FDIC Federal Register Citations

Re: Customer Identification Programs for Banks, Savings Associations, and Credit Unions - 67 FR 48348 (July 23, 2002)

Dear Mr. Feldman Madam or Sir:

The Federal Deposit Insurance Corporation (FDIC) and other Federal banking supervisory agencies have solicited comments with respect to a proposed rule requiring financial institutions to establish written procedures to verify the identities of new account holders. The proposed rule also requires financial institutions to maintain records of the information used to verify identities and to determine whether the name of a customer appears on agency lists of known or suspected terrorists or terrorist organizations. 1st State Bank, a North Carolina state chartered banking institution, is pleased to comment with respect to the proposed rule.

1st State Bank supports the national effort to combat terrorism and the financing of terrorist activities. As part of that effort, the Bank also generally supports effective measures necessary to properly identify banks' customers. However, the Bank has concerns regarding certain requirements of the proposed rule.

Notwithstanding FDIC's conclusion to the contrary, the proposed regulation does impose a significant burden on financial institutions, especially smaller institutions. Specifically, the recordkeeping, verification, and notice requirements imposed by the regulation add significantly to banks' responsibility to identify their customers, 1st State Bank is a small community bank with seven (7) branches. We feel the requirement that documentary evidence of a customer's identity be maintained for a period of five (5) years is too long, The Bank would have to endure significant costs to accommodate the documentation, regardless of how such data is preserved. Currently, the Bank does not have the capability to preserve documentation electronically. That technology can be obtained with the banking system we operate from, however, not without a significant increace in costs. In addition, storage of documentation in paper form will exceed the bank's storage capacity if documents must be maintained for five (5) years after an account is closed. We request that the Federal agencies review this recordkeeping retention requirement and adjust to accommodate smaller financial institutions storage space and expense concerns.

In addition to the expense of the recordkeeping requirement, the regulation appears to be contradictory with the requirements of a Customer Identification Program and those prohibiting discrimination under the Equal Credit Opportunity Act and other anti-discrimination laws. The proposal lacks clear guidance and subjects our Bank to frivolous discrimination claims. We request the Federal financial agencies make absolutely clear how banks can identify new customers and retain identity documentation without inadvertently engaging in a perceived discriminatory practice.

The FDIC and other supervisory agencies should also take into consideration the short time period during which financial institutions must take steps, including discussing and drafting a Customer Identification Program, training of personnel, revising documents, etc., necessary to comply with the proposed changes. The regulation states financial institutions must have their procedures in place by October 25, 2002, the effective date of the rule, which is around the same time the final ruling, will be in place. We feel more time may be necessary to prepare our bank to draft procedures in accordance with the final regulations and have personnel trained.

1st State Bank appreciates the opportunity to comment regarding this important issue and urges the FDIC and the other banking regulatory agencies to carefully consider these concerns. If you require additional information or have any questions, please contact the undersigned at (336) 227-5661.

J. Douglas Taylor
General Auditor
1st State Bank
Burlington, NC