CUNA Regulatory Comment Call


May 3, 2007

Fed Proposed Rules for Regulation DD 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

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 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 financial institutions may provide these disclosures in electronic form, as long as the financial institution complies 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.

Certain disclosures are to be provided to consumers in electronic form without the need to comply with the consumer consent requirements under the E-Sign Act. These specific disclosures, along with the circumstances in which they may be provided without consent, are discussed below.

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 will not apply when the account is opened by way of electronic communications, such as through the Internet.

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 electronically within a reasonable time and the institutions does not need to take any further steps with regard to obtaining consent to deliver these disclosures electronically. Ten days is considered a reasonable time.

Advertising

Under the proposed rules and official staff commentary, if a consumer accesses an advertisement for deposit accounts in electronic form, the required disclosures must be provided in electronic form on or with the advertisement. This includes the disclosures that must be included in advertisements that promote the payment of overdrafts. However, if a consumer receives an advertisement in paper form, such as through the mail, an institution 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.

Currently, creditors may state certain disclosures, such as a bonus or annual percentage yield (APY), in a table or schedule. If these terms are mentioned elsewhere in the advertisement, then there must be a reference to this table or schedule. The proposed rules will expand this to electronic advertisements, and the reference to the table or schedule may take the form of an electronic link. This is similar to the 2001 interim final rules that addressed this issue.

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 2001 interim rules would have required that the consumer be able to review these rates simultaneously and that a link to the APY is not sufficient. This requirement is not included in the proposed rules because the Fed believes it is not necessary in light of the current requirements. The Fed believes that the current requirements would preclude requiring the consumer to scroll to another part of the webpage or access a link in order to view the APY.

Advertisements contained in certain media, such as television, radio, or outdoor billboards, are exempted from certain TISA requirements. Under the proposed rules, these exemptions will not apply to other electronic communications, such as advertisements on the Internet, which do not have the same space and time constraints that would justify these exemptions.

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 financial institutions 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