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FDIC Federal Register Citations

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

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),

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
Discover Bank

cc: Hugh M. Hayden, Secretary

Last Updated 09/17/2001

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