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Expanding Your Reach Electronically

by Mary Beth Guard, BOL Guru

As your bank looks to the future, electronic activities may play an increasingly large role in generating fee income, providing services to your customers, and changing the way you operate. The OCC just made it much easier to discern which electronic activities might be permissible by adopting a new Subpart E - Electronic Activities in the rules for national banks. Effective June 17, 2002, the new rules can be found at 12 C.F.R. Sections 7.5000 through 7.5010.

Even if your institution has a state charter, the wildcard provision in state law (which allows state bank, for the most part, to exercise the same powers as national banks) should make the OCC of interest to you.

For the most part, the new rule merely codifies positions previously taken by OCC in interpretive letters and clarifies the guidance previously provided.

The rule contains 11 sections, with the first one devoted to explaining its scope.

Section 7.5001 describes the four factors the OCC will use to determine whether an electronic activity is part of the business of banking and the two factors the OCC will use to determine whether the activity is incidental to banking. If the activity is either part of the business of banking or incidental thereto, it will be permissible.

Section 7.5002 delineates, in broad terms, how a bank may furnish products and services by electronic means and facilities. It also includes a nonexhaustive list of examples.

In 7.5003, the OCC clarifies that a bank may engage in electronic activity that is a compositive of several component activities, if each of the component activities is permissible under federal law.

The sale of excess electronic capacity and by-products (such as bandwidth or server space) is authorized under Section 7.5004.

A national bank may act as a digital certification authority under Section 7.5005. That means:

  • a bank may issue digital certificates and maintain a listing or repository of public keys; and
  • a bank may issue digital certificates verifying attributes in addition to identity of persons associated with a particular public/private key pair where the attribute is one for which verification is part of or incidental to the business of banking.

An express disclaimer is required, however, when the bank issues a digital certificate relating to financial capacity. The disclaimer should state that the bank does not promise or represent that funds will be available or will be advanced for any particular transaction.

Section 7.5006 explains that it is permissible for a bank to provide, for itself and others, where the data is banking, financial or economic data or a derivative thereof, the following:

  • data processing
  • data transmission services
  • facilities
  • databases
  • advice and
  • access to such such services facilities, data bases and advice.

It is even permissible to perform the above-described activities with respect to additional types of data to the extent convenient or useful, so long as the total revenue attributable to the bank's data processing activities is derived predominantly from processing financial or economic related data.

Under Section 7.5007, a bank may offer, as a correspondent service, any of the electronic services it performs for itself.

Section 7.5008 establishes an important principle relating to where a bank with electronic activities is deemed to be located. It provides that a national bank shall not be considered located in a state merely because it physically maintains technology (such as a server or automated loan center) in that state, or because the bank's products or services may be accessed through electronic means by customers located in the state. Section 7.5009 deals with where the main office of an Internet-only bank will be deemed to be located.

If you share electronic space, such as a co-branded Web site, with a third party (even if it is a subsidiary or affiliate), you are required, under Section 7.5010 to take reasonable steps to clearly, conspicuously, and understandably distinguish between products and services offered by your bank and those offered by the third party.

The original version appeared in the May 2002 edition of the Oklahoma Bankers Association Compliance Informer.

First published on

First published on 05/21/2002

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