[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]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 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.
---------------------------------------------------------------------------

    \1\ After submitting its comment letter Pacific Coast Farm 
Credit Services, ACA merged with other System institutions. The 
successor institution is American AgCredit, ACA.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

     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