CUNA Regulatory Comment Call

March 3, 2000

Request for Comments on Ways To Reduce E-Banking Barriers

(A MAJOR PROPOSAL)

EXECUTIVE SUMMARY

QUESTIONS

The OCC authorizes national banks to conduct through electronic means or facilities any activity that they are otherwise authorized to conduct and permits banks to sell excess electronic capacities acquired or developed in good faith for banking purposes. Do NCUA regulations go far enough?





The Comptroller's Handbook, Other Income Producing Activities, Internet Banking (Oct. 1999) (Handbook) describes procedures for examining Internet banking activities in national banks. It also provides guidance to national banks that are conducting, or considering, Internet banking activities by outlining business and technical issues associated with offering banking products and services through the Internet. This Handbook explains previous OCC guidance on electronic banking issues, including certification authority systems, technology risk management, retail personal computer banking, Web privacy statements, cyber terrorism, reporting computer-related crime, and consumer compliance. Should NCUA develop a handbook on electronic banking similar to the OCC's handbook? If so, what categories listed above should the Handbook include?





Please place a check in the box by each activity that OCC has approved that you believe the NCUA should specifically approve for credit unions. The NCUA should:

If you believe that making some of these activities permissible should be a priority, please specify which ones are more important and why. If you do not believe that any of these activities should be approved for credit unions only, please specify why.





Should NCUA modify specific regulations because they impede the use of developing technology? Which ones should be modified?





Are there areas where conducting electronic banking activities could particularly benefit from a single set of standards that can be applied uniformly on a nationwide basis?





Are there areas where credit unions would benefit from additional clarification in our rules or in other guidance on the risks associated with electronic banking activities? For example, are credit unions experiencing problems related to the permissibility, validity, and enforceability of electronic transactions? What can the NCUA do to provide greater legal certainty in these or other areas?





Are there specific areas in which regulatory changes are needed to enhance consumer acceptance of, confidence in, or access to, electronic banking?





Many regulations and laws applicable to credit unions reference where the credit union is located. Do new developments in technology require the NCUA to address how "location" applies in the context of activities conducted via the Internet? Specifically, is the determination of "location" for purposes of the statutes an impediment to credit unions conducting all or part of their operations on the Internet? If so, should NCUA further clarify its regulations on this issue? Is there a uniform approach to "location" that works for all the relevant statutes or should NCUA address each statute separately?





Under some marketing arrangements, the credit union is the dominant brand and refers its customers to nonbank third parties for additional products and services not provided by the credit union directly. In other cases, the non-bank is the dominant brand and it uses a credit union to provide its customers with access to credit union services while minimizing the credit union's brand. A credit union must maintain a separate corporate existence from a CUSO. These conditions, which are currently set forth in the NCUA's regulation governing the corporate separateness of CUSOs, are intended to minimize customer confusion. Should NCUA issue similar regulations for similar electronic marketing arrangements? Please address whether any or all of the supervisory conditions set forth on corporate separateness are relevant in the electronic banking context and whether other conditions intended to minimize customer confusion should apply to these arrangements.





Specifically, are existing regulations sufficient to permit members of technology-based credit unions to make deposits in the credit union by cash or share draft in an efficient and expeditions manner?





Are there types of transactions that credit unions are considering where geographical restrictions create impediments or that could benefit from the development of alternative delivery systems?





The United States General Accounting Office (GAO) study recommends that regulators identify what institutions offer which Internet banking services. This study notes that Office of Thrift Supervision (OTS) requires that institutions notify it in advance of plans to establish a transactional Web site. OTS keeps this information in a centralized electronic database. Federal Deposit Insurance Corporation (FDIC) gathers information on institutions' plans through its examiners and not the institutions. The FDIC collects this data in a central database. Should NCUA require a credit union to notify it beforehand of its plans or should the NCUA gather this information through its examiners?





The GAO study also found that FDIC and OTS expected their examiners to review an institution's Internet banking activities during the first examination of the institution after it has gone on-line. The Federal Reserve and the OCC, in contrast, did not require that an institution's new Internet banking activities be examined. They reasoned that the disproportionately small size of these assets did not make them a safety or soundness issue for the institution. Should NCUA examine a credit union as soon as it goes online or not?





Should CUNA send a reply to the OCC regarding any possible changes? What should the comment state?





Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com