I

103D CONGRESS

2D SESSION H. R. 4097

To reform the Federal regulation of depository institution service corporations.

IN THE HOUSE OF REPRESENTATIVES

MARCH 21, 1994

Mr. LEACH introduced the following bill; which was referred to the Committee

on Banking, Finance and Urban Affairs

A BILL

To reform the Federal regulation of depository institution

service corporations.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act shall be cited as the ‘‘Depository Institution

5 Service Corporation Reform Act of 1994’’.

6 TITLE I—BANK SERVICE CORPORATION

7 ACT AMENDMENTS

8 SEC. 101. SERVICE CORPORATION REFORMS.

9 The Bank Service Corporation Act (Public Law 87–

10 856, 76 Stat. 1132, 12 U.S.C. 1861 et seq.) is amended

11 to read as follows:
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1 ‘‘SECTION 1. SHORT TITLE; DEFINITIONS.

2 ‘‘(a) This Act may be cited as the ‘Depository Institu3 tions Service Corporation Act’.

4 ‘‘(b) For the purpose of this chapter—

5 ‘‘(1) the term ‘appropriate Federal banking

6 agency’ shall have the meaning provided in section

7 3(q) of the Federal Deposit Insurance Act (12

8 U.S.C. 1813(q));

9 ‘‘(2) the term ‘depository institution service cor10 poration’ means a corporation organized to perform

11 services authorized by this Act, all of the capital

12 stock of which is owned by one or more insured de13 pository institutions;

14 ‘‘(3) the term ‘Board’ means the Board of Gov15 ernors of the Federal Reserve System;

16 ‘‘(4) the terms ‘depository institution’, ‘insured

17 depository institution’ and ‘institution-affiliated

18 party’ have the meaning as in section 3 of the Fed19 eral Deposit Insurance Act (12 U.S.C. 1813);

20 ‘‘(5) the term ‘invest’ includes any advance of

21 funds to a depository institution service corporation,

22 whether by the purchase of stock, the making of a

23 loan, or otherwise, except a payment for rent earned,

24 goods sold and delivered, or services rendered prior

25 to the making of such payment; and
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1 ‘‘(6) the term ‘principal investor’ means the in2 sured depository institution that has the largest dol3 lar amount invested in the capital stock of a deposi4 tory institution service corporation. In any case

5 where two or more insured depository institutions

6 have equal dollar amounts invested in a depository

7 institution service corporation, the corporation shall,

8 prior to commencing operations, select one of the in9 sured depository institutions as its principal investor

10 and shall notify the depository institution’s appro11 priate Federal banking agency of that choice within

12 5 business days of its selection.

13 ‘‘SEC. 2. AMOUNT OF INVESTMENT IN DEPOSITORY INSTI14 TUTION SERVICE CORPORATION.

15 ‘‘(a) DEPOSITORY INSTITUTIONS.—Notwithstanding

16 any limitation or prohibition otherwise imposed by any

17 provision of law exclusively relating to depository institu18 tions, an insured depository institution may invest in a

19 depository institution service corporation, provided that it

20 invests no more than—

21 ‘‘(1) 10 per centum of paid-in and unimpaired

22 capital and unimpaired surplus in any single deposi23 tory institution service corporation;
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1 ‘‘(2) 20 per centum of paid-in and unimpaired

2 capital and unimpaired surplus in depository institu3 tion service corporations; or

4 ‘‘(3) 3 per centum of its total assets in deposi5 tory institution service corporations.

6 ‘‘(b) INSTITUTION-AFFILIATED PARTIES.—Without

7 the prior written approval of the appropriate Federal

8 banking agency, no depository institution service corpora9 tion may pay management fees, in any manner, to an in10 stitution-affiliated party or any corporation owned by an

11 institution-affiliated party.

12 ‘‘SEC. 3. PERMISSIBLE SERVICE CORPORATION ACTIVITIES

13 FOR DEPOSITORY INSTITUTIONS.

14 ‘‘Without regard to the provisions of sections 4 and

15 5 of this Act, an insured depository institution may invest

16 in a depository institution service corporation that per17 forms, and a depository institution service corporation

18 may perform, the following services only for depository in19 stitutions: check and deposit sorting and posting, com20 putation and posting of interest and other credits and

21 charges, preparation and mailing of checks, statements,

22 notices, and similar items, or any other clerical, book23 keeping, accounting, statistical, or similar functions per24 formed for a depository institution.
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1 ‘‘SEC. 4. PERMISSIBLE DEPOSITORY INSTITUTION SERVICE

2 CORPORATION ACTIVITIES FOR OTHER PER3 SONS.

4 ‘‘(a) SERVICES PERMISSIBLE OTHER THAN TAKING

5 DEPOSITS.—A depository institution service corporation

6 may provide to any person any service authorized by this

7 section, except that a depository institution service cor8 poration shall not take deposits.

9 ‘‘(b) PERMISSIBLE SERVICES.—

10 ‘‘(1) IN GENERAL.—A depository institution

11 service corporation shall not perform any type of

12 service or engage in any activity not permissible for

13 a national bank.

14 ‘‘(2) WAIVER.—The appropriate Federal bank15 ing agency may waive the requirements of this sec16 tion, if—

17 ‘‘(A) the agency determines an activity

18 would pose no significant risk to the appro19 priate deposit insurance fund; and

20 ‘‘(B) the depository institution is in com21 pliance with applicable capital standards pre22 scribed by the appropriate Federal banking

23 agency.

24 ‘‘(c) GEOGRAPHIC LOCATION.—Notwithstanding the

25 other provisions of this section or any other provision of

26 law, other than the provisions of Federal and State
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1 branching law regulating the geographic location of banks

2 to the extent that those laws are applicable to an activity

3 authorized by this subsection, a depository institution

4 service corporation may perform at any geographic loca5 tion any service, other than deposit taking, that the Board

6 has determined, by regulation, to be permissible for a bank

7 holding company under section 4(c)(8) of the Bank Hold8 ing Company Act of 1956 (12 U.S.C. 1843(c)(8)).

9 ‘‘SEC. 5. PRIOR APPROVAL FOR INVESTMENTS IN DEPOSI10 TORY INSTITUTION SERVICE CORPORATIONS.

11 ‘‘(a) APPROVAL OF FEDERAL BANKING AGENCY.—

12 No insured depository institution shall invest in the capital

13 stock of a depository institution service corporation that

14 performs any service under authority of section 4(b) of

15 this Act without the prior approval of the depository insti16 tution’s appropriate Federal banking agency.

17 ‘‘(b) APPROVAL OF BOARD.—No insured depository

18 institution shall invest in the capital stock of a depository

19 institution service corporation that performs any service

20 under authority of section 4(c) of this Act and no deposi21 tory institution service corporation shall perform any ac22 tivity under section 4(c) of this Act without the prior ap23 proval of the Board.

24 ‘‘(c) CONSIDERATIONS IN DETERMINING AP25 PROVAL.—In determining whether to approve or deny any
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1 application for prior approval under this section, the

2 Board or the appropriate Federal banking agency, as the

3 case may be, is authorized to consider the financial and

4 managerial resources and future prospects of the deposi5 tory institution or depository institutions and depository

6 institution service corporation involved, including the fi7 nancial capability of the depository institution to make a

8 proposed investment under this chapter, and possible ad9 verse effects such as undue concentration of resources, un10 fair or decreased competition, conflicts of interest, or un11 safe or unsound banking practices.

12 ‘‘(d) FAILURE TO ACT ON APPLICATION FOR AP13 PROVAL.—In the event the Board or the appropriate Fed14 eral banking agency, as the case may be, fails to act on

15 any application under this section within ninety days of

16 the submission of a complete application to the agency,

17 the application shall be deemed approved.

18 ‘‘SEC. 6. SERVICES TO NONSTOCKHOLDERS.

19 No depository institution service corporation shall un20 reasonably discriminate in the provision of any services

21 authorized under this chapter to any depository institution

22 that does not own stock in the service corporation on the

23 basis of the fact that the nonstockholding institution is

24 in competition with an institution that owns stock in the

25 depository institution service corporation, except that—
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1 ‘‘(1) it shall not be considered unreasonable dis2 crimination for a depository institution service cor3 poration to provide services to a nonstockholding in4 stitution only at a price that fully reflects all of the

5 costs of offering those services, including the cost of

6 capital and a reasonable return thereon; and

7 ‘‘(2) a depository institution service corporation

8 may refuse to provide services to a nonstockholding

9 institution if comparable services are available from

10 another source at competitive overall costs, or if the

11 providing of services would be beyond the practical

12 capacity of the service corporation.

13 ‘‘SEC. 7. REGULATION AND EXAMINATION OF DEPOSITORY

14 INSTITUTION SERVICE CORPORATIONS.

15 ‘‘(a) PRINCIPAL INVESTOR.—A depository institution

16 service corporation shall be subject to examination and

17 regulation by the appropriate Federal banking agency of

18 its principal investor to the same extent as its principal

19 investor. The appropriate Federal banking agency of the

20 principal shareholder of such a depository institution serv21 ice corporation may authorize any other Federal banking

22 agency that supervises any other shareholder of the depos23 itory institution service corporation to make such an ex24 amination.
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1 ‘‘(b) ENFORCEMENT.—A depository institution serv2 ice corporation shall be subject to the provisions of section

3 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818)

4 as if the depository institution service corporation were an

5 insured depository institution. For this purpose, the ap6 propriate Federal banking agency shall be the appropriate

7 Federal banking agency of the principal investor of the

8 depository institution service corporation.

9 ‘‘(c) SERVICES PERFORMED BY CONTRACT OR OTH10 ERWISE.—Notwithstanding subsection (a) of this section,

11 whenever a depository institution that is regularly exam12 ined by an appropriate Federal banking agency, or any

13 subsidiary or affiliate of such a depository institution that

14 is subject to examination by that agency, causes to be per15 formed for itself, by contract or otherwise, any services

16 authorized under this Act, whether on or off its prem17 ises—

18 ‘‘(1) such performance shall be subject to regu19 lation and examination by such agency to the same

20 extent as if such services were being performed by

21 the depository institution itself on its own premises,

22 and

23 ‘‘(2) the depository institution shall notify such

24 agency of the existence of the service relationship

25 within thirty days after the making of such service
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1 contract or the performance of the service, whichever

2 occurs first.

3 ‘‘(d) ISSUANCE OF REGULATIONS AND ORDERS.—

4 The Board and the appropriate Federal banking agencies

5 are authorized to issue such regulations and orders as may

6 be necessary to enable them to administer and to carry

7 out the purposes of this chapter and to prevent evasions

8 thereof.’’.

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