II

105TH CONGRESS

2D SESSION S. 1594

To amend the Bank Protection Act of 1968 for purposes of facilitating

the use of electronic authentication techniques by financial institutions,

and for other purposes.

IN THE SENATE OF THE UNITED STATES

FEBRUARY 2, 1998

Mr. BENNETT introduced the following bill; which was read twice and referred

to the Committee on Banking, Housing, and Urban Affairs

A BILL

To amend the Bank Protection Act of 1968 for purposes

of facilitating the use of electronic authentication techniques by financial institutions, and for other purposes.

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 may be cited as the ‘‘Digital Signature and

5 Electronic Authentication Law (SEAL) of 1998’’.

6 SEC. 2. FINDINGS AND PURPOSES.

7 (a) FINDINGS.—Congress finds that—

8 (1) technology has had a tremendous impact on

9 the manner in which banks and other financial insti-
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1 tutions conduct their businesses, and has affected

2 virtually all aspects of their operations;

3 (2) such changes relate not only to the creation,

4 retention, and delivery of documents and other infor5 mation, but also to the receipt and payment of

6 funds, the purchase and sale of goods and services,

7 and other aspects of the ability of a financial institu8 tion to communicate with and service its customer

9 base;

10 (3) financial and other transactions will increas11 ingly be carried over open electronic networks such

12 as the Internet, and through other methods where

13 the identity of the parties participating in such

14 transactions may not be easily verifiable and where

15 there is a need to assure that information transmit16 ted among the parties has not been altered;

17 (4) banks, by virtue of their role in the Nation’s

18 payment system, their relationships with their cus19 tomers, and through the prudent use of technology,

20 are well placed to facilitate financial transactions

21 over such electronic media as the Internet;

22 (5) the parties to such financial and other

23 transactions may previously have entered into agree24 ments or system rules pursuant to which the trans-
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1 actions subsequently take place (known as ‘‘closed

2 system transactions’’);

3 (6) if the formation of system rules and agree4 ments are otherwise valid and effective under appli5 cable law, such as under State contract law, the par6 ties should be able to use electronic authentication

7 under the terms and conditions of those system rules

8 and agreements, to help ensure that the development

9 of electronic authentication will be appropriately

10 market driven;

11 (7) premature, conflicting, or unwise regulation

12 can inadvertently discourage the use of technology in

13 financial transactions, can inhibit the development of

14 electronic commerce, and can reduce security in fi15 nancial transactions;

16 (8) it is appropriate for Congress to enable a

17 framework under which banks and their subsidiaries

18 and affiliates can participate in electronic commerce

19 and electronic banking without undue premature or

20 unnecessary regulation, but under which appropriate

21 oversight is provided; and

22 (9) in particular, it is appropriate for the Board

23 of Governors of the Federal Reserve System to con24 sult with the other Federal and State banking regu25 lators and report to the Congress regarding the use
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1 of electronic authentication techniques, in order to

2 facilitate electronic commerce and electronic bank3 ing, and to study the need for and wisdom of con4 sumer protection in the context of the developing

5 area of electronic commerce.

6 (b) PURPOSES.—The purposes of this Act are—

7 (1) to facilitate the participation by financial in8 stitutions in the burgeoning area of electronic com9 merce and electronic banking;

10 (2) to ensure that the interests of consumers

11 are adequately protected; and

12 (3) to avoid the effects of premature or conflict13 ing regulation that could inadvertently impede the

14 development of electronic banking and commerce or

15 imperil the security of electronic banking and com16 merce.

17 SEC. 3. AMENDMENTS TO THE BANK PROTECTION ACT OF

18 1968.

19 (a) DEFINITIONS.—Section 2 of the Bank Protection

20 Act of 1968 (12 U.S.C. 1881) is amended—

21 (1) by inserting ‘‘(a) FEDERAL SUPERVISORY

22 AGENCY.—’’ before ‘‘As used’’;

23 (2) in paragraph (4), by inserting ‘‘associa24 tions’’ before the period; and

25 (3) by adding at the end the following:
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1 ‘‘(b) AFFILIATE.—The term ‘affiliate’ has the same

2 meaning as in section 2(k) of the Bank Holding Company

3 Act of 1956.

4 ‘‘(c) APPROPRIATE FEDERAL BANKING AGENCY.—

5 The term ‘appropriate Federal banking agency’ has the

6 same meaning as in section 3 of the Federal Deposit In7 surance Act, and includes the National Credit Union Ad8 ministration with respect to an insured credit union under

9 the Federal Credit Union Act.

10 ‘‘(d) ASSOCIATION.—The term ‘association’ means an

11 organization or association engaged in receiving, sending,

12 and settling payment transactions and instructions, and

13 includes credit and charge card associations, payment

14 clearinghouses, and automated teller machine networks in

15 which insured depository institutions are members or

16 stockholders or in which they participate, or which are su17 pervised and examined by 1 or more of the Federal bank18 ing agencies.

19 ‘‘(e) BANK HOLDING COMPANY.—The term ‘bank

20 holding company’ has the same meaning as in section 2

21 of the Bank Holding Company Act of 1956.

22 ‘‘(f) DOCUMENT.—The term ‘document’ means any

23 message, instrument, information, data, image, text, pro24 gram, software, database, or the similar item, regardless
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1 of how created, if such item can be retrieved or displayed

2 in a tangible form.

3 ‘‘(g) ELECTRONIC AUTHENTICATION.—The term

4 ‘electronic authentication’ means a cryptographic or other

5 secure electronic technique that allows the user of the

6 technique—

7 ‘‘(1) to authenticate the identity of or informa8 tion associated with a sender of a document;

9 ‘‘(2) to determine that a document was not al10 tered, changed, or modified during its transmission

11 to a recipient; or

12 ‘‘(3) to verify that a document received was

13 sent by the identified party claiming to be the send14 er.

15 ‘‘(h) FEDERAL BANKING AGENCY.—The term ‘Fed16 eral banking agency’ has the same meaning as in section

17 3 of the Federal Deposit Insurance Act, and includes the

18 National Credit Union Administration.

19 ‘‘(i) FINANCIAL INSTITUTION.—The term ‘financial

20 institution’ means—

21 ‘‘(1) an insured depository institution and any

22 branch, representative office, or subsidiary thereof;

23 ‘‘(2) a bank holding company and any subsidi24 ary thereof;
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1 ‘‘(3) an affiliate of an insured depository insti2 tution;

3 ‘‘(4) an association;

4 ‘‘(5) a foreign bank maintaining an agency or

5 branch (as such terms are defined in section 1(b) of

6 the International Banking Act of 1978) in the

7 United States; or

8 ‘‘(6) any entity that is not described in para9 graphs (1) through (5) that is a financial institution,

10 as defined in section 903 of the Electronic Fund

11 Transfer Act, or a card issuer, as defined in section

12 103 of the Truth in Lending Act, but only to the ex13 tent that the transactions of such entity are subject

14 to those Acts, respectively,

15 that affirmatively elects to be subject to the provisions of

16 this Act by providing appropriate notice of such election

17 in accordance with any commercially reasonable practice.

18 ‘‘(j) INSURED DEPOSITORY INSTITUTION.—The term

19 ‘insured depository institution’ has the same meaning as

20 in section 3 of the Federal Deposit Insurance Act.

21 ‘‘(k) STATE BANK SUPERVISOR.—The term ‘State

22 bank supervisor’ has the same meaning as in section 3

23 of the Federal Deposit Insurance Act.

24 ‘‘(l) SUBSIDIARY.—The term ‘subsidiary’—
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1 ‘‘(1) has the same meaning as in section 2(d)

2 of the Bank Holding Company Act of 1956; and

3 ‘‘(2) includes a ‘subsidiary’, as defined in sec4 tion 23A(b)(4) of the Federal Reserve Act.’’.

5 (b) ELECTRONIC COMMERCE.—The Bank Protection

6 Act of 1968 (12 U.S.C. 1881 et seq.) is amended by add7 ing at the end the following new sections:

8 ‘‘SEC. 6. ELECTRONIC AUTHENTICATION OF DOCUMENTS.

9 ‘‘(a) ELECTRONIC AUTHENTICATION OF DOCU10 MENTS, INFORMATION, AND IDENTITY.—

11 ‘‘(1) IN GENERAL.—A financial institution may

12 use electronic authentication in the conduct of its

13 business if it has entered into an agreement regard14 ing the use of electronic authentication with any

15 counterparty, or if it has established a banking, fi16 nancial, or transactional system using electronic au17 thentication.

18 ‘‘(2) APPLICABLE RULES.—The establishment

19 and use of electronic authentication pursuant to this

20 section shall be valid according to the relevant agree21 ments or system rules.

22 ‘‘(b) OVERSIGHT.—

23 ‘‘(1) IN GENERAL.—The appropriate Federal

24 banking agency or the appropriate State bank super25 visor may preclude, by regulation or order, an in-
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1 sured depository institution or a subsidiary or affili2 ate thereof, or other institution subject to its juris3 diction, from using electronic authentication in the

4 conduct of its business if it determines that—

5 ‘‘(A) such use would not be consistent with

6 safe and sound banking practices; or

7 ‘‘(B) such use would threaten the safety

8 and soundness of the institution, subsidiary, or

9 affiliate.

10 ‘‘(2) STATE AUTHORITY.—

11 ‘‘(A) IN GENERAL.—No financial institu12 tion shall—

13 ‘‘(i) be regulated by, be required to

14 register with, or be certified, licensed, or

15 approved by; or

16 ‘‘(ii) be limited by or required to act

17 or operate under standards, rules, or regu18 lations promulgated by,

19 a State government or agency or instrumental20 ity thereof with regard to the use of electronic

21 authentication, including acting as a digital cer22 tification authority or performing a similar role,

23 pursuant to this Act.

24 ‘‘(B) LIMITATION ON FEES.—No State

25 may—
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1 ‘‘(i) impose a fee with respect to elec2 tronic authentication services performed by

3 a financial institution subject to the provi4 sions of this Act; or

5 ‘‘(ii) impose any required minimum

6 fee or otherwise limit the fee that may be

7 charged by a financial institution with re8 spect to electronic authentication services

9 subject to the provisions of this Act.

10 ‘‘(C) OTHER REGULATORY AUTHORITY.—

11 Nothing in this subsection precludes a State

12 bank supervisor from regulating a State-char13 tered financial institution that is otherwise sub14 ject to its jurisdiction.

15 ‘‘(D) CONSUMER PROTECTION.—Nothing

16 in this section impairs the rights afforded to

17 consumers under State general consumer pro18 tection laws.

19 ‘‘SEC. 7. CONSUMER PROTECTION.

20 ‘‘Nothing in section 6(a) shall be construed to impair

21 the rights afforded to consumers under—

22 ‘‘(1) the Truth in Lending Act or the Electronic

23 Fund Transfer Act, or the implementing regulations

24 of the Federal Reserve Board thereunder applicable
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1 to electronic funds transfers from a consumer ac2 count or extension of credit to consumers; or

3 ‘‘(2) any State law of a similar nature or pur4 pose.’’.

5 SEC. 4. FEDERAL RESERVE BOARD STUDY.

6 (a) REPORT.—Not later than July 1, 2000, the

7 Board of Governors of the Federal Reserve System (here8 after in this section referred to as the ‘‘Board’’), in con9 sultation with the Federal banking agencies and State

10 bank supervisors, shall report to the Congress regarding

11 the use of electronic authentication under section 6 of the

12 Bank Protection Act of 1968, as added by this Act by

13 financial institutions.

14 (b) CONSIDERATIONS.—In preparing the report re15 quired under subsection (a), the Board shall include con16 sideration of—

17 (1) the appropriateness of applying the con18 sumer protection provisions of the Truth in Lending

19 Act, and the Electronic Fund Transfer Act, or the

20 implementing regulations of the Board promulgated

21 thereunder, to such transactions;

22 (2) whether protections for consumers should

23 be changed in light of the experience of financial in24 stitutions and consumers in transactions where elec-
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1 tronic authentication is used in connection with

2 third-party assurances; and

3 (3) the need for consultation and coordination

4 with other nations concerning the international use

5 of electronic authentication by financial institutions

6 and others, with the purposes of—

7 (A) encouraging simplified regulatory gov8 ernance, foreign recognition of electronic au9 thentication under this Act, and United States

10 recognition of foreign electronic authentication;

11 (B) encouraging the greatest possible

12 interoperability across borders;

13 (C) imposing the least possible regulation

14 consistent with security and safety and sound15 ness considerations;

16 (D) promoting the smooth functioning of

17 the payments system; and

18 (E) facilitating the opportunity for finan19 cial institutions to participate freely and fairly

20 in foreign markets.

21 (c) INCORPORATION OF DEFINED TERMS.—Any term

22 used in this section that is defined in section 2 of the Bank

23 Protection Act of 1968 (as amended by this Act) shall

24 have the same meaning as in that section 2.
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1 SEC. 5. RULES OF CONSTRUCTION.

2 (a) EFFECT ON USE.—Nothing in this Act or the

3 amendments made by this Act may be construed to limit

4 the right of any financial institution or other entity to use

5 electronic authentication or other authentication technique

6 in the conduct of its business.

7 (b) EFFECT ON OTHERWISE LAWFUL AGREE8 MENTS.—Except as otherwise specifically provided, noth9 ing in this Act or the Bank Protection Act of 1968, as

10 amended by this Act, shall be construed to affect the valid11 ity of the formation of relevant agreements or system rules

12 in accordance with the provisions of otherwise applicable

13 Federal or State law.

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