CUNA Comment Letter
Proposed Amendments to Regulation Z(Truth in Lending) - Electronic Delivery of Disclosures
May 15, 1998
Mr. William W. Wiles, Secretary
Board of Governors of the Federal Reserve System
20th & Constitution Avenue, N.W.
Washington, D.C. 20551
RE: Docket No. R-1005
Dear Mr. Wiles,
The Credit Union National Association, Inc. (CUNA) appreciates the opportunity to comment on the Board's proposed rule to permit creditors to use electronic communication to provide disclosures as required under the Truth in Lending Act and Regulation Z. The proposal appeared in the Federal Register on March 25, 1998. By way of background, CUNA represents 91% of the nation's 11,500 federally and state chartered credit unions.
CUNA commends the Board's acknowledgement that more and more consumer transactions are taking place via electronic means and that guidance is needed on how creditors must provide the necessary disclosures. CUNA believes that, in general, the standards and amendments to Regulation Z as proposed are reasonable.
CUNA's specific comments regarding each of the proposed amendments and related issues are as follows:
Agreements between creditors and consumers
In the prefatory language to the proposed rule, the Board states that the amendments would permit creditors to send electronic disclosures if the consumer agrees. The Board's approach is timely in light of the trend to deliver products and services electronically. However, CUNA urges the Board to continue to allow creditors flexibility to determine the form for receipt of consumer requests.
Specifically, in situations when a consumer must provide written notice to a creditor (i.e. - billing error resolution), CUNA believes that creditors should have the flexibility to determine which consumer requests may be sent electronically and which should be in paper form. If a financial institution lacks the technological capability to receive electronic communications, then the institution should have the flexibility to require that all consumer requests for information be delivered in paper form.
Delivery requirements for electronic disclosures
In the explanatory language for the proposed rule, the Board states that "[s]imply posting information on an Internet site without some appropriate notice and instructions about how the consumer may obtain the required information would not satisfy the [delivery] requirement [under the regulation]." The Board goes on to state that creditors have flexibility in how they may deliver electronic disclosures to consumers and provides a series of examples that would meet Regulation Z disclosure requirements. Although the examples are helpful, CUNA urges the Board to provide additional guidance on how to comply with the timing requirements when a notice is posted on an Internet website, particularly in instances involving error resolution, change in terms and disclosures prior to renewal of a credit or charge card.
Section 226.5a - Credit and charge card applications and solicitations
In the explanatory language in the proposed rule, the Board acknowledges that different format and content requirements apply to "take-one" applications and direct-mail applications. The Board notes that the direct-mail format/content rules under 226.5a would apply when a card issuer sends an application electronically in response to a consumer request. In situations where the card issuer simple makes the application publicly available, the issuer would follow the "take-one" format/content rules. The distinction between the "take-one" and direct mail rules is also important in determining the accuracy of the information disclosed.
CUNA agrees with the logic of the Board's approach and requests the Board to include the explanatory language regarding these practical issues in the Official Staff Commentary to Section 226.5a. CUNA believes that inclusion of such language will facilitate compliance for institutions and help institutions to make the correct disclosures.
Requirement that information by "clear and conspicuous"
CUNA commends the Board for continuing to apply the statutory "clear and conspicuous" standard to electronic communication. CUNA believes that delivery of information electronically is not sufficiently different from non-electronic delivery to warrant new and specific regulatory requirements.
Consumer ability to retain disclosures
In the explanatory language for the proposed rule, the Board states that the requirement under Regulation Z that consumers have the ability to retain disclosures applies to electronic communications. Furthermore, the Board states that "the retention requirement would be satisfied if disclosures can be downloaded or printed by the consumer. The Board also anticipates that "a creditor would provide special technical specifications for receiving or retaining information before or at the time a consumer agrees to receive information electronically."
CUNA believes that a requirement that creditors disclose to consumers how to retain a copy of the disclosures is tantamount to an additional mandatory disclosure under the regulation. As such, CUNA strongly urges the Board to provide clarification of this requirement regarding electronic delivery of disclosures in the Official Staff Commentary to Section 226.5(a)(1) and related sections as noted in footnote "8" to this section.
Section 226.2 - Definitions and Rules of Construction
CUNA commends the Board for in its formulation of the definition of "electronic communication." The proposed definition adequately contemplates the wide spectrum of technological capabilities currently being utilized by various institutions and allows flexibility in the electronic delivery of services and products.
Section 226.5 - General Disclosure requirements
The proposal provides that a creditor and a consumer may agree to send, by electronic communication, any information required to be disclosed under Section 226.5 and that such information must comply with applicable timing requirements. As stated above, CUNA suggests that the Board provide further guidance on how institutions can comply with the timing requirements of the regulation when posting information on an Internet website.
Section 226.17 - General disclosure requirements
Proposed Section 226.17(a)(3) mirrors the change proposed to 226.5(a)(5). Additionally, the proposal excludes electronic communications from the delay in disclosures for mail or telephone orders provided in Section 226.17(g). CUNA supports the exclusion of electronic communications from the delay allowed in Section 226.17(g). CUNA believes that the exception is reasonable since loan products offered by electronic communication do not pose the same difficulty as mail or telephone orders.
226.31 - General rules
CUNA supports the addition of Section 226.31(b)(2) to allow creditors and consumers to agree to send any information required to be in writing by electronic communication.
CUNA appreciates the opportunity to comment on this important proposal.
Christiane G. Hyland
Staff Compliance Counsel and Corporate Credit Union Liaison