[Federal Register Volume 70, Number 164 (Thursday, August 25, 2005)]
[Proposed Rules]
[Pages 49891-49894]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-16801]


=======================================================================
-----------------------------------------------------------------------

FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R-1234]


Electronic Fund Transfers

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule; official staff interpretation.

-----------------------------------------------------------------------

SUMMARY: The Board is publishing for comment a proposal to amend 
Regulation E, which implements the Electronic Fund Transfer Act (EFTA). 
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.
    The proposed revisions would clarify the disclosure obligations of 
automated teller machine (ATM) operators with respect to fees imposed 
on a consumer for initiating an electronic fund transfer or a balance 
inquiry at an ATM. The Board is withdrawing previously proposed 
revisions to the Regulation E staff commentary that would have 
addressed this issue.

DATES: Comments must be received on or before October 7, 2005.

ADDRESSES: You may submit comments, identified by Docket No. R-1234, by 
any of the following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected]. Include docket 
number in the subject line of the message.
     FAX: 202/452-3819 or 202/452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

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 or Act) (15 U.S.C. 1693 et 
seq.), enacted in 1978, establishes the rights, liabilities, and 
responsibilities of participants in electronic fund transfer (EFT) 
systems. The Board's Regulation E (12 CFR part 205) implements the 
EFTA. 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.
    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

    Section 205.16 provides that an ATM operator that imposes a fee on 
a consumer for initiating an EFT or a balance inquiry must post notices 
at ATMs that a fee will be imposed. Section 205.16(b) would be revised 
to clarify the operation of the ATM signage rule when fees are not 
imposed by the ATM operator on all consumers. The revised language 
specifically clarifies the intent of the rule that ATM operators may 
provide a notice that a fee may be imposed if there are circumstances 
in which an ATM fee will not be charged for a particular transaction, 
such as where the card has been issued by a foreign bank or the card 
issuer has entered into a contractual relationship with the ATM 
operator regarding surcharges.
    Section 205.16 does not require that any sign be posted if no fee 
is charged to the consumer by the ATM operator. The rule is intended to 
allow consumers to identify immediately ATMs that generally charge a 
fee for use. It is not intended to represent a complete disclosure to 
the consumer regarding the fees associated with the particular type of 
transaction the consumer seeks to conduct. Rather, a more detailed

[[Page 49892]]

disclosure of whether in fact a fee will be charged for the type of 
transaction contemplated by the consumer and the amount of the fee is 
required to be made either on the ATM screen or on an ATM receipt 
before the transaction is completed. See Sec.  205.16(c).

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

Section 205.16 Disclosures at Automated Teller Machines

    Under section 904(d) of the EFTA, as amended by the Gramm-Leach-
Bliley Act of 1999 (GLB Act), an ATM operator that imposes a fee on any 
consumer for providing EFT services is required to provide notice of 
the fee to the consumer in a prominent and conspicuous location on or 
at the ATM on which the EFT is initiated.\1\ An ATM operator is any 
person who operates an ATM at which consumers initiate an EFT or a 
balance inquiry, and that does not hold the account to or from which 
the transfer is made, or about which an inquiry is made. See EFTA 
904(d)(3)(D)(i); Sec.  205.16(a). In addition to posting notice of the 
fee on or at the ATM, the ATM operator must also disclose that a fee 
will be imposed and the amount of the fee, either on the screen of the 
ATM or on a paper notice, before the consumer is committed to 
completing the transaction. These requirements are implemented in Sec.  
205.16 of Regulation E. See 66 FR 13409 (March 6, 2001).
---------------------------------------------------------------------------

    \1\ Pub. L. 106-102, Sec.  702, 113 Stat. 1338, 1463-64 (1999).
---------------------------------------------------------------------------

    Several large institutions have asked whether it is permissible 
under Sec.  205.16 to provide notice on the ATM that a fee ``may be'' 
charged for providing EFT services, because many ATM operators, in 
particular those owned or operated by banks, 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 of foreign banks, 
cardholders whose card issuer has entered into a special contractual 
relationship with the ATM operator with respect to surcharges, and 
persons who carry cards that are issued under electronic benefit 
transfer governmental programs. (While many financial institutions do 
not impose ATM surcharges on their own cardholders, they are not ATM 
operators with respect to those cardholders for purposes of Sec.  
205.16 because the institutions hold the cardholders' accounts.) 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 overly broad with respect 
to consumers who would not be assessed a fee for usage of the ATM.
    In September 2004, as part of an update to Regulation E, the Board 
proposed to revise comment 205.16(b)(1)-1 to clarify that 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, if 
there are circumstances in which an ATM surcharge will not be charged 
for a particular transaction. See 69 FR 55996, 56005 (September 17, 
2004). The Board's proposal acknowledged that 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 
and is not mandated by the current language in Sec.  205.16.
    Industry commenters overwhelmingly agreed with the Board's 
proposal, stating that the proposed staff commentary was consistent 
with sections 904(d)(3)(A) and (B) of the EFTA, and would help ATM 
operators more accurately disclose their surcharging practices. 
Industry commenters cited a press release issued by the original act's 
sponsor, Rep. Marge Roukema, stating that the act ``simply puts 
existing practice into law.'' \2\ According to these commenters, the 
common practice of many banks at the time of the ATM surcharge 
amendments was to state that a fee may be imposed.
---------------------------------------------------------------------------

    \2\ Banking Committee OKs Roukema ATM Fee Disclosure (March 10, 
1999), http://financialservices.house.gov/banking/31099rou.htm.
---------------------------------------------------------------------------

    Consumer groups believed that a general statement on ATM signage 
that a fee ``may'' be imposed could significantly weaken consumer 
notice, and that the current staff commentary permitting ATM operators 
to specify the type of EFTs for which a fee is imposed provides 
sufficient flexibility to address concerns about overbroad ATM signage 
disclosures. A consumer rights attorney stated that a disclosure that 
an ATM fee ``may'' be imposed is too general to be useful, and further 
asserted that the Congress intended that ATM signs must state that a 
fee will be charged whenever there is a possibility that a surcharge 
will be imposed on any consumer. This commenter believed that section 
904(d) of the EFTA did not provide a basis for ATM operators to avoid 
providing notice on ATM signage to consumers to whom a fee would be 
imposed even if some consumers would not have a fee imposed or if there 
are other transactions for which a fee would not be imposed. The 
commenter also challenged industry commenters' characterizations 
regarding common industry practice at the time the amendments were 
adopted, stating that existing practice of many ATM operators at the 
time was to post signs on the machines stating that a fee will be 
imposed for cash withdrawals.
    The Board continues to believe that a literal interpretation of the 
current rule could lead to overly broad disclosures of an ATM 
operator's surcharge practices where some consumers would not be 
assessed a fee for usage of the ATM, and that a reasonable 
interpretation of the statute and regulation would allow ATM operators 
to provide an alternative disclosure that a fee ``may'' be imposed to 
avoid potential consumer confusion. Upon further analysis and after 
consideration of the comments received, however, the Board believes it 
would be appropriate to make this clarification in the regulation 
rather than in the commentary. Therefore, the Board is withdrawing its 
proposed commentary revisions addressing this issue and is instead 
proposing to exercise its authority under section 904(a) of the EFTA to 
amend both the regulation and the commentary. A re-proposal allows the 
Board to elicit additional comments to better understand ATM disclosure 
practices, both at the time of the passage of the GLB Act and 
currently.
    As proposed, Sec.  205.16(b) would be revised to explicitly clarify 
that ATM operators may disclose in all cases that a fee will be 
imposed, or in the alternative, disclose that a fee may be imposed on 
consumers initiating an EFT or a balance inquiry if there are 
circumstances under which some consumers would not be charged for such 
services. Before an ATM operator may 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. See Sec.  205.16(e). Comment 
16(b)(1)-1 would be revised to reflect the proposed rule, and to 
clarify that ATM operators that impose an ATM surcharge in all cases 
must provide notice on the ATM signage that a fee will be charged.
    Comment is solicited on the current disclosure practices of ATM 
operators that impose surcharges on some, but not all, consumers. Under 
what types of circumstances might an ATM operator not impose a 
surcharge for providing electronic transfer services or responding to 
balance inquiries? If

[[Page 49893]]

surcharges are not imposed on all consumers, how do ATM operators 
disclose their surcharge practices? What adverse impact on consumers, 
if any, might result from a disclosure that states that an ATM 
surcharge will be imposed when the operator's practice is not to impose 
a surcharge on certain consumers? Conversely, what adverse impact on 
consumers who are charged an ATM fee, if any, might result if ATM 
signage states that a fee may be imposed? In addition, comment is 
solicited on disclosure practices of ATM operators with respect to 
surcharges at the time the GLB Act was passed.

IV. Form of Comment Letters

    Comment letters should refer to Docket No. R-1234 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 allow ATM operators flexibility 
to disclose that ATM surcharges will or may be imposed on consumers 
initiating an EFT or a balance inquiry when there are circumstances 
under which such surcharges will not be charged.
    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. ATM operators that do 
not impose ATM surcharges in all instances would be permitted to 
disclose that surcharges may be disclosed on signage appearing on ATMs. 
ATM operators that choose to make the proposed alternative disclosure 
may have to revise their signs on their ATMs.
    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 part 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 205.16(c) and in Appendix A. 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 financial institutions, including small 
businesses. Institutions are required to retain records for 24 months.
    All depository institutions, of which there are approximately 
19,300, potentially are affected by this collection of information 
because all depository institutions are potential ATM operators subject 
to Regulation E and are required to provide notice to consumers of an 
ATM surcharge, and thus are respondents for purposes of the PRA. 
However, the extent to which this collection of information affects a 
particular depository institution depends on the number of ATMs an 
institution operates.
    The proposed revision is not expected to significantly increase the 
ongoing annual burden of Regulation E; rather this would be a one-time 
burden increase for those institutions that, although not required, 
decide to revise their ATM signage disclosures. For purposes of the 
PRA, the Federal Reserve estimates that it would take depository 
institutions, on average, 8 hours (one business day) to revise and 
update ATM signage; therefore, the Federal Reserve estimates that the 
total annual burden for all depository institutions for this 
requirement would be 154,400 hours. With respect to the 1,289 Federal 
Reserve-regulated institutions which must comply with Regulation E, it 
is estimated that the total annual burden for this requirement would be 
10,312 hours.
    The preceding estimate represents 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.
    Because the records would be maintained at state member banks and 
the notices are not provided to the Federal Reserve, no issue of

[[Page 49894]]

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 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 
Michelle Long, 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 205.16 would be amended by republishing paragraph (b) 
and revising paragraph (c)(1) as follows:


Sec.  205.16  Disclosures on automated teller machines.

* * * * *
    (b) General. An automated teller machine operator that imposes a 
fee on a consumer for initiating an electronic fund transfer or a 
balance inquiry shall--
    (1) Provide notice that a fee will be imposed for providing 
electronic fund transfer services or a balance inquiry; and
    (2) Disclose the amount of the fee.
    (c) Notice requirement. An automated teller machine operator must 
comply with the following:
    (1) On the machine. Post [lsqbb]the notice required by paragraph 
(b)(1) of this section[rsqbb] in a prominent and conspicuous location 
on or at the automated teller machine [rtrif] a notice that:
    (i) A fee will be imposed for providing electronic fund transfer 
services or a balance inquiry; or
    (ii) A fee may be imposed for providing electronic fund transfer 
services or a balance inquiry, but this notice may be substituted only 
if there are circumstances under which a fee will not be imposed for 
such services[ltrif]; and
    (2) Screen or paper notice. Provide the notice required by 
paragraphs (b)(1) and (b)(2) of this section either by showing it on 
the screen of the automated teller machine or by providing it on paper, 
before the consumer is committed to paying a fee.
    2. In Supplement I to part 205, 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 205.16--Disclosures on Automated Teller Machines

    1. Specific notices. An ATM operator that imposes a fee for a 
specific type of transaction[rtrif]--[ltrif] such as [rtrif]for[ltrif] 
a cash withdrawal, but not [rtrif] for [ltrif]a balance inquiry, 
[rtrif] or for some cash withdrawals (such as where the card was issued 
by a foreign bank or by a card issuer that has entered into a special 
contractual relationship with the ATM operator regarding surcharges), 
but not for others--[ltrif] may provide a general 
[lsqbb]statement[rsqbb] [rtrif] notice [ltrif] on or at the ATM machine 
[ltrif] that a fee will [rtrif] or may [ltrif] be imposed for providing 
EFT services or may specify the type of EFT 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, August 19, 2005.
Robert deV. Frierson,
Deputy Secretary of the Board.
[FR Doc. 05-16801 Filed 8-24-05; 8:45 am]
BILLING CODE 6210-01-P