[Federal Register Volume 66, Number 112 (Monday, June 11, 2001)]
[Proposed Rules]
[Pages 31186-31189]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-14562]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Chapter V

[No. 2001-41]
RIN 1550-AB50


Request for Comment on Study of Banking Regulations Regarding the 
Online Delivery of Financial Services

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Study of regulations; request for comment.

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SUMMARY: Pursuant to section 729 of the Gramm-Leach-Bliley Act (GLBA), 
OTS and the other federal banking agencies are studying their 
regulations on the delivery of financial services. The purpose of the 
study is to report findings and conclusions to Congress, together with 
recommendations for appropriate legislative or regulatory action to 
adapt existing requirements to online banking and lending. To assist in 
this review, OTS requests comment on a variety of issues relating to 
the electronic delivery of financial products and services by savings 
associations (federally-chartered or state-chartered).

DATES: Comments must be received by August 10, 2001.

ADDRESSES: Mail: Send comments to Regulation Comments, Chief Counsel's 
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, 
DC 20552, Attention Docket No. 2001-41.
    Delivery: Hand deliver comments to the Guard's Desk, East Lobby 
Entrance, 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, 
Attention Regulation Comments, Chief Counsel's Office, Docket No. 2001-
41.
    Facsimiles: Send facsimile transmissions to FAX Number (202) 906-
6518, Attention Docket No. 2001-41.
    E-Mail: Send e-mails to [email protected], Attention 
Docket No. 2001-41, and include your name and telephone number.
    Public Inspection: Comments and the related index will be posted on 
the OTS Internet Site at www.ots.treas.gov. In addition, you may 
inspect comments at the Public Reading Room, 1700 G Street, NW., by 
appointment. To make an appointment for access, call (202) 906-5922, 
send an e-mail to public.info@ots.treas.gov">public.info@ots.treas.gov, or send a facsimile 
transmission to (202) 906-7755. (Prior notice identifying the materials 
you will be requesting will assist us in serving you.) Appointments 
will be scheduled on business days

[[Page 31187]]

between 10:00 a.m. and 4:00 p.m. In most cases, appointments will be 
available the next business day following the date a request is 
received.

FOR FURTHER INFORMATION CONTACT: Mary Jo Johnson, Project Manager, 
Supervision Policy, (202) 906-5739; Richard Bennett, Counsel (Banking 
and Finance), (202) 906-7409; or Paul J. Robin, Assistant Chief 
Counsel, (202) 906-6648; Office of Thrift Supervision, 1700 G Street, 
NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 729 of GLBA,\1\ titled ``Study and Report on Adapting 
Existing Legislative Requirements to Online Banking and Lending,'' 
requires OTS, the Office of the Comptroller of the Currency (OCC), the 
Federal Deposit Insurance Corporation, and the Board of Governors of 
the Federal Reserve System, to conduct a study of banking regulations 
regarding the online delivery of financial services.\2\ Section 729 
further requires these Federal banking agencies to report their 
recommendations on adapting existing legislative or regulatory 
requirements to online banking and lending.
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    \1\ 12 U.S.C. 4801 note.
    \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, citing section 
729. See 65 FR 4895, 4896 n.7 (February 2, 2000).
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    In accordance with section 729, OTS is reviewing its regulations on 
the delivery of financial services to assess their suitability for 
transactions conducted through electronic technologies such as the 
Internet. The purpose of this Request for Comment is to invite public 
comment on a variety of issues regarding savings association 
involvement in electronic banking. OTS will use these comments to help 
it determine whether it should revise any of its regulations to 
facilitate online banking and lending. OTS also requests comment on how 
particular statutory provisions affect the online delivery of financial 
products or services and whether OTS should propose any legislative 
changes.

II. OTS's Regulatory Approach to New Technologies

    OTS recognizes that technological developments are dramatically 
altering the ways in which savings associations conduct their business. 
Telecommunication advances offer savings associations faster and more 
efficient communication and data transmission. Improvements in computer 
hardware and software are opening up new applications. The Internet has 
greatly expanded the market available to financial institutions. These 
rapid developments in technology are causing savings associations to 
reevaluate existing delivery channels and business practices, develop 
new products and services, expand market reach, and serve existing 
customers more efficiently.
    The explosive growth of the Internet also is prompting savings 
associations to reconsider business strategies and adopt alternative 
distribution and marketing systems. The rapid establishment of 
transactional World Wide Web (web) sites by savings associations and 
the continued operation of some Internet-only savings associations 
without a conventional brick-and-mortar physical presence present new 
opportunities and challenges for savings associations. Recent estimates 
suggest that more than 2,100 financial institutions in the United 
States have established transactional web sites. To date, approximately 
350 savings associations have filed notices with OTS indicating their 
intent to establish a transactional web site.
    Through the end of the 1990s, OTS periodically revised its 
regulations to better enable savings associations to use new 
technologies for electronic banking and lending. In 1996, OTS revised 
its lending and investment regulations to eliminate obsolete loan 
documentation requirements. In 1997, OTS replaced specific requirements 
to use written agreements and receipts for deposit accounts with a more 
general recordkeeping requirement. The purpose of these changes was to 
provide sufficient flexibility for savings associations to participate 
in telephone and electronic banking and take better advantage of 
technological and marketplace advances.\3\
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    \3\ See Lending and Investment; Proposed Rule, 61 FR 1162, 1172 
(January 17, 1996), and Deposits and Electronic Banking; Proposed 
Rule and Advance Notice of Proposed Rulemaking, 62 FR 15,626, 15,629 
(April 2, 1997).
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    In 1998, OTS streamlined and updated its regulations relating to 
electronic operations to make it easier for Federal savings 
associations to develop new ways of delivering products and services 
through the prudent and innovative use of emerging technology.\4\ The 
revised rule permits Federal savings associations to use, or 
participate with others to use, electronic means or facilities to 
perform any function, or provide any product or service, as part of an 
authorized activity. The rule also requires each savings association 
(federally-chartered or state-chartered) to notify OTS thirty days 
before it establishes a transactional web site. It provides that 
savings associations that present supervisory or compliance concerns 
may be subject to additional procedural requirements.
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    \4\ See Electronic Operations; Final Rule, 63 FR 65673 (November 
30, 1998).
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    In crafting the Electronic Operations rule, OTS was guided by two 
broad principles:
     The public and insured depository institutions are best 
served if statutory and regulatory restrictions are kept to a minimum. 
The premature imposition of restrictive operational standards could 
impede the development of improved financial services.
     Federal savings associations should be permitted to 
compete effectively with other regulated financial institutions and 
unregulated firms offering financial and related services.
    In promulgating the rule, OTS emphasized the importance of enabling 
regulations in this area. At the same time, OTS designed its 
regulations to help ensure that it would have sufficient information to 
understand developing technologies, to provide appropriate guidance on 
these technologies, and to supervise electronic operations effectively. 
OTS designed the final rule to provide both the industry and the agency 
with the appropriate amount of flexibility to adapt to changing 
conditions.
    The preamble to the final rule noted that the agency had issued, 
and would continue to issue, guidance as electronic operations evolve. 
This guidance has taken the form of letters to chief executive officers 
of savings associations, interagency examiner guidelines, revisions to 
the Thrift Activities Handbook, conditions on the approval of 
applications, and responses to requests for legal interpretations.\5\

[[Page 31188]]

Since the publication of the final rule, OTS has continued to provide 
additional guidance in this area and post it on its web site at 
www.ots.treas.gov.\6\
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    \5\ See, e.g., Memorandum from Richard M. Riccobono, Deputy 
Director, for Chief Executive Officers (November 3, 1998) (Policy 
Statement on Privacy and Accuracy of Personal Customer Information); 
Memorandum from Richard M. Riccobono, Deputy Director, for Chief 
Executive Officers (July 23, 1998) (Interagency Guidance on 
Electronic Financial Services and Consumer Compliance); Memorandum 
from John Downey, Executive Director, Supervision, for Chief 
Executive Officers (June 23, 1997) (Statement on Retail On-Line 
Personal Computer Banking); Thrift Activities Regulatory Handbook, 
Section 341, Information Technology (October 1997) (Regulatory 
Bulletin 32-6, October 15, 1997); Federal Financial Institutions 
Examinations Council (FFIEC) Information Systems Examination 
Handbook (1996); OTS Order No. 95-88 (May 8, 1995) (application 
approval of Internet bank); OTS Op. Chief Counsel (October 1, 1998) 
(authority of federal savings associations to provide payroll 
processing services); OTS Op. Chief Counsel (July 1, 1998) 
(preemption of state ATM restrictions); OTS Op. Chief Counsel 
(September 19, 1997) (establishment of automated loan machines).
    \6\ See, e.g., Memorandum from Richard M. Riccobono, Deputy 
Director, for Chief Executive Officers (June 10, 1999) 
(Transactional Web Sites); OTS Op. Chief Counsel (December 7, 1999) 
(San Francisco ATM fee ordinance); OTS Op. Chief Counsel (November 
22, 1999) (preemption of local ATM fee restrictions); OTS Op. Chief 
Counsel (January 15, 1999) (New York State ATM Safety Act); OTS Mem. 
Chief Counsel (December 22, 1998) (Massachusetts Electronic Branch 
Restrictions).
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III. Issues for Comment

    OTS 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 forces the federal 
banking agencies to reconsider the existing legislative and regulatory 
framework that governs banking businesses.
    OTS 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 OTS believes are appropriate for the design of 
the study and report required under section 729. OTS invites commenters 
to respond to the questions presented and to offer comments or 
suggestions on any other issues related to financial products or 
services delivered through electronic technologies that we do not 
specifically mention here.

A. How May OTS Facilitate the Use of Technology in Financial Operations 
Consistent With Safety and Soundness?

1. Mitigating Burdens
    Savings associations have evolved in their use of technology, not 
only to provide financial services more efficiently, but also to offer 
new financial services and reach nationwide markets. Are there any 
specific OTS 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?
2. Addressing Risks
    Electronic banking activities expose savings associations to new 
combinations of risks from different sources. OTS's Electronic 
Operations rule addresses some of those risks by requiring savings 
associations to inform OTS before establishing transactional web sites 
and follow any additional procedures the OTS regional office may impose 
in writing. Further, through the issuance of supervisory guidelines 
such as the interagency Standards for Safeguarding Customer 
Information,\7\ OTS is working to identify and educate savings 
associations about the risks electronic banking presents and to ensure 
that its policies appropriately address these risks.
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    \7\ See 66 FR 8616 (February 1, 2001) (to be codified at 12 CFR 
part 570, Appendix B).
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    Do OTS regulations adequately address the risks presented by 
current or anticipated electronic banking activities? Do any OTS 
regulations impose unnecessary burdens? Are there any regulations or 
other supervisory policies regarding risk management that OTS should 
clarify or amend to address any particular risks associated with 
methods of online banking?
3. Consumer Acceptance and Protection
    Electronic banking provides consumers with convenient access to a 
wide variety of financial services. Studies indicate that a significant 
percentage of households in the United States will do their banking 
online as a growing number of consumers conduct their banking and other 
financial transactions through automated teller machines and over the 
Internet. Are there specific areas in which regulatory changes are 
needed to enhance consumer acceptance of, confidence in, access to, or 
protections in using electronic banking?

B. How May OTS Enhance the Electronic Operational Flexibility of 
Savings Associations, Consistent With Safety and Soundness?

1. Internet Link Arrangements
    The rapid growth of electronic commerce has resulted in many 
marketing arrangements that provide customers with access to providers 
of both financial and non-financial retail products or services through 
a hypertext link on the savings association's web site. The link 
transfers the customer to another entity's web site. Under some 
marketing arrangements, the savings association's name remains apparent 
on the linked site even though the products or services are sold by a 
non-thrift third party. In other situations, once this transfer occurs, 
the non-thrift's name is the dominant brand. The non-thrift web site 
may include a link back to the savings association's web site to 
provide its customers with access to savings association services while 
minimizing the savings association's brand on its site.
    Does the current situation create customer confusion as to which 
products savings associations actually offer (and which are FDIC-
insured) that impairs the development of electronic banking? Should OTS 
create a regulation or other supervisory guidance setting forth 
standards for savings association identification in connection with the 
use of hypertext links? Are there technology solutions that can be used 
to address these issues?
2. Transactions
    Savings associations may receive deposits, pay withdrawals, and 
lend in a variety of ways that are not subject to geographical 
restrictions (or the need to file branch applications). For example, 
savings associations may arrange to have their customers use ATMs 
established by third parties in order to conduct transactions with the 
savings association. OTS regulations permit savings associations to 
transact business with their customers through electronic and other 
means not involving face-to-face contact.
    Are OTS regulations flexible enough to permit savings associations 
operating on the Internet to serve the transaction related needs of 
their retail, as well as their commercial, customers? For example, do 
any OTS regulations impede the development or use of technologies that 
would enable customers efficiently and expeditiously to deposit cash or 
checks in, or borrow money from, savings associations operating on the 
Internet?
3. Location Considerations
    Internet banking raises legal issues with respect to how OTS should 
construe references in existing laws and regulations, including those 
related to filing requirements and management interlocks, to the 
``location'' of a savings association. Should OTS address how 
``location'' applies in the context of activities conducted via the 
Internet? Specifically, is the determination of ``location'' for 
purposes of any statute or regulation an impediment to savings 
associations conducting all or part of their operations on the 
Internet? If so, should we further clarify our regulations or suggest 
statutory changes on this issue?

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4. Appraisals
    Written appraisals must support certain loans.\8\ Does the 
requirement for written appraisals impair or impede online lending 
operations? If so, what modifications to the existing regulation would 
facilitate the use of appraisals in electronic form? What types of 
controls would be appropriate to assure record authenticity and 
integrity in connection with the filing of electronic appraisals (e.g., 
authentication of an electronic appraisal, certification of the 
appraiser)?
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    \8\ 12 CFR part 564.
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5. Electronic Signatures
    The Electronic Signatures in Global and National Commerce Act (E-
Sign Act) \9\ provides that certain contracts and signatures may not be 
denied validity solely because they are in electronic form. The E-Sign 
Act also provides that certain records may be maintained in electronic 
form, subject to certain requirements. OTS recognizes that the 
enactment of the E-Sign Act has resolved several important legal and 
regulatory issues regarding the uses of electronic media in commercial 
transactions. Nevertheless, the E-Sign Act has left some legal issues 
unresolved and, indeed, may have created new ones, particularly for 
online banking.
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    \9\ 15 U.S.C. 7001 et seq.
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    What issues are savings associations facing as a result of the E-
Sign Act? Would it facilitate implementation of the E-Sign Act if OTS 
were to issue regulations or other supervisory guidance? If so, which 
aspects of the E-Sign Act should OTS address? Are there any written 
forms or notices required by OTS's regulations or other supervisory 
policies that could be obtained or transmitted over the Internet in a 
manner that would facilitate the online delivery of financial products 
or services? How do 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?
6. Differing Legal Requirements
    OTS recognizes that a variety of federal, state, and foreign laws 
regulate the use of electronic technologies. Are there areas where 
conducting electronic banking activities could particularly benefit 
from a single set of standards that can be applied uniformly on a 
nationwide basis? Are there any inconsistencies between Federal and 
State laws or regulations that impede the electronic provision or use 
of financial products or services? Do certain provisions of Federal law 
that apply to online banking and lending practices make compliance with 
provisions of State law (or laws enforced by foreign states) more 
costly?

    Dated: June 4, 2001.

    By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 01-14562 Filed 6-8-01; 8:45 am]
BILLING CODE 6720-01-P