[Federal Register Volume 66, Number 98 (Monday, May 21, 2001)]
[Proposed Rules]
[Pages 27912-27914]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-12689]


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FEDERAL RESERVE SYSTEM

12 CFR Chapter II

[Docket No. R-1105]


Study of Banking Regulations Regarding the Online Delivery of 
Financial Services

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Study of regulations; request for comment.

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[[Page 27913]]

SUMMARY: Pursuant to section 729 of the Gramm-Leach-Bliley Act (the GLB 
Act or Act), the Board is conducting a study and preparing a report 
about its banking regulations with respect to the online delivery of 
financial services. To assist this review of its regulations, the Board 
requests comment on whether any of its regulations should be amended or 
removed in order to facilitate online banking.

DATES: Comments must be received by August 20, 2001.

ADDRESSES: Comments should refer to Docket No. R-1105 and may be mailed 
to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551, 
or mailed electronically to [email protected]. Comments 
addressed to Ms. Johnson also may be delivered to the Board's mail room 
between 8:45 a.m. and 5:15 p.m. and to the security control room 
accessible from the courtyard entrance on 20th Street between 
Constitution Avenue and C Street, NW. Comments may be inspected in Room 
MP-500 between 9 a.m. and 5 p.m., pursuant to Sec. 261.12, except as 
provided in Sec. 216.14, of the Board's Rules Regarding the 
Availability of Information, 12 CFR 261.12 and 261.14.

FOR FURTHER INFORMATION CONTACT: Stephanie Martin, Assistant General 
Counsel, Legal Division, (202) 452-3198; Thomas E. Scanlon, Senior 
Attorney, Legal Division, (202) 452-3594; Heidi Richards, Assistant 
Director, Division of Banking Supervision and Regulation, (202) 452-
3598; Jane Ahrens, Senior Counsel, Division of Consumer and Community 
Affairs, (202) 452-2412; Minh-Duc Le, Attorney, Division of Consumer 
and Community Affairs, (202) 452-3667; Jeff Stehm, Assistant Director, 
Division of Reserve Bank Operations and Payment Systems, (202) 452-
2217.

SUPPLEMENTARY INFORMATION:

Background

    Section 729 of the GLB Act requires the Board, the Federal Deposit 
Insurance Corporation, Office of the Comptroller of the Currency (OCC), 
and Office of Thrift Supervision (the Agencies), to conduct a study of 
banking regulations regarding the online delivery of financial 
services.\1\ Section 729 further requires the Agencies to report their 
recommendations on adapting existing legislative or regulatory 
requirements to online banking and lending.
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    \1\ Pub. L. 106-102, 113 Stat. 1476 (1999).
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    In accordance with section 729, the Board is reviewing its 
regulations that relate to the delivery of financial services to assess 
their suitability for transactions that are conducted through the 
Internet. The Board plans to consult with the other Federal banking 
agencies about the appropriate aims and scope of its review and will 
coordinate its report with those that will be produced by the other 
Federal banking agencies.\2\ The purpose of this document is to invite 
public comment on a wide range of issues that bear on delivering 
financial products and services over the Internet to assess whether any 
Board regulations should be amended in order to facilitate online 
banking. In addition, the Board requests comment on how particular 
statutory provisions affect the online delivery of financial products 
or services.
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    \2\ The OCC issued an advance notice of proposed rulemaking and 
requested comment on a wide range of electronic banking issues to 
determine whether the OCC's regulations should be changed to 
facilitate national banks' use of new technologies. 65 FR 4895 
(February 2, 2000). The Board notes that the OCC specifically 
requested comment in connection with its study of its regulations 
under section 729, and the Board will review those comments in 
connection with the Board's own study.
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    The Board recently requested comment on five interim final rules to 
establish uniform standards for the electronic delivery of notices to 
consumers, namely: Regulations B (Equal Credit Opportunity), E 
(Electronic Fund Transfers), M (Consumer Leasing), Z (Truth in 
Lending), and DD (Truth in Savings).\3\ In connection with comments 
sought on those interim final rules, the Board also requested comment 
on whether other legislative or regulatory changes are needed to adapt 
current requirements to online banking and lending. In particular, the 
Board has requested comment on revising its regulations to facilitate 
electronic delivery of financial products and services to individual 
consumers, such as the provisions regarding periodic statements under 
Regulations E, Z, and DD. (Comments on those interim final rules must 
be received by June 1, 2001.) Any comments submitted in connection with 
the review of those regulations to facilitate electronic delivery of 
financial products and services for individual consumers shall also be 
considered for the study and report under section 729 of the GLB Act.
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    \3\ 66 FR 17779 (April 4, 2001); 66 FR 17786 (April 4, 2001); 66 
FR 17322 (March 30, 2001); 66 FR 17329 (March 30, 2001); 66 FR 17795 
(April 4, 2001).
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Issues for Comment

    The Board recognizes that using electronic technology to deliver 
financial products and services poses distinct challenges to financial 
institutions and their customers. Much of the legislative and 
regulatory framework that governs banking was developed based on 
social, cultural, and technological practices that existed before the 
advent of widespread computer-based communications. The prospect of 
conducting banking transactions over the Internet has forced 
reconsideration of the existing legislative and regulatory framework 
that governs banking businesses.
    The Board invites comment on how particular statutes, regulations, 
or supervisory policies specifically affect financial institutions and 
their customers' uses of new technologies. The following discussion 
identifies topics that the Board believes are appropriate for the 
design of the study and report required under section 729. Commenters 
are invited to respond to the questions presented and to offer comments 
or suggestions on any other issues related to financial products or 
services delivered online that are not described herein.

Laws and Regulations That Affect Transactions

    Do any of the Board's regulations, such as those governing payment 
transactions, negatively affect the ability of financial institutions 
to offer certain online financial services? Which regulations, if any, 
negatively affect the likelihood that an individual or business 
customer would choose to obtain financial products or services through 
the Internet?
    The ways in which financial institutions themselves obtain services 
from other financial institutions, including Federal Reserve Banks, 
significantly affects the products and services that financial 
institutions may, in turn, provide to their non-bank customers. The 
Board also requests comment on the specific ways in which laws, 
regulations, and other supervisory policies affect the online delivery 
of financial products and services between financial institutions.

Geography and Time Considerations

    Some aspects of the Board's banking regulations, as well as other 
banking laws, are predicated on conceptions of geography. For example, 
bank mergers and acquisitions are regulated, in part, by legal 
standards that have been developed to determine whether a transaction 
poses anti-competitive

[[Page 27914]]

consequences in the relevant geographic market for the cluster of 
banking products.\4\ Similarly, the legal standards that apply to the 
location of bank branches depend on certain conceptions of 
geography.\5\ How should these kinds of regulatory provisions be 
revised (if at all) to more appropriately govern the location of online 
banking and lending activities?
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    \4\ United States v. Philadelphia Nat'l Bank, 374 U.S. 321 
(1963) (In an action challenging a proposed merger of banks under 
the antitrust laws, the Court held, in relevant part, that the 
geographic market for the cluster of banking products and services 
is local in nature).
    \5\ 12 U.S.C. 321 (requiring, in relevant part, a state member 
bank to obtain the Board's approval to establish certain new 
branches ``beyond the limits of the city, town, or village in which 
the parent bank is located'').
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    Other laws or regulations contain concepts of time that may not be 
relevant in an online environment. For example, the term ``banking 
day'' in Regulation CC is defined as that part of any business day on 
which an office of a bank is open to the public for carrying on 
substantially all of its banking functions.\6\ Regulation CC requires 
funds that must be available for withdrawal on a business day to be 
available at the start of business, which may be as late as 9 a.m. 
local time of the depositary bank.\7\ Are these provisions appropriate 
in the context of a customer that opened an account and performs all 
banking functions online?
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    \6\ 12 CFR 229.2(f).
    \7\ 12 CFR 229.19(b).
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    The Board recognizes that these traditional boundaries of geography 
and time may need to be reexamined in light of online banking practices 
that enable customers to obtain financial products and services 
relatively free from customary time or place constraints. Comments are 
invited on how particular laws and regulations may be modified to 
accommodate the online delivery of financial products and services 
under these varying conditions.

Banking and Supervisory Regulations and Policies

    The Board invites comment on how particular regulations or 
supervisory policies specifically affect financial institutions and 
their customers' uses of new technologies. For example, are there any 
specific Board regulations that unreasonably interfere with the use of 
online technologies? Are there any supervisory policies that impose 
unreasonable burdens on a financial institution's design or adaptation 
of online technologies? Are there any regulations or other supervisory 
policies regarding risk management that should be clarified or amended 
to adequately address any particular risks associated with methods of 
online banking?

Electronic Signatures in Global and National Commerce Act and Other 
Federal Laws That Affect Online Banking

    The Board recognizes that the enactment of the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act) has 
addressed several important legal and regulatory issues regarding the 
uses of electronic media in commercial transactions.\8\ For example, 
the E-Sign Act permits the retention of certain types of records in 
electronic form (subject to specified conditions) if such records are 
required by any other law or regulation.\9\ Do any of the Board's 
regulations or supervisory policies require a banking organization to 
use or retain written forms, notices, or other records in a manner that 
hinders its ability to deliver financial products or services over the 
Internet? The Board requests comment on how particular provisions of 
the E-Sign Act, or any other law, affect financial institutions and 
their customers' ability to use (or ease of using) new technologies.
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    \8\ Pub. L. 106-229, 114 Stat. 464 (2000).
    \9\ Sec. 101(d), 114 Stat. 466-67.
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Differing Legal Requirements

    Do certain provisions of Federal law that apply to online banking 
and lending practices make compliance with other provisions of State 
law (or laws enforced by foreign states) more costly? Are there 
particular aspects of conducting online banking and lending activities 
that could benefit from a single set of legal standards that can be 
applied uniformly nationwide?
    Are there any inconsistencies between Federal and State laws or 
regulations that impede the electronic provision or use of financial 
products or services? For example, do State laws or regulations apply 
differently to state-chartered financial institutions, relative to 
federally chartered institutions, that conduct online banking and 
lending? Are there any State laws or regulations, such as licensing 
provisions for banking and other financial products and services, that 
affect the nationwide provision of financial products or services over 
the Internet?

    By order of the Board of Governors of the Federal Reserve 
System, May 16, 2001.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 01-12689 Filed 5-18-01; 8:45 am]
BILLING CODE 6210-01-P