August 22, 2000

Re: ________ – Proposal to Establish Banking Sites in California Supermarkets

Dear M ________:

This responds to your letter of October 6, 1999.

Your letter asked whether de novo establishment by ________ (the “Bank”) of “Pavilions” in California supermarkets is “consistent with applicable banking law” in California.

For the reasons discussed below, it is our view that the Bank’s proposal is not consistent with Section 3824 of the California Financial Code, which provides that a foreign (other state) bank that does not already have a branch in California may establish a branch in this state only by means of acquiring or merging a whole California bank.


Your letter states that the Bank is a national bank with its head office in Florida. We understand that it presently has no physical locations in California. You describe the Bank’s proposed business plan as follows:

“The Bank will not have any traditional banking offices but will deliver products and services to its customers through a variety of electronic delivery channels. Customers will conduct banking transactions through automated teller machines (“ATMs”), through the Internet via a transactional Web site, and through the Bank’s toll free customer service line. Customers will be able to access all of these delivery channels at Pavilions located in supermarkets. Each Pavilion will house a dedicated phone line to the Bank’s call center, a computer with access only to the Bank’s Web site, and will have connected to it, on an external or adjacent wall, a deposit-taking ATM. The Pavilions will be staffed up to 14 hours per day with customer service representatives. These individuals will act as facilitators only and will not have the ability to accept deposits, approve loans, negotiate interest rates, or otherwise commit the Bank to banking transactions or activities.

. . .

Under the Marketplace Bank brand, the Bank expects to offer deposit and credit products and services to Florida customers. Deposit-related products and services are expected to include no/low fee checking and savings accounts earning above-market interest rates, certificates of deposit, electronic bill payment, and an ATM card. Loan products include residential mortgages, an unsecured consumer loan by way of a credit line and a credit card. Credit line applications and new account applications will be made available at the Pavilions. The Bank will use credit scoring to make the credit decisions, and customers can draw down from the approved credit line through the Bank’s ATMs. While the Bank may originate its own mortgages in the future, it will initially provide its customers with a direct hyperlink from the Bank’s transactional Web site to an online mortgage broker.

. . .

The Bank was recently approached by a supermarket chain with numerous locations in California. If the Bank enters into a definitive agreement with this supermarket chain, the Bank expects to implement its business strategy in the California market. The Bank’s operations in California would be similar to those in Florida . . . .”


In our view, the proposed Pavilions constitute branches of the Bank, and their establishment is, therefore, subject to the limitations on interstate branching set forth in Chapter 22 (commencing with Section 3800), Division 1 of the California Financial Code.

As indicated above, pursuant to Section 3824 of Chapter 22, a foreign (other state) bank that does not already have a branch in California may establish a branch in this state only by means of acquiring or merging a whole California bank. The term “foreign (other state) bank” includes a national bank, such as the Bank, which maintains its head office in a state other than California. See Financial Code § 139.5(a).

For purposes of Chapter 22, we view any place where a bank conducts a core banking business to be a branch. “Core banking business” is defined in Section 3800(b) of Chapter 22, as, among other things, “. . . the business of receiving deposits, paying checks, making loans, and other activities that the Commissioner may specify by order or regulation.” The Bank proposes to conduct through its Pavilions most, if not all of the banking functions listed above. Therefore, regardless of whether or not the Office of the Comptroller of the Currency regards sites such as the Pavilions to be branches under federal law, they do constitute branches for purposes of Chapter 22.

Accordingly, under Chapter 22, the Bank, which has no branches in California at this time, may establish the Pavilions in California only if it first acquires a whole California bank.


For the reasons discussed above, it is our view that the Bank’s proposal to establish Pavilions in California is not consistent with California law.

Very truly yours,

Commissioner of Financial Institutions


Senior Counsel


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