[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

[[Page 14553]]

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

[[Page 14554]]

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

[[Page 14555]]

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
                                                                                                    ------------
        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