by Robert J. Pile, Jennifer D. Lambert, and Heather J.
Third-party service providers to financial institutions
have often taken the position that they are not "financial institutions" for
purposes of federal law and thus are typically not subject to regulation in the
same manner as traditional financial institutions. Indeed, Congress and the
regulating agencies have taken a functional approach to defining financial
institutions: narrowly in the context of examination and supervision, and more
broadly when effecting, for example, consumer protection. Under Title XII of
the United States Code in connection with the Federal Financial Institutions
Examination Council, Congress defined a financial institution as a "commercial
bank, a savings bank, a trust company, a savings association, a building and
loan association, a homestead association, a cooperative bank, or a credit
union[.]" Likewise, under the Federal Reserve's Regulation S, financial
institution is defined as "any office of a bank, savings bank, card issuer as
defined in section 103 of the Consumers Credit Protection Act (15 U.S.C.
1602(n)), industrial loan company, trust company, savings association, building
and loan, or homestead association (including cooperative banks), credit union,
or consumer finance institution . . . ."
In a potential divergence from Congress's traditional
approach to regulating financial institutions, Title VIII of the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank")
defines "financial institution" broadly in the context of supervising payment
and settlement activities of financial institutions. A liberal interpretation
of "financial institution" by regulating agencies could ensnare service
providers of banks and traditional financial institutions, thus subjecting
entities not previously regulated as financial institutions to some of the same
regulations applicable to banks and other traditional financial institutions
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