[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