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FDIC Federal Register Citations

July 18, 2001

Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Attn.: Mr. Robert E. Feldman 
Executive Secretary Comments/OES

Re: Notice of Proposed Rulemaking Regarding Being Engaged in
the Business of Receiving Deposits Other Than Trust Funds

Ladies and Gentlemen:

Monogram Credit Card Bank of Georgia ("Monogram"), the defendant in Heaton v. Monogram Credit Card Bank of Georgia, is writing to express its support for the FDIC's proposal to convert General Counsel Opinion No. 12 ("GC Opinion No. 12") into a formal regulation. In the wake of lower court rulings in Heaton, the adoption by the FDIC of a regulation formalizing its long-standing position on when an institution is "engaged in the business of receiving deposits" is required to ensure clarity for the financial services industry, state and federal regulatory authorities, bank depositors and the public. 1

In 1988, GE Capital chartered Monogram as a "credit card bank" under the newly enacted Competitive Equality Banking Act of 1987 ("CEBA"). Congress enacted the "credit card bank" provisions in CEBA specifically to facilitate competition and credit availability in a nationwide credit card market. These provisions enabled GE Capital and other non-banking companies (such as insurance, securities and industrial firms) to own FDIC-insured banks which could make credit card loans nationwide at the uniform rates permitted by their home states, provided these banks limited their deposit-taking as provided by CEBA. CEBA also required "credit card banks" to comply with the full regimen of banking supervision and regulation applicable to FDIC-insured institutions. Thus, for instance, credit card banks are required to maintain high levels of capital; to meet Community Reinvestment Act requirements promoting the availability of credit for low and moderate-income individuals; to comply with a host of consumer credit protection laws; and to have their compliance monitored by federal examiners. 2

Pursuant to this authority, Monogram became an FDIC-insured credit card bank more than 12 years ago. At all times since then, Monogram has maintained its FDIC insurance in good standing and has fully complied with all the regulatory requirements applicable to FDIC-insured banks.

Adoption of a regulatory standard is urgently required to prevent a number of serious adverse consequences arising from the lower court decisions in Heaton. First, the continuing prospect of judicial decisions inconsistent with grants of FDIC deposit insurance threatens to penalize, years after the fact, Monogram and other banks that have relied upon FDIC insurance determinations. Second, as the Conference of State Bank Supervisors (the "CSBS") has warned in an amicus curiae brief filed in Heaton, decisions of this type "threaten[] to destroy, with respect to state-chartered credit card banks, the competitive equality that Congress has established between State banks and national banks in the charging of interest rates on loans" and "the carefully balanced system of federal and state regulation for such banks." Third, these decisions create the prospect that similarly situated banking institutions will be afforded disparate treatment in different jurisdictions or, even worse, that the same institution will be subject to conflicting (and unpredictable) rules in different jurisdictions (e.g. where one court holds a bank's deposits are insured, while another court in a different jurisdiction holds the same deposits are not insured). Finally, these decisions threaten public and depositor confidence in the FDIC and the deposit insurance system. Depositors and the public at large must have certainty that a bank displaying the FDIC decal or logo is in fact insured, and that their deposit insurance is not subject to judicial annulment years after the fact (and perhaps at a time when the insurance is most needed because the institution would otherwise not be able to meet its deposit obligations). 3

The conversion of GC Opinion No. 12 into a formal regulation will provide the certainty that the industry, bank customers, regulators and the public are justifiably entitled to. Moreover, the adoption of a regulatory standard will not adversely affect the public. In Heaton, for example, the rates and fees permitted by Georgia law and exported by Monogram as an FDIC-insured bank are competitive market charges comparable to the rates and fees lawfully charged Louisiana residents by a host of other out-of-state financial institutions and by in-state companies as well.

Monogram appreciates the opportunity to submit this comment favoring the adoption of this important proposal.

Very truly yours,

Donald R. Ramon

cc: Christopher L. Hencke, Esquire

1  Monogram's outside counsel is separately submitting a comment letter in support of the FDIC's proposal.

2  The recent OCC consent decree requiring Providian National Bank to pay over $300 million to redress violations of federal and state consumer credit and trade practices laws provides a perfect example of the value of this federal monitoring to consumers.

3 That Congress had no intention of allowing belated judicial review of FDIC deposit insurance determinations is fully confirmed by the conclusive authority given the FDIC under Section 8(p) of the Federal Deposit Insurance Act to determine that institutions are not, in fact, engaged in the business of receiving deposits and the special limitations under Section 8(i) of that act on judicial interference with FDIC orders under Section 8.

Last Updated 07/24/2001

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