[Federal Register Volume 72, Number 82 (Monday, April 30, 2007)]
[Proposed Rules]
[Pages 21141-21155]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-7878]


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FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-1284]


Truth in Lending

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 Z, which implements 
the Truth in Lending Act, to withdraw portions of 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 (E-Sign 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. The Board is also proposing to amend Regulation Z to 
provide that when an application, solicitation, or advertisement is 
accessed by a consumer in electronic form, certain disclosures must be 
provided to the consumer in electronic form on or with the application, 
solicitation, or advertisement, and that in these circumstances the 
consumer consent and other provisions of the E-Sign Act do not apply. 
The proposal would also implement certain provisions of the Bankruptcy 
Abuse Prevention and Consumer Protection Act of 2005. 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-1284, 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.
     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 
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 form 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 Truth in Lending Act (TILA), 15 U.S.C. 1601 et 
seq., is to promote the informed use of consumer credit by requiring 
disclosures about its terms and cost. The Board's Regulation Z (12 CFR 
part 226) implements the act. The act requires creditors to disclose 
the cost of credit as a dollar amount (the finance charge) and as an 
annual percentage rate (the APR). Uniformity in creditors' disclosures 
is intended to promote the informed use of credit and assist in 
shopping for credit. TILA requires additional disclosures for loans 
secured by consumers' homes and permits consumers to rescind certain 
transactions that involve their principal dwellings. TILA and 
Regulation Z require a number of disclosures to be provided in writing.

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 19,696). Based on 
comments received, in 1998 the Board published an interim rule 
permitting the electronic delivery of disclosures under Regulation E 
(63 FR 14,528, March 25, 1998) and proposals under Regulations B (Equal

[[Page 21142]]

Credit Opportunity), M (Consumer Leasing), Z (Truth in Lending), and DD 
(Truth in Savings) (63 FR 14,552, 14,538, 14,548, and 14,533, 
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 49,688, 49,699, 49,713, 49,722 and 49,740, 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 49,846, 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 March 30, 2001, the Board published for comment interim final 
rules to establish uniform standards for the electronic delivery of 
disclosures required under Regulation Z (66 FR 17,329). Similar interim 
final rules for Regulations B, E, M, and DD were published on March 30, 
2001 (66 FR 17,322 (M)) and April 4, 2001 (66 FR 17,779 (B), 66 FR 
17,786 (E), and 66 FR 17,795 (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. Creditors 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 Z 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, creditors 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. 
Creditors 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, 
E, M, and DD.
    Commenters on the interim final rules identified significant 
operational and information 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. Commenters also noted 
that e-mail is not a secure medium for delivering confidential 
information and that consumers' e-mail addresses frequently change. 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 41,439, August 8, 2001). 
Thus, institutions are 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 Z 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) retaining the substance of 
certain provisions of the interim final rule that provide regulatory 
relief or guidance regarding electronic disclosures. (Similar 
amendments are also being proposed by the Board, in today's issue of 
the Federal Register, under Regulations B, E, M, and DD). In addition, 
the proposal would amend the regulation to implement certain provisions 
of the Bankruptcy Abuse Prevention and Consumer Protection Act.
    Because compliance with the 2001 interim final rules is not 
mandatory, removing most portions of the interim rules from the Code of 
Federal Regulations, while finalizing other provisions, 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. The Board is also proposing to adopt certain provisions that 
are identical or similar to provisions in the 2001 interim final rules 
in order to enhance the ability of consumers to shop for credit online, 
minimize the information-gathering burdens on consumers, and provide 
guidance or eliminate a substantial burden on the use of electronic 
disclosures, as discussed further below. Finally, the Board is 
proposing to implement certain provisions of the Bankruptcy Abuse 
Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 
Stat. 23 (the ``Bankruptcy Act''), that amend TILA and relate to 
electronic disclosures.

[[Page 21143]]

    Since 2001, industry and consumers have gained considerable 
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 also 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'' (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. Finally, 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.
    The 2001 interim final rule allowed creditors to provide certain 
disclosures to consumers electronically, without regard to the consumer 
consent or other provisions of the E-Sign Act, for disclosures provided 
on or with an application or solicitation (the ``shopping 
disclosures'') or an advertisement. The Board reasoned that these 
disclosures, which would be available to the general public while 
shopping for credit, did not ``relate to a transaction,'' which is a 
prerequisite for triggering the E-Sign consumer consent provisions, and 
thus were not subject to those provisions. Some commenters on the 
interim final rules did not agree with the Board's rationale. Upon 
further consideration, the Board does not believe it is necessary to 
determine whether or not these disclosures are related to a 
transaction. This proposal does not make such determinations.
    Instead, pursuant to the Board's authority under section 105(a) of 
TILA, as well as under section 104(d) of the E-Sign Act,\1\ the Board 
is proposing to specify the circumstances under which certain 
disclosures may be provided to a consumer in electronic form, rather 
than in writing as generally required by Regulation Z, without 
obtaining the consumer's consent under section 101(c) of the E-Sign 
Act. The proposed rule would also amend various sections of Regulation 
Z, discussed in detail below, to clarify that certain disclosures must 
be provided to the consumer in electronic form on or with an 
application, solicitation, or advertisement that is accessed by the 
consumer in electronic form.
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    \1\ Section 105(a) of TILA provides that regulations prescribed 
by the Board under TILA ``may provide for such adjustments and 
exceptions * * * as in the judgment of the Board, are necessary or 
proper to effectuate the purposes of [TILA], * * * or to facilitate 
compliance [with the requirements of TILA].'' Section 104(d) of the 
E-Sign Act authorizes federal agencies to adopt exemptions for 
specified categories of disclosures from the E-Sign notice and 
consent requirements, ``if such exemption is necessary to eliminate 
a substantial burden on electronic commerce and will not increase 
the material risk of harm to consumers.'' For the reasons stated in 
this Federal Register notice, the Board believes that these criteria 
are met in the case of the application, solicitation, and 
advertising disclosures. In addition, the Board believes TILA 
section 105(a) authorizes the Board to permit institutions to 
provide disclosures electronically, rather than in paper form, 
independent of the E-Sign Act.
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    The Board continues to believe that creditors should not be 
required to obtain the consumer's consent in order to provide shopping 
or advertising disclosures to the consumer in electronic form if the 
consumer accesses an application, solicitation, or advertisement 
containing those disclosures in electronic form, such as at an Internet 
Web site. The Board believes consumers would not be harmed, and in fact 
would benefit, by having timely access to shopping and advertising 
disclosures in electronic form when they are shopping for credit online 
or viewing online credit advertising. Conversely, consumers who choose 
to apply for credit online would be unduly burdened if they had to 
consent in accordance with the E-Sign Act in order to access 
application forms that must be accompanied by disclosures. The Board 
also believes that consumers' ability to shop for credit online and 
compare the terms of various credit offers could be substantially 
diminished if consumers had to consent in accordance with the E-Sign 
Act in order to access solicitations and advertisements that must be 
accompanied by disclosures. Applying the consumer consent provisions of 
the E-Sign Act to these disclosures could impose substantial burdens on 
electronic commerce and make it more difficult for consumers to gather 
information and shop for credit.
    At the same time, the Board recognizes that consumers who shop or 
apply for credit online may not want to receive other disclosures 
electronically. Therefore, with respect to, for example, account-
opening disclosures, periodic statements, and change-in-terms notices, 
creditors would be required to provide written disclosures or obtain 
the consumer's consent in accordance with the E-Sign Act to provide 
such disclosures in electronic form.
    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 proposed revisions to Regulation Z 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 and retaining other provisions contained 
in the 2001 interim final rule.

III. Section-by-Section Analysis

12 CFR Part 226 (Regulation Z)

Subpart B Open-End Credit

Section 226.5 General Disclosure Requirements

    Section 226.5(a) prescribes the form of disclosures required for 
open-end credit plans. Section 226.5(a)(1) generally requires creditors 
to provide open-end credit disclosures in writing and in a form that 
the consumer may keep. The Board proposes to revise Sec.  226.5(a)(1) 
to clarify that creditors may provide open-end credit disclosures to 
consumers in electronic form, subject to compliance with the consumer 
consent and other applicable provisions of the E-Sign Act. Some 
creditors may provide open-end credit 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 creditors, the 
duplicate electronic form of the open-end credit 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 open-end credit 
disclosure requirements.
    Section 226.5(a)(1) would also be revised to provide that the open-
end credit disclosures required by Sec. Sec.  226.5a, 226.5b, and 
226.16 may be provided to the consumer in electronic form, under the 
circumstances set forth in those sections, without regard to the 
consumer consent or other provisions of the E-Sign Act. The Board 
believes that, for an application, solicitation, or advertisement 
accessed by the consumer in electronic form, permitting creditors to 
provide credit and charge card application and solicitation 
disclosures, application disclosures for home equity lines of credit 
(HELOCs), and open-end credit advertising disclosures in electronic 
form without regard to the consumer consent and other provisions

[[Page 21144]]

of the E-Sign Act will eliminate a potential significant burden on 
electronic commerce without increasing the risk of harm to consumers. 
This approach will facilitate shopping for credit by enabling consumers 
to receive important disclosures at the same time they access an 
application, solicitation, or advertisement without first having to 
provide consent in accordance with the requirements of the E-Sign Act. 
Requiring consumers to follow the consent procedures set forth in the 
E-Sign Act in order to access an online application, solicitation, or 
advertisement, or complete an online application is potentially 
burdensome and could discourage consumers from shopping for credit 
online. Moreover, because these consumers are viewing the application, 
solicitation, or advertisement online, there appears to be little, if 
any, risk that the consumer will be unable to view the disclosures 
online as well.
    Section 226.5(a)(5) in the 2001 interim final rule refers to Sec.  
226.36, the section of the interim final rule setting forth general 
rules for electronic disclosures. Because the Board is proposing to 
delete Sec.  226.36, as discussed further below, the Board also 
proposes to delete Sec.  226.5(a)(5).
    The 2001 interim final rule revised comment 5(b)(2)(ii)-3 to 
reference the E-Sign Act's consumer consent requirements. The Board 
proposes to delete this language as unnecessary because the E-Sign Act 
is a self-effectuating statute.

Section 226.5a Credit and Charge Card Applications and Solicitations

5a(a) General Rules
    Section 226.5a(a)(2) prescribes the form of disclosures required 
with credit and charge card applications and solicitations. The Board 
proposes to amend Sec.  226.5a(a)(2) by adding a new paragraph (v) to 
provide that if a consumer accesses an application or solicitation for 
a credit or charge card in electronic form, the disclosures required on 
or with an application or solicitation for a credit or charge card must 
be provided to the consumer in electronic form on or with the 
application or solicitation. A consumer accesses an application or 
solicitation in electronic form when, for example, the consumer views 
the application or solicitation on his or her home computer. On the 
other hand, if a consumer receives an application or solicitation in 
the mail, the creditor would not satisfy its obligation to provide 
Sec.  226.5a disclosures at that time by including a reference in the 
application or solicitation to the Web site where the disclosures are 
located. Comment 5a(a)(2)-9 would be added to clarify this point.
    Comment 5a(a)(2)-8 of the 2001 interim final rule states that a 
consumer must be able to access the electronic disclosures at the time 
the application form or solicitation reply form is made available by 
electronic communication. The Board proposes to revise this comment to 
describe alternative methods for presenting electronic disclosures, 
which are examples rather than an exhaustive list. Comment 5a(a)(2)-
2.ii., which was added in 2000, specifies how the tabular disclosures 
required by Sec.  226.5a can be ``prominently located'' if provided on 
or with electronic applications and solicitations, and is similar to 
revised comment 5a(a)(2)-8. Revised comment 5a(a)(2)-8 reminds 
creditors that for disclosures required to be provided in tabular form, 
the electronic form of the table must satisfy the requirements of 
comment 5a(a)(2)-2.ii.
    Section 1304 of the Bankruptcy Abuse Prevention and Consumer 
Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23 (the ``Bankruptcy 
Act''), amends Section 127(c) of TILA to require that credit card 
application and solicitation disclosures provided ``using the Internet 
or other interactive computer service'' must be ``readily accessible to 
consumers in close proximity'' to the solicitation. 15 U.S.C. 
1637(c)(7). In connection with the Board's ongoing review of Regulation 
Z, the Board issued an Advance Notice of Proposed Rulemaking (70 FR 
60235, October 17, 2005) (October 2005 ANPR), soliciting comments on 
how these Bankruptcy Act amendments should be implemented.
    The Bankruptcy Act provision applies to solicitations to open a 
card account ``using the Internet or other interactive computer 
service.'' The term ``Internet'' is defined as the international 
computer network of both Federal and non-Federal interoperable packet 
switched data networks. The term ``interactive computer service'' is 
defined as any information service, system or access software provider 
that provides or enables computer access by multiple users to a 
computer server, including specifically a service or system that 
provides access to the Internet and such systems operated or services 
offered by libraries or educational institutions. 15 U.S.C. 1637(c)(7). 
Based on the definitions of ``Internet'' and ``interactive computer 
service,'' the Board believes that Congress intended to cover all card 
offers that are provided to consumers in electronic form. In the 
October 2005 ANPR, the Board solicited comment on what guidance the 
Board should provide regarding when disclosures are ``readily 
accessible to consumers in close proximity'' to an application or 
solicitation that is made in electronic form. In particular, the Board 
asked whether additional or different guidance is needed from the 
guidance previously issued by the Board.
    Most commenters stated that the Board should retain the existing 
guidance in comment 5a(a)(2)-2.ii on ``prominent location'' to 
interpret the ``close proximity'' standard. A few commenters stated 
that the 2000 guidance should not apply, and that, for example, it 
should suffice to provide a link to the disclosures that the consumer 
could choose to access or not. Some commenters urged the Board 
generally to allow maximum flexibility to creditors regarding the 
display of electronic disclosures, and stated that no guidance or 
specific rules were necessary.
    The Board intends to interpret the Bankruptcy Act's ``close 
proximity'' standard in its ongoing review of the credit card 
provisions of Regulation Z. Based on comments received on the October 
2005 ANPR, the Board is considering how to apply the ``close 
proximity'' standard to electronic applications and solicitations, 
including whether to retain the existing guidance in comment 5a(a)(2)-
2.ii. The Board anticipates issuing a proposal addressing these and 
other Regulation Z issues within the next few months.
5a(b) Required Disclosures
5a(c) Direct-Mail and Electronic Applications and Solicitations
    Section 226.5a(b)(1) sets forth rules for accuracy of the annual 
percentage rate (APR) disclosure in an application or solicitation for 
a variable-rate credit card plan. Section 226.5a(b)(1)(ii) provides, in 
part, that direct mail APR disclosures are accurate if the rate was in 
effect within 60 days before mailing the disclosures. The 2001 interim 
final rule added a new Sec.  226.5a(b)(1)(iii) to provide that, in the 
case of electronic disclosures, the variable APR disclosure is 
considered accurate if the disclosed rate was in effect within 30 days 
before the disclosure was sent by electronic mail to a consumer or made 
available at another location, such as the card issuer's Internet Web 
site, and amended Sec.  226.5a(b)(1)(ii) to reference the new section. 
Preparing revised electronic disclosures when the index rate for a 
variable APR changes should require less time than revising printed 
materials in preparation for a direct mail

[[Page 21145]]

campaign. Thus, specifying a shorter time frame for accuracy of 
electronic disclosures than for printed disclosures appeared 
reasonable. The 2001 interim final rule did not contain specific 
guidance on accuracy requirements for other disclosures provided 
electronically, such as fee disclosures.
    Section 226.5a(c) requires that certain disclosures be included on 
or with a credit card application or solicitation that is sent to 
consumers by direct mail. The 2001 interim final rule revised Sec.  
226.5a(c) to apply the direct mail rules to applications and 
solicitations provided to consumers electronically.
    More recently, section 1304 of the Bankruptcy Act amended Section 
127(c) of TILA to require that solicitations to open a card account 
using the Internet or other interactive computer service must contain 
the same disclosures as those made for applications or solicitations 
sent by direct mail. Although this Bankruptcy Act provision refers to 
credit card solicitations (where no application is required), the Board 
requested comment in the October 2005 ANPR on whether the provision 
should be interpreted also to include applications provided 
electronically. Almost all commenters on this issue stated that there 
is no reason to treat electronic applications differently from 
electronic solicitations in applying the Bankruptcy Act provision. The 
Board concurs. With respect to both electronic applications and 
solicitations, it is important for consumers who are shopping for a 
card to receive accurate cost information about the card before 
submitting an electronic application or responding to an electronic 
solicitation. Thus, the Board proposes to use its authority in section 
105(a) of TILA to apply the Bankruptcy Act provision relating to 
electronic offers to both electronic solicitations and applications, as 
necessary to effectuate the informed use of credit, a primary purpose 
of TILA. 15 U.S.C. 1601(a), 1604(a).
    The Bankruptcy Act also provides that the disclosures for 
electronic credit card offers must be ``updated regularly to reflect 
the current policies, terms, and fee amounts.'' In the October 2005 
ANPR, the Board solicited comment on how that standard should be 
implemented.
    The majority of commenters to the October 2005 ANPR who addressed 
the accuracy of variable rates agreed that a 30-day standard would be 
appropriate to implement the ``updated regularly'' standard in the 
Bankruptcy Act. Some commenters advocated longer periods such as 60 
days, or shorter periods such as daily or weekly updating, or suggested 
that the Board should not provide specific guidance or rules, instead 
allowing maximum flexibility in this area.
    The Board proposes to revise Sec. Sec.  226.5a(b)(1) and 226.5a(c) 
to make the direct-mail provision of Sec.  226.5a applicable to 
electronic applications and solicitations and to implement the 
``updated regularly'' standard in the Bankruptcy Act with regard to the 
accuracy of variable APRs. Current Sec.  226.5a(c) would be revised and 
renumbered as new Sec.  226.5a(c)(1). A new Sec.  226.5a(c)(2) would be 
added to address the accuracy of a variable APR in direct mail 
solicitations. This new section would require issuers to update 
variable APRs disclosed on mailed applications and solicitations every 
60 days and variable APRs disclosed on applications and solicitations 
provided in electronic form every 30 days, and to update other terms 
when they change. The Board believes the 30-day and 60-day accuracy 
requirements for variable APRs strike an appropriate balance between 
seeking to ensure consumers receive updated information and avoiding 
imposing undue burdens on creditors. The Board does not believe it is 
necessary for creditors to disclose to consumers the exact variable APR 
in effect on the date the application or solicitation is accessed by 
the consumer because consumers should understand that variable APRs are 
subject to change. Moreover, it could be costly and operationally 
burdensome for creditors to comply with a requirement to disclose the 
exact variable APR in effect at the time the application or 
solicitation is accessed. The obligation to update the other terms when 
they change ensures that consumers receive information that is 
reasonably accurate and current, and should not impose significant 
burdens on issuers. Based on discussions with industry concerning 
operational issues, the Board understands that issuers typically change 
other terms infrequently, perhaps once or twice a year.
    Section 226.5a(c)(2) consists of two subsections. Section 
226.5a(c)(2)(i) would provide that Sec.  226.5a disclosures mailed to a 
consumer must be accurate as of the time the disclosures are mailed. 
This section would also provide that an accurate variable APR is one 
that is in effect within 60 days before mailing. Section 
226.5a(c)(2)(ii) would provide that Sec.  226.5a disclosures provided 
in electronic form (except for a variable APR) must be accurate as of 
the time they are sent to a consumer's e-mail address, or as of the 
time they are viewed by the public on a web site. For the reasons 
discussed above, this section would provide that a variable APR is 
accurate if it is in effect within 30 days before it is sent, or viewed 
by the public, as applicable. Presently, variable APRs on most credit 
cards may change on a monthly basis, so the Board believes the 30-day 
accuracy requirement for variable APRs is appropriate.
    Many of the provisions included in proposed Sec.  226.5a(c)(2) have 
been incorporated from Sec.  226.5a(b)(1). To eliminate redundancy, the 
Board proposes to revise Sec.  226.5a(b)(1) by deleting Sec.  
226.5a(b)(1)(ii) and (iii) and comment 5a(c)-1. The portion of Sec.  
226.5a(b)(1)(ii) that relates to the accuracy of APRs provided in 
``take-ones'' would be incorporated in new Sec.  226.5a(e)(5).

Section 226.5b Requirements for Home-Equity Plans

    Section 226.5b(a) sets forth requirements for the form of 
disclosures required to be made on or with applications for HELOCs. The 
Board proposes to amend Sec.  226.5b(a) by adding a new paragraph (3) 
to provide that if a consumer accesses a HELOC application in 
electronic form, the disclosures required on or with an application for 
a HELOC must be provided to the consumer in electronic form on or with 
the application. A consumer accesses a HELOC application in electronic 
form when, for example, the consumer views the application on his or 
her home computer. On the other hand, if a consumer receives a HELOC 
application in the mail, the creditor would not satisfy its obligation 
to provide Sec.  226.5b disclosures at that time by including a 
reference in the application to the web site where the disclosures are 
located. Comment 5b(a)(3)-1 would be added to clarify this point.
    Section 226.5b(c) states that persons other than the creditor that 
provide HELOC applications to consumers must provide the required home 
equity disclosures in certain cases. The 2001 interim final rule added 
a new Sec.  226.5b(c)(2) to clarify that such third parties 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.
    Comment 5b(b)-7 of the 2001 interim final rule states that a 
consumer must be able to access the electronic disclosures at the time 
the application form or solicitation reply form is made available by 
electronic communication. This comment is substantially similar to

[[Page 21146]]

comment 5a(a)(2)-8 of the 2001 interim final rule, discussed above.
    The Board proposes to delete comment 5b(b)-7 and substitute a new 
comment 5b(a)(1)-5 in its place, which generally parallels the content 
of the revised comment 5a(a)(2)-8. The new comment would describe 
alternative methods for presenting electronic disclosures, which are 
examples rather than an exhaustive list. Comment 5b(a)(1)-5 would omit 
all references to reply forms to recognize that the HELOC disclosures 
are application disclosures. The renumbering of the comment reflects 
the Board's belief that the focus of this comment is the form of 
electronic disclosures, rather than the timing of those disclosures.

Section 226.15 Right of Rescission

    Section 226.15 gives consumers the right to rescind certain open-
end credit plans secured by their principal dwelling. Under Sec.  
226.15(b), creditors must provide two copies of a notice of this right 
to each consumer entitled to rescind. For written (paper) disclosures, 
this allows consumers to return one copy to the creditor if they 
exercise the right of rescission and retain the second copy. For 
rescission notices provided in electronic form, the 2001 interim final 
rule added language permitting creditors to provide only one copy of 
the electronic notice to each consumer when the notice is provided in 
electronic form in accordance with the consumer consent and other 
applicable provisions of the E-Sign Act. The Board proposes to retain 
this provision. It does not appear that consumers would benefit by 
receiving two electronic copies of rescission notices because a second 
electronic ``copy'' is unnecessary for purposes of consumer retention.
    In the 2001 interim final rule, comment 15(b)-1 was revised to 
state that if there is more than one property owner, a single 
rescission notice may be sent to each consumer if electronic 
communication is used, that each co-owner must consent to electronic 
disclosures, and that each must designate an electronic (e-mail) 
address to be used for this purpose. The Board believes, as discussed 
above, that provisions requiring the use of e-mail are no longer 
appropriate; comment 15(b)-1 would be revised accordingly. The Board 
also proposes to delete the statement that each co-owner must consent 
to electronic disclosures.

Section 226.16 Advertising

    Section 226.16 contains requirements for advertisements for open-
end credit, and in particular requires that if an advertisement 
includes certain ``trigger terms'' (such as an APR), the advertisement 
must also include certain required disclosures (such as minimum finance 
charge and transaction charges and annual fees).
    Section 226.16(c) relates to catalogs and other multiple-page 
advertisements and to electronic advertisements. The Board proposes to 
add a new paragraph (3) to Sec.  226.16(c) to clarify that if a 
consumer accesses an advertisement for open-end credit in electronic 
form, the disclosures required on or with the open-end credit 
advertisement must be provided to the consumer in electronic form on or 
with the advertisement. A consumer accesses an advertisement in 
electronic form when, for example, the consumer views the advertisement 
on his or her home computer. On the other hand, if a consumer receives 
a written advertisement in the mail, the creditor would not satisfy its 
obligation to provide Sec.  226.16 disclosures at that time by 
including a reference in the advertisement to the web site where the 
disclosures are located. Comment 16(c)(3)-1 would be added to clarify 
this point.
    Section 226.16(c) provides that in a catalog or other multiple-page 
advertisement, the required disclosures need not be shown on each page 
where a ``trigger term'' appears, as long as each such page includes a 
cross-reference to the page where the required disclosures appear. The 
2001 interim final rule clarified that this multiple-page rule also 
applies to credit advertisements in electronic form. For example, if a 
``trigger term'' appears on a particular web page, the additional 
disclosures may appear in a table or schedule on another web page and 
still be considered part of a single advertisement if there is a clear 
reference to the page or location where the table or schedule begins 
(which may be accomplished, for example, by including a link). The 
Board proposes to retain the rule (in Sec.  226.16(c)(1) and (2)) 
allowing the use of links or other cross-references in electronic 
credit advertisements to provide guidance on how the advertising rules 
apply to Web sites.
    The 2001 interim final rule revised comment 16(c)(1)-1 and added 
comment 16(c)(1)-2 to provide guidance on multiple-page advertisements 
in electronic form. Because the Board is proposing to retain the 
changes to Sec.  226.16(c)(1) with minor wording changes, the Board is 
also proposing to retain comments 16(c)(1)-1 and 2 as revised by the 
2001 interim final rule with corresponding wording changes.

Subpart C Closed-end Credit

Section 226.17 General Disclosure Requirements

    Section 226.17(a) prescribes the form of disclosures required for 
closed-end credit. Section 226.17(a)(1) requires creditors to provide 
closed-end credit disclosures in writing and in a form that the 
consumer may keep. The Board proposes to revise Sec.  226.17(a)(1) to 
clarify that creditors may provide the closed-end credit disclosures to 
consumers in electronic form, subject to compliance with the consumer 
consent and other applicable provisions of the E-Sign Act. Some 
creditors may provide closed-end credit 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 
creditors, the duplicate electronic form of the closed-end credit 
disclosures may be provided to consumers without regard to the consumer 
consent and other provisions of the E-Sign Act because the electronic 
form of the disclosure is not used to satisfy the regulation's closed-
end credit disclosure requirements.
    Section 226.17(a)(1) would also be revised to provide that the 
closed-end credit disclosures required by Sec. Sec.  226.19(b) and 
226.24 may be provided to the consumer in electronic form, and that the 
disclosures required by Sec.  226.17(g) may be made available to the 
consumer or to the public in electronic form, under the circumstances 
set forth in those sections, without regard to the consumer consent or 
other provisions of the E-Sign Act. The Board believes that, for an 
application or advertisement accessed by the consumer in electronic 
form, permitting creditors to provide disclosures relating to 
applications for adjustable-rate mortgage (ARM) loans secured by the 
consumer's principal dwelling (Sec.  226.19(b)) and closed-end credit 
advertising (Sec.  226.24) in electronic form, without regard to the 
consumer consent and other provisions of the E-Sign Act, will eliminate 
a potential significant burden on electronic commerce without 
increasing the risk of harm to consumers. This approach will assist 
consumers in shopping for credit by enabling them to receive important 
disclosures at the same time they access an application or 
advertisement without first having to provide consent in accordance 
with the requirements of the E-Sign Act. Requiring consumers to follow 
the consent procedures set forth in the E-Sign Act in order to access 
an online application or advertisement, or complete an online 
application is

[[Page 21147]]

potentially burdensome and could discourage consumers from shopping for 
credit online. Moreover, because these consumers are viewing the 
application or advertisement online, there appears to be little, if 
any, risk that the consumer will be unable to view the disclosures 
online as well.
    Section 227.17(g) applies where a creditor receives a request for 
credit by mail, telephone, or electronic communication without face-to-
face or direct telephone solicitation. In these circumstances, the 
creditor may delay making the TILA disclosures for the credit 
transaction until the due date of the first payment, provided certain 
disclosures (specified in Sec.  226.17(g)(1)-(5)) have been made 
available to the consumer or to the public generally (such as in a 
catalog or advertisement). For example, a retailer may mail catalogs to 
consumers, or provides advertising inserts in newspapers, containing 
information for ordering merchandise by telephone or mail. If a 
consumer calls the retailer, orders an item, and agrees to pay for the 
item by obtaining a closed-end extension of credit from the retailer, 
the TILA closed-end disclosures would normally be required to be 
provided to the consumer before the consummation of the transaction. 
Since this is impracticable where the transaction is consummated by 
telephone, however, Sec.  226.17(g) permits the retailer to delay 
providing the specific disclosures for the transaction, as long as the 
disclosures in Sec.  226.17(g)(1)-(5), for representative amounts or 
ranges of credit, are included in the catalog or newspaper insert.
    In the 2001 interim final rule, the Board replaced the term 
``electronic communication'' in Sec.  226.17(g) with ``facsimile 
machine.'' The Board explained that the rule in Sec.  226.17(g) 
predated Internet commerce, and the term ``electronic communication'' 
was intended to cover credit requests by facsimile or telegram. The 
rationale underlying the rule was that creditors are unable to provide 
written transaction-specific disclosures at the time of the consumer's 
credit request where the request is made by facsimile or telegram, no 
less than in the case of requests made by telephone or mail. That 
practical problem does not exist, however, where a consumer requests 
credit at a web site. Therefore, the Board believes it would be 
inappropriate to extend the application of Sec.  226.17(g) to 
electronic requests for credit made at an Internet Web site. 
Accordingly, the Board proposes to retain the amendment to Sec.  
226.17(g) from the 2001 interim final rule.
    Where Sec.  226.17(g) does apply, i.e., where the consumer requests 
credit by telephone, mail, or facsimile machine, the regulation 
requires the creditor to make available in written form to the consumer 
or the public the disclosures set forth in Sec.  226.17(g)(1)-(5) 
before the actual purchase order or request. The Board believes that 
these disclosures can appropriately be made available to the consumer 
or to the public either in electronic form (for example, on the 
creditor's web site) or in paper form. Accordingly, the Board proposes 
to amend Sec.  226.17(g) to provide that the requirement to make 
available the Sec.  226.17(g)(1)-(5) disclosures in written form to the 
consumer or to the public may be satisfied by making the disclosures 
available in electronic form, such as at a creditor's Web site. Thus, 
for example, a consumer might see information about a product on a 
retailer's web site and order the product by telephone using closed-end 
credit; the transaction-specific disclosures could be delayed, provided 
the Sec.  226.17(g)(1)-(5) disclosures are set forth on the Web site. 
In this situation, the E-Sign consent procedures would not have to be 
followed in order for the Sec.  226.17(g)(1)-(5) disclosures to be 
provided in electronic form. On the other hand, if the consumer ordered 
the product via the web site itself, the transaction-specific 
disclosures could not be delayed and would be required to be provided 
before consummation of the transaction. For the disclosures to be 
provided in electronic form in this situation, the E-Sign consent 
procedures would have to be followed.
    Section 226.17(a)(3) in the interim final rule cross-references 
Sec.  226.36, the section of the interim final rule setting forth 
general rules for electronic disclosures. Because the Board is 
proposing to delete Sec.  226.36, as discussed further below, the Board 
also proposes to delete Sec.  226.17(a)(3).

Section 226.19 Certain Residential Mortgage and Variable-Rate 
Transactions

    Section 226.19(b) requires creditors to provide certain disclosures 
relating to ARM loans secured by the consumer's principal dwelling when 
an application form is provided to the consumer or before the consumer 
pays a nonrefundable fee, whichever is earlier. The Board proposes to 
amend Sec.  226.19 by adding a new paragraph (c) to provide that if a 
consumer accesses a ARM application in electronic form, the disclosures 
required on or with an application for an ARM must be provided to the 
consumer in electronic form on or with the application. A consumer 
accesses an ARM application in electronic form when, for example, the 
consumer views the ARM application on his or her home computer. On the 
other hand, if a consumer receives an ARM application in the mail, the 
creditor would not satisfy its obligation to provide Sec.  226.19 
disclosures at that time by including a reference in the application to 
the web site where the disclosures are located. Comment 19(c)-1 would 
be added to clarify this point.
    Comment 19(b)-2 of the 2001 interim final rule states that a 
consumer must be able to access the electronic disclosures at the time 
the blank application form for ARMs is made available by electronic 
communication. The Board proposes to revise comment 19(b)-2 in a manner 
substantially similar to proposed comment 5b(a)(1)-5, discussed above. 
The revised comment would describe alternative methods for presenting 
electronic disclosures, which are examples rather than an exhaustive 
list.

Section 226.23 Right of Rescission

    Section 226.23 gives consumers the right to rescind certain closed-
end mortgage loans secured by their principal dwelling. Under Sec.  
226.23(b), creditors must provide two copies of a notice of this right 
to each consumer entitled to rescind. For written (paper) disclosures, 
this allows consumers to return one copy to the creditor if they 
exercise the right of rescission and retain the second copy. For 
rescission notices provided in electronic form, the 2001 interim final 
rule added language permitting creditors to provide only one copy of 
the electronic notice to each consumer when the notice is provided in 
electronic form in accordance with the consumer consent and other 
applicable provisions of the E-Sign Act. The Board proposes to retain 
this provision. It does not appear that consumers would benefit by 
receiving two electronic copies of rescission notices because a second 
electronic ``copy'' is unnecessary for purposes of consumer retention.
    In the 2001 interim final rule, comment 23(b)-1 was revised to 
state that if there is more than one property owner, a single 
rescission notice may be sent to each consumer if electronic 
communication is used, that each co-owner must consent to electronic 
disclosures, and that each must designate an electronic (e-mail) 
address to be used for this purpose. The Board believes, as discussed 
above, that provisions requiring the use of e-mail are no longer 
appropriate; comment 23(b)-1 would be revised accordingly.

[[Page 21148]]

The Board also proposes to delete the statement that each co-owner must 
consent to electronic disclosures. The proposed revisions are 
consistent with the proposed revisions to comment 15(b)-1, discussed 
above, which relates to rescission in the context of open-end credit.

Section 226.24 Advertising

    Section 226.24 contains requirements for advertisements for closed-
end credit and requires that if an advertisement includes certain 
``trigger terms'' (such as the payment amount), the advertisement must 
also include certain required disclosures (such as the APR, the amount 
or percentage of any downpayment, and the terms of repayment, as 
applicable).
    Section 226.24(d) relates to catalogs and other multiple-page 
advertisements and to electronic advertisements. The Board is proposing 
to add a new paragraph (3) to Sec.  226.24(d) (comparable to proposed 
new paragraph (3) to Sec.  226.16(c) for open-end credit advertising) 
to clarify that if a consumer accesses an advertisement for closed-end 
credit in electronic form, the disclosures required on or with the 
closed-end credit advertisement must be provided to the consumer in 
electronic form on or with the advertisement. A consumer accesses an 
advertisement in electronic form when, for example, the consumer views 
the advertisement on his or her home computer. On the other hand, if a 
consumer receives a written advertisement in the mail, the creditor 
would not satisfy its obligation to provide Sec.  226.24 disclosures at 
that time by including a reference in the advertisement to the web site 
where the disclosures are located. Comment 24(d)-5 would be added to 
clarify this point.
    Section 226.24(d) provides that in a catalog or other multiple-page 
advertisement, the required disclosures need not be shown on each page 
where a ``trigger term'' appears, as long as each such page includes a 
cross-reference to the page where the required disclosures appear. As 
it did for open-end credit advertising, the 2001 interim final rule 
clarified that the multiple-page rule for closed-end credit advertising 
also applies to credit advertisements in electronic form. For example, 
if a ``trigger term'' appears on a particular Web page, the additional 
disclosures may appear in a table or schedule on another Web page and 
still be considered part of a single advertisement if there is a clear 
reference to the page or location where the table or schedule begins 
(which may be accomplished, for example, by including a link). The 
Board proposes to retain the rule (in Sec.  226.24(d)(1) and (2)) 
allowing the use of links or other cross-references in electronic 
credit advertisements to provide guidance on how the advertising rules 
apply to Web sites.
    The 2001 interim final rule revised comment 24(d)-2 and added 
comment 24(d)-4 to provide guidance on multiple-page advertisements in 
electronic form. Because the Board is proposing to retain the changes 
to Sec.  226.24(d) with minor wording changes, the Board is also 
proposing to retain comments 24(d)-2 and 24(d)-4 as revised by the 2001 
interim final rule with corresponding wording changes.
    Section 226.24(b) permits creditors to state a simple annual rate 
of interest or periodic rate in addition to the APR, as long as the 
rate is stated in conjunction with, but not more conspicuously than, 
the APR. In the 2001 interim final rule, comment 24(b)-6 was added to 
state that in an advertisement using electronic communication, the 
consumer must be able to view both rates simultaneously, and that this 
requirement is not satisfied if the consumer can view the APR only by 
use of a link that takes the consumer to another Web location. The 
Board proposes to delete comment 24(b)-6 as unnecessary. The 
requirement to state the simple annual rate or periodic rate in 
conjunction with, and not more conspicuously than, the APR, applies to 
electronic advertisements no less than to advertisements in other 
media. Requiring the consumer to scroll to another part of the page, or 
access a link, in order to view the APR would likely not satisfy this 
requirement.

Subpart E Special Rules for Certain Home Mortgage Transactions

Section 226.31 General Rules

    Subpart E implements the Home Ownership and Equity Protection Act 
(HOEPA) and sets forth special rules, including disclosure 
requirements, for certain mortgage loans with rates or fees above 
specified thresholds (HOEPA loans) and for reverse mortgage loans. 
Section 226.31(b) prescribes the form of disclosures required under 
subpart E. Section 226.31(b)(1) requires creditors to provide the HOEPA 
and reverse mortgage disclosures in writing and in a form that the 
consumer may keep. Section 226.31(b)(1) would be renumbered as Sec.  
226.31(b) and revised to clarify that the HOEPA and reverse mortgage 
disclosures may be provided to the consumer in electronic form, subject 
to compliance with the consumer consent and other applicable provisions 
of the E-Sign Act. Some creditors may provide the HOEPA and reverse 
mortgage 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 creditors, the duplicate electronic form of the 
HOEPA and reverse mortgage disclosures may be provided to consumers 
without regard to the consumer consent and other provisions of the E-
Sign Act because the electronic form of the disclosure is not used to 
satisfy the regulation's HOEPA and reverse mortgage disclosure 
requirements.
    Section 226.31(b)(2) in the interim final rule cross-references 
Sec.  226.36, the section of the interim final rule setting forth 
general rules for electronic disclosures. Because the Board is 
proposing to delete Sec.  226.36, as discussed further below, the Board 
also proposes to delete Sec.  226.31(b)(2).

Subpart F Electronic Communication

Section 226.36 Requirements for Electronic Communication

    Section 226.36 was added by the 2001 interim final rule to address 
the general requirements for electronic communications. The Board 
proposes to delete Sec.  226.36 (which constitutes all of subpart F) 
from Regulation Z and the accompanying sections of the staff 
commentary.
    In the interim rule, Sec.  226.36(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.  226.36(a) 
would not change applicable legal requirements under the E-Sign Act.
    Sections 226.36(b), (c) and (f) incorporate by reference provisions 
of the E-Sign Act, such as the provision allowing disclosures to be 
provided in electronic form, the requirement to obtain the consumer's 
affirmative consent before providing disclosures in electronic form, 
and the provision allowing electronic signatures. The deletion of these 
provisions will have no impact on the general applicability of the E-
Sign Act to Regulation Z disclosures.
    Sections 226.36(d) and (e) address specific timing and delivery 
requirements for electronic disclosures under Regulation Z, such as the 
requirement to send disclosures to a consumer's e-mail address (or post 
the disclosures on a Web site and send a notice alerting the consumer 
to the disclosures). The Board no longer believes that these additional 
provisions

[[Page 21149]]

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, creditors 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 creditors 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 credit card issuers 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 Z 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 Z 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.  226.36(d) of the 2001 interim final rule is needed to 
ensure that creditors satisfy these requirements when they provide 
electronic disclosures. The Board, however, will monitor creditors' 
electronic disclosure practices with regard to the ability of consumer 
to retain Regulation Z disclosures and will consider further regulatory 
action if it appears necessary.
    The official staff commentary to Sec.  226.36 of the interim final 
rule provides guidance on the provisions set forth in Sec.  226.36 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.  226.36 (which constitutes all of 
subpart F) 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 Z to withdraw the 2001 interim final 
rule on electronic communication and to allow creditors to provide 
certain disclosures to consumers in electronic form on or with an 
application, solicitation, or advertisement that is accessed by the 
consumer in electronic form without regard to the consumer consent and 
other provisions of the E-Sign Act. The Board is also proposing to 
clarify that other Regulation Z disclosures may be provided to 
consumers in electronic form in accordance with the consumer consent 
and other applicable provisions of the E-Sign Act.
    TILA was enacted to enhance economic stabilization and competition 
for credit by strengthening the informed use of credit, including an 
awareness of the cost of credit by consumers. The purpose of TILA is to 
assure a meaningful disclosure of credit terms so that the consumer can 
compare the various credit terms available and avoid the uninformed use 
of credit, and to protect the consumer against inaccurate and unfair 
credit billing and credit card practices. 15 U.S.C. 1601. TILA 
authorized the Board to prescribe regulations to carry out the purposes 
of the statute. 15 U.S.C. 1604(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 effectuate the purposes of [the Act], 
to prevent circumvention or evasion of [the Act], or to facilitate 
compliance with [the Act].'' 15 U.S.C. 1604(a). The Board believes that 
the revisions to Regulation Z discussed above are within Congress's 
broad grant of authority to the Board to adopt provisions that carry 
out the purposes of the statute. These revisions facilitate the 
informed use of credit by consumers in circumstances where a consumer 
accesses a credit application, solicitation, or advertisement in 
electronic form.
    2. Small entities affected by the proposal. The ability to provide 
shopping and advertising disclosures in electronic form on or with an 
application, solicitation, or advertisement that is accessed by the 
consumer in electronic form applies to all creditors, regardless of 
their size. Accordingly, the proposed revisions would reduce burden and 
compliance costs for small entities by providing relief, to the extent 
the E-Sign Act applies in these circumstances. 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 Z.

[[Page 21150]]

    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 (PRA) (44 
U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the rule 
under the authority delegated to the Board by the Office of Management 
and Budget (OMB). The collection of information that is required by 
this proposed rule is found in 12 CFR 226. 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 7100-0199.
    Title I of the Consumer Credit Protection Act authorizes the 
Federal Reserve to issue regulations to carry out the provisions of 
that Act. 15 U.S.C. 1601, 1604(a). This information collection is 
mandatory. Since the Federal Reserve does not collect any information, 
no issue of confidentiality normally arises. However, the information 
may be protected from disclosure under the exemptions (b)(4), (6), and 
(8) of the Freedom of Information Act (5 U.S.C. 522(b)). Transaction- 
or account-specific disclosures and billing error allegations are not 
publicly available and are confidential between the creditor and the 
consumer. General disclosures of credit terms that appear in 
advertisements or take-one applications are available to the public.
    TILA and Regulation Z ensure adequate disclosure of the costs and 
terms of credit to consumers. For open-end credit, creditors are 
required to disclose information about the initial costs and terms and 
to provide periodic statements of account activity, notices of changes 
in terms, and statements of rights concerning billing error procedures. 
The regulation also requires specific types of disclosures for credit 
and charge card accounts, and home-equity plans. For closed-end loans, 
such as mortgage and installment loans, cost disclosures are required 
to be provided prior to consummation. Special disclosures are required 
of certain products, such as reverse mortgages, certain variable-rate 
loans, and certain mortgages with rates and fees above specified 
thresholds. TILA and Regulation Z also contain rules concerning credit 
advertising. To ease the burden and cost of complying with Regulation Z 
(particularly for small entities), the Federal Reserve provides model 
forms, which are appended to the regulation. Creditors are required to 
retain evidence of compliance for twenty-four months (subpart D, 
section 226.25), but the regulation does not specify the types of 
records that must be retained.
    Under the PRA, the Federal Reserve accounts for the paperwork 
burden associated with Regulation Z for the State member banks and 
other creditors supervised by the Federal Reserve that engage in 
lending covered by Regulation Z and, therefore, are respondents under 
the PRA. Appendix I of Regulation Z defines the Federal Reserve-
regulated institutions as: State member banks, branches and agencies of 
foreign banks (other than Federal branches, Federal agencies, and 
insured state branches of foreign banks), commercial lending companies 
owned or controlled by foreign banks, and organizations operating under 
section 25 or 25A of the Federal Reserve Act. Other Federal agencies 
account for the paperwork burden on other creditors. The annual burden 
is estimated to be 552,398 hours for the 1,172 Federal Reserve-
regulated institutions that are deemed to be respondents for the 
purposes of the PRA.
    As mentioned in the Preamble, Sec.  226.5 would be revised to 
clarify the disclosure requirements in Sec. Sec.  226.5a and 226.5b. 
The Federal Reserve estimates that 279 respondents would take 
approximately 8 hours per month to comply with the existing disclosure 
requirements in Sec.  226.5a and estimates the annual burden to be 
26,784 hours; and 632 respondents would take approximately 4.5 minutes 
per transaction to comply with the existing disclosure requirements in 
Sec.  226.5b and estimates the annual burden to be 12,798 hours. 
Sections 226.17 and 226.19 would be revised to clarify the existing 
disclosure requirements in Sec. Sec.  226.17(g) and 226.19(b). The 
Federal Reserve estimates that 1,172 respondents would take 
approximately 6.5 minutes per transaction to comply with the existing 
disclosure requirements in Sec. Sec.  226.17(g) and 226.19(b), and 
estimates the annual burden to be 313,765 hours. Sections 226.5 and 
226.17 would also be revised to clarify the disclosure requirements in 
Sec. Sec.  226.16 and 226.24 respectively. The Federal Reserve 
estimates that 1,172 respondents would take approximately 25 minutes 
per transaction to comply with the existing disclosure requirements in 
Sec.  226.16 and 226.24, and estimates the annual burden to be 2,442 
hours, collectively. The Federal Reserve requests specific comment on 
whether the revisions in this proposed rule would change the burden on 
respondents.
    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 (7100-0199), Washington, DC 20503.

List of Subjects in 12 CFR Part 226

    Advertising, Federal Reserve System, Mortgages, Reporting and 
recordkeeping requirements, Truth in Lending.

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
changes to Regulation Z. 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 Z, 12 CFR part 226, as set forth below:

PART 226--TRUTH IN LENDING (REGULATION Z)

    1. The authority citation for part 226 continues to read as 
follows:

    Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5).

Subpart B--Open-End Credit

    2. Section 226.5 would be amended by revising paragraph (a)(1) and 
removing paragraph (a)(5), to read as follows:


Sec.  226.5  General disclosure requirements.

    (a) Form of disclosures. (1) The creditor shall make the 
disclosures required by this subpart clearly and conspicuously in 
writing,\7\ in a form

[[Page 21151]]

that the consumer may keep.\8\ [rtrif]The disclosures required by this 
subpart 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.). The disclosures required by Sec. Sec.  
226.5a, 226.5b, and 226.16 may be provided to the consumer in 
electronic form without regard to the consumer consent or other 
provisions of the E-Sign Act in the circumstances set forth in those 
sections.[ltrif]
* * * * *
---------------------------------------------------------------------------

    \7\ The disclosure required by section 226.9(d) when a finance 
charge is imposed at the time of a transaction need not be written.
    \8\ The disclosures required under Sec.  226.5a for credit and 
charge card applications and solicitations, the home equity 
disclosures required under Sec.  226.5b(d), the alternative summary 
billing rights statement provided for in Sec.  226.9(a)(2), the 
credit and charge card renewal disclosures required under Sec.  
226.9(e), and the disclosures made under Sec.  226.10(b) about 
payment requirements need not be in a form that the consumer can 
keep.
---------------------------------------------------------------------------

    [lsqbb](5) Electronic communication. For rules governing the 
electronic delivery of disclosures, including the definition of 
electronic communication, see Sec.  226.36.[rsqbb]
* * * * *
    3. Section 226.5a would be amended by adding a new paragraph 
(a)(2)(v), removing paragraphs (b)(1)(ii) and (b)(1)(iii), revising 
paragraph (c), and adding new paragraph (e)(5), to read as follows:


Sec.  226.5a  Credit and charge card applications and solicitations.

* * * * *
    (a) General rules. * * *
    (2) Form of disclosures. * * *
    [rtrif](v) For an application or a solicitation that is accessed by 
the consumer in electronic form, the disclosures required under this 
section must be provided to the consumer in electronic form on or with 
the application or solicitation.[ltrif]
    (b) Required disclosures. * * *
    (1) Annual percentage rate. * * *
    [lsqbb](ii) When variable rate disclosures are provided under 
paragraph (c) of this section, an annual percentage rate disclosure is 
accurate if the rate was in effect within 60 days before mailing the 
disclosures. When variable rate disclosures are provided under 
paragraph (e) of this section, an annual percentage rate disclosure is 
accurate if the rate was in effect within 30 days before printing the 
disclosures. Disclosures provided by electronic communication are 
subject to paragraph (b)(1)(iii) of this section.[rsqbb]
    [lsqbb](iii) When variable rate disclosures are provided by 
electronic communication, an annual percentage rate disclosure is 
accurate if the rate was in effect within 30 days before mailing the 
disclosures to a consumer's electronic mail address. If disclosures are 
made available at another location such as the card issuer's Internet 
Web site, the annual percentage rate must be one in effect within the 
last 30 days.[rsqbb]
* * * * *
    (c) Direct-mail and electronic applications and solicitations. 
[rtrif](1) General.[ltrif] The card issuer shall disclose the 
applicable items in paragraph (b) of this section on or with an 
application or solicitation that is mailed to consumers [lsqbb]or 
provided by electronic communication[rsqbb] [rtrif]or provided to 
consumers in electronic form[ltrif].
    [rtrif](2) Accuracy. (i) Disclosures in direct mail applications 
and solicitations must be accurate as of the time the disclosures are 
mailed. An accurate variable annual percentage rate is one in effect 
within 60 days before mailing.
    (ii) Disclosures provided in electronic form must be accurate as of 
the time they are sent, in the case of disclosures sent to a consumer's 
electronic mail address, or as of the time they are viewed by the 
public, in the case of disclosures made available at a location such as 
a card issuer's Internet Web site. An accurate variable annual 
percentage rate provided in electronic form is one in effect within 30 
days before it is sent to a consumer's electronic mail address, or 
viewed by the public, as applicable.[ltrif]
* * * * *
    (e) Applications and solicitations made available to general 
public. * * *
    [rtrif](5) Accuracy. The disclosures given pursuant to paragraph 
(e)(1) of this section must be accurate as of the date of printing. An 
accurate annual percentage rate is one in effect within 30 days before 
printing.[ltrif]
* * * * *
    4. Section 226.5b would be amended by adding a new paragraph 
(a)(3), removing the heading for paragraph (c)(1), redesignating 
paragraph (c)(1) as paragraph (c), and removing paragraph (c)(2), to 
read as follows:


Sec.  226.5b  Requirements for home equity plans.

* * * * *
    (a) Form of disclosures. * * *
    [rtrif](3) For an application that is accessed by the consumer in 
electronic form, the disclosures required under this section must be 
provided to the consumer in electronic form on or with the 
application.[ltrif]
* * * * *
    (c) Duties of third parties. [lsqbb](1) General.[rsqbb] * * *
    [lsqbb](2) Electronic communication. Persons other than the 
creditor that are required to comply with paragraphs (d) and (e) of 
this section may use electronic communication in accordance with the 
requirements of Sec.  226.36, as applicable.[rsqbb]
* * * * *
    5. Section 226.15 would be amended by revising the first sentence 
of the introductory text of paragraph (b), to read as follows:


Sec.  226.15  Right of rescission.

* * * * *
    (b) Notice of right to rescind. In any transaction or occurrence 
subject to rescission, a creditor shall deliver two copies of the 
notice of the right to rescind to each consumer entitled to rescind 
(one copy to each if the notice is delivered [rtrif]in electronic form 
in accordance with the consumer consent and other applicable provisions 
of the E-Sign Act[ltrif] [lsqbb]by electronic communication as provided 
in Sec.  226.36(b)[rsqbb]). * * *
* * * * *
    6. Section 226.16 would be amended by revising paragraph (c) to 
read as follows:


Sec.  226.16  Advertising.

* * * * *
    (c) Catalogs or other multiple-page advertisements; electronic 
advertisements. (1) If a catalog or other multiple-page advertisement, 
or an [rtrif]electronic[ltrif] advertisement [rtrif](such as an 
advertisement appearing on an Internet web site)[ltrif] [lsqbb]using 
electronic communication[rsqbb], gives information in a table or 
schedule in sufficient detail to permit determination of the 
disclosures required by paragraph (b) of this section, it shall be 
considered a single advertisement if:
    (i) The table or schedule is clearly and conspicuously set forth; 
and
    (ii) Any statement of terms set forth in Sec.  226.6 appearing 
anywhere else in the catalog or advertisement clearly refers to the 
page or location where the table or schedule begins.
    (2) A catalog or other multiple-page advertisement or an 
[rtrif]electronic[ltrif] advertisement [rtrif](such as an advertisement 
appearing on an Internet Web site)[ltrif] [lsqbb]using electronic 
communication[rsqbb] complies with this paragraph if the table or 
schedule of terms includes all appropriate disclosures for a 
representative scale of amounts up to the level of the more commonly 
sold higher-priced property or services offered.

[[Page 21152]]

    [rtrif](3) For an advertisement that is accessed by the consumer in 
electronic form, the disclosures required under this section must be 
provided to the consumer in electronic form on or with the 
advertisement.[ltrif]
* * * * *

Subpart C--Closed-End Credit

    7. Section 226.17 would be amended by revising paragraph (a)(1), 
removing paragraph (a)(3), and revising paragraph (g) introductory 
text, to read as follows:


Sec.  226.17  General disclosure requirements.

    (a) Form of disclosures. (1) The creditor shall make the 
disclosures required by this subpart clearly and conspicuously in 
writing, in a form that the consumer may keep. [rtrif]The disclosures 
required by this subpart 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.). The 
disclosures required by Sec. Sec.  226.17(g), 226.19(b), and 226.24 may 
be provided to the consumer in electronic form without regard to the 
consumer consent or other provisions of the E-Sign Act in the 
circumstances set forth in those sections.[ltrif] The disclosures shall 
be grouped together, shall be segregated from everything else, and 
shall not contain any information not directly related \37\ to the 
disclosures required under Sec.  226.18.\38\ The itemization of the 
amount financed under Sec.  226.18(c)(1) must be separate from the 
other disclosures under that section.
---------------------------------------------------------------------------

    \37\ The disclosures may include an acknowledgment of receipt, 
the date of the transaction, and the consumer's name, address, and 
account number.
    \38\ The following disclosures may be made together with or 
separately from other required disclosures: The creditor's identity 
under Sec.  226.18(a), the variable rate example under Sec.  
226.18(f)(1)(iv), insurance or debt cancellation under Sec.  
226.18(n), and certain security interest charges under Sec.  
226.18(o).
---------------------------------------------------------------------------

* * * * *
    [lsqbb](3) Electronic communication. For rules governing the 
electronic delivery of disclosures, including a definition of 
electronic communication, see Sec.  226.36.[rsqbb]
* * * * *
    (g) Mail or telephone orders--delay in disclosures. If a creditor 
receives a purchase order or a request for an extension of credit by 
mail, telephone, or facsimile machine without face-to-face or direct 
telephone solicitation, the creditor may delay the disclosures until 
the due date of the first payment, if the following information for 
representative amounts or ranges of credit is made available in written 
form [rtrif]or in electronic form[ltrif] to the consumer or to the 
public before the actual purchase order or request:
* * * * *
    8. Section 226.19 would be amended by adding a new paragraph (c), 
to read as follows:


Sec.  226.19  Certain residential mortgage and variable-rate 
transactions.

* * * * *
    [rtrif](c) Electronic disclosures. For an application that is 
accessed by the consumer in electronic form, the disclosures required 
by paragraph (b) of this section must be provided to the consumer in 
electronic form on or with the application.[ltrif]
    9. Section 226.23 would be amended by revising the first sentence 
of paragraph (b)(1), to read as follows:


Sec.  226.23  Right of rescission.

* * * * *
    (b)(1) Notice of right to rescind. In a transaction subject to 
rescission, a creditor shall deliver two copies of the notice of the 
right to rescind to each consumer entitled to rescind (one copy to each 
if the notice is delivered [rtrif]in electronic form in accordance with 
the consumer consent and other applicable provisions of the E-Sign 
Act[ltrif] [lsqbb]by electronic communication as provided in Sec.  
226.36(b)[rsqbb]). * * *
* * * * *
    10. Section 226.24 would be amended by revising paragraphs (d)(1) 
and (d)(2) and adding a new paragraph (d)(3), to read as follows:


Sec.  226.24  Advertising.

* * * * *
    (d) Catalogs or other multiple-page advertisements; electronic 
advertisements. (1) If a catalog or other multiple-page advertisement, 
or an [rtrif]electronic[ltrif] advertisement [rtrif](such as an 
advertisement appearing on an Internet Web site)[ltrif] [lsqbb]using 
electronic communication[rsqbb], gives information in a table or 
schedule in sufficient detail to permit determination of the 
disclosures required by paragraph (c)(2) of this section, it shall be 
considered a single advertisement if:
    (i) The table or schedule is clearly and conspicuously set forth; 
and
    (ii) Any statement of terms of the credit terms in paragraph (c)(1) 
of this section appearing anywhere else in the catalog or advertisement 
clearly refers to the page or location where the table or schedule 
begins.
    (2) A catalog or other multiple-page advertisement or an 
[rtrif]electronic[ltrif] advertisement [rtrif](such as an advertisement 
appearing on an Internet Web site)[ltrif] [lsqbb]using electronic 
communication[rsqbb] complies with paragraph (c)(2) of this section if 
the table or schedule of terms includes all appropriate disclosures for 
a representative scale of amounts up to the level of the more commonly 
sold higher-priced property or services offered.
    [rtrif](3) For an advertisement that is accessed by the consumer in 
electronic form, the disclosures required under this section must be 
provided to the consumer in electronic form on or with the 
advertisement.[ltrif]

Subpart E--Special Rules for Certain Home Mortgage Transactions

    11. Section 226.31 would be amended by revising paragraph (b) to 
read as follows:


Sec.  226.31  General rules.

* * * * *

    (b) Form of disclosures. [lsqbb](1) General.[rsqbb] The creditor 
shall make the disclosures required by this subpart clearly and 
conspicuously in writing, in a form that the consumer may keep. 
[rtrif]The disclosures required by this subpart 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]
    [lsqbb](2) Electronic communication. For rules governing the 
electronic delivery of disclosures, including a definition of 
electronic communication, see Sec.  226.36.[rsqbb]
* * * * *
    12. Subpart F to part 226 would be removed.
    13. In Supplement I to part 226, the following amendments would be 
made:
    a. In Section 226.5--General Disclosure Requirements, under 
Paragraph 5(b)(2)(ii), paragraph 3. would be revised.
    b. In Section 226.5a--Credit and Charge Card Applications and 
Solicitations, under 5a(a)(2) Form of Disclosures, paragraph 8. would 
be revised and new paragraph 9. would be added.
    c. In Section 226.5a--Credit and Charge Card Applications and 
Solicitations, under 5a(c) Direct Mail Applications or Solicitations, 
the heading would be revised to read 5a(c) Direct Mail and Electronic 
Applications or Solicitations, paragraph 1. would be removed, and 
paragraph 2. would be redesignated as paragraph 1.

[[Page 21153]]

    d. In Section 226.5b--Requirements for Home Equity Plans, under 
5b(a) Form of Disclosures, under Paragraph 5b(a)(1), new paragraph 5. 
would be added.
    e. In Section 226.5b--Requirements for Home Equity Plans, under 
5b(a) Form of Disclosures, new heading Paragraph 5b(a)(3) and new 
paragraph 1. would be added.
    f. In Section 226.5b--Requirements for Home Equity Plans, under 
5b(b) Time of Disclosures, paragraph 7. would be removed.
    g. In Section 226.15--Right of Rescission, under 15(b) Notice of 
Right to Rescind., paragraph 1. would be revised.
    h. In Section 226.16--Advertising, under Paragraph 16(c)(1), 
paragraphs 1. and 2. would be revised.
    i. In Section 226.16--Advertising, new heading Paragraph 16(c)(3) 
and new paragraph 1. would be added.
    j. In Section 226.19--Certain Residential Mortgage and Variable-
Rate Transactions, under 19(b) Certain variable-rate transactions., 
paragraph 2.v. would be revised.
    k. In Section 226.19--Certain Residential Mortgage and Variable-
Rate Transactions, new heading 19(c) Electronic disclosures and new 
paragraph 1. would be added.
    l. In Section 226.23--Right of Rescission, under 23(b) Notice of 
Right to Rescind., paragraph 1. would be revised.
    m. In Section 226.24--Advertising, under 24(b) Advertisement of 
Rate of Finance Charge, paragraph 6. would be removed.
    n. In Section 226.24--Advertising, under 24(d), paragraphs 2. and 
4. would be revised, and new paragraph 5. would be added.
    o. Subpart F would be removed.
    The amendments read as follows:

Supplement I To Part 226--Official Staff Interpretations

* * * * *

Subpart B--Open-End Credit

Section 226.5--General Disclosure Requirements

* * * * *
    5(b)(2) Periodic statements.
* * * * *
    Paragraph 5(b)(2)(ii).
* * * * *
    3. Calling for periodic statements. When the consumer initiates 
a request, the creditor may permit, but may not require, consumers 
to pick up their periodic statements. If the consumer wishes to pick 
up the statement and the plan has a free-ride period, the statement 
must be made available in accordance with the 14-day rule. [lsqbb]If 
the consumer wishes to receive the statement by electronic 
communication, the creditor must comply with the consumer consent 
requirements as provided in Sec.  226.36(b).[rsqbb]
* * * * *

Section 226.5a--Credit and Charge Card Applications and 
Solicitations

* * * * *
    5a(a) General rules.
    5a(a)(2) Form of disclosures.
* * * * *
    8. [lsqbb]Timing of disclosures for[rsqbb][rtrif] Form of 
electronic disclosures provided on or with[ltrif] electronic 
applications or solicitations. [rtrif]Card issuers must provide the 
disclosures required by this section on or with a blank application 
or reply form that is made available to the consumer in electronic 
form, such as on a card issuer's Internet web site. Card issuers 
have flexibility in satisfying this requirement. For example, the 
disclosures could automatically appear on the screen when the 
application or reply form appears. Alternatively, the disclosures 
could be located on the same web ``page'' as the application or 
reply form without necessarily appearing on the initial screen, if 
the application or reply form contains a clear and conspicuous 
reference to the location of the disclosures and indicates that the 
disclosures contain rate, fee, and other cost information, as 
applicable. Or, card issuers could provide a link to the electronic 
disclosures on or with the application (or reply form) as long as 
consumers cannot bypass the disclosures before submitting the 
application or reply form. Whatever method is used, a card issuer 
need not confirm that the consumer has read the disclosures. For 
disclosures required to be provided in tabular form, card issuers 
must satisfy the requirements with respect to electronic disclosures 
set forth in comment 5a(a)(2)-2(ii).[ltrif] [lsqbb]In all cases, a 
consumer must be able to access the disclosures at the time the 
blank application or reply form is made available by electronic 
communication such as on a card issuer's Internet web site. Card 
issuers have flexibility in satisfying this requirement. For 
example, if a link is not used, the application or reply form must 
clearly and conspicuously refer to the fact that rate, fee, and 
other cost information either precedes or follows the application or 
reply form. Alternatively, card issuers may provide a link to 
electronic disclosures on or with the application (or reply form) as 
long as consumers cannot bypass the disclosures before submitting 
the application or reply form. Or the disclosures could 
automatically appear on the screen when the application or reply 
form appears. A card issuer need not confirm that the consumer has 
read the disclosures.[rsqbb]
    [rtrif]9. Form of disclosures. If a consumer accesses an 
application or solicitation in electronic form, the required 
disclosures must be provided to the consumer in electronic form on 
or with the application or solicitation; providing the disclosures 
at a different time or place, or in paper form, would not comply. 
Conversely, if a consumer is provided with a paper application or 
solicitation, the required disclosures must be provided in paper 
form on or with the application or solicitation. For example, if a 
consumer receives an application or solicitation in the mail, the 
creditor would not satisfy its obligation to provide Sec.  226.5a 
disclosures at that time by including a reference in the application 
or solicitation to the web site where the disclosures are 
located.[ltrif]
* * * * *

5a(c) Direct-Mail [rtrif]and Electronic[ltrif] Applications and 
Solicitations

    [lsqbb]1. Accuracy. In general, disclosures in direct mail 
applications and solicitations must be accurate as of the time of 
mailing. (An accurate variable annual percentage rate is one in 
effect within 60 days before mailing.)[rsqbb]
    [lsqbb]2.[rsqbb] [rtrif]1.[ltrif] Mailed publications. 
Applications or solicitations contained in generally available 
publications mailed to consumers (such as subscription magazines) 
are subject to the requirements applicable to ``take-ones'' in Sec.  
226.5a(e), rather than the direct mail requirements of Sec.  
226.5a(c). However, if a primary purpose of a card issuer's mailing 
is to offer credit or charge card accounts--for example, where a 
card issuer ``prescreens'' a list of potential cardholders using 
credit criteria, and then mails to the targeted group its catalog 
containing an application or a solicitation for a card account--the 
direct mail rules apply. In addition, a card issuer may use a single 
application form as a ``take-one'' (in racks in public locations, 
for example) and for direct mailings, if the card issuer complies 
with the requirements of Sec.  226.5a(c) even when the form is used 
as a ``take-one''--that is, by presenting the required Sec.  226.5a 
disclosures in a tabular format. When used in a direct mailing, the 
credit term disclosures must be accurate as of the mailing date 
whether or not the Sec.  226.5a(e)(1) (ii) and (iii) disclosures are 
included; when used in a take-one, the disclosures must be accurate 
for as long as the take-one forms remain available to the public if 
the Sec.  226.5a(e)(1) (ii) and (iii) disclosures are omitted. (If 
those disclosures are included in the take-one, the credit term 
disclosures need only be accurate as of the printing date)
* * * * *

Section 226.5b--Requirements for Home Equity Plans

* * * * *
    5b(a) Form of disclosures.
    5b(a)(1) General.
* * * * *
    [rtrif]5. Form of electronic disclosures provided on or with 
electronic applications. Creditors must provide the disclosures 
required by this section (including the brochure) on or with a blank 
application that is made available to the consumer in electronic 
form, such as on a creditor's Internet Web site. Creditors have 
flexibility in satisfying this requirement. For example, the 
disclosures could automatically appear on the screen when the 
application appears. Alternatively, the disclosures could be located 
on the same Web ``page'' as the application without necessarily 
appearing on the initial screen, if the application contains a clear 
and conspicuous reference to the

[[Page 21154]]

location of the disclosures and indicates that the disclosures 
contain rate, fee, and other cost information, as applicable. Or, 
creditors could instead provide a link to the electronic disclosures 
as long as consumers cannot bypass the disclosures before submitting 
the application. Whatever method is used, a creditor need not 
confirm that the consumer has read the disclosures or 
brochure.[ltrif]
* * * * *
    [rtrif]Paragraph 5b(a)(3).
    1. Form of disclosures. If a consumer accesses an application in 
electronic form, the required disclosures must be provided to the 
consumer in electronic form on or with the application; providing 
the disclosures at a different time or place, or in paper form, 
would not comply. Conversely, if a consumer is provided with a paper 
application, the required disclosures must be provided in paper form 
on or with the application. For example, if a consumer receives an 
application in the mail, the creditor would not satisfy its 
obligation to provide Sec.  226.5b disclosures at that time by 
including a reference in the application to the Web site where the 
disclosures are located.[ltrif]
    5b(b) Time of disclosures.
* * * * *
    [lsqbb]7. Applications available by electronic communication. In 
all cases, a consumer must be able to access the disclosures 
(including the brochure) at the time the blank application or reply 
form is made available by electronic communication, such as on a 
creditor's Internet web site. Creditors have flexibility in 
satisfying this requirement. For example, if a link is not used, the 
application or reply form must clearly and conspicuously refer the 
consumer to the fact that rate, fee, and other cost information 
either precedes or follows the application or reply form. 
Alternatively, creditors may provide a link to electronic 
disclosures as long as consumers cannot bypass the disclosures 
before submitting the application or reply form. Or the disclosures 
could automatically appear on the screen when the application or 
reply form appears. A creditor need not confirm that the consumer 
has read the disclosures or brochure.[rsqbb]
* * * * *

Section 226.15--Right of Rescission

* * * * *
    15(b) Notice of right to rescind.
    1. Who receives notice. Each consumer entitled to rescind must 
be given:
     Two copies of the rescission notice.
     The material disclosures.

    In a transaction involving joint owners, both of whom are 
entitled to rescind, both must receive the notice of the right to 
rescind and disclosures. For example, if both spouses are entitled 
to rescind a transaction, each must receive two copies of the 
rescission notice [rtrif](one copy if the notice is provided in 
electronic form in accordance with the consumer consent and other 
applicable provisions of the E-Sign Act)[ltrif] and one copy of the 
disclosures. [lsqbb]If e-mail is used, the creditor complies with 
Sec.  226.15(b)(1) if one notice is sent to each co-owner. Each co-
owner must consent to receive electronic disclosures and each must 
designate an electronic address for receiving the disclosure.[rsqbb]
* * * * *

Section 226.16--Advertising

* * * * *
    16(c) Catalogs or other multiple-page advertisements; electronic 
advertisements.
* * * * *
    Paragraph 16(c)(1).
    1. General. Section 226.16(c)(1) permits creditors to put credit 
information together in one place in a catalog or other multiple-
page advertisement or an electronic advertisement [rtrif](such as an 
advertisement appearing on an Internet Web site)[ltrif]. The rule 
applies only if the advertisement contains one or more of the 
triggering terms from Sec.  226.16(b).
    2. Electronic [rtrif]advertisement[ltrif] 
[lsqbb]communication[rsqbb]. If an [rtrif]electronic advertisement 
(such as an advertisement appearing on an Internet Web site)[ltrif] 
[lsqbb]advertisement using electronic communication[rsqbb] contains 
the table or schedule permitted under Sec.  226.16(c)(1), any 
statement of terms set forth in Sec.  226.6 appearing anywhere else 
in the advertisement must clearly direct the consumer to the 
location where the table or schedule begins. For example, a term 
triggering additional disclosures may be accompanied by a link that 
directly takes the consumer to the additional information.
* * * * *
    [rtrif]Paragraph 16(c)(3).
    1. Form of disclosures. If a consumer accesses an advertisement 
in electronic form, the required disclosures must be provided to the 
consumer in electronic form on or with the advertisement; providing 
the disclosures at a different time or place, or in paper form, 
would not comply. Conversely, if a consumer views a paper 
advertisement, the required disclosures must be provided in paper 
form on or with the advertisement. For example, if a consumer 
receives an advertisement in the mail, the creditor would not 
satisfy its obligation to provide Sec.  226.16 disclosures at that 
time by including a reference in the advertisement to the Web site 
where the disclosures are located.[ltrif]
* * * * *

Subpart C--Closed-End Credit

Section 226.19--Certain Residential Mortgage and Variable-Rate 
Transactions

* * * * *
    19(b) Certain variable-rate transactions.
* * * * *
    2. Timing. * * *
    v. [lsqbb]Electronic applications.[rsqbb] [rtrif]Form of 
electronic disclosures provided on or with electronic applications. 
Creditors must provide the disclosures required by this section 
(including the brochure) on or with a blank application that is made 
available to the consumer in electronic form, such as on a 
creditor's Internet Web site. Creditors have flexibility in 
satisfying this requirement. For example, the disclosures could 
automatically appear on the screen when the application appears. 
Alternatively, the disclosures could be located on the same Web 
``page'' as the application without necessarily appearing on the 
initial screen, if the application contains a clear and conspicuous 
reference to the location of the disclosures and indicates that the 
disclosures contain rate, fee, and other cost information, as 
applicable. Or, creditors could instead provide a link to the 
electronic disclosures as long as consumers cannot bypass the 
disclosures before submitting the application. Whatever method is 
used, a creditor need not confirm that the consumer has read the 
disclosures or brochure.[ltrif]

[lsqbb]In all cases, a consumer must be able to access the 
disclosures (including the brochure) at the time the blank 
application form is made available by electronic communication, such 
as on a creditor's Internet Web site. Creditors have flexibility in 
satisfying this requirement. For example, if a link is not used, the 
application form must clearly and conspicuously refer the consumer 
to the fact that rate, fee, and other cost information either 
precedes or follows the application or reply form. Alternatively, 
creditors may provide a link to electronic disclosures as long as 
consumers cannot bypass the disclosures before submitting the 
application form. Or the disclosures could automatically appear on 
the screen when the application form appears. A creditor need not 
confirm that the consumer has read the disclosures or 
brochure.[rsqbb]
* * * * *
    [rtrif]19(c) Electronic disclosures.
    1. Form of disclosures. If a consumer accesses an ARM 
application in electronic form, the required disclosures must be 
provided to the consumer in electronic form on or with the 
application; providing the disclosures at a different time or place, 
or in paper form, would not comply. Conversely, if a consumer is 
provided with a paper ARM application, the required disclosures must 
be provided in paper form on or with the application. For example, 
if a consumer receives an application in the mail, the creditor 
would not satisfy its obligation to provide the ARM disclosures at 
that time by including a reference in the application to the Web 
site where the disclosures are located.[ltrif]
* * * * *

Section 226.23--Right of Rescission

* * * * *
    23(b) Notice of right to rescind.
    1. Who receives notice. Each consumer entitled to rescind must 
be given:
     Two copies of the rescission notice.
     The material disclosures.

    In a transaction involving joint owners, both of whom are 
entitled to rescind, both must receive the notice of the right to 
rescind and disclosures. For example, if both spouses are entitled 
to rescind a transaction, each must receive two copies of the 
rescission notice [rtrif](one copy if the notice is provided in 
electronic form in accordance with the consumer consent and other 
applicable provisions of the E-Sign Act)[ltrif] and one copy of the 
disclosures. [lsqbb]If e-mail is used, the creditor complies with 
Sec.  226.23(b)(1) if one notice is sent to each co-owner. Each co-
owner must consent to receive electronic

[[Page 21155]]

disclosures and each must designate an electronic address for 
receiving the disclosure.[rsqbb]
* * * * *

Section 226.24--Advertising

* * * * *
    24(b) Advertisement of rate of finance charge.
* * * * *
    [lsqbb]6. Electronic communication. A simple annual rate or 
periodic rate that is applied to an unpaid balance may be stated 
only if it is provided in conjunction with an annual percentage 
rate. In an advertisement using electronic communication, the 
consumer must be able to view both rates simultaneously. This 
requirement is not satisfied if the consumer can view annual 
percentage rate only by use of a link that takes the consumer to 
information appearing at another location.[rsqbb]
* * * * *
    24(d) Catalogs or other multiple-page advertisements; electronic 
advertisements.
* * * * *
    2. General. Section 226.24(d) permits creditors to put credit 
information together in one place in a catalog or other multiple-
page advertisement, or in an electronic advertisement [rtrif](such 
as an advertisement appearing on an Internet Web site)[ltrif]. The 
rule applies only if the advertisement contains one or more of the 
triggering terms from Sec.  226.24(c)(1). A list of different annual 
percentage rates applicable to different balances, for example, does 
not trigger further disclosures under Sec.  226.24(c)(2) and so is 
not covered by Sec.  226.24(d).
* * * * *
    4. Electronic [rtrif] advertisement[ltrif] 
[lsqbb]communication[rsqbb]. If an [rtrif]electronic advertisement 
(such as an advertisement appearing on an Internet Web site)[ltrif] 
[lsqbb]advertisement using electronic communication[rsqbb] contains 
the table or schedule permitted under Sec.  226.24(d)(1), any 
statement of terms set forth in Sec.  226.24(c)(1) appearing 
anywhere else in the advertisement must clearly direct the consumer 
to the location where the table or schedule begins. For example, a 
term triggering additional disclosures may be accompanied by a link 
that directly takes the consumer to the additional information 
[lsqbb](but see comment 24(b)-6)[rsqbb].
    [rtrif]5. Form of disclosures. If a consumer accesses an 
advertisement in electronic form, the required disclosures must be 
provided to the consumer in electronic form on or with the 
advertisement; providing the disclosures at a different time or 
place, or in paper form, would not comply. Conversely, if a consumer 
views a paper advertisement, the required disclosures must be 
provided in paper form on or with the advertisement. For example, if 
a consumer receives an advertisement in the mail, the creditor would 
not satisfy its obligation to provide Sec.  226.16 disclosures at 
that time by including a reference in the advertisement to the Web 
site where the disclosures are located.[ltrif]

    By order of the Board of Governors of the Federal Reserve 
System, April 20, 2007.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E7-7878 Filed 4-27-07; 8:45 am]
BILLING CODE 6210-01-P