BOARD OF GOVERNORS
 

OF'THE
 

FECERAL RESERVE SYSTEM 

WASHINGTON, D. C. 20551 

SCOTT G. ALVAREZ 

GENERAL COUNSEL 

Gene R. Elerding, Esq.
 

Manatt, Phelps & Phillips, LLP
 

11355 West Olympic Boulevard
 

Los Angeles, California 90064-1614
 

Dear Mr. Elerding:
 

This responds to your October 17, 2007, letter ("Letter") requesting a 

determination on behalf of 

and its parent company, ., that 

would continue to qualify for the "credit card bank exemption" from the definition 

of bank in section 2(c)(2)(F) ofthe Bank Holding Company Act ("BHC Act"),} if 

the bank elects to underwrite and offer debt protection services ("DPS") as 

described below. 

The credit card bank exemption from the definition of bank in the 

BHC Act applies to any "institution, including an institution that accepts collateral 

for extensions of credit by holding deposits under $100,000, and by other means 

which - (i) engages only in credit card operations; (ii) does not accept demand 

deposits or deposits that the depositor may withdraw by check or similar means for 

payment to third parties or others; (iii) does not accept any savings or time deposit 

of less than $100,000; (iv) maintains only one office that accepts deposits; and 

(v) does not engage in the business ofmaking commercialloans.,,2 

currently markets DPS to its credit card customers 

("Customers") in the capacity as agent for an unaffiliated third party. 

does not underwrite DPS itself. For a fee,'s Customers 

} 12 U.S.C. § 1841(c)(2)(F). 

2 Id. 
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who elect to receive DPS receive deferral or cancellation of some or all oftheir 

credit card obligations to the bank in the event of an unexpected, predefined 

hardship - death, disability, or involuntary unemployment ("Covered Events"). 

now proposes to underwrite DPS for its existing and future 

Customers. 

would offer DPS as an optional, supplemental 

feature to the bank's existing credit card operations. The bank and its Customers 

would enter into a contractual agreement that would specify when debt deferral or 

cancellation begins and ends for any Covered Event, exclusions from coverage, 

and other coverage requirements. A Customer would pay a monthly service charge 

and would continue to have full access to the benefits ofthe program as long as the 

bank received its monthly fee. A Customer may cancel its participation in DPS at 

any time. 

's DPS consist of debt suspension services and debt 

cancellation services, depending on the Covered Event. In the event of a 

Customer's unanticipated disability or involuntary unemployment, the bank would 

suspend the Customer's credit card payment obligations for a predefined period 

("Cancellation Period"). During the Cancellation Period, Customers would not be 

required to make their regular minimum monthly payment, but interest would 

continue to accrue and Customers could not use their accounts for purchases or 

cash advances. In the event of a loss oflife, the Customer's entire outstanding 

balance would be cancelled (up to the maximum amount stated in the bank's 

agreement with the Customer). 

To qualify for the credit card bank exemption in the BRC Act, a 

financial institution must "engage only in credit card operations.,,4 The legislative 

history ofthis provision indicates that a qualifying institution must engage "only in 

the business of issuing and processing credit cards for individuals and in 

transactions that are a necessary incident to that business.,,5 DPS would benefit 

·'s Customers by helping them meet their credit card obligations to 

the bank under adverse circumstances. These services also would aid· 

in defraying credit losses from its credit card lending to Customers. In light 

ofthe close risk management nexus between the bank's DPS and its credit card 

lending, the proposed DPS appear to be part of or a necessary incident to the 

bank's credit card operations. 

4 12 U.S.C. § 1841(c)(2)(F)(i). 

5 Sen. Comm. Rep. No. 100-19, 100th Cong., 1

st Sess., pp. 29-30 (1987). 
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Based on all the facts of record and subject to the commitments and 

representations discussed above or otherwise set forth in the Letter, the Legal 

Division would not recommend that the Board find to be a bank 

for purposes of the BHC Act as a result of underwriting and offering the DPS 

described above and in the Letter. 

Any material change in the facts presented may result in different 

conclusions and should be reported promptly to Board staff. Ifyou have any 

questions about this letter, please contact Mark E. Van Der Weide of my staff at 

(202) 452-2263. 

cc:	 Federal Reserve Bank of San Francisco 

Office of the Comptroller ofthe Currency