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Proposed Rule

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

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Office of Thrift Supervision, Treasury.


Study of regulations; request for comment.


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).


Comments must be received by August 10, 2001.


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, 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 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, 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 Start Printed Page 31187between 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.

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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.

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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.

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]

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.

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] Start Printed Page 31188Since the publication of the final rule, OTS has continued to provide additional guidance in this area and post it on its web site at[6]

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.

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?Start Printed Page 31189

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)?

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.

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?

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Dated: June 4, 2001.

By the Office of Thrift Supervision.

Ellen Seidman,


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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, citing section 729. See 65 FR 4895, 4896 n.7 (February 2, 2000).

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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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4.  See Electronic Operations; Final Rule, 63 FR 65673 (November 30, 1998).

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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).

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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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7.  See 66 FR 8616 (February 1, 2001) (to be codified at 12 CFR part 570, Appendix B).

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[FR Doc. 01-14562 Filed 6-8-01; 8:45 am]