[Federal Register Volume 63, Number 57 (Wednesday, March 25, 1998)]
[Proposed Rules]
[Pages 14555-14558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6993]
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FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-1007]
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule; technical amendments.
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SUMMARY: The Board is publishing for comment a proposed rule to
eliminate the extended time periods in Regulation E for investigating
claims involving point-of-sale (POS) debit card and foreign-initiated
transactions. Regulation E implements the Electronic Fund Transfer Act.
Financial institutions generally have up to 10 business days to
provisionally credit an account and up to 45 calendar days to complete
an investigation of an alleged error. For POS and foreign transactions,
financial institutions have up to 20 business days under the regulation
to
[[Page 14556]]
provisionally credit an account and up to 90 calendar days to complete
the investigation of an alleged error. The Board believes that
technological improvements in payment systems should permit consumer
claims of error to be investigated more quickly than in the past, and
proposes to amend the regulation accordingly. The proposed rule also
contains a technical amendment to a model form to harmonize it with the
regulation.
DATES: Comments must be received on or before May 15, 1998.
ADDRESSES: Comments should refer to Docket No. R-1007, 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. Except as
provided in the Board's Rules Regarding Availability of Information (12
CFR 261.12), comments will be available for inspection and copying by
members of the public in the Freedom of Information Office, Room MP-500
of the Martin Building, between 9:00 a.m. and 5:00 p.m. weekdays.
FOR FURTHER INFORMATION CONTACT: Obrea O. Poindexter, Staff Attorney,
or John C. Wood, Senior Attorney, Division of Consumer and Community
Affairs, Board of Governors of the Federal Reserve System, at (202)
452-2412 or (202) 452-3667. For users of Telecommunications Device for
the Deaf (TDD) only, 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 (POS) terminal, automated clearinghouse,
telephone bill-payment system, or home banking program. 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.
II. Proposed Regulatory Revisions
Error Resolution--POS Transactions
The EFTA requires a financial institution to investigate and
resolve a consumer's claim of error--for an unauthorized EFT, for
example--within specified time limits. Within 10 business days after
receiving notice of an alleged error an institution must either resolve
the claim or provisionally credit the consumer's account while
continuing to investigate. In the latter case, the institution must
resolve the claim no later than 45 calendar days after receiving
notice.
For POS and foreign transactions, Regulation E provides longer time
periods; it allows 20 business days to resolve a claim of an error (or
to provisionally credit an account if the investigation takes longer),
and 90 calendar days to complete the investigation. The rule allows
issuers to avoid having to provisionally credit an account before the
investigation is complete. The longer periods were adopted by the Board
in 1982 for foreign transactions; and were adopted in 1984 for POS
transactions, along with amendments to Regulation E to cover paper-
based debit card transactions. Initially, the Board proposed to have
the longer time periods for resolving claims of error apply only to
paper-based debit card transactions (at merchant locations) that did
not involve electronic terminals. After public comment, the Board
adopted a final rule that applied the extended time frames to all POS
transactions. The adoption of a uniform rule avoided the complexity of
having the timing rules depend on how the particular EFT was initiated,
which would have been confusing to consumers and burdensome to
institutions. Moreover, at that time only a small portion of the POS
debit card transactions involved electronic terminals.
The use of electronic terminals for all types of POS debit card
transactions is now commonplace. Debit card transactions using personal
identification numbers (PINs) at grocery stores and other merchant
locations (referred to as PIN-protected) have been the most common type
of debit card transaction in the United States. In the past few years,
however, there has been an increase in the use at POS terminals of
debit cards that can be used without a PIN (commonly referred to as
check cards). Besides making them available upon request, many
institutions have automatically replaced their customers' existing PIN-
protected cards with cards that can be used with a PIN or without a PIN
depending on where the transaction takes place.
This development has raised concerns about the potentially greater
consumer exposure to losses in the absence of PIN protection. On
September 24, 1997, the Subcommittee on Financial Institutions and
Consumer Credit of the House Committee on Banking and Financial
Services held a hearing on two bills to amend the EFTA in connection
with the use of check cards. The bills would limit consumer liability
for check cards, restrict unsolicited issuance of the cards in
substitution for PIN-protected cards, add disclosures, and require
institutions to provisionally recredit accounts sooner while
investigating claims of unauthorized use or other errors.
With regard to the investigation of claims of error, legislation
was introduced that would require institutions to recredit a consumer's
account within three business days of notice of the claim of error. An
industry representative of a card association testified that standards
were voluntarily being adopted to require member institutions to
provisionally credit accounts involving the use of a check card within
five business days.
The Board believes that technical improvements in the payment
system should permit consumer claims involving POS transactions to be
investigated more quickly for transactions at POS; the same may be true
for foreign transactions as well. Testimony at the September 1997
congressional hearing supports that conclusion. The Board believes
that, especially in the context of accounts that can be accessed
without PIN protection (potentially increasing consumer exposure to
losses), the importance of more prompt recrediting of consumers' funds
pending investigation may outweigh the compliance burden, if any,
associated with this change. Therefore, the Board proposes to eliminate
the extended time periods for POS and foreign transactions. The Board
solicits specific comment on whether removal of the special rule would
impose an undue burden.
Error Resolution--New Accounts
In the course of the Board's review of Regulation E, financial
institutions suggested a change in the error resolution requirements
when a new account is involved. The problem arises when individuals
open an account with
[[Page 14557]]
the intent to defraud. Such individuals may open an account,
immediately withdraw all or a large portion of the funds through ARMS,
and file a claim with the financial institution disputing the ATM
transactions. Often they receive provisional credit because of the
financial institution's inability to research the claim (such as by
obtaining photographic evidence from a nonproprietary ATM) within ten
business days of a claim. At that point, the individual immediately
withdraws the funds that were provisionally credited and abandons the
account. Institutions believed that having more time to investigate
errors involving new accounts would enable them to limit their losses
and control this type of fraud.
The Board proposed in May 1996 to amend Regulation E, pursuant to
its section 904(c) authority to provide for adjustments and exceptions
in the regulation, to extend the error-resolution time periods for new
accounts. The proposal would have allowed 20 business days for
resolving an error before an institution is required to provisionally
credit, and an outside limit of 90 calendar days for resolving the
claim. The Board solicited comment on the extensions of time, on the
30-day definition for new accounts, and on whether consumer protections
relating to error resolution would be adversely affected.
Comments on the proposed rule, from financial institutions and
trade associations, were generally favorable. However, in light of the
proposed rule to reduce the time for resolving errors involving POS and
foreign transactions, the Board is deferring final action until action
is taken on the POS and foreign transaction proposal.
Technical Amendment to Error Resolution Notice
Regulation E requires financial institutions to investigate and
resolve errors alleged by consumers, either within 10 business days
after receiving the consumer's notice of error or within 45 calendar
days after receiving the notice, provided the institution provisionally
credits the consumer's account within 10 business days. Upon completion
of the investigation, the institution must notify the consumer of its
findings. Prior to the 1996 revision of Regulation E, the institution
had an additional three days to notify the consumer only if the
institution found that an error did not occur and was operating under
the 45-day rule. If the institution found that an error did occur, the
institution was required to notify the consumer no later than the tenth
business day or the 45th calendar day, as applicable.
In the 1996 revision, the Board amended the error resolution
procedures (Sec. 205.11) to allow institutions the three additional
days to notify the consumer in all cases. However, the model error
resolution notice (Appendix A, paragraph A-3) was not revised at that
time to conform to the amendment to Sec. 205.11. The text of the model
notice is being amended to conform it to Sec. 205.11 as amended.
III. Form of Comment Letters
Comment letters should refer to Docket No. R-1007. 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 computer
diskettes, using either the 3.5'' or 5.25'' size, in any DOS-compatible
format. Comments on computer diskettes must be accompanied by a paper
version.
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 E. The Board believes that the proposal to
shorten the time period for investigating errors alleged in point-of-
sale debit card transactions will provide increased consumer protection
without any increase in regulatory burden. The current exception to the
statutory requirement of 10 business days for such investigations was
implemented at a time when paper-based transactions were more common.
The Board believes that such transactions are uncommon today, beyond
the initial deposit of transaction information when depository
institutions and third-party processors convert any paper-based
information to electronic form. The Board specifically solicits comment
on extent of any difficulty that this change might warrant.
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 Federal Reserve has no data with which to estimate the burden
the proposed revised requirements would impose on state member banks.
Issuers 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 may reduce the paperwork burden of financial
institutions or merely may reduce the dollar cost.
The Federal Reserve requests comments from issuers, 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) 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 Reduction Project (7100-0200),
Washington, DC 20503, with copies of such comments 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 interim
regulation are found throughout 12 CFR Part 205 and in Appendix A. This
information is mandatory (15 U.S.C. 1693 et seq.) to ensure adequate
disclosure of basic terms, costs, and rights relating to electronic
fund transfer (EFT) services provided to consumers. The respondents/
recordkeepers are for-profit financial institutions, including small
businesses. Institutions are also required to retain records for 24
months as evidence of compliance.
The Board also proposes to extend the Recordkeeping and Disclosure
Requirements in Connection with Regulation E (OMB No. 7100-0200) for
three years. The current estimated total annual burden for this
information collection is 462,839 hours, as shown in the table below.
These amounts reflect the burden estimate of the Federal Reserve System
for the 851 state member banks estimated to be covered by Regulation E.
This regulation applies
[[Page 14558]]
to all types of issuers, 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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Initial Disclosures:
Initial terms....................... 851 250 2.50 minutes................... 8,865
Change in terms..................... 851 340 1.00 minute.................... 4,822
Transaction disclosures:
Terminal receipts................... 851 71,990 0.25 minute.................... 255,265
Deposit verifications............... 851 420 1.50 minutes................... 8,936
Periodic disclosures.................... 851 12,800 1.00 minute.................... 181,547
Error resolution rules.................. 851 8 30.00 minutes.................. 3,404
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Total............................... ........... ........... ............................... 462,839
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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 disclosures
and information about error allegations are confidential between the
institution and the consumer. 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 E is 7100-0200.
List of Subjects in 12 CFR Part 205
Consumer protection, Electronic fund transfers, Federal Reserve
System, Reporting and recordkeeping requirements.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
changes to Regulation E. New language is shown inside bold-faced
arrows, while language that would be removed is set off with brackets.
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 proposes to amend
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.
Sec. 205.11 [Amended]
2. Section 205.11 would be amended by removing paragraph (c)(3) and
redesignating paragraph (c)(4) as paragraph (c)(3).
3. In Appendix A to Part 205, in A-3 MODEL FORMS FOR ERROR
RESOLUTION NOTICE (Secs. 205.7(b)(10) and 205.8(b)), the undesignated
second and third paragraphs following paragraph (a)(3) would be revised
to read as follows:
Appendix A to Part 205--Model Disclosure Clauses and Forms
* * * * *
A-3--MODEL FORMS FOR ERROR RESOLUTION NOTICE (Secs. 205.7(b)(10) AND
205.8(b))
(a) Initial and annual error resolution notice
(Secs. 205.7(b)(10) and 205.8(b))
* * * * *
We will determine whether an error occurred
[tell you the results of our investigation] within 10 business days
after we hear from you and will correct any error promptly. If we need
more time, however, we may take up to 45 days to investigate your
complaint or question. If we decide to do this, we will credit your
account within 10 business days for the amount you think is in error,
so that you will have the use of the money during the time it takes us
to complete our investigation. If we ask you to put your complaint or
question in writing and we do not receive it within 10 business days,
we may not credit your account.
We will tell you the results of our investigation within
three business days after completing it. If we decide that
there was no error, this will include [we will
send you] a written explanation [within three business days after we
finish our investigation]. You may ask for copies of the documents that
we used in our investigation.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, March 12, 1998.
William W. Wiles,
Secretary of the Board.
[FR Doc. 98-6993 Filed 3-24-98; 8:45 am]
BILLING CODE 6210-01-P