CUNA Regulatory Comment Call
August 31, 2006
Regulation E Interim Final Rule
(Not a Major Proposal)
- The Federal Reserve Board (Fed) is amending Regulation E, which implements the Electronic Fund Transfer Act, as well as the official staff commentary. These changes include a number of clarifications as they pertain to the requirement of obtaining a consumers authorization to collect a fee for insufficient funds or uncollected funds through an electronic debit to the consumers account. One clarification would be that this requirement applies to any person who collects the fee in this manner.
- These changes also clarify the notice requirements for electronic check conversion (ECK) transactions.
- The interim final rule will be effective as of January 1, 2007 (except for certain requirement for payees at point-of-sale (POS) terminals). Comments on this rule will be due by September 29, 2006. If you are submitting comments directly to the Fed, the comment letter should refer to Docket No. R-1265. Comment letters may be e-mailed directly to the Fed at email@example.com and should include the docket number in the subject line.
Please submit your comments to CUNA by September 25, 2006. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at firstname.lastname@example.org or to Senior Assistant General Counsel Jeff Bloch at email@example.com; or mail them to Mary or Jeff in c/o CUNAs Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004. You may also contact us if you would like a copy of the interim final rule, or you may access it here.
The Electronic Fund Transfer (EFT) Act establishes rights, liabilities, and responsibilities for parties involved in EFT systems, which include transfers through automated teller machines (ATM), point-of-sale terminals (POS), automated clearinghouses, telephone bill-payment plans, and remote banking programs. Regulation E implements the EFT Act, which contains official staff commentary that interprets the regulation and provides guidance in applying the regulation to specific transactions. The EFT Act and Regulation E require that a number of disclosures be provided in writing, provide limitations on consumer liability for unauthorized transfers, outline procedures for error resolution, and restrict the unsolicited issuance of ATM cards and other access devices.
On January 10, 2006, the Fed issued a final rule that provides guidance on the rights, liabilities, and responsibilities of parties engaged in ECK transactions. The final rule also provides that the consumer must authorize the debit before a fee for insufficient of uncollected funds is debited by way of an EFT from a consumers account. Authorization may be obtained when notice is provided to the consumer stating that the fee will be collected by means of an EFT, and the consumer goes forward with the underlying transaction. This notice must disclose the dollar amount of the fee. At POS, the notice must be posted in a prominent and conspicuous location, and a copy of the notice must be provided to the consumer at the time of the transaction, such as on the sales receipt. Here is a link to CUNAs analysis of the final rule.
BRIEF DESCRIPTION OF THE INTERIM FINAL RULE
The interim final rule clarifies certain provisions of the final rule that was issued this past January as they pertain to the disclosure of the fee for insufficient or uncollected funds. Specifically, the interim final rule clarifies that the requirement to provide notice to the consumer for the electronic collection of the insufficient funds fees applies to all persons seeking to collect such fees electronically, such as the merchant or other payees, and not to the consumers account-holding financial institution. The rule further clarifies that this requirement does not apply to the financial institution when it assesses a fee for a check or EFT that is returned unpaid or when the institution is paying an overdraft.
Although the dollar amount of the fee must generally be stated in the notice, the interim final rule provides flexibility in that if the amount of the fee varies due to the amount of the underlying transaction or other factors, such as the amount of time the obligation is left outstanding, the collector of the fee may have the option of providing an explanation of how the fee is determined, rather than provide the specific amount. However, payees at POS must state the dollar amount of the fee on the notice given to consumers if the fee can be calculated at the time of the transaction.
The interim final rule also clarifies that payees intending to collect electronically the fees for insufficient or uncollected funds at POS need not provide consumers with an exact copy of the posted notice stating the payees intent to collect these fees electronically. Instead, these payees may provide a notice that is substantially similar to the posted notice, as long as the notice sufficiently conveys to the consumer the payees intent to electronically collect a fee if an item is returned due to insufficient or uncollected funds in the consumers account, as well as the amount of the fee or an explanation of how the fee is determined.
Similar flexibility is also provided for payees engaged in ECK transaction at POS with regard to the requirement to provide the consumer the notice stating the intent to convert the consumers checks to EFTs, as long as consumers are sufficiently informed that, by providing a check as payment, the consumer has authorized the conversion of the check to an EFT from the consumers account.
The final rule issued this past January included model language that payees may use to disclose their intent to collect electronically the fee for insufficient or uncollected funds, as well as the amount of the fee. This language has now been revised for consistency with the interim final rule.
Although the effective date of the final rule is January 1, 2007, payees at POS will have until January 1, 2008 to disclose the dollar amount of the insufficient funds fees, or an explanation of how the fee is determined, on the notice that is given to consumers at the time of the transaction. This delay is provided in recognition of the considerable time and expense needed to reprogram existing terminals to provide the necessary information and is limited solely to the disclosure of the amount of the fee on the notice given to the consumer. This will not delay the obligation to disclose on this notice the payees intent to collect the fee electronically. This delay also does not apply to the requirement to provide the amount of the fee, or an explanation of how the fee is determined, on the notice that is posted at the location.
QUESTIONS TO CONSIDER REGARDING THE INTERIM FINAL RULE
(The Fed is specifically interested in receiving comments on these issues)
- The interim final rule provides flexibility in that if the amount of the fee that
is collected electronically varies due to the amount of the underlying transaction or
other factors, the collector of the fee may have the option of providing an explanation
of how the fee is determined, rather than provide the specific amount. However, payees
at POS must state the dollar amount of the fee on the notice given to consumers if the
fee can be calculated at the time of the transaction. Is this a reasonable approach?
- Can insufficient funds fees be collected electronically by payees in circumstances
other than in connection with a POS transaction or with an accounts receivable conversion
(ARC) transaction when a consumer sends in a payment for a recurring bill?
- Will the clarifications in the interim final rule provide benefits or impose additional
burdens on financial institutions?
- Other comments?
Eric Richard General Counsel (202) 508-6742 firstname.lastname@example.org |
Mary Mitchell Dunn SVP & Deputy General Counsel (202) 508-6736 email@example.com
Jeffrey Bloch Assistant General Counsel (202) 508-6732 firstname.lastname@example.org
Lilly Thomas Assistant General Counsel (202) 508-6733 email@example.com
Catherine Orr Senior Regulatory Counsel (202) 508-6743 firstname.lastname@example.org