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. …