National Bank Appeals Process:
Appeal of the Treatment of Credit Cards by a Liquidating Entity - (Fourth Quarter 2001)

A credit card bank, in liquidation, appealed the OCC's decision regarding the continued existence and treatment of its private-label credit cards.  With a few exceptions, the credit card portfolio had been sold to an independent third party (buyer).  The credit card bank was in liquidation and concluding its activities.  In addition to the previously issued disclosures, the OCC specifically requested that the credit card bank send out stickers to be affixed to the outstanding cards with current information as to customer service and ownership of the account.

The bank appealed that decision based on the following:

• The substantial expense ($2-3 million) and time to comply with the decision to issue stickers,
• No precedence to support the decision,
• The decision is impractical, and
• The decision violates the principle of equal treatment with other similar national credit card banks.

The liquidation of the credit card bank had been structured so that the buyer became the owner of the account and the issuer of credit to the account holder.  However, the ownership of the actual plastic credit card remained with the original credit card bank.  Upon expiration and renewal the buyer would then issue the account holder a new credit card.  A notice conveying the sale of the ownership of the credit card accounts was sent to all cardholders at the time the portfolio was sold.  The notice did not disclose the ownership of the plastic credit card.

Discussion

A key area of concern in this appeal involved the liquidation of the credit card bank.  In reviewing the facts surrounding this appeal, the retention of ownership of the plastic credit cards by the credit card bank became the overriding regulatory concern because a liquidated entity cannot own assets.  Options were explored on how the bank could resolve this issue without having an adverse impact on the involved parties.

Conclusion

In order to arrive at a feasible option to address all the issues involved, the ombudsman decided on the following course of action:

• The credit card bank should sell the plastic credit card ownership to a third party (either another affiliated entity or to the buyer) for a nominal fee.
• The credit card bank should notify all account holders of the new plastic credit card ownership.  This notification would also contain information about future re-issuance of expired cards by the buyer.

These actions facilitated the liquidation of the credit card bank since the bank would no longer have ownership of the plastic credit cards.  The disclosure provided customers with information regarding the card ownership and when new cards would be issued, therefore alleviating the need for issuing stickers.