CUNA Regulatory Comment Call
April 10, 2001
Fed Interim Rule Allows Regulation DD Electronic Disclosures
- The Federal Reserve Board (Fed) issued interim final rules on how financial institutions and others can provide electronically the disclosures that are required to be given in writing under Regulation Z (the Truth in Lending Act), Regulation B (the Equal Credit Opportunity Act), Regulation E (the Electronic Fund Transfer Act), Regulation M (the Consumer Leasing Act), and Regulation DD (the Truth in Savings Act).
- The Truth in Savings Act (TISA) requires the National Credit Union Administration (NCUA) Board to adopt regulations that are substantially similar to those of the Federal Reserve Board, taking into account the unique nature of credit unions and the limitations under which they may pay dividends on member accounts.
- These rules revise the proposed rules that were issued in 1999 to ensure consistency with the Electronic Signatures in Global and National Commerce Act (E-Sign Act), which became effective on October 1, 2000. The E-Sign Act permits the use of electronic signatures and disclosures, as long as appropriate consent is received from the consumer.
- These rules also contain changes to the official staff commentary that provide further guidance regarding electronic disclosures.
- The rules are effective as of March 30, 2001. The mandatory compliance date was originally October 1, 2001, but this has been delayed. Click here for more information about this delay.
- Here are the significant provisions that are similar among the interim rules:
- Consumers must provide affirmative consent to receive the disclosures electronically.
- Disclosures may be sent by e-mail or made available at another location, such as an Internet website. If the disclosures are not sent by e-mail, consumers must receive notice alerting them to the availability of these disclosures.
- Disclosures posted at a location, such as an Internet website, must be available for 90 days.
- The disclosures must be provided before the consumer opens an account and the consumer must be required to access these disclosures before the account is opened.
- Financial institutions must make a reasonable attempt to redeliver electronic disclosures that are returned undelivered, using information that is on file.
- The interim rule that was published in 1999 has been withdrawn.
- Separate Regulatory Comment Calls will be issued for each of these five interim rules.
- If you are submitting comments directly to the Fed, separate comment letters should be submitted for each of the five interim final rules. Each letter should refer to the appropriate docket number. For the Regulation DD rule, the comment letter should refer to Docket No. R-1044.
Comments on the interim final rules are due by June 1, 2001. Please submit your comments to CUNA by May 24, 2001. Please feel
free to fax your responses to CUNA at 202-371-8240; e-mail them to Associate General Counsel Mary Dunn at firstname.lastname@example.org or to Assistant
General Counsel Jeffrey Bloch at email@example.com; or mail them to Mary or Jeff in c/o CUNAs Regulatory Advocacy Department, 805 15th
Street, NW, Suite 300, Washington, DC 20005. You may also contact us if you would like a copy of the interim rules or you may access the
rules on the Internet at the following address:
TISA requires financial institutions to disclose yields, fees, and other terms concerning deposit accounts to consumers at account opening, upon request, when changes in terms occur, and in periodic statements. There are also rules about advertising deposit accounts. Regulation DD implements TISA, which contains official staff commentary that interprets the regulation and provides guidance in applying the regulation to specific transactions. TISA and Regulation DD require that a number of disclosures be provided in writing. Credit unions are covered under substantially similar rules that are issued by the NCUA Board.
In August 1999, the Fed issued proposed rules to permit financial institutions, creditors, lessors, and others to use electronic communication to provide federally mandated disclosures to consumers. Click here for CUNAs comment letter, which generally supported the use of electronic disclosures while offering specific suggestions for improvement.
In October 2000, the E-Sign Act became effective and allows electronic documents and signatures to have the same validity as paper documents and handwritten signatures. There are also special rules for the use of electronic disclosures in consumer transactions. Such disclosures may be provided in electronic form only if the consumer specifically consents after receiving certain information.
The E-Sign Act currently permits the use of electronic disclosures and does not require implementing rules, as long as the appropriate consent is obtained. This generally requires that the consumers be informed as to the hardware and software requirements for accessing the information. Consumers must also give the consent electronically and must reasonably demonstrate that they are able to obtain the information electronically. The term reasonably demonstrate is currently the subject of significant controversy within the financial services industry.
The Feds interim rules are designed to establish uniform requirements for the timing and delivery of electronic disclosures. They include most of the provisions that were included in the 1999 proposed and interim rules to the extent that they were not affected by the E- Sign Act. The requirements are generally consistent among the five interim final rules that have now been issued.
DESCRIPTION OF THE INTERIM FINAL RULE AND CHANGES TO THE OFFICIAL STAFF COMMENTARY
I. Account Disclosures
Financial institutions must generally provide account-opening disclosures to consumers before an account is opened or a service is provided. This may be delayed if the consumer is not present when the account is opened or the service is provided. However, this delay does not apply when the account is opened by way of electronic communications.
Financial institutions must currently provide disclosures to a consumer upon request. If this request is made by electronic communications, the disclosures must be mailed or delivered within a reasonable time. Ten days is considered a reasonable time.
To provide these disclosures electronically, the financial institution must send the disclosures to the consumers e-mail address, or send a notice by e-mail that directs him or her to the location of these disclosures, such as an Internet website.
II. Periodic Statement Disclosures
In 1999, the Fed issued interim rules allowing for the electronic delivery of periodic statements. Those rules are now withdrawn. Periodic statements may now be delivered electronically to the extent consistent with the E-Sign Act and the guidance contained in these new interim rules.
If an advertisement in electronic form refers to certain terms, such as bonus or annual percentage yield (APY), there must be a reference to the location that contains the required, additional information. This may be in the form of an electronic link.
Financial institutions are currently allowed to state an interest rate in addition to the APY, as long as that rate is stated in conjunction with, but not more conspicuously than, the APY. For electronic advertisements, the interim rule requires that the consumer be able to review these rates simultaneously. A link to the APY is not sufficient.
Advertisements contained in certain media, such as television, radio, or outdoor billboards, are exempted from certain TISA requirements. These exemptions do not apply to other electronic communications, such as advertisements on the Internet, which do not have the same space and time constraints that originally justified these exemptions.
IV. General Provisions Regarding Electronic Communications
(All five interim rules regarding electronic disclosures contain similar provisions.)
The interim final rules provide for the delivery of disclosures by means of electronic communication. This is limited to information that can be displayed as visual text. This would not include other means, such as audio and video voice response systems. Alternative means may be provided to visually-impaired consumers, as long as visual text is also used.
Other than any requirements that disclosures be in paper form, the interim rules do not affect any other substantive provision of TISA or Regulation DD. The current format, timing, and retainability rules still apply, as well as the clear and conspicuous standard for disclosures.
Clear and Conspicuous Format
Electronic disclosures must be in a format that is clear and conspicuous. The E-Sign Act also requires the following:
- The financial institution must disclose to the consumer the requirements for accessing and retaining the disclosures in the clear and conspicuous format.
- The consumer must demonstrate the ability to access the information electronically and affirmatively consent to the electronic delivery.
- The financial institution must provide the disclosures in accordance with the requirements that were provided to the consumer.
The disclosures do not have to be provided separately from other information. However, advertisements should not be integrated into the text to the extent that the clear and conspicuous standard would be violated. Navigational tools that direct the consumer to related information are also acceptable to the extent that they do not violate the clear and conspicuous standard.
Electronic disclosures must comply with the existing timing requirements under TISA and Regulation DD. E-mail disclosures are timely when sent by the required time. Disclosures posted on an Internet website are timely if, by the required time, they are posted on the website and a notice is sent to the consumer alerting him or her that the disclosures have been posted.
Certain disclosures must be provided before the consumer opens an account or a service is provided. The financial institution does not have to confirm that the consumer read the disclosures. When an account is opened on-line, the disclosures may be accessible by an electronic link, as long as the consumer is not able to bypass this link. Another alternative is for the disclosures to appear on the screen automatically.
Many of the disclosures provided under TISA and Regulation DD must be in a form that the consumer may retain. Electronic disclosures are subject to this same requirement and must generally be provided in a form that may be printed or stored electronically. To ensure that consumers may retain and access the information, these disclosures must either be sent to the consumers designated e-mail address or must be available on the financial institutions Internet website.
Consumers must have the ability to receive and retain the information when they use equipment that is controlled by the financial institution, such as an automated loan machine or a computer terminal located in the lobby. This requirement may be satisfied if the disclosures are sent to the consumers e-mail address, available on the financial institutions website, or printed automatically from the financial institutions equipment.
Under the E-Sign Act, consumers must give consent before they receive electronic disclosures relating to a transaction. Disclosures in connection with advertisements and disclosures that are provided upon request are not considered to be related to a transaction and, therefore, prior consent does not have to be given. However, the required disclosures must ultimately be provided to the consumer.
Address or Location to Receive Electronic Communication
Financial institutions may deliver the electronic disclosures to the consumers e-mail address. The disclosures may also be made available at another location, such as an Internet website, as long as the consumer receives notices that the disclosures have been posted. This notice may be sent by e-mail or regular mail and must identify the account and the website address or other location where the disclosures are available. The disclosures must be made available for at least 90 days. The requirements for this notice do not apply to disclosures in connection with advertisements. The 90-day requirement does not apply to disclosures that are requested by the consumer.
The consumers e-mail address is defined as one that is not limited to receiving communications solely from the financial institution. This would, for example, exclude home-banking programs that allow communications by means of a computer and modem. Under these circumstances, the financial institution must send a separate notice, either by e-mail or regular mail.
Although the notice must identify the account, this does not require the account number. If the notice refers to one account, the notice may, for example, just refer to your credit card account. If more than one account is involved, the notice could differentiate the accounts based on the card program or by use of a shortened account number.
Although the disclosures must be made available for at least 90 days, financial institutions have discretion to determine if they should be available at the same location for the entire period.
Financial institutions do not have to verify delivery of electronic disclosures. If a disclosure is returned undelivered, the financial institution must then attempt redelivery, based on the address information that is on file. This may be delivery to a different e-mail address or to the postal address that is on file. Sending the notice electronically to the same address would not be sufficient if the financial institution has a different address on file.
These redelivery requirements do not apply when a disclosure is delivered but cannot be read by the consumer because of technical problems. Financial institutions will be considered to be in compliance with the timing requirements if they send the initial notice in a timely manner, even if it is later returned as undeliverable.
- The interim final rules do not impose any document integrity standards. The Fed believes it is premature at this time to specify such standards.
- Parties other than financial institutions, such as deposit brokers, may also use electronic disclosures in accordance with the interim rules.
QUESTIONS TO CONSIDER REGARDING THE FEDS
PROPOSAL TO ALLOW ELECTRONIC DISCLOSURES
(The Fed is Specifically Interested in Receiving Comments on Most of the Issues Raised by the Following Questions.)
- Many provisions of these rules were developed in 1998 and 1999. Have there been any developments since then or recent industry practices that warrant changes in these rules?
- Should the Fed provide more regulatory guidance regarding consumer consent? For example, what guidance, if any, is needed regarding the requirement that consumers confirm consent electronically and in a manner that reasonably demonstrates that they can access the information? What guidance, if any, is needed regarding the effect of withdrawing consent or on requesting paper copies? (The E-Sign Act permits the withdraw of consent.)
- Financial institutions must inform consumers about changes in hardware or software requirements if there is a material risk that the consumer will no longer be able to access and retain the information. Is more guidance needed regarding the term material risk?
- The E-Sign Act allows the Fed to eliminate disclosures from the consumer consent requirements if necessary to eliminate a substantial burden on electronic commerce and if it will not result in an increased risk of harm to consumers. Should this exemption authority be exercised? If so, which disclosures should the exemption apply?
- Are other regulatory or legislative changes needed to take into account online banking and lending or would otherwise facilitate electronic delivery of financial services? For example, with online banking, financial institutions can provide up-to-date information in addition to the periodic statements that are required under Regulations Z and DD. Should the requirements regarding periodic statements be changed for online banking? How can such changes be made that would provide consumers with an understanding of the cost and activity of an account over time and provide protections for resolving errors for unauthorized transactions?
- An e-mail address is defined as one that is not limited to receiving communications transmitted solely by the financial institution. This is intended to exclude systems, such as home-banking programs, that allow communications solely between the financial institution and consumer. The Fed is concerned that in such situations, the financial institution controls the access to the information and decides how long the information is available. This is in contrast to e-mail addresses where the consumer chooses when to review, and for how long to maintain, the information. The Fed also wants to ensure that the consumer is alerted as to when the information is available at the financial institutions home-banking site. Do you agree with the Fed on this definition of e-mail address? How can we address the concerns that the Fed has raised?
- Are the interim rules clearly written and easily organized? How can the rules be written to make them easier to understand?
- Other comments?
Eric Richard General Counsel (202) 508-6742 firstname.lastname@example.org |
Mary Mitchell Dunn SVP & Associate General Counsel (202) 508-6736 email@example.com
Jeffrey Bloch Assistant General Counsel (202) 508-6732 firstname.lastname@example.org
Catherine Orr Senior Regulatory Counsel (202) 508-6743 email@example.com