[Federal Register Volume 69, Number 122 (Friday, June 25, 2004)]
[Proposed Rules]
[Pages 35541-35543]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14504]


 ========================================================================
 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. 69, No. 122 / Friday, June 25, 2004 / 
Proposed Rules  

[[Page 35541]]



FEDERAL RESERVE SYSTEM

12 CFR Parts 202, 205, 213, 226, and 230

[Regulations B, E, M, Z, DD]; [Dockets No.R-1168, R-1169, R-1170, R-
1167, R-1171]


Equal Credit Opportunity, Electronic Fund Transfers, Consumer 
Leasing, Truth in Lending, Truth in Savings

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Withdrawal of Proposed Rules.

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SUMMARY: The Board is withdrawing proposed revisions to Regulation B 
(Equal Credit Opportunity), Regulation E (Electronic Fund Transfers), 
Regulation M (Consumer Leasing), Regulation Z (Truth in Lending), and 
Regulation DD (Truth in Savings). The proposed revisions sought to 
define more specifically the standard for providing ``clear and 
conspicuous'' disclosures, and to provide a more uniform standard among 
the Board's regulations. The revisions were 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 response to concerns raised by commenters, 
the Board has determined that this goal should be achieved by 
developing proposals that focus on improving the effectiveness of 
individual disclosures rather than the adoption of general definitions 
and standards applicable across the five regulations. This effort will 
be undertaken in connection with the Board's periodic review of its 
regulations; an advance notice of proposed rulemaking is expected to be 
issued later this year under Regulation Z, focused on disclosures for 
open-end credit accounts. Although the December 2003 proposals are 
withdrawn, they reflect principles that institutions may find useful in 
creating disclosures that are clear and conspicuous. These approaches 
will help inform the Board's review of individual disclosures.

DATES: The withdrawal is effective June 22, 2004.

FOR FURTHER INFORMATION CONTACT: Elizabeth A. Eurgubian, Attorney, and 
Krista P. DeLargy, 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

    Disclosures generally must be ``clear and conspicuous'' under the 
consumer financial services and fair lending laws administered by the 
Board.\1\ Currently, the laws and regulations contain standards that 
are similar but not identical. ``Clear and conspicuous'' is generally 
interpreted to require that disclosures be in a ``reasonably 
understandable form.'' The existing interpretations do not elaborate on 
``conspicuousness'' as a separate requirement distinct from clarity or 
understandability. See 12 CFR Sec.  202.4(d), comment 4(d)1; Sec.  
205.4(a)(1); Sec. Sec.  213.3(a) and 213.7(b), comments 3(a)-2 and 
7(b)-1; Sec. Sec.  226.5(a)(1), 226.17(a)(1), and 226.31(b), and 
comments 5(a)(1)-1, 17(a)(1)-1, and 5a(a)(2)-1; and Sec. Sec.  230.3(a) 
and 230.8(c), comment 3(a)-1.
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    \1\ Regulation B, which implements the Equal Credit Opportunity 
Act, 12 CFR part 202, 15 U.S.C. 1691 - 1691f; Regulation E, which 
implements the Electronic Fund Transfers Act, 12 CFR part 205, 15 
U.S.C. 1693 et seq.; Regulation M, which implements the Consumer 
Leasing Act, 12 CFR part 213, 15 U.S.C. 1667 - 1667e; Regulation Z, 
which implements the Truth in Lending Act, 12 CFR part 226, 15 
U.S.C. 1601 et seq.; and Regulation DD, which implements the Truth 
in Savings Act, 12 CFR part 230, 12 U.S.C. 4301 et seq.
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    In contrast, Regulation P (Privacy of Consumer Financial 
Information), which implements the financial privacy provisions of the 
Gramm-Leach-Bliley Act, articulates more precisely than the other 
consumer regulations the standard for providing clear and conspicuous 
disclosures that consumers will notice and understand. Under Regulation 
P, disclosures are deemed ``clear'' if they are ``reasonably 
understandable;'' they are considered ``conspicuous'' if they are 
``designed to call attention to the nature and significance of the 
information.'' See 12 CFR Sec.  216.3(b). Regulation P also provides 
examples and guidance illustrating these standards. Although the 
privacy disclosures provided by industry under this standard have not 
been without criticism, they have been reasonably noticeable to 
consumers. In addition, Truth in Lending disclosures that are subject 
to format and type size requirements and are segregated from other 
information, such as those required in connection with credit card 
solicitations (the ``Schumer box''), tend to be more noticeable and 
easy to read.''
    In December 2003, the Board published proposed rules to establish a 
more specific standard for ``clear and conspicuous'' disclosures that 
would be uniform for five consumer regulations, Regulations B, E, M, Z 
and DD (68 FR 68786, 68788, 68791, 68793, and 68799, respectively) 
(collectively, the ``December 2003 proposals''). The December 2003 
proposals were intended to help ensure that the information required to 
be given to consumers in connection with financial products and 
services is provided in a noticeable and understandable form. 
Accordingly, the proposals sought to give explicit meaning to the 
requirement for ``conspicuousness,'' using the clear and conspicuous 
standard in Regulation P as a model.
    The December 2003 proposals also include compliance guidance in the 
form of examples of how institutions could satisfy the ``clear and 
conspicuous'' standard, based on guidance in Regulation P. Thus, the 
December 2003 proposals provide examples of how institutions can make 
disclosures clear or reasonably understandable-such as, by using 
``clear, concise sentences, paragraphs, and sections'' and ``short 
explanatory sentences or bullet lists whenever possible,'' and by 
avoiding ``legal or highly technical business terminology whenever 
possible.'' The guidance also provides advice on making disclosures 
conspicuous. For example, in a document that combines required 
disclosures with other information, the guidance suggests using 
``distinctive type size, style, and graphic devices to call attention 
to the disclosures.'' The guidance also advises that disclosures are 
conspicuous when they ``use a typeface and type size that are easy to 
read,'' and confirms that 12-point type generally meets this standard. 
The guidance notes that disclosures printed in type smaller than 12 
points do not

[[Page 35542]]

automatically violate the standard, but that disclosures printed in 
type smaller than 8 points would likely be too small to satisfy the 
standard. In 2000, the Board applied this standard and other format 
requirements to the Schumer box.

II. Comments on the December 2003 Proposals

    Almost all industry commenters strongly oppose the Board's December 
2003 proposals. Industry's opposition stems largely from its concern 
that the proposed rules would cast doubt on whether their existing 
disclosures meet the ``clear and conspicuous'' standard. In particular, 
industry commenters are concerned that it would be significantly more 
difficult to integrate federal disclosures with other account-related 
information. They assert that this would be a departure from the 
Board's long-standing practice of permitting the integration of 
required disclosures with other account information, except in certain 
clearly-articulated cases, such as the Truth in Lending disclosure 
table required for certain credit or charge card applications and 
solicitations and disclosures for closed-end loans. See Sec.  
226.5a(a)(2), Sec.  226.17(a)(1). Industry commenters assert that the 
December 2003 proposed revisions would result in costly compliance 
reviews and forms changes by institutions, and would expose 
institutions to heightened litigation risk under arguably subjective 
standards. Consumer advocates generally support the proposals' goals, 
but they believe the December 2003 proposals do not set high enough 
standards.
    Specific Industry Concerns
    Effectiveness of using the Regulation P standard in other 
regulations. The Board's Regulation P (Privacy of Consumer Financial 
Information) requires institutions to provide conspicuous disclosures 
that ``call attention to the nature and significance of the 
information.'' 12 CFR Sec.  216.3(b). Institutions acknowledge that 
this standard, in the context of disclosing an institution's privacy 
policy, is workable since the privacy disclosure can be kept separate 
from other information in the same document. Consequently, using a 
heading to set off the privacy disclosures from other information 
satisfies the Regulation P conspicuous disclosure requirement.
    Most industry commenters assert, however, that Regulation P is not 
an effective model for a uniform ``clear and conspicuous'' standard 
under the Board's consumer regulations that expressly permit 
institutions to integrate certain federal disclosures with contract 
terms and state law disclosures. For example, integrated disclosures 
are permitted for costs and terms required by federal law to be 
disclosed at account opening for deposit accounts and for open-end 
credit plans such as a credit card account. See 12 CFR Sec.  230.3(a), 
comment 3(a)-1; Sec.  226.5(a)(1), comment 5(a)(1)-1. Industry 
commenters believe that if the Regulation P ``conspicuous'' standard 
were adopted for these regulations, institutions generally would have 
to segregate required federal disclosures from contract terms and other 
information, as they currently do for privacy notices under Regulation 
P, in their credit card solicitation disclosures, and certain TILA 
closed-end credit disclosures and Consumer Leasing Act disclosures.
    Industry commenters assert that in some cases, such as credit card 
account opening disclosures, consumers can better understand how an 
account operates when required disclosures are interspersed among other 
contract terms. The commenters also assert that certain methods for 
making federal disclosures more conspicuous--for example, increased 
font sizes and margins--would lengthen documents and could make 
consumers less inclined to read them in some cases. Because credit card 
and deposit account agreements can be lengthy and complex, and in small 
type size, some members of the Board's Consumer Advisory Council urged 
the Board to consider different approaches to making disclosures more 
useful to consumers, such as requiring ``executive summaries'' of more 
important terms to ensure that the key terms are highlighted.
    Compliance Burden. Industry commenters believe that examples 
contained in the December 2003 proposed guidance about how disclosures 
can be made clear and conspicuous, although not intended to be 
mandatory, would effectively be viewed as legal requirements, 
necessitating the review and redesign of all disclosure documents. Most 
industry commenters claim that the cost to review, revise, and mail 
disclosure documents to comply with each example would be substantial.
    Industry commenters are particularly concerned about the potential 
cost of complying with the typeface and type size example in the 
proposed staff commentary which states that, as to type size: ``12-
point type generally meets the conspicuous standard, but disclosures 
printed in less than 12-point type do not automatically violate the 
standard.'' The commenters generally assert that under this guidance 
12-point type would become a de facto minimum requirement and that 
meeting it would be costly because federal consumer disclosures often 
use smaller type.
    The December 2003 proposed guidance also states that disclosures 
printed in type less than 8 points would likely be too small to satisfy 
the clear and conspicuous standard. Industry commenters noted that this 
guidance could result in costly changes because it is common for some 
disclosures to be printed in type smaller than 8 points, such as credit 
card agreements and the notice of billing rights that often appears on 
the reverse side of monthly statements of account activity. See 12 CFR 
Sec.  205.8(b), Sec.  226.9(a)(2).
    Industry concerns about litigation risks. The December 2003 
proposed staff commentary provides examples of clear and conspicuous 
disclosures, such as the use of ``short explanatory sentences'' and 
``everyday words'' whenever possible, ``wide margins and ample line 
spacing,'' and ``distinctive type size, style, or graphic devices.'' 
Industry commenters assert that these examples create vague standards 
subject to differing interpretations, and that institutions would 
potentially be liable in private lawsuits filed by consumers who allege 
violations under Regulations B, E, M, and Z. Although these examples 
are used in Regulation P, as commenters note, violations of Regulation 
P do not give rise to claims by consumers in private litigation. Some 
industry commenters urged the Board to review individual disclosures 
and address any specific problems identified with the particular 
disclosures instead of establishing standards and guidance of general 
applicability.
    Specific Concerns of Consumer Advocates
    Comment letters received from individual consumers and consumer 
groups generally supported the December 2003 proposed ``clear and 
conspicuous'' standard. Consumer representatives believe, however, that 
the Board's proposed interpretation of ``clear'' is not sufficient and 
they suggest that the Board clarify that a disclosure is not clear if 
it is ``capable of more than one plausible interpretation.'' Consumer 
representatives also suggest that the Board amend the proposed example 
in the staff commentary to state that 10 points, instead of 8 points, 
should be the threshold below which type is likely to be deemed too 
small under the standard.

[[Page 35543]]

III. Withdrawal of the Proposals and Plan for Reviewing Individual 
Disclosures

    The Board is withdrawing the December 2003 proposals to establish a 
uniform standard for ``clear and conspicuous'' disclosures under 
Regulations B, E, M, Z, and DD, in response to the concerns summarized 
above. Instead of adopting general definitions or standards that would 
apply across the five regulations, the Board intends to focus on 
individual disclosures and to consider ways to make specific 
improvements to the effectiveness of each disclosure. As noted above, 
some commenters supported this approach. In reviewing individual 
disclosures, the Board could consider both the content and format of 
the disclosures, and the Board could elect to make changes to the 
regulatory requirements as well as to the regulation's model forms.
    The effort to review individual disclosures will be undertaken in 
connection with the Board's periodic review of its regulations, 
commencing with the issuance later this year of an advance notice of 
proposed rulemaking to review the rules for open-end credit accounts 
under the Truth in Lending Act and Regulation Z. The notice will seek 
comment on ways to make disclosures required to be provided at account-
opening and on periodic statements more understandable and noticeable. 
Improved TILA disclosures and the standards used to develop them could 
serve as models for improving disclosures required under the other 
regulations. The Board's review of individual disclosures would 
continue with reviews of Regulation DD and Regulation E, which are 
scheduled to commence in 2005 and 2006 respectively.
    Although the December 2003 proposals are withdrawn, they reflect 
principles that institutions may find useful in developing disclosures 
that are clear and conspicuous. Similarly, the proposals reflect 
approaches that will help inform the Board's review of individual 
disclosures in connection with its periodic review of its regulations. 
Clear, concise sentences that use definite, concrete, everyday words 
and active voice and avoid legal and highly technical business 
terminology foster consumer understanding of disclosures. Disclosures 
are more noticeable when printed in a typeface and type size that are 
easy to read. Particularly in lengthy disclosure documents, the use of 
plain-language headings that call attention to the substance of 
particular provisions improves customers' ability to navigate through 
the document or later review particular provisions. Readily 
understandable disclosures also reduce costs associated with frequent 
customer inquiries, customer complaints and litigation.

    By order of the Board of Governors of the Federal Reserve 
System, June 22, 2004.
Jennifer J. Johnson,
Secretary of the Board
[FR Doc. 04-14504 Filed 6-24-04; 8:45 am]
BILLING CODE 6210-01-S