[Federal Register Volume 66, Number 52 (Friday, March 16, 2001)]
[Rules and Regulations]
[Pages 15187-15195]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-6560]



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  Federal Register / Vol. 66, No. 52 / Friday, March 16, 2001 / Rules 
and Regulations  

[[Page 15187]]



FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R-1074]


Electronic Fund Transfers

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule; official staff interpretation.

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

SUMMARY: The Board is adopting a final rule revising the Official Staff 
Commentary to Regulation E, which implements the Electronic Fund 
Transfer Act. The commentary interprets the requirements of Regulation 
E, to facilitate compliance by financial institutions that offer 
electronic fund transfer services to consumers. The final rule provides 
guidance on Regulation E coverage of electronic check conversion 
transactions and computer-initiated bill payments; authorization of 
recurring debits from a consumer's account; telephone-initiated 
transfers; and other issues.

DATES: The rule is effective March 15, 2001; however, to allow time for 
any necessary operational changes, the mandatory compliance date is 
January 1, 2002.

FOR FURTHER INFORMATION CONTACT: Natalie E. Taylor or John C. Wood, 
Counsel, or David A. Stein, Attorney, Division of Consumer and 
Community Affairs, Board of Governors of the Federal Reserve System, 
Washington, DC 20551, at (202) 452-2412 or (202) 452-3667.

SUPPLEMENTARY INFORMATION:

I. Background

    The Electronic Fund Transfer Act (EFTA or the act) (15 U.S.C. 1693 
et seq.), enacted in 1978, provides a basic framework establishing the 
rights, liabilities, and responsibilities of participants in electronic 
fund transfer (EFT) systems. The EFTA is implemented by the Board's 
Regulation E (12 CFR part 205). Types of transfers covered by the act 
and regulation include transfers initiated through an automated teller 
machine (ATM), point-of-sale (POS) terminal, automated clearinghouse 
(ACH), telephone bill-payment plan, or remote banking program. The act 
and regulation require disclosure of terms and conditions of an EFT 
service; documentation of EFTs by means of terminal receipts and 
periodic account statements; limitations on consumer liability for 
unauthorized transfers; procedures for error resolution; and certain 
rights related to preauthorized EFTs. The act and regulation also 
prescribe restrictions on the unsolicited issuance of ATM cards and 
other access devices.
    The act's coverage is not limited to traditional financial 
institutions holding consumers' asset accounts. For EFT services made 
available by entities other than an account-holding financial 
institution, the act directs the Board to assure, by regulation, that 
the disclosures, responsibilities, and remedies of the act are made 
applicable.
    The Official Staff Commentary (12 CFR part 205 (Supp. I)) is 
designed to facilitate compliance and provide protection from civil 
liability, under Sec. 915(d)(1) of the act, for financial institutions 
that act in conformity with it. The commentary is updated periodically, 
as necessary, to address significant questions that arise.

II. Summary of the Proposed and Final Revisions

    On June 29, 2000, the Board published proposed revisions to the 
Official Staff Commentary to Regulation E (65 FR 40061). The most 
significant issues addressed by the proposal were coverage of 
transactions that involve electronic check conversion, computer-
initiated bill payments, and authorizations of recurring debits. The 
Board received more than 120 comment letters on the proposal. The 
majority of comments were from financial institutions, ACH 
associations, retailers, and their representatives. Overall, most 
commenters supported the Board's proposed revisions as necessary and 
helpful guidance.
    The Board is adopting the revisions to the official staff 
commentary substantially as proposed. Some modifications have been made 
to address comments about the need for consistency in the coverage of 
electronic check conversion transactions and the standard for 
electronic authorization of recurring transfers. Other comments have 
been modified to address commenters' requests for additional 
clarification.

Electronic Check Conversion

    The proposal sought to clarify Regulation E coverage of 
transactions where a merchant at POS uses a consumer's blank, partially 
completed, or fully completed and signed check to obtain information 
for initiating a one-time ACH debit from the consumer's account. The 
National Automated Clearing House Association (NACHA) and other 
entities have, or are planning, programs that permit such transactions. 
In one type of program, known as ``consumer-as-keeper,'' after an EFT 
is initiated the merchant returns the check to the consumer. The 
proposal made clear that such transfers are covered by Regulation E. In 
another type of program, known as ``financial institution-as-keeper'' 
(which NACHA has not approved), the merchant or its financial 
institution retains the check. The supplementary information to the 
proposal indicated that Regulation E would cover the transfer where the 
check is blank or only partially completed. If, however, the check is 
fully completed and signed and retained by the merchant, the transfer 
would be excluded from coverage under Regulation E unless the consumer 
authorized an EFT. The Board solicited comment on this interpretation 
and the extent to which merchants are carrying out transactions under 
the ``financial institution-as-keeper'' model.
    The supplementary information also addressed transfers resulting 
from NACHA's lockbox program where a payee converts consumers' checks 
received by mail to ACH debits. Under that program, consumers are 
informed that the payments will be processed as EFTs. The proposal 
stated that these transactions would not be covered by Regulation E 
since transfers originated by check are excluded from coverage.
    Under the final rule, where a consumer authorizes a one-time EFT 
from the consumer's account using information from a check to initiate 
the transfer, the transaction is covered by Regulation E. Application 
of the rule is

[[Page 15188]]

consistent and the result is the same whether the check is blank, 
partially completed, or fully completed and signed; whether the check 
is presented at POS or mailed to a merchant or lockbox and later 
converted to an EFT; or whether the check is retained by the consumer, 
the merchant, or the merchant's financial institution. (See comment 
3(b)-1(v) and supplementary information under the Section-by-Section 
Analysis. The term ``check'' is used for ease of reference; it is 
intended to include a draft.)
    The proposal also provided guidance on the coverage of ``re-
presented check entry'' or ``RCK'' transactions, where a check used to 
pay for goods or services is subsequently returned for insufficient 
funds and the payee re-presents the check electronically through an ACH 
system. Under the proposal, an EFT resulting from the electronic re-
presentment of the check would be the continuation of a transaction 
originated by check, and excluded from Regulation E coverage. A fee 
assessed by the payee for re-presentment, such as a collection fee, 
however, would be covered by the regulation if authorized by the 
consumer to be debited electronically from the consumer's account. 
Under the final rule, the comment is adopted substantially as proposed, 
with modifications that clarify the authorization requirements. (See 
comment 3(c)(1)-1.)

Computer-Initiated Transfers

    The Board proposed revisions concerning the coverage of computer-
initiated transfers pursuant to a bill-payment service. Under the 
proposal, such transfers would be covered unless the terms of the 
service agreement explicitly state that payments will be carried out 
solely by check, draft, or similar paper instrument.
    The final rule provides that computer-initiated payments are 
covered by the regulation unless the agreement with the consumer 
expressly states that all payments will be made by check, draft, or 
similar paper instrument, or specifically identifies payments that will 
be made by check, draft, or similar paper instrument. (See comment 
3(b)-1(vi).)

Authorization of Recurring Debits

    Section 205.10(b) requires that recurring electronic debits from a 
consumer's account be authorized ``only by a writing signed or 
similarly authenticated by the consumer.'' The Board proposed to revise 
comment 10(b)-5 to ensure that financial institutions had guidance on 
the flexibility of establishing authentication methods. When the 
proposal was issued, the Congress had passed, but the President had not 
yet signed into law, electronic commerce legislation that addressed, 
among other things, the use and acceptance of electronic signatures and 
records for electronic commerce in general. The Board noted in the 
supplementary information to the proposal that if the legislation 
became law, the ``similarly authenticated'' standard could become 
unnecessary. On June 30, 2000, the Electronic Signatures in Global and 
National Commerce Act (the E-Sign Act), 15 U.S.C. 7001, et seq., became 
law. The E-Sign Act provides that electronic documents and signatures 
have the same validity as paper documents and handwritten signatures. 
Most of the act's provisions took effect October 1, 2000.
    Under the final rule, revisions have been made to ensure 
consistency with the E-Sign Act and to provide flexibility. For 
example, the rule clarifies that the copy of the authorization returned 
to the consumer may be in paper or electronic form, and that a code 
used as a means to ``similarly authenticate'' an authorization need not 
originate with the paying institution. (See comment 10(b)-5).

Other Issues

    The Board generally solicited comment on how aggregation services 
made available to consumers through an Internet web site currently 
operate or might operate in the future, and posed several questions 
about the services. Aggregation services permit consumers to view 
financial information consolidated from multiple sources, such as their 
credit card, securities, and deposit accounts at a number of 
institutions. Because the Board did not publish a proposed 
interpretation related to aggregation services, the final commentary 
does not address these issues. The Board will consider addressing these 
issues in a future proposal.
    The proposal also provided technical clarifications on various 
issues. They include exceptions from the periodic statement 
requirements, definition of an electronic terminal, timing of 
disclosures, and compulsory use. Revisions have been made in the final 
rule to address commenters' requests for additional clarification.

III. Section-by-Section Analysis of the Final Rule

Supplement I--Official Staff Interpretations

Section 205.2--Definitions

2(a) Access Device
    Regulation E defines an ``access device'' as a card, code, or other 
means of access to a consumer's account, or any combination thereof, 
that may be used by the consumer to initiate EFTs. The proposed rule 
provided that in check conversion programs that allow a merchant to use 
a consumer's check to obtain the routing, account, and serial numbers 
to initiate a one-time EFT, the check is not an access device. Thus, it 
is not subject to limitations on issuance, for example. Comment 2(a)-2 
is added as proposed with some modifications for clarity. (See also 
discussion under ``Electronic check conversion'' in Section II.)
2(h) Electronic Terminal
    Comment 2(h)-2 currently states that a POS terminal that captures 
data electronically is an electronic terminal if a debit card is used 
to initiate an EFT. Some have interpreted the provision narrowly to 
apply only when a debit card is used to initiate an EFT. Comment 2(h)-2 
is revised, as proposed, to provide that a POS terminal that captures 
data electronically to initiate an EFT is an electronic terminal even 
if no access device is used, such as when a check is used to capture 
information to initiate a one-time EFT. Most commenters supported this 
revision.
    The receipt requirements of Sec. 205.9 apply whether a debit card 
or information from a check is used to initiate a transfer. A check 
used to capture information to initiate an EFT at POS itself may serve 
as the receipt in some cases if it meets the requirements of 
Sec. 205.9.
    A merchant does not meet the definition of ``financial 
institution'' under the act or regulation since the merchant does not 
hold the consumer's account or issue an access device and agree with 
the consumer to provide EFT services. But because the merchant is using 
an electronic terminal to capture information from the consumer's check 
to initiate an EFT, the merchant is providing an EFT service. A 
merchant participating in electronic check conversion transactions will 
likely use an electronic terminal for credit card and debit card 
transactions. Given that the merchant must comply with the receipt 
requirements of Sec. 205.9 of the regulation for debit card 
transactions, the Board believes the merchant will

[[Page 15189]]

similarly provide receipts for electronic check transactions. 
Consequently, the Board has not proposed to amend the regulation at 
this time to require merchants to provide receipts.
    Section 904(d) of the EFTA provides that ``[i]f electronic fund 
transfer services are made available to consumers by a person other 
than a financial institution holding a consumer's account, the Board 
shall by regulation assure that the disclosures, protections, 
responsibilities, and remedies created by [the EFTA] are made 
applicable to such persons and services.'' If the Board becomes aware 
that consumers are not receiving receipts in connection with check 
conversion transactions (or that merchants are not transmitting 
information needed for consumers' periodic statements), the Board will 
consider exercising its authority under Sec. 904 to require compliance 
by merchants.
2(k) Preauthorized Electronic Fund Transfer
    Section 205.2(k) defines a ``preauthorized electronic fund 
transfer'' as an EFT authorized in advance to recur at substantially 
regular intervals. Beyond that authorization, no further action by the 
consumer is required to initiate the transfer. Comment 2(k)-1 is added 
as proposed. Commenters supported the clarification.
2(m) Unauthorized Electronic Fund Transfer
    Certain payments often are made to a consumer's account through the 
ACH, such as direct deposits of payroll or government benefits. NACHA 
rules permit reversal of payments made in error in limited 
circumstances. Comment 2(m)-5 is added, with some modifications from 
the proposal, to clarify that reversals of certain direct deposits that 
were made in error are not ``unauthorized'' EFTs. The last sentence in 
paragraph (iii) of the proposed comment, referring to a dispute about 
whether the account holder is entitled to a certain amount, has been 
deleted as unnecessary.

Section 205.3--Coverage

3(b) Electronic Fund Transfer
    The EFTA excludes from coverage any transaction ``originated by 
check, draft, or similar paper instrument.'' 15 U.S.C. 1693a. The 
proposed rule addressed the coverage of electronic check conversion 
transactions based on several pilots introduced by NACHA and others. In 
such transactions, the merchant obtains information from a consumer's 
check at POS to initiate a one-time ACH debit from the consumer's 
account. The merchant electronically scans and captures the MICR 
(Magnetic Ink Character Recognition) encoding on the check for the 
routing, account, and serial numbers, and enters the amount to be 
debited from the consumer's account.
    Under the Board's proposal, an EFT resulting from the ``consumer-
as-keeper'' program would be covered by the regulation. Likewise, an 
EFT resulting from the ``financial institution-as-keeper'' program 
would be covered by Regulation E where the consumer provides a blank or 
partially completed check as a source document. Where the check is 
completed and signed by the consumer and retained by the merchant, the 
transaction arguably could be viewed as originating by check. 
Therefore, the supplementary information to the proposal stated that 
the transaction would be an EFT (and thus covered by Regulation E) only 
if the consumer authorized it as such. Finally, under the proposal, 
transfers resulting from the ``lockbox'' program would have been 
excluded from coverage as having originated by check. (See discussion 
under ``Electronic check conversion'' in Section II.)
    The majority of commenters believed that Regulation E should cover 
check conversion transactions under the ``consumer-as-keeper'' program, 
but disagreed with coverage of these transactions under the ``financial 
institution-as-keeper'' program. Some commenters believed that 
consumers would be confused because they would be providing a check to 
the merchant and at the same time authorizing the transaction as an 
EFT. Some commenters suggested that the rules should not be based on 
the characteristics of the various programs; instead, the Board should 
establish a bright-line test that provides certainty and consistency.
    Regarding the authorization requirement, some commenters believed 
the Board was imposing a written authorization requirement for 
transactions under the financial institution-as-keeper model. The 
supplementary information to the proposed rule stated that where a 
consumer provides a completed and signed check, a transfer under this 
model would be an EFT if the consumer ``authorizes it as such.'' Other 
commenters expressed concern about the inconsistent treatment of 
transfers under the ``financial institution-as-keeper'' program (which 
would generally be covered by Regulation E under the proposal) and 
those resulting from ``lockbox'' transactions (which would not be 
covered).
    The Board is adopting an interpretation based on a consumer's 
authorization of a transaction as an EFT to clarify the rights, 
liabilities, and responsibilities of participants in check conversion 
programs. Under this approach, Regulation E coverage does not depend on 
the characteristics of a particular program.
    The final rule provides that where a consumer authorizes the use of 
a check for initiating an EFT, the transaction is not deemed to be 
originated by check. The transaction is covered by Regulation E. 
Comment 3(b)-1(v), as adopted, makes clear that the rule applies 
whether the check is blank, partially completed, or fully completed and 
signed; whether it is presented at POS or mailed to a merchant or 
lockbox and later converted to an EFT; or whether it is retained by the 
consumer or the merchant (or the merchant's financial institution).
    The proposed rule was not intended to require a separate written 
authorization for electronic check conversion transactions. (Under the 
EFTA and Sec. 205.10(b) of Regulation E, written authorization is 
required only for recurring transfers.) Section 205.3 of Regulation E 
provides that the regulation applies to ``any electronic fund transfer 
that authorizes a financial institution to debit or credit a consumer's 
account.'' A merchant or other payee offering the check conversion 
services discussed above is providing an EFT service, and therefore 
should obtain the consumer's authorization to initiate an EFT. In the 
context of check conversion, authorization takes place if the consumer 
engages in the transaction after receiving notice that the transaction 
will be treated as an EFT. New comment 3(b)-3 is added to provide this 
guidance. (NACHA Operating Rules currently provide greater consumer 
protections in that they require written authorizations even for one-
time conversion transactions.)
    Section 904(d)(1) of the EFTA provides that ``[i]f electronic fund 
transfer services are made available to consumers by a person other 
than a financial institution holding a consumer's account, the Board 
shall by regulation assure that the disclosures, protections, 
responsibilities, and remedies created by [the EFTA] are made 
applicable to such persons and services.'' While the Board did not 
propose to amend the regulation at this time to require compliance by 
merchants or other payees with the Regulation E authorization 
requirement,

[[Page 15190]]

the Board fully expects them to obtain a consumer's authorization to 
initiate an EFT from the consumer's account. If, however, the Board 
becomes aware that authorizations are not being obtained in connection 
with check conversion transactions, the Board will consider exercising 
its authority under Sec. 904 to require compliance by the merchants or 
other payees. (Also see discussion under ``2(h) Electronic Terminal'' 
regarding compliance with terminal-receipt requirements.)
    Comment 3(b)-1(vi) is added, with some modifications from the 
proposal, to provide guidance on the regulation's coverage of bill-
payment services where a consumer initiates payments via computer (or 
other electronic means). Generally, the definition of ``electronic fund 
transfer'' in Sec. 205.3(b) covers these payments. The comment as 
proposed would result in total exemption or total coverage of a bill-
payment service. Commenters supported the proposal with some requests 
for modification. They suggested an approach that would only exclude 
payments to particular payees made solely by check. The comment has 
been revised to provide that computer-initiated payments are covered by 
the regulation unless the service agreement explicitly states that all 
payments, or all payments to identified payees, will be made solely by 
check, draft or similar paper instrument drawn on the consumer's 
account.
3(c) Exclusions From Coverage
3(c)(1)--Checks
    Comment 3(c)(1)-1 provides guidance on NACHA's re-presented check 
entry (RCK) program, in which merchant payees (or their financial 
institutions or agents) re-present returned checks electronically. 
Written authorization from the consumer for the RCK debit is not 
obtained, although the merchant payee usually has provided notice at 
POS that any returned item may be collected electronically if returned 
for insufficient funds. The comment clarifies that an RCK transaction 
is not covered by Regulation E because the transaction was originated 
by check.
    In some cases, a payee may impose a fee on the consumer because the 
consumer's check was returned. NACHA rules provide that the RCK debit 
must be in the amount of the original check; therefore, the amount may 
not be increased to include a fee. The payee would have to initiate a 
separate debit to collect the fee electronically. Because an 
electronically debited fee meets the definition of an EFT under 
Regulation E, it is covered by the regulation and must be authorized 
(in this case, by notice to the consumer).
    Most commenters agreed with the proposed rule excluding coverage of 
the RCK. A number of commenters disagreed with the proposal to cover 
any additional fee debited electronically from the consumer's account. 
Since the fee is based on the original transaction, these commenters 
believe the fee is likewise covered by the Uniform Commercial Code 
(UCC), which permits incidental damage fees.
    The Board views, as separate transactions, the RCK and any fee 
assessed and debited from the consumer's account as a result of 
insufficient funds, whether or not the fee is permitted by the UCC to 
cover incidental damages. Authorization is required to electronically 
debit the fee from the consumer's account, but because the transfer is 
nonrecurring, notice to the consumer is sufficient for purposes of 
compliance with the regulation. (NACHA Operating Rules currently 
provide greater consumer protections in that they require written 
authorizations.)
    Comment 3(c)(1)-2 is added as proposed to cross reference comment 
3(b)-1(v), which provides guidance on the regulation's coverage of an 
EFT where a consumer's check is used to capture information for 
initiating the transfer.
3(c)(6)--Telephone-Initiated Transfers
    A transfer initiated by telephone is covered by Regulation E if it 
occurs pursuant to a telephone bill-payment or other written plan that 
contemplates that the consumer will initiate transfers from time to 
time. Comment 3(c)(6)-1 is revised, as proposed, to provide additional 
guidance on what constitutes a written plan. Comment 3(c)(6)-2(v) is 
added, as proposed, to clarify coverage of transfers initiated by 
audio- or voice-response telephone systems.

Section 205.6--Liability of Consumer for Unauthorized Transfers

6(b) Limitations on Amount of Liability
6(b)(1)--Timely Notice Given
    Section 205.6 provides rules concerning a consumer's liability for 
an unauthorized transfer. The limitation on the consumer's liability 
depends, in part, on whether the unauthorized transfer takes place 
within or after two business days of the consumer's learning of the 
loss or theft of the access device. Comment 6(b)(1)-3 is added to 
clarify how to count the two-business-day period. The comment has been 
modified from the proposal to provide further clarity.
    Most commenters generally supported the addition of the comment. A 
number of commenters expressed concern that use of the term 
``midnight'' made the proposed comment unclear, and suggested 
alternative language. To avoid confusion, the reference to ``midnight'' 
has been deleted and the comment reworded.

Section 205.7--Initial Disclosures

7(a) Timing of Disclosures
    Regulation E generally requires that disclosures be provided at the 
time the consumer contracts for an EFT service or before the first 
transfer is made to or from the consumer's account. Comment 7(a)-2 is 
revised, as proposed, to provide an exception to the disclosure timing 
rules when the consumer has authorized a third party to debit or credit 
the consumer's account, on either a one-time or recurring basis, and 
the institution has not received prior notice of the transfer. In these 
circumstances, the institution must provide the Regulation E 
disclosures as soon as reasonably possible after the first transfer. 
Before this revision, comment 7(a)-2 provided this disclosure timing 
exception only for direct deposits. Most commenters who addressed this 
issue supported the proposed revision and the regulatory relief 
provided.
7(b) Content of Disclosures
7(b)(10) Error Resolution
    Under Sec. 205.7, a financial institution must provide an error 
resolution notice with the initial disclosures, and under Sec. 205.8, 
must also do so annually or with each periodic statement. Under comment 
7(b)(10)-2, a financial institution must have disclosed in its initial 
disclosures the longer error resolution time periods (applicable to 
foreign-initiated and POS debit card transactions) for resolving errors 
under Sec. 205.11(c)(3) in order to use the longer periods. In 1998, 
Sec. 205.11(c)(3) was amended to extend the error resolution time 
periods for new accounts (63 FR 52115, September 29, 1998). Comment 
7(b)(10)-2 is revised as proposed to reflect the amendment to 
Sec. 205.11(c)(3).
    Section 205.11(c)(3) treats an account as a new account for a 
period of 30 days after the first deposit to the account is made. In 
the September 1998 amendment, the Board explained that, to provide 
consistency and ease regulatory compliance, the rule tracked the 
definition of ``new account'' in Regulation CC (Availability of Funds 
and Collection of Checks, 12 CFR 229.13(a)(2)), including the staff 
commentary to Regulation CC. Thus, for example, an account is not 
considered

[[Page 15191]]

a new account if a customer has had another account relationship with 
the financial institution for at least 30 calendar days. To clarify 
this point, a cross-reference to the Regulation CC definition of ``new 
account'' has been added to comment 7(b)(10)-2.
    An update to the error resolution model forms in Appendix A, 
paragraph A-3 (to reflect the extended time periods applicable to 
foreign-initiated transactions, POS debit card transactions, and new 
accounts) is pending. In September 1999, the Board proposed amendments 
to the model forms along with other proposed Regulation E amendments on 
the electronic delivery of disclosures (64 FR 49699, September 14, 
1999). The Board is expected to consider final action on the amendments 
in the near future.

Section 205.8--Change-in-Terms Notice; Error Resolution Notice

8(b) Error Resolution Notice
    The Board proposed to add new comment 8(b)-2 to cross-reference 
comment 7(b)(10)-2, which states that, with regard to the initial error 
resolution notice, an institution seeking to use the longer error 
resolution time periods in Sec. 205.11(c)(3) must have disclosed them.
    A few commenters agreed with the requirement to disclose the longer 
time periods for new accounts in the initial error resolution notice, 
but questioned whether disclosure in the annual notice would serve a 
useful purpose. These commenters noted that in practice, it is unlikely 
that an account would still qualify as new when the annual notice is 
provided.
    An annual error resolution notice need not contain a reference to 
the longer time periods for new accounts, and the final comment has 
been revised accordingly. (The notice must refer, however, to the 
longer time periods for foreign-initiated and POS debit card 
transactions if the institution wishes to take advantage of these 
extended periods.) In addition, the final comment is revised to reflect 
that disclosure of the longer time periods for new accounts is not 
required in the error resolution notice that may be provided with each 
periodic statement as an alternative to the annual error resolution 
notice.

Section 205.9--Receipts at Electronic Terminals; Periodic Statements

9(a) Receipts at Electronic Terminals
9(a)(5)--Terminal Location
    Section 205.9(a)(5) requires that an ATM or POS terminal receipt 
contain the location of the terminal where the transfer is initiated, 
or an identification such as a code or terminal number. Comment 
9(a)(5)-1 is revised, as proposed, to clarify that either a code or 
location may be disclosed. Comments 9(a)(5)(iv)-1 and -2 are 
redesignated as comments 9(a)(5)-3 and -4.
9(b) Periodic Statements
    Comment 9(b)-4 currently provides that an institution may permit, 
but not require, consumers to ``call for'' periodic statements. The 
Board proposed to change the reference ``call for'' to ``pick up.'' The 
comment is adopted as proposed.
9(c) Exceptions to the Periodic Statement Requirements for Certain 
Accounts
9(c)(1)--Preauthorized Transfers to Accounts
    Section 205.9(c) lists the circumstances in which a periodic 
statement for EFT transactions is not required (or is not required to 
be provided monthly). Comment 9(c)(1)-1 is added as proposed to provide 
further guidance on the exceptions to the periodic statement 
requirements.
    Comment 9(c)(1)-2 is added as proposed to clarify that the 
exceptions in Sec. 205.9(c) apply despite the occurrence of reversals 
of deposits made in error. (See also comment 2(m)-5.)

Section 205.10--Preauthorized Transfers

10(b) Written Authorization for Preauthorized Transfers From Consumer's 
Account
    Section 205.10(b) provides that recurring electronic debits from a 
consumer's account ``may be authorized only by a writing signed or 
similarly authenticated by the consumer.'' The phrase ``similarly 
authenticated'' was added in 1996 (61 FR 19678, May 2, 1996), and was 
intended to permit electronic authorizations; comment 10(b)-5 was added 
to the staff commentary to provide guidance. Since that time, the 
issues of electronic authorization and authentication methods have been 
further addressed in Regulation E rulemakings published in March 1998 
(63 FR 14528, March 25, 1998) and September 1999 (64 FR 49699, 
September 14, 1999), and commenters have made suggestions and sought 
further guidance. In addition, the Electronic Signatures in Global and 
National Commerce Act, 15 U.S.C 7001 et seq., (the E-Sign Act) 
addresses, among other things, the use and acceptance of electronic 
signatures for electronic commerce in general.
    The Board proposed to revise comment 10(b)-5 to clarify that 
institutions have flexibility in establishing electronic authentication 
methods. Under the proposal, any authentication mechanism that provides 
assurance similar to a paper-based signature (such as a mechanism that 
verified the consumer's identity and evidenced the consumer's assent to 
the authorization) would satisfy the ``similarly authenticated'' 
standard. Also, for consistency with Board rulemakings permitting the 
electronic delivery of disclosures, the comment would be revised to 
permit the person obtaining the authorization to provide a copy of the 
authorization to the consumer either in paper form or electronically 
(the existing comment requires that a paper copy be provided).
    Most commenters addressing this issue supported the proposed 
revision. Several commenters were concerned, however, that the comment 
could be interpreted to impose requirements on electronic 
authorizations that exceed those set forth in the E-Sign Act. 
Accordingly, they urged that the Board delete the comment or modify it 
for consistency with the E-Sign Act. Comment 10(b)-5 was not intended 
to impose stricter requirements than the E-Sign Act; rather the comment 
was intended to provide guidance so that a payee obtaining a consumer's 
authorization for recurring debits can be assured of compliance with 
Sec. 205.10(b).
    The final comment has been modified to ensure consistency with the 
requirements of the E-Sign Act. First, the introductory sentence has 
been deleted as no longer necessary. It has been replaced with guidance 
on the ``similarly authenticated'' standard. Second, references to the 
definition of an electronic record and an electronic signature in the 
E-Sign Act have been added. Third, the authorization standard has been 
clarified to state that the process should evidence the consumer's 
identity and assent to the authorization. Fourth, the language 
discussing the requirement to provide a copy of the authorization to 
the consumer has been revised to clarify that the copy may be either 
paper or electronic. Finally, the supplemental information to the 
proposed revision to comment 10(b)-5 stated that a security code used 
as the authentication method need not originate with the paying 
institution, if the code meets the general standards for ``similar 
authentication.'' This interpretation has been incorporated into the 
text of the comment.
    New comment 10(b)-7 is adopted as proposed. The comment addresses a 
situation where a consumer, by telephone or on-line, authorizes

[[Page 15192]]

recurring charges against an account, but where it may not be clear to 
the payee whether a credit card or debit card is involved. Unlike 
Regulation E, Regulation Z does not require a written, signed or 
``similarly authenticated'' authorization for recurring charges to a 
consumer's credit card account. The comment clarifies that when 
recurring charges in fact involve a debit card, the payee is required 
to obtain an authorization in accordance with Sec. 205.10(b). The payee 
may rely on the bona fide error provision in section 915(c) of the 
EFTA, provided procedures are in place to prevent such errors from 
occurring.
    Some commenters believed that the standards set forth in the 
comment would be burdensome. They suggested that the comment not be 
adopted, or that the final comment omit the conditions that the failure 
to obtain written authorization be unintentional and that reasonable 
procedures be maintained to avoid such an error. The requirement to 
obtain written authorization for recurring electronic debits is 
statutory, as are the conditions concerning unintentional failure and 
reasonable procedures. Therefore, the comment is adopted as proposed.
    Where the authorization occurs on-line, payees have the option to 
ensure compliance by obtaining electronic authorizations in all cases, 
following the procedures set forth in comment 10(b)-5 or in the E-Sign 
Act.
    Some commenters requested guidance on what procedures should be 
used to avoid errors regarding the type of card used by a consumer to 
authorize recurring charges. To ensure flexibility in this area, 
however, as other commenters urged, the comment as finally adopted does 
not specify any particular procedures.
10(e) Compulsory Use
10(e)(2)--Employment or Government Benefit
    Section 205.10(e)(2) provides that a financial institution may not 
require a consumer to establish an account for receipt of EFTs with a 
particular institution as a condition of employment. Comment 10(e)(2)-1 
is revised as proposed to clarify that an employer (including a 
financial institution) may provide for having employees' salary 
deposited at a particular institution designated by the employer, if 
employees are given the option to receive their salary by check or 
cash. Commenters generally supported the revision.

Section 205.11--Procedures for Resolving Errors

11(a)--Definition of Error
    Section 205.11 sets forth procedures for resolving errors. In 
defining ``error'' and the types of transfers or inquiries covered, the 
regulation also sets forth types of inquiries that are not covered. 
Sec. 205.11(a)(2). Existing comment 11(a)-2 provides that if a consumer 
merely calls to verify whether a deposit (made via ATM, preauthorized 
transfer, or other electronic means) was credited, without asserting an 
error, the error resolution procedures are not triggered.
    Under the proposal, comment 11(a)-2 was broadened to provide that 
consumer inquiries to verify account payments, as well as account 
deposits, without the assertion of any error, would not trigger the 
error resolution procedures. Commenters generally supported the 
proposed revision. In response to comments, the proposed phrase ``if 
the consumer calls'' has been replaced by ``if the consumer contacts,'' 
to reflect that these routine consumer inquiries are not limited to 
telephone inquiries; and the comment adopted clarifies that an inquiry 
about a ``payment'' includes an inquiry about other EFTs debited to the 
account.

Section 205.12--Relation to Other Laws

12(a) Relation to Truth in Lending
    Comment 12(a)-1 is revised as proposed to distinguish between two 
types of unauthorized transfers: those where a consumer's access device 
is used to withdraw funds from a checking account with an overdraft 
protection feature, and those where the consumer's access device is 
also a credit card separately used to obtain cash advances. Examples 
illustrate how these rules apply in various situations. The majority of 
commenters addressing this subject supported the proposed revision.

List of Subjects in 12 CFR Part 205

    Consumer protection, Electronic fund transfers, Federal Reserve 
System, Reporting and recordkeeping requirements.


    For the reasons set forth in the preamble, the Board amends the 
Official Staff Commentary, 12 CFR part 205, as set forth below.

PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)

    1. The authority citation for part 205 is revised to read as 
follows:

    Authority: 15 U.S.C. 1693b.

    2. In Supplement I to Part 205, the following amendments are made:
    a. Under Section 205.2--Definitions, under 2(a) Access Device, a 
new paragraph 2. is added;
    b. Under Section 205.2--Definitions, under 2(h) Electronic 
Terminal, paragraph 2. is revised;
    c. Under Section 205.2--Definitions, a new heading 2(k) 
Preauthorized Electronic Fund Transfer, and a new paragraph 1. are 
added;
    d. Under Section 205.2--Definitions, under 2(m) Unauthorized 
Electronic Fund Transfer, a new paragraph 5. is added;
    e. Under Section 205.3--Coverage, under 3(b) Electronic Fund 
Transfer, new paragraphs 1.v., 1.vi., and 3. are added;
    f. Under Section 205.3--Coverage, under 3(c) Exclusions from 
Coverage, a new heading ``Paragraph 3(c)(1)--Checks'' is added;
    g. Under Section 205.3--Coverage, under 3(c) Exclusions from 
Coverage, under newly added heading Paragraph 3(c)(1)--Checks, 
paragraphs 1. and 2. are added;
    h. Under Section 205.3--Coverage, under 3(c) Exclusions from 
Coverage, under Paragraph 3(c)(6)--Telephone--Initiated Transfers, 
paragraph 1. is revised and paragraph 2.v. is added;
    i. Under Section 205.6--Liability Of Consumer For Unauthorized 
Transfers, under Paragraph 6(b)(1)--Timely Notice Given, new paragraph 
3. is added;
    j. Under Section 205.7--Initial Disclosures, under 7(a) Timing of 
Disclosures, paragraph 2. is revised;
    k. Under Section 205.7--Initial Disclosures, under Paragraph 
7(b)(10) Error Resolution, paragraph 2. is revised;
    l. Under Section 205.8--Change-In-Terms Notice; Error Resolution 
Notice, under 8(b) Error Resolution Notice, a new paragraph 2. is 
added;
    m. Under Section 205.9--Receipts At Electronic Terminals; Periodic 
Statements, under Paragraph 9(a)(5)--Terminal Location, paragraph 1. is 
revised;
    n. Under Section 205.9--Receipts At Electronic Terminals; Periodic 
Statements, under Paragraph 9(a)(5)(iv), paragraphs 1. and 2. are 
redesignated as paragraphs 3. and 4. under paragraph 9(a)(5) and 
republished;
    o. Under Section 205.9--Receipts At Electronic Terminals; Periodic 
Statements, Paragraph 9(a)(5)(iv) is removed;
    p. Under Section 205.9--Receipts At Electronic Terminals; Periodic 
Statements, under 9(b) Periodic Statements, paragraph 4. is revised;
    q. Under Section 205.9--Receipts At Electronic Terminals; Periodic

[[Page 15193]]

Statements, under 9(c) Exceptions to the Periodic Statement 
Requirements for Certain Accounts, a new heading, Paragraph 9(c)(1)--
Preauthorized Transfers to Accounts is added and new paragraphs 1. and 
2. are added to the newly designated heading;
    r. Under Section 205.10--Preauthorized Transfers, under 10(b) 
Written Authorization for Preauthorized Transfers from Consumer's 
Account, paragraph 5. is revised, and new paragraph 7. is added;
    s. Under Section 205.10--Preauthorized Transfers, under Paragraph 
10(e)(2)--Employment or Government Benefit, paragraph 1. is revised;
    t. Under Section 205.11--Procedures For Resolving Errors, under 
11(a) Definition of Error, paragraph 2. is revised; and
    u. Under Section 205.12--Relation To Other Laws, under 12(a) 
Relation to Truth in Lending, paragraph 1. is revised.

SUPPLEMENT I TO PART 205--OFFICIAL STAFF INTERPRETATIONS

Section 205.2--Definitions

2(a) Access Device

* * * * *
    2. Checks used to capture information. The term ``access 
device'' does not include a check or draft used to capture the MICR 
(Magnetic Ink Character Recognition) encoding to initiate a one-time 
ACH debit. For example, if a consumer authorizes a one-time ACH 
debit from the consumer's account using a blank, partially 
completed, or fully completed and signed check for the merchant to 
capture the routing, account, and serial numbers to initiate the 
debit, the check is not an access device. (Although the check is not 
an access device under Regulation E, the transaction is nonetheless 
covered by the regulation. See comment 3(b)-1(v).)
* * * * *

2(h) Electronic Terminal

* * * * *
    2. POS terminals. A POS terminal that captures data 
electronically, for debiting or crediting to a consumer's asset 
account, is an electronic terminal for purposes of Regulation E even 
if no access device is used to initiate the transaction. (See 
Sec. 205.9 for receipt requirements.)
* * * * *

2(k) Preauthorized Electronic Fund Transfer

    1. Advance authorization. A ``preauthorized electronic fund 
transfer'' under Regulation E is one authorized by the consumer in 
advance of a transfer that will take place on a recurring basis, at 
substantially regular intervals, and will require no further action 
by the consumer to initiate the transfer. In a bill-payment system, 
for example, if the consumer authorizes a financial institution to 
make monthly payments to a payee by means of EFTs, and the payments 
take place without further action by the consumer, the payments are 
preauthorized EFTs. In contrast, if the consumer must take action 
each month to initiate a payment (such as by entering instructions 
on a touch-tone telephone or home computer), the payments are not 
preauthorized EFTs.
* * * * *

2(m) Unauthorized Electronic Fund Transfer

* * * * *
    5. Reversal of direct deposits. The reversal of a direct deposit 
made in error is not an unauthorized EFT when it involves:
    i. A credit made to the wrong consumer's account;
    ii. A duplicate credit made to a consumer's account; or
    iii. A credit in the wrong amount (for example, when the amount 
credited to the consumer's account differs from the amount in the 
transmittal instructions).
* * * * *

Section 205.3--Coverage

* * * * *

3(b) Electronic Fund Transfer

    1. Fund transfers covered. * * *
    v. A transfer via ACH where a consumer has provided a check to 
enable the merchant or other payee to capture the routing, account, 
and serial numbers to initiate the transfer, whether the check is 
blank, partially completed, or fully completed and signed; whether 
the check is presented at POS or is mailed to a merchant or other 
payee or lockbox and later converted to an EFT; or whether the check 
is retained by the consumer, the merchant or other payee, or the 
payee's financial institution.
    vi. A payment made by a bill payer under a bill-payment service 
available to a consumer via computer or other electronic means, 
unless the terms of the bill-payment service explicitly state that 
all payments, or all payments to a particular payee or payees, will 
be solely by check, draft, or similar paper instrument drawn on the 
consumer's account, and the payee or payees that will be paid in 
this manner are identified to the consumer.
* * * * *
    3. Authorization of one-time EFT initiated using MICR encoding 
on a check. A consumer authorizes a one-time EFT (in providing a 
check to a merchant or other payee for the MICR encoding), where the 
consumer receives notice that the transaction will be processed as 
an EFT and completes the transaction. Examples of notice include, 
but are not limited to, signage at POS and written statements.
* * * * *

3(c) Exclusions From Coverage

Paragraph 3(c)(1)--Checks

    1. Re-presented checks. The electronic re-presentment of a 
returned check is not covered by Regulation E because the 
transaction originated by check. Regulation E does apply, however, 
to any fee authorized by the consumer to be debited electronically 
from the consumer's account because the check was returned for 
insufficient funds. Authorization occurs where the consumer has 
received notice that a fee imposed for returned checks will be 
debited electronically from the consumer's account.
    2. Check used to capture information for a one-time EFT. See 
comment 3(b)-1(v).
* * * * *

Paragraph 3(c)(6)--Telephone-Initiated Transfers

    1. Written plan or agreement. A transfer that the consumer 
initiates by telephone is covered by Regulation E if the transfer is 
made under a written plan or agreement between the consumer and the 
financial institution making the transfer. A written statement 
available to the public or to account holders that describes a 
service allowing a consumer to initiate transfers by telephone 
constitutes a plan--for example, a brochure, or material included 
with periodic statements. The following, however, do not by 
themselves constitute a written plan or agreement:
    i. A hold-harmless agreement on a signature card that protects 
the institution if the consumer requests a transfer.
    ii. A legend on a signature card, periodic statement, or 
passbook that limits the number of telephone-initiated transfers the 
consumer can make from a savings account because of reserve 
requirements under Regulation D (12 CFR part 204).
    iii. An agreement permitting the consumer to approve by 
telephone the rollover of funds at the maturity of an instrument.
    2. Examples of covered transfers. * * *
    v. The consumer initiates the transfer using a financial 
institution's audio-response or voice-response telephone system.
* * * * *

Section 205.6--Liability of Consumer for Unauthorized Transfers

* * * * *

6(b) Limitations on Amount of Liability

* * * * *

Paragraph 6(b)(1)--Timely Notice Given

* * * * *
    3. Two-business-day rule. The two-business-day period does not 
include the day the consumer learns of the loss or theft or any day 
that is not a business day. The rule is calculated based on two 24-
hour periods, without regard to the financial institution's business 
hours or the time of day that the consumer learns of the loss or 
theft. For example, a consumer learns of the loss or theft at 6 p.m. 
on Friday. Assuming that Saturday is a business day and Sunday is 
not, the two-business-day period begins on Saturday and expires at 
11:59 p.m. on Monday, not at the end of the financial institution's 
business day on Monday.
* * * * *

Section 205.7--Initial Disclosures

7(a) Timing of Disclosures

* * * * *
    2. Lack of advance notice of a transfer. Where a consumer 
authorizes a third party to debit or credit the consumer's account, 
an account-holding institution that has not

[[Page 15194]]

received advance notice of the transfer or transfers must provide 
the required disclosures as soon as reasonably possible after the 
first debit or credit is made, unless the institution has previously 
given the disclosures.
* * * * *

Paragraph 7(b)(10)--Error Resolution

* * * * *
    2. Extended time-period for certain transactions. To take 
advantage of the longer time periods for resolving errors under 
Sec. 205.11(c)(3) (for new accounts as defined in Regulation CC (12 
CFR part 229), transfers initiated outside the United States, or 
transfers resulting from POS debit-card transactions), a financial 
institution must have disclosed these longer time periods. 
Similarly, an institution that relies on the exception from 
provisional crediting in Sec. 205.11(c)(2) for accounts subject to 
Regulation T (12 CFR part 220) must have disclosed accordingly.

Section 205.8--Change-in-Terms Notice; Error Resolution Notice

* * * * *

8(b) Error Resolution Notice

* * * * *
    2. Exception for new accounts. For new accounts, disclosure of 
the longer error resolution time periods under Sec. 205.11(c)(3) is 
not required in the annual error resolution notice or in the notice 
that may be provided with each periodic statement as an alternative 
to the annual notice.

Section 205.9--Receipts at Electronic Terminals; Periodic Statements

9(a) Receipts at Electronic Terminals

* * * * *

Paragraph 9(a)(5)--Terminal Location

    1. Options for identifying terminal. The institution may provide 
either:
    i. The city, state or foreign country, and the information in 
Secs. 205.9(a)(5) (i), (ii), or (iii), or
    ii. A number or a code identifying the terminal. If the 
institution chooses the second option, the code or terminal number 
identifying the terminal where the transfer is initiated may be 
given as part of a transaction code.
* * * * *
    3. Omission of state. The state may be omitted from the location 
information on the receipt if:
    i. All the terminals owned or operated by the financial 
institution providing the statement (or by the system in which it 
participates) are located in that state, or
    ii. All transfers occur at terminals located within 50 miles of 
the financial institution's main office.
    4. Omission of city and state. The city and state may be omitted 
if all the terminals owned or operated by the financial institution 
providing the statement (or by the system in which it participates) 
are located in the same city.
* * * * *

9(b) Periodic Statements

* * * * *
    4. Statement pickup. A financial institution may permit, but may 
not require, consumers to pick up their periodic statements at the 
financial institution.
* * * * *

9(c) Exceptions to the Periodic Statement Requirements for Certain 
Accounts

* * * * *

Paragraph 9(c)(1)--Preauthorized Transfers to Accounts

    1. Accounts that may be accessed only by preauthorized transfers 
to the account. The exception for ``accounts that may be accessed 
only by preauthorized transfers to the account'' includes accounts 
that can be accessed by means other than EFTs, such as checks. If, 
however, an account may be accessed by any EFT other than 
preauthorized credits to the account, such as preauthorized debits 
or ATM transactions, the account does not qualify for the exception.
    2. Reversal of direct deposits. For direct-deposit-only 
accounts, a financial institution must send a periodic statement at 
least quarterly. A reversal of a direct deposit to correct an error 
does not trigger the monthly statement requirement when the error 
represented a credit to the wrong consumer's account, a duplicate 
credit, or a credit in the wrong amount. (See also comment 2(m)-5.)
* * * * *

Section 205.10--Preauthorized Transfers

* * * * *

10(b) Written Authorization for Preauthorized Transfers From 
Consumer's Account

* * * * *
    5. Similarly authenticated. The similarly authenticated standard 
permits signed, written authorizations to be provided 
electronically. The writing and signature requirements of this 
section are satisfied by complying with the Electronic Signatures in 
Global and National Commerce Act, 15 U.S.C. 7001 et seq., which 
defines electronic records and electronic signatures. Examples of 
electronic signatures include, but are not limited to, digital 
signatures and security codes. A security code need not originate 
with the account-holding institution. The authorization process 
should evidence the consumer's identity and assent to the 
authorization. The person that obtains the authorization must 
provide a copy of the terms of the authorization to the consumer 
either electronically or in paper form. Only the consumer may 
authorize the transfer and not, for example, a third-party merchant 
on behalf of the consumer.
* * * * *
    7. Bona fide error. Consumers sometimes authorize third-party 
payees, by telephone or on-line, to submit recurring charges against 
a credit card account. If the consumer indicates use of a credit 
card account when in fact a debit card is being used, the payee does 
not violate the requirement to obtain a written authorization if the 
failure to obtain written authorization was not intentional and 
resulted from a bona fide error, and if the payee maintains 
procedures reasonably adapted to avoid any such error. If the payee 
is unable to determine, at the time of the authorization, whether a 
credit or debit card number is involved, and later finds that the 
card used is a debit card, the payee must obtain a written and 
signed or (where appropriate) a similarly authenticated 
authorization as soon as reasonably possible, or cease debiting the 
consumer's account.
* * * * *

10(e) Compulsory Use

* * * * *

Paragraph 10(e)(2)--Employment or Government Benefit

    1. Payroll. An employer (including a financial institution) may 
not require its employees to receive their salary by direct deposit 
to any particular institution. An employer may require direct 
deposit of salary by electronic means if employees are allowed to 
choose the institution that will receive the direct deposit. 
Alternatively, an employer may give employees the choice of having 
their salary deposited at a particular institution (designated by 
the employer) or receiving their salary by another means, such as by 
check or cash.

Section 205.11--Procedures for Resolving Errors

11(a) Definition of Error

* * * * *
    2. Verifying an account debit or credit. If the consumer 
contacts the financial institution to ascertain whether a payment 
(for example, in a home-banking or bill-payment program) or any 
other type of EFT was debited to the account, or whether a deposit 
made via ATM, preauthorized transfer, or any other type of EFT was 
credited to the account, without asserting an error, the error 
resolution procedures do not apply.
* * * * *

Section 205.12--Relation to Other Laws

12(a) Relation to Truth in Lending

    1. Determining applicable regulation. i. For transactions 
involving access devices that also function as credit cards, whether 
Regulation E or Regulation Z (12 CFR part 226) applies depends on 
the nature of the transaction. For example, if the transaction 
solely involves an extension of credit, and does not include a debit 
to a checking account (or other consumer asset account), the 
liability limitations and error resolution requirements of 
Regulation Z apply. If the transaction debits a checking account 
only (with no credit extended), the provisions of Regulation E 
apply. If the transaction debits a checking account but also draws 
on an overdraft line of credit attached to the account, Regulation 
E's liability limitations apply, in addition to Secs. 226.13 (d) and 
(g) of Regulation Z (which apply because of the extension of credit 
associated with the overdraft feature on the checking account). If a 
consumer's access device is also a credit card and the device is 
used to make unauthorized withdrawals from a checking account, but 
also is used to obtain unauthorized cash advances directly from a 
line of credit that is separate from the

[[Page 15195]]

checking account, both Regulation E and Regulation Z apply.
    ii. The following examples illustrate these principles:
    A. A consumer has a card that can be used either as a credit 
card or a debit card. When used as a debit card, the card draws on 
the consumer's checking account. When used as a credit card, the 
card draws only on a separate line of credit. If the card is stolen 
and used as a credit card to make purchases or to get cash advances 
at an ATM from the line of credit, the liability limits and error 
resolution provisions of Regulation Z apply; Regulation E does not 
apply.
    B. In the same situation, if the card is stolen and is used as a 
debit card to make purchases or to get cash withdrawals at an ATM 
from the checking account, the liability limits and error resolution 
provisions of Regulation E apply; Regulation Z does not apply.
    C. In the same situation, assume the card is stolen and used 
both as a debit card and as a credit card; for example, the thief 
makes some purchases using the card as a debit card, and other 
purchases using the card as a credit card. Here, the liability 
limits and error resolution provisions of Regulation E apply to the 
unauthorized transactions in which the card was used as a debit 
card, and the corresponding provisions of Regulation Z apply to the 
unauthorized transactions in which the card was used as a credit 
card.
    D. Assume a somewhat different type of card, one that draws on 
the consumer's checking account and can also draw on an overdraft 
line of credit attached to the checking account. There is no 
separate line of credit, only the overdraft line, associated with 
the card. In this situation, if the card is stolen and used, the 
liability limits and the error resolution provisions of Regulation E 
apply. In addition, if the use of the card has resulted in accessing 
the overdraft line of credit, the error resolution provisions of 
Sec. 226.13(d) and (g) of Regulation Z also apply, but not the other 
error resolution provisions of Regulation Z.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, acting through the Director of the Division of Consumer and 
Community Affairs under delegated authority, March 12, 2001.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 01-6560 Filed 3-15-01; 8:45 am]
BILLING CODE 6210-01-P