CUNA Regulatory Comment Call


May 3, 2007

Fed Proposed Rules for Regulation M 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 Consumer Leasing Act (CLA) requires lessors to provide consumers with uniform cost and other disclosures regarding consumer lease transactions. These requirements apply to consumer leases of personal property in which the contractual obligation does not exceed $25,000 and has a term of more than four months. Regulation M implements the CLA, which contains official staff commentary that interprets the regulation and provides guidance in applying the regulation to specific transactions. The CLA and Regulation M 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 lessors may provide these disclosures in electronic form, as long as the lessor 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. However, advertising disclosures must be provided electronically if they are accessed electronically by the consumer and in these situations the lessor does not have to comply with the consent or other provisions of 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 lessors as these other provisions generally outline the requirements that are already included in the E-Sign Act.

Advertisements

For catalogs and multipage advertisements, the required disclosures must be provided electronically if the consumer accesses the lease advertisement in electronic form. These disclosures must be provided on or with the advertisement. However, if a consumer receives an application in paper form, such as through the mail, a lessor 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.

Under current rules, a catalog or multiple-page advertisement may contain a table, chart, or schedule that contains the required disclosures, as long as any relevant terms in the advertisement refer the reader to the table, chart, or schedule. For electronic advertisements, such as on a website, a link or other similar cross reference may be used.

Currently, except for the periodic payment amount, a lease advertisement may not refer to a component of the total amount due prior to or at consummation of the transaction in a manner more prominent than the total amount due. The 2001 interim final rules specifically required that these disclosures must appear in the same location in an electronic advertisement so they may be viewed simultaneously. The Fed proposes to delete this requirement as unnecessary, since current rules indicate that it would be inappropriate to require the consumer to access a link or scroll to another part of the page in order to review these disclosures.

Also, under current rules, any percentage rate information may not be displayed more prominently than the other disclosures stated in the advertisement and the percentage rate information must be in close proximity to a notice about the limitations of this information. The 2001 interim final rules specifically required that such a notice must in the same location within an electronic advertisement and that an electronic link will not be sufficient. Again, the Fed proposes to delete this requirement as unnecessary, since current rules indicate that it would be inappropriate to require the consumer to access a link or scroll to another part of the page in order to review these disclosures.

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