[Federal Register Volume 72, Number 217 (Friday, November 9, 2007)]
[Rules and Regulations]
[Pages 63445-63452]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-21697]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
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Federal Register / Vol. 72, No. 217 / Friday, November 9, 2007 /
Rules and Regulations
[[Page 63445]]
FEDERAL RESERVE SYSTEM
12 CFR Part 202
[Regulation B; Docket No. R-1281]
Equal Credit Opportunity
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule; official staff interpretation.
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SUMMARY: The Board is amending Regulation B, which implements the Equal
Credit Opportunity Act, and the official staff commentary to the
regulation, 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). Because compliance with the
2001 interim final rules has not been mandatory, withdrawal of these
provisions from the Code of Federal Regulations reduces confusion about
the status of the provisions and simplifies the regulation.
In addition, the Board is adopting final amendments to Regulation B
to provide guidance on the electronic delivery of disclosures. For
example, the final rules provide that when an application is accessed
by an applicant in electronic form, disclosures may be provided to the
consumer in electronic form on or with the application without regard
to the consumer consent and other provisions of the E-Sign Act. Similar
final rules are being adopted under other consumer financial services
regulations administered by the Board.
DATES: The final rule is effective December 10, 2007. The mandatory
compliance date is October 1, 2008.
FOR FURTHER INFORMATION CONTACT: John C. Wood, Counsel, 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. Statutory Background
The Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691 et seq.,
makes it unlawful for creditors to discriminate in any aspect of a
credit transaction on the basis of sex, race, color, religion, national
origin, marital status, or age (provided the applicant has the capacity
to contract), because all or part of an applicant's income derives from
public assistance, or because an applicant has in good faith exercised
any right under the Consumer Credit Protection Act. The Board's
Regulation B (12 CFR part 202) implements the ECOA. The ECOA and
Regulation B require certain disclosures to be provided to applicants,
and some of those disclosures must be provided in writing.
The Electronic Signatures in Global and National Commerce Act (the
E-Sign Act), 15 U.S.C. 7001 et seq., was enacted in 2000. 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 and consent
provisions, became effective October 1, 2000, and did not require
implementing regulations. Thus, creditors 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 Regulation
B if the consumer affirmatively consents to receipt of electronic
disclosures in the manner required by section 101(c) of the E-Sign Act.
II. Board Proposals and Interim Rules Regarding Electronic Disclosures
On April 4, 2001, the Board published for comment interim final
rules to establish uniform standards for the electronic delivery of
disclosures required under Regulation B (66 FR 17779). Similar interim
final rules for Regulations E, M, Z, and DD (implementing the
Electronic Fund Transfer Act, the Consumer Leasing Act, the Truth in
Lending Act, and the Truth in Savings Act, respectively) were published
on March 30, 2001 (66 FR 17322 and 66 FR 17329) (Regulations M and Z,
respectively), and April 4, 2001 (66 FR 17786 and 66 FR 17795)
(Regulations E and DD, respectively). 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 interim final rules also incorporated many of the
provisions that were part of earlier regulatory proposals issued by the
Board regarding electronic disclosures.\1\
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\1\ On May 2, 1996, the Board proposed to amend Regulation E to
permit financial institutions to provide disclosures by sending them
electronically (61 FR 19696). Based on comments received, in 1998
the Board published an interim rule permitting the electronic
delivery of disclosures under Regulation E (63 FR 14528, March 25,
1998) and similar proposals under Regulations B, M, Z, and DD (63 FR
14552, 14538, 14548, and 14533, respectively, March 25, 1998). Based
on comments received on the 1998 proposals, in 1999 the Board
published revised proposals under Regulations B, E, M, Z, and DD (64
FR 49688, 49699, 49713, 49722 and 49740, respectively, September 14,
1999).
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Under the 2001 interim final rules, 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 (typically by e-mail) 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.
[[Page 63446]]
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 who choose to receive electronic disclosures 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 41439, August 8, 2001.)
Thus, creditors are not required to comply with the interim final
rules. Since that time, the Board had 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.
In April 2007, the Board proposed to amend Regulation B and the
official staff commentary by (1) withdrawing portions of the 2001
interim final rule 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. (72 FR 21125,
April 30, 2007.) Similar amendments were also proposed by the Board
under Regulations E, M, Z, and DD (72 FR 21131, 72 FR 21135, 72 FR
21141, and 72 FR 21155, respectively).
III. Summary of the Final Rule
The Board received about 25 comments on the April 2007 proposal,
primarily from creditors and their representatives. Most of the
industry commenters generally supported the proposal, although some
provided suggestions for clarifications or changes to particular
elements of the proposal. A comment letter was also submitted on behalf
of four consumer groups. The consumer group commenters suggested a
number of changes to strengthen consumer protections. The comments are
discussed in more detail in the Section-by-Section Analysis below.
For the reasons discussed below, the Board is now adopting
amendments to Regulation B in final form, largely as proposed in April
2007. As stated in the proposal, because compliance with the 2001
interim final rules has not been mandatory, the final rule will reduce
confusion about the status of the electronic disclosure provisions and
simplify the regulation. (Certain provisions in the 2001 interim rules,
including provisions addressing foreign language disclosures, were not
affected by the lifting of the mandatory compliance date and became
final in 2001; thus, those provisions are not dealt with in this
rulemaking.) The Board is also adopting certain provisions that are
identical or similar to provisions in the 2001 interim 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.
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 creditor,
government agency, or other trusted entity) that have become more
pronounced since 2001. The Board is also eliminating 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 applicants in electronic form without obtaining E-Sign
consent if the disclosures were provided on or with an application.
Similarly, in the April 2007 proposal, pursuant to the Board's
authority under section 703(a)(1) of the ECOA, as well as under section
104(d) of the E-Sign Act,\2\ the Board proposed to specify the
circumstances under which certain disclosures may be provided on or
with an application in electronic form, rather than in writing as
required by Regulation B, without obtaining the applicant's consent
under section 101(c) of the E-Sign Act.
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\2\ Section 703(a)(1) of the ECOA provides that regulations
prescribed by the Board under the ECOA ``may provide for such
adjustments and exceptions * * * as in the judgment of the Board are
necessary or proper to effectuate the purposes of [the ECOA], * * *
or to facilitate or substantiate compliance [with the requirements
of the ECOA].'' 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 disclosures. In addition, the Board believes ECOA
section 703(a)(1) authorizes the Board to permit creditors to
provide disclosures electronically, rather than in paper form,
independent of the E-Sign Act.
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Commenters supported the Board's approach with regard to this
issue. This final rule adopts the approach in the April 2007 proposal.
The Board continues to believe that creditors should not be required to
obtain the consumer's consent in order to provide application-related
disclosures if the consumer accesses the application containing these
disclosures in electronic form, such as at an Internet Web site. The
Board believes consumers would not be harmed if the E-Sign consent
procedures do not apply and would obtain significant benefits by having
timely access to application-related disclosures in electronic form.
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 are 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 apply for credit.
At the same time, the Board recognizes that consumers who apply for
credit online may not want to receive other disclosures electronically.
Therefore, with respect to adverse action notices and copies of
appraisal reports, creditors are required to obtain the consumer's
consent, in accordance with the E-Sign Act, to provide such disclosures
in electronic form, or else provide written disclosures.
[[Page 63447]]
Finally, as proposed, 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 are being deleted as unnecessary, because the E-Sign Act is
a self-effectuating statute. The revisions to Regulation B and the
official staff commentary are described more fully below in the
Section-by-Section Analysis.
IV. Section-by-Section Analysis
12 CFR Part 202 (Regulation B)
Section 202.4 General Rules
Section 202.4(d) prescribes the form of disclosures, and
specifically provides that a creditor that provides in writing any
disclosures or information required by the regulation must provide the
disclosures in a clear and conspicuous manner and, except for the
disclosures required by Sec. Sec. 202.5 and 202.13, in a form that the
applicant may keep. As proposed, the Board is revising Sec. 202.4(d)
to clarify that, with regard to disclosures that the regulation
requires to be given in writing, creditors may provide such disclosures
in electronic form, subject to compliance with the consumer consent and
other applicable provisions of the E-Sign Act. Some creditors may
provide disclosures to applicants 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
disclosures may be provided to applicants without regard to the
consumer consent or other provisions of the E-Sign Act because the
electronic form of the disclosure is not used to satisfy the
regulation's disclosure requirements.
The Board also proposed to revise Sec. 202.4(d) to provide that
certain disclosures, when included on or with an application, must be
provided to the applicant in electronic form if the applicant accesses
the application electronically, such as on a home computer. The
proposal further provided that, under those circumstances, these
disclosures may be provided in electronic form without regard to the
consumer consent or other provisions of the E-Sign Act. The proposal
affected the following disclosures:
Section 202.5(b)(1). Section 202.5(b)(1) provides that if a
creditor inquires about an applicant's race, color, religion, national
origin, or sex for the purpose of conducting a self-test, the creditor
must disclose that providing the information is optional for the
applicant, that the information is requested to monitor compliance with
the ECOA, and that the creditor may not discriminate either on the
basis of the information or whether the applicant chooses to furnish
it.
Section 202.5(b)(2). Section 202.5(b)(2) provides that when a
creditor requests an applicant to designate a title on an application
form, the application form must disclose that the designation of a
title is optional.
Section 202.5(d)(1). Section 202.5(d)(1) provides that if an
application is for other than individual unsecured credit, a creditor
may inquire about the applicant's marital status, but must use only the
terms married, unmarried, and separated. The creditor may also explain
that the unmarried category includes single, divorced, and widowed
persons.
Section 202.5(d)(2). Section 202.5(d)(2) prohibits a creditor from
inquiring whether income stated in an application is derived from
alimony, child support, or separate maintenance payments, unless the
creditor discloses to the applicant that such income need not be
revealed if the applicant does not want the creditor to consider it in
determining the applicant's creditworthiness.
Section 202.13. Section 202.13(a) requires a creditor to request
information regarding an applicant's ethnicity, race, sex, marital
status, and age as part of an application for dwelling-secured credit
primarily for the purchase or refinancing of a dwelling occupied or to
be occupied by the applicant as a principal residence. Section
202.13(b) provides that questions about ethnicity, race, sex, marital
status and age may be listed, at the creditor's option, on the
application form or on a separate form that refers to the application.
Section 202.13(c) requires the creditor to disclose to the
applicant that the information about ethnicity, race, sex, marital,
status and age is being requested by the federal government to monitor
compliance with federal statutes that prohibit creditors from
discriminating against applicants. The creditor must also disclose that
if the applicant chooses not to provide the information, the creditor
is required to note the ethnicity, race, and sex on the basis of visual
observation or surname.
Section 202.14(a)(2)(i). Section 202.14(a)(2)(i) requires a
creditor that provides copies of appraisal reports only upon request
(rather than routinely) to notify the applicant of the right to obtain
a copy of the report.
Under Regulation B, an application generally is not required to be
in writing.\3\ Section 202.2(f) of the regulation defines the term
``application'' to include ``an oral or written request for an
extension of credit that is made in accordance with procedures used by
a creditor for the type of credit requested.'' Since an application
does not have to be in writing, the disclosures that are provided on or
with an application in certain circumstances do not have to be provided
in writing in all cases. These disclosures include those required under
Sec. Sec. 202.5(b)(1), 202.5(b)(2), 202.5(d)(1), 202.5(d)(2), and
202.13. (Section 202.14(a)(2)(i) specifies that the notice of the right
to a copy of the appraisal report must be provided in writing.)
However, most creditors use written or electronic application forms and
make these disclosures, where applicable, on the written or electronic
application form or a separate accompanying form. The Board's Model
Application Forms in Appendix B to the regulation include some of these
disclosures on the application forms.
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\3\ Under Sec. 202.4(c), a creditor must take written
applications for dwelling-related credit for which monitoring
information (under Sec. 202.13) must be collected. However, use of
a printed form is not required. A creditor may accept telephone or
other oral applications and either write down or enter into a
computer the pertinent information provided orally by the applicant.
See Comments 202.4(c)-1 and 2.
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The April proposal revised Sec. 202.4(d) to provide that each of
the disclosures noted above, where given on or with the application
form and where the application is accessed by the applicant in
electronic form, must be provided to the applicant in electronic form
on or with the application. The proposed revision also clarified that
under these circumstances, the disclosures may be provided in
electronic form without regard to the consumer consent or other
provisions of the E-Sign Act. The Board proposed to add comment 4(d)-2
to clarify this point and also to make clear that if an applicant is
provided with a paper application form, the required disclosures must
be provided in paper form on or with the application (and not, for
example, by including a reference in the paper application to the Web
site where the disclosures are located).
Many creditor commenters urged the Board to revise the regulation
and commentary to permit disclosures to be given in paper form in
appropriate cases, even where an application is in electronic form. In
particular, commenters noted that requiring electronic disclosures
could present problems for applications taken in person using
electronic means.
[[Page 63448]]
Commenters stated, for example, that a consumer or creditor employee
might complete an electronic application by entering information at a
terminal or kiosk in the creditor's office. These commenters noted that
paper disclosures would be more appropriate in such cases, because the
applicant would be able to retain them. For example, a loan officer
could give the disclosures to the consumer, or in the case of an
unattended kiosk, the kiosk could have a printer to provide paper
disclosures.
Some creditor commenters argued that the proposed requirement would
contravene the E-Sign Act, based on the provisions in E-Sign that state
(1) that the statute does not require any person to accept or use
electronic records in place of paper, and (2) that any regulations
interpreting E-Sign may not add to its requirements. Creditor
commenters suggested that, at a minimum, the regulation should provide
an exception to allow paper disclosures for in-person electronic
applications. Consumer group commenters stated that the regulation
should not only permit, but should require, paper disclosures in the
case of in-person electronic applications. For example, the commenters
noted that a door-to-door solicitor could otherwise simply display
certain disclosures to a consumer on the screen of a laptop computer,
even though the consumer would have no way to later access the
disclosures.
One creditor commenter suggested that, in addition to permitting
paper disclosures for electronic applications, the regulation should
also permit electronic disclosures for paper applications without
consumers' consent in certain cases. For example, the commenter
suggested, a basic or short-form disclosure could be provided in paper
form along with the paper application, together with a Web site where a
more complete disclosure could be obtained.
In the final regulation, Sec. 202.4(d) is revised to state that if
an application is accessed by the consumer in electronic form, the
required application-related disclosures may (rather than must) be
provided in electronic form, without regard to the consumer consent or
other provisions of the E-Sign Act. The Board believes that this will
eliminate a potential significant burden on electronic commerce without
increasing the risk of harm to consumers. This approach will facilitate
applications for credit by enabling applicants to receive important
disclosures at the same time they access an application electronically
without first having to provide consent in accordance with the
requirements of the E-Sign Act. Requiring applicants to follow the
consent procedures set forth in the E-Sign Act in order to complete an
online application is potentially burdensome and could discourage
applicants from shopping for credit online. Moreover, because these
applicants are viewing the application online, there appears to be
little, if any, risk that the applicant will be unable to view the
disclosures online as well.
The final rule states that the disclosures may, rather than must,
be provided in electronic form. The proposal to require electronic
disclosures for credit applications that are accessed electronically
was intended to ensure that the disclosures are provided on or with the
application in compliance with the timing and delivery requirements of
Regulation B. Several sections of the regulation that relate to credit
applications already require that the credit application disclosures be
provided on or with the application, and this requirement applies to
electronic as well as paper applications; the only added requirement
under the proposal would have been to require that, in the case of an
electronic application, the disclosures be in electronic form.
Where a consumer accesses and submits an application form using a
home computer via a creditor's Web site, the creditor must provide the
disclosures in electronic form with the application form on the Web
site in order to meet the requirement to provide disclosures in a
timely manner on or with the application. If the creditor instead
mailed paper disclosures to the consumer, this requirement would not be
met. This guidance is stated in new comment 4(d)-2.
In contrast, if a consumer is physically present in the creditor's
office, and accesses and submits an electronic application--such as via
a terminal or kiosk--the Board believes the creditor could provide
disclosures in paper form and comply with the timing and delivery
requirements of the regulation. In addition, as discussed by the
commenters, paper disclosures may be preferable in this situation
because they can be retained by the consumer. Therefore, paper
disclosures are permissible in the case of in-person electronic
applications in a creditor's office, when the timing and delivery
requirements are met. This guidance is also stated in new comment 4(d)-
2.
The final regulation, however, does not require paper disclosures
for such in-person electronic applications, as suggested by the
consumer group commenters. Electronic disclosures would comply with the
regulation for these applications in some cases. For example, for an
electronic in-person credit application in a creditor's office, the
creditor could display most of the required Regulation B disclosures to
the consumer on a terminal or kiosk screen. The requirement to provide
disclosures in a form the consumer may retain does not apply to the
application-related disclosures under Sec. Sec. 202.5 and 202.13, so
this procedure would comply with the regulation for those disclosures.
In the case of the notice regarding copies of appraisal reports under
Sec. 202.14, the retainability requirement does apply, and therefore
creditors would likely have to provide that disclosure in paper form in
an in-person application in a creditor's office.
New comment 4(d)-2 is modified from the proposal to provide the
guidance discussed above. In addition, the portion of the proposed
comment stating that paper applications must be accompanied by paper
disclosures has been deleted as unnecessary. For example, if a credit
application in paper form did not contain all of the required
disclosures, but instead referred the consumer to a Web site where some
or all of the disclosures could be found, the application would not be
in compliance with the requirement that the disclosures be provided in
a timely manner on or with the application. In addition, the provisions
that state that electronic disclosures may be provided without regard
to the consumer consent or other provisions of the E-Sign Act are
limited to situations where the application itself is in electronic
form. Thus, if a creditor wanted to provide electronic disclosures for
a paper application (for example, where a paper application is
submitted in person at the creditor's office), the creditor would first
have to comply with the E-Sign notice and consent requirements.
Section 202.9 Notifications
Section 202.9(g) provides that when an application for credit is
submitted through a third party to more than one creditor and no credit
is offered (or the applicant does not expressly accept or use any
credit offered), each creditor taking adverse action must provide the
notice required by Sec. 202.9(a), but may do so through a third party.
The 2001 interim final rule added a new Sec. 202.9(h) to clarify that
such third parties may use electronic disclosures to provide the
required adverse action notice. As proposed in April 2007, this
provision is being deleted as unnecessary because the E-Sign Act is a
self-effectuating statute and permits any
[[Page 63449]]
person to use electronic records subject to the conditions set forth in
the Act.
Section 202.16 Requirements for Electronic Communication
Section 202.16 was added by the 2001 interim final rule to address
the general requirements for electronic communications.\4\ In the April
2007 proposal, the Board proposed to delete Sec. 202.16 from
Regulation B and the accompanying sections of the staff commentary.
Creditor commenters largely supported the proposed deletion, and Sec.
202.16 and the accompanying commentary are deleted in the final rule.
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\4\ The requirements for electronic communication were initially
adopted in Sec. 202.17. In the Board's comprehensive review of
Regulation B, this provision was renumbered as Sec. 202.16. (68 FR
13144, March 18, 2003.)
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In the interim rule, Sec. 202.16(a) defined 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. 202.16(a)
does not change applicable legal requirements under the E-Sign Act.
Sections 202.16(b), (c) and (f) incorporated 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 applicant's affirmative consent before providing such
disclosures, and the provision allowing electronic signatures. The
deletion of these provisions has no impact on the general applicability
of the E-Sign Act to Regulation B disclosures.
The special rule in Sec. 202.16(c) exempting the disclosures
relating to adverse action in connection with business credit,
appraisal reports, and the collection of monitoring information from
the E-Sign Act consent requirements has been eliminated. The special
rule for disclosures relating to adverse action notices provided in
connection with business credit has been removed because the E-Sign
Act's consumer consent requirements do not apply to business credit.
The special rules for disclosures relating to appraisal reports and the
collection of monitoring information are addressed in Sec. 202.4(d)(2)
of the final rule.
Sections 202.16(d) and (e) of the interim final rule addressed
specific timing and delivery requirements for electronic disclosures
under Regulation B, such as the requirement to send disclosures to an
applicant's e-mail address (or post the disclosures on a Web site and
send a notice alerting the applicant to the disclosures). The Board
stated in the proposal that it no longer believed that these additional
provisions were necessary or appropriate. The Board noted that
electronic disclosures have evolved since 2001, as industry and
consumers have gained experience with them, and also noted concerns
about e-mail related to data security, identity theft, and phishing.
The consumer group commenters urged the Board to require the use of
e-mail to provide required disclosures in electronic form, arguing that
e-mail is the only reliable way to ensure that consumers are able to
actually access, receive, and retain disclosures. The consumer groups
also disagreed with the statement that concerns relating to phishing,
identity theft, and data security are a valid reason for not requiring
the use of e-mail, noting that phishing involves gathering information
from the consumer, while disclosures would be provided to the consumer,
and need not include sensitive information.
While the consumer's receipt of an e-mail message that is actually
from the consumer's creditor would not in general pose a security risk,
consumers might ignore or delete e-mails from creditors (real or
purported), in order to avoid falling victim to fraud schemes. Thus,
disclosures sent by consumers' creditors may not receive the attention
they should. Consequently, some creditors may be reluctant to
communicate by e-mail. To the extent consumers are instructed not to
ignore electronic mail messages from their creditors, the risk of
consumers being victimized by fraudulent e-mail might be increased. In
any event, the Board believes it is preferable not to mandate the use
of any particular means of electronic delivery of disclosures, but
instead to allow flexibility for creditors to use whatever method may
be best suited to particular types of disclosure.
Under the April 2007 proposed rule, the requirement in the 2001
interim final rule for creditors to maintain disclosures posted on a
Web site for at least 90 days would be deleted. Creditor commenters
supported the proposed deletion; consumer group commenters expressed
concern about its impact on consumers. The Board continues to believe
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 that
would vary depending on the disclosures, which would increase the
compliance burden. Therefore, the 90-day retention provision is deleted
as proposed.
Nevertheless, while the Board is not requiring disclosures to be
maintained on an Internet Web site for any specific time period, the
general requirements of Regulation B 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. The Board expects creditors to maintain disclosures on Web
sites for a reasonable period of time (which may vary depending upon
the particular disclosure) so that consumers have an opportunity to
access, view, and retain the disclosures. As stated in the April 2007
proposal, the Board will monitor creditors' electronic disclosure
practices with regard to the ability of consumers to retain Regulation
Z disclosures and would consider further revisions to the regulation to
address this issue if necessary.
Section 202.17 Enforcement, Penalties, and Liabilities
As proposed, Sec. 202.17 is redesignated as Sec. 202.16 (together
with the corresponding section of the official staff commentary),
concurrent with the deletion of current Sec. 202.16, as discussed
above.
V. Other Issues Raised by Commenters
Clear and Conspicuous Disclosures
An issue raised in the comments on the April 2007 proposal related
to small hand-held electronic devices through which consumers may
conduct financial transactions using the Internet or other electronic
means (for example, personal digital assistants, Internet-enabled
cellphones, and similar devices). One commenter requested clarification
on whether creditors would be deemed to comply with the requirement to
provide disclosures in a clear and conspicuous form, even when the
consumer views them on a small screen of a hand-held electronic device.
The commenter noted that the creditor has no control over what devices
consumers choose to use, for example, to view disclosures on a web
page. The Board believes that disclosures comply with the ``clear and
conspicuous'' requirement as long as they are provided in a manner such
that they would be clear and conspicuous when viewed on a typical home
personal computer monitor.
Retainable Form
Several industry commenters requested guidance on how creditors can
be sure of meeting the requirement to provide disclosures in a form
that the consumer can keep. Commenters noted that some of the
disclosures that are
[[Page 63450]]
exempted from the E-Sign requirements regarding notice and consent are
nevertheless required to be given in retainable form (for example, the
notice of right to a copy of an appraisal report, under Sec.
202.14(a)(2)(i)). Commenters pointed out that the E-Sign Act requires,
with regard to consumer disclosures generally, that a creditor disclose
``the hardware and software requirements for access to and retention of
the electronic records'' and that the consumer consent to electronic
disclosures ``in a manner that reasonably demonstrates that the
consumer can access'' the disclosures electronically. A commenter noted
that if the E-Sign procedures are followed, a creditor has some degree
of comfort that the retainability requirement has been met; however,
with regard to disclosures that are exempted from the E-Sign notice and
consent provisions (such as those under Sec. 202.14(a)(2)(i)), it is
not clear how the creditor can demonstrate compliance with the
retainability requirement.
The consumer group commenters were concerned about retainability of
disclosures in light of the deletion of the requirement to maintain
disclosures on a Web site for at least 90 days. They urged that the
final regulations require that disclosures be delivered in a format
that is both downloadable and printable.
The Board believes that creditors satisfy the requirement for
providing electronic disclosures in a form the consumer can retain if
they are provided in a standard electronic format that can be
downloaded and saved or printed on a typical home personal computer.
Typically, any document that can be downloaded by the consumer can also
be printed. The Board will, however, monitor creditors' practices to
evaluate whether further guidance is needed on this issue. In a
situation where the consumer is provided electronic disclosures through
equipment under the creditor's control--such as a terminal or kiosk in
the creditor's offices--the creditor could, for example, provide a
printer that automatically prints the disclosures.
Expansion of Exception From E-Sign Notice and Consent Requirements
One commenter suggested that the Board adopt an additional
exception from the E-Sign notice and consent requirements.
Specifically, the commenter suggested that the regulation should allow
adverse action notices and incomplete application notices, under Sec.
202.9, to be provided in electronic form without E-Sign notice and
consent if the consumer applies online, or applies by telephone and
orally consents to receiving these notices electronically. The
commenter argued that such an exception would permit faster notice, and
that online credit applicants expect to receive communications from the
creditor online. The Board believes that, at this time, there is
insufficient evidence that the consent requirements are a burden on
electronic commerce in this situation.
VI. 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. In the proposal, the Board invited
comments on whether the proposed rules are clearly stated and
effectively organized, and how the Board might make the proposed text
easier to understand. No comments were received on ``plain language''
issues involving Regulation B.
VII. Final Regulatory Flexibility Analysis
The Board prepared an initial regulatory flexibility analysis as
required by the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
in connection with the April 2007 proposal. The Board received no
comments on its initial regulatory flexibility analysis.
The 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
certifies that the rule will not have a significant economic impact on
a substantial number of small entities.
1. Statement of the need for, and objectives of, the final rule.
The Board is adopting revisions to Regulation B to withdraw the 2001
interim final rule on electronic communication and to allow creditors
to provide certain disclosures to applicants in electronic form on or
with an application 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 clarifying that other Regulation B
disclosures may be provided to applicants in electronic form in
accordance with the consumer consent and other applicable provisions of
the E-Sign Act.
The ECOA was enacted to promote the availability of credit to all
creditworthy applicants without regard to race, color, religion,
national origin, sex, marital status, age, the fact that all or part of
the applicant's income derives form a public assistance program, or the
fact that the applicant has in good faith exercised any right under the
Consumer Credit Protection Act. The primary objective of the ECOA is to
prohibit creditors from discriminating against any applicant on any of
these grounds with respect to any aspect of a credit transaction. 15
U.S.C. 1691(a). The ECOA authorizes the Board to prescribe regulations
to carry out the purposes of the statute. 15 U.S.C. 1691b(a)(1). The
Act expressly states that the Board's regulations may contain ``such
classifications, differentiations, or other provisions, * * * as, in
the judgment of the Board, are necessary or proper to carry out the
purposes of [the Act], to prevent circumvention or evasion [of the
Act], or to facilitate compliance [with the Act].'' 15 U.S.C.
1691b(a)(1). The Board believes that the proposed revisions to
Regulation B discussed above are within the Congress's broad grant of
authority to the Board to adopt provisions that carry out the purposes
of the statute.
2. Issues raised by comments in response to the initial regulatory
flexibility analysis. In accordance with section 603(a) of the RFA, the
Board conducted an initial regulatory flexibility analysis in
connection with the proposed rule. The Board did not receive any
comments on its initial regulatory flexibility analysis.
3. Small entities affected by the final rule. The ability to
provide application-related disclosures in electronic form on or with
an application that is accessed by the applicant in electronic form
applies to all creditors, regardless of their size. Accordingly, the
final rule 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 final rule
is unknown.
4. Other federal rules. The Board believes no federal rules
duplicate, overlap, or conflict with the final revisions to Regulation
B.
5. Significant alternatives to the proposed revisions. The Board
solicited comment on any significant alternatives that could provide
additional ways to reduce regulatory burden associated with the
proposed rule. Commenters suggested that in certain circumstances where
a consumer accesses a credit
[[Page 63451]]
application in electronic form, creditors should be permitted to
provide the required disclosures in paper form (rather than electronic
form as would be required under the proposed rule). The final rule
permits paper disclosures in certain circumstances as suggested by the
commenters. A commenter also suggested that in certain cases where a
consumer receives a credit application in paper form, creditors should
be permitted to provide the required disclosures in electronic form
without the consumer's consent. The final rule allows electronic
disclosures in the case of applications in paper form, but only if the
consumer consents in accordance with the E-Sign Act.
VIII. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (PRA) (44
U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the rule
under the authority delegated to the Board by the Office of Management
and Budget (OMB). The collection of information that is subject to the
PRA by this final rulemaking is found in 12 CFR part 202. 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-
0201.
Section 703(a)(1) of the Equal Credit Opportunity Act (15 U.S.C.
1691b(a)(1)) authorizes the Board to issue regulations to carry out the
provisions of the Act. The purpose of the Act is to ensure that credit
is made available to all creditworthy customers without discrimination
on the basis of race, color, religion, national origin, sex, marital
status, age (provided the applicant has the capacity to contract),
receipt of public assistance income, or the fact that the applicant has
in good faith exercised any right under the Consumer Credit Protection
Act (15 U.S.C. 1601 et seq.). This information collection is mandatory.
Since the Federal Reserve does not collect any information, no issue of
confidentiality normally arises. However, in the event the Board were
to retain records during the course of an examination, 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)). The adverse
action disclosure is confidential between the creditor and the consumer
involved.
Regulation B applies to all types of creditors, not just state
member banks. However, under the Paperwork Reduction Act, the Federal
Reserve accounts for the burden of the paperwork associated with the
regulation only for entities that are supervised by the Federal
Reserve. Appendix A of Regulation B defines these creditors 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 for the institutions they supervise. Creditors are
required to retain records for 12 to 25 months as evidence of
compliance.
The annual burden is estimated to be 165,630 hours for the 1,172
Federal Reserve-supervised creditors that are respondents for purposes
of the PRA. As mentioned in the Preamble, on April 30, 2007, a notice
of proposed rulemaking was published in the Federal Register (72 FR
21125). No comments specifically addressing the burden estimate were
received.
The Federal Reserve has a continuing interest in the public's
opinions of our collections of information. At any time, comments
regarding the burden estimate, or any other aspect of this collection
of information, including suggestions for reducing the burden, may be
sent to: Secretary, Board of Governors of the Federal Reserve System,
20th and C Streets, NW., Washington, DC 20551; and to the Office of
Management and Budget, Paperwork Reduction Project (7100-0201),
Washington, DC 20503.
List of Subjects in 12 CFR Part 202
Aged, Banks, banking, Civil rights, Credit, Federal Reserve System,
Marital status discrimination, Penalties, Religious discrimination,
Reporting and recordkeeping requirements, Sex discrimination.
0
For the reasons set forth in the preamble, the Board amends 12 CFR part
202 as set forth below:
PART 202--EQUAL CREDIT OPPORTUNITY (REGULATION B)
0
1. The authority citation for part 202 continues to read as follows:
Authority: 15 U.S.C. 1691-1691f.
0
2. Section 202.4 is amended by revising paragraph (d) to read as
follows:
Sec. 202.4 General rules.
* * * * *
(d) Form of disclosures--(1) General rule. A creditor that provides
in writing any disclosures or information required by this regulation
must provide the disclosures in a clear and conspicuous manner and,
except for the disclosures required by Sec. Sec. 202.5 and 202.13, in
a form the applicant may retain.
(2) Disclosures in electronic form. The disclosures required by
this part that are required to be given in writing may be provided to
the applicant 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.). Where the disclosures under Sec. Sec. 202.5(b)(1),
202.5(b)(2), 202.5(d)(1), 202.5(d)(2), 202.13, and 202.14(a)(2)(i)
accompany an application accessed by the applicant in electronic form,
these disclosures may be provided to the applicant in electronic form
on or with the application form, without regard to the consumer consent
or other provisions of the E-Sign Act.
* * * * *
Sec. 202.9 [Removed]
0
3. Section 202.9 is amended by removing paragraph (h).
Sec. 202.16 [Removed]
0
4. Section 202.16 is removed.
Sec. 202.17 [Redesignated]
0
5. Section 202.17 is redesignated as Sec. 202.16.
0
6. In Supplement I to Part 202, the following amendments are made:
0
a. In Section 202.4--General Rules, under Paragraph (4)(d), new
paragraph 2. is added.
0
b. Section 202.16--Requirements for Electronic Communication is
removed;
0
c. Section 202.17--Enforcement, Penalties, and Liabilities is
redesignated as section 202.16.
The amendments to read as follows:
SUPPLEMENT I TO PART 202--OFFICIAL STAFF INTERPRETATIONS
* * * * *
Section 202.4--General Rules
* * * * *
Paragraph (4)(d)
* * * * *
2. Form of disclosures. Whether the disclosures required to be
on or with an application must be in electronic form depends upon
the following:
i. If an applicant accesses a credit application electronically
other than in-person in a creditor's office (covered under ii.
below), such as online at a home computer, the creditor must provide
the disclosures in electronic form (such as with the application
form on its Web site) in order to meet the requirement to provide
[[Page 63452]]
disclosures in a timely manner on or with the application. If the
creditor instead mailed paper disclosures to the applicant, this
requirement would not be met.
ii. In contrast, if an applicant is physically present in the
creditor's office, and accesses a credit application electronically,
such as via a terminal or kiosk, the creditor may provide
disclosures in either electronic or paper form, provided the
creditor complies with the timing, delivery, and retainability
requirements of the regulation.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, October 31, 2007.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E7-21697 Filed 11-8-07; 8:45 am]
BILLING CODE 6210-01-P