[Federal Register: March 30, 2001 (Volume 66, Number 62)]
[Rules and Regulations]
[Page 17329-17341]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30mr01-3]
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FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R-1043]
Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Interim rule; request for comments.
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SUMMARY: The Board is adopting an interim final rule amending
Regulation Z, which implements the Truth in Lending Act, to establish
uniform standards for the electronic delivery of disclosures required
by the act and regulation. The rule provides guidance on the timing and
delivery of electronic disclosures to ensure consumers have adequate
opportunity to access and retain cost information when shopping for
credit or before becoming obligated for an extension of credit.
(Similar rules are being adopted under other consumer financial
services and fair lending regulations administered by the Board.) Under
the rule, creditors may deliver disclosures electronically if they
obtain consumers' affirmative consent in accordance with the Electronic
Signatures in Global and National Commerce Act. In addition, the
regulation is revised to allow creditors to provide disclosures in
foreign languages. The rule is being adopted as an interim rule to
allow for additional public comment.
DATES: The interim rule is effective March 30, 2001; however, to allow
time for any necessary operational changes, the mandatory compliance
date is October 1, 2001. Comments must be received by June 1, 2001.
ADDRESSES: Comments, which should refer to Docket No. R-1043, may be
mailed to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, NW.,
Washington, DC 20551 or mailed electronically to
regs.comments@federalreserve.gov. Comments addressed to Ms. Johnson may
also be delivered to the Board's mail room between 8:45 a.m. and 5:15
p.m. weekdays, and to the security control room at all other times. The
mail room and the security control room, both in the Board's Eccles
Building, are accessible from the courtyard entrance on 20th Street
between Constitution Avenue and C Street, NW. Comments may be inspected
in room MP-500 in the Board's Martin Building between 9:00 a.m. and
5:00 p.m., pursuant to the Board's Rules Regarding the Availability of
Information, 12 CFR part 261.
FOR FURTHER INFORMATION CONTACT: Jane E. Ahrens, Senior Counsel;
Kathleen Ryan, Senior Attorney; or Deborah J. Stipick, Attorney;
Division of Consumer and Community Affairs, at (202) 452-2412 or (202)
452-3667.
SUPPLEMENTARY INFORMATION:
I. Background
The purpose of the Truth in Lending Act (TILA), 15 U.S.C. 1601 et
seq., is to promote the informed use of consumer credit by requiring
disclosures about its terms and cost. The Board's Regulation Z (12 CFR
part 226) implements the act. The act requires creditors to disclose
the cost of credit as a dollar amount (the finance charge) and as an
annual percentage rate (the APR). Uniformity in creditors' disclosures
is intended to promote the informed use of credit and assist in
shopping for credit. TILA requires additional disclosures for loans
secured by consumers' homes and permits consumers to rescind certain
transactions that involve their principal dwellings.
TILA and Regulation Z require a number of disclosures to be
provided in writing, presuming that creditors provide paper documents.
Under the Electronic Signatures in Global and National Commerce Act
(the E-Sign Act)(15 U.S.C. 7001 et seq.), however, electronic documents
and signatures have the same validity as paper documents and
handwritten signatures.
Board Proposals Regarding Electronic Disclosures
Over the past few years, the Board has published several interim
rules and proposals regarding the electronic delivery of disclosures.
In 1996, after a comprehensive review of Regulation E (Electronic Fund
Transfers), the Board proposed to amend the regulation to permit
financial institutions to provide disclosures by sending them
electronically (61 FR 19696, May 2, 1996). Based on comments received
on the 1996 proposal, on March 25,1998, the Board published an interim
rule permitting the electronic delivery of disclosures under Regulation
E (63 FR 14528) and similar proposals under Regulation Z (63 FR 14548)
and other financial services and fair lending regulations administered
by the Board. The 1998 interim rule and proposed rules were similar to
the 1996 proposed rule under Regulation E.
The 1998 proposals and interim rule allowed depository
institutions, creditors, lessors, and others to provide disclosures
electronically if the consumer agreed, with few other requirements. For
ease of reference, this background section uses the terms
``institutions'' and ``consumers.''
Industry commenters generally supported the Board's 1998 proposals
and interim rule, but many of them sought specific revisions and
additional guidance on how to comply with the
[[Page 17330]]
disclosure requirements in certain transactions and circumstances. In
particular, they expressed concern that the rule did not specify a
uniform method for establishing that an ``agreement'' was reached for
sending disclosures electronically. Consumer advocates, on the other
hand, generally opposed the 1998 proposals and the interim rule. They
believed that consumer protections in the proposals were inadequate,
especially in connection with transactions that are typically
consummated in person (such as automobile loans and leases, home-
secured loans, and door-to-door credit sales).
September 1999 Proposals
In response to comments received on the 1998 proposals, the Board
published revised regulatory proposals in September 1999 under
Regulations B, E, M, Z, and DD (64 FR 49688, 49699, 49713, 49722 and
49740, respectively, September 14, 1999) (collectively, the ``1999
proposals''), and an interim rule under Regulation DD (64 FR 49846).
The interim rule under Regulation DD allowed depository institutions to
deliver disclosures on periodic statements electronically if the
consumer agrees.
Generally, the 1999 proposals required institutions to use a
standardized form containing specific information about the electronic
delivery of disclosures so that consumers could make informed decisions
about whether to receive disclosures electronically. If the consumer
affirmatively consented, most disclosures could be provided
electronically. To address concerns about potential abuses, the 1999
proposals generally would have required disclosures to be given in
paper form when consumers transacted business in person. The proposals
contained rules for disclosures that are made available to consumers at
an institution's Internet web site (governing, for example, how long
disclosures must remain posted at a web site).
Comments on the September 1999 Proposals
The Board received letters representing 115 commenters expressing
views on the revised proposals. Industry commenters generally supported
the Board's approach of establishing federal rules for a uniform method
of obtaining consumers' consent to the receipt of electronic
disclosures instead of deferring to state law. Still, many sought
specific additional guidance and in some cases wanted more flexibility.
They were concerned about the length of time the proposals would have
required electronic disclosures to remain available to a consumer at an
institution's Internet web site or upon request. In addition, they
believed the proposed rule requiring paper disclosures for mortgage
loans closed in person was not sufficiently flexible. In addition, they
believed the proposed rule requiring paper disclosures for mortgage
loans closed in person was not sufficiently flexible. Consumer
advocates believed the 1999 proposals addressed many of their concerns
about the 1998 proposals. Nevertheless, they urged the Board to
incorporate greater protections for consumers, such as restricting the
delivery of electronic disclosures to only those consumers who initiate
transactions electronically.
The Board also obtained views through four focus groups with
individual consumers, conducted in the Washington-Baltimore
metropolitan area. Participants reviewed and commented on the format
and content of the proposed sample consent forms, as well as on
alternative revised forms.
Federal Legislation Addressing Electronic Commerce
On June 30, 2000, the President signed the E-Sign Act, which was
enacted to encourage the continued expansion of electronic commerce.
The E-Sign Act generally provides that electronic documents and
signatures have the same validity as paper documents and handwritten
signatures. The act contains special rules for the use of electronic
disclosures in consumer transactions. Consumer disclosures may be
provided in electronic form only if the consumer affirmatively consents
after receiving certain information specified in the statute.
The Board and other government agencies are permitted to interpret
the E-Sign Act's consumer consent requirements within prescribed
limits, but may not impose additional requirements for consumer
consent. In addition, agencies generally may not re-impose a
requirement for using paper disclosures in particular transactions,
such as those conducted in person.
The consumer consent provisions in the E-Sign Act became effective
October 1, 2000, and did not require implementing regulations. Thus,
financial institutions are currently permitted to use electronic
disclosures under Regulations B, E, M, Z and DD if the consumer
affirmatively consents in the manner required by section 101(c) of the
E-Sign Act. Under section 101(c)(5) of the E-Sign Act, consumers who
consented prior to the effective date of the act to receive electronic
disclosures as permitted by any law or regulation, are not subject to
the consent requirements.
II. The Interim Rule
The Board is adopting an interim final rule to establish uniform
standards for the electronic delivery of disclosures required under
Regulation Z. Consistent with the requirements of the E-Sign Act,
creditors generally must obtain consumer's affirmative consent to
provide disclosures electronically.
The interim rules also establish uniform requirements for the
timing and delivery of electronic disclosures. Disclosures may be sent
by e-mail to an electronic address designated by the consumer, or they
may be made available at another location, such as an Internet web
site. If the disclosures are not sent by e-mail, consumers must receive
a notice alerting them to the availability of the disclosures.
Disclosures posted on a web site must be available for at least 90
days, to allow consumers adequate time to access and retain the
information. With regard to the timing of electronic disclosures, for
disclosures that must be provided before the consumer becomes obligated
for an extension of credit, consumers are required to access the
disclosures before becoming obligated. Under the interim rule,
institutions must make a good faith attempt to redeliver electronic
disclosures that are returned undelivered, using the address
information available in their files. Similar rules are being adopted
under Regulations B, E, M, and DD.
III. Request for Comment
Interim Rules
The interim rules include most of the revisions that were part of
the 1999 proposals and were not affected by the E-Sign Act. The Board
is adopting these rules with some minor changes discussed below. The
rules are adopted as interim rules, to allow commenters to present new
information or views not previously considered in the context of the
1998 and 1999 proposals. Since the Board's 1999 proposals were issued,
more institutions have gained experience in offering financial services
electronically. The Board believes that additional comments, beyond
those previously considered in connection with the Board's earlier
proposals, might inform the Board whether any developments in
technology or industry practices have occurred that warrant further
changes in the rules. The
[[Page 17331]]
comment period ends on June 1, 2001. The Board expects to adopt final
rules on a permanent basis prior to October 1, 2001.
Interpreting E-Sign Provisions
Under section 104(b) of the E-Sign Act, the Board and other
government agencies are permitted to interpret the act, within
prescribed limits. The Board may issue rules that interpret how the E-
Sign Act's consumer consent requirements apply for purposes of the laws
administered by the Board. Also, the Board may, by regulation, exempt a
particular category of disclosures from the E-Sign Act's consumer
consent requirements if it will eliminate a substantial burden on
electronic commerce without creating material risk for consumers.
The Board requests comment on whether the Board should exercise its
authority under the E-Sign Act in future rulemakings to interpret the
consumer consent provisions or other provisions of the act, as they
affect the Board's consumer protection regulations. Comment is
requested on whether the statutory provisions relating to consumer
consent are sufficient, or whether additional guidance is needed. For
example, is interpretative guidance needed concerning the statutory
requirement that consumers confirm their consent electronically in a
manner that reasonably demonstrates they can access information in the
form to be used by the creditor? Is clarification needed on the effect
of consumers' withdrawing their consent, or on requesting paper copies
of electronic disclosures? Institutions must also inform consumers of
changes in hardware or software requirements if the change creates a
material risk that the consumer will not be able to access or retain
the disclosure. The Board solicits comment on whether regulatory
standards are needed for determining a ``material risk'' for purposes
of Regulation Z and other financial services and fair lending laws
administered by the Board, and if so what standards should apply.
Under section 104(d) of the E-Sign Act, the Board is authorized to
exempt specific disclosures from the consumer consent requirements of
section 101(c) of the E-Sign Act, if the exemption is necessary to
eliminate a substantial burden on electronic commerce and will not
increase the material risk of harm to consumers. The Board requests
comment on whether it should consider exercising this exemption
authority.
Study on Adapting Requirements to Online Banking and Lending
The E-Sign Act eliminated legal impediments to the use of
electronic records and signatures. The Board requests comment on
whether other legislative or regulatory changes are needed to adapt
current requirements to online banking and lending and facilitate
electronic delivery of consumer financial services.
As an example, under Regulations Z and DD, periodic statements
inform consumers about their account activity over a period of time,
typically monthly. The beginning and ending dates of the cycle
determine costs and other information that must be disclosed. In
addition, transmittal of the periodic statement triggers important
consumer protections such as billing error resolution procedures.
Online banking, however, can provide consumers with up-to-date
information about their accounts on a continuing basis. Such
information is a helpful supplement to--but does not comply as a
substitute for--periodic statements. Should the rules for periodic
statements be modified for online banking, and if so, how could the
rules be crafted to maintain for consumers (1) a perspective of the
cost and activity of an account over time, and (2) protections for
resolving errors or liability for unauthorized transactions.
The comments may assist the Board in future efforts to update the
regulations. The comments may also be used in connection with a study
required under the Gramm-Leach-Bliley Act of 1999. That act requires
the federal bank supervisory agencies to conduct a study of banking
regulations that affect the electronic delivery of financial services
and to submit to the Congress a report recommending any legislative
changes that are needed to facilitate online banking and lending.
IV. Section-by-Section Analysis
Pursuant to its authority under section 105 of TILA, the Board
amends Regulation Z to establish uniform standards for the use of
electronic communication to provide disclosures required by this
regulation. Electronic disclosures can effectively reduce compliance
costs without adversely affecting consumer protections. The purpose of
Regulation Z disclosures is to ensure that consumers have meaningful
information about credit terms and to promote comparison shopping. The
use of electronic communication may allow creditors to provide
Regulation Z disclosures to the consumer earlier in the lending
process. To the extent that a creditor may make electronic disclosures
available at its Internet web site instead of providing the disclosures
directly to the consumer, the Board finds that such an exception is
warranted, acting pursuant to its authority under section 105(a) of
TILA. Below is a section-by-section analysis of the rules for providing
disclosures by electronic communication, including references to
changes in the official staff commentary.
Subpart B--Open-end Credit
Section 226.5 General Disclosure Requirements
5(a) Form of Disclosures
Section 226.5(a)(5) is added to provide a cross reference to rules
governing the electronic delivery of disclosures in Sec. 226.36.
5(b) Time of Disclosures
5(b)(2) Periodic Statements
Comment 5(b)(2)(ii)-3 is revised. Under the current rules for open-
end plans, creditors may permit, but may not require, consumers to pick
up their periodic statements in lieu of receiving them automatically.
In 1997, the staff commentary was revised to clarify that consumers who
elect to pick up written periodic statements might, instead, receive
copies of such statements by electronic means (62 FR 10193, March 6,
1997). Consumers making that election, however, would not waive their
right to also obtain written periodic statements. Accordingly, the
comment did not specify the manner or form of consumers' consent to
electronic copies of their statement.
As discussed below, Sec. 226.36(b) as adopted sets forth the
general rule that a creditor subject to Regulation Z may provide
disclosures electronically only if the creditor complies with section
101(c) of the E-Sign Act. This requirement applies to electronic
statements provided in accordance with comment 5(b)(2)(ii)-3, and the
comment has been revised accordingly.
Section 226.5a Credit and Charge Card Applications and Solicitations
Regulation Z requires credit and charge card issuers to provide
cost disclosures in certain applications and solicitations to open card
accounts.
5a(a) General Rules
5a(a)(2) Form of Disclosures
Regarding the timing of the Sec. 226.5a disclosures, the 1999
proposal stated that for electronic card applications or solicitations,
the disclosures must appear on the screen before the
[[Page 17332]]
application or solicitation appears. Under the final rule, a consumer
must be able in all cases to access the disclosures at the time the
blank application or reply form is made available by electronic
communication, such as on a card issuer's Internet web site. Card
issuers have flexibility in satisfying this requirement. For example,
if a link is not used, the application or reply form must clearly and
conspicuously refer to the fact that rate, fee and other cost
information either precedes or follows the application or reply form.
Alternatively, card issuers may provide a link to electronic
disclosures as long as consumers cannot bypass the disclosures before
submitting the application or reply form. Or the disclosures could
automatically appear on the screen when the application or reply form
appears. A card issuer need not confirm that the consumer has read the
disclosures. As adopted, comment 5a(a)(2)-8 has been modified from the
1999 proposal to provide additional guidance. Similar guidance is
provided for home-equity lines of credit and adjustable rate mortgage
(ARM) loans.
5a(b) Required Disclosures
5a(b)(1) Annual Percentage Rate
Section 226.5a(b)(1)(ii) is revised and (iii) is added to address
the accuracy of the APR in connection with electronic credit and charge
card applications and solicitations. Where terms are disclosed in card
applications and solicitations, card issuers are required to disclose
the periodic rate that would apply, expressed as an APR. For fixed
rates, card issuers are required to disclose the APR currently
available under the plan. For variable rates, the APR disclosed in a
direct mail solicitation must be accurate within 60 days before
mailing; in a take-one, within 30 days before printing.
As part of the 1999 proposals, the Board proposed a single standard
for APR accuracy in electronic disclosures: for a variable-rate plan,
the disclosed APR would be deemed accurate if it is one that was in
effect within 30 days before the disclosures are sent to the consumer's
e-mail address. If disclosures are made available at another location
such as the card issuer's Internet web site, the APR would be one in
effect within the last 30 days. Commenters generally supported applying
a uniform standard to both the e-mail and web site posting methods of
providing applications or solicitations. The final rule is adopted as
proposed.
5a(c) Direct-mail and Electronic Applications and Solicitations
The format and content requirements differ for cost disclosures in
card applications or solicitations sent in direct mail campaigns and
for those made available to the general public such as in ``take-one''
applications and catalogs or magazines. Disclosures accompanying direct
mail applications and solicitations must be presented in a table.
Disclosures in a take-one also may be presented in a table with the
same content as for direct mail, but the act and regulation permit two
alternatives for format and content: (1) A narrative that describes how
finance charges and other charges are assessed, and (2) a statement
that costs are involved, along with a toll-free telephone number to
call for further information.
With regard to the format and content of disclosures, the Board's
1999 proposals generally applied the same rules to card applications
and solicitations made in the electronic context as apply to paper-
based applications and solicitations. Card issuers sending applications
or solicitations to a consumer's e-mail address would follow the direct
mail rules; applications or solicitations made available to the general
public would follow the take-one rules. Commenters generally supported
the proposal.
The Board believes that in the context of on-line credit shopping,
consumers would benefit from consistent disclosures among credit card
issuers, whether consumers view an application or solicitation from an
e-mail address or at another location such as a card issuer's web site.
The option to distribute paper-based take-ones without cost information
addresses, in part, a concern that the disclosures may become
inaccurate with no practical means to recall the take-ones. This
concern is not an issue for disclosures posted on an Internet web site.
Requiring all card issuers to post a table on web sites that have
credit and charge card applications or solicitation would not be unduly
burdensome. Pursuant to the Board's general authority under section
105(a) to create exceptions to carry out the purposes of the act and
the Board's specific authority under section 127(c)(5) to modify
disclosures to carry out the purposes of the rules affecting
applications and solicitations, Sec. 226.5a(c) is revised to apply the
direct mail rules to electronic credit and charge card applications or
solicitations.
Section 226.5b Requirements for Home-Equity Plans
5b(b) Time of Disclosures
Comment 5b(b)-7 is added to provide guidance on the timing of
disclosures for electronic applications for a home-equity line of
credit (HELOC). Regulation Z requires that disclosures (including a
brochure) be provided at the time an application for a HELOC is
provided to a consumer. The disclosures generically describe the
creditor's HELOC product. In the September 1999 proposal, comment
5b(b)-7 stated that if a HELOC application is made available
electronically, such as on a creditor's Internet web site, the
disclosures must appear before the application is provided.
The final comment has been modified to provide guidance similar to
that given for credit and charge card applications and solicitations
under Sec. 226.5a and ARM loans under Sec. 226.19(b). In all cases, a
consumer must be able to access the disclosures (including the
brochure) at the time the blank application or reply form is made
available by electronic communication, such as on a creditor's Internet
web site.
5b(c) Duties of Third Parties
Under Sec. 226.5b(c), persons other than the creditor that provide
applications for a HELOC must give the consumer a brochure at the time
the application is given, and in some cases also provide other
disclosures. Section 226.5b(c)(2) is added to clarify that such persons
who are required to comply with Regulation Z may use electronic
communication to do so, as long as the requirements of Sec. 226.36(b)
are satisfied.
Section 226.15 Right of Rescission
15(b)(1) Notice of Right to Rescind
Section 226.15 provides that in certain open-end plans secured by a
consumer's principal dwelling, the consumer has three business days to
rescind the transaction after becoming obligated on the debt. Consumers
with an ownership interest in the dwelling used as security must
receive (1) cost disclosures about the transaction, and (2) two copies
of a notice that explains consumers' rescission rights and how to
effect rescission, including a form the consumer may use to notify the
creditor if the consumer decides to rescind the transaction.
Section 226.15(b)(1) is revised to permit a creditor to provide a
single rescission notice by electronic communication to each consumer
with an ownership interest in the dwelling who has affirmatively
consented to
[[Page 17333]]
electronic delivery of the notice. Comment 15(b)-1 is revised to
provide guidance on electronic rescission notices. Similar guidance is
provided under Sec. 226.23 regarding rescission notices for closed-end
transactions.
Section 226.16 Advertising
16(c) Catalogs or Other Multiple-page Advertisements; Electronic
Advertisements
Stating certain credit terms in an advertisement for an open-end
credit plan triggers the disclosure of additional terms. Section
226.16(c) permits creditors using a multiple-page advertisement to
state the additional disclosures in a table or schedule as long as the
triggering credit terms appearing anywhere else in the advertisement
refer to the page where the table or schedule is printed. Of the few
comments received on this provision, commenters supported expanding the
use of a table or schedule to electronic advertisements. Section
226.16(c) is revised to cover electronic advertisements as proposed and
a conforming amendment in the staff commentary is made to comment
16(c)(1)-1. Comment 16(c)(1)-2 is added as proposed to provide guidance
in complying with the requirements of this section for creditors using
electronic communication.
Subpart C--Closed-end Credit
Section 226.17 General Disclosure Requirements
17(a) Form of Disclosures
Section 226.17(a)(3) is added to provide a cross reference to rules
governing the electronic delivery of disclosures in Sec. 226.36.
17(g) Mail or Telephone Orders--Delay in Disclosures
Section 226.17(g) allows creditors to defer TILA disclosures when a
consumer makes a credit purchase or requests credit by mail, telephone,
or any other written or ``electronic communication'' without face-to-
face or direct solicitation by the creditor. The deferral rule pre-
dates online or Internet banking; the term ``electronic communication''
included credit requests by telegraph transmissions and facsimiles. The
rationale underlying the deferral is that creditors cannot provide
transaction-specific disclosures in written form as required by the
regulation at the time of the consumer's purchase or request. In such
cases, creditors may delay providing disclosures until the first
payment due date, provided certain information has been ``made
available in written form'' before the consumer's request.
The interim final rule provides as did the 1999 proposal that
creditors offering loan products by electronic communication (for
example, those offered on the Internet) may not delay providing
disclosures under Sec. 226.17(g). The difficulties in providing
disclosures for credit requests by mail or telephone are not present
for credit requests received by e-mail or through the Internet. Thus,
specific disclosures must be provided before transactions are
consummated using electronic communication as defined in Sec. 226.36.
The language has been revised from the proposal to clarify that the
deferral rule in Sec. 226.17(g) remains available to creditors offering
loan products by facsimile machine (as well as mail and telephone)
without face-to-face or direct telephone solicitation.
Section 226.19 Certain Residential Mortgage and Variable-rate
Transactions
19(b) Certain Variable-rate Transactions
For certain loans with variable-rate features (loans where the APR
may increase during the loan term) that are secured by the consumer's
principal dwelling, creditors must provide consumers with a booklet and
other disclosures generically describing the creditor's product when an
application is given (or a nonrefundable fee is paid, whichever occurs
earlier). In the September 1999 proposal, comment 19(b)-2 was revised
to address the timing for providing disclosures required by
Sec. 226.19(b) when electronic communication is used. The final rule
has been modified consistent with the rules for providing disclosures
with applications and solicitations for credit and charge cards under
Sec. 226.5a and applications for home-equity lines of credit under
Sec. 226.5b. In all cases, a consumer must be able to access the
disclosures (including the brochure) at the time the blank application
is made available by electronic communication, such as on a creditor's
Internet web site.
Section 226.23 Right of Rescission
23(b)(1) Notice of Right to Rescind
Section 226.23 provides that in certain transactions secured by a
consumer's principal dwelling, the consumer has three business days to
rescind the transaction after becoming obligated on the debt. Consumers
with an ownership interest in the dwelling used as security must
receive (1) cost disclosures about the transaction, and (2) two copies
of a notice that explains consumers' rescission rights and how to
effect rescission, including a form the consumer may use to notify the
creditor if the consumer decides to rescind the transaction. Consistent
with amendments to Sec. 226.15(b)(1) regarding rescission notices
provided electronically for open-end credit plans, Sec. 226.23(b)(1) is
amended to permit a creditor delivering rescission notices
electronically to send a single notice to each consumer with an
ownership interest in the dwelling used as security (rather than two
notices). Comment 23(b)-1 is added to provide guidance on electronic
rescission notices.
Section 226.24 Advertising
Regulation Z prescribes certain disclosures for closed-end loan
advertisements. Although the specific requirements differ somewhat for
closed-end loans and open-end credit plans, the revisions adopted by
the Board for closed-end loan advertisements are substantially similar
to those discussed above for open-end credit plans.
24(b) Advertisement of Rate of Finance Charge
Section 226.24(b) permits creditors to state a simple annual rate
of interest or periodic rate in addition to the APR, as long as the
rate is stated in conjunction with, but not more conspicuously than,
the APR. Comment 24(b)-6 contains guidance on how this rule applies to
an electronic advertisement.
24(d) Catalogs and Other Multiple-page Advertisements; Electronic
Advertisements
Stating certain credit terms in an advertisement for closed-end
credit triggers the disclosure of additional terms. Section 226.24(d)
permits creditors using a multiple-page advertisement to state the
additional disclosures in a table or schedule as long as the triggering
credit terms appearing elsewhere in the advertisement refer to the page
where the table or schedule is printed. Section 226.24(d) is revised to
cover electronic advertisements, as proposed, and a conforming
amendment is made to comment 24(d)-2. Comment 24(d)-4 is added as
proposed to provide guidance in complying with the requirements of this
section for creditors using electronic communication.
Subpart D--Miscellaneous
Section 226.27 Language of Disclosures
To provide consistency among the regulations, Sec. 226.27 is
revised as proposed to permit creditors to provide disclosures in
languages other than
[[Page 17334]]
English as long as disclosures in English are available to consumers
who request them.
Subpart E--Special Rules for Certain Home Mortgage Transactions
Section 226.31 General Rules
31(b) Form of Disclosures
Section 226.31(b) is revised to provide a cross reference to rules
governing the electronic delivery of disclosures in Sec. 226.36.
Subpart F--Electronic Communication
Section 226.36 Requirements for Electronic Communication
36(a) Definition
As adopted, the definition of the term ``electronic communication''
remains substantially unchanged from the 1999 proposals. Section
226.36(a) limits the term to a message transmitted electronically that
can be displayed on equipment as visual text; an example is a message
displayed on a personal computer monitor screen. Thus, audio-and voice-
response telephone systems are not included. Because the rule permits
the use of electronic communication to satisfy the statutory
requirement for written disclosures that must be clear and conspicuous,
the Board believes visual text is an essential element of the
definition. Creditors that accommodate vision-impaired consumers by
providing disclosures that do not use visual text must also provide
disclosures using visual text.
Some commenters asked for clarification that the definition was not
intended to preclude the use of devices other than personal computers,
which also can display visual text. The equipment on which the text
message is received is not limited to a personal computer, provided the
visual display used to deliver the disclosures meets the ``clear and
conspicuous'' format requirement, discussed below.
36(b) General Rule
Effective October 1, 2000, the E-Sign Act permits creditors to
provide disclosures using electronic communication, if the creditor
complies with the consumer consent requirements in Section 101(c).
Under section 101(c) of the E-Sign Act, creditors must provide specific
information about the electronic delivery of disclosures before
obtaining the consumer's affirmative consent to receive electronic
disclosures. The consent requirements in the E-Sign Act are similar but
not identical to the Board's 1999 proposal. Accordingly, Sec. 226.36(b)
sets forth the general rule that creditors subject to Regulation Z may
provide disclosures electronically if the creditor complies with
section 101(c) of the E-Sign Act.
The E-Sign Act authorizes the use of electronic disclosures. It
does not affect any requirement imposed under TILA other than a
requirement that disclosures be in paper form, and it does not affect
the content or timing of disclosures. Electronic disclosures are
subject to the regulation's format, timing and retainability rules and
the clear and conspicuous standard. Comment 36(b)-1 contains this
guidance.
Presenting Disclosures in a Clear and Conspicuous Format
Electronic disclosures must be clear and conspicuous, as is the
case for all written disclosures under TILA and Regulation Z. See
Secs. 226.5(a)(1), 226.17(a)(1), and 226.31(b). A creditor must provide
electronic disclosures using a clear and conspicuous format. Also, in
accordance with the E-Sign Act: (1) The creditor must disclose the
requirements for accessing and retaining disclosures in that format;
(2) the consumer must demonstrate the ability to access the information
electronically and affirmatively consent to electronic delivery; and
(3) the creditor must provide the disclosures in accordance with the
specified requirements. Comment 36(b)-2 contains this guidance.
Commenters posed a few questions about the applicability of the
clear and conspicuous standard to particular situations. Some asked
whether electronic advertisements or other unrelated promotional
information may appear on the same screen as mandatory disclosures that
are posted on an Internet web site. Except to the extent required by
the regulation, disclosures do not have to be provided separately from
other information. Advertisements should not be integrated into the
text of the disclosure in a manner that violates the clear and
conspicuous standard.
Commenters also had questions about the use of navigational tools
with electronic disclosures. For example, some believed that such tools
might be helpful in directing consumers to related information that
explains the terminology used in the disclosures. Many Internet web
sites use navigational tools that are conspicuous through the use of
bold text, larger fonts, different colors, underlining, or other
methods of highlighting. Such tools are not per se prohibited so long
as they are not used in a manner that would violate the clear and
conspicuous standard.
Providing Timely Disclosures
Disclosures delivered electronically must comply with existing
timing requirements under TILA and Regulation Z. See, for example,
Secs. 226.5(b), 226.17(b), and 226.31(c). Commenters on the Board's
1999 proposals requested specific guidance that an electronic
disclosure would be considered timely based on the time it is sent by
e-mail or posted on an Internet web site, regardless of when the
consumer receives or reads the disclosure.
Under the final rule, consistent with rules for disclosures that
are sent by postal mail, disclosures provided by e-mail are timely when
they are sent by the required time. Disclosures posted periodically at
an Internet web site are timely if, by the required time, the creditor
both makes the disclosures available at that location and, in
accordance with Sec. 226.36(d)(2), sends a notice alerting the consumer
that the disclosures have been posted. For example, under Sec. 226.9,
creditors offering open-end plans must provide a change-in-terms notice
to consumers at least 15 days in advance of certain changes. For a
change-in-terms notice posted on the Internet, a creditor must both
post the notice and notify consumers of its availability at least 15
days in advance of the change. Comment 36(b)-4 contains this guidance.
Certain disclosures must be provided before the consumer becomes
obligated. For example, when a creditor permits the consumer to
consummate a closed-end transaction on-line, the consumer must be
required to access the disclosures required under Sec. 226.18 before
becoming obligated. A link to the disclosures satisfies the timing rule
if the consumer cannot bypass the disclosures before becoming
obligated. Or, the disclosures in this example must automatically
appear on the screen, even if multiple screens are required to view the
entire disclosure. Comment 36(b)-3 contains this guidance, as proposed,
but has been expanded to provide the following additional guidance.
For disclosures that are not required to be segregated and thus may
be interspersed into the text of another document, the creditor may
satisfy the requirement to provide the disclosures if the document
appears automatically or via a nonbypassable link. For example, when a
creditor permits the consumer to open a credit card account and make a
purchase immediately thereafter, disclosures required under Sec. 226.6
must be provided before the first
[[Page 17335]]
transaction. The consumer must be required to access the disclosures
(or the document containing the disclosures such as a credit card
agreement) before becoming obligated for the plan (or before the first
transaction).
Some industry commenters believed that requiring disclosures to
automatically appear or be accessed by the consumer is cumbersome and
unnecessary. Some commenters suggested that the Board allow the
required disclosures to be accessible via a clearly marked navigational
tool; they believe that once the tool is provided, the disclosure
should be deemed to have been provided to the consumer.
TILA and Regulation Z require that creditors provide or send
disclosures to consumers. It is not sufficient for creditors to provide
a bypassable navigational tool that merely gives consumers the option
of receiving the disclosures. Such an approach reduces the likelihood
that consumers will notice and receive the disclosures. The final rule
ensures that consumers actually see cost disclosures provided
electronically so that they have the opportunity to read them when
shopping for credit or before becoming obligated for an extension of
credit, as applicable.
Commenters on the various proposals requested guidance regarding
the creditor's duty in cases where a creditor cannot provide timely
disclosures because an automated loan machine or other automated
equipment controlled by the creditor malfunctions or otherwise fails to
operate properly. Where the creditor controls the equipment and
disclosures are required at that time, a creditor might not be liable
for failing to provide timely disclosures if the defense in section
130(c) of TILA is available.
Providing Disclosures in a Form the Consumer May Keep
Under TILA and Regulation Z, many of the disclosures required to be
in writing must be in a form the consumer can retain. Electronic
disclosures are subject to this requirement. Comment 36(b)-5 contains
guidance on this requirement.
Consumers may communicate electronically with creditors through a
variety of means and from various locations. Depending on the location
(at home, at work, in a public place such as a library), a consumer may
not have the ability at a given time to preserve TILA disclosures
presented on-screen. To ensure that consumers have an adequate
opportunity to access and retain the disclosures, the creditor also
must send them to the consumer's designated e-mail address or make them
available at another location, for example, on the creditor's Internet
web site, where the information may be retrieved at a later date.
Where the creditor controls the equipment providing the electronic
disclosures (for example, an automated loan machine or computer
terminal located in the creditor's lobby), the creditor must ensure
that the consumer has the opportunity to retain the required
information. Comment 36(b)-6 contains guidance on this requirement.
36(c) When Consent is Required
Under the E-Sign Act, consumers must affirmatively consent before
they receive electronic disclosures ``relating to a transaction'' if
the disclosures are required by law or regulation to be in writing.
Section 226.36(c) is added to provide that certain disclosures are not
deemed to be related to a transaction for purposes of the E-Sign Act's
consumer consent provision. These include disclosures in connection
with advertisements (Sec. 226.16 and Sec. 226.24), credit and charge
card applications and solicitations (Sec. 226.5a), HELOC and ARM loan
applications (Sec. 226.5b and Sec. 226.19(b)), and disclosures under
Sec. 226.17(g)(1)-(5). In some circumstances, disclosures are available
to the general public, such as advertisements and solicitations; in
other circumstances, consumers receiving disclosures with a
solicitation for credit may not enter in the credit transaction. Those
entering into credit transactions will ultimately receive disclosures
subject to the consent requirements.
36(d) Address or Location to Receive Electronic Communication
Consistent with the 1999 proposals, the interim rule provides that
creditors may deliver electronic disclosures by sending them to a
consumer's e-mail address. Alternatively, the rule provides that
creditors may make the disclosures available at another location such
as an Internet web site. If the creditor makes a disclosure available
at such a location, the creditor effectively delivers the disclosure by
sending a notice alerting the consumer when the disclosure can be
accessed and preserving the disclosure at the location for at least 90
days. The time period for keeping disclosures available at a location
such as a creditor's Internet web site under the interim rule differs
from the 1999 proposals, based on commenters' concerns as discussed
below.
36(d)(1)
For purposes of Sec. 226.36(d), a consumer's electronic address is
an e-mail address that is not limited to receiving communications
transmitted solely by the creditor, as proposed. This guidance is
contained in comment 36(d)(1)-1.
An electronic address would not include systems that permit
communication only between the consumer and the creditor, for example,
home-banking programs that allow consumers to communicate directly with
a creditor on-line with the use of a computer and modem. These systems,
like a creditor's web site accessed via the Internet, give consumers
access to information about their accounts at a location controlled by
the creditor. In both cases, the creditor determines how long account
information will be available to the consumer. Consumers who receive
disclosures at their e-mail address, however, may choose when to
review, and for how long to retain, account information. Consumers who
receive disclosures by contacting a creditor's site need to be alerted
when the information is first available in order to ensure that they
have the opportunity to access the information before it is removed.
Thus, disclosures provided using systems such as home-banking programs
are treated in the same manner as disclosures made available at an
Internet web site, and a notice alerting the consumer when disclosures
are posted must be sent, by e-mail or to a postal address, at the
creditor's option.
36(d)(2)
Under Sec. 226.36(d)(2)(i) of the interim rule, for disclosures
made available at an Internet web site, a notice alerting the consumer
when disclosures are posted must be sent by e-mail (or to a postal
address, at the creditor's option). Section 226.36(d)(2)(i) requires
that the alert notice identify the account involved and the address or
other location where the disclosure is available. Comment 36(d)(2)-1
provides guidance on the level of detail required in identifying the
account.
As proposed, under Sec. 226.36(d)(2)(ii) of the interim rule,
disclosures provided at an Internet web site must remain available for
at least 90 days. The requirement seeks to ensure that consumers have
adequate time to access and retain a disclosure under a variety of
circumstances, such as when a consumer may not be able for an extended
period of time to access the information due to computer malfunctions,
travel, or illness. Making the periodic statement for 90 days also
[[Page 17336]]
ensures that it will be available for a sufficient time in most cases
to allow alleged errors to be resolved under the procedures in
Regulation Z. The 90-day period is uniform for all disclosures, for
ease of compliance. Comment 36(d)(2)-2 is added to provide that during
this period, the actual disclosures must be available to the consumer,
but the creditor has discretion to determine whether they should be
available at the same location for the entire period.
Some industry commenters believed the 90-day time period is
reasonable and feasible. About an equal number of commenters believed
it was too burdensome and costly; some of these commenters suggested
periods that ranged from 30 to 60 days.
The 1999 proposals provided that after the 90-day time period,
disclosures would be available upon consumers' request, generally for
24 months, in the same format as initially provided to the consumer.
The 24-month period is consistent with a creditor's duty to retain
records that evidence compliance. Consumer advocates supported the
proposed retention period; some recommended that disclosures should be
available upon request for the length of the contractual relationship
with the consumer.
Industry commenters strongly opposed the 24-month period. Many
believed that keeping copies of electronic disclosures actually
provided to consumers for that period of time would be costly and
burdensome. Moreover, industry commenters believed that once a consumer
has accessed the disclosures, the consumer rather than the creditor
should have the duty to retain them for future reference. They also
noted that under existing record retention requirements applicable to
paper disclosures, a creditor need only demonstrate compliance with the
rules, but need not retain copies of the actual disclosures provided to
consumers.
The requirement for creditors to provide duplicate disclosures upon
request for 24 months has not been adopted. A creditor's duty to retain
evidence of compliance for 24 months remains unchanged.
36(d)(3) Exceptions
Section 226.36(d)(3) is added to make clear that the requirements
of paragraphs (i) and (ii) of Sec. 226.36(d)(2) do not apply to
disclosures in credit and charge card applications and solicitations
mailed or otherwise distributed to the general public (Sec. 226.5a),
certain credit advertisements (Secs. 226.16 and .24), cost information
for representative transactions made available to consumers or to the
public (Sec. 226.17(g)), or disclosures for certain home-secured credit
(Secs. 226.5b and 19(b)).
36(e) Redelivery
Industry commenters on the 1998 proposal asked for clarification
that sending the electronic disclosures complies with the regulation,
and that institutions are not required to confirm that the consumer
actually received them. Consumer advocates asked that institutions be
required to verify the delivery of disclosures by return receipt, in
the case of e-mail. In the 1999 proposals, the Board solicited comment
on the need for and the feasibility of such a requirement.
Consumer advocates believe that e-mail systems are not yet
sufficiently reliable, and that safeguards are necessary to ensure that
consumers actually receive disclosures. Industry commenters stated that
a return receipt requirement would be costly and burdensome, and would
require creditors to monitor return receipts in every case to determine
that individual consumers received the disclosures.
Section 101(c) of the E-Sign Act requires that consumers consent
electronically, or confirm their consents electronically, in a manner
that reasonably demonstrates that the consumer can access the
information that the creditor will be providing. This requirement seeks
to verify at the outset that the consumer is actually capable of
receiving the information in the electronic format being used by the
creditor. After the consumer consents, the E-Sign Act also requires
creditors to notify consumers of changes that materially affect
consumers' ability to access electronic disclosures.
The interim rule does not impose a verification requirement because
the cost and burden associated with verifying delivery of all
disclosures would not be warranted. When electronic disclosures are
returned undelivered, however, Sec. 226.36(e) imposes a duty to attempt
redelivery (either electronically or to a postal address) based on
address information in the institution's own files. Unlike paper
disclosures delivered by the postal service, there generally is no
commonly-accepted mechanism for reporting a change in electronic
address or for forwarding e-mail. Where a creditor actually knows that
the delivery of an electronic disclosure did not take place, the
creditor should take reasonable steps to effectuate delivery in some
way. For example, if an e-mail message to the consumer (containing an
alert notice or other disclosure) is returned as undeliverable, the
redelivery requirement is satisfied if the creditor sends the
disclosure to a different e-mail address or postal address that the
creditor has on file. Sending the disclosures a second time to the same
electronic address would not be sufficient if the institution has a
different address for the consumer on file. Comment 36(e)-1 provides
this guidance.
This redelivery requirement is limited to situations where the
electronic communication cannot be delivered and does not apply to
situations where the disclosure is delivered but, for example, cannot
be read by the consumer due to technical problems with the consumer's
software. A creditor's duty to redeliver a disclosure under
Sec. 226.36(e) does not affect the timeliness of the disclosure.
Creditors comply with the timing requirements of the regulation when a
disclosure is initially sent in a timely manner, even though the
disclosure is returned undelivered and the creditor is required under
Sec. 226.36(e) to take reasonable steps to attempt redelivery.
36(f) Electronic Signatures
The E-Sign Act provides that electronic signatures have the same
validity as handwritten signatures. Section 106 of the act defines an
electronic signature. Section 226.36(f) is added to incorporate the E-
Sign Act's definition of electronic signature into the regulation. To
comply with the E-Sign Act, an electronic signature must be executed or
adopted by a consumer with the intent to sign the record. Accordingly,
regardless of the technology used to meet this requirement, the process
must evidence the consumer's identity. Comment 36(f)-1 provides this
guidance.
Additional Issues
Document Integrity
The interim rule does not impose document integrity standards.
Consumer advocates and others expressed concerns that electronic
documents can be altered more easily than paper documents. They say
that consumers' ability to enforce rights under the consumer protection
laws could be impaired, in some cases, if the authenticity of
disclosures they retain cannot be demonstrated.
Institutions are generally required to retain evidence of
compliance with the Board's consumer regulations. Accordingly, the
Board requested comment on the feasibility of requiring institutions to
have systems in place capable of detecting whether or not information
has been altered, or to use
[[Page 17337]]
independent certification authorities to verify disclosure documents.
Consumer advocates strongly supported document integrity
requirements (including the use of certification authorities) that
would apply to all-electronic disclosures. Signatures, notary seals,
and verification procedures such as recordation are used to protect
against alterations for transactions memorialized in paper form.
Consumer advocates believe that comparable verification procedures are
needed for electronic disclosures as well.
Industry commenters opposed mandatory document integrity standards
for electronic disclosures. Because the technology in this area is
still evolving, they believe that mandatory standards would be
premature. Others believe that imposing document integrity standards or
requiring the use of certification authorities would be costly to
implement.
The Board recognizes the concerns about document integrity, but
believes it is not practicable at this time to impose document
integrity standards for consumer disclosures or mandate the use of
independent certification authorities. Effective methods may be too
costly. Other less costly methods may deter alterations in some cases,
but would not necessarily ensure document integrity.
Moreover, the issue of document integrity affects electronic
commerce generally and is not unique to the written disclosures
required under the consumer protection laws administered by the Board.
Section 104(b)(3) of the E-Sign Act authorizes federal or state
regulatory agencies to specify performance standards to assure the
accuracy, record integrity, and accessibility of records that are
required to be retained, but prohibits the agencies from requiring the
use of a particular type of software or hardware in order to comply
with record retention requirements. Technology is likely to develop to
protect electronic contracts and other legal documents. Thus, it seems
premature for the Board to specify any particular standards or methods
for consumer disclosure at this time.
V. Form of Comment Letters
Comment letters should refer to Docket No. R-1043, and, when
possible, should use a standard typeface with a font size of 10 or 12.
This will enable the Board to convert the text to machine-readable form
through electronic scanning, and will facilitate automated retrieval of
comments for review. Also, if accompanied by an original document in
paper form, comments may be submitted on 3\1/2\ inch computer diskettes
in any IBM-compatible DOS- or Windows-based format.
VI. Regulatory Flexibility Analysis
The Board has reviewed these interim amendments to Regulation Z, in
accordance with section 3(a) of the Regulatory Flexibility Act (5
U.S.C. 604). Two of the three requirements of a final regulatory
flexibility analysis under the Act are (1) a succinct statement of the
need for and the objectives of the rule and (2) a summary of the issues
raised by the public comments, the agency's assessment of those issues,
and a statement of the changes made in the final rule in response to
the comments. These two areas are discussed above.
The third requirement of the analysis is a description of
significant alternatives to the rule that would minimize the rule's
economic impact on small entities and reasons why the alternatives were
rejected. This interim final rule is designed to provide creditors with
an alternative method of providing disclosures; the rule will relieve
compliance burden by giving creditors flexibility in providing
disclosures required by the regulation. Overall, the costs of providing
electronic disclosures are not expected to have significant impact on
small entities. The expectation is that providing electronic
disclosures may ultimately reduce the costs associated with providing
disclosures.
VII. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the rule under the
authority delegated to the Board by the Office of Management and
Budget. The Federal Reserve may not conduct or sponsor, and an
organization is not required to respond to, this information collection
unless it displays a currently valid OMB control number. The OMB
control number is 7100-0199.
The collection of information that is revised by this rulemaking is
found in 12 CFR Part 226 and in Appendices F, G, H, J, K, and L. This
information is mandatory (15 U.S.C. 1601 et seq.) to evidence
compliance with the requirements of the Regulation Z and the Truth in
Lending Act (TILA). The respondents/recordkeepers are for-profit
financial institutions, including small businesses. Institutions are
required to retain records for twenty-four months. This regulation
applies to all types of creditors, not just state member banks.
However, under Paperwork Reduction Act regulations, the Federal Reserve
accounts for the burden of the paperwork associated with the regulation
only for state member banks. Other agencies account for the paperwork
burden on their respective constituencies under this regulation.
The revisions provide that creditors may deliver disclosures
electronically upon obtaining consumers' affirmative consent in
accordance with the E-Sign Act. The revisions also provide guidance to
institutions on the timing and delivery of electronic disclosures, to
ensure that consumers have adequate opportunity to access and retain
the information.
With respect to state member banks, it is estimated that there are
1000 respondent/recordkeepers and an average frequency of 136,294
responses per respondent each year. The current annual burden is
estimated to be 1,886,392 hours. No comments specifically addressing
the burden estimate were received, therefore, the numbers remain
unchanged. There is estimated to be no additional cost burden and no
capital or start up cost associated with the interim final rule.
Because the records would be maintained at state member banks and
the notices are not provided to the Federal Reserve, no issue of
confidentiality arises under the Freedom of Information Act.
The Board has a continuing interest in the public's opinions of the
Federal Reserve's collections of information. At any time, comments
regarding the burden estimate, or any other aspect of this collection
of information, including suggestions for reducing the burden, may be
sent to: Secretary, Board of Governors of the Federal Reserve System,
20th and C Streets, NW., Washington, DC 20551; and to the Office of
Management and Budget, Paperwork Reduction Project (7100-0199),
Washington, DC 20503.
VIII. Solicitation of Comments Regarding the Use of ``Plain
Language''
Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the
Board to use ``plain language'' in all proposed and final rules
published after January 1, 2000. The Board invites comments on whether
the interim rule is clearly stated and effectively organized, and how
the Board might make the rule easier to understand.
List of Subjects in 12 CFR Part 226
Advertising, Federal Reserve System, Mortgages, Reporting and
recordkeeping requirements, Truth in lending.
[[Page 17338]]
For the reasons set forth in the preamble, the Board amends
Regulation Z, 12 CFR part 226, as set forth below:
PART 226--TRUTH IN LENDING (REGULATION Z)
1. The authority citation for part 226 continues to read as
follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5).
Subpart B--Open-End Credit
2. Section 226.5 is amended by adding a new paragraph (a)(5) as
follows:
Sec. 226.5 General disclosure requirements.
(a) Form of disclosures. * * *
(5) Electronic communication. For rules governing the electronic
delivery of disclosures, including the definition of electronic
communication, see Sec. 226.36.
* * * * *
3. Section 226.5a is amended by revising paragraph (b)(1)(ii),
adding a new paragraph (b)(1)(iii), and revising paragraph (c) as
follows:
Sec. 226.5a Credit and charge card applications and solicitations.
* * * * *
(b) Required disclosures. * * *
(1) Annual percentage rate. * * *
(ii) When variable rate disclosures are provided under paragraph
(c) of this section, an annual percentage rate disclosure is accurate
if the rate was in effect within 60 days before mailing the
disclosures. When variable rate disclosures are provided under
paragraph (e) of this section, an annual percentage rate disclosure is
accurate if the rate was in effect within 30 days before printing the
disclosures. Disclosures provided by electronic communication are
subject to paragraph (b)(1)(iii) of this section.
(iii) When variable rate disclosures are provided by electronic
communication, an annual percentage rate disclosure is accurate if the
rate was in effect within 30 days before mailing the disclosures to a
consumer's electronic mail address. If disclosures are made available
at another location such as the card issuer's Internet web site, the
annual percentage rate must be one in effect within the last 30 days.
* * * * *
(c) Direct-mail and electronic applications and solicitations. The
card issuer shall disclose the applicable items in paragraph (b) of
this section on or with an application or solicitation that is mailed
to consumers or provided by electronic communication.
* * * * *
4. Section 226.5b is amended by redesignating paragraph (c) as
paragraph (c)(1), adding a heading for paragraph (c)(1), and adding a
new paragraph (c)(2) as follows:
Sec. 226.5b Requirements for home-equity plans.
* * * * *
(c) Duties of third parties. (1) General. * * *
(2) Electronic communication. Persons other than the creditor that
are required to comply with paragraphs (d) and (e) of this section may
use electronic communication in accordance with the requirements of
Sec. 226.36, as applicable.
* * * * *
5. Section 226.15 is amended by revising the first sentence of the
introductory text of paragraph (b) as follows:
Sec. 226.15 Right of rescission.
* * * * *
(b) Notice of right to rescind. In any transaction or occurrence
subject to rescission, a creditor shall deliver two copies of the
notice of the right to rescind to each consumer entitled to rescind
(one copy to each if the notice is delivered by electronic
communication as provided in Sec. 226.36(b)). * * *
* * * * *
6. Section 226.16 is amended by revising paragraph (c) as follows:
Sec. 226.16 Advertising.
* * * * *
(c) Catalogs or other multiple-page advertisements; electronic
advertisements. (1) If a catalog or other multiple-page advertisement,
or an advertisement using electronic communication, gives information
in a table or schedule in sufficient detail to permit determination of
the disclosures required by paragraph (b) of this section, it shall be
considered a single advertisement if:
(i) The table or schedule is clearly and conspicuously set forth;
and
(ii) Any statement of terms set forth in Sec. 226.6 appearing
anywhere else in the catalog or advertisement clearly refers to the
page or location where the table or schedule begins.
(2) A catalog or other multiple-page advertisement or an
advertisement using electronic communication complies with this
paragraph if the table or schedule of terms includes all appropriate
disclosures for a representative scale of amounts up to the level of
the more commonly sold higher-priced property or services offered.
* * * * *
Subpart C--Closed-End Credit
7. Section 226.17 is amended by:
a. Adding a new paragraph (a)(3); and
b. Revising the introductory text in paragraph (g).
Sec. 226.17 General disclosure requirements.
(a) Form of disclosures. * * *
(3) Electronic communication. For rules governing the electronic
delivery of disclosures, including a definition of electronic
communication, see Sec. 226.36.
* * * * *
(g) Mail or telephone orders--delay in disclosures. If a creditor
receives a purchase order or a request for an extension of credit by
mail, telephone, or facsimile machine without face-to-face or direct
telephone solicitation, the creditor may delay the disclosures until
the due date of the first payment, if the following information for
representative amounts or ranges of credit is made available in written
form to the consumer or to the public before the actual purchase order
or request:
* * * * *
8. Section 226.23 is amended by revising the first sentence of
paragraph (b)(1) as follows:
Sec. 226.23 Right of rescission.
* * * * *
(b)(1) Notice of right to rescind. In a transaction subject to
rescission, a creditor shall deliver two copies of the notice of the
right to rescind to each consumer entitled to rescind (one copy to each
if the notice is delivered by electronic communication as provided in
Sec. 226.36(b)). * * *
* * * * *
9. Section 226.24 is amended by revising paragraph (d) as follows:
Sec. 226.24 Advertising.
* * * * *
(d) Catalogs or other multiple-page advertisements; electronic
advertisements. (1) If a catalog or other multiple-page advertisement,
or an advertisement using electronic communication, gives information
in a table or schedule in sufficient detail to permit determination of
the disclosures required by paragraph (c)(2) of this section, it shall
be considered a single advertisement if:
(i) The table or schedule is clearly and conspicuously set forth;
and
(ii) Any statement of terms of the credit terms in paragraph (c)(1)
of this section appearing anywhere else in the
[[Page 17339]]
catalog or advertisement clearly refers to the page or location where
the table or schedule begins.
(2) A catalog or other multiple-page advertisement or an
advertisement using electronic communication complies with paragraph
(c)(2) of this section if the table or schedule of terms includes all
appropriate disclosures for a representative scale of amounts up to the
level of the more commonly sold higher-priced property or services
offered.
Subpart D--Miscellaneous
10. Section 226.27 is revised to read as follows:
Sec. 226.27 Language of disclosures.
Disclosures required by this regulation may be made in a language
other than English, provided that the disclosures are made available in
English upon the consumer's request. This requirement for providing
English disclosures on request does not apply to advertisements subject
to Secs. 226.16 and 226.24.
Subpart E--Special Rules for Certain Home Mortgage Transactions
11. Section 226.31 is amended by revising paragraph (b) to read as
follows:
Sec. 226.31 General rules.
* * * * *
(b) Form of disclosures. (1) General. The creditor shall make the
disclosures required by this subpart clearly and conspicuously in
writing, in a form that the consumer may keep.
(2) Electronic communication. For rules governing the electronic
delivery of disclosures, including a definition of electronic
communication, see Sec. 226.36.
* * * * *
Sec. 226.35 [Reserved]
12. Add and reserve a new Sec. 226.35.
13. Add a new subpart F to part 226 to read as follows:
Subpart F--Electronic Communication
Sec. 226.36 Requirements for electronic communication.
(a) Definition. ``Electronic communication'' means a message
transmitted electronically between a creditor and a consumer in a
format that allows visual text to be displayed on equipment, for
example, a personal computer monitor.
(b) General rule. In accordance with the Electronic Signatures in
Global and National Commerce Act (the E-Sign Act) (15 U.S.C. 7001 et
seq.) and the rules of this part, a creditor may provide by electronic
communication any disclosure required by this part to be in writing.
(c) When consent is required. Under the E-Sign Act, a creditor is
required to obtain a consumer's affirmative consent when providing
disclosures related to a transaction. For purposes of this requirement,
the disclosures required under Secs. 226.5a, 226.5b(d) and 226.5b(e),
226.16, 226.17(g)(1) through (5), 226.19(b) and 226.24 are deemed not
to be related to a transaction.
(d) Address or location to receive electronic communication. A
creditor that uses electronic communication to provide disclosures
required by this part shall:
(1) Send the disclosure to the consumer's electronic address; or
(2) Make the disclosure available at another location such as an
Internet web site; and
(i) Alert the consumer of the disclosure's availability by sending
a notice to the consumer's electronic address (or to a postal address,
at the creditor's option). The notice shall identify the account
involved and the address of the Internet web site or other location
where the disclosure is available; and
(ii) Make the disclosure available for at least 90 days from the
date the disclosure first becomes available or from the date of the
notice alerting the consumer of the disclosure, whichever comes later.
(3) Exceptions. A creditor need not comply with paragraphs
(d)(2)(i) and (ii) of this section for the disclosures required under
Secs. 226.5a, 226.5b(d) and 226.5b(e), 226.16, 226.17(g)(1) through
(5), 226.19(b) and 226.24.
(e) Redelivery. When a disclosure provided by electronic
communication is returned to a creditor undelivered, the creditor shall
take reasonable steps to attempt redelivery using information in its
files.
(f) Electronic signatures. An electronic signature as defined under
the E-Sign satisfies any requirement under this part for a consumer's
signature or initials.
14. In Supplement I to Part 226, the following amendments are made:
a. In Section 226.5--General Disclosure Requirements, under
Paragraph 5(b)(2)(ii), paragraph 3. is revised.
b. In Section 226.5a--Credit and Charge Card Applications and
Solicitations, under 5a(a)(2) Form of Disclosures, a new paragraph 8.
is added.
c. In Section 226.5b--Requirements for Home Equity Plans, under
5b(b) Time of Disclosures, a new paragraph 7. is added.
d. In Section 226.15--Right of Rescission, under 15(b) Notice of
Right to Rescind., two new sentences are added at the end of paragraph
1.
e. In Section 226.16--Advertising, the heading 16(c) Catalogs and
Multiple-page Advertisements is revised and under Paragraph 16(c)(1).,
paragraph 1. is revised and a new paragraph 2. is added.
f. In Section 226.19--Certain Residential Mortgage and Variable-
Rate Transactions, under 19(b) Certain variable-rate transactions.,
paragraph 2. is revised.
g. In Section 226.23--Right of Rescission, under 23(b) Notice of
Right to Rescind., two new sentences are added at the end of paragraph
1.
h. In Section 226.24--Advertising, under 24(b) Advertisement of
rate of finance charge, a new paragraph 6. is added.
i. In Section 226.24--Advertising, the heading 24(d) Catalogs and
multiple-page advertisements is revised and under 24(d), paragraph 2.
is revised and a new paragraph 4. is added.
j. A new Subpart F is added to Supplement I.
The amendments read as follows:
Supplement I to Part 226--Official Staff Interpretations
* * * * *
Subpart B--Open-End Credit
Section 226.5--General Disclosure Requirements
* * * * *
(b)(2) Periodic Statements
* * * * *
Paragraph 5(b)(2)(ii)
* * * * *
3. Calling for periodic statements. When the consumer initiates
a request, the creditor may permit, but may not require, consumers
to pick up their periodic statements. If the consumer wishes to pick
up the statement and the plan has a free-ride period, the statement
must be made available in accordance with the 14-day rule. If the
consumer wishes to receive the statement by electronic
communication, the creditor must comply with the consumer consent
requirements as provided in Sec. 226.36(b).
* * * * *
Section 226.5a--Credit and Charge Card Applications and
Solicitations
* * * * *
5a(a) General Rules
5a(a)(2) Form of Disclosures
* * * * *
8. Timing of disclosures for electronic applications or
solicitations. In all cases, a consumer must be able to access the
disclosures at the time the blank application
[[Page 17340]]
or reply form is made available by electronic communication, such as
on a card issuer's Internet web site. Card issuers have flexibility
in satisfying this requirement. For example, if a link is not used,
the application or reply form must clearly and conspicuously refer
to the fact that rate, fee, and other cost information either
precedes or follows the application or reply form. Alternatively,
card issuers may provide a link to electronic disclosures on or with
the application (or reply form) as long as consumers cannot bypass
the disclosures before submitting the application or reply form. Or
the disclosures could automatically appear on the screen when the
application or reply form appears. A card issuer need not confirm
that the consumer has read the disclosures.
* * * * *
Section 226.5b--Requirements for Home-Equity Plans
* * * * *
5b(b) Time of Disclosures
* * * * *
7. Applications available by electronic communication. In all
cases, a consumer must be able to access the disclosures (including
the brochure) at the time the blank application or reply form is
made available by electronic communication, such as on a creditor's
Internet web site. Creditors have flexibility in satisfying this
requirement. For example, if a link is not used, the application or
reply form must clearly and conspicuously refer the consumer to the
fact that rate, fee, and other cost information either precedes or
follows the application or reply form. Alternatively, creditors may
provide a link to electronic disclosures as long as consumers cannot
bypass the disclosures before submitting the application or reply
form. Or the disclosures could automatically appear on the screen
when the application or reply form appears. A creditor need not
confirm that the consumer has read the disclosures or brochure.
* * * * *
Section 226.15--Right of Rescission
* * * * *
15(b) Notice of Right to Rescind
1. Who receives notice. * * * If e-mail is used, the creditor
complies with Sec. 226.15(b)(1) if one notice is sent to each co-
owner. Each co-owner must consent to receive electronic disclosures
and each must designate an electronic address for receiving the
disclosure.
* * * * *
Section 226.16--Advertising
* * * * *
16(c) Catalogs or Other Multiple-page Advertisements; Electronic
Advertisements
* * * * *
Paragraph 16(c)(1)
1. General. Section 226.16(c)(1) permits creditors to put credit
information together in one place in a catalog or other multiple-
page advertisement or an electronic advertisement. The rule applies
only if the advertisement contains one or more of the triggering
terms from Sec. 226.16(b).
2. Electronic communication. If an advertisement using
electronic communication contains the table or schedule permitted
under Sec. 226.16(c)(1), any statement of terms set forth in
Sec. 226.6 appearing anywhere else in the advertisement must clearly
direct the consumer to the location where the table or schedule
begins. For example, a term triggering additional disclosures may be
accompanied by a link that directly takes the consumer to the
additional information.
* * * * *
Subpart C Closed--End Credit
* * * * *
Section 226.19--Certain Residential Mortgage and Variable-Rate
Transactions
* * * * *
19(b) Certain Variable-rate Transactions
* * * * *
2. Timing. A creditor must give the disclosures required under
this section at the time an application form is provided or before
the consumer pays a nonrefundable fee, whichever is earlier.
i. Intermediary agent or broker. In cases where a creditor
receives a written application through an intermediary agent or
broker, however, footnote 45b provides a substitute timing rule
requiring the creditor to deliver the disclosures or place them in
the mail not later than three business days after the creditor
receives the consumer's written application. (See comment 19(b)-3
for guidance in determining whether or not the transaction involves
an intermediary agent or broker.) This three-day rule also applies
where the creditor takes an application over the telephone.
ii. Telephone request. In cases where the consumer merely
requests an application over the telephone, the creditor must
include the early disclosures required under this section with the
application that is sent to the consumer.
iii. Mail solicitations. In cases where the creditor solicits
applications through the mail, the creditor must also send the
disclosures required under this section if an application form is
included with the solicitation.
iv. Conversion. In cases where an open-end credit account will
convert to a closed-end transaction subject to this section under a
written agreement with the consumer, disclosures under this section
may be given at the time of conversion. (See the commentary to
Sec. 226.20(a) for information on the timing requirements for
Sec. 226.19(b)(2) disclosures when a variable-rate feature is later
added to a transaction.)
v. Electronic applications. In all cases, a consumer must be
able to access the disclosures (including the brochure) at the time
the blank application form is made available by electronic
communication, such as on a creditor's Internet web site. Creditors
have flexibility in satisfying this requirement. For example, if a
link is not used, the application form must clearly and
conspicuously refer the consumer to the fact that rate, fee, and
other cost information either precedes or follows the application or
reply form. Alternatively, creditors may provide a link to
electronic disclosures as long as consumers cannot bypass the
disclosure before submitting the application form. Or the
disclosures could automatically appear on the screen when the
application form appears. A creditor need not confirm that the
consumer has read the disclosures or brochure.
* * * * *
Section 226.23--Right of Rescission
* * * * *
23(b) Notice of right to rescind
1. Who receives notice. * * * If e-mail is used, the creditor
complies with Sec. 226.23(b)(1) if one notice is sent to each co-
owner. Each co-owner must consent to receive electronic disclosures
and each must designate an electronic address for receiving the
disclosure.
* * * * *
Section 226.24--Advertising
* * * * *
24(b) Advertisement of Rate of Finance Charge
* * * * *
6. Electronic communication. A simple annual rate or periodic
rate that is applied to an unpaid balance may be stated only if it
is provided in conjunction with an annual percentage rate. In an
advertisement using electronic communication, the consumer must be
able to view both rates simultaneously. This requirement is not
satisfied if the consumer can view annual percentage rate only by
use of a link that takes the consumer to information appearing at
another location.
* * * * *
24(d) Catalogs or Other Multiple-page Advertisements; Electronic
Advertisements
* * * * *
2. General. Section 226.24(d) permits creditors to put credit
information together in one place in a catalog or other multiple-
page advertisement, or in an electronic advertisement. The rule
applies only if the advertisement contains one or more of the
triggering terms from Sec. 226.24(c)(1). A list of different annual
percentage rates applicable to different balances, for example, does
not trigger further disclosures under Sec. 226.24(c)(2) and so is
not covered by Sec. 226.24(d).
* * * * *
4. Electronic communication. If an advertisement using
electronic communication contains the table or schedule permitted
under Sec. 226.24(d)(1), any statement of terms set forth in
Sec. 226.24(c)(1) appearing anywhere else in the advertisement must
clearly direct the consumer to the location where the table or
schedule begins. For example, a term triggering additional
disclosures may be accompanied by a link that directly takes the
consumer to the additional information (but see comment 24(b)-6).
* * * * *
[[Page 17341]]
Subpart F--Electronic Communication
Section 226.36--Requirements for Electronic Communication
36(b) General Rule
1. Relationship to the E-Sign Act. The E-Sign Act authorizes the
use of electronic disclosures. It does not affect any requirement
imposed under this part other than a requirement that disclosures be
in paper form, and it does not affect the content or timing of
disclosures. Electronic disclosures are subject to the regulation's
format, timing, and retainability rules and the clear and
conspicuous standard. For example, to satisfy the clear and
conspicuous standard for disclosures, electronic disclosures must
use visual text.
2. Clear and conspicuous standard. A creditor must provide
electronic disclosures using a clear and conspicuous format. Also,
in accordance with the E-Sign Act:
i. The creditor must disclose the requirements for accessing and
retaining disclosures in that format;
ii. The consumer must demonstrate the ability to access the
information electronically and affirmatively consent to electronic
delivery; and
iii. The creditor must provide the disclosures in accordance
with the specified requirements.
3. Timing and effective delivery when a consumer becomes
obligated on-line.
i. When a creditor permits the consumer to consummate a closed-
end transaction on-line, the consumer must be required to access the
disclosures required under Sec. 226.18 before becoming obligated. A
link to the disclosures satisfies the timing rule if the consumer
cannot bypass the disclosures before becoming obligated. Or the
disclosures in this example must automatically appear on the screen,
even if multiple screens are required to view the entire disclosure.
The creditor is not required to confirm that the consumer has read
the disclosures.
ii. For disclosures that are not required to be segregated and
thus may be interspersed into the text of another document, the
creditor may satisfy the requirement to provide the disclosures if
the document appears automatically or via a nonbypassable link. For
example, when a creditor permits the consumer to open a credit card
account and make a purchase immediately thereafter, disclosures
required under Sec. 226.6 must be provided before the first
transaction. The consumer must be required to access the disclosures
(or the document containing the disclosures such as a credit card
agreement) before becoming obligated for the plan (or before the
first transaction). The creditor is not required to confirm that the
consumer has read the disclosures.
4. Timing and effective delivery for disclosures provided
periodically. Disclosures provided by e-mail are timely based on
when the disclosures are sent. Disclosures posted at an Internet web
site such as periodic statements, or change-in-terms and other
notices, are timely when the creditor has both made the disclosures
available and sent a notice alerting consumer that the disclosures
have been posted. For example, under Sec. 226.9, creditors offering
open-end plans must provide a change-in-terms notice to consumers at
least 15 days in advance of certain changes. For a change-in-terms
notice posted on the Internet, a creditor must both post the notice
and notify consumers of its availability at least 15 days in advance
of the change.
5. Retainability of disclosures. Creditors satisfy the
requirement that disclosures be in a form that the consumer may keep
if electronic disclosures are delivered in a format that is capable
of being retained (such as by printing or storing electronically).
The format must also be consistent with the information required to
be provided under section 101(c)(1)(C)(i) of the E-Sign Act (15
U.S.C. 7001(c)(1)(C)(i)) about the hardware and software
requirements for accessing and retaining electronic disclosures.
6. Disclosures provided on creditor's equipment. A creditor that
controls the equipment providing electronic disclosures to consumers
(for example, a computer terminal in a creditor's lobby or an
automated loan machine at a public kiosk) must ensure that the
equipment satisfies the regulation's requirements to provide timely
disclosures in a clear and conspicuous format and in a form that the
consumer may keep. For example, if disclosures are required at the
time of an on-line transaction, the disclosures must be sent to the
consumer's e-mail address or must be made available at another
location such as the creditor's Internet web site, unless the
creditor provides a printer that automatically prints the
disclosures.
36(d) Address or Location to Receive Electronic Communication
Paragraph 36(d)(1)
1. Electronic address. A consumer's electronic address is an e-
mail address that is not limited to receiving communications
transmitted solely by the creditor.
Paragraph 36(d)(2)
1. Identifying account involved. A creditor may identify a
specific account in a variety of ways and is not required to
identify an account by reference to the account number. For example,
where the consumer has only one credit card account, and no
confusion would result, the card issuer may refer to ``your credit
card account.'' If the consumer has two credit card accounts, the
card issuer may, for example, differentiate accounts based on the
card program or by using a truncated account number.
2. 90-day rule. The actual disclosures provided to consumer must
be available for at least 90 days, but the creditor has discretion
to determine whether they should be available at the same location
for the entire period.
36(e) Redelivery
1. E-mail returned as undeliverable. If an e-mail to the
consumer (containing an alert notice or other disclosure) is
returned as undeliverable, the redelivery requirement is satisfied
if, for example, the creditor sends the disclosure to a different e-
mail address or postal address that the creditor has on file for the
consumer. Sending the disclosures a second time to the same
electronic address is not sufficient if the creditor has a different
address for the consumer on file.
36(f) Electronic Signatures
1. Relationship to E-Sign Act. The E-Sign Act provides that
electronic signatures have the same validity as handwritten
signatures. Section 106 of the E-Sign Act (15 U.S.C. 7006) defines
an electronic signature. To comply with the E-Sign Act, an
electronic signature must be executed or adopted by a consumer with
the intent to sign the record. Regardless of the technology used to
meet this requirement, the process must evidence the consumer's
identity.
By order of the Board of Governors of the Federal Reserve
System, March 23, 2001.
Robert deV. Frierson,
Associate Secretary of the Board.
[FR Doc. 01-7727 Filed 3-29-01; 8:45 am]
BILLING CODE 6210-01-P
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