[Federal Register Volume 64, Number 177 (Tuesday, September 14, 1999)]
[Proposed Rules]
[Pages 49722-49740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23138]
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FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R-1043]
Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule.
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SUMMARY: The Board is requesting comment on proposed revisions to
Regulation Z, which implements the Truth in Lending Act. The Board
previously published a proposed rule that permits creditors to use
electronic communication (for example, communication via personal
computer and modem) to provide disclosures required by the act and
regulation, if the
[[Page 49723]]
consumer agrees to such delivery. (A similar rule was also proposed
under various other consumer financial services and fair lending
regulations administered by the Board.) In response to comments
received on the proposals, the Board is publishing for comment an
alternative proposal on the electronic delivery of disclosures,
together with proposed commentary that would provide further guidance
on electronic communication issues. The Board is also publishing for
comment proposed revisions to allow disclosures in other languages.
DATES: Comments must be received by October 29, 1999.
ADDRESSES: Comments, which should refer to Docket No. R-1043, may be
mailed to Jennifer J. Johnson, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, DC 20551. Comments addressed to Ms. Johnson may also be
delivered to the Board's mail room between 8:45 a.m. and 5:15 p.m.
weekdays, and to the security control room at all other times. The mail
room and the security control room, both in the Board's Eccles
Building, are accessible from the courtyard entrance on 20th Street
between Constitution Avenue and C Street, N.W. Comments may be
inspected in room MP-500 between 9:00 a.m. and 5:00 p.m., pursuant to
Sec. 261.12, except as provided in Sec. 261.14 of the Board's Rules
Regarding the Availability of Information, 12 CFR 261.12 and 261.14.
FOR FURTHER INFORMATION CONTACT: For information pertaining to open-end
credit, John C. Wood, Senior Attorney, or Jane E. Ahrens, Senior
Counsel; for information pertaining to closed-end credit, Michael L.
Hentrel or Kyung H. Cho-Miller, Staff Attorneys, Division of Consumer
and Community Affairs, at (202) 452-3667 or (202) 452-2412. Users of
Telecommunications Device for the Deaf (TDD) only, contact Diane
Jenkins at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background
The purpose of the Truth in Lending Act (TILA), 15 U.S.C. 1601 et
seq., is to promote the informed use of consumer credit by requiring
disclosures about its terms and cost. The Board's Regulation Z (12 CFR
part 226) implements the act. The act requires creditors to disclose
the cost of credit as a dollar amount (the finance charge) and as an
annual percentage rate (the APR). Uniformity in creditors' disclosures
is intended to assist consumers in comparison shopping. TILA requires
additional disclosures for loans secured by consumers' homes and
permits consumers to rescind certain transactions that involve their
principal dwellings.
TILA and Regulation Z require a number of disclosures to be
provided in writing, presuming that creditors provide paper documents.
Under many laws that call for information to be in writing, information
in electronic form is considered to be ``written.'' Information
produced, stored, or communicated by computer is also generally
considered to be a writing, where visual text is involved.
In May 1996, the Board revised Regulation E (Electronic Fund
Transfers) following a comprehensive review. During that process, the
Board determined that electronic communications for delivery of
information required by federal laws governing financial services could
effectively reduce compliance costs without adversely affecting
consumer protections. Consequently, the Board simultaneously issued a
proposed rule to permit financial institutions to use electronic
communication to deliver disclosures that Regulation E requires to be
given in writing. (61 FR 19696, May 2, 1996.) The 1996 proposal
required that disclosures be provided in a form the consumer may
retain, a requirement that institutions could satisfy by providing
information in a format that may be printed or downloaded. The proposed
rule also allowed consumers to request a paper copy of a disclosure for
up to one year after its original delivery.
Following a review of the comments, on March 25, 1998, the Board
issued an interim rule under Regulation E (the ``interim rule''), 63 FR
14528. The Board also published proposals under Regulations DD (Truth
in Savings), 63 FR 14533, M (Consumer Leasing), 63 FR 14538, Z (Truth
in Lending), 63 FR 14548, and B (Equal Credit Opportunity), 63 FR
14552, (collectively, the ``March 1998 proposed rules''). The rules
would apply to financial institutions, creditors, lessors, and other
entities that are required to give disclosures to consumers and others.
(For ease of reference this background section uses the terms
``financial institutions,'' ``institutions,'' and ``consumers.'') The
interim rule and the March 1998 proposed rules were similar to the May
1996 proposed rule; however, they did not require financial
institutions to provide paper copies of disclosures to a consumer upon
request if the consumer previously agreed to receive disclosures
electronically. The Board believed that most institutions would
accommodate consumer requests for paper copies when feasible or
redeliver disclosures electronically; and the Board encouraged
financial institutions to do so.
The March 1998 proposed rules and the interim rule permitted
financial institutions to provide disclosures electronically if the
consumer agreed, with few other requirements. The rule was intended to
provide flexibility and did not specify any particular method for
obtaining a consumer's agreement. Whether the parties had an agreement
would be determined by state law. The proposals and the interim rule
did not preclude a financial institution and a consumer from entering
into an agreement electronically, nor did they prescribe a formal
mechanism for doing so.
The Board received approximately 200 written comments on the
interim rule and the March 1998 proposed rules. The majority of
comments were submitted by financial institutions and their trade
associations. Industry commenters generally supported the use of
electronic communication to deliver information required by the TILA
and Regulation Z. Nevertheless, many sought specific revisions and
additional guidance on how to comply with the disclosure requirements
in particular transactions and circumstances.
Industry commenters were especially concerned about the condition
that a consumer had to ``agree'' to receive information by electronic
communication, because the rule did not specify a method for
establishing that an ``agreement'' was reached. These commenters
believed that relying on state law created uncertainty about what
constitutes an agreement and, therefore, potential liability for
noncompliance. To avoid uncertainty over which state's laws apply, some
commenters urged the Board to adopt a federal minimum standard for
agreements or for informed consent to receive disclosures by electronic
communication. These commenters believed that such a standard would
avoid the compliance burden associated with tailoring legally binding
``agreements'' to the contract laws of all jurisdictions where
electronic communications may be sent.
Consumer advocates generally opposed the March 1998 interim rule
and proposed rules. Without additional safeguards, they believed,
consumers may not be provided with adequate information about
electronic communication before an ``agreement'' is reached. They also
believed that promises of lower costs could induce consumers to agree
to receive disclosures electronically without a full
[[Page 49724]]
understanding of the implications. To avoid such problems, they urged
the Board, for example, either to require institutions to disclose to
consumers that their account with the institution will not be adversely
affected if they do not agree to receive electronic disclosures, or to
permit institutions to offer electronic disclosures only to consumers
who initiate contact with the institution through electronic
communication. They also noted that some consumers will likely consent
to electronic disclosures believing that they have the technical
capability to retrieve information electronically, but might later
discover that they are unable to do so. They questioned consumers'
willingness and ability to access and retain disclosures posted on
Internet websites, and expressed their apprehension that the goals of
federally mandated disclosure laws will be lost.
Consumer advocates and others were particularly concerned about the
use of electronic disclosures in connection with home-secured loans and
certain other transactions that consumers typically consummate in
person (citing as examples automobile loans and leases, short-term
``payday'' loans, or home improvement financing contracts resulting
from door-to-door sales). They asserted that there is little benefit to
eliminating paper disclosures in such transactions and that allowing
electronic disclosures in those cases could lead to abusive practices.
Accordingly, consumer advocates and others believed that paper
disclosures should always accompany electronic disclosures in mortgage
loans and certain other transactions, and that consumers should have
the right to obtain paper copies of disclosures upon request for all
types of transactions (deposit account, credit card, loan or lease, and
other transactions).
A final issue raised by consumer advocates was the integrity of
disclosures sent electronically. They stated that there may be
instances when the consumer and the institution disagree on the terms
or conditions of an agreement and consumers may need to offer
electronic disclosures as proof of the agreed-upon terms and to enforce
rights under consumer protection laws. Thus, to assure that electronic
documents have not been altered and that they accurately reflect the
disclosures originally sent, consumer advocates recommended that the
Board require that electronic disclosures be authenticated by an
independent third party.
The Board's Consumer Advisory Council considered the electronic
delivery of disclosures in 1998 and again in 1999. Many Council members
shared views similar to those expressed in written comment letters on
the 1998 proposals. For example, some Council members expressed concern
that the Board was moving too quickly in allowing electronic
disclosures for certain transactions, and suggested that the Board
might go forward with electronic disclosures for deposit accounts while
proceeding more slowly on credit and lease transactions. Others
expressed concern about consumer access and consumers' ability to
retain electronic disclosures. They believed that, without specific
guidance from the Board, institutions would provide electronic
disclosures without knowing whether consumers could retain or access
the disclosures, and without establishing procedures to address
technical malfunctions or nondelivery. The Council also discussed the
integrity and security of electronic documents.
II. Overview of Proposed Revisions
Based on a review of the comments and further analysis, the Board
is requesting comment on a modified proposed rule that is more detailed
than the interim rule and the March 1998 proposed rules. It is intended
to provide specific guidance for creditors that choose to use
electronic communication to comply with Regulation Z's requirements to
provide written disclosures, and to ensure effective delivery of
disclosures to consumers through this medium. Though detailed, the
proposal provides flexibility for compliance with the electronic
communication rules. The modified proposal recognizes that some
disclosures may warrant different treatment under the rule. Some
disclosures are generally available to the public--for example, credit
card costs in solicitations. Under the modified proposal, such
disclosures could be made available electronically without obtaining a
consumer's consent. Where written disclosures are made to consumers who
are transacting business in person, these disclosures generally would
have to be made in paper form.
The Board is soliciting comment on a modified approach that
addresses both industry and consumer group concerns. Under the
proposal, creditors would have to provide specific information about
how the consumer can receive and retain electronic disclosures--through
a standardized disclosure statement--before obtaining consumers'
acceptance of such delivery, with some exceptions. If they satisfy
these requirements and obtain consumers' affirmative consent, creditors
would be permitted to use electronic communications. As a general rule
a creditor would be permitted to offer the option of receiving
electronic disclosures to all consumers, whether they initially contact
the creditor by electronic communication or otherwise. To address
concerns about potential abuses, however, the proposal provides that if
a consumer becomes obligated for an extension of credit in person,
disclosures must be given in paper form.
Creditors would have the option of delivering disclosures to an e-
mail address designated by the consumer or making disclosures available
at another location such as the creditor's website, for printing or
downloading. If the disclosures are posted at a website location,
creditors generally must notify consumers at an e-mail address about
the availability of the information. (Creditors may offer consumers the
option of receiving alert notices at a postal address.) The disclosures
must remain available at that site for 90 days.
Disclosures provided electronically would be subject to the ``clear
and conspicuous'' standard, and the existing format, timing, and
retainability rules in Regulation Z. For example, to satisfy the timing
requirement, if disclosures are due at the time an electronic
transaction is being conducted, the disclosures have to appear on the
screen before the consumer could complete the transaction.
Creditors generally must provide a means for consumers to confirm
the availability of equipment to receive and retain electronic
disclosure documents. A creditor would not otherwise have a duty to
verify consumers' actual ability to receive, print, or download the
disclosures. Some commenters suggested that creditors should be
required to verify delivery by return receipt. The Board solicits
comment on the need for such a requirement and the feasibility of that
approach.
As previously mentioned, consumer advocates and others have
expressed concerns that electronic documents can be altered more easily
than paper documents. The issue of the integrity and security of
electronic documents affects electronic commerce in general and is not
unique to the written disclosures required under the consumer
protection laws administered by the Board. Consumers' ability to
enforce rights under the consumer protection laws could be impaired in
some cases, however, if the authenticity of disclosures that they
retain cannot be demonstrated. Signatures, notary seals, and other
established verification procedures are used to detect alterations for
transactions memorialized in paper form. The development of similar
[[Page 49725]]
devices for electronic communications should reduce uncertainty over
time about the ability to use electronic documents for resolving
disputes.
The Board's rules require creditors to retain evidence of
compliance with Regulation Z. Specific comment is solicited on the
feasibility of complying with a requirement that creditors provide
disclosures in a format that cannot be altered without detection, or
have systems in place capable of detecting whether or not information
has been altered, as well as the feasibility of requiring use of
independent certification authorities to verify disclosure documents.
Elsewhere in today's Federal Register, the Board is publishing
similar proposals for comment under Regulations B, E, M, and DD. In a
separate notice the Board is publishing an interim rule under
Regulation DD, which implements the Truth in Savings Act, to permit
depository institutions to use electronic communication to deliver
disclosures on periodic statements. For ease of reference, the Board
has assigned new docket numbers to the modified proposals published
today.
III. Section-by-Section Analysis
Pursuant to its authority under section 105 of the TILA, the Board
proposes to amend Regulation Z to permit creditors to use electronic
communication to provide the information required by this regulation to
be in writing. Below is a section-by-section analysis of the rules for
providing disclosures by electronic communication, including references
to proposed commentary provisions.
The March 1998 proposed rule addressed electronic communication in
Subpart B (open-end credit plans), Subpart C (closed-end transactions),
and Subpart E (certain mortgage transactions). To ease compliance, the
Board proposes to add a new Subpart F and Appendix M to the regulation
to address in a single location all rules affecting electronic
communication for consumer credit transactions. The revised proposal
also amends Sec. 226.27 to allow creditors to provide disclosures in
another language so long as English disclosures are provided upon
request.
Subpart B--Open-end Credit
Section 226.5a Credit and Charge Card Applications and Solicitations
5a(b) Required Disclosures
5a(b)(1) Annual Percentage Rate
Regulation Z requires credit and charge card issuers to provide
credit disclosures in certain applications and solicitations to open
credit and charge card accounts. Format and content requirements differ
for applications or solicitations sent in direct mail campaigns and for
those made available to the general public such as in ``take-ones'' and
catalogs or magazines. Disclosures accompanying direct mail
applications and solicitations must be presented in a table.
Disclosures in a take-one also may be presented in a table with the
same content as for direct mail, but the act and regulation permit
alternatives for format and content. Where terms are disclosed, card
issuers are required to disclose the periodic rate that would apply,
expressed as an APR. For fixed rates, card issuers are required to
disclose the APR currently available under the plan. For variable
rates, the APR disclosed in a direct mail solicitation must be accurate
within 60 days before mailing; in a take-one, within 30 days before
printing.
The supplementary information to the March 1998 proposed rule
addressed compliance with Sec. 226.5a in the context of electronic
communication. The Board indicated that card issuers should follow (1)
the direct-mail rules if a card issuer sends an application or
solicitation by electronic communication that alerts the consumer that
the application or solicitation has arrived, such as electronic mail,
and (2) the take-one rules if an issuer makes an application or
solicitation publicly available, such as by posting it on an Internet
site. Thus, for applications and solicitations posted on the Internet,
the 1998 proposal would require that APRs generally be accurate within
30 days before the card issuer's most recent update of the Internet
site; where direct mail rules apply, the APR would be accurate within
60 days before the card issuer's electronic mailing.
Most commenters concurred with the Board's guidance on when the
direct mail requirements would apply to electronic disclosures,
although a few commenters suggested that the Board simplify the
proposal by establishing one rule for all solicitations by electronic
communication. Regarding the APR, several commenters asked the Board
what would constitute the ``most recent'' update of an Internet site.
For example, commenters questioned whether the term referred to an
update of any aspect of a creditor's website, or was limited to an
update of the application or solicitation. Many commenters (including
state and federal regulators) urged the Board to provide guidance by
recommending a frequency for updating Internet sites. Other commenters
stated that updates to information provided on the Internet, including
the APR, should be required frequently, and within a set period of
time.
To simplify the rule and to address commenters' concerns, the Board
is proposing a single standard that would apply to the accuracy of APRs
contained in applications or solicitations offered via electronic
communication. Proposed would Sec. 226.5a(b)(1)(iii) provides that when
a variable rate is in an application or solicitation transmitted via
electronic communication, the rate should be one that was in effect
within the previous 30-day period. The 30-day period should allow card
issuers sufficient flexibility in updating websites or in preparing
electronic direct mail applications or solicitations without adversely
affecting the consumer. The Board continues to believe that as to the
format and content of the disclosures, applications or solicitations
sent to a consumer's designated e-mail address should comply with the
direct mail rules under Sec. 226.5a(c) and that applications and
solicitations available on a website should comply with the take-one
rules under Sec. 226.5a(e). Proposed comment 5a(a)(2)-7(i) contains
this guidance. The Board requests comment on any compliance
difficulties this approach may pose, and possible suggestions for their
resolution.
Section 226.5b Requirements for Home-Equity Plans
5b(b) Time of Disclosures
Consumers interested in an open-end plan secured by the consumer's
dwelling are provided with a booklet and other disclosures generically
describing the creditor's product when an application is provided.
Creditors may delay the delivery of the booklet and disclosures for up
to three business days when, among other circumstances, applications
are received by telephone. 12 CFR 226.5b(b), n. 10a.
Creditors have requested guidance on using electronic communication
to provide the disclosures required by Sec. 226.5b(b) when the consumer
is transacting business at a creditor's website. Some believe the
timing rules for applications by telephone should apply. The rationale
underlying the deferral is that creditors cannot provide the booklet
and other disclosures in written form as required by the regulation by
telephone. That problem does not exist with on-line transactions. Thus,
the Board believes there is no need for a delay in delivering
disclosures. If the creditor's procedures permit the consumer to apply
for credit on-line (and the creditor has complied with Sec. 226.34(c)),
the booklet and loan-product disclosures required by Sec. 226.5b
[[Page 49726]]
would have to appear on the screen before the consumer starts the
application process. This fulfills the rule's purpose to ensure that
consumers have the opportunity to read important information about
costs and other terms before the consumer completes an application or
pays a nonrefundable fee. Proposed comment 5b(b)-7 contains this
guidance. See also the discussion under Sec. 226.19(b), below, for
similar guidance regarding disclosures provided at application for
certain mortgage loans.
Section 226.16 Advertising
16(c) Catalogs and Multiple-page Advertisements
Stating certain credit terms in an advertisement for an open-end
credit plan triggers the disclosure of additional terms. Section
226.16(c) permits creditors using a multiple-page advertisement to
state the additional disclosures in a table or schedule as long as the
triggering credit terms appearing anywhere else in the advertisement
refer to the page where the table or schedule is printed. Several
commenters asked the Board to clarify the rules for electronic
advertisements. Specifically, they asked whether creditors could
utilize the multiple-page advertisement provisions when advertising
electronically and if so, asked for guidance on the requirement to
reference clearly where the table or schedule begins.
Section 226.16(c) would be amended to cover electronic
advertisements. Creditors that advertise using electronic communication
would comply with Sec. 226.16(c) if the table or schedule with the
additional information is set forth clearly and conspicuously and the
triggering credit terms appearing anywhere else in the advertisement
clearly refer to the location where the table or schedule begins.
Proposed comment 16(c)(1)-2 contains this guidance.
Subpart C--Closed-end Credit
Section 226.17 General Disclosure Requirements
17(g) Mail or Telephone Orders--Delay in Disclosures
Section 226.17(g) allows creditors to defer TILA disclosures when a
consumer makes a credit-purchase or requests credit by mail, telephone,
or other ``electronic means'' without face-to-face or direct
solicitation by the creditor. In such cases, creditors may delay
providing disclosures until the first payment due date, provided
certain information is ``made available in written form'' before the
consumer's request. The rationale underlying the deferral is that
creditors cannot provide transaction-specific disclosures in written
form as required by the regulation at the time of the consumer's
purchase or request.
Under the March 1998 proposal, creditors offering loan products by
``electronic communication'' (for example, those offered on the
Internet) could not delay providing disclosures under Sec. 226.17(g).
The rationale underlying the proposal is that the deferral rule in
Sec. 226.17(g) pre-dates Internet banking; ``other electronic means''
typically involved non-interactive, non-visual means such as telegraph
transmissions. The difficulties in providing disclosures for credit
requests by mail or telephone are not present for credit requests
received by electronic means of communication using visual text. Thus,
the March 1998 proposed rule provided that specific disclosures must be
provided before transactions are consummated using electronic
communication. Most commenters agreed with the Board's position, that
the same limitations that apply to requests made by telephone should
not apply to electronic means of communication using visual text, such
as the Internet.
Several commenters disagreed with the proposed rule and believed
that deferral of TILA disclosures should apply to credit requests
initiated by electronic communication, even where visual text is used,
because of the transaction-specific nature of the disclosures such as
the APR and payment schedule. Some commenters believed that the Board's
proposal would require creditors to be available at all times to
prepare these personalized disclosures. The Board does not intend such
a result. As is the case of credit applications by other means,
creditors are not required to respond immediately to a request for
credit. Also, advances in technology permit creditors to provide
transaction-specific disclosures by combining information provided by a
consumer with credit programs offered by a creditor.
Other commenters were concerned that some devices using electronic
communication, such as automated loan machines or automated teller
machines, may not have the same capacity to store and provide
disclosures as other means. Machines with the capability to process
credit applications or disburse loan proceeds are generally controlled
by the creditor or operated by a third party retained by the creditor.
Under the March 1998 proposal, creditors have the responsibility to
ensure proper equipment is in place where consumers receive electronic
disclosures via equipment controlled by the creditor. This means that
the equipment it operates or controls--including devices such as
automated loan machines or automated teller machines--must meet clear
and conspicuous standards and must provide a means for consumers to
retain disclosures such as printers incorporated into terminals or a
screen message offering to transmit the disclosure to the consumer's
electronic mail or post office address. (See proposed comment 34(b)-1.)
Section 226.19 Certain Residential Mortgage Transactions
19(b) Certain Variable-rate Transactions
For certain loans with variable-rate features (loans where the APR
may increase during the loan term) that are secured by the consumer's
principal dwelling, creditors must provide consumers with a booklet and
other disclosures generically describing the creditor's product when an
application is provided (or a nonrefundable fee is paid, whichever
occurs earliest). Creditors may delay the delivery of the booklet and
disclosures for up to three business days when, among other
circumstances, applications are received by telephone. 12 CFR
226.19(b), n. 45b. Consistent with proposed comment 5b(b)-7 addressing
certain home-secured open-end plans, comment 19(b)-2 would be
restructured and revised to address when the booklet and disclosures
required by Sec. 226.19(b) must be provided when an application is
received by electronic communication.
Section 226.24 Advertising
Regulation Z prescribes certain disclosure rules for closed-end
loan advertisements, including the use of multiple-page advertisements.
Proposed amendments concerning electronic advertisements for open-end
credit plans under Sec. 226.16 are discussed above. Although specific
requirements differ somewhat for closed-end loans and open-end credit
plans, proposed amendments for closed-end loan advertisements are
substantially similar to those discussed above for open-end credit
plans.
24(b) Advertisement of Rate of Finance Charge
Section 226.24(b) permits creditors to state a simple annual rate
or periodic rate in addition to the APR, as long as the rate is stated
in conjunction with, but not more conspicuously than, the APR. Proposed
comment 24(b)-6
[[Page 49727]]
contains guidance on how this rule applies to rates stated in an
electronic advertisement.
24(d) Catalogs and Multiple-page Advertisements
Section 226.24(d) permits creditors using a multiple-page
advertisement to state the additional disclosures in a table or
schedule so long as the triggering credit terms appearing anywhere else
in the advertisement refer to the page where the table or schedule is
printed. Section 226.24(d) would be amended to cover electronic
advertisements. Creditors that advertise using electronic communication
generally would comply with Sec. 226.24(d) if the table or schedule
with the additional information is set forth clearly and the triggering
credit terms appearing anywhere else in the advertisement clearly
refers to the location where the table or schedule begins. Proposed
comment 24(d)-4 contains this guidance.
Subpart D--Miscellaneous
Section 226.27 Spanish Language Disclosures
Section 226.27 provides that all disclosures required by the
regulation must be provided in English, except in the Commonwealth of
Puerto Rico, where disclosures may be provided in Spanish if the
disclosures are available in English upon the consumer's request. The
proposal would revise this provision, consistent with the language
requirements in Regulation DD (Truth in Savings) and Regulation M
(Consumer Leasing). Creditors would be permitted to give disclosures in
another language as long as disclosures in English are given to a
consumer who requests them. The Board believes that a more permissive
rule could promote the delivery of more meaningful disclosures to some
consumers.
Subpart F--Electronic Communications
Section 226.34 Requirements for Electronic Communications
34(a) Definition
The definition of the term ``electronic communication'' in the
March 1998 proposed rule remains unchanged. Section 226.34(a) limits
the term to a message transmitted electronically that can be displayed
on equipment as visual text, such as a message that is displayed on a
computer monitor screen. Most commenters supported the term as defined
in the March 1998 proposed rule. Some commenters favored a more
expansive definition that would encompass communications such as audio
and voice response telephone systems. Because the proposal is intended
to permit electronic communication to satisfy the statutory requirement
for written disclosures, the Board believes visual text is an essential
element of the definition.
Commenters asked the Board to clarify the coverage of certain types
of communications. A few commenters asked about communication by
facsimile. Facsimiles are initially transmitted electronically; the
information may be received either in paper form or electronically
through software that allows a consumer to capture the facsimile,
display it on a monitor, and store it on a computer diskette or drive.
Thus, information sent by facsimile may be subject to the provisions
governing electronic communication. When disclosures are sent by
facsimile, a creditor should comply with the requirements for
electronic communication unless it knows that the disclosures will be
received in paper form. Proposed comment 34(a)-1 contains this
guidance.
34(b) Electronic Communication between Creditor and Consumer
Section 226.34(b) would permit creditors to provide disclosures
using electronic communication, if the creditor complies with
provisions in new Sec. 226.34(d), discussed below.
1. Presenting Disclosures in a Clear and Conspicuous Format
The Board does not intend to discourage or encourage specific types
of technologies. Regardless of the technology, however, disclosures
provided electronically must be presented in a clear and conspicuous
format as is the case for all written disclosures under the act and
regulation. See Secs. 226.5(a)(1), 226.17(a)(1), and 226.31(b).
When consumers consent to receive disclosures electronically and
they confirm that they have the equipment to do so, creditors generally
would have no further duty to determine that consumers are able to
receive the disclosures. Creditors do have the responsibility of
ensuring the proper equipment is in place in instances where the
creditor controls the equipment. Proposed comment 34(b)-1 contains this
guidance.
2. Providing Disclosures in a Form the Consumer May Keep
As with other written disclosures, information provided by
electronic communication must be in a form the consumer can retain.
Under the 1998 proposals and interim rule, a creditor would satisfy
this requirement by providing information that can be printed or
downloaded. The modified proposal adopts the same approach but also
provides that the information must be sent to a specified location to
ensure that consumers have an adequate opportunity to retain the
information.
Consumers communicate electronically with creditors through a
variety of means and from various locations. Depending on the location
(at home, at work, in a public place such as a library), a consumer may
not have the ability at a given time to preserve TILA disclosures
presented on-screen. Therefore, when a creditor provides disclosures by
electronic communication, to satisfy the retention requirements, the
creditor must send the disclosures to a consumer's e-mail address or
other location where information may be retrieved at a later date.
Proposed comment 34(b)-2 contains this guidance; see also the
discussion under Sec. 226.34(e), below. In instances where a creditor
controls an electronic terminal used to provide electronic disclosures,
a creditor may provide equipment for the consumer to print a paper copy
in lieu of sending the information to the consumer's e-mail address or
posting the information at another location such as the creditor's
website. See proposed comment 34(b)-1.
3. Timing
Creditors must ensure that electronic disclosures comply with all
relevant timing requirements of the regulation. TILA and Regulation Z
require that disclosures be given at different times, depending on the
credit product or the stage of the credit process at which consumers
are receiving cost and other information. For example, generic
disclosures, including educational brochures, about home-equity lines
of credit and adjustable rate mortgage loans must be given at
application. Disclosures, oftentimes containing estimated costs, for
home-purchase loans must be given three days after application.
Disclosures for loans covered by the Home Ownership and Equity
Protection Act, 15 U.S.C. 1601 et seq., must be given three days before
consummation. Other loan disclosures have to be given anytime prior to
becoming obligated for an extension of credit. These timing rules
ensure that consumers have an opportunity to read important information
about costs and other terms at different stages of the credit process--
when shopping, at or shortly after applying for credit, or before
becoming obligated under a plan or consummating a transaction.
[[Page 49728]]
To illustrate the timing requirements for electronic communication
for an open-end plan, assume that a consumer is interested in opening a
credit card account with an on-line retailer and uses a personal
computer at home to access the retailer's website on the Internet. The
creditor provides disclosures to the consumer about the use of
electronic communication (the Sec. 226.34(d) disclosures discussed
below) and the consumer responds affirmatively. If the creditor's
procedures permit the consumer to open the account and make a purchase
immediately thereafter, initial disclosures required under Sec. 226.6
would have to be provided. Thus, the disclosures must automatically
appear on the screen or the consumer must be required to access the
information before becoming obligated on the plan. The timing
requirements for providing initial disclosures would not be met if, in
this example, the retailer permitted the consumer simultaneously to
open the credit card account and make a purchase and sent initial
disclosures to an e-mail address thereafter. Proposed comment 34(b)-3
contains this guidance.
On the other hand, if the retailer delays processing the consumer's
request to open a credit card account until the required disclosures
have been delivered by e-mail, disclosures would not have to also
appear on the screen; delivery to the consumer's e-mail address would
be sufficient. In either case, the consumer must receive the
disclosures before the first transaction.
Similar rules would apply for the timing requirements for
electronic communication for a closed-end transaction. For an
installment loan, if the creditor's procedures permit the consumer to
consummate the loan on-line, disclosures required under Sec. 226.18
must be provided before the consumer becomes obligated. For example,
before consummation, the disclosures must automatically appear on the
screen or the consumer must be required to access the disclosures on-
line before continuing. The timing requirements would not be met if the
creditor permitted the consumer to consummate the loan on-line and
later sent disclosures to an e-mail address.
34(c) In-Person Exception
The proposal contains some exceptions to the general rule allowing
information required by Regulation Z to be provided by electronic
communication; where the exceptions apply, paper disclosures would be
required. The exceptions, contained in Sec. 226.34(c), seek to address
concerns about potential abuses where consumers are transacting
business in person but are offered disclosures in electronic form. In
such transactions, there is a general expectation that consumers would
be given paper copies of disclosures along with paper copies of other
documents evidencing the transaction.
Under Sec. 226.34(c), if a consumer becomes obligated for credit in
person, the creditor must provide disclosures in paper form. (See
Sec. 226.6 for disclosures regarding open-end plans and Sec. 226.18 for
closed-end transactions.) The rule would ensure that consumers have the
opportunity to consider the costs and terms of the transaction under
the timing rules for providing disclosures established by TILA even if
the disclosures were provided electronically at an earlier date.
Proposed comment 34(c)-1 contains this guidance. The rule also
addresses concerns by consumer advocates that providing disclosures by
electronic communication is inappropriate when consumers conduct
business in person and other aspects of the transaction are paper-
based. The Board believes the burden associated with providing paper-
based disclosures for in-person transactions is minimal, since other
documents will be provided in paper form at that time.
In some instances, creditors may deliver disclosures by electronic
communication even if the consumer becomes obligated in person. Under
the proposal, if a consumer uses electronic communication to initiate a
credit transaction not secured by a dwelling and requests electronic
disclosures as provided in paragraph (d), the creditor could provide
disclosures electronically. The creditor would have complied with the
timing rules under TILA (before the first transaction for open-end
plans, before consummation for closed-end transactions) and--assuming
the disclosures remain accurate--would not be required to provide
disclosures in paper form if the consumer later becomes obligated in
person. Proposed comment 34(c)-2 contains this guidance. The Board
believes this approach fosters TILA's purpose to promote the informed
use of credit. Consumers receiving disclosures by electronic
communication could benefit by having additional time to review the
costs and terms of the transaction rather than receiving them shortly
before becoming obligated for the credit, as is often the case for in-
person transactions.
For credit secured by a dwelling, however, the proposal requires
paper disclosures if the consumer becomes obligated in person. This is
the case even though the creditor previously provided electronic
disclosures that remain accurate at the time the consumer becomes
obligated. The Board believes that most home-secured loans are
consummated in person due to legal requirements such as the need to
obtain authenticated signatures, and that most institutions would
likely provide paper disclosures for in-person transactions in any
event. Moreover, special protection is appropriate generally where a
consumer's home is at risk for any extension of credit and specifically
where predatory lending practices may occur and the consequences could
be the loss of a consumer's home.
Rescission Notices
TILA and Regulation Z provide that in certain transactions secured
by a consumer's principal dwelling, the consumer has three business
days to rescind the transaction after becoming obligated on the debt
(Secs. 226.15 and 226.23). Consumers with an ownership interest in the
dwelling used as security must receive: (1) Cost disclosures about the
transaction, and (2) two copies of a notice that explains consumers'
rescission rights and how to effect rescission, including a form the
consumer may use to notify the creditor if the consumer decides to
rescind the transaction.
In the March 1998 proposed rule, the Board did not explicitly
address the electronic delivery of rescission notices. Some commenters
asked the Board to clarify whether creditors could provide rescission
notices by electronic means, and if so, whether two copies must be
sent. Other commenters questioned whether electronic rescission notices
should be permitted in any case. One commenter noted that because the
potential significant impact of the rescission remedy, creditors would
likely continue to deliver paper copies of the rescission notice even
if the notices could be delivered electronically.
Under the proposal, creditors must provide notices required under
Secs. 226.15 and 226.23 in paper form if the consumer either becomes
obligated under the plan or consummates the transaction in person. This
approach is consistent with other proposed requirements to provide
paper-based disclosures for dwelling-secured transactions, and
recognizes the significance to both creditors and consumers of ensuring
delivery of the notice explaining rescission rights and the
accompanying form for the consumer's use. See Sec. 226.34(f)(3) for
proposed rules permitting consumers to rescind by electronic
communication if
[[Page 49729]]
the creditor designates an electronic address for that purpose.
34(d) Disclosure Notice
Section 226.34(d) would identify the specific steps required before
a creditor could use electronic communication to satisfy the
regulation's disclosure requirements. Proposed Model Forms M-1 and M-2
and Sample Forms M-4 and M-5 are published to aid compliance with these
requirements.
34(d)(2)(i) Notice by Creditor
Section 226.34(d)(2)(i) outlines the information that creditors
must provide before electronic disclosures can be given. The creditor
must: (1) Describe the information to be provided electronically and
specify whether the information is also available in paper form or
whether the transaction or account is offered only with electronic
disclosures; (2) identify the address or location where the information
will be provided electronically, and if it will be available at a
location other than the consumer's electronic address, specify for how
long and where it can be obtained once that period ends; (3) specify
any technical requirements for receiving and retaining information sent
electronically, and provide a means for the consumer to confirm the
availability of equipment meeting those requirements; and (4) provide a
toll-free telephone number and, at the creditor's option, an electronic
or a postal address for questions about receiving electronic
disclosures, or for updating consumers' electronic addresses, and for
seeking assistance with technical or other difficulties (see proposed
comments to 34(d)(2)(i)). The Board requests comment on whether other
information should be disclosed regarding the use of electronic
communication and on any format changes that might improve the
usefulness of the notice for consumers.
The Board also solicits comment on the benefits of requiring an
annual notice in paper form to consumers who receive disclosures by
electronic communication. The notice would contain general information
about receiving electronic disclosures including, for example, a
reminder of the toll-free telephone number where consumers may contact
the creditor if they have questions regarding their electronic
disclosures. Comment is also requested on whether such a notice may be
for feasible for certain types of credit (such as open-end) than
others.
Under the proposal, the Sec. 226.34(d)(2)(i) disclosures must be
provided, as applicable, before the creditor uses electronic
communication to deliver any information required by the regulation.
The approach of requiring a standardized disclosure statement
addresses, in several ways, the concern that consumers may be steered
into using electronic communication without fully understanding the
implications. Under this approach, the specific disclosures that would
be delivered electronically must be identified, and consumers must be
informed whether there is also an option to receive the information in
paper form. Consumers must provide an e-mail address where one is
required. Technical requirements must also be stated, and consumers
must affirm that their equipment meets the requirements, and that they
have the capability of retaining electronic disclosures by downloading
or printing them (see proposed comment 34(d)-1). Thus, the
Sec. 226.34(d)(2)(i) disclosures should allow consumers to make
informed judgments about receiving electronic disclosures.
Some commenters requested clarification of whether a creditor may
use electronic communication to provide some required disclosures while
using paper for others. The proposed rule would permit creditors to do
so; the disclosure given under Sec. 226.34(d)(2)(i) must specify which
TILA disclosures will be provided electronically.
Commenters requested further guidance on a creditor's obligation
under the regulation if the consumer chooses not to receive information
by electronic communication. A creditor could offer a consumer the
option of receiving disclosures in paper form, but it would not be
required to do so. A creditor could establish accounts or loans for
which disclosures are given only by electronic communication. Section
226.34(d)(2)(i)(A) would require creditors to tell consumers whether or
not they have the option to receive disclosures in paper form. Section
226.34(d)(2)(i)(D) would require creditors to provide a toll-free
number that consumers could use to inform creditors if they wish to
discontinue receiving electronic disclosures. In such cases the
creditor must inform the consumer whether credit transaction is also
available with disclosures in paper form. Proposed sample disclosure
statements in which the consumer has an option to receive electronic or
paper disclosures (Form M-4) or electronic disclosures only (Form M-5)
are contained in appendix M.
34(d)(2)(ii) Response by Consumer
Proposed Sec. 226.34(d)(2)(ii) would require creditors to provide a
means for the consumer to affirmatively indicate that disclosures may
be provided electronically. Examples include a ``check box'' on a
computer screen or a signature line (for requests made in paper form).
The requirement is intended to ensure that consumers' consent is
established knowingly and voluntarily, and that consent to receive
electronic disclosures is not inferred from consumers' use of the
account or acceptance of general account terms. See proposed comment
34(d)(2)(ii)-1.
34(d)(3) Changes
Creditors would be required to notify consumers about changes to
the information that is provided in the notice required by
Sec. 226.34(d)(2)(i)--for example, if upgrades to computer software are
required. Proposed comment 34(d)(3)-1 contains this guidance.
The notice must include the effective date of the change and be
provided before that date. Proposed comment 34(d)(3)-2 would provide
that the notice must be sent a reasonable period of time before the
effective date of the change. Although the number of days that
constitutes reasonable notice may vary, depending on the type of change
involved, the comment would provide creditors with a safe harbor:
fifteen days' advance notice would be considered a reasonable time in
all cases. The same time period is stated in similar proposals under
Regulations B, E, and DD published in today's Federal Register. Comment
is requested on whether a safe harbor of 15 days is an appropriate time
period, and whether a uniform period for changes involving electronic
communication is desirable. An alternative approach would adopt notice
requirements that are consistent with change-in-terms requirements
under the respective regulations. Under this approach, for example, the
safe harbor would be 15 days under Sec. 226.9 for Regulation Z, 21 days
under Sec. 205.8 for Regulation E, and 30 days under Sec. 230.5 for
Regulation DD. Proposed comment 34(b)(3)-3 contains guidance on
delivery requirements for the notice of change.
The notice of a change must also include a toll-free telephone
number or, at the creditor's option, an address for questions about
receiving electronic disclosures. For example, a consumer may call
regarding problems related to a change, such as an upgrade to computer
software that is not provided by the creditor. Consumers may also use
the toll-free number if they wish to discontinue receiving electronic
disclosures. In such cases, the creditor must inform consumers whether
the credit transaction is also available with
[[Page 49730]]
disclosures in paper form. (See proposed comments 34(d)(3)-4 through -
6.)
If the change involves providing additional disclosures by
electronic communication, creditors generally would be required to
provide the notice in Sec. 226.34(d)(2)(i) and obtain the consumer's
consent. That notice would not be required if the creditor previously
obtained the consumer's consent to the additional disclosures in its
initial notice by disclosing the possibility and specifying which
disclosures might be provided electronically in the future. Comment is
specifically requested on this approach. A list of additional
disclosures may be necessary to ensure that consumers' consent is
informed and knowing (provided it does not cause confusion).
34(d)(4) Exceptions
Section 226.5a requires creditors to provide certain disclosures on
or with a solicitation or an application to open a credit card account.
When solicitations or applications appear electronically, the
disclosures required by Sec. 226.5a should appear on the screen before
the solicitation or application appears. Proposed comment 5a(a)(2)-
7(ii) contains this guidance. Since a solicitation or an application is
more analogous to an advertisement than to a transaction-specific
disclosure, however, the notices to be provided by the creditor
regarding the use of electronic communication under
Sec. 226.34(d)(2)(i) would not be required. Proposed Sec. 226.34(d)(4)
exempts a solicitation or an application to open a credit or charge
card account from Sec. 226.34(d)(1)-(d)(3).
34(e) Address or Location to Receive Electronic Communication
Proposed Sec. 226.34(e) identifies addresses and locations where
creditors using electronic communication may send information to the
consumer. Creditors may send information to a consumer's electronic
address, which is defined in proposed comment 34(e)(1)-1 as an e-mail
address that the consumer also may use for receiving communications
from parties other than the creditor. For periodic statements, for
example, a creditor's responsibility to provide disclosures by
electronic communication will be satisfied when the information is sent
to the consumer's electronic address in accordance with the applicable
proposed rules concerning the delivery of disclosures by electronic
communication.
Guidance accompanying the March 1998 proposed rule provided that a
creditor would not meet delivery requirements by simply posting
information to an Internet site such as a creditor's ``home page''
without appropriate notice on how consumers can access the information.
Industry commenters wanted to retain the flexibility of posting
disclosures on an Internet website. They did not object to providing a
separate notice alerting consumers about the disclosures' availability
but requested more guidance on the issue. Consumer advocates and others
expressed concern that the mere posting of information inappropriately
places the responsibility to obtain disclosures on consumers, and
undermines the purpose of the delivery requirements of the regulation.
The Board recognizes that currently, because of security and
privacy concerns associated with data transmissions, a number of
creditors may choose to provide disclosures at their websites, where
the consumer may retrieve them under secure conditions. Under
Sec. 226.34(e), a creditor may make disclosures available to a consumer
at a location other than the consumer's electronic address. The
institution must notify the consumer when the information becomes
available and identify the account involved. The notice must be sent to
the electronic mail address designated by the consumer; the creditor
may, at its option, permit the consumer to designate a postal address.
A proposed model form (Model Form M-3) is published below; see also
proposed comment 34(e)(2)-1.
The Board believes it would be inconsistent with the TILA to
require a consumer to initiate a search--for example, to search the
website of each card issuer with whom a consumer has a credit card
account--to determine whether a disclosure has been provided. The
proposed approach ensures that a consumer would not be required to
check a creditor's website repeatedly, for example, to learn whether
the creditor posted a change in a term that affects the consumer's
credit card account.
The requirements of the regulation would be met only if the
required disclosure is posted on the website and the consumer is
notified of its availability in a timely fashion. For example,
creditors offering open-end plans must provide a change-in-terms notice
to consumers at least 15 days in advance of the change. (12 CFR
226.9(c).) For a change-in-terms notice posted on the Internet, a
creditor must both post the notice and notify consumers of its
availability at least 15 days in advance of the change.
Commenters sought guidance on how long disclosures posted at a
particular location must be available to consumers. There is a variety
of circumstances when a consumer may not be able immediately to access
the information due to illness, travel, or computer malfunction, for
example. Under Sec. 226.34(e)(2), creditors must post information that
is sent to a location other than the consumer's electronic mail address
for 90 days. Proposed comment 34(e)(2)-3 contains this guidance.
Under the modified proposal, creditors that post information at a
location other than the consumer's electronic mail address are
required--after the 90-day period--to make disclosures available to
consumers upon request for a period of not less than two years from the
date disclosures are required to be made, consistent with the record
retention requirements under Sec. 226.25. The Board requests comments
on this approach, including suggestions for alternative means for
providing consumers continuing access to disclosures.
As discussed above in connection with proposed Sec. 226.34(b), the
provisions of proposed Sec. 226.34(e) are based in part upon the
Regulation Z requirement that a creditor provide disclosures in a form
that the consumer can retain. Certain disclosures, however, are not
subject to the retainability requirement. In particular, footnote 8 to
Sec. 226.5(a) excepts the disclosures under Secs. 226.5a, 226.5b(d),
226.9(a)(2), 226.9(e), and 226.10(b) from this requirement. Proposed
comment Sec. 226.34(e)(2)-4 clarifies that the existing exception
applies to electronic disclosures and that the requirements of
Sec. 226.34(e) would not apply to disclosures referenced in footnote 8,
except Sec. 226.5b(d).
The Board believes that the disclosures required to be given along
with an application for a home equity line of credit under
Sec. 226.5b(d) should not be excepted from the requirements of proposed
Sec. 226.34(e). Although the Sec. 226.5b(d) disclosures are not
required, under footnote 8, to be provided in retainable form in the
context of paper, as a practical matter consumers usually have the
opportunity to keep a copy of these disclosures by some means; indeed,
the first disclosure listed in Sec. 226.5b(d) is ``a statement that the
consumer should make or otherwise retain a copy of the disclosures.''
In addition, the Sec. 226.5b(d) disclosures contain important
information that may not be duplicated by disclosures provided later to
the consumer (such as the Sec. 226.6 disclosures); in contrast, the
[[Page 49731]]
disclosures under Sec. 226.5a are mostly repeated in the Sec. 226.6
disclosures.
34(f) Consumer Use of Electronic Communication
Proposed Sec. 226.34(f) would clarify consumers' ability to provide
certain information to creditors by electronic communication. For open-
end accounts, Regulation Z provides that a consumer must submit a
written request for the refund of credit balances, that a cardholder
may inform a card issuer about the loss or theft of a credit card by
notifying the card issuer orally or in writing, and that a consumer
with a billing error must provide a written notice to the creditor to
initiate the billing-error resolution process. Under the revised
proposal, consumers generally would have the option to use electronic
communication for these written notices if the consumer has chosen to
receive information by electronic communication. Because the consumer's
electronic communication serves as written notice, the creditor could
not also require a paper notice. A creditor could, however, specify a
particular electronic address for receiving the notices.
The issue of consumers' ability to provide certain information to
creditors by electronic communication was not raised in the March 1998
proposed rule. The Board, however, stated in the Regulation E interim
rule that financial institutions could require paper confirmation of
electronic notices where the regulation allows written confirmation.
This approach was consistent with the Regulation E 1996 proposed rule,
where the Board stated that (as in the case of an oral communication)
if the consumer sends an electronic communication to the financial
institution, the institution could require paper confirmation from the
consumer (particularly since the consumer was entitled to a paper copy
of a disclosure upon request under the Regulation E 1996 proposed
rule).
Views were mixed on whether institutions should be permitted to
require paper confirmations of electronic notices. Many industry
commenters requested that the Board allow institutions to request paper
confirmations; some stated that paper confirmations protect both the
consumer and the institution. Consumer advocates and other commenters
believed it would be unfair to require paper confirmation of an
electronic communication from consumers who receive electronic
communication from an institution.
Based upon the comments received and further analysis, and subject
to certain limitations discussed below, the Board is proposing that
consumers be permitted to use electronic communications to comply with
the regulation.
34(f)(1) Open-end Credit
For open-end transactions, proposed Sec. 226.34(f)(1) permits the
consumer to use electronic communications if a creditor uses electronic
communication to provide periodic statements which establishes a
continuing electronic relationship between the creditor and consumer.
If, however, a creditor limits its use of electronic communication to
the delivery initial disclosures (that is, if all subsequent
disclosures regarding the credit transaction are provided in paper),
creditors would not be required to accept an electronic notice, such as
a request for refund of credit balances or notice of lost or stolen
credit card or of a billing error, from consumers.
34(f)(2) Closed-end Credit
For closed-end transactions, a consumer is required to submit a
written request in one instance--to request the refund of credit
balances. In contrast to open-end transactions, the disclosure
requirements imposed on the creditor for closed-end transactions
generally end at consummation with the exception of variable-rate
transactions. Therefore, proposed Sec. 226.34(f)(2) permits a consumer
to use electronic communication to request the refund of credit
balances only if the creditor has designated an electronic address for
that purpose.
34(f)(3) Rescission
Similar to allowing a consumer to use electronic communication to
request the refund of credit balances in a closed-end transaction,
proposed Sec. 226.34(f)(3) allows a consumer to rescind by using
electronic communication if the creditor has designated an electronic
address for that purpose. (See, also, the discussion in Sec. 226.34(c)
regarding the use of electronic communication to provide rescission
notices.)
34(f)(4) Creditor's Designation of Address
Section 226.34(f)(4) would provide that a creditor may designate
the electronic address that must be used by a consumer for sending
electronic communication as permitted by Sec. 226.34(f)(1) through (3).
34(g) Signatures and Similar Authentication
There are three signature requirements under Regulation Z. Under
Sec. 226.4(d) consumers may elect to accept credit insurance or debt
cancellation coverage by signing or initialing an affirmative written
request after receiving disclosures about the insurance. Under
Secs. 226.15 and 226.23 (and the corresponding model forms and official
staff commentary) consumers may cancel certain home-secured loans or
waive this right by providing a written signed notice to the creditor.
Under Sec. 226.31(c) (and the official staff commentary) telephone
disclosures may be provided if the consumer initiates a change and at
consummation new disclosures are provided and the consumer and creditor
sign a statement indicating that the telephone disclosures were
provided three days before consummation.
Proposed Sec. 226.34(g) would allow consumers and creditors to
similarly authenticate signatures where required by the regulation. A
similar amendment was made to Regulation E in the 1996 review of the
regulation.
The Board indicated in the May 1996 Regulation E proposal that any
authentication method should provide the same assurance as a signature
in a paper-based system. Since the publication of the amended
Regulation E and its accompanying commentary, the Board has been asked
to give further guidance on this issue. In the supplementary
information to the March 1998 proposed rule, the Board expressed
interest in learning about other ways in which authentication in an
electronic environment might occur in lieu of a consumer's signature.
Some commenters provided alternatives for verifying a consumer's
identity, including alphanumeric codes (combinations of letters and
numbers) or combinations of unique identifiers (such as account numbers
combined with a number representing algorithms of the account numbers).
In the supplementary information to the March 1998 proposed rule, the
Board cited security codes and digital signatures as examples of
authentication devices that might meet the requirements of
authentication and signatures. Many commenters stated their concern
that the Board approved only these or similar methods. These commenters
urged the Board to take a flexible approach to this requirement. They
suggested that the Board's implied or explicit endorsement of any
particular method could hinder the development of new technologies.
Further, these commenters requested that the Board take a ``wait and
see'' approach to this issue, to allow the industry to develop
alternatives that will result in more security for consumers.
[[Page 49732]]
To avoid unduly influencing the development of electronic
authentication methods and to encourage innovation and flexibility, the
Board will limit its guidance to the general principle that a home-
banking or other electronic communication system must use an
authentication device that provides the same assurance as a signature
in a paper-based system.
Appendix M to Part 226--Electronic Communication Model Forms and
Clauses
The Board solicits comment on three proposed model forms and two
sample forms for use by creditors to aid compliance with the disclosure
requirements of Secs. 226.34(d) and (e). Appendix M-1 and Appendix M-2
would implement Sec. 226.34(d), regarding the notices that creditors
must give prior to using electronic communication to provide required
disclosures. Appendix M-3 would implement Sec. 226.34(e), regarding
notices to consumers about the availability of electronic disclosures
at locations such as the creditor's website. Use of any modified
version of these forms would be in compliance as long as the creditor
does not delete information required by the regulation or rearrange the
format in a way that affects the substance, clarity, or meaningful
sequence of the disclosure.
Sample Form M-4 illustrates the disclosures under Sec. 226.34(d)
for a credit account. The sample assumes that the creditor also offers
paper disclosures for consumers who choose not to receive electronic
disclosures. Sample Form M-5 assumes that consumers must accept
electronic disclosures if they want to open the account or consummate
the transaction.
Additional Issue Raised by Electronic Communication
Preemption
A few commenters suggested that any final rule issued by the Board
permitting electronic disclosures should explicitly preempt any state
law requiring paper disclosures. Under Sec. 226.28 of the regulation,
state laws are preempted if they are inconsistent with the act and
regulation and only to the extent of the inconsistency. The proposed
rule would provide creditors with the option of giving required
disclosures by electronic communication as an alternative to paper.
There is no apparent inconsistency with the act and regulation if state
laws require paper disclosures. The Board will, however, review
preemption issues that are brought to the Board's attention. Appendix A
outlines the Board's procedures for determining whether a specific law
is preempted, which will guide the Board in any determination requested
by a state, creditor, or other interested party following publication
of a final rule regarding electronic communication.
IV. Form of Comment Letters
Comment letters should refer to Docket No. R-1043, and, when
possible, should use a standard typeface with a type size of 10 or 12
characters per inch. This will enable the Board to convert the text to
machine-readable form through electronic scanning, and will facilitate
automated retrieval of comments for review. Also, if accompanied by an
original document in paper form, comments may be submitted on 3\1/2\
inch computer diskettes in any IBM-compatible DOS-or Windows-based
format.
V. Initial Regulatory Flexibility Analysis
In accordance with section 3(a) of the Regulatory Flexibility Act,
the Board has reviewed the proposed amendments to Regulation Z.
Although the proposal would add disclosure requirements with respect to
electronic communication, overall, the proposed amendments are not
expected to have any significant impact on small entities. A creditor's
use of electronic communication to provide disclosures required by the
regulation is optional. The proposed rule would give creditors
flexibility in providing disclosures. A final regulatory flexibility
analysis will be conducted after consideration of comments received
during the public comment period.
VI. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the proposed rule
under the authority delegated to the Board by the Office of Management
and Budget (OMB). The Federal Reserve may not conduct or sponsor, and
an organization is not required to respond to, this information
collection unless it displays a currently valid OMB number. The OMB
control number is 7100-0199.
The collection of information requirements that are relevant to
this proposed rulemaking are in 12 CFR Part 226 and in Appendices F, G,
H, J, K, and L. This information is mandatory (15 U.S.C. 1604(a)) to
evidence compliance with the requirements of Regulation Z and the Truth
in Lending Act (TILA). The revised requirements would be used to ensure
adequate disclosure of basic terms, costs, and rights relating to
credit transactions, at or before the time consumers enter into a
consumer credit transaction and when the availability of consumer
credit on particular terms is advertised, for consumers receiving
certain disclosures by electronic communication. The respondents/
recordkeepers are for-profit creditors, including small businesses.
Creditors are also required to retain records for 24 months. This
regulation applies to all types of creditors, 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
paperwork burden on their respective constituencies under this
regulation.
The proposed revisions would allow creditors the option of using
electronic communication (for example, via personal computer and modem)
to provide disclosures required by the regulation. Although the
proposal would add disclosure requirements with respect to electronic
communication, the optional use of electronic communication would
likely reduce the paperwork burden of creditors. With respect to state
member banks, it is estimated that there are 988 respondents/
recordkeepers and an average frequency of 134,658,472 responses per
respondent each year. Therefore the current amount of annual burden is
estimated to be 1,873,223 hours. There is estimated to be no additional
annual cost burden and no capital or start-up cost.
Because the records would be maintained at state member banks and
the notices are not provided to the Federal Reserve, no issue of
confidentiality under the Freedom of Information Act arises; however,
any information obtained by the Federal Reserve may be protected from
disclosure under exemptions (b)(4), (6), and (8) of the Freedom of
Information Act (5 U.S.C. 522 (b)(4), (6) and (8)). The disclosures and
information about error allegations are confidential between creditors
and the customer.
The Federal Reserve requests comments from creditors, especially
state member banks, that will help to estimate the number and burden of
the various disclosures that would be made in the first year this
proposed regulation would be effective. Comments are invited on: (a)
the cost of compliance; (b) ways to enhance the quality, utility, and
clarity of the information to be disclosed; and (c) ways to minimize
the burden of disclosure on respondents, including through the use of
automated disclosure techniques or other forms of
[[Page 49733]]
information technology. Comments on the collection of information
should be sent to the Office of Management and Budget, Paperwork
Reduction Project (7100-0199), Washington, DC 20503, with copies of
such comments sent to Mary M. West, Federal Reserve Board Clearance
Officer, Division of Research and Statistics, Mail Stop 97, Board of
Governors of the Federal Reserve System, Washington, DC 20551.
List of Subjects in 12 CFR Part 226
Advertising, Federal Reserve System, Mortgages, Reporting and
recordkeeping requirements, Truth in lending.
Text of Proposed Revisions
Certain conventions have been used to highlight proposed changes to
Regulation Z. New language is shown inside bold-faced arrows, deletions
inside bold-faced brackets.
For the reasons set forth in the preamble, the Board proposes to
amend Regulation Z, 12 CFR part 226, as set forth below:
PART 226--TRUTH IN LENDING (REGULATION Z)
1. The authority citation for part 226 would continue to read as
follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5).
Subpart B--Open-End Credit
2. Section 226.5a is amended by revising paragraph (b)(1)(ii) and
adding a new paragraph (b)(1)(iii) to read as follows:
Sec. 226.5a Credit and charge card applications and solicitations.
* * * * *
(b) Required disclosures. * * *
(1) Annual percentage rate. * * *
(ii) Unless paragraph (b)(1)(iii) of this section
applies, when variable rate disclosures are provided under
paragraph (c) of this section, an annual percentage rate disclosure is
accurate if the rate was in effect within 60 days before mailing the
disclosures. When variable rate disclosures are provided under
paragraph (e) of this section, an annual percentage rate disclosure is
accurate if the rate was in effect within 30 days before printing the
disclosures.
(iii) When variable rate disclosures are provided by
electronic communication, an annual percentage rate disclosure is
accurate if the rate is one that was in effect within the previous 30-
day period before the disclosures are sent or posted.
* * * * *
3. Section 226.16 is amended by revising paragraph (c) to read as
follows:
Sec. 226.16 Advertising.
* * * * *
(c) Catalogs, [and] multiple-page , and
electronic advertisements. (1) If a catalog or other
multiple-page advertisement , or an advertisement using
electronic communication gives information in a table or
schedule in sufficient detail to permit determination of the
disclosures required by paragraph (b) of this section, it shall be
considered a single advertisement if:
(i) The table or schedule is clearly and conspicuously set forth;
and
(ii) Any statement of terms set forth in Sec. 226.6 appearing
anywhere else in the catalog or advertisement clearly refers to [that
page on which] the page or location where the
table or schedule begins.
(2) A catalog, [or] multiple-page , or
electronic advertisement complies with this paragraph if the
table or schedule of terms includes all appropriate disclosures for a
representative scale of amounts up to the level of the more commonly
sold higher-priced property or services offered.
* * * * *
Subpart C--Closed-End Credit
4. Section 226.17 is amended by revising the introductory text in
paragraph (g) to read as follows:
Sec. 226.17 General disclosure requirements.
* * * * *
(g) Mail or telephone orders--delay in disclosures. If a creditor
receives a purchase order or a request for an extension of credit by
mail, telephone, or any other written [or electronic] communication
, excluding electronic communication as described in
Sec. 226.34(a), without face-to-face or direct telephone
solicitation, the creditor may delay the disclosures until the due date
of the first payment, if the following information for representative
amounts or ranges of credit is made available in written form to the
consumer or to the public before the actual purchase order or request:
* * * * *
5. Section 226.24 is amended by revising paragraph (d) to read as
follows:
Sec. 226.24 Advertising.
* * * * *
(d) Catalogs, [and] multiple-page , and
electronic advertisements. (1) If a catalog or other
multiple page advertisement, or an advertisement using
electronic communication gives information in a table or
schedule in sufficient detail to permit determination of the
disclosures required by paragraph (c)(2) of this section, it shall be
considered a single advertisement if:
(i) The table or schedule is clearly set forth; and
(ii) Any statement of terms of the credit terms in paragraph (c)(1)
of this section appearing anywhere else in the catalog or advertisement
clearly refers to [that page on which] the page or location
where the table or schedule begins.
(2) A catalog, [or] multiple-page , or
electronic advertisement complies with paragraph (c)(2) of
this section if the table or schedule of terms includes all appropriate
disclosures for a representative scale of amounts up to the level of
the more commonly sold higher-priced property or services offered.
Subpart D--Miscellaneous
6. Section 226.27 is revised to read as follows:
Sec. 226.27 [Spanish] Language of disclosures.
All disclosures required by this regulation may be made
in a language other than English, provided that the disclosures are
made available in English upon the consumer's request.[shall
be made in the English language, except in the Commonwealth of Puerto
Rico, where creditors may, at their option, make disclosures in the
Spanish language. If Spanish disclosures are made, English disclosures
shall be provided on the consumer's request, either in substitution for
or in addition to the Spanish disclosures.] This requirement for
providing English disclosures on request shall not apply to
advertisements subject to Secs. 226.16 and 226.24 of this regulation.
7. Part 226 is amended by adding a new Subpart F to read as
follows:
Subpart F--Electronic Communications
Sec. 226.34 Requirements for electronic communications.
(a) Definition. Electronic communication means a message
transmitted electronically between a creditor and a consumer in a
format that allows visual text to be displayed on equipment such as a
personal computer monitor.
(b) Electronic communication between creditor and consumer. Except
as provided in paragraph (c) of this section, a creditor that complied
with paragraph (d) of this section may provide by electronic
communication any information required by this
[[Page 49734]]
regulation to be in writing. The creditor shall make the disclosures
required by this part clearly and conspicuously and in a form that the
consumer may keep.
(c) In-person exception. (1) General. When a consumer becomes
obligated on an open-end plan or consummates a closed-end transaction
in person, the disclosures required under Sec. 226.6 or Sec. 226.18,
respectively, shall be provided in paper form; the notice of right to
cancel shall also be provided in paper form if, in connection with the
plan or transaction, a consumer has a right to rescind under
Sec. 226.15 or Sec. 226.23.
(2) Credit not secured by a dwelling. For credit not secured by a
dwelling, paragraph (c)(1) of this section does not apply if the
consumer previously requested the credit by electronic communication
and disclosures were provided in compliance with paragraph (d)(2)(i)
and (d)(2)(ii) of this section at or around that time.
(d) Disclosures. (1) General. Except as provided under paragraph
(d)(4) of this section, the disclosure notice required by paragraph
(d)(2) of this section shall be provided in a manner substantially
similar to the applicable model form set forth in Appendix M of this
part (Model Forms M-1 and M-2).
(2) Notice by creditor. (i) A creditor shall:
(A) Describe the information to be provided electronically and
specify whether the information is also available in paper form or
whether the credit is offered only with electronic disclosures;
(B) Identify the address or location where the information will be
provided electronically; and if it is made available at a location
other than the consumer's electronic address, how long the information
will be available, and how it can be obtained once that period ends;
(C) Specify any technical requirements for receiving and retaining
information sent electronically, and provide a means for the consumer
to confirm the availability of equipment meeting those requirements;
and
(D) Provide a toll-free telephone number and, at the creditor's
option, an address for questions about receiving electronic
disclosures, for updating consumers' electronic addresses, and for
seeking technical or other assistance related to electronic
communication.
(ii) Response by consumer. A creditor shall provide a means for the
consumer to accept or reject electronic disclosures.
(3) Changes. (i) A creditor shall notify affected consumers of any
change to the information provided in the notice required by paragraph
(d)(2)(i) of this section. The notice shall include the effective date
of the change and must be provided before that date. The notice shall
also include a toll-free telephone number, and, at the creditor's
option, an address for questions about receiving electronic
disclosures.
(ii) In addition to the notice under (d)(3)(i) of this section, if
the change involves providing additional disclosures by electronic
communication, a creditor shall provide the notice in paragraph
(d)(2)(i) of this section and obtain the consumer's consent. A notice
is not required under paragraph (d)(2)(i) if the creditor's initial
notice states that additional disclosures may be provided
electronically in the future and specifies which disclosures could be
provided.
(4) Exception. A solicitation or an application to open an account
referenced in Sec. 226.5a shall be exempt from paragraphs (d)(1)
through (d)(3) of this section.
(e) Address or location to receive electronic communication. A
creditor that uses electronic communication to provide information
required by this regulation shall:
(1) Send the information to the consumer's electronic address; or
(2) Post the information for at least 90 days at a location such as
a website, and send a notice to the consumer when the information
becomes available. Thereafter the information shall be available upon
request for a period of not less than two years from the date
disclosures are required to be made. The notice required by this
paragraph (e)(2) shall identify the account involved, shall be sent to
an electronic address designated by the consumer (or to a postal
address, at the creditor's option), and shall be substantially similar
to the model form set forth in Appendix M of this part (Model Form M-
3).
(f) Consumer use of electronic communication. (1) Open-end credit
plans. If a creditor uses electronic communication to provide periodic
statements, the consumer also may use electronic communication to:
(i) Request a refund under Sec. 226.11(b);
(ii) Notify the creditor of the theft or loss of a credit card
under Sec. 226.12(b)(3);
(iii) Assert a claim or defense under Sec. 226.12(c); and
(iv) Notify the creditor of a billing error under Sec. 226.13(b).
(2) Closed-end credit. A consumer may request a refund of any
credit balance under Sec. 226.21(b) by electronic communication if the
creditor has designated an electronic address for that purpose.
(3) Rescission. A consumer may exercise or waive a right to rescind
under Sec. 226.15 or Sec. 226.23 by electronic communication only if
the creditor has designated an electronic address for that purpose.
(4) Creditor's designation of address. A creditor may designate the
electronic address or location that must be used by a consumer for
sending electronic communication under this paragraph.
(g) Signatures and similar authentication. Where a writing is
required to be signed or initialed, for purposes of an electronic
communication, it may be similarly authenticated.
9. Part 226 is amended by adding a new appendix M to read as
follows:
Appendix M to Part 226--Electronic Communication Model
Forms and Clauses
M-1 Model Disclosures for Electronic Communication (Sec. 226.34(d))
(Disclosures Available in Paper or Electronically)
M-2 Model Disclosures for Electronic Communication (Sec. 226.34(d))
(Disclosures Available Only Electronically)
M-3 Model Notice for Delivery of Information Posted at Certain
Locations (Sec. 226.34(e))
M-4 Sample Form for Electronic Communication (Sec. 226.34(d))
(Disclosures Available in Paper or Electronically)
M-5 Sample Form for Electronic Communication (Sec. 226.34(d))
(Disclosures Available Only Electronically)
M-1 MODEL DISCLOSURES FOR ELECTRONIC COMMUNICATION (Sec. 226.34(d))
(Disclosures Available in Paper or Electronically)
You can choose to receive important information required by the
Truth in Lending Act in paper or electronically.
Read this notice carefully and keep a copy for your records.
You can choose to receive the following information in
paper form or electronically: (description of specific disclosures
to be provided electronically).
How would you like to receive this information
{time} I want paper disclosures.
{time} I want electronic disclosures.
[We may provide the following additional disclosures
electronically in the future: (description of specific
disclosures).]
[If you choose electronic disclosures, this information
will be available at: (specify location) for ____ days. After that,
the information will be available upon request (state how to obtain
the information). When the information is posted, we will send you a
message at the electronic mail address you designate here:
(consumer's electronic mail address).]
[If you choose electronic disclosures this information will be
sent to the electronic mail address that you designate here:
(consumer's electronic mail address).]
To receive this information you will need: (list hardware and
software requirements).
[[Page 49735]]
Do you have access to a computer that satisfies these requirements?
{time} Yes {time} No
Do you have access to a printer, or the ability to
download information, in order to keep copies for your records?
{time} Yes {time} No
To update your electronic address, if you have
questions about receiving disclosures, or need technical or other
assistance concerning these disclosures, contact us at (telephone
number).
M-2 MODEL DISCLOSURES FOR ELECTRONIC COMMUNICATION (Sec. 226.34(d))
(Disclosures Available Only Electronically)
You will receive important information required by the Truth in
Lending Act electronically.
Read this notice carefully and keep a copy for your records.
The following information will be provided
electronically: (description of specific disclosures to be provided
electronically).
This credit transaction is not available unless you
accept electronic disclosures.
[We may provide the following additional disclosures
electronically in the future (description of specific disclosures).]
[If you choose electronic disclosures, this information
will be available at: (specify location) for ____ days. After that,
the information will be available upon request (state how to obtain
the information). When the information is posted, we will send you a
message at the electronic mail address you designate here:
(consumer's electronic mail address).]
[If you choose electronic disclosures this information will be
sent to the electronic mail address that you designate here:
(consumer's electronic mail address).]
To receive this information you will need: (list
hardware and software requirements).
Do you have access to a computer that satisfies these
requirements?
{time} Yes {time} No
Do you have access to a printer, or the ability to
download information, in order to keep copies for your records?
{time} Yes {time} No
Do you want this credit transaction with electronic disclosures?
{time} Yes {time} No
To update your electronic address, if you have
questions about receiving disclosures, or need technical or other
assistance concerning these disclosures, contact us at (telephone
number).
M-3 MODEL NOTICE FOR DELIVERY OF INFORMATION POSTED AT CERTAIN
LOCATIONS (Sec. 226.34(e))
Information about your (identify account) is now available at
[website address or other location]. The information discusses
(describe the disclosure). It will be available for ____ days.
BILLING CODE 6210-01-P
[[Page 49736]]
[GRAPHIC] [TIFF OMITTED] TP14SE99.002
[[Page 49737]]
[GRAPHIC] [TIFF OMITTED] TP14SE99.003
BILLING CODE 6210-01-C
[[Page 49738]]
10. In Supplement I to Part 226, Section 226.5a--Credit and Charge
Card Applications and Solicitations, under 5a(a)(2) Form of
Disclosures, a new paragraph 7. is added to read as follows:
Supplement I to Part 226--Official Staff Interpretations
* * * * *
Subpart B--Open-End Credit
* * * * *
Section 226.5a--Credit and Charge Card Applications and
Solicitations
* * * * *
5a(a) General rules.
* * * * *
5a(a)(2) Form of Disclosures.
* * * * *
7. Electronic applications or solicitations. i.
Format and content of disclosures. The format and the content of
disclosures (other than the accuracy of variable rates) for
applications or solicitations made available by electronic
communication must comply with:
A. Section 226.5a(c), if the application or solicitation is sent to
a consumer's electronic mail address.
B. Section 226.5a(e), if the application or solicitation is made
available at another location such as an Internet website.
ii. Timing. The disclosures required by Sec. 226.5a must appear
on the screen before the solicitation or application appears
electronically.
* * * * *
11. In Supplement I to Part 226, Section 226.5b--Requirements for
Home Equity Plans, under 5b(b) Time of Disclosures, a new paragraph 7.
is added to read as follows:
* * * * *
5b(b) Time of Disclosures
* * * * *
7. Applications available by electronic
communication. If an application is available by electronic
communication such as on a creditor's website, the disclosures and a
brochure must appear before an application is provided.
* * * * *
12. In Supplement I to Part 226, Section 226.16--Advertising, the
following amendments are made:
a. The heading 16(c) Catalogs and multiple-page advertisements. is
revised; and
b. Under Paragraph 16(c)(1)., paragraph 1. is revised and a new
paragraph 2. is added.
The addition and revisions read as follows:
* * * * *
Section 226.16--Advertising
* * * * *
16(c) Catalogs, [and] multiple-page , and
electronic advertisements
* * * * *
Paragraph 16(c)(1).
1. General. Section 226.16(c)(1) permits creditors to put credit
information together in one place in a catalog, [or] multiple
page, or electronic advertisement. The rule
applies only if the catalog, [or] multiple page, or
electronic advertisement contains one or more of the
triggering terms from Sec. 226.16(b).
2. Electronic communication. If an advertisement
using electronic communication uses the table or schedule permitted
under Sec. 226.16(c)(1), any statement of terms set forth in
Sec. 226.6 appearing anywhere else in the advertisement must clearly
direct the consumer to the page or location where the table or
schedule begins. For example, a term triggering additional
disclosures may be accompanied by a link that directly connects the
consumer to the additional information.
* * * * *
13. In Supplement I to Part 226, Section 226.19--Certain
Residential Mortgage and Variable-Rate Transactions, under 19(b)
Certain variable-rate transactions., paragraph 2. is revised to read as
follows:
* * * * *
Subpart C--Closed-End Credit
* * * * *
Section 226.19--Certain Residential Mortgage and Variable-Rate
Transactions
* * * * *
19(b) Certain variable-rate transactions.
* * * * *
2. Timing. A creditor must give the disclosures
required under this section at the time an application form is
provided or before the consumer pays a nonrefundable fee, whichever
is earlier.
i. Intermediary agent or broker. In cases where a creditor
receives a written application through an intermediary agent or
broker, however, footnote 45b provides a substitute timing rule
requiring the creditor to deliver the disclosures or place them in
the mail not later than three business days after the creditor
receives the consumer's written application. (See comment 19(b)-3
for guidance in determining whether or not the transaction involves
an intermediary agent or broker.) This three-day rule also applies
where the creditor takes an application over the telephone.
ii. Telephone request. In cases where the consumer merely
requests an application over the telephone, the creditor must
include the early disclosures required under this section with the
application that is sent to the consumer.
iii. Mail solicitations. In cases where the creditor solicits
applications through the mail, the creditor must also send the
disclosures required under this section if an application form is
included with the solicitation.
iv. Conversion. In cases where an open-end credit account will
convert to a closed-end transaction subject to this section under a
written agreement with the consumer, disclosures under this section
may be given at the time of conversion. (See the commentary to
Sec. 226.20(a) for information on the timing requirements for
Sec. 226.19(b)(2) disclosures when a variable-rate feature is later
added to a transaction.)
v. Electronic applications. In cases where the creditor makes
applications available by electronic communication such as on a
creditor's website, the disclosures required under this section must
appear on-line before an application is provided.
* * * * *
14. In Supplement I to Part 226, Section 226.24--Advertising, the
following amendments are made:
a. Under 24(b) Advertisement of rate of finance charge., a new
paragraph 6. is added; and
b. Under 24(d) Catalogs and multiple-page advertisements., the
heading and paragraph 2. are revised and a new paragraph 4. is added.
The revisions and additions would read as follows:
* * * * *
Section 226.24--Advertising
* * * * *
24(b) Advertisement of rate of finance charge.
* * * * *
6. Electronic communication. A simple annual rate or
periodic rate that is applied to an unpaid balance may be stated
only if it is provided in conjunction with an annual percentage
rate. In an advertisement using electronic communication, both rates
must appear in the same location so that both rates may be viewed
simultaneously. This requirement is not satisfied if the annual
percentage rate can be viewed only by use of a link that connects
the consumer to information appearing at another
location.
* * * * *
24(d) Catalogs, [and] multiple-page, and
electronic advertisements.
* * * * *
2. General. Section 226.24(d) permits creditors to put credit
information together in one place in a catalog, [or] multiple
page, or electronic advertisement. The rule
applies only if the catalog, [or] multiple page, or
electronic advertisement contains one or more of the
triggering terms from Sec. 226.24(c)(1). A list of different annual
percentage rates applicable to different balances, for example, does
not trigger further disclosures under Sec. 226.24(c)(2) and so is
not covered by Sec. 226.24(d).
* * * * *
4. Electronic advertising. If an advertisement using
electronic communication uses the table or schedule permitted under
Sec. 226.24(d)(1), any statement of terms set forth in
Sec. 226.24(c)(1) appearing anywhere else in the advertisement must
clearly direct the consumer to the page or location where the table
or schedule begins. For example, a term triggering additional
disclosures may be accompanied by a link
[[Page 49739]]
that directly connects the consumer to the additional information
(but see comment 24(b)-6).
* * * * *
15. In Supplement I to Part 226, a new Subpart F--Electronic
communication, is added to read as follows:
* * * * *
Subpart F--Electronic Communication
Section 226.34--Requirements for Electronic Communication
34(a) Definition
1. Coverage. Information transmitted by facsimile may be
received in paper form or electronically, although the party
initiating the transmission may not know at the time the disclosures
are sent which form will be used. A creditor that provides
disclosures by facsimile should comply with the requirements for
electronic communication unless the creditor knows that the
disclosures will be received in paper form.
34(b) Electronic Communication between Creditor and Consumer
1. Disclosures provided on creditor's equipment. Creditors that
control equipment providing electronic disclosures to consumers (for
example, computer terminals in a creditor's lobby or kiosks located
in public places) must ensure that the equipment satisfies the
regulation's requirements to provide disclosures in a clear and
conspicuous format and in a form that the consumer may keep. A
creditor that controls the equipment may provide a printer for
consumers' use in lieu of sending the information to the consumer's
electronic mail address or posting the information at another
location such as the creditor's website.
2. Retainability. Creditors must provide electronic disclosures
in a retainable format (for example, they can be printed or
downloaded). Consumers may communicate electronically with creditors
through a variety of means and from various locations. Depending on
the location (at home, at work, in a public place such as a
library), a consumer may not have the ability at a given time to
preserve TILA disclosures presented on-screen. To ensure that
consumers have an adequate opportunity to retain the disclosures,
the creditor also must send them to the consumer's designated
electronic mail address or to another location, for example, on the
creditor's website, where the information may be retrieved at a
later date.
3. Timing and delivery. When a consumer opens a credit card
account and makes a purchase with the card (or when a consumer
consummates a loan) on the Internet, for example, in order to meet
the timing and delivery requirements, creditors must ensure that
disclosures applicable at that time appear on the screen and are in
a retainable format. The delivery requirements would not be met if
disclosures do not either appear on the screen or if the consumer is
allowed to open a credit card account and make a purchase at that
time before receiving the disclosures. For example, a creditor can
provide a link to electronic disclosures appearing on a separate
page as long as consumers cannot bypass the link and they are
required to access the disclosures before making a purchase (or
consummating a loan).
34(c) Exceptions
1. Redisclosure required. Section 226.34(c) requires certain
disclosures in paper form prior to consummation, even if they have
been provided electronically at an earlier date, and redisclosure
would not otherwise be required.
2. Initial disclosures in paper form. If a consumer opens a
credit account or consummates a credit transaction in person the
creditor generally must provide initial disclosures in paper form.
For example, if a consumer visits a creditor's office to close a
loan, disclosures are required before consummation and they must be
provided in paper form; directing the consumer to disclosures posted
on the creditor's website would not be sufficient. If, however, a
consumer applies for credit on the Internet, a creditor may send
disclosures electronically at or around that time even though the
creditor's procedures require the consumer to visit an office at a
later time to complete the transaction (for example, to close the
loan).
34(d) Disclosure Notice
1. Consumer's affirmative responses. Even though a consumer
accepts electronic disclosures in accordance with
Sec. 226.34(d)(2)(ii), a creditor may deliver disclosures by
electronic communication only if the consumer provides an electronic
address where one is required, and responds affirmatively to
questions about technical requirements and the ability to print or
download information (see sample forms M-4 and M-5 in appendix M to
this part).
34(d)(2)(i) Notice by Creditor
1. Toll-free telephone number. The number must be toll-free for
nonlocal calls made from an area code other than the one used in the
creditor's dialing area. Alternatively, a creditor may provide any
telephone number that allows a consumer to call for information and
reverse the telephone charges.
2. Creditor's address. Creditors have the option of providing
either an electronic or postal address for consumers' use in
addition to the toll-free telephone number.
3. Discontinuing electronic disclosures. Consumers may use the
toll-free number (or optional address) if they wish to discontinue
receiving electronic disclosures. In such cases, the creditor must
inform consumers whether the credit transaction is also available
with disclosures in paper form.
34(d)(2)(ii) Response by consumer
1. Nature of consent. Consumers must agree to receive
disclosures by electronic communication knowingly and voluntarily.
An agreement to receive electronic disclosures is not implied from
consumers' use of an account or acceptance of general account terms.
34(d)(3) Changes
1. Examples. Examples of changes include a change in technical
requirements, such as upgrades to computer software affecting the
creditor's disclosures provided on the Internet.
2. Timing for notices. A notice of a change must be sent a
reasonable period of time before the effective date of the change.
The length of a reasonable notice period may vary, depending on the
type of change involved; however, fifteen days is a reasonable time
for providing notice in all cases.
3. Delivery of notices. A creditor meets the delivery
requirements if the notice of change is sent to the address provided
by the consumer for receiving other disclosures. For example, if the
consumer provides an electronic address to receive notices about
periodic statements posted at the creditor's website, the same
electronic address could be used for the change notice. The
consumer's postal address must be used, however, if the consumer
consented to additional disclosures by electronic communication when
receiving the initial notice under Sec. 226.34(d)(2)(i), but
provided a postal address to receive periodic statements in paper
form.
4. Toll-free number. See comment 34(d)(2)(i)-1.
5. Creditor's address. See comment 34(d)(2)(i)-2.
6. Consumer inquiries. Consumers may use the toll-free number
(or optional address) for questions or assistance with problems
related to a change, such as an upgrade to computer software, that
is not provided by the creditor. Consumers may also use the toll-
free number if they wish to discontinue receiving electronic
disclosures; in such cases, the creditor must inform consumers
whether the credit transaction is also available with disclosures in
paper form.
34(e) Address or location to receive electronic communication.
Paragraph 34(e)(1)
1. Electronic address. A consumer's electronic address is an
electronic mail address that may be used by the consumer for
receiving communications transmitted by parties other than the
creditor.
Paragraph 34(e)(2)
1. Identifying account involved. A creditor is not required to
identify an account by reference to the account number. For example,
where the consumer does not have multiple accounts, and no confusion
would result, the creditor may refer to ``your credit card
account,'' or when the consumer has multiple accounts the creditor
may use a truncated account number.
2. Effective delivery. Delivery by posting to a location other
than the consumer's electronic mail address is effective only after
the creditor posts and notifies the consumer when the information
becomes available.
3. Availability. Information that is not sent to a consumer's
electronic mail address must be available for at least 90 days from
the date the information becomes available or from the date the
notice required by Sec. 226.34(e)(2) is sent to the consumer,
whichever occurs later.
4. Certain open-end disclosures. The disclosures required under
Secs. 226.5a, 226.9(a)(2), 226.9(e), and 226.10(b) and referenced in
footnote 8 shall be exempt from Sec. 226.34(d)(1).
[[Page 49740]]
By order of the Board of Governors of the Federal Reserve
System, August 31, 1999.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 99-23138 Filed 9-13-99; 8:45 am]
BILLING CODE 6210-01-P
