E-Banking Ground Rules Just Got Clearer

By Moeller, Randall H. | American Banker, August 20, 2002 | Go to article overview
Save to active project

E-Banking Ground Rules Just Got Clearer

Moeller, Randall H., American Banker

In May the Office of the Comptroller of the Currency published a rule designed to make it easier for national banks to use new electronic technologies. Last month all sections of this rule took effect.

The rule provides guidance concerning the scope of permissible electronic banking activities, tells how to determine where electronic activities are "located" (important for the determination of interest rates), and requires banks with co-branded Web sites to make clear distinctions between their own products and those offered by other entities.

The new regulations make it easier to determine which electronic banking activities are authorized as "part of" or "incidental to" the banking business. They also give banks assurance that it is acceptable to deliver products and services electronically. Finally, they clarify the extent to which banks may engage in Internet-based finder activities, sell off excess goods and services, issue digital certificates, process data, and offer electronic "correspondent services" to other parties.

The OCC requires electronic banking activities to "function as intended" and to be "conducted safely and soundly" in accordance with applicable laws. The agency reserves the right to impose conditions on the exercise of electronic activities to ensure banks conduct those activities properly.

The new regulations state the criteria the agency will use to decide whether a proposed new activity is authorized as "part of the business of banking." The OCC will first check to see whether the electronic activity is a "functional equivalent" or "logical outgrowth" of a traditional banking activity. The OCC will also consider whether the electronic activity benefits the bank and consumers, whether it presents the kind of risk banks are already skilled in managing, and whether it is authorized by state-chartered banks.

A proposed new activity does not necessarily have to satisfy all four criteria to be permissible. Electronic activities are authorized as "incidental to the business of banking" if they are "convenient or useful" to other activities already established as part of the banking business. Here, the OCC will check to see whether the electronic activity makes it easier to perform, sell, or deliver the bank's services, whether it increases efficiency, and whether it enables the bank to avoid wasting resources like processing capacity.

Once the agency determines the potential benefits, it will weigh them against the risks involved and ask whether the electronic activity is necessary to allow the bank to take advantage of modern marketing techniques and new technologies. A bank that is uncertain whether a given electronic activity is permissible, may ask the OCC. A national bank may now use electronic delivery for any products or services it is authorized to provide, though the OCC may impose conditions necessary to ensure the services are delivered safely and in compliance with applicable laws.

All requirements that apply to services delivered by traditional means also apply to electronically delivered services. Examples of products and services that may be delivered electronically are the finder services described immediately below, electronic bill presentment, electronic stored value systems, and the protection of confidential information. In general, federal regulations preempt any state laws that hinder a national bank's ability to provide services electronically.

Although the OCC has previously allowed national banks to serve as an intermediary between potential business partners, the agency has not always been clear which intermediary services (finder activities) are acceptable. This is largely because the Internet has made it possible to engage in new finder activities the OCC has not yet analyzed in detail. Now, under a revised section of the Federal Register (Title 12, Part 7, section 1002), there is a list of examples of permissible finder activities.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

E-Banking Ground Rules Just Got Clearer


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?