CUNA Regulatory Comment Call


August 30, 1999

Fed Proposal to Allow Electronic Disclosures

On August 18, 1999, the Federal Reserve Board (Fed) agreed to issue proposed rules that would permit financial institutions and others to provide electronically the disclosures that are required to be given in writing under Regulation B (the Equal Credit Opportunity Act), Regulation E (the Electronic Fund Transfers Act), Regulation M (the Consumer Leasing Act), Regulation Z (the Truth in Lending Act), and Regulation DD (the Truth in Savings Act). The Fed also agreed to issue an interim rule for Regulation DD that will now allow financial institutions to provide electronic disclosures of periodic account statements. With regard to Regulation DD, the Truth in Savings Act requires the National Credit Union Administration 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.

Comments on both the proposed rules and the interim final rule are due by November 15. Please submit your comments to CUNA by November 10, by fax at (202) 371-8240 or e-mail to CUNA’s Assistant General Counsel Jeffrey Bloch at jbloch@cuna.com. You may also contact Jeff if you have questions or would like a copy of the rules. Additional information, along with the Fed’s draft version of the rules, is now available on the Internet.

The rules were published in the Federal Register on September 14, 1999. If you are providing comments directly to the Fed, please note that separate proposed rules were issued for Regulations B, E, M, Z, and DD. Although these rules are substantially similar, as described below, a separate comment letter will need to be sent for each proposed rule and for the interim final rule for Regulation DD.

BRIEF BACKGROUND

In March 1998, the Fed issued proposed rules and an interim final rule to permit financial institutions, creditors, lessors, and others to use electronic communication to provide federally mandated disclosures to consumers. Proposed rules were issued for Regulations B, M, Z, and DD, and an interim final rule was issued for Regulation E. These disclosures could be provided electronically if the consumer agreed, but the rules did not offer specific guidance. The interim final rule issued last year for Regulation E is still in effect.

The Fed received about 200 comments in response to the rules that were issued in March 1998. Most commenters, including CUNA, supported the use of electronic communication but expressed concern about the lack of specific guidance. The rules issued this month are intended to provide this additional guidance while providing the necessary flexibility.

Congress is also considering legislation in this area. The Electronic Disclosures Delivery Act of 1999 was introduced on July 27, 1999 by Congresswoman Marge Roukema and Congressmen Rick Lazio and Jay Inslee. The House Banking Subcommittee on Financial Institutions is planning to hold hearings in September on this issue.

DESCRIPTION OF THE PROPOSED RULES AND THE INTERIM FINAL RULE

Proposed Rules for Regulations B, E, M, Z, and DD

General Requirements

Under the proposed rules, the mandatory disclosures could be delivered electronically if the consumer consents. These rules include the information that would have to be given to consumers and would require that consumers affirmatively indicate their consent. This information would be provided through a standardized statement that would specify the requirements for receiving and retaining the electronic disclosures. The proposed rules provide a number of model forms for providing this information. This standardized process is intended to alleviate concerns in last year’s proposal regarding what constitutes “agreement.” Under last year’s proposal, this issue was to be determined by state law. According to many commenters, relying on state law would create uncertainty and could be cumbersome for institutions that would have to develop standards that would be acceptable in every state.

Institutions would have the option of delivering the disclosures to an e-mail address designated by the consumer or making the disclosures available at another location, such as the institution’s Website. If the disclosure is made available at a Website, the institution would have to send a notice alerting the consumer as to when the information has been posted. The notice would be sent to an e-mail address or the institution could offer consumers the option of receiving these notices by regular mail. Under the proposed rules, if a consumer has agreed to receive electronic disclosures, then he or she would generally be permitted to preserve rights by providing an electronic notice, even if the specific regulation now requires this notice to be in writing. Institutions could, however, require that such notices be sent to a specific e-mail address.

Certain disclosures that are generally available to the public, such as back account fee schedules and credit card costs in solicitations, may be made available electronically without the consumer’s consent. However, disclosures for transactions made in person would still have to be made in paper form. Common examples are mortgage loan closings, automobile loans and leases, and door-to-door credit sales, although these may change in the future as technology evolves. Also, with regard to timing, if a specific regulatory provision requires that a disclosure must be given before the consumer becomes contractually obligated, then the institution must display the disclosures on the computer screen before the consumer completes the transaction.

Standardized Disclosure Format for Obtaining Consent

The proposed rules offer a standardized disclosure format for obtaining consumers’ consent to receive electronic disclosures. Under this format, institutions would:

  • identify the types of disclosures consumers would receive and specify whether consumers have the option to receive the disclosures in paper form;
  • identify the address or location where consumers will receive the information and if the disclosures are to be posted on the Website, tell consumers how long the disclosures will be posted, which must be for at least 90 days, and whether the information will be available after that time;
  • specify the technical requirements for receiving and retaining the disclosures and provide consumers a means for contacting the institution if they experience difficulties or have questions (examples would be an e-mail address or toll-free telephone number); and
  • provide a means for consumers to respond affirmatively to confirm that they agree to receive the disclosures electronically and that their computer equipment meets the technical requirements for receiving, downloading, and printing the information.

Institutions would be required to notify consumers about changes regarding electronic communications, such as any upgrades to computer software that may be required. Institutions would also be required to obtain the consumer’s consent before providing other disclosures electronically, unless the institution previously disclosed the possibility of other types of electronic disclosures at the time the consumer’s consent was first obtained.

Interim Final Rule for Regulation DD

The Fed issued the interim final rule for Regulation DD for the limited purpose of allowing consumers to elect to receive periodic account statements by electronic means. The other required disclosures under Regulation DD are addressed in the proposed rules, as described above.

The interim final rule is consistent with the existing interim final rule for Regulation E regarding electronic disclosures. Institutions commonly provide the Regulation E and Regulation DD periodic statements in a single document. The interim final rule for Regulation DD will allow these institutions to continue this practice in an electronic format.

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

THE FED IS SPECIFICALLY INTERESTED IN RECEIVING COMMENTS ON THE ISSUES RAISED BY THE FOLLOWING QUESTIONS.

  • Should financial institutions be required to verify, by return receipt, that a consumer has received the electronic disclosures?








  • Should the standardized disclosure for obtaining consumers’ consent to receive electronic disclosures include any additional information? Are there any other changes that may improve the usefulness of this document?












  • Consumers must be given advance notice of any changes to the information provided in the standardized disclosure for obtaining consumers’ consent to receive electronic disclosures. Is 15 days an appropriate time period?








  • Institutions would be required to obtain the consumer’s consent before providing other disclosures electronically, unless the institution previously disclosed the possibility of other types of electronic disclosures at the time the consumer’s consent was first obtained. What are the costs and benefits of this approach? Would an initial list of potential disclosures at the time consent is first obtained ensure that consent is informed or would such a list be more confusing than helpful?














  • Would the 90-day minimum time period for maintaining disclosure information on your Website be a burden for your credit union? What would be the incremental cost of retaining the information for this time period? Are there any less burdensome alternatives for providing consumers with continuing access to the disclosures?












  • Do you have any comments on the three proposed forms and two sample forms for use to aid compliance with the requirements regarding electronic disclosures? (The forms are attached to this Regulatory Comment Call for those receiving this information by fax. However, we are not at this time able to provide these forms electronically. To view these forms, please use the Internet link contained in the first paragraph and the forms will appear on pages 60-64. Otherwise, please call or e-mail Jeff Bloch, 202-218-7795 or jbloch@cuna.com, if you would like a copy faxed or mailed to you.)












  • Would it be feasible to require your credit union to: 1) provide disclosures in a format that could not be altered without detection; or 2) have systems in place capable of detecting whether or not information has been altered? Would it be feasible for your credit union to use independent certification authorities to verify electronic documents?












  • Other comments?










Leagues and credit unions should feel free to fax their responses to CUNA at 202-371-8240; e-mail them to Jeffrey Bloch at jbloch@cuna.com or mail them to CUNA’s Regulatory Advocacy Department, Suite 300, 805 15th Street, NW, Washington, DC 20005. Thank you!!

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