[Federal Register Volume 63, Number 57 (Wednesday, March 25, 1998)]
[Proposed Rules]
[Pages 14552-14555]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6992]
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FEDERAL RESERVE SYSTEM
12 CFR Part 202
[Regulation B; Docket No. R-1006]
Equal Credit Opportunity
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule.
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SUMMARY: The Board is publishing for comment a proposed rule amending
Regulation B, which implements the Equal Credit Opportunity Act. The
proposal would permit creditors to use electronic communication (for
example, communication via personal computer and modem) to provide
disclosures required by the act and regulation if the consumer agrees
to such delivery.
DATES: Comments must be received by May 15, 1998.
ADDRESSES: Comments should refer to Docket No. R-1006, 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 Natalie E. Taylor,
Staff Attorneys, Division of Consumer and Community Affairs, at (202)
452-3667 or (202) 452-2412. For the hearing impaired only,
Telecommunications Device for the Deaf (TDD), contact Diane Jenkins, at
(202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background
The Equal Credit Opportunity Act (ECOA) (15 U.S.C. 1691 et seq.)
makes it unlawful for creditors to discriminate in any aspect of a
credit transaction on the basis of sex, race, color, religion, national
origin, marital status, age (provided the applicant has the capacity
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to contract), because all or part of an applicant's income derives from
public assistance, or because an applicant has in good faith exercised
any right under the Consumer Credit Protection Act. The act is
implemented by the Board's Regulation B (12 CFR part 202).
As part of the Regulatory Planning and Review Program and its
review of regulations under 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 for
delivery of information to consumers that is required by federal
consumer financial services and fair lending laws could effectively
reduce regulatory compliance burden without adversely affecting
consumer protections. Thus, the Board has been considering the issue
and closely following the development of electronic communication. For
example, in May 1996, the Board proposed to amend Regulation E
(Electronic Fund Transfers) to permit disclosures to be provided
electronically. In March 1997, the Board issued an amendment to the
staff commentary to Regulation CC (Availability of Funds and Collection
of Checks) that allowed financial institutions to send notices
electronically. (62 FR 13801, March 18, 1997.)
Having considered comments received on the Regulation E proposal
and other rulemakings, the Board now proposes to amend Regulation B to
allow creditors to provide Regulation B disclosures electronically;
such disclosures would remain subject to any applicable timing, format,
and other requirements of the act and the regulation. Concurrently, the
Board is issuing similar proposed revisions to address electronic
communication under Regulations DD (Truth in Savings), Z (Truth in
Lending), and M (Consumer Leasing), published elsewhere in today's
Federal Register. In addition, the Board has issued an interim rule
under Regulation E also published elsewhere in today's Federal Register
so that financial institutions can implement systems to provide
Electronic Fund Transfer Act disclosures electronically.
II. Proposed Regulatory Revisions
The ECOA and Regulation B require certain disclosures to be
provided to applicants in writing. Under Regulation B, the regulatory
requirement that disclosures be in writing has been presumed to require
that creditors provide paper documents. 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
at least where visual text is involved.
Therefore, pursuant to its authority under section 703(a)(1) of the
ECOA, the Board proposes to amend Regulation B to permit creditors to
use electronic communication where the regulation calls for information
to be provided in writing. The term ``electronic communication'' is
limited to a communication that can be displayed as visual text. An
example is an electronic visual text message that is displayed on a
screen (such as the consumer's computer monitor). Communications by
telephone voicemail systems do not meet the definition of ``electronic
communication'' for purposes of this regulation because they do not
have the feature generally associated with a writing--visual text.
Section 202.5 Rules Concerning Taking of Applications
A new subsection (f) would be added to Sec. 202.5 to address
electronic communication. ``Electronic communication'' is a visual text
message electronically transmitted between a creditor and an
applicant's home computer or other electronic device used by an
applicant. (Under the ECOA and Regulation B, the term ``applicant''
includes any person who requests or who has received and extension of
credit from a creditor, and any person who is or may become
contractually liable regarding an extension of credit. In this notice,
the term is used in this context.)
Agreements Between Financial Institutions and Consumers
Section 202.5(f) would permit creditors to send electronic
disclosures if the consumer agrees. There may be various ways that a
creditor and an applicant agree to the electronic delivery of
disclosures and other information. Whether such an agreement exists
between the parties would be determined by applicable state law. The
regulation would not preclude a creditor and an applicant 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
ECOA and Regulation B disclosures and other information electronically.
Delivery Requirements for Electronic Communication
Regulation B requires that a creditor ``provide,'' ``give,''
``deliver,'' or ``mail'' information to an applicant, or ``notify'' an
applicant of certain information. Generally, the delivery requirement
anticipates that a creditor will deliver the information--typically by
mail--to an address designated by the applicant. For a paper
communication, a creditor would not satisfy that requirement by making
disclosures ``available'' to applicants, for example, at a creditor's
office or other location. The Board believes that consumers receiving
disclosures by electronic communication should have protections
regarding delivery similar to those afforded consumers receiving
disclosures in paper form. Simply posting information to an Internet
site, however, without some appropriate notice and instructions about
how the applicant may obtain the required information would not satisfy
the requirement.
As a practical matter, there may be little distinction between
sending or delivering electronic disclosures and making them
``available.'' Creditors would have flexibility in how they may deliver
electronic disclosures to applicants, including, but not limited to the
following examples. They may send disclosures to a consumer-designated
electronic mail address or they may designate a location on a website
where the applicant enters a personal identification number or other
identifier to access required information. Assume that an applicant
applies for a credit plan and agrees to receive all ECOA and Regulation
B disclosures electronically. Subsequent disclosures, such as adverse
action notices, sent (or delivered) to the designated address or placed
at a designated location would generally satisfy the delivery
requirements of the regulation.
Electronic communication would remain subject to any timing or
other applicable requirements under Regulation B. For example, notice
of action required by Sec. 202.9(a)(1) of Regulation B must still be
provided within thirty days after receiving a completed application.
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 Conspicuous''
Currently, Regulation B does not expressly require creditors to
present required information in a clear and
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conspicuous format. On the other hand, Regulations CC (Availability of
Funds), DD (Truth in Savings), E (Electronic Fund Transfers), M
(Consumer Leasing), and Z (Truth in Lending) all require that
information be provided in a clear and conspicuous (or readily
understandable) format. Accordingly, the Board believes it may be
desirable to apply this same standard to information provided by
electronic communication under Regulation B to ensure that information
is understandable. The Board requests comment on whether Regulation B
should be amended to apply this requirement to disclosures provided
electronically.
Applicant's Ability to Retain Disclosures
Currently, only the notice in Sec. 202.9(a)(3)(i)(B) of Regulation
B need be provided in a form the applicant may retain. As in the case
of the clear and conspicuous requirement discussed above, Regulations
CC (Availability of Funds), DD (Truth in Savings), E (Electronic Fund
Transfers), M (Consumer Leasing), and Z (Truth in Lending) all require
that information be provided in a form that the consumer may keep.
Because the retention requirement for written disclosures (including
electronic communication) exists for those regulations, it seems
appropriate to apply a comparable standard to Regulation B. The Board
requests comment on whether this retention requirement should be
extended to electronic communication under Regulation B.
Creditors would satisfy the retention requirement if, for example,
disclosures can be printed or downloaded by the applicant. Thus,
creditors would not be required to monitor an individual applicant's
ability to retain the information, nor to take steps to find out
whether the applicant has in fact retained it. The Board anticipates
that, where appropriate, a creditor would inform the applicant of
special technical specifications for receiving or retaining information
before or at the time an applicant agrees to receive information
electronically.
However, in circumstances where the creditor (or a network in which
the creditor is a member) controls the equipment to be used for the
service--such as terminals in institution lobbies or kiosks in public
or other places--the creditor would have the responsibility of ensuring
retainability. Provided that the delivery requirements (discussed
above) are satisfied, methods for fulfilling this requirement could
include, for example, printers incorporated into terminals or a screen
message offering to transmit the disclosure to the applicant's
electronic mail or post office address.
Consumer Requests for Information
Under Regulation B, applicants are entitled to receive certain
information upon written request. For example, Sec. 202.5a requires a
creditor to provide--either automatically or upon the applicant's
written request--a copy of the appraisal report used in connection with
an application for a loan secured by a lien on a dwelling. Where the
creditor provides appraisal reports only upon request, the creditor
must notify the applicant of the right to request an appraisal and
whether the applicant's request must be in writing. Section
202.9(a)(3)(ii) allows a creditor to disclose orally a business
applicant's right to a statement of specific reasons for adverse
action; however, the creditor must provide the reasons in writing
within a specified time period after receiving the applicant's written
request for the reasons. The proposed rule would permit all consumer
requests required to be in writing to be sent electronically.
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 creditors subject to Regulation B will provide
sufficient details about the delivery of disclosures. The Board plans
to closely monitor the development of electronic delivery of
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-1006 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,
the Board's Office of the Secretary has reviewed the proposed
amendments to Regulation B. Overall, the proposed amendments are not
expected to have any significant impact on small entities. The proposed
rule would relieve compliance burden by giving creditors 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 proposed revisions under the authority delegated to the
Board by the Office of Management and Budget.
The Federal Reserve has no data with which to estimate the burden
the proposed revised requirements would impose on state member banks.
Creditors would be able to use electronic communication to provide
disclosures and other information required by this regulation rather
than having to print and mail the information in paper form. The use of
electronic communication in home banking and financial services may
reduce the paperwork burden on creditors and financial institutions or
merely may reduce the dollar cost.
The Federal Reserve requests comments from creditors, 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 rule
is effective. Comments are invited on: (a) Whether the proposed revised
collection of information is necessary for the proper performance of
the Federal Reserve's functions; including whether the information has
practical utility; (b) the accuracy of the Federal Reserve's estimate
of the burden of the proposed revised information collection, including
the cost of compliance; (c) ways to enhance the quality, utility, and
clarity of the information to be collected; and (d) ways to minimize
the burden of information collection on respondents, including through
the use of automated collection techniques or other forms of
information technology. Comments on the collection of information
should be sent to the Office of Management and Budget, Paperwork
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Reduction Project (7100-0201), Washington, DC 20503, with copies of
such comments to be sent to Mary M. McLaughlin, Chief, Financial
Reports Section, Division of Research and Statistics, Mail Stop 97,
Board of Governors of the Federal Reserve System, Washington, DC 20551.
The collection of information requirements in this proposed
regulation are found in 12 CFR 202.5, 202.9, 202.12, 202.13, and
Appendices B and C. This information is mandatory (15 U.S.C.
1691b(a)(1) and Public Law 104-208, Sec. 2302(a)) to ensure that credit
is made available to all creditworthy customers without discrimination
on the basis of race, color, religion, national origin, sex, marital
status, age (provided the applicant has the capacity to contract),
receipt of public assistance, or the fact that the applicant has in
good faith exercised any right under the Consumer Credit Protection Act
(15 U.S.C. 1600 et. seq.). The respondents/recordkeepers are for-profit
financial institutions, including small businesses. Creditors are
required to retain records for twelve to twenty-five months as evidence
of compliance.
The Board also proposes to extend the Recordkeeping and Disclosure
Requirements in Connection with Regulation B (OMB No. 7100-0201) for
three years. The current estimated total annual burden for this
information collection is 125,177 hours, as shown in the table below.
These amounts reflect the burden estimate of the Federal Reserve System
for the 996 state member banks under its supervision. This regulation
applies to all types of creditors, not just state member banks.
However, under Paperwork Reduction Act regulations, the Federal Reserve
accounts for the burden of the paperwork associated with the regulation
only for state member banks. Other agencies account for the paperwork
burden for the institutions they supervise.
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Estimated
Number of Estimated annual
respondents annual Estimated response time burden
frequency hours
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Notification............................ 996 1,715 2.50 minutes 71,173
Credit history reporting................ 996 850 2.00 minutes 28,220
Monitoring.............................. 996 360 .50 minute 2,988
Appraisal:
Appraisal report upon request....... 996 190 5.00 minutes 15,770
Notice of right to appraisal........ 996 1,650 .25 minute 6,848
Self-testing:
Recordkeeping of test............... 45 1 2 hours 90
Recordkeeping of corrective action.. 11 1 8 hours 88
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Total........................... ........... ........... ............................... 125,177
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Since the Federal Reserve does not collect any information, no
issue of confidentiality normally arises. However, the information may
be protected from disclosure under the exemptions (b)(4), (6), and (8)
of the Freedom of Information Act (5 U.S.C. 522 (b)). The adverse
action disclosure is confidential between the institution and the
consumer involved.
An agency may not conduct or sponsor, and an organization is not
required to respond to, an information collection unless it displays a
currently valid OMB control number. The OMB control number for the
Recordkeeping and Disclosure Requirements in Connection with Regulation
B is 7100-0201.
List of Subjects in 12 CFR Part 202
Aged, Banks, banking, Civil rights, Credit, Federal Reserve System,
Marital status discrimination, Penalties, Religious discrimination,
Reporting and recordkeeping requirements, Sex discrimination.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
changes to Regulation B. New language is shown inside bold-faced
arrows.
For the reasons set forth in the preamble, the Board proposes to
amend 12 CFR part 202 as set forth below:
PART 202--EQUAL CREDIT OPPORTUNITY (REGULATION B)
1. The authority citation for part 202 continues to read as
follows:
Authority: 15 U.S.C. 1691-1691f.
2. Section 202.5 would be amended by adding a new paragraph (f) to
read as follows:
Sec. 202.5 Rules concerning taking of applications.
* * * * *
(f) Electronic communication means a message transmitted
electronically between an applicant and a creditor in a format that
allows visual text to be displayed on equipment such as a personal
computer monitor. A creditor and an applicant may agree to send by
electronic communication any information required by Secs. 202.5a,
202.9, or 202.13(b), in accordance with applicable timing requirements.
Disclosures provided by electronic communication shall be clear and
conspicuous and in a form that the applicant may keep.
By order of the Board of Governors of the Federal Reserve
System, March 12, 1998.
William W. Wiles,
Secretary of the Board.
[FR Doc. 98-6992 Filed 3-24-98; 8:45 am]
BILLING CODE 6210-01-P