Notice of Request for Preemption Opinion

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket No. 00-01]

Notice of Request for Preemption Opinion

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Notice and request for comments.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is

publishing for comment a written request for our opinion on whether a

Pennsylvania statute regulating auctioneers applies to a national bank

that uses an auction format to market and sell certificates of deposit

(CDs) over the Internet. The purpose of this notice is to afford

interested persons an opportunity to submit comments before the OCC

issues a final opinion responding to this request.

DATES: Comments must be received on or before February 14, 2000.

ADDRESSES: You may submit comments electronically to

[email protected] or by mail to Docket No. 00-01,

Communications Division, Third Floor, Office of the Comptroller of the

Currency, 250 E St., SW, Washington, DC 20219. Comments will be

available for inspection and photocopying at that address.

FOR FURTHER INFORMATION CONTACT: Mark Tenhundfeld, Assistant Director,

Legislative and Regulatory Activities Division, (202) 874-5090.

SUPPLEMENTARY INFORMATION: A national bank headquartered in

Pennsylvania (the Bank) uses an auction format to market and sell CDs

over the Internet, an activity referred to in this Notice as the

``online deposit program.'' A Pennsylvania statute requires that

auctioneers be licensed and subjects them to examination and inspection

by the state. The Bank has submitted a written request for the OCC's

opinion on whether Federal law preempts the application of the

Pennsylvania statute to the Bank's online deposit program.

Section 114 of the Riegle-Neal Interstate Banking and Branching

[[Page 2456]]

Efficiency Act of 1994 \1\ requires the OCC to publish notice in the

Federal Register before issuing a final written opinion about the

preemptive effect of Federal law in four specified areas: community

reinvestment, consumer protection, fair lending, or the establishment

of interstate branches. It is not clear that the Pennsylvania statute

under review falls within one of the four areas covered by section 114.

The Bank's written submission does not address this issue.

Nevertheless, in light of the novelty of the preemption question

presented by the Bank--the applicability of state law to national banks

that provide traditional financial services through electronic means--

comments from interested parties will aid the OCC in considering the

Bank's request. Therefore, we have concluded that it is appropriate to

publish a notice and request comment on the Bank's request. We will

also publish any final written opinion responding to the request in the

Federal Register.

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\1\ Pub. L. 103-328, sec. 114, 108 Stat. 2338, 2366-68 (1994),

codified at 12 U.S.C. 43. This publication requirement is subject to

certain exceptions that are described in section 114(c) of the

statute.

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The Bank's Online Deposit Program

The Bank is headquartered in Pennsylvania and has branches in four

other states. The Bank's Internet website permits visitors to link to a

site (the Auction Site) on which the Bank offers potential customers

the opportunity to purchase CDs that it issues and that are priced

through an online auction process, which the Bank describes as follows.

The Bank periodically posts on the Auction Site a notice of an

online auction of CDs offered by the Bank. Each auction has a starting

and ending time and identifies the dollar amount, the term, the

quantity, and the maximum annual percentage yield (APY) of the CDs

offered. For example, an auction might contain 100 CDs, each with a

face amount of $10,000, a term of six months, and a maximum APY of 8%.

In this case, the 100 bids with the lowest APY equal to or below 8%

will be selected as the winning bidders. The winning bidders are

required to complete an application to purchase a CD at their

respective bid prices, pursuant to terms and conditions that the Bank

has established for the online deposit program and that are posted on

the Auction Site.\2\

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\2\ The Bank's request to the OCC contains additional

information about its online deposit program, including eligibility

requirements for CD purchasers and the mechanics of the bidding

process, that is not pertinent to the preemption issue. The Bank

represents that it maintains the confidentiality of information

provided by participants in the online deposit program in accordance

with its privacy policy, which is posted on the Auction Site.

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The Pennsylvania Auction Statute

The Pennsylvania auction statute is codified at 63 Pa. Stat.

Sec. 734 et seq. (1998). It governs the licensing and regulation of

persons--``auctioneers''--engaged in the sale of property at auction.

The Pennsylvania statute defines an ``auction'' as

the offer to sell property to the members of an audience

congregated for the purpose of making bids for the purchase of

property in an effort by the auctioneer or apprentice auctioneer to

advance the amount of the bids to obtain the highest or most

favorable offer.\3\

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\3\ 63 Pa. Stat. at Sec. 734.2.

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Auctioneers must be licensed by the State Board of Auctioneer

Examiners \4\ and are required to keep detailed records of sales of

property at auction.\5\ Pennsylvania auctioneers are subject to

examination by the state.\6\ An auctioneer who fails to obtain a

license is subject to civil and criminal penalties.\7\ The Pennsylvania

statute permits either individuals or corporations to be auctioneers,

and the Bank believes that a corporation that employs an individual

auctioneer may have to be licensed both as an auctioneer and as an

auction company.

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\4\ Id. at Sec. 734.3.

\5\ Id. at Sec. 734.16.

\6\ Id. at Sec. 734.20.

\7\ Id. at Sec. 734.29.

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Issues Presented by the Bank

The Bank asserts that Federal law authorizes it to conduct the

online deposit program, that the licensing, recordkeeping, and

examination requirements in the Pennsylvania auction statute

impermissibly condition and burden the exercise of this Federal

authority, and that the Pennsylvania statute is therefore preempted.

The Bank relies on the express authority provided by 12 U.S.C.

24(Seventh) to ``receive deposits,'' on the incidental powers clause of

12 U.S.C. 24(Seventh), and on the OCC's regulation at 12 CFR 7.1019,

which authorizes national banks to perform, provide, or deliver through

electronic means any authorized product or service.

The Bank also cites a line of national bank preemption cases

decided by the U.S. Supreme Court and culminating in the Court's

decision in Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25

(1996), in support of its position that a state may not regulate an

activity that a national bank is Federally authorized to conduct. The

Bank notes that its use of the online Auction Site may constitute the

promotion and advertising of its deposit products and that the Supreme

Court has specifically held that a state law purporting to limit or

restrict national bank advertising is preempted.\8\ In addition, the

Bank relies on prior OCC interpretive letters opining that state laws

purporting to apply licensing requirements to national banks' Federally

authorized activities are preempted.\9\ Finally, the Bank asserts that

application of the Pennsylvania statute to its online auction

activities is preempted because the national bank visitorial powers

statute, 12 U.S.C. 484, vests the OCC with exclusive authority to

examine and supervise national banks.

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\8\ See Franklin Nat'l Bank v. New York, 347 U.S. 373 (1954).

\9\ See, e.g., OCC Interpretive Letter No. 749 (Sept. 13, 1996)

(opining that state law requiring licensing of national banks'

annuities sales activities is preempted); OCC Interpretive Letter

No. 628 (July 19, 1993) (opining that state securities board

regulation requiring a national bank providing trust services to

register as an investment adviser is preempted).

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Request for Comments

The OCC solicits comment on whether Federal law preempts the

Pennsylvania auction statute as it would apply to the Bank's online

deposit program.

Dated: January 4, 2000.

John D. Hawke, Jr.,

Comptroller of the Currency.

[FR Doc. 00-968 Filed 1-13-00; 8:45 am]

BILLING CODE 4810-33-P