[Federal Register Volume 66, Number 65 (Wednesday, April 4, 2001)]
[Rules and Regulations]
[Pages 17786-17795]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-8151]


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FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R-1041]


Electronic Fund Transfers

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 E, which implements the Electronic Fund Transfer 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 consumers have 
adequate opportunity to access and retain information when shopping for 
electronic fund transfer services. (Similar rules are being adopted 
under other consumer financial services and fair lending regulations 
administered by the Board.) Under the rule, financial institutions may 
deliver disclosures electronically if they obtain consumers' 
affirmative consent in accordance with the Electronic Signatures in 
Global and National Commerce Act. Consistent with that act, an interim 
rule issued previously, regarding the electronic delivery of 
disclosures upon consumers' agreement, is withdrawn. In addition, the 
regulation is revised to allow

[[Page 17787]]

financial institutions to provide disclosures in foreign languages, and 
to make technical changes to the model error resolution notices. The 
rule is being adopted as an interim rule to allow for additional public 
comment.

DATES: This 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-1041, 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: John C. Wood, Counsel, or Natalie E. 
Taylor, Counsel, Division of Consumer and Community Affairs, at (202) 
452-2412 or (202) 452-3667.

SUPPLEMENTARY INFORMATION:

I. Background

    The Electronic Fund Transfer Act (EFTA), 15 U.S.C. 1693 et seq., 
provides a basic framework establishing the rights, liabilities, and 
responsibilities of participants in electronic fund transfer (EFT) 
systems. The Board's Regulation E (12 CFR part 205) implements the act. 
Types of transfers covered by the act and regulation include transfers 
initiated through an automated teller machine (ATM), point-of-sale 
terminal, automated clearinghouse, 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.
    EFTA and Regulation E require a number of disclosures to be 
provided in writing, presuming that financial institutions provide 
paper documents. Under the Electronic Signatures in Global and National 
Commerce Act (the E-Sign Act) (15 U.S.C. 7001 et seq.), 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 under Regulation E permitting the electronic delivery of 
disclosures (63 FR 14528) and similar proposals under Regulation Z (63 
FR 14548) and other financial services and fair lending 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, financial institutions, creditors, lessors, and others to 
provide disclosures electronically if the consumer agrees, 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 and interim 
rule, 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 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 in-person transactions 
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

[[Page 17788]]

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 E. Consistent with the requirements of the E-Sign Act, 
financial institutions generally must obtain consumers' 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 consumer, or they 
may be made available at another location, such as an Internet web 
site. If the disclosures are not sent by e-mail, consumers 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 consumers adequate time to access and retain the 
information. With regard to the timing of electronic disclosures, for 
disclosures that must be provided at the time the consumer contracts 
for an electronic fund transfer service (or before the first transfer), 
consumers are required to access the disclosures before contracting or 
making the first transfer. Under the interim rule, institutions 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 B, M, Z, and 
DD.

III. Request for Comment

Interim Rules

    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 consumers confirm their consent electronically in a 
manner that reasonably demonstrates they can access information in the 
form to be used by the financial institution? Is clarification needed 
on the effect of consumers' withdrawing their consent, or on requesting 
paper copies of electronic disclosures? Institutions must also inform 
consumers of changes in hardware or software requirements if the change 
creates a material risk that the consumer 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 E and other financial services and fair lending 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.
    As an example, under Regulations E, Z, and DD, periodic statements 
inform consumers about their account activity over a period of time, 
typically monthly. The beginning and ending dates of the cycle 
determine account balances and other information that must be 
disclosed. In addition, transmittal of the periodic statement triggers 
important consumer protections such as error resolution procedures. 
Online banking, however, can provide consumers with up-to-date 
information about their accounts on a continuing basis. Such 
information is a helpful supplement to--but does not comply as a 
substitute for--periodic statements. Should the

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rules for periodic statements be modified for online banking, and if 
so, how could the rules be crafted to maintain for consumers (1) a 
perspective of the activity of an account over time, and (2) 
protections for resolving errors or liability for unauthorized 
transactions?
    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 904 of the EFTA, the Board 
amends Regulation E 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 financial institution may make electronic disclosures available 
at its Internet web site instead of providing the disclosures directly 
to the consumer, the Board finds that such an exception is warranted, 
acting pursuant to its authority under section 904(c) of the EFTA. 
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 205.4  General Disclosure Requirements; Jointly Offered 
Services

4(a) Form of Disclosures
4(a)(2) Foreign Language Disclosures
    To provide consistency among the regulations, the guidance 
currently contained in comment 4(a)-2, permitting financial 
institutions to provide disclosures in languages other than English (as 
long as disclosures in English are available to consumers who request 
them) is set forth in new Sec. 205.4(a)(2).
4(c) Electronic Communication
    Section 205.4(c) was adopted by the Board in March 1998 as an 
interim rule allowing the electronic delivery of disclosures required 
under Regulation E, if the consumer agrees. The 1998 interim rule did 
not specify the manner or form of consumers' consent to electronic 
statements.
    Effective October 1, 2000, the E-Sign Act permits institutions to 
provide disclosures to consumers using electronic communication, if the 
institution complies with Section 101(c) of that act. Section 101(c) of 
the E-Sign Act requires institutions to provide specific information 
about the electronic delivery of disclosures and obtain the consumer's 
affirmative consent to receive electronic disclosures. As discussed 
below, Sec. 205.17 is being adopted to set forth the general rule that 
institutions subject to Regulation E may provide disclosures 
electronically only if the institution complies with Section 101(c) of 
the E-Sign Act. The 1998 interim rule is withdrawn accordingly, and 
Sec. 205.4(c) is amended to provide a cross reference to new 
Sec. 205.17, to ease compliance.

Section 205.17  Requirements for Electronic Communication

17(a) Definition
    As adopted, the definition of the term ``electronic communication'' 
remains substantially unchanged from the 1999 proposals. Section 
205.17(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. Because the rule permits 
the use of electronic communication to satisfy the statutory 
requirement for written disclosures that must be clear and readily 
understandable, the Board believes visual text is an essential element 
of the definition. Institutions that accommodate vision-impaired 
consumers 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 
readily understandable'' format requirement, discussed below.
17(b) General Rule
    Effective October 1, 2000, the E-Sign Act permits financial 
institutions to provide disclosures using electronic communication, if 
the financial institution complies with the consumer consent 
requirements in Section 101(c). Under section 101(c) of the E-Sign Act, 
financial institutions 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. Accordingly, Sec. 205.17(b) sets forth the 
general rule that financial institutions subject to Regulation E may 
provide disclosures electronically if the financial institution 
complies with section 101(c) of the E-Sign Act.
    The E-Sign Act authorizes the use of electronic disclosures. The 
act does not affect any requirement imposed under EFTA other than a 
provision that requires disclosures to be in paper form, and the act 
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 readily understandable standard. 
Comment 17(b)-1 contains this guidance.
Presenting Disclosures in a Clear and Readily Understandable Format
    Electronic disclosures must be clear and readily understandable, as 
is the case for all written disclosures under EFTA and Regulation E. 
See Sec. 205.4(a). A financial institution must provide electronic 
disclosures using a clear and readily understandable format. Also, in 
accordance with the E-Sign Act: (1) The institution must disclose the 
requirements for accessing and retaining disclosures in that format; 
(2) the consumer must demonstrate the ability to access the information 
electronically and affirmatively consent to electronic delivery; and 
(3) the institution 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 readily understandable 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 readily understandable standard.
    Commenters also had questions about the use of navigational tools 
with electronic disclosures. For example,

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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 readily understandable standard.
Providing Timely Disclosures
    Disclosures delivered electronically must comply with existing 
timing requirements under EFTA and Regulation E. See, for example, 
Secs. 205.7(a), 205.8(a)(1), and 205.9(b). 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 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 periodically at 
an Internet web site are timely if, by the required time, the financial 
institution both makes the disclosures available at that location and, 
in accordance with Sec. 205.17(c)(2), sends a notice alerting the 
consumer that the disclosures have been posted. For example, under 
Sec. 205.8(a), financial institutions offering accounts with EFT 
services must provide a change-in-terms notice at least 21 days in 
advance of certain changes. For a change-in-terms notice posted on the 
Internet, an institution must both post the notice and notify consumers 
of its availability at least 21 days in advance of the change. Comment 
17(b)-4 contains this guidance.
    Certain disclosures must be provided before the consumer contracts 
for an EFT service, or before the first electronic fund transfer. 
Because the disclosures are not required to be segregated and may be 
interspersed into the text of another document, the institution may 
satisfy the requirement to provide the disclosures if the document 
appears automatically or via a nonbypassable link. For example, when 
the financial institution permits the consumer to open an account on-
line and initiate an EFT transaction immediately thereafter, the 
consumer must be required to access the disclosures (or the document 
containing the disclosures such as a checking account agreement) 
required under Sec. 205.7 before the first transaction. A link to the 
disclosures satisfies the timing rule if the consumer cannot bypass the 
disclosures before contracting or making the first transfer. 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.
    Some industry commenters believed that requiring disclosures to 
automatically appear or be accessed by the consumer 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 consumer.
    EFTA and Regulation E require that financial institutions provide, 
send, or deliver disclosures to consumers. It is not sufficient for 
institutions to provide a bypassable navigational tool that merely 
gives consumers the option of receiving the disclosures. Such an 
approach reduces the likelihood that consumers will notice and receive 
the disclosures. The final rule ensures that consumers actually see 
disclosures provided electronically so that they have the opportunity 
to read them before entering into an agreement for EFT services.
    Commenters requested guidance regarding the financial institution's 
duty in cases where an institution cannot provide timely disclosures 
because an electronic terminal or other automated equipment controlled 
by the institution malfunctions or otherwise fails to operate properly. 
Where the institution controls the equipment and disclosures are 
required at that time, an institution might not be liable for failing 
to provide timely disclosures if the defense in section 915(c) of EFTA 
is available.
Providing Disclosures in a Form the Consumer May Keep
    Under EFTA and Regulation E, many of the disclosures required to be 
in writing must be in a form the consumer can retain. Electronic 
disclosures are subject to this requirement. Comment 17(b)-5 contains 
this guidance on this requirement.
    Consumers may communicate electronically with financial 
institutions through a variety of means and from various locations. 
Depending on the location (at home, at work, in a public place such as 
a library), a consumer may not have the ability at a given time to 
preserve EFTA disclosures presented on-screen. To ensure that consumers 
have an adequate opportunity to access and retain the disclosures, the 
financial institution also must send them to the consumer's designated 
e-mail address or make them available at another location, for example, 
on the financial institution's Internet web site, where the information 
may be retrieved at a later date.
    Where the financial institution controls the equipment providing 
the electronic disclosures (for example, an automated teller machine or 
computer terminal located in the financial institution's lobby), the 
financial institution must ensure that the consumer has the opportunity 
to retain the required information. Comment 17(b)-6 contains guidance 
on this requirement.
17(c) Address or Location To Receive Electronic Communication
    Consistent with the 1999 proposals, the interim rule provides that 
financial institutions may deliver electronic disclosures by sending 
them to a consumer's e-mail address. Alternatively, the rule provides 
that financial institutions may make the disclosures available at 
another location such as an Internet web site. If the financial 
institution makes a disclosure available at such a location, the 
financial institution effectively delivers the disclosure by sending a 
notice alerting the consumer 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 an 
institution's Internet web site under the interim rule differs from the 
1999 proposals, based on commenters' concerns as discussed below.
17(c)(1)
    For purposes of Sec. 205.17(c), a consumer's electronic address is 
an e-mail address that is not limited to receiving communications 
transmitted solely by the financial institution, as proposed. This 
guidance is contained in comment 17(c)(1)-1. An electronic address 
would not include systems that permit communication only between the 
consumer and the financial institution, for example, home-banking 
programs that allow consumers to communicate directly with a financial 
institution on-line with the use of a computer and modem. These 
systems, like a financial institution's web site accessed via the 
Internet, give consumers access to information about their accounts at 
a location controlled by the institution. In both cases, the 
institution determines how long account information will be available 
to the consumer. Consumers who receive

[[Page 17791]]

disclosures at their e-mail address, however, may choose when to 
review, and for how long to retain, account information. Consumers who 
receive disclosures by contacting a financial institution's site need 
to be alerted when the information is first available in order to 
ensure that they have the opportunity to access the information before 
it is removed. 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 consumer 
when disclosures are posted must be sent, by e-mail or to a postal 
address, at the financial institution's option.
17(c)(2)
    Under Sec. 205.17(c)(2)(i) of the interim rule, for disclosures 
made available at an Internet web site, a notice alerting the consumer 
when disclosures are posted must be sent by e-mail (or to a postal 
address, at the institution's option). Section 205.17(c)(2)(i) requires 
that the alert notice identify the account involved and the address or 
other location where the disclosure is available. Comment 17(c)(2)-1 
provides guidance on the level of detail required in identifying the 
account.
    As proposed, under Sec. 205.17(c)(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 consumers have 
adequate time to access and retain a disclosure under a variety of 
circumstances, such as when a consumer may not be able for an extended 
period of time to access the information due to computer malfunctions, 
travel, or illness. Making the periodic statement disclosure available 
for 90 days also ensures that it will be available a sufficient time in 
most cases to allow alleged errors to be resolved under the procedures 
in Regulation E. The 90-day period is uniform for all disclosures, for 
ease of compliance. Comment 17(c)(2)-2 is added to provide that during 
this period, the actual disclosures must be available to the consumer, 
but the financial institution 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 was 
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 1999 proposals provided that after the 90-day time period, 
disclosures would be available upon consumers' request, generally for 
24 months, in the same format as initially provided to the consumer. 
The 24-month period is consistent with a financial institution's duty 
to retain records that evidence 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 consumer.
    Industry commenters strongly opposed the 24-month period. Many 
believed that keeping copies of electronic disclosures actually 
provided to consumers for that period of time would be costly and 
burdensome. Moreover, industry commenters believed that once a consumer 
has accessed the disclosures, the consumer rather than the financial 
institution should have the duty to retain them for future reference. 
They also noted that under existing record retention requirements 
applicable to paper disclosures, a financial institution need only 
demonstrate compliance with the rules, but need not retain copies of 
the actual disclosures provided to consumers.
    The requirement for financial institutions to provide duplicate 
disclosures upon request for 24 months has not been adopted. A 
financial institution's duty to retain evidence of compliance for 24 
months remains unchanged.
17(d) 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 financial institutions 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 consents electronically, in a manner 
that reasonably demonstrates they can access the information that the 
financial institution 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 institution. 
After the consumer consents, the E-Sign Act also requires institutions 
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 all 
disclosures would not be warranted. When electronic disclosures are 
returned undelivered, however, Sec. 205.17(d) imposes a duty to attempt 
redelivery (either electronically or to a postal address) based on 
address information in the institution's own files. Unlike paper 
disclosures delivered by the postal service, there generally is no 
commonly-accepted mechanism for reporting a change in electronic 
address or for forwarding e-mail. Where an institution actually knows 
that the delivery of an electronic disclosure did not take place, the 
institution should take reasonable steps to effectuate delivery in some 
way. For example, if an e-mail message to the consumer (containing an 
alert notice or other disclosure) is returned as undeliverable, the 
redelivery requirement is satisfied if the institution sends the 
disclosure to a different e-mail address or postal address that the 
institution has on file. Sending the disclosures a second time to the 
same electronic address would not be sufficient if the institution has 
a different address for the consumer on file. Comment 17(d)-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 consumer due to technical problems with the consumer's 
software. A financial institution's duty to redeliver a disclosure 
under Sec. 205.17(d) does not affect the timeliness of the disclosure. 
Financial institutions 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 financial 
institution is required under Sec. 205.17(d) to take reasonable steps 
to attempt redelivery.

[[Page 17792]]

17(e) Persons Other Than Financial Institutions
    Certain provisions of Regulation E apply to entities that are not 
financial institutions. For example, where preauthorized electronic 
fund transfers from a consumer's account are recurring but will vary in 
amount each time, advance written notice is required; the notice may be 
given by the designated payee instead of the financial institution. The 
rule clarifies that entities other than a financial institution that 
are required to comply with Regulation E may use electronic 
communication to do so, provided the requirements of Sec. 205.17(b) are 
satisfied. See Sec. 205.17(e) and comment 17(e)-1.
Additional Issues
1. 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.
2. Technical Amendments to Error Resolution Notices
    Model error resolution notices contained in Appendix A (Forms A-3 
and A-5) have been revised to conform with amendments to Sec. 205.11 
addressing time periods for investigating alleged errors involving new 
accounts and point-of-sale and foreign-initiated transactions (63 FR 
52115, September 29, 1998), and to make other technical changes.

V. Form of Comment Letters

    Comment letters should refer to Docket No. R-1041, 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 E, in 
accordance with section 3(a) of the Regulatory Flexibility Act (5 
U.S.C. 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 financial 
institutions with an alternative method of providing disclosures; the 
rule will relieve compliance burden by giving financial institutions 
flexibility in providing disclosures required by the regulation. 
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 7100-0200.
    The collection of information that is revised by this rulemaking is 
found in 12 CFR Part 205 and in Appendix A. This information is 
mandatory (15 U.S.C. 1693 et seq.) to evidence compliance with the 
requirements of the Regulation E and the Electronic Fund Transfer Act 
(EFTA). The respondents/recordkeepers are for-profit financial 
institutions, including small businesses. Institutions are required to 
retain records for twenty-four months. This regulation applies to all 
types of financial institutions, 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 financial institutions may deliver 
disclosures electronically upon obtaining consumers' affirmative 
consent in accordance with the E-Sign Act. The

[[Page 17793]]

revisions provide guidance to institutions on the timing and delivery 
of electronic disclosures, to ensure that consumers have adequate 
opportunity to access and retain the information.
    With respect to state member banks, it is estimated that there are 
954 respondent/recordkeepers and an average frequency of 85,808 
responses per respondent each year. The current annual burden is 
estimated to be 518,857 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 comments 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 205

    Banks, banking, Consumer protection, Electronic fund transfers, 
Reporting and record keeping requirements.

    For the reasons set forth in the preamble, the Board amends 
Regulation E, 12 CFR part 205, as set forth below:

PART 205 ELECTRONIC FUND TRANSFERS (REGULATION E)

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

    Authority: 15 U.S.C. 1693-1693r.

    2. Section 205.4 is amended by redesignating paragraph (a) as 
paragraph (a)(1), adding a new paragraph (a)(2), and revising paragraph 
(c), as follows:


Sec. 205.4  General disclosure requirements; jointly offered services.

    (a)(1) Form of disclosures. * * *
    (2) Foreign language disclosures. Disclosures required under this 
part may be made in a language other than English, provided that the 
disclosures are made available in English upon the consumer's request.
* * * * *
    (c) Electronic communication. For rules governing the electronic 
delivery of disclosures, including the definition of electronic 
communication, see Sec. 205.17.
* * * * *

    3. Add a new Sec. 205.17 to read as follows:


Sec. 205.17  Requirements for electronic communication.

    (a) Definition. Electronic communication means a message 
transmitted electronically between a financial institution and a 
consumer 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 financial institution may provide 
by electronic communication any disclosure required by this part to be 
in writing.
    (c) Address or location to receive electronic communication. A 
financial institution that uses electronic communication to provide 
disclosures required by this part shall:
    (1) Send the disclosure to the consumer's electronic address; or
    (2) Make the disclosure available at another location such as an 
Internet web site; and
    (i) Alert the consumer of the disclosure's availability by sending 
a notice to the consumer's electronic address (or to a postal address, 
at the financial institution'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 consumer of the disclosure, whichever comes later.
    (d) Redelivery. When a disclosure provided by electronic 
communication is returned to a financial institution undelivered, the 
financial institution shall take reasonable steps to attempt redelivery 
using information in its files.
    (e) Persons other than financial institutions. Persons other than a 
financial institution that are required to comply with this part may 
use electronic communication in accordance with the requirements of 
Sec. 205.17, as applicable.

    4. Appendix A to Part 205 is amended by revising Model Forms A-3 
and A-5, to read as follows:

Appendix A To Part 205--Model Disclosure Clauses and Forms

* * * * *

A-3--Model Forms for Error Resolution Notice (Secs. 205.7(b)(10) and 
205.8(b))

    (a) Initial and annual error resolution notice 
(Secs. 205.7(b)(10) and 205.8(b)).
    In Case of Errors or Questions About Your Electronic Transfers 
Telephone us at [insert telephone number] Write us at [insert 
address] [or E-mail us at [insert electronic mail address]] as soon 
as you can, if you think your statement or receipt is wrong or if 
you need more information about a transfer listed on the statement 
or receipt. We must hear from you no later than 60 days after we 
sent the FIRST statement on which the problem or error appeared.
    (1) Tell us your name and account number (if any).
    (2) Describe the error or the transfer you are unsure about, and 
explain as clearly as you can why you believe it is an error or why 
you need more information.
    (3) Tell us the dollar amount of the suspected error.
    If you tell us orally, we may require that you send us your 
complaint or question in writing within 10 business days.
    We will determine whether an error occurred within 10 business 
days after we hear from you and will correct any error promptly. If 
we need more time, however, we may take up to 45 days to investigate 
your complaint or question. If we decide to do this, we will credit 
your account within 10 business days for the amount you think is in 
error, so that you will have the use of the money during the time it 
takes us to complete our investigation. If we ask you to put your 
complaint or question in writing and we do not receive it within 10 
business days, we may not credit your account.
    For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate 
your complaint or question. For new accounts, we may take up to 20 
business days to credit your account for the amount you think is in 
error.
    We will tell you the results within three business days after 
completing our investigation. If we decide that there was no error, 
we will send you a written explanation. You may ask for copies of 
the documents that we used in our investigation.
    (b) Error resolution notice on periodic statements 
(Sec. 205.8(b)).
* * * * *

A-5--Model Forms for Government Agencies (Sec. 205.15(d)(1) and (2))

    (a) Disclosure by government agencies of information about 
obtaining account

[[Page 17794]]

balances and account histories (Sec. 205.15(d)(1)(i) and (ii)).
    You may obtain information about the amount of benefits you have 
remaining by calling [telephone number]. That information is also 
available [on the receipt you get when you make a transfer with your 
card at (an ATM)(a POS terminal)][when you make a balance inquiry at 
an ATM][when you make a balance inquiry at specified locations].
    You also have the right to receive a written summary of 
transactions for the 60 days preceding your request by calling 
[telephone number]. [Optional: Or you may request the summary by 
contacting your caseworker.]
    (b) Disclosure of error resolution procedures for government 
agencies that do not provide periodic statements 
(Sec. 205.15(d)(1)(iii) and (d)(2)).
    In Case of Errors or Questions About Your Electronic Transfers 
Telephone us at [telephone number] Write us at [insert address] [or 
E-mail us at [insert electronic mail address]] as soon as you can, 
if you think an error has occurred in your [EBT][agency's name for 
program] account. We must hear from you no later than 60 days after 
you learn of the error. You will need to tell us:
     Your name and [case] [file] number.
     Why you believe there is an error, and the dollar 
amount involved.
     Approximately when the error took place.

If you tell us orally, we may require that you send us your 
complaint or question in writing within 10 business days.
    We will determine whether an error occurred within 10 business 
days after we hear from you and will correct any error promptly. If 
we need more time, however, we may take up to 45 days to investigate 
your complaint or question. If we decide to do this, we will credit 
your account within 10 business days for the amount you think is in 
error, so that you will have the use of the money during the time it 
takes us to complete our investigation. If we ask you to put your 
complaint or question in writing and we do not receive it within 10 
business days, we may not credit your account.
    For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate 
your complaint or question. For new accounts, we may take up to 20 
business days to credit your account for the amount you think is in 
error.
    We will tell you the results within three business days after 
completing our investigation. If we decide that there was no error, 
we will send you a written explanation. You may ask for copies of 
the documents that we used in our investigation.
    If you need more information about our error resolution 
procedures, call us at [telephone number][the telephone number shown 
above].

    5. In Supplement I to Part 205, a new Section 205.17 is added, to 
read as follows:

Supplement I to Part 205--Official Staff Interpretations

* * * * *

Section 205.17--Requirements for Electronic Communication

17(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 readily understandable standard. For example, to satisfy the 
clear and readily understandable standard for disclosures, 
electronic disclosures must use visual text.
    2. Clear and readily understandable standard. A financial 
institution must provide electronic disclosures using a clear and 
readily understandable format. Also, in accordance with the E-Sign 
Act:
    i. The institution must disclose the requirements for accessing 
and retaining disclosures in that format;
    ii. The consumer must demonstrate the ability to access the 
information electronically and affirmatively consent to electronic 
delivery; and
    iii. The institution must provide the disclosures in accordance 
with the specified requirements.
    3. Timing and effective delivery when a consumer signs up for an 
EFT service on-line. When a consumer contracts for an EFT service on 
the Internet and will be able immediately to initiate a fund 
transfer, a financial institution satisfies the timing requirements 
under this part if, at the time the consumer contracts for the 
service or before the first transfer is made, the disclosures 
automatically appear on the screen, even if multiple screens are 
required to view the entire disclosure. Or a financial institution 
may provide a link to electronic disclosures, as long as consumers 
cannot bypass the link and they are required to access the 
disclosures before initiating the first transfer. The institution is 
not required to confirm that the consumer has read the disclosures.
    4. Timing and effective delivery for disclosures provided 
periodically. Disclosures provided by e-mail are timely based on 
when the disclosures are sent. Disclosures posted at an Internet web 
site, such as periodic statements or change-in-terms and other 
notices, are timely when the financial institution has both made the 
disclosures available and sent a notice alerting the consumer that 
the disclosures have been posted. For example, under Sec. 205.8(a), 
institution offering accounts with EFT services must provide a 
change-in-terms notice to consumers at least 21 days in advance of 
certain changes. For a change-in-terms notice posted on the 
Internet, an institution must both post the notice and notify 
consumers of its availability at least 21 days in advance of the 
change.
    5. Retainability of disclosures. Financial institutions satisfy 
the requirement that disclosures be in a form that the consumer 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.
    6. Disclosures provided on financial institution's equipment. A 
financial institution that controls the equipment providing 
electronic disclosures to consumers (for example, an ATM or computer 
terminal in a financial institution's lobby) must ensure that the 
equipment satisfies the regulation's requirements to provide timely 
disclosures in a clear and readily understandable format and in a 
form that the consumer may keep. For example, if disclosures are 
required at the time of an on-line transaction, the disclosures must 
be sent to the consumer's e-mail address or must be made available 
at another location such as the financial institution's Internet web 
site, unless the financial institution provides a printer that 
automatically prints the disclosures.

17(c) Address or Location To Receive Electronic Communication

Paragraph 17(c)(1)

    1. Electronic address. A consumer's electronic address is an e-
mail address that is not limited to receiving communications 
transmitted solely by the financial institution.

Paragraph 17(c)(2)

    1. Identifying account involved. A financial institution 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 consumer has only one checking account, and no 
confusion would result, the institution may refer to ``your checking 
account.'' If the consumer has two checking accounts, the 
institution may, for example, differentiate accounts based on names 
for different checking account programs or by using a truncated 
account number.
    2. 90-day rule. The actual disclosures provided to the consumer 
must be available for at least 90 days, but the financial 
institution has discretion to determine whether they should be 
available at the same location for the entire period.

17(d) Redelivery

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

17(e) Persons Other Than Financial Institutions

    1. Electronic disclosures. Entities other than financial 
institutions, such as merchants, are subject to certain provisions 
of Regulation E, including Secs. 205.10(b) and (d). These entities 
too may use electronic communication to provide disclosures required 
to be in writing.


[[Page 17795]]


    By order of the Board of Governors of the Federal Reserve 
System, March 27, 2001.
Robert deV. Frierson,
Associate Secretary of the Board.
[FR Doc. 01-8151 Filed 4-3-01; 8:45 am]
BILLING CODE 6210-01-P