4000 - Advisory Opinions
Would certain courier/messenger services constitute branch banking and, therefore, violate branch banking laws
September 26, 1997
Robert C. Fick, Counsel
You have requested our opinion as to whether certain courier/messenger services proposed by the (the "Bank") would constitute branch banking and, therefore, violate any branch banking laws.
According to your letter the Bank would hire a contract employee on a part-time basis who would work exclusively for the Bank; any work performed outside of the contract would have to be approved by the Bank to eliminate conflicts of interest. The employee would use his/her personal vehicle to provide the services; the Bank would not reimburse the employee for use of the personal vehicle. In addition to providing various courier services for the offices and staff of the Bank, the employee would provide the following services to the Bank's retail merchant customers: (i) pick up of the customer's deposits at the customer's location and delivery of those deposits to the Bank at a specified time each day, and (ii) delivery of currency (specifically, change orders) from the Bank to the customer's location at a specified time each day. You also asked whether our determination would change (i) if the Bank hired the employee as a regular employee instead of a contract employee, or (ii) if the employee used a bank vehicle instead of a personal vehicle.
This letter addresses only Federal law and specifically does not address any requirements imposed on branches by applicable State law. Section 3(o) of the Federal Deposit Insurance Act (the "FDI Act") provides, in pertinent part, that the term "domestic branch" includes "any branch bank, branch office, branch agency, additional office, or any branch place of business located in any State of the United States . . . at which deposits are received or checks paid or money lent."1 Unfortunately, there are no published judicial decisions that provide a comprehensive interpretation of the term, and there is little written guidance2 as to its meaning. However, the definition of "domestic branch" is, in relevant part, identical to the definition of "branch"3 in the National Bank Act, and there is substantial case law and agency guidance interpreting that term.
Generally, the statutory definition of "branch" includes any bank facility at which one or more of the following activities is carried on: receiving deposits, paying checks, or lending money.4 These activities have been collectively referred to as the "core banking functions."5 Engaging in one or more of these functions is clearly one of the indicia of a branch;6 however, it is not the sole determinative factor. Courts have determined that there are two additional criteria necessary in order for a facility to be considered a branch. First, the facility must be established by the bank.7 Second, the facility must provide the bank some advantage in its competition for customers; it must offer the bank's customers some convenience that gives the bank a competitive advantage over other banks.8
The first issue presented is whether the courier/messenger service envisioned by the Bank would involve a core banking function. According to the Bank's plan, a Bank employee would pick up a customer's deposits at the customer's location and deliver them to one of the Bank's three offices. Since a Bank employee would physically receive the customer's deposits, the Bank clearly would be engaged in a core banking function, i.e., receiving deposits.9
The next issue is whether this service would be established by the Bank. In this regard, the Bank plans to use a part-time, contract employee to carry out this service. The services to be performed would be performed exclusively for the Bank. Also, the employee would not be permitted to perform any work outside the contract without the Bank's approval. Apparently, the Bank would designate or have the right to designate the customer locations the employee would visit as well as the schedule for such visits. Notwithstanding the fact that the Bank apparently would not reimburse the employe for the employee's business use of his/her personal vehicle, such a service would be considered to have been established by the Bank. The service would be operated by the Bank's own employee, exclusively for the Bank and under the exclusive control of the Bank. Under those circumstances it may reasonably be concluded that the Bank has established the courier/messenger service.10
The third issue presented is whether the proposed service would provide customers some convenience that would give the Bank a competitive advantage over other banks in attracting customers. The U.S. Supreme Court in the Plant City case provided clear guidance on this issue when it stated that: "[u]nquestionably, a competitive advantage accrues to a bank that provides the service of receiving money for deposit at a place away from its main office. . . ."11 Therefore, the proposed service most likely would provide a competitive advantage for the Bank.
In summary, it appears from the facts provided that the proposed courier/messenger services would include at least one of the core banking functions, i.e., receiving deposits, that the service would be established by the Bank, and that the service would provide the Bank a competitive advantage over other banks. As a result, such a service would be considered to be a branch and, therefore, would require the FDIC's prior consent under section 18(d)(1) of the Federal Deposit Insurance Act, 12 U.S.C. § 1828(d)(1).
Additionally, you asked if our opinion would be different if certain facts were changed. Specifically, you asked whether the result would change either (i) if the Bank utilized a regular employee, instead of a contract employee, or (ii) if the employee used a Bank-owned vehicle, instead of his/her personal vehicle. With regard to the status of the employee as a regular employee as opposed to a contract employee, the critical fact is that he/she is a Bank employee. As such, the employee is paid by the Bank and is subject to the Bank's control and direction. Therefore, in our view, it is immaterial whether the employee is a contract employee or a regular employee. However, if the messenger service were owned and operated by a truly independent, third party that, among other things, hired its own employees, provided messenger services to other institutions or the general public, controlled the scheduling and other details of the service, and assumed responsibility for the items during transit, then it is not likely that the Bank would be considered to have established the service. With regard to ownership of the vehicle used in providing the service, changing from a personal vehicle to a bank-owned vehicle would not change the result. Ownership of the vehicle used in providing the service may, in other circumstances, provide some indication as to who established the service. However, where, as in this case, a Bank employee operates the service, vehicle ownership is of little significance. Consequently, our opinion that the proposed messenger service would constitute a branch would not change in either case.
The opinions expressed herein represent the view of the Legal Division staff and, like all staff opinions, are not binding upon the FDIC or its Board of Directors. In addition, the opinions expressed herein are based upon the facts presented in your letter. Any change in the facts or circumstances may result in different conclusions. If you have any other questions regarding this matter, please contact me at your convenience.
312 U.S.C. § 36(j). Go back to Text
4Id. Go back to Text
5See, Clarke v. Securities Industry Ass'n, 479 U.S. 388 (1987). Go back to Text
6First Nat'l Bank in Plant City v. Dickinson, 396 U.S. 122, 135 (1969) ("Plant City"). Go back to Text
7Independent Bankers Ass'n of America v. Smith, 534 F.2d 921, 951 (D.C. Cir.), cert. denied, 429 U.S. 862 (1976). Go back to Text
8Plant City, 396 U.S. at 136--37; Smith, 534 F.2d at 951. Go back to Text
9It is not clear from the facts you provided whether the delivery of currency to customers constitutes another core banking function, i.e., "paying checks." Go back to Text
10Cf. 12 C.F.R. § 7.1012 (1997) (If a national bank utilizes a messenger service for items related to branching functions that is established by a third party (as opposed to a bank), the messenger service is deemed not to be a branch. In addition, the OCC has identified a set of circumstances that, in its view, clearly would constitute third party establishment. Consistent with our conclusion in this case, the proposed service would not appear to satisfy the OCC's "safe harbor" criteria either.) Go back to Text
11Plant City, 396 U.S. at 137 (1969). Go back to Text