Oliver I. Ireland, Esq.
Dear Mr. Ireland:
This is in response to your letter of October 3, 2002, regarding the application of the Board's regulatory safe harbor for combined-balance discounts under the anti-tying restrictions of section 106 of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. § 1972(1)) ("section 106"). Specifically, you have asked whether, for purposes of the safe harbor set forth in section 225.7(b)(2) of the Board's Regulation Y (12 C.F.R. 225.7(b)(2)), members of a household or family taken together may be considered a "customer."
You have indicated that your client, Charles Schwab Corporation, San Francisco, California ("Schwab"), would like to offer customer discounts on the products and services of its subsidiary banks if the customer's household maintains a specific minimum balance with the banks and their affiliates. The minimum balance would be computed by adding the balances held by an individual customer in Schwab products (both bank and nonbank) specified by a Schwab-affiliated bank, including deposits, to balances held in the same products by all other members of that customer's household. For this purpose, a "household" could include all members of an "immediate family" as defined in the Board's Regulation Y (see 12 C.F.R. 225.41(b)(3)) who reside at the same address.
In order to qualify for the Board's safe harbor, all deposits must be eligible products under the combined-balance discount program, and deposit balances must be weighed at least as much as nondeposit products towards the minimum balance. In creating the safe harbor, the Board determined that combined-balance discount programs operating within these restrictions were pro-consumer and not anti-competitive. Schwab's proposed combined-balance discount program would operate within these restrictions and would provide these consumer benefits. Aggregating balances held at Schwab affiliates by members of a family or household would make it easier for customers to achieve the minimum balance necessary to receive the favorable pricing on bank products and services, and would not appear to create any anti-competitive effects.
On this basis, it is my opinion that the term "customer" as used in section 225.7(b)(2) of the Board's Regulation Y can include separate individuals who are all members of an immediate family (as defined in section of 225.41(b)(3) the Board's Regulation Y) and who reside at the same address.
This opinion is based on the facts and representations you have provided, and any material change in these facts or representations could result in a different conclusion and should be reported to Board staff. This opinion also assumes that the combined-balance discount program described in this letter is not conducted in a manner that results in anticompetitive practices, including any sale of nondeposit products in an anticompetitive way. Any finding by the Board that the program is resulting in anti-competitive practices will terminate Schwab's eligibility to operate the program pursuant to the combined-balance discount safe harbor in Regulation Y and this letter. If you have any questions about this matter, please contact Andrew Baer (202/452-2246), of the Board's legal staff.
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, DC 20006-1888
(signed) J. Virgil Mattingly
J. Virgil Mattingly