September 13, 2001
Robert E. Feldman, Executive Secretary
Attention: Comments/OES
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington D.C. 20429 Re: Online Delivery of Banking Services
Dear Mr. Feldman:
Discover Bank is pleased to respond to the FDIC's request for comment dated July 10,
2001 regarding the online delivery of banking services. We appreciate the opportunity to
comment.
Discover Bank maintains total assets in excess of $21 billion and is among the nation's
largest issuers of general-purpose credit cards, as measured by number of accounts and
cardmembers. Discover Bank also offers deposit account services to customers across the
country, and holds over $10 billion in consumer deposits. The Bank provides a number of
online banking services, including account applications, bill payment, and customer
service. More than five million of the Bank's accounts are registered for online account
services at www.Discovercard.com.
No regulations or guidance are needed or appropriate concerning hyperlinks
The FDIC has expressed concern that customers may be confused by bank Web sites providing
hyperlinks to Web sites of non-financial institutions which offer non-financial
information, products or services. The concern is that customers may mistakenly believe
that the bank itself is offering, sponsoring or endorsing those products or services. This
concern is misplaced, as existing laws and regulations are adequate to protect consumers
from such confusion. Existing federal and state laws governing unfair and deceptive trade
practices prohibit any practice which would be likely to confuse or mislead consumers as
to the origin, sponsorship, or approval of goods and services. See, e.g., Lanham Act, 15
U.S.C. § 1125 (1998); Rev. Unif. Deceptive Trade Practices Act § 2(a)(2) (1966). In
addition, if the hyperlink is to a bank affiliate, the bank must comply with § 23B of the
Federal Reserve Act, which prohibits any statement or suggestion that
the bank is responsible for the obligations of the affiliate. The FDIC's Compliance
Examination Manual currently requires that advertising on a bank's Web site be reviewed to
determine whether it is "misleading or inaccurate" (Part III, pages E-1 and
E-8). Accordingly, additional regulations or guidance from the FDIC is unnecessary on this
point.
The FDIC has also inquired whether there are technological solutions to address the
potential confusion caused by hyperlinks. One solution adopted by some Web site operators
who provide hyperlinks to third-party sites is to provide a message to users who click on
such hyperlinks advising users that they are leaving the original Web site and going to a
Web site operated by a third party. After a few seconds, the user is then taken to the
third-party site. Another solution used by some Web site operators is to "frame"
the third-party Web site and provide a message in the frame indicating that the user is
visiting a third-party's Web site. Because new Web design technologies and techniques are
emerging at a rapid pace, it is very possible that these methods will soon be considered
obsolete. The FDIC should remain technology neutral on this issue -- it should not issue
regulations or guidance requiring or even approving any specific technologies -- since
doing so could actually hinder the adoption of superior technologies in the future.
The Online Delivery of Banking Services Does Not Involve Branch Banking
The FDIC should clarify that a "branch" does not include the delivery of online
banking services by adopting an additional exclusion from the definition of that term in
12 CFR part 303. Subpart 303.41(a) currently specifies that "a branch does not
include an automated teller machine, an automated loan machine, or a remote service
unit." The adoption of a new exclusion for Internet banking would be consistent with
those exclusions. In addition, such an exclusion also would be consistent with the
position of the Office of the Comptroller of the Currency ("OCC") that Internet
banking does not constitute branching under Section 36 of the National Bank Act.
New technology has dramatically expanded the ability of customers to access banking
services from remote locations. However, the mere fact that customers can communicate with
their banks from numerous locations does not mean that banking services are being
performed at those locations. For example, there is no practical difference between
applying for immediate credit online and applying for credit at an automatic loan machine.
In both instances, the customer is submitting data to computers that have been programmed
to generate decisions based on established underwriting standards. The ministerial role of
such computers stands in marked contrast to the role served by on-site bank
representatives who possess the ability to negotiate interest rates and otherwise exercise
discretion in establishing or modifying the terms of a loan. See FDIC General Counsel's
Opinion No. 11, 63 Fed. Reg. 27,282 (the geographic location of a loan depends on where the non-ministerial functions of
(i) the decision to extend credit, (ii) the extension of credit itself, and (iii) the
disbursal of the loan proceeds are performed).
As has been noted by the OCC, the delivery of banking services to customers
"either by a direct telephone or by the Internet is simply the use of new electronic
technology to provide recognized banking services." OCC Interpretative Letter No.
742, reprinted in [1996-97 Transfer Binder] Fed. Banking L. Rep. (CCH) 81-106 (August 19,
1996), p. 90,217. Moreover, communicating with customers using the Internet is no
different than using the mail or phone in that the Internet represents a means of
contacting customers that is available to all banks and thus, offers no competitive
advantage. See FDIC Advisory Opinion No. 99-2, reprinted in [Current Binder] Fed. Banking
L. Rep. (CCH) 82-236 (January 26, 1999) (back office facilities at which discretionary
lending decisions are made, and from which proceeds checks and electronic payment
instructions are issued, do not constitute branches so long as customer communications are
conducted solely by mail or phone, since, "in view of the lack of public access and
the lack of in-person contact with customers," such facilities offer "no
competitive advantage over other banks.").
In Advisory Opinion No. 99-2, the FDIC noted that "the definition of 'domestic
branch' [under Section 3(o) of the FDI Act] is, in relevant part, identical to the
definition of 'branch' under the National Bank Act," and accordingly, interpretations
of Section 36 of the National Bank Act may be relied upon in interpreting Section 3(o). It
is, therefore, highly significant that the OCC has opined that the delivery of banking
services through a transactional Web site does not constitute branch banking, even where
such Internet access is provided at retail store kiosks which are staffed by bank customer
service representatives who provide "ministerial" assistance. OCC Conditional
Approval No. 313 (July 9, 1999), http://www.occ.treas.gov/jul99/ca313.pdf.
Finally, even if one assumes, for the sake of argument, that Internet banking involves the
actual performance of one or more of the "core" banking activities of receiving
deposits, paying checks, and lending money, as opposed to merely facilitating those
activities through the high speed, efficient exchange of information, Internet banking
still should be considered exempt from branching requirements. Under 12 CFR part 345, a
branch does not include a "remote service unit," which is defined in subpart
345(12)(d) as an "automated, unstaffed banking facility . . . such as an automated
teller machine, cash dispensing machine, point-of-sale terminal, or other electronic
facility, at which deposits are received, checks cashed or money lent." Internet
banking falls squarely within this definition.
For all of these reasons, the FDIC should clarify that a "branch" does not
include the delivery of online banking services by adopting an additional exclusion from
the definition of that term in 12 CFR part 303.
Regulations Should Not Be Issued for Electronic Signatures and Records
The FDIC should refrain from promulgating regulations governing the use of electronic
signatures and records for several reasons. First, there is no current need for such
regulations. Congress provided detailed consumer disclosure requirements in Section 101(c)
of the Electronic Signatures in Global and National Commerce Act ("E-Sign Act").
Moreover, the Federal Reserve Board has issued interim rules that establish specific
timing and content requirements for such disclosures. In addition, the requirements of
Section 101(d) of the E-Sign Act for the retention of contracts and records are
intentionally flexible to allow for the development of new technologies. In this regard,
the E-Sign Act has been carefully drafted to be technology neutral, and Section
104(b)(3)(A) prohibits any federal or state regulator from requiring the use of any
particular software or hardware. Second, if each of the federal banking agencies were to
issue its own body of E-Sign Act regulations, the likely result would be a patchwork of
regulatory requirements of the very nature that Congress sought to avoid. If a need for
such regulations arises, uniform regulations should be issued on an interagency basis.
Third, because the E-Sign Act is less than two years old and bank involvement in
electronic commerce remains in its infancy, the issuance of regulations at this juncture
would be premature.
Again, we appreciate the opportunity to comment on these issues. We would be pleased to
provide any further information you may need regarding these comments.
Respectfully submitted,
K.M. Roberts
President
Discover Bank
cc: Hugh M. Hayden, Secretary
|