[Federal Register Volume 66, Number 65 (Wednesday, April 4, 2001)]
[Rules and Regulations]
[Pages 17779-17786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-8150]


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FEDERAL RESERVE SYSTEM

12 CFR Part 202

[Regulation B; Docket No. R-1040]


Equal Credit Opportunity

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Interim rule; request for comments.

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SUMMARY: The Board is adopting an interim final rule amending 
Regulation B, which implements the Equal Credit Opportunity Act, to 
establish uniform standards for the electronic delivery of disclosures 
required by the act and regulation. The rule provides guidance on the 
timing and delivery of electronic disclosures to ensure that applicants 
have adequate opportunity to access and retain required information. 
(Similar rules are being adopted under other consumer financial 
services regulations administered by the Board.) Under the rule, 
creditors may deliver disclosures electronically if they obtain 
applicants' affirmative consent in accordance with the Electronic 
Signatures in Global and National Commerce Act. In addition, the 
regulation is revised to allow creditors to provide disclosures in 
foreign languages. The rule is being adopted as an interim rule to 
allow for additional public comment.

DATES: The interim rule is effective March 30, 2001; however, to allow 
time for any necessary operational changes, the mandatory compliance 
date is October 1, 2001. Comments must be received by June 1, 2001.

ADDRESSES: Comments, which should refer to Docket No. R-1040, may be 
mailed to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, N.W., 
Washington, D.C. 20551 or mailed electronically to 
[email protected]. 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 in the Board's Martin Building between 9:00 
a.m. and 5:00 p.m., pursuant to the Board's Rules Regarding the 
Availability of Information, 12 CFR part 261.

FOR FURTHER INFORMATION CONTACT: Natalie E. Taylor or John C. Wood, 
Counsel, or Minh-Duc Le, Attorney, Division of Consumer and Community 
Affairs, at (202) 452-2412 or (202) 452-3667.

SUPPLEMENTARY INFORMATION:

I. Background

    The Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691 et seq., 
makes it unlawful for creditors to discriminate in any aspect of a 
credit transaction on the basis of sex, race, color, religion, national 
origin, marital status, age (provided the applicant has the capacity to 
contract), because all or part of an applicant's income derives from 
public assistance, or because an applicant has in good faith exercised 
any right under the Consumer Credit Protection Act. The Board's 
Regulation B (12 CFR part 202) implements the act.
    The ECOA and Regulation B require that some disclosures be provided 
in writing, presuming that creditors provide paper documents. Under the 
Electronic Signatures in Global and National Commerce Act (E-Sign Act), 
however, electronic documents and signatures have the same validity as 
paper documents and handwritten signatures.

Board Proposals Regarding Electronic Disclosures

    Over the past few years, the Board has published several interim 
rules and proposals regarding the electronic delivery of disclosures. 
In 1996, after a comprehensive review of Regulation E (Electronic Fund 
Transfers), the Board proposed to amend the regulation to permit 
financial institutions to provide disclosures by sending them 
electronically (61 FR 19696, May 2, 1996). Based on comments received 
on the 1996 proposal, on March 25, 1998, the Board published an interim 
rule permitting the electronic delivery of disclosures under Regulation 
E (63 FR 14528) and similar proposals under Regulation B (63 FR 14552) 
and other financial services regulations administered by the Board. The 
1998 interim rule and proposed rules were similar to the 1996 proposed 
rule under Regulation E.
    The 1998 proposals and interim rule allowed depository 
institutions, creditors, lessors, and others to provide disclosures 
electronically if the consumer agreed, with few other requirements. For 
ease of reference, this background section uses the terms 
``institutions'' and ``consumers.''
    Industry commenters generally supported the Board's 1998 proposals 
and interim rule, but many of them sought specific revisions and 
additional guidance on how to comply with the disclosure requirements 
in certain transactions and circumstances. In particular, they 
expressed concern that the rule did not specify a uniform method for 
establishing that an ``agreement'' was reached for sending disclosures 
electronically. Consumer advocates, on the other hand, generally 
opposed the 1998 proposals and the interim rule. They believed that 
consumer protections in the proposals were inadequate, especially in 
connection with transactions that are typically consummated in person 
(such as automobile loans and leases, home-secured loans, and door-to-
door credit sales).

September 1999 Proposals

    In response to comments received on the 1998 proposals, the Board 
published revised regulatory proposals in September 1999 under 
Regulations B, E, M, Z, and DD (64 FR 49688, 49699, 49713, 49722 and 
49740, respectively, September 14, 1999) (collectively, the ``1999 
proposals''), and an interim rule under Regulation DD (64 FR 49846). 
The interim rule under Regulation DD allowed depository institutions to 
deliver disclosures on periodic statements electronically if the 
consumer agrees.
    Generally, the 1999 proposals required institutions to use a 
standardized form containing specific information about the electronic 
delivery of disclosures so that consumers could make informed decisions 
about whether to receive disclosures electronically. If the

[[Page 17780]]

consumer affirmatively consented, most disclosures could be provided 
electronically. To address concerns about potential abuses, the 1999 
proposals generally would have required disclosures to be given in 
paper form when consumers transacted business in person. The proposals 
contained rules for disclosures that are made available to consumers at 
an institution's Internet web site (governing, for example, how long 
disclosures must remain posted at a web site).
    Comments on the September 1999 proposals--The Board received 
letters representing 115 commenters expressing views on the revised 
proposals. Industry commenters generally supported the Board s approach 
of establishing federal rules for a uniform method of obtaining 
consumers consent to the receipt of electronic disclosures instead of 
deferring to state law. Still, many sought specific additional guidance 
and in some cases wanted more flexibility. They were concerned about 
the length of time the proposals would have required electronic 
disclosures to remain available to a consumer at an institution's 
Internet web site or upon request. In addition, they believed the 
proposed rule requiring paper disclosures for mortgage loans closed in 
person was not sufficiently flexible. Consumer advocates believed the 
1999 proposals addressed many of their concerns about the 1998 
proposals. Nevertheless, they urged the Board to incorporate greater 
protections for consumers, such as restricting the delivery of 
electronic disclosures to only those consumers who initiate 
transactions electronically.
    The Board also obtained views through four focus groups with 
individual consumers, conducted in the Washington-Baltimore 
metropolitan area. Participants reviewed and commented on the format 
and content of the proposed sample consent forms, as well as on 
alternative revised forms.

Federal Legislation Addressing Electronic Commerce

    On June 30, 2000, the President signed the E-Sign Act, which was 
enacted to encourage the continued expansion of electronic commerce. 
The E-Sign Act generally provides that electronic documents and 
signatures have the same validity as paper documents and handwritten 
signatures. The act contains special rules for the use of electronic 
disclosures in consumer transactions. Consumer disclosures may be 
provided in electronic form only if the consumer affirmatively consents 
after receiving certain information specified in the statute.
    The Board and other government agencies are permitted to interpret 
the E-Sign Act's consumer consent requirements within prescribed 
limits, but may not impose additional requirements for consumer 
consent. In addition, agencies generally may not re-impose a 
requirement for using paper disclosures in particular transactions, 
such as those conducted in person.
    The consumer consent provisions in the E-Sign Act became effective 
October 1, 2000, and did not require implementing regulations. Thus, 
financial institutions are currently permitted to use electronic 
disclosures under Regulations B, E, M, Z and DD if the consumer 
affirmatively consents in the manner required by section 101(c) of the 
E-Sign Act. Under section 101(c)(5) of the E-Sign Act, consumers who 
consented prior to the effective date of the act to receive electronic 
disclosures as permitted by any law or regulation, are not subject to 
the consent requirements.

II. The Interim Rule

    The Board is adopting an interim final rule to establish uniform 
standards for the electronic delivery of disclosures required under 
Regulation B. Consistent with the requirements of the E-Sign Act, 
creditors generally must obtain applicants' affirmative consent to 
provide disclosures electronically.
    The interim rules also establish uniform requirements for the 
timing and delivery of electronic disclosures. Disclosures may be sent 
by e-mail to an electronic address designated by the applicant, or they 
may be made available at another location, such as an Internet web 
site. If the disclosures are not sent by e-mail, applicants must 
receive a notice alerting them to the availability of the disclosures. 
Disclosures posted on a web site must be available for at least 90 
days, to allow applicants adequate time to access and retain the 
information. With regard to the timing of electronic disclosures, for 
disclosures that must be provided at application, applicants are 
required to access the disclosures before submitting the application. 
Under the interim rule, creditors must make a good faith attempt to 
redeliver electronic disclosures that are returned undelivered, using 
the address information available in their files. Similar rules are 
being adopted under Regulations E, M, Z, and DD.

III. Request for Comment

    The interim rules include most of the revisions that were part of 
the 1999 proposals and were not affected by the E-Sign Act. The Board 
is adopting these rules with some minor changes discussed below. The 
rules are adopted as interim rules, to allow commenters to present new 
information or views not previously considered in the context of the 
1998 and 1999 proposals. Since the Board's 1999 proposals were issued, 
more institutions have gained experience in offering financial services 
electronically. The Board believes that additional comments, beyond 
those previously considered in connection with the Board's earlier 
proposals, might inform the Board whether any developments in 
technology or industry practices have occurred that warrant further 
changes in the rules. The comment period ends on June 1, 2001. The 
Board expects to adopt final rules on a permanent basis prior to 
October 1, 2001.

Interpreting E-Sign Provisions

    Under section 104(b) of the E-Sign Act, the Board and other 
government agencies are permitted to interpret the act, within 
prescribed limits. The Board may issue rules that interpret how the E-
Sign Act's consumer consent requirements apply for purposes of the laws 
administered by the Board. Also, the Board may, by regulation, exempt a 
particular category of disclosures from the E-Sign Act's consumer 
consent requirements if it will eliminate a substantial burden on 
electronic commerce without creating material risk for consumers.
    The Board requests comment on whether the Board should exercise its 
authority under the E-Sign Act in future rulemakings to interpret the 
consumer consent provisions or other provisions of the act, as they 
affect the Board's consumer protection regulations. Comment is 
requested on whether the statutory provisions relating to consumer 
consent are sufficient, or whether additional guidance is needed. For 
example, is interpretative guidance needed concerning the statutory 
requirement that applicants confirm their consent electronically in a 
manner that reasonably demonstrates they can access information in the 
form to be used by the creditor? Is clarification needed on the effect 
of applicants withdrawing their consent, or on requesting paper copies 
of electronic disclosures? Creditors must also inform applicants of 
changes in hardware or software requirements if the change creates a 
material risk that the applicant

[[Page 17781]]

will not be able to access or retain the disclosure. The Board solicits 
comment on whether regulatory standards are needed for determining a 
``material risk'' for purposes of Regulation B and financial services 
laws administered by the Board, and if so what standards should apply.
    Under section 104(d) of the E-Sign Act, the Board is authorized to 
exempt specific disclosures from the consumer consent requirements of 
section 101(c) of the E-Sign Act, if the exemption is necessary to 
eliminate a substantial burden on electronic commerce and will not 
increase the material risk of harm to consumers. The Board requests 
comment on whether it should consider exercising this exemption 
authority.

Study on Adapting Requirements to Online Banking and Lending

    The E-Sign Act eliminated legal impediments to the use of 
electronic records and signatures. The Board requests comment on 
whether other legislative or regulatory changes are needed to adapt 
current requirements to online banking and lending and facilitate 
electronic delivery of consumer financial services.
    The comments may assist the Board in future efforts to update the 
regulations. The comments may also be used in connection with a study 
required under the Gramm-Leach-Bliley Act of 1999. That act requires 
the federal bank supervisory agencies to conduct a study of banking 
regulations that affect the electronic delivery of financial services 
and to submit to the Congress a report recommending any legislative 
changes that are needed to facilitate online banking and lending.

IV. Section-by-Section Analysis

    Pursuant to its authority under section 703 of the ECOA, the Board 
amends Regulation B to establish uniform standards for the use of 
electronic communication to provide disclosures required by this 
regulation. Electronic disclosures can effectively reduce compliance 
costs without adversely affecting consumer protections. To the extent 
that a creditor may make electronic disclosures available at its 
Internet web site instead of providing the disclosures directly to the 
applicant, the Board finds that such an exception is warranted, acting 
pursuant to its authority under section 703(a)(1) of the ECOA. Below is 
a section-by-section analysis of the rules for providing disclosures by 
electronic communication, including references to changes in the 
official staff commentary.

Section 202.4  General Rules

4(b) Foreign Language Disclosures
    To provide consistency among the regulations, as proposed, 
Sec. 202.4(b) permits creditors to provide disclosures in languages 
other than English as long as disclosures in English are available to 
applicants who request them.

Section 202.9  Notifications

9(h) Duties of Third Parties
    Under Sec. 202.9(g), when an application for credit is submitted 
through a third party to more than one creditor and no credit is 
offered (or the applicant does not expressly accept or use any credit 
offered) each creditor taking adverse action must provide the notice 
required by Sec. 202.9(a), but may do so through a third party. Third 
parties may use electronic communication to provide required 
disclosures, provided the requirements of Sec. 202.17 are satisfied. 
This guidance is provided in new Sec. 202.9(h).

Section 202.17  Requirements for Electronic Communication

17(a) Definition
    As adopted, the definition of the term ``electronic communication'' 
remains substantially unchanged from the 1999 proposals. Section 
202.17(a) limits the term to a message transmitted electronically that 
can be displayed on equipment as visual text; an example is a message 
displayed on a personal computer monitor screen. Thus, audio-and voice-
response telephone systems are not included. Creditors that accommodate 
vision-impaired applicants by providing disclosures that do not use 
visual text must also provide disclosures using visual text.
    Some commenters asked for clarification that the definition was not 
intended to preclude the use of devices other than personal computers, 
which also can display visual text. The equipment on which the text 
message is received is not limited to a personal computer, provided the 
visual display used to deliver the disclosures meets the ``clear and 
conspicuous'' format requirement, discussed below.
17(b) General Rule
    Effective October 1, 2000, the E-Sign Act permits creditors to 
provide disclosures using electronic communication, if the creditor 
complies with the consumer consent requirements in section 101(c). 
Under section 101(c) of the E-Sign Act, creditors must provide specific 
information about the electronic delivery of disclosures before 
obtaining the consumer's affirmative consent to receive electronic 
disclosures. The consent requirements in the E-Sign Act are similar but 
not identical to the Board's 1999 proposal. Section 202.17(b) sets 
forth the general rule that creditors subject to Regulation B may 
provide disclosures electronically if the creditor complies with 
section 101(c) of the E-Sign Act. Pursuant to the Board's authority 
under section 703(a) of the ECOA, Sec. 202.17(b) applies to consumer 
and business credit applicants.
    The E-Sign Act authorizes the use of electronic disclosures. It 
does not affect any requirement imposed under the ECOA other than a 
requirement that disclosures be in paper form, and it does not affect 
the content or timing of disclosures. Electronic disclosures are 
subject to the regulation's format, timing and retainability rules and 
the clear and conspicuous standard. Comment 17(b)-1 contains this 
guidance.
Presenting Disclosures in a Clear and Conspicuous Format
    The interim final rule imposes a new clear and conspicuous standard 
for electronic disclosures under Regulation B. See Sec. 202.17(b). (As 
part of a comprehensive review of Regulation B, the Board proposed in 
August 1999 to apply the standard to all disclosures required to be in 
writing (64 FR 44581, August 16, 1999).) Commenters generally supported 
the standard; most believed a consistent standard should apply to all 
of the regulations.
    A creditor must provide electronic disclosures using a clear and 
conspicuous format. Also, in accordance with the E-Sign Act: (1) The 
creditor must disclose the requirements for accessing and retaining 
disclosures in that format; (2) the applicant must demonstrate the 
ability to access the information electronically and affirmatively 
consent to electronic delivery; and (3) the applicant must provide the 
disclosures in accordance with the specified requirements. Comment 
17(b)-2 contains this guidance.
    Commenters posed a few questions about the applicability of the 
clear and conspicuous standard to particular situations. Some asked 
whether electronic advertisements or other unrelated promotional 
information may appear on the same screen as mandatory disclosures that 
are posted on an Internet web site. Except to the extent required by 
the regulation, disclosures do not have to be provided separately from 
other information. Advertisements should not be integrated into the 
text of the disclosure in a manner that violates the clear and 
conspicuous standard.

[[Page 17782]]

    Commenters also had questions about the use of navigational tools 
with electronic disclosures. For example, some believed that such tools 
might be helpful in directing consumers to related information that 
explains the terminology used in the disclosures. Many Internet web 
sites use navigational tools that are conspicuous through the use of 
bold text, larger fonts, different colors, underlining, or other 
methods of highlighting. Such tools are not per se prohibited so long 
as they are not used in a manner that would violate the clear and 
conspicuous standard.
Providing Timely Disclosures
    Disclosures delivered electronically must comply with existing 
timing requirements under the ECOA and Regulation B. See, for example, 
Secs. 202.5a, 202.9, and 202.13. Commenters on the Board's 1999 
proposals requested specific guidance that an electronic disclosure 
would be considered timely based on the time it is sent by e-mail or 
posted on an Internet web site, regardless of when the consumer 
receives or reads the disclosure.
    Under the interim final rule, consistent with rules for disclosures 
that are sent by postal mail, disclosures provided by e-mail are timely 
when they are sent by the required time. Disclosures posted at an 
Internet web site are timely if, by the required time, the creditor 
both makes the disclosures available at that location and, in 
accordance with Sec. 202.17(d)(2), sends a notice alerting the 
applicant that the disclosures have been posted. For example, under 
Sec. 202.9, a creditor must provide a notice of action taken within 30 
days of receiving a completed application. For an adverse action notice 
posted on the Internet, a creditor must both post the notice and notify 
the applicant of its availability within 30 days of receiving the 
completed application. Comment 17(b)-3(ii) contains this guidance.
    Certain disclosures must be provided at the time of application. 
For example, if the creditor's procedures permit the applicant to apply 
for a mortgage loan on-line, the applicant must be required to access 
the disclosures required under Sec. 202.13 before submitting the 
application. A link to the disclosures satisfies the timing rule if the 
applicant cannot bypass the disclosures before submitting the 
application. Or, the disclosures in this example must automatically 
appear on the screen, even if multiple screens are required to view the 
entire disclosure. Comment 17(b)-3 contains this guidance, as proposed, 
but has been expanded.
    The on-line mortgage loan example was used in the supplementary 
information of the September 1999 proposed rule to illustrate the 
timing requirements. Some commenters expressed concern that the example 
required creditors to provide in writing--on the application--the 
information required by Sec. 202.13. These commenters asked the Board 
to clarify that the information required by Sec. 202.13(a) may be 
requested separately after the creditor begins processing the 
application.
    Regulation B currently requires a creditor that receives an 
application for a mortgage loan, where the credit will be secured by 
the dwelling, to request ``as part of the application'' certain 
applicant characteristic information. See Sec. 202.13(a). The official 
staff commentary further provides that a creditor may collect the 
Sec. 202.13(a) information on the application form itself or on a 
separate form that refers to the application. See comment 13(b)-1. 
Thus, while Sec. 202.13(a) requires creditors to collect the required 
information prior to submission of an application, a creditor need not 
request the information on the application itself. Accordingly, for a 
dwelling-secured mortgage loan taken over the Internet, the creditor 
need not include the request on the actual application. A link to the 
disclosure satisfies the rule if the applicant cannot bypass the 
disclosure before submitting the application. Or, the information must 
automatically appear on the screen. In addition, while the disclosure 
required by Sec. 202.13(c) may be provided orally or in writing, for a 
mortgage loan taken over the Internet the disclosure would have to 
appear on the screen--although not on the application form itself--or 
be accessed before the application is submitted to the creditor.
    Some commenters asked the Board to clarify whether there is a 
requirement to request monitoring information for mortgage loan 
applications taken over the Internet. The Regulation B commentary 
currently provides that for purposes of the requirements of 
Sec. 202.13(a), a creditor may treat an application taken through an 
electronic medium without video capability as a telephone or mail 
application. Where applications are taken by telephone, a creditor is 
not required to request applicant characteristic information; where 
taken by mail, the information must be requested, but the creditor is 
not required to make a special request if the applicant did not provide 
the information. See comment 13(b)-3(i)(A), (B). (Creditors should 
note, however, that in the August 1999 review of Regulation B, the 
Board proposed to require creditors to treat applications taken through 
an electronic medium without video capability as taken by mail (64 FR 
44581).)
    Some industry commenters believed that requiring disclosures to 
automatically appear or be accessed by the applicant is cumbersome and 
unnecessary. Some commenters suggested that the Board allow the 
required disclosures to be accessible via a clearly marked navigational 
tool; they believe that once the tool is provided, the disclosure 
should be deemed to have been provided to the applicant.
    The ECOA and Regulation B require that disclosures be provided to 
applicants. It is not sufficient for creditors to provide a bypassable 
navigational tool that merely gives applicants the option of receiving 
the disclosures. Such an approach reduces the likelihood that 
applicants will notice and receive the disclosures. The interim final 
rule ensures that applicants actually see disclosures provided 
electronically so that they have the opportunity to read the 
disclosures in a timely fashion.
    Commenters on the various proposals requested guidance regarding 
the creditor's duty in cases where a creditor cannot provide timely 
disclosures because an automated loan machine or other automated 
equipment controlled by the creditor malfunctions or otherwise fails to 
operate properly. Where the creditor controls the equipment and 
disclosures are required at that time, a creditor might not be liable 
for failing to provide timely disclosures if the defense in 
Sec. 202.14(c) of Regulation B is available.
Providing Disclosures in a Form the Consumer May Keep
    With one exception (Sec. 202.9(a)(3)(i)(B), regarding business 
credit), retainability is a new standard for disclosures under 
Regulation B. (In August 1999, the Board requested comment on whether a 
retainability standard should apply to all disclosures and information 
required by Regulation B to be in writing (64 FR 44581).) Electronic 
disclosures required to be in writing are subject to this requirement. 
Comment 17(b)-4 contains guidance on this requirement.
    Applicants 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), an applicant 
may not have the ability at a given time to preserve ECOA disclosures 
presented on-screen. To ensure that applicants have an

[[Page 17783]]

adequate opportunity to access and retain the disclosures, the creditor 
also must send them to the applicant's designated e-mail address or 
make them available at another location, for example, on the creditor's 
Internet web site, where the information may be retrieved at a later 
date.
    Where the creditor controls the equipment providing the electronic 
disclosures (for example, an automated loan machine or computer 
terminal located in the creditor's lobby), the creditor must ensure 
that the applicant has the opportunity to retain the required 
information. Comment 17(b)-5 contains guidance on this requirement.
17(c) When Consent Is Required
    Under the E-Sign Act, consumers must affirmatively consent before 
they receive electronic disclosures ``relating to a transaction'' if 
the disclosures are required by law or regulation to be in writing. 
Under Regulation B, the consent requirement has been expanded to 
include both consumer and business applicants. Some disclosures 
required to be in writing may be included on or with an application 
provided to applicants for certain credit regardless of whether the 
applicant applies for the loan (Secs. 202.5a(a)(2)(i) (notice of right 
to copy of appraisal), 202.9(a)(3)(i)(B) (notice of right to a 
statement of reasons), and 202.13(a) (request for monitoring 
information)). Section 202.17(c) is added to make clear that an 
applicant's affirmative consent is not required before creditors use 
electronic communication to provide these disclosures on or with an 
application.
17(d) Address or Location To Receive Electronic Communication
    Consistent with the 1999 proposals, the interim rule provides that 
creditors may deliver electronic disclosures by sending them to an 
applicant's e-mail address. Alternatively, the rule provides that 
creditors may make the disclosures available at another location such 
as an Internet web site. If the creditor makes a disclosure available 
at such a location, the creditor effectively delivers the disclosure by 
sending a notice alerting the applicant when the disclosure can be 
accessed and making the disclosure available for at least 90 days. The 
time period for keeping disclosures available at a location such as a 
creditor's Internet web site under the interim rule differs from the 
1999 proposals, based on commenters' concerns as discussed below.
17(d)(1)
    For purposes of Sec. 202.17(d), an applicant's electronic address 
is an e-mail address that is not limited to receiving communication 
transmitted solely by the creditor, as proposed. This guidance is 
contained in comment 17(d)(1)-1.
    An electronic address would not include systems that permit 
communication only between the consumer and the creditor, for example, 
home-banking programs that allow consumers to communicate directly with 
a creditor on-line with the use of a computer and modem. Thus, 
disclosures provided using systems such as home-banking programs are 
treated in the same manner as disclosures made available at an Internet 
web site, and a notice alerting the applicant when disclosures are 
posted must be sent by e-mail, or to a postal address, at the 
creditor's option.
17(d)(2)
    Under Sec. 202.17(d)(2)(i) of the interim rule, for disclosures 
made available at an Internet web site, a notice alerting the applicant 
when disclosures are posted must be sent by e-mail (or to a postal 
address, at the creditor's option). Section 202.17(d)(2)(i) requires 
that the alert notice identify the account involved and the address or 
other location where the disclosure is available. Comment 17(d)(2)-1 
provides guidance on the level of detail required in identifying the 
account.
    As proposed, under Sec. 202.17(d)(2)(ii) of the interim rule, 
disclosures provided at an Internet web site must remain available for 
at least 90 days. The requirement seeks to ensure that applicants have 
adequate time to access and retain a disclosure under a variety of 
circumstances, such as when an applicant may not be able for an 
extended period of time to access the information due to computer 
malfunctions, travel, or illness. The 90-day period is uniform for all 
disclosures, for ease of compliance. Comment 17(d)(2)-2 is added to 
provide that during this period, the actual disclosures must be 
available to the applicant, but the creditor has discretion to 
determine whether they should be available at the same location for the 
entire period.
    Some industry commenters believed the 90-day time period is 
reasonable and feasible. About an equal number of commenters believed 
it was too burdensome and costly; some of these commenters suggested 
periods that ranged from 30 to 60 days.
    The Regulation B proposal provided that after the 90-day time 
period, disclosures would be available upon applicants' request, for 25 
months, in the same format as initially provided to the applicant. The 
25-month period is consistent with a creditor's duty to retain records 
that evidence their compliance. Consumer advocates supported the 
proposed retention period; some recommended that disclosures should be 
available upon request for the length of the contractual relationship 
with the applicant.
    Industry commenters strongly opposed the 25-month period. Many 
believed that keeping copies of electronic disclosures actually 
provided to applicants for that period of time would be costly and 
burdensome. Moreover, industry commenters believed that once an 
applicant has accessed the disclosures, the applicant rather than the 
creditor should have the duty to retain them for future reference. They 
also noted that under existing record retention requirements applicable 
to paper disclosures, a creditor need only demonstrate compliance with 
the rules, but need not retain copies of the actual disclosures 
provided to applicants.
    The requirement for creditors to provide duplicate disclosures upon 
request for 25 months has not been adopted. A creditor's duty to retain 
evidence of compliance for 25 months remains unchanged.
17(d)(3) Exceptions
    Section 202.17(d)(3) is added to make clear that the requirements 
of paragraphs (i) and (ii) of Sec. 202.17(d)(2) do not apply to the 
disclosure required under Sec. 202.13(a).
17(e) Redelivery
    Industry commenters on the 1998 proposal asked for clarification 
that sending the electronic disclosures complies with the regulation, 
and that institutions are not required to confirm that the consumer 
actually received them. Consumer advocates asked that institutions be 
required to verify the delivery of disclosures by return receipt, in 
the case of e-mail. In the 1999 proposals, the Board solicited comment 
on the need for and the feasibility of such a requirement.
    Consumer advocates believe that e-mail systems are not yet 
sufficiently reliable, and that safeguards are necessary to ensure that 
consumers actually receive disclosures. Industry commenters stated that 
a return receipt requirement would be costly and burdensome, and would 
require creditors to monitor return receipts in every case to determine 
that individual consumers received the disclosures.
    Section 101(c) of the E-Sign Act requires that consumers consent 
electronically, or confirm their consent

[[Page 17784]]

electronically, in a manner that reasonably demonstrates that the 
consumer can access the information that the creditor will be 
providing. This requirement seeks to verify at the outset that the 
consumer is actually capable of receiving the information in the 
electronic format being used by the creditor. After the consumer 
consents, the E-Sign Act also requires creditors to notify consumers of 
changes that materially affect consumers' ability to access electronic 
disclosures.
    The interim rule does not impose a verification requirement because 
the cost and burden associated with verifying delivery of disclosures 
would not be warranted. When electronic disclosures are returned 
undelivered, however, Sec. 202.17(e) imposes a duty to attempt 
redelivery (either electronically or to a postal address) based on 
address information in the creditor's own files. Unlike paper 
disclosures delivered by postal service, there generally is no 
commonly-accepted mechanism for reporting a change in electronic 
address or for forwarding e-mail. Where a creditor actually knows that 
the delivery of an electronic disclosure did not take place, the 
creditor should take reasonable steps to effectuate delivery in some 
way. For example, if an e-mail message to the applicant (containing an 
alert notice or other disclosure) is returned as undeliverable, the 
redelivery requirement is satisfied if the creditor sends the 
disclosure to a different e-mail address or postal address that the 
creditor has on file. Sending the disclosures a second time to the same 
electronic address would not be sufficient if the creditor has a 
different address for the applicant on file. Comment 17(e)-1 provides 
this guidance.
    This redelivery requirement is limited to situations where the 
electronic communication cannot be delivered and does not apply to 
situations where the disclosure is delivered but, for example, cannot 
be read by the applicant due to technical problems with the applicant's 
software. A creditor's duty to redeliver a disclosure under 
Sec. 202.17(e) does not affect the timeliness of the disclosure. 
Creditors comply with the timing requirements of the regulation when a 
disclosure is initially sent in a timely manner, even though the 
disclosure is returned undelivered and the creditor is required under 
Sec. 202.17(e) to take reasonable steps to attempt redelivery.
17(f) Electronic Signatures
    The E-Sign Act provides that electronic signatures have the same 
validity as handwritten signatures. Section 106 of the act defines an 
electronic signature. Section 202.17(f) is added to incorporate the E-
Sign Act's definition of electronic signature into the regulation. To 
comply with the E-Sign Act, an electronic signature must be executed or 
adopted by an applicant with the intent to sign the record. 
Accordingly, regardless of the technology used to meet this 
requirement, the process must evidence the applicant's identity. 
Comment 17(f)-1 provides this guidance.
Additional Issues
Document Integrity
    The interim rule does not impose document integrity standards. 
Consumer advocates and others expressed concerns that electronic 
documents can be altered more easily than paper documents. They say 
that consumers' ability to enforce rights under the consumer protection 
laws could be impaired, in some cases, if the authenticity of 
disclosures they retain cannot be demonstrated.
    Institutions are generally required to retain evidence of 
compliance with the Board's consumer regulations. Accordingly, the 
Board requested comment on the feasibility of requiring institutions to 
have systems in place capable of detecting whether or not information 
has been altered, or to use independent certification authorities to 
verify disclosure documents.
    Consumer advocates strongly supported document integrity 
requirements (including the use of certification authorities) that 
would apply to all-electronic disclosures. Signatures, notary seals, 
and verification procedures such as recordation are used to protect 
against alterations for transactions memorialized in paper form. 
Consumer advocates believe that comparable verification procedures are 
needed for electronic disclosures as well.
    Industry commenters opposed mandatory document integrity standards 
for electronic disclosures. Because the technology in this area is 
still evolving, they believe that mandatory standards would be 
premature. Others believe that imposing document integrity standards or 
requiring the use of certification authorities would be costly to 
implement.
    The Board recognizes the concerns about document integrity, but 
believes it is not practicable at this time to impose document 
integrity standards for consumer disclosures or mandate the use of 
independent certification authorities. Effective methods may be too 
costly. Other less costly methods may deter alterations in some cases, 
but would not necessarily ensure document integrity.
    Moreover, the issue of document integrity affects electronic 
commerce generally and is not unique to the written disclosures 
required under the consumer protection laws administered by the Board. 
Section 104(b)(3) of the E-Sign Act authorizes federal or state 
regulatory agencies to specify performance standards to assure the 
accuracy, record integrity, and accessibility of records that are 
required to be retained, but prohibits the agencies from requiring the 
use of a particular type of software or hardware in order to comply 
with record retention requirements. Technology is likely to develop to 
protect electronic contracts and other legal documents. Thus, it seems 
premature for the Board to specify any particular standards or methods 
for consumer disclosure at this time.

V. Form of Comment Letters

    Comment letters should refer to Docket No. R-1040, and, when 
possible, should use a standard typeface with a font size of 10 or 12. 
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.

VI. Regulatory Flexibility Analysis

    The Board has reviewed these interim amendments to Regulation B, in 
accordance with section 3(a) of the Regulatory Flexibility Act (5 U.SC. 
604). Two of the three requirements of a final regulatory flexibility 
analysis under the Act are (1) a succinct statement of the need for and 
the objectives of the rule and (2) a summary of the issues raised by 
the public comments, the agency's assessment of those issues, and a 
statement of the changes made in the final rule in response to the 
comments. These two areas are discussed above.
    The third requirement of the analysis is a description of 
significant alternatives to the rule that would minimize the rule's 
economic impact on small entities and reasons why the alternatives were 
rejected. This interim final rule is designed to provide creditors with 
an alternative method of providing disclosures; the rule will relieve 
compliance burden by giving creditors flexibility in providing 
disclosures required by the regulation.

[[Page 17785]]

Overall, the costs of providing electronic disclosures are not expected 
to have significant impact on small entities. The expectation is that 
providing electronic disclosures may ultimately reduce the costs 
associated with providing disclosures.

VII. 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 rule under the 
authority delegated to the Board by the Office of Management and 
Budget. 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 control number. The OMB 
control number is 7100-0201.
    The collection of information that is revised by this rulemaking is 
found in 12 CFR Part 202. This information is mandatory (15 U.S.C. 1691 
et seq.) to evidence compliance with the requirements of Regulation B 
and the Equal Credit Opportunity Act (ECOA). The respondents/
recordkeepers are creditors. Creditors are required to retain records 
for twenty-five months (12 months for business credit). 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 revisions provide that creditors may deliver disclosures 
electronically upon obtaining applicants' affirmative consent in 
accordance with the E-Sign Act. The revisions also provide guidance to 
creditors on the timing and delivery of electronic disclosures, to 
ensure that applicants have adequate opportunity to access and retain 
the information.
    With respect to state member banks, it is estimated that there are 
1000 respondent/recordkeepers and an average frequency of 4,767 
responses per respondent each year. The current annual burden is 
estimated to be 125,678 hours. No comments specifically addressing the 
burden estimate were received, therefore, the numbers remain unchanged. 
There is estimated to be no additional cost burden and no capital or 
start up cost associated with the interim final rule.
    Because the records would be maintained at state member banks and 
the notices are not provided to the Federal Reserve, no issue of 
confidentiality arises under the Freedom of Information Act.
    The Board has a continuing interest in the public's opinions of the 
Federal Reserve's collections of information. At any time, comments 
regarding the burden estimate, or any other aspect of this collection 
of information, including suggestions for reducing the burden, may be 
sent to: Secretary, Board of Governors of the Federal Reserve System, 
20th and C Streets, N.W., Washington, DC 20551; and to the Office of 
Management and Budget, Paperwork Reduction Project (7100-0200), 
Washington, DC 20503.

VIII. Solicitation of Comments Regarding the Use of ``Plain 
Language''

    Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the 
Board to use ``plain language'' in all proposed and final rules 
published after January 1, 2000. The Board invites comment on whether 
the interim rule is clearly stated and effectively organized, and how 
the Board might make the rule easier to understand.

List of Subjects in 12 CFR Part 202

    Aged, Banks, banking, Civil rights, Credit, Federal Reserve System, 
Marital status discrimination, Penalties, Religious discrimination, 
Reporting and recordkeeping requirements, Sex discrimination.

    For the reasons set forth in the preamble, the Board amends 
Regulation B, 12 CFR part 202, as set forth below:

PART 202--EQUAL CREDIT OPPORTUNITY (REGULATION B)

    1. The authority citation for part 202 continues to read as 
follows:


    Authority: 15 U.S.C. 1691-1691f.


    2. Section 202.4 is revised as follows:


Sec. 202.4  General rules.

    (a) Rule prohibiting discrimination. A creditor shall not 
discriminate against an applicant on a prohibited basis regarding any 
aspect of a credit transaction.
    (b) Foreign language disclosures. Disclosures may be made in 
languages other than English, provided they are available in English 
upon request.

    3. Section 202.9 is amended by adding a new paragraph (h) to read 
as follows:


Sec. 202.9  Notifications.

* * * * *
    (h) Duties of third parties. A third party may use electronic 
communication in accordance with the requirements of Sec. 202.17, as 
applicable, to comply with the requirements of paragraph (g) of this 
section on behalf of a creditor.


Sec. 202.16  [Added and reserved]

    4. Add and reserve Sec. 202.16.
    5. Add a new Sec. 202.17 to read as follows:


Sec. 202.17  Requirements for electronic communication.

    (a) Definition. Electronic communication means a message 
transmitted electronically between a creditor and an applicant in a 
format that allows visual text to be displayed on equipment, for 
example, a personal computer monitor.
    (b) General rule. In accordance with the Electronic Signatures in 
Global and National Commerce Act (the E-Sign Act) (15 U.S.C. 7001 et 
seq.) and the rules of this part, a creditor may provide by electronic 
communication any disclosure required by this part to be in writing. 
Disclosures provided by electronic communication must be provided in a 
clear and conspicuous manner and in a form the applicant may retain.
    (c) When consent is required. For disclosures required by this part 
to be in writing, a creditor shall obtain an applicant's affirmative 
consent in accordance with the requirements of the E-Sign Act. 
Disclosures under Secs. 202.5a(a)(2)(i), 202.9(a)(3)(i)(B), and 
202.13(a) are not subject to this requirement if provided on or with 
the application.
    (d) Address or location to receive electronic communication. A 
creditor that uses electronic communication to provide disclosures 
required by this part shall:
    (1) Send the disclosure to the applicant's electronic address; or
    (2) Make the disclosure available at another location such as an 
Internet web site; and
    (i) Alert the applicant of the disclosure's availability by sending 
a notice to the applicant's electronic address (or to a postal address, 
at the creditor's option). The notice shall identify the account 
involved and the address of the Internet web site or other location 
where the disclosure is available; and
    (ii) Make the disclosure available for at least 90 days from the 
date the disclosure first becomes available or from the date of the 
notice alerting the applicant of the disclosure, whichever comes later.
    (3) Exceptions. A creditor need not comply with paragraph (d)(2)(i) 
and (ii) of this section for the disclosure required by Sec. 202.13(a).

[[Page 17786]]

    (e) Redelivery. When a disclosure provided by electronic 
communication is returned to a creditor undelivered, the creditor shall 
take reasonable steps to attempt redelivery using information in its 
files.
    (f) Electronic signatures. An electronic signature as defined under 
the E-Sign Act satisfies any requirement under this part for an 
applicant's signature or initials.

    6. In Supplement I to Part 202, a new Section 202.16 is added and 
reserved and a new Section 202.17 is added to read as follows:
* * * * *

Supplement I to Part 202--Official Staff Interpretations

* * * * *

Section 202.16--[Reserved]

Section 202.17--Electronic Communication

(b) General Rule

    1. Relationship to the E-Sign Act. The E-Sign Act authorizes the 
use of electronic disclosures. It does not affect any requirement 
imposed under this part other than a provision that requires 
disclosures to be in paper form, and it does not affect the content 
or timing of disclosures. Electronic disclosures are subject to the 
regulation's format, timing, and retainability rules and the clear 
and conspicuous standard. For example, to satisfy the clear and 
conspicuous standard for disclosures, electronic disclosures must 
use visual text. The clear and conspicuous and retainability 
requirements apply to all disclosures provided electronically--those 
expressly required by the act and regulation to be in writing, and 
those provided in writing where the creditor has the option to give 
the disclosure orally or in writing.
    2. Clear and conspicuous standard. A creditor must provide 
electronic disclosures using a clear and conspicuous format. Also, 
in accordance with the E-Sign Act:
    i. The creditor must disclose the requirements for accessing and 
retaining disclosures in that format;
    ii. The applicant must demonstrate the ability to access the 
information electronically and affirmatively consent to electronic 
delivery; and
    iii. The creditor must provide the disclosures in accordance 
with the specified requirements.
    3. Timing and effective delivery.
    i. When an applicant applies for credit on-line. When a creditor 
permits an applicant to apply for credit on-line, the applicant must 
be required to access the disclosures required at application before 
submitting the application. A link to the disclosures satisfies the 
timing rule if the applicant cannot bypass the disclosures before 
submitting the application. Or the disclosures must automatically 
appear on the screen, even if multiple screens are required to view 
all of the information. The creditor is not required to confirm that 
the applicant has read the disclosures.
    ii. Appraisals and adverse action. Disclosures provided by e-
mail are timely based on when the disclosures are sent. Disclosures 
posted at an Internet web site, such as adverse action notices or 
copies of appraisals, are timely when the creditor has both made the 
disclosures available and sent a notice alerting the applicant that 
the disclosures have been posted. For example, under Sec. 202.9, a 
creditor must provide a notice of action taken within 30 days of 
receiving a completed application. For an adverse action notice 
posted on the Internet, a creditor must post the notice and notify 
the applicant of its availability within 30 days of receiving the 
applicant's completed application.
    4. Retainability of disclosures. Creditors satisfy the 
requirement that disclosures be in a form that the applicant may 
keep if electronic disclosures are delivered in a format that is 
capable of being retained (such as by printing or storing 
electronically). The format must also be consistent with the 
information required to be provided under section 101(c)(1)(C)(i) of 
the E-Sign Act (15 U.S.C. 7001(c)(1)(C)(i)) about the hardware and 
software requirements for accessing and retaining electronic 
disclosures.
    5. Disclosures provided on creditor's equipment. A creditor that 
controls the equipment providing electronic disclosures to 
applicants (for example, a computer terminal in a creditor's lobby 
or an automated loan machine at a public kiosk) must ensure that the 
equipment satisfies the regulation's requirements to provide timely 
disclosures in a clear and conspicuous format and in a form that the 
applicant may keep. For example, if disclosures are required at the 
time of an on-line application, the disclosures must be sent to the 
applicant's e-mail address or must be made available at another 
location such as the creditor's Internet web site, unless the 
creditor provides a printer that automatically prints the 
disclosures.

17(d) Address or Location To Receive Electronic Communication

Paragraph 17(d)(1)

    1. Electronic address. An applicant's electronic address is an 
e-mail address that is not limited to receiving communication 
transmitted solely by the creditor.

Paragraph 17(d)(2)

    1. Identifying account involved. A creditor may identify a 
specific account in a variety of ways and is not required to 
identify an account by reference to the account number. For example, 
where the applicant has only one credit card account, and no 
confusion would result, the creditor may refer to ``your credit card 
account.'' If the applicant has two credit card accounts, the 
creditor may, for example, differentiate accounts based on the card 
program or by using a truncated account number.
    2. 90-day rule. The actual disclosures provided to an applicant 
must be available for at least 90 days, but the creditor has 
discretion to determine whether they should be available at the same 
location for the entire period.

17(e) Redelivery

    1. E-mail returned as undeliverable. If an e-mail to the 
applicant (containing an alert notice or other disclosure) is 
returned as undeliverable, the redelivery requirement is satisfied 
if, for example, the creditor sends the disclosure to a different e-
mail address or postal address that the creditor has on file for the 
applicant. Sending the disclosures a second time to the same 
electronic address is not sufficient if the creditor has a different 
address for the applicant on file.

17(f) Electronic Signatures

    1. Relationship to the E-Sign Act. The E-Sign Act provides that 
electronic signatures have the same validity as handwritten 
signatures. Section 106 of the E-Sign Act (15 U.S.C. 7006) defines 
an electronic signature. To comply with the E-Sign Act, an 
electronic signature must be executed or adopted by an applicant 
with the intent to sign the record. Accordingly, regardless of the 
technology used to meet this requirement, the process must evidence 
the applicant's identity.

    By order of the Board of Governors of the Federal Reserve 
System, March 29, 2001.
Robert deV. Frierson,
Associate Secretary of the Board.
[FR Doc. 01-8150 Filed 4-3-01; 8:45 am]
BILLING CODE 6210-01-P