|December 19, 2003|
Isaac B. Lustgarten, Esq.
In connection with making automobile and equipment leases that conform with the requirements of Regulation Y, LP USA engages in the business of commercial lending and financial leasing of motor vehicle fleets and equipment located throughout the United States, and provides fleet management services to companies that lease corporate automobile fleets.2 According to your letters and the other materials that you have submitted regarding the fleet financing services industry, these three services are marketed and delivered as a bundled service to clients, not only by LP USA, but by other participants in this business.
In order to better provide fleet management services to its automobile fleet leasing customers, LP USA acquired Consolidated Service Fleet Management, L.L.C. ("CSC") in December 2000. The fleet management services LP USA provides entail arranging for third parties to provide vehicle maintenance, accident management services, and safety management services and directly providing client support services in connection with the services arranged by LP USA.3 It provides these services in connection with leases that conform with Regulation Y.4 In addition to permissible leasing activities, CSC conducts some fleet management services for automobiles that are owned by the client, and not, therefore, subject to a lease.
You state in your letter that approximately 90 percent of the vehicles serviced by CSC are leased and approximately 10 percent are owned by the client. According to your letters, revenues earned from fleet management services provided for vehicles owned by the client comprise less than 2 percent of the total revenues of LP USA. You have asked whether it would be permissible for ABN AMRO to provide fleet management services with regard to automobile fleets if the customer owns rather than leases the vehicles.
You contend that without the ability to provide fleet management services to some owned vehicles, LP USA would be at a competitive disadvantage with respect to its primary U.S. competitors because many commercial vehicle fleets typically consist of both owned and leased vehicles, and that many companies continually change the composition of their commercial fleets between owned and leased vehicles based on the changing needs of the business environment.5 You state that many companies that become customers of LP USA choose to migrate from owned to leased fleets, but this migration may typically take 2 to 3 years, during which time the customer requires fleet management services of its fleet of owned and leased vehicles.6
As a general matter, Regulation Y permits a bank holding company to engage in any incidental activities that are necessary to carry on an activity permitted by the regulation.7 The courts also have recognized the authority of bank holding companies to engage in incidental activities reasonably necessary to the conduct of closely related activities.8
In light of the nature of the practices in the fleet management industry and the difficulty in continually monitoring the migration between leased and owned vehicles in the same fleet, it appears that some ability to perform fleet servicing for owned vehicles is necessary to retain customers in connection with LP USA's fleet leasing activities. In view of all the facts of record, including this necessity, the minimal amount of revenue LP USA earns from servicing owned vehicles, and the fact that the activity is primarily an agency activity, it is my opinion that ABN AMRO may provide fleet management services to owned vehicles as an activity incidental to ABN AMRO's authorized leasing activities. In reaching this conclusion, I have relied on all the information you provided, including that LP USA will limit its fleet management services involving vehicles not subject to a Regulation Y permissible lease to no more than 15 percent of the fleet management revenues, and 5 percent of the total leasing revenues of LP USA. 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. Provision of fleet management services on owned vehicles is subject to the same restrictions set forth in Regulation Y for leased vehicles.9 If you have any questions regarding this matter, please contact Daniel Meade (202/452-3838) of the Board's legal staff.
(signed) J. Virgil Mattingly, Jr.
J. Virgil Mattingly, Jr.
1. ABN AMRO is a foreign banking organization that is treated as a bank holding company and has effectively elected to be treated as a financial holding company pursuant to section 225.92 of Regulation Y. Return to text
2. The Board has previously found that providing fleet management services is permissible when the fleet involves vehicles that are under a lease that conforms to the requirements of Regulation Y. See 12 C.F.R. 225.28(b)(3) n. 5. Permissible leases are considered to be the functional equivalent of a loan. Return to text
4. In connection with the acquisition of CSC, ABN AMRO committed that it would divest or conform all impermissible activities of CSC within two years, and on December 19, 2002, was granted a one-year extension of time to fulfill its commitment. Return to text
5. The Office of the Comptroller of the Currency has found that a national bank may provide fleet management services to its leasing customers as well as to those who do not lease from the bank as a finder activity or a permissible use of its excess capacity. See OCC Corporate Decision #2001-28 (PDF), September 21, 2001. This interpretation is based on the leasing authority in Regulation Y, not the finder authority. Return to text
6. Some customers may continue to have a fleet consisting solely of owned vehicles. Return to text
7. 12 C.F.R. 225.21(a)(2). Return to text
8. National Courier Association v. Board of Governors, 516 F.2d 1229 (D.C. Cir. 1975); Alabama Association of Insurance Agents v. Board of Governors, 533 F.2d 224 (6th Cir. 1976), cert. denied, 435 U.S. 904 (1978); Association of Data Processing Service Organizations, Inc. v. Board of Governors, 745 F.2d 677 (D.C. Cir. 1984). See also Letter from Michael Bradfield, General Counsel of the Board to Mr. Kenneth H. Robin, Assistant Secretary of Citicorp (June 12, 1984) (indicating that the occasional remarketing of a limited number of aircraft for unaffiliated persons is permissible as an activity incidental to Citicorp's authorized leasing activities). Return to text
9. 12 C.F.R. 225.28(b)(3) n. 5. Return to text
1. Arranging for Vehicle Maintenance The following services are offered through a vehicle maintenance service network by means of coupon books, credit cards or purchase orders with network vendors unaffiliated with ABN AMRO: (i) maintenance management (representatives respond to calls from drivers, service coordinators arrange for repairs with vendors, audit charges, review vehicle maintenance history to make determination as to whether vehicle should be repaired, and if so under warranty or completed with a charge); (ii) preventive management (preventative maintenance scheduling linked to nationwide vendor network); (iii) credit card services (offering discounts at automotive service and product vendors through national account agreements); (iv) Major mechanical repair facilitation (service coordinators arrange towing and rental services, track repairs, including examining the estimate, arranging for repairs at a network approved maintenance facility); (v) glass replacement and maintenance program (representatives facilitate arrangements between the driver and a vendor within the national glass replacement dealer network arrange billing with vendor); (vi) detailing programs (provides access to national network of detailing specialists); (vii) back-up rental program (arranging vehicle rental replacement or bridge vehicle); and (viii) emergency road service (arranges for 24-hour access to towing and repair facilities, lock-out service, tire changing, fuel service, jump start service and arranging for substitute transportation). Under some contracts, an agreement would be made that if any maintenance services to a vehicle are not done to the satisfaction of the customer, then LP USA or CSC would arrange to have the maintenance facility redo the repair to the client's satisfaction at the maintenance facilities expense based on the pre-arranged agreement with the maintenance facility. 2. Arranging for Accident Management Services For customers whose fleets are self-insured, CSC would arrange for the handling of all informational details following an accident, including: arranging for a detailed report of the accident; selecting a network approved facility for the vehicle; arranging for property recovery through the Pro-Claim Subrogation Recovery Service; arranging for a back-up rental vehicle if necessary (Back-up Fleet Vehicle Rental program and uninsured Back-up Fleet Vehicle Rental program); and additionally, because of data in its systems, a driver profiling service (Accident Prone Index Table), would be issued which maps individual driver patterns. 3. Client Support Services Administrative support is provided to customers by: organizing and storing vehicle titles (Title Retention); fielding driver calls related to fleet policy and vehicle delivery (Driver Call Center); processing registration renewals, parking violations and insurance cards; arranging drive-away service for fleet and individual vehicle relocation; and, arranging employee vehicle purchase programs. 4. Safety Management Services CSC outsources the provision of continuing education driving safety newsletters and other educational materials, and an external review of fleet safety standards and procedures.