[Federal Register Volume 69, Number 180 (Friday, September 17, 2004)]
[Proposed Rules]
[Pages 55996-56011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-20939]


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 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. 180 / Friday, September 17, 2004 / 
Proposed Rules  

[[Page 55996]]



FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R-1210]


Electronic Fund Transfers

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule; official staff interpretation.

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SUMMARY: The Board is publishing for comment a proposal to amend 
Regulation E, which implements the Electronic Fund Transfer Act. The 
proposal would also revise the official staff commentary to the 
regulation. The commentary interprets the requirements of Regulation E 
to facilitate compliance primarily by financial institutions that offer 
electronic fund transfer services to consumers.
    Proposed revisions to the regulation would address its coverage of 
electronic check conversion services and those providing the services. 
Among other things, persons, such as merchants and other payees, that 
make electronic check conversion services available to consumers would 
have to obtain a consumer's authorization for the electronic fund 
transfer. In addition, the regulation would be revised to provide that 
payroll card accounts established directly or indirectly by an employer 
on behalf of a consumer for the purpose of providing salary, wages, or 
other employee compensation on a recurring basis are accounts covered 
by Regulation E. Proposed commentary revisions would provide guidance 
on preauthorized transfers, additional electronic check conversion 
issues, error resolution, and other matters.

DATES: Comments must be received on or before November 19, 2004.

ADDRESSES: Comments, which should refer to Docket No. R-1210, may be 
mailed to Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC 20551. 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 202-452-3102. 
Members of the public may inspect comments in room MP-500 in the 
Board's Martin Building between 9 a.m. and 5 p.m. on weekdays pursuant 
to section 261.12, except as provided in section 261.14, of the Board's 
Rules Regarding the Availability of Information, 12 CFR 261.12 and 
261.14.

FOR FURTHER INFORMATION CONTACT: Ky Tran-Trong, Senior Attorney, or 
Daniel G. Lonergan, David A. Stein, Natalie E. Taylor or John C. Wood, 
Counsels, Division of Consumer and Community Affairs, Board of 
Governors of the Federal Reserve System, Washington, DC 20551, at (202) 
452-2412 or (202) 452-3667. For users of Telecommunications Device for 
the Deaf (TDD) only, contact (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Electronic Fund Transfer Act (EFTA) (15 U.S.C. 1693 et seq.), 
enacted in 1978, provides a basic framework establishing the rights, 
liabilities, and responsibilities of participants in electronic fund 
transfer (EFT) systems. The EFTA is implemented by the Board's 
Regulation E (12 CFR part 205). Examples of 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 
service. 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 activity statements; 
limitations on consumer liability for unauthorized transfers; 
procedures for error resolution; and certain rights related to 
preauthorized EFTs. Further, the act and regulation also prescribe 
restrictions on the unsolicited issuance of ATM cards and other access 
devices.
    The Official Staff Commentary (12 CFR part 205 (Supp. I)) is 
designed to facilitate compliance and provide protection from liability 
under sections 915 and 916 of the EFTA for financial institutions and 
persons subject to the Act. 15 U.S.C. 1593m(d)(1). The commentary is 
updated periodically, as necessary, to address significant questions 
that arise.

II. Summary of Proposed Revisions

Electronic Check Conversion

    In an electronic check conversion (or ``ECK'') transaction, a 
consumer provides a check to a payee and information from the check is 
used to initiate a one-time EFT from the consumer's account. 
Specifically, the payee electronically scans and captures the MICR-
encoding on the check for the routing, account, and serial numbers, and 
enters the amount to be debited from the consumer's asset account. The 
EFTA expressly provides that transactions originated by check, draft, 
or similar paper instrument are not governed by the Act. In response to 
an industry request that the Board clarify EFTA coverage of ECK 
transactions, the Board's March 2001 amendments to the Official Staff 
Commentary to Regulation E established a bright-line test for the 
regulation's coverage of these transactions. See 66 FR 15187 (March 16, 
2001).
    The staff commentary provides that electronic check conversion 
transactions are covered by the EFTA and Regulation E if the consumer 
authorizes the transaction as an EFT. This is the case regardless of 
whether the check conversion occurs at point-of-sale (``POS'') or in an 
accounts receivable conversion (``ARC'') transaction where the consumer 
mails a fully completed and signed check to the payee that is converted 
to an EFT. The commentary provides that a consumer authorizes an EFT if 
notice that the transaction will be processed as an EFT is provided to 
the consumer and the consumer completes the transaction.
    Since issuing the March 2001 commentary update, several issues have 
arisen relating to electronic check conversion transactions in general, 
and ARC transactions in particular. Concerns have been raised about the 
uniformity and adequacy of some of the notices provided to consumers 
about ECK transactions. Some in the industry would like the flexibility 
to obtain a consumer's authorization to process a transaction as an EFT 
or as a check. Board staff also has received inquiries from financial 
institutions and other

[[Page 55997]]

industry participants concerning their obligations under Regulation E 
in connection with ECK services. For example, merchants and other 
payees have inquired whether a single authorization is sufficient to 
convert multiple checks submitted as payment after receiving an invoice 
or during an individual billing cycle, in the case of a credit card 
bill, for example. Banks and credit unions have asked about the extent 
of their disclosure obligations to both existing and new consumers 
about the addition of ECK services to the terms of consumer accounts.
    Proposed revisions to the regulation would address its coverage of 
electronic check conversion services and those providing the services. 
The proposal would provide additional guidance regarding the rights, 
liabilities, and responsibilities of parties engaged in ECK 
transactions. First, the regulation would be revised to include the 
guidance on Regulation E coverage of ECK transactions currently 
contained in the commentary. Where a check, draft, or similar paper 
instrument is used as a source of information to initiate a one-time 
EFT from the consumer's account, that transaction is not deemed to be a 
transfer originated by check, and thus is covered by Regulation E. 
Second, pursuant to its authority under section 904(d) of the EFTA, the 
Board would require persons, such as merchants and other payees, that 
make ECK services available to consumers to obtain a consumer's 
authorization for the electronic transfer. (See Sec. Sec.  205.3(a) and 
(b)(2); comment 3(b)(2)-1.) This requirement would enable the Board to 
promote consistency in the notice provided to consumers by merchants 
and other payees.
    Generally, a notice about authorizing an ECK transaction would have 
to be provided for each transaction. The notice can be a generic 
statement posted on a sign or a written statement at POS, or provided 
on or with a billing statement or invoice, and must be clear and 
conspicuous. The regulation would also provide that obtaining 
authorization from a consumer holding the account on which a check will 
be converted is sufficient to convert multiple checks submitted as 
payment for a particular invoice or during an individual billing cycle.
    To help consumers understand the nature of an ECK transaction, the 
regulation would require persons initiating an EFT using information 
from a consumer's check to provide notice to the consumer that when the 
transaction is processed as an EFT, funds may be debited from the 
consumer's account quickly. In addition, as applicable, the person 
initiating the EFT would be required to notify the consumer that the 
consumer's check will not be returned by the consumer's financial 
institution.
    Proposed model clauses would be provided to protect merchants and 
other payees from liability under Sections 915 and 916 of the EFTA, if 
the payee uses these clauses accurately to reflect its services. (See 
Appendix A, Model Clauses in A-6.)
    A proposed revision to the commentary would explain that a payee 
may use the consumer's check as a source document for an ECK 
transaction or to process a check transaction, if the payee obtains the 
consumer's authorization. (See comment 3(b)(2)-2.) The commentary would 
also clarify that electronic check conversion transactions are a new 
type of transfer requiring new disclosures to the consumer to the 
extent applicable. (See comments 7(b)-4 and 7(c)-1.) Model clauses for 
initial disclosures would be revised to reflect that one-time EFTs may 
be made from a consumer's account using information from the consumer's 
check and to instruct consumers to notify their account-holding 
institutions when an unauthorized EFT has occurred using information 
from their check. (See Appendix A, Model Clauses in A-2.)

Payroll Cards

    A majority of all employees in the United States have their pay 
deposited directly into an account at a financial institution. Some 
employees that still receive their pay by paper check may not have any 
account relationship with a financial institution. Payroll cards have 
become increasingly popular with some employers as a way to reduce 
payroll check processing costs and more economically pay employees who 
lack checking accounts. Typically, an employer (or a third party acting 
on behalf of the employer) will establish an account at a depository 
institution in which employees' salaries are periodically deposited and 
held on their behalf. Employees are issued a card that they can use to 
access their funds electronically to obtain cash at an ATM or make 
purchases at a POS location.
    The regulation would be revised to provide that a ``payroll card 
account,'' directly or indirectly established by an employer on behalf 
of a consumer to which EFTs of the consumer's wages, salary, or other 
employee compensation are made on a recurring basis, is an ``account'' 
covered by Regulation E. This account would be subject to the 
regulation whether the account is operated or managed by the employer, 
a third-party payroll processor, or a depository institution. This does 
not include a card used for a one-time EFT of a salary-related payment, 
such as a bonus, or a card used solely to disburse non-salary-related 
payments, such as a petty cash or a travel per diem card. Of course, 
one-time payments and any other transfer of funds to or from a payroll 
card account established by an employer for the purpose of receiving 
EFTs of wages, salaries, or other employee compensation on a recurring 
basis would be covered by the act and regulation, even if the 
particular transfer itself does not represent wages, salary, or other 
employee compensation. (See Sec.  205.2(b)(3); comment 2(b)-2.)

Issuance of Access Devices

    In March 2003, the Board revised the official staff commentary to 
Regulation Z (Truth in Lending) to provide an exception to the ``one-
for-one'' rule, which generally provides that a creditor may not issue 
more than one credit card as a renewal of, or substitute for, an 
accepted card. The revision allows creditors to replace an accepted 
credit card with more than one renewal or substitute card, subject to 
certain conditions. (See comment Sec.  226.12(a)(2)-6 to Regulation Z.)
    Under Regulation E, a proposed commentary revision would clarify 
that a financial institution may issue a supplemental access device in 
conjunction with the issuance of a renewal or substitute access device, 
subject to the conditions set forth in Sec.  205.5(b) for unsolicited 
access devices, including the requirement that the device be 
unvalidated. (See comment 5(b)-5.) The general one-for-one rule in 
comment 5(a)(2)-1 would be retained, but with a cross-reference to 
proposed comment 5(b)-5.

Error Resolution

    Section 205.11(c)(4) provides that a financial institution may 
satisfy its obligation to investigate an alleged error by reviewing its 
own records if the alleged error concerns a transfer to or from a third 
party and there is no agreement between the institution and the third 
party for the type of EFT involved. The proposal would provide 
additional guidance by revising the commentary to state that, under 
these circumstances, the financial institution would not satisfy its 
error resolution obligations by merely reviewing the payment 
instructions, for example, if there is additional information within 
the institution's own records that would assist in resolving the 
alleged error. (See comment 11(c)(4)-5.)

[[Page 55998]]

Preauthorized Transfers

    Section 205.10(b) requires that recurring electronic debits from a 
consumer's account be authorized ``only by a writing signed or 
similarly authenticated by the consumer.'' The March 2001 commentary 
update clarified that the writing and signature requirements of this 
section could be satisfied by complying with the Electronic Signatures 
in Global and National Commerce Act (E-Sign Act), 15 U.S.C. 7001 et 
seq. (See comment 10(b)-5.)
    The commentary provides that a tape recording of a telephone 
conversation with a consumer who agrees to preauthorized debits does 
not constitute written authorization under Sec.  205.10(b). (See 
comment 10(b)-3.) That interpretation would be withdrawn to address 
industry concerns that the existing guidance may conflict with the E-
Sign Act.
    Consumers sometimes authorize third-party payees, by telephone or 
on-line, to submit recurring charges against a credit card account. If 
the consumer indicates use of a credit card account when in fact a 
debit card is being used, the payee does not violate the requirement to 
obtain a written authorization if the failure to obtain the 
authorization was not intentional and resulted from a bona fide error, 
and if the payee maintains procedures reasonably adapted to avoid any 
such error. The commentary would be revised to clarify that a merchant 
asking the consumer to specify whether a card to be used for the 
authorization is a debit card or is a credit card, using those terms, 
is a reasonable procedure. (See comment 10(b)-7.)
    Section 205.10(c) requires a financial institution to honor a 
consumer's oral stop-payment order for a preauthorized transfer from 
his or her account if it is made at least three business days before a 
scheduled debit. The commentary would be revised to clarify that an 
institution that does not have the capability of blocking a 
preauthorized debit from being posted to the consumer's account (for 
example, when debits are made on a real-time system), may instead use a 
third party to block the transfer(s), as long as the recurring debits 
are in fact stopped. (See comments 10(c)-2 and -3.)
    Section 205.10(d) requires a consumer's financial institution (or a 
designated payee) to send written notice to the consumer at least 10 
days before the scheduled date of a preauthorized EFT from the 
consumer's account when the EFT will vary in amount from the previous 
transfer, or from the preauthorized amount. The commentary would be 
revised to permit institutions to provide consumers with a range of 
varying amounts for transfers of funds, in lieu of providing notice 
with each varying transfer, when crediting preauthorized transfers of 
interest (for example, for a consumer's certificate of deposit account) 
to an account of the consumer held at a different financial 
institution. (See comment 10(d)(2)-2.)

Disclosures at Automated Teller Machines

    Section 205.16 provides that an ATM operator that imposes a fee on 
a consumer for initiating an EFT or balance inquiry must post notices 
at ATMs that a fee will be imposed. The commentary to Sec.  205.16 
would be revised to clarify that if there are circumstances in which an 
ATM fee will not be charged for a particular transaction, ATM operators 
may disclose on the ATM signage that a fee may be imposed. (See comment 
16(b)(1)-1.)

III. Section-by-Section Analysis of the Proposed Revisions

Section 205.2 Definitions

2(b) Account
    Proposed Sec.  205.2(b)(3) would provide that the term ``account'' 
includes a ``payroll card account'' directly or indirectly established 
by an employer on behalf of a consumer to which EFTs of the consumer's 
wages, salary, or other employee compensation are made on a recurring 
basis. A payroll card account would be subject to the regulation 
whether the account is operated or managed by the employer, a third-
party payroll processor, or a depository institution.
    In 1994, the Board revised Regulation E to cover certain electronic 
benefit transfer programs (``EBT programs'') established by the federal 
government in which welfare and similar government benefits were 
distributed to recipients electronically. These programs, which 
typically allow access to benefits through the use of debit cards at 
ATMs and POS locations, are subject to the requirements of the 
regulation, with some exceptions. In the preamble to the final rule, 
the Board stated that, notwithstanding the modified applicability of 
Regulation E to EBT programs, military and private sector employers who 
make salary and other payments available through systems permitting ATM 
access ``remain fully covered by Regulation E.'' 59 FR 10678, 10680 
(March 7, 1994).
    In 1996, the Board issued a proposed rule that would have covered 
certain stored-value products under Regulation E.\1\ Congress imposed a 
moratorium on Board action and directed the Board to conduct a study on 
whether application of the provisions of the regulation would adversely 
affect the cost, development, and operation of stored-value products. 
The report concluded that full Regulation E coverage of stored-value 
products would likely impose substantial operating and opportunity 
costs of compliance. The Board noted that given the limited experience 
at that time it was difficult to predict whether the benefits to 
consumers from any particular provision of Regulation E would outweigh 
the corresponding costs of compliance.\2\ The 1996 proposal was never 
finalized. In light of the increased usage of payroll cards today and 
the other reasons discussed more fully below, the regulation would be 
revised to cover these products under Regulation E.
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    \1\ 61 FR 19696 (May 2, 1996).
    \2\ Report to the Congress on the Application of the Electronic 
Fund Transfer Act to Electronic Stored-Value Products (March 1997).
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    Coverage of EFT services under the EFTA and Regulation E hinges 
upon whether a transaction involves an EFT to or from a consumer's 
account. Section 903(2) of the EFTA defines an ``account'' as ``a 
demand deposit, savings deposit, or other asset account * * * as 
described in regulations of the Board, established primarily for 
personal, family, or household purposes.'' The definition is broad and 
is not limited to traditional checking and savings accounts.\3\ The 
Board possesses broad authority under section 904(d) of the EFTA to 
determine coverage when EFT services are offered by entities other than 
traditional financial institutions. Moreover, Congress has clearly 
enunciated its expectation that the Board continue to examine new and 
developing EFT services to assure that the EFTA's basic protections 
continue to apply.\4\
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    \3\ The EFTA's legislative history evidences a clear 
Congressional intent that the definition of ``account'' be broad, so 
as to ensure that ``all persons who offer equivalent EFT services 
involving any type of asset account are subject to the same 
standards and consumers owning such accounts are assured of uniform 
protection.'' S. Rep. No. 915, 95th Cong., 2d Sess. 9 (1978).
    \4\ See id.; S. Rep. No. 1273, 95th Cong., 2d Sess. 9-10, 25-26 
(1978).
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    Payroll cards have become increasingly popular with some employers, 
financial institutions, and payroll services providers. A payroll card 
account holds a consumer's wages, salary, or other recurring 
compensation payments--assets that the consumer is able to access and 
spend with a device that provides the functionality of a debit

[[Page 55999]]

card. Typically, an employer, in conjunction with a bank, will provide 
an employee a plastic card with a magnetic stripe that accesses an 
account assigned to the individual employee. The employer will then 
credit this account with value each payday instead of providing the 
employee with a paper check (or making a direct deposit of salary to 
the employee's checking account). The employee-consumer can use the 
card assigned to the account to access his or her funds at an ATM and 
make purchases at POS. Some payroll card products provide the consumer 
with the ability to get cash back at POS, and offer such features as 
convenience checks and electronic bill payment. In some cases, these 
products may be covered by deposit insurance. These products are also 
actively marketed to employers and service providers as particularly 
effective means of providing wages to the millions of individuals who 
lack a traditional banking relationship. Payroll card products are, in 
effect, designed, implemented, and marketed as substitutes for 
traditional checking accounts at a financial institution.
    The broad combination of characteristics of payroll card accounts 
has led the Board to conclude that payroll card accounts are 
appropriately classified as accounts. Much like the EBT products that 
fall within Regulation E's coverage, payroll card products are assigned 
to an identifiable consumer, represent a stream of payments to a 
consumer (which may be a primary source of the consumer's income or 
assets), are replenished on a recurring basis and can be used in 
multiple locations for multiple purposes, and utilize the same kinds of 
access devices, electronic terminals, and networks as do other EFT 
services. Payroll card products may even offer a broader level of 
functionality with respect to possible types of transactions than do 
EBT products. In addition, the design and market of payroll card 
products has positioned them as substitutes for traditional checking 
accounts and as a potential mechanism for holding the primary financial 
assets for an increasing number of Americans who are ``unbanked.''
    The Board believes that it is appropriate to apply the Regulation E 
provisions, such as initial disclosures, periodic statements, error 
resolution procedures, and other consumer protections, to consumers who 
receive their salaries through payroll card accounts, which in many 
cases will constitute the bulk of the consumer's income. The Board 
believes that the benefits to consumers in covering payroll card 
accounts under Regulation E outweigh the incremental costs that would 
be imposed on the institutions that offer these accounts.
    Under proposed Sec.  205.2(b)(3), the regulation would apply to any 
EFT to or from payroll card accounts established directly or indirectly 
by an employer on behalf of an employee for the purpose of receiving 
transfers of the employee's wages, salary, or other compensation made 
on a recurring basis, whether the payroll card product is operated or 
managed by the employer, a third-party payroll processor, or a 
depository institution. The definition generally includes a payroll 
card account that represents the means by which the employer regularly 
pays the employee's salary or other form of compensation, and would 
include, for example, card accounts for seasonal workers or employees 
that are paid on a commission basis. Payroll card accounts would be 
covered by the regulation whether the funds are held in individual 
employee accounts or in a pooled account, with ``subaccounts'' 
maintained by a depository institution (or by a third party) that 
enable a determination of the amounts of money owed to particular 
employees. The proposed revision is not intended to address the 
definition of ``account'' for purposes of any other statute or 
regulation.
    The Board is limiting the scope of this proposal to payroll card 
products only. For example, the characteristics of payroll card 
accounts described above would not apply to a prepaid ``gift'' card 
issued by a merchant that can be used to purchase items in the 
merchant's store. In addition, as explained in proposed comment 2(b)-2, 
the regulation would not cover a card to which only one-time transfers 
of salary-related payments are made (e.g., to pay a bonus), or a card 
exclusively used to disburse non-salary-related payments, such as a 
petty cash or travel per diem card. A one-time bonus payment, a payment 
to reimburse travel expenses, or any other transfer of funds (e.g., if 
a consumer is permitted to add his or her own funds), however, would be 
covered to the extent that the funds are transferred to or from the 
employee's payroll card account. Current comment 2(b)-2 would be 
redesignated as comment 2(b)-3.
    Regulation E defines the term ``financial institution'' to include 
any person that directly or indirectly holds an account belonging to a 
consumer or that issues an access device to a consumer and agrees with 
a consumer to provide EFT services. One or more parties involved in 
offering payroll card accounts may meet the definition of a ``financial 
institution'' under the regulation--whether it be the employer, a 
financial institution, or other third party involved in the transfer of 
funds to the account or in the issuance of the card. For example, if an 
employer, by agreement, issues a payroll card to a consumer and opens 
an account at a bank into which the employer deposits the consumer's 
wages and from which the consumer can access funds by using the card, 
then both the employer and the bank would qualify as a financial 
institution with respect to that consumer's payroll card account. 
Existing regulatory language under Sec.  205.4(e) addresses the 
regulatory framework for financial institutions that provide EFT 
services jointly. The parties may contract among themselves to comply 
with the regulation. For purposes of the access device issuance rule in 
Sec.  205.5, a payroll card would be considered a solicited access 
device so long as a consumer must elect to have his or her salary 
credited to a payroll card account.
    A review of several current payroll card products, their 
disclosures, and their promotional materials indicates that, while some 
issuers are already generally compliant with the regulation's 
requirements, others are providing only partial Regulation E 
disclosures, or an incomplete level of protection with respect to error 
resolution, liability for loss, and other provisions. Some product 
providers may believe that certain payroll cards are not covered by the 
regulation due to the characteristics of their particular payroll card 
program, or because a ``traditional'' bank account may not be 
established by a consumer. If the proposal is finalized, financial 
institutions will be given time to make the necessary changes for 
compliance with the regulation. To the extent disclosures are needed to 
bring existing accounts into compliance, disclosures would have to be 
provided to employee-consumers, such as error-resolution notices. 
Comment is solicited on whether six months following adoption of final 
rules is sufficient to enable financial institutions to implement the 
necessary changes to comply with the regulation.
    In many cases, payroll card products may also carry deposit 
insurance. The Federal Deposit Insurance Commission currently is 
considering the circumstances under which funds underlying stored-value 
cards would be considered ``deposits''. Comment is solicited on whether 
Regulation E coverage should be determined by whether a payroll card 
account holds

[[Page 56000]]

consumer funds that qualify as eligible ``deposits'' for purposes of 
section 3(l) of the Federal Deposit Insurance Act.\5\
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    \5\ See Definition of ``Deposit''; Stored Value Cards, 69 FR 
20558 (April 16, 2004).
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Section 205.3 Coverage

3(a) General
    Section 205.3(a) would be revised to provide that proposed Sec.  
205.3(b)(2), discussed below, applies to persons.
3(b) Electronic Fund Transfer
    New comment 3(b)-3 would replace current comment 3(b)-3 to clarify 
that an electronic debit from a consumer's account to collect a fee for 
insufficient funds when an EFT or a check is returned unpaid is covered 
by Regulation E, and must be authorized by the consumer. (The re-
designation of current comment 3(b)-3 to proposed comment 3(b)(2)-1 is 
discussed below.)

Electronic Check Conversion

    In electronic check conversion transactions, a consumer provides a 
check to enable a merchant or other payee to capture the routing, 
account, and serial numbers to initiate a one-time EFT from the 
consumer's account. The EFTA excludes from coverage any transaction 
``originated by check, draft, or similar paper instrument.'' 15 U.S.C. 
1693a. In response to an industry request, the Board updated the 
commentary in March 2001 (66 FR 15187) to clarify, among other things, 
that electronic check conversion transactions are covered by Regulation 
E. This is the case whether the consumer's check is blank, partially 
completed, or fully completed and signed; whether the check is 
presented to a merchant at POS or is mailed to a payee or lockbox and 
later converted to an EFT; or whether the check is retained by the 
consumer, the merchant or other payee, or the payee's financial 
institution. (See comment 3(b)-1(v).)
    Coverage of these transactions is predicated on the use of the 
consumer's check as a source of information by a merchant or other 
payee to initiate a one-time EFT from the consumer's account using 
information from the check. The consumer must authorize the transfer. 
The commentary provides that in electronic check conversion 
transactions, a consumer authorizes a one-time EFT when the consumer 
receives notice that the transaction will be processed as an EFT, and 
goes forward with the transaction by providing a check to a merchant or 
other payee for the MICR encoding. (This guidance is in comment 3(b)-3, 
which would be revised and re-designated as comment 3(b)(2)-1.) As 
further stated in the supplemental information to the March 2001 
update, a transaction in which a check is used as a source document to 
initiate an EFT is deemed not to be originated by check.
    Proposed revisions to the regulation would address its coverage of 
electronic check conversion services and those providing the services. 
The proposed rule would provide additional guidance regarding the 
rights, liabilities, and responsibilities of parties engaged in ECK 
transactions. Section 205.3(b)(2) would be added to include the 
guidance on Regulation E coverage of ECK transactions currently 
contained in the commentary, with some revisions. Where a check, draft, 
or similar paper instrument is used as a source of information to 
initiate a one-time EFT from the consumer's account, that transaction 
is covered by Regulation E, and is deemed not to be a transfer 
originated by check. (See Sec.  205.3(b)(2)(i) and comment 3(b)(2)-1.)
    Currently, a merchant or other payee that engages in electronic 
check conversion transactions is not covered by Regulation E, because 
it does not meet the definition of ``financial institution,'' if the 
merchant or other payee does not directly or indirectly hold a 
consumer's account, or issue an access device and agree to provide EFT 
services. The Board acknowledged in the preamble to the March 2001 
commentary update that a merchant or other payee is in the best 
position to provide notice to a consumer for the purpose of obtaining 
authorization of an ECK transaction, but the Board deemed it 
unnecessary to bring these persons within the coverage of the 
regulation, stating its belief and expectation that merchants or other 
payees would provide consumers with the necessary notice.\6\ The Board 
cautioned, however, that if it found that consumers were not receiving 
proper notice in connection with ECK transactions, it would consider 
exercising its authority under section 904(d) of the EFTA to require 
compliance by merchants and other payees.\7\
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    \6\ At that time, and currently, NACHA, the national association 
that establishes the standards, rules, and procedures for the ACH 
system, requires merchants to obtain a written signed or similarly 
authenticated authorization from the consumer for ECK transactions 
from a consumer's account. The authorization must be readily 
identifiable as an authorization and must clearly and conspicuously 
state its terms. NACHA's signed authorization requirement does not 
apply to checks mailed to a payee or placed in a payee s dropbox.
    \7\ Section 904(d)(1) of the EFTA provides that [i]f electronic 
fund transfer services are made available to consumers by a person 
other than a financial institution holding a consumer s account, the 
Board shall by regulation assure that the disclosures, protections, 
responsibilities, and remedies created by [the EFTA] are made 
applicable to such persons and services.
---------------------------------------------------------------------------

    Since issuing the 2001 commentary revisions, concerns have been 
raised about the uniformity and adequacy of some of the notices to 
consumers about electronic check conversion transactions. Some notices 
are difficult to comprehend. The terminology used to describe 
electronic check conversion is not uniform. And some notices are not 
readily noticeable to consumers.
    To assure consistency and clarity of disclosures, the Board 
believes that all parties engaged in electronic check conversion 
transactions should be subject to Regulation E for the limited purpose 
of obtaining authorizations for electronic check conversion 
transactions. Accordingly, the Board proposes to exercise its authority 
under section 904(d) of the EFTA to require persons, such as merchants 
and other payees, that initiate a one-time EFT using information from 
the consumer's check, draft or similar paper instrument, to provide 
notice to obtain a consumer's authorization for the transfer. Section 
205.3(a) would be revised and Sec.  205.3(b)(2)(ii) would be added to 
reflect this requirement. Persons subject to the proposed requirement 
in Sec.  205.3(b)(2)(ii) would include financial institutions to the 
extent that they initiate an EFT using information from a consumer's 
check.
    Generally, a notice about authorizing an ECK transaction would have 
to be provided for each transaction. The notice can be a generic 
statement posted on a sign or a written statement at POS, or provided 
on or with a billing statement or invoice, and must be clear and 
conspicuous. At POS, a written signed authorization may be viewed as a 
more effective means than signage for informing consumers that their 
checks are being converted. Comment is solicited on whether merchants 
or other payees should be required to obtain the consumer's written 
signed authorization to convert checks received at POS.
    For ARC transactions, obtaining a single authorization from a 
consumer holding an account is sufficient to convert multiple checks 
submitted as payment after receiving an invoice or during a single 
billing cycle. (See Sec.  205.3(b)(2)(ii).) For example, if several 
roommates each write a check in payment of a shared utility bill, 
authorization from the person whose name is on the utility account 
constitutes authorization to convert all the checks submitted in 
payment of that bill.

[[Page 56001]]

    Consistent with the EFTA's purpose to enable consumers to 
understand their rights, liabilities and responsibilities in EFT 
systems, and given the unique characteristics of ECK transactions, the 
Board believes it is appropriate to provide consumers with additional 
information to help them understand the nature of an ECK transaction. 
Section 205.3(b)(2)(iii), as proposed, would require persons initiating 
an EFT using information from a consumer's check to provide notice that 
when the transaction is processed as an EFT, funds may be debited from 
the consumer's account quickly. In addition, the person initiating the 
EFT would also be required to notify the consumer that the consumer's 
check will not be returned by the consumer's financial institution, 
except that this additional notice need not be provided by a merchant 
that returns the consumer's check at POS. (See also comment 3(b)(2)-3, 
discussed below.)
    Proposed model clauses would be provided to protect merchants and 
other payees from liability under Sections 915 and 916 of the EFTA, if 
the payee uses these clauses accurately to reflect its services. (See 
Appendix A, Model Clauses in A-6.)
    Current comment 3(b)-3 states that in electronic check conversion 
transactions, a consumer authorizes a one-time EFT when the consumer 
receives notice that the transaction will be processed as an EFT, and 
goes forward with the transaction. This comment would be re-designated 
as comment 3(b)(2)-1, and a technical revision would be made. The 
phrase ``completes the transaction'' would be replaced with ``goes 
forward with the transaction'' to clarify that it is not necessary for 
a transaction to clear or settle, for example, in order for 
authorization to occur.
    Proposed comment 3(b)(2)-2 would provide that a payee may obtain 
the consumer's authorization to use information from his or her check 
to initiate an EFT or, alternatively, to process a check. A proposed 
model clause in Appendix A-6 provides a sample authorization. 
Currently, if a payee obtains a consumer's authorization to initiate an 
EFT using the information from a check, the consumer cannot also 
authorize the same document to be processed as a check. Coverage of ECK 
transactions would continue to be predicated on the consumer's 
authorization to allow the merchant or other payee to process a check 
as a source document to initiate an ECK transaction. But the 
interpretation would be revised to facilitate payments and to give 
payees the most flexibility in determining how best to process 
payments.
    In some cases, due to processing or other technical errors, the 
MICR-encoding from the consumer's check cannot be verified by the 
consumer's financial institution and, thus, the EFT cannot be made. The 
payee would be able to use the original check or create a ``substitute 
check,'' discussed below, from the original check to process a payment. 
In other cases, some merchants or other payees may find it more 
efficient to process ``local'' or ``on-us'' items as check--rather than 
electronic check conversion--transactions. In addition, some have asked 
the Board to permit, with the consumer's authorization, checks that may 
be used as source documents for ECK transactions to be used to create 
substitute checks as defined under Regulation CC, which implements the 
Check Clearing for the 21st Century Act (Check 21).\8\ These entities 
would like the flexibility to test various payment mechanisms to 
determine what form of electronic payment processing will be most 
efficient and cost effective.
---------------------------------------------------------------------------

    \8\ 12 U.S.C. 5001-5018, enacted on October 28, 2003, takes 
effect on October 28, 2004.
---------------------------------------------------------------------------

    If it chooses, a payee may specify the circumstances under which a 
check may not be used to initiate an EFT. A model clause is contained 
in proposed Appendix A-6 for that purpose. A payee might list the 
circumstances on or with a billing statement or invoice, or may provide 
the information through a toll-free telephone number. A payee could 
also provide the information through a website.
    Electronic check conversion transactions present a unique type of 
EFT that does not neatly fit within the existing scheme for EFTs 
covered by Regulation E, in that a consumer's check is being used to 
initiate an EFT. A consumer may write and mail a fully completed check 
for payment, in the case of an ARC transaction, or provide a check at 
POS, and through the consumer's authorization, the transaction will be 
processed as an EFT.
    Generally, coverage of a transaction under the EFTA and Regulation 
E is determined by how a transaction is originated, not how it is 
carried out. And generally, consumers specifically instruct financial 
institutions or persons to debit or credit their accounts through EFTs. 
By allowing payees to obtain a consumer's authorization to use 
information from a check to initiate an EFT or, alternatively, to 
process a transaction as a check, the consumer does not know whether 
his or her rights will be governed by check law or Regulation E until 
the consumer receives a periodic account activity statement identifying 
the transaction as a check transaction or as an EFT.\9\ Therefore, 
comment is solicited on whether a disclosure stating that a consumer 
authorizes an EFT, or in the alternative, a check transaction, may 
result in any consumer harm or create any other risks. In particular, 
comment is solicited on whether payees that obtain alternative 
authorization should be required to specify the circumstances under 
which a check that can be used to initiate an EFT will be processed as 
a check.
---------------------------------------------------------------------------

    \9\ Under both check law and the EFTA, a consumer generally is 
not liable for unauthorized transactions, although the EFTA provides 
specific timeframes and procedures for asserting and resolving 
errors for EFTs.
---------------------------------------------------------------------------

    Consumer education about ECK transactions and other electronic 
payments is critical as some consumers have been confused about how 
these transactions work and what happens to their check when it is 
converted to an EFT. The Board has published in English and Spanish a 
pamphlet about ECK transactions titled ``When Is Your Check Not A 
Check? Electronic Check Conversion,'' that it plans to update in the 
near future.
    Proposed comment 3(b)(2)-3 would provide the guidance above that a 
payee initiating an EFT at POS would not be required to notify a 
consumer that the consumer's check will not be returned by the 
consumer's financial institution, if the payee returns the consumer's 
check to the consumer.
    Proposed comment 3(b)(2)-4 would provide further guidance about 
authorization of an ECK transaction when multiple checks are offered as 
payment on a bill. A single authorization by a consumer holding an 
account is sufficient to convert multiple checks submitted as payment 
after receiving an invoice or during a single billing cycle, for 
example, in the case of a credit card account. Where an accountholder 
receives notice of check conversion and mails multiple checks to make a 
payment owed during a single billing cycle, it is reasonable to apply 
the ECK authorization notice to all checks provided--regardless of 
whether the checks are mailed within the same envelope or mailed 
separately during the billing cycle. Also, where an accountholder 
receives notice of check conversion and someone other than the 
accountholder, or in addition to the accountholder, provides a check to 
make a payment owed during the billing cycle, notice of check 
conversion to the accountholder is imputed as notice to those persons.

[[Page 56002]]

    As noted above, model clauses are provided in proposed Appendix A-6 
to protect merchants and other payees from liability under Sections 915 
and 916 of the EFTA if such clauses are used properly to accurately 
reflect the merchant or other payee's practices. A merchant or other 
payee should construct a notice that best describes its individual 
practices. For example, for ARC transactions, a payee that opts to 
convert checks only in certain instances would generally provide notice 
that the customer authorizes the payee to use the check either to 
process an EFT or to process a check. In contrast, if a payee opts to 
convert all checks received by mail, the payee would provide notice to 
its customers stating that when the customer provides a check as 
payment, the customer authorizes the check to be used to make an EFT 
from the customer's account. Whether the payee in an ARC transaction 
intends to convert checks received in certain instances, or in all 
instances, the payee would be required to notify its customer that 
where the customer's check is converted, funds may be debited from the 
customer's account quickly, and that the customer will not receive his 
or her check back from the customer's financial institution. Similarly, 
to the extent that the payee intends to collect a fee for insufficient 
funds electronically, that fact must also be included on the notice.
    Where a merchant or other payee initiates an EFT in error, the 
transaction would not be covered by Regulation E where the transaction 
does not meet the definition of an EFT. For example, if a merchant or 
other payee uses information from a consumer's money order mailed in by 
a consumer or from a convenience check tied to a line of credit to 
initiate an EFT, the transaction is not covered by Regulation E because 
there is no transfer of funds from a consumer account. Rather, the 
funds are transferred from an account held by the issuer of the money 
order or are extensions of credit. The transaction would be considered 
to have originated by check, even where notice has been provided that 
the transaction will be processed as an EFT.
3(c) Exclusions From Coverage
    Comment 3(c)(1)-1 would be revised to clarify that a consumer 
authorizes a merchant or other payee to electronically debit a fee for 
insufficient funds from the consumer's account when the consumer goes 
forward with the transaction after receiving notice that the fee will 
be collected electronically.

Section 205.5 Issuance of Access Devices

    Section 911 of the EFTA, which is implemented by Sec.  205.5 of 
Regulation E, generally prohibits financial institutions from issuing 
debit cards or other access devices except (1) in response to requests 
or applications or (2) as renewals or substitutes for previously 
accepted access devices. Existing comment 5(a)(2)-1 provides that, in 
general, a financial institution may not issue more than one access 
device as a renewal of or substitute for an accepted device (the ``one-
for-one rule''). These provisions were modeled on provisions in the 
Truth in Lending Act (TILA), Regulation Z, and its commentary that 
imposed similar restrictions on issuance of credit cards. (See TILA 
section 132; Regulation Z Sec.  226.12(a); comment 12(a)(2)-5.)
    In March 2003, the Board revised the Regulation Z Staff Commentary 
to provide an exception from the one-for-one rule to allow creditors to 
replace an accepted credit card with more than one replacement card, 
subject to certain conditions. (See comment 226.12(a)(2)-6.) Some 
industry representatives asked the Board to revise the Regulation E 
Staff Commentary to allow a financial institution, in connection with 
the renewal of or substitution for a previously accepted access device, 
to issue a supplemental access device to a consumer without complying 
with Sec.  205.5(b). Section 205.5(b) requires, among other things, 
that any access device issued on an unsolicited basis be unvalidated at 
the time of issuance. Proposed comment 5(b)-5 would clarify that 
financial institutions may issue more than one access device during the 
renewal or substitution of a previously accepted access device, 
provided they comply with the conditions set forth in Sec.  205.5(b) 
for the additional unsolicited devices. The general one-for-one rule in 
comment 5(a)(2)-1, however, would be retained, but a cross-reference to 
proposed comment 5(b)-5 would be added.
    Unlike credit cards, a consumer's own funds are at risk of loss or 
theft in the event of unauthorized use of a debit card or other access 
device. The potential for unauthorized use may increase if cards are 
intercepted in the mail, and consumers are unaware that they may be 
receiving multiple cards as replacements for an existing access device. 
The validation requirement of Sec.  205.5(b) avoids or limits monetary 
losses from the theft of debit cards sent through the mail. Although 
there would be no increase in a consumer's liability where multiple 
access devices are issued, asserting a claim of unauthorized use can be 
inconvenient and time-consuming, and, at least temporarily, the 
consumer may be out of needed funds. Therefore, the consumer protection 
afforded by the one-for-one rule and the validation requirements of 
Sec.  205.5(b) would appear to outweigh more flexibility in the one-
for-one rule to parallel the credit card provisions.

Section 205.7 Initial Disclosures

7(a) Timing of Disclosures
    Electronic check conversion transactions are a new type of transfer 
requiring new disclosures. (See discussion below under proposed Sec.  
205.7(c).) Comment 7(a)-1 would be revised to provide that an 
institution may choose to provide early disclosures about electronic 
check conversion transactions. (See also comment 7(a)-2, permitting an 
institution that has not received advance notice of a third party 
transfer to provide required disclosures as soon as reasonably possible 
after the first transfer.)
7(b) Content of Disclosures
    Proposed comment 7(b)(4)-4 would require financial institutions to 
list electronic check conversion transactions among the types of 
transfers that a consumer can make. (See Appendix A, Model Clauses in 
A-2.)
7(c) Addition of Electronic Fund Transfer Services
    Under the proposal, the general rule in comment 7(a)-4 would be 
moved to the regulation under new proposed Sec.  205.7(c) for 
consistency with other regulations. Comment 7(a)-4 provides that if an 
EFT service is added to a consumer's account and is subject to terms 
and conditions different from those described in the initial 
disclosures, disclosures for the new service are required.
    Following publication of the March 2001 commentary relating to ECK 
transactions, there was some industry uncertainty about the extent of 
an account-holding institution's disclosure obligations to new and 
existing consumers regarding ECK transactions. New comment 7(c)-1 would 
provide that ECK transactions are a new type of transfer requiring new 
disclosures to the consumer to the extent applicable. In this specific 
case, new disclosures would be necessary because a consumer's check can 
be used differently than in the past, in that information from the 
check can be used to initiate EFTs. (See also comment 7(b)(4)-4.) If 
finalized, financial institutions would be given sufficient

[[Page 56003]]

time to amend their disclosures if necessary.
    Model clauses for initial disclosures in Appendix A of the 
regulation would be revised (1) to reflect that one-time EFTs are a new 
type of transfer that may be made from a consumer's account using 
information from the consumer's check and (2) to instruct consumers to 
notify their account-holding institutions when an unauthorized EFT has 
occurred using information from their check. (See Appendix A, Model 
Clauses in A-2.) Comment is solicited on whether six months is 
sufficient time following adoption of the final rule to enable 
financial institutions to revise their disclosures to comply with the 
rule.

Section 205.10 Preauthorized Transfers

10(b) Written Authorization for Preauthorized Transfers From Consumer's 
Account
    Under Sec.  205.10(b), preauthorized EFTs from a consumer's account 
may be authorized only by a writing signed or similarly authenticated 
by the consumer. Currently, under comment 10(b)-3, an institution does 
not obtain written authorization for purposes of this provision by tape 
recording a telephone conversation with a consumer who agrees to 
recurring debits. In light of the E-Sign Act, this interpretation would 
be withdrawn.
    Comment 10(b)-3 was adopted before the enactment of the E-Sign Act, 
which provides that, in general, electronic records and electronic 
signatures satisfy any legal requirements for traditional written 
records and signatures. Some have suggested that, given the E-Sign 
Act's broad definitions of ``electronic record'' and ``electronic 
signature,'' a tape recorded authorization, or certain types of tape 
recorded authorizations, for preauthorized debits might be deemed to 
satisfy the Regulation E signed or similarly authenticated written 
authorization requirements.
    Because the Board's authority to interpret the E-Sign Act is 
extremely limited, comment 10(b)-3 as amended would not address how the 
E-Sign Act should be interpreted in this regard. If, under the E-Sign 
Act, a tape recorded authorization, or certain types of tape recorded 
authorizations, were properly determined by the person obtaining the 
authorization to constitute a written and signed (or similarly 
authenticated) authorization, then the authorization would satisfy the 
Regulation E requirements.
    Institutions should be aware, however, that to satisfy the 
requirements of Sec.  205.10(b) of Regulation E, an authorization, 
whether in paper or electronic form, must meet certain requirements. 
For example, the authorization must be readily identifiable as such to 
the consumer, and the terms of the preauthorized debits to be 
authorized must be clear and readily understandable to the consumer. 
(See comment 10(b)-6.)
    Comment 10(b)-7 discusses authorizations for recurring payments 
obtained by telephone or on-line, and states that the payee's failure 
to obtain written authorization is not a violation if the failure was 
not intentional and resulted from a bona fide error, notwithstanding 
the maintenance of procedures reasonably adapted to avoid any such 
error. For example, an error might occur where the consumer indicates 
that a credit card (for which no written authorization would be 
required) is being used for the authorization, when in fact the card is 
a debit card.
    Given the recent growth of debit card usage, concerns have been 
expressed by retail and other industry groups about what would 
constitute procedures reasonably adapted to avoid error where a 
telemarketer seeks to obtain a consumer's authorization for recurring 
payments for goods or services (e.g., magazine subscriptions), using 
the consumer's credit or debit card. In the past, with relatively few 
debit cards in use compared to credit cards, it may have been 
reasonable for payees to use procedures not involving questions 
specifically referring to debit cards. Currently, however, between one-
third and one-half of transactions where card numbers are used for 
payment authorizations may relate to debit cards. Therefore, reasonable 
procedures should include interaction with the consumer specifically 
designed to elicit information about whether a debit card is involved. 
Language would be added to comment 10(b)-7 to state that procedures 
reasonably adapted to avoid error will vary with the circumstances. The 
comment would also state that asking the consumer to specify whether 
the card to be used for the authorization is a debit card or is a 
credit card, using those terms, is a reasonable procedure.
    Language would also be added to provide an example of a payee 
learning after the transaction occurred that the card used was a debit 
card: the consumer bringing the matter to the payee's attention. For 
example, the consumer may call the merchant to assert a complaint about 
use of a debit card without written authorization.
    A related issue concerning reasonable procedures to avoid error 
under comment 10(b)-7 has arisen following the settlement of litigation 
between a group of merchants and Visa and MasterCard, commonly referred 
to as the ``Wal-Mart'' settlement. See In Re Visa Check/Mastermoney 
Antitrust Litigation, No. CV-96-5238 (E.D.N.Y.). Under the terms of the 
settlement, Visa and MasterCard agreed to make available to merchants 
lists of credit and debit card Bank Identification Numbers referred to 
as ``BIN tables.'' Because the BIN tables indicate whether a given card 
number relates to a credit card or to a debit card, questions have been 
raised about whether comment 10(b)-7 would require merchants to obtain 
and use the tables to verify that a card involved in a telephone 
authorization is a credit card or a debit card as a procedure 
``reasonably adapted'' to avoid the error of accepting a debit card 
number.
    To the extent that BIN tables are not available to merchants in an 
on-line, real-time form, it would likely be burdensome for merchants to 
be required to verify card numbers presented by consumers against the 
BIN tables. The verification could not occur during the telephone 
conversation between the merchant and the consumer, but instead would 
have to take place later; if the merchant then learned that the card 
used was a debit card rather than a credit card, the transaction would 
have to be unwound. Besides increasing merchant expense, unwinding the 
transaction might not be a result sought by the consumer, assuming the 
consumer had entered into the authorization with full knowledge of the 
terms and conditions. Accordingly, merchants are not required to obtain 
or consult BIN tables to maintain procedures reasonably adapted to 
avoid error. Similarly, merchants would not be required to check card 
numbers already on file against BIN tables. If in the future, however, 
the BIN tables become reasonably available to merchants in real-time, 
on-line form, this interpretation may need to be modified.
10(c) Consumer's Right to Stop Payment
    Proposed comment 10(c)-3 would be added to address procedures for 
stopping recurring debits in systems involving real-time processing, 
such as debit card systems. In real-time systems, the account-holding 
institution may not be able to block a payment from being posted to the 
consumer's account because the posting occurs almost immediately after 
the transaction has been approved, thus not allowing the institution 
sufficient time to identify payments against which stop-payment orders 
have been entered. The Board has

[[Page 56004]]

been asked how the account-holding institution can comply with the stop 
payment requirements of Regulation E in these circumstances. Proposed 
comment 10(c)-3 states that the institution need not have the 
capability to block recurring payments, and may instead use a third 
party to block the transfer(s), as long as such payments are in fact 
stopped. Comment 10(c)-2 would be revised to cross-reference the new 
proposed guidance.
10(d) Notice of Transfers Varying in Amount
    When a preauthorized EFT from a consumer's account will vary in 
amount from the previous transfer, or from the preauthorized amount, 
Sec.  205.10(d) requires the designated payee or the consumer's 
financial institution to send written notice of the amount and date of 
the transfer at least 10 days before the scheduled date of the 
transfer. Paragraph 10(d)(2) permits the payee or the institution to 
give the consumer the option of receiving notice only when a transfer 
falls outside a specified range of amounts or only when a transfer 
differs from the most recent transfer by more than an agreed-upon 
amount.
    Some financial institutions have suggested that while the notice 
requirement is appropriate where consumer funds are transferred to a 
third party, it should not apply when the transfer is between accounts 
owned by the same consumer, even when the accounts are held at 
different financial institutions. (Preauthorized transfers between 
accounts of the same consumer held at the same institution qualify for 
the intra-institutional exclusion from coverage in Sec.  205.3(c)(5)). 
These institutions assert that the advance notice requirement is 
particularly burdensome for financial institutions that offer 
certificate of deposit (CD) products that allow customers to set up 
preauthorized transfers of interest from the CD account to another 
account of the consumer held at a different institution. For such 
products, monthly interest payments might vary solely because of the 
different number of days in each month, yet such variance would require 
the institution to send the consumer advance notice in each instance 
before transferring the funds.
    Given the express language in section 907(b) of the EFTA, it is not 
appropriate to remove the notice requirement entirely. Nevertheless, to 
require that a notice be provided with each varying transfer where the 
transfer is between accounts owned by the same consumer provides little 
benefit to the consumer while imposing unnecessary costs on the 
financial institution making the transfer. Thus, to provide additional 
flexibility, new proposed comment 10(d)(2)-2 would provide that a 
financial institution need not give the consumer the option of 
receiving notice before providing a consumer a range of varying amounts 
for transfers of funds to an account of the consumer held at another 
financial institution. The additional flexibility would also apply to 
transfers to or from a jointly-held account where the consumer is one 
of the joint account holders. Institutions must continue to provide 
consumers with the option to receive notice of all varying 
preauthorized debits to the consumer's account where the funds are 
transferred to something other than an account of the consumer held at 
another institution.

Section 205.11 Procedures for Resolving Errors

11(b) Notice of Error From Consumer
    Section 205.11 sets forth procedures for resolving errors, 
including the time limits within which an investigation must be 
concluded, a requirement to provisionally credit a consumer's account 
if the investigation cannot be completed within ten business days after 
the consumer's notice of error, and a reporting requirement to notify 
the consumer of the results of the investigation. The time limits and 
procedures required under Sec.  205.11 are triggered by the consumer's 
notice of error when it is received in a timely manner, or ``no later 
than 60 days after the institution sends the periodic statement or 
provides the passbook documentation * * * on which the alleged error is 
first reflected.'' (See Sec.  205.11(b).)
    Inquiries have been made about the extent of the scope of a 
financial institution's investigation when a consumer provides a notice 
of error more than 60 days after the institution has sent the periodic 
statement that first reflected the alleged error. Proposed comment 
11(b)-7 would provide that where the consumer fails to provide the 
institution with timely notice, the institution need not comply with 
the requirements of the section. Where the error involves an 
unauthorized EFT, however, liability for the unauthorized transfer may 
not be imposed on the consumer unless the institution satisfies the 
requirements in Sec.  205.6.
11(c) Time Limits and Extent of Investigation
Paragraph 11(c)(4)--Investigation
    Section 205.11(c)(4) permits an institution to limit the 
investigation of an alleged error to ``a review of its own records'' 
where the allegation pertains to a transfer to or from a third party 
with whom the institution has no agreement for the type of EFT 
involved. This is commonly referred to as the ``four walls'' rule. 
Comment 11(c)(4)-4 provides that a financial institution does not have 
an agreement solely because it participates in transactions that occur 
under the federal recurring payments programs or that are cleared 
through an ACH or similar arrangement for the clearing and settlement 
of fund transfers generally, or because it agrees to be bound by the 
rules of such an arrangement.
    Proposed comment 11(c)(4)-5 would be added to provide that an 
institution's ``own records'' may include any information available 
within the institution that could be used to determine whether an error 
has occurred. Thus, for ACH, electronic check conversion, and other 
transactions, for example, a review of an institution's ``own records'' 
should not be confined to a review of the payment instructions when 
other information within the institution's ``four walls'' could also be 
reviewed.
    The ``four walls'' rule was adopted when most third party transfers 
involved preauthorized credits to a consumer's account to pay salary or 
other compensation, or preauthorized debits from a consumer's account 
to pay a particular utility or other payee. In the absence of an 
agreement between the financial institution and the third party, it 
seemed reasonable to allow an institution to limit its investigation to 
the institution's own records. See 45 FR 8248 (February 6, 1980).
    Historically, the alleged errors often pertained to the amount of 
the transfer; thus, an institution would likely have very limited 
information--such as the ACH payment instructions--for purposes of 
conducting its investigation. The ``four walls'' approach sought to 
strike an appropriate balance between an institution's statutory 
obligation to investigate errors and the institution's practical 
ability to resolve the alleged errors based on the limited information 
available to the institution.
    The increasing use of ACH as a means to effectuate a wide variety 
of third party transfers (in addition to preauthorized transfers) 
expands the types of errors that consumers may assert beyond what was 
contemplated when the ``four walls'' rule was adopted over twenty years 
ago. For example, the ACH network can be used to process electronic 
check conversion transactions, whereby information from a consumer's 
blank, partially completed, or fully completed check is used to

[[Page 56005]]

initiate a one-time ACH debit from the consumer's account at POS or via 
a lockbox. Similarly, a merchant may use the ACH network in an on-line 
or telephone transaction to initiate an EFT from a consumer's account 
using the consumer's checking account number. In these cases, consumers 
can be expected to assert errors concerning authorizations and the type 
of transfers, in addition to errors regarding the amounts of the 
resulting ACH debits. The risk that a consumer's check(s) or checking 
account number could be used in a fraudulent manner to complete an ACH 
transfer from the consumer's account was not contemplated when the 
``four walls'' analysis was adopted, since the typical ACH transfer 
then involved a preauthorized transfer to or from a known party.
    Today, where a consumer believes that the transaction was 
unauthorized, for example, where the consumer's checks are stolen and 
used fraudulently to initiate EFTs from the consumer's account, 
information such as the location of the payee, the particular number of 
the check (to determine if it is notably out of order), or prior 
consumer account transactions with the same payee--all of which would 
be within the institution's own records--could be relevant to the 
investigation. In that case, a review of the ACH transfer instructions, 
without more, does not constitute a sufficient investigation under the 
rule.
    Because the nature of a consumer's allegation of error can vary, 
the necessary inquiries to be made by an institution must vary. In each 
case, an institution should use any relevant information available 
within its own records for purposes of determining whether an error 
occurred. Proposed comment 11(c)(4)-5 provides this guidance.
    The ``four walls'' rule may lead to somewhat arbitrary outcomes 
with respect to an institution's error resolution responsibilities for 
similar transactions solely as a result of the networks on which the 
transactions are processed. For instance, check conversion transactions 
may also be accomplished by means other than ACH, such as via a debit 
card network. In those circumstances, the account-holding institution 
is required to look beyond its own records to investigate asserted 
errors, as the network rules would likely constitute an agreement under 
Sec.  205.11(c)(4). Similarly, in an on-line or telephone transaction, 
a consumer may choose to pay for a purchase by providing either his or 
her debit card number or his or her checking account number. If the 
consumer later asserts an error in connection with the transaction, the 
scope of the account-holding institution's investigation will depend on 
the payment mechanism utilized by the consumer, despite the fact that 
in both cases, the consumer intended to pay for the transaction via an 
EFT debit to his or her bank account.
    In light of new uses of the ACH to effectuate transfers to and from 
consumer accounts, in addition to soliciting specific comments on 
proposed comment 11(c)(4)-5, comment is solicited on whether there are 
circumstances in which the ``four walls'' rule should not apply.

Section 205.16 Disclosures at Automated Teller Machines

    Section 205.16 requires an automated teller machine operator that 
imposes a fee on a consumer for initiating an electronic fund transfer 
or a balance inquiry to provide notice to the consumer that a fee will 
be imposed for providing the EFT service or balance inquiry and to 
disclose the amount of the fee. Notice of the imposition of the fee 
must be provided in a prominent and conspicuous location on or at the 
ATM. The operator must also provide notice that the fee will be charged 
and the amount of the fee either on the screen of the ATM or by 
providing it on paper, before the consumer is committed to paying a 
fee.
    Several large institutions have asked whether it is permissible 
under the rule to provide notice on the ATM that a fee ``may be'' 
charged for providing EFT services, because many ATM operators, 
particularly those owned or operated by banks, may only apply ATM 
surcharges to some categories of their ATM users, but not others. For 
example, an ATM operator might not charge a fee to cardholders whose 
cards are issued by the operator, cardholders of foreign banks, and 
cardholders whose card issuer has entered into a special contractual 
relationship with the ATM operator with respect to surcharges. Also, an 
ATM operator might charge a fee for cash withdrawals, but not for 
balance inquiries. As a result, a disclosure on the ATM that a fee 
``will'' be imposed in all instances could be overbroad and misleading 
with respect to consumers who would not be assessed a fee for usage of 
the ATM.
    Under section 904(d)(3)(A) of the EFTA and Sec.  205.16(b)(1), an 
ATM operator must provide notice that a fee will be imposed only if a 
fee is, in fact, imposed. A strict requirement to post a notice that a 
fee will be imposed in all instances could result in an inaccurate 
disclosure of the ATM operators' surcharge practices. Accordingly, 
comment 205.16(b)(1)-1 would be revised to clarify that if there are 
circumstances in which an ATM surcharge will not be charged for a 
particular transaction, ATM operators may disclose on the ATM signage 
that a fee may be imposed or may specify the type of EFTs or consumers 
for which a fee is imposed. ATM operators that charge a fee in all 
instances would still be required to disclose that a fee will be 
charged for the transaction. Of course, before an ATM operator can 
impose an ATM fee on a consumer for initiating an electronic fund 
transfer or a balance inquiry, the ATM operator must provide to the 
consumer, notice either on-screen or via paper receipt, that an ATM fee 
will be imposed and the amount of the fee, and the consumer must elect 
to continue the transaction or inquiry after receiving such notice.

Appendix A--Model Disclosure Clauses and Forms

A-2--Model Clauses for Initial Disclosures

    Model clauses for initial disclosures contained in Appendix A (Form 
A-2) would be revised to provide disclosures about electronic check 
conversion transactions. In particular, model clauses (a) and (b) would 
be revised to instruct consumers to notify their account-holding 
institution when unauthorized EFTs have been made without the 
consumer's permission using information from their checks. The 
discussion on the applicable liability limits remains generally 
unchanged, however, because the first two tiers of liability do not 
apply to unauthorized transfers made without an access device (for 
example, those made using information from a check to initiate a one-
time ACH debit). (See comments 2(a)-2, 6(b)(3)-1.)
    Model clause (d) also would be revised to list as a new type of 
transfer one-time electronic fund transfers made from a consumer 
account using information from the consumer's check. (See comment 
7(b)(4)-4.)

A-3--Model Forms for Error-Resolution Notice

    Paragraph (b) of Model Form A-3 would be restored after its 
inadvertent deletion following publication of the March 2001 interim 
final rule establishing uniform standards for the electronic delivery 
of disclosures required by the EFTA and Regulation E. 66 FR 17786 
(April 4, 2001). No changes are intended by the reinsertion of 
paragraph (b). Paragraph (a) is reprinted for convenience.

[[Page 56006]]

A-6--Model Clauses for Authorizing One-Time Electronic Fund Transfer 
Using Information From a Check (Sec.  205.3(b)(2))

    Proposed Model Form A-6 would be added to provide model clauses for 
the authorization requirements of proposed Sec.  205.3(b)(2) for a 
person that initiates an EFT using information from a consumer's check. 
Consistent with comment 2 for Appendix A, the use of appropriate 
clauses in making disclosures will provide protection from liability 
under sections 915 and 916 of the EFTA provided the clauses accurately 
reflect the institution's EFT services. The Board request comment on 
whether it should retain all three of the proposed model clauses.

IV. Form of Comment Letters

    Comment letters should refer to Docket No. R-1210 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].

V. 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.

VI. 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. A final 
regulatory flexibility analysis will be conducted after consideration 
of comments received during the public comment period.
    1. Statement of the objectives of the proposal. The Board is 
proposing revisions to Regulation E to require a person initiating an 
EFT using information from a consumer's check to obtain the consumer's 
authorization. This requirement would enable the Board to promote 
consistency in the notice provided to consumers by merchants and other 
payees.
    The Board is also proposing in the regulation that payroll card 
accounts directly or indirectly established by an employer on behalf of 
a consumer to which EFTs of the consumer's wages, salary, or other 
employee compensation are made on a recurring basis are ``accounts'' 
subject to Regulation E. Additional guidance would be provided in the 
staff commentary about a financial institution's error resolution 
obligations for certain transactions, and to clarify financial 
institution and merchant responsibilities for preauthorized transfers 
from consumer accounts.
    The EFTA was enacted to provide a basic framework establishing the 
rights, liabilities, and responsibilities of participants in electronic 
fund transfer systems. The primary objective of the EFTA is the 
provision of individual consumer rights. 15 U.S.C. 1693. The EFTA and 
Regulation E require disclosure of terms and conditions of an EFT 
service; documentation of electronic transfers by means of terminal 
receipts and periodic statements; limitations on consumer liability for 
unauthorized transfers; procedures for error resolution; and certain 
rights related to preauthorized EFTs. The act and regulation also 
prescribe restrictions on the unsolicited issuance of ATM cards and 
other access devices. The EFTA authorizes the Board to prescribe 
regulations to carry out the purpose and provisions of the statute. 15 
U.S.C. 1693b(a). The act expressly states that the Board's regulations 
may contain ``such classifications, differentiations, or other 
provisions, * * * as, in the judgment of the Board, are necessary or 
proper to carry out the purposes of [the act], to prevent circumvention 
or evasion [of the act], or to facilitate compliance [with the act].'' 
15 U.S.C. 1693b(c). The act also states that ``[i]f electronic fund 
transfer services are made available to consumers by a person other 
than a financial institution holding a consumer's account, the Board 
shall by regulation assure that the disclosures, protections, 
responsibilities, and remedies created by [the act] are made applicable 
to such persons and services.'' 15 U.S.C. 1693b(d). The Board believes 
that the proposed revisions to Regulation E discussed above are within 
the Congress' broad grant of authority to the Board to adopt provisions 
that carry out the purposes of the statute.
    2. Small entities affected by the proposal. The number of small 
entities affected by this proposal is unknown. Merchants or other 
payees that initiate one-time EFTs from a consumer's account using 
information from the consumer's check would be required under the 
regulation to obtain the consumer's authorization for the transfers. 
Account-holding institutions would be required under the regulation to 
disclose to their consumers that electronic check conversion 
transactions are a new type of transfer that can be made from a 
consumer's account. In addition, employers, payroll services providers 
and depository institutions would be required to comply with the 
Board's Regulation E to the extent that they are engaged in providing 
payroll card products to employee-consumers.
    The Board believes small merchants and other payees that engage in 
check conversion transactions are currently providing notices to obtain 
electronic check conversion transactions. These notices would have to 
be reviewed, and perhaps revised. In addition, small financial 
institutions may need to review their initial disclosures, and perhaps 
revise them to reflect that electronic check conversion transactions 
are a new type of transfer that can be made from a consumer's account. 
For payroll card products, the Board believes that small employers, 
payroll services providers, and depository institutions that provide 
such products are currently providing account-opening disclosures for 
those accounts, and may be providing some form of periodic disclosures. 
These disclosures will have to be reviewed to ensure that they are in 
compliance with Regulation E, and perhaps revised.
    3. Other Federal rules. The Board believes no federal rules 
duplicate, overlap, or conflict with the proposed revisions to 
Regulation E.
    4. Significant alternatives to the proposed revisions. The Board 
welcomes comment on any significant alternatives that would minimize 
the impact of the proposed rule on small entities.

VII. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the proposed 
rule under the authority delegated to the Board by the Office of 
Management and Budget (OMB). The proposed rule contains requirements 
subject to the PRA. The collection of information that is required by 
this proposed rule is found in 12 CFR 205.2(b)(3), 205.3(b)(2) and 
205.7. 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. This information is required to obtain a 
benefit for consumers and is mandatory (15 U.S.C. 1693 et seq.). The 
respondents/recordkeepers are for-profit

[[Page 56007]]

financial institutions, including small businesses. Institutions are 
required to retain records for 24 months.
    All financial institutions subject to Regulation E, of which there 
are approximately 19,300, are considered respondents for the purposes 
of the PRA and may be required to provide notice to accountholders that 
electronic check conversion (ECK) transactions are a new type of 
transfer that may be made from a consumer's account under Sec.  205.7. 
In addition, all persons, such as merchants and other payees, that 
engage in ECK transactions, of which there are approximately 11,900, 
potentially are affected by this collection of information, because 
these merchants and payees may be required to obtain a consumer's 
authorization for the electronic transfer under Sec.  205.3(b)(2). 
Furthermore, all financial institutions involved in providing payroll 
card accounts to consumers (i.e., employers, payroll card servicers, 
and depository institutions), of which there are approximately 2,000, 
potentially are affected by this collection of information because 
these institutions may be required to provide initial disclosures, 
periodic statements, error resolution procedures, and other consumer 
protections, to consumers who receive their salaries through payroll 
card accounts as defined in Sec.  205.2(b)(3).
    The following estimates represent an average across all respondents 
and reflect variations between institutions based on their size, 
complexity, and practices. The other federal agencies are responsible 
for estimating and reporting to OMB the total paperwork burden for the 
institutions for which they have administrative enforcement authority. 
They may, but are not required to, use the Federal Reserve's burden 
estimates.
    The first disclosure requirement, described in Sec.  205.7, is the 
initial disclosure that a financial institution would provide to their 
accountholders reflecting that ECK transactions are a new type of 
transfer that can be made from a consumer's account. The Federal 
Reserve estimates that each of the 1,289 institutions, for which the 
Federal Reserve has administrative enforcement authority (collectively 
referred to in the following paragraphs as ``respondents regulated by 
the Federal Reserve'') would be required to provide a revised initial 
disclosure to their accountholders. Currently, all respondents 
regulated by the Federal Reserve are required to provide a disclosure 
of basic terms, costs, and rights relating to EFT services under 
Regulation E. The Federal Reserve estimates that it will take financial 
institutions, on average, 8 hours (1 business day) to reprogram and 
update systems to include the new notice requirement relating to ECK 
transactions; therefore, the Federal Reserve estimates that the total 
annual burden for respondents regulated by the Federal Reserve is 
10,312 hours. The proposed revisions to Regulation E would provide 
institutions with model clauses for the initial disclosure requirement 
for ECK transactions (provided in Appendix A) that they may use to 
comply with the notice requirement. The total estimated annual burden 
for all other financial institutions subject to Regulation E providing 
initial disclosures would be approximately 144,088 hours, using the 
same burden methodology as above.
    The second disclosure requirement, described in Sec.  205.3(b)(2), 
is required when persons, such as merchants and other payees, engage in 
ECK transactions. Under the proposed rule, merchants and payees would 
be required to provide notice to obtain a consumer's authorization for 
the one-time EFT in the form of a written disclosure. The Federal 
Reserve estimates that of the 1,289 respondents regulated by the 
Federal Reserve that are required to comply with Regulation E, 
approximately 10 originate ECK transactions. The Federal Reserve 
estimates that it will take each respondent, on average, 8 hours (1 
business day) to reprogram and update their systems to include the new 
notice requirement relating to ECK transactions; therefore, the Federal 
Reserve estimates that the total annual burden is 80 hours. The 
proposed revisions to Regulation E would provide institutions with 
model clauses (provided in Appendix A) for the new disclosure 
requirement. Using the Federal Reserve's methodology, the total annual 
burden for all other merchants and payees engaging in ECK transactions 
is 95,200 hours.
    The third set of disclosure obligations is required when one or 
more parties that meet the definition of ``financial institution'' is 
involved in offering payroll card accounts as defined in Sec.  
205.2(b)(3)--whether the financial institution is an employer, a 
depository institution, or other third party involved in holding the 
payroll card account or in the issuance of a payroll card. Such 
entities would be required to fully comply with Regulation E, and 
provide disclosure of basic terms, costs, and rights relating to 
electronic fund transfer services in connection with the payroll card 
account. The parties may contract among themselves to comply with the 
regulation by providing one set of disclosures. Certain information 
must be disclosed to consumers, including: initial and updated EFT 
terms, transaction information, periodic statements of activity, the 
consumer's potential liability for unauthorized transfers, and error 
resolution rights and procedures. The Federal Reserve estimates that of 
the 1,289 respondents regulated by the Federal Reserve that are 
required to comply with Regulation E, approximately 5 participate in 
payroll card programs. The Federal Reserve estimates that each 
respondent will take, on average, 1.5 minutes to prepare and distribute 
the initial disclosure to the payroll card account holders. The Federal 
Reserve also estimates that each respondent will take, on average, 7 
hours to prepare and distribute periodic statements. Finally, the 
Federal Reserve estimates that each respondent will take, on average 30 
minutes for error resolution procedures. The total annual burden for 
respondents regulated by the Federal Reserve for all of these 
disclosures is estimated to be 1,065 hours. Using the Federal Reserve's 
methodology, the total annual burden for all other institutions 
offering payroll card services would be approximately 20,500 hours. The 
disclosures are standardized and machine-generated and do not 
substantively change from one individual account to another; thus, the 
average time for providing the disclosure to all consumers should be 
small.
    The Federal Reserve's current annual burden for Regulation E 
disclosures is estimated to be 48,868 hours. The proposed rule would 
increase the total burden under Regulation E for all respondents 
regulated by the Federal Reserve by 11,457 hours, from 48,868 to 60,325 
hours. Using the methodology explained above, the proposed rule would 
increase total burden under Regulation E for all other potentially 
affected entities by approximately 259,788 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 are invited on: a. whether the proposed collection of 
information is necessary for the proper performance of the Federal 
Reserve's functions; including whether the information has practical 
utility; b. the accuracy of the Federal Reserve's estimate of the 
burden of the proposed information collection, including the cost of 
compliance; c. ways to enhance the quality, utility, and clarity of the 
information to be collected; and d. ways to minimize the

[[Page 56008]]

burden of information collection on respondents, including through the 
use of automated collection techniques or other forms of information 
technology. Comments on the collection of information should be 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, with copies of such 
comments sent to the Office of Management and Budget, Paperwork 
Reduction Project (7100-0200), Washington, DC 20503.

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
changes to the text of the regulation and staff commentary. New 
language is shown inside bold-faced arrows, while language that would 
be deleted is set off with bold-faced brackets. Comments are numbered 
to comply with Federal Register publication rules.

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 12 CFR part 205 and the Official Staff Commentary, as follows:

PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)

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

    Authority: 15 U.S.C. 1693b.

    2. Section 205.2 would be amended by adding a new paragraph (b)(3) 
as follows:


Sec.  205.2  Definitions

* * * * *
    (b)(1) Account means * * *
    [rtrif](3) The term includes a ``payroll card account'' directly or 
indirectly established by an employer on behalf of a consumer to which 
electronic fund transfers of the consumer s wages, salary, or other 
employee compensation are made on a recurring basis, whether the 
account is operated or managed by the employer, a third-party payroll 
processor, or a depository institution.[ltrif]
* * * * *
    3. Section 205.3 would be amended by revising paragraphs (a) and 
(b) as follows:


Sec.  205.3  Coverage

    (a) General. This part applies to any electronic fund transfer that 
authorizes a financial institution to debit or credit a consumer's 
account. Generally, this part applies to financial institutions. For 
purposes of Sec. Sec.  [rtrif]205.3(b)(2),[ltrif] 205.10(b), (d), and 
(e) and 205.13, this part applies to any person.
    (b) Electronic fund transfer. [rtrif](1) Definition.[ltrif] The 
term electronic fund transfer that authorizes a financial institution 
to debit or credit a consumer's account. Generally, this part applies 
to financial institutions. The term includes, but is not limited to--
    [(1)][rtrif](i)[ltrif] point-of-sale transfers;
    [(2)][rtrif](ii)[ltrif] automated teller machine transfers;
    [(3)][rtrif](iii)[ltrif] direct deposits or withdrawals of funds;
    [(4)][rtrif](iv)[ltrif] transfers initiated by telephone; and
    [(5)][rtrif](v)[ltrif] transfers resulting from debit card 
transactions, whether or not initiated through an electronic terminal.
    [rtrif](2) Electronic fund transfer using information from a check. 
(i) This part applies where a check, draft, or similar paper instrument 
is used as a source of information to initiate a one-time electronic 
fund transfer from a consumer's account. The consumer must authorize 
the transfer.
    (ii) The person that initiates a transfer shall provide notice to 
obtain a consumer's authorization for each transfer. Obtaining 
authorization from a consumer holding the account from which a check 
may be converted constitutes authorization for all checks provided for 
a single payment or invoice.
    (iii) The person that initiates a transfer shall also provide 
notice to the consumer at the same time it provides the notice required 
under paragraph (b)(2)(ii) of this section that when a check is used to 
initiate an electronic fund transfer, funds may be debited from the 
consumer's account quickly, and, as applicable, that the consumer's 
check will not be returned by the financial institution holding the 
consumer's account.[ltrif]
* * * * *
    4. Section 205.7 would be amended by adding a new paragraph (c) as 
follows:


Sec.  205.7  Initial disclosures

* * * * *
    [rtrif](c) Addition of electronic fund transfer services. If an 
electronic fund transfer service is added to a consumer's account and 
is subject to terms and conditions different from those described in 
the initial disclosures, disclosures for the new service are 
required.[ltrif]
    5. In Appendix A to Part 205,
    a. In A-2 MODEL CLAUSES FOR INITIAL DISCLOSURES (Sec.  205.7(b)), 
paragraphs (a), (b) and (d) would be revised;
    b. In A-3 MODEL FORMS FOR ERROR RESOLUTION NOTICE (Sec. Sec.  
205.7(b)(10) and 205.8(b)), paragraph (a) is republished, and paragraph 
(b) would be revised;
    c. Appendix A-6 MODEL CLAUSES FOR AUTHORIZING ONE-TIME ELECTRONIC 
FUND TRANSFER USING INFORMATION FROM A CHECK (Sec.  205.3(b)(2)) would 
be added.

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

* * * * *

A-2--Model Clauses for Initial Disclosures (Sec.  205.7(b))

    (a) Consumer Liability (Sec.  205.7(b)(1)).
    (Tell us AT ONCE if you believe your [card] [code] has been lost 
or stolen[rtrif], or if you believe that an electronic fund transfer 
has been made without your permission using information from your 
check[ltrif]. Telephoning is the best way of keeping your possible 
losses down. You could lose all the money in your account (plus your 
maximum overdraft line of credit). If you tell us within 2 business 
days [rtrif]after you learn of the loss or theft of your [card] 
[code][ltrif], you can lose no more than $50 if someone used your 
[card] [code] without your permission.) [(If you believe your [card] 
[code] has been lost or stolen, and you tell us within 2 business 
days after you learn of the loss or theft, you can lose no more than 
$50 if someone used your [card] [code] without your permission.)]
    If you do NOT tell us within 2 business days after you learn of 
the loss or theft of your [card] [code], and we can prove we could 
have stopped someone from using your [card] [code] without your 
permission if you had told us, you could lose as much as $500.
    Also, if your statement shows transfers that you did not make, 
[rtrif]including those made by card, code or other means,[ltrif] 
tell us at once. If you do not tell us within 60 days after the 
statement was mailed to you, you may not get back any money you lost 
after the 60 days if we can prove that we could have stopped someone 
from taking the money if you had told us in time. If a good reason 
(such as a long trip or a hospital stay) kept you from telling us, 
we will extend the time periods.
    (b) Contact in event of unauthorized transfer (Sec.  
205.7(b)(2)). If you believe your [card] [code] has been lost or 
stolen[ or that someone has transferred or may transfer money from 
your account without your permission], call:
    [Telephone number]
    or write:
    [Name of person or office to be notified]
    [Address]
    [rtrif]You should also call or write to the number or address 
listed above if you believe a transfer has been made using the 
information from your check without your permission.[ltrif]
* * * * *
    (d) Transfer types and limitations (Sec.  205.7(b)(4))--(1) 
Account access. You may use your [card][code] to:

[[Page 56009]]

    (i) Withdraw cash from your [checking] [or] [savings] account.
    (ii) Make deposits to your [checking] [or] [savings] account.
    (iii) Transfer funds between your checking and savings accounts 
whenever you request.
    (iv) Pay for purchases at places that have agreed to accept the 
[card] [code].
    (v) Pay bills directly [by telephone] from your [checking] [or] 
[savings] account in the amounts and on the days you request.
    Some of these services may not be available at all terminals.
    [rtrif](2) Electronic check conversion. You may authorize a 
merchant or other payee to make a one-time electronic payment from 
your checking account using information from your check to: (i) Pay 
for purchases; or (ii) Pay bills.[ltrif]
    [(2)] [rtrif](3)[ltrif] Limitations on frequency of transfers.--
(i) You may make only [insert number, e.g., 3] cash withdrawals from 
our terminals each [insert time period, e.g., week].
    (ii) You can use your telephone bill-payment service to pay 
[insert number] bills each [insert time period] [telephone call].
    (iii) You can use our point-of-sale transfer service for [insert 
number] transactions each [insert time period].
    (iv) For security reasons, there are limits on the number of 
transfers you can make using our [terminals] [telephone bill-payment 
service] [point-of-sale transfer service].
    [(3)] [rtrif](4)[ltrif] Limitations on dollar amounts of 
transfers--(i) You may withdraw up to [insert dollar amount] from 
our terminals each [insert time period] time you use the [card] 
[code].
    (ii) You may buy up to [insert dollar amount] worth of goods or 
services each [insert time period] time you use the [card] [code] in 
our point-of-sale transfer service.
* * * * *

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

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

[rtrif]A-6--Model Clauses for Authorizing One-Time Electronic Fund 
Transfer Using Information From a Check (Sec.  205.3(b)(2))

(a)--Sample Notice About Electronic Check Conversion

    When you provide a check, you authorize us either to use 
information from your check to make a one-time electronic fund 
transfer from your account or to process this transaction as a 
check. When we use your check to make an electronic fund transfer, 
funds may be withdrawn from your account [quickly/ as soon as the 
same day we receive your payment][, and you will not receive your 
check back from your financial institution.]
    [If there are insufficient funds in your account, you authorize 
us to charge a fee of $**, and collect that amount through an 
electronic fund transfer from your account.]

(b)--Optional Notice Where Checks Are Converted

    When you provide a check, you authorize us to use information 
from your check to make a one-time electronic fund transfer from 
your account. When we use your check to make an electronic fund 
transfer, funds may be withdrawn from your account [quickly/ as soon 
as the same day we receive your payment] [, and you will not receive 
your check back from your financial institution.]
    [If there are insufficient funds in your account, you authorize 
us to charge a fee of $**, and collect that amount through an 
electronic fund transfer from your account.]

(c)--Optional Notice Where Checks Would Not Be Converted Under 
Specified Circumstances

    When you provide a check, you authorize us to use information 
from your check to make a one-time electronic fund transfer from 
your account. In certain circumstances, we may process your payment 
as a check. [Specify circumstances.] When we use your check to make 
an electronic fund transfer, funds may be withdrawn from your 
account [quickly/ as soon as the same day we receive your payment] 
[, and you will not receive your check back from your financial 
institution.]
    [If there are insufficient funds in your account, you authorize 
us to charge a fee of $**, and collect that amount through an 
electronic fund transfer from your account.][ltrif]

    6. In Supplement I to Part 205, the following amendments would be 
made:
    a. Under Section 205.2--Definitions, under 2(b) Account, paragraph 
2. would be redesignated as paragraph 3. and a new paragraph 2. would 
be added;
    b. Under Section 205.3--Coverage, under 3(b) Electronic Fund 
Transfer, paragraph 3. would be revised;
    c. Under Section 205.3--Coverage, under 3(b) Electronic Fund 
Transfer, a new heading ``Paragraph 3(b)(2)--Electronic Fund Transfer 
Using Information From a Check'' would be added, and paragraphs 1. 
through 4. would be added;
    d. Under Section 205.3--Coverage, under 3(c) Exclusions from 
coverage, under heading Paragraph 3(c)(1)--Checks, paragraph 1. would 
be revised;
    e. Under Section 205.5--Issuance of Access Devices, under 5(a) 
Solicited Issuance, under Paragraph 5(a)(2), paragraph 1. would be 
revised;
    f. Under Section 205.5--Issuance of Access Devices, under 5(b) 
Unsolicited Issuance, paragraph 5. would be added;
    g. Under Section 205.7--Initial Disclosures, under 7(a) Timing of 
Disclosures, paragraph 1. would be revised, and paragraph 4. would be 
removed and reserved;
    h. Under Section 205.7--Initial Disclosures, under 7(b) Content of 
Disclosures, under Paragraph 7(b)(4)--Types of Transfers; Limitations, 
paragraph 4. would be added;
    i. Under Section 205.7--Initial Disclosures, a new heading ``7(c)

[[Page 56010]]

Addition of EFT Services'' would be added, and paragraph 1. would be 
added;
    j. Under Section 205.10--Preauthorized Transfers, under 10(b) 
Written Authorization for Preauthorized Transfers from Consumer's 
Acccount, paragraphs 3. and 7. would be revised;
    k. Under Section 205.10--Preauthorized Transfers, under 10(c) 
Consumer's Right to Stop Payment, paragraph 2. would be revised, and 
paragraph 3. would be added;
    l. Under Section 205.10--Preauthorized Transfers, under 10(d) 
Notice of Transfers Varying in Amount, under Paragraph 10(d)(2)--Range, 
paragraph 2. would be added;
    m. Under Section 205.11--Procedures for Resolving Errors, under 
11(b) Notice of Error from Consumer, under Paragraph 11(b)(1)--Timing; 
Contents, paragraph 7. would be added;
    n. Under Section 205.11--Procedures for Resolving Errors, under 
11(c) Time Limits and Extent of Investigation, under Paragraph 
11(c)(4)--Investigation, paragraph 5. would be added; and
    o. Under Section 205.16--Disclosures at Automated Teller Machines, 
under 16(b) General, under Paragraph 16(b)(1), paragraph 1. would be 
revised.

Supplement I to Part 205--Official Staff Interpretations

* * * * *

Section 205.2--Definitions

2(b) Consumer Asset Account

* * * * *
    [rtrif]2. One-time EFT of salary-related payments. The term 
payroll card account does not include a card used for a one-time EFT 
of a salary-related payment, such as a bonus, or a card used solely 
to disburse non-salary-related payments, such as a petty cash or a 
travel per diem card. To the extent that one-time EFTs of salary-
related payments and any other EFTs are transferred to or from a 
payroll card account, these transfers would be covered by the act 
and regulation, even if the particular transfer itself does not 
represent wages, salary, or other employee compensation.[ltrif]
    [2.] [rtrif]3.[ltrif] * * *
* * * * *

Section 205.3--Coverage

* * * * *

3(b) Electronic Fund Transfer

* * * * *
    [3. Authorization of one-time EFT initiated using MICR encoding 
on a check. A consumer authorizes a one-time EFT (in providing a 
check to a merchant or other payee for the MICR encoding), where the 
consumer receives notice that the transaction will be processed as 
an EFT and completes the transaction. Examples of notice include, 
but are not limited to, signage at POS and written statements.]
    [rtrif]3. NSF fees. If an EFT or a check is returned unpaid due 
to insufficient funds in a consumer s account, an EFT from the 
consumer s account to pay a NSF fee charged is covered by Regulation 
E and, therefore, must be authorized by the consumer.[ltrif]
    [rtrif]Paragraph 3(b)(2)--Electronic Fund Transfer Using 
Information From a Check.
    1. Authorization of one-time EFT initiated using MICR encoding 
on a check. A consumer authorizes a one-time EFT (in providing a 
check to a merchant or other payee for the MICR encoding, that is, 
the routing number of the financial institution, the consumer's 
account number and the serial number), where the consumer receives 
notice that the transaction will be processed as an EFT and goes 
forward with the transaction. These transactions are not transfers 
originated by check. Examples of notice include, but are not limited 
to, signage at POS and individual written statements provided to 
consumers. (See model clauses in Appendix A-6.)
    2. Authorization to process a transaction as an EFT or as a 
check. If a payee obtains a consumer's authorization to use a check 
solely as a source document to initiate an EFT, the payee cannot 
process the transaction as a check. In order to process the 
transaction as an EFT or alternatively as a check, the payee must 
obtain the consumer's clear authorization to do so. A payee may 
specify the circumstances under which a check may not be converted 
to an EFT. (See model clauses in Appendix A-6.)
    3. When checks are returned at POS. A payee initiating an EFT 
that returns a consumer's check to the consumer at POS need not 
notify the consumer that the check will not be returned by the 
consumer's financial institution.
    4. Multiple payments/multiple consumers. If a merchant or other 
payee will use information from a consumer's check to initiate an 
EFT from the consumer's account, notice to a consumer holding the 
account that a check provided as payment during a single billing 
cycle or after receiving an invoice will be processed as a one-time 
EFT constitutes notice for all checks provided for the billing cycle 
or invoice--whether from the consumer or someone else.[ltrif]
* * * * *

3(c) Exclusions From Coverage

Paragraph 3(c)(1)--Checks

    1. Re-presented checks. The electronic re-presentment of a 
returned check is not covered by Regulation E because the 
transaction originated by check. Regulation E does apply, however, 
to any fee authorized by the consumer to be debited electronically 
from the consumer's account because the check was returned for 
insufficient funds. Authorization occurs where the consumer has 
received notice that a fee imposed for returned checks will be 
debited electronically from the consumer's account[.] [rtrif]and 
goes forward with the transaction.[ltrif]
* * * * *

Section 205.5--Issuance of Access Devices

* * * * *

5(a) Solicited Issuance

* * * * *

Paragraph 5(a)(2)

    1. One-for-one rule. In issuing a renewal or substitute access 
device, [a financial institution may not provide additional 
devices.] [rtrif]only one renewal or substitute device may replace a 
previously issued device.[ltrif] For example, only one new card and 
PIN may replace a card and PIN previously issued. [rtrif]A financial 
institution, however, may provide additional devices at the time it 
issues the renewal or substitute access device, provided it complies 
with Sec.  205.5(b). (See comment 5(b)-5.)[ltrif] * * *
* * * * *

5(b) Unsolicited Issuance

* * * * *
    [rtrif]5. Additional access devices in a renewal or 
substitution. This regulation does not prohibit a financial 
institution from replacing an accepted access device with more than 
one access device during the renewal or substitution of a previously 
issued device, provided that any additional access device is not 
validated at the time it is issued, and the institution complies 
with the other requirements of Sec.  205.5(b).[ltrif]
* * * * *

Section 205.7--Initial Disclosures

7(a) Timing of Disclosures

    1. Early disclosures. Disclosures given by a financial 
institution earlier than the regulation requires (for example, when 
the consumer opens a checking account) need not be repeated when the 
consumer later enters into an agreement with a third party to 
initiate preauthorized transfers to or from the consumer's account, 
unless the terms and conditions differ from those that the 
institution previously disclosed. [rtrif]The same applies with 
regard to disclosures about one-time EFTs from a consumer s account 
initiated using information from the consumer's check.[ltrif] On the 
other hand, if an agreement is directly between the consumer and the 
account-holding institution, disclosures must be given in close 
proximity to the event requiring disclosure, for example, when the 
consumer contracts for a new service.
* * * * *
    [4. Addition of EFT services. If an EFT service is added to a 
consumer's account and is subject to terms and conditions different 
from those described in the initial disclosures, disclosures for the 
new service are required. The disclosures must be provided when the 
consumer contracts for the new service or before the first EFT is 
made using the new service.]
* * * * *

7(b) Content of Disclosures

* * * * *

Paragraph 7(b)(4)--Types of Transfers; Limitations

* * * * *
    [rtrif]4. One-time EFTs initiated using information from a 
check. Financial institutions are required to list one-time EFTs

[[Page 56011]]

initiated using information from a consumer's check among the types 
of transfers that a consumer can make. (See Appendix A-2.)[ltrif]
* * * * *

7(c) Addition of Electronic Fund Transfer Services

    [rtrif]1. Addition of electronic check conversion services. One-
time EFTs initiated using information from a consumer s check are a 
new type of transfer requiring new disclosures, as applicable. (See 
Appendix A-2.)[ltrif]
* * * * *

Section 205.10--Preauthorized Transfers

* * * * *

10(b) Written Authorization for Preauthorized Transfers From 
Consumer's Account

* * * * *
    3. Written authorization for preauthorized transfers. The 
requirement that preauthorized EFTs be authorized by the consumer 
``only by a writing'' cannot be met by a payee's signing a written 
authorization on the consumer's behalf with only an oral 
authorization from the consumer.[A tape recording of a telephone 
conversation with a consumer who agrees to preauthorized debits also 
does not constitute written authorization for purposes of this 
provision.]
* * * * *
    7. Bona fide error. Consumers sometimes authorize third-party 
payees, by telephone or on-line, to submit recurring charges against 
a credit card account. If the consumer indicates use of a credit 
card account when in fact a debit card is being used, the payee does 
not violate the requirement to obtain a written authorization if the 
failure to obtain written authorization was not intentional and 
resulted from a bona fide error, and if the payee maintains 
procedures reasonably adapted to avoid any such error. 
[rtrif]Procedures reasonably adapted to avoid error will depend upon 
the circumstances. Generally, requesting the consumer to specify 
whether the card to be used for the authorization is a debit card or 
is a credit card, using those terms, is a reasonable procedure. 
Where the consumer has indicated that the card is a credit card (or 
that the card is not a debit card), however, the payee may rely on 
the consumer's assertion without seeking further information about 
the type of card.[ltrif] If the payee is unable to determine, at the 
time of the authorization, whether a credit or debit card number is 
involved, and later finds that the card used is a debit card 
[rtrif](for example, because the consumer brings the matter to the 
payee's attention)[ltrif], the payee must obtain a written and 
signed or (where appropriate) a similarly authenticated 
authorization as soon as reasonably possible, or cease debiting the 
consumer's account.

10(c) Consumer's Right To Stop Payment

* * * * *
    2. Revocation of authorization. Once a financial institution has 
been notified that the consumer's authorization is no longer valid, 
it must block all future payments for the particular debit 
transmitted by the designated payee-originator. [rtrif](However, 
refer to comment 10(c)-3.)[ltrif] The institution may not wait for 
the payee-originator to terminate the automatic debits. The 
institution may confirm that the consumer has informed the payee-
originator of the revocation (for example, by requiring a copy of 
the consumer's revocation as written confirmation to be provided 
within 14 days of an oral notification). If the institution does not 
receive the required written confirmation within the 14-day period, 
it may honor subsequent debits to the account.
    [rtrif]3. Alternative procedure for real-time processing. If an 
institution does not have the capability to block a preauthorized 
debit from being posted to the consumer's account-as in the case of 
a preauthorized debit made through a debit card network or other 
real-time system, for example `` the institution may instead comply 
with the stop-payment requirements by using a third party to block 
the transfer(s), as long as the recurring debits are in fact 
stopped. If in a particular instance, however, the debit is not 
stopped, the consumer's institution would not be in compliance with 
Regulation E in that instance.[ltrif]

10(d) Notice of Transfers Varying in Amount

* * * * *

Paragraph 10(d)(2)--Range

* * * * *
    [rtrif]2. Transfers to an account of the consumer held at 
another institution. A financial institution that elects to offer 
the consumer a specified range for debits to an account of the 
consumer need not obtain the consumer's consent to provide the 
specified range in lieu of the notice of transfers varying in amount 
if the funds are transferred and credited to an account of the 
consumer held at another financial institution. The range, however, 
must be an acceptable range that could be anticipated by the 
consumer, and the institution must notify the consumer of the 
range.[ltrif]
* * * * *
Section 205.11--Procedures for Resolving Errors
* * * * *

11(b) Notice of Error From Consumer

Paragraph 11(b)(1)--Timing; Contents

* * * * *
    [rtrif]7. Effect of late notice. An institution is not required 
to comply with the requirements of this section for any notice of 
error from the consumer that is received by the institution later 
than 60 days from the date on which the periodic statement first 
reflecting the error is sent. Where the consumer's assertion of 
error involves an unauthorized EFT, however, the institution must 
comply with Sec.  205.6 before it may impose any liability on the 
consumer.[ltrif]
* * * * *

11(c) Time Limits and Extent of Investigation

* * * * *

Paragraph 11(c)(4) Investigation

* * * * *
    [rtrif]5. No EFT agreement. When there is no agreement between 
the institution and the third party for the type of EFT involved, 
the financial institution must review all information within the 
institution s own records relevant to resolving the consumer's 
particular claim. For example, a financial institution may not limit 
its investigation to the payment instructions where additional 
information within its own records could be dispositive on a 
consumer's claim.[ltrif]
* * * * *
Section 205.16--Disclosures at Automated Teller Machines

16(b) General

Paragraph 16(b)(1)

    1. Specific notices. An ATM operator that imposes a fee for a 
specific type of transaction such as [rtrif]for[ltrif] a cash 
withdrawal, but not [rtrif]for[ltrif] a balance inquiry, [rtrif]or 
imposes a fee only on some customers, such as those using cards 
issued by institutions other than the ATM operator,[ltrif] may 
provide a general [statement] [rtrif]notice[ltrif] on or at the ATM 
machine[ltrif] that a fee [will] [rtrif]may[ltrif] be imposed for 
providing EFT services or may specify the type of EFT[rtrif] or 
consumers[ltrif] for which a fee is imposed.[rtrif] If, however, a 
fee will be imposed in all instances, the notice must state that a 
fee will be imposed.[ltrif]
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, September 13, 2004.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 04-20939 Filed 9-16-04; 8:45 am]
BILLING CODE 6210-01-P