• OCC Approves National Bank Investment in Fraud and Identity Theft Prevention LLC
  • May 4, 2007 | Author: Travis P. Nelson
  • Law Firm: Pepper Hamilton LLP - Princeton Office
  • The Office of the Comptroller of the Currency (OCC) has issued Interpretive Letter No. 1077, which concluded that four national banks may make non-controlling equity investments in a limited liability company (LLC) organized to sell fraud prevention/fraud screening, identity verification, credential validation and payment/deposit risk services to financial institutions, credit card issuers, check acceptance companies, brokerage firms, mutual funds companies, retailers, government agencies and others. Each bank would own approximately 18 percent of the membership interests in the LLC.

    The OCC found that (1) the proposed activities of the LLC would be part of or incidental to the business of banking; (2) the proposal would allow the banks to prevent the LLC from engaging in activities that would not be permissible for the national banks to engage in directly; (3) the banks’ loss exposure would be limited; and (4) the investments in the LLC would be useful to the investing banks and not merely passive investments.

    Pepper Points

    The fact that the OCC has approved national banks engaging in the individual activities proposed is not novel – there is ample OCC precedent permitting each proposed activity. What is noteworthy, however, is that this letter reflects an increasing focus by the OCC and national banks on fraud and identity theft prevention as an inherent aspect of the business of banking and an important factor in the banks’ bottom line.