[Federal Register Volume 59, Number 44 (Monday, March 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4682]
[[Page Unknown]]
[Federal Register: March 7, 1994]
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FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-0831]
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed Official Staff Interpretation.
-----------------------------------------------------------------------
SUMMARY: The Board is publishing for comment a proposal to revise the
official staff commentary to Regulation E (Electronic Fund Transfers).
This proposal is part of the Board's current review of Regulation E.
The commentary interprets the requirements of Regulation E in order to
facilitate compliance by financial institutions that offer electronic
fund transfer services to consumers. The proposed revisions change the
question and answer format to a narrative one in order to make the
commentary easier to use and to conform it with the format of the
Board's other staff commentaries. It also includes interpretative
provisions previously contained in the regulation that were more
explanatory in nature. The proposal includes additional interpretations
on matters not previously addressed.
DATES: Comments must be received on or before May 31, 1994.
ADDRESSES: Comments should refer to Docket No. R-0831 and be mailed to
William W. Wiles, Secretary, Board of Governors of the Federal Reserve
System, Washington, DC 20551. They may also be delivered to the guard
station in the Eccles Building Courtyard on 20th Street NW. (between
Constitution Avenue and C Street) between 8:45 a.m. and 5:15 p.m.
weekdays. Except as provided in the Board's rules regarding the
availability of information (12 CFR 261.8), comments received will be
available for inspection and copying by any member of the public in the
Freedom of Information Office, Room MP-500 of the Martin Building
between 9 a.m. and 5 p.m. weekdays.
FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell or Mary Jane Seebach,
Staff Attorneys, or John Wood, Senior Attorney, Division of Consumer
and Community Affairs, Board of Governors of the Federal Reserve
System, Washington, DC 20551, at (202) 452-2412 or (202) 452-3667. For
the hearing impaired only, contact Dorothea Thompson,
Telecommunications Device for the Deaf (TDD), at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
(1) Background
The Electronic Fund Transfer Act (EFTA) (15 U.S.C. 1693), enacted
in 1978, provides a basic framework establishing the rights,
liabilities, and responsibilities of participants in electronic fund
transfer (EFT) systems. The EFTA is implemented by the Board's
Regulation E (12 CFR part 205). In 1981, the Board published an
official staff commentary to Regulation E. The commentary substitutes
for individual official staff interpretations and is designed to
facilitate compliance and provide protection from civil liability,
under section 915(d)(1) of the act, for financial institutions that act
in conformity with it.
The question and answer format of the present commentary was
designed to make compliance easier by providing specific answers, in
nontechnical language, to commonly asked questions. The Board proposes
to replace the current approach with a narrative format, similar to
other commentaries issued by the Board. The proposed change is intended
to provide more general applicability, as the current format usually
relies on specific factual situations and often restricts the scope of
an interpretation.
The order of comments in the proposal corresponds with the new
sections in the regulatory proposal. Throughout the commentary,
reference to ``this section'' or ``this paragraph'' means the section
or paragraph in the regulation that is the subject of the comment. Each
comment in the commentary is identified by a number and the regulatory
section or paragraph that it interprets.
The proposed commentary incorporates text that was moved from the
regulation because it is more explanatory in nature than regulatory. In
addition, a number of comments would be deleted as obsolete. The Board
solicits comment on whether deleting any of these comments creates
confusion as to the Board's current interpretation of a particular
matter.
The section-by-section description that follows points out those
provisions that differ in some significant way from the current
commentary. Similarly, those portions of the current regulation that
would be moved to the commentary are also discussed. Comments in the
existing commentary will be referred to as ``questions'' and will be
cited by the section number and the number of the question. For
example, Q2-11 would be the citation for question number 11 in the
commentary to Sec. 205.2. As the substance of many questions does not
change in the new format, those comments are not specifically
discussed. At the beginning of each section of the proposed commentary
is a listing that matches existing comments with the proposed new
commentary provisions. It also provides a listing of comments that
would be deleted from the commentary, comments that are new, and
comments that would be moved to other sections.
(2) Form of Comment Letters
Comment letters should refer to Docket No. R-0831. The Board
requests that, when possible, comments be prepared using a standard
typeface with a type size of 10 or 12 characters per inch. This will
enable the Board to convert the text into machine-readable form through
electronic scanning, and will facilitate automated retrieval of
comments for review. Comments may also be submitted on 3\1/2\ inch or
5\1/4\ inch computer diskettes in any IBM-compatible DOS-based format.
(3) Explanation of Proposed Revisions
Section 205.2--Definitions
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1........... Q2-1.
(b)-1........... Q2-2, Q2-3, Q2-4, Q2-5, Q2-5.5.
(b)-2........... Q3-20, Q3-21.
(d)-1........... Q2-8.
(f)-1........... Q2-25.5, Q2-23.
(f)-2........... Q2-24.
(f)-3........... Q2-25.
(k)-1........... Q2-26.
(k)-2........... Q2-27.
(k)-3........... Q2-27.
(k)-4........... Q2-28.
------------------------------------------------------------------------
Comments Deleted
Q2-6: Business day--substantially all business functions
Q2-7: Business day--duration
Q2-9: Business day--short hours
Q2-22: Electronic terminal--telephone bill payment
Paragraph 2(b)(2)
In the regulatory proposal, the exemption for trust accounts has
been incorporated into the definition of account. Accordingly, Q3-20
(custodial agreements) and Q3-21 (trust accounts) would be included in
this section. The change mirrors the statutory definition of account.
(d) Business Day
The regulatory proposal includes a new definition of business day.
Currently, the term is defined as any day on which the offices of the
consumer's financial institution are open to the public for carrying on
substantially all business functions. The proposal defines a business
day as a calendar day other than a Saturday, Sunday, or any legal
public holiday specified in 5 U.S.C. 6103(a). Q2-6, Q2-7 and Q2-9
provide guidance on interpreting ``substantially all business
functions'' and would be deleted as obsolete.
(k) Unauthorized Electronic Fund Transfer
Proposed comment (k)-2 incorporates Q2-27, which provides that when
the consumer furnishes an access device and grants actual authority to
make transfers to another person (a family member or co-worker, for
example) who then exceeds that authority, the consumer is liable for
the transfers unless the consumer notifies the financial institution
that transfers by that person are no longer authorized. The Board
solicits comment on whether financial institutions should be required
to disclose a consumer's liability in this instance as part of the
initial disclosures of Sec. 205.7. While institutions are required to
provide a summary of the consumer's liability under Sec. 205.6 in the
initial disclosures, the current model clauses do not refer to this
type of situation.
Section 205.3--Coverage
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1........... New (revised Q9-15).
(a)-2........... New (foreign applicability).
(b)-1........... Q2-11, reverses Q2-16, Q2-18, Q2-19, Q2-21.5.
(b)-2........... Q2-10, Q2-12, Q2-21.
(c)(2)-1........ Q3-1.
(c)(3)-1........ Q3-3.
(c)(3)-2........ New (UCC Article 4A/wire transfer).
(c)(3)-3........ New (similar fund transfer systems).
(c)(4)-1........ New (securities exemption).
(c)(4)-2........ Q3-3.5, Q3-3.6, new (margin call).
(c)(5)-1........ Q3-8, Q3-9, Q3-10, Q3-11, Q3-12.
(c)(5)-2........ Q3-13.
(c)(6)-1........ Q3-14, Q3-15, Q3-16, Q3-19.5.
(c)(6)-2........ Q3-17, Q3-18, Q3-19, new (facsimile machine).
(c)(7)-1........ New (UCC Article 4A/small institutions).
------------------------------------------------------------------------
Comments Deleted
Q2-12.5: Fund transfer--withholding of income tax on interest
Q2-12.6: Fund transfer--EBT
Q2-13: Fund transfer--withdrawal at another institution
Q2-14: Fund transfer--check truncation
Q2-15: Fund transfer--payee information, nonelectronic form
Q2-17: Fund transfer--ACH
Q2-20: Fund transfer--preauthorized debits by paper drafts, ACH
Q3-2: Wire transfer--instructions on magnetic tape
Q3-4: Telephone transfer plans--applicability of intrainstitutional
exemption
Q3-5: Compulsory use--preauthorized loan payments
Q3-22: Small institutions exemption--grace period
Comments Moved
Q3-6, Q3-7, and Q3-7.5 (see proposed commentary to Sec. 205.10(e))
Q3-20 and Q3-21 (see proposed commentary to Sec. 205.2)
Section 205.3 of the proposed regulation is a new section on the
regulation's coverage. It includes the existing language on the scope
of Regulation E, as well as the definition of EFT and the exemptions
from the regulation.
3(a) General
To correspond with the regulatory proposal, the commentary proposal
consolidates existing and new comments on the regulation's coverage.
Q9-15, which specifies when periodic statements are required, also
details the types of accounts subject to the requirements of the
regulation and has been incorporated into comment (a)-1.
Proposed comment (a)-2 is new. It explains the application of
Regulation E in situations involving foreign-based financial
institutions, consumers who are not U.S. citizens, or both. Language
for this proposed comment was modeled upon the commentary to Regulation
Z on foreign applicability (12 CFR part 226, supp. I, comment 1(c)-1).
The Board requests comment on whether the scope of the proposed comment
offers sufficient coverage of foreign-related EFTs.
(b) Electronic Fund Transfer
In the regulatory proposal, the definition of ``electronic fund
transfer'' (currently Sec. 205.2(g)) has been incorporated into the
coverage section as the definition is central to determining coverage
under the regulation. The proposed commentary reflects this change and
consolidates in this section the majority of questions pertaining to
EFTs. A number of comments have been deleted due to a change in Board
position. For example, Q2-12.6 deals with the electronic payment of
government benefits and states that such transfers are not subject to
Regulation E. As the Board has adopted amendments to Regulation E
extending coverage to electronic benefit transfer programs established
by federal, state, or local government agencies, Q2-12.6 has been
deleted (see Docket No. R-0829 in today's Federal Register).
Proposed comment (b)-1 provides examples of EFTs subject to
Regulation E. The comment incorporates Q2-19, and reverses Q2-16 to
achieve consistency. Q2-16 states that credits to consumers' accounts
made by a composite check accompanied by a magnetic tape containing
payee information are not EFTs for purposes of Regulation E. Q2-19, on
the other hand, states that debits made to consumer accounts by use of
a magnetic tape containing consumers' billing information will be
considered EFTs covered by the regulation even if all the debits are
combined on one composite check sent to the payee. The proposed comment
treats both credits and debits to consumer accounts by use of composite
checks as EFTs.
Proposed comment (b)-2 provides examples of EFTs that are not
covered by the regulation. The comment generally states that any
payment that does not debit or credit a consumer asset account is not
an EFT. It also incorporates Q2-10 and Q2-12. Q2-10 provides that a EFT
excludes not only payments made by check, draft, or similar paper
instrument at an electronic terminal, but also payments in currency
since they do not debit or credit a consumer's account. Q2-12 provides
that payroll allotments are transfers not covered by Regulation E; an
example is a sum designated by the consumer to be deducted from payroll
to repay a debt of the consumer. This amount is deducted before a
deposit is made to the consumer's account and so the payroll allotment
is not a debit to a consumer asset account.
(c) Exclusions From Coverage
The regulatory proposal incorporates the exemptions from current
Sec. 205.3 into the expanded section on coverage. The Board believes
having coverage and exemption provisions in one section simplifies the
analysis of whether or not compliance with the regulation is required.
Two new comments address the relationship of Regulation E to
Article 4A of the Uniform Commercial Code (UCC). Article 4A provides
comprehensive rules governing the rights and responsibilities arising
from wire transfers. It applies primarily to large-dollar, commercial
wire transfers made via Fedwire, Clearing House Interbank Payments
Systems (CHIPS), Society for Worldwide Interbank Payments Systems
(SWIFT) and Telex.
(c)(3) Wire Transfers
UCC Sec. 4A-108 provides that Article 4A does not cover a fund
transfer any part of which is governed by the EFTA. In drafting Article
4A, the National Conference of Commissioners on Uniform State Laws
stated that if a fund transfer is made in part by Fedwire and in part
via automated clearinghouse (ACH), because the EFTA applies to the ACH
part of the transfer, Article 4A does not apply to any part of the
transfer. Institutions that offer Fedwire services have been concerned
that these transfers would lose the legal certainty offered by
complying with the requirements of Article 4A if some part of the
transfer was subject to the EFTA. This concern must be balanced with
the potential of subjecting consumers to full liability for
unauthorized transfers merely because some part of the transfer, which
would ordinarily be covered by Regulation E, was made via Fedwire.
In 1990, the Board adopted a comprehensive revision of subpart B to
Regulation J (55 FR 40791, October 5, 1990). Regulation J (12 CFR part
210) specifies the rules applicable to funds transfers handled by
Federal Reserve Banks. To ensure that the rules for all funds transfers
through Fedwire are consistent, the Board used its preemptive authority
under UCC section 4A-107 to determine that subpart B, including the
provisions of Article 4A, applies to all funds transfers through
Fedwire, even if a portion of the fund transfer is governed by the
EFTA. The portion of the fund transfer that is governed by the EFTA is
not governed by subpart B.
Even with this relief, the Board has received questions about the
effect of dual coverage. For example, if an institution offers
consumers the ability to initiate Fedwire transfers pursuant to a
telephone transfer agreement, the transfer would be covered by both
Regulation E and Article 4A. UCC section 4A-202 encourages verification
of the authenticity of a Fedwire payment order pursuant to a ``security
procedure'' established by agreement between the customer and a
receiving bank. Putting such an agreement in writing could be deemed to
constitute a telephone transfer plan for purposes of Regulation E. The
Board believes that if an institution offers Fedwire payments as a
service to consumers and does not make the service available in
conjunction with a telephone plan subject to Regulation E, then the
protections of Article 4A are applicable to the transfer. Proposed
comment (c)(3)-2 explains that if the service is offered as a product
separate from the more typical telephone bill-payment or other
prearranged plan, then any security procedure followed to establish an
agreement will not be deemed to create a telephone plan subject to
Regulation E.
The wire transfer exemption extends to any transfer of funds
through Fedwire or through a similar fund transfer system. Comment
(c)(3)-3 provides examples of such systems.
(c)(4) Securities and Commodities Transfers
The Board has proposed to revise the current exemption for certain
securities and commodities transfers contained in Sec. 205.3(c). The
exemption would apply to a transfer for the purchase or sale of
securities or commodities, even if the security or commodity is not
regulated by the Securities and Exchange Commission or the Commodity
Futures Trading Commission so long as it is sold by a registered
broker-dealer or futures commission merchant (for example, municipal
securities). Proposed comment (c)(4)-1 provides additional
clarification on this point.
Proposed comment (c)(4)-2 provides examples from the current
commentary of covered and exempt securities transfers (Q3-3.5 and Q3-
3.6). The comment also contains a new example of an exempt transfer,
that of a telephone order to exercise a margin call. The Board believes
that the exercise of a margin call is so closely linked to the purchase
or sale of securities as to come within the purview of the exemption.
The Board solicits comment on what additional examples may be needed to
illustrate the extent of this exemption.
(c)(6) Telephone-Initiated Transfers
Proposed comment (c)(6)-2 incorporates examples contained in the
current commentary of covered transfers under a written plan (Q3-17,
Q3-18 and Q3-19). The proposal also contains a new example, use of a
facsimile machine to initiate a transfer. The Board has received
questions about plans in which the consumer uses facsimile paper
designed to look like a paper ``draft'' to initiate a transfer sent via
facsimile machine. The EFTA's definition of EFT includes any transfer
through a ``telephonic instrument.'' The Board considers a facsimile
machine to be the functional equivalent of a telephone. Since it is a
telephone, it is inconsequential whether information about the transfer
is transmitted orally or by facsimile. The Board requests comment on
this interpretation and solicits additional examples of both covered
and exempt transfers.
(c)(7) Small Institutions
Proposed comment (c)(7)-1 clarifies that Article 4A is not
applicable to transfers exempt from Regulation E under the small
institution exemption. As noted above, the drafters of Article 4A
considered the EFTA and Regulation E to be mutually exclusive. The
Board has been asked whether preauthorized transfers by small
institutions (currently, institutions with assets under $25 million)
which are largely exempt from Regulations E are thus subject to the
requirements of Article 4A by virtue of the exemption (for example, a
direct deposit to a consumer's account at a small bank). As noted in
the proposed comment, the Board regards the transfers as generally
subject to the EFTA, and therefore not covered by Article 4A.
Section 205.4--General Disclosure Requirements; Jointly Offered
Services
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1........... Q7-3, Q9-4.
(a)-2........... New (revises Q7-4).
------------------------------------------------------------------------
Comments Deleted
Q4-1: Shared system--scope of disclosures
Q4-2: Shared system--disclosures on behalf of another institution
Q4-3: Multiple accounts and account holders (clarified in
Sec. 205.4(c)(1) of proposed regulation)
The Board's regulatory proposal includes both general disclosure
requirements and special requirements for providing the various
disclosures in a revised Sec. 205.4.
(a) Form of Disclosures
The Board has consistently interpreted the format requirements
currently contained in Secs. 205.7(a) and 205.9 as generally applicable
to all of the disclosures required by the regulation. Comments
incorporating Q7-3 and Q9-4 have been moved to this section of the
commentary to provide additional guidance on disclosure requirements.
Currently, Q7-4 provides that Spanish language disclosures satisfy
the requirement that disclosures be readily understandable so long as
disclosures in English are given to consumers who request them.
Proposed comment (a)-2 provides that disclosures may be made in
languages other than English, if the disclosures are available in
English upon request. This is consistent with the new disclosure
requirements in Regulation DD (see 12 CFR 230.3(b)).
Section 205.5--Issuance of Access Devices
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
1............... Q5-1.5.
(a)(1)-1........ New (footnote 1b to current Sec. 205.5(a)(1)).
(a)(2)-1........ Q5-1, Q5-2.
(a)(2)-2........ Q5-3.
(b)-1........... Q5-6, Q5-7.
(b)-2........... Q5-4.5.
(b)-3........... Q5-5.
(b)-4........... Q5-8.
------------------------------------------------------------------------
Comment Deleted
Q5-4: Renewal or substitution--pre-February 8, 1979 device
Comments Moved
Q5-9, Q5-10 (see proposed commentary to Sec. 205.12)
Section 205.5 provides the rules for issuance of access devices.
The substance of existing commentary provisions have been incorporated
into the proposal, with one addition.
(a) Solicited Issuance
(a)(1)
Footnote 1b to current Sec. 205.5(a)(1) provides that financial
institutions may issue an access device to each joint account holder
for whom the requesting account holder specifically requests an access
device. The footnote would be deleted from the regulation and moved to
comment (a)(1)-1.
Section 205.6--Liability of Consumer for Unauthorized Transfers
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1........... Q6-4, new (current
Sec. 205.6(a)(2)).
(a)-2........... Q6-3.
(b)-1........... Q6-5 (revised).
(b)-2........... Q6-6.5.
(b)(1)-1........ Q6-5 (revised).
(b)(1)-2........ Q6-6 (revised).
(b)(2)-1........ Q6-5 (revised).
(b)(3)-1........ Q6-5 (revised).
(b)(3)-2........ Q6-5 (revised).
(b)(4)-1........ New (current Sec. 205.6(b)(4)).
(b)(5)-1........ Q6-7.
(b)(5)-2........ New (notice from third party).
(b)(5)-3........ Q6-8.
------------------------------------------------------------------------
Comment Deleted
Q6-1: Unauthorized transfers--access device not involved
Q6-2: Failure to disclose business days
Comments Moved
Q6-9, Q6-10, and Q6-11 (see proposed commentary to Sec. 205.12)
(a) Conditions for Liability
The current regulation conditions consumer liability solely on the
issuance of an accepted access device (Sec. 205.6(a)). Q6-1, on the
other hand, states that if the consumer fails to report an unauthorized
EFT within 60 days of transmittal of the periodic statement reflecting
the transfer, the consumer could be subject to liability for subsequent
transfers. The Board has incorporated the current commentary into the
regulatory text. Accordingly, Q6-1 has been deleted.
Current Sec. 205.6(a)(2) of the regulation requires that the
institution provide a means of identifying the consumer to whom the
access device is issued. The regulation currently provides example of
such permissible means; this explanatory language has been moved to
proposed comment (a)-1.
Current Sec. 205.6(a)(3) of the regulation requires institutions to
disclose certain information to the consumer before imposing liability
for unauthorized EFTs involving the consumer's account. The information
required to be disclosed is already part of the initial disclosures
under Sec. 205.7. The regulatory proposal to this section requires that
an institution have complied with Sec. 205.7(b) before imposing
liability. Accordingly, Q6-2, which pertains to these disclosures, has
been deleted.
(b) Limitations on Amount of Liability
Q6-5 provides examples of when the liability rules apply. Material
from Q6-5, in revised form, has been incorporated into the commentary
to paragraph (b).
(b)(4) Extension of Time Limits
Current Sec. 205.6(b)(4) provides examples of what constitutes
extenuating circumstances for purposes of delaying notification to the
institution that an access device has been lost or stolen. The examples
have been deleted from the proposed regulation and moved to comment
(b)(4)-1.
(b)(5) Notice to Financial Institution
The Board has received questions about whether notice from a third
party is sufficient under Sec. 205.6. Proposed comment (b)(5)-2
indicates that such notice is considered adequate if it is communicated
by a third party on the consumer's behalf.
Section 205.7--Initial Disclosures
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1........... Q7-1.
(a)-2........... Q7-2.
(a)-3........... Q7-5.5.
(a)-4........... Q7-6, new (timing of disclosures).
(a)-5........... Q7-6.5.
(a)-6........... Q7-5.
(b)(1)-1........ Q7-8.
(b)(1)-2........ Q7-7.
(b)(1)-3........ New (current Sec. 205.7(a)(1)).
(b)(2)-1........ Q7-19, Q7-20.
(b)(4)-1........ Q7-11.
(b)(4)-2........ Q7-11.5.
(b)(4)-3........ Q7-10.
(b)(5)-1........ Q7-12, 7-13.
(b)(5)-2........ Q7-14, 7-15.
(b)(5)-3........ Q7-15.5.
(b)(9)-1........ Q7-16, 7-17.
(b)(10)-1....... Q7-18.
(b)(10)-2....... Q7-18.5.
------------------------------------------------------------------------
Comments Deleted
Q7-9: Summary disclosure of rights
Comments Moved
Q7-3, Q7-4 (see proposed commentary to Sec. 205.4)
(a) Timing of Disclosures
Proposed comment (a)-4 expands on Q7-6, which discusses the
addition of new EFT services. The current commentary requires financial
institutions to provide disclosures for the additional service if it is
subject to terms and conditions different from those previously
described in the initial disclosures; the commentary is silent,
however, as to when such disclosures should be provided. The proposed
comment requires that such disclosures be given either when the
consumer contracts for the new service or before the first EFT is made
using the new service.
(b) Content of Disclosures
Current Sec. 205.7(a)(1) gives financial institutions the option of
including advice about promptly reporting the loss or theft of the
access device or other unauthorized transfers in the summary of the
consumer's liability. This language has been deleted from the proposed
regulation and moved to comment (b)(1)-3.
Section 205.8--Change in Terms Notice; Error Resolution Notice
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1........... Q8-6.
(a)-2........... Q8-3, Q8-5.
(a)-3........... Q8-4.
(a)-4........... Q8-2.
(a)(2)-1........ New (45 calendar days to send notice).
(b)-1........... Q8-8.
------------------------------------------------------------------------
Comments Deleted
Q8-1: Terms requiring change in terms notice
Q8-7: Error resolution notice--no periodic statements sent
(a) Change in Terms Notice
(a)(2) Prior Notice Exception
Proposed comment (a)(2)-1 addresses circumstances when financial
institutions are required to send a subsequent notice upon making a
permanent change in terms related to security. The Board proposes to
extend the time period in which financial institutions must send such
notice to 45 days (from the current 30 days) to allow institutions to
more easily use the periodic statement as a vehicle of the consumer
notice.
Section 205.9--Receipts at Electric Terminals; Periodic Statements
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1........... Q9-1.
(a)-2........... New (footnote 2 to current Sec. 205.9(a)), Q9-2.
(a)-3........... Q9-3.5.
(a)-4........... Q9-5.
(a)-5........... Q9-6.
(a)-6........... Q9-4.
(a)(1)-1........ New (displaying amount of fee on ATM screen).
(a)(2)-1........ Q9-7.
(a)(3)-1........ New (current Sec. 205.9(a)(3)).
(a)(3)-2........ New (footnote 3 to current Sec. 205.9(a)(3)), Q-9, 9-
10.
(a)(3)-3........ Q9-8.
(a)(3)-4........ New (current Sec. 205.9(a)(3)), Q9-37.
(a)(3)-5........ Q9-36, Q9-27.
(a)(4)-1........ New (identification among accounts held by, or access
devices issued by an institution).
(a)(5)-1........ Q9-38.
(a)(5)-2........ Q9-40.
(a)(5)(i)-1..... New (current
Sec. 205.9(b)(1)(iv)(A)).
(a)(5)(ii)-1.... New (current
Sec. 205.9(b)(1)(iv)(B)).
(a)(5)(iii)-1... New (current
Sec. 205.9(b)(1)(iv)(C)).
(a)(6)-1........ Q9-13, new (current
Sec. 205.9(a)(6)).
(a)(6)-2........ Q9-14.
(b)-1........... Q9-19, 9-20.
(b)-2........... New (defining periodic cycle).
(b)-3........... Q9-17.
(b)-4........... Q9-18.
(b)-5........... Q9-21.
(b)-6........... Q9-23, new (footnote 4 to Sec. 205.9(b)(1)).
(b)(1)-1........ Q9-25.
(b)(1)(i)-1..... Q9-35.
(b)(1)(iii)-1... Q9-36.
(b)(1)(iv)-1.... Q9-40.5.
(b)(1)(v)-1..... Q9-28.
(b)(1)(v)-2..... Q9-30.
(b)(1)(v)-3..... Q9-41.
(b)(1)(v)-4..... Q9-43.
(b)(1)(v)-5..... Q9-44.
(b)(1)(v)-6..... New (footnote 9 to current Sec. 205.9(b)(1)(v)).
(b)(3)-1........ Q9-31.
(b)(3)-2........ Q9-31.5.
(b)(3)-3........ New (current Sec. 205.9(b)(3)).
(b)(4)-1........ Q9-32.
(b)(5)&(6)-1.... Q9-33.
(c)-1........... Q9-50.
(d)-1........... Q9-51.
------------------------------------------------------------------------
Comments Deleted
Q9-3: Receipts--information displayed on screen
Q9-10.5: Receipts--type of account, interchange system
Q9-11: Receipts--unique identifier
Q9-12: Receipts--terminal location
Q9-16: Periodic statements--frequency
Q9-24: Periodic statements--accompanying documents
Q9-29: Periodic statements--multiple transferees
Q9-34: Periodic statements--telephone numbers
Q9-39: Receipts/periodic statements--location code
Q9-42: Receipts/periodic statements--intermediate party
Q9-45: Passbook updates--when required
Q9-46: Passbook accounts--telephone notice alternative
Q9-47: Passbook updates--discarding of data
Q9-48: Passbook updates--periodic transmittals
Q9-49: Quarterly statements--compliance with regular requirements
Comments Moved
Q9-4 (see proposed commentary to Sec. 205.4)
Q9-15 (see proposed commentary to Sec. 205.2)
Q9-26 (see proposed commentary to Sec. 205.11)
The Board has proposed a number of editorial revisions to
Sec. 205.9 such as adding new paragraphs and headings to better
organize the text concerning timing and content of disclosures. A
number of comments have been deleted from the proposed commentary to
this section. Many of the current questions are very fact specific, and
believed to be unnecessary in the revised commentary. No substantive
changes are intended.
(a) Receipts at Electronic Terminals
Footnote 2 to current Sec. 205.9(a) allows an account-holding
institution to make terminal receipts available through third parties.
The footnote would be deleted from the regulation and moved to comment
(a)-2.
(a)(1) Amount
Current Sec. 205.9(a)(1) provides that financial institutions other
than the account-holding institution may include a fee for a transfer
in the amount of the transfer if the fee is disclosed on the receipt
and on a sign posted on or at the terminal. The regulatory proposal
would modify these requirements and allow the account-holding
institution to take advantage of the exception. In addition, proposed
comment (a)(1)-1 provides that the requirement to display the amount of
a transaction fee ``on or at the terminal'' could be met by displaying
the fee on the terminal screen before the consumer has initiated the
transfer if displayed for a reasonable duration. The Board requests
comment on whether the proposed changes provide adequate notice to the
consumer.
(a)(3) Type
Current Sec. 205.9(a)(3) requires disclosure of the type of
transfer and the type of consumer's account to or from which funds are
transferred. It also provides examples of descriptions for such
accounts. The examples would be deleted from the regulation and moved
to comment (a)(3)-1. In addition, Sec. 205.9(a)(3) provides generic
descriptions for accounts that are similar in function. These examples
would also be deleted from the regulation and incorporated with the
substance of Q9-37 in proposed comment (a)(3)-4.
Footnote 3 to current Sec. 205.9(a)(3) provides an exception to the
requirement to disclose the type of transfer and account if the
consumer can access only one account at a particular time or terminal.
The exception would be deleted from the regulation and the substance
moved to comment (a)(3)-2.
(a)(4) Identification
Proposed comment (a)(4)-1 clarifies that an identifying number or
code that uniquely identifies the consumer's account or access device--
among all accounts held by an institution or access devices issued by
an institution--is sufficient to meet the requirements of the
regulation.
(a)(5) Terminal Location
The current regulation includes detailed guidance for specifying
the terminal location on both the receipt and periodic statement (see
current Sec. 205.9(b)(1)(iv)). While the substantive requirement to
disclose the location remains unchanged, the illustrative language
would be moved to comments (a)(5)(i)-1, (a)(5)(ii)-1, and (a)(5)(iii)-
1.
(a)(6) Third Party Transfer
Current Sec. 205.9(a)(6) requires that the name of any third party
to or from whom funds are transferred be disclosed on the receipt. It
also provides guidance on the use of codes and an exception to the
disclosure requirement when the name of the payee cannot be duplicated
by the terminal. This secondary information would be deleted from the
regulation and moved to comment (a)(6)-1.
(b) Periodic Statements
Current Sec. 205.9(b) provides that periodic statements must be
sent for each monthly or shorter cycle in which an EFT has occurred,
but at least quarterly if no transfer has occurred. As the Board
believes that few institutions send a statement (for Regulation E
purposes) for a cycle shorter than one month, the regulatory proposal
has deleted reference to a ``shorter cycle.'' The reference would be
moved to comment (b)-1.
Proposed comment (b)-2 provides additional guidance on what is
considered a cycle for purposes of Regulation E. The comment requires
that financial institutions provide relevant information for the cycle
or period since the last statement was issued. The Board has adopted a
similar approach in the proposed commentary to Regulation DD (see 59 FR
5536, February 7, 1994). For example, if an institution may issue
quarterly statements in March, June, September, and December and the
consumer initiates an EFT in February, an interim statement would be
provided. The comment indicates that the statement should provide
information for the months of January and February. The regularly
scheduled March statement would provide information only about the
month of March. The proposed Regulation DD commentary provides that
disclosures given on the interim statement cannot be repeated on the
regularly scheduled statement. In the example above, the March
statement could not repeat information disclosed on the February
statement. The Board solicits comment on whether the same approach
should be adopted in Regulation E.
Footnote 4 to current Sec. 205.9(b)(1) permits financial
institutions to provide certain periodic statement disclosures on
documents that accompany the statement; it also permits institutions to
use codes for the disclosures if they are explained either on the
statement or accompanying documents. The footnote would be deleted from
the regulation and the substance moved to comment (b)-6.
Paragraph 9(b)(1)(v)
Footnote 9 to current Sec. 205.9(b)(1)(v) provides that a financial
institution need not identify on the periodic statement third parties
whose names appear on checks, drafts, or similar paper instruments
deposited to the consumer's account at an electronic terminal. The
footnote would be deleted from the regulation and the substance moved
to comment (b)(1)(v)-6.
(b)(3) Fees
Section 205.9(b)(3) provides that financial institutions must
disclose the amount of any fees other than a finance charge imposed
under Regulation Z, 12 CFR 226.7(f) that were assessed against the
account during the statement period for EFTs. The reference to finance
charges would be deleted from the regulation and moved to comment
(b)(3)-3
Section 205.10--Preauthorized Transfers
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)(1)-1........ Q10-5, Q10-6.
(a)(1)-2........ Q10-1.
(a)(1)-3........ Q10-7.
(a)(1)-4........ Q10-8, Q10-9, New (reverses part of Q10-7).
(a)(1)-5........ Q10-10.
(a)(1)-6........ Q10-12.
(a)(1)-7........ Q10-11.
(b)-1........... Q10-17, New (example of preexisting authorization).
(b)-2........... Q10-18.
(b)-3........... Q10-18.6.
(b)-4........... Q10-18.5.
(b)-5........... New (similarly authorized).
(c)-1........... Q10-19.
(c)-2........... Q10-19.5.
(d)(1)-1........ Q10-21.
(d)(2)-1........ new (range).
(e)(1)-1........ Q3-7, Q3-7.5.
(e)(1)-2........ New (repayment of overdrafts).
(e)(2)-1........ Q3-6.
------------------------------------------------------------------------
Comments Deleted
Q10-2: Notice of credit--when receipt guaranteed
Q10-3: Notice provided by payor
Q10-4: Notice provided by payor--form
Q10-13: Preauthorized credits--availability of funds
Q10-14: Preauthorized credits--posting schedule
Q10-15: Preauthorized credits--funds received prior to agreed crediting
date
Q10-16: Preauthorized debits--preexisting authorizations
Q10-20: Ten-day notice of varying debits--preexisting authorizations
Q3-5: Compulsory use--preauthorized loan payments
Section 205.10 sets forth the substantive and disclosure
requirements for authorizing preauthorized transfers to and from a
consumer's account. The Board has proposed to expand this section to
include guidance on the prohibitions against compulsory use, and
corresponding commentary has been added. The section contains several
new interpretations, as discussed below.
(a) Preauthorized Transfers to Consumer's Account
Regulation E currently requires financial institutions that receive
preauthorized transfers to credit the funds to the consumers account as
of the day the funds are received. The regulatory proposal would delete
this requirement as obsolete. Accordingly, Q10-13,10-14, and Q10-15
also have been deleted.
(a)(1) Notice by Financial Institution
Section 906(b) of the EFTA and current Sec. 205.10(a)(1) of the
regulation provide that when a payor credits a consumer's account by
preauthorized EFT at least once every 60 days, the account-holding
institution must inform the consumer either that the transfer has or
has not occurred or provide a phone number for the consumer to use to
verify the transfer. Q10-7 provides that the absence of a deposit entry
on a periodic statement can serve as notice that a preauthorized
transfer has not occurred. Proposed comment (a)(1)-4 reverses the
current position and states that the absence of a deposit entry is not
negative notice. The Board believes the requirement is an affirmative
duty to provide notice either positively or negatively.
(b) Written Authorization for Preauthorized Transfers From Consumer's
Account
Proposed comment (b)-1 incorporates Q10-17, which provides that a
financial institution or designated payee does not need to obtain new
authorizations before shifting from a paper-based to an electronic
debiting system. The proposed comment also provides that a successor
payee or institution may rely on a preexisting authorization to debit
payments from the consumer's account, for example when an institution
purchases the mortgage servicing rights from a party that previously
obtained the consumer's authorization. The Board solicits comment on
other instances in which a new authorization may not be necessary.
The requirement in current Sec. 205.10(b) that preauthorized EFTs
from a consumer's account be authorized by the consumer only in writing
has been revised. The requirement for the authorization to be a signed
writing has been expanded to include authorizations which are
``similarly authenticated'' by the consumer. This enhancement addresses
developments in electronic services, such as home banking. Proposed
comment (b)-5 provides an example of a consumer's authorization that is
``similarly authenticated.'' The comment provides that for a home
banking system to satisfy the requirement, there must be some means to
identify the consumer (such as a security code), and the consumer must
have the ability to obtain a printed copy of the authorization (either
from the consumer's printer or from the payee). The Board solicits
comment on whether additional safeguards are necessary to protect
consumers in this situation. For example, should the commentary require
that the authorization remain in the institution's computer memory and
be available to the consumer through the home banking device until it
is modified or terminated? Should the commentary explicitly require
that the authorization may only be provided by the consumer (by using a
personal identification code) and not by a payee on the consumer's
behalf? How would this change affect the stop payment rules under
Sec. 205.10(c)? The Board solicits comment on these and other issues
related to the requirements of a written authorization under this
section.
The Board solicits comment on two issues that have not been
discussed previously in the commentary. The Board has received
inquiries about telephone-initiated transfers when the consumer
provides an account number to the caller and authorizes a draft or an
ACH debit to be submitted against the consumer's account. The Board
believes such transfers are EFTs since they are initiated by telephone
and authorize the debiting of the consumer's account. The transfers are
not ``preauthorized transfers,'' however, and the rules regarding
written authorization by the consumer thus are not applicable. The
Board solicits comment on whether this type of transfer poses
sufficient consumer risk as to warrant special provision in the
regulation or commentary.
The Board has also received questions on what are appropriate means
for obtaining a consumer's authorization for preauthorized transfers.
For example, the Board has been asked whether sending the consumer a
check which incorporates in the endorsement an authorization for the
financial institution to automatically debit the consumer's account on
a monthly basis is a legitimate method for obtaining the consumer's
authorization. The Board solicits comment on whether the commentary or
regulation should address such format issues.
(d) Notice of Transfers Varying in Amount
(d)(2) Range
Proposed comment (d)(2)-1 provides guidance on what is an
acceptable range for purposes of this section. The comment provides
that an acceptable range is one that could plausibly be anticipated by
the consumer. For example, if the consumer's monthly payment is
approximately $50, providing a range between zero and $10,000 does not
seem reasonable. The Board solicits comment on how financial
institutions currently determine such a range, as well as reaction to
the proposed analysis.
(e) Compulsory Use
(e)(1) Credit
The regulatory proposal incorporates the statutory restrictions
against compulsory use of EFTs as a condition of credit, employment, or
receipt of government benefits into Sec. 205.10(e). The questions
pertaining to compulsory use in the current commentary (under
Sec. 205.3) have, for the most part, been incorporated into the
commentary proposal. The regulatory proposal also incorporates the
substance of footnote 1a to Sec. 205.3 into proposed Sec. 205.10(e)(1),
which provides that a financial institution may require the automatic
repayment of credit that is extended under an overdraft credit plan or
that is extended to maintain a specified minimum balance in the
consumer's account. The commentary proposal includes a new comment
(e)(1)-2 which allows an institution to use the exception even if the
overdraft extension is charged to an open-end account that may be
accessed by the consumer in ways other than by overdrafts. For example,
in addition to overdraft protection, a consumer may be able to obtain
cash advances directly from the credit line without going through a
checking account. The Board believes that the exemption applies to such
plans and that it is not practicable to distinguish between extensions
of credit triggered under such plans because of the overdraft mechanism
versus those advanced to the consumer by some other means.
Section 205.11--Procedures for Resolving Errors
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1........... Q9-26.
(a)-2........... Q11-2.
(a)-3........... Q11-3.
(a)-4........... Q11-4.
(b)(1)-1........ Q11-8, new (example added).
(b)(1)-2........ New (required submission of an affidavit).
(b)(1)-3........ Q11-5.
(b)(1)-4........ Q11-6.
(b)(1)-5........ Q11-7.
(b)(1)-6........ New (footnote 10 to current Sec. 205.11(b)(1)(i)).
(b)(2)-1........ Q11-9, new (provisional crediting).
(c)-1........... New (provide notices either orally or in writing).
(c)-2........... Q11-10.
(c)-3........... New (strengthens Q11-31).
(c)-4........... New (current Sec. 205.11(d)(3)).
(c)-5........... Q11-20, new (footnote 12 to current Sec.
205.11(e)(2)).
(c)-6........... New (current Sec. 205.11(e)(1)), Q11-19.
(c)-7........... New current Sec. 205.11(d)(1).
(c)(2)(i)-1..... New (current Sec. 205.11(c)(3)).
(c)(3)-1........ Q11-11.5.
(c)(4)-1........ Q11-13.
(c)(4)-2........ Q11-14.
(c)(4)-3........ Q11-16.
(c)(4)-4........ New (footnote 11 to current Sec. 205.11(d)(1)).
(d)-1........... Q11-17.
(d)(1)-1........ Q11-25.
(d)(2)-1........ Q11-23.
(d)(2)-1........ Q11-24.
(e)-1........... Q11-30.
------------------------------------------------------------------------
Comments Deleted
Q11-1: Transfers--initiated by institution
Q11-11: Deadlines for investigation of error
Q11-12: Request for documentation--facsimile or photocopy
Q11-15: Scope of investigation--preauthorized credits
Q11-18: Crediting of interest
Q11-21: Written explanation--timing
Q11-22: Debiting of recredited funds--items to be honored
Q11-26: Documents relied on--privacy issue
Q11-27: Documents relied on--no information on relevant tapes
Q11-28: Withdrawal of error notice
Q11-29: Withdrawal of error notice
Comments Moved
Q11-32, Q11-33 (see proposed commentary to Sec. 205.12)
Section 205.11 sets forth the regulation's procedures for error
resolution. The regulatory proposal reformatted the section to
facilitate compliance and the commentary provisions have accordingly
been assigned. The proposed commentary contains several new comments,
most of which have been removed from the regulation.
(b) Notice of Error From Consumer
(b)(1) Timing; Contents
Section 908 of the EFTA and Sec. 205.11 of the regulation require
institutions to investigate and make a final determination as to a
consumer's allegation of an error within either 10 business days or 45
calendar days. Financial institutions have asked whether they can delay
initiating or completing an investigation pending receipt of an
affidavit related to the alleged error. Proposed comment (b)(1)-2
prohibits institutions from delaying their investigation until a
consumer has produced the affidavit. The Board believes that permitting
delay would allow institutions to circumvent the investigation
procedures currently mandated by the act and regulation.
Footnote 10 to current Sec. 205.11(b)(1)(i), which permits a
financial institution to prescribe procedures for giving notice of an
error, would be deleted from the regulation and the substance moved to
comment (b)(1)-6.
(b)(2) Written Confirmation
Q11-9 provides that a financial institution does not have to have
referral procedures for forwarding a written confirmation of error that
is sent to the wrong address. Proposed comment (b)(2)-1 further
provides that institutions operating under the 45-calendar-day rule
need not provisionally credit the consumer's account when the written
confirmation is delayed beyond 10 business days because it was sent to
the wrong address.
(c) Time Limits and Extent of Investigation
As noted in Sec. 205.4, most disclosures required by Regulation E
must be in writing and in a form the consumer may keep. Proposed
comment (c)-1 provides that financial institutions may give the notices
required by Sec. 205.11 either orally or in writing, unless otherwise
indicated in the section. This exception would not apply to a
consumer's request for documentation pursuant to proposed
Sec. 205.11(a)(1)(vii).
Q11-31 articulates the Board's concern that charging consumers for
the financial institution's compliance with the regulation's error
resolution procedures might have a chilling effect on the good faith
assertion of errors. The Board believes that as the EFTA specifically
grants the consumer error-resolution rights, institutions must avoid
any deterrent to exercising such rights. To clarify its position, the
Board proposes to add comment (c)-3 to explicitly prohibit institutions
from charging consumers for error resolution. The Board solicits
comment on the impact of such a prohibition on institutions and
consumers.
Current Sec. 205.11(d)(3) provides that a financial institution may
correct an error in the amount or manner alleged by the consumer
without complying with the investigation requirements of this section
if it complies with all other requirements of Sec. 205.11. The
provision would be deleted from the regulation and moved to comment
(c)-4.
Footnote 12 to current Sec. 205.11(e)(2) allows financial
institutions to provide the notice of correction on the periodic
statement that is mailed or delivered within the time limits specified
in the section. The footnote would be deleted from the regulation and
moved to comment (c)-5.
Current Sec. 205.11(e)(1) provides that if a financial institution
determines an error occurred, it must correct the error including,
where applicable, the crediting of interest and the refunding of any
fees or charges imposed. This language would be deleted from the
regulation and combined with the substance of Q11-19 in comment (c)-6.
The comment would also clarify that the requirement only applies to
fees imposed by the institution versus those imposed by third parties.
Paragraph (c)(2)(i)
Current Sec. 205.11(c)(3) provides examples of when a financial
institution must comply with all requirements of Sec. 205.11 except the
provisional crediting requirements. While the examples have been
retained in the regulatory proposal, the language requiring compliance
with other requirements of the section would be deleted and moved to
comment (c)(2)(i)-1.
(c)(4) Investigation
Footnote 11 to current Sec. 205.11(d)(1) provides examples of what
does and does not constitute an agreement for purposes of this section.
The explanatory language would be deleted from the regulation and moved
to comment (c)(4)-4.
Section 205.12--Relation to Other Laws
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1........... Q6-9, Q6-10, Q6-11, Q11-32, Q11-33.
(a)-2........... Q5-9, Q5-10.
(b)-1........... Q12-1, new (compliance without Board determination).
(b)-2........... New (current preemption of Michigan law).
------------------------------------------------------------------------
The regulatory proposal has consolidated the references to the
Truth in Lending Act and Regulation Z in Sec. 205.12. The section would
also contain the rules the Board applies in determining the preemption
of inconsistent state laws or in granting a state exemption. The
commentary provisions have been consolidated in this section as well.
(b) Preemption of Inconsistent State Laws
Proposed comment (b)-1 incorporates Q12-1, which provides that
state law may be preempted even if the Board has not issued a
determination. The comment also notes that financial institutions are
not protected from liability for failing to comply with state law in
the absence of a preemption determination by the Board.
Proposed comment (b)-2 incorporates into the commentary an official
staff interpretation preempting certain provisions of Michigan's EFT
statute. Future preemption determinations would also be included in the
commentary.
Section 205.13--Administrative Enforcement; Record Retention
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(b)-1........... Q13-2.
------------------------------------------------------------------------
Comments Moved
Q13-1 (see proposed commentary to appendix A)
Current Sec. 205.13 contains information about administrative
enforcement, issuance of staff interpretations and record retention.
The regulatory proposal moved much of the detail pertaining to these
topics to the appendices. With one exception, no substantive change was
intended. As noted above, the information describing issuance of staff
interpretations would be deleted from the regulation, including any
reference to unofficial staff interpretations (which the Board no
longer issues in writing). Information about procedures for the
official commentary is set forth in a new appendix C.
Section 205.14--Electronic Fund Transfer Service Provider Not Holding
Consumer's Account
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1........... Q14-1, Q14-2.
(a)-2........... Q14-3.
(b)-1........... New (formerly Sec. 205.14(a)(1).
(b)(1)-1........ Q14-4.
(b)(2)-1........ Q14-6.
(c)(1)-1........ Q14-7.
------------------------------------------------------------------------
Comment Deleted
Q14-5: Periodic statement--issuance of card
Section 205.14 details the requirements for financial institutions
that issue access devices and provide EFT services to consumers even
though the consumers' accounts are held by a second institution.
(b) Compliance by Electronic Fund Transfer Service Provider
Current Sec. 205.14(a)(1) provides that the service-providing
institution shall reimburse the consumer for unauthorized EFTs in
excess of the limits set by Sec. 205.6. This provision would be deleted
from the regulation and moved to comment (b)-1.
Section 205.15--Electronic Fund Transfer of Government Benefits
Proposed comments interpreting the requirements of this section
will be published at a later date.
Appendix A--Model Disclosure Clauses and Forms
------------------------------------------------------------------------
Old New
------------------------------------------------------------------------
Q13-1........... Appendix A-1.
------------------------------------------------------------------------
Text of Proposed Revisions
For the reasons set forth in the preamble, the Board proposes to
amend 12 CFR part 205 as follows:
PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)
1. The authority citation for part 205 would be revised to read as
follows:
Authority: 15 U.S.C. 1693.
2. In part 205, Supplement I would be revised to read as follows:
Supplement I to Part 205--Official Staff Interpretations
Section 205.2--Definitions
(a) Access device
1. Examples. The term access device includes debit cards,
personal identification numbers (PINs), telephone transfer and
telephone bill payment codes, and other means that may be used by a
consumer to initiate an electronic fund transfer to or from a
consumer account. The term does not include magnetic tapes or other
devices used internally by a financial institution to initiate
electronic transfers.
(b)(1) Account
1. Consumer asset accounts. The term consumer asset account
includes:
Club accounts, such as Christmas or vacation clubs. In
many cases, however, these accounts are exempt from the regulation
under Sec. 205.3(c)(5) because all electronic transfers to or from
the account have been preauthorized by the consumer and involve
another account of the consumer at the same institution.
A retail repurchase agreement (repo) which is a loan
made to a financial institution by a consumer that is collateralized
by government or government-insured securities.
The term ``consumer asset account'' does not include:
Profit-sharing and pension accounts established under a
trust agreement, which are exempt under Sec. 205.2(b)(2).
Escrow accounts, such as those established to ensure
payment of items such as real estate taxes, insurance premiums, or
completion of repairs or improvements.
Accounts for accumulating funds to purchase U.S.
savings bonds.
Paragraph (b)(2)
1. Bona fide trust agreements. The term bona fide trust
agreement is not defined by the act or regulation. Therefore,
financial institutions must look to state or other applicable law
for interpretation.
2. Custodial agreements. An account held under a custodial
agreement that qualifies as a trust under the Internal Revenue Code,
such as an individual retirement account, is considered to be held
under a trust agreement for purposes of this part.
(d) Business Day
1. Duration. A business day includes the entire 24-hour period
ending at midnight and notice is effective even if given outside
normal business hours. The regulation does not require, however,
that telephone lines be available on a 24-hour basis.
(f) Electronic Terminal
1. Point-of-sale (POS) payments initiated by telephone. Because
the term electronic terminal excludes a telephone operated by a
consumer, a financial institution need not provide a terminal
receipt when:
A consumer uses a debit card at a public telephone to
pay for the call.
A consumer initiates a transfer by the equivalent to a
telephone, such as by home banking equipment or a facsimile machine.
2. POS terminals. A POS terminal that captures data
electronically, for debiting or crediting to a consumer's asset
account, is an electronic terminal for purposes of Regulation E if a
debit card is used to initiate the transaction.
3. Teller-operated terminals. A terminal or other computer
equipment operated by an employee of a financial institution is not
an electronic terminal for purposes of the regulation. However,
transfers initiated at such terminals by means of the consumer's
access device (using the consumer's personal identification number,
for example) are electronic fund transfers and are subject to other
requirements of the regulation. If the access device is used only
for identification purposes or for determining the account balance,
the transfers are not electronic fund transfers for purposes of the
regulation.
(k) Unauthorized Electronic Fund Transfer
1. Transfer by institution's employee. A consumer has no
liability for erroneous or fraudulent transfers initiated by an
employee of a financial institution.
2. Authority. If a consumer furnishes the access device and
grants authority to make transfers to a person (such as a family
member or co-worker) who exceeds the authority given, the consumer
is fully liable for the transfers unless the consumer has notified
the financial institution that transfers by that person are no
longer authorized.
3. Access device obtained through robbery, fraud. An
unauthorized electronic fund transfer includes a transfer initiated
by a person who obtained the access device from the consumer through
fraud or robbery.
4. Forced initiation. An electronic fund transfer at an
automated teller machine (ATM) is an unauthorized transfer if the
consumer is induced by force to initiate the transfer.
Section 205.3--Coverage
(a) General
1. Accounts covered. The requirements of the regulation apply
only to accounts for which an agreement for electronic fund transfer
services to or from the account has been entered into between:
The consumer and the financial institution (including
accounts for which an access device has been issued to the consumer,
for example);
The consumer and a third party (for preauthorized
debits or credits, for example), when the account-holding
institution has received notice of the agreement and the fund
transfers have begun.
The fact that membership in an automated clearing house requires
a participating financial institution to accept electronic fund
transfers to accounts at the institution does not make every account
of that institution subject to the regulation.
2. Foreign applicability. Regulation E applies to all persons
(including branches and other offices of foreign banks located in
the United States) that offer electronic fund transfer services to
residents of any state (including resident aliens). It covers any
account located in the United States through which electronic fund
transfer services are offered to a U.S. resident. This is the case
whether or not a particular transfer takes place in the United
States and whether or not the financial institution is chartered or
based in the United States or a foreign country. The regulation does
not apply to a foreign branch of a U.S. bank unless the electronic
fund transfer services are offered in connection with an account
held by the consumer in a state as defined in Sec. 205.(j).
(b) Electronic Fund Transfer
1. Fund transfers covered. The term electronic fund transfer
includes:
A deposit made at an ATM or other electronic terminal
(including a deposit in cash or by check) provided a specific
agreement exists between the financial institution and the consumer
for electronic fund transfers to or from the account to which the
deposit is made.
Any transfer sent via an automated clearing house. For
example, social security benefits under the U.S. Treasury's direct-
deposit program are covered, even if the listing of payees and
payment amounts reaches the account-holding institution by means of
a computer printout from a correspondent bank.
A preauthorized transfer credited or debited to an
account in accordance with instructions contained on magnetic tape,
even if the financial institution holding the account sends or
receives a composite check.
A transfer resulting from a debit-card transaction,
even if no electronic terminal is involved at the time of the
transaction, if the consumer's asset account is subsequently debited
for the amount of the transfer.
2. Fund transfers not covered. The term electronic fund transfer
does not include:
A payment that does not debit or credit a consumer
asset account, such as payroll allotments to a creditor to repay a
credit extension that are deducted from salary payments and not from
consumer accounts, or any payment made in currency by a consumer to
another person at an electronic terminal.
A preauthorized check drawn by the financial
institution on the consumer's account (such as an interest or other
recurring payment to the consumer or another party), even if the
check is computer-generated.
(c) Exclusions From Coverage
(c)(2) Check Guarantee or Authorization Services
1. Memo posting. Under a check guarantee or check authorization
service, debiting of the consumer's account occurs when the check or
draft is presented for payment. These services are exempt from
coverage, even when a temporary hold on the account is memo-posted
electronically at the time of authorization.
(c)(3) Wire Transfers
1. Fedwire and ACH. If a financial institution makes a fund
transfer via an automated clearing house (ACH) after receiving funds
via Fedwire or a similar network, the transfer by the ACH is covered
by the regulation even though the Fedwire or network transfer is
exempt.
2. Article 4A. Financial institutions that offer telephone-
initiated Fedwire payments are subject to the requirements of the
UCC section 4A-202, which encourages that Fedwire payment orders be
verified pursuant to a security procedure established by agreement
between the consumer and the receiving bank. These transfers are not
subject to Regulation E and the agreement is not considered a
telephone plan if the service is offered separately and apart from
any telephone bill-payment or other prearranged plan normally
subject to Regulation E.
3. Similar fund transfer systems. Examples of fund transfer
systems similar to Fedwire include the Clearing House Interbank
Payments System (CHIPS), Society for Worldwide Interbank Financial
Telecommunication (SWIFT), and Telex.
(c)(4) Securities and Commodities Transfers
1. Coverage. The securities exemption applies to securities and
commodities that may be sold by a registered broker-dealer or
futures commission merchant, even when the security or commodity
itself is not regulated by the Securities and Exchange Commission or
the Commodity Futures Trading Commission.
2. Examples of exempt and nonexempt transfers. The exemption
applies to a transfer involving:
A transfer initiated by a telephone order to a
stockbroker to buy or sell securities or to exercise a margin call.
The exemption does not apply to a transfer involving:
A debit card that accesses a money market mutual fund
and that the consumer uses for purchasing goods or services or
obtaining cash.
A payment of interest or dividends into the consumer's
account, for example, from a brokerage firm or from a Federal
Reserve Bank (for government securities).
(c)(5) Automatic Transfers by Account-Holding Institution
1. Automatic transfers exempted. The exemption applies to:
Electronic debits or credits to consumer accounts for
check charges, stop-payment charges, NSF charges, overdraft charges,
provisional credits, error adjustments, and similar items that are
initiated automatically on the occurrence of certain events.
Debits to consumer accounts for group insurance
available only through the financial institution and payable only by
means of an aggregate payment from the institution to the insurer.
Electronic fund transfers between a thrift institution
and its paired commercial bank in the state of Rhode Island, which
are deemed under state law to be intra-institutional.
Automatic transfers between a consumer's accounts
within the same financial institution, even if the account holders
on the two accounts are not identical.
2. Automatic transfers not exempted. Transfers between accounts
of the consumer at affiliated institutions (such as between a bank
and its subsidiary or within a holding company) are not intra-
institutional transfers, and thus do not qualify for the exemption.
(c)(6) Telephone-Initiated Transfers
1. Written plan or agreement. A transfer that the consumer
initiates by telephone is covered only if the transfer is made under
a written plan or agreement between the consumer and the financial
institution making the transfer. The following do not, by
themselves, constitute a written plan or agreement:
A hold-harmless agreement on a signature card that
protects the institution if the consumer requests a transfer.
A legend on a signature card, periodic statement, or
passbook that limits the number of telephone-initiated transfers the
consumer can make from a savings account because of Regulation D (12
CFR part 204) reserve requirements.
An agreement permitting the consumer to approve by
telephone the rollover of funds at the maturity of an instrument.
2. Examples of covered transfers. When a written plan or
agreement has been entered into, a transfer initiated by a telephone
call from a consumer is covered even though:
An employee of the financial institution completes the
transfer manually, for example, by means of a debit memo or deposit
slip.
The consumer is required to make a separate request for
each transfer.
The consumer uses the plan infrequently.
The consumer initiates the transfer via a facsimile
machine.
(c)(7) Small Institutions
1. Coverage. This exemption is limited to preauthorized
transfers; institutions that offer electronic fund transfer services
other than preauthorized transfers must comply with the applicable
sections of the regulation as to such services. The preauthorized
transfers remain subject, however, to sections 913, 915, and 916 of
the act and Sec. 205.10(e) and are therefore exempt from UCC Article
4A.
Section 205.4--General Disclosure Requirements; Jointly Offered
Services
(a) Form of Disclosures
1. General. Although no particular rules govern such matters as
type size, number of pages, or the relative conspicuousness of
various terms, the disclosures must be in a clear and readily
understandable written form that the consumer may retain. Numbers or
codes are considered readily understandable if explained elsewhere
on the disclosure.
2. Foreign language disclosures. Disclosures may be made in
languages other than English, provided they are available in English
upon request.
Section 205.5--Issuance of Access Devices
1. Coverage. The provisions of this section limit the
circumstances under which a financial institution may issue an
access device to a consumer. Making an additional account accessible
through an existing access device is equivalent to issuing an access
device and is subject to the limitations in this section.
(a) Solicited Issuance
Paragraph (a)(1)
1. Joint account. For joint accounts, a financial institution
may issue an access device to each account holder if the requesting
holder specifically authorizes the issuance.
Paragraph (a)(2)
1. One-for-one rule. In issuing a renewal or substitute access
device, a financial institution may not provide additional devices.
For example, only one new card and PIN may replace a card and PIN
previously issued. If the replacement device permits either
additional or fewer types of electronic fund transfer services, new
disclosures or a change-in-terms notice are required.
2. Renewal or substitution by a successor institution. A
successor institution is an entity that replaced the original
financial institution (for example, through a corporate merger or
acquisition) or that has acquired accounts or assumed the operation
of an electronic fund transfer system.
(b) Unsolicited Issuance
1. Compliance. A financial institution may issue an unsolicited
access device (such as a combination of a debit card and PIN) if the
institution's ATM system has been programmed not to accept the
access device until after the consumer requests and the institution
validates the device. Merely instructing a consumer not to use an
unsolicited debit card and PIN until after the institution has
satisfactorily verified the consumer's identity does not comply with
the regulation.
2. PINS. A financial institution may impose no liability on the
consumer for unauthorized transfers involving an unsolicited access
device until the device becomes an ``accepted access device'' under
the regulation. A card-PIN combination can be treated as an accepted
access device once the card and PIN have been used by the consumer.
3. Functions of PIN. If an institution issues a personal
identification number at the consumer's request, the issuance may
constitute both a way of validating the debit card and the means to
identify the consumer (required as a condition of imposing liability
for unauthorized transfers).
4. Verification of identity. A financial institution may use
other means, not just those listed in the regulation, to verify the
consumer's identity. However, if an institution fails to correctly
verify the consumer's identity, even if reasonable means were used,
and an imposter succeeds in having the device validated, the
consumer is not liable for any unauthorized transfers from the
account.
Section 205.6--Liability of Consumer for Unauthorized Transfers
(a) Conditions for Liability
1. Means of identification. A financial institution may use
various means for identifying the consumer to whom the access device
is issued including but not limited to:
Electronic or mechanical confirmation (such as a PIN).
Comparison of the consumer's signature, fingerprint, or
photograph.
2. Multiple users. When more than one access device is issued
for an account, the financial institution may, but need not, provide
a separate means to identify each user of the account.
(b) Limitations on Amount of Liability
1. Application of liability provisions. There are three possible
tiers of consumer liability for unauthorized electronic fund
transfers depending on the situation. A consumer may be liable for
(1) up to $50; (2) up to $500; or (3) an unlimited amount. More than
one tier may apply to a given situation because each corresponds to
a different (sometimes overlapping) time period.
2. Consumer negligence. Negligence by the consumer cannot be
used as the basis for imposing greater liability than is permissible
under Regulation E. Thus, consumer behavior that may constitute
negligence under state law, such as writing the PIN on the ATM card
or on a piece of paper kept with the card, does not affect the
consumer's liability for unauthorized transfers. The extent of the
consumer's liability is determined solely by the consumer's
promptness in reporting the loss or theft of an access device.
Similarly, no agreement between the consumer and an institution may
impose greater liability on the consumer for an unauthorized
transfer than the limits provided in Regulation E.
(b)(1) Timely Notice Given
1. $50 limit applies. The basic liability limit is $50. For
example, the consumer's card is lost or stolen on Monday and the
consumer learns of the loss or theft on Wednesday. If the consumer
notifies the financial institution within two business days of
learning of the loss or theft (by midnight Friday), the consumer's
liability is limited to $50 or the amount of the unauthorized
transfers that occurred before notification, whichever is less.
2. Knowledge of loss or theft of access device. The fact that a
consumer has received a periodic statement that reflects
unauthorized transfers may be a factor in determining whether the
consumer had knowledge of the loss or theft, but cannot be deemed to
represent conclusive evidence that the consumer had such knowledge.
(b)(2) Timely Notice Not Given
1. $500 limit applies. The second tier of liability is $500. For
example, the consumer's card is stolen on Monday and the consumer
learns of the theft that same day. The consumer reports the theft on
Friday. The $500 limit applies because the consumer failed to notify
the financial institution within two business days of learning of
the theft (which would have been by midnight Wednesday). How much
the consumer is actually liable for, however, depends on when the
unauthorized transfers take place. In the example above, assume an
unauthorized transfer for $100 was made on Tuesday, and another
unauthorized transfer for $600 occurred on Thursday. As the consumer
is liable for the amount of the loss that occurred within the first
two business days (but no more than $50), plus the amount of the
unauthorized transfers that occurred after the first two business
days and before the consumer gives notice, the consumer's total
liability is $500 ($50 of the $100 transfer plus $450 of the $600
transfer in this example). But if $600 was taken on Tuesday and $100
was taken on Thursday, the consumer's maximum liability would be
$150.
(b)(3) Periodic Statement; Timely Notice Not Given
1. Unlimited liability applies. The standard of unlimited
liability applies if unauthorized transfers appear on a periodic
statement, and may apply in conjunction with the first two tiers of
liability. If a periodic statement shows an unauthorized transfer,
the consumer must notify the financial institution within 60
calendar days after the periodic statement was sent; otherwise, the
consumer faces unlimited liability for all unauthorized transfers
made after the 60-day period. The consumer's liability for
unauthorized transfers before the statement is sent and up to 60
days following is determined based on the first two tiers of
liability: up to $50 if the consumer notifies the financial
institution within two business days of learning of the loss or
theft of the card and up to $500 if the consumer notifies the
institution after two business days of learning of the loss or
theft.
2. Transfers not involving access device. The first two tiers of
liability do not apply to unauthorized transfers from a consumer's
account that were made without an access device. If, however, the
consumer fails to report such unauthorized transfers within 60
calendar days of the financial institution's transmittal of the
periodic statement, the consumer may be held liable for any
transfers occurring after the close of the 60 days and before notice
is given to the institution. For example, assume a consumer's
account has been electronically debited for $200 without the
consumer's authorization and by means other than the consumer's
access device. If the consumer notifies the institution within 60
days of transmittal of the periodic statement that shows the
unauthorized transfer, the consumer has no liability. If, however,
in addition to the $200 transaction, the consumer's account is
debited without authorization for $400 on the 61st day after
transmittal of the statement and the consumer fails to notify the
institution of the unauthorized transfers until the 62nd day, the
consumer is liable for the full $400.
(b)(4) Extension of Time Limits
1. Extenuating circumstances. Examples of circumstances that
require extension of the notification periods under this section
include the consumer's extended travel or hospitalization.
(b)(5) Notice to Financial Institution
1. Receipt of notice. A financial institution is considered to
have received notice for purposes of limiting the consumer's
liability if notice is given in a reasonable manner, even if the
consumer uses an address or telephone number other than the one
specified by the institution.
2. Notice by third party. Notice to a financial institution by a
person acting on the consumer's behalf is considered valid under
this section. For example, if a consumer is hospitalized and unable
to report the loss or theft of an access device, notice is
considered given when someone acting on the consumer's behalf
notifies the bank of the loss or theft.
3. Content of notice. Notice to a financial institution is
considered given when a consumer takes reasonable steps to provide
the institution with the pertinent account information. Even when
the consumer is unable to provide an account number or card number
in reporting a lost or stolen access device or an unauthorized
transfer, the notice effectively limits the consumer's liability if
the consumer otherwise identifies sufficiently the account in
question. For example, the consumer may identify the account by the
name on the account and the type of account in question.
Section 205.7--Initial Disclosures
(a) Timing of Disclosures
1. Early disclosures. Disclosures given earlier than the
regulation requires (for example, when the consumer opens a checking
account) need not be repeated when the consumer later signs up for
an electronic fund transfer service if the electronic fund transfer
agreement is between the consumer and a third party who will
initiate preauthorized transfers to or from the consumer's account,
unless the terms and conditions required to be disclosed differ from
those previously given. If, on the other hand, the electronic fund
transfer agreement is directly between the consumer and the account-
holding institution, the disclosures must be given in close
proximity to the event requiring disclosure, for example, signing up
for a service.
2. Lack of prenotification of direct deposit. In some instances,
before direct deposit of government payments such as Social Security
takes place, the consumer and the financial institution both must
complete a Form 1199A (or comparable form providing notice to the
institution) and the institution can make disclosures at that time.
If an institution has not received advance notice that direct
deposits are to be made to a consumer's account, the institution
must provide the required disclosures as soon as reasonably possible
after the first direct deposit is made, unless the institution has
previously given disclosures.
3. Addition of new accounts. If a consumer opens a new account
permitting electronic fund transfers in a financial institution
where the consumer already maintains an account that provides for
electronic fund transfer services, the institution need only
disclose terms and conditions that differ from those previously
given.
4. Addition of new electronic fund transfer services. If an
electronic fund transfer service is added to a consumer's account
and is subject to terms and conditions different from those
described in the initial disclosures, disclosures pertaining to the
additional service must be given. The disclosures must be provided
either when the consumer contracts for the new service or before the
first electronic fund transfer is made using the new service.
5. Addition of service in interchange systems. If a financial
institution joins an interchange or shared network system (providing
access to terminals operated by other institutions in the system),
new disclosures are required for any additional services not
previously available to consumers if the terms and conditions for
the additional services differ from those previously disclosed.
6. Disclosures covering all electronic fund transfer services
offered. An institution may provide disclosures covering all
electronic fund transfer services that it offers, even if some
consumers have not arranged to use all services.
(b) Content of Disclosures
(b)(1) Liability of Consumer
1. No liability imposed by financial institution. If a financial
institution chooses to impose zero liability for unauthorized
electronic fund transfers, it need not provide liability
disclosures. If the institution later decides to impose liability,
however, it must first provide the disclosures.
2. Preauthorized transfers. If the only electronic fund
transfers from an account are preauthorized transfers, an
institution must disclose that liability could arise if the consumer
fails to report unauthorized transfers reflected on a periodic
statement in order to impose liability on the consumer. The
institution must also disclose the telephone number and address for
reporting unauthorized transfers.
3. Additional information. At the institution's option, the
summary of the consumer's liability may include advice on promptly
reporting unauthorized transfers or the loss or theft of the access
device.
(b)(2) Telephone Number and Address
1. Disclosure of telephone numbers. An institution may use the
same or different telephone numbers in the disclosures for the
purpose of:
Reporting the loss or theft of an access device or
possible unauthorized transfers;
Inquiring about the receipt of a preauthorized credit;
Stopping payment of a preauthorized debit; and
Giving notice of an error.
The telephone number need not be incorporated into the text of
the disclosure; for example, the institution may instead insert a
reference to a telephone number that is readily available to the
consumer, such as ``Call your branch office. The number is shown on
your periodic statement.'' However, an institution must provide a
specific telephone number and address on or with the disclosure
statement for reporting a lost or stolen access device or a possible
unauthorized transfer.
(b)(4) Types of Transfers; Limitations
1. Security limitations. Information about limitations on the
frequency and dollar amount of transfers generally must be disclosed
in detail, even if related to security aspects of the system. If the
confidentiality of certain details is essential to the security of
an account or system, however, these details may be withheld (but
the fact that limitations exist must still be disclosed). For
example, an institution limits cash ATM withdrawals to $100 per day.
The institution may disclose that certain daily withdrawal
limitations apply and need not disclose that the limitations may not
always be enforced (such as during periods when its ATMs are ``off-
line'').
2. Restrictions on certain deposit accounts. A limitation on
account activity that restricts the consumer's ability to make
electronic fund transfers must be disclosed even if the restriction
also applies to transfers made by nonelectronic means. For example,
Regulation D restricts the number of payments to third parties that
may be made from a money market deposit account; an institution that
does not execute EFTs in excess of those limits must disclose the
restriction as a limitation on the frequency of electronic fund
transfers.
3. Preauthorized transfers. Financial institutions are not
required to list preauthorized transfers among the types of
transfers that a consumer can make.
(b)(5) Fees
1. Disclosure of fees. A per-item fee for electronic fund
transfers must be disclosed even if the same fee is imposed on
nonelectronic transfers. If a per-item fee is imposed only under
certain conditions, such as when the transactions in the cycle
exceed a certain number, those conditions must be disclosed.
Itemization of the various fees may be provided on the disclosure
statement or on an accompanying document. In the latter case, the
statement must refer to the accompanying document.
2. Fees also applicable to non-electronic fund transfer. An
institution is required to disclose all fees that are attributable
to electronic fund transfers or the right to make them. Fees that
are relevant to both electronic and nonelectronic transfers (for
example, minimum balance fees, stop-payment fees or account
overdrafts) may, but need not, be disclosed. An institution is not
required to disclose fees for inquiries at an ATM since no transfer
of funds is involved.
3. Interchange system fees. Fees paid by the account-holding
institution to the operator of a shared or interchange ATM system
need not be disclosed, unless imposed on the consumer by the
account-holding institution. Fees for use of an ATM that are debited
directly to the consumer's account by an institution other than the
account-holding institution (for example, fees included in the
transfer amount) need not be separately disclosed.
(b)(9) Confidentiality
1. Information provided to third parties. The institution must
describe the circumstances under which any information relating to
an account to or from which electronic fund transfers are permitted,
not just information concerning those electronic transfers, will be
made available to third parties. The term ``third parties'' includes
affiliates such as other subsidiaries of the same holding company.
(b)(10) Error Resolution
1. Substantially similar. The error resolution notice must be
substantially similar to the model form in appendix A. An
institution may delete inapplicable provisions (for example, the
requirement for written confirmation of an oral notification),
substitute substantive state law requirements affording greater
consumer protection than Regulation E, or use different wording so
long as the substance of the notice remains the same.
2. Exception from provisional crediting. If a financial
institution takes advantage of the longer time periods for resolving
errors under Sec. 205.11(c)(3) (for transfers initiated outside the
United States, or resulting from POS debit-card transactions), it
must disclose these longer time periods. Similarly, an institution
that relies on the exception from provisional crediting in
Sec. 205.11(c)(2) for accounts subject to Regulation T must disclose
accordingly.
Section 205.8--Change in Terms Notice; Error Resolution Notice
(a) Change in Terms Notice
1. Form of notice. No specific form or wording is required for a
change in terms notice. The notice may appear on a periodic
statement, or may be given by sending a copy of a revised disclosure
statement, provided attention is directed to the change (for
example, in a cover letter referencing the changed term).
2. Changes not requiring notice. The following changes do not
require disclosure:
Closing some of an institution's ATMs
Cancellation of an access device
3. Limitations on transfers. When the initial disclosures omit
details essential to the security of the account or system, a
subsequent increase in those limitations need not be disclosed if
secrecy is still essential. If, however, an institution had no
limits when the initial disclosures were given and it now wishes to
impose limits for the first time, it must disclose at least the fact
that limits have been adopted. (See also Sec. 205.7(b)(4) and the
related commentary.)
4. Change in telephone number or address. A change in terms
notice is not required when a financial institution changes the
telephone number or address used for reporting possible unauthorized
transfers, but the change must be disclosed under Sec. 205.6 as a
condition of imposing liability on the consumer for unauthorized
transfers. (See also Sec. 205.6(a) and the related commentary.)
(a)(2) Prior Notice Exception
1. Notice of permanent change included in periodic statement. If
a change under this paragraph is made permanent, the financial
institution may include the written notice to the consumer on or
with a periodic statement sent within 45 calendar days of the
permanent change.
(b) Error Resolution Notice
1. Change between annual and periodic notice. If an institution
switches from an annual to a periodic notice, or vice versa, the
first notice under the new method must be sent no later than 12
months after the last notice under the old method.
Section 205.9--Receipts at Electronic Terminals; Periodic
Statements
(a) Receipts at Electronic Terminals
1. Receipts furnished only on request. The regulation requires
that a receipt be ``made available.'' A financial institution may
program its electronic terminals to provide a receipt only to
consumers who elect to receive one.
2. Third party providing receipt. An account-holding institution
may make terminal receipts available through third parties such as
merchants or other financial institutions.
3. Inclusion of promotional material. A financial institution
may include promotional material on receipts if the required
information is set forth clearly (for example, by separating it from
the promotional material). In addition, a consumer must not be
required to surrender the receipt or that portion containing the
required disclosures in order to take advantage of a promotion.
4. Transfer not completed. The receipt requirement does not
apply to a transfer that is initiated but not completed, for
example, if the ATM is out of currency or the consumer decides not
to complete the transfer.
5. Receipts not furnished due to inadvertent error. If a receipt
is not provided to the consumer because of a bona fide unintentional
error, such as the terminal running out of paper or the mechanism
jamming, no violation results if the financial institution maintains
procedures reasonably adapted to avoid such an error.
6. Individual transfers. If the consumer makes multiple
transfers at the same time, the financial institution may document
them on a single or on separate receipts.
(a)(1) Amount
1. Disclosure of transaction fee. The required display of a fee
amount on or at the terminal may be accomplished by displaying the
fee on the terminal screen before the consumer has initiated the
transfer if displayed for a reasonable duration.
(a)(2) Date
1. Calendar date. The receipt must disclose the calendar date on
which the consumer uses the electronic terminal. An accounting or
business date may be disclosed in addition if the dates are clearly
distinguished.
(a)(3) Type
1. Identifying transfer and account. Examples identifying the
type of transfer and the type of the consumer's account to or from
which funds are transferred include ``withdrawal from checking,''
``transfer from savings to checking,'' or ``payment from savings.''
2. Exception. Identification of an account is not required when
the consumer can access only one asset account at a particular time
or terminal, even if the access device can normally be used to
access more than one account. For example, the consumer may be able
to access only one account at terminals operated by institutions
other than the account-holding institution, or to access only one
account when the terminal is off-line. If a consumer can use an
access device at a terminal to debit an asset account and also to
access a credit line, the exception is still available.
3. Access to multiple accounts. If the consumer can use an
access device to make transfers to or from different accounts of the
same type, the terminal receipt must specify which account was
accessed, such as ``withdrawal from checking I'' or ``withdrawal
from checking II.'' If only one account besides the primary checking
account can be debited, the receipt can identify the account as
``withdrawal from other account.''
4. Generic descriptions. Generic descriptions may be used for
accounts that are similar in function such as share draft or NOW
accounts and checking accounts. In a shared system, for example,
when a credit union member initiates transfers to or from a share
draft account at a terminal owned or operated by a bank, the receipt
may identify a withdrawal from the account as a ``withdrawal from
checking.''
5. Point-of-sale transactions. There is no prescribed
terminology for identifying a transfer at a merchant's POS terminal.
A transfer may be identified, for example, as a purchase, a sale of
goods or services, or a payment to a third party. When a consumer
obtains cash from a POS terminal in addition to purchasing goods, or
obtains cash only, the documentation need not differentiate the
transaction from one involving the purchase of goods.
(a)(4) Identification
1. Unique identification. A number or code used by a financial
institution to identify the consumer's account or the access device
used to initiate the transfer need be unique only within that
financial institution.
(a)(5) Terminal Location
1. Location code. A code or terminal number identifying the
terminal where the transfer is initiated may be given as part of a
transaction code.
2. Omission of city name. The city may be omitted if the
generally accepted name (such as a branch name) contains the city
name.
Paragraph (a)(5)(i)
1. Street address. The address should include number and street
(or intersection); the number (or intersecting street) may be
omitted if the street alone uniquely identifies the terminal
location.
Paragraph (a)(5)(ii)
1. Generally accepted name. Examples of a generally accepted
name for a specific location include a branch of the financial
institution, a shopping center, or an airport.
Paragraph (a)(5)(iii)
1. Name of owner or operator of terminal. Examples of an owner
or operator of a terminal are a financial institution or a retail
merchant.
(a)(6) Third Party Transfer
1. Omission of third-party name. The receipt need not disclose
the third-party name if the name is provided by the consumer in a
form that is not machine readable (for example, if the consumer
indicates the payee by depositing a payment stub into the ATM). If,
on the other hand, the consumer keys in the identity of the payee,
the receipt must identify the payee by name or by using a code that
is explained elsewhere on the receipt.
2. Receipt as proof of payment. Documentation required under
this regulation constitutes prima facie proof of a payment to
another person, except in the case of a terminal receipt documenting
a deposit.
(b) Periodic Statements
1. Periodic cycles. Periodic statements may be sent on a cycle
that is shorter than monthly. The statements must correspond to
periodic cycles that are reasonably equal, that is, do not vary by
more than four days from the regular period. The requirement of
reasonably equal cycles does not apply when an institution changes
cycles for operational or other reasons, such as to establish a new
statement day or date.
2. Defining a cycle. Financial institutions must provide
relevant information for the cycle or period since the last
statement was issued. For example, an institution regularly issues
quarterly periodic statements at the end of March, June, September
and December. If the consumer initiates an electronic fund transfer
in February, an interim statement would be provided. The interim
statement should provide relevant information for the period since
the last statement was issued, (the months of January and February
in this example). The regularly scheduled statement would provide
information from the date of the interim statement.
3. Inactive accounts. A financial institution need not send
statements to consumers whose accounts are inactive as defined by
the institution.
4. Customer pickup. A financial institution may permit, but may
not require, consumers to call for their periodic statements.
5. Periodic statements limited to electronic fund transfer
activity. A financial institution that uses a passbook as the
primary means for displaying account activity, but also allows the
account to be debited electronically, may comply with the periodic
statement requirement by providing a statement that reflects only
the electronic fund transfers and other required disclosures (such
as charges, account balances, and address and telephone number for
inquiries). (See Sec. 205.9(c)(1)(i) for the exception applicable to
preauthorized transfers for passbook accounts.)
6. Codes and accompanying documents. To meet the documentation
requirements for periodic statements, a financial institution may:
Include copies of terminal receipts to reflect
transfers initiated by the consumer at electronic terminals;
Enclose posting memos, deposit slips, and other
documents that, together with the statement, disclose all the
required information;
Use codes for names of third parties or terminal
locations and explain the information to which the codes relate on
an accompanying document.
(b)(1) Transaction Information
1. Information obtained from others. While financial
institutions must maintain reasonable procedures to insure the
integrity of data obtained from another institution, a merchant, or
other third parties, independent verification of the data for each
transfer is not required for purposes of the periodic statement
disclosures.
Paragraph (b)(1)(i)
1. Incorrect deposit amount. If the financial institution
determines that the amount actually deposited at an ATM is different
from the amount entered by the consumer, the institution need not
immediately notify the consumer about the discrepancy. The periodic
statement reflecting the deposit may either show the correct amount
of the deposit, or the amount entered by the consumer along with the
institution's adjustment.
Paragraph (b)(1)(iii)
1. Type of transfer. There is no prescribed terminology for
describing the type of transfer. It is sufficient to show the amount
of the transfer in the debit or the credit column if other
information on the statement, such as a terminal location or third-
party name, enables the consumer to identify the type of transfer.
Paragraph (b)(1)(iv)
1. Nonproprietary terminal in network. An institution need not
reflect on the periodic statement the street addresses,
identification codes, or terminal numbers for transfers initiated in
a shared or interchange system at a terminal operated by an
institution other than the account-holding institution. The
statement must, however, specify the entity which owns or operates
the terminal, plus the city and state.
Paragraph (b)(1)(v)
1. Recurring payments by government agency. The third-party name
for recurring payments from federal, state or local governments need
not list the particular agency. For example, ``U.S. gov't'' or
``N.Y. sal'' will suffice.
2. Consumer as third-party payee. If a consumer makes an
electronic fund transfer to another consumer, the financial
institution must identify the recipient by name (not just by an
account number, for example).
3. Terminal location/third party. A single entry may be used to
identify both the terminal location and the name of the third party
to or from whom funds are transferred. For example, if a consumer
purchases goods from a merchant, the name of the party to whom funds
are transferred (the merchant) and the location of the terminal
where the transfer is initiated will be satisfied by a disclosure
such as ``XYZ Store, Anytown, Ohio.''
4. Account-holding institution as third party. Transfers to the
account-holding institution, by ATM for example, must show the
institution as the recipient, unless other information on the
statement, for example, ``loan payment from checking,'' clearly
indicates that the payment was to the account-holding institution.
5. Consistency in third-party identity. The periodic statement
must disclose a third-party name as it appeared on the receipt,
whether it was, for example, the ``dba'' (doing business as) name of
the third party or the parent corporation's name.
6. Third-party identity on deposits at electronic terminal. A
financial institution need not identify third parties whose names
appear on checks, drafts, or similar paper instruments deposited to
the consumer's account at an electronic terminal.
(b)(3) Fees
1. Disclosure of fees. The fees disclosed may include fees for
electronic fund transfers and for other non-electronic services and
both fixed fees and per-item fees; they may be given as a total or
may be itemized in part or in full.
2. Fees in interchange system. An account-holding institution
must disclose any fees it imposes on the consumer for electronic
fund transfer services, including fees for ATM transactions in an
interchange or shared ATM system. Fees for use of an ATM imposed on
the consumer by an institution other than the account-holding
institution and included in the amount of the transfer by the
terminal-operating institution need not be separately disclosed on
the periodic statement.
3. Finance charges. The requirement to disclose any fees
assessed against the account does not include a finance charge
imposed on the account during the statement period.
(b)(4) Account Balances
1. Opening and closing balances. The opening and closing
balances in the consumer's account must reflect both electronic fund
transfers and other account activity.
(b)(5) Address and Telephone Number for Inquiries
(b)(6) Telephone Number for Preauthorized Transfers
1. Telephone number. A single telephone number, preceded by the
``direct inquiries to'' language, will satisfy the requirements of
Sec. 205.9(b)(5) and (6).
(c) Exceptions to the Periodic Statement Requirements for Certain
Accounts
1. Transfers between accounts. The regulation provides an
exception from the periodic statement requirement for certain intra-
institutional transfers between a consumer's accounts. The financial
institution must still comply with the applicable periodic statement
requirements for any other electronic transfers to or from the
account. For example, a Regulation E statement must be provided
quarterly for an account that also receives payroll deposits
electronically, or for any month in which an account is also
accessed by a withdrawal at an ATM.
(d) Documentation for Foreign-Initiated Transfers
1. Foreign-initiated transfers. An institution must make a good
faith effort to provide all required information for foreign
initiated transfers. For example, even though the institution may
not be able to provide a specific terminal location, it should
identify the country and city in which the transfer was initiated.
Section 205.10--Preauthorized Transfers
(a) Preauthorized Transfers to Consumer's Account
(a)(1) Notice by Financial Institution
1. Content. No specific language is required in the notice
regarding receipt of a preauthorized transfer. Identifying the
deposit is sufficient; however, simply providing the current account
balance is not.
2. Notice of credit. The financial institution may use separate
methods of notice for different types or series of preauthorized
transfers. The institution need not offer consumers a choice of
notice methods.
3. Positive notice. A periodic statement sent within two
business days of the scheduled transfer, showing the transfer, can
serve as notice of receipt.
4. Negative notice. With a negative-notice system, a financial
institution must provide notice if payment is not received by the
close of the second business day. If preauthorized transfers cease,
the institution should send negative notices following at least
three separate missed payments; or it may notify the consumer
earlier that it believes the transfers have stopped and that it will
no longer send negative notices. The absence of a deposit entry will
not serve as negative notice for purposes of a negative-notice
system.
5. Telephone notice. If a financial institution uses the
telephone notice option, it should be able in most instances to
verify during a consumer's initial telephone inquiry whether a
transfer was received. The institution must respond within two
business days to any inquiry not answered immediately.
6. Phone number for passbook accounts. The financial institution
may use any reasonable means necessary to provide the telephone
number to consumers with passbook accounts that can only be accessed
by preauthorized credits and that do not receive periodic
statements. For example, it may print the telephone number in the
passbook, or include the number with the annual error resolution
notice.
7. Telephone line availability. To satisfy the readily-available
standard, the financial institution must provide enough telephone
lines so that consumers get a reasonably prompt answer. The
institution need only provide telephone service during normal
business hours. Within its primary service area, an institution must
provide a local or toll-free telephone number. It need not provide a
toll-free number or accept collect long-distance calls from outside
the area where it normally conducts business.
(b) Written Authorization for Preauthorized Transfers From
Consumer's Account
1. Preexisting authorizations. The financial institution need
not require a new authorization before changing from paper-based to
electronic debiting merely because the existing authorization does
not specify that debiting is to occur electronically or specifies
that the debiting is to occur by paper means. A new authorization
also need not be obtained when a successor institution begins
collecting payments. For example, when an institution acquires the
servicing rights for a mortgage loan, it may rely on the original
preauthorized transfer authorization.
2. Authorization obtained by third party. The account-holding
financial institution does not violate this regulation when a third-
party payee fails to obtain the authorization in writing or to give
a copy to the consumer; rather, it is the third-party payee who is
in violation of the regulation.
3. Written authorization for preauthorized transfers. The
requirement that preauthorized electronic fund transfers be
authorized by the consumer ``only in writing'' cannot be met by a
payee's signing a written authorization on the consumer's behalf
with only an oral authorization from the consumer. A tape recording
of a telephone conversation with a consumer who agrees to
preauthorized debits also does not constitute written authorization
for purposes of this provision.
4. Use of a confirmation form. A financial institution or
designated payee may comply with the requirements of this section in
various ways. For example, a payee may provide the consumer with two
copies of a form to permit preauthorized transfers from the
consumer's account and require the consumer to sign and return one,
while retaining the second copy.
5. Similarly authenticated. An example of a consumer's
authorization that is not in the form of a signed writing but is
instead ``similarly authenticated'' is a consumer's authorization
via a home computer. For a home banking system to satisfy the
requirements of this section, there must be some means to identify
the consumer (such as a security code), and the consumer must have
the ability to obtain a printed copy of the authorization (such as
by printing it on the consumer's printer or by the payee's making a
copy for the consumer).
(c) Consumer's Right To Stop Payment
1. Stop-payment order. The financial institution must honor an
oral stop-payment order made at least three business days before a
scheduled debit. If the debit item is resubmitted, the institution
must continue to honor the stop-payment order, for example, by
suspending all subsequent payments to the payee-originator until the
consumer notifies the institution that payments should resume.
2. Revocation of authorization. Once the financial institution
has been notified that the consumer's authorization is no longer
valid, it must block all future payments for the particular debit
transmitted by the designated payee-originator. The institution may
not wait for the payee-originator to terminate the automatic debits.
The institution may confirm that the consumer has informed the
payee-originator of the revocation by requiring, for example, a copy
of the consumer's revocation as written confirmation to be provided
within fourteen days of an oral notification. If the institution
does not receive the required written confirmation within the
fourteen-day period, it may pay subsequent debits to the account.
(d) Notice of Transfers Varying in Amount
(d)(1) Notice
1. Preexisting authorizations. A financial institution holding
the consumer's account does not violate this regulation if the
designated payee fails to provide notice of varying amounts.
(d)(2) Range
1. Range. Financial institutions that elect to provide the
consumer with a specified range of amounts for debiting (in lieu of
providing the notice of transfers varying in amount) must provide a
range that could plausibly be anticipated by the consumer. For
example, if the transfer is for payment of a gas bill, an
appropriate range might be based on the highest bill in winter and
the lowest bill in summer.
(e) Compulsory Use
(e)(1) Credit
1. Loan payments. Creditors may not require repayment of loans
by electronic means. A creditor may offer a program with a reduced
annual percentage rate or other cost-related incentive for an
automatic repayment feature, provided the program with the automatic
payment feature is not the only loan program offered by the creditor
for the type of credit involved. Examples include:
Mortgages with graduated payments in which a pledged
savings account is automatically debited during an initial period to
supplement the monthly payments made by the borrower.
Mortgage plans calling for preauthorized biweekly
payments that are debited electronically to the consumer's account
and produce a lower total finance charge.
2. Overdraft. The provision allowing institutions to require the
automatic repayment of an overdraft credit plan applies even if the
overdraft extension is charged to an open-end account that may be
accessed by the consumer in ways other than by overdrafts.
(e)(2) Employment or Government Benefit
1. Payroll. Employers are subject to the act's prohibition
against compulsory use of electronic fund transfers as a condition
of employment. For example, a financial institution (as an employer)
may not require its employees to receive their salary by direct
deposit to that same institution. An employer may, however, require
direct deposit of salary by electronic means if employees are given
a choice of institutions that would receive the direct deposit.
Alternatively, an employer may give employees the choice of having
their salary deposited at a particular institution, or receiving
their salary by check or cash.
Section 205.11--Procedures for Resolving Errors
(a) Definition of Error
1. Terminal location. With regard to deposits at an ATM, the
consumer's request for the terminal location or other information
triggers the error resolution procedures. The financial institution
need only provide the consumer with the ATM location if it has
captured that information with regard to deposits. If the consumer
merely calls to ascertain whether a deposit made via ATM,
preauthorized transfer, or any other type of electronic fund
transfer was credited to the account, without asserting an error,
the error resolution procedures do not apply.
2. Loss or theft of access device. A financial institution is
required to comply with the error resolution procedures of this
section when a consumer reports the loss or theft of an access
device if the consumer also alleges possible unauthorized use as a
consequence of the loss or theft.
3. Error asserted after account closed. The financial
institution must comply with the error resolution procedures when a
consumer properly asserts an error, even if the account has been
closed.
4. Request for documentation or information. Requests for
documentation or other information must be treated as errors unless
it is clear that the request by the consumer is only for duplicate
copies for tax or other record-keeping purposes.
(b) Notice of Error From Consumer
(b)(1) Timing; Contents
1. Content of error notice. The notice of error is effective
even if it does not contain the consumer's account number, so long
as the financial institution is able to identify the account in
question. For example, the consumer could provide a social security
number or other unique means of identification.
2. Requirement of an affidavit. While a financial institution
may require the consumer to sign an affidavit relating to a notice
of error, it may not delay initiating or completing an investigation
pending receipt of the affidavit.
3. Statement held for consumer. When a consumer has arranged for
periodic statements to be held until picked up, the statement for a
particular cycle is deemed to have been transmitted on the date the
financial institution first makes the statement available to the
consumer.
4. Failure to provide statement. When a financial institution
fails to provide the consumer with a periodic statement, a request
for a copy is governed by this section if the consumer gives notice
within 60 days from the date on which the statement should have been
transmitted.
5. Discovery of error by institution. The error resolution
procedures of this section apply only when a notice of error is
received from the consumer. If the financial institution itself
discovers and corrects an error, it need not comply with the
procedures.
6. Notice at particular phone number or address. A financial
institution may require the consumer to give notice only at the
telephone number or address disclosed by the institution, provided
the institution maintains reasonable procedures to refer the
consumer to the specified telephone number or address if the
consumer attempts to give notice to the institution in a different
manner.
(b)(2) Written Confirmation
1. Written confirmation-of-error notice. If the consumer sends a
written confirmation of error to the wrong address, the institution
must process the confirmation through normal procedures. But the
institution need not provisionally credit the consumer's account if
the written confirmation is delayed beyond 10 business days because
it was sent to the wrong address.
(c) Time Limits and Extent of Investigation
1. Notice to consumer. Unless otherwise indicated in this
section, the financial institution may provide the required notices
to the consumer either orally or in writing.
2. Written confirmation of oral notice. A financial institution
must begin its investigation promptly upon receipt of an oral
notice. It may not delay until it has received a written
confirmation.
3. No charge for error resolution. The financial institution may
not impose charges for any aspect of the error-resolution process,
including charges for documentation or investigation.
4. Correction without investigation. A financial institution may
make, without investigation, a final correction to a consumer's
account in the amount or manner alleged by the consumer to be in
error, but must comply with all other applicable requirements of
Sec. 205.11.
5. Correction notice. A financial institution may include the
notice of correction on a periodic statement that is mailed or
delivered within the 10-business-day or 45-calendar-day time limits
and that clearly identifies the correction to the consumer's
account. Whether such a mailing will be prompt enough to satisfy the
requirements of this section must be determined by the institution,
taking into account the specific facts involved.
6. Correction of an error. If the financial institution
determines an error occurred, within either the 10-day or 45-day
period, it shall correct the error (subject to the liability
provisions of Sec. 205.6 (a) and (b)) including, where applicable,
the crediting of interest and the refunding of any fees imposed by
the institution. In a combined credit/electronic fund transfer
transaction, for example, the institution must refund any finance
charges incurred as a result of the error. The institution need not
refund fees that would have been imposed whether or not the error
occurred.
7. Extent of required investigation. A financial institution
complies with its duty to investigate, correct, and report its
determination regarding an error described in Sec. 205.11(a)(1)(vii)
by transmitting the requested information, clarification, or
documentation within the time limits set forth in paragraph (c) of
this section. If the institution has provisionally credited the
consumer's account in accordance with paragraph (c)(2) of this
section, it may debit the amount upon transmitting the requested
information, clarification, or documentation.
Paragraph (c)(2)(i)
1. Compliance with all requirements. Financial institutions
exempted from provisionally crediting a consumer's account under
Sec. 205.11(c)(2)(i) (A) and (B) must still comply with all other
requirements of the section.
(c)(3) Extension of Time Periods
1. POS debit card transactions. The extended deadlines for
investigating errors resulting from POS debit card transactions
include all debit card transactions, including those for cash only,
at merchants' point-of-sale terminals. The deadlines do not apply to
transactions at an ATM, however, even though the ATM may be in a
merchant location. POS debit card transactions also include mail and
telephone orders.
(c)(4) Investigation
1. Third parties. When information or documentation requested by
the consumer is in the possession of a third party with whom the
financial institution does not have an agreement, the institution
satisfies the error resolution requirement by so advising the
consumer within the specified time frame.
2. Scope of investigation. When an alleged error involves a
payment to a third party under the financial institution's telephone
bill-payment plan, a review of the institution's own records is
sufficient, assuming no agreement exists between the institution and
the third party concerning the bill-payment service.
3. POS transfers. When a consumer alleges an error involving a
transfer to a merchant via a POS terminal, the institution must
verify the information previously transmitted in executing the
transfer. For example, the financial institution may request a copy
of the sales receipt to verify that the amount of the transfer
correctly corresponds to the amount of the consumer's purchase.
4. Agreement. A financial institution does not have an agreement
for purposes of Sec. 205.11(c)(4)(ii) solely because it participates
in transactions occurring under the federal recurring payments
programs, or that are cleared through an ACH or similar arrangement
for the clearing and settlement of fund transfers generally, or
because it agrees to be bound by the rules of such an arrangement.
But an agreement that a third party will honor an access device is
an agreement for purposes of this paragraph.
(d) Procedures if Financial Institution Determines No Error or
Different Error Occurred
1. Error different from that alleged. When a financial
institution determines that an error occurred in a manner or amount
different from that described by the consumer, it must comply with
the requirements of both paragraphs (c) and (d) of this section, as
relevant. The institution may give the notice of correction and the
explanation separately or in a combined form.
(d)(1) Written Explanation
1. Request for documentation. When a consumer requests copies of
documents, the financial institution must provide the copies in an
understandable form. If an institution relied on magnetic tape it
must translate the applicable data into readable form, for example,
by printing it and explaining any codes.
(d)(2) Debiting Provisional Credit
1. Alternative procedure for debiting of credited funds. The
financial institution may comply with the requirements of this
section by notifying the consumer that the consumer's account will
be debited five business days from the transmittal of the
notification, specifying the calendar date on which the debiting
will occur.
2. Fees for overdrafts. The financial institution may not impose
fees for items it is required to honor under this section. It may,
however, impose any normal transaction or item fee that is unrelated
to an overdraft resulting from the debiting. If the account is still
overdrawn after five business days, the institution may impose the
fees or finance charges to which it is entitled, if any, under an
overdraft credit plan.
(e) Reassertion of Error
1. Withdrawal of error; right to reassert. The financial
institution has no further error resolution responsibilities if the
consumer voluntarily withdraws the notice. A consumer who has
withdrawn an allegation of error has the right to reassert the
allegation unless the financial institution had already complied
with all of the error resolution requirements before the allegation
was withdrawn. The consumer must do so, however, within the original
60-day period.
Section 205.12--Relation to Other Laws
(a) Relation to Truth in Lending
1. Determining applicable regulation. For transactions involving
access devices that also constitute credit cards, the applicability
of Regulation E versus Regulation Z depends on the nature of the
transaction. For example, if the transaction is purely an extension
of credit, and does not include a debit to a checking account (or
other consumer asset account), the liability limitations and error
resolution requirements of Regulation Z apply. If the transaction
only debits a checking account (with no credit extended), the
comparable provisions of Regulation E apply. Finally, if the
transaction debits a checking account but also draws on an overdraft
line of credit, the Regulation E provisions apply, as well as 12 CFR
226.13(d) and (g) of Regulation Z. As a result, a consumer might be
liable for up to $50 under Regulation Z and, in addition, for $50,
$500, or an unlimited amount under Regulation E.
2. Issuance rules. For access devices that also constitute
credit cards, the issuance rules of Regulation E apply if the only
credit feature is a preexisting credit line attached to the asset
account to cover overdrafts (or to maintain a specified minimum
balance). Regulation Z rules apply if there is another type of
credit feature, for example, one permitting direct extensions of
credit that do not involve the asset account.
(b) Preemption of Inconsistent State Laws
1. Specific determinations. The regulation prescribes standards
for determining whether state laws that govern electronic fund
transfers are preempted by the act and the regulation. A state law
that is inconsistent may be preempted even if the Board has not
issued a determination. However, nothing in Sec. 205.12(b) provides
a financial institution with immunity for violations of state law if
the institution chooses not to make state disclosures and the Board
later determines that the state law is not preempted.
2. Preemption determination. Effective March 30, 1981, the Board
has determined that certain provisions in the state law of Michigan
are preempted by the federal law:
Section 5(4)--Definition of unauthorized use. This
provision is preempted to the extent that it relates to the section
of state law governing consumer liability for unauthorized use of an
access device.
Section 14--Consumer liability for unauthorized use of
an account. This provision is inconsistent with Sec. 205.6 and is
less protective of the consumer than the federal law. The state law
places liability on the consumer for the unauthorized use of an
account in cases involving the consumer's negligence. Under the
federal law, a consumer's liability for unauthorized use is not
related to the consumer's negligence and depends instead on the
consumer's promptness in reporting the loss or theft of the access
device.
Section 15--Error resolution. This provision is
preempted because it is inconsistent with Sec. 205.11 and is less
protective of the consumer than the federal law. The state law
allows financial institutions up to 70 days to resolve errors,
whereas the federal law generally requires errors to be resolved in
45 days.
Sections 17 and 18--Receipts and periodic statements.
These provisions are preempted because they are inconsistent with
Sec. 205.9. The provisions require a different disclosure of
information than does the federal law. The receipt provision is also
preempted because it allows the consumer to be charged for receiving
a receipt if a machine cannot furnish one at the time of a transfer.
Section 205.13--Administrative Enforcement; Record Retention
(b) Record Retention
1. Requirements. To evidence compliance, a financial institution
should be able to establish that its procedures reasonably ensure
the consumer's receipt of required disclosures and documentation.
Section 205.14--Electronic Fund Transfer Service Provider Not
Holding Consumer's Account
(a) Electronic Fund Transfer Service Providers Subject to
Regulation
1. Applicability. This section applies only when a service
provider issues an access device (a debit card or a code, for
example) to a consumer with which the consumer can initiate
transfers to or from the consumer's account at a financial
institution and the two entities have no agreement regarding this
electronic fund transfer service. If the service provider does not
issue an access device to the consumer, it does not qualify for the
treatment accorded by this section. For example, this section does
not apply to an institution that initiates preauthorized payroll
deposits on behalf of an employer to the consumer's account at
another institution. By contrast, this section does apply to an
institution that issues a code for initiating telephone transfers
from a consumer's account at another institution (provided the
account-holding institution does not have an agreement with the
other institution regarding the service). This is the case even if
the consumer has accounts at both institutions.
2. ACH agreements. An ACH agreement under which members agree to
honor each other's electronic fund transfer cards constitutes an
``agreement'' for purposes of this section.
(b) Compliance by Electronic Fund Transfer Service Provider
1. Liability. The service provider is liable for unauthorized
electronic fund transfers that exceed the consumer's liability
limits in Sec. 205.6.
(b)(1) Disclosures and Documentation
1. Periodic statements from electronic fund transfer service
provider. A service provider that meets the conditions set forth in
the regulation does not have to issue periodic statements. A service
provider that does not meet the condition need only include
information on periodic statements sent to the consumer about
transfers initiated with the access device it has issued.
(b)(2) Error Resolution
1. Error resolution. When a consumer notifies the service
provider of an error, the electronic fund transfer service provider
must investigate and resolve the error as set forth in the
regulation. If an error occurred, any fees or charges imposed as a
result of the error, either by the service provider or by the
account-holding institution (for example, overdraft or dishonor
fees) must be reimbursed to the consumer by the service provider.
(c) Compliance by Account-Holding Institution
Paragraph (c)(1)
1. Periodic statements from account-holding institution. The
periodic statement provided by the account-holding institution need
only contain the information required by Sec. 205.9(c)(1).
Appendix A--Model Disclosure Clauses and Forms
1. Review of forms. Neither the Board nor its staff will review
or approve disclosure forms or statements for financial
institutions. However, the Board has issued model clauses for
institutions to use in designing their disclosures. If an
institution uses these clauses accurately to reflect its service,
the institution is protected from liability for failure to make
disclosures in proper form.
2. Use of the forms. The appendix contains model disclosure
clauses for optional use by financial institutions to facilitate
compliance with the disclosure requirements of Secs. 205.5(b)(2),
and (b)(3), 205.6(a), 205.7, and 205.14(b)(1)(ii). Section 915(d)(2)
of the statute provides that use of these clauses in conjunction
with other requirements of the regulation will protect a financial
institution from liability under sections 915 and 916 of the act to
the extent that the clauses accurately reflect the institution's
electronic fund transfer services.
3. Altering the clauses. Financial institutions may use clauses
of their own design in conjunction with the Board's model clauses.
The inapplicable words or portions of phrases in parentheses should
be deleted. The underscored catchlines are not part of the clauses
and need not be used. Financial institutions may make alterations,
substitutions, or additions in the clauses to reflect the services
offered, such as technical changes (e.g., substitution of a trade
name for the word ``card,'' deletion of inapplicable services, or
substitution of lesser liability limits. Model Clauses A-(2) include
references to a telephone number and address. Where two or more of
these clauses are used in a disclosure, the telephone number and
address may be referenced and need not be repeated.
Supplement II to Part 205 [Removed]
3. Supplement II to Part 205 is removed.
By order of the Board of Governors of the Federal Reserve
System, February 24, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-4682 Filed 3-2-94; 12:38 pm]
BILLING CODE 6210-01-P