[Federal Register Volume 66, Number 204 (Monday, October 22, 2001)]
[Proposed Rules]
[Pages 53348-53354]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-26305]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 66, No. 204 / Monday, October 22, 2001 /
Proposed Rules
[[Page 53348]]
FARM CREDIT ADMINISTRATION
12 CFR Parts 609 and 620
RIN 3052-AC02
Electronic Commerce; Disclosure to Shareholders
AGENCY: Farm Credit Administration.
ACTION: Proposed rule.
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SUMMARY: The Farm Credit Administration (FCA or Agency) proposes to
create and amend regulations to reflect emerging business approaches to
electronic commerce (E-commerce). The proposed rule is designed to
remove regulatory barriers to E-commerce and create a flexible
regulatory environment that facilitates the safe and sound use of new
technologies by Farm Credit System (System or FCS) institutions and
their customers.
DATES: Please send your comments to us by November 21, 2001.
ADDRESSES: You may send comments by electronic mail(e-mail) to [email protected] or through the Pending Regulations section of our Web site
at www.fca.gov. You may also mail or deliver written comments to Thomas
G. McKenzie, Director, Regulation and Policy Division, Office of Policy
and Analysis, Farm Credit Administration, 1501 Farm Credit Drive,
McLean, Virginia 22102-5090 or fax them to (703) 734-5784. You may
review copies of all comments we receive in the Office of Policy and
Analysis, Farm Credit Administration.
FOR FURTHER INFORMATION CONTACT:
Dale Aultman, Policy Analyst, Office of Policy and Analysis, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4498, TDD (703)
883-4444,
or
Jane Virga, Senior Attorney, Office of General Counsel, Farm Credit
Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 883-
4444.
SUPPLEMENTARY INFORMATION:
I. Objectives
The objectives of our proposed rule are to:
Remove regulatory barriers to E-commerce;
Create a flexible regulatory framework that facilitates
the safe and sound use of new technologies by System institutions and
their customers; and
Provide a brief overview of Federal laws and regulations
that facilitate E-commerce.
We are seeking comments on this proposal and also on any other FCA
regulation that we could amend, or eliminate, to facilitate E-commerce.
II. Background
A. Creating a New E-Commerce Rule Part
We propose creating a new E-commerce Rule part. System institutions
are increasingly using new technologies and engaging in E-commerce. In
2000, Congress enacted the ``Electronic Signatures in Global and
National Commerce Act'' (E-SIGN) (Pub. L. 106-229), which legitimatizes
the use of electronic contracts, signatures, and record keeping in many
situations. E-SIGN makes it easier for System institutions to use
electronic communications in transactions and realize potential cost
savings. We believe many System institutions, like other financial
institutions, will use electronic communications to conduct E-commerce
and engage in online lending, among other activities. Thus, we believe
this rulemaking and creation of a new part are necessary. The following
information provides more background:
1. Department of Commerce Working Group Solicitation
In a presidential memorandum dated November 29, 1999, Federal
Agencies were asked to adopt policies, laws, and regulations on E-
commerce, electronic services, and electronic transmissions. The
Department of Commerce was directed to form a workgroup, which would
invite public comment on how the Federal Government could adjust to the
electronic environment while ensuring existing protections for the
public. The Department of Commerce formed the United States Government
Working Group on Electronic Commerce (USGWG). On February 1, 2000, the
USGWG invited the public to identify laws or regulations that might
obstruct or hinder E-commerce. (See 65 FR 4801, Feb. 1, 2000.)
On February 15, 2000, the FCA issued an informational memorandum
advising the System of the USGWG's request for comments on facilitating
E-commerce. We advised System institutions this was their opportunity
to suggest how the Act or its implementing regulations could better
facilitate E-commerce. The public comment period closed on March 17,
2000. The Farm Credit Council Presidents' Planning Committee (Planning
Committee), Farm Credit Service of America, PCA & FLCA (FCS of
America), and Pacific Coast Farm Credit Services, ACA\1\ (Pacific
Coast) forwarded comments to the USGWG, with copies to the FCA.
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\1\ After submitting its comment letter Pacific Coast Farm
Credit Services, ACA merged with other System institutions. The
successor institution is American AgCredit, ACA.
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2. System Institution Requests
System institutions have wanted to communicate electronically with
shareholders and do online lending. Many System institutions have an
Internet Web site presence through their home pages. We have received
the following comments from the System on E-commerce:
In March 2000, the Planning Committee and FCS of America
stated that FCA should undertake a rulemaking to remove barriers to E-
commerce and address legal issues raised by electronic records and
signatures.
In March 2000, Pacific Coast stated that FCA regulations
that require legal loan documents and disclosures to shareholders to be
in writing hindered E-commerce.
In April and May 2000, AgCredit of California PCA and
FLCA,\2\ and the Western Farm Credit District Chief Financial Officers'
Subcommittee on Accounting and Reporting stated that they wanted to
post annual reports to shareholders on System institution Web sites.
They wanted to notify System
[[Page 53349]]
institution shareholders by brief letters or postcards of the
electronic posting.
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\2\ After submitting its comment letter AgCredit of California
PCA and FLCA, merged with other System institutions. The successor
institution is AgCredit Financial, ACA.
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In April 2000, the Farm Credit Council and the System's
Accounting Standards Work Group asked us to consider allowing the
System to use electronic media to deliver information to shareholders.
In March 2001, the System's E-Commerce Task Force (Task
Force) identified FCA regulations that they believe may impede the
System's efforts to use E-commerce. Many of those regulations pertain
to disclosures or notices to shareholders, which are a subject of this
proposed regulation. We will consider other suggestions of the Task
Force in other rulemakings.
3. Electronic Signatures in Global and National Commerce Act (E-SIGN)
E-SIGN became effective October 1, 2000. FCA Bookletter BL-041
notified the System of E-SIGN's enactment and its principal provisions.
E-SIGN helps to facilitate E-commerce by providing greater legal
certainty to electronic transactions. E-SIGN establishes (with some
exceptions) the legal validity of electronic contracts, electronic
signatures, and records maintained in electronic rather than paper
form. Thus, an online contract with an electronic signature is legally
equivalent to a contract signed in ink on paper. With the consent of
the parties to the transaction, you can now engage in E-commerce with
customers, System institutions, and others. You can also purchase and
sell goods and services online or engage in online lending.
E-SIGN supercedes (with some exceptions) most State or Federal
statutes or regulations, including the Farm Credit Act (Act) and its
implementing regulations, that require contracts or other records to be
written, signed, or in non-electronic form. Thus, in general (certain
exceptions exist) we cannot create, amend, or enforce any provision of
the Act or its implementing regulations requiring paper copies and
handwritten signatures. For example, this means that you can now enter
into electronic contracts, engage in electronic online lending, and
send disclosures electronically as long as the other party consents.
However, all electronic records, signatures, and contracts must satisfy
other legal requirements.
As explained in more detail below, E-SIGN has exceptions for
certain kinds of records. Written notification is still required for
notices of default, acceleration, repossession, foreclosure, eviction,
or the right to cure when a loan is secured by the primary residence of
an individual. E-SIGN also does not apply to writing or signature
requirements imposed under the Uniform Commercial Code (UCC), other
than sections 1-107 and 1-206 and Articles 2 and 2A.
Under E-SIGN the parties to a transaction are not required to use
or accept electronic records or signatures. Both parties must agree to
do so.E-SIGN preserves the right to refuse to use electronic media in
any transaction. Thus, the parties to a transaction retain the right to
establish their own requirements for acceptable communications. E-SIGN
does not prohibit or limit traditional oral or paper-based forms of
communication and commerce or require that transactions be conducted
electronically.
E-SIGN establishes different standards for conducting E-commerce
with businesses and with consumers. Although both businesses and
consumers must consent to electronic communications, E-SIGN provides
certain protections and establishes mandatory procedures for consumers.
Under E-SIGN, ``consumer'' means an individual who obtains, through a
transaction, products or services used primarily for personal, family,
or household purposes.
E-SIGN provides that, if any other law requires information
concerning the transaction to be provided to a consumer in writing, the
consumer must affirmatively consent to receiving the information
electronically. The ``consumer consent'' provisions do not apply to
business-to-business transactions. An example of a law requiring
certain information to be provided to a consumer in writing is the
Equal Credit Opportunity Act (ECOA), which requires a creditor to
notify a consumer (but not a business) in writing of the specific
reasons for rejecting a loan application or the right to learn the
reasons if the consumer asks within 60 days of the creditor's
notification. Under E-SIGN, you cannot make this disclosure
electronically without complying with its consumer consent provisions.
Under E-SIGN, some System loans qualify as consumer transactions,
while others are business transactions. You will need to distinguish
between the two types of transactions to comply with E-SIGN.
If consumers do agree to E-commerce, the following provisions of E-
SIGN apply:
Consumers may choose between receiving legal notices and
records electronically or in writing but can change their minds in the
future (possibly subject to a fee);
Consumer consent may apply to a particular transaction
and/or to categories of records;
The provider of an electronic record must describe the
procedures: (1) The consumer must use to withdraw consent; and, (2) to
update the information needed to contact the consumer electronically;
The provider of the electronic record must inform the
consumer of the ability to get a paper copy of an electronic record
(possibly subject to a fee) after consent;
Consumers who choose to receive documents electronically
must demonstrate the technological capacity to do so prior to
consenting to E-commerce;
The provider of the electronic record must provide the
consumer with a statement detailing the computer hardware and software
needed to receive and keep the information to be sent; and
A consumer may opt out of using electronic signatures
without paying a fee if a change in the technology needed affects the
consumer's ability to receive or keep information.
E-SIGN permits the parties to the transaction to determine the
appropriate document integrity and signature authentication
technologies. Document integrity ensures that each party signing a
document will sign the same document and that the terms of the document
cannot be changed after signing. Signature authentication ensures that
appropriate parties sign a document and that each electronic signature
is exclusively attributable to each of the parties signing the
document. A party entering into an online transaction in reliance on an
electronic communication must be confident of the source of the
document. For example, when a System institution receives an online
loan application, the System institution must be able to verify the
source of the application and ensure that it is not dealing with an
impostor.
An essential element for the enforceability of all electronic
transactions is record keeping. E-SIGN also encourages electronic
records storage. Under E-SIGN, electronic records storage satisfies any
law or regulation, with certain exceptions. Electronic records may be
used to satisfy requirements that an ``original'' be retained.
Electronic records storage should result in cost savings.
E-SIGN requires that electronically stored documents accurately
reflect the information in the original, whether in paper or electronic
form, and be accessible to all persons entitled to review the original
in a form capable of
[[Page 53350]]
accurate reproduction. In other words, records stored electronically
must be accurate, accessible, and reproducible for later reference.
This is important because FCA must be able to examine System
institutions, including their electronic records, for safety and
soundness and for compliance with law and regulation.
Electronic promissory notes secured by real property are subject to
different treatment under E-SIGN. E-SIGN establishes special
technological and business process standards for electronic promissory
notes secured by real estate. To treat an electronic version as the
equivalent of a paper promissory note, you must conform to E-SIGN's
detailed requirements for transferable records. A transferable record
is an electronic record that: (1) Would be a note under Article 3 of
the UCC if the electronic record were in writing; (2) the issuer of the
electronic record has expressly agreed is a transferable record; and
(3) relates to a loan secured by real property.
As we explained in BL-041, the requirements of E-SIGN are complex.
We have provided only a brief overview of E-SIGN. System institutions
should read E-SIGN in its entirety to see how it applies and affects
their conduct of E-commerce. System institutions are encouraged to
consult legal counsel before engaging in E-commerce.
4. Consumer Protection Regulations B, Z, and M
In March and April 2001, the Federal Reserve Board (FRB) issued
interim final rules, with requests for comments, to establish uniform
standards for the electronic delivery of disclosures or notices
required by Regulations B (Equal Credit Opportunity), Z (Truth in
Lending), and M (Consumer Leasing).\3\ The rules were effective March
30, 2001. The FRB lifted the October 1, 2001, mandatory compliance date
on August 2, 2001, to allow consideration of the comments received. The
comments pertained to operational issues regarding the requirements
that institutions alert consumers by e-mail when electronic disclosures
are made available at another location, such as a Web site. The comment
period closed June 1, 2001. The FRB rules establish standards of fair
practice and meaningful disclosure for certain lending and leasing
activities.
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\3\ See 66 FR 17779, Apr. 4, 2001; 66 FR 17329, Mar. 30, 2001;
and 66 FR 17322, Mar. 30, 2001, respectively.
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Under the rules, consistent with E-SIGN, financial institutions,
creditors, lessors, and others may deliver disclosures electronically
if they obtain the consumer's consent. The FRB's rules establish
uniform requirements for the timing and delivery of electronic
disclosures. Disclosures may be sent by e-mail to a designated
electronic address or to another location, such as an Internet Web site
address. When the disclosures are not sent by e-mail, the consumer must
be notified of the availability of the disclosures. Disclosures posted
on a Web site must be available for at least 90 days to allow adequate
time to access and retain the information. Under the FRB's rules, when
disclosures are returned undelivered, there must be a good faith
attempt to redeliver electronic disclosures using available
information.
These rules apply only to consumer transactions and not to business
transactions. System institutions will have to distinguish between
consumer and business transactions to comply with the FRB's rules.
B. Amending Part 620--Disclosures to Shareholders
As discussed above, System institutions have wanted to use
electronic media to provide disclosures to shareholders. Currently,
part 620 addresses only paper disclosures. We propose amending this
part to specifically allow electronic disclosures.
III. Analysis of Proposed Rules
A. Part 609
We are proposing to create a new regulation part on E-commerce. The
new part provides an overview of E-SIGN's general rules, including E-
SIGN's prohibition on using electronic communications to deliver
certain notices. For example, we note that under E-SIGN, System
institutions may not use electronic media to deliver certain notices of
default, acceleration, repossession, foreclosure, eviction, or the
right to cure when a loan is secured by the primary residence of an
individual. We also note that E-SIGN does not apply to the writing or
signature requirements imposed under the UCC, other than sections 1-107
and 1-206 and Articles 2 and 2A. You should review E-SIGN yourself to
determine which of its other provisions apply to your institution.
We also include a reminder that System institutions must comply
with FRB Regulations B, Z, and M. These regulations establish guidance
on the timing and delivery of electronic disclosures to ensure an
adequate opportunity to access and retain required information. Under
these rules, disclosures may be delivered electronically if the
consumer consents in accordance with E-SIGN. These rules were adopted
as interim rules to allow for additional public comment.
This new part also explains that all terms in the Act and its
regulations should be broadly interpreted and defined in the context of
E-commerce. For example, the terms ``mail,'' ``notice,'' and ``send''
should be broadly interpreted to encompass both paper-based and
electronic transactions. You should interpret ``address,''
``signature,'' ``record,'' and ``writing'' similarly. We provide some
background definitions to assist with your understanding of E-commerce.
Boards and management must ensure trust in all aspects of
electronic transactions, including security procedures. What is
required to establish trust varies depending on the type of
transaction. We propose that System institutions' boards and management
assess the risks and benefits of E-commerce and establish a policy and
procedures for E-commerce. Boards and management must establish good
business practices for E-commerce to ensure the safety and soundness of
System institutions and compliance with law and regulation. We have
identified subjects that your policy and procedures should address.
This should help you understand your responsibilities and
accountability. We have not established specific requirements or
standards because they could become outdated quickly due to
technological and customer service innovations.
Finally, this part also would establish our general requirements
for your use of electronic communications with consumers and parties
other than consumers. We restate E-SIGN's requirement that both parties
consent to electronic communications. We need to ensure appropriate
electronic communications between System institutions and their
customers. A customer includes a borrower, applicant, shareholder, or
lessee. A customer may always choose to receive paper copies. Also,
System institutions must ensure their communications with parties other
than consumers demonstrate good business practices.
At this time, we are not imposing document integrity standards for
electronic disclosures or mandating the use of independent
certification authorities for signature authentication. Nonetheless,
boards and management should consider adopting document integrity
standards and the use of independent certification authorities as part
of good business practices. System institutions should consider the
level of
[[Page 53351]]
assurance needed based on the sensitivity and importance of the
electronic communication. Customers will expect these assurances.
B. Amending Part 620--Disclosures to Shareholders
We are proposing to amend part 620 to allow System institutions to
communicate electronically with their shareholders. We are not amending
any of the substantive requirements of the rule; we are only specifying
that electronic communications are permitted, with the consent of the
parties. The amendments allow System institutions to provide electronic
disclosures and notices, including annual and quarterly reports, annual
meeting information statements, report of condition of the Federal
Agricultural Mortgage Corporation, and notices of significant changes
in a System institution's permanent capital ratio.
As we have already stated, in adding new part 609 and amending part
620 we do not suggest our other regulations do not allow E-commerce.
All of our regulations must be interpreted in light of what E-SIGN does
and does not allow. We will review all our regulations over time and
amend them as necessary to reflect E-SIGN's provisions and to promote
E-commerce.
IV. Request for Comment
FCA invites comment on how particular statutes, regulations, or FCA
policies affect you or your customer's use of new technologies.
A. E-Commerce Regulations
We propose creating a new part on E-commerce and amending part 620
to specifically allow E-commerce. We request your comment on whether
adding a new and separate part 609 on E-commerce is necessary or
desired. We request comments on whether the general rules,
interpretations and definitions, standards, and requirements at
proposed part 609 help in providing a flexible regulatory environment
and ensuring the System's safety and soundness. We also ask whether
part 609 adequately addresses E-commerce and electronic communications.
We would also like your comments on whether our proposed amendments
to our Disclosure to Shareholders regulations at part 620 to
specifically allow electronic communications benefit you.
Please tell us what other regulatory changes you need to facilitate
E-commerce, including online lending and the electronic delivery of
services. Which regulations, if any, negatively affect the likelihood
that a customer would choose to engage in online borrowing? Do any FCA
policies impose unreasonable burdens on your institution's online
technologies?
B. Interpreting E-SIGN Provisions
Under section 104(b) of E-SIGN, we have limited authority to
interpret E-SIGN. We are authorized to issue regulations that interpret
how E-SIGN applies to our regulations if they are consistent with E-
SIGN and do not add to the requirements of E-SIGN. Before issuing any
such regulation, however, FCA must find that the regulation is
necessary and will not impose unreasonable costs on the acceptance and
use of electronic records. Finally, the regulation cannot favor one
technology over another.
We request comments on how provisions of E-SIGN, or any other law,
affect your or your customers' ability to use new technologies. We also
request comments on whether you need additional guidance on E-SIGN's
statutory provisions, including consumer consent. For example, you
should tell us whether you need guidance on how consumers can confirm
their consent electronically or clarification on what happens when a
consumer withdraws consent or requests paper copies of electronic
disclosures.
List of Subjects
12 CFR Part 609
Agriculture, Banks, banking, Electronic commerce, Reporting and
recordkeeping requirements, Rural areas.
12 CFR Part 620
Accounting, Agriculture, Banks, banking, Reporting and
recordkeeping requirements, Rural areas.
For the reasons stated in the preamble, we propose to add a new
part 609 and amend part 620 of chapter VI, title 12 of the Code of
Federal Regulations to read as follows:
1. Add a new part 609 to subchapter B to read as follows:
PART 609--ELECTRONIC COMMERCE
Subpart A--General Rules
Sec.
609.905 Background.
609.910 Compliance with the Electronic Signatures in Global and
National Commerce Act (Pub. L. 106-229) (E-SIGN).
609.915 Compliance with Federal Reserve Board Regulations B, Z,
and M.
Subpart B--Interpretations and Definitions
609.920 Interpretations.
609.925 Definitions.
Subpart C--Standards for Boards and Management
609.930 Policy and procedures.
609.935 Business planning.
609.940 Internal systems and controls.
609.945 Records retention.
Subpart D--General Requirements for Electronic Communications
609.950 Electronic communications.
Authority: Sec. 5.9 of the Farm Credit Act (12 U.S.C. 2243); 5
U.S.C. 301; Pub. L. 106-229 (114 Stat. 464).
Subpart A--General Rules
Sec. 609.905 Background.
The Farm Credit Administration (FCA) wants to create a flexible
regulatory environment that facilitates electronic commerce (E-
commerce) and allows Farm Credit System (System) institutions and their
customers to use new technologies. System institutions may use E-
commerce but must establish good business practices that ensure safety
and soundness while doing so.
Sec. 609.910 Compliance with the Electronic Signatures in Global and
National Commerce Act (Pub. L. 106-229) (E-SIGN).
(a) General. E-SIGN makes it easier to conduct E-commerce. With
some exceptions, E-SIGN permits the use and establishes the legal
validity of electronic contracts, electronic signatures, and records
maintained in electronic rather than paper form. E-commerce is
optional; all parties to a transaction must consent before it can be
used.
(b) Consumer transactions. E-SIGN contains extensive consumer
disclosure provisions that apply whenever another consumer protection
law, such as the Equal Credit Opportunity Act, requires the disclosure
of information to a consumer in writing. Consumer means an individual
who obtains, through a transaction, products or services, including
credit, used primarily for personal, family, or household purposes. You
must follow E-SIGN's specific procedures to make the required consumer
disclosures electronically. E-SIGN's special disclosure rules for
consumer transactions do not apply to business transactions. Under E-
SIGN, some System loans qualify as consumer transactions, while others
are business transactions. You will need to distinguish between the two
types of transactions to comply with E-SIGN.
(c) Specific exceptions. E-SIGN does not permit electronic
notification for notices of default, acceleration, repossession,
foreclosure, eviction, or the right to cure, under a credit
[[Page 53352]]
agreement secured by, or a rental agreement for, a person's primary
residence. These notices require paper notification. The law also
requires paper notification to cancel or terminate life insurance.
Thus, System institutions cannot use electronic notification to deliver
some notices that must be provided under part 614, subpart L of this
chapter, Actions on Applications; Review of Credit Decisions, and part
614, subpart N of this chapter, Loan Servicing Requirements; State
Agricultural Loan Mediation Programs; Right of First Refusal. In
addition, E-SIGN does not apply to the writing or signature
requirements imposed under the Uniform Commercial Code, other than
sections 1-107 and 1-206 and Articles 2 and 2A.
(d) Promissory notes. E-SIGN establishes special technological and
business process standards for electronic promissory notes secured by
real estate. To treat an electronic version of such a promissory note
as the equivalent of a paper promissory note, you must conform to E-
SIGN's detailed requirements for transferable records. A transferable
record is an electronic record that:
(1) Would be a note under Article 3 of the Uniform Commercial Code
if the electronic record were in writing;
(2) The issuer of the electronic record has expressly agreed is a
transferable record; and
(3) Relates to a loan secured by real property.
(e) Effect on State and Federal law. E-SIGN supercedes most State
and Federal statutes or regulations, including the Farm Credit Act of
1971, as amended (Act), and its implementing regulations, that require
contracts or other records to be written, signed, or in non-electronic
form. Under E-SIGN, an electronic record or signature generally
satisfies any provision of the Act, or its implementing regulations
that requires records and signatures to be written, signed, or in paper
form. Therefore, unless an exception applies or a necessary condition
under E-SIGN has not been met, an electronic record or signature
satisfies any applicable provision of the Act or its implementing
regulations.
(f) Document integrity and signature authentication. Each System
institution must verify the legitimacy of an E-commerce communication,
transaction, or access request. Document integrity ensures that the
same document is provided to all parties. Signature authentication
proves the identities of all parties. The parties to the transaction
may determine how to ensure document integrity and signature
authentication.
(g) Records retention. Each System institution may maintain all
records electronically even if originally they were paper records. The
stored electronic record must accurately reflect the information in the
original record. The electronic record must be accessible and capable
of being reproduced by all persons entitled by law or regulation to
review the original record.
Sec. 609.915 Compliance with Federal Reserve Board Regulations B, Z,
and M.
The regulations in this part require fair practices and meaningful
disclosures for certain lending and leasing activities. System
institutions must comply with Federal Reserve Board Regulations B
(Equal Credit Opportunity), Z (Truth in Lending), and M (Consumer
Leasing) (12 CFR parts 202, 226 and 213).
Subpart B--Interpretations and Definitions
Sec. 609.920 Interpretations.
(a) E-SIGN supercedes existing statutes and regulations, including
the Act and its implementing regulations that require paper copies and
handwritten signatures. E-SIGN requires that statutes and regulations
be interpreted to allow E-commerce as long as the safeguards of E-SIGN
are met and its exceptions recognized. Generally, an electronic record
or signature satisfies any provision of the Act or its implementing
regulations that require records and signatures to be written, signed,
or in paper form.
(b) System institutions may interpret the Act and its implementing
regulations broadly to allow electronic transmissions, communications,
records, and submissions, as provided by E-SIGN. This means that the
terms address, copy, distribute, document, file, mail, notice, notify,
record, provide, send, signature, sent, written, writing, and similar
words generally should be interpreted to permit electronic
transmissions, communications, records, and submissions.
Sec. 609.925 Definitions.
We provide the following definitions that apply to this part:
(a) Electronic means relating to technology having electrical,
digital, magnetic, wireless, optical, electronomagnetic, or similar
capabilities.
(b) Electronic communication means a message that can be
transmitted electronically and displayed on equipment as visual text.
An example is a message displayed on a personal computer monitor
screen. This does not include audio- and voice-response telephone
systems.
(c) Electronic business (E-business) or electronic commerce (E-
commerce) means buying, selling, producing, or working in an electronic
medium.
(d) Electronic mail (E-mail) means:
(1) To send or submit information electronically; or
(2) A communication received electronically.
(e) Electronic signature means an electronic sound, symbol, or
process, attached to or logically associated with a contract or other
record and executed or adopted by a person with the intent to sign the
record. Electronic signature describes a category of electronic
processes that can be substituted for a handwritten signature.
Subpart C--Standards for Boards and Management
Sec. 609.930 Policy and procedures.
The FCA supports E-commerce and wants to facilitate it and other
new technologies and innovations to enhance the efficient conduct of
business and the delivery of safe and sound credit and closely related
services. Through E-commerce, System institutions can improve customer
service, access information, and provide alternate communication
systems. At the same time, E-commerce presents challenges and risks
that your board must carefully consider in advance. Before engaging in
E-commerce, you must weigh its business risks against its benefits. You
must also adopt an E-commerce policy and procedures to ensure your
institution's safety and soundness and compliance with law and
regulation. Among other concerns, the policy and procedures must
address:
(a) Security and integrity of System institution and borrower data;
(b) The privacy of your customers as well as visitors to your Web
site;
(c) Notices to customers or visitors to your Web site when they
link to an affiliate or third party Web site;
(d) Capability of vendor or application providers;
(e) Business resumption after disruption;
(f) Fraud and money laundering;
(g) Intrusion detection and management;
(h) Liability insurance; and
(i) Prompt reporting of known or suspected criminal violations
associated with E-commerce to law enforcement authorities and FCA under
part 617 of this chapter.
Sec. 609.935 Business planning.
When applicable, business plans must contain an analysis of:
[[Page 53353]]
(a) The strategic and operational aspects of E-commerce; and
(b) Potential and existing customers that can use E-commerce.
Sec. 609.940 Internal systems and controls.
When applicable, internal systems and controls must provide
reasonable assurances that System institutions will:
(a) Follow and achieve business plan objectives and policy and
procedure requirements regarding E-commerce; and
(b) Prevent and detect material deficiencies on a timely basis.
Sec. 609.945 Records retention.
Records stored electronically must be accurate, accessible, and
reproducible for later reference.
Subpart D--General Requirements for ElectronicCommunications
Sec. 609.950 Electronic communications.
(a) Consent. In accordance with E-SIGN, System institutions may
communicate electronically to conduct business. E-commerce transactions
require the consent of all parties when you do business.
(b) Communications with consumers. E-SIGN and Federal Reserve Board
Regulations B, Z, and M (12 CFR parts 202, 226 and 213) outline
specific disclosure requirements for communications with consumers.
(c) Communications with parties other than consumers. The consumer
disclosure requirements of E-SIGN and of Federal Reserve Board
Regulation B (12 CFR part 202) do not apply to your communications with
parties other than consumers. (Federal Reserve Board Regulations Z and
M (12 CFR parts 226 and 213) apply to consumers only.) Nonetheless, you
must ensure that your communications, including those disclosures
required under the Act and these regulations, demonstrate good business
practices in the delivery of credit and closely related services and in
your obtaining goods and services.
PART 620--DISCLOSURE TO SHAREHOLDERS
2. The authority citation for part 620 continues to read as
follows:
Authority: Secs. 5.17, 5.19, 8.11 of the Farm Credit Act (12
U.S.C. 2252, 2254, 2279aa-11); secs. 424 of Pub. L. 100-233, 101
Stat. 1568, 1656.
Subpart A--General
3. Amend Sec. 620.1 as follows:
a. Revise paragraph (o);
b. Redesignate existing paragraph (r) as new paragraph (s); and
c. Add a new paragraph (r).
Sec. 620.1 Definitions.
* * * * *
(o) Report refers to the annual report, quarterly report, notice,
or information statement, regardless of form, required by this part
unless otherwise specified.
* * * * *
(r) Signed, when referring to paper form, means a manual signature,
and, when referring to electronic form, means marked in a manner that
authenticates each signer's identity.
4. Amend Sec. 620.2 as follows:
a. Remove the first sentence and add three new sentences in its
place in paragraph (a);
b. Revise paragraph (b) introductory text;
c. Remove the word ``filed'' and add in its place, the word
``required'' in paragraph (b)(3)(i);
d. Remove the words ``typed or'' from the second sentence in
paragraph (b)(3)(ii); and
e. Redesignate existing paragraphs (d), (e), (f), (g), (h), and (i)
as newly designated paragraphs (e), (f), (g), (h), (i), and (j)
consecutively;
f. Add new paragraph (d); and
g. Remove the words ``mail or otherwise furnish'' and add in their
place, the word ``provide'' in newly designated paragraph (i)(3).
Sec. 620.2 Preparing and filing the reports.
* * * * *
(a) Copies of each report required by this section, including
financial statements and related schedules, exhibits, and all other
papers and documents that are a part of the report must be sent to the
Chief Examiner, or to another office designated by the Chief Examiner.
If sending paper copies, send three copies to Chief Examiner, Farm
Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090.
If providing electronic copies, send according to our instructions to
you. * * *
(b) At least one of the reports provided to the Farm Credit
Administration shall be dated and manually signed on behalf of the
institution by:
* * * * *
(d) Shareholders must consent to electronic disclosures of reports
required by this part.
* * * * *
Subpart B--Annual Report to Shareholders
Sec. 620.4 [Amended]
5. Amend Sec. 620.4 as follows:
a. Remove the word ``distributing'' and add in its place, the word
``providing'' in the heading; and
b. Remove the word ``distribute'' and add the word ``provide'' each
place it appears in paragraphs (a), (b)(1), and (b)(2).
Sec. 620.5 [Amended]
6. Amend Sec. 620.5 as follows:
a. Remove the word ``distributed'' and add in its place, the word
``provided'' in paragraph (a)(3); and
b. Remove the word ``signed'' and add in its place, the words
``manually signed, or if in electronic form, signed in a manner that
authenticates each signer's identity'' in paragraph (m)(2).
Subpart C--Quarterly Report
7. Amend Sec. 620.11 by revising the second sentence of paragraph
(b)(6) to read as follows:
Sec. 620.11 Content of quarterly report to shareholders.
* * * * *
(b) * * *
(6) * * * In addition, a statement from the persons who verify the
institution's financial statements shall be included as an exhibit,
indicating whether or not the change is to an alternative principle
which in their judgment is preferable under the circumstances, except
that no such statement need be filed when the change is made in
response to a standard adopted by the Financial Accounting Standards
Board which requires such change.
* * * * *
Subpart D--Notice to Shareholders
8. Revise Sec. 620.15 to read as follows:
Sec. 620.15 Notice.
(a) Each Farm Credit bank and direct lender association shall
prepare and provide the Farm Credit Administration and shareholders a
notice, within 30 days following the monthend that the institution
initially determines that it is not in compliance with the minimum
permanent capital standard prescribed under Sec. 615.5205 of this
chapter.
(b) An institution that has given notice to shareholders pursuant
to paragraph (a) of this section or subsequent notice pursuant to this
paragraph shall also prepare and provide the Farm Credit Administration
and shareholders a notice within 45 days following the end of any
subsequent quarter at which the institution's permanent capital ratio
decreases by one-half of 1 percent or more from the level reported in
the most recent notice provided to shareholders.
(c) Each institution required to prepare a notice under
Sec. 620.15(a) or (b)
[[Page 53354]]
shall provide the notice to shareholders or publish it in any
publication with circulation wide enough to be reasonably assured that
all of the institution's shareholders have access to the information in
a timely manner.
Sec. 620.17 [Amended]
9. Amend Sec. 620.17 by removing the words ``distribute'' and
adding in its place, the word ``provide'' in paragraph (b)(4).
Subpart E--Association Annual Meeting Information Statement
Sec. 620.20 [Amended]
10. Amend Sec. 620.20 as follows:
a. Remove the word ``distributing'' and add in its place, the word
``providing'' in the heading; and
b. Remove the word ``distribute'' and add in its place, the word
``provide'' in paragraph (a).
11. Amend Sec. 620.21 as follows:
a. Remove the words ``furnished a letter'' and add in their place,
the words ``provided a notice'' in the first sentence of paragraph
(c)(3);
b. Remove the words ``contained in the letter'' at the end of the
first sentence in paragraph (c)(3);
c. Add the words ``paper mail or electronic'' before the word
``mail'' in each place it appears in paragraphs (d)(3)(i)(A),
(d)(3)(i)(B), (d)(3)(ii)(A), and (d)(3)(ii)(B);
d. Revise paragraph (d)(5) to read as follows:
Sec. 620.21 Contents of the information statement and other
information to be furnished in connection with the annual meeting.
* * * * *
(d) * * *
(5) For each nominee who is not an incumbent director, except a
nominee from the floor, provide the information referred to in
Sec. 620.5(j) and (k) and Sec. 620.21(d)(4). If shareholders will vote
by paper mail or electronic mail ballot upon conclusion of all
sessions, each floor nominee must provide the information referred to
in Sec. 620.5(j) and (k) and Sec. 620.21(d)(4) in paper or electronic
form to the association within the time period prescribed by the
association's bylaws. If the association's bylaws do not prescribe a
time period, state that each floor nominee must provide the disclosure
to the association within 5 business days of the nomination. The
association shall ensure that the information is provided to the voting
shareholders by delivering the ballots for the election of directors in
the same format as the comparable information contained in the
association's annual meeting information statement. If shareholders
will not vote by paper mail or electronic mail ballot upon conclusion
of all sessions, each floor nominee must provide the information
referred to in Sec. 620.5(j) and (k) and Sec. 620.21(d)(4) in paper or
electronic form at the first session at which voting is held.
* * * * *
Sec. 620.30 [Amended]
12. Amend Sec. 620.30 by removing the words ``distribute or mail''
and adding in their place, the word ``provide'' in the second sentence.
Subpart G--Annual Report of Condition of the Federal Agricultural
Mortgage Corporation
13. Amend Sec. 620.40 as follows:
a. Remove the words ``distribution of'' and add in their place, the
words ``providing of the'' in the heading;
b. Remove the word ``distribute'' and add in its place, the word
``provide'' in paragraph (b);
c. Remove the words ``mail or otherwise furnish to the requestor a
copy of'' and add in their place, the words ``provide the requester''
in paragraph (c); and
d. Revise paragraph (d):
Sec. 620.40 Content, timing, and providing of the Federal Agricultural
Mortgage Corporation annual report of condition.
* * * * *
(d) The Corporation shall provide copies of the annual report of
condition to the Farm Credit Administration's Office of Secondary
Market Oversight within 120 days of its fiscal year-end. If providing
paper copies, send three copies to Office of Secondary Market
Oversight, Farm Credit Administration, 1501 Farm Credit Drive, McLean,
VA 22102-5090. If providing electronic copies, send according to our
instructions to you.
Dated: October 15, 2001.
Kelly Mikel Williams,
Secretary, Farm Credit Administration Board.
[FR Doc. 01-26305 Filed 10-19-01; 8:45 am]
BILLING CODE 6705-01-P