[Federal Register Volume 72, Number 240 (Friday, December 14, 2007)]
[Rules and Regulations]
[Pages 71058-71059]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-24222]



[[Page 71058]]

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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: Final rule; technical amendment.

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SUMMARY: The Board is revising the official staff commentary to 
Regulation Z, which implements the Truth in Lending Act, to clarify an 
amendment published on November 9, 2007. The clarification and the 
earlier amendment relate to the electronic delivery of disclosures 
under Regulation Z.

DATES: The amendment is effective January 14, 2008. 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. 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.
    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.
    Recently the Board published amendments to Regulation Z and the 
official staff commentary to the regulation to provide guidance on the 
use of electronic disclosures, consistent with the E-Sign Act (72 FR 
63,462, November 9, 2007). The amendments take effect on a mandatory 
basis on October 1, 2008. The Board has received questions about one 
aspect of the official staff commentary accompanying the November 2007 
amendments to Regulation Z. The Board is now issuing this clarification 
to the staff commentary to address the questions raised.

II. The November 2007 Final Rule

    Under the Board's November 2007 final rule, creditors may provide 
certain shopping or advertising disclosures required by Regulation Z in 
electronic form without obtaining the consumer's consent pursuant to 
the E-Sign Act. These include the disclosures required to be provided 
on or with credit card applications and solicitations (Sec.  226.5a) 
and applications for home-equity lines of credit (Sec.  226.5b). Also 
included are the disclosures that must be provided when an application 
is provided to the consumer for certain adjustable rate mortgage (ARM) 
loans (Sec.  226.19(b)). Many creditors that commented on the Board's 
proposed rules, which were published for comment in April 2007, urged 
that they be permitted to provide these disclosures in paper form in 
appropriate cases, even when the application or solicitation is 
accessed by the consumer electronically. They noted that a consumer or 
creditor's employee might complete an electronic application by 
entering information at a terminal or kiosk located in the creditor's 
office and that paper disclosures would be more appropriate in such 
cases. In response to the commenters' concerns, the November 2007 final 
rule states that if an application or solicitation is accessed by the 
consumer in electronic form, the required application or solicitation 
disclosures may (rather than must) be provided in electronic form on or 
with the application or solicitation. See 12 CFR 226.5a(a)(2)(v), 
226.5b(a)(3), and 226.19(c).
    Because the regulation allows disclosures to be given in either 
paper or electronic form when consumers access an application or 
solicitation electronically, the Board also revised the commentary to 
Regulation Z to provide examples of how creditors can satisfy the 
requirement that the disclosures be ``on or with'' the application or 
solicitation in particular circumstances. As revised, the commentary 
reflects that where a consumer accesses and submits an application form 
using a home computer via the creditor's Web site, the creditor must 
provide the disclosures electronically with the application form on the 
Web site to provide disclosures in a timely manner on or with the 
application. If the creditor instead mailed paper disclosures to the 
consumer, the disclosures would not be timely and would not be provided 
on or with the application. 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 revised 
commentary notes that the creditor could use paper disclosures to 
comply with the timing and delivery requirements of the regulation 
(``on or with''). See comments 5a(a)(2)-9, 5b(a)(3)-1, and 19(c)-1. For 
example, a loan officer could give the disclosures to the consumer in 
paper form, or in the case of an unattended kiosk, the kiosk could have 
a printer and provide paper disclosures.

III. Revisions to the Staff Commentary

    Following publication of the November 2007 final rule, questions 
have been raised about other situations where creditors could provide 
paper disclosures in a timely manner to consumers accessing a credit 
application electronically, even though the consumers are not 
physically present in the creditor's office. For example, consumers 
might access a credit application using an electronic terminal or kiosk 
on the premises of the creditor's affiliate or a third party (such as a 
retail store) that has arranged with the creditor to provide 
applications to consumers. In these cases, consumers could receive 
paper disclosures with the credit application in the same manner as in 
the creditor's own office. This is consistent with the revised 
regulation and the Board's intent in issuing the November 2007 final 
rule. Accordingly, the Board is revising comments 5a(a)(2)-9, 5b(a)(3)-
1, and 19(c)-1, to clarify that these are additional examples where 
paper disclosures would satisfy the rule's requirements for providing 
disclosures ``on or with'' the application.
    The Board is issuing this commentary revision in final form. Under 
the Administrative Procedure Act, 5 U.S.C. 551 et seq., publication of 
a notice of proposed rulemaking is not required for interpretative 
rules, general statements

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of policy, or rules of agency organization, procedure, or practice. 5 
U.S.C. 553(b)(A). In this case, the Board has determined that the 
public notice and comment provisions do not apply to this rulemaking 
because the revisions are interpretative rules. The commentary revision 
does not establish new regulatory requirements and merely clarifies, 
through additional examples, how creditors can meet the existing 
requirement for providing disclosures ``on or with'' applications and 
solicitations in particular circumstances. Moreover, the commentary 
revision provides creditors with an expanded safe harbor for complying 
with the rule by allowing them to use either paper or electronic 
disclosures in the circumstances described, consistent with the public 
comments previously received by the Board. The changes, therefore, meet 
the requirements for exemption from notice and comment in 5 U.S.C. 
553(b)(A).

 List of Subjects in 12 CFR Part 226

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


0
For the reasons set forth in the preamble, the Board amends the 
Official Staff Commentary to Regulation Z, 12 CFR part 226, as set 
forth below:

PART 226--TRUTH IN LENDING (REGULATION Z)

0
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).


0
2. In Supplement I to part 226, the following amendments are made:
0
a. In Section 226.5a--Credit and Charge Card Applications and 
Solicitations, under 5a(a)(2) Form of Disclosures, paragraph 9. is 
revised.
0
b. In Section 226.5b--Requirements for Home Equity Plans, under 5b(a) 
Form of Disclosures, under Paragraph 5b(a)(3), paragraph 1. is revised.
0
c. In Section 226.19--Certain Residential Mortgage and Variable-Rate 
Transactions, under 19(c) Electronic disclosures, paragraph 1. is 
revised.
    The amendments read as follows:

SUPPLEMENT I TO PART 226--OFFICIAL STAFF INTERPRETATIONS

* * * * *

Subpart B--Open-End Credit

* * * * *


Section 226.5a  Credit and Charge Card Applications and Solicitations

* * * * *
    5a(a) General rules.
    5a(a)(2) Form of disclosures.
* * * * *
    9. Form of disclosures. Whether disclosures must be in electronic 
form depends upon the following:
    i. If a consumer accesses a credit card application or solicitation 
electronically (other than as described under ii. below), such as 
online at a home computer, the card issuer must provide the disclosures 
in electronic form (such as with the application or solicitation on its 
Web site) in order to meet the requirement to provide disclosures in a 
timely manner on or with the application or solicitation. If the issuer 
instead mailed paper disclosures to the consumer, this requirement 
would not be met.
    ii. In contrast, if a consumer is physically present in the card 
issuer's office, and accesses a credit card application or solicitation 
electronically, such as via a terminal or kiosk (or if the consumer 
uses a terminal or kiosk located on the premises of an affiliate or 
third party that has arranged with the card issuer to provide 
applications or solicitations to consumers), the issuer may provide 
disclosures in either electronic or paper form, provided the issuer 
complies with the timing and delivery (``on or with'') requirements of 
the regulation.
* * * * *


Section 226.5b  Requirements for Home Equity Plans

* * * * *
    5b(a) Form of disclosures.
* * * * *
    Paragraph 5b(a)(3)
    1. Form of disclosures. Whether disclosures must be in electronic 
form depends upon the following:
    i. If a consumer accesses a home equity credit line application 
electronically (other than as described 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 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.
    ii. In contrast, if a consumer is physically present in the 
creditor's office, and accesses a home equity credit line application 
electronically, such as via a terminal or kiosk (or if the consumer 
uses a terminal or kiosk located on the premises of an affiliate or 
third party that has arranged with the creditor to provide applications 
to consumers), 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.
* * * * *

Subpart C--Closed-end Credit

* * * * *


Section 226.19  Certain Residential Mortgage and Variable-Rate 
Transactions

* * * * *
    19(c) Electronic disclosures.
    1. Form of disclosures. Whether disclosures must be in electronic 
form depends upon the following:
    i. If a consumer accesses an ARM loan application electronically 
(other than as described 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 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.
    ii. In contrast, if a consumer is physically present in the 
creditor's office, and accesses an ARM loan application electronically, 
such as via a terminal or kiosk (or if the consumer uses a terminal or 
kiosk located on the premises of an affiliate or third party that has 
arranged with the creditor to provide applications to consumers), 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, acting through the Director of the Division of Consumer and 
Community Affairs under delegated authority, December 11, 2007.
Jennifer J. Johnson,
Secretary of the Board.
 [FR Doc. E7-24222 Filed 12-13-07; 8:45 am]
BILLING CODE 6210-01-P