[Federal Register Volume 63, Number 57 (Wednesday, March 25, 1998)]
[Rules and Regulations]
[Pages 14528-14532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6988]
[[Page 14527]]
_______________________________________________________________________
Part III
Federal Reserve System
_______________________________________________________________________
12 CFR Part 205
Electronic Fund Transfers; Final Rule
12 CFR Part 230 et al.
Truth in Savings, Consumer Leasing, Truth in Lending, Equal Credit
Opportunity, Electronic Fund Transfers; Proposed Rules
Federal Register / Vol. 63, No. 57 / Wednesday, March 25, 1998 /
Rules and Regulations
[[Page 14528]]
FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-1002]
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Interim rule with request for comments.
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SUMMARY: The Board is publishing an interim rule amending Regulation E,
which implements the Electronic Fund Transfer Act (EFTA). The EFTA
establishes certain rights, liabilities, and responsibilities of
participants involved in electronic fund transfers (EFTs) to and from
consumer asset accounts. Among other things, the act and regulation
require disclosures about the terms and conditions of EFT services,
account activity, error resolution, and authorizations or confirmations
concerning EFTs. These disclosures must generally be provided in
writing. In May 1996, the Board issued a proposed rule permitting
financial institutions to satisfy the requirement that certain
disclosures and other information be in writing by sending information
electronically subject to certain requirements. The interim rule allows
depository institutions or other entities subject to the act to deliver
by electronic communication any of these disclosures and other
information required by the act and regulation, as long as the consumer
agrees to such delivery. For purposes of the regulation, an electronic
communication is a message transmitted electronically that allows
visual text to be displayed on equipment such as a modem-equipped
computer. This interim rule permits financial institutions to begin
implementing systems that allow for the electronic delivery of EFTA
disclosures during consideration of similar proposals under other
financial services and fair lending laws, appearing elsewhere in
today's Federal Register.
DATES: Interim rule effective March 25, 1998; comments must be received
by May 15, 1998.
ADDRESSES: Comments should refer to Docket No. R-1002, and may be
mailed to William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, DC 20551. Comments also may be delivered to Room B-2222 of
the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the
guard station in the Eccles Building courtyard on 20th Street, N.W.
(between Constitution Avenue and C Street) at any time. Comments may be
inspected in Room MP-500 of the Martin Building between 9:00 a.m. and
5:00 p.m. weekdays, except as provided in 12 CFR 261.12 of the Board's
Rules Regarding Availability of Information.
FOR FURTHER INFORMATION CONTACT: Michael Hentrel or Obrea Poindexter,
Staff Attorneys, or John Wood, Senior Attorney, Division of Consumer
and Community Affairs, at (202) 452-2412 or (202) 452-3667. For the
hearing impaired only, Telecommunications Device for the Deaf (TDD),
contact Diane Jenkins at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background
The Electronic Fund Transfer Act (EFTA), 15 U.S.C. 1693 et seq.,
enacted in 1978, provides a basic framework establishing the rights,
liabilities, and responsibilities of participants in electronic fund
transfer (EFT) systems. The Board's Regulation E (12 CFR Part 205)
implements the act. Types of transfers covered by the act and
regulation include transfers initiated through an automated teller
machine (ATM), point-of-sale terminal, automated clearinghouse,
telephone bill-payment plan, or home banking program. The act and
regulation contain rules that govern these and other EFTs. The rules
prescribe restrictions on the unsolicited issuance of ATM cards and
other access devices; disclosure of terms and conditions of an EFT
service; documentation of EFTs by means of terminal receipts and
periodic account statements; limitations on consumer liability for
unauthorized transfers; procedures for error resolution; and certain
rights related to preauthorized EFTs.
Depository institutions, service providers, and other entities use
electronic communication to offer a wide variety of financial services
relating to checking and other consumer asset accounts including:
Account inquiries; transaction verifications; request and documentation
of fund transfers between accounts; bill payment services; and full
account management. Communicating electronically provides a fast,
convenient, and less costly means of receiving and delivering
information. In offering home banking and other financial services,
depository institutions and others have asked whether they satisfy the
requirements of the EFTA and Regulation E by providing or accepting
information electronically. In connection with electronic commerce,
some service providers would like to obtain the electronic equivalent
of a written and signed authorization so that consumers' accounts can
be debited on a recurring basis to pay for products or services.
In May 1996, the Board updated Regulation E and the staff
commentary under the Board's Regulatory Planning and Review program,
which requires regulations to be reviewed and updated periodically.
(See 61 FR 19661, May 2, 1996.) During that process and in its review
of regulations pursuant to section 303 of the Riegle Community
Development and Regulatory Improvement Act of 1994 (12 U.S.C. 4803),
the Board determined that the use of electronic communication to
deliver information to consumers that is required by federal consumer
financial services and fair lending laws could effectively reduce
compliance costs without adversely affecting consumer protections.
Simultaneous with the issuance of Regulation E update, the Board issued
a proposed rule permitting financial institutions to satisfy the EFTA
requirement that certain disclosures and other information be in
writing by sending information electronically in a format the allows
the display of text messages in a clear and readily understandable
form. The proposal also required that disclosures be provided in a form
the consumer may retain, a requirement that an institution could
satisfy by providing information that may be printed or downloaded. The
proposed rule allowed consumers to request a paper copy of a disclosure
for up to one year after its original delivery (61 FR 19696, May 2,
1996).
The Board received approximately 110 comments on the proposal. The
majority of comments were submitted by depository institutions and
their trade associations. The commenters, including consumer
representatives, generally supported the use of electronic
communication to deliver information required by the EFTA and
Regulation E. Many commenters suggested specific modifications and
sought clarification on various aspects of the proposed rule; these
comments are addressed below in the section-by-section discussion of
the interim rule.
Based on a review of the comments and further analysis, the Board
is publishing an interim rule that allows financial institutions to
provide Regulation E disclosures electronically; such disclosures
remain subject to applicable timing, format, and other requirements of
the act and regulation. The interim rule will allow financial
institutions to implement systems to provide EFTA information
electronically while proposed rules are
[[Page 14529]]
being considered to allow the electronic delivery of disclosures under
other laws. The term financial institution is broadly defined in the
EFTA to include persons that directly or indirectly hold accounts
belonging to consumers or that issue an access device and agree to
provide EFT services. In this notice, the term ``financial
institution'' is used in that context.
The interim rule is similar to the proposed rule. The interim rule,
however, does not require financial institutions to provide paper
copies of disclosures to a consumer upon request if the consumer has
agreed to receive disclosures electronically. The Board believes that
most financial institutions will accommodate consumer requests for
paper copies when feasible.
Elsewhere in today's Federal Register, the Board is publishing
proposed rules similar to the interim rule under Regulation E to
address electronic communication under Regulation B (Equal Credit
Opportunity), Regulation DD (Truth in Savings), Regulation M (Consumer
Leasing), and Regulation Z (Truth in Lending). Previously, the Board
published amendments to the staff commentary to Regulation CC
(Availability of Funds and Collection of Checks) allowing depository
institutions to send notices electronically (62 FR 13801, March 18,
1997).
II. Regulatory Revisions
The EFTA and Regulation E require a number of disclosures to be
provided to consumers in writing. The requirement that disclosures be
in writing has been presumed to require that institutions provide paper
documents. However, under many laws that call for information to be in
writing, information in electronic form is considered to be
``written.'' Information produced, stored, or communicated by computer
is also generally considered to be a writing, where visual text is
involved.
Pursuant to its authority under sections 904(a) and (c) of the
EFTA, the Board is issuing an interim rule amending Regulation E to
permit financial institutions to use electronic communication where the
regulation requires that information be provided in writing. The term
``electronic communication'' is limited to a communication in a form
that can be displayed as visual text. An example is an electronic
visual text message that is displayed on a screen (such as a consumer's
computer monitor). Communication by telephone voicemail systems does
not meet the definition of ``electronic communication'' for purposes of
this amendment because it does not have the feature generally
associated with a writing--visual text.
Definition
Section 205.4(c)(1) defines electronic communication for purposes
of Regulation E. The definition is generally the same as in the May
1996 proposed rule, except that editorial changes have been made in the
interim rule to clarify and simplify the definition. The reference in
the proposal to equipment ``in the consumer's possession'' has been
deleted so as not to preclude application of the rule where, for
example, a consumer uses a computer terminal in a public location such
as a library or financial institution. The example of a screen phone
has been deleted as unnecessary.
Agreements Between Financial Institutions and Consumers
Section 205.4(c)(2) permits financial institutions to send
electronic disclosures if the consumer agrees. The interim rule
simplifies the wording that was used in the proposed rule. Many
commenters on the proposed rule requested that the Board clarify when
an agreement between a financial institution and a consumer exists.
More specifically, the commenters sought clarification that agreements
may be established electronically. There may be various ways that a
financial institution and a consumer could agree to the electronic
delivery of disclosures and other information. Whether such an
agreement exists between the parties is determined by applicable state
law. The regulation does not preclude a financial institution and a
consumer from entering into an agreement electronically, nor does it
prescribe a formal mechanism for doing so. The Board does believe,
however, that consumers should be clearly informed when they are
consenting to the delivery of EFTA disclosures and other information
electronically.
Requirement That Financial Institutions ``Send'' Electronic Disclosures
to Consumers
The interim rule in Sec. 205.4(c)(2), like the proposed rule,
provides that disclosures may be ``sent'' to a consumer electronically.
This is consistent with existing requirements in Regulation E, which
generally specify that disclosures, documentation, and notices be
``mailed,'' ``delivered,'' or ``provided.'' Many commenters on the
proposed rule suggested that making electronic disclosures
``available'' to consumers should satisfy the requirement. Commenters
believed that consumers would benefit from the ability to obtain
information from the financial institution, at any time, if the
disclosures are ``available'' at a specified location. Commenters
suggested that, alternatively consumers might have to wait for the
institution to send information to a specific location, for example, an
e-mail address provided by the consumer.
Generally, the regulation requires the financial institution to
deliver the information--typically by mail--to an address designated by
the consumer. For a paper communication, a financial institution
generally would not satisfy that requirement by making disclosures
``available,'' for example, at the financial institution's office (or
other location). (The staff commentary to Regulation E does allow
financial institutions to permit, but not require, consumers to pick up
their periodic statements at the institution. See comment 9(b)-4 to
Sec. 205.9.) The Board believes that consumers receiving disclosures by
electronic communication should have protections regarding delivery
similar to those afforded consumers receiving paper disclosures. Simply
posting information on an Internet site without some appropriate notice
and instructions about how the consumer may obtain the required
information would not satisfy the requirement. Therefore, the interim
rule, like the proposal, requires that disclosures be sent (delivered
or transmitted) to consumers, but allows the option contained in
comment 9(b)-4.
The requirement to send or deliver disclosures to a consumer is
satisfied when the institution ensures that the disclosures will be
displayed in a timely manner. For example, under Regulation E, initial
disclosures must be provided at the time a consumer signs up for an EFT
service or before the first transaction. Assume that a consumer uses a
personal computer to sign up for a EFT service and consents to the
electronic delivery of the initial disclosures. If the disclosures
automatically appear on the computer screen before the consumer commits
to the service (in accordance with the format and any other
requirements of the act and regulation), the institution has satisfied
the requirement to send (or deliver or transmit) disclosures to the
consumer.
As a practical matter, there may be little distinction between
sending or delivering electronic disclosures and making them
``available.'' Financial institutions have flexibility in how they may
deliver electronic disclosures to consumers, including, but not limited
to, the following examples. They may send disclosures to a consumer-
[[Page 14530]]
designated electronic mail address or they may designate a location on
a website where the consumer might enter a personal identification
number or other identifier to access required information. In the
scenario described above, assume that the consumer signs up for an EFT
service, receives the initial disclosures at that time, and agrees to
receive all EFTA disclosures electronically. Subsequent disclosures
sent to a designated address or placed at a designated location (for
example, periodic statements or change-in-terms notices) would
generally satisfy the delivery requirements of Sec. 205.4(c)(2).
Electronic communication remains subject to any timing or other
applicable requirements under Regulation E. For example, a financial
institution that sends a change-in-terms notice required by Sec. 205.8
of Regulation E must satisfy the requirement to provide the notice to
the consumer at least 21 days in advance of the change. The Board
solicits comment on whether further guidance is needed on how to comply
with the timing requirements when a notice is posted on an Internet
website.
Requirement That Information Be ``Clear and Readily Understandable''
Under the act and regulation, disclosures must be provided to
consumers in a clear and readily understandable form. The proposed rule
stated that disclosures provided by electronic communication are
subject to this standard. Section 205.4(c)(2) of the interim rule
retains this requirement, by cross referencing the current regulatory
requirement.
Some commenters believed that the requirement would impose a
compliance burden if financial institutions had to determine whether
the consumer possesses the proper equipment to ensure that a disclosure
provided electronically meets the standard. Some commenters expressed
concern that the ``clear and readily understandable'' requirement,
coupled with the screen phone example in the supplementary information
to the proposed rule, implicitly disapproved of certain types of
technologies. Further, some commenters objected to any consideration of
the amount of text that may be viewed at any one time (or the screen
size of a device) as a factor in determining whether the communication
satisfies the requirement.
Under the interim rule, the ``clear and readily understandable''
requirement applies to electronic communication. The Board does not
intend to discourage or encourage specific types of technologies.
Regardless of the technology, however, the disclosures provided by
electronic communication must meet the ``clear and readily
understandable'' standard. While a financial institution is generally
not required to ensure that the consumer has the equipment to read the
disclosures, in some circumstances an institution would have the
responsibility of making sure the proper equipment is in place. For
example, if EFT services are offered through terminals in an
institution's lobby, or through kiosks located in public or other
places, the institution must ensure that the equipment meets the clear
and readily understandable standard for EFTA disclosures that are being
provided electronically.
Consumer Ability to Retain Disclosures
Under Regulation E, most disclosures must be provided in a form
that the consumer may keep. Section 205.4(c)(2) of the interim rule,
like the proposal, applies the same requirement to disclosures provided
by electronic communication. Financial institutions satisfy the
retention requirement if, for example, disclosures can be printed or
downloaded by the consumer. Most commenters agreed with the Board's
interpretation. Many commenters urged the Board to clarify that
financial institutions are not obligated to monitor an individual
consumer's ability to retain the information, or to ascertain whether
the consumer has actually retained it.
The requirements or procedures for electronic delivery are similar
to the paper delivery requirements, where the financial institution
generally must mail or otherwise deliver the communication to the
consumer but need not otherwise ensure that the consumer reads or
retains it. Thus, financial institutions are generally not required to
monitor a consumer's ability to retain the information, nor to take
steps to find out whether the consumer has in fact retained it. The
Board anticipates that, where appropriate, a financial institution will
inform consumers of any special technical specifications for receiving
or retaining information before or at the time a consumer agrees to
receive information electronically.
Similar to the ``clear and readily understandable'' standard
discussed above, in circumstances where the financial institution (or a
network in which the institution is a member) controls the equipment to
be used for an EFT service--such as ATMs or kiosks in public or other
places--the institution does have the responsibility of ensuring
retainability. Provided that the delivery requirements are satisfied--
for example, that disclosures appear on a screen--methods for
fulfilling this retention requirement could include, for example,
printers incorporated into terminals or a screen message offering to
transmit the disclosure that appears on the screen to the consumer's
electronic mail or post office address.
Consumer's Ability to Request a Paper Copy of an Electronic Disclosure
The proposed rule would have required a financial institution to
provide, upon request, a paper copy of any disclosure sent by
electronic communication. The consumer could obtain a paper copy for up
to one year after the disclosure was sent electronically. Many of the
commenters did not object to the paper copy requirement, although most
recommended that the Board establish a shorter time period for
providing a copy. Some commenters believed that the requirement could
diminish their ability to establish electronic accounts and eliminate
the potential cost savings of electronic communication.
The interim rule does not require financial institutions to provide
a paper copy upon request. In some instances, however, consumers who
receive disclosures by electronic communication could experience
computer or printer malfunctions. They may be using public electronic
terminals that do not have a print or download capability, or they may
otherwise need a paper copy of a disclosure on occasion. The Board
expects that financial institutions will accommodate a consumer's
request for a paper copy, or that they will redeliver disclosures
electronically, to the extent that it is feasible to do so.
Paper Confirmation of Electronic Communications
Under the act and regulation, consumers must provide certain
information to financial institutions, and institutions have the option
of requiring that it be in writing. Regulation E provides that a
consumer may stop payment of a preauthorized EFT or allege an error by
notifying the institution orally or in writing, and that the
institution may require written confirmation of an oral stop-payment
order or notice of error.
In the supplementary information to the May 1996 proposed rule, the
Board stated its belief that (as in the case of an oral communication)
if the consumer sends an electronic communication to the financial
institution, the institution could require paper confirmation from the
consumer (particularly since the consumer was entitled to a paper copy
[[Page 14531]]
upon request under the proposed rule). The Board requested comment on
whether and how the regulation should address this point.
Some financial institutions commented that in accepting electronic
communication from a consumer, they may need to require paper
confirmations for their own and the consumer's protection. Many
commenters stated that there will be situations in which it is
important for financial institutions to have the ability to require
paper confirmations (for example, because it may be more secure). These
commenters requested that the Board allow financial institutions to
request paper confirmations for certain communications.
Under the interim rule, financial institutions may request paper
confirmations in cases where they can currently require written
confirmation--electronic and oral stop-payment notices, and electronic
and oral notices of error. The financial institution, however, must
clearly identify to the consumer the information subject to paper
confirmation and must provide the address where written confirmation
must be sent.
Consumers preserve their rights under the act and regulation when
they send notices of error electronically. If the consumer notifies the
financial institution of an alleged error, the financial institution
must begin its investigation promptly upon receiving the electronic
notice. The financial institution may not delay its investigation until
it has received a paper confirmation. This requirement is the same as
the requirement for written confirmation following an oral error notice
(see comment 11(c)-2 of the staff commentary).
Consumer Signatures and Similar Authentication
Section 205.10(b) requires that preauthorized EFTs be authorized
only by a writing signed or similarly authenticated by the consumer.
The phrase ``or similarly authenticated'' was added in the 1996 review
of Regulation E. The Board indicated in the Federal Register notice
accompanying the amendment that the authentication method should
provide the same assurance as a signature in a paper-based system, and
cited security codes and digital signatures as examples of
authentication devices that might meet the requirements of
Sec. 205.10(b). Since the 1996 amendment, the Board has received
requests for further guidance on electronic authentication methods. The
Board is interested in learning about other ways in which
authentication in an electronic environment might take the place of the
consumer's signature.
Current Need for Safeguards Concerning the Electronic Delivery of
Disclosures
Today, most consumers receive federal disclosures in paper form. As
electronic commerce and electronic banking increase and technological
advances take place, obtaining disclosures by electronic communication
will likely become more commonplace. Currently, however, the use of
electronic communication in the delivery of financial services is still
evolving. Thus, it is difficult to fully predict the extent to which
additional safeguards, if any, may be needed to ensure that consumers
receive the same protections that exist for disclosures in paper form.
The Board expects that depository institutions and other institutions
subject to the EFTA and Regulation E will provide sufficient details
about the delivery of disclosures. The Board plans to closely monitor
the development of electronic delivery of EFTA disclosures and other
information, and will address compliance or other issues that may arise
as appropriate.
III. Form of Comment Letters
Comment letters should refer to Docket No. R-1002 and, when
possible, should use a standard typeface with a type size of 10 or 12
characters per inch. This will enable the Board to convert the text to
machine-readable form through electronic scanning, and will facilitate
automated retrieval of comments for review. Also, if accompanied by an
original document in paper form, comments may be submitted on 3\1/2\
inch or 5\1/4\ inch computer diskettes in any IBM-compatible DOS-based
format.
IV. Regulatory Flexibility Analysis
In accordance with section 3(a) of the Regulatory Flexibility Act
and section 904(a)(2) of the EFTA, the Board's Office of the Secretary
has reviewed the interim amendments to Regulation E. Overall, the
interim amendments are not expected to have any significant impact on
small entities. The interim rule would relieve compliance burden by
giving financial institutions flexibility in providing disclosures. A
final regulatory flexibility analysis will be conducted after
consideration of comments received during the public comment period.
V. Paperwork Reduction Act
In accordance with section 3506 of the Paperwork Reduction Act of
1995 (44 U.S.C. Ch. 35; 5 CFR part 1320 Appendix A.1), the Board
reviewed the interim rule under the authority delegated to the Board by
the Office of Management and Budget.
The collection of information requirements in this interim
regulation are found in 12 CFR Part 205. This information would be
mandatory to ensure adequate disclosure of basic terms, costs, and
rights relating to services affecting consumers using certain home-
banking services and consumers receiving certain disclosures by
electronic communication. The respondents/recordkeepers are for-profit
financial institutions, including small businesses. This regulation
applies to all types of depository institutions, not just state member
banks. However, under Paperwork Reduction Act regulations, the Federal
Reserve accounts for the burden of the paperwork associated with the
regulation only for state member banks. Other agencies account for the
paperwork burden on their respective constituencies under this
regulation.
The Federal Reserve has no data on which to estimate the burden the
regulatory amendments would impose on state member banks. However,
since the amendments provide an alternative method for delivering
disclosures and notices, it is anticipated that the requirements would
not be burdensome. The use of electronic communication would likely
reduce the paperwork burden of financial institutions. Institutions
would be able to use electronic communication to provide disclosures
and other information rather than having to print and mail the
information in paper form.
The Federal Reserve requests comments from institutions, especially
state member banks, that will help to estimate the number and burden of
the various disclosures that would be made in the first year this
interim regulation is effective. Comments are invited on: (a) The cost
of compliance; (b) ways to enhance the quality, utility, and clarity of
the information to be disclosed; and (c) ways to minimize the burden of
disclosure on respondents, including through the use of automated
disclosure techniques or other forms of information technology.
Comments on the collection of information should be sent to the Office
of Management and Budget, Paperwork Reduction Project (7100-0200),
Washington, DC 20503, with copies of such comments sent to Mary M.
McLaughlin, Federal Reserve Board
[[Page 14532]]
Clearance Officer, Division of Research and Statistics, Mail Stop 97,
Board of Governors of the Federal Reserve System, Washington, DC 20551.
List of Subjects in 12 CFR Part 205
Banks, Banking, Consumer protection, Electronic fund transfers,
Reporting and record keeping requirements.
Pursuant to the authority granted in sections 904(a) and (c) of the
Electronic Fund Transfer Act, 15 U.S.C. 1693b(a) and (c), and for the
reasons set forth in the preamble, the Board amends Regulation E, 12
CFR part 205, as set forth below:
PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)
1. The authority citation for part 205 continues to read as
follows:
Authority: 15 U.S.C. 1693-1693r.
2. Section 205.4 is amended by adding paragraph (c) to read as
follows:
Sec. 205.4 General disclosure requirements; jointly offered services.
* * * * *
(c) Electronic communication.--(1) Definition. For purposes of this
regulation, the term electronic communication means a message
transmitted electronically between a consumer and a financial
institution in a format that allows visual text to be displayed on
equipment such as a personal computer monitor.
(2) Electronic communication between financial institution and
consumer. A financial institution and a consumer may agree to send by
electronic communication any information required by this regulation to
be in writing. Information sent by electronic communication to a
consumer must comply with paragraph (a) of this section and the
applicable timing and other requirements contained in the regulation.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, March 12, 1998.
William W. Wiles,
Secretary of the Board.
[FR Doc. 98-6988 Filed 3-24-98; 8:45 am]
BILLING CODE 6210-01-P