[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19662-19678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10179]
[[Page 19661]]
_______________________________________________________________________
Part II
Federal Reserve System
_______________________________________________________________________
12 CFR Part 205
Electronic Fund Transfers; Final Rules and Proposed Rule
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules
and Regulations
[[Page 19662]]
FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-0830]
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board is publishing a final rule to amend Regulation E,
which implements the Electronic Fund Transfer Act. The amendments are a
result of the Board's review of Regulation E under its Regulatory
Planning and Review Program, which calls for the periodic review of all
Board regulations. The final rule contains some substantive amendments,
including changes to the existing exemptions for securities or
commodities transfers. Primarily, the final amendments simplify the
language and format of the regulation, and delete obsolete provisions.
Commenters generally supported the Board's proposed amendments and
offered suggestions for additional changes, some of which were adopted
in the final rule. In conjunction with the amendments to the
regulation, the Board also has made amendments to the staff commentary,
published elsewhere in today's Federal Register.
DATES: Effective date. May 2, 1996. Compliance date. Mandatory
compliance January 1, 1997.
FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Kyung Cho-Miller,
Natalie Taylor, or Michael Hentrel, Staff Attorneys, Division of
Consumer and Community Affairs, at (202) 452-2412 or (202) 452-3667.
For users of Telecommunications Device for the Deaf only, contact
Dorothea Thompson, at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background
The Electronic Fund Transfer Act (EFTA) (15 U.S.C. 1693), enacted
in 1978, provides a basic framework establishing the rights,
liabilities, and responsibilities of participants in electronic fund
transfer (EFT) systems. The Federal Reserve Board was given rulewriting
authority to issue implementing regulations. Types of transfers covered
by the act and regulation include transfers initiated through an
automated teller machine (ATM), point-of-sale terminal, automated
clearinghouse, telephone bill-payment system, or home banking program.
The act and Regulation E (12 CFR part 205) provide rules that govern
these and other EFTs. The rules prescribe restrictions on the
unsolicited issuance of ATM cards and other access devices; disclosure
of terms and conditions of an EFT service; documentation of EFTs by
means of terminal receipts and periodic account statements; limitations
on consumer liability for unauthorized transfers; procedures for error
resolution; and certain rights related to preauthorized EFTs.
Board policy under its Regulatory Planning and Review (RPR) program
calls for the periodic review of each Board regulation. The RPR program
has four goals: to clarify and simplify regulatory language; to amend
regulations to reflect technological and other developments; to reduce
undue regulatory burden on the industry; and to delete obsolete
provisions. In keeping with that policy, the Board conducted a detailed
review of Regulation E to determine whether it can be simplified to
ease compliance burdens for financial institutions, while meeting the
Board's responsibility for implementing the consumer protections of the
EFTA. The Board issued a proposed rule on March 7, 1994 (59 FR 10684).
Based on the comments received on the proposal and on its own
further analysis, the Board has adopted a revised Regulation E. While
certain substantive revisions have been made (see the section-by-
section discussion below), the final rule leaves most of the regulatory
provisions substantively unchanged. The regulation closely follows the
statute, which contains detailed requirements in most areas; major
changes to the regulation are not possible unless the act itself is
amended. The Board solicited comment on whether specific legislative
revisions to the EFTA are necessary and achievable without imposing a
significant adverse impact on consumer protections. A number of
commenters provided recommendations. The Board plans to convey these
recommendations to the Congress, as appropriate, as part of a report
that the Board will make pursuant to section 303 of the Community
Development and Regulatory Improvement Act of 1994.
The final rule simplifies the language and format of each section
of the regulation to state the requirements more clearly. All footnotes
are either integrated into the text of the regulation or moved to the
staff commentary, making the regulation itself less cumbersome to use.
The final regulation is shorter than current Regulation E by about
fifteen percent, a reduction largely attributable to the deletion of
obsolete provisions and to the transfer of explanatory material to the
commentary. Commenters offered specific suggestions, as well as
rationale, for changes to the regulation (beyond those proposed by the
Board) that would facilitate compliance. A number of these suggestions
have been incorporated in the final rule. Also, unless otherwise
indicated below, the revisions that were proposed in March 1994 have
been adopted in the final rule.
II. Regulatory Revisions
The following discussion covers the revisions to Regulation E
section-by-section. In many cases, the changes simplify or clarify the
current text, with no substantive change in the regulatory
requirements; where the meaning of these changes is evident from
reading the text itself, they are not discussed.
Section 205.1--Authority and purpose
This section has been simplified without substantive change. The
discussion of congressional findings in former paragraph (b) and
contained in Sec. 902(a) of the act has been deleted as unnecessary.
The paragraph relating to the coverage of the act and regulation has
been moved to Sec. 205.3.
Section 205.2--Definitions
2(b) Account
This paragraph incorporates in paragraph (b)(2) the exemption for
trust accounts (former Sec. 205.3(f)) to track more closely the
statutory language contained in section 903(2) of the EFTA.
2(d) Business day
This paragraph defining business day is unchanged.
The act and regulation define business day as any day on which the
offices of the consumer's financial institution are open to the public
for carrying on substantially all business functions. This requires
that each financial institution determine when its offices are
``carrying on substantially all business functions.'' The Board
proposed to use its authority under section 904(c) of the EFTA to
change the definition to mirror the definitions used in Regulations CC
(12 CFR part 229) and DD (12 CFR part 230). Those regulations define a
business day as a calendar day other than a Saturday, Sunday, or any
legal public holiday specified in 5 U.S.C. 6103(a).
Some commenters supported the proposed change; they believed that
the change would simplify compliance by conforming the regulations
governing deposit accounts. Among these commenters, however, several
qualified their support. Some believed that a financial institution
should not be
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required to investigate and resolve errors on a day that the
institution is not open for business. These commenters were concerned
that they could have fewer days to investigate and resolve errors; they
suggested using the definition of ``banking day'' in Regulation CC (the
current definition of ``business day'' in Regulation E) to compute the
time period for resolving disputes. Using multiple definitions--
including the existing definition for certain purposes--would seem to
further complicate the regulation. Other commenters opposed changing
the definition, mentioning the burden and cost associated with changing
disclosures without corresponding benefit. After further analysis, the
Board has retained the current definition.
2(f) Credit
The definition of credit, inadvertently deleted from the proposal,
has been retained.
2(i) Financial institution
The definition of financial institution (former Sec. 205.2(i)) has
been simplified by eliminating references to both state and federal
institutions.
2(j) Person
A definition of ``person'' has been added, incorporating language
similar to that in Regulation B (Equal Credit Opportunity, 12 CFR
202.2(x)) and Regulation Z (Truth in Lending, 12 CFR 226.2(a)(22)). The
term is used in several places in the regulation, including
Sec. 205.3(a), which defines the regulation's coverage, Sec. 205.10(e)
on compulsory use, and Sec. 205.13(b) on record retention.
Section 205.3--Coverage
This section (formerly captioned Exemptions) incorporates the
definition of an EFT (formerly in Sec. 205.2) and consolidates in one
place all the rules dealing with coverage to facilitate compliance. A
proposal regarding Regulation E coverage of stored-value products and
other emerging EFT payment systems is published separately in today's
Federal Register.
3(b) Electronic fund transfer
The definition of ``electronic fund transfer'', which is central to
determining coverage under the regulation, has been moved to paragraph
3(b). The definitions of ``preauthorized electronic fund transfer'' and
``unauthorized electronic fund transfer'' remain in the definitions
section.
3(c)(3) Wire or other similar transfers
The exemption for wire transfers in former Sec. 205.3(b) has been
revised to clarify that it exempts transfers through Fedwire (or
similar wire transfer systems, such as CHIPS or S.W.I.F.T.) and not all
transfers through the Federal Reserve Communications System such as the
automated clearinghouse. No substantive change in the scope of the
exemption is intended.
Commenters generally favored the proposed revision. One commenter
requested examples of transfers similar to those through the Federal
Reserve Communications System that are exempt from Regulation E. The
commentary addresses this issue. (See comment 205.3(c)(3)-3.)
3(c)(4) Securities and commodities transfers
The exemption for certain securities and commodities transfers
(formerly Sec. 205.3(c)) is revised to more closely parallel the
statute. As revised, transfers involving unregulated securities are
exempt from the EFTA if the purchase or sale is transacted by a broker-
dealer regulated by the Securities and Exchange Commission (SEC) or a
futures commission merchant regulated by the Commodity Futures Trading
Commission (CFTC). The Board believes that the regulation of broker-
dealers and futures commission merchants offers sufficient protection
of payment transfers for consumers and that the application of the
protections in Regulation E would only duplicate available safeguards.
Paragraph (c)(4)(iii) extends the exemption to all securities or
commodities held in book-entry form by Federal Reserve Banks on behalf
of the Treasury Department and other federal agencies (for example,
Treasury Direct issues). Previously a transfer to purchase Treasury
securities was technically covered by Regulation E because the
securities were not regulated by the SEC or the CFTC and, when
purchased from the Federal Reserve Banks, were not purchased or sold by
a registered broker-dealer. The Board believes there is adequate
regulation of transfers that involve Federal Reserve Banks and federal
agencies, offering sufficient consumer protection (see 31 CFR part 370,
regulations governing payments by the automated clearing house method
on account of United States securities).
3(c)(6) Telephone initiated transfers
Former Sec. 205.3(e) exempted any transfer of funds initiated by a
telephone conversation between a consumer and an officer or an employee
of a financial institution if the transfer is not under a prearranged
plan. To accommodate telephone transfers initiated by facsimile or
through telephone response machines, this paragraph has been revised to
replace ``conversation'' with the broader term ``communications.'' Also
the phrase ``officer and employee'' has been deleted as unnecessary.
3(c)(7) Small institutions
The asset-size cutoff for the small institution exemption (formerly
contained in Sec. 205.3(g)) has been increased from $25 million to $100
million. Section 904(c) of the EFT gives the Board authority to modify
the requirements imposed by the regulation on small financial
institutions if the Board determines that such modifications are
necessary to alleviate any undue compliance burden on small
institutions and that such modifications are consistent with the
purposes and objective of the act. In 1982, the Board exempted
preauthorized transfers to or from accounts at financial institutions
with assets of less than $25 million to reduce compliance burdens for
small institutions that did not offer any other EFT services.
The regulation exempts the preauthorized transfers as a class of
EFTs, and not the financial institutions themselves. A small financial
institution that provides EFT services besides preauthorized transfers
must comply with the regulation for those other services. For example,
a small financial institution that offers ATM services must comply with
Regulation E in regard to the issuance of debit cards, terminal
receipts, periodic statements, and other requirements. In addition, the
institution must comply with provisions of the act that apply to the
financial institution's conduct rather than to the exempted transfers.
For example, the prohibition against compulsory use of EFTs in section
913 of the act, in regard to credit or employment, remains applicable.
When the Board adopted the $25 million exemption in 1982, many
small institutions that did not offer EFT services such as ATM access
benefited from the exemption. Given the growth in assets of financial
institutions in the past ten years, increasing the asset-size cutoff of
the exemption to $100 million could reduce burden without lessening the
extent of consumer protection originally provided. Because many small
institutions now offer a variety of EFT services, it appears that only
a limited number of institutions would be
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exempted from Regulation E under the increase.
The Board solicited comment on the proposed increase in the
exemption level and on other ways the burden on small institutions
could be reduced without sacrificing the consumer protections intended
by the act. The majority of the commenters agreed that increasing the
asset-size of the exemption would reduce burden and supported the
proposal. Most commenters supporting the proposal are credit unions
which do not offer EFTs other than preauthorized transfers such as
payroll deductions. Other commenters opposed the proposal, stating that
consumers should receive the same treatment from all institutions
regardless of asset size.
Based on comments and further analysis, the Board has increased the
asset-size cutoff to $100 million. In light of current concerns about
regulatory burden, the Board believes that increasing the asset-size
cutoff will provide relief to small institutions offering limited EFT
services, consistent with the principles under which the original
exemption was granted.
Questions have been raised about the impact of Article 4A of the
Uniform Commercial Code (UCC) on the small institution exemption. The
revised commentary to Regulation E clarifies that Article 4A is not
applicable to the preauthorized transfers that qualify for the small
institution exemption. (See comment 3(c)(7)-1.) Article 4A applies
primarily to large-dollar commercial wire transfers made, for example,
via Fedwire, CHIPs, SWIFT, and Telex. Section 4A-108 excludes any
transaction that is subject to the EFT from coverage under Article 4A.
The question is whether the transfers initiated by small financial
institutions that take advantage of the regulatory exemption (such as
for direct deposits) may be subject to the requirements of Article 4A
as a consequence. The Board regards these preauthorized transfers as
remaining subject to certain requirements of the EFT, and therefore not
covered by Article 4A.
Footnote 1a which refers to sections 913, 915, and 916 of the EFT
has been deleted. Section 913 places restrictions on the compulsory use
of EFTs. For example, an institution may not condition the extension of
credit on repayment by preauthorized debit. The statutory language from
section 913 has been incorporated in Sec. 205.10(e). References to
sections 915 and 916 (concerning civil and criminal liability for
violations of the EFTA) are contained in Sec. 205.3(c)(5)(ii). The
Board has added cross-references to Sec. 205.10 and sections 915 and
916 in the appropriate paragraphs to replace footnote 1a.
Section 205.4--General disclosure requirements; jointly offered
services
This section consolidates the general disclosure requirements
currently dispersed throughout the regulation in this section. In
addition to adding paragraph (a), the final rule contains various
editorial changes including a reordering of the section; no substantive
change is intended.
4(a) Form of disclosures
The format requirements for disclosures formerly found in
Secs. 205.7(a) and 205.9 are incorporated into this section. The Board
interprets these requirements as generally applying to all disclosures
and notices.
With the continuing emergence of EFT payment technologies, the
Board has received inquiries about providing disclosures required under
the EFTA and Regulation E to consumers in an electronic form, in lieu
of paper documentation. The Board has addressed this issue in the
proposed rulemaking on Regulation E published elsewhere in today's
Federal Register.
4(e) Services offered jointly
This paragraph incorporates the substance of former paragraph 4(a).
The Board has retained text concerning disclosures within an
institution's knowledge, which had been omitted in the proposal as
unnecessary. The Board did not intend to make a substantive change by
omitting this language.
Section 205.5--Issuance of access devices
The final rule makes editorial changes to this section. The
substance of footnote 1b, which provided guidance on issuance of an
access device for a joint account, has been moved to the commentary.
The final rule deletes as obsolete former Sec. 205.5(a)(3), which
grandfathered renewals of pre-1979 access devices from the requirements
of the section. The explanatory language from former Sec. 202.5(b)(4)--
providing examples of the methods a financial institution may use to
verify a consumer's identity when validating an access device--has been
moved to the commentary. (See comment 205.5(b)-4.)
The Board has moved the provisions relating to the Truth in Lending
Act (TILA) from former Sec. 205.5(c) to Sec. 205.12, to simplify the
regulation by placing all references to TILA in the same section.
Section 205.6--Liability of Consumer for Unauthorized Transfers
Section 205.6 specifies the rules governing consumer liability for
unauthorized use. To simplify the text and make it easier to
understand, the Board has moved explanatory or illustrative material to
the commentary. This includes examples of means of identification that
an institution may provide to the consumer to whom an access device is
issued; part of former Sec. 205.6(b)(3), on the relationship between
the various tiers of liability; and former Sec. 205.6(b)(4), about
extenuating circumstances that would permit delayed notification by
consumers. The provisions in former Sec. 205.6(d) concerning the
relation to the TILA now appear in Sec. 205.12.
6(a) Conditions for liability
The former regulation appeared to condition consumer liability for
unauthorized EFTs in all cases on the issuance of an accepted access
device (Sec. 205.6(a)). The former commentary, on the other hand,
stated that if the consumer failed to report an unauthorized EFT within
sixty days of transmittal of the periodic statement reflecting the
transfer, the consumer could be subject to liability for subsequent
transfers, even if the unauthorized transfer did not involve an access
device.
Paragraph 6(a) is revised to clarify that a consumer can be held
liable for unauthorized EFTs that do not involve an access device, but
only those that occur sixty days after transmittal of the periodic
statement reflecting an unauthorized transfer. Some commenters believed
that a sixty-day period was unreasonable and suggested an alternative
time period ranging from thirty to forty-five days; such a revision,
however, would require a statutory change.
Section 205.6(a)(3) requires that only three of the disclosures
from Sec. 205.7 to be provided before a consumer can be held liable for
unauthorized transfers. The Board proposed to require that a financial
institution provide all of the disclosures required by Sec. 205.7 in
order to impose liability, given that institutions must initially
provide all of the disclosures to comply with Sec. 205.7(b).
Commenters were split on whether this change would increase the
risk of liability for institutions. Some agreed with the Board that the
proposed requirement would not increase compliance burden. Others
believed that the requirement could have adverse consequences due to
inadvertent
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disclosure errors unrelated to consumers' liability. Upon further
analysis, the Board has retained the current rule.
6(b) Limitations on amount of liability
Paragraph (b) incorporates the substance of former paragraphs (b)
(limitations on amount of liability) and (c) (notice to financial
institution). The final rule more clearly sets forth each of the three
tiers of a consumer's liability ($50, $500, or unlimited).
Section 205.7--Initial disclosures
The final rule includes format and editorial changes to this
section to provide greater clarity. No substantive changes are
intended. The format requirements in former paragraph (a) have been
moved to Sec. 205.4(a).
The provision in former Sec. 205.7(a)(1), giving financial
institutions the option of informing the consumer about the
advisability of promptly reporting lost or stolen access devices, has
been moved to comment 7(b)(1)-3 of the commentary.
The Board has moved the error resolution notice from former
Sec. 205.7(a)(10) to appendix A (Model Form A-3), to streamline the
regulation and place all model disclosures together. The final rule
deletes as obsolete former Sec. 205.7(b) regarding disclosures for
accounts that predate the statute.
7(a)(3) Business days
Because the Board did not adopted the proposed definition of
business day, as discussed under Sec. 205.2(d), the disclosure
requirement has been retained.
Section 205.8--Change in terms notice; error resolution notice
The Board has restructured Sec. 205.8 and added subheadings to make
it easier to follow.
8(a)(1) Prior notice required
Section 905(b) of the EFTA requires a financial institution to
notify a consumer in writing at least 21 days before the effective date
of an adverse change in certain terms or conditions contained in the
initial disclosures. The Truth in Savings Act (TISA) (12 U.S.C. 4301)
also requires institutions to provide a change-in-terms notice for
deposit accounts. Section 266(c) of TISA requires a notice 30 days
before the effective date of any adverse change in terms or conditions.
The official staff commentary of Regulation DD (Truth in Savings)
provides that if a changed term also triggers a change in terms notice
under Regulation E, the institution may use the timing rules of
Regulation E for sending the notice to affected consumers (see 59 FR
5543, February 7, 1994).
The Board proposed to use its exception authority under the EFTA to
extend the timing of the change-in-terms notice in Regulation E from 21
to 30 days to parallel Regulation DD and facilitate compliance with
both regulations. The Board solicited comment on whether it is
preferable to retain the flexibility offered by the two different
timing requirements. Most commenters opposed extending the timing
requirement to 30 days because the extension would in many cases double
the period of notice before a change in terms could be implemented
without a special mailing. The Board believes the proposed change might
unnecessarily increase regulatory burden and, accordingly, has retained
the 21-day notice requirement.
8(a)(2) Prior notice exception
Prior notice is not required when an immediate change in terms is
needed to maintain or restore the security of an EFT system or account.
If a change is made permanent, however, a financial institution must
notify the consumer ``on or with the next regularly scheduled periodic
statement or within 30 days'' of the change if disclosure would not
raise security concerns. In certain circumstances, periodic statements
are sent on a quarterly basis, and thus the consumer might not receive
notification of a change for up to ninety days after the change occurs.
The Board proposed to require written notice within 45 days of the
change. Most commenters opposed the proposal. The majority believe the
revision would result in increased costs and regulatory burden. Where
financial institutions send quarterly periodic statements, or where no
EFT has been made during a statement cycle, notice of the change in
terms would have to be provided in a separate mailing. Some commenters
asked the Board to clarify whether the notice is triggered by the date
of the initial change or the date the change becomes permanent; it is
the latter.
Based on the comments and upon further analysis, the Board has
retained the current rule. The notice provided to consumers reflects a
change in terms that has already been made. Since many institutions
send statements monthly, in many cases consumers will obtain notice in
or around 45 days after the change. In all instances, notice will be
provided within 90 days. Given the likelihood that a section 8(a)(2)
change is rare, and that most notices will be provided within 45 days
(and all no later than 90 days), the minimal consumer benefit
associated with the change is outweighed by the potential compliance
cost to financial institutions.
8(b) Error resolution notice
To streamline the regulation and place all model disclosure forms
in one location, the abbreviated error resolution notice in former
Sec. 205.8(b)--which an institution may give with each periodic
statement in place of the longer annual notice--has been moved to
appendix A (Model Form A-3). Language has been added to clarify that
financial institutions may use a form substantially similar to the
model form.
Section 205.9--Receipts at electronic terminals; periodic statements
This section contains a number of editorial revisions and several
substantive changes. New paragraphs and headings have been added to
better organize the text concerning the content of disclosures.
Disclosure format requirements, and former paragraph (e) concerning
use of abbreviations, have been moved to Sec. 205.4. Former footnote 2,
which permits a financial institution to make receipts available
through a third party, has been moved to the commentary. Two obsolete
paragraphs, (f) and (g), which dealt with receipts from terminals
purchased prior to 1980 and delayed effective dates for certain
periodic statements have been deleted.
9(a)(1)--Amount
The former regulation allowed financial institutions other than the
account-holding institution to include a charge for the transfer in the
total amount of the transfer, provided the amount of the charge is
disclosed on the receipt and on a sign posted on or at the terminal.
The final rule permits all financial institutions (including the
account-holding institution) to include the charge in the total amount
of the transfer, if the appropriate disclosures are made; and permits
institutions to display the fee on or at the terminal--meaning either
on a sign posted at the terminal or on the terminal screen itself.
Some commenters requested clarification as to whether disclosure of
a transaction fee on the receipt or at the terminal would substitute
for disclosure of the fee under Sec. 205.7(a)(5), initial disclosures.
Institutions holding a consumer's account must continue to disclose
transaction fees under Sec. 205.7(a)(5), as well as on the receipt and
at the terminal.
The Board solicited comment on whether consumers would need
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protections if the fee is displayed on the screen, for example,
allowing the consumer to cancel the transaction after the fee is
disclosed. Commenters generally believed that displaying the fee on a
screen provided adequate notice, as long as consumers are provided with
the option to cancel the transaction after receiving notice. This
interpretation is reflected in comment 9(a)(1)-1 of the staff
commentary.
9(a)(3)--Type
The examples included in former paragraph (a)(3) have been moved to
the commentary.
9(a)(4)--Identification
In a previous rulemaking, the Board deleted the requirement that a
financial institution ``uniquely'' identify the consumer. See 55 FR
15032 (March 22, 1995). The final rule, effective April 24, 1995, no
longer requires that terminal receipts uniquely identify the consumer,
the consumer's account, or the consumer's card. The change allows
institutions to truncate the number on the receipt and helps protect
consumers and financial institutions against fraudulent withdrawals.
9(a)(5)--Terminal location
This paragraph incorporates the substance of former
Sec. 205.9(b)(1)(iv), the rules regarding terminal identification on
receipts; former footnote 5 and much of the explanatory material on
describing locations has been moved to the commentary.
The Board had proposed to delete the exception in footnote 5
allowing institutions (1) to omit the name of the city and state if all
of the terminals owned or operated by the financial institution
providing the statement are located in the same city, or if the system
in which the financial institution's terminal participates is located
in the same city and (2) to omit the state if all of the terminals are
located in the same state. Since most institutions that offer ATM
access belong to networks operating on an interstate basis, the Board
believed that few, if any, financial institutions would be able to take
advantage of the exception provided by the footnote. The Board
solicited comment on whether the exception is still used by
institutions. Many commenters stated that credit unions and ``closed
systems'' frequently used at universities continue to benefit from this
exception because such institutions do not belong to interstate
networks. Thus, the Board has retained the exception but moved it to
the commentary. (See comment 205.9(a)(5)(iv)-1.)
The rules regarding terminal identification on the receipt have
been slightly modified. Former Sec. 205.9(b)(1)(iv)(C) allowed
financial institutions to identify the terminal location by using the
name of the entity at whose place of business the terminal is located
or the entity that owns or operates the terminal (such as the financial
institution). Footnote 7 required, however, that if the financial
institution owns or operates terminals at more than one location, the
terminal location must be identified on the periodic statement in
accordance with former 9(b)(1)(iv) (A) or (B) and had to provide either
a street address or a generally accepted name for the location. If an
institution owned only one terminal (and did not belong to a network),
however, it could identify the terminal using its own name under
paragraph 9(b)(1)(iv)(C). The final rule omits the footnote, removing
the limitation so that the receipt and the periodic statement may
provide the terminal location by giving the name of the institution if
it is other than the account-holding institution. The Board believes
this change makes the provision available to more institutions, since
very few institutions own and operate only one terminal and do not
belong to a network. Commenters generally believed this change would
not adversely reduce consumer information.
9(a)(6) Third party transfer
Paragraph (a)(6), which requires disclosure of the name of any
third party to or from whom funds are transferred, has been revised;
guidance on the use of codes as identification or the exception to the
requirement when the name of the payee cannot be duplicated by the
terminal has been incorporated into the commentary. (See comment
205.9(a)(6)-1.)
9(b) Periodic statements
9(b)(1)--Transaction information
For each transfer initiated at an electronic terminal, paragraph
(b)(1)(iv) requires financial institutions to disclose on the periodic
statement the location of the terminal as it appeared on the receipt
provided under Sec. 205.9(a). Under the former rule, if a code or
terminal number on the receipt was used to identify the location, both
the code and a description of the location, as specified in
Sec. 205.9(b)(1)(iv) had to be disclosed on the periodic statement. The
final rule does not require a restatement of the code in addition to
the location description. Commenters generally supported this revision,
noting that the code was of little use and that rules of the National
Association of Automated Clearing Houses already require codes to be
retained by the institution which would allow consumers to get the code
upon request. The substance of footnote 4a, which provided that a
financial institution need not identify the terminal location for
transactions that involve the deposit of cash, checks, drafts, or
similar paper instruments at electronic terminals, has been
incorporated into paragraph (b)(1)(iv).
Former footnote 4 permitted financial institutions to provide
transaction information on documents that accompany the periodic
statement; and permits the use of codes, if explained on either the
statement or the accompanying documents. Former footnote 9 allowed an
institution to omit the identification of third parties from periodic
statements if their names appear on checks, drafts, or similar paper
instruments deposited to the consumer's account at an electronic
terminal. The substance of former footnotes 4 and 9 has been moved to
the commentary. (See comments 205.9(b)-6 and 205.9(b)(1)(v)-6.)
9(b)(3)--Fees
The reference in former Sec. 205.9(b)(3) that a periodic statement
required by Regulation E need not disclose any finance charge imposed
under 12 CFR 226.7(f) has been moved to the commentary. (See comment
205.9(b)(3)-3.)
The Board solicited comment on whether regulatory compliance burden
would be eased if the fee disclosure requirements in Regulations E and
DD were identical. Many commenters preferred having the option of
complying with Regulation E or Regulation DD. The Board has retained
the existing fee disclosure requirements.
9(c) Exceptions to the periodic statement requirements for certain
accounts
The final rule incorporates current paragraphs (c), (d), (h), and
footnote 9a in Sec. 205.9(c), pertaining to intra-institutional
transfers and the circumstances in which a periodic statement for EFT
transactions is not required (for example, for a passbook account that
can be accessed electronically only by preauthorized transfers to the
account) or is not required on a monthly cycle. Some editorial changes
have been made in the final rule that differ slightly from the proposal
but no substantive change is intended.
[[Page 19667]]
9(d)--Documentation for foreign-initiated transfers
Paragraph (d) incorporates the substance of former paragraph (i)
without substantive change.
Section 205.10--Preauthorized transfers
Section 205.10 sets forth general requirements for preauthorized
transfers. The Board has reformatted and made editorial changes to this
section. Substantive changes are discussed below.
10(a) Preauthorized transfers to consumer's account
10(a)(3)--Crediting
This paragraph (formerly paragraph 10(a)(2)) provides that when a
consumer's account will be credited by a preauthorized EFT from the
same payor at least once every 60 days, an institution must credit the
funds to the account as of the day the funds for the transfer are
received. The Board believed that this provision was not necessary
since other regulations address both when funds must be made available
to the consumer and when interest must be paid on the deposit (see
Regulation CC, 12 CFR part 229; Treasury regulations, 31 CFR part 210;
and ACH association rules). The Board solicited comment on its proposed
deletion of paragraph 10(a)(2).
Most commenters agreed that Regulation CC, NACHA rules governing
automated clearing house transactions, and Treasury direct-deposit
rules adequately covered this issue and supported the Board's proposal
to delete the requirement. Several commenters requested that a
reference to the other rules and regulations be added to the paragraph
10(a)(2). One commenter distinguished the requirements under paragraph
10(a)(2) from those under other rules and regulations, noting that
paragraph 10(a)(2) addressed crediting and that the NACHA rules, for
example, address the availability of funds for withdrawal. The
commenter recommended retaining the current language.
Upon further analysis, the Board believes that the requirement
under current paragraph 10(a)(2) is, in fact, different from those
required by other regulations and has retained the current rule in
paragraph 10(a)(3).
10(b) Written authorization for preauthorized transfers from consumer's
account
Under the former rule, preauthorized EFTs from a consumer's account
may be authorized by the consumer only in writing (typically a signed
paper document); a copy of the authorization must be given to the
consumer. To address developments in electronic services such as home
banking, the Board has more broadly interpreted a written authorization
to include electronic authorizations which are ``similarly
authenticated'' by the consumer. The Board believes this broader
interpretation is consistent with the requirement in section 907 of the
EFTA that the authorization be in writing.
This change would, for example, allow preauthorized transfers in an
electronic payment system to be authenticated by a ``digital
signature'' or a security code. The Board believes that these are
options that may provide the same assurance as a signature in a paper-
based system. To meet the requirement that an authorization be in
writing, the electronic agreement would have to be displayed on a
computer screen (or other visual display) that enables the consumer to
read the communication. The person that obtains the authorization must
provide an electronic or hard copy to the consumer. These
interpretations are codified in the commentary.
10(e) Compulsory use
This paragraph incorporates section 913 of the EFTA, which places
certain restrictions on compulsory use of EFTs as a condition of
credit, employment, or receipt of government benefits. This paragraph
also clarifies that the provision applies to persons such as employers,
and not just to financial institutions. In the former regulation, the
prohibition against compulsory use was referenced in footnote 1a.
Section 205.11--Procedures for resolving errors
The Board has reformatted this section and made editorial revisions
to simplify the language and facilitate compliance. The one substantive
change, discussed below, allows a financial institution three business
days to provide notice after it has determined that an error has
occurred.
The substance of three footnotes has been moved to the commentary:
footnote 10, permitting an institution to prescribe procedures for
giving an error notice; footnote 11, defining an agreement for purposes
of Sec. 205.14; and footnote 12, allowing institutions to use a
periodic statement to inform consumers that no error has occurred.
The substance of former paragraphs (d)(1), (3); (e)(1); and (g) has
been moved to the commentary. Paragraph (e) on reasserting errors
replaces former paragraph (h). Former paragraph (i), rules relating to
the TILA, has been moved to Sec. 205.12.
11(c) Time limits and extent of investigation
Paragraph 11(c) combines former paragraphs 11(c) and 11(d)(2)
concerning investigation of errors. The regulation requires a financial
institution to provide the consumer with a written explanation, within
the prescribed time period (either 10 business days or 45 calendar
days), if an error occurred. If an error did not occur and the
financial institution is operating under the 45-day rule, the
institution has three additional days to notify the consumer of its
findings. Section 908 of the EFTA makes clear the extra time is
available when no error occurred, but is silent on the availability of
extra time when an error is found.
To facilitate compliance, the Board has used its exception
authority under section 904(c) to permit institutions to give notice
within three business days of concluding its investigation regardless
of the procedure being followed and whether or not an error has been
found. The statutory language contained in section 908(d) lends itself
to such an interpretation, and the Board believes the change will
facilitate compliance with the section without any significant loss of
consumer protection.
Commenters requested that the Board consider extending the time
periods for investigations of errors on new accounts based on concerns
about fraud and misrepresentation. The Board has published a proposed
rule elsewhere in today's Federal Register that would change the timing
for error resolution on new accounts.
11(d) Procedures if financial institution determines no error or
different error occurred
This paragraph simplifies and replaces former paragraph 11(f).
Section 205.12--Relation to other laws
This section contains the various references to the Truth in
Lending Act (TILA) and Regulation Z formerly dispersed throughout
Regulation E. The section also includes the standards applied by the
Board in granting a state law preemption or in making an exemption
determination.
12(a) Relation to Truth in Lending
All references from Secs. 205.5, 205.6, and 205.11 to compliance
with both the TILA and the EFTA are consolidated in this paragraph to
facilitate compliance.
[[Page 19668]]
12(b) Preemption of inconsistent state laws
Former Sec. 205.12 (a) and (b) are incorporated in paragraph (b).
Former Sec. 205.12(c), which establishes procedures for preemption, has
been deleted from the regulation. The procedures for requesting a
preemption determination are available from the Board upon request.
12(c) State exemptions
Paragraph (c) (formerly (d)) contains the rules the Board applies
in granting a state exemption.
Section 205.13--Administrative enforcement; record retention
Former Sec. 205.13 contained information about administrative
enforcement, issuance of staff interpretations, and record retention.
Much of this information has been moved to the appendices, with the
exception of the provision on record retention. Specifically, former
paragraph (a) listed the federal agencies charged with administrative
enforcement of the act and regulation; revised paragraph (a) merely
cross-references Appendix B, which lists the federal enforcement
agencies in greater detail. Former paragraph (b) dealt with issuance of
staff interpretations; this material has been updated to describe the
staff commentary process that replaced the old interpretation letters,
and has been moved to new Appendix C. Former paragraph (c), record
retention, has been redesignated paragraph (b).
13(b) Record retention
Only certain provisions of the act and regulation apply to persons
other than financial institutions (for example, the compulsory use
provisions of section 913, which apply to employers, creditors, and
government agencies). The proposal would have limited the record
retention requirements to financial institutions, rather than covering
``any person subject to the act and regulation.'' The majority of the
commenters addressing this issue opposed the proposed change, arguing
that the same record retention requirement should apply to all persons
subject to the regulation, and that the proposed change could adversely
affect enforcement. The Board has retained the current rule; the record
retention requirements continue to apply to all persons subject to the
act and regulation.
Section 205.14--Electronic fund transfer service provider not holding
consumer's account
Substantial editorial revisions have been made to this section to
simplify the text.
14(a) Electronic fund transfer service providers subject to regulation
Revised paragraph (a) deals expressly with the entities subject to
section 205.14, and identifies entities more clearly by setting forth
the conditions for coverage under section 205.14 in separate
subparagraphs.
14(b) Compliance by electronic fund transfer service provider
This paragraph contains much of the material that appeared in
former paragraph (a), and sets forth the compliance responsibilities of
a non-account-holding service provider. The material has been revised
and reorganized for greater clarity, without substantive change.
14(c) Compliance by account-holding institution
This paragraph sets forth the compliance responsibilities of the
account-holding institution, and is substantively unchanged from former
paragraph (b). Former footnote 13, regarding delayed effective dates,
has been deleted as obsolete. The substance of former paragraph (c),
providing guidance on when there is an agreement between a service
provider and an account-holding institution, has been moved to the
commentary.
Section 205.15--Electronic fund transfer of government benefits
In March 1994, the Board issued a final rule relating to the
coverage by the EFTA and Regulation E of government benefits that
federal, state, and local governments disburse to recipients by means
of electronic benefit transfer (EBT) programs, adding a new section
205.15 to Regulation E (59 FR 10678, March 7, 1994). This section is
unchanged from the one originally issued.
Appendix A--Model Disclosure Clauses and Forms
The model forms contained in the former regulation have been
consolidated in Appendix A. As noted earlier, the error resolution
notices in former Secs. 205.7(a)(10) and 205.8(b) have been moved from
the regulation to Appendix A to streamline the regulation (see Model
Form A-3).
Appendix B--Administrative enforcement
Appendix B lists the federal enforcement agencies responsible for
enforcing Regulation E for particular classes of institutions.
Appendix C--Issuance of staff interpretations
The final rule adds a new appendix C to replace former
Sec. 205.13(b) pertaining to staff interpretations of Regulation E. The
Board will continue to rely on the publication of interpretations in
the official staff commentary as the primary means of interpreting the
regulation. In keeping with the practice that has been in place for
years, the final rule deletes any reference to unofficial staff
interpretations that are in writing, limiting written interpretations
to those that appear in the staff commentary, as revised. The Board
believes this to be the most efficient and useful way to facilitate
compliance.
III. Regulatory Flexibility Analysis
The Board's Office of the Secretary has prepared an economic impact
statement on the amendment to Regulation E. A copy of the analysis may
be obtained from Publications Services, Board of Governors of the
Federal Reserve System, Washington, D.C. 20551, at (202) 452-3245.
IV. Paperwork Reduction Act
In accordance with section 3506 of the Paperwork Reduction Act of
1995 (44 U.S.C. Ch. 35; 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. No comments specifically addressing the burden
estimate were received.
The collection of information requirements in this regulation are
found in 12 CFR Part 205. This information is mandatory (15 U.S.C. 1693
et seq.) to ensure adequate disclosure of basic terms, costs, and
rights relating to electronic fund transfer (EFT) services provided to
consumers. The respondents/recordkeepers are for-profit financial
institutions, including small businesses. Records must be retained for
twenty-four months. Regulation E applies to all types of financial
institutions, not just state member banks. However, under Paperwork
Reduction Act regulations, the Federal Reserve accounts for the burden
of the paperwork associated with the regulation only for state member
banks. Other agencies account for the Regulation E paperwork burden on
their respective constituencies. Please contact the appropriate agency
[[Page 19669]]
for an estimate of this proposed regulation's affect on other
institutions.
The revisions are expected to decrease the associated paperwork
burden on state member banks. It is estimated that 25 percent of small
state member banks have no covered activities other than preauthorized
transfers. Thus the Federal Reserve estimates that raising the asset-
size cutoff from $25 million to $100 million will decrease the number
of covered state member banks from 1,000 to 873. The estimated burden
per response ranges from fifteen seconds (for an ATM receipt) to 30
minutes (for notice of revised error resolution rules). The Federal
Reserve estimates the average frequency of response to be 85,800
responses per respondent each year. Thus, the total amount of annual
burden is estimated to be 474,804 hours, a decrease of 13 percent from
543,447 hours.
List of Subjects in 12 CFR Part 205
Consumer protection, Electronic fund transfers, Federal Reserve
System, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Board amends 12 CFR
part 205 as set forth below:
PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)
1. The authority citation for part 205 continues to read as
follows:
Authority: 15 U.S.C. 1693.
2. The table of contents for part 205 is revised to read as
follows:
Sec.
205.1 Authority and purpose.
205.2 Definitions.
205.3 Coverage.
205.4 General disclosure requirements; jointly offered services.
205.5 Issuance of access devices.
205.6 Liability of consumer for unauthorized transfers.
205.7 Initial disclosures.
205.8 Change in terms notice; error resolution notice.
205.9 Receipts at electronic terminals; periodic statements.
205.10 Preauthorized transfers.
205.11 Procedures for resolving errors.
205.12 Relation to other laws.
205.13 Administrative enforcement; record retention.
205.14 Electronic fund transfer service provider not holding
consumer's account.
205.15 Electronic fund transfer of government benefits.
Appendix A to Part 205--Model Disclosure Clauses and Forms
Appendix B to Part 205--Federal Enforcement Agencies
Appendix C to Part 205--Issuance of Staff Interpretations
Supplement 1 to Part 205--Official Staff Interpretations
3. Sections 205.1 through 205.15 are revised to read as follows:
Sec. 205.1 Authority and purpose.
(a) Authority. The regulation in this part, known as Regulation E,
is issued by the Board of Governors of the Federal Reserve System
pursuant to the Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.).
The information-collection requirements have been approved by the
Office of Management and Budget under 44 U.S.C. 3501 et seq. and have
been assigned OMB No. 7100-0200.
(b) Purpose. This part carries out the purposes of the Electronic
Fund Transfer Act, which establishes the basic rights, liabilities, and
responsibilities of consumers who use electronic fund transfer services
and of financial institutions that offer these services. The primary
objective of the act and this part is the protection of individual
consumers engaging in electronic fund transfers.
Sec. 205.2 Definitions.
For purposes of this part, the following definitions apply:
(a)(1) Access device means a card, code, or other means of access
to a consumer's account, or any combination thereof, that may be used
by the consumer to initiate electronic fund transfers.
(2) An access device becomes an accepted access device when the
consumer:
(i) Requests and receives, or signs, or uses (or authorizes another
to use) the access device to transfer money between accounts or to
obtain money, property, or services;
(ii) Requests validation of an access device issued on an
unsolicited basis; or
(iii) Receives an access device in renewal of, or in substitution
for, an accepted access device from either the financial institution
that initially issued the device or a successor.
(b)(1) Account means a demand deposit (checking), savings, or other
consumer asset account (other than an occasional or incidental credit
balance in a credit plan) held directly or indirectly by a financial
institution and established primarily for personal, family, or
household purposes.
(2) The term does not include an account held by a financial
institution under a bona fide trust agreement.
(c) Act means the Electronic Fund Transfer Act (title IX of the
Consumer Credit Protection Act, 15 U.S.C. 1693 et seq.).
(d) Business day means any day on which the offices of the
consumer's financial institution are open to the public for carrying on
substantially all business functions.
(e) Consumer means a natural person.
(f) Credit means the right granted by a financial institution to a
consumer to defer payment of debt, incur debt and defer its payment, or
purchase property or services and defer payment therefor.
(g) Electronic fund transfer is defined in Sec. 205.3.
(h) Electronic terminal means an electronic device, other than a
telephone operated by a consumer, through which a consumer may initiate
an electronic fund transfer. The term includes, but is not limited to,
point-of-sale terminals, automated teller machines, and cash dispensing
machines.
(i) Financial institution means a bank, savings association, credit
union, or any other person that directly or indirectly holds an account
belonging to a consumer, or that issues an access device and agrees
with a consumer to provide electronic fund transfer services.
(j) Person means a natural person or an organization, including a
corporation, government agency, estate, trust, partnership,
proprietorship, cooperative, or association.
(k) Preauthorized electronic fund transfer means an electronic fund
transfer authorized in advance to recur at substantially regular
intervals.
(l) State means any state, territory, or possession of the United
States; the District of Columbia; the Commonwealth of Puerto Rico; or
any political subdivision of the above in this paragraph (l).
(m) Unauthorized electronic fund transfer means an electronic fund
transfer from a consumer's account initiated by a person other than the
consumer without actual authority to initiate the transfer and from
which the consumer receives no benefit. The term does not include an
electronic fund transfer initiated:
(1) By a person who was furnished the access device to the
consumer's account by the consumer, unless the consumer has notified
the financial institution that transfers by that person are no longer
authorized;
(2) With fraudulent intent by the consumer or any person acting in
concert with the consumer; or
(3) By the financial institution or its employee.
Sec. 205.3 Coverage.
(a) General. This part applies to any electronic fund transfer that
authorizes a financial institution to debit or credit a consumer's
account. Generally, this
[[Page 19670]]
part applies to financial institutions. For purposes of Secs. 205.10
(b), (d), and (e) and 205.13, this part applies to any person.
(b) Electronic fund transfer. The term electronic fund transfer
means any transfer of funds that is initiated through an electronic
terminal, telephone, computer, or magnetic tape for the purpose of
ordering, instructing, or authorizing a financial institution to debit
or credit an account. The term includes, but is not limited to:
(1) Point-of-sale transfers;
(2) Automated teller machine transfers;
(3) Direct deposits or withdrawals of funds;
(4) Transfers initiated by telephone; and
(5) Transfers resulting from debit card transactions, whether or
not initiated through an electronic terminal.
(c) Exclusions from coverage. The term electronic fund transfer
does not include:
(1) Checks. Any transfer of funds originated by check, draft, or
similar paper instrument; or any payment made by check, draft, or
similar paper instrument at an electronic terminal.
(2) Check guarantee or authorization. Any transfer of funds that
guarantees payment or authorizes acceptance of a check, draft, or
similar paper instrument but that does not directly result in a debit
or credit to a consumer's account.
(3) Wire or other similar transfers. Any transfer of funds through
Fedwire or through a similar wire transfer system that is used
primarily for transfers between financial institutions or between
businesses.
(4) Securities and commodities transfers. Any transfer of funds the
primary purpose of which is the purchase or sale of a security or
commodity, if the security or commodity is:
(i) Regulated by the Securities and Exchange Commission or the
Commodity Futures Trading Commission;
(ii) Purchased or sold through a broker-dealer regulated by the
Securities and Exchange Commission or through a futures commission
merchant regulated by the Commodity Futures Trading Commission; or
(iii) Held in book-entry form by a Federal Reserve Bank or federal
agency.
(5) Automatic transfers by account-holding institution. Any
transfer of funds under an agreement between a consumer and a financial
institution which provides that the institution will initiate
individual transfers without a specific request from the consumer:
(i) Between a consumer's accounts within the financial institution;
(ii) From a consumer's account to an account of a member of the
consumer's family held in the same financial institution; or
(iii) Between a consumer's account and an account of the financial
institution, except that these transfers remain subject to
Sec. 205.10(e) regarding compulsory use and sections 915 and 916 of the
act regarding civil and criminal liability.
(6) Telephone-initiated transfers. Any transfer of funds that:
(i) Is initiated by a telephone communication between a consumer
and a financial institution making the transfer; and
(ii) Does not take place under a telephone bill-payment or other
written plan in which periodic or recurring transfers are contemplated.
(7) Small institutions. Any preauthorized transfer to or from an
account if the assets of the account-holding financial institution were
$100 million or less on the preceding December 31. If assets of the
account-holding institution subsequently exceed $100 million, the
institution's exemption for preauthorized transfers terminates one year
from the end of the calendar year in which the assets exceed $100
million. Preauthorized transfers exempt under this paragraph (c)(7)
remain subject to Sec. 205.10(e) regarding compulsory use and sections
915 and 916 of the act regarding civil and criminal liability.
Sec. 205.4 General disclosure requirements; jointly offered services.
(a) Form of disclosures. Disclosures required under this part shall
be clear and readily understandable, in writing, and in a form the
consumer may keep. A financial institution may use commonly accepted or
readily understandable abbreviations in complying with the disclosure
requirements of this part.
(b) Additional information; disclosures required by other laws. A
financial institution may include additional information and may
combine disclosures required by other laws (such as the Truth in
Lending Act (15 U.S.C. 1601 et seq.) or the Truth in Savings Act (12
U.S.C. 4301 et seq.)) with the disclosures required by this part.
(c) [Reserved]
(d) Multiple accounts and account holders--(1) Multiple accounts. A
financial institution may combine the required disclosures into a
single statement for a consumer who holds more than one account at the
institution.
(2) Multiple account holders. For joint accounts held by two or
more consumers, a financial institution need provide only one set of
the required disclosures and may provide them to any of the account
holders.
(e) Services offered jointly. Financial institutions that provide
electronic fund transfer services jointly may contract among themselves
to comply with the requirements that this part imposes on any or all of
them. An institution need make only the disclosures required by
Secs. 205.7 and 205.8 that are within its knowledge and within the
purview of its relationship with the consumer for whom it holds an
account.
Sec. 205.5 Issuance of access devices.
(a) Solicited issuance. Except as provided in paragraph (b) of this
section, a financial institution may issue an access device to a
consumer only:
(1) In response to an oral or written request for the device; or
(2) As a renewal of, or in substitution for, an accepted access
device whether issued by the institution or a successor.
(b) Unsolicited issuance. A financial institution may distribute an
access device to a consumer on an unsolicited basis if the access
device is:
(1) Not validated, meaning that the institution has not yet
performed all the procedures that would enable a consumer to initiate
an electronic fund transfer using the access device;
(2) Accompanied by a clear explanation that the access device is
not validated and how the consumer may dispose of it if validation is
not desired;
(3) Accompanied by the disclosures required by Sec. 205.7, of the
consumer's rights and liabilities that will apply if the access device
is validated; and
(4) Validated only in response to the consumer's oral or written
request for validation, after the institution has verified the
consumer's identity by a reasonable means.
Sec. 205.6 Liability of consumer for unauthorized transfers.
(a) Conditions for liability. A consumer may be held liable, within
the limitations described in paragraph (b) of this section, for an
unauthorized electronic fund transfer involving the consumer's account
only if the financial institution has provided the disclosures required
by Sec. 205.7(b)(1), (2), and (3). If the unauthorized transfer
involved an access device, it must be an accepted access device and the
financial institution must have provided a means to identify the
consumer to whom it was issued.
(b) Limitations on amount of liability. A consumer's liability for
an
[[Page 19671]]
unauthorized electronic fund transfer or a series of related
unauthorized transfers shall be determined as follows:
(1) Timely notice given. If the consumer notifies the financial
institution within two business days after learning of the loss or
theft of the access device, the consumer's liability shall not exceed
the lesser of $50 or the amount of unauthorized transfers that occur
before notice to the financial institution.
(2) Timely notice not given. If the consumer fails to notify the
financial institution within two business days after learning of the
loss or theft of the access device, the consumer's liability shall not
exceed the lesser of $500 or the sum of:
(i) $50 or the amount of unauthorized transfers that occur within
the two business days, whichever is less; and
(ii) The amount of unauthorized transfers that occur after the
close of two business days and before notice to the institution,
provided the institution establishes that these transfers would not
have occurred had the consumer notified the institution within that
two-day period.
(3) Periodic statement; timely notice not given. A consumer must
report an unauthorized electronic fund transfer that appears on a
periodic statement within 60 days of the financial institution's
transmittal of the statement to avoid liability for subsequent
transfers. If the consumer fails to do so, the consumer's liability
shall not exceed the amount of the unauthorized transfers that occur
after the close of the 60 days and before notice to the institution,
and that the institution establishes would not have occurred had the
consumer notified the institution within the 60-day period. When an
access device is involved in the unauthorized transfer, the consumer
may be liable for other amounts set forth in paragraphs (b)(1) or
(b)(2) of this section, as applicable.
(4) Extension of time limits. If the consumer's delay in notifying
the financial institution was due to extenuating circumstances, the
institution shall extend the times specified above to a reasonable
period.
(5) Notice to financial institution. (i) Notice to a financial
institution is given when a consumer takes steps reasonably necessary
to provide the institution with the pertinent information, whether or
not a particular employee or agent of the institution actually receives
the information.
(ii) The consumer may notify the institution in person, by
telephone, or in writing.
(iii) Written notice is considered given at the time the consumer
mails the notice or delivers it for transmission to the institution by
any other usual means. Notice may be considered constructively given
when the institution becomes aware of circumstances leading to the
reasonable belief that an unauthorized transfer to or from the
consumer's account has been or may be made.
(6) Liability under state law or agreement. If state law or an
agreement between the consumer and the financial institution imposes
less liability than is provided by this section, the consumer's
liability shall not exceed the amount imposed under the state law or
agreement.
Sec. 205.7 Initial disclosures.
(a) Timing of disclosures. A financial institution shall make the
disclosures required by this section at the time a consumer contracts
for an electronic fund transfer service or before the first electronic
fund transfer is made involving the consumer's account.
(b) Content of disclosures. A financial institution shall provide
the following disclosures, as applicable:
(1) Liability of consumer. A summary of the consumer's liability,
under Sec. 205.6 or under state or other applicable law or agreement,
for unauthorized electronic fund transfers.
(2) Telephone number and address. The telephone number and address
of the person or office to be notified when the consumer believes that
an unauthorized electronic fund transfer has been or may be made.
(3) Business days. The financial institution's business days.
(4) Types of transfers; limitations. The type of electronic fund
transfers that the consumer may make and any limitations on the
frequency and dollar amount of transfers. Details of the limitations
need not be disclosed if confidentiality is essential to maintain the
security of the electronic fund transfer system.
(5) Fees. Any fees imposed by the financial institution for
electronic fund transfers or for the right to make transfers.
(6) Documentation. A summary of the consumer's right to receipts
and periodic statements, as provided in Sec. 205.9, and notices
regarding preauthorized transfers as provided in Secs. 205.10(a), and
205.10(d).
(7) Stop payment. A summary of the consumer's right to stop payment
of a preauthorized electronic fund transfer and the procedure for
placing a stop-payment order, as provided in Sec. 205.10(c).
(8) Liability of institution. A summary of the financial
institution's liability to the consumer under section 910 of the act
for failure to make or to stop certain transfers.
(9) Confidentiality. The circumstances under which, in the ordinary
course of business, the financial institution may provide information
concerning the consumer's account to third parties.
(10) Error resolution. A notice that is substantially similar to
Model Form A-3 as set out in Appendix A of this part concerning error
resolution.
Sec. 205.8 Change in terms notice; error resolution notice.
(a) Change in terms notice--(1) Prior notice required. A financial
institution shall mail or deliver a written notice to the consumer, at
least 21 days before the effective date, of any change in a term or
condition required to be disclosed under Sec. 205.7(b) if the change
would result in:
(i) Increased fees for the consumer;
(ii) Increased liability for the consumer;
(iii) Fewer types of available electronic fund transfers; or
(iv) Stricter limitations on the frequency or dollar amount of
transfers.
(2) Prior notice exception. A financial institution need not give
prior notice if an immediate change in terms or conditions is necessary
to maintain or restore the security of an account or an electronic fund
transfer system. If the institution makes such a change permanent and
disclosure would not jeopardize the security of the account or system,
the institution shall notify the consumer in writing on or with the
next regularly scheduled periodic statement or within 30 days of making
the change permanent.
(b) Error resolution notice. For accounts to or from which
electronic fund transfers can be made, a financial institution shall
mail or deliver to the consumer, at least once each calendar year, an
error resolution notice substantially similar to the model form set
forth in Appendix A of this part (Model Form A-3). Alternatively, an
institution may include an abbreviated notice substantially similar to
the model form error resolution notice set forth in Appendix A of this
part (Model Form A-3), on or with each periodic statement required by
Sec. 205.9(b).
Sec. 205.9 Receipts at electronic terminals; periodic statements.
(a) Receipts at electronic terminals. A financial institution shall
make a receipt available to a consumer at the time the consumer
initiates an electronic fund transfer at an electronic terminal. The
[[Page 19672]]
receipt shall set forth the following information, as applicable:
(1) Amount. The amount of the transfer. A transaction fee may be
included in this amount, provided the amount of the fee is disclosed on
the receipt and displayed on or at the terminal.
(2) Date. The date the consumer initiates the transfer.
(3) Type. The type of transfer and the type of the consumer's
account(s) to or from which funds are transferred. The type of account
may be omitted if the access device used is able to access only one
account at that terminal.
(4) Identification. A number or code that identifies the consumer's
account or accounts, or the access device used to initiate the
transfer. The number or code need not exceed four digits or letters to
comply with the requirements of this paragraph (a)(4).
(5) Terminal location. The location of the terminal where the
transfer is initiated, or an identification such as a code or terminal
number. Except in limited circumstances where all terminals are located
in the same city or state, if the location is disclosed, it shall
include the city and state or foreign country and one of the following:
(i) The street address; or
(ii) A generally accepted name for the specific location; or
(iii) The name of the owner or operator of the terminal if other
than the account-holding institution.
(6) Third party transfer. The name of any third party to or from
whom funds are transferred.
(b) Periodic statements. For an account to or from which electronic
fund transfers can be made, a financial institution shall send a
periodic statement for each monthly cycle in which an electronic fund
transfer has occurred; and shall send a periodic statement at least
quarterly if no transfer has occurred. The statement shall set forth
the following information, as applicable:
(1) Transaction information. For each electronic fund transfer
occurring during the cycle:
(i) The amount of the transfer;
(ii) The date the transfer was credited or debited to the
consumer's account;
(iii) The type of transfer and type of account to or from which
funds were transferred;
(iv) For a transfer initiated by the consumer at an electronic
terminal (except for a deposit of cash or a check, draft, or similar
paper instrument), the terminal location described in paragraph (a)(5)
of this section; and
(v) The name of any third party to or from whom funds were
transferred.
(2) Account number. The number of the account.
(3) Fees. The amount of any fees assessed against the account
during the statement period for electronic fund transfers, for the
right to make transfers, or for account maintenance.
(4) Account balances. The balance in the account at the beginning
and at the close of the statement period.
(5) Address and telephone number for inquiries. The address and
telephone number to be used for inquiries or notice of errors, preceded
by ``Direct inquiries to'' or similar language. The address and
telephone number provided on an error resolution notice under
Sec. 205.8(b) given on or with the statement satisfies this
requirement.
(6) Telephone number for preauthorized transfers. A telephone
number the consumer may call to ascertain whether preauthorized
transfers to the consumer's account have occurred, if the financial
institution uses the telephone-notice option under
Sec. 205.10(a)(1)(iii).
(c) Exceptions to the periodic statement requirement for certain
accounts--(1) Preauthorized transfers to accounts. For accounts that
may be accessed only by preauthorized transfers to the account the
following rules apply:
(i) Passbook accounts. For passbook accounts, the financial
institution need not provide a periodic statement if the institution
updates the passbook upon presentation or enters on a separate document
the amount and date of each electronic fund transfer since the passbook
was last presented.
(ii) Other accounts. For accounts other than passbook accounts, the
financial institution must send a periodic statement at least
quarterly.
(2) Intra-institutional transfers. For an electronic fund transfer
initiated by the consumer between two accounts of the consumer in the
same institution, documenting the transfer on a periodic statement for
one of the two accounts satisfies the periodic statement requirement.
(3) Relationship between paragraphs (c)(1) and (c)(2) of this
section. An account that is accessed by preauthorized transfers to the
account described in paragraph (c)(1) of this section and by intra-
institutional transfers described in paragraph (c)(2) of this section,
but by no other type of electronic fund transfers, qualifies for the
exceptions provided by paragraph (c)(1) of this section .
(d) Documentation for foreign-initiated transfers. The failure by a
financial institution to provide a terminal receipt for an electronic
fund transfer or to document the transfer on a periodic statement does
not violate this part if:
(1) The transfer is not initiated within a state; and
(2) The financial institution treats an inquiry for clarification
or documentation as a notice of error in accordance with Sec. 205.11.
Sec. 205.10 Preauthorized transfers.
(a) Preauthorized transfers to consumer's account--(1) Notice by
financial institution. When a person initiates preauthorized electronic
fund transfers to a consumer's account at least once every 60 days, the
account-holding financial institution shall provide notice to the
consumer by:
(i) Positive notice. Providing oral or written notice of the
transfer within two business days after the transfer occurs; or
(ii) Negative notice. Providing oral or written notice, within two
business days after the date on which the transfer was scheduled to
occur, that the transfer did not occur; or
(iii) Readily-available telephone line. Providing a readily
available telephone line that the consumer may call to determine
whether the transfer occurred and disclosing the telephone number on
the initial disclosure of account terms and on each periodic statement.
(2) Notice by payor. A financial institution need not provide
notice of a transfer if the payor gives the consumer positive notice
that the transfer has been initiated.
(3) Crediting. A financial institution that receives a
preauthorized transfer of the type described in paragraph (a)(1) of
this section shall credit the amount of the transfer as of the date the
funds for the transfer are received.
(b) Written authorization for preauthorized transfers from
consumer's account. Preauthorized electronic fund transfers from a
consumer's account may be authorized only by a writing signed or
similarly authenticated by the consumer. The person that obtains the
authorization shall provide a copy to the consumer.
(c) Consumer's right to stop payment--(1) Notice. A consumer may
stop payment of a preauthorized electronic fund transfer from the
consumer's account by notifying the financial institution orally or in
writing at least three business days before the scheduled date of the
transfer.
(2) Written confirmation. The financial institution may require the
consumer to give written confirmation of a stop-payment order within 14
days of an oral notification. An institution that requires written
confirmation shall inform the consumer of the requirement
[[Page 19673]]
and provide the address where confirmation must be sent when the
consumer gives the oral notification. An oral stop-payment order ceases
to be binding after 14 days if the consumer fails to provide the
required written confirmation.
(d) Notice of transfers varying in amount--(1) Notice. When a
preauthorized electronic fund transfer from the consumer's account will
vary in amount from the previous transfer under the same authorization
or from the preauthorized amount, the designated payee or the financial
institution shall send the consumer written notice of the amount and
date of the transfer at least 10 days before the scheduled date of
transfer.
(2) Range. The designated payee or the institution shall inform the
consumer of the right to receive notice of all varying transfers, but
may give the consumer the option of receiving notice only when a
transfer falls outside a specified range of amounts or only when a
transfer differs from the most recent transfer by more than an agreed-
upon amount.
(e) Compulsory use--(1) Credit. No financial institution or other
person may condition an extension of credit to a consumer on the
consumer's repayment by preauthorized electronic fund transfers, except
for credit extended under an overdraft credit plan or extended to
maintain a specified minimum balance in the consumer's account.
(2) Employment or government benefit. No financial institution or
other person may require a consumer to establish an account for receipt
of electronic fund transfers with a particular institution as a
condition of employment or receipt of a government benefit.
Sec. 205.11 Procedures for resolving errors.
(a) Definition of error--(1) Types of transfers or inquiries
covered. The term error means:
(i) An unauthorized electronic fund transfer;
(ii) An incorrect electronic fund transfer to or from the
consumer's account;
(iii) The omission of an electronic fund transfer from a periodic
statement;
(iv) A computational or bookkeeping error made by the financial
institution relating to an electronic fund transfer;
(v) The consumer's receipt of an incorrect amount of money from an
electronic terminal;
(vi) An electronic fund transfer not identified in accordance with
Secs. 205.9 or 205.10(a); or
(vii) The consumer's request for documentation required by
Secs. 205.9 or 205.10(a) or for additional information or clarification
concerning an electronic fund transfer, including a request the
consumer makes to determine whether an error exists under paragraphs
(a)(1) (i) through (vi) of this section.
(2) Types of inquiries not covered. The term error does not
include:
(i) A routine inquiry about the consumer's account balance;
(ii) A request for information for tax or other recordkeeping
purposes; or
(iii) A request for duplicate copies of documentation.
(b) Notice of error from consumer--(1) Timing; contents. A
financial institution shall comply with the requirements of this
section with respect to any oral or written notice of error from the
consumer that:
(i) Is received by the institution no later than 60 days after the
institution sends the periodic statement or provides the passbook
documentation, required by Sec. 205.9, on which the alleged error is
first reflected;
(ii) Enables the institution to identify the consumer's name and
account number; and
(iii) Indicates why the consumer believes an error exists and
includes to the extent possible the type, date, and amount of the
error, except for requests described in paragraph (a)(1)(vii) of this
section.
(2) Written confirmation. A financial institution may require the
consumer to give written confirmation of an error within 10 business
days of an oral notice. An institution that requires written
confirmation shall inform the consumer of the requirement and provide
the address where confirmation must be sent when the consumer gives the
oral notification.
(3) Request for documentation or clarifications. When a notice of
error is based on documentation or clarification that the consumer
requested under paragraph (a)(1)(vii) of this section, the consumer's
notice of error is timely if received by the financial institution no
later than 60 days after the institution sends the information
requested.
(c) Time limits and extent of investigation--(1) Ten-day period. A
financial institution shall investigate promptly and, except as
otherwise provided in this paragraph (c), shall determine whether an
error occurred within 10 business days of receiving a notice of error.
The institution shall report the results to the consumer within three
business days after completing its investigation. The institution shall
correct the error within one business day after determining that an
error occurred.
(2) Forty-five day period. If the financial institution is unable
to complete its investigation within 10 business days, the institution
may take up to 45 days from receipt of a notice of error to investigate
and determine whether an error occurred, provided the institution does
the following:
(i) Provisionally credits the consumer's account in the amount of
the alleged error (including interest where applicable) within 10
business days of receiving the error notice. If the financial
institution has a reasonable basis for believing that an unauthorized
electronic fund transfer has occurred and the institution has satisfied
the requirements of Sec. 205.6(a), the institution may withhold a
maximum of $50 from the amount credited. An institution need not
provisionally credit the consumer's account if:
(A) The institution requires but does not receive written
confirmation within 10 business days of an oral notice of error; or
(B) The alleged error involves an account that is subject to
Regulation T (Securities Credit by Brokers and Dealers, 12 CFR part
220);
(ii) Informs the consumer, within two business days after the
provisional crediting, of the amount and date of the provisional
crediting and gives the consumer full use of the funds during the
investigation;
(iii) Corrects the error, if any, within one business day after
determining that an error occurred; and
(iv) Reports the results to the consumer within three business days
after completing its investigation (including, if applicable, notice
that a provisional credit has been made final).
(3) Extension of time periods. The applicable time periods in this
paragraph (c)(3) are 20 business days in place of 10 business days, and
90 days in place of 45 days, if a notice of error involves an
electronic fund transfer that:
(i) Was not initiated within a state; or
(ii) Resulted from a point-of-sale debit card transaction.
(4) Investigation. With the exception of transfers covered by
Sec. 205.14, a financial institution's review of its own records
regarding an alleged error satisfies the requirements of this section
if:
(i) The alleged error concerns a transfer to or from a third party;
and
(ii) There is no agreement between the institution and the third
party for the type of electronic fund transfer involved.
(d) Procedures if financial institution determines no error or
different error
[[Page 19674]]
occurred. In addition to following the procedures specified in
paragraph (c) of this section, the financial institution shall follow
the procedures set forth in this paragraph (d) if it determines that no
error occurred or that an error occurred in a manner or amount
different from that described by the consumer:
(1) Written explanation. The institution's report of the results of
its investigation shall include a written explanation of the
institution's findings and shall note the consumer's right to request
the documents that the institution relied on in making its
determination. Upon request, the institution shall promptly provide
copies of the documents.
(2) Debiting provisional credit. Upon debiting a provisionally
credited amount, the financial institution shall:
(i) Notify the consumer of the date and amount of the debiting;
(ii) Notify the consumer that the institution will honor checks,
drafts, or similar instruments payable to third parties and
preauthorized transfers from the consumer's account (without charge to
the consumer as a result of an overdraft) for five business days after
the notification. The institution shall honor items as specified in the
notice, but need honor only items that it would have paid if the
provisionally credited funds had not been debited.
(e) Reassertion of error. A financial institution that has fully
complied with the error resolution requirements has no further
responsibilities under this section should the consumer later reassert
the same error, except in the case of an error asserted by the consumer
following receipt of information provided under paragraph (a)(1)(vii)
of this section.
Sec. 205.12 Relation to other laws.
(a) Relation to Truth in Lending. (1) The Electronic Fund Transfer
Act and this part govern:
(i) The addition to an accepted credit card, as defined in
Regulation Z (12 CFR 226.12(a)(2), footnote 21), of the capability to
initiate electronic fund transfers;
(ii) The issuance of an access device that permits credit
extensions (under a preexisting agreement between a consumer and a
financial institution) only when the consumer's account is overdrawn or
to maintain a specified minimum balance in the consumer's account; and
(iii) A consumer's liability for an unauthorized electronic fund
transfer and the investigation of errors involving an extension of
credit that occurs under an agreement between the consumer and a
financial institution to extend credit when the consumer's account is
overdrawn or to maintain a specified minimum balance in the consumer's
account.
(2) The Truth in Lending Act and Regulation Z (12 CFR part 226),
which prohibit the unsolicited issuance of credit cards, govern:
(i) The addition of a credit feature to an accepted access device;
and
(ii) Except as provided in paragraph (a)(1)(ii) of this section,
the issuance of a credit card that is also an access device.
(b) Preemption of inconsistent state laws--(1) Inconsistent
requirements. The Board shall determine, upon its own motion or upon
the request of a state, financial institution, or other interested
party, whether the act and this part preempt state law relating to
electronic fund transfers. Only state laws that are inconsistent with
the act and this part are preempted and then only to the extent of the
inconsistency. A state law is not inconsistent with the act and this
part if it is more protective of consumers.
(2) Standards for determination. State law is inconsistent with the
requirements of the act and this part if it:
(i) Requires or permits a practice or act prohibited by the federal
law;
(ii) Provides for consumer liability for unauthorized electronic
fund transfers that exceeds the limits imposed by the federal law;
(iii) Allows longer time periods than the federal law for
investigating and correcting alleged errors, or does not require the
financial institution to credit the consumer's account during an error
investigation in accordance with Sec. 205.11(c)(2)(i); or
(iv) Requires initial disclosures, periodic statements, or receipts
that are different in content from those required by the federal law
except to the extent that the disclosures relate to consumer rights
granted by the state law and not by the federal law.
(c) State exemptions--(1) General rule. Any state may apply for an
exemption from the requirements of the act or this part for any class
of electronic fund transfers within the state. The Board shall grant an
exemption if it determines that:
(i) Under state law the class of electronic fund transfers is
subject to requirements substantially similar to those imposed by the
federal law; and
(ii) There is adequate provision for state enforcement.
(2) Exception. To assure that the federal and state courts continue
to have concurrent jurisdiction, and to aid in implementing the act:
(i) No exemption shall extend to the civil liability provisions of
section 915 of the act; and
(ii) When the Board grants an exemption, the state law requirements
shall constitute the requirements of the federal law for purposes of
section 915 of the act, except for state law requirements not imposed
by the federal law.
Sec. 205.13 Administrative enforcement; record retention.
(a) Enforcement by federal agencies. Compliance with this part is
enforced by the agencies listed in Appendix B of this part.
(b) Record retention. (1) Any person subject to the act and this
part shall retain evidence of compliance with the requirements imposed
by the act and this part for a period of not less than two years from
the date disclosures are required to be made or action is required to
be taken.
(2) Any person subject to the act and this part having actual
notice that it is the subject of an investigation or an enforcement
proceeding by its enforcement agency, or having been served with notice
of an action filed under sections 910, 915, or 916(a) of the act, shall
retain the records that pertain to the investigation, action, or
proceeding until final disposition of the matter unless an earlier time
is allowed by court or agency order.
Sec. 205.14 Electronic fund transfer service provider not holding
consumer's account.
(a) Provider of electronic fund transfer service. A person that
provides an electronic fund transfer service to a consumer but that
does not hold the consumer's account is subject to all requirements of
this part if the person:
(1) Issues a debit card (or other access device) that the consumer
can use to access the consumer's account held by a financial
institution; and
(2) Has no agreement with the account-holding institution regarding
such access.
(b) Compliance by service provider. In addition to the requirements
generally applicable under this part, the service provider shall comply
with the following special rules:
(1) Disclosures and documentation. The service provider shall give
the disclosures and documentation required by Secs. 205.7, 205.8, and
205.9 that are within the purview of its relationship with the
consumer. The service provider need not furnish the periodic statement
required by Sec. 205.9(b) if the following conditions are met:
[[Page 19675]]
(i) The debit card (or other access device) issued to the consumer
bears the service provider's name and an address or telephone number
for making inquiries or giving notice of error;
(ii) The consumer receives a notice concerning use of the debit
card that is substantially similar to the notice contained in Appendix
A of this part;
(iii) The consumer receives, on or with the receipts required by
Sec. 205.9(a), the address and telephone number to be used for an
inquiry, to give notice of an error, or to report the loss or theft of
the debit card;
(iv) The service provider transmits to the account-holding
institution the information specified in Sec. 205.9(b)(1), in the
format prescribed by the automated clearinghouse system used to clear
the fund transfers;
(v) The service provider extends the time period for notice of loss
or theft of a debit card, set forth in Sec. 205.6(b) (1) and (2), from
two business days to four business days after the consumer learns of
the loss or theft; and extends the time periods for reporting
unauthorized transfers or errors, set forth in Secs. 205.6(b)(3) and
205.11(b)(1)(i), from 60 days to 90 days following the transmittal of a
periodic statement by the account-holding institution.
(2) Error resolution. (i) The service provider shall extend by a
reasonable time the period in which notice of an error must be
received, specified in Sec. 205.11(b)(1)(i), if a delay resulted from
an initial attempt by the consumer to notify the account-holding
institution.
(ii) The service provider shall disclose to the consumer the date
on which it initiates a transfer to effect a provisional credit in
accordance with Sec. 205.11(c)(2)(ii).
(iii) If the service provider determines an error occurred, it
shall transfer funds to or from the consumer's account, in the
appropriate amount and within the applicable time period, in accordance
with Sec. 205.11(c)(2)(i).
(iv) If funds were provisionally credited and the service provider
determines no error occurred, it may reverse the credit. The service
provider shall notify the account-holding institution of the period
during which the account-holding institution must honor debits to the
account in accordance with Sec. 205.11(d)(2)(ii). If an overdraft
results, the service provider shall promptly reimburse the account-
holding institution in the amount of the overdraft.
(c) Compliance by account-holding institution. The account-holding
institution need not comply with the requirements of the act and this
part with respect to electronic fund transfers initiated through the
service provider except as follows:
(1) Documentation. The account-holding institution shall provide a
periodic statement that describes each electronic fund transfer
initiated by the consumer with the access device issued by the service
provider. The account-holding institution has no liability for the
failure to comply with this requirement if the service provider did not
provide the necessary information; and
(2) Error resolution. Upon request, the account-holding institution
shall provide information or copies of documents needed by the service
provider to investigate errors or to furnish copies of documents to the
consumer. The account-holding institution shall also honor debits to
the account in accordance with Sec. 205.11(d)(2)(ii).
Sec. 205.15 Electronic fund transfer of government benefits.
(a) Government agency subject to regulation. (1) A government
agency is deemed to be a financial institution for purposes of the act
and this part if directly or indirectly it issues an access device to a
consumer for use in initiating an electronic fund transfer of
government benefits from an account. The agency shall comply with all
applicable requirements of the act and this part except as provided in
this section.
(2) For purposes of this section, the term account means an account
established by a government agency for distributing government benefits
to a consumer electronically, such as through automated teller machines
or point-of-sale terminals.
(b) Issuance of access devices. For purposes of this section, a
consumer is deemed to request an access device when the consumer
applies for government benefits that the agency disburses or will
disburse by means of an electronic fund transfer. The agency shall
verify the identity of the consumer receiving the device by reasonable
means before the device is activated.
(c) Alternative to periodic statement. A government agency need not
furnish the periodic statement required by Sec. 205.9(b) if the agency
makes available to the consumer:
(1) The consumer's account balance, through a readily available
telephone line and at a terminal (such as by providing balance
information at a balance-inquiry terminal or providing it, routinely or
upon request, on a terminal receipt at the time of an electronic fund
transfer); and
(2) A written history of the consumer's account transactions that
is provided promptly in response to an oral or written request and that
covers at least 60 days preceding the date of a request by the
consumer.
(d) Modified requirements. A government agency that does not
furnish periodic statements, in accordance with paragraph (c) of this
section, shall comply with the following special rules:
(1) Initial disclosures. The agency shall modify the disclosures
under Sec. 205.7(b) by disclosing:
(i) Account balance. The means by which the consumer may obtain
information concerning the account balance, including a telephone
number. The agency provides a notice substantially similar to the
notice contained in paragraph A-5 in Appendix A of this part.
(ii) Written account history. A summary of the consumer's right to
receive a written account history upon request, in place of the
periodic statement required by Sec. 205.7(b)(6), and the telephone
number to call to request an account history. This disclosure may be
made by providing a notice substantially similar to the notice
contained in paragraph A-5 in Appendix A of this part.
(iii) Error resolution. A notice concerning error resolution that
is substantially similar to the notice contained in paragraph A-5 in
Appendix A of this part, in place of the notice required by
Sec. 205.7(b)(10).
(2) Annual error resolution notice. The agency shall provide an
annual notice concerning error resolution that is substantially similar
to the notice contained in paragraph A-5 in appendix A, in place of the
notice required by Sec. 205.8(b).
(3) Limitations on liability. For purposes of Sec. 205.6(b)(3),
regarding a 60-day period for reporting any unauthorized transfer that
appears on a periodic statement, the 60-day period shall begin with
transmittal of a written account history or other account information
provided to the consumer under paragraph (c) of this section.
(4) Error resolution. The agency shall comply with the requirements
of Sec. 205.11 in response to an oral or written notice of an error
from the consumer that is received no later than 60 days after the
consumer obtains the written account history or other account
information, under paragraph (c) of this section, in which the error is
first reflected.
4. Appendices A and B are revised and Appendix C is added to read
as follows:
[[Page 19676]]
Appendix A to Part 205--Model Disclosure Clauses and Forms
Table of Contents
A-1--MODEL CLAUSES FOR UNSOLICITED ISSUANCE (Sec. 205.5(b)(2))
A-2--MODEL CLAUSES FOR INITIAL DISCLOSURES (Sec. 205.7(b))
A-3--MODEL FORMS FOR ERROR RESOLUTION NOTICE (Secs. 205.7(b)(10) and
205.8(b))
A-4--MODEL FORM FOR SERVICE-PROVIDING INSTITUTIONS
(Sec. 205.14(b)(1)(ii))
A-5--MODEL FORMS FOR GOVERNMENT AGENCIES (Sec. 205.15(d) (1) and
(2))
A-1--MODEL CLAUSES FOR UNSOLICITED ISSUANCE (Sec. 205.5(b)(2))
(a) Accounts using cards. You cannot use the enclosed card to
transfer money into or out of your account until we have validated
it. If you do not want to use the card, please (destroy it at once
by cutting it in half).
[Financial institution may add validation instructions here.]
(b) Accounts using codes. You cannot use the enclosed code to
transfer money into or out of your account until we have validated
it. If you do not want to use the code, please (destroy this notice
at once).
[Financial institution may add validation instructions here.]
A-2--MODEL CLAUSES FOR INITIAL DISCLOSURES (Sec. 205.7(b))
(a) Consumer Liability (Sec. 205.7(b)(1)). (Tell us AT ONCE if
you believe your [card] [code] has been lost or stolen. Telephoning
is the best way of keeping your possible losses down. You could lose
all the money in your account (plus your maximum overdraft line of
credit). If you tell us within 2 business days, you can lose no more
than $50 if someone used your [card][code] without your permission.
(If you believe your [card] [code] has been lost or stolen, and you
tell us within 2 business days after you learn of the loss or theft,
you can lose no more than $50 if someone used your [card] [code]
without your permission.)
If you do NOT tell us within 2 business days after you learn of
the loss or theft of your [card] [code], and we can prove we could
have stopped someone from using your [card] [code] without your
permission if you had told us, you could lose as much as $500.
Also, if your statement shows transfers that you did not make,
tell us at once. If you do not tell us within 60 days after the
statement was mailed to you, you may not get back any money you lost
after the 60 days if we can prove that we could have stopped someone
from taking the money if you had told us in time.
If a good reason (such as a long trip or a hospital stay) kept
you from telling us, we will extend the time periods.
(b) Contact in event of unauthorized transfer
(Sec. 205.7(b)(2)). If you believe your [card] [code] has been lost
or stolen or that someone has transferred or may transfer money from
your account without your permission, call:
[Telephone number]
or write:
[Name of person or office to be notified]
[Address]
(c) Business days (Sec. 205.7(b)(3)). For purposes of these
disclosures, our business days are (Monday through Friday) (Monday
through Saturday) (any day including Saturdays and Sundays).
Holidays are (not) included.
(d) Transfer types and limitations (Sec. 205.7(b)(4))--(1)
Account access. You may use your [card][code] to:
(i) Withdraw cash from your [checking] [or] [savings] account.
(ii) Make deposits to your [checking] [or] [savings] account.
(iii) Transfer funds between your checking and savings accounts
whenever you request.
(iv) Pay for purchases at places that have agreed to accept the
[card] [code].
(v) Pay bills directly [by telephone] from your [checking] [or]
[savings] account in the amounts and on the days you request.
Some of these services may not be available at all terminals.
(2) Limitations on frequency of transfers.--(i) You may make
only [insert number, e.g., 3] cash withdrawals from our terminals
each [insert time period, e.g., week].
(ii) You can use your telephone bill-payment service to pay
[insert number] bills each [insert time period] [telephone call].
(iii) You can use our point-of-sale transfer service for [insert
number] transactions each [insert time period].
(iv) For security reasons, there are limits on the number of
transfers you can make using our [terminals] [telephone bill-payment
service] [point-of-sale transfer service].
(3) Limitations on dollar amounts of transfers--(i) You may
withdraw up to [insert dollar amount] from our terminals each
[insert time period] time you use the [card] [code].
(ii) You may buy up to [insert dollar amount] worth of goods or
services each [insert time period] time you use the [card] [code] in
our point-of-sale transfer service.
(e) Fees (Sec. 205.7(b)(5))--(1) Per transfer charge. We will
charge you [insert dollar amount] for each transfer you make using
our [automated teller machines] [telephone bill-payment service]
[point-of-sale transfer service].
(2) Fixed charge. We will charge you [insert dollar amount] each
[insert time period] for our [automated teller machine service]
[telephone bill-payment service] [point-of-sale transfer service].
(3) Average or minimum balance charge. We will only charge you
for using our [automated teller machines] [telephone bill-payment
service] [point-of-sale transfer service] if the [average] [minimum]
balance in your [checking account] [savings account] [accounts]
falls below [insert dollar amount]. If it does, we will charge you
[insert dollar amount] each [transfer] [insert time period].
(f) Confidentiality (Sec. 205.7(b)(9)). We will disclose
information to third parties about your account or the transfers you
make:
(i) Where it is necessary for completing transfers, or
(ii) In order to verify the existence and condition of your
account for a third party, such as a credit bureau or merchant, or
(iii) In order to comply with government agency or court orders,
or
(iv) If you give us your written permission.
(g) Documentation (Sec. 205.7(b)(6))--(1) Terminal transfers.
You can get a receipt at the time you make any transfer to or from
your account using one of our [automated teller machines] [or]
[point-of-sale terminals].
(2) Preauthorized credits. If you have arranged to have direct
deposits made to your account at least once every 60 days from the
same person or company, (we will let you know if the deposit is
[not] made.) [the person or company making the deposit will tell you
every time they send us the money] [you can call us at (insert
telephone number) to find out whether or not the deposit has been
made].
(3) Periodic statements. You will get a [monthly] [quarterly]
account statement (unless there are no transfers in a particular
month. In any case you will get the statement at least quarterly).
(4) Passbook account where the only possible electronic fund
transfers are preauthorized credits. If you bring your passbook to
us, we will record any electronic deposits that were made to your
account since the last time you brought in your passbook.
(h) Preauthorized payments (Sec. 205.7(b) (6), (7) and (8);
Sec. 205.10(d))--(1) Right to stop payment and procedure for doing
so. If you have told us in advance to make regular payments out of
your account, you can stop any of these payments. Here's how:
Call us at [insert telephone number], or write us at [insert
address], in time for us to receive your request 3 business days or
more before the payment is scheduled to be made. If you call, we may
also require you to put your request in writing and get it to us
within 14 days after you call. (We will charge you [insert amount]
for each stop-payment order you give.)
(2) Notice of varying amounts. If these regular payments may
vary in amount, [we] [the person you are going to pay] will tell
you, 10 days before each payment, when it will be made and how much
it will be. (You may choose instead to get this notice only when the
payment would differ by more than a certain amount from the previous
payment, or when the amount would fall outside certain limits that
you set.)
(3) Liability for failure to stop payment of preauthorized
transfer. If you order us to stop one of these payments 3 business
days or more before the transfer is scheduled, and we do not do so,
we will be liable for your losses or damages.
(i) Financial institution's liability (Sec. 205.7(b)(8)). If we
do not complete a transfer to or from your account on time or in the
correct amount according to our agreement with you, we will be
liable for your losses or damages. However, there are some
exceptions. We will not be liable, for instance:
(1) If, through no fault of ours, you do not have enough money
in your account to make the transfer.
(2) If the transfer would go over the credit limit on your
overdraft line.
(3) If the automated teller machine where you are making the
transfer does not have enough cash.
[[Page 19677]]
(4) If the [terminal] [system] was not working properly and you
knew about the breakdown when you started the transfer.
(5) If circumstances beyond our control (such as fire or flood)
prevent the transfer, despite reasonable precautions that we have
taken.
(6) There may be other exceptions stated in our agreement with
you.
A-3--MODEL FORMS FOR ERROR RESOLUTION NOTICE (Secs. 205.7(b)(10) and
205.8(b))
(a) Initial and annual error resolution notice (Secs. 205.7(b)(10)
and 205.8(b))
In Case of Errors or Questions About Your Electronic Transfers,
Telephone us at [insert telephone number] or Write us at [insert
address] as soon as you can, if you think your statement or receipt
is wrong or if you need more information about a transfer listed on
the statement or receipt. We must hear from you no later than 60
days after we sent the FIRST statement on which the problem or error
appeared.
(1) Tell us your name and account number (if any).
(2) Describe the error or the transfer you are unsure about, and
explain as clearly as you can why you believe it is an error or why
you need more information.
(3) Tell us the dollar amount of the suspected error.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days.
We will tell you the results of our investigation within 10
business days after we hear from you and will correct any error
promptly. If we need more time, however, we may take up to 45 days
to investigate your complaint or question. If we decide to do this,
we will credit your account within 10 business days for the amount
you think is in error, so that you will have the use of the money
during the time it takes us to complete our investigation. If we ask
you to put your complaint or question in writing and we do not
receive it within 10 business days, we may not credit your account.
If we decide that there was no error, we will send you a written
explanation within three business days after we finish our
investigation. You may ask for copies of the documents that we used
in our investigation.
(b) Error resolution notice on periodic statements Sec. 205.8(b)
In Case of Errors or Questions About Your Electronic Transfers,
Telephone us at [insert telephone number] or Write us at [insert
address] as soon as you can, if you think your statement or receipt
is wrong or if you need more information about a transfer on the
statement or receipt. We must hear from you no later than 60 days
after we sent you the FIRST statement on which the error or problem
appeared.
(1) Tell us your name and account number (if any).
(2) Describe the error or the transfer you are unsure about, and
explain as clearly as you can why you believe it is an error or why
you need more information.
(3) Tell us the dollar amount of the suspected error.
We will investigate your complaint and will correct any error
promptly. If we take more than 10 business days to do this, we will
credit your account for the amount you think is in error, so that
you will have the use of the money during the time it takes us to
complete our investigation.
A-4--MODEL FORM FOR SERVICE-PROVIDING INSTITUTIONS
(Sec. 205.14(b)(1)(ii))
ALL QUESTIONS ABOUT TRANSACTIONS MADE WITH YOUR (NAME OF CARD)
CARD MUST BE DIRECTED TO US (NAME OF SERVICE PROVIDER), AND NOT TO
THE BANK OR OTHER FINANCIAL INSTITUTION WHERE YOU HAVE YOUR ACCOUNT.
We are responsible for the [name of service] service and for
resolving any errors in transactions made with your [name of card]
card.
We will not send you a periodic statement listing transactions
that you make using your [name of card] card. The transactions will
appear only on the statement issued by your bank or other financial
institution. SAVE THE RECEIPTS YOU ARE GIVEN WHEN YOU USE YOUR [NAME
OF CARD] CARD, AND CHECK THEM AGAINST THE ACCOUNT STATEMENT YOU
RECEIVE FROM YOUR BANK OR OTHER FINANCIAL INSTITUTION. If you have
any questions about one of these transactions, call or write us at
[telephone number and address] [the telephone number and address
indicated below].
IF YOUR [NAME OF CARD] CARD IS LOST OR STOLEN, NOTIFY US AT ONCE
by calling or writing to us at [telephone number and address].
A-5--MODEL FORMS FOR GOVERNMENT AGENCIES (Sec. 205.15(d) (1) and (2))
(1) Disclosure by government agencies of information about
obtaining account balances and account histories Sec. 205.15(d)(1)
(i) and (ii)
You may obtain information about the amount of benefits you have
remaining by calling [telephone number]. That information is also
available [on the receipt you get when you make a transfer with your
card at (an ATM) (a POS terminal)] [when you make a balance inquiry
at an ATM][when you make a balance inquiry at specified locations].
You also have the right to receive a written summary of
transactions for the 60 days preceding your request by calling
[telephone number]. [Optional: Or you may request the summary by
contacting your caseworker.]
(2) Disclosure of error resolution procedures for government
agencies that do not provide periodic statements (Sec. 205.15
(d)(1)(iii) and (d)(2))
In Case of Errors or Questions About Your Electronic Transfers
Telephone us at [telephone number] or Write us at [address] as soon
as you can, if you think an error has occurred in your
[EBT][agency's name for program] account. We must hear from you no
later than 60 days after you learn of the error. You will need to
tell us:
Your name and [case] [file] number.
Why you believe there is an error, and the dollar
amount involved.
Approximately when the error took place.
If you tell us orally, we may require that you send us your
complaint or question in writing within 10 business days. We will
generally complete our investigation within 10 business days and
correct any error promptly. In some cases, an investigation may take
longer, but you will have the use of the funds in question after the
10 business days. If we ask you to put your complaint or question in
writing and we do not receive it within 10 business days, we may not
credit your account during the investigation.
For errors involving transactions at point-of-sale terminals in
food stores, the periods referred to above are 20 business days
instead of 10 business days.
If we decide that there was no error, we will send you a written
explanation within three business days after we finish our
investigation. You may ask for copies of the documents that we used
in our investigation.
If you need more information about our error resolution
procedures, call us at [telephone number][the telephone number shown
above].
Appendix B to Part 205--Federal Enforcement Agencies
The following list indicates which Federal agency enforces
Regulation E (12 CFR part 205) for particular classes of
institutions. Any questions concerning compliance by a particular
institution should be directed to the appropriate enforcing agency.
Terms that are not defined in the Federal Deposit Insurance Act (12
U.S.C. 1813(s)) shall have the meaning given to them in the
International Banking Act of 1978 (12 U.S.C. 3101).
National banks, and Federal branches and Federal agencies of
foreign banks
District office of the Office of the Comptroller of the Currency
where the institution is located.
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
25(a) of the Federal Reserve Act
Federal Reserve Bank serving the District in which the
institution is located.
Nonmember insured banks and insured state branches of foreign banks
Federal Deposit Insurance Corporation regional director for the
region in which the institution is located.
Savings institutions insured under the Savings Association
Insurance Fund of the FDIC and federally-chartered savings banks
insured under the Bank Insurance Fund of the FDIC (but not
including state-chartered savings banks insured under the Bank
Insurance Fund)
Office of Thrift Supervision Regional Director for the region in
which the institution is located.
[[Page 19678]]
Federal Credit Unions
Division of Consumer Affairs, National Credit Union
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428
Air Carriers
Assistant General Counsel for Aviation Enforcement and
Proceedings, Department of Transportation, 400 Seventh Street, S.W.,
Washington, D.C. 20590.
Brokers and Dealers
Division of Market Regulation, Securities and Exchange
Commission, Washington, D.C. 20549.
Retailers, Consumer Finance Companies, Certain Other Financial
Institutions, and all others not covered above
Federal Trade Commission, Electronic Fund Transfers, Washington,
D.C. 20580.
Appendix C to Part 205--Issuance of Staff Interpretations
Official Staff Interpretations
Pursuant to section 915(d) of the act, the Board has designated the
director and other officials of the Division of Consumer and Community
Affairs as officials ``duly authorized'' to issue, at their discretion,
official staff interpretations of this part. Except in unusual
circumstances, such interpretations will not be issued separately but
will be incorporated in an official commentary to this part, which will
be amended periodically.
Requests for Issuance of Official Staff Interpretations
A request for an official staff interpretation shall be in writing
and addressed to the Director, Division of Consumer and Community
Affairs, Board of Governors of the Federal Reserve System, Washington,
D.C. 20551. The request shall contain a complete statement of all
relevant facts concerning the issue, including copies of all pertinent
documents.
Scope of Interpretations
No staff interpretations will be issued approving financial
institutions' forms or statements. This restriction does not apply to
forms or statements whose use is required or sanctioned by a government
agency.
By order of the Board of Governors of the Federal Reserve
System, April 19, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-10179 Filed 5-1-96; 8:45 am]
BILLING CODE 6210-01-P
