[Federal Register Volume 64, Number 177 (Tuesday, September 14, 1999)]
[Proposed Rules]
[Pages 49722-49740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23138]


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FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-1043]


Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is requesting comment on proposed revisions to 
Regulation Z, which implements the Truth in Lending Act. The Board 
previously published a proposed rule that permits creditors to use 
electronic communication (for example, communication via personal 
computer and modem) to provide disclosures required by the act and 
regulation, if the

[[Page 49723]]

consumer agrees to such delivery. (A similar rule was also proposed 
under various other consumer financial services and fair lending 
regulations administered by the Board.) In response to comments 
received on the proposals, the Board is publishing for comment an 
alternative proposal on the electronic delivery of disclosures, 
together with proposed commentary that would provide further guidance 
on electronic communication issues. The Board is also publishing for 
comment proposed revisions to allow disclosures in other languages.

DATES: Comments must be received by October 29, 1999.

ADDRESSES: Comments, which should refer to Docket No. R-1043, may be 
mailed to Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, N.W., 
Washington, DC 20551. Comments addressed to Ms. Johnson may also be 
delivered to the Board's mail room between 8:45 a.m. and 5:15 p.m. 
weekdays, and to the security control room at all other times. The mail 
room and the security control room, both in the Board's Eccles 
Building, are accessible from the courtyard entrance on 20th Street 
between Constitution Avenue and C Street, N.W. Comments may be 
inspected in room MP-500 between 9:00 a.m. and 5:00 p.m., pursuant to 
Sec. 261.12, except as provided in Sec. 261.14 of the Board's Rules 
Regarding the Availability of Information, 12 CFR 261.12 and 261.14.

FOR FURTHER INFORMATION CONTACT: For information pertaining to open-end 
credit, John C. Wood, Senior Attorney, or Jane E. Ahrens, Senior 
Counsel; for information pertaining to closed-end credit, Michael L. 
Hentrel or Kyung H. Cho-Miller, Staff Attorneys, Division of Consumer 
and Community Affairs, at (202) 452-3667 or (202) 452-2412. Users of 
Telecommunications Device for the Deaf (TDD) only, contact Diane 
Jenkins at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

    The purpose of the Truth in Lending Act (TILA), 15 U.S.C. 1601 et 
seq., is to promote the informed use of consumer credit by requiring 
disclosures about its terms and cost. The Board's Regulation Z (12 CFR 
part 226) implements the act. The act requires creditors to disclose 
the cost of credit as a dollar amount (the finance charge) and as an 
annual percentage rate (the APR). Uniformity in creditors' disclosures 
is intended to assist consumers in comparison shopping. TILA requires 
additional disclosures for loans secured by consumers' homes and 
permits consumers to rescind certain transactions that involve their 
principal dwellings.
    TILA and Regulation Z require a number of disclosures to be 
provided in writing, presuming 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, where visual text is involved.
    In May 1996, the Board revised Regulation E (Electronic Fund 
Transfers) following a comprehensive review. During that process, the 
Board determined that electronic communications for delivery of 
information required by federal laws governing financial services could 
effectively reduce compliance costs without adversely affecting 
consumer protections. Consequently, the Board simultaneously issued a 
proposed rule to permit financial institutions to use electronic 
communication to deliver disclosures that Regulation E requires to be 
given in writing. (61 FR 19696, May 2, 1996.) The 1996 proposal 
required that disclosures be provided in a form the consumer may 
retain, a requirement that institutions could satisfy by providing 
information in a format that may be printed or downloaded. The proposed 
rule also allowed consumers to request a paper copy of a disclosure for 
up to one year after its original delivery.
    Following a review of the comments, on March 25, 1998, the Board 
issued an interim rule under Regulation E (the ``interim rule''), 63 FR 
14528. The Board also published proposals under Regulations DD (Truth 
in Savings), 63 FR 14533, M (Consumer Leasing), 63 FR 14538, Z (Truth 
in Lending), 63 FR 14548, and B (Equal Credit Opportunity), 63 FR 
14552, (collectively, the ``March 1998 proposed rules''). The rules 
would apply to financial institutions, creditors, lessors, and other 
entities that are required to give disclosures to consumers and others. 
(For ease of reference this background section uses the terms 
``financial institutions,'' ``institutions,'' and ``consumers.'') The 
interim rule and the March 1998 proposed rules were similar to the May 
1996 proposed rule; however, they did not require financial 
institutions to provide paper copies of disclosures to a consumer upon 
request if the consumer previously agreed to receive disclosures 
electronically. The Board believed that most institutions would 
accommodate consumer requests for paper copies when feasible or 
redeliver disclosures electronically; and the Board encouraged 
financial institutions to do so.
    The March 1998 proposed rules and the interim rule permitted 
financial institutions to provide disclosures electronically if the 
consumer agreed, with few other requirements. The rule was intended to 
provide flexibility and did not specify any particular method for 
obtaining a consumer's agreement. Whether the parties had an agreement 
would be determined by state law. The proposals and the interim rule 
did not preclude a financial institution and a consumer from entering 
into an agreement electronically, nor did they prescribe a formal 
mechanism for doing so.
    The Board received approximately 200 written comments on the 
interim rule and the March 1998 proposed rules. The majority of 
comments were submitted by financial institutions and their trade 
associations. Industry commenters generally supported the use of 
electronic communication to deliver information required by the TILA 
and Regulation Z. Nevertheless, many sought specific revisions and 
additional guidance on how to comply with the disclosure requirements 
in particular transactions and circumstances.
    Industry commenters were especially concerned about the condition 
that a consumer had to ``agree'' to receive information by electronic 
communication, because the rule did not specify a method for 
establishing that an ``agreement'' was reached. These commenters 
believed that relying on state law created uncertainty about what 
constitutes an agreement and, therefore, potential liability for 
noncompliance. To avoid uncertainty over which state's laws apply, some 
commenters urged the Board to adopt a federal minimum standard for 
agreements or for informed consent to receive disclosures by electronic 
communication. These commenters believed that such a standard would 
avoid the compliance burden associated with tailoring legally binding 
``agreements'' to the contract laws of all jurisdictions where 
electronic communications may be sent.
    Consumer advocates generally opposed the March 1998 interim rule 
and proposed rules. Without additional safeguards, they believed, 
consumers may not be provided with adequate information about 
electronic communication before an ``agreement'' is reached. They also 
believed that promises of lower costs could induce consumers to agree 
to receive disclosures electronically without a full

[[Page 49724]]

understanding of the implications. To avoid such problems, they urged 
the Board, for example, either to require institutions to disclose to 
consumers that their account with the institution will not be adversely 
affected if they do not agree to receive electronic disclosures, or to 
permit institutions to offer electronic disclosures only to consumers 
who initiate contact with the institution through electronic 
communication. They also noted that some consumers will likely consent 
to electronic disclosures believing that they have the technical 
capability to retrieve information electronically, but might later 
discover that they are unable to do so. They questioned consumers' 
willingness and ability to access and retain disclosures posted on 
Internet websites, and expressed their apprehension that the goals of 
federally mandated disclosure laws will be lost.
    Consumer advocates and others were particularly concerned about the 
use of electronic disclosures in connection with home-secured loans and 
certain other transactions that consumers typically consummate in 
person (citing as examples automobile loans and leases, short-term 
``payday'' loans, or home improvement financing contracts resulting 
from door-to-door sales). They asserted that there is little benefit to 
eliminating paper disclosures in such transactions and that allowing 
electronic disclosures in those cases could lead to abusive practices. 
Accordingly, consumer advocates and others believed that paper 
disclosures should always accompany electronic disclosures in mortgage 
loans and certain other transactions, and that consumers should have 
the right to obtain paper copies of disclosures upon request for all 
types of transactions (deposit account, credit card, loan or lease, and 
other transactions).
    A final issue raised by consumer advocates was the integrity of 
disclosures sent electronically. They stated that there may be 
instances when the consumer and the institution disagree on the terms 
or conditions of an agreement and consumers may need to offer 
electronic disclosures as proof of the agreed-upon terms and to enforce 
rights under consumer protection laws. Thus, to assure that electronic 
documents have not been altered and that they accurately reflect the 
disclosures originally sent, consumer advocates recommended that the 
Board require that electronic disclosures be authenticated by an 
independent third party.
    The Board's Consumer Advisory Council considered the electronic 
delivery of disclosures in 1998 and again in 1999. Many Council members 
shared views similar to those expressed in written comment letters on 
the 1998 proposals. For example, some Council members expressed concern 
that the Board was moving too quickly in allowing electronic 
disclosures for certain transactions, and suggested that the Board 
might go forward with electronic disclosures for deposit accounts while 
proceeding more slowly on credit and lease transactions. Others 
expressed concern about consumer access and consumers' ability to 
retain electronic disclosures. They believed that, without specific 
guidance from the Board, institutions would provide electronic 
disclosures without knowing whether consumers could retain or access 
the disclosures, and without establishing procedures to address 
technical malfunctions or nondelivery. The Council also discussed the 
integrity and security of electronic documents.

II. Overview of Proposed Revisions

    Based on a review of the comments and further analysis, the Board 
is requesting comment on a modified proposed rule that is more detailed 
than the interim rule and the March 1998 proposed rules. It is intended 
to provide specific guidance for creditors that choose to use 
electronic communication to comply with Regulation Z's requirements to 
provide written disclosures, and to ensure effective delivery of 
disclosures to consumers through this medium. Though detailed, the 
proposal provides flexibility for compliance with the electronic 
communication rules. The modified proposal recognizes that some 
disclosures may warrant different treatment under the rule. Some 
disclosures are generally available to the public--for example, credit 
card costs in solicitations. Under the modified proposal, such 
disclosures could be made available electronically without obtaining a 
consumer's consent. Where written disclosures are made to consumers who 
are transacting business in person, these disclosures generally would 
have to be made in paper form.
    The Board is soliciting comment on a modified approach that 
addresses both industry and consumer group concerns. Under the 
proposal, creditors would have to provide specific information about 
how the consumer can receive and retain electronic disclosures--through 
a standardized disclosure statement--before obtaining consumers' 
acceptance of such delivery, with some exceptions. If they satisfy 
these requirements and obtain consumers' affirmative consent, creditors 
would be permitted to use electronic communications. As a general rule 
a creditor would be permitted to offer the option of receiving 
electronic disclosures to all consumers, whether they initially contact 
the creditor by electronic communication or otherwise. To address 
concerns about potential abuses, however, the proposal provides that if 
a consumer becomes obligated for an extension of credit in person, 
disclosures must be given in paper form.
    Creditors would have the option of delivering disclosures to an e-
mail address designated by the consumer or making disclosures available 
at another location such as the creditor's website, for printing or 
downloading. If the disclosures are posted at a website location, 
creditors generally must notify consumers at an e-mail address about 
the availability of the information. (Creditors may offer consumers the 
option of receiving alert notices at a postal address.) The disclosures 
must remain available at that site for 90 days.
    Disclosures provided electronically would be subject to the ``clear 
and conspicuous'' standard, and the existing format, timing, and 
retainability rules in Regulation Z. For example, to satisfy the timing 
requirement, if disclosures are due at the time an electronic 
transaction is being conducted, the disclosures have to appear on the 
screen before the consumer could complete the transaction.
    Creditors generally must provide a means for consumers to confirm 
the availability of equipment to receive and retain electronic 
disclosure documents. A creditor would not otherwise have a duty to 
verify consumers' actual ability to receive, print, or download the 
disclosures. Some commenters suggested that creditors should be 
required to verify delivery by return receipt. The Board solicits 
comment on the need for such a requirement and the feasibility of that 
approach.
    As previously mentioned, consumer advocates and others have 
expressed concerns that electronic documents can be altered more easily 
than paper documents. The issue of the integrity and security of 
electronic documents affects electronic commerce in general and is not 
unique to the written disclosures required under the consumer 
protection laws administered by the Board. Consumers' ability to 
enforce rights under the consumer protection laws could be impaired in 
some cases, however, if the authenticity of disclosures that they 
retain cannot be demonstrated. Signatures, notary seals, and other 
established verification procedures are used to detect alterations for 
transactions memorialized in paper form. The development of similar

[[Page 49725]]

devices for electronic communications should reduce uncertainty over 
time about the ability to use electronic documents for resolving 
disputes.
    The Board's rules require creditors to retain evidence of 
compliance with Regulation Z. Specific comment is solicited on the 
feasibility of complying with a requirement that creditors provide 
disclosures in a format that cannot be altered without detection, or 
have systems in place capable of detecting whether or not information 
has been altered, as well as the feasibility of requiring use of 
independent certification authorities to verify disclosure documents.
    Elsewhere in today's Federal Register, the Board is publishing 
similar proposals for comment under Regulations B, E, M, and DD. In a 
separate notice the Board is publishing an interim rule under 
Regulation DD, which implements the Truth in Savings Act, to permit 
depository institutions to use electronic communication to deliver 
disclosures on periodic statements. For ease of reference, the Board 
has assigned new docket numbers to the modified proposals published 
today.

III. Section-by-Section Analysis

    Pursuant to its authority under section 105 of the TILA, the Board 
proposes to amend Regulation Z to permit creditors to use electronic 
communication to provide the information required by this regulation to 
be in writing. Below is a section-by-section analysis of the rules for 
providing disclosures by electronic communication, including references 
to proposed commentary provisions.
    The March 1998 proposed rule addressed electronic communication in 
Subpart B (open-end credit plans), Subpart C (closed-end transactions), 
and Subpart E (certain mortgage transactions). To ease compliance, the 
Board proposes to add a new Subpart F and Appendix M to the regulation 
to address in a single location all rules affecting electronic 
communication for consumer credit transactions. The revised proposal 
also amends Sec. 226.27 to allow creditors to provide disclosures in 
another language so long as English disclosures are provided upon 
request.

Subpart B--Open-end Credit

Section 226.5a Credit and Charge Card Applications and Solicitations

5a(b) Required Disclosures
5a(b)(1) Annual Percentage Rate
    Regulation Z requires credit and charge card issuers to provide 
credit disclosures in certain applications and solicitations to open 
credit and charge card accounts. Format and content requirements differ 
for applications or solicitations sent in direct mail campaigns and for 
those made available to the general public such as in ``take-ones'' and 
catalogs or magazines. Disclosures accompanying direct mail 
applications and solicitations must be presented in a table. 
Disclosures in a take-one also may be presented in a table with the 
same content as for direct mail, but the act and regulation permit 
alternatives for format and content. Where terms are disclosed, card 
issuers are required to disclose the periodic rate that would apply, 
expressed as an APR. For fixed rates, card issuers are required to 
disclose the APR currently available under the plan. For variable 
rates, the APR disclosed in a direct mail solicitation must be accurate 
within 60 days before mailing; in a take-one, within 30 days before 
printing.
    The supplementary information to the March 1998 proposed rule 
addressed compliance with Sec. 226.5a in the context of electronic 
communication. The Board indicated that card issuers should follow (1) 
the direct-mail rules if a card issuer sends an application or 
solicitation by electronic communication that alerts the consumer that 
the application or solicitation has arrived, such as electronic mail, 
and (2) the take-one rules if an issuer makes an application or 
solicitation publicly available, such as by posting it on an Internet 
site. Thus, for applications and solicitations posted on the Internet, 
the 1998 proposal would require that APRs generally be accurate within 
30 days before the card issuer's most recent update of the Internet 
site; where direct mail rules apply, the APR would be accurate within 
60 days before the card issuer's electronic mailing.
    Most commenters concurred with the Board's guidance on when the 
direct mail requirements would apply to electronic disclosures, 
although a few commenters suggested that the Board simplify the 
proposal by establishing one rule for all solicitations by electronic 
communication. Regarding the APR, several commenters asked the Board 
what would constitute the ``most recent'' update of an Internet site. 
For example, commenters questioned whether the term referred to an 
update of any aspect of a creditor's website, or was limited to an 
update of the application or solicitation. Many commenters (including 
state and federal regulators) urged the Board to provide guidance by 
recommending a frequency for updating Internet sites. Other commenters 
stated that updates to information provided on the Internet, including 
the APR, should be required frequently, and within a set period of 
time.
    To simplify the rule and to address commenters' concerns, the Board 
is proposing a single standard that would apply to the accuracy of APRs 
contained in applications or solicitations offered via electronic 
communication. Proposed would Sec. 226.5a(b)(1)(iii) provides that when 
a variable rate is in an application or solicitation transmitted via 
electronic communication, the rate should be one that was in effect 
within the previous 30-day period. The 30-day period should allow card 
issuers sufficient flexibility in updating websites or in preparing 
electronic direct mail applications or solicitations without adversely 
affecting the consumer. The Board continues to believe that as to the 
format and content of the disclosures, applications or solicitations 
sent to a consumer's designated e-mail address should comply with the 
direct mail rules under Sec. 226.5a(c) and that applications and 
solicitations available on a website should comply with the take-one 
rules under Sec. 226.5a(e). Proposed comment 5a(a)(2)-7(i) contains 
this guidance. The Board requests comment on any compliance 
difficulties this approach may pose, and possible suggestions for their 
resolution.

Section 226.5b  Requirements for Home-Equity Plans

5b(b) Time of Disclosures
    Consumers interested in an open-end plan secured by the consumer's 
dwelling are provided with a booklet and other disclosures generically 
describing the creditor's product when an application is provided. 
Creditors may delay the delivery of the booklet and disclosures for up 
to three business days when, among other circumstances, applications 
are received by telephone. 12 CFR 226.5b(b), n. 10a.
    Creditors have requested guidance on using electronic communication 
to provide the disclosures required by Sec. 226.5b(b) when the consumer 
is transacting business at a creditor's website. Some believe the 
timing rules for applications by telephone should apply. The rationale 
underlying the deferral is that creditors cannot provide the booklet 
and other disclosures in written form as required by the regulation by 
telephone. That problem does not exist with on-line transactions. Thus, 
the Board believes there is no need for a delay in delivering 
disclosures. If the creditor's procedures permit the consumer to apply 
for credit on-line (and the creditor has complied with Sec. 226.34(c)), 
the booklet and loan-product disclosures required by Sec. 226.5b

[[Page 49726]]

would have to appear on the screen before the consumer starts the 
application process. This fulfills the rule's purpose to ensure that 
consumers have the opportunity to read important information about 
costs and other terms before the consumer completes an application or 
pays a nonrefundable fee. Proposed comment 5b(b)-7 contains this 
guidance. See also the discussion under Sec. 226.19(b), below, for 
similar guidance regarding disclosures provided at application for 
certain mortgage loans.

Section 226.16  Advertising

16(c) Catalogs and Multiple-page Advertisements
    Stating certain credit terms in an advertisement for an open-end 
credit plan triggers the disclosure of additional terms. Section 
226.16(c) permits creditors using a multiple-page advertisement to 
state the additional disclosures in a table or schedule as long as the 
triggering credit terms appearing anywhere else in the advertisement 
refer to the page where the table or schedule is printed. Several 
commenters asked the Board to clarify the rules for electronic 
advertisements. Specifically, they asked whether creditors could 
utilize the multiple-page advertisement provisions when advertising 
electronically and if so, asked for guidance on the requirement to 
reference clearly where the table or schedule begins.
    Section 226.16(c) would be amended to cover electronic 
advertisements. Creditors that advertise using electronic communication 
would comply with Sec. 226.16(c) if the table or schedule with the 
additional information is set forth clearly and conspicuously and the 
triggering credit terms appearing anywhere else in the advertisement 
clearly refer to the location where the table or schedule begins. 
Proposed comment 16(c)(1)-2 contains this guidance.

Subpart C--Closed-end Credit

Section 226.17  General Disclosure Requirements

17(g) Mail or Telephone Orders--Delay in Disclosures
    Section 226.17(g) allows creditors to defer TILA disclosures when a 
consumer makes a credit-purchase or requests credit by mail, telephone, 
or other ``electronic means'' without face-to-face or direct 
solicitation by the creditor. In such cases, creditors may delay 
providing disclosures until the first payment due date, provided 
certain information is ``made available in written form'' before the 
consumer's request. The rationale underlying the deferral is that 
creditors cannot provide transaction-specific disclosures in written 
form as required by the regulation at the time of the consumer's 
purchase or request.
    Under the March 1998 proposal, creditors offering loan products by 
``electronic communication'' (for example, those offered on the 
Internet) could not delay providing disclosures under Sec. 226.17(g). 
The rationale underlying the proposal is that the deferral rule in 
Sec. 226.17(g) pre-dates Internet banking; ``other electronic means'' 
typically involved non-interactive, non-visual means such as telegraph 
transmissions. The difficulties in providing disclosures for credit 
requests by mail or telephone are not present for credit requests 
received by electronic means of communication using visual text. Thus, 
the March 1998 proposed rule provided that specific disclosures must be 
provided before transactions are consummated using electronic 
communication. Most commenters agreed with the Board's position, that 
the same limitations that apply to requests made by telephone should 
not apply to electronic means of communication using visual text, such 
as the Internet.
    Several commenters disagreed with the proposed rule and believed 
that deferral of TILA disclosures should apply to credit requests 
initiated by electronic communication, even where visual text is used, 
because of the transaction-specific nature of the disclosures such as 
the APR and payment schedule. Some commenters believed that the Board's 
proposal would require creditors to be available at all times to 
prepare these personalized disclosures. The Board does not intend such 
a result. As is the case of credit applications by other means, 
creditors are not required to respond immediately to a request for 
credit. Also, advances in technology permit creditors to provide 
transaction-specific disclosures by combining information provided by a 
consumer with credit programs offered by a creditor.
    Other commenters were concerned that some devices using electronic 
communication, such as automated loan machines or automated teller 
machines, may not have the same capacity to store and provide 
disclosures as other means. Machines with the capability to process 
credit applications or disburse loan proceeds are generally controlled 
by the creditor or operated by a third party retained by the creditor. 
Under the March 1998 proposal, creditors have the responsibility to 
ensure proper equipment is in place where consumers receive electronic 
disclosures via equipment controlled by the creditor. This means that 
the equipment it operates or controls--including devices such as 
automated loan machines or automated teller machines--must meet clear 
and conspicuous standards and must provide a means for consumers to 
retain disclosures such as printers incorporated into terminals or a 
screen message offering to transmit the disclosure to the consumer's 
electronic mail or post office address. (See proposed comment 34(b)-1.)

Section 226.19  Certain Residential Mortgage Transactions

19(b) Certain Variable-rate Transactions
    For certain loans with variable-rate features (loans where the APR 
may increase during the loan term) that are secured by the consumer's 
principal dwelling, creditors must provide consumers with a booklet and 
other disclosures generically describing the creditor's product when an 
application is provided (or a nonrefundable fee is paid, whichever 
occurs earliest). Creditors may delay the delivery of the booklet and 
disclosures for up to three business days when, among other 
circumstances, applications are received by telephone. 12 CFR 
226.19(b), n. 45b. Consistent with proposed comment 5b(b)-7 addressing 
certain home-secured open-end plans, comment 19(b)-2 would be 
restructured and revised to address when the booklet and disclosures 
required by Sec. 226.19(b) must be provided when an application is 
received by electronic communication.

Section 226.24  Advertising

    Regulation Z prescribes certain disclosure rules for closed-end 
loan advertisements, including the use of multiple-page advertisements. 
Proposed amendments concerning electronic advertisements for open-end 
credit plans under Sec. 226.16 are discussed above. Although specific 
requirements differ somewhat for closed-end loans and open-end credit 
plans, proposed amendments for closed-end loan advertisements are 
substantially similar to those discussed above for open-end credit 
plans.
24(b) Advertisement of Rate of Finance Charge
    Section 226.24(b) permits creditors to state a simple annual rate 
or periodic rate in addition to the APR, as long as the rate is stated 
in conjunction with, but not more conspicuously than, the APR. Proposed 
comment 24(b)-6

[[Page 49727]]

contains guidance on how this rule applies to rates stated in an 
electronic advertisement.
24(d) Catalogs and Multiple-page Advertisements
    Section 226.24(d) permits creditors using a multiple-page 
advertisement to state the additional disclosures in a table or 
schedule so long as the triggering credit terms appearing anywhere else 
in the advertisement refer to the page where the table or schedule is 
printed. Section 226.24(d) would be amended to cover electronic 
advertisements. Creditors that advertise using electronic communication 
generally would comply with Sec. 226.24(d) if the table or schedule 
with the additional information is set forth clearly and the triggering 
credit terms appearing anywhere else in the advertisement clearly 
refers to the location where the table or schedule begins. Proposed 
comment 24(d)-4 contains this guidance.

Subpart D--Miscellaneous

Section 226.27  Spanish Language Disclosures

    Section 226.27 provides that all disclosures required by the 
regulation must be provided in English, except in the Commonwealth of 
Puerto Rico, where disclosures may be provided in Spanish if the 
disclosures are available in English upon the consumer's request. The 
proposal would revise this provision, consistent with the language 
requirements in Regulation DD (Truth in Savings) and Regulation M 
(Consumer Leasing). Creditors would be permitted to give disclosures in 
another language as long as disclosures in English are given to a 
consumer who requests them. The Board believes that a more permissive 
rule could promote the delivery of more meaningful disclosures to some 
consumers.

Subpart F--Electronic Communications

Section 226.34  Requirements for Electronic Communications

34(a) Definition
    The definition of the term ``electronic communication'' in the 
March 1998 proposed rule remains unchanged. Section 226.34(a) limits 
the term to a message transmitted electronically that can be displayed 
on equipment as visual text, such as a message that is displayed on a 
computer monitor screen. Most commenters supported the term as defined 
in the March 1998 proposed rule. Some commenters favored a more 
expansive definition that would encompass communications such as audio 
and voice response telephone systems. Because the proposal is intended 
to permit electronic communication to satisfy the statutory requirement 
for written disclosures, the Board believes visual text is an essential 
element of the definition.
    Commenters asked the Board to clarify the coverage of certain types 
of communications. A few commenters asked about communication by 
facsimile. Facsimiles are initially transmitted electronically; the 
information may be received either in paper form or electronically 
through software that allows a consumer to capture the facsimile, 
display it on a monitor, and store it on a computer diskette or drive. 
Thus, information sent by facsimile may be subject to the provisions 
governing electronic communication. When disclosures are sent by 
facsimile, a creditor should comply with the requirements for 
electronic communication unless it knows that the disclosures will be 
received in paper form. Proposed comment 34(a)-1 contains this 
guidance.
34(b) Electronic Communication between Creditor and Consumer
    Section 226.34(b) would permit creditors to provide disclosures 
using electronic communication, if the creditor complies with 
provisions in new Sec. 226.34(d), discussed below.
1. Presenting Disclosures in a Clear and Conspicuous Format
    The Board does not intend to discourage or encourage specific types 
of technologies. Regardless of the technology, however, disclosures 
provided electronically must be presented in a clear and conspicuous 
format as is the case for all written disclosures under the act and 
regulation. See Secs. 226.5(a)(1), 226.17(a)(1), and 226.31(b).
    When consumers consent to receive disclosures electronically and 
they confirm that they have the equipment to do so, creditors generally 
would have no further duty to determine that consumers are able to 
receive the disclosures. Creditors do have the responsibility of 
ensuring the proper equipment is in place in instances where the 
creditor controls the equipment. Proposed comment 34(b)-1 contains this 
guidance.
2. Providing Disclosures in a Form the Consumer May Keep
    As with other written disclosures, information provided by 
electronic communication must be in a form the consumer can retain. 
Under the 1998 proposals and interim rule, a creditor would satisfy 
this requirement by providing information that can be printed or 
downloaded. The modified proposal adopts the same approach but also 
provides that the information must be sent to a specified location to 
ensure that consumers have an adequate opportunity to retain the 
information.
    Consumers communicate electronically with creditors through a 
variety of means and from various locations. Depending on the location 
(at home, at work, in a public place such as a library), a consumer may 
not have the ability at a given time to preserve TILA disclosures 
presented on-screen. Therefore, when a creditor provides disclosures by 
electronic communication, to satisfy the retention requirements, the 
creditor must send the disclosures to a consumer's e-mail address or 
other location where information may be retrieved at a later date. 
Proposed comment 34(b)-2 contains this guidance; see also the 
discussion under Sec. 226.34(e), below. In instances where a creditor 
controls an electronic terminal used to provide electronic disclosures, 
a creditor may provide equipment for the consumer to print a paper copy 
in lieu of sending the information to the consumer's e-mail address or 
posting the information at another location such as the creditor's 
website. See proposed comment 34(b)-1.
3. Timing
    Creditors must ensure that electronic disclosures comply with all 
relevant timing requirements of the regulation. TILA and Regulation Z 
require that disclosures be given at different times, depending on the 
credit product or the stage of the credit process at which consumers 
are receiving cost and other information. For example, generic 
disclosures, including educational brochures, about home-equity lines 
of credit and adjustable rate mortgage loans must be given at 
application. Disclosures, oftentimes containing estimated costs, for 
home-purchase loans must be given three days after application. 
Disclosures for loans covered by the Home Ownership and Equity 
Protection Act, 15 U.S.C. 1601 et seq., must be given three days before 
consummation. Other loan disclosures have to be given anytime prior to 
becoming obligated for an extension of credit. These timing rules 
ensure that consumers have an opportunity to read important information 
about costs and other terms at different stages of the credit process--
when shopping, at or shortly after applying for credit, or before 
becoming obligated under a plan or consummating a transaction.

[[Page 49728]]

    To illustrate the timing requirements for electronic communication 
for an open-end plan, assume that a consumer is interested in opening a 
credit card account with an on-line retailer and uses a personal 
computer at home to access the retailer's website on the Internet. The 
creditor provides disclosures to the consumer about the use of 
electronic communication (the Sec. 226.34(d) disclosures discussed 
below) and the consumer responds affirmatively. If the creditor's 
procedures permit the consumer to open the account and make a purchase 
immediately thereafter, initial disclosures required under Sec. 226.6 
would have to be provided. Thus, the disclosures must automatically 
appear on the screen or the consumer must be required to access the 
information before becoming obligated on the plan. The timing 
requirements for providing initial disclosures would not be met if, in 
this example, the retailer permitted the consumer simultaneously to 
open the credit card account and make a purchase and sent initial 
disclosures to an e-mail address thereafter. Proposed comment 34(b)-3 
contains this guidance.
    On the other hand, if the retailer delays processing the consumer's 
request to open a credit card account until the required disclosures 
have been delivered by e-mail, disclosures would not have to also 
appear on the screen; delivery to the consumer's e-mail address would 
be sufficient. In either case, the consumer must receive the 
disclosures before the first transaction.
    Similar rules would apply for the timing requirements for 
electronic communication for a closed-end transaction. For an 
installment loan, if the creditor's procedures permit the consumer to 
consummate the loan on-line, disclosures required under Sec. 226.18 
must be provided before the consumer becomes obligated. For example, 
before consummation, the disclosures must automatically appear on the 
screen or the consumer must be required to access the disclosures on-
line before continuing. The timing requirements would not be met if the 
creditor permitted the consumer to consummate the loan on-line and 
later sent disclosures to an e-mail address.
34(c) In-Person Exception
    The proposal contains some exceptions to the general rule allowing 
information required by Regulation Z to be provided by electronic 
communication; where the exceptions apply, paper disclosures would be 
required. The exceptions, contained in Sec. 226.34(c), seek to address 
concerns about potential abuses where consumers are transacting 
business in person but are offered disclosures in electronic form. In 
such transactions, there is a general expectation that consumers would 
be given paper copies of disclosures along with paper copies of other 
documents evidencing the transaction.
    Under Sec. 226.34(c), if a consumer becomes obligated for credit in 
person, the creditor must provide disclosures in paper form. (See 
Sec. 226.6 for disclosures regarding open-end plans and Sec. 226.18 for 
closed-end transactions.) The rule would ensure that consumers have the 
opportunity to consider the costs and terms of the transaction under 
the timing rules for providing disclosures established by TILA even if 
the disclosures were provided electronically at an earlier date. 
Proposed comment 34(c)-1 contains this guidance. The rule also 
addresses concerns by consumer advocates that providing disclosures by 
electronic communication is inappropriate when consumers conduct 
business in person and other aspects of the transaction are paper-
based. The Board believes the burden associated with providing paper-
based disclosures for in-person transactions is minimal, since other 
documents will be provided in paper form at that time.
    In some instances, creditors may deliver disclosures by electronic 
communication even if the consumer becomes obligated in person. Under 
the proposal, if a consumer uses electronic communication to initiate a 
credit transaction not secured by a dwelling and requests electronic 
disclosures as provided in paragraph (d), the creditor could provide 
disclosures electronically. The creditor would have complied with the 
timing rules under TILA (before the first transaction for open-end 
plans, before consummation for closed-end transactions) and--assuming 
the disclosures remain accurate--would not be required to provide 
disclosures in paper form if the consumer later becomes obligated in 
person. Proposed comment 34(c)-2 contains this guidance. The Board 
believes this approach fosters TILA's purpose to promote the informed 
use of credit. Consumers receiving disclosures by electronic 
communication could benefit by having additional time to review the 
costs and terms of the transaction rather than receiving them shortly 
before becoming obligated for the credit, as is often the case for in-
person transactions.
    For credit secured by a dwelling, however, the proposal requires 
paper disclosures if the consumer becomes obligated in person. This is 
the case even though the creditor previously provided electronic 
disclosures that remain accurate at the time the consumer becomes 
obligated. The Board believes that most home-secured loans are 
consummated in person due to legal requirements such as the need to 
obtain authenticated signatures, and that most institutions would 
likely provide paper disclosures for in-person transactions in any 
event. Moreover, special protection is appropriate generally where a 
consumer's home is at risk for any extension of credit and specifically 
where predatory lending practices may occur and the consequences could 
be the loss of a consumer's home.
Rescission Notices
    TILA and Regulation Z provide that in certain transactions secured 
by a consumer's principal dwelling, the consumer has three business 
days to rescind the transaction after becoming obligated on the debt 
(Secs. 226.15 and 226.23). Consumers with an ownership interest in the 
dwelling used as security must receive: (1) Cost disclosures about the 
transaction, and (2) two copies of a notice that explains consumers' 
rescission rights and how to effect rescission, including a form the 
consumer may use to notify the creditor if the consumer decides to 
rescind the transaction.
    In the March 1998 proposed rule, the Board did not explicitly 
address the electronic delivery of rescission notices. Some commenters 
asked the Board to clarify whether creditors could provide rescission 
notices by electronic means, and if so, whether two copies must be 
sent. Other commenters questioned whether electronic rescission notices 
should be permitted in any case. One commenter noted that because the 
potential significant impact of the rescission remedy, creditors would 
likely continue to deliver paper copies of the rescission notice even 
if the notices could be delivered electronically.
    Under the proposal, creditors must provide notices required under 
Secs. 226.15 and 226.23 in paper form if the consumer either becomes 
obligated under the plan or consummates the transaction in person. This 
approach is consistent with other proposed requirements to provide 
paper-based disclosures for dwelling-secured transactions, and 
recognizes the significance to both creditors and consumers of ensuring 
delivery of the notice explaining rescission rights and the 
accompanying form for the consumer's use. See Sec. 226.34(f)(3) for 
proposed rules permitting consumers to rescind by electronic 
communication if

[[Page 49729]]

the creditor designates an electronic address for that purpose.
34(d) Disclosure Notice
    Section 226.34(d) would identify the specific steps required before 
a creditor could use electronic communication to satisfy the 
regulation's disclosure requirements. Proposed Model Forms M-1 and M-2 
and Sample Forms M-4 and M-5 are published to aid compliance with these 
requirements.
34(d)(2)(i) Notice by Creditor
    Section 226.34(d)(2)(i) outlines the information that creditors 
must provide before electronic disclosures can be given. The creditor 
must: (1) Describe the information to be provided electronically and 
specify whether the information is also available in paper form or 
whether the transaction or account is offered only with electronic 
disclosures; (2) identify the address or location where the information 
will be provided electronically, and if it will be available at a 
location other than the consumer's electronic address, specify for how 
long and where it can be obtained once that period ends; (3) specify 
any technical requirements for receiving and retaining information sent 
electronically, and provide a means for the consumer to confirm the 
availability of equipment meeting those requirements; and (4) provide a 
toll-free telephone number and, at the creditor's option, an electronic 
or a postal address for questions about receiving electronic 
disclosures, or for updating consumers' electronic addresses, and for 
seeking assistance with technical or other difficulties (see proposed 
comments to 34(d)(2)(i)). The Board requests comment on whether other 
information should be disclosed regarding the use of electronic 
communication and on any format changes that might improve the 
usefulness of the notice for consumers.
    The Board also solicits comment on the benefits of requiring an 
annual notice in paper form to consumers who receive disclosures by 
electronic communication. The notice would contain general information 
about receiving electronic disclosures including, for example, a 
reminder of the toll-free telephone number where consumers may contact 
the creditor if they have questions regarding their electronic 
disclosures. Comment is also requested on whether such a notice may be 
for feasible for certain types of credit (such as open-end) than 
others.
    Under the proposal, the Sec. 226.34(d)(2)(i) disclosures must be 
provided, as applicable, before the creditor uses electronic 
communication to deliver any information required by the regulation. 
The approach of requiring a standardized disclosure statement 
addresses, in several ways, the concern that consumers may be steered 
into using electronic communication without fully understanding the 
implications. Under this approach, the specific disclosures that would 
be delivered electronically must be identified, and consumers must be 
informed whether there is also an option to receive the information in 
paper form. Consumers must provide an e-mail address where one is 
required. Technical requirements must also be stated, and consumers 
must affirm that their equipment meets the requirements, and that they 
have the capability of retaining electronic disclosures by downloading 
or printing them (see proposed comment 34(d)-1). Thus, the 
Sec. 226.34(d)(2)(i) disclosures should allow consumers to make 
informed judgments about receiving electronic disclosures.
    Some commenters requested clarification of whether a creditor may 
use electronic communication to provide some required disclosures while 
using paper for others. The proposed rule would permit creditors to do 
so; the disclosure given under Sec. 226.34(d)(2)(i) must specify which 
TILA disclosures will be provided electronically.
    Commenters requested further guidance on a creditor's obligation 
under the regulation if the consumer chooses not to receive information 
by electronic communication. A creditor could offer a consumer the 
option of receiving disclosures in paper form, but it would not be 
required to do so. A creditor could establish accounts or loans for 
which disclosures are given only by electronic communication. Section 
226.34(d)(2)(i)(A) would require creditors to tell consumers whether or 
not they have the option to receive disclosures in paper form. Section 
226.34(d)(2)(i)(D) would require creditors to provide a toll-free 
number that consumers could use to inform creditors if they wish to 
discontinue receiving electronic disclosures. In such cases the 
creditor must inform the consumer whether credit transaction is also 
available with disclosures in paper form. Proposed sample disclosure 
statements in which the consumer has an option to receive electronic or 
paper disclosures (Form M-4) or electronic disclosures only (Form M-5) 
are contained in appendix M.
34(d)(2)(ii) Response by Consumer
    Proposed Sec. 226.34(d)(2)(ii) would require creditors to provide a 
means for the consumer to affirmatively indicate that disclosures may 
be provided electronically. Examples include a ``check box'' on a 
computer screen or a signature line (for requests made in paper form). 
The requirement is intended to ensure that consumers' consent is 
established knowingly and voluntarily, and that consent to receive 
electronic disclosures is not inferred from consumers' use of the 
account or acceptance of general account terms. See proposed comment 
34(d)(2)(ii)-1.
34(d)(3) Changes
    Creditors would be required to notify consumers about changes to 
the information that is provided in the notice required by 
Sec. 226.34(d)(2)(i)--for example, if upgrades to computer software are 
required. Proposed comment 34(d)(3)-1 contains this guidance.
    The notice must include the effective date of the change and be 
provided before that date. Proposed comment 34(d)(3)-2 would provide 
that the notice must be sent a reasonable period of time before the 
effective date of the change. Although the number of days that 
constitutes reasonable notice may vary, depending on the type of change 
involved, the comment would provide creditors with a safe harbor: 
fifteen days' advance notice would be considered a reasonable time in 
all cases. The same time period is stated in similar proposals under 
Regulations B, E, and DD published in today's Federal Register. Comment 
is requested on whether a safe harbor of 15 days is an appropriate time 
period, and whether a uniform period for changes involving electronic 
communication is desirable. An alternative approach would adopt notice 
requirements that are consistent with change-in-terms requirements 
under the respective regulations. Under this approach, for example, the 
safe harbor would be 15 days under Sec. 226.9 for Regulation Z, 21 days 
under Sec. 205.8 for Regulation E, and 30 days under Sec. 230.5 for 
Regulation DD. Proposed comment 34(b)(3)-3 contains guidance on 
delivery requirements for the notice of change.
    The notice of a change must also include a toll-free telephone 
number or, at the creditor's option, an address for questions about 
receiving electronic disclosures. For example, a consumer may call 
regarding problems related to a change, such as an upgrade to computer 
software that is not provided by the creditor. Consumers may also use 
the toll-free number if they wish to discontinue receiving electronic 
disclosures. In such cases, the creditor must inform consumers whether 
the credit transaction is also available with

[[Page 49730]]

disclosures in paper form. (See proposed comments 34(d)(3)-4 through -
6.)
    If the change involves providing additional disclosures by 
electronic communication, creditors generally would be required to 
provide the notice in Sec. 226.34(d)(2)(i) and obtain the consumer's 
consent. That notice would not be required if the creditor previously 
obtained the consumer's consent to the additional disclosures in its 
initial notice by disclosing the possibility and specifying which 
disclosures might be provided electronically in the future. Comment is 
specifically requested on this approach. A list of additional 
disclosures may be necessary to ensure that consumers' consent is 
informed and knowing (provided it does not cause confusion).
34(d)(4) Exceptions
    Section 226.5a requires creditors to provide certain disclosures on 
or with a solicitation or an application to open a credit card account. 
When solicitations or applications appear electronically, the 
disclosures required by Sec. 226.5a should appear on the screen before 
the solicitation or application appears. Proposed comment 5a(a)(2)-
7(ii) contains this guidance. Since a solicitation or an application is 
more analogous to an advertisement than to a transaction-specific 
disclosure, however, the notices to be provided by the creditor 
regarding the use of electronic communication under 
Sec. 226.34(d)(2)(i) would not be required. Proposed Sec. 226.34(d)(4) 
exempts a solicitation or an application to open a credit or charge 
card account from Sec. 226.34(d)(1)-(d)(3).
34(e) Address or Location to Receive Electronic Communication
    Proposed Sec. 226.34(e) identifies addresses and locations where 
creditors using electronic communication may send information to the 
consumer. Creditors may send information to a consumer's electronic 
address, which is defined in proposed comment 34(e)(1)-1 as an e-mail 
address that the consumer also may use for receiving communications 
from parties other than the creditor. For periodic statements, for 
example, a creditor's responsibility to provide disclosures by 
electronic communication will be satisfied when the information is sent 
to the consumer's electronic address in accordance with the applicable 
proposed rules concerning the delivery of disclosures by electronic 
communication.
    Guidance accompanying the March 1998 proposed rule provided that a 
creditor would not meet delivery requirements by simply posting 
information to an Internet site such as a creditor's ``home page'' 
without appropriate notice on how consumers can access the information. 
Industry commenters wanted to retain the flexibility of posting 
disclosures on an Internet website. They did not object to providing a 
separate notice alerting consumers about the disclosures' availability 
but requested more guidance on the issue. Consumer advocates and others 
expressed concern that the mere posting of information inappropriately 
places the responsibility to obtain disclosures on consumers, and 
undermines the purpose of the delivery requirements of the regulation.
    The Board recognizes that currently, because of security and 
privacy concerns associated with data transmissions, a number of 
creditors may choose to provide disclosures at their websites, where 
the consumer may retrieve them under secure conditions. Under 
Sec. 226.34(e), a creditor may make disclosures available to a consumer 
at a location other than the consumer's electronic address. The 
institution must notify the consumer when the information becomes 
available and identify the account involved. The notice must be sent to 
the electronic mail address designated by the consumer; the creditor 
may, at its option, permit the consumer to designate a postal address. 
A proposed model form (Model Form M-3) is published below; see also 
proposed comment 34(e)(2)-1.
    The Board believes it would be inconsistent with the TILA to 
require a consumer to initiate a search--for example, to search the 
website of each card issuer with whom a consumer has a credit card 
account--to determine whether a disclosure has been provided. The 
proposed approach ensures that a consumer would not be required to 
check a creditor's website repeatedly, for example, to learn whether 
the creditor posted a change in a term that affects the consumer's 
credit card account.
    The requirements of the regulation would be met only if the 
required disclosure is posted on the website and the consumer is 
notified of its availability in a timely fashion. For example, 
creditors offering open-end plans must provide a change-in-terms notice 
to consumers at least 15 days in advance of the change. (12 CFR 
226.9(c).) For a change-in-terms notice posted on the Internet, a 
creditor must both post the notice and notify consumers of its 
availability at least 15 days in advance of the change.
    Commenters sought guidance on how long disclosures posted at a 
particular location must be available to consumers. There is a variety 
of circumstances when a consumer may not be able immediately to access 
the information due to illness, travel, or computer malfunction, for 
example. Under Sec. 226.34(e)(2), creditors must post information that 
is sent to a location other than the consumer's electronic mail address 
for 90 days. Proposed comment 34(e)(2)-3 contains this guidance.
    Under the modified proposal, creditors that post information at a 
location other than the consumer's electronic mail address are 
required--after the 90-day period--to make disclosures available to 
consumers upon request for a period of not less than two years from the 
date disclosures are required to be made, consistent with the record 
retention requirements under Sec. 226.25. The Board requests comments 
on this approach, including suggestions for alternative means for 
providing consumers continuing access to disclosures.
    As discussed above in connection with proposed Sec. 226.34(b), the 
provisions of proposed Sec. 226.34(e) are based in part upon the 
Regulation Z requirement that a creditor provide disclosures in a form 
that the consumer can retain. Certain disclosures, however, are not 
subject to the retainability requirement. In particular, footnote 8 to 
Sec. 226.5(a) excepts the disclosures under Secs. 226.5a, 226.5b(d), 
226.9(a)(2), 226.9(e), and 226.10(b) from this requirement. Proposed 
comment Sec. 226.34(e)(2)-4 clarifies that the existing exception 
applies to electronic disclosures and that the requirements of 
Sec. 226.34(e) would not apply to disclosures referenced in footnote 8, 
except Sec. 226.5b(d).
    The Board believes that the disclosures required to be given along 
with an application for a home equity line of credit under 
Sec. 226.5b(d) should not be excepted from the requirements of proposed 
Sec. 226.34(e). Although the Sec. 226.5b(d) disclosures are not 
required, under footnote 8, to be provided in retainable form in the 
context of paper, as a practical matter consumers usually have the 
opportunity to keep a copy of these disclosures by some means; indeed, 
the first disclosure listed in Sec. 226.5b(d) is ``a statement that the 
consumer should make or otherwise retain a copy of the disclosures.'' 
In addition, the Sec. 226.5b(d) disclosures contain important 
information that may not be duplicated by disclosures provided later to 
the consumer (such as the Sec. 226.6 disclosures); in contrast, the

[[Page 49731]]

disclosures under Sec. 226.5a are mostly repeated in the Sec. 226.6 
disclosures.
34(f) Consumer Use of Electronic Communication
    Proposed Sec. 226.34(f) would clarify consumers' ability to provide 
certain information to creditors by electronic communication. For open-
end accounts, Regulation Z provides that a consumer must submit a 
written request for the refund of credit balances, that a cardholder 
may inform a card issuer about the loss or theft of a credit card by 
notifying the card issuer orally or in writing, and that a consumer 
with a billing error must provide a written notice to the creditor to 
initiate the billing-error resolution process. Under the revised 
proposal, consumers generally would have the option to use electronic 
communication for these written notices if the consumer has chosen to 
receive information by electronic communication. Because the consumer's 
electronic communication serves as written notice, the creditor could 
not also require a paper notice. A creditor could, however, specify a 
particular electronic address for receiving the notices.
    The issue of consumers' ability to provide certain information to 
creditors by electronic communication was not raised in the March 1998 
proposed rule. The Board, however, stated in the Regulation E interim 
rule that financial institutions could require paper confirmation of 
electronic notices where the regulation allows written confirmation. 
This approach was consistent with the Regulation E 1996 proposed rule, 
where the Board stated 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 
of a disclosure upon request under the Regulation E 1996 proposed 
rule).
    Views were mixed on whether institutions should be permitted to 
require paper confirmations of electronic notices. Many industry 
commenters requested that the Board allow institutions to request paper 
confirmations; some stated that paper confirmations protect both the 
consumer and the institution. Consumer advocates and other commenters 
believed it would be unfair to require paper confirmation of an 
electronic communication from consumers who receive electronic 
communication from an institution.
    Based upon the comments received and further analysis, and subject 
to certain limitations discussed below, the Board is proposing that 
consumers be permitted to use electronic communications to comply with 
the regulation.
34(f)(1) Open-end Credit
    For open-end transactions, proposed Sec. 226.34(f)(1) permits the 
consumer to use electronic communications if a creditor uses electronic 
communication to provide periodic statements which establishes a 
continuing electronic relationship between the creditor and consumer. 
If, however, a creditor limits its use of electronic communication to 
the delivery initial disclosures (that is, if all subsequent 
disclosures regarding the credit transaction are provided in paper), 
creditors would not be required to accept an electronic notice, such as 
a request for refund of credit balances or notice of lost or stolen 
credit card or of a billing error, from consumers.
34(f)(2) Closed-end Credit
    For closed-end transactions, a consumer is required to submit a 
written request in one instance--to request the refund of credit 
balances. In contrast to open-end transactions, the disclosure 
requirements imposed on the creditor for closed-end transactions 
generally end at consummation with the exception of variable-rate 
transactions. Therefore, proposed Sec. 226.34(f)(2) permits a consumer 
to use electronic communication to request the refund of credit 
balances only if the creditor has designated an electronic address for 
that purpose.
34(f)(3) Rescission
    Similar to allowing a consumer to use electronic communication to 
request the refund of credit balances in a closed-end transaction, 
proposed Sec. 226.34(f)(3) allows a consumer to rescind by using 
electronic communication if the creditor has designated an electronic 
address for that purpose. (See, also, the discussion in Sec. 226.34(c) 
regarding the use of electronic communication to provide rescission 
notices.)
34(f)(4) Creditor's Designation of Address
    Section 226.34(f)(4) would provide that a creditor may designate 
the electronic address that must be used by a consumer for sending 
electronic communication as permitted by Sec. 226.34(f)(1) through (3).
34(g) Signatures and Similar Authentication
    There are three signature requirements under Regulation Z. Under 
Sec. 226.4(d) consumers may elect to accept credit insurance or debt 
cancellation coverage by signing or initialing an affirmative written 
request after receiving disclosures about the insurance. Under 
Secs. 226.15 and 226.23 (and the corresponding model forms and official 
staff commentary) consumers may cancel certain home-secured loans or 
waive this right by providing a written signed notice to the creditor. 
Under Sec. 226.31(c) (and the official staff commentary) telephone 
disclosures may be provided if the consumer initiates a change and at 
consummation new disclosures are provided and the consumer and creditor 
sign a statement indicating that the telephone disclosures were 
provided three days before consummation.
    Proposed Sec. 226.34(g) would allow consumers and creditors to 
similarly authenticate signatures where required by the regulation. A 
similar amendment was made to Regulation E in the 1996 review of the 
regulation.
    The Board indicated in the May 1996 Regulation E proposal that any 
authentication method should provide the same assurance as a signature 
in a paper-based system. Since the publication of the amended 
Regulation E and its accompanying commentary, the Board has been asked 
to give further guidance on this issue. In the supplementary 
information to the March 1998 proposed rule, the Board expressed 
interest in learning about other ways in which authentication in an 
electronic environment might occur in lieu of a consumer's signature.
    Some commenters provided alternatives for verifying a consumer's 
identity, including alphanumeric codes (combinations of letters and 
numbers) or combinations of unique identifiers (such as account numbers 
combined with a number representing algorithms of the account numbers). 
In the supplementary information to the March 1998 proposed rule, the 
Board cited security codes and digital signatures as examples of 
authentication devices that might meet the requirements of 
authentication and signatures. Many commenters stated their concern 
that the Board approved only these or similar methods. These commenters 
urged the Board to take a flexible approach to this requirement. They 
suggested that the Board's implied or explicit endorsement of any 
particular method could hinder the development of new technologies. 
Further, these commenters requested that the Board take a ``wait and 
see'' approach to this issue, to allow the industry to develop 
alternatives that will result in more security for consumers.

[[Page 49732]]

    To avoid unduly influencing the development of electronic 
authentication methods and to encourage innovation and flexibility, the 
Board will limit its guidance to the general principle that a home-
banking or other electronic communication system must use an 
authentication device that provides the same assurance as a signature 
in a paper-based system.

Appendix M to Part 226--Electronic Communication Model Forms and 
Clauses

    The Board solicits comment on three proposed model forms and two 
sample forms for use by creditors to aid compliance with the disclosure 
requirements of Secs. 226.34(d) and (e). Appendix M-1 and Appendix M-2 
would implement Sec. 226.34(d), regarding the notices that creditors 
must give prior to using electronic communication to provide required 
disclosures. Appendix M-3 would implement Sec. 226.34(e), regarding 
notices to consumers about the availability of electronic disclosures 
at locations such as the creditor's website. Use of any modified 
version of these forms would be in compliance as long as the creditor 
does not delete information required by the regulation or rearrange the 
format in a way that affects the substance, clarity, or meaningful 
sequence of the disclosure.
    Sample Form M-4 illustrates the disclosures under Sec. 226.34(d) 
for a credit account. The sample assumes that the creditor also offers 
paper disclosures for consumers who choose not to receive electronic 
disclosures. Sample Form M-5 assumes that consumers must accept 
electronic disclosures if they want to open the account or consummate 
the transaction.

Additional Issue Raised by Electronic Communication

Preemption
    A few commenters suggested that any final rule issued by the Board 
permitting electronic disclosures should explicitly preempt any state 
law requiring paper disclosures. Under Sec. 226.28 of the regulation, 
state laws are preempted if they are inconsistent with the act and 
regulation and only to the extent of the inconsistency. The proposed 
rule would provide creditors with the option of giving required 
disclosures by electronic communication as an alternative to paper. 
There is no apparent inconsistency with the act and regulation if state 
laws require paper disclosures. The Board will, however, review 
preemption issues that are brought to the Board's attention. Appendix A 
outlines the Board's procedures for determining whether a specific law 
is preempted, which will guide the Board in any determination requested 
by a state, creditor, or other interested party following publication 
of a final rule regarding electronic communication.

IV. Form of Comment Letters

    Comment letters should refer to Docket No. R-1043, 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 computer diskettes in any IBM-compatible DOS-or Windows-based 
format.

V. Initial Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act, 
the Board has reviewed the proposed amendments to Regulation Z. 
Although the proposal would add disclosure requirements with respect to 
electronic communication, overall, the proposed amendments are not 
expected to have any significant impact on small entities. A creditor's 
use of electronic communication to provide disclosures required by the 
regulation is optional. The proposed rule would give creditors 
flexibility in providing disclosures. A final regulatory flexibility 
analysis will be conducted after consideration of comments received 
during the public comment period.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the proposed rule 
under the authority delegated to the Board by the Office of Management 
and Budget (OMB). The Federal Reserve may not conduct or sponsor, and 
an organization is not required to respond to, this information 
collection unless it displays a currently valid OMB number. The OMB 
control number is 7100-0199.
    The collection of information requirements that are relevant to 
this proposed rulemaking are in 12 CFR Part 226 and in Appendices F, G, 
H, J, K, and L. This information is mandatory (15 U.S.C. 1604(a)) to 
evidence compliance with the requirements of Regulation Z and the Truth 
in Lending Act (TILA). The revised requirements would be used to ensure 
adequate disclosure of basic terms, costs, and rights relating to 
credit transactions, at or before the time consumers enter into a 
consumer credit transaction and when the availability of consumer 
credit on particular terms is advertised, for consumers receiving 
certain disclosures by electronic communication. The respondents/
recordkeepers are for-profit creditors, including small businesses. 
Creditors are also required to retain records for 24 months. 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 on their respective constituencies under this 
regulation.
    The proposed revisions would allow creditors the option of using 
electronic communication (for example, via personal computer and modem) 
to provide disclosures required by the regulation. Although the 
proposal would add disclosure requirements with respect to electronic 
communication, the optional use of electronic communication would 
likely reduce the paperwork burden of creditors. With respect to state 
member banks, it is estimated that there are 988 respondents/
recordkeepers and an average frequency of 134,658,472 responses per 
respondent each year. Therefore the current amount of annual burden is 
estimated to be 1,873,223 hours. There is estimated to be no additional 
annual cost burden and no capital or start-up cost.
    Because the records would be maintained at state member banks and 
the notices are not provided to the Federal Reserve, no issue of 
confidentiality under the Freedom of Information Act arises; however, 
any information obtained by the Federal Reserve may be protected from 
disclosure under exemptions (b)(4), (6), and (8) of the Freedom of 
Information Act (5 U.S.C. 522 (b)(4), (6) and (8)). The disclosures and 
information about error allegations are confidential between creditors 
and the customer.
    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 
proposed regulation would be 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

[[Page 49733]]

information technology. Comments on the collection of information 
should be sent to the Office of Management and Budget, Paperwork 
Reduction Project (7100-0199), Washington, DC 20503, with copies of 
such comments sent to Mary M. West, Federal Reserve Board 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 226

    Advertising, Federal Reserve System, Mortgages, Reporting and 
recordkeeping requirements, Truth in lending.

Text of Proposed Revisions

    Certain conventions have been used to highlight proposed changes to 
Regulation Z. New language is shown inside bold-faced arrows, deletions 
inside bold-faced brackets.
    For the reasons set forth in the preamble, the Board proposes to 
amend Regulation Z, 12 CFR part 226, as set forth below:

PART 226--TRUTH IN LENDING (REGULATION Z)

    1. The authority citation for part 226 would continue to read as 
follows:

    Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5).

Subpart B--Open-End Credit

    2. Section 226.5a is amended by revising paragraph (b)(1)(ii) and 
adding a new paragraph (b)(1)(iii) to read as follows:


Sec. 226.5a  Credit and charge card applications and solicitations.

* * * * *
    (b) Required disclosures. * * *
    (1) Annual percentage rate. * * *
    (ii) Unless paragraph (b)(1)(iii) of this section 
applies, when variable rate disclosures are provided under 
paragraph (c) of this section, an annual percentage rate disclosure is 
accurate if the rate was in effect within 60 days before mailing the 
disclosures. When variable rate disclosures are provided under 
paragraph (e) of this section, an annual percentage rate disclosure is 
accurate if the rate was in effect within 30 days before printing the 
disclosures.
     (iii) When variable rate disclosures are provided by 
electronic communication, an annual percentage rate disclosure is 
accurate if the rate is one that was in effect within the previous 30-
day period before the disclosures are sent or posted.
* * * * *
    3. Section 226.16 is amended by revising paragraph (c) to read as 
follows:


Sec. 226.16  Advertising.

* * * * *
    (c) Catalogs, [and] multiple-page , and 
electronic advertisements. (1) If a catalog or other 
multiple-page advertisement , or an advertisement using 
electronic communication gives information in a table or 
schedule in sufficient detail to permit determination of the 
disclosures required by paragraph (b) of this section, it shall be 
considered a single advertisement if:
    (i) The table or schedule is clearly and conspicuously set forth; 
and
    (ii) Any statement of terms set forth in Sec. 226.6 appearing 
anywhere else in the catalog or advertisement clearly refers to [that 
page on which] the page or location where the 
table or schedule begins.
    (2) A catalog, [or] multiple-page , or 
electronic advertisement complies with this paragraph if the 
table or schedule of terms includes all appropriate disclosures for a 
representative scale of amounts up to the level of the more commonly 
sold higher-priced property or services offered.
* * * * *

Subpart C--Closed-End Credit

    4. Section 226.17 is amended by revising the introductory text in 
paragraph (g) to read as follows:


Sec. 226.17  General disclosure requirements.

* * * * *
    (g) Mail or telephone orders--delay in disclosures. If a creditor 
receives a purchase order or a request for an extension of credit by 
mail, telephone, or any other written [or electronic] communication 
, excluding electronic communication as described in 
Sec. 226.34(a), without face-to-face or direct telephone 
solicitation, the creditor may delay the disclosures until the due date 
of the first payment, if the following information for representative 
amounts or ranges of credit is made available in written form to the 
consumer or to the public before the actual purchase order or request:
* * * * *
    5. Section 226.24 is amended by revising paragraph (d) to read as 
follows:


Sec. 226.24  Advertising.

* * * * *
    (d) Catalogs, [and] multiple-page , and 
electronic advertisements. (1) If a catalog or other 
multiple page advertisement, or an advertisement using 
electronic communication gives information in a table or 
schedule in sufficient detail to permit determination of the 
disclosures required by paragraph (c)(2) of this section, it shall be 
considered a single advertisement if:
    (i) The table or schedule is clearly set forth; and
    (ii) Any statement of terms of the credit terms in paragraph (c)(1) 
of this section appearing anywhere else in the catalog or advertisement 
clearly refers to [that page on which] the page or location 
where the table or schedule begins.
    (2) A catalog, [or] multiple-page , or 
electronic advertisement complies with paragraph (c)(2) of 
this section if the table or schedule of terms includes all appropriate 
disclosures for a representative scale of amounts up to the level of 
the more commonly sold higher-priced property or services offered.

Subpart D--Miscellaneous

    6. Section 226.27 is revised to read as follows:


Sec. 226.27  [Spanish] Language of disclosures.

    All disclosures required by this regulation may be made 
in a language other than English, provided that the disclosures are 
made available in English upon the consumer's request.[shall 
be made in the English language, except in the Commonwealth of Puerto 
Rico, where creditors may, at their option, make disclosures in the 
Spanish language. If Spanish disclosures are made, English disclosures 
shall be provided on the consumer's request, either in substitution for 
or in addition to the Spanish disclosures.] This requirement for 
providing English disclosures on request shall not apply to 
advertisements subject to Secs. 226.16 and 226.24 of this regulation.
    7. Part 226 is amended by adding a new Subpart F to read as 
follows:

Subpart F--Electronic Communications


Sec. 226.34  Requirements for electronic communications.

    (a) Definition. Electronic communication means a message 
transmitted electronically between a creditor and a consumer in a 
format that allows visual text to be displayed on equipment such as a 
personal computer monitor.
    (b) Electronic communication between creditor and consumer. Except 
as provided in paragraph (c) of this section, a creditor that complied 
with paragraph (d) of this section may provide by electronic 
communication any information required by this

[[Page 49734]]

regulation to be in writing. The creditor shall make the disclosures 
required by this part clearly and conspicuously and in a form that the 
consumer may keep.
    (c) In-person exception. (1) General. When a consumer becomes 
obligated on an open-end plan or consummates a closed-end transaction 
in person, the disclosures required under Sec. 226.6 or Sec. 226.18, 
respectively, shall be provided in paper form; the notice of right to 
cancel shall also be provided in paper form if, in connection with the 
plan or transaction, a consumer has a right to rescind under 
Sec. 226.15 or Sec. 226.23.
    (2) Credit not secured by a dwelling. For credit not secured by a 
dwelling, paragraph (c)(1) of this section does not apply if the 
consumer previously requested the credit by electronic communication 
and disclosures were provided in compliance with paragraph (d)(2)(i) 
and (d)(2)(ii) of this section at or around that time.
    (d) Disclosures. (1) General. Except as provided under paragraph 
(d)(4) of this section, the disclosure notice required by paragraph 
(d)(2) of this section shall be provided in a manner substantially 
similar to the applicable model form set forth in Appendix M of this 
part (Model Forms M-1 and M-2).
    (2) Notice by creditor. (i) A creditor shall:
    (A) Describe the information to be provided electronically and 
specify whether the information is also available in paper form or 
whether the credit is offered only with electronic disclosures;
    (B) Identify the address or location where the information will be 
provided electronically; and if it is made available at a location 
other than the consumer's electronic address, how long the information 
will be available, and how it can be obtained once that period ends;
    (C) Specify any technical requirements for receiving and retaining 
information sent electronically, and provide a means for the consumer 
to confirm the availability of equipment meeting those requirements; 
and
    (D) Provide a toll-free telephone number and, at the creditor's 
option, an address for questions about receiving electronic 
disclosures, for updating consumers' electronic addresses, and for 
seeking technical or other assistance related to electronic 
communication.
    (ii) Response by consumer. A creditor shall provide a means for the 
consumer to accept or reject electronic disclosures.
    (3) Changes. (i) A creditor shall notify affected consumers of any 
change to the information provided in the notice required by paragraph 
(d)(2)(i) of this section. The notice shall include the effective date 
of the change and must be provided before that date. The notice shall 
also include a toll-free telephone number, and, at the creditor's 
option, an address for questions about receiving electronic 
disclosures.
    (ii) In addition to the notice under (d)(3)(i) of this section, if 
the change involves providing additional disclosures by electronic 
communication, a creditor shall provide the notice in paragraph 
(d)(2)(i) of this section and obtain the consumer's consent. A notice 
is not required under paragraph (d)(2)(i) if the creditor's initial 
notice states that additional disclosures may be provided 
electronically in the future and specifies which disclosures could be 
provided.
    (4) Exception. A solicitation or an application to open an account 
referenced in Sec. 226.5a shall be exempt from paragraphs (d)(1) 
through (d)(3) of this section.
    (e) Address or location to receive electronic communication. A 
creditor that uses electronic communication to provide information 
required by this regulation shall:
    (1) Send the information to the consumer's electronic address; or
    (2) Post the information for at least 90 days at a location such as 
a website, and send a notice to the consumer when the information 
becomes available. Thereafter the information shall be available upon 
request for a period of not less than two years from the date 
disclosures are required to be made. The notice required by this 
paragraph (e)(2) shall identify the account involved, shall be sent to 
an electronic address designated by the consumer (or to a postal 
address, at the creditor's option), and shall be substantially similar 
to the model form set forth in Appendix M of this part (Model Form M-
3).
    (f) Consumer use of electronic communication. (1) Open-end credit 
plans. If a creditor uses electronic communication to provide periodic 
statements, the consumer also may use electronic communication to:
    (i) Request a refund under Sec. 226.11(b);
    (ii) Notify the creditor of the theft or loss of a credit card 
under Sec. 226.12(b)(3);
    (iii) Assert a claim or defense under Sec. 226.12(c); and
    (iv) Notify the creditor of a billing error under Sec. 226.13(b).
    (2) Closed-end credit. A consumer may request a refund of any 
credit balance under Sec. 226.21(b) by electronic communication if the 
creditor has designated an electronic address for that purpose.
    (3) Rescission. A consumer may exercise or waive a right to rescind 
under Sec. 226.15 or Sec. 226.23 by electronic communication only if 
the creditor has designated an electronic address for that purpose.
    (4) Creditor's designation of address. A creditor may designate the 
electronic address or location that must be used by a consumer for 
sending electronic communication under this paragraph.
    (g) Signatures and similar authentication. Where a writing is 
required to be signed or initialed, for purposes of an electronic 
communication, it may be similarly authenticated.
    9. Part 226 is amended by adding a new appendix M to read as 
follows:

Appendix M to Part 226--Electronic Communication Model 
Forms and Clauses

M-1  Model Disclosures for Electronic Communication (Sec. 226.34(d)) 
(Disclosures Available in Paper or Electronically)
M-2  Model Disclosures for Electronic Communication (Sec. 226.34(d)) 
(Disclosures Available Only Electronically)
M-3  Model Notice for Delivery of Information Posted at Certain 
Locations (Sec. 226.34(e))
M-4  Sample Form for Electronic Communication (Sec. 226.34(d)) 
(Disclosures Available in Paper or Electronically)
M-5  Sample Form for Electronic Communication (Sec. 226.34(d)) 
(Disclosures Available Only Electronically)

M-1  MODEL DISCLOSURES FOR ELECTRONIC COMMUNICATION (Sec. 226.34(d)) 
(Disclosures Available in Paper or Electronically)

    You can choose to receive important information required by the 
Truth in Lending Act in paper or electronically.
    Read this notice carefully and keep a copy for your records.
     You can choose to receive the following information in 
paper form or electronically: (description of specific disclosures 
to be provided electronically).
     How would you like to receive this information
      {time}  I want paper disclosures.
      {time}  I want electronic disclosures.
     [We may provide the following additional disclosures 
electronically in the future: (description of specific 
disclosures).]
     [If you choose electronic disclosures, this information 
will be available at: (specify location) for ____ days. After that, 
the information will be available upon request (state how to obtain 
the information). When the information is posted, we will send you a 
message at the electronic mail address you designate here: 
(consumer's electronic mail address).]
    [If you choose electronic disclosures this information will be 
sent to the electronic mail address that you designate here: 
(consumer's electronic mail address).]
 To receive this information you will need: (list hardware and 
software requirements).

[[Page 49735]]

Do you have access to a computer that satisfies these requirements?
      {time}  Yes      {time}  No
     Do you have access to a printer, or the ability to 
download information, in order to keep copies for your records?
      {time}  Yes        {time}  No
     To update your electronic address, if you have 
questions about receiving disclosures, or need technical or other 
assistance concerning these disclosures, contact us at (telephone 
number).

M-2  MODEL DISCLOSURES FOR ELECTRONIC COMMUNICATION (Sec. 226.34(d)) 
(Disclosures Available Only Electronically)

    You will receive important information required by the Truth in 
Lending Act electronically.
    Read this notice carefully and keep a copy for your records.
     The following information will be provided 
electronically: (description of specific disclosures to be provided 
electronically).
     This credit transaction is not available unless you 
accept electronic disclosures.
     [We may provide the following additional disclosures 
electronically in the future (description of specific disclosures).]
     [If you choose electronic disclosures, this information 
will be available at: (specify location) for ____ days. After that, 
the information will be available upon request (state how to obtain 
the information). When the information is posted, we will send you a 
message at the electronic mail address you designate here: 
(consumer's electronic mail address).]
    [If you choose electronic disclosures this information will be 
sent to the electronic mail address that you designate here: 
(consumer's electronic mail address).]
     To receive this information you will need: (list 
hardware and software requirements).
    Do you have access to a computer that satisfies these 
requirements?
      {time}  Yes        {time}  No
     Do you have access to a printer, or the ability to 
download information, in order to keep copies for your records?
      {time}  Yes        {time}  No
    Do you want this credit transaction with electronic disclosures?
      {time}  Yes        {time}  No
     To update your electronic address, if you have 
questions about receiving disclosures, or need technical or other 
assistance concerning these disclosures, contact us at (telephone 
number).

M-3  MODEL NOTICE FOR DELIVERY OF INFORMATION POSTED AT CERTAIN 
LOCATIONS (Sec. 226.34(e))

    Information about your (identify account) is now available at 
[website address or other location]. The information discusses 
(describe the disclosure). It will be available for ____ days.

BILLING CODE 6210-01-P

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[[Page 49737]]

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BILLING CODE 6210-01-C

[[Page 49738]]

    10. In Supplement I to Part 226, Section 226.5a--Credit and Charge 
Card Applications and Solicitations, under 5a(a)(2) Form of 
Disclosures, a new paragraph 7. is added to read as follows:

Supplement I to Part 226--Official Staff Interpretations

* * * * *

Subpart B--Open-End Credit

* * * * *

Section 226.5a--Credit and Charge Card Applications and 
Solicitations

* * * * *
    5a(a) General rules.
* * * * *
    5a(a)(2) Form of Disclosures.
* * * * *
    7. Electronic applications or solicitations. i. 
Format and content of disclosures. The format and the content of 
disclosures (other than the accuracy of variable rates) for 
applications or solicitations made available by electronic 
communication must comply with:
    A. Section 226.5a(c), if the application or solicitation is sent to 
a consumer's electronic mail address.
    B. Section 226.5a(e), if the application or solicitation is made 
available at another location such as an Internet website.
    ii. Timing. The disclosures required by Sec. 226.5a must appear 
on the screen before the solicitation or application appears 
electronically.
* * * * *
    11. In Supplement I to Part 226, Section 226.5b--Requirements for 
Home Equity Plans, under 5b(b) Time of Disclosures, a new paragraph 7. 
is added to read as follows:
* * * * *

5b(b) Time of Disclosures

* * * * *
    7. Applications available by electronic 
communication. If an application is available by electronic 
communication such as on a creditor's website, the disclosures and a 
brochure must appear before an application is provided.
* * * * *
    12. In Supplement I to Part 226, Section 226.16--Advertising, the 
following amendments are made:
    a. The heading 16(c) Catalogs and multiple-page advertisements. is 
revised; and
    b. Under Paragraph 16(c)(1)., paragraph 1. is revised and a new 
paragraph 2. is added.
    The addition and revisions read as follows:
* * * * *

Section 226.16--Advertising

* * * * *

16(c) Catalogs, [and] multiple-page , and 
electronic advertisements

* * * * *
    Paragraph 16(c)(1).
    1. General. Section 226.16(c)(1) permits creditors to put credit 
information together in one place in a catalog, [or] multiple 
page, or electronic advertisement. The rule 
applies only if the catalog, [or] multiple page, or 
electronic advertisement contains one or more of the 
triggering terms from Sec. 226.16(b).
    2. Electronic communication. If an advertisement 
using electronic communication uses the table or schedule permitted 
under Sec. 226.16(c)(1), any statement of terms set forth in 
Sec. 226.6 appearing anywhere else in the advertisement must clearly 
direct the consumer to the page or location where the table or 
schedule begins. For example, a term triggering additional 
disclosures may be accompanied by a link that directly connects the 
consumer to the additional information.
* * * * *
    13. In Supplement I to Part 226, Section 226.19--Certain 
Residential Mortgage and Variable-Rate Transactions, under 19(b) 
Certain variable-rate transactions., paragraph 2. is revised to read as 
follows:
* * * * *

Subpart C--Closed-End Credit

* * * * *

Section 226.19--Certain Residential Mortgage and Variable-Rate 
Transactions

* * * * *
    19(b) Certain variable-rate transactions.
* * * * *
    2. Timing. A creditor must give the disclosures 
required under this section at the time an application form is 
provided or before the consumer pays a nonrefundable fee, whichever 
is earlier.
    i. Intermediary agent or broker. In cases where a creditor 
receives a written application through an intermediary agent or 
broker, however, footnote 45b provides a substitute timing rule 
requiring the creditor to deliver the disclosures or place them in 
the mail not later than three business days after the creditor 
receives the consumer's written application. (See comment 19(b)-3 
for guidance in determining whether or not the transaction involves 
an intermediary agent or broker.) This three-day rule also applies 
where the creditor takes an application over the telephone.
    ii. Telephone request. In cases where the consumer merely 
requests an application over the telephone, the creditor must 
include the early disclosures required under this section with the 
application that is sent to the consumer.
    iii. Mail solicitations. In cases where the creditor solicits 
applications through the mail, the creditor must also send the 
disclosures required under this section if an application form is 
included with the solicitation.
    iv. Conversion. In cases where an open-end credit account will 
convert to a closed-end transaction subject to this section under a 
written agreement with the consumer, disclosures under this section 
may be given at the time of conversion. (See the commentary to 
Sec. 226.20(a) for information on the timing requirements for 
Sec. 226.19(b)(2) disclosures when a variable-rate feature is later 
added to a transaction.)
    v. Electronic applications. In cases where the creditor makes 
applications available by electronic communication such as on a 
creditor's website, the disclosures required under this section must 
appear on-line before an application is provided.
* * * * *
    14. In Supplement I to Part 226, Section 226.24--Advertising, the 
following amendments are made:
    a. Under 24(b) Advertisement of rate of finance charge., a new 
paragraph 6. is added; and
    b. Under 24(d) Catalogs and multiple-page advertisements., the 
heading and paragraph 2. are revised and a new paragraph 4. is added.
    The revisions and additions would read as follows:
* * * * *

Section 226.24--Advertising

* * * * *
    24(b) Advertisement of rate of finance charge. 
* * * * *
    6. Electronic communication. A simple annual rate or 
periodic rate that is applied to an unpaid balance may be stated 
only if it is provided in conjunction with an annual percentage 
rate. In an advertisement using electronic communication, both rates 
must appear in the same location so that both rates may be viewed 
simultaneously. This requirement is not satisfied if the annual 
percentage rate can be viewed only by use of a link that connects 
the consumer to information appearing at another 
location.
* * * * *
    24(d) Catalogs, [and] multiple-page, and 
electronic advertisements.
* * * * *
    2. General. Section 226.24(d) permits creditors to put credit 
information together in one place in a catalog, [or] multiple 
page, or electronic advertisement. The rule 
applies only if the catalog, [or] multiple page, or 
electronic advertisement contains one or more of the 
triggering terms from Sec. 226.24(c)(1). A list of different annual 
percentage rates applicable to different balances, for example, does 
not trigger further disclosures under Sec. 226.24(c)(2) and so is 
not covered by Sec. 226.24(d).
* * * * *
    4. Electronic advertising. If an advertisement using 
electronic communication uses the table or schedule permitted under 
Sec. 226.24(d)(1), any statement of terms set forth in 
Sec. 226.24(c)(1) appearing anywhere else in the advertisement must 
clearly direct the consumer to the page or location where the table 
or schedule begins. For example, a term triggering additional 
disclosures may be accompanied by a link

[[Page 49739]]

that directly connects the consumer to the additional information 
(but see comment 24(b)-6).
* * * * *
    15. In Supplement I to Part 226, a new Subpart F--Electronic 
communication, is added to read as follows:
* * * * *

Subpart F--Electronic Communication

Section 226.34--Requirements for Electronic Communication

34(a) Definition

    1. Coverage. Information transmitted by facsimile may be 
received in paper form or electronically, although the party 
initiating the transmission may not know at the time the disclosures 
are sent which form will be used. A creditor that provides 
disclosures by facsimile should comply with the requirements for 
electronic communication unless the creditor knows that the 
disclosures will be received in paper form.

34(b) Electronic Communication between Creditor and Consumer

    1. Disclosures provided on creditor's equipment. Creditors that 
control equipment providing electronic disclosures to consumers (for 
example, computer terminals in a creditor's lobby or kiosks located 
in public places) must ensure that the equipment satisfies the 
regulation's requirements to provide disclosures in a clear and 
conspicuous format and in a form that the consumer may keep. A 
creditor that controls the equipment may provide a printer for 
consumers' use in lieu of sending the information to the consumer's 
electronic mail address or posting the information at another 
location such as the creditor's website.
    2. Retainability. Creditors must provide electronic disclosures 
in a retainable format (for example, they can be printed or 
downloaded). Consumers may communicate electronically with creditors 
through a variety of means and from various locations. Depending on 
the location (at home, at work, in a public place such as a 
library), a consumer may not have the ability at a given time to 
preserve TILA disclosures presented on-screen. To ensure that 
consumers have an adequate opportunity to retain the disclosures, 
the creditor also must send them to the consumer's designated 
electronic mail address or to another location, for example, on the 
creditor's website, where the information may be retrieved at a 
later date.
    3. Timing and delivery. When a consumer opens a credit card 
account and makes a purchase with the card (or when a consumer 
consummates a loan) on the Internet, for example, in order to meet 
the timing and delivery requirements, creditors must ensure that 
disclosures applicable at that time appear on the screen and are in 
a retainable format. The delivery requirements would not be met if 
disclosures do not either appear on the screen or if the consumer is 
allowed to open a credit card account and make a purchase at that 
time before receiving the disclosures. For example, a creditor can 
provide a link to electronic disclosures appearing on a separate 
page as long as consumers cannot bypass the link and they are 
required to access the disclosures before making a purchase (or 
consummating a loan).

34(c) Exceptions

    1. Redisclosure required. Section 226.34(c) requires certain 
disclosures in paper form prior to consummation, even if they have 
been provided electronically at an earlier date, and redisclosure 
would not otherwise be required.
    2. Initial disclosures in paper form. If a consumer opens a 
credit account or consummates a credit transaction in person the 
creditor generally must provide initial disclosures in paper form. 
For example, if a consumer visits a creditor's office to close a 
loan, disclosures are required before consummation and they must be 
provided in paper form; directing the consumer to disclosures posted 
on the creditor's website would not be sufficient. If, however, a 
consumer applies for credit on the Internet, a creditor may send 
disclosures electronically at or around that time even though the 
creditor's procedures require the consumer to visit an office at a 
later time to complete the transaction (for example, to close the 
loan).

34(d) Disclosure Notice

    1. Consumer's affirmative responses. Even though a consumer 
accepts electronic disclosures in accordance with 
Sec. 226.34(d)(2)(ii), a creditor may deliver disclosures by 
electronic communication only if the consumer provides an electronic 
address where one is required, and responds affirmatively to 
questions about technical requirements and the ability to print or 
download information (see sample forms M-4 and M-5 in appendix M to 
this part).

34(d)(2)(i) Notice by Creditor

    1. Toll-free telephone number. The number must be toll-free for 
nonlocal calls made from an area code other than the one used in the 
creditor's dialing area. Alternatively, a creditor may provide any 
telephone number that allows a consumer to call for information and 
reverse the telephone charges.
    2. Creditor's address. Creditors have the option of providing 
either an electronic or postal address for consumers' use in 
addition to the toll-free telephone number.
    3. Discontinuing electronic disclosures. Consumers may use the 
toll-free number (or optional address) if they wish to discontinue 
receiving electronic disclosures. In such cases, the creditor must 
inform consumers whether the credit transaction is also available 
with disclosures in paper form.

34(d)(2)(ii) Response by consumer

    1. Nature of consent. Consumers must agree to receive 
disclosures by electronic communication knowingly and voluntarily. 
An agreement to receive electronic disclosures is not implied from 
consumers' use of an account or acceptance of general account terms.

34(d)(3) Changes

    1. Examples. Examples of changes include a change in technical 
requirements, such as upgrades to computer software affecting the 
creditor's disclosures provided on the Internet.
    2. Timing for notices. A notice of a change must be sent a 
reasonable period of time before the effective date of the change. 
The length of a reasonable notice period may vary, depending on the 
type of change involved; however, fifteen days is a reasonable time 
for providing notice in all cases.
    3. Delivery of notices. A creditor meets the delivery 
requirements if the notice of change is sent to the address provided 
by the consumer for receiving other disclosures. For example, if the 
consumer provides an electronic address to receive notices about 
periodic statements posted at the creditor's website, the same 
electronic address could be used for the change notice. The 
consumer's postal address must be used, however, if the consumer 
consented to additional disclosures by electronic communication when 
receiving the initial notice under Sec. 226.34(d)(2)(i), but 
provided a postal address to receive periodic statements in paper 
form.
    4. Toll-free number. See comment 34(d)(2)(i)-1.
    5. Creditor's address. See comment 34(d)(2)(i)-2.
    6. Consumer inquiries. Consumers may use the toll-free number 
(or optional address) for questions or assistance with problems 
related to a change, such as an upgrade to computer software, that 
is not provided by the creditor. Consumers may also use the toll-
free number if they wish to discontinue receiving electronic 
disclosures; in such cases, the creditor must inform consumers 
whether the credit transaction is also available with disclosures in 
paper form.

34(e) Address or location to receive electronic communication.

Paragraph 34(e)(1)

    1. Electronic address. A consumer's electronic address is an 
electronic mail address that may be used by the consumer for 
receiving communications transmitted by parties other than the 
creditor.

Paragraph 34(e)(2)

    1. Identifying account involved. A creditor is not required to 
identify an account by reference to the account number. For example, 
where the consumer does not have multiple accounts, and no confusion 
would result, the creditor may refer to ``your credit card 
account,'' or when the consumer has multiple accounts the creditor 
may use a truncated account number.
    2. Effective delivery. Delivery by posting to a location other 
than the consumer's electronic mail address is effective only after 
the creditor posts and notifies the consumer when the information 
becomes available.
    3. Availability. Information that is not sent to a consumer's 
electronic mail address must be available for at least 90 days from 
the date the information becomes available or from the date the 
notice required by Sec. 226.34(e)(2) is sent to the consumer, 
whichever occurs later.
    4. Certain open-end disclosures. The disclosures required under 
Secs. 226.5a, 226.9(a)(2), 226.9(e), and 226.10(b) and referenced in 
footnote 8 shall be exempt from Sec. 226.34(d)(1).


[[Page 49740]]


    By order of the Board of Governors of the Federal Reserve 
System, August 31, 1999.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 99-23138 Filed 9-13-99; 8:45 am]
BILLING CODE 6210-01-P