[Federal Register Volume 68, Number 237 (Wednesday, December 10, 2003)]
[Proposed Rules]
[Pages 68788-68791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29943]


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FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R-1169]


Electronic Fund Transfers

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is proposing to amend Regulation E, which implements 
the Electronic Fund Transfers Act, and the staff commentary to the 
regulation. Regulation E would be revised to require disclosures to be 
``clear and conspicuous'' and to define more specifically the standard 
to provide a more uniform standard among the Board's regulations. The 
staff commentary would be revised to include examples of how to meet 
this standard. Similar proposed revisions to Regulations B, M, Z and DD 
appear elsewhere in today's Federal Register. These revisions are 
intended to help ensure that consumers receive noticeable and 
understandable information that is required by law in connection with 
obtaining consumer financial products and services. In addition, 
consistency among the regulations should facilitate compliance by 
institutions.

DATES: Comments must be received on or before January 30, 2004.

ADDRESSES: Comments should refer to Docket No. R-1169 and should be 
mailed to Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC 20551. However, because paper mail in the Washington 
area and at the Board of Governors is subject to delay, please consider 
submitting your comments by e-mail to [email protected], 
or faxing them to the Office of the Secretary at (202) 452-3819 or 452-
3102. Members of the public may inspect comments in Room MP-500 of the 
Martin Building between 9 a.m. and 5 p.m. on weekdays pursuant to Sec.  
261.12, except as provided in Sec.  261.14, of the Board's Rules 
Regarding Availability of Information, 12 CFR 261.12 and 261.14.

FOR FURTHER INFORMATION CONTACT: Daniel Lonergan, Counsel, and Ky Tran-
Trong, Senior Attorney, Division of Consumer and Community Affairs, 
Board of Governors of the Federal Reserve System, at (202) 452-3667 or 
452-2412; for users of Telecommunications Device for the Deaf (``TDD'') 
only, contact (202) 263-4869.

SUPPLEMENTARY INFORMATION:

I. Background

    The purpose of the Electronic Fund Transfers Act (EFTA), 15 U.S.C. 
1693 et seq., is to provide a basic framework for establishing the 
rights, liabilities, and responsibilities of participants in electronic 
fund transfer (EFT) systems. The types of transfers covered by the act 
and regulation include transfers initiated through an automated teller 
machine (ATM), point-of-sale (POS) terminal, automated clearinghouse 
(ACH), telephone bill-payment plan, or remote banking program. The act 
and regulation require disclosure of terms and conditions of an EFT 
service; documentation of electronic transfers 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. Further, the act and 
regulation prescribe restrictions on the unsolicited issuance of ATM 
cards and other access devices. The EFTA is implemented by the Board's 
Regulation E (12 CFR part 205). An Official Staff

[[Page 68789]]

Commentary interprets the requirements of Regulation E (12 CFR part 205 
(Supp. I)).

II. Proposed Revisions

Section 205.2--Definitions

2(n) Clear and Conspicuous
    Section 905(a) of the EFTA requires that disclosures be provided to 
consumers in readily understandable language. See 15 U.S.C. 1693c(a). 
The EFTA also requires that certain information about EFTs be 
``clearly'' set forth on periodic statements and receipts from an 
electronic terminal. See 15 U.S.C. 1693d(a) and (c). This standard is 
implemented as ``clear and readily understandable'' in Regulation E. 
See Sec.  205.4(a)(1).
    Consumer financial services and fair lending laws and the Board 
regulations that implement them contain similar but not identical 
standards for providing disclosures that consumers will notice and 
understand. Generally, disclosures must be ``clear and conspicuous'' 
under Regulations B (Equal Credit Opportunity), M (Consumer Leasing), 
Regulation P (Privacy of Consumer Financial Information), Z (Truth in 
Lending) and DD (Truth in Savings), and ``clear and readily 
understandable'' under Regulation E (Electronic Fund Transfers). In 
interpreting the ``clear and conspicuous'' standard, the staff 
commentaries to Regulations B, M and Z provide that disclosures must be 
``in a reasonably understandable'' form; similarly, under Regulation DD 
disclosures must be in a format that allows consumers ``to readily 
understand the terms of their account.'' For purposes of the 
disclosures provided with credit card solicitations and applications, 
the commentary to Regulation Z provides more specifically that those 
disclosures must also be ``readily noticeable to the consumer.'' In 
contrast, the Board's Regulation P (Privacy of Consumer Financial 
Information) defines the ``clear and conspicuous'' standard to mean 
that a disclosure is ``reasonably understandable and designed to call 
attention to the nature and significance of the information'' in the 
disclosure. 12 CFR 216.3(b)(1). Regulation P also provides a series of 
examples of how to satisfy the standard. 12 CFR 216.3(b)(2).
    For the reasons set forth below and pursuant to its authority under 
sections 904(a) and 904(c) of the EFTA, the Board proposes to conform 
the general disclosure standard under Regulation E to ``clear and 
conspicuous.'' Further, to provide consistent guidance on the clear and 
conspicuous standard among its regulations, the Board is proposing to 
amend Regulation E by adding a definition for clear and conspicuous in 
Sec.  205.2(n), consistent with the ``clear and conspicuous'' 
definition in Regulation P. The Board believes that the recently 
implemented standard in Regulation P (65 FR 35162, June 1, 2000), 
articulates with greater precision than the other regulations the 
concepts underlying the duty to provide disclosures that consumers will 
notice and understand. The staff commentary to Regulation E also would 
be revised to add comments 2(n)-1 and -2, consistent with Regulation 
P's examples of how to meet the clear and conspicuous standard. Similar 
proposed revisions to Regulations B, M, Z and DD appear elsewhere in 
today's Federal Register. These revisions are intended to help ensure 
that consumers receive noticeable and understandable information that 
is required by law in connection with obtaining consumer financial 
products and services. In addition, consistency among the regulations 
should facilitate compliance by institutions.
    Additional information may accompany disclosures required under 
Regulation E. See Sec.  205.4(b). Comment 2(n)-3 further clarifies that 
the ``clear and conspicuous'' standard does not prohibit adding other 
items to the federally required disclosures (such as contractual 
provisions or state-required disclosures); nor does it prohibit sending 
promotional material with the disclosures. Proposed comment 2(n)-3 
would clarify, however, that the presence of other information may be a 
factor in determining whether the ``clear and conspicuous'' standard is 
met. Generally, segregating federally mandated disclosures from other 
information is more likely to satisfy the clear and conspicuous 
standard. A new comment 4(b)-1 would be added to cross reference 
guidance in proposed comment 2(n)-3.
    The Board also proposes to adopt for Regulations B, E, M, Z and DD, 
guidance concerning type-sizes that are deemed to meet the ``clear and 
conspicuous'' standard and those that would likely be too small (this 
guidance currently applies only to credit card solicitations and 
applications under Regulation Z). See proposed comment 2(n)-2(ii).
    The proposal does not add special format requirements to the 
regulation where none currently exist. Accordingly, even though the 
revisions clarify that type size can be one factor to consider in 
determining whether a disclosure is conspicuous, the proposal would not 
add a specific type-size requirement.

Section 205.4--General Disclosure Requirements; Jointly Offered 
Services

4(a)(1) Form of Disclosures
    Under Section 905(a) of the EFTA, the terms and conditions of 
electronic fund transfers (EFTs) involving a consumer's account must be 
disclosed in ``readily understandable'' language. See 15 U.S.C. 
1693c(a). The EFTA also requires that certain information about EFTs be 
``clearly'' set forth on periodic statements and receipts from an 
electronic terminal. See 15 U.S.C. 1693d(a) and (c). These standards 
have been implemented as a general disclosure standard of ``clear and 
readily understandable.'' See Sec.  205.4(a)(1). The Board proposes to 
revise that standard to ``clear and conspicuous.''
    Regarding the standard of ``clear'' disclosures, the Board believes 
there is not a significant distinction between the term ``readily 
understandable'' as currently contained in section 905(a) of the EFTA 
and Sec.  205.4(a)(1) of Regulation E and the term ``reasonably 
understandable'' as found in the guidance on the ``clear'' standard in 
other consumer protection regulations and in proposed Sec.  205.2(n), 
and with the proposed revision, no substantive difference is intended. 
Regarding the standard of ``conspicuous'' disclosures, the Board 
believes that disclosures provided under the EFTA, like those provided 
under the other consumer financial services laws administered by the 
Board, should not only be clear, but also conspicuous, that is, 
noticeable to consumers to be effective.
    The Board is authorized to prescribe regulations that contain 
provisions that in the judgment of the Board are necessary or proper to 
effectuate the purposes of the EFTA. See 15 U.S.C. 1693b(a) and (c). 
Thus, the proposed revisions would ensure that consumers receive 
disclosures of the terms and conditions of EFTs involving their account 
in a form that allows them to effectively exercise their rights under 
the EFTA and Regulation E. The Board proposes to exercise its authority 
under sections 904(a) and 904(c) of the EFTA to amend Sec.  205.4(a)(1) 
to provide that disclosures required under Regulation E must be ``clear 
and conspicuous'' and consistent with the standard contained in other 
consumer protection regulations. Comment 4(a)-1 would be revised to 
conform to the amended disclosure standard. Guidance regarding the 
``clear and conspicuous'' standard for disclosures transmitted by 
electronic communication will be considered in the context of 
rulemakings dealing

[[Page 68790]]

specifically with electronic delivery of disclosures.

III. Form of Comment Letters

    Comment letters should refer to Docket No. R-1169 and, when 
possible, should use a standard typeface with a font size of 10 or 12; 
this will enable the Board to convert text submitted in paper form to 
machine-readable form through electronic scanning, and will facilitate 
automated retrieval of comments for review. Comments may be mailed 
electronically to [email protected].

IV. 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 proposed rules are clearly stated and effectively organized, and 
how the Board might make the proposed text easier to understand.

V. Initial Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act, 
the Board has reviewed the proposed amendments to Regulation E. The 
proposed amendments are not expected to have any significant impact on 
small entities. A final regulatory flexibility analysis will be 
conducted after consideration of comments received during the public 
comment period.

VI. 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. This collection is mandatory (15 U.S.C. 1693 
et seq.) to evidence compliance with the requirements of Regulation E 
and the Electronic Fund Transfer Act (EFTA). The respondents and 
recordkeepers are financial institutions. Institutions are required to 
retain records for twenty-four months. Regulation E 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 paperwork associated with the regulation only for the 
financial institutions it regulates and that meet the criteria set 
forth in the regulation. Other agencies account for the paperwork 
burden on their respective constituencies under this regulation.
    The proposed revisions would require disclosures to be provided 
``clearly and conspicuously.'' The proposed revisions would provide 
financial institutions with a more uniform definition for ``clear and 
conspicuous'' disclosures and provide examples of how to satisfy the 
clear and conspicuous standard. While the proposal would amend 
Regulation E and the staff commentary, it is expected that these 
revisions would not increase the paperwork burden of financial 
institutions. With respect to state member banks, it is estimated that 
there are 1,289 respondents and recordkeepers. Current annual burden is 
estimated to be 48,868 hours.
    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.
    Comments on the collection of information should be sent to the 
Office of Management and Budget, Paperwork Reduction Project (7100-
0200), Washington, DC 20503, with copies of such comments sent to 
Cynthia Ayouch, Federal Reserve Board Clearance Officer, Division of 
Research and Statistics, Mail Stop 41, Board of Governors of the 
Federal Reserve System, Washington, DC 20551.

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
revisions. New language is shown inside bold-faced arrows while 
language that would be deleted is set off with bold-faced brackets.

List of Subjects in 12 CFR Part 205

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

    For the reasons set forth in the preamble, the Board proposes to 
amend 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 et seq.

    2. Section 205.2 is amended by adding a new paragraph (n) to read 
as follows:


Sec.  205.2  Definitions

    For purposes of this part, the following definitions apply:
* * * * *
    (n) Clear and conspicuous means that a disclosure is reasonably 
understandable and designed to call attention to the nature and 
significance of the information in the disclosure.
* * * * *
    3. Section 205.4 is amended by revising paragraph (a)(1) to read as 
follows:


Sec.  205.4  General disclosure requirements; jointly offered services

    (a)(1) Form of disclosures. Disclosures required under this part 
shall be [clear and readily understandable] clear and conspicuous , in 
writing, and in a form the consumer may keep. A financial institution 
may use commonly accepted or [readily understandable] clear and 
conspicuous abbreviations in complying with the disclosure requirements 
of this part.
* * * * *
    4. In Supplement I to Part 205:
    a. Under Section 205.2--Definitions, a new paragraph title 2(n) 
Clear and conspicuous is added, and new paragraphs (n) 1. through (n) 
3. are added.
    b. Under Section 205.4--General Disclosure Requirements; Jointly 
Offered Services, under 4(a) Form of Disclosures, paragraph 1. is 
revised.
    c. Under Section 205.4--General Disclosure Requirements; Jointly 
Offered Services, a new paragraph title 4(b) Additional information; 
disclosures required by other laws is added, and a new paragraph 1. is 
added.

Supplement I to Part 205--Official Staff Interpretations

* * * * *

Section 205.2--Definitions

* * * * *

2(n) Clear and Conspicuous

    1. Reasonably understandable. Examples of disclosures that are 
reasonably understandable include disclosures that:
    i. Present the information in the disclosure in clear, concise 
sentences, paragraphs, and sections;
    ii. Use short explanatory sentences or bullet lists whenever 
possible;
    iii. Use definite, concrete, everyday words and active voice 
whenever possible;
    iv. Avoid multiple negatives;
    v. Avoid legal and highly technical business terminology 
whenever possible; and
    vi. Avoid explanations that are imprecise and readily subject to 
different interpretations.
    2. Designed to call attention. Examples of disclosures that are 
designed to call attention to the nature and significance of the 
information include disclosures that:

[[Page 68791]]

    i. Use a plain-language heading to call attention to the 
disclosure;
    ii. Use a typeface and type size that are easy to read. 
Disclosures in 12-point type generally meet this standard. 
Disclosures printed in less than 12-point type do not automatically 
violate the standard; however, disclosures in less than 8-point type 
would likely be too small to satisfy the standard;
    iii. Provide wide margins and ample line spacing;
    iv. Use boldface or italics for key words; and
    v. In a document that combines disclosures with other 
information, use distinctive type size, style, and graphic devices, 
such as shading or sidebars, to call attention to the disclosures.
    3. Other information. Except as otherwise provided, the clear 
and conspicuous standard does not prohibit adding to the required 
disclosures such items as contractual provisions, explanations of 
contract terms, state disclosures, and translations; or sending 
promotional material with the required disclosures. However, the 
presence of this other information may be a factor in determining 
whether the clear and conspicuous standard is met.
* * * * *

Section 205.4--General Disclosure Requirements; Jointly Offered 
Services

4(a) Form of Disclosures

    1. General. See Sec.  205.2(n) and accompanying comments. 
[Although no particular rules govern type size, number of pages, or 
the relative conspicuousness of various terms,] The disclosures must 
be in a [clear and readily understandable] clear and conspicuous 
written form that the consumer may retain. Numbers or codes are 
permissible [are considered readily understandable] if explained 
elsewhere on the disclosure form.
* * * * *

4(b) Additional Information; Disclosures Required by Other Laws

    1. Clear and conspicuous. See comment 2(n)-3.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, November 25, 2003.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 03-29943 Filed 12-9-03; 8:45 am]
BILLING CODE 6210-01-P