[Federal Register Volume 72, Number 82 (Monday, April 30, 2007)]
[Proposed Rules]
[Pages 21131-21135]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-7876]


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FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R-1282]


Electronic Fund Transfer

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule; request for comments.

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SUMMARY: The Board is proposing to amend Regulation E, which implements 
the Electronic Fund Transfer Act, to withdraw the interim final rules 
for the electronic delivery of disclosures issued March 30, 2001. The 
interim final rules address the timing and delivery of electronic 
disclosures, consistent with the requirements of the Electronic 
Signatures in Global and National Commerce Act. Compliance with the 
2001 interim final rules is not mandatory. Thus, removing the interim 
rules from the Code of Federal Regulations would reduce confusion about 
the status of the provisions and simplify the regulation. Similar rules 
are being proposed under other consumer fair lending and financial 
services regulations administered by the Board.

DATES: Comments must be received on or before June 29, 2007.

ADDRESSES: You may submit comments, identified by Docket No. R-1282, 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 the 
docket number in the subject line of the message.
     FAX: (202) 452-3819 or (202) 452-3102.

[[Page 21132]]

     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: John C. Wood or David A. Stein, 
Counsels, Division of Consumer and Community Affairs, 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 purpose of the Electronic Fund Transfer Act (EFTA), 15 U.S.C. 
1693 et seq., is to provide a basic framework establishing the rights, 
liabilities, and responsibilities of participants in electronic fund 
transfer (EFT) systems, and to provide individual consumer rights. The 
Board's Regulation E (12 CFR part 205) implements the EFTA. Examples of 
types of transfers covered by the EFTA and Regulation E 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 EFTA and Regulation E 
require financial institutions to provide certain disclosures to 
consumers in writing, including but not limited to initial disclosures 
of terms and conditions of an EFT service, documentation of EFTs by 
means of terminal receipts and periodic account activity statements, 
and change in terms notices. Certain persons other than financial 
institutions are also required to comply with specific disclosure 
provisions of Regulation E.

Board Proposals Regarding Electronic Disclosures

    On May 2, 1996, the Board proposed to amend Regulation E 
(Electronic Fund Transfers) to permit financial institutions to provide 
disclosures by sending them electronically (61 FR 19696). Based on 
comments received, in 1998 the Board published an interim rule 
permitting the electronic delivery of disclosures under Regulation E 
(63 FR 14528, March 25, 1998) and similar proposals under Regulations B 
(Equal Credit Opportunity), M (Consumer Leasing), Z (Truth in Lending), 
and DD (Truth in Savings) (63 FR 14552, 14538, 14548, and 14533, 
respectively, March 25, 1998).
    Based on comments received on the 1998 proposals, in September 1999 
the Board published revised proposals under Regulations B, E, M, Z, and 
DD (64 FR 49688, 49699, 49713, 49722 and 49740, respectively, September 
14, 1999). At the same time, the Board published an interim rule under 
Regulation DD allowing depository institutions to deliver disclosures 
on periodic statements in electronic form if the consumer agreed (64 FR 
49846, September 14, 1999). While these rulemakings were pending, 
Federal legislation was enacted addressing the use of electronic 
documents and records, including consumer disclosures.

Federal Legislation Addressing Electronic Commerce

    On June 30, 2000, the President signed into law the Electronic 
Signatures in Global and National Commerce Act (the E-Sign Act) (15 
U.S.C. 7001 et seq.). The E-Sign Act provides that electronic documents 
and electronic signatures have the same validity as paper documents and 
handwritten signatures. The E-Sign Act contains special rules for the 
use of electronic disclosures in consumer transactions. Under the E-
Sign Act, consumer disclosures required by other laws or regulations to 
be provided or made available in writing may be provided or made 
available, as applicable, in electronic form if the consumer 
affirmatively consents after receiving a notice that contains certain 
information specified in the statute, and if certain other conditions 
are met.
    The E-Sign Act, including the special consumer notice provisions, 
became effective October 1, 2000, and did not require implementing 
regulations. Thus, financial institutions are currently permitted to 
provide in electronic form any disclosures that are required to be 
provided or made available to the consumer in writing under Regulations 
B, E, M, Z and DD if the consumer affirmatively consents to receipt of 
electronic disclosures in the manner required by section 101(c) of the 
E-Sign Act.

The Interim Final Rules

    On April 4, 2001, the Board published for comment interim final 
rules to establish uniform standards for the electronic delivery of 
disclosures required under Regulation E (66 FR 17,786). Similar interim 
final rules for Regulations B, M, Z, and DD were published on March 30, 
2001 (66 FR 17322 (M) and 17329 (Z)), and April 4, 2001 (66 FR 17779 
(B) and 17795 (DD)). The interim final rules incorporated most of the 
provisions that were part of the 1999 proposals.
    Each of the interim final rules incorporated, but did not 
interpret, the requirements of the E-Sign Act. Financial institutions 
and other persons, as applicable, generally were required to obtain 
consumers' affirmative consent to provide disclosures electronically, 
consistent with the requirements of the E-Sign Act.
    The 2001 interim final rule for Regulation E established uniform 
requirements for the timing and delivery of electronic disclosures. 
Under the interim rule, disclosures could be sent to an e-mail address 
designated by the consumer, or could be made available at another 
location, such as an Internet Web site. If the disclosures were not 
sent by e-mail, financial institutions would have to provide a notice 
to consumers alerting them to the availability of the disclosures. 
Disclosures posted on a Web site would have to be available for at 
least 90 days to allow consumers adequate time to access and retain the 
information. Financial institutions also would be required to make a 
good faith attempt to redeliver electronic disclosures that were 
returned undelivered, using the address information available in their 
files. Similar provisions were included in the interim final rules 
adopted under Regulations B, M, Z, and DD.
    Commenters on the interim final rules identified significant 
operational and security concerns with respect to the requirement to 
send the disclosure or an alert notice to an e-mail address designated 
by the consumer. For example, commenters stated that some consumers do 
not have e-mail addresses or may not want personal financial 
information sent to them by e-mail. The commenters also opposed the 
requirement for redelivery in the event a disclosure was returned 
undelivered. In addition, many commenters asserted that making the 
disclosures available for at least 90 days, as required by the interim 
final rule, would increase costs and would not be necessary for 
consumer protection.
    In August 2001, in response to comments received, the Board lifted 
the previously established October 1, 2001 mandatory compliance date 
for all of the interim final rules. (66 FR 41439, August 8, 2001.) 
Thus, institutions are

[[Page 21133]]

not required to comply with the interim final rules. Since that time, 
the Board has not taken further action with respect to the interim 
final rules on electronic disclosures in order to allow electronic 
commerce, including electronic disclosure practices, to continue to 
develop without regulatory intervention and to allow the Board to 
gather further information about such practices.

II. The Proposed Rules

    The Board is proposing to amend Regulation E and the official staff 
commentary by (1) withdrawing portions of the 2001 interim final rule 
on electronic disclosures that restate or cross-reference provisions of 
the E-Sign Act and accordingly are unnecessary; (2) withdrawing other 
portions of the interim final rule that the Board now believes may 
impose undue burdens on electronic banking and commerce and may be 
unnecessary for consumer protection; and (3) adding certain provisions 
to provide guidance regarding electronic disclosures. (Similar 
amendments are also being proposed by the Board, in today's issue of 
the Federal Register, under Regulations B, M, Z, and DD.)
    Because compliance with the 2001 interim final rules is not 
mandatory, removing this material from the Code of Federal Regulations 
would reduce confusion about the status of the electronic disclosure 
provisions and simplify the regulation. Certain provisions in the 
interim final rules, including provisions addressing foreign language 
disclosures, were not affected by the lifting of the mandatory 
compliance date and accordingly are now in final form; these provisions 
would not be deleted.
    Since 2001, industry and consumers have gained experience with 
electronic disclosures. During that period, the Board has received no 
indication that consumers have been harmed by the fact that compliance 
with the interim final rules is not mandatory. The Board has also 
reconsidered certain aspects of the interim final rules, such as 
sending disclosures by e-mail, in light of concerns about data 
security, identity theft, and ``phishing'' (i.e., prompting consumers 
to reveal confidential personal or financial information through 
fraudulent e-mail requests that appear to originate from a financial 
institution, government agency, or other trusted entity) that have 
become more pronounced since 2001. The Board is proposing to eliminate 
certain aspects of the 2001 interim final rule, such as provisions 
regarding the availability and retention of electronic disclosures, as 
unnecessary in light of current industry practices.
    Finally, the Board is proposing to delete, as unnecessary, certain 
provisions that restate or cross-reference the E-Sign Act's general 
rules regarding electronic disclosures (including the consumer consent 
provisions) and electronic signatures because the E-Sign Act is a self-
effectuating statute. The Board is issuing the proposed rules pursuant 
to its authority under section 904 of the EFTA to prescribe rules to 
carry out the purposes of the Act. The proposed revisions to Regulation 
E and the official staff commentary are described more fully below in 
the Section-by-Section Analysis.
    The Board solicits comment on all aspects of this proposal. 
Specifically, the Board seeks comment on the appropriateness of 
eliminating certain provisions contained in the 2001 interim final 
rule.

III. Section-by-Section Analysis

12 CFR Part 205 (Regulation E)

Section 205.4 General Disclosure Requirements; Jointly Offered Services

    Section 205.4 contains the general disclosure requirements under 
Regulation E, including provisions relating to the form of disclosure. 
Section 205.4(a)(1) generally requires financial institutions to 
provide disclosures in writing and in a form that the consumer may 
keep. The Board proposes to revise Sec.  205.4(a)(1) to clarify that 
institutions may provide disclosures to consumers in electronic form, 
subject to compliance with the consumer consent and other applicable 
provisions of the E-Sign Act. Some institutions may provide disclosures 
to consumers both in paper and electronic form and rely on the paper 
form of the disclosures to satisfy their compliance obligations. For 
those institutions, the duplicate electronic form of the disclosures 
may be provided to consumers without regard to the consumer consent or 
other provisions of the E-Sign Act because the electronic form of the 
disclosure is not used to satisfy the regulation's disclosure 
requirements.
    Section 205.4(c) in the 2001 interim final rule refers to Sec.  
205.17, the section of the interim final rule setting forth general 
rules for electronic disclosures. Because the Board is proposing to 
delete Sec.  205.17, as discussed further below, the Board also 
proposes to delete Sec.  205.4(c). Sections 205.4(d) (multiple accounts 
and account holders) and (e) (services offered jointly) would be 
renumbered as Sec. Sec.  205.4(c) and (d) respectively.

Section 205.17 Requirements for Electronic Communication

    Section 205.17 was added by the 2001 interim final rule to address 
the general requirements for electronic communications. The Board 
proposes to delete Sec.  205.17 from Regulation E and the accompanying 
sections of the staff commentary, reserving that section for future 
use.
    In the interim rule, Sec.  205.17(a) defines the term ``electronic 
communication'' to mean a message transmitted electronically that can 
be displayed on equipment as visual text, such as a message displayed 
on a personal computer monitor screen. The deletion of Sec.  205.17(a) 
would not change applicable legal requirements under the E-Sign Act.
    Section 205.17(b) incorporates by reference the provisions of the 
E-Sign Act, such as the provision allowing disclosures to be provided 
in electronic form. The deletion of this provision would have no impact 
on the general applicability of the E-Sign Act to Regulation E 
disclosures. Section 205.17(e) was added in the 2001 interim final rule 
to clarify that persons, other than financial institutions, that are 
required to comply with the regulation may use electronic disclosures. 
The Board is proposing to delete this provision as unnecessary because 
the E-Sign Act is a self-effectuating statute and permits any person to 
use electronic records subject to the conditions set forth in the Act.
    Sections 205.17(c) and (d) address specific timing and delivery 
requirements for electronic disclosures under Regulation E, such as the 
requirement to send disclosures to a consumer's e-mail address (or post 
the disclosures on a website and send a notice alerting the consumer to 
the disclosures). The Board no longer believes that these additional 
provisions are necessary or appropriate. Electronic disclosures have 
evolved since 2001, as industry and consumers have gained experience 
with them. Although many institutions offer e-mail alert notices to 
consumers in connection with online services, some consumers may choose 
not to receive notifications by e-mail and the Board sees no reason to 
require e-mail alert notices in all cases. In addition, the Board has 
reconsidered certain aspects of the interim final rules, such as 
sending disclosures by e-mail, in light of concerns about data 
security, identity theft, and phishing that have become more pronounced 
since 2001.
    With regard to the requirement to attempt to redeliver returned 
electronic disclosures, as the commenters noted,

[[Page 21134]]

institutions would be required to search their files for an additional 
e-mail address to use, and might be required to use a postal mail 
address for redelivery if no additional e-mail address was available. 
The Board believes that both requirements would likely be unduly 
burdensome. In addition, the concerns that have been raised about the 
requirement to use e-mail for the initial delivery of a disclosure or 
notice apply equally to the use of e-mail for an attempted redelivery.
    Under the proposed rule, the Board would not require institutions 
to maintain disclosures posted on a web site for at least 90 days as 
provided in the 2001 interim final rule for several reasons. First, 
based on a review of industry practices, it appears that many 
institutions maintain disclosures posted on an Internet Web site for 
several months, and, in a number of cases, for more than a year. For 
example, it appears that institutions that offer online periodic 
statements to consumers typically make those statements available 
without charge for six months or longer in electronic form. This 
practice has developed even though Regulation E does not currently 
require institutions to maintain disclosures for any specific period of 
time. Second, the Board believes that an appropriate time period 
consumers may want electronic disclosures to be available may vary 
depending upon the type of disclosure, and is reluctant to establish 
specific time periods depending on the disclosures. Nevertheless, while 
the Board is not proposing to require disclosures to be maintained on 
an Internet Web site for any specific time period, the general 
requirements of Regulation E continue to apply to electronic 
disclosures, such as the requirement to provide disclosures to 
consumers at certain specified times and in a form that the consumer 
may keep. Although these general requirements apply to electronic 
disclosures, the Board does not believe that the 90-day time period set 
out in Sec.  205.17(c) of the 2001 interim final rule is needed to 
ensure that institutions satisfy these requirements when they provide 
electronic disclosures. The Board, however, will monitor institutions' 
electronic disclosure practices with regard to the ability of consumers 
to retain Regulation E disclosures and will consider further regulatory 
action if it appears necessary.
    The official staff commentary to Sec.  205.17 of the interim final 
rule provides guidance on the provisions set forth in Sec.  205.17 such 
as delivery of disclosures or alert notices by e-mail, redelivery if 
disclosures or a notice is returned undelivered, and retention of 
disclosures on a Web site for 90 days. As noted above, because the 
Board is proposing to delete Sec.  205.17 of the regulation, the Board 
also proposes to delete the accompanying provisions of the official 
staff commentary.

IV. Solicitation of Comments Regarding the Use of ``Plain Language''

    Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the 
Board to use ``plain language'' in all proposed and final rules 
published after January 1, 2000. The Board invites comments on whether 
the proposed rules are clearly stated and effectively organized, and 
how the Board might make the proposed text easier to understand.

V. Initial Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
generally requires an agency to perform an assessment of the impact a 
rule is expected to have on small entities.
    However, under section 605(b) of the RFA, 5 U.S.C. 605(b), the 
regulatory flexibility analysis otherwise required under section 604 of 
the RFA is not required if an agency certifies, along with a statement 
providing the factual basis for such certification, that the rule will 
not have a significant economic impact on a substantial number of small 
entities. Based on its analysis and for the reasons stated below, the 
Board believes that this proposed rule will not have a significant 
economic impact on a substantial number of small entities. 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 withdraw the 2001 interim final 
rule on electronic communication. The Board is also proposing to 
clarify that Regulation E disclosures may be provided to consumers in 
electronic form in accordance with the consumer consent and other 
applicable provisions of the E-Sign Act.
    The EFTA was enacted to provide a basic framework establishing the 
rights, liabilities, and responsibilities of participants in electronic 
fund transfer (EFT) systems. The primary purpose of the act is the 
provision of individual consumer rights. 15 U.S.C. 1593. The EFTA 
authorizes the Board to prescribe regulations to carry out the purposes 
of the statute. 15 U.S.C. 1693b. 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 Board believes 
that the 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 proposed revisions 
would delete provisions of Regulation E that are not in effect on a 
mandatory basis and, accordingly, the proposed revisions would not 
change the legal requirements applicable to any financial institutions, 
regardless of their size. Therefore, the proposed revisions would not 
have a significant economic impact on small entities. The number of 
small entities affected by this proposal is unknown.
    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 
solicits comment on any significant alternatives that may provide 
additional ways to reduce regulatory burden associated with this 
proposed rule.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Ch. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the rule 
under the authority delegated to the Board by the Office of Management 
and Budget (OMB). The collection of information that is required by 
this proposed rule is found in 12 CFR part 205. 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.
    Section 904 of the Electronic Fund Transfer Act (EFTA) (15 U.S.C. 
Sec.  1693b) authorizes the Board to issue regulations to carry out the 
purposes of the Act. This information collection is mandatory. Since 
the Federal Reserve does not collect any information, no issue of 
confidentiality normally arises. However, the information, if made 
available to the Federal Reserve, may be protected from disclosure 
under exemptions (b)(4), (6), and (8) of the Freedom of Information Act 
(5 U.S.C. 552 (b)(4), (6), and (8)). The disclosures required by the 
rule and information about error allegations and their resolution are 
confidential between the institution and the consumer.

[[Page 21135]]

    The EFTA and Regulation E are designed to ensure adequate 
disclosure of basic terms, costs, and rights relating to electronic 
fund transfer (EFT) services provided to consumers. Institutions 
offering EFT services must disclose to consumers certain information, 
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. 
These disclosures are triggered by certain events specified in the EFTA 
and Regulation E. Institutions are required to retain evidence of 
compliance for not less than two years from the date that disclosures 
are required to be made or action is required to be taken; however, the 
regulation does not specify the types of records that must be retained. 
To ease institutions' burden and cost of complying with the disclosure 
requirements of Regulation E (particularly for small entities), the 
Federal Reserve publishes model forms and disclosure clauses. 
Regulation E applies to all financial institutions and merchants and 
payees that engage in ECK transactions. The Board has determined that 
no new requirements or revisions to existing requirements are contained 
in this proposed rule.
    Comments are invited on: a. Whether the 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 
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 
collections of information should be sent to Secretary, Board of 
Governors of the Federal Reserve System, Washington, DC 20551, with 
copies of such comments to be sent to the Office of Management and 
Budget, Paperwork Reduction Project (7100-0202), Washington, DC 20503.

List of Subjects in 12 CFR Part 205

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

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
changes to Regulation E. New language is shown inside bold-faced 
arrows, while language that would be removed is set off with bold-faced 
brackets.
    For the reasons set forth in the preamble, the Board proposes to 
amend Regulation E, 12 CFR part 205, as set forth below:

PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)

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

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

    2. Section 205.4 would be amended by revising paragraph (a)(1), 
removing paragraph (c), and redesignating paragraph (d) as paragraph 
(c), and paragraph (e) as paragraph (d), respectively, as follows:


Sec.  205.4  General disclosure requirements; jointly offered services.

    (a)(1) Form of disclosures. Disclosures required under this part 
shall be clear and readily understandable, in writing, and in a form 
the consumer may keep. [rtrif]The disclosures required by this part may 
be provided to the consumer in electronic form, subject to compliance 
with the consumer consent and other applicable provisions of the 
Electronic Signatures in Global and National Commerce Act (E-Sign 
Act)(15 U.S.C. 7001 et seq.).[ltrif] A financial institution may use 
commonly accepted or readily understandable abbreviations in complying 
with the disclosure requirements of this part.
* * * * *
    [lsqbb](c) Electronic communication. For rules governing the 
electronic delivery of disclosures, including the definition of 
electronic communication, see Sec.  205.17.[rsqbb]
    [lsqbb](d)[rsqbb] [rtrif](c)[ltrif] Multiple accounts and account 
holders--(1) Multiple accounts. A financial institution may combine the 
required disclosures into a single statement for a consumer who holds 
more than one account at the institution.
    (2) Multiple account holders. For joint accounts held by two or 
more consumers, a financial institution need provide only one set of 
required disclosures and may provide them to any of the account 
holders.
    [lsqbb](e)[rsqbb] [rtrif](d)[ltrif] Services offered jointly. 
Financial institutions that provide electronic fund transfer services 
jointly may contract among themselves to comply with the requirements 
that this part imposes on any or all of them. An institution need make 
only the disclosures required by Sec. Sec.  205.7 and 205.8 that are 
within its knowledge and within the purview of its relationship with 
the consumer for whom it holds an account.


Sec.  205.17  [Removed and Reserved]

    3. Section 205.17 would be removed and reserved.
    4. In Supplement I to Part 205, Section 205.17 would be removed and 
reserved.

    By order of the Board of Governors of the Federal Reserve 
System, April 20, 2007.
Jennifer J. Johnson,
Secretary of the Board
 [FR Doc. E7-7876 Filed 4-27-07; 8:45 am]
BILLING CODE 6210-01-P