to

gain additional experience with

electronic technology and might issue

more specific guidance regulating

particular elements of electronic

operations.5

C. Comments on NPR—General

Discussion

The comment period on the NPR

closed on December 2, 1997. OTS

received nine comment letters on the

NPR from five Federal savings

associations, two trade associations, and

two technology firms.

All of the commenters recognized the

need for the agency to revise or remove

its existing regulations in this area.

Seven commenters supported the

proposal’s overall flexible regulatory

approach, while suggesting

modifications or clarifications to

particular aspects of the rule. Two

commenters argued that for even greater

flexibility the agency should not issue

any new electronic banking regulations.

These two commenters suggested the

agency rely entirely on flexible

guidelines and advisories as technology

evolves. OTS has addressed specific

comments on the NPR below.

D. Supplemental Notice of Proposed

Rulemaking

One commenter on the NPR argued

that OTS should establish a procedure

to review and approve new products or

services, in order to protect the safety

and soundness of the industry. Another

urged OTS not to require a Federal

savings association to obtain OTS’s

prior approval before adopting new

technologies ‘‘unless absolutely

necessary to ensure industry-wide safety

and soundness.’’ After considering these

comments, OTS concluded that safety

and soundness and compliance

considerations warranted the agency

receiving advance notice of industry use

of one developing technology—

transactional web sites. Such web sites

allow savings association customers to

use the Internet to conduct a wide

variety of financial transactions. They

may, however, also pose particular

security, compliance, and privacy risks.

Accordingly, on August 13, 1998,

OTS issued a supplemental notice of

proposed rulemaking (Supplemental

NPR) seeking comment on additional

proposed rules that would require each

savings association to notify OTS before
65674 Federal Register / Vol. 63, No. 229 / Monday, November 30, 1998 /Rules and Regulations

6 63 FR 43327 (August 13, 1998).

7New § 555.200 is similar to the Office of the

Comptroller of the Currency’s (OCC) rule on

furnishing of products and services by electronic

means and facilities. See 12 CFR 7.1019 (1998).

8See, e.g., Memorandum from Richard M.

Riccobono, Deputy Director, for Chief Executive

Officers (November 3, 1998) (Policy Statement on

Privacy and Accuracy of Personal Customer

Information); Memorandum from Richard M.

Riccobono, Deputy Director, for Chief Executive

Officers (July 23, 1998) (Interagency Guidance on

Electronic Financial Services and Consumer

Compliance); Memorandum from John Downey,

Executive Director, Supervision, for Chief Executive

Officers (June 23, 1997) (Statement on Retail OnLine Personal Computer Banking); Thrift Activities

Regulatory Handbook, Section 341, Information

Technology (October 1997) (Regulatory Bulletin 32–

6, October 15, 1997); Federal Financial Institutions

Examinations Council (FFIEC) Information Systems

Examination Handbook (1996); OTS Order No. 95–

88 (May 8, 1995) (application approval of Internet

bank); OTS Op. Chief Counsel (September 19, 1997)

(establishment of automated loan machines).

it establishes a transactional web site.6

OTS also proposed to give the Regional

Offices discretion to impose additional

requirements in appropriate

circumstances.

Safety and soundness and compliance

considerations are similar for statechartered and federally-chartered

institutions. Thus, the Supplemental

NPR proposed to require every savings

association to notify OTS before it

established a transactional web site and

to comply with additional requirements

that the Regional Offices may impose in

appropriate circumstances. Since the

ANPR and NPR did not specifically

discuss these requirements and applied

only to Federal savings associations,

OTS concluded that additional public

comment would assist in the

development of a final rule.

E. Comments on Supplemental NPR—

General Discussion

The comment period on the

Supplemental NPR closed on September

14, 1998. OTS received nine comment

letters from six Federal savings

associations, two trade associations, and

one public interest organization.

Two commenters supported the

notice requirement. Four commenters

opposed the requirement. The other

three commenters did not specifically

support or oppose the requirement. OTS

has addressed the specific comments on

the Supplemental NPR below.

II. Today’s Final Rule

Today’s final rule incorporates the

same broad principles and reflects the

same supervisory concerns articulated

in the NPR and Supplemental NPR. OTS

continues to believe that it is important

to have enabling regulations in this area.

These regulations will help ensure that

OTS has sufficient information to

understand developing technologies, to

provide appropriate guidance on these

technologies, and to supervise

electronic operations effectively. The

proposed approach in the NPR and

Supplemental NPR, with some

modifications as discussed below, will

provide both the industry and the

agency with the appropriate amount of

flexibility to adapt to changing

conditions.

Today’s final rule is meant to provide

authority for Federal savings

associations’ electronic operations and a

structure for all savings associations’

use of electronic means and facilities.7

Standing alone, it cannot, and does not

purport to, answer all questions in this

rapidly changing area. These operations,

by their very nature, are evolving,

presenting the industry and the agency

with both old issues in a new form (e.g.,

the appropriate documentation to open

an account) and new issues unique to

electronic operations (e.g., treatment of

stored value cards). The agency has

issued, and will continue to issue,

guidance as electronic operations

evolve. This guidance has taken the

form of letters to chief executive officers

of savings associations, interagency

examiner guidelines, revisions to the

Thrift Activities Handbooks, conditions

on the approval of applications, and

responses to requests for legal

interpretations.8 The agency expects to

continually update its guidance and to

continue to make it available on OTS’s

web site at www.ots.treas.gov.

Further, while today’s final rule

removes §§ 545.138, 545.141, and

545.142, OTS emphasizes that the new

rules continue to authorize all activities

formerly authorized under these

provisions.

III. Section-by-Section Discussion

Today’s final rule creates a new part

555 to address electronic operations. In

the NPR, OTS originally proposed to

place the electronic operations

regulations in a new subpart B to part

545. However, part 545 only applies to

Federal savings associations. The notice

requirements proposed in the

Supplemental NPR and incorporated

into this final rule, however, apply to all

savings associations. Thus, as proposed

in the Supplemental NPR, OTS is

placing the electronic operations

regulations in a new part 555.

A. What Does This Part Do? (§ 555.100)

Section 555.100 explains the purpose

of part 555. Subpart A explains how a

Federal savings association may provide

products and services through

electronic means and facilities. Subpart

B contains the advance notice and other

requirements applicable to all savings

associations.

OTS received no specific comments

on § 555.100 of the Supplemental NPR

(or on § 545.140 of the NPR, which

served a similar function). The section

is unchanged from the Supplemental

NPR.

B. Authority of Federal Savings

Associations to Conduct Electronic

Operations (Subpart A to Part 555)

1. How May I Use or Participate With

Others to use Electronic Means and

Facilities? (Proposed § § 545.141,

545.142, and 545.143, Final § 555.200)

Final § 555.200 combines, with

changes, proposed § 545.141, 545.142,

and 545.143. Section 555.200(a)

corresponds to proposed § 545.141, but

merges part of proposed § 545.143.

Section 555.200(b) corresponds to

proposed § 545.142 and also merges part

of proposed § 545.143. Sections

555.200(a) and 555.200(b) are discussed

separately below.

Section 555.200(a)

Consistent with OTS’s goal of

minimizing regulatory restrictions on

electronic operations, proposed

§ 545.141 would have specifically

permitted Federal savings associations

to use electronic means or facilities to

perform any authorized function or

provide any authorized product or

service. Electronic means or facilities

would include, but would not be

limited to, automated teller machines

(ATMs), automated loan machines,

personal computers, the Internet, the

World Wide Web, telephones, and other

similar electronic devices. The preamble

explained that this authority would

include the opening of savings or

demand accounts and the establishment

of loan accounts—functions previously

excluded from the definition of remote

service unit—because performing these

functions electronically may enhance

the operating flexibility of Federal

savings associations.

Commenters generally supported this

section. One commenter, however, a

trade association, argued that proposed

§ 545.141 was too broad and did not

sufficiently protect the safety and

soundness of the industry. Instead, the

commenter emphasized the need for a

thorough risk assessment of any new

delivery system to protect safety and

soundness. The commenter urged OTS

to establish a procedure whereby OTS

would issue an approval or

interpretation before a product or

service was first offered electronically.

Once one institution was approved to

use an electronic delivery system,
Federal Register / Vol. 63, No. 229 / Monday, November 30, 1998 /Rules and Regulations 65675

9 62 FR at 51818.

10 12 U.S.C. 1461–1468c.

11See, e.g., 60 FR 44442, 44444 (August 28, 1995);

48 FR 23032 (May 23, 1983).

12See OTS Customer Service Plan—Interpretive

Opinions (January 1996). Such questions may also

be addressed in the context of an application

process (e.g., de novo applications).

13 62 FR at 51818. However, all statutory and

regulatory restrictions associated with offering a

product or service continue to apply where

electronic means and facilities are used.

One commenter asked whether a signed deposit

application would have to be executed and

transmitted with the initial deposit in hard copy. At

one time, FHLBB regulations specifically imposed

this type of signature card requirement. See 12 CFR

545.2(a) (1983). In May 1983, the FHLBB eliminated

this specific requirement. 48 FR 23032 (May 23,

1983).

14 62 FR at 15632.

15See Memorandum from Jack D. Smith, Deputy

General Counsel, FHLBB, to Alvin Smuzynski,

Deputy Director, Supervisory Activities (December

7, 1987). Pursuant to that opinion, the institution

was permitted to undertake the activity where the

institution maintained the deposits in United States

dollar denominations, offered standard money

market and term certificate of accounts with interest

rates and other terms and conditions that were the

same as those offered by the institution to those

residing in the United States, and complied with

the requirements applicable to the type of accounts.

See also FHLBB Op. General Counsel (May 10,

1984).

16OTS anticipates that it will shortly publish a

proposed ‘‘Know Your Customer’’ rule, as part of

an interagency rulemaking effort.

17With regard to electronic monetary value, OTS

has opined that a Federal savings association has

authority to market and sell prepaid telephone

cards as agent for a telephone company. OTS Op.

Chief Counsel (August 29, 1996). We also note that

the other federal banking agencies have indicated

that financial institutions may deal in other types

of electronic monetary value. See OCC Interpretive

Letter No. 718 (March 14, 1996) (national banks

may dispense alternate media such as public

transportation tickets, event and attraction tickets,

gift certificates, prepaid phone cards, promotional

and advertising materials, electronic benefits

transfer scripts, and credit and debit cards) and

Federal Deposit Insurance Corporation General

Counsel’s Op. No. 8, published in, 61 FR 40490

(Aug. 2, 1996) (discussing whether, and under what

circumstances, funds underlying stored value cards

may be considered deposits under the Federal

Deposit Insurance Act, 12 U.S.C. 1811–1835a).

With regard to digital authentication and

certification, Federal savings associations have

incidental authority under the HOLA to guarantee

customer signatures for documentary transactions

in which an association has an interest as part of

its deposit taking, lending, or trust business, as well

as guarantees executed as a separate customer

service with respect to stock transfers and similar

transactions in which the association has no direct

interest. FHLBB Op. General Counsel (August 11,

1981). In addition, the OCC has authorized a

national bank operating subsidiary to act as a

certification authority and repository for certificates

that verify digital signatures. The authority was not

limited to transactions in which the subsidiary had

a direct interest. OCC Op. Chief Counsel (January

12, 1998) (Operating Subsidiary Application by

Zions First National Bank, Salt Lake City, Utah).

OTS believes the reasoning of the other regulators

appears persuasive. OTS will consider these

opinions when it reviews a Federal savings

association’s authority to conduct such activities as

these issues are presented to the agency.

approval for subsequent institutions

would not be required. Presumably,

subsequent institutions would be

required to provide the same protections

and safeguards.

While OTS does not believe that a

new procedure is necessary for most

types of electronic operations, OTS has

added subpart B to part 555, to deal

with the special risks associated with

transactional web sites. As discussed in

Section III.C. below, subpart B will

enhance OTS’s ability to supervise

electronic operations, particularly

Internet banking activities.

Three Federal savings associations

asked OTS to clarify whether the new

regulation would permit specific

products or services. As noted in the

preamble to the proposed rule, by

revising its rules, OTS intends to allow

Federal savings associations to engage

in any authorized activity through

electronic means that they may conduct

through more traditional delivery

mechanisms.9 To clarify this point, OTS

has revised the language of § 555.200(a)

to provide that a Federal savings

association may use electronic means or

facilities ‘‘to perform any function, or

provide any product or service, as part

of an authorized activity.’’

As with all activities of Federal

savings associations, OTS’s position,

like that of its predecessor agency, the

Federal Home Loan Bank Board

(FHLBB), has been that if the Home

Owners’ Loan Act (HOLA) 10 authorizes

an activity, a specific authorizing

regulation is not necessary.11 In some

cases, the HOLA speaks clearly on an

activity and institutions generally

choose to act without obtaining agency

concurrence. In other cases, where the

authority is less clear or specific facts

are more determinative, an application

or an interpretive legal opinion may be

the best route for resolving issues of first

impression.

To assist the industry further, OTS

will continue to provide both formal

and informal guidance on authorized

activities for Federal savings

associations. If applicable statutes,

regulations, court cases, and OTS

opinions do not provide a sufficient

basis for a Federal savings association to

determine whether a product or service

is authorized under the HOLA or the

use of electronic means or facilities is

appropriate, it may request an

interpretive opinion 12 or consult with

OTS’s Regional Director for the Region

in which its home office is located.

OTS has previously provided explicit

guidance on several of the questions

about specific products or services

raised. For example, the preamble to the

proposed rule stated that Federal

savings associations could establish

loan accounts and open savings or

demand accounts through electronic

means.13 Similarly, the ANPR indicated

that the term ‘‘electronic means and

facilities’’ would clearly encompass new

technologies that enable a depository

institution to make risk-based

judgments electronically.14 This would

include, for example, automated credit

scoring and other forms of automated

underwriting.

In addition, OTS and the FHLBB have

long recognized that Federal savings

associations may open accounts and

transfer funds for persons overseas. For

example, the FHLBB opined that

Federal savings associations may solicit

deposits and open accounts for

individuals who are not citizens or

residents of the United States by mail or

electronic means.15 Since this is an

authorized activity under the HOLA,

this final rule permits a Federal savings

association to engage in this activity

through electronic operations. However,

Federal savings associations engaging in

such electronic activities must comply

with all applicable requirements,

including addressing safety and

soundness concerns and ensuring

compliance with other federal laws and

requirements.16

OTS has not opined on whether

certain activities cited by commenters

are authorized for Federal savings

associations. Specifically, one

commenter asked whether a Federal

savings association may issue, use, and

deal in all forms of electronic monetary

value, including stored value and smartcard technologies. Another commenter

asked whether a Federal savings

association may use and participate in

digital authentication and certification,

including serving as a certificate

authority (an entity certifying electronic

signatures for use in electronic

commerce).

OTS has not opined on whether every

activity that could involve the use of

electronic money or participation in

digital authentication regimes is an

authorized activity for Federal savings

associations.17 With any new activity,

the factual context and the

accompanying safeguards are often

critical to determining whether and how

an activity may be conducted, whether

or not electronic means are involved.

Thus, OTS believes that it is important

that savings associations continue to

consult with their Regional Offices to

obtain up-to-date guidance as they move

forward in the use of electronic means

and facilities.

Another Federal savings association

asked OTS to adopt an expansive
65676 Federal Register / Vol. 63, No. 229 / Monday, November 30, 1998 /Rules and Regulations

18See OTS Op. Chief Counsel (August 29, 1996)

at 2.

19See 48 FR 7428, 7429–7430 (February 22,

1983).

20See 12 CFR 559.4 (1998).

21Pub. L. No. 105–164 (enacted March 20, 1998).

22See Statement of Ellen Seidman, Director,

Office of Thrift Supervision, concerning

Examination Parity and Year 2000 Readiness for

Financial Institutions Act, before the Committee on

Banking and Financial Services, United States

House of Representatives, February 5, 1998, at 8–

10.

23See 12 CFR 510.5(a)(2)(ii) (1998).

24See 12 CFR 7.1019 (1998).

interpretation of the phrase ‘‘authorized

product or service.’’ The commenter’s

proposed interpretation would clarify

that as long as the primary electronic

product or activity is permitted, the

Federal savings association may provide

a minor ancillary application, even

though the ancillary application is not

specifically authorized by the HOLA.

Federal savings associations possess

powers that are incident to the express

powers of Federal savings associations,

as set forth in the HOLA.18 Today’s final

rule allows Federal savings associations

to use electronic means or facilities to

perform any function, or provide any

product or service, as part of an

authorized activity, including activities

authorized under the incidental powers

doctrine. OTS will review whether

particular activities are authorized as

incidental powers on a case-by-case

basis as these issues are presented to the

agency. As noted above, § 555.200(a)

continues to permit Federal savings

associations to perform all data

processing and transmission services

formerly authorized under § 545.138(a)

and (b). When § 545.138 was

promulgated in 1983, the FHLBB

imposed certain data and customer

restrictions designed to ensure that a

Federal savings association would

conduct data processing and

transmission services consistent with

the authority provided in HOLA.19 OTS

recognizes that the HOLA may authorize

the provision of data processing services

in additional circumstances.

Accordingly, the final rule, like the

OCC’s rule, does not impose specific

data or customer restrictions. Rather,

final § 555.200(a) merely requires that

services provided through electronic

means and facilities must be a ‘‘part of

an authorized activity.’’ This restriction

means that data processing and

transmission services provided must be

authorized under the HOLA, either

expressly or as an incidental power. Final § 555.200(a) has also been

revised to incorporate provisions in

proposed § 545.143, entitled ‘‘How may

I participate with others in the use of

electronic means and facilities?’’

Proposed § 545.143 would have

permitted a Federal savings association

to participate with others to perform,

provide, or deliver activities, functions,

products, or services described in the

proposed rule. A Federal savings

association could have participated with

an entity that is not subject to

examination by a Federal agency

regulating financial institutions only if

that entity agreed, in writing, to permit

OTS to examine its electronic means or

facilities, to pay for any related OTS

examination fees, and to make all

relevant records in its possession,

written or electronic, available to OTS

for examination. OTS also indicated that

if the participation by a Federal savings

association was through a service

corporation, OTS’s service corporation

rules would apply.20

The Examination Parity and Year

2000 Readiness for Financial

Institutions Act,21 has obviated the need

for proposed § 545.143 as a separate

section of the rule. Section 3 of this

legislation provides:

[I]f a savings association, a subsidiary

thereof, or any savings and loan affiliate or

entity, as identified by section 8(b)(9) of the

Federal Deposit Insurance Act [12 U.S.C.

1818(b)(9)], that is regularly examined or

subject to examination by the Director [of

OTS], causes to be performed for itself, by

contract or otherwise, any service authorized

under [HOLA] * * *, such performance shall

be subject to regulation and examination by

the Director to the same extent as if such

services were being performed by the savings

association on its own premises.

In light of this legislation, today’s

final rule simply clarifies the authority

of a Federal savings association to

participate with others to perform any

function, or provide any product or

service, as part of an authorized activity,

through electronic means and facilities.

This language has been merged into

final § 555.200(a). OTS is making a

similar conforming change to

§ 555.200(b), discussed below.

In making these changes, OTS is

removing the proposed requirement

concerning record availability since this

requirement is implicit in examinations

authorized by the legislation. OTS is

also removing the proposed requirement

concerning examination fees. The other

banking agencies do not charge fees

specifically for examinations of service

providers. OTS does not intend to

impose fees for the examination of

service providers, except as otherwise

provided for under OTS’s assessment

rule and Thrift Bulletins.

While the relevance of many of the

comments on proposed § 545.143 has

been negated by this intervening

legislation, it is useful to respond to

some of the points raised by

commenters on the NPR. Two

commenters criticized the third party

examination, fee, and record

requirements as burdensome and

unnecessary. In implementing the new

legislation, OTS will focus its service

provider examinations on those whose

activities could have a direct impact on

the safety and soundness of savings

associations.22 Data processing servicers

and ATM servicers are among the types

of service providers OTS examines

because they provide functions critical

to financial operations.

Another Federal savings association

explained that the software industry is

wary of providing unrestricted access to

their information without explicit

assurances of confidentiality to protect

proprietary trade secrets. The

commenter stated that, at a minimum,

the final rule should provide that any

information reviewed or gathered

during an examination of a service

provider will be treated as

‘‘unpublished OTS information’’ under

12 CFR 510.5 (1998), which provides

confidentiality safeguards.

OTS treats service provider

examination reports as confidential

unpublished OTS information.23

Consistent with this regulation, these

reports are not publicly available, but

OTS does share the examination reports

of service providers with the Federal

banking agencies. It also shares relevant

portions of the examination reports with

Federal and State savings associations

that use the services of those service

providers.

Section 555.200(b)

Former § 545.138(c) subjected

marketing by-products and excess

capacity of data processing and

transmission services to significant

restrictions. In contrast, under proposed

§ 545.142, a Federal savings association

could market and sell electronic

capacities and by-products to third

parties if it acquired or developed the

capacities and by-products in good faith

as part of providing financial services.

The proposed rule was substantially

identical to the OCC rule on marketing

and selling such capacities.24

Two commenters expressly supported

the proposed section. Upon further

review, OTS believes it is necessary to

make two minor clarifications to

§ 555.200(b).

First, the final rule indicates that the

marketing and selling of electronic

capacities and by-products to thirdparties is to enable Federal savings
Federal Register / Vol. 63, No. 229 / Monday, November 30, 1998 /Rules and Regulations 65677

25 62 FR at 51819.

26Further guidance on these requirements is

provided in Appendix A to Part 570, section 341

of the Thrift Activities Regulatory Handbook, and

Statement on Retail On-Line Personal Computer

Banking.

27See Statement on Retail On-Line Personal

Computer Banking.

associations to optimize their resources.

This language conforms the OTS rule

more closely to the OCC’s rule.

Second, the final rule indicates that a

Federal savings association may also

participate with others to market and

sell electronic capacities and byproducts to third-parties. Like the

revision to § 555.200(a) discussed above,

this change incorporates part of

§ 555.143 of the proposed rule.

One Federal savings association asked

OTS to define the phrase ‘‘electronic

capacities and by-products’’ to clarify

that Federal savings associations may

provide ‘‘fully integrated solutions to a

range of business needs.’’ These

solutions may involve a combination of

software development, computer

systems design and construction,

electronic communication (including

sending electronic mail), and data

processing and storage.

OTS does not believe it is appropriate

to make the clarification requested by

the commenter. As long as a Federal

savings association acquired or

developed its electronic capacities and

by-products in good faith as part of

providing financial services, the Federal

savings association may market and sell

them to third-parties. OTS cautions,

however, that to the extent a Federal

savings association may wish to engage

in additional activities in connection

with the marketing and sale of such

capacities and by-products, the

additional activities must be authorized

under the HOLA, either expressly or as

an incidental power.

2. What Precautions Must I Take?

(Proposed § 545.144, Final § 555.210)

Although OTS believes that it is vital

that Federal savings associations

establish appropriate internal controls

for risks and security measures when

they engage in electronic operations, it

did not propose to codify static risk or

security requirements. Because methods

of electronic commerce and their

attendant security measures are

continually evolving, OTS’s proposed

rule reflected the view that it is

impracticable to prescribe security

measures that would remain useful for

the indefinite future.

Instead, proposed § 545.144 would

have required a Federal savings

association to adopt standards and

policies designed to ensure secure

operations. In addition, the proposed

rule would have required a Federal

savings association to implement

security measures adequate to prevent

unauthorized access to its records and

its customers’ records, and to prevent

financial fraud through the use of

electronic means or facilities. The

proposed rule also stated that a Federal

savings association must comply with

the current security devices

requirements of part 568, if it provides

an ATM, an automated loan machine, or

another similar electronic device.

One Federal savings association noted

that the banking industry has not yet

embraced any particular standards with

respect to encryption, authentication,

digital signatures, and other technical

matters affecting transmission over the

Internet. Accordingly, the commenter

urged OTS to avoid imposing

unnecessary regulatory impediments or

micro-managing system implementation

or maintenance. While the commenter

was not critical of proposed § 545.144,

the commenter criticized OTS’s

imposition of certain security-related

conditions on approvals of recent

applications, such as requiring an

applicant to have its delivery of services

over the Internet tested and reviewed by

independent computer security

specialists before commencing

operation. The commenter urged OTS to

reconsider whether there is a need to

impose such conditions.

In approving applications to

commence operations, OTS requires

proof that adequate security measures

are in place for safe, sound, and secure

operations. To date, these requirements

routinely have included testing and

review by independent computer

security specialists. OTS tailors specific

conditions on a case-by-case basis. It

may be possible that future applications

may not raise these security concerns.

However, currently OTS believes such a

condition in application approval orders

remains essential to safe and sound

internal operations. Similarly, under the

notice procedures in subpart B to part

555 of this final rule (including the 30-

day advance notice requirement), OTS

will have an opportunity to consider,

before any savings association

establishes a transactional web site,

whether the savings association will be

able to conduct such operations in a

safe, sound, secure, and compliant

manner.

In the preamble to the proposed rule,

OTS indicated that it ‘‘expects Federal

savings associations to establish security

measures that are consistent with

current industry standards, and to

continually monitor and regularly

update these security procedures to

keep pace with changes to industry

standards.’’ 25 One trade association

urged OTS to incorporate this statement

in the final rule.

OTS believes that such interpretive

statements are best contained in OTS

policy statements, advisories, and other

explanatory materials, rather than the

regulation. For similar reasons, OTS has

deleted from the final rule the proposed

statement indicating that Federal

savings associations should adopt

standards and policies on security

issues. Instead, the rule requires Federal

savings associations to implement

security measures designed to ensure

secure operations.

Another trade association urged OTS

to provide guidelines alerting Federal

savings associations to security issues

that should be addressed before a new

electronic delivery mechanism is

implemented. As summarized in

Section II above, OTS has issued such

guidelines and advisories to Federal

savings associations, both on its own

and as part of FFIEC.

OTS has made clarifying revisions to

the section. These revisions require that

the management of Federal savings

associations identify, assess, and

mitigate potential risks and establish

prudent internal controls, in addition to

implementing security measures that are

designed to ensure secure operations.26

These risks may be strategic, legal,

regulatory, or operational.27

C. Requirements Applicable to All

Savings Associations

1. Must I Inform OTS Before I Use

Electronic Means or Facilities?

(§ 555.300)

Proposed § 555.300(a) of the

Supplemental NPR sets forth the general

rule that a savings association does not

have to inform OTS before it uses

electronic means and facilities.

However, two exceptions apply. First,

proposed § 555.300(b) would require a

savings association to file a written

notice with OTS before it establishes a

transactional web site. Second,

proposed § 555.300(c) would provide

that if the OTS Regional Office has

informed a savings association of any

supervisory or compliance concerns that

may affect the savings association’s use

of electronic means or facilities, the

savings association must follow any

additional procedures the Regional

Office has imposed in writing. Proposed

§ 555.300(a) also would encourage

savings associations to consult with

OTS even in circumstances not covered

by the notice requirement or other

procedures in § 555.300(b) or (c).
65678 Federal Register / Vol. 63, No. 229 / Monday, November 30, 1998 /Rules and Regulations

28A September 30, 1998 report prepared, at OTS’s

request, by the Office of Inspector General (OIG),

United States Department of the Treasury, made

several suggestions. Among these were that OTS: (1)

develop a complete list of savings associations

providing on-line and Internet banking services; (2)

enhance monitoring of savings associations’ web

sites for compliance with federal disclosure

regulations and laws, and (3) begin to focus more

on the operational risks presented by on-line and

Internet banking. The OIG recommended these

steps to help OTS determine risks, plan strategic

examination coverage, identify staff development

needs, and foster examination uniformity and

consistency. See Office of Inspector General, U.S.

Dep’t of the Treasury, Consultative Report on the

Office of Thrift Supervision Examination of On-Line

and Internet Banking Risks, (OIG–CA–98–003,

1998).

29See 63 FR at 43328.

30 Id.

31As noted in the preamble to the Supplemental

NPR, OTS is aware that advertising and disclosure

problems may apply equally to transactional and

informational web sites. OTS believes, however,

that the need for advance notice is greater where

such concerns are combined with the other

compliance, security, and privacy issues related to

transactional web sites. To minimize regulatory

burden, OTS is limiting the advance notice

requirement to transactional web sites. However,

OTS will continue to examine both types of web

sites for operational and compliance problems. See

63 FR at 43329 n. 11.

32 63 FR at 43328. 33 63 FR at 43330 (proposed § 555.300(b)).

Four commenters indicated that the

proposed notice requirement would

help OTS to monitor adequately savings

associations’ technological innovations

and to assess security, compliance, and

privacy risks. Some commenters,

however, expressed concerns.

Four commenters argued that the

notice requirement would place savings

associations at a competitive

disadvantage, since other banking

regulators do not impose a similar

notice requirement. OTS does not

anticipate that the notification

requirement will place savings

associations at a significant competitive

disadvantage. As discussed below, in

general, once an association has

addressed any follow-up questions from

the Regional Office and the 30-day

period has expired, the association will

be free to bring its transactional web site

on-line. No affirmative authorization

from OTS is necessary except where the

Regional Office may otherwise indicate.

While providing this information will

impose a minimal burden on savings

associations, the process will allow

individual associations, and the

industry as a whole, to reap important

benefits. The notice will make it easier

for OTS to obtain information on the

industry’s use of transactional web sites.

As a result, OTS will be better able to

assist associations that are

contemplating or already conducting

Internet operations to identify and

address the risks that accompany such

activities. The information will also

broaden OTS’s awareness of trends in

Internet banking operations, which OTS

can share with institutions. It will also

efficiently allow OTS to keep abreast of

significant changes in the way particular

savings associations interact with their

existing or potential customers to enable

OTS to issue appropriate guidance.

Finally, the procedure responds to the

concern raised by the commenter on the

NPR who indicated that OTS should be

vigilant about new electronic operations

raising safety and soundness concerns,

since the procedure will assist OTS to

supervise effectively the electronic

operations of savings associations.28

One commenter asserted that

transactions conducted over the Internet

pose no more risk than transactions

performed using other technologies for

which no prior notice is required. This

commenter also asserted that the notice

was unnecessary since the industry

already fully understands the risks

associated with the Internet.

OTS does not agree that transactions

conducted over the Internet pose no

more risk than transactions performed

through other more established

technologies.29 While it is true that risks

are inherent in all electronic

capabilities, the use of an electronic

channel such as the Internet to deliver

products and services introduces unique

risks due to the increased speed at

which systems operate, user anonymity,

and broad access in terms of geography,

user groups, applications, databases,

and peripheral systems.

As explained in the preamble to the

Supplemental NPR, OTS has been, and

continues to be, concerned with the

adequacy of firewalls to prevent hackers

from breaking into an association’s

computer systems and thereby

jeopardizing the association’s security.30

OTS is also concerned about other

operational and compliance risks

presented by Internet banking and

intends to increase its monitoring of

web sites for compliance with

disclosure laws and regulations.31

Additionally, OTS is concerned about

protecting the privacy of individuals

submitting information (or about whom

information has been submitted).32

Even traditional risks that are similar

to those in customary banking activities

must be considered in a new light. For

example, if an association conducts

lending or deposit gathering activities

over an electronic channel, credit risks

must be considered in the context of the

high-speed, wide-access electronic

environment. The collection of baseline

information on transactional web sites is

an important and integral part of OTS

efforts to enhance its supervision of

Internet banking activities.

Another commenter noted that the

costs of developing a web site are

substantial and would be incurred

before the savings association files the

notice. Consistent with § 555.300(a),

OTS encourages associations concerned

about expending resources to develop a

transactional web site to consult with

their Regional Office in the early stages

of development, even before filing a

notice.

In lieu of the notice requirement,

several commenters urged OTS to

continue to rely on existing supervisory

guidance, examination oversight, and

application processes to ensure that

Internet activities are conducted in a

safe, sound, secure, and compliant

manner. One commenter encouraged

OTS to address transactional web sites

in the Statement on Retail On-Line

Personal Computer Banking and in

additional questions in the PreExamination Response Kit. Another

commenter suggested that the additional

guidance should address such issues as

development costs, security and privacy

issues, and compliance matters.

OTS has provided and will continue

to provide important guidance to the

industry. OTS has addressed

development costs, security, privacy,

and compliance matters in its Statement

on Retail On-Line Personal Computer

Banking and in section 341 of the Thrift

Activities Regulatory Handbook. OTS

will update and supplement this

guidance as necessary. However, this

guidance is not a substitute for OTS’s

obtaining information necessary for

proper supervision.

OTS proposed to define a

transactional web site as ‘‘an Internet

site that enables users to conduct

financial transactions such as accessing

an account, obtaining an account

balance, transferring funds, processing

bill payments, opening an account,

applying for or obtaining a loan, or

purchasing other products or

services.’’ 33 Four commenters

supported OTS’s proposed definition.

Two commenters indicated that the

Supplemental NPR adequately

distinguished between transactional and

informational web sites.

In light of the generally favorable

comments, OTS does not believe

significant changes to the definition are

necessary. However, OTS is making one

clarifying change to the definition of

transactional web site in response to a

comment. The commenter

recommended clarifying the meaning of

the phrase ‘‘purchasing other products
Federal Register / Vol. 63, No. 229 / Monday, November 30, 1998 /Rules and Regulations 65679

34However, as noted in the preamble to the

Supplemental NPR, before a savings association

may change an informational web site to a

transactional web site, the savings association must

file a notice with OTS. 63 FR at 43329 n. 9.

35 63 FR at 43329.

36However, OTS has implemented a change to

the Thrift Financial Report (TFR). The electronic

filing software now collects information on all

savings associations’ Internet web site addresses.

This change was effective for the third quarter 1998

TFR.

37OTS reviews the safety and soundness of new

activities, the appropriateness of the internal

controls and security precautions, and compliance

with applicable laws and regulations on a case-bycase and institution-by-institution basis in

connection with applications and through the

examination process. For institutions subject to an

application process (e.g., de novo applications),

these initial safety and soundness and compliance

determinations will be made in the application

review. After application approval or where no

application is required, safety and soundness and

compliance will generally be assessed as a part of

the examination process. This process will review

and assess the institution’s identification of risks of

the activity, the steps it has taken to mitigate these

risks, the testing it has undertaken to ensure safety

and soundness, and its compliance monitoring

process. 38 63 FR at 43329.

or services’’ used in the definition. The

final rule clarifies that the phrase refers

to any authorized products or services.

Another commenter asked OTS

whether a new notice would be required

when the type and level of activities

conducted on a transactional web site

are increased or substantially modified.

A new notice will not be required in

such circumstances. Once the savings

association alerts OTS about its

transactional web site, the agency will

be able to monitor and examine the web

site without a need for subsequent

notices when changes are made.34

Other commenters, however,

suggested further revisions or

clarifications that OTS believes would

be too limiting. One commenter

indicated that the covered web sites

should be those that transact business

equivalent to a branch through which

money passes. Another argued that a

web site is not transactional if an

applicant may only complete and return

a loan application electronically, but

would be transactional if the web site

also permits the application to be

processed through an automated credit

scoring system and is used to notify the

customer of an approval or denial.

OTS does not agree that transactional

web sites subject to the notice

requirement should be limited to those

that are used for monetary transactions

or are used to notify the customer of an

application approval or denial. The

same concerns about providing a secure

environment apply where confidential

information is exchanged in other

circumstances that are transactional, but

do not necessarily constitute a monetary

transaction or notification on an

application.

However, it is appropriate to clarify a

related matter. OTS will not consider a

web site to be transactional simply

because it allows the sending of e-mail

messages. For an association simply to

include an e-mail address on its web

site does not necessarily invite the

public to attempt to conduct

transactions with the association over

the Internet or to submit confidential

information. For example, the public

may use the e-mail address for a variety

of tasks (e.g., inquiring about products

or services offered, requesting that a

customer service representative call, or

asking that forms or information be

mailed). In contrast, a web site that

provides an electronic application form

for transmission to the association by email would be considered transactional.

Such an application, by its nature, is

designed to conduct a transaction and

will likely actively elicit the submission

of confidential information to the

association over the Internet through the

questions contained in the application.

One commenter recommended that

OTS define an ‘‘informational web site.’’

OTS does not believe that a separate

definition of this term is necessary. As

noted in the preamble to the

Supplemental NPR, an informational

web site is a non-transactional web site,

such as one limited to advertising and

fee and rate posting.35

Six commenters opposed a notice

requirement for electronic activities

other than a transactional web site.

Three commenters explained that OTS

already has sufficient authority to

examine any activity that raises safety

and soundness concerns.

OTS is not requiring a notice under

§ 555.300(b) for any activities using

electronic means or facilities other than

transactional web sites. For example, a

savings association would not be

required to notify OTS before it

establishes an informational web site.36

As with other activities, OTS will

continue to rely on its existing

supervisory examinations and

application processes to ensure the

savings association’s ability to engage in

new activities in a safe, sound, secure,

and compliant manner.37

As technologies emerge, OTS may

revise the rule to require notice of

activities other than establishing a

transactional web site. Similarly, as

technologies mature and the industry

and OTS gain additional experience,

OTS may revise the rule to no longer

require notice before establishing a

transactional web site.

OTS is also making an editorial

change to § 555.300(a). The change

clarifies that OTS encourages

consultations with the Regional Office

regardless of whether the notice

requirement in § 555.300(b) or the

additional procedures in § 555.300(c)

apply.

2. How do I Notify OTS? (§ 555.310)

Proposed § 555.310 of the

Supplemental NPR described the

advance notice procedures. Proposed

§ 555.310(a) would require a savings

association to provide a written notice

to the appropriate Regional Office at

least 30 days before establishing a

transactional web site. Proposed

§ 555.310(b) contained a transition

provision applicable to transactional

web sites established after the date of

the association’s last regular onsite OTS

safety and soundness examination but

before the effective date of the rule.

Two commenters supported the 30-

day advance notice period. Another

commenter argued that the 30-day

notice period would be too long and

suggested a 10-day notice period.

Another commenter urged OTS to

permit a savings association to apprise

OTS within 30 days after establishing a

transactional web site. This notice

would permit OTS to review the web

site in an examination.

OTS has decided to retain the 30-day

advance notice procedure as proposed.

As discussed above, OTS does not

anticipate this procedure will be

burdensome. Thirty days is an

appropriate time period to allow OTS to

consider the notice and ask any followup questions that may be necessary.

In the Supplemental NPR, OTS did

not propose to prescribe any particular

form for the notice. Proposed

§ 555.310(a) would simply require that a

savings association describe the

transactional web site, indicate the date

the transactional web site will become

operational, and list a contact familiar

with the deployment, operation, and

security of the transactional web site.

The preamble to the Supplemental NPR

indicated that, upon receipt of the

notice, the Regional Office may require

additional information to ensure that

the savings association will operate the

transactional web site in a safe, sound,

secure, and compliant manner.38 The

preamble further indicated that OTS

contemplated that the notice may be

brief. It contained sample language that

read:

[Name of savings association] plans to

establish a transactional web site on the

Internet at [URL]. It will be operational on

[Date]. The site will contain mortgage loan

applications that can be transmitted securely
65680 Federal Register / Vol. 63, No. 229 / Monday, November 30, 1998 /Rules and Regulations

39Id.

40One commenter, however, noted that security

information may be difficult to obtain when the

web site is maintained by a service bureau. This

commenter noted that service bureaus often claim

that the release of such information will

compromise their systems.

41 12 CFR 545.92 (1998).

42 12 CFR 545.96 (1998).

43OTS will shortly undertake another rulemaking

to clarify the regulations governing various types of

offices.

to our loan processing office. For further

information contact: [Name at telephone

number, e-mail].39

Four commenters stated that OTS

should not require any information in

the notice beyond that described in the

Supplemental NPR. One commenter

specifically endorsed OTS’s sample

statement in the preamble as sufficient.

One commenter, however,

recommended that institutions describe

how they will conduct the activity, the

type of security they will use, the

internal controls they will follow, and

the program they will follow to ensure

compliance with all applicable laws and

regulations. Another commenter

observed that an overview of controls

and safeguards designed to preserve

privacy and security and protect against

financial fraud would be sufficient. 40

One commenter suggested that if OTS

discovers that new information is

necessary following this rulemaking, it

should require this information in

guidance, rather than in a revised rule.

OTS is adopting the requirements

concerning the contents of the notice as

proposed. It believes these requirements

will provide sufficient information to

the Regional Offices without being

burdensome or inflexible. The guidance

contained in the preamble to the

Supplemental NPR, including the

sample language set forth above,

remains valid.

Several commenters sought

clarification of the review procedures.

One commenter sought assurance that

the notice process was informational

only. Two commenters sought

clarification whether OTS would

approve or disapprove notices (e.g.,

where there are supervisory or

compliance concerns). One noted that if

prior OTS approval is required, the

notice process would impose substantial

financial, strategic, and compliance

risks on institutions. Another

commenter urged OTS to review all

notices within the notice period and

quickly act to prevent a savings

association from establishing a

transactional web site that could

threaten its safety and soundness.

The procedure will work as follows:

The savings association will file a

written notice with the Regional Office.

The Regional Office will review the

notice and may ask follow-up questions.

In general, once an association has

addressed those follow-up questions

from the Regional Office and the 30-day

period has expired, the association will

be free to bring its transactional web site

on-line. No affirmative authorization

from OTS is necessary except where the

Regional Office may otherwise indicate.

If, however, by the end of the 30-day

period, the Regional Office informs the

association that there are supervisory or

compliance concerns that may affect the

association’s establishment of a

transactional web site, the association

must follow any procedures that the

Regional Office imposes in writing. The

procedures the Regional Office may

impose could include, for example,

requiring further information to be

submitted or precautions to be taken

before the savings association may

establish the transactional web site,

limiting in some fashion the ways in

which the association may use the

transactional web site, or prohibiting the

association from establishing a

transactional web site.

One commenter opposing notice

procedures observed that the advance

notice only made sense if the Regional

Office would review the notice before

the roll-out of the web site. This

commenter, however, predicted that

OTS Regional Offices may apply

inconsistent standards and that this

inconsistency could be problematic

since web sites provide services

nationwide. The commenter suggested

that the final rule should require the

Regional Office to notify the thrift of any

conditions it would impose on web site

operations. OTS will issue industry

guidance to help a savings association

deploy a transactional web site in a safe,

sound, secure, and compliant manner.

OTS will also issue uniform guidance to

its Regional Offices to verify that

transactional web sites are in

compliance with the industry guidance

and this regulation and that savings

associations have established an

adequate infrastructure for operating

safe, sound, secure, and compliant

transactional web sites.

One commenter urged OTS to require

public notice and comment before a

savings association may establish a

transactional web site. This commenter

indicated that, in some states, financial

institutions must provide public notice

and comment before opening a depositcollecting branch or deposit-taking

ATM.

OTS does not believe it is appropriate

to require a public comment procedure.

Moreover, OTS posts notices on its web

site upon filing. The same policy will

apply to notices for transactional web

sites. This procedure will provide

adequate information to the public.

IV. Other Rule Provisions

A. Conforming Amendment to Branch

Offices Regulation

The proposed rule would revise

OTS’s branch office regulation to clarify

that electronic facilities (such as

automated loan machines) are not

branch offices. Three commenters

specifically supported this section,

although two requested clarifications.

One Federal savings association argued

that the final rule should indicate that

all electronic facilities and the Internet

are excluded from the definition of

‘‘branch office.’’ The proposed rule

would have excluded an ‘‘electronic

facility’’ from the definition of ‘‘branch

office,’’ but did not indicate that an

‘‘electronic means’’ was also excluded.

For consistency in terminology, the

final rule has been revised to exclude all

‘‘electronic means or facilities’’ from the

definition of ‘‘branch office.’’ Under

§ 555.200(a), the Internet continues to be

an electronic means or facility and is

not considered to be a branch.

Another Federal savings association

asked whether a ‘‘hybrid office’’ would

be treated as a branch office. This

commenter defined a hybrid office as an

office in which a Federal savings

association conducts the majority of its

operations electronically, but conducts

some functions in person by

appointment. The type of office the

commenter has described may be either

a branch office 41 or an agency 42

depending upon the types of services

provided. A Federal savings association

may request an OTS opinion if it

requires further guidance on this

topic.43

B. Conforming Amendment to

Subordinate Organizations Rule

The Examination Parity and Year

2000 Readiness for Financial

Institutions Act, discussed above,

applies to Federal and State savings

associations and provides OTS with the

authority to examine service

corporations. Accordingly, OTS is

conforming the service corporation

examination provision of its

Subordinate Organizations regulation,

12 CFR 559.3(o)(2), to reflect this

authority.

V. Other Issues Raised by Commenters

A. Preemption

One Federal savings association

commenting on both the NPR and the
Federal Register / Vol. 63, No. 229 / Monday, November 30, 1998 /Rules and Regulations 65681

44 12 CFR 545.138, 545.141, and 545.142 (1998).

45 12 CFR 545.2 (1998).

46See 12 CFR 545.2 (Operations), 557.11–557.13

(Deposits), and 560.2 (Lending and Investment)

(1998).

47Accord 12 CFR 557.11(a) and 560.2(a) (1998). 48See 12 CFR 557.13 and 560.2(c) (1998).

49While not specifically involving electronic

operations, the 1997 application from the Travelers

Group is illustrative of an institution’s efforts to

develop a new approach on CRA. The Travelers

Group filed an application to convert a statechartered bank to a Federal savings association

charter. The converted Federal savings association

was to engage in consumer lending and trust

services nationwide. In its application, Travelers

stated that its CRA obligation extended throughout

all the communities where it does business and

made an initial pledge to make at least $430 million

of home equity loans to low- and moderate-income

borrowers over three years. OTS approved

Travelers’ application. See Order No. 97–120

(November 24, 1997).

50See 12 CFR 563e.27 (1998).

Supplemental NPR urged OTS to add

specific preemption provisions stating

that OTS’s electronic operations

regulations preempt state laws

purporting to restrict or govern the

electronic operations of federal savings

associations. The commenter noted that

various states have enacted such laws.

The commenter argued that preemption

would encourage Federal savings

associations to participate in various

electronic banking activities, facilitate

the development of best industry

practices, and prevent the development

of a patchwork of conflicting state and

local rules.

Electronic operations and related state

and federal laws are still evolving. Thus,

OTS believes it is premature to craft

specific preemption regulations in the

area of electronic operations. OTS

intends to address specific state laws on

a case-by-case basis as they are raised to

the agency.

The commenter may have raised this

matter, in part, because the electronic

operations provisions will not be placed

in part 545, but rather in a new part 555.

Part 545 currently contains regulations

pertaining to electronic operations 44

and also contains a general provision

preempting state laws affecting

‘‘Operations.’’ 45 However, the

movement of the electronic operation

provisions to a new part 555 does not

indicate a substantive change. OTS will

apply principles of preemption

consistently with its prior

interpretations of OTS’s authority under

the HOLA.46 Accordingly, the

regulations in subpart A to part 555 will

have preemptive effect where

appropriate to: (1) facilitate the safe and

sound operations of a Federal savings

association, (2) enable a Federal savings

association to operate according to the

best thrift institution practices in the

United States, or (3) further other

purposes of the HOLA.47

When evaluating preemption of a

state law, OTS will focus first on the

underlying activity affected by the state

law. For example, if a state law affects

a Federal savings association’s ability to

take deposits or lend using electronic

means and facilities, OTS will apply the

part 557 or part 560 preemption analysis

for deposit or lending activities,

respectively. OTS will evaluate other

activities that may be conducted

electronically, on a case-by-case basis.

While OTS intends to give Federal

savings associations maximum

flexibility to operate electronically

according to a uniform federal scheme

of regulation, OTS has recognized that

some types of state laws, under certain

circumstances, generally will not be

preempted.48 Consistent with this

approach, OTS will determine that a

state law regulating electronic

operations is not preempted if it furthers

a vital state interest, and either has only

an incidental effect on Federal savings

associations’ ability to provide financial

services electronically or is not

otherwise contrary to the purposes of

OTS’s rule.

B. Community Reinvestment Act

Several commenters on the NPR

addressed the impact of emerging

electronic technologies on Community

Reinvestment Act (CRA) requirements.

The comments generally argued that the

current CRA requirements do not: (1)

provide adequate recognition of loans,

investments and services generated

outside of a Federal savings

association’s traditional assessment area

(i.e. the area surrounding its branch

network), or (2) permit Federal savings

associations with Internet operations to

define their CRA assessment areas more

broadly than the branch network

concept allows. Some commenters

offered options intended to address

these types of concerns. These included

allowing Federal savings associations

that engage in alternate delivery systems

to be treated as limited purpose

institutions or to define an assessment

area in a manner that is tied to the

customer base rather than a particular

geography. One commenter on the

Supplemental NPR expressed concern

that financial institutions may use web

sites to conduct business nationwide,

but would be required to include only

certain geographical areas in their CRA

assessment areas.

Currently, OTS is working on an

interagency basis to resolve these

concerns and other CRA issues arising

from the use of alternative methods of

delivering financial products and

services. The interagency effort involves

revisiting the definition of an

assessment area for institutions that use

alternative delivery systems. Until this

interagency effort is completed, OTS

intends to allow the new electronic

technologies to develop within the

existing CRA regulatory framework.

Specific CRA issues that arise in

connection with an application will

continue to be handled on a case-bycase basis in an effort to adapt existing

laws to modern technologies and

innovations. 49 An institution, of course,

always has the option of taking

advantage of the flexibility in the

existing CRA regulation by developing

and seeking approval of a strategic plan

that would link CRA performance to its

particular business strategy. 50

C. Other Interagency Issues

Both trade association commenters on

the NPR urged OTS, other Federal bank

regulators, and the Treasury Department

to coordinate their activities to ensure

the development of consistent

approaches to electronic operations

issues, to minimize regulatory burdens,

and to avoid potential conflicts. One

commenter on the Supplemental NPR

indicated it would only support the

notice requirement for transactional web

sites if all banking regulators imposed

the same requirement on their regulated

institutions.

As OTS issues rules and guidance on

electronic operations, it continually

strives for consistency with other

Federal banking regulators.

Accordingly, OTS will continue to

participate in all interagency efforts to

establish consistent regulatory

approaches to electronic operations

issues.

One Federal savings association noted

that when the Federal banking agencies

and the Department of Justice review a

merger or acquisition for its impact on

competition, the analysis focuses on the

relevant product and geographic

markets. These concepts generally

require an analysis of deposits taken,

loans made, and services provided in

the geographic areas served by the

combining institutions. The commenter

urged the Federal banking agencies to

view Internet banking activities as

outside the scope of the traditional

antitrust analysis and recognize that

current technology gives Federal savings

associations and banks the ability to

conduct business with customers all

over the country.

The entry of financial institutions into

electronic operations raises a host of

new issues. OTS has attempted through
65682 Federal Register / Vol. 63, No. 229 / Monday, November 30, 1998 /Rules and Regulations

this rulemaking and guidelines to

address issues that have arisen. To date,

the antitrust issue cited by the

commenter has not been a critical issue

in an application. Currently, financial

business through electronic operations

constitutes a very small portion of

financial services offered by Federal

savings associations. OTS will consider

providing guidance on this issue and

other issues in the future should they

emerge as prominent issues.

VI. Executive Order 12866

The Director of OTS has determined

that this final rule does not constitute a

‘‘significant regulatory action’’ for the

purposes of Executive Order 12866.

VII. Paperwork Reduction Act of 1995

The collection of information

requirements in this rule have been

submitted to and approved by the Office

of Management and Budget in

accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C.

3507(d)) under OMB control number

1550–0095.

Comments on all aspects of this

information collection should be sent to

the Office of Management and Budget,

Paperwork Reduction Project (1550–

0095), Washington, DC 20503, with

copies to the Regulations and

Legislation Division, Chief Counsel’s

Office, Office of Thrift Supervision,

1700 G Street, NW., Washington, DC

20552.

Under the Paperwork Reduction Act

of 1995, no persons are required to

respond to a collection of information

unless it displays a currently valid OMB

control number. The valid OMB control

number assigned to the collection of

information in this final rule is

displayed at 12 CFR 506.1.

The collection of information

requirements are found in 12 CFR

555.300 and 555.310. OTS requires this

information for the proper supervision

of electronic operations by savings

associations. The likely respondents/

recordkeepers are savings associations.

VIII. Regulatory Flexibility Act Analysis

Pursuant to section 605(b) of the

Regulatory Flexibility Act, OTS certifies

that this regulation will not have a

significant impact on a substantial

number of small entities. This final rule

should make it easier for Federal

savings associations, including small

institutions, to engage in electronic

operations. While it imposes a notice

requirement on savings associations

using one particular type of electronic

means or facility (i.e., a transactional

web site) and allows Regional Offices to

impose case-by-case restrictions for

supervisory or compliance reasons,

these requirements are the minimum

necessary for proper supervision and

should not have a significant impact on

a substantial number of small

institutions.

IX. Unfunded Mandates 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.

OTS has determined that the rule will

not result in expenditures by state,

local, or tribal governments or by the

private sector of $100 million or more.

Accordingly, this rulemaking is not

subject to section 202 of the Unfunded

Mandates Act.

List of Subjects

12 CFR Part 545

Accounting, Consumer protection,

Credit, Electronic funds transfers,

Investments, Reporting and

recordkeeping requirements, Savings

associations.

12 CFR Part 555

Accounting, Consumer protection,

Credit, Electronic funds transfers,

Investments, Reporting and

recordkeeping requirements, Savings

associations.

12 CFR Part 559

Reporting and recordkeeping

requirements, Savings associations,

Securities.

Accordingly, the Office of Thrift

Supervision amends chapter V, title 12

of the Code of Federal Regulations as set

forth below:

PART 545—OPERATIONS

1. The authority citation for part 545

continues to read as follows:

Authority: 12 U.S.C. 1462a, 1463, 1464,

1828.

2. Section 545.92 is amended by

revising paragraph (a) to read as follows:

§ 545.92 Branch offices.

(a) General. A branch office of a

Federal savings association is any office

other than its home office, agency office,

administrative office, data processing

office, or an electronic means or facility

under part 555 of this chapter.

* * * * *

§§ 545.138 through 545.142 [Removed]

3. Sections 545.138 through 545.142

are removed.

4. Part 555 is added to read as follows:

PART 555—ELECTRONIC

OPERATIONS

Sec.

555.100 What does this part do?

Subpart A—Authority of Federal Savings

Associations to Conduct Electronic

Operations

555.200 How may I use or participate with

others to use electronic means and

facilities?

555.210 What precautions must I take?

Subpart B—Requirements Applicable to All

Savings Associations

555.300 Must I inform OTS before I use

electronic means or facilities?

555.310 How do I notify OTS?

Authority: 12 U.S.C. 1462a, 1463, 1464.

§ 555.100 What does this part do?

Subpart A of this part describes how

a Federal savings association may

provide products and services through

electronic means and facilities. Subpart

B of this part contains requirements

applicable to all savings associations.

Subpart A—Authority of Federal

Savings Associations to Conduct

Electronic Operations

§ 555.200 How may I use or participate

with others to use electronic means and

facilities?

(a) General. A federal savings

association (‘‘you’’) may use, or

participate with others to use, electronic

means or facilities to perform any

function, or provide any product or

service, as part of an authorized activity.

Electronic means or facilities include,

but are not limited to, automated teller

machines, automated loan machines,

personal computers, the Internet, the

World Wide Web, telephones, and other

similar electronic devices.

(b) Other. To optimize the use of your

resources, you may market and sell, or

participate with others to market and

sell, electronic capacities and byproducts to third-parties, if you

acquired or developed these capacities

and by-products in good faith as part of

providing financial services.

§ 555.210 What precautions must I take?

If you use electronic means and

facilities under this subpart, your

management must:
Federal Register / Vol. 63, No. 229 / Monday, November 30, 1998 /Rules and Regulations 65683

(a) Identify, assess, and mitigate

potential risks and establish prudent

internal controls; and

(b) Implement security measures

designed to ensure secure operations.

Such measures must be adequate to:

(1) Prevent unauthorized access to

your records and your customers’

records;

(2) Prevent financial fraud through the

use of electronic means or facilities; and

(3) Comply with applicable security

devices requirements of part 568 of this

chapter.

Subpart B—Requirements Applicable

to All Savings Associations

§ 555.300 Must I inform OTS before I use

electronic means or facilities?

(a) General. A savings association

(‘‘you’’) are not required to inform OTS

before you use electronic means or

facilities, except as provided in

paragraphs (b) and (c) of this section.

However, OTS encourages you to

consult with your Regional Office before

you engage in any activities using

electronic means or facilities.

(b) Activities requiring advance

notice. You must file a written notice as

described in § 555.310 before you

establish a transactional web site. A

transactional web site is an Internet site

that enables users to conduct financial

transactions such as accessing an

account, obtaining an account balance,

transferring funds, processing bill

payments, opening an account, applying

for or obtaining a loan, or purchasing

other authorized products or services.

(c) Other procedures. If the OTS

Regional Office informs you of any

supervisory or compliance concerns that

may affect your use of electronic means

or facilities, you must follow any

procedures it imposes in writing.

§ 555.310 How do I notify OTS?

(a) Notice requirement. You must file

a written notice with the appropriate

Regional Office at least 30 days before

you establish a transactional web site.

The notice must do three things:

(1) Describe the transactional web

site.

(2) Indicate the date the transactional

web site will become operational.

(3) List a contact familiar with the

deployment, operation, and security of

the transactional web site.

(b) Transition provision. If you

established a transactional web site after

the date of your last regular onsite OTS

safety and soundness examination but

before January 1, 1999, you must file a

notice describing your activity by

February 1, 1999.

PART 559—SUBORDINATE

ORGANIZATIONS

5. The authority citation for part 559

continues to read as follows:

Authority: 12 U.S.C. 1462, 1462a, 1463,

1464, 1828.

6. Section 559.3 is amended by

revising paragraph (o)(2) to read as

follows:

§ 559.3 What are the characteristics of,

and what requirements apply to,

subordinate organizations of federal

savings associations?

* * * * *

(o) * * *

(2) A service corporation is subject to

examination by OTS.

* * * * *

Dated: November 20, 1998.

By the Office of Thrift Supervision.

Ellen Seidman,

Director.

[FR Doc. 98–31746 Filed 11–27–98; 8:45 am]

BILLING CODE 6720–01–P

FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 900, 922, 931, 932, 933,

934, and 941

[No. 98–47]

RIN 3069–AA55

Election of Federal Home Loan Bank

Directors

AGENCY: Federal Housing Finance

Board.

ACTION: Final rule.

SUMMARY: The Federal Housing Finance

Board (Finance Board) is amending its

regulations on the election of Federal

Home Loan Bank (Bank) directors. The

final rule devolves responsibility for

determining the eligibility of elective

directors and administering the election

process from the Finance Board to the

Banks. The final rule is part of the

Finance Board’s continuing effort to

transfer management and governance

responsibilities to the Banks and is

consistent with the goals of the

Regulatory Reinvention Initiative of the

National Performance Review.

EFECTIVE DATE: The Final Rule will

become effective on December 30, 1998.

FOR FURTHER INFORMATION CONTACT:

Patricia L. Sweeney, Program Analyst,

Compliance Assistance Division, Office

of Policy, 202/408–2872, or Roy S.

Turner, Jr., Attorney-Advisor, Office of

General Counsel, 202/408–2512, Federal

Housing Finance Board, 1777 F Street,

NW, Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

Pursuant to section 7 of the Federal

Home Loan Bank Act (Act), which sets

forth the eligibility requirements and

the procedures for electing and

appointing Bank directors, and

regulations promulgated thereunder, the

Finance Board’s predecessor, the former

Federal Home Loan Bank Board

(FHLBB), determined the eligibility of

all Bank directors, administered the

Bank director elections, and appointed

public interest directors. See 12 U.S.C.

1427 (1989); 12 CFR part 522 (1989).

After Congress abolished the FHLBB in

1989, see Financial Institutions Reform,

Recovery, and Enforcement Act of 1989

(FIRREA), Pub.L. 101–73, sec. 401, 103

Stat. 183 (Aug. 9, 1989), the Finance

Board adopted the FHLBB regulations

on Bank directors, without change. See

54 FR 36757 (Sept. 5, 1989), codified at

12 CFR part 932. The Finance Board

subsequently amended its regulations to

implement the changes FIRREA made to

the eligibility requirements for, and to

apply the conflicts of interest

limitations FIRREA imposed on, Bank

directors. 55 FR 1393 (Jan. 16, 1990); 56

FR 55205 (Oct. 25, 1991); see FIRREA,

secs. 707, 710(b)(4), 103 Stat. 417, 418,

codified at 12 U.S.C. 1427.

Since the enactment of FIRREA the

Finance Board has determined the

eligibility of all Bank directors, has

administered the election of Bank

directors, and has appointed public

interest directors. As part of its policy

of removing itself from the management

and governance functions of the Banks

and devolving those responsibilities to

the Banks, the Finance Board is

transferring the administration of the

elections, including the responsibility to

determine the eligibility of elective

directors, to the Banks. This action does

not affect the appointment of public

interest directors for the Banks, who

will continue to be appointed in the sole

discretion of the Finance Board.

The final rule amends, redesignates,

or eliminates various provisions of part

932, and includes conforming

amendments to parts 900, 931, 933, 934,

and 941. The Finance Board also is

repealing the current conflict of interest

and financial disclosure requirements

established by part 922 of its regulations

for the appointed members of the Board

of Directors of the Finance Board. All of

the changes are consistent with the

goals of the Regulatory Reinvention

Initiative of the National Performance

Review. See E.O. 12861, 58 FR 48255

(Sept. 11, 1993).