[Federal Register Volume 62, Number 63 (Wednesday, April 2, 1997)]
[Proposed Rules]
[Pages 15626-15635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8124]
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Parts 545, 556, 557, 561, 563, and 563g
[97-27]
RIN 1550-AB00
Deposits and Electronic Banking
AGENCY: Office of Thrift Supervision, Treasury.
ACTION: Notice of proposed rulemaking and advance notice of proposed
rulemaking.
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SUMMARY: The Office of Thrift Supervision (OTS) is proposing to
substantially streamline its deposit-related regulations. This Notice
of Proposed Rulemaking (NPR) follows a detailed staff review of
pertinent regulations and policy statements in the Code of Federal
Regulations (CFR) to determine whether each provision is necessary,
imposes the least possible burden consistent with safety and soundness,
and is clearly written. Today's proposal is issued pursuant to the
Regulatory Reinvention Initiative of the Vice-President's National
Performance Review and section 303 of the Community Development and
Regulatory Improvement Act of 1994.
[[Page 15627]]
In addition, OTS is publishing an advance notice of proposed
rulemaking (ANPR) seeking comment on OTS electronic banking
regulations. OTS is concerned that its current electronic banking
regulations do not adequately address advances in technology and may
impede prudent innovation by federal savings associations.
DATES: Comments must be received on or before June 2, 1997.
ADDRESSES: Send comments to Manager, Dissemination Branch, Records
Management and Information Policy, Office of Thrift Supervision, 1700 G
Street, NW., Washington, DC 20552, Attention Docket No. 97-27. These
submissions may be hand-delivered to 1700 G. Street, NW., from 9:00
a.m. to 5:00 p.m. on business days; they may be sent by facsimile
transmission to FAX Number (202) 906-7755; or by e-mail:
[email protected]. Comments will be available for inspection at
1700 G Street, NW., from 9:00 a.m. until 4:00 p.m. on business days.
FOR FURTHER INFORMATION CONTACT: For Deposits: Edward J. O'Connell,
III, Project Manager, (202) 906-5694, Supervision Policy; or Richard
Blanks, Counsel (Banking and Finance), (202) 906-7037; or Karen
Osterloh, Assistant Chief Counsel, (202) 906-6639. For Electronic
Banking: Paul Glenn, Special Counsel, Chief Counsel's Office, (202)
906-6203, or Paul Robin, Program Analyst, Compliance Policy, (202) 906-
6648, Office of Thrift Supervision, 1700 G Street NW., Washington, DC
20552.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background of the Proposal and Advance Notice of Proposed
Rulemaking
II. Notice of Proposed Rulemaking: Deposits
A. Objectives
B. Historical Overview
C. Proposed Disposition of Deposit-Related Regulations
D. Proposed New Part 557
III. Advance Notice of Proposed Rulemaking: Electronic Banking
A. Electronic Banking Facilities and Data Processing
B. Other Issues
IV. Request for Comments
V. Paperwork Reduction Act of 1995
VI. Executive Order 12866
VII. Regulatory Flexibility Act Analysis
VIII. Unfunded Mandates Act of 1995
I. Background of the Proposal and Advance Notice of Proposed Rulemaking
In a comprehensive review of the agency's regulations in the spring
of 1995, OTS identified numerous obsolete or redundant regulations that
could be quickly repealed. OTS also identified several key regulatory
areas for a more intensive, systematic regulatory burden review. The
first areas reviewed--lending and investment authority, subsidiaries
and equity investments, corporate governance, conflicts of interest,
corporate opportunity and hazard insurance--were selected because they
have a significant impact on thrift operations, and had not been
developed on an interagency basis or been comprehensively reviewed for
many years. OTS has issued comprehensive final regulations on all of
these areas.\1\
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\1\ 61 FR 50951 (September 30, 1996) (Lending and Investment);
61 FR 66561 (December 18, 1996) (Subsidiaries and Equity
Investments); 61 FR 60173 (November 27, 1996) (Conflicts of
Interest, Corporate Opportunity and Hazard Insurance); 61 FR 64007
(December 3, 1996) (Corporate Governance).
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Today's proposal is the first in the next phase of OTS's review of
its regulations. It follows an intensive review of OTS's deposit-
related regulations and policy statements. In developing this proposal,
OTS considered the relevant regulations, agency guidance, legal
interpretations, and requirements of the other federal banking
agencies. Like other OTS regulatory reinvention efforts, this proposal
was prepared in consultation with those who use these regulations on a
daily basis, including OTS regional examination staff.
OTS is also seeking public input on a related area of its
regulations that has had an increasing impact on thrift operations, but
has not been recently amended--electronic banking. OTS has three
regulations affecting electronic banking. These include: 12 CFR 545.138
(Data processing services); 545.141 (Remote service units); and 545.142
(Home banking services). After reviewing these electronic banking
regulations, OTS has decided to solicit public comment through an ANPR
before determining what regulatory amendments may be appropriate. OTS
is concerned that these regulations may not appropriately address
electronic banking services under emerging technologies.
II. Notice of Proposed Rulemaking: Deposits
A. Objectives
The overarching goal of OTS's reinvention initiative is to reduce
regulatory burden on savings associations to the greatest extent
possible, consistent with statutory requirements and safety and
soundness. In the context of deposit-related regulations, we believe
that maximum burden reduction can be achieved by pursuing the following
objectives.
First, we are attempting to eliminate duplication and overlap from
OTS regulations. Several OTS deposit-related regulations address areas
that are covered by Regulations D and DD of the Federal Reserve Board.
These regulations apply to all depository institutions, including
savings associations. Regulation D (Reserve Requirements of Depository
Institutions) 2 contains comprehensive deposit definitions.
Further, Regulation DD (Truth in Savings) 3 applies to all
depository institutions except credit unions.4 This approach has
two benefits--the elimination of regulations from the CFR and reduced
confusion for savings associations.
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\2\ 12 CFR Part 204 (1996).
\3\ 12 CFR Part 230 (1996).
\4\ 12 CFR Part 707 contains separate Truth in Savings
regulations applicable to credit unions.
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Second, as part of its reinvention effort, OTS is endeavoring to
eliminate regulations that are outdated or micromanage thrift
operations. For example, OTS proposes to replace several specific
deposit-related recordkeeping requirements with a general recordkeeping
regulation that is tied more closely to safety and soundness. This
approach, which parallels recent changes in OTS's loan documentation
regulation, will help savings associations take better advantage of
technological advances.5
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\5\ 61 FR 50951, 50982 (to be codified at 12 CFR 560.170).
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Third, OTS wants to remove regulations that merely restate existing
statutory authority. It has been the long-standing position of OTS and
its predecessor agency, the Federal Home Loan Bank Board (FHLBB), that
specific regulations are not required to permit federal savings
associations to engage in activities authorized by the Home Owner's
Loan Act (HOLA).6 Rather, the role of OTS regulations should be to
impose necessary conditions or limitations on those statutorily
authorized activities. Section 5(b) of the HOLA states that a federal
savings association may raise funds through a variety of types of
accounts, ``[s]ubject to the terms of its charter and regulations of
the Director [of OTS].'' 7 Either the association's charter or OTS
regulations may set out the rights afforded accountholders. Thus,
unless OTS regulations or the institution's charter restrict the type
of accounts a federal savings association may offer, an association may
offer whatever types of statutorily authorized accounts it deems
appropriate.
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\6\ 12 U.S.C. 1461-1470.
\7\ 12 U.S.C. 1464(b).
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[[Page 15628]]
Fourth, OTS believes that it should maintain a clear and consistent
position on the preemptive effect of federal regulation on the deposit-
related activities of savings associations. It is particularly
necessary to reiterate this position as existing regulations are
restructured, amended, converted into guidance, or deleted. OTS has
long held that, with certain narrow exceptions, state laws or
regulations that purport to affect the deposit activities of federal
savings associations are preempted.8 Preemption in this area is
essential to OTS's regulation of the operations of federal savings
associations because deposit taking is one of the most important
functions of a savings association. None of the changes discussed today
should be construed as evidencing an intent by OTS to change this long-
held position. Whether OTS retains a specific regulation addressing a
particular aspect of deposit taking or deletes the provision to
streamline its regulations and reduce regulatory burden, the agency
intends to occupy the entire field of deposit regulation for federal
savings associations.
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\8\ See OTS Op. Chief Counsel (October 11, 1991).
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This approach is consistent with court decisions that provide that
OTS has authority over federal thrifts from their ``cradle to [their]
corporate grave.'' 9
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\9\ Fidelity Federal Savings and Loan Ass'n v. del la Cuesta,
458 U.S. 141, 145, quoting California v. Coast Federal Savings and
Loan Ass'n, 98 F. Supp. 311, 316 (S.D. Cal. 1951).
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This proposed rule includes a general deposit preemption provision.
This provision restates long-standing preemption principles applicable
to federal savings associations, as developed in a long line of court
cases and legal opinions by OTS and the FHLBB. The agency hopes that
the increased clarity and specificity of the proposal will reduce
confusion and the need for frequent preemption inquiries in the future.
Finally, OTS is removing certain regulations and policy statements
that merely reiterate universally recognized deposit-related incidental
powers of federal savings associations, such as the ability to use
insured banks as collecting and paying agents and the ability to
provide ``deposit assurance'' on certain direct deposits.
With these goals in mind, all OTS deposit-related regulations will
be consolidated, streamlined, and moved into a new part 557. This
action will make the deposit-related regulations easier to locate and
follow.
B. Historical Overview
Since enactment of the HOLA, federal savings associations have been
authorized to raise funds through a variety of accounts, and to issue
passbooks, certificates, or other evidence of accounts.10 In 1982,
the Garn-St Germain Depository Institutions Act (DIA) expanded this
authority to permit federal thrifts to accept demand accounts.11
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\10\ 12 U.S.C. 1464(b).
\11\ Pub. L. 97-320, 96 Stat. 1469 (October 15, 1982).
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Historically, the FHLBB, through its regulations, affirmatively
approved specific deposit-related activities. This approach has shifted
in recent years as a result of changes in the applicable statutes and
advances in business and technology. Now thrifts may undertake any
activity permitted by statute, unless a regulation limits or restricts
the authority. Accordingly, it is no longer necessary to retain
regulations specifically approving deposit-related activities.
Additionally, many of the deposit-related regulations originated
with the FHLBB, in its capacity as the operating head of the former
Federal Savings and Loan Insurance Corporation (FSLIC), which insured
thrift deposits. Since OTS is not the insurer of thrift deposits, these
regulations are no longer needed.
Finally, certain FHLBB-era regulations have now been superseded by
more recent statutes, such as the Truth in Savings Act,12 and by
Federal Reserve Board regulations applicable to all insured
institutions. Consequently, many of the policy and legal reasons for
certain regulations no longer exist.
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\12\ 12 U.S.C. 4301 et seq.
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C. Proposed Disposition of Deposit-Related Regulations
Part 545 Operations (Federal Savings Associations)
Section 545.10 Savings Deposits or Shares
Section 545.10 states that OTS approves savings deposits or shares
that comply with the provisions of subsection (b) of section five of
title III of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (``FIRREA'') 13 (12 U.S.C. 1464(b)), the
federal savings association's charter, and OTS rules and regulations
relating to the type, form, return, and maturity of deposits or shares.
OTS proposes to delete this paragraph. OTS ``approval'' of deposits or
shares is not required by 12 U.S.C. 1464(b), which authorizes federal
savings associations to raise funds through various types of accounts
and issue evidence of such accounts.
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\13\ Pub. Law 101-73, 103 Stat. 183 (August 9, 1989).
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Section 545.11 Issuance of Accounts
Section 545.11(a) requires a federal savings association to obtain
and maintain FDIC insurance prior to doing business. OTS proposes to
delete this subsection and rely on the statutory requirement that
federal savings associations must obtain and maintain FDIC insurance.
See 12 U.S.C. 1462(4), 1818(a)(1).
Section 545.11(b) provides that federal savings associations may
issue accounts as defined in Sec. 561.2. OTS proposes to replace the
detail of this subsection with a more general statement of authority in
new Part 557.
Section 545.11(c) sets forth the status and priority of savings
deposits and accounts in the event of a liquidation, dissolution or
winding up of the association. OTS proposes to delete this subsection
because these priorities are set forth by statute. See 12 U.S.C.
1821(d)(11) and 1464(b)(1)(B).
Section 545.12 Demand Deposit Accounts
Section 545.12(a) states that a federal savings association may
accept demand deposit accounts from any person. OTS proposes to delete
this subsection because 12 U.S.C. 1464(b)(1)(A) contains the authority
for issuance of demand deposit accounts.
Section 545.12(b) prohibits a federal savings association from
paying interest on a demand deposit. OTS proposes to delete this
subsection because 12 U.S.C. 1464(b)(1)(B)(i) contains this
prohibition. This section also provides that finders' fees offered in
accordance with 12 CFR 561.16(b) are not payments of interest. OTS
proposes to transfer the finders' fee exception to the Thrift
Activities Handbook.
Section 545.12(c) indicates that demand deposit accounts include
only those accounts that are payable on demand within the meaning of 12
CFR 563.6. This provision is unnecessary in light of the deletion of
paragraphs (a) and (b). For guidance in interpreting 12 U.S.C.
1464(b)(1)(A) and (b)(1)(B)(1), institutions should refer to the
definition of demand deposit contained in Regulation D.14
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\14\ This proposal does not address deposit-related definitions
currently contained in OTS regulations. OTS is planning a
comprehensive review of all regulatory definitions later this year.
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Section 545.13 Account Records
Section 545.13(a) states that a federal savings association must
comply with Secs. 563.1 and 563.170(c)(8), and that accounts must be
evidenced by a written agreement with transactions confirmed by
issuance of a receipt or
[[Page 15629]]
advice. OTS proposes to delete this subsection. The cross-references
are no longer appropriate because Sec. 563.1, which formerly dealt with
forms of accounts, was amended in 1992 to refer to a de novo savings
association's charters and by-laws, 15 and Sec. 563.170(c)(8) has
been recently removed. 16 The term ``advice'' is no longer a part
of transactional terminology. Moreover, OTS would replace the specific
recordkeeping requirements for written agreements and receipts by a
more general recordkeeping regulation in new Part 557. Nothing in this
proposed revision would prohibit a savings association from the normal
business practice of providing receipts for transactions. However, the
proposed change may allow federal savings associations to take better
advantage of technological and marketplace advances in telephonic and
electronic banking.
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\15\ 57 FR 14344 (Apr. 20, 1992).
\16\ 61 FR 50951 (September 30, 1996).
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Section 545.13(b)(1) provides that a federal savings association
may treat the holder of record of an account as the owner, regardless
of any notice to the contrary, until the account is transferred on the
federal association's books. Under this section, accounts are only
transferable on the association's books on proper application by the
transferee and acceptance of the transferee as accountholder on terms
approved by the board of directors. OTS proposes to modify and
incorporate this subsection into new Part 557.
Under Sec. 545.13(b)(2), a federal savings association may issue
negotiable certificate accounts in bearer form without recording
ownership on the books of the federal savings association. OTS proposes
to replace this subsection with the more general recordkeeping
requirement in new Part 557. We note that the FDIC has a regulation
concerning negotiable certificates of deposits where the depository
institution has defaulted. If any deposit obligation of an insured
institution is evidenced by a negotiable instrument, the FDIC will
recognize the owner as if that person's name were on the records of the
institution if the instrument was negotiated to such owner prior to the
date of default of the institution. See 12 CFR 330.4(b)(4) (1996).
Section 545.13(c) recites authority for federal savings
associations to use insured banks as collecting and paying agents for
its accounts. OTS proposes to delete this subsection because these
incidental powers are uniformly recognized and do not need to be
codified in regulatory text.
Section 545.14 Determination and Distribution of Earnings
Under Sec. 545.14(a), a federal savings association may issue
savings accounts earning interest at different rates of return. These
rates may be fixed at the time the account is issued or may vary on any
basis specified at the time the deposit is accepted, subject to 12 CFR
563.10. OTS proposes to incorporate this subsection in new Part 557.
Section 545.14(b) states that a federal savings association may
distribute earnings on savings accounts as provided in its charter and
bylaws and the terms of the account. OTS proposes to incorporate this
subsection into new Part 557.
Section 545.14(c) prohibits the distribution of earnings on share
accounts until the federal savings association has provided for the
payment of expenses and for the pro rata portion of credits to
reserves, as required by the federal savings association's charter and
12 CFR Part 567. The term ``reserve credits'' is an archaic reference
to the transfer of a portion of net income to a restricted capital
account. Charters for mutual share institutions had required this
transfer. OTS proposes to delete this subsection because modern federal
charters no longer provide for mutual share institutions.
Part 556 Statements of Policy
Section 556.12 Deposit Assurance of Direct Deposit of Social Security
Payments
This Statement of Policy states that the implied powers of a
federal savings association include the provision of ``deposit
assurance'' in connection with the Social Security Administration's
direct deposit program. A federal savings association provides deposit
assurance when it credits a social security beneficiary's account with
payment on its due date, whether or not the payment has been received
by the association.
The Statement of Policy advises federal savings associations to
implement safeguards and controls to address the risks of the program.
The policy statement further notes that Regulation E (Electronic Fund
Transfers) 17 applies to the program.
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\17\ 12 CFR Part 205 (1996).
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OTS proposes to delete this Statement of Policy because insured
depository institutions universally provide deposit assurance of social
security payments. OTS will consider whether handbook guidance would be
useful to reiterate the need for adequate institutional safeguards and
controls and the applicability of Regulation E.
Part 563 Operations
Section 563.2 Simple Form of Certificate; Passbooks
Section 563.2 sets forth the requirements for a simple form of
certificate account. A mutual savings association may issue a simple
form of savings or investment certificate or a passbook if, in
accordance with State law, the association's charter, constitution, or
bylaws includes a clear provision indicating that: (i) All shareholders
are members and share equally in earnings and in assets pro rata to
paid-in value, plus credited dividends; and (ii) the savings
association may not charge any fee for the privilege of becoming,
remaining, or ceasing to be a member of the savings association. This
simple form is not required to contain any membership certificate or
any statement of the dividend, withdrawal, or other rights of members.
OTS proposes to delete this section because it is outdated. Savings
associations will continue to be subject to the disclosure requirements
of Regulation DD.
Section 563.3 Long Form of Membership Certificate
Under Sec. 563.3, a savings association must include certain
specified statements in all share, membership, deposit certificates,
passbook, or other instrument evidencing a withdrawal instrument that:
(i) Pay a different rate of dividends or interest to different classes
of shares or securities; (ii) prefer any one or more classes of shares
or securities; or (iii) charge any fee for the privilege of becoming,
remaining, or ceasing to be a saver or investor in the savings
association.
Like Sec. 563.2, this section is outdated and unnecessary in light
of the disclosure requirements in Regulation DD. Accordingly, OTS
proposes to delete this provision.
Section 563.6 Payment of Accounts on Demand
Section 563.6 prohibits a savings association from issuing any
account, or advertising or representing that it will pay holders of its
accounts, on demand. Demand accounts, tax and loan accounts, note
accounts, and United States Treasury general accounts are not subject
to this prohibition. This section also sets forth various definitions
of the term ``accounts payable on demand.''
OTS proposes to delete this section and instead rely on the
disclosure requirements applicable under
[[Page 15630]]
Regulation DD, and on statutory provisions authorizing savings
associations to issue demand deposits (12 U.S.C. 1464(b)(1)(A)(i)) and
prohibiting the payment of interest on demand deposits (12 U.S.C.
1464(b)(1)(B)(i)). These statutory provisions should be interpreted in
a manner that is consistent with the definition of demand deposit
contained in Regulation D.
Section 563.7 Fixed-Term Accounts (Certificate Accounts)
Under Sec. 563.7(a), a savings association may offer certificate
accounts in such form as the board of directors of the savings
association may authorize by resolution. Further, with respect to any
time deposit, a savings association may impose a penalty for early
withdrawal.
Section 563.7(b) authorizes a savings association to pay earnings
on a certificate account at a rate, or anticipated rate of return,
determined when the deposit is accepted. The rate may be fixed or be
based on a schedule, index, or formula specified at the time the
account is accepted.
Section 563.7(c) prohibits an association from accepting a fixed-
term account for a term of less than seven days. This paragraph also
prohibits an institution from issuing any certificate account unless
the association has complied with the chartering provisions of
Sec. 563.1.
Section 563.7(d) states that a certificate may prohibit withdrawal
prior to maturity except in the cases of death or incompetence.
OTS proposes to modify this section. While the provisions of
paragraph (b) would be retained in the new regulation at Sec. 557.3,
the remainder of this section would be deleted to avoid duplication and
redundancy. Institutions issuing such certificate accounts must comply
with the disclosure requirements contained in Regulation DD and should
rely on the definitions applicable to such accounts contained in
Regulation D.
Section 563.9 Eurodollar Deposits
This regulation addresses the issuance of Eurodollar deposits. When
this provision was added, FHLBB regulations on pooled accounts and
other restrictions did not apply to Eurodollar deposits. These
restrictions have been removed for all accounts. OTS, therefore,
proposes to delete this section because it is no longer necessary. This
approach is consistent with the regulations of the other banking
regulators which do not specifically address regulatory treatment of
Eurodollar deposits.
Section 563.10 Earnings-Based Accounts
Section 563.10 provides extensive definitions and limitations
regarding earnings-based accounts. In an earnings-based account, the
payment of interest is determined by reference to an index based upon
the profitability, earnings, cash flow, appreciation, or return on
assets owned by, or under the control of, the savings association.
OTS proposes to delete this section because it is unnecessary and
duplicative of disclosure requirements contained in Regulation DD.
D. Proposed New Part 557
OTS proposes to adopt a new Part 557 that will ultimately include
all of the agency's deposit-related regulations. The agency believes
that this organization will make its relevant deposit-related
regulations easier to locate. The proposed deposit-related regulation
is discussed below.
Section 557.1 General Authority (Proposed)
This proposed section states that new Part 557 is issued under OTS
general rulemaking and supervisory authority under the HOLA. The
proposed section also cites the general authority for federal savings
associations' deposit-related activities. It states that a federal
savings association may raise funds through deposits and issue evidence
of such accounts as authorized under section 5(b) of the HOLA, the
savings association's charter, and regulations issued by OTS.
Section 557.2 Applicability of Law (Proposed)
As discussed in Section II.A. above, deposit-related activities are
core activities in which federal savings associations engage. Federal
preemption of state laws purporting to affect deposit-related
activities is critical to the agency's mandate under HOLA sections 4(a)
and 5(a) to provide for the safe and sound operation of federal savings
associations in accordance with the best practices of thrift
institutions in the United States.
This proposed section sets forth OTS's long-standing position on
the federal preemption of state laws purporting to affect the deposit-
related activities of federal savings associations. This position has
been developed in caselaw and legal opinions by OTS and its
predecessor, the FHLBB, and is currently reflected in Sec. 545.2.
Because the deposit-related activities regulations will be moved from
Part 545 and, thus, separated from Sec. 545.2, OTS proposes to include
new Sec. 557.2 to confirm and carry forward its existing preemption
position. The agency believes that the increased clarity and
specificity of Sec. 557.2 will reduce confusion and the need for
frequent preemption inquiries in the future.
The proposed section on preemption has three paragraphs. Paragraph
(a) explicitly states the agency's intent to occupy the field of
deposit-related activities for federal thrifts and articulates the
statutory and regulatory basis for this preemption. Paragraph (b)
contains a list of examples of preempted state laws, drawn from case
law and OTS precedent. This paragraph emphasizes that the list is not
intended to be exhaustive. Paragraph (c) describes certain types of
state laws that OTS does not intend to preempt. These categories
include: contract and commercial law, tort law, and criminal law. Such
laws will not be preempted to the extent that they only incidentally
affect the deposit-related activities of federal savings associations
or are otherwise consistent with the purpose of paragraph (a).
When analyzing the status of state laws under new Sec. 557.2, the
first step will be to determine whether the type of law in question is
listed among the illustrative examples of preempted state laws under
paragraph (b). If so, the analysis will end there; the law is
preempted. If the law is not covered by paragraph (b), the next
question is whether the law affects deposit-related activities. If it
does, then, in accordance with paragraph (a), the presumption arises
that the law is preempted. This presumption can be reversed only if the
law can clearly be shown to fit within the confines of the types of
state laws that are not preempted, as described in paragraph (c). For
these purposes, paragraph (c) is intended to be interpreted narrowly.
Any doubt should be resolved in favor of preemption.
Section 557.3 Interest and Earnings (Proposed)
This proposed section states that a savings association may pay
interest on a savings account at a rate or anticipated rate of return
determined when the account is accepted, as provided in its charter and
bylaws and the terms of the account. The rate or anticipated rate on a
savings account may be fixed, or may vary according to a schedule,
index, or formula specified when an account is accepted.
Section 557.4 Account Records (Proposed)
This proposed section replaces the specific recordkeeping
requirements of the existing regulations with more general
requirements. This section states
[[Page 15631]]
that each savings association should establish and maintain deposit
documentation practices and records that demonstrate appropriate
administration and monitoring of its deposit-related activities. A
savings association's records should include adequate evidence of the
ownership, balances, and transactions involving the account. Further,
the proposed section provides that a federal savings association may
treat the holder of record of an account as the owner, regardless of
any notice to the contrary, until the account is transferred on the
association's records.
III. Advance Notice of Proposed Rulemaking: Electronic Banking
OTS seeks comments on whether its regulations are sufficiently
flexible to permit federal savings associations to engage in
appropriate electronic banking activities, consistent with safety and
soundness, the Truth in Lending Act,18 Regulation E, and other
relevant statutes and regulations. OTS has received numerous inquiries
on electronic banking issues. For example, federal savings associations
have asked whether they may provide banking services over the Internet,
whether they may open accounts or issue loans from machines in remote
locations, what steps must an association operating on the Internet
take to comply with the Community Reinvestment Act (CRA), and whether
savings associations may open accounts on the Internet for depositors
living abroad.
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\18\ 15 U.S.C. 1601 et seq.
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This advance notice of proposed rulemaking requests comments on:
(1) Electronic banking facilities and data processing activities; and
(2) more general issues relating to electronic banking.
A. Electronic Banking Facilities and Data Processing
Three OTS regulations affect a thrift's ability to engage in
electronic banking activities. Two of these regulations describe the
types of facilities through which federal thrifts may deliver services
to their customers. 12 CFR 545.141 (Remote service units); 545.142
(Home banking services). The third regulation, the data processing
regulation, 12 CFR 545.138, provides the general authority to engage in
certain electronic banking activities. To the extent that these
regulations do not reflect current activities and technologies, OTS is
interested in how the regulations might be updated. Each area of
concern is discussed more fully below.
Facilities
OTS regulations permit a federal savings association to deliver
services to customers at various kinds of facilities. These include:
home offices, branches, agency offices, data processing or
administrative offices, remote service units (RSUs), and home banking.
Recently, OTS has been asked to address whether an automated loan
machine (ALM) is a branch office or some other type of facility. This
issue has raised more general questions about how the agency should
treat new electronic technologies.
Several associations have informed OTS that they plan to establish
networks of ALMs located away from their home or branch offices. Each
ALM would permit a customer to apply for a consumer loan up to a
specific limit by entering certain information by keypad into a machine
resembling an automated teller machine (ATM). This information would be
transferred immediately by wire to the institution's main-frame
computer. The main-frame computer would analyze the information under a
credit-scoring program, and would check the information electronically
with credit-reporting bureaus. If the information meets the credit-
scoring criteria, the computer program would approve the loan. The ALM
then would print out a cashier's check and appropriate loan disclosure
forms. Under the proposals outlined to OTS, the loan would not be
treated as closed until the check was endorsed and presented to the
institution for payment. If the loan were disapproved by the computer
program, the ALM would print out all necessary denial disclosures. The
process is expected to take about ten minutes.
This procedure raises the question whether each ALM is a branch.
This is significant because the rules governing the establishment and
operation of a branch or an RSU are different. An ALM might appear to
meet the definition of a ``remote service unit'' at 12 CFR 545.141(a),
except that the regulation expressly prohibits an RSU from
``establish[ing] a loan account.'' 12 CFR 545.141(b). A facility not
covered by the RSU regulation or other specific classification is, by
default, a branch. See 12 CFR 545.92(a).
The prohibition against establishing a loan account at an RSU
appears to date from a judicial decision over twenty years ago.
Bloomfield Fed. Sav. & Loan Ass'n. v. American Community Stores Corp.,
396 F. Supp. 384 (D. Neb. 1975). In Bloomfield, the plaintiff
challenged the establishment of ATMs by a federal thrift by asserting
that the thrift had failed to comply with the FHLBB's procedures for
opening new branches. The court noted that the FHLBB held broad
authority to define a branch, but had limited this definition to a
full-time and permanent office at which any business of a thrift may be
transacted. Since the FHLBB's regulations stated that an RSU could
engage in specific activities and these activities did not include
opening savings accounts or originating, processing, or approving
loans, the court concluded that the planned ATMs (which were part of an
RSU pilot project) were not branches. Therefore, the thrift did not
have to comply with the branching procedures.
In 1981, the FHLBB simplified the RSU regulation by deleting
enumerated activities for RSUs. In its place, the FHLBB added an
explicit statement that an RSU could not be used to open a savings
account or establish a loan account. See 46 FR 8440 (1981). This
statement is found in current OTS regulations at 12 CFR 545.141(b).
Bloomfield suggests that OTS would have to revise its regulations
governing branches and other facilities to broaden the RSU regulation.
OTS solicits comment on whether such revisions would be appropriate.
A review of the facility regulations also may be appropriate in the
home banking context. Currently, it is not clear whether a full range
of banking services may be offered under the home banking services
regulation. 12 CFR 545.142. This regulation was drafted when home
banking was limited to monitoring balances, transferring funds between
accounts at the same institution, and directing payments from an
existing checking account in lieu of sending checks by mail. Because a
thrift's role in these activities was strictly clerical, the definition
of home banking services was limited to ``the transfer of funds of
financial information'' and ``the performance of other transactions
initiated by the customer.'' 12 CFR 545.142.
It is not clear whether Sec. 545.142 would cover the opening of new
accounts or the processing of credit applications. The phrase
``transactions initiated by a customer'' might encompass these new
services, but the common meaning of that phrase may limit it to
transactions involving existing accounts. With technological advances
making it feasible for thrifts to make risk-based decisions on an
electronic basis (e.g., credit scoring), OTS solicits comment on the
appropriate scope of the home banking services definition.
Accordingly, OTS solicits comments on whether the definitions of
RSUs and
[[Page 15632]]
home banking services are sufficient to encompass the full range of
electronic banking activity. In this regard, we note that federal
savings associations have specific statutory authority to establish
RSUs as provided in OTS regulations pursuant to 12 U.S.C.
1464(b)(1)(F).19 OTS is also interested in whether that statutory
language raises particular issues for the industry. OTS anticipates
that these comments will help the agency to better understand industry
and customer expectations concerning the nature of such facilities.
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\19\ We note that banks previously had to file branch
applications before establishing ATMs and remote service units.
Section 2205 of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (Title II of Pub. L. 104-208) eliminated that
requirement.
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Permissible Activities
OTS also solicits comment on whether its current regulations
authorizing data processing activities permit a federal savings
association to optimize the latest technology. The data processing
activities of federal savings associations are covered by 12 CFR
545.138. This regulation was issued when data processing was limited to
the non-discretionary functions of processing and storing data. Today,
a financial institution can make risk-based decisions solely through
electronic means. Accordingly, it may be appropriate for OTS to revise
this regulation. In addition, the current OTS data processing
regulation limits the ability of a federal savings association to sell
or market services, software, and excess capacity. All of these
restrictions may not be necessary, especially since the comparable
interpretative ruling for national banks is less restrictive. See 61 FR
4849, at 4853 (February 9, 1996).
Data Processing. Under the current data processing regulation, the
processing of data generally encompasses a record-keeping, rather than
a risk assessment, function. This restrictive view presents
difficulties in applying the OTS regulation to thrifts utilizing the
emerging technologies.
This limited view of data processing originated in 1965 in the
FHLBB regulation that first authorized federal thrifts to engage in
data processing services. In that regulation, the FHLBB defined ``data
processing services'' as ``the maintenance of bookkeeping, accounting,
or other records primarily by mechanical or electronic methods.'' See
12 CFR 545.14-2 (1966) (emphasis added). This view of data processing
as an electronic form of recordkeeping continues, despite substantial
revisions to the data processing regulation in 1983. These 1983
revisions expanded the kinds of data that could be processed to include
data that involved ``financial, economic, or related to thrift, home
financing, or the activities of depository institutions.'' 20 The
FHLBB did not, however, expand the definition of ``processing'' because
technological improvements had not made it possible to make risk-based
decisions entirely through electronic means. The current OTS data
processing regulation is substantially the same as the 1983 FHLBB rule.
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\20\ 48 FR 7831 (1983).
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In a recent review of its related data processing provisions, the
OCC concluded that its use of the term ``data processing'' failed to
capture the potential of electronic banking. Recognizing that
individual banks ``are engaging, and will engage, in an increasing
range of activities through electronic means and facilities beyond
simply `data processing','' the OCC deleted that term from its
interpretative ruling. Instead, the OCC interpretative ruling refers to
``electronic means and facilities.'' 21 This term clearly will
encompass new technology that enables a depository institution to make
risk-based judgments electronically.
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\21\ 61 FR at 4853, 4865 (February 9, 1996) (to be codified at
12 CFR 7.1019).
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Sales of Facilities and Software. The OTS data processing
regulation provides federal savings associations with authority to
provide data processing and data transmission services, to sell by-
products incident to those services, and to sell excess capacity. Each
authority is subject to significant constraints. Several of these
constraints do not apply to national banks.
The authority to provide data processing and data transmission
services is found at Sec. 545.138(b). Under this provision, a federal
savings association may perform all processing functions on data
submitted by a purchaser. This authority, however, is subject to data
and customer restrictions. For example, the data to be processed must
be ``financial, economic, or related to thrift, home financing, or the
activities of depository institutions.'' 12 CFR 545.138(b)(1). In
addition, the thrift must provide services primarily for itself, other
depository institutions, parents or subsidiaries of depository
institutions, or customers of the thrift. Sales of such services to
others may not exceed half of the total data processing services
provided by the thrift. See 12 CFR 545.138(b)(2).
Incident to its data processing authority, a federal thrift may
also sell ``by-products'' of data processing--typically software. 12
CFR 545.138(c)(1). Again, this authority is subject to certain
restrictions. For example, the software must be originally developed
for the thrift's own use, and the by-products may not be substantially
enhanced for purposes of marketing.
Finally, the thrift may sell its excess capacity. In connection
with such sales, the thrift may only furnish access to facilities and
provide necessary operating personnel. The association may not
artificially create excess capacity by acquiring equipment or
facilities whose capacity is substantially greater than that necessary
to accommodate the thrift's present or expected future needs for
providing permissible data processing services. 12 CFR 545.138(c)(2).
By contrast, national banks have broader authority to sell
electronic services, products, and excess capacity. The recently
promulgated OCC interpretative ruling for national banks provides:
A national bank may perform, provide, or deliver through
electronic means and facilities any activity, function, product, or
service that it is otherwise authorized to perform, provide, or
deliver. A national bank may also, in order to optimize the use of
the bank's resources, market and sell to third parties electronic
capacities acquired or developed by the bank in good faith for
banking purposes.22
\22\ 61 FR 4865 (to be codified at 12 CFR 7.1019).
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With respect to the provision of data processing or electronic
services, a national bank has fewer customer restrictions.23 As
noted above, a federal thrift may only sell such services to other
depository institutions, parents or subsidiaries of depository
institutions, or its loan or deposit customers. The OCC interpretative
ruling also does not expressly restrict the types of data that may be
processed, although the limitation to services that a bank ``is
otherwise authorized to perform'' may have an effect that is similar to
OTS restrictions.
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\23\ The OCC also recently has opined that a national bank may,
as an action incidental to the business of banking, sell Internet
access to non-customers. See OCC Legal Op. (August 19, 1996).
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Software sales by national banks are permissible if the software is
``acquired or developed * * * in good faith for banking purposes.''
24 This is more expansive than the comparable authority for
federal savings associations in two respects. First, the national
bank's software must be developed ``in good faith for banking
purposes,'' rather than for the bank's own use. Second, nothing
prohibits a national bank from substantially enhancing its software for
marketing
[[Page 15633]]
purposes, provided the software retains its banking purpose.
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\24\ 61 FR 4865 (to be codified at 12 CFR 7.1019).
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National banks also appear to have broader authority to sell excess
capacity. Unlike thrifts, banks are not limited to providing only
access and operating personnel. In addition, the OCC interpretative
ruling does not prohibit a national bank from creating excess capacity
for the purpose of selling it.
Because the OCC's data processing interpretative ruling is
substantially more expansive than OTS's regulation, OTS seeks comment
on whether it should amend its data processing regulation to contain
similar provisions.
Other Issues
Stored-Value Cards
OTS also requests comment on the appropriate regulatory response to
stored-value cards. These devices provide for the storage and transfer
of money on credit-card-like devices featuring a magnetic strip or
embedded computer chip. The systems created to handle these cards, and
the legal obligations that attach to the issuers, users, and others may
vary in different situations. OTS regulations are silent on stored-
value technology.25
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\25\ OTS has concluded that, pursuant to the incidental powers
doctrine, an association may market and sell one type of stored-
value card. OTS Op. Chief Counsel (August 21, 1996) (prepaid
telephone cards).
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These cards currently are the subject of analysis at the other
banking agencies. The Federal Reserve Board is assessing the
application of Regulation E to stored-value cards.26 The Federal
Deposit Insurance Corporation has released a legal opinion addressing
whether the funds underlying a stored-value card are an insured
deposit,27 and has held a public hearing on other questions
concerning stored-value cards and electronic banking.28 The OCC
has recently issued guidance on the risks associated with stored-value
cards.29
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\26\ See 61 FR 19696 (May 2, 1996).
\27\ See FDIC Gen Counsel Op. No. 8, 61 FR 40490 (Aug. 2, 1996).
\28\ See 61 FR 40494 (Aug. 2, 1996).
\29\ See OCC Bulletin No. 96-48 (Sept. 10, 1996).
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Stored-value cards present a variety of issues. While OTS would
like to receive comment on all aspects of this technology, commenters
are requested to address the following questions: How extensively will
the industry use stored-value cards? Do certain kinds of stored-value
programs present greater safety and soundness concerns than others? Do
stored-value cards present special issues that OTS should consider in
examining the liabilities of a savings association? What kind of OTS
guidance, if any, is appropriate for the industry?
Community Reinvestment Act
The ``borderless'' nature of electronic banking will also affect
thrift responsibilities under the CRA, which encourages regulated
financial institutions to help meet the credit needs of the local
community in which they are chartered, consistent with safety and
soundness. Comments are requested on all aspects of this issue,
including the following questions. If a savings institution uses
electronic banking as its sole method of customer contact and solicits
deposits and loans throughout the United States, in what community is
it chartered to do business for CRA purposes? If an institution has
brick and mortar branches but also conducts a significant portion of
its business electronically with customers beyond the jurisdiction of
the branches, how should its community be defined? Should an
institution's community under CRA be defined by the location of its
customers, its offices, or both? How does an institution demonstrate
that it is serving the credit needs of a widely dispersed customer base
or when there is little or no geographic proximity between its deposit
customers and its loan customers?
Additional Issues for Comment
OTS does not wish to limit comment to the above-cited issues and
regulations. Rather, OTS welcomes all comments regarding any aspect of
electronic banking, including the following:
(1) What OTS regulations should be eliminated or modified because
they impede the use of safe and sound electronic technology?
(2) Should OTS impose any restrictions or requirements on banking
operations offered over the Internet? For example, should OTS mandate a
specific level of encryption, or should OTS rely on general safety and
soundness principles to govern a safe system of operation?
(3) Should OTS-regulated institutions be permitted to open customer
accounts over the Internet for individuals residing outside the United
States or transfer funds over the Internet for account-holders to bank
accounts outside the United States? What other restrictions should be
imposed?
(4) What new technologies are being developed for electronic
banking and how will these technologies impact the regulation of
savings institutions?
(5) Should OTS address consumer protection rules in addition to the
CRA in connection with a rulemaking on electronic banking?
IV. Request for Comments
OTS invites comment on all aspects of the proposal as well as
specific comments on the proposed changes. Additionally, OTS seeks
comments on all aspects of the ANPR.
V. Paperwork Reduction Act of 1995
The OTS invites comments on:
Whether the proposed collection of information contained in this
notice of proposed rulemaking is necessary for the proper performance
of the agency's functions, including whether the information has
practical utility;
The accuracy of the agency's estimate of the burden of the proposed
information collection;
Ways to enhance the quality, utility, and clarity of the
information to be collected; and
Ways to minimize the burden of the information collection including
the use of automated collection techniques or other forms of
information technology.
Respondents/recordkeepers are not required to respond to this
collection of information unless it displays a currently valid OMB
control number.
The reporting and recordkeeping requirements contained in this
notice of proposed rulemaking have been submitted to the Office of
Management and Budget for review in accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on all aspects of
this information collection should be sent to the Office of Management
and Budget, Paperwork Reduction Project (1550), Washington, D.C. 20503
with copies to the OTS, 1700 G Street, NW., Washington, D.C. 20552.
The recordkeeping requirements contained in this notice of proposed
rulemaking are found at 12 CFR 557.4. The reporting requirements are
found in the Federal Reserve Board's Regulation DD, 12 CFR Part 230. In
part 557, OTS relies on the disclosure requirements applicable to
savings associations under Regulation DD. The information is needed by
the OTS in order to supervise savings associations and develop
regulatory policy. The likely respondents/recordkeepers are OTS-
regulated savings associations.
Estimated number of respondents/recordkeepers: 1,343.
Estimated average annual burden hours per recordkeeper/respondent:
1484.
Estimated total annual reporting/recordkeeping burden: 1,993,459.6.
Start-up costs to respondents/recordkeepers: None.
Records are to be maintained for the period of time the account is
open, plus three years.
[[Page 15634]]
VI. Executive Order 12866
The Director of OTS has determined that this proposed rule does not
constitute a ``significant regulatory action'' for the purposes of
Executive Order 12866.
VII. Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS
certifies that this proposed rule will not have a significant impact on
a substantial number of small entities. The proposal does not impose
any additional burdens or requirements upon small entities and lowers
several paperwork and other burdens on all savings associations.
VIII. Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law
104-4 (Unfunded Mandates Act), requires that an agency prepare a
budgetary impact statement before promulgating a rule that includes a
federal mandate that may result in expenditure by state, local, and
tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year. If a budgetary impact statement is
required, section 205 of the Unfunded Mandates Act also requires an
agency to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule. As discussed in the preamble,
this proposed rule reduces regulatory burden. OTS has determined that
the proposed rule will not result in expenditures by state, local, or
tribal governments or by the private sector of $100 million or more.
Accordingly, this rulemaking is not subject to section 202 of the
Unfunded Mandates Act.
List of Subjects
12 CFR Part 545
Accounting, Consumer protection, Credit, Electronic funds
transfers, Investments, Reporting and recordkeeping requirements,
Savings Associations.
12 CFR Parts 556 and 561
Savings associations.
12 CFR Part 557
Consumer protection, Reporting and recordkeeping requirements,
Savings associations.
12 CFR Part 563
Accounting, Advertising, Crime, Currency, Investments, Reporting
and recordkeeping requirements, Savings associations, Securities,
Surety bonds.
12 CFR 563g
Reporting and recordkeeping requirements, Savings associations,
Securities.
Accordingly, the Office of Thrift Supervision hereby proposes to
amend 12 CFR chapter V as follows:
PART 545--OPERATIONS
1. The authority citation for part 545 continues to read as
follows:
Authority: 12 U.S.C. 1462a, 1463, 1464, 1828.
Secs. 545.10-545.14 [Removed]
2. Sections 545.10, 545.11, 545.12, 545.13, and 545.14 are removed.
PART 556--STATEMENTS OF POLICY
3. The authority for part 556 continues to read as follows:
Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1464, 1701j-3; 15 U.S.C.
1693-1693r.
Sec. 556.12 [Removed]
4. Section 556.12 is removed.
5. Part 557 is added to read as follows:
PART 557--DEPOSITS
Sec.
557.1 General.
557.2 Applicability of law.
557.3 Interest and earnings.
557.4 Account records.
Authority: 12 U.S.C. 1462a, 1463, 1464.
Sec. 557.1 General.
(a) Authority and Scope. This part is issued by OTS under its
general rulemaking and supervisory authority under the Home Owners'
Loan Act, 12 U.S.C. 1462 et seq.
(b) Deposit Powers. A federal savings association may raise funds
through accounts and may issue evidence of such accounts as authorized
by section 5(b)(1) of the HOLA (12 U.S.C. 1464(b)(1)), the terms of its
charter, and OTS regulations.
Sec. 557.2 Applicability of law.
(a) Occupation of Field. Pursuant to sections 4(a) and 5(a) of the
HOLA, 12 U.S.C. 1463(a), 1464(a), OTS is authorized to promulgate
regulations that preempt state laws affecting the operations of federal
savings associations when deemed appropriate: to facilitate the safe
and sound operation of federal savings associations, to enable federal
savings associations to conduct their operations in accordance with the
best practices of thrift institutions in the United States, or to
further other purposes of the HOLA. To enhance safety and soundness and
to enable federal savings associations to conduct their operations in
accordance with best practices and without undue regulatory duplication
and burden, OTS hereby occupies the entire field of deposit-related
regulations for federal savings associations. OTS intends to give the
federal savings associations maximum flexibility to exercise their
deposit-related powers in accordance with a uniform federal scheme of
regulation. Accordingly, federal savings associations may exercise
their deposit-related powers as authorized under federal law, including
this part, without regard to state laws purporting to regulate or
otherwise effect their deposit activities, except to the extent
provided in paragraph (c) of this section. For purposes of this
section, ``state law'' includes any state statute, regulation, ruling,
order, or judicial decision.
(b) Illustrative Examples. The types of state laws preempted by
paragraph (a) of this section include, without limitation, state laws
purporting to impose requirements regarding:
(1) Abandoned and dormant accounts;
(2) Checking accounts;
(3) Disclosure requirements;
(4) Funds availability;
(5) Order of withdrawal from savings accounts;
(6) Service charges and fees, including dishonored checks; and
(7) Special purpose savings services.
(c) State laws that are not preempted. State laws of the following
types are not preempted to the extent that they only incidentally
affect the deposit-related activities of federal savings associations
or are otherwise consistent with the purposes of paragraph (a) of this
section:
(1) Contract and commercial law;
(2) Tort law;
(3) Criminal law; and
(4) Any other law that OTS, upon review, finds:
(i) Furthers a vital state interest; and
(ii) Either has only an incidental effect on deposit-related
activities or is not otherwise contrary to the purposes expressed in
paragraph (a) of this section.
Sec. 557.3 Interest and earnings.
A federal savings association may pay interest on a savings
account, whether in the form of a deposit or share, at a rate or
anticipated rate of return determined at the time that the account is
accepted, as provided in its charter and bylaws and the terms of the
account. The rate or anticipated rate on a savings account either may
be fixed or may vary according to a schedule, index, or formula
specified at the time that an account is accepted.
[[Page 15635]]
Sec. 557.4 Account records.
(a) Each savings association should establish and maintain deposit
documentation practices and records that demonstrate appropriate
administration and monitoring of deposit-related activities. The
savings association's records should include adequate evidence of
ownership, balances, and all transactions involving the account.
(b) A federal savings association may treat the holder of record of
an account as the owner, regardless of any notice to the contrary,
until the account is transferred on the association's records.
PART 561--DEFINITIONS
6. The authority citation for part 561 continues to read as
follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a.
Sec. 561.42 [Amended]
7. Section 561.42 is amended by removing the phrase ``Secs. 563.6
and 561.16.''
PART 563--OPERATIONS
8. The authority citation for part 563 continues to read as
follows:
Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468,
1817, 1828, 3806.
Secs. 563.2-563.3, 563.6-563.10 [Removed]
9. Sections 563.2, 563.3, 563.6, 563.7, 563.9, and 563.10 are
removed.
Sec. 563g.1 [Amended]
10. Section 563g.1 is amended by removing the last sentence of
paragraph (a)(13).
Dated: March 24, 1997.
By the Office of Thrift Supervision.
Nicolas P. Retsinas,
Director.
[FR Doc. 97-8124 Filed 4-1-97; 8:45 am]
BILLING CODE 6720-01-P