Public Act 200 of 1988, effective August 1, 1988, amended section 171 of the banking code of 1969, MCL 487.471, MSA 23.710(171). Under the new section 171(4), with the written approval of the Commissioner, a bank may contract with another bank or banks to act as a branch to provide services to the customers of the contracting bank. The Bureau interprets this language to mean that Bank A may contract with another bank (Bank B) or banks so that Bank B may provide services to the customers of Bank A.

Before entering into any branch services contract, each Board of Directors is urged to fully review all of the issues involved, including, but not limited to the following:

- Affiliate transactions (Section 23A & B of the Federal Reserve Act), if applicable
- Audit controls/Procedures
- CRA considerations
- Customer confidentiality/Identification
- Customer relations activities (Advertising)
- Expedited Funds Availability Act (Availability schedules, disclosure, reminder notice)
- Financial considerations (Cost/Benefit to contracting bank; financial strength of provider bank)
- Insurance (FDIC, Blanket Bond, D&O)
- Office hours
- Operational issues (EDP, document security, etc.)
- Payment Systems/Clearing Systems/Allocation of loss (improper return of items, paying over stop payment orders, default on loan payments, processing errors, and other similar liabilities)
- Physical document transmittal
- Responsibilities, rights, powers, and privileges of each party
- Risk assessment (potential liability)
- Staffing requirements/Discretionary decision-making authority
- Type of services offered

1. Effective date. The contract will not be in effect until the prior approval of the Commissioner has been granted.

2. Extension or amendment. The contract should provide that advance notice be given to the Commissioner before any extension or amendment to the contract, and that all material changes be subject to Commissioner approval.

3. Termination. The contract should provide that advance notice be given to the Commissioner prior to the termination of the agreement, and should provide for reasonable disclosure to the customer prior to termination.

Banks requesting the written approval of the Commissioner to engage in contractual branch services must file a Contractual Branch Application with the Bureau. There may be only one applicant (Bank A) per application; however, there may be one or more provider banks associated with each contract. All requests filed under section 171(4) of the banking code of 1969, as amended, are subject to section 30 publication requirements. The fee for each Contractual Branch Application will be the same as for a branch bank application. Contractual agreements with more than one provider bank as a party to the same contract, or separate contracts which are essentially the same contract with more than one bank, and which are filed at the same time, will be treated as one application. Contracts submitted to the Bureau at different times, or which are different in form and content, will be considered separate applications, and will necessitate a separate fee.

The Bureau will begin processing Contractual Branch Applications immediately.

If you have further questions regarding contractual branches, please contact the Corporate Regulatory Services Division at (517)373-6940.

Signed:	Eugene W. Kuthy, Commissioner
Dated:	September 28, 1988