CUNA Regulatory Comment Call


May 3, 2007

Fed Proposed Rules for Regulation B Electronic Disclosures

EXECUTIVE SUMMARY

Comments on the proposed rules will be due by June 29, 2007. Please submit your comments to CUNA by June 18, 2007. Please feel free to fax your responses to CUNA at 202-371-8240; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com and to Senior Assistant General Counsel Jeffrey Bloch at jbloch@cuna.com; or mail them to Mary or Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us if you would like a copy of the proposed rules or you may access the rules here.

BACKGROUND

The Equal Credit Opportunity Act (ECOA) makes it unlawful for creditors to discriminate in any aspect of a credit transaction on the basis of sex, race, color, religion, national origin, marital status, age, or because the applicant receives public assistance. Regulation B implements the ECOA, which contains official staff commentary that interprets the regulation and provides guidance in applying the regulation to specific transactions. The ECOA and Regulation B require that a number of disclosures be provided in writing.

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.

In 2001, the Fed issued interim final rules regarding electronic disclosures. These were intended to ensure consistency with the 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.

The mandatory compliance date for the 2001 rules was to be October 1, 2001. However, as a result of concerns from credit unions and others, the Fed rescinded the compliance date, and the 2001 rules were never finalized. Since then, financial institutions have been able to provide electronic disclosures, as long as they complied with the E-Sign Act. These proposed rules will replace the 2001 interim final rules, although they do incorporate some of the provisions of those interim rules.

DESCRIPTION OF THE PROPOSED RULES AND CHANGES TO THE OFFICIAL STAFF COMMENTARY

General Disclosure Requirements

The general rule will be that creditors may provide these disclosures in electronic form, as long as the creditor with the consumer consent and the other applicable provisions of the E-Sign Act, which has been in effect since October 1, 2000. If these disclosures are provided in both paper and in electronic form, consent would not be required as the paper form could be used to satisfy the disclosure requirements.

However, if an applicant accesses an application electronically, the following disclosures must be provided to consumers in electronic form without the need to comply with the consumer consent or other requirements under the E-Sign Act:

If a consumer receives an application in paper form, such as through the mail, a creditor may not comply with these disclosure requirements by providing these disclosures in electronic form without the consumer’s consent, such as including a reference in these materials to a website in which these disclosures would be available.

The 2001 interim rules indicated that when an application for credit is submitted through a third party to more than one creditor, each creditor may provide an adverse action notice through the third party. In these situations, the third party may provide the notice electronically in accordance with the interim rules. This has now been deleted as this is already permitted under the E-Sign Act.

Withdrawal of the 2001 Interim Final Rules Regarding Timing and Delivery Requirements

The proposed rules will delete the general provisions regarding electronic communications that were included in the 2001 interim final rules. This includes the following timing and delivery requirements that were included in the 2001 rules:

The other general provisions will also be deleted, but this should have no impact on creditors as these other provisions generally outline the requirements that are already included in the E- Sign Act.

QUESTIONS TO CONSIDER REGARDING THE FED’S PROPOSAL ON ELECTRONIC DISCLOSURES

Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Lilly Thomas • Assistant General Counsel • (202) 508-6733 • lthomas@cuna.com
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com