Internet Banking
News
February 6, 2000
FYI - I received an e-mail from the New York Times wanting to sell me online bill paying. With everyone wanting to get into the act, you should be making every effort to educate your customers to do business with your bank and on Your Bank's web site. If you are interested, the company the NYT was promoting is at
http://www.paytrust.com.
FYI - The FDIC has joined federal, state and local organizations and national advocacy groups to launch the second annual National Consumer Protection Week, to be held from February 14-20. This year's campaign, "Armchair Armor: Shopping Safely From Home," focuses on how to avoid the risks of fraud or deception while making the most of home-shopping opportunities, through telemarketing, direct mail, the Internet and other avenues.
http://www.fdic.gov/news/news/press/2000/PR0006.HTML
FYI - Children's Online Privacy Protection Act Description
The Federal Trade Commission published a final rule to implement the Children's Online Privacy Protection Act of 1998 (COPPA) in the Federal Register on November 3, 1999. The COPPA, which is effective April 21, 2000, prohibits unfair or deceptive acts or practices in connection with the collection, use/or disclosure of personal information from and about children on the Internet. The COPPA and the final rule apply to national banks. In addition, section 1306 of the COPPA gives the OCC enforcement responsibility. Examination procedures, currently being developed, will provide further guidance.
OCC press release at http://www.occ.treas.gov/ftp/bulletin/2000-2.txt
Final FTC rule at http://www.occ.treas.gov/ftp/regs/2000-2b.txt
INTERNET SECURITY - Internet banking creates new risk control challenges. From the supervisors and banker's perspective, risk is the potential events, expected or unexpected, may have an adverse impact on the bank's earnings or capital. The OCC has defined nine categories of risk for bank supervision purposes. The risks are credit, interest rate, liquidity, price, foreign exchange, transaction, compliance, strategic, and reputation. Over the next few weeks, we will cover each of these risks.
Credit Risk
Credit risk is the risk to earnings or capital arising from an obligor's failure to meet the terms of any contract with the bank or otherwise to perform as agreed. Credit risk is found in all activities where success depends on counterparty, issuer, or borrower performance. It arises any time bank funds are extended, committed, invested, or otherwise exposed through actual or implied contractual agreements, whether on or off the banks balance sheet.
Internet banking provides the opportunity for banks to expand their geographic range. Customers can reach a given institution from literally anywhere in the world. In dealing with customers over the Internet, absent any personal contact, it is challenging for institutions to verify the bonafides of their customers, which is an important element in making sound credit decisions. Verifying collateral and perfecting security agreements also can be challenging with out-of-area borrowers. Unless properly managed, Internet banking could lead to a concentration in out-of-area credits or credits within a single industry. Moreover, the question of which state's or country's laws control an Internet relationship is still developing.
Effective management of a portfolio of loans obtained through the Internet requires that the board and management understand and control the bank's lending risk profile and credit culture. They must assure that effective policies, processes, and practices are in place to control the risk associated with such loans.
INTERNET COMPLIANCE - Truth in Savings Act (Regulation DD)
Financial institutions that advertise deposit products and services on-line must verify that proper advertising disclosures are made in accordance with the provisions. Institutions should note that the disclosure exemption for electronic media does not specifically address commercial messages made through an institution's web site or other on-line banking system. Accordingly, adherence to all of the advertising disclosure requirements is required on web pages. Electronic disclosures are being allow as long as the consumer agrees to electronic discourses.
PRIVACY STATEMENT - The regulators have written a 96 page document about the privacy regulation they are developing. The document provides their thinking and gives examples of how to disclose Your Bank's privacy policy. The double spaced document is
http://www.occ.treas.gov/ftp/regs/npr0203.pdf.
IN CLOSING - In response to the rapid growth of electronic commerce and the significant business opportunities that technology affords national banks, the OCC is seeking comment on a wide range of issues concerning national bank involvement in Internet-based activities and other emerging electronic technologies.
Press release at http://www.occ.treas.gov/ftp/release/2000-4.txt
Proposed rule at http://www.occ.treas.gov/ftp/regs/2000-4a.txt
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