[Federal Register: April 4, 2001 (Volume 66, Number 65)]
[Rules and Regulations]
[Page 17786-17795]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04ap01-3]
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FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-1041]
Electronic Fund Transfers
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 E, which implements the Electronic Fund Transfer 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 information when shopping for
electronic fund transfer services. (Similar rules are being adopted
under other consumer financial services and fair lending regulations
administered by the Board.) Under the rule, financial institutions may
deliver disclosures electronically if they obtain consumers'
affirmative consent in accordance with the Electronic Signatures in
Global and National Commerce Act. Consistent with that act, an interim
rule issued previously, regarding the electronic delivery of
disclosures upon consumers' agreement, is withdrawn. In addition, the
regulation is revised to allow
[[Page 17787]]
financial institutions to provide disclosures in foreign languages, and
to make technical changes to the model error resolution notices. The
rule is being adopted as an interim rule to allow for additional public
comment.
DATES: This 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-1041, may be
mailed to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, D.C. 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, N.W. 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: John C. Wood, Counsel, or Natalie E.
Taylor, Counsel, Division of Consumer and Community Affairs, at (202)
452-2412 or (202) 452-3667.
SUPPLEMENTARY INFORMATION:
I. Background
The Electronic Fund Transfer Act (EFTA), 15 U.S.C. 1693 et seq.,
provides a basic framework establishing the rights, liabilities, and
responsibilities of participants in electronic fund transfer (EFT)
systems. The Board's Regulation E (12 CFR part 205) implements the act.
Types of transfers covered by the act and regulation include transfers
initiated through an automated teller machine (ATM), point-of-sale
terminal, automated clearinghouse, telephone bill-payment plan, or
remote banking program. The act and regulation require disclosure of
terms and conditions of an EFT service; documentation of EFTs by means
of terminal receipts and periodic account statements; limitations on
consumer liability for unauthorized transfers; procedures for error
resolution; and certain rights related to preauthorized EFTs.
EFTA and Regulation E require a number of disclosures to be
provided in writing, presuming that financial institutions 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 under Regulation E permitting the electronic delivery of
disclosures (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, financial institutions, creditors, lessors, and others to
provide disclosures electronically if the consumer agrees, 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 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 and interim
rule, 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 in-person transactions
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
[[Page 17788]]
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 E. Consistent with the requirements of the E-Sign Act,
financial institutions generally must obtain consumers' 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 at the time the consumer contracts
for an electronic fund transfer service (or before the first transfer),
consumers are required to access the disclosures before contracting or
making the first transfer. 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, M, Z, 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 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 financial institution? 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 E 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 E, 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 account balances and other information that must be
disclosed. In addition, transmittal of the periodic statement triggers
important consumer protections such as 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
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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 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 904 of the EFTA, the Board
amends Regulation E 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. To the extent
that a financial institution 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 904(c) of the EFTA.
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.
Section 205.4 General Disclosure Requirements; Jointly Offered
Services
4(a) Form of Disclosures
4(a)(2) Foreign Language Disclosures
To provide consistency among the regulations, the guidance
currently contained in comment 4(a)-2, permitting financial
institutions to provide disclosures in languages other than English (as
long as disclosures in English are available to consumers who request
them) is set forth in new Sec. 205.4(a)(2).
4(c) Electronic Communication
Section 205.4(c) was adopted by the Board in March 1998 as an
interim rule allowing the electronic delivery of disclosures required
under Regulation E, if the consumer agrees. The 1998 interim rule did
not specify the manner or form of consumers' consent to electronic
statements.
Effective October 1, 2000, the E-Sign Act permits institutions to
provide disclosures to consumers using electronic communication, if the
institution complies with Section 101(c) of that act. Section 101(c) of
the E-Sign Act requires institutions to provide specific information
about the electronic delivery of disclosures and obtain the consumer's
affirmative consent to receive electronic disclosures. As discussed
below, Sec. 205.17 is being adopted to set forth the general rule that
institutions subject to Regulation E may provide disclosures
electronically only if the institution complies with Section 101(c) of
the E-Sign Act. The 1998 interim rule is withdrawn accordingly, and
Sec. 205.4(c) is amended to provide a cross reference to new
Sec. 205.17, to ease compliance.
Section 205.17 Requirements for Electronic Communication
17(a) Definition
As adopted, the definition of the term ``electronic communication''
remains substantially unchanged from the 1999 proposals. Section
205.17(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 readily
understandable, the Board believes visual text is an essential element
of the definition. Institutions 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
readily understandable'' format requirement, discussed below.
17(b) General Rule
Effective October 1, 2000, the E-Sign Act permits financial
institutions to provide disclosures using electronic communication, if
the financial institution complies with the consumer consent
requirements in Section 101(c). Under section 101(c) of the E-Sign Act,
financial institutions 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. 205.17(b) sets forth the
general rule that financial institutions subject to Regulation E may
provide disclosures electronically if the financial institution
complies with section 101(c) of the E-Sign Act.
The E-Sign Act authorizes the use of electronic disclosures. The
act does not affect any requirement imposed under EFTA other than a
provision that requires disclosures to be in paper form, and the act
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 readily understandable standard.
Comment 17(b)-1 contains this guidance.
Presenting Disclosures in a Clear and Readily Understandable Format
Electronic disclosures must be clear and readily understandable, as
is the case for all written disclosures under EFTA and Regulation E.
See Sec. 205.4(a). A financial institution must provide electronic
disclosures using a clear and readily understandable format. Also, in
accordance with the E-Sign Act: (1) The institution 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 institution must provide the disclosures in accordance with the
specified requirements. Comment 17(b)-2 contains this guidance.
Commenters posed a few questions about the applicability of the
clear and readily understandable 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 readily understandable standard.
Commenters also had questions about the use of navigational tools
with electronic disclosures. For example,
[[Page 17790]]
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 readily understandable standard.
Providing Timely Disclosures
Disclosures delivered electronically must comply with existing
timing requirements under EFTA and Regulation E. See, for example,
Secs. 205.7(a), 205.8(a)(1), and 205.9(b). 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 financial
institution both makes the disclosures available at that location and,
in accordance with Sec. 205.17(c)(2), sends a notice alerting the
consumer that the disclosures have been posted. For example, under
Sec. 205.8(a), financial institutions offering accounts with EFT
services must provide a change-in-terms notice at least 21 days in
advance of certain changes. For a change-in-terms notice posted on the
Internet, an institution must both post the notice and notify consumers
of its availability at least 21 days in advance of the change. Comment
17(b)-4 contains this guidance.
Certain disclosures must be provided before the consumer contracts
for an EFT service, or before the first electronic fund transfer.
Because the disclosures are not required to be segregated and may be
interspersed into the text of another document, the institution may
satisfy the requirement to provide the disclosures if the document
appears automatically or via a nonbypassable link. For example, when
the financial institution permits the consumer to open an account on-
line and initiate an EFT transaction immediately thereafter, the
consumer must be required to access the disclosures (or the document
containing the disclosures such as a checking account agreement)
required under Sec. 205.7 before the first transaction. A link to the
disclosures satisfies the timing rule if the consumer cannot bypass the
disclosures before contracting or making the first transfer. Or, the
disclosures in this example must automatically appear on the screen,
even if multiple screens are required to view the entire disclosure.
Comment 17(b)-3 contains this guidance.
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.
EFTA and Regulation E require that financial institutions provide,
send, or deliver disclosures to consumers. It is not sufficient for
institutions 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
disclosures provided electronically so that they have the opportunity
to read them before entering into an agreement for EFT services.
Commenters requested guidance regarding the financial institution's
duty in cases where an institution cannot provide timely disclosures
because an electronic terminal or other automated equipment controlled
by the institution malfunctions or otherwise fails to operate properly.
Where the institution controls the equipment and disclosures are
required at that time, an institution might not be liable for failing
to provide timely disclosures if the defense in section 915(c) of EFTA
is available.
Providing Disclosures in a Form the Consumer May Keep
Under EFTA and Regulation E, 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 17(b)-5 contains
this guidance on this requirement.
Consumers may communicate electronically with financial
institutions 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 EFTA disclosures presented on-screen. To ensure that consumers
have an adequate opportunity to access and retain the disclosures, the
financial institution also must send them to the consumer's designated
e-mail address or make them available at another location, for example,
on the financial institution's Internet web site, where the information
may be retrieved at a later date.
Where the financial institution controls the equipment providing
the electronic disclosures (for example, an automated teller machine or
computer terminal located in the financial institution's lobby), the
financial institution must ensure that the consumer has the opportunity
to retain the required information. Comment 17(b)-6 contains guidance
on this requirement.
17(c) Address or Location To Receive Electronic Communication
Consistent with the 1999 proposals, the interim rule provides that
financial institutions may deliver electronic disclosures by sending
them to a consumer's e-mail address. Alternatively, the rule provides
that financial institutions may make the disclosures available at
another location such as an Internet web site. If the financial
institution makes a disclosure available at such a location, the
financial institution effectively delivers the disclosure by sending a
notice alerting the consumer when the disclosure can be accessed, and
making the disclosure available for at least 90 days. The time period
for keeping disclosures available at a location such as an
institution's Internet web site under the interim rule differs from the
1999 proposals, based on commenters' concerns as discussed below.
17(c)(1)
For purposes of Sec. 205.17(c), a consumer's electronic address is
an e-mail address that is not limited to receiving communications
transmitted solely by the financial institution, as proposed. This
guidance is contained in comment 17(c)(1)-1. An electronic address
would not include systems that permit communication only between the
consumer and the financial institution, for example, home-banking
programs that allow consumers to communicate directly with a financial
institution on-line with the use of a computer and modem. These
systems, like a financial institution's web site accessed via the
Internet, give consumers access to information about their accounts at
a location controlled by the institution. In both cases, the
institution determines how long account information will be available
to the consumer. Consumers who receive
[[Page 17791]]
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 financial institution'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 financial institution's option.
17(c)(2)
Under Sec. 205.17(c)(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 institution's option). Section 205.17(c)(2)(i) requires
that the alert notice identify the account involved and the address or
other location where the disclosure is available. Comment 17(c)(2)-1
provides guidance on the level of detail required in identifying the
account.
As proposed, under Sec. 205.17(c)(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 disclosure available
for 90 days also ensures that it will be available a sufficient time in
most cases to allow alleged errors to be resolved under the procedures
in Regulation E. The 90-day period is uniform for all disclosures, for
ease of compliance. Comment 17(c)(2)-2 is added to provide that during
this period, the actual disclosures must be available to the consumer,
but the financial institution 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 was
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 financial institution'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 financial
institution should have the duty to retain them for future reference.
They also noted that under existing record retention requirements
applicable to paper disclosures, a financial institution need only
demonstrate compliance with the rules, but need not retain copies of
the actual disclosures provided to consumers.
The requirement for financial institutions to provide duplicate
disclosures upon request for 24 months has not been adopted. A
financial institution's duty to retain evidence of compliance for 24
months remains unchanged.
17(d) 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 financial institutions 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 they can access the information that the
financial institution 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 institution.
After the consumer consents, the E-Sign Act also requires institutions
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. 205.17(d) 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 an institution actually knows
that the delivery of an electronic disclosure did not take place, the
institution 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 institution sends the
disclosure to a different e-mail address or postal address that the
institution 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 17(d)-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 financial institution's duty to redeliver a disclosure
under Sec. 205.17(d) does not affect the timeliness of the disclosure.
Financial institutions 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 financial
institution is required under Sec. 205.17(d) to take reasonable steps
to attempt redelivery.
[[Page 17792]]
17(e) Persons Other Than Financial Institutions
Certain provisions of Regulation E apply to entities that are not
financial institutions. For example, where preauthorized electronic
fund transfers from a consumer's account are recurring but will vary in
amount each time, advance written notice is required; the notice may be
given by the designated payee instead of the financial institution. The
rule clarifies that entities other than a financial institution that
are required to comply with Regulation E may use electronic
communication to do so, provided the requirements of Sec. 205.17(b) are
satisfied. See Sec. 205.17(e) and comment 17(e)-1.
Additional Issues
1. 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 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.
2. Technical Amendments to Error Resolution Notices
Model error resolution notices contained in Appendix A (Forms A-3
and A-5) have been revised to conform with amendments to Sec. 205.11
addressing time periods for investigating alleged errors involving new
accounts and point-of-sale and foreign-initiated transactions (63 FR
52115, September 29, 1998), and to make other technical changes.
V. Form of Comment Letters
Comment letters should refer to Docket No. R-1041, 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 E, 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 financial
institutions with an alternative method of providing disclosures; the
rule will relieve compliance burden by giving financial institutions
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 7100-0200.
The collection of information that is revised by this rulemaking is
found in 12 CFR Part 205 and in Appendix A. This information is
mandatory (15 U.S.C. 1693 et seq.) to evidence compliance with the
requirements of the Regulation E and the Electronic Fund Transfer Act
(EFTA). 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 financial institutions, 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 financial institutions may deliver
disclosures electronically upon obtaining consumers' affirmative
consent in accordance with the E-Sign Act. The
[[Page 17793]]
revisions 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
954 respondent/recordkeepers and an average frequency of 85,808
responses per respondent each year. The current annual burden is
estimated to be 518,857 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, N.W., Washington, DC 20551; and to the Office of
Management and Budget, Paperwork Reduction Project (7100-0200),
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 205
Banks, banking, Consumer protection, Electronic fund transfers,
Reporting and record keeping requirements.
For the reasons set forth in the preamble, the Board amends
Regulation E, 12 CFR part 205, as set forth below:
PART 205 ELECTRONIC FUND TRANSFERS (REGULATION E)
1. The authority citation for part 205 continues to read as
follows:
Authority: 15 U.S.C. 1693-1693r.
2. Section 205.4 is amended by redesignating paragraph (a) as
paragraph (a)(1), adding a new paragraph (a)(2), and revising paragraph
(c), as follows:
Sec. 205.4 General disclosure requirements; jointly offered services.
(a)(1) Form of disclosures. * * *
(2) Foreign language disclosures. Disclosures required under this
part may be made in a language other than English, provided that the
disclosures are made available in English upon the consumer's request.
* * * * *
(c) Electronic communication. For rules governing the electronic
delivery of disclosures, including the definition of electronic
communication, see Sec. 205.17.
* * * * *
3. Add a new Sec. 205.17 to read as follows:
Sec. 205.17 Requirements for electronic communication.
(a) Definition. Electronic communication means a message
transmitted electronically between a financial institution 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 financial institution may provide
by electronic communication any disclosure required by this part to be
in writing.
(c) Address or location to receive electronic communication. A
financial institution 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 financial institution'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.
(d) Redelivery. When a disclosure provided by electronic
communication is returned to a financial institution undelivered, the
financial institution shall take reasonable steps to attempt redelivery
using information in its files.
(e) Persons other than financial institutions. Persons other than a
financial institution that are required to comply with this part may
use electronic communication in accordance with the requirements of
Sec. 205.17, as applicable.
4. Appendix A to Part 205 is amended by revising Model Forms A-3
and A-5, to read as follows:
Appendix A To Part 205--Model Disclosure Clauses and Forms
* * * * *
A-3--Model Forms for Error Resolution Notice (Secs. 205.7(b)(10) and
205.8(b))
(a) Initial and annual error resolution notice
(Secs. 205.7(b)(10) and 205.8(b)).
In Case of Errors or Questions About Your Electronic Transfers
Telephone us at [insert telephone number] Write us at [insert
address] [or E-mail us at [insert electronic mail address]] as soon
as you can, if you think your statement or receipt is wrong or if
you need more information about a transfer listed on the statement
or receipt. We must hear from you no later than 60 days after we
sent the FIRST statement on which the problem or error appeared.
(1) Tell us your name and account number (if any).
(2) Describe the error or the transfer you are unsure about, and
explain as clearly as you can why you believe it is an error or why
you need more information.
(3) Tell us the dollar amount of the suspected error.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days.
We will determine whether an error occurred within 10 business
days after we hear from you and will correct any error promptly. If
we need more time, however, we may take up to 45 days to investigate
your complaint or question. If we decide to do this, we will credit
your account within 10 business days for the amount you think is in
error, so that you will have the use of the money during the time it
takes us to complete our investigation. If we ask you to put your
complaint or question in writing and we do not receive it within 10
business days, we may not credit your account.
For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate
your complaint or question. For new accounts, we may take up to 20
business days to credit your account for the amount you think is in
error.
We will tell you the results within three business days after
completing our investigation. If we decide that there was no error,
we will send you a written explanation. You may ask for copies of
the documents that we used in our investigation.
(b) Error resolution notice on periodic statements
(Sec. 205.8(b)).
* * * * *
A-5--Model Forms for Government Agencies (Sec. 205.15(d)(1) and (2))
(a) Disclosure by government agencies of information about
obtaining account
[[Page 17794]]
balances and account histories (Sec. 205.15(d)(1)(i) and (ii)).
You may obtain information about the amount of benefits you have
remaining by calling [telephone number]. That information is also
available [on the receipt you get when you make a transfer with your
card at (an ATM)(a POS terminal)][when you make a balance inquiry at
an ATM][when you make a balance inquiry at specified locations].
You also have the right to receive a written summary of
transactions for the 60 days preceding your request by calling
[telephone number]. [Optional: Or you may request the summary by
contacting your caseworker.]
(b) Disclosure of error resolution procedures for government
agencies that do not provide periodic statements
(Sec. 205.15(d)(1)(iii) and (d)(2)).
In Case of Errors or Questions About Your Electronic Transfers
Telephone us at [telephone number] Write us at [insert address] [or
E-mail us at [insert electronic mail address]] as soon as you can,
if you think an error has occurred in your [EBT][agency's name for
program] account. We must hear from you no later than 60 days after
you learn of the error. You will need to tell us:
Your name and [case] [file] number.
Why you believe there is an error, and the dollar
amount involved.
Approximately when the error took place.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days.
We will determine whether an error occurred within 10 business
days after we hear from you and will correct any error promptly. If
we need more time, however, we may take up to 45 days to investigate
your complaint or question. If we decide to do this, we will credit
your account within 10 business days for the amount you think is in
error, so that you will have the use of the money during the time it
takes us to complete our investigation. If we ask you to put your
complaint or question in writing and we do not receive it within 10
business days, we may not credit your account.
For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate
your complaint or question. For new accounts, we may take up to 20
business days to credit your account for the amount you think is in
error.
We will tell you the results within three business days after
completing our investigation. If we decide that there was no error,
we will send you a written explanation. You may ask for copies of
the documents that we used in our investigation.
If you need more information about our error resolution
procedures, call us at [telephone number][the telephone number shown
above].
5. In Supplement I to Part 205, a new Section 205.17 is added, to
read as follows:
Supplement I to Part 205--Official Staff Interpretations
* * * * *
Section 205.17--Requirements for Electronic Communication
17(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 provision that requires
disclosures to 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 readily understandable standard. For example, to satisfy the
clear and readily understandable standard for disclosures,
electronic disclosures must use visual text.
2. Clear and readily understandable standard. A financial
institution must provide electronic disclosures using a clear and
readily understandable format. Also, in accordance with the E-Sign
Act:
i. The institution 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 institution must provide the disclosures in accordance
with the specified requirements.
3. Timing and effective delivery when a consumer signs up for an
EFT service on-line. When a consumer contracts for an EFT service on
the Internet and will be able immediately to initiate a fund
transfer, a financial institution satisfies the timing requirements
under this part if, at the time the consumer contracts for the
service or before the first transfer is made, the disclosures
automatically appear on the screen, even if multiple screens are
required to view the entire disclosure. Or a financial institution
may provide a link to electronic disclosures, as long as consumers
cannot bypass the link and they are required to access the
disclosures before initiating the first transfer. The institution 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 financial institution has both made the
disclosures available and sent a notice alerting the consumer that
the disclosures have been posted. For example, under Sec. 205.8(a),
institution offering accounts with EFT services must provide a
change-in-terms notice to consumers at least 21 days in advance of
certain changes. For a change-in-terms notice posted on the
Internet, an institution must both post the notice and notify
consumers of its availability at least 21 days in advance of the
change.
5. Retainability of disclosures. Financial institutions 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 financial institution's equipment. A
financial institution that controls the equipment providing
electronic disclosures to consumers (for example, an ATM or computer
terminal in a financial institution's lobby) must ensure that the
equipment satisfies the regulation's requirements to provide timely
disclosures in a clear and readily understandable 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 financial institution's Internet web
site, unless the financial institution provides a printer that
automatically prints the disclosures.
17(c) Address or Location To Receive Electronic Communication
Paragraph 17(c)(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 financial institution.
Paragraph 17(c)(2)
1. Identifying account involved. A financial institution 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 checking account, and no
confusion would result, the institution may refer to ``your checking
account.'' If the consumer has two checking accounts, the
institution may, for example, differentiate accounts based on names
for different checking account programs or by using a truncated
account number.
2. 90-day rule. The actual disclosures provided to the consumer
must be available for at least 90 days, but the financial
institution has discretion to determine whether they should be
available at the same location for the entire period.
17(d) 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 institution sends the disclosure to a different
e-mail address or postal address that the institution has on file
for the consumer. Sending the disclosure a second time to the same
electronic address is not sufficient if the institution has a
different address for the consumer on file.
17(e) Persons Other Than Financial Institutions
1. Electronic disclosures. Entities other than financial
institutions, such as merchants, are subject to certain provisions
of Regulation E, including Secs. 205.10(b) and (d). These entities
too may use electronic communication to provide disclosures required
to be in writing.
[[Page 17795]]
By order of the Board of Governors of the Federal Reserve
System, March 27, 2001.
Robert deV. Frierson,
Associate Secretary of the Board.
[FR Doc. 01-8151 Filed 4-3-01; 8:45 am]
BILLING CODE 6210-01-P
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