I
105TH CONGRESS
2D SESSION
H. R. 3472
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 HOUSE OF REPRESENTATIVES
MARCH 17, 1998
Mr. COOK introduced the following bill; which was referred to the Committee
on Banking and Financial Services
A BILL
To amend the Bank Protection Act of 1968 for purposes
of facilitating the use of electronic authentication tech-
niques by financial institutions, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Digital Signature and
Electronic Authentication Law (SEAL) of 1998’’.
SEC. 2. FINDINGS AND PURPOSES.
(a) FINDINGS.—Congress finds that—
(1) technology has had a tremendous impact on
the manner in which banks and other financial insti-
tutions conduct their businesses, and has affected
virtually all aspects of their operations;
(2) such changes relate not only to the creation,
retention, and delivery of documents and other infor-
mation, but also to the receipt and payment of
funds, the purchase and sale of goods and services,
and other aspects of the ability of a financial institu-
tion to communicate with and service its customer
base;
(3) financial and other transactions will increas-
ingly be carried over open electronic networks such
as the Internet, and through other methods where
the identity of the parties participating in such
transactions may not be easily verifiable and where
there is a need to assure that information transmit-
ted among the parties has not been altered;
(4) banks, by virtue of their role in the Nation’s
payment system, their relationships with their cus-
tomers, and through the prudent use of technology,
are well placed to facilitate financial transactions
over such electronic media as the Internet;
(5) the parties to such financial and other
transactions may previously have entered into agree-
ments or system rules pursuant to which the trans-
actions subsequently take place (known as ‘‘closed
system transactions’’);
(6) if the formation of system rules and agree-
ments are otherwise valid and effective under appli-
cable law, such as under State contract law, the par-
ties should be able to use electronic authentication
under the terms and conditions of those system rules
and agreements, to help ensure that the development
of electronic authentication will be appropriately
market driven;
(7) premature, conflicting, or unwise regulation
can inadvertently discourage the use of technology in
financial transactions, can inhibit the development of
electronic commerce, and can reduce security in fi-
nancial transactions;
(8) it is appropriate for Congress to enable a
framework under which banks and their subsidiaries
and affiliates can participate in electronic commerce
and electronic banking without undue premature or
unnecessary regulation, but under which appropriate
oversight is provided; and
(9) in particular, it is appropriate for the Board
of Governors of the Federal Reserve System to con-
sult with the other Federal and State banking regu-
lators and report to the Congress regarding the use
of electronic authentication techniques, in order to
facilitate electronic commerce and electronic bank-
ing, and to study the need for and wisdom of con-
sumer protection in the context of the developing
area of electronic commerce.
(b) PURPOSES.—The purposes of this Act are—
(1) to facilitate the participation by financial in-
stitutions in the burgeoning area of electronic com-
merce and electronic banking;
(2) to ensure that the interests of consumers
are adequately protected; and
(3) to avoid the effects of premature or conflict-
ing regulation that could inadvertently impede the
development of electronic banking and commerce or
imperil the security of electronic banking and com-
merce.
SEC. 3. AMENDMENTS TO THE BANK PROTECTION ACT OF
1968.
(a) DEFINITIONS.—Section 2 of the Bank Protection
Act of 1968 (12 U.S.C. 1881) is amended—
(1) by inserting ‘‘(a) FEDERAL SUPERVISORY
AGENCY.—’’ before ‘‘As used’’;
(2) in paragraph (4), by inserting ‘‘associa-
tions’’ before the period; and
(3) by adding at the end the following:
of how created, if such item can be retrieved or displayed
in a tangible form.
‘‘(g) ELECTRONIC
AUTHENTICATION.—The term
‘electronic authentication’ means a cryptographic or other
secure electronic technique that allows the user of the
technique—
‘‘(1) to authenticate the identity of or informa-
tion associated with a sender of a document;
‘‘(2) to determine that a document was not al-
tered, changed, or modified during its transmission
to a recipient; or
‘‘(3) to verify that a document received was
sent by the identified party claiming to be the
sender.
‘‘(h) FEDERAL BANKING AGENCY.—The term ‘Fed-
eral banking agency’ has the same meaning as in section
3 of the Federal Deposit Insurance Act, and includes the
National Credit Union Administration.
‘‘(i) FINANCIAL INSTITUTION.—The term ‘financial
institution’ means—
‘‘(1) an insured depository institution and any
branch, representative office, or subsidiary thereof;
‘‘(2) a bank holding company and any subsidi-
ary thereof;
‘‘(3) an affiliate of an insured depository insti-
tution;
‘‘(4) an association;
‘‘(5) a foreign bank maintaining an agency or
branch (as such terms are defined in section 1(b) of
the International Banking Act of 1978) in the
United States; or
‘‘(6) any entity that is not described in para-
graphs (1) through (5) that is a financial institution,
as defined in section 903 of the Electronic Fund
Transfer Act, or a card issuer, as defined in section
103 of the Truth in Lending Act, but only to the ex-
tent that the transactions of such entity are subject
to those Acts, respectively,
that affirmatively elects to be subject to the provisions of
this Act by providing appropriate notice of such election
in accordance with any commercially reasonable practice.
‘‘(j) INSURED DEPOSITORY INSTITUTION.—The term
‘insured depository institution’ has the same meaning as
in section 3 of the Federal Deposit Insurance Act.
‘‘(k) STATE BANK SUPERVISOR.—The term ‘State
bank supervisor’ has the same meaning as in section 3
of the Federal Deposit Insurance Act.
‘‘(l) SUBSIDIARY.—The term ‘subsidiary’—
‘‘(1) has the same meaning as in section 2(d)
of the Bank Holding Company Act of 1956; and
‘‘(2) includes a ‘subsidiary’, as defined in sec-
tion 23A(b)(4) of the Federal Reserve Act.’’.
(b) ELECTRONIC COMMERCE.—The Bank Protection
Act of 1968 (12 U.S.C. 1881 et seq.) is amended by add-
ing at the end the following new sections:
‘‘SEC. 6. ELECTRONIC AUTHENTICATION OF DOCUMENTS.
‘‘(a) ELECTRONIC
AUTHENTICATION
OF
DOCU-
MENTS, INFORMATION, AND IDENTITY.—
‘‘(1) IN GENERAL.—A financial institution may
use electronic authentication in the conduct of its
business if it has entered into an agreement regard-
ing the use of electronic authentication with any
counterparty, or if it has established a banking, fi-
nancial, or transactional system using electronic au-
thentication.
‘‘(2) APPLICABLE
RULES.—The establishment
and use of electronic authentication pursuant to this
section shall be valid according to the relevant agree-
ments or system rules.
‘‘(b) OVERSIGHT.—
‘‘(1) IN
GENERAL.—The appropriate Federal
banking agency or the appropriate State bank super-
visor may preclude, by regulation or order, an in-
sured depository institution or a subsidiary or affili-
ate thereof, or other institution subject to its juris-
diction, from using electronic authentication in the
conduct of its business if it determines that—
‘‘(A) such use would not be consistent with
safe and sound banking practices; or
‘‘(B) such use would threaten the safety
and soundness of the institution, subsidiary, or
affiliate.
‘‘(2) STATE AUTHORITY.—
‘‘(A) IN GENERAL.—No financial institu-
tion shall—
‘‘(i) be regulated by, be required to
register with, or be certified, licensed, or
approved by; or
‘‘(ii) be limited by or required to act
or operate under standards, rules, or regu-
lations promulgated by,
a State government or agency or instrumental-
ity thereof with regard to the use of electronic
authentication, including acting as a digital cer-
tification authority or performing a similar role,
pursuant to this Act.
‘‘(B) LIMITATION
ON
FEES.—No State
may—
‘‘(i) impose a fee with respect to elec-
tronic authentication services performed by
a financial institution subject to the provi-
sions of this Act; or
‘‘(ii) impose any required minimum
fee or otherwise limit the fee that may be
charged by a financial institution with re-
spect to electronic authentication services
subject to the provisions of this Act.
‘‘(C) OTHER REGULATORY AUTHORITY.—
Nothing in this subsection precludes a State
bank supervisor from regulating a State-char-
tered financial institution that is otherwise sub-
ject to its jurisdiction.
‘‘(D) CONSUMER
PROTECTION.—Nothing
in this section impairs the rights afforded to
consumers under State general consumer pro-
tection laws.
‘‘SEC. 7. CONSUMER PROTECTION.
‘‘Nothing in section 6(a) shall be construed to impair
the rights afforded to consumers under—
‘‘(1) the Truth in Lending Act or the Electronic
Fund Transfer Act, or the implementing regulations
of the Federal Reserve Board thereunder applicable
to electronic funds transfers from a consumer ac-
count or extension of credit to consumers; or
‘‘(2) any State law of a similar nature or pur-
pose.’’.
SEC. 4. FEDERAL RESERVE BOARD STUDY.
(a) REPORT.—Not later than July 1, 2000, the
Board of Governors of the Federal Reserve System (here-
after in this section referred to as the ‘‘Board’’), in con-
sultation with the Federal banking agencies and State
bank supervisors, shall report to the Congress regarding
the use of electronic authentication under section 6 of the
Bank Protection Act of 1968, as added by this Act by
financial institutions.
(b) CONSIDERATIONS.—In preparing the report re-
quired under subsection (a), the Board shall include con-
sideration of—
(1) the appropriateness of applying the con-
sumer protection provisions of the Truth in Lending
Act, and the Electronic Fund Transfer Act, or the
implementing regulations of the Board promulgated
thereunder, to such transactions;
(2) whether protections for consumers should
be changed in light of the experience of financial in-
stitutions and consumers in transactions where elec-
tronic authentication is used in connection with
third-party assurances; and
(3) the need for consultation and coordination
with other nations concerning the international use
of electronic authentication by financial institutions
and others, with the purposes of—
(A) encouraging simplified regulatory gov-
ernance, foreign recognition of electronic au-
thentication under this Act, and United States
recognition of foreign electronic authentication;
(B) encouraging the greatest possible
interoperability across borders;
(C) imposing the least possible regulation
consistent with security and safety and sound-
ness considerations;
(D) promoting the smooth functioning of
the payments system; and
(E) facilitating the opportunity for finan-
cial institutions to participate freely and fairly
in foreign markets.
(c) INCORPORATION OF DEFINED TERMS.—Any term
used in this section that is defined in section 2 of the Bank
Protection Act of 1968 (as amended by this Act) shall
have the same meaning as in that section 2.
SEC. 5. RULES OF CONSTRUCTION.
(a) EFFECT ON USE.—Nothing in this Act or the
amendments made by this Act may be construed to limit
the right of any financial institution or other entity to use
electronic authentication or other authentication technique
in the conduct of its business.
(b) EFFECT
ON
OTHERWISE
LAWFUL
AGREE-
MENTS.—Except as otherwise specifically provided, noth-
ing in this Act or the Bank Protection Act of 1968, as
amended by this Act, shall be construed to affect the valid-
ity of the formation of relevant agreements or system rules
in accordance with the provisions of otherwise applicable
Federal or State law.
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