[Federal Register: May 2, 1996 (Volume 61, Number 86)]
[Rules and Regulations]
[Page 19678-19695]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
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FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-0831]
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Official Staff Interpretation.
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SUMMARY: The Board is publishing final revisions to its official staff
commentary to Regulation E (which implements the Electronic Fund
Transfer Act), as part of the Board's review of the regulation. The
commentary applies and interprets the requirements of Regulation E to
facilitate compliance by financial institutions that offer electronic
fund transfer services to consumers. The revisions change the question-
and-answer format to a narrative one to make the commentary easier to
use and to conform it with the format of the Board's other staff
commentaries. In conjunction with revisions to Regulation E adopted by
the Board and published elsewhere in today's Federal Register, the
revised commentary also includes interpretative provisions previously
contained in the regulation that were more explanatory in nature and
additional interpretations on matters not previously addressed.
DATES: Effective date. May 2, 1996.
Compliance date. Mandatory compliance January 1, 1997.
FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Kyung Cho-Miller,
Michael Hentrel, or Natalie E. Taylor, Staff Attorneys, Division of
Consumer and Community Affairs, Board of Governors of the Federal
Reserve System, Washington, D.C. 20551, at (202) 452-2412 or (202) 452-
3667. For the hearing impaired only, contact Dorothea Thompson,
Telecommunications Device for the Deaf (TDD), at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background
The Electronic Fund Transfer Act (EFTA) (15 U.S.C. 1693), enacted
in 1978, provides a basic framework establishing the rights,
liabilities, and responsibilities of participants in electronic fund
transfer (EFT) systems. The EFTA is implemented by the Board's
Regulation E (12 CFR part 205). The Board has revised Regulation E
under its Regulatory Planning and Review Program, which calls for the
periodic review of all Board regulations. In 1981, the Board published
an official staff commentary to Regulation E. The commentary
substitutes for individual staff interpretations and is designed to
facilitate compliance and provide protection from civil liability,
under section 915(d)(1) of the act, for financial institutions that act
in conformity with it.
The question-and-answer format of the former commentary was
designed to make compliance easier by providing specific answers, in
nontechnical language, to frequently asked questions. However, that
format usually relied on specific factual situations and often
restricted the scope of an interpretation. The Board has adopted a
narrative format, similar to other commentaries issued by the Board, to
provide more general applicability.
The order of comments in the final commentary corresponds with the
new sections in the revised regulation. Throughout the commentary,
reference to ``this section'' or ``this paragraph'' means the section
or paragraph in the regulation that is the subject of the comment. Each
comment in the commentary is identified by a number and the regulatory
section or paragraph that it interprets. The commentary incorporates
text that was moved from the regulation because it is more explanatory
than regulatory in nature. A number of comments have been deleted as
obsolete.
II. Section-by-Section Analysis
The section-by-section descriptions highlight certain provisions
that differ from the former commentary and certain portions of the
former regulation that have been moved to the commentary. Comments in
the former commentary are referred to as ``questions'' and are cited by
the section number and the number of the question. For example, Q2-11
is the citation for question number 11 in the commentary to Sec. 205.2.
As the substance of many questions does not change in the new format,
those comments are not specifically discussed. A summary at the
beginning of the section-by-section analysis matches the old question
to the new commentary provisions. The summary also lists questions that
have been deleted from the commentary, comments that are new, and
comments that have been moved to other sections.
Section 205.2--Definitions
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New Old
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(a)-1..................................... Q2-1
(b)(1)-1.................................. Q2-2, Q2-3, Q2-4, Q2-5, Q2-
5.5
(b)(2)-1.................................. Q3-21
(b)(2)-2.................................. Q3-20
(d)-1..................................... Q2-8
(d)-2..................................... Q2-6
(d)-3..................................... Q2-9
[[Page 19679]]
(d)-4..................................... Q2-7
(h)-1..................................... Q2-25.5, Q2-23
(h)-2..................................... Q2-24
(h)-3..................................... Q2-25
(m)-1..................................... Q2-26
(m)-2..................................... Q2-27
(m)-3..................................... Q2-27
(m)-4..................................... Q2-28
------------------------------------------------------------------------
Comment deleted
Q2-22: Electronic terminal--telephone bill payment
Comments moved
Comments relating to the definition of an EFT have been moved to
the commentary to Sec. 205.3
Paragraph 2(b)(2)
In the regulation, the exemption for trust accounts has been
incorporated into the definition of account. The substance of Q3-20
(custodial agreements) and Q3-21 (trust accounts) is included in this
section as comments (b)(2)-2 and (b)(2)-1. The change mirrors the
statutory definition of account.
2(d) Business Day
The regulatory proposal included a new definition of business day.
The Board has retained the current definition of business day;
accordingly, comments Q2-6, Q2-7, and Q2-9, which provide guidance on
interpreting ``substantially all business functions,'' have been
retained and included in comments (d)(2)-(d)(4).
2(m) Unauthorized Electronic Fund Transfer
Comment (m)-2, which incorporates Q2-27, provides that when the
consumer furnishes an access device and grants actual authority to make
transfers to another person (a family member or co-worker, for example)
who then exceeds that authority, the consumer is liable for the
transfers unless the consumer has notified the financial institution
that transfers by that person are no longer authorized. While
institutions are required to provide a summary of the consumer's
liability under Sec. 205.6 in the initial disclosures, the model
clauses do not require financial institutions to disclose this
potential liability as part of the initial disclosures of Sec. 205.7.
Section 205.3--Coverage
Section 205.3 of the regulation is a new section on the
regulation's coverage, including the scope of Regulation E, the
definition of an EFT, and the exemptions from the regulation. To
correspond with these regulatory amendments, the commentary
consolidates existing and new comments on the regulation's coverage.
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q9-15 in part
(a)-2..................................... Q9-15 in part
(a)-2..................................... new
(b)-1..................................... Q2-11, broadens and reverses
Q2-16, Q2-18, Q2-19, Q2-
21.5
(b)-2..................................... Q2-10, Q2-12, Q2-21
(c)(2)-1.................................. Q3-1
(c)(3)-1.................................. Q3-3
(c)(3)-2.................................. new
(c)(3)-3.................................. new
(c)(4)-1.................................. new
(c)(4)-2.................................. new
(c)(4)-3.................................. Q3-3.5, Q3-3.6
(c)(5)-1.................................. Q3-8, Q3-9, Q3-10, Q3-11, Q3-
12
(c)(5)-2.................................. Q3-13
(c)(6)-1.................................. Q3-14, Q3-15, Q3-16, Q3-19.5
(c)(6)-2.................................. Q3-17, Q3-18, Q3-19, new
(facsimile machine)
(c)(7)-1.................................. new
------------------------------------------------------------------------
Comments deleted
Q2-12.5: Fund transfer--withholding of income tax on interest
Q2-12.6: Fund transfer--EBT
Q2-13: Fund transfer--withdrawal at another institution
Q2-14: Fund transfer--check truncation
Q2-15: Fund transfer--payee information, non-electronic form
Q2-17: Fund transfer--ACH
Q2-20: Fund transfer--preauthorized debits by paper drafts, ACH
Q3-2: Wire transfer--instructions on magnetic tape
Q3-4: Telephone transfer plans--applicability of
intrainstitutional exemption
Q3-5: Compulsory use--preauthorized loan payments
Comments moved
Q3-6, Q3-7, and Q3-7.5 (see commentary to Sec. 205.10(e))
Q3-20 and Q3-21 (see commentary to Sec. 205.2)
3(a) General
Comments 3(a)-1 and -2 incorporate the part of Q9-15 that details
the types of accounts subject to the requirements of the regulation.
Comment 3(a)-2 is new. Language for this comment is modeled on the
commentary to Regulation Z on foreign applicability (12 CFR part 226,
Supp. I, comment 1(c)-1).
3(b) Electronic Fund Transfer
In the revised regulation, the definition of ``electronic fund
transfer'' is referenced in Sec. 205.2(g) but is included in Sec. 205.3
as the definition is central to determining coverage. The commentary
consolidates in this section the questions pertaining to EFTs. A number
of comments were deleted because of a change in Board interpretations.
For example, Q2-12.6 dealt with the electronic payment of government
benefits, stating that such transfers were not subject to Regulation E.
As the Board has adopted amendments to Regulation E extending coverage
to electronic benefit transfer programs established by federal, state,
or local government agencies, the substance of Q2-12.6 has been
deleted.
Comment 3(b)-1(iii) broadens and reverses Q2-16 to achieve
consistency with other sections of Regulation E. The comment states
that debits or credits to a consumer's account according to billing
information contained on magnetic tape are EFTs even if the financial
institution receives or sends a composite check. Previously, credits to
consumers' accounts made by a composite check accompanied by a magnetic
tape containing payee information were not EFTs for purposes of
Regulation E.
3(c) Exclusions From Coverage
The regulation's exemptions are incorporated in Sec. 205.3.
Paragraph 3(c)(3)--Wire or Other Similar Transfers
Comment 3(c)(3)-2 addresses the relationship of Regulation E to
Article 4A of the Uniform Commercial Code (UCC). Article 4A provides
comprehensive rules governing rights and responsibilities arising from
wire transfers. It applies primarily to large-dollar, commercial wire
transfers made via Fedwire, Clearing House Interbank Payments Systems
(CHIPS), Society for Worldwide Interbank Payments Systems (SWIFT), and
Telex.
UCC Sec. 4A-108 provides that Article 4A does not cover a fund
transfer any part of which is governed by the EFTA. In drafting Article
4A, the National Conference of Commissioners on Uniform State Laws
stated that if a fund transfer is made in part by Fedwire and in part
via an automated clearinghouse (ACH), because the EFTA applies to the
ACH part of the transfer, Article 4A does not apply to any part of the
transfer. Institutions that offer Fedwire services expressed concern
that these transfers would lose the legal certainty offered by
complying with the requirements of Article 4A if some part of the
transfer is subject to the EFTA. This concern must be balanced with the
potential of subjecting consumers to full liability for unauthorized
transfers merely because some part of the transfer, which would
ordinarily be
[[Page 19680]]
covered by Regulation E, is made via Fedwire.
In 1990, the Board adopted a comprehensive revision of subpart B to
Regulation J (55 FR 40791, October 5, 1990). Regulation J (12 CFR Part
210) specifies the rules applicable to funds transfers handled by
Federal Reserve Banks. To ensure that the rules for all funds transfers
through Fedwire are consistent, the Board used its preemptive authority
under UCC Sec. 4A-107 to determine that subpart B, including the
provisions of Article 4A, applies to all fund transfers through
Fedwire, even if a portion of the fund transfer is governed by the
EFTA. Even so, the Board has continued to receive questions about the
effect of dual coverage. For example, if an institution offers
consumers the ability to initiate Fedwire transfers pursuant to a
telephone transfer agreement, the transfer could be covered by both
Regulation E and Article 4A. UCC Sec. 4A-202 encourages verification of
the authenticity of a Fedwire payment order pursuant to a ``security
procedure'' established by agreement between a customer and a receiving
bank. Putting such an agreement in writing could be deemed to
constitute a telephone transfer plan for purposes of Regulation E. The
Board believes that if an institution makes Fedwire payments available
to consumers, but does not make the service available in conjunction
with a telephone plan that is subject to Regulation E, then the
protections of Article 4A are applicable to the transfer.
The wire transfer exemption extends to any transfer of funds
through Fedwire or through a similar fund transfer system. Comment
3(c)(3)-3 provides examples of such systems. The Board was asked also
to exempt transfers made on the books or ``in book-entry form'' by the
financial institution. The commentary clarifies that such transfers are
exempt from Regulation E.
Paragraph 3(c)(4)--Securities and Commodities Transfers
The Board has revised the exemption for certain securities and
commodities transfers contained in Sec. 205.3(c). The exemption applies
to a transfer for the purchase or sale of securities or commodities,
even if the security or commodity is not regulated by the Securities
and Exchange Commission or the Commodity Futures Trading Commission, so
long as the security or commodity is sold by a registered broker-dealer
or futures commission merchant (for example, municipal securities).
Comment 3(c)(4)-1 provides added clarification on this point.
Comments 3(c)(4)-2 and -3 provide examples of covered and exempt
securities transfers. Comment 3(c)(4)-2 also contains a new example of
an exempt transfer, that of a telephone order to exercise a margin
call. The Board believes that the exercise of a margin call is so
closely linked to the purchase or sale of securities as to come within
the purview of the exemption.
Several commenters requested clarification on Q3-3.5, which stated
that the exemption applied only if a transfer's primary purpose is the
purchase or sale of securities and which provided an example of a money
market mutual fund transfer. The Board believes that all securities
transfers must meet the primary purpose test-- transfers must be to
purchase or sell securities--set forth in Q3-3.5 to qualify for the
exemption. If a transfer results from the use of a debit card to access
any securities account (including a money market mutual fund account)
for the purchase of goods or services or to obtain cash, the transfer
is not exempt from Regulation E.
Paragraph 3(c)(6)--Telephone-Initiated Transfers
Comment 3(c)(6)-2 incorporates examples contained in the former
commentary of covered transfers under a written plan (see Q3-17, Q3-18,
and Q3-19). The comment also contains a new example regarding the use
of a facsimile machine to initiate a transfer. The Board has received
questions about plans in which the consumer uses facsimile paper
designed to look like a paper ``draft'' to initiate a transfer sent via
facsimile machine. The EFTA's definition of EFT includes any transfer
through a ``telephonic instrument.'' The Board considers a facsimile
machine to be the functional equivalent of a telephone; it is
inconsequential whether information about the transfer is transmitted
orally or by facsimile.
Paragraph 3(c)(7)--Small Institutions
Comment 3(c)(7)-1 makes clear the Board's view that Article 4A is
not applicable to transfers exempt from Regulation E under the small-
institution exemption. As noted above, the drafters of Article 4A
considered the EFTA and Regulation E to be mutually exclusive. The
Board has been asked whether preauthorized transfers by small
institutions (now, institutions with assets under $100 million), which
are largely exempt from Regulations E, are subject to the requirements
of Article 4A by virtue of that exemption (for example, a direct
deposit to a consumer's account at a small bank). The Board regards the
transfers as generally subject to the EFTA, and therefore not subject
to Article 4A.
Section 205.4--General Disclosure Requirements; Jointly Offered
Services
Section 205.4 of the revised regulation sets forth general and
special requirements for the various disclosures. Corresponding changes
have been made in the commentary.
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q7-3, Q9-4 in part
(a)-2..................................... new (revises and broadens Q7-
4)
------------------------------------------------------------------------
Comments deleted
Q4-3: Multiple accounts and account holders (clarified in
Sec. 205.4(d)(1) of the regulation)
Section 205.5--Issuance of Access Devices
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New Old
------------------------------------------------------------------------
5-1....................................... Q5-1.5
(a)(1)-1.................................. new (footnote 1b to former
Sec. 205.5(a)(1))
(a)(1)-2.................................. new
(a)(2)-1.................................. Q5-1, Q5-2
(a)(2)-2.................................. Q5-3
(b)-1..................................... Q5-6, Q5-7
(b)-2..................................... Q5-4.5
(b)-3..................................... Q5-5
(b)-4..................................... Q5-8 (including examples
from former Sec. 205.5(b)
------------------------------------------------------------------------
Comment deleted
Q5-4: Renewal or substitution--pre-February 8, 1979 device
Comments moved
Q5-9, Q5-10 (see commentary to Sec. 205.12)
5(a) Solicited Issuance
Paragraph 5(a)(1)
Comment (a)(1)-2 has been added to clarify the permissible forms of
a consumer's request for an access device. Section 205.6--Liability of
Consumer for Unauthorized Transfers
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q6-4, new (former Sec.
205.6(a)(2))
(a)-2..................................... Q6-3
(b)-1..................................... Q6-5 (revised)
(b)-2..................................... Q6-6.5 (with cross-reference
to comment 2(k)-2 added)
(b)-3..................................... Q6-6.5
(b)(1)-1.................................. Q6-5 (revised)
(b)(1)-2.................................. Q6-6 (revised)
(b)(2)-1.................................. Q6-5 (revised)
(b)(3)-1.................................. Q6-5 (revised)
(b)(3)-2.................................. Q6-5 (revised)
(b)(4)-1.................................. new (former Sec.
205.6(b)(4))
(b)(5)-1.................................. Q6-7
(b)(5)-2.................................. new
[[Page 19681]]
(b)(5)-3.................................. Q6-8
------------------------------------------------------------------------
Comments deleted
Q6-1: Unauthorized transfers--access device not involved
Q6-2: Failure to disclose business days
Comments moved
Q6-9, Q6-10, and Q6-11 (see commentary to Sec. 205.12)
6(a) Conditions for Liability
The Board had proposed amending the regulation to require that a
financial institution provide all of the initial disclosures required
by Sec. 205.7 in order to impose liability on the consumer. Based on
comment and further analysis, the Board has instead retained the
current rule.
The former regulation implicitly conditioned consumer liability on
the issuance of an accepted access device (Sec. 205.6(a)). The
commentary, on the other hand, stated that if the consumer failed to
report an unauthorized EFT within 60 days of transmittal of the
periodic statement reflecting the transfer, the consumer could be
subject to liability for subsequent transfers, even if the unauthorized
EFT did not involve an access device. This commentary position was
based on the Board's interpretation of section 909 of the EFTA as
precluding consumer liability for unauthorized transfers not involving
an access device until 60 days after transmittal of the periodic
statement reflecting the transfer. The Board has incorporated that
clarification into the Sec. 205.6(a)(3) of the regulation.
Commenters generally supported the revision, although some believed
that a 60-day period is unreasonable. The latter suggested an
alternative time period ranging from 30 to 45 days; this change,
however, would require a statutory amendment. Upon further analysis,
the Board adopted the regulatory revision as proposed and has
incorporated Q6-1 into Sec. 205.6(b)(3). Comment 6(b)(3)-2 provides
further clarification.
6(b) Limitations on Amount of Liability
Q6-5 provided examples of when the liability rules apply. Material
from Q6-5, in revised form, has been incorporated into the commentary
to paragraph (b).
Paragraph 6(b)(4)--Extension of Time Limits
Former Sec. 205.6(b)(4) provided examples of extenuating
circumstances when a consumer delays notification to the institution
that an access device has been lost or stolen. The examples have been
deleted from the revised regulation and moved to comment (b)(4)-1.
Paragraph 6(b)(5)--Notice to Financial Institution
The Board has received questions about whether notice from a third
party is sufficient to limit a consumer's liability under Sec. 205.6.
Proposed comment (b)(5)-2 indicated that such notice is valid if it is
communicated by a third party on the consumer's behalf. Commenters
generally supported this interpretation. Several commenters asked the
Board to clarify that a financial institution may require adequate
documentation of the authority of the person who claims to represent
the consumer. Others requested that the Board address the potential
liability of financial institutions arising from reliance on the claims
of a third party. In response, the Board has clarified that a financial
institution should have a reasonable belief that a third party is
acting on the consumer's behalf.
Section 205.7--Initial Disclosures
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q7-1
(a)-2..................................... Q7-2
(a)-3..................................... Q7-5.5
(a)-4..................................... Q7-6, new (timing of
disclosures)
(a)-5..................................... Q7-6.5
(a)-6..................................... Q7-5
(b)(1)-1.................................. Q7-8
(b)(1)-2.................................. Q7-7
(b)(1)-3.................................. new (former Sec.
205.7(a)(1))
(b)(2)-1.................................. Q7-19
(b)(2)-2.................................. Q7-20
(b)(4)-1.................................. Q7-11
(b)(4)-2.................................. Q7-11.5
(b)(4)-3.................................. Q7-10
(b)(5)-1.................................. Q7-14, 7-15
(b)(5)-2.................................. Q7-12, 7-13
(b)(5)-3.................................. Q7-15.5
(b)(9)-1.................................. Q7-16, 7-17
(b)(10)-1................................. Q7-18
(b)(10)-2................................. Q7-18.5
------------------------------------------------------------------------
Comment deleted
Q7-9: Summary disclosure of rights
Comments moved
Q7-3, Q7-4 (see commentary to Sec. 205.4)
7(a) Timing of Disclosures
Comment (a)-4 expands on Q7-6, which discussed the addition of new
EFT services and required financial institutions to provide disclosures
for the additional service if it was subject to terms and conditions
different from those previously described in the initial disclosures;
the commentary was silent, however, as to when such disclosures should
be provided. Comment (a)-4 provides that the disclosures be given
either when the consumer contracts for the new service or before the
first EFT is made using the new service.
7(b) Content of Disclosures
Former Sec. 205.7(a)(1) gave financial institutions the option of
including advice about promptly reporting the loss or theft of the
access device or other unauthorized transfers in the summary of the
consumer's liability. This language has been deleted from the
regulation and moved to comment (b)(1)-3.
Section 205.8--Change-in-Terms Notice; Error Resolution Notice
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q8-6
(a)-2..................................... Q8-3, Q8-5
(a)-3..................................... Q8-4
(a)-4..................................... Q8-2
(b)-1..................................... Q8-8
------------------------------------------------------------------------
Comments deleted
Q8-1: Terms requiring change in terms notice
Q8-7: Error resolution notice--no periodic statements sent
8(a) Change-in-Terms Notice
Paragraph 8(a)(2)--Prior Notice Exception
Proposed comment (a)(2)-1, which addressed circumstances when
financial institutions include with the periodic statement a subsequent
notice upon making a permanent change in terms related to security has
not been adopted, as the Board did not adopt its proposal revising the
regulation to extend to 45 days the time period in which financial
institutions must send such notice.
Section 205.9--Receipts at Electric Terminals; Periodic Statements
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1.................................. Q9-1
(a)-2.................................. new (footnote 2 to former Sec.
205.9(a)), Q9-2
(a)-3.................................. Q9-3.5
(a)-4.................................. Q9-5
(a)-5.................................. Q9-6
(a)-6.................................. Q9-4 in part
(a)(1)-1............................... new
(a)(2)-1............................... Q9-7
(a)(3)-1............................... new (former Sec. 205.9(a)(3))
(a)(3)-2............................... new (footnote 3 to former Sec.
205.9(a)(3)), Q-9, 9-10
(a)(3)-3............................... Q9-8
(a)(3)-4............................... new (former Sec. 205.9(a)(3)),
Q9-37
(a)(3)-5............................... Q9-36, Q9-27
(a)(5)-1............................... Q9-38
(a)(5)-2............................... Q9-40
(a)(5)(i)-1............................ new (former Sec.
205.9(b)(1)(iv)(A))
(a)(5)(ii)-1........................... new (former Sec.
205.9(b)(1)(iv)(B))
(a)(5)(iii)-1.......................... new (former Sec.
205.9(b)(1)(iv)(C))
[[Page 19682]]
(a)(5)(iv)-1........................... new (former Sec.
205.9(b)(1)(iv) footnote 5
(a)(5)(iv)-2........................... new (former Sec.
205.9(b)(1)(iv) footnote 5
(a)(6)-1............................... Q9-13, new (former Sec.
205.9(a)(6))
(a)(6)-2............................... Q9-14
(b)-1.................................. Q9-19, 9-20
(b)-2.................................. new
(b)-3.................................. Q9-17
(b)-4.................................. Q9-18
(b)-5.................................. Q9-21
(b)-6.................................. Q9-23, new (footnote 4 to Sec.
205.9(b)(1))
(b)(1)-1............................... Q9-25
(b)(1)(i)-1............................ Q9-35
(b)(1)(iii)-1.......................... Q9-36
(b)(1)(iv)-1........................... Q9-40.5
(b)(1)(v)-1............................ Q9-28
(b)(1)(v)-2............................ Q9-30
(b)(1)(v)-3............................ Q9-41
(b)(1)(v)-4............................ Q9-43
(b)(1)(v)-5............................ Q9-44
(b)(1)(v)-6............................ new (footnote 9 to former Sec.
205.9(b)(1)(v))
(b)(3)-1............................... Q9-31
(b)(3)-2............................... Q9-31.5
(b)(3)-3............................... new (former Sec. 205.9(b)(3))
(b)(4)-1............................... Q9-32
(b)(5)-1............................... Q9-33
(b)(6)-1............................... Q9-33
(c)-1.................................. Q9-50
(d)-1.................................. Q9-51
------------------------------------------------------------------------
Comments deleted
Q9-3: Receipts--information displayed on screen
Q9-10.5: Receipts--type of account, interchange system
Q9-11: Receipts--unique identifier
Q9-12: Receipts--terminal location
Q9-16: Periodic statements--frequency
Q9-24: Periodic statements--accompanying documents
Q9-29: Periodic statements--multiple transferee
Q9-34: Periodic statements--telephone numbers
Q9-39: Receipts/periodic statements--location code
Q9-42: Receipts/periodic statements--intermediate party
Q9-45: Passbook updates--when required
Q9-46: Passbook accounts--telephone notice alternative
Q9-47: Passbook updates--discarding of data
Q9-48: Passbook updates--periodic transmittals
Q9-49: Quarterly statements--compliance with regular
requirements
Comments moved
Q9-4 in part (see commentary to Sec. 205.4)
Q9-15 (see commentary to Sec. 205.2)
Q9-26 (see commentary to Sec. 205.11)
A number of comments have been deleted because they were obsolete
or very fact specific and not of general applicability. Proposed
comment (a)(4)-1 has been omitted because the Board deleted the
regulatory requirement that a financial institution ``uniquely''
identify the consumer on a terminal receipt (see 55 FR 15032, March 22,
1995).
9(a) Receipts at Electronic Terminals
Footnote 2 to former Sec. 205.9(a) allowed an account-holding
institution to make terminal receipts available through third parties.
The footnote has been deleted from the regulation and moved to comment
9(a)-2.
Paragraph 9(a)(1)--Amount
Former Sec. 205.9(a)(1) provided that financial institutions other
than the account-holding institution may include a fee for a transfer
in the amount of the transfer if the fee is disclosed on the receipt
and on a sign posted on or at the terminal. The revised regulation
modifies these requirements and allows the account-holding institution
also to take advantage of the exception. In addition, proposed comment
9(a)(1)-1 provided that the requirement to display the amount of a
transaction fee ``on or at the terminal'' could be met by displaying
the fee on the terminal screen before the consumer has initiated the
transfer if displayed for a reasonable duration. Commenters generally
believed that displaying the fee on a screen provided adequate notice,
as long as consumers were given the option to cancel the transaction
after receiving notice. The Board has adopted the comment as proposed.
The Board believes that providing consumers with the option to cancel
the transaction after receiving notice helps ensure compliance with the
notice requirements of this paragraph.
Paragraph 9(a)(3)--Type
Former Sec. 205.9(a)(3) required disclosure of the type of transfer
and the type of consumer's account to or from which funds are
transferred. It also provided examples of descriptions for such
accounts. The examples have been deleted from the regulation and moved
to comment 9(a)(3)-1. In addition, Sec. 205.9(a)(3) provided generic
descriptions for accounts that are similar in function. These examples
have been deleted from the regulation and incorporated with the
substance of Q9-37 in comment 9(a)(3)-4.
Footnote 3 to former Sec. 205.9(a)(3) provided an exception to the
requirement to disclose the type of transfer and account if the
consumer can access only one account at a particular time or terminal.
The exception has been deleted from the regulation and the substance
moved to comment 9(a)(3)-2.
Paragraph 9(a)(5)--Terminal Location
Footnotes 5, 6, and 8 have been deleted from the regulation.
Footnote 5 allowed institutions to omit the name of the state on
terminal receipts for transfers occurring at terminals within 50 miles
of the institution's main office. Footnotes 6 and 8 referred back to
the text of footnote 5. Based upon comments and further analysis the
Board has retained the substance of footnote 5, incorporating it in
comment 9(a)(5)(iv)-1.
The former regulation included detailed guidance for specifying the
terminal location on both the receipt and periodic statement (see
former Sec. 205.9(b)(1)(iv)). While the substantive requirement to
disclose the location remains unchanged, the illustrative text has been
moved to comments 9(a)(5)(i)-1, 9(a)(5)(ii)-1, and 9(a)(5)(iii)-1.
Paragraph 9(a)(6)--Third Party Transfer
Former Sec. 205.9(a)(6) required that the name of any third party
to or from whom funds are transferred be disclosed on the receipt. It
also provided guidance on the use of codes and an exception to the
disclosure requirement when the name of the payee cannot be provided in
a machine-readable form at the terminal. This guidance has been deleted
from the regulation and moved to comment 9(a)(6)-1.
9(b) Periodic Statements
Former Sec. 205.9(b) provided that periodic statements must be sent
for each monthly or shorter cycle in which an EFT has occurred, but at
least quarterly if no transfer has occurred. As the Board believes that
few institutions send a statement (for Regulation E purposes) for a
cycle shorter than one month, the final regulation has deleted
reference to a ``shorter cycle.'' The reference has been moved to
comment 9(b)-1.
Proposed comment 9(b)-2 provided guidance on what is considered a
cycle for purposes of Regulation E. The comment required that financial
institutions provide relevant information for the cycle or period since
the last statement was issued. The Board adopted a similar approach in
the proposed commentary to Regulation DD (see 59 FR 5536, February 7,
1994). For example, if an institution may issue quarterly statements in
March, June, September, and December and the
[[Page 19683]]
consumer initiates an EFT in February, an interim statement would be
provided. The comment indicates that the statement should provide
information for the months of January and February. The regularly
scheduled March statement would provide information only about the
month of March. The Regulation DD commentary states that disclosures
given on the interim statement cannot be repeated on the regularly
scheduled statement. In the example above, the March statement could
not repeat information disclosed on the February statement.
Commenters requested clarification on whether an interim Regulation
E statement should repeat the information on a regularly scheduled
quarterly statement. The Board believes that if Regulation DD is
triggered (because the interim statement contains interest or rate
information) institutions should comply with Regulation DD and should
not repeat information on the quarterly statement. If Regulation DD is
not triggered, however, institutions should continue to comply with
Regulation E.
Footnote 4 to former Sec. 205.9(b)(1) permitted financial
institutions to provide certain periodic statement disclosures on
documents that accompany the statement. It also permitted institutions
to use codes for the disclosures if they are explained either on the
statement or accompanying documents. The footnote has been deleted from
the regulation and the substance moved to comment 9(b)-6.
Paragraph 9(b)(1)(v)
Footnote 9 to former Sec. 205.9(b)(1)(v) provided that a financial
institution need not identify on the periodic statement third parties
whose names appear on checks, drafts, or similar paper instruments
deposited to the consumer's account at an electronic terminal. The
footnote has been deleted from the regulation and the substance moved
to comment 9(b)(1)(v)-6.
Paragraph 9(b)(3)--Fees
Section 205.9(b)(3) provides that financial institutions must
disclose the amount of any fees (other than a finance charge imposed
under Regulation Z, 12 CFR Sec. 226.7(f)) that were assessed against
the account during the statement period for EFTs. The reference to
finance charges in former Sec. 205.9(b)(3) has been deleted from the
regulation and moved to comment (b)(3)-3.
Section 205.10--Preauthorized Transfers
Section 205.10 sets forth the substantive and disclosure
requirements for authorizing preauthorized transfers to and from a
consumer's account. The Board has expanded this section to include
guidance on the prohibitions against compulsory use, and corresponding
commentary has been added.
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)(1)-1.................................. Q10-5, Q10-6
(a)(1)-2.................................. Q10-1
(a)(1)-3.................................. Q10-7
(a)(1)-4.................................. Q10-7
(a)(1)-5.................................. Q10-10
(a)(1)-6.................................. Q10-12
(a)(1)-7.................................. Q10-11
(b)-1..................................... Q10-17
(b)-2..................................... Q10-18
(b)-3..................................... Q10-18.6
(b)-4..................................... Q10-18.5
(b)-5..................................... new
(b)-6..................................... new
(c)-1..................................... Q10-19
(c)-2..................................... Q10-19.5
(d)(1)-1.................................. Q10-21
(d)(2)-1.................................. new (range)
(e)(1)-1.................................. Q3-7, Q3-7.5
(e)(1)-2.................................. new
(e)(2)-1.................................. Q3-6
------------------------------------------------------------------------
Comments deleted
Q10-2: Notice of credit--when receipt guaranteed
Q10-3: Notice provided by payor
Q10-4: Notice provided by payor--form
Q10-8: Negative notice--timing
Q10-9: Negative notice--cessation of transfers
Q10-13: Preauthorized credits--availability of funds
Q10-14: Preauthorized credits--posting schedule
Q10-15: Preauthorized credits--funds received prior to agreed
crediting date
Q10-16: Preauthorized debits--preexisting authorizations
Q10-20: Ten-day notice of varying debits--preexisting
authorizations
Paragraph 10(a)(1)--Notice by Financial Institution
Section 906(b) of the EFTA and former Sec. 205.10(a)(1) of the
regulation provide that when a payor credits a consumer's account by
preauthorized EFT at least once every 60 days, the account-holding
institution must inform the consumer that the transfer has or has not
occurred or provide a phone number for the consumer to use to verify
the transfer. Q10-7 provided that the absence of a deposit entry on a
periodic statement can serve as notice that a preauthorized transfer
has not occurred. The Board's proposed comment 10(a)(1)-4 would have
reversed that position, stating that the absence of a deposit entry is
not negative notice.
Of the commenters addressing this issue, the majority opposed
placing an affirmative duty on the account-holding institution to
provide notice either positively or negatively. Based on the comments
and further analysis resulting from comment 10(a)(1)-4, the Board
believes that the regulatory burden on the receiving bank outweighs the
potential benefit to the consumer. Therefore, the Board is retaining
the substance of Q10-7 in comment 10(a)(1)-4, allowing the absence of
the deposit entry (on a periodic statement sent within two business
days of the scheduled transfer date) to serve as negative notice.
10(b) Written Authorization for Preauthorized Transfers From Consumer's
Account
Proposed comment 10(b)-1, which incorporates Q10-17, provided that
a financial institution or designated payee does not need to obtain new
authorizations before shifting from a paper-based to an electronic
debiting system. The proposed comment also provided that a successor
payee or institution may rely on a preexisting authorization to debit
payments from the consumer's account (for example, when an institution
purchases the mortgage servicing rights from a party that previously
obtained the consumer's authorization).
Commenters generally supported the proposed language but sought
clarification on how broadly the term ``successor institution'' could
be construed in this context. One suggested some minimal requirement
for an authorization since it would be difficult for successor
financial institutions to ensure that all required disclosures were
provided when relying on pre-existing authorizations. The Board
believes that ``successor institution'' should be interpreted broadly
to include any successor payee. To do otherwise could be extremely
disruptive to consumers who have entered into agreements for automatic
debiting and could lead to missed payments and adverse consequences.
The requirement in former Sec. 205.10(b) of the regulation that
preauthorized EFTs from a consumer's account be authorized by the
consumer only in writing has been revised. The requirement for the
authorization to be a signed writing has been expanded to include
authorizations which are ``similarly authenticated'' by the consumer.
This enhancement addresses developments in electronic services, such as
home banking.
Proposed comment 10(b)-5 provided an example of a consumer's
authorization that is ``similarly authenticated.'' The comment provided
that for a home banking system to satisfy the requirement, there must
be
[[Page 19684]]
some means to identify the consumer (such as a security code), and the
consumer must have the ability to obtain a printed copy of the
authorization (either by printing a copy or obtaining one from the
payee). The Board solicited comment on whether additional safeguards
are necessary to protect consumers in this situation and on other
issues related to the requirements of a written authorization under
this section.
The majority of commenters supported the Board's proposal that an
electronic system that has some means to identify the consumer such as
by a security code satisfies the ``similarly authenticated'' standard
adopted in Sec. 205.10(b). Preauthorized transfers in an electronic
system should be authenticated by a method that provides the same
assurance as a signature in a paper-based system. Commenters believed
that these methods of preauthorizing transfers would benefit consumers
by enabling payments to be handled expeditiously.
Several commenters raised concerns about unauthorized transfers
that might result because a consumer has written down codes and kept
them adjacent to a personal computer, and about the potential for
increased liability for institutions arising from unauthorized use.
The Board believes that these concerns are not sufficient to change
the liability standard currently in effect. The Board believes that
institutions may reduce exposure to liability by reviewing security
procedures with the consumer when establishing the home banking
relationship. However, for home banking systems, the Board is limiting
the use of a code as a means to similarly authenticate an authorization
to those where the code originates with the paying institution. The
Board believes that this limitation will preserve the ``unique status''
of a code or PIN similar to a signature. This condition also would not
allow the use of a code issued by a third party that the paying
institution could not verify.
The majority of commenters opposed the requirement in proposed
comment 10(b)-5 that the consumer must have the ability to obtain a
printed copy of the authorization (either from the consumer's printer
or from the payee). There was concern that such a requirement could
inhibit the development of home banking products. Other commenters
found the requirement placed unrealistic burdens on the institution to
determine whether the consumer possessed a printer and whether it was
used to print out a copy. Several commenters urged the Board to make
this requirement an option available to the consumer.
Based on comment and upon further analysis, the comment has been
revised. If an authorization is initiated electronically, a copy must
be made available to the consumer. The text of an electronic
authorization would have to be displayed on a computer screen or other
visual display. A consumer is entitled to a hard copy upon request.
The Board solicited comment on two issues that have not been
discussed previously in the commentary--telephone-initiated transfers
and the appropriate means for obtaining a consumer's authorization for
preauthorized transfers.
Regarding the first issue, the Board has received inquiries about
one-time transfers usually initiated by telephone when the consumer
provides an account number to the caller and authorizes a draft or an
ACH debit to be submitted against the consumer's account. Such
transfers are EFTs where the consumer's account is debited through the
ACH.
The one-time transfers are not ``preauthorized transfers,''
however, and the rules regarding written authorization by the consumer
thus are not applicable. The Board solicited comment on whether this
type of transfer warranted written authorization. A few commenters
believed that telephone-initiated transfers posed sufficient risk to
mandate written authorization. Most commenters believed that for such
nonrecurring transfers, NACHA rules and the UCC provided the consumers
with sufficient protections. At this time, the Board has maintained the
current position that written authorizations are not required for non-
recurring transfers.
The second issue concerns the appropriate means for obtaining a
consumer's authorization for preauthorized transfers. A few commenters
discouraged regulation of the format of authorizations. The majority of
commenters acknowledged that the Board could not compile a
comprehensive list of authorization methods and suggested that an
outline of the general requirements, like those under the NACHA rules,
would be helpful.
The Board is adding a new comment 10(b)-6, which generally
incorporates the requirements of an authorization under NACHA rules. An
authorization is valid if it is readily identifiable as such and the
terms of the preauthorized transfer are clear and readily
understandable.
The Board was asked whether sending the consumer a check that
incorporates in the endorsement an authorization for the financial
institution to automatically debit the consumer's account on a monthly
basis is a legitimate method for obtaining the consumer's
authorization. The Board believes that if the authorization meets the
requirements under comment 10(b)-6, an endorsement on a check could
satisfy the written authorization requirement of Sec. 10(b).
10(d) Notice of Transfers Varying in Amount
Paragraph 10(d)(2)--Range
Proposed comment 10(d)(2)-1 provided guidance on what is an
acceptable range for purposes of this section, stating that an
acceptable range is one that could plausibly be anticipated by the
consumer. For example, if the consumer's monthly payment is
approximately $50, providing a range between zero and $10,000 is not
acceptable.
The majority of commenters suggested that the range should not be
so broad as to create uncertainty for consumers about their ability to
maintain sufficient balances to avoid overdrafts.
The Board believes that comment (d)(2)-1 does not increase the
compliance burden given that it is an option. The language ``or
designated payee'' has been added after ``financial institutions'' in
the first sentence since this option is also available to a designated
payee. The Board believes that the example of an acceptable range in
the comment provides adequate guidance, and is not adding other
examples at this time.
10(e) Compulsory Use
Paragraph 10(e)(1)--Credit
The revised regulation incorporates the statutory restrictions
against compulsory use of EFTs (as a condition of credit, employment,
or receipt of government benefits) into Sec. 205.10(e).
Comment 10(e)(1)-2 would allow an institution to use the exception
in Sec. 205.10(e)(1) even if the overdraft extension is charged to an
open-end account that may be accessed by the consumer in ways other
than by overdrafts. For example, in addition to overdraft protection, a
consumer may be able to obtain cash advances directly from the credit
line without going through a checking account. The Board believes that
it is not practicable for an institution to distinguish between
extensions of credit triggered under such plans because of the
overdraft mechanism and those advanced to the consumer by some other
means.
Several consumers requested clarification on whether the
prohibition in comment 10(e)(2)-1 preempted state
[[Page 19685]]
laws. A reference to Sec. 205.12, which discusses preemption of state
laws and the standards for preemption, has been added.
Section 205.11--Procedures for Resolving Errors
Section 205.11 sets forth the regulation's procedures for error
resolution. The revised regulation reformats the section to facilitate
compliance and the commentary provisions have been revised accordingly.
Several new comments incorporate provisions that have been removed from
the regulation.
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q9-26
(a)-2..................................... Q9-26
(a)-3..................................... Q11-2
(a)-4..................................... Q11-3
(a)-5..................................... Q11-4
(b)(1)-1.................................. Q11-8, new (example added)
(b)(1)-2.................................. new
(b)(1)-3.................................. Q11-5
(b)(1)-4.................................. Q11-6
(b)(1)-5.................................. Q11-7
(b)(1)-6.................................. new (footnote 10 to former
Sec. 205.11(b)(1)(i))
(b)(2)-1.................................. Q11-9
(c)-1..................................... new
(c)-2..................................... Q11-10
(c)-3..................................... new (revised Q11-31)
(c)-4..................................... new (former Sec.
205.11(d)(3))
(c)-5..................................... Q11-20, new (footnote 12 to
former Sec. 205.11(e)(2))
(c)-6..................................... Q11-19, new (former Sec.
205.11(e)(1))
(c)-7..................................... new former Sec.
205.11(d)(1)
(c)(2)(i)-1............................... new (former Sec.
205.11(c)(3))
(c)(3)-1.................................. Q11-11.5
(c)(4)-1.................................. Q11-13
(c)(4)-2.................................. Q11-14
(c)(4)-3.................................. Q11-16
(c)(4)-4.................................. new (footnote 11 to former
Sec. 205.11(d)(1))
(d)-1..................................... Q11-17
(d)(1)-1.................................. Q11-25
(d)(2)-1.................................. Q11-23
(d)(2)-1.................................. Q11-24
(e)-1..................................... Q11-30
------------------------------------------------------------------------
Comments deleted
Q11-1: Transfers--initiated by institution
Q11-11: Deadlines for investigation of error
Q11-12: Request for documentation--facsimile or photocopy
Q11-15: Scope of investigation--preauthorized credits
Q11-18: Crediting of interest
Q11-21: Written explanation--timing
Q11-22: Debiting of recredited funds--items to be honored
Q11-26: Documents relied on--privacy issue
Q11-27: Documents relied on--no information on relevant tapes
Q11-28: Withdrawal of error notice
Q11-29: Withdrawal of error notice
Comments moved
Q11-32, Q11-33 (see commentary to Sec. 205.12)
11(b) Notice of Error From Consumer
Paragraph 11(b)(1)--Timing; Contents
Section 205.11 requires institutions to investigate and make a
final determination as to a consumer's allegation of an error within
either 10 business days or 45 calendar days. Financial institutions
have asked whether they can delay initiating or completing an
investigation pending receipt of an affidavit related to the alleged
error. Comment (b)(1)-2 prohibits institutions from delaying their
investigation until a consumer has produced a written, signed statement
relating to an error. The Board believes that permitting delay would
allow institutions to circumvent the investigation procedures currently
mandated by the act and regulation. The language of the comment has
been revised to more closely parallel Regulation Z, substituting
``written, signed statement'' for ``affidavit.''
Footnote 10 to former Sec. 205.11(b)(1)(i), which permits a
financial institution to prescribe procedures for giving notice of an
error, has been deleted from the regulation and the substance moved to
comment (b)(1)-6.
Paragraph 11(b)(2)--Written Confirmation
Comment 11(b)(2)-1 incorporates Q11-9 and further provides that
institutions operating under the 45-calendar-day rule need not
provisionally credit the consumer's account when the written
confirmation is delayed beyond 10 business days because it was sent to
the wrong address.
11(c) Time Limits and Extent of Investigation
Q11-31 articulated the Board's concern that charging consumers for
the financial institution's compliance with the regulation's error
resolution procedures might have a chilling effect on the good-faith
assertion of errors. Proposed comment (c)-3, based on Q11-31,
explicitly prohibited institutions from charging consumers for error
resolution. The Board solicited comment on the impact of such a
prohibition on institutions and consumers. Based on comment and further
analysis, the comment has been revised; it parallels a similar
provision in the commentary to Regulation Z.
Former Sec. 205.11(d)(3) provided that a financial institution may
correct an error in the amount or manner alleged by the consumer
without complying with the investigation requirements of this section
if it complies with all other requirements of Sec. 205.11. The
provision has been deleted from the regulation and moved to comment
(c)-4.
Footnote 12 to former Sec. 205.11(e)(2) allowed financial
institutions to provide the notice of correction on the periodic
statement that is mailed or delivered within the time limits specified
in the section. The footnote has been deleted from the regulation and
moved to comment (c)-5.
Former Sec. 205.11(e)(1) provided that in correcting an error, a
financial institution must, where applicable, credit interest and
refund any fees or charges imposed. This language has been deleted from
the regulation and combined with the substance of Q11-19 in comment
(c)-6. The comment also clarifies that the requirement only applies to
fees imposed by the institution and not to those imposed by third
parties.
Paragraph 11(c)(2)(i)
Former Sec. 205.11(c)(3) provided examples of when a financial
institution must comply with all requirements of Sec. 205.11 except the
provisional crediting requirements. While the examples have been
retained in the final regulation, the language requiring compliance
with other requirements of the section has been deleted and moved to
comment (c)(2)(i)-1.
Paragraph 11(c)(4)--Investigation
Footnote 11 to former Sec. 205.11(d)(1) provided examples of what
does and does not constitute an agreement for purposes of this section.
The explanatory language has been deleted from the regulation and moved
to comment (c)(4)-4.
Section 205.12--Relation to Other Laws
The revised regulation consolidates the references to a number of
provisions dealing with the relationship of Regulation E and the Truth
in Lending Act and Regulation Z formerly in Secs. 205.5, 205.6, and
205.11, in Sec. 205.12. The section also contains the rules the Board
applies in determining the preemption of inconsistent state laws or in
granting a state exemption. The commentary provisions for these rules
and references are similarly consolidated in this section.
[[Page 19686]]
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
(a)-1..................................... Q6-9, Q6-10, Q6-11, Q11-32,
Q11-33
(a)-2..................................... Q5-9, Q5-10
(b)-1..................................... Q12-1, new
(b)-2..................................... new
------------------------------------------------------------------------
12(b) Preemption of Inconsistent State Laws
Comment 12(b)-1 incorporates Q12-1, which provides that state law
may be preempted even if the Board has not issued a determination. The
comment also notes that financial institutions are not protected from
liability for failing to comply with state law in the absence of a
preemption determination by the Board.
Comment 12(b)-2 incorporates into the commentary an official staff
interpretation preempting certain provisions of Michigan's EFT statute.
Future preemption determinations will also be included in the
commentary.
Section 205.13--Administrative Enforcement; Record Retention
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
13(b)-1................................... Q13-2
------------------------------------------------------------------------
Comments moved
Q13-1 (see commentary to appendix A)
Proposed comment 13(b)-1 has been revised, based on public comment,
to indicate that records of disclosures and documentation given to
individual consumers need not be retained.
Section 205.14--Electronic Fund Transfer Service Provider Not Holding
Consumer's Account
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
14(a)-1................................... Q14-1, Q14-2
14(a)-2................................... Q14-3
14(b)-1................................... new (formerly Sec.
205.14(a)(1)
14(b)(1)-1................................ Q14-4
14(b)(2)-1................................ Q14-6
14(c)(1)-1................................ Q14-7
------------------------------------------------------------------------
Comment deleted
Q14-5: Periodic statement--issuance of card
14(a) Provider of Electronic Fund Transfer Service
Proposed comments 14(a)-1 and 14(a)-2 have been revised to make
clear that transactions cleared and settled through the ACH are not
excluded from coverage by this section on the basis of an ``agreement''
between the two institutions involved.
14(b) Compliance by Service Provider
Former Sec. 205.14(a)(1) provided that the service-providing
institution must reimburse the consumer for unauthorized EFTs in excess
of the limits set by Sec. 205.6. This provision has been deleted from
the regulation and moved to comment 14(b)-1.
Appendix A--Model Disclosure Clauses and Forms
------------------------------------------------------------------------
New Old
------------------------------------------------------------------------
App. A-1.................................. Q13-1
App. A-2.................................. new (former introductory
language in Appendix A)
App. A-3.................................. new (former introductory
language in Appendix A)
------------------------------------------------------------------------
List of Subjects in 12 CFR Part 205
Consumer protection, Electronic fund transfers, Federal Reserve
System, Reporting and recordkeeping requirements.
Text of Revisions
For the reasons set forth in the preamble, the Board amends 12 CFR
part 205, as follows:
PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)
1. The authority citation for part 205 continues to read as
follows:
Authority: 15 U.S.C. 1693.
2. In part 205, Supplement I is revised to read as follows:
SUPPLEMENT I TO PART 205--OFFICIAL STAFF INTERPRETATIONS
Section 205.2--Definitions.
2(a) Access Device
1. Examples. The term access device includes debit cards,
personal identification numbers (PINs), telephone transfer and
telephone bill payment codes, and other means that may be used by a
consumer to initiate an electronic fund transfer (EFT) to or from a
consumer account. The term does not include magnetic tape or other
devices used internally by a financial institution to initiate
electronic transfers.
2(b) Account
1. Consumer asset account. The term consumer asset account
includes:
i. Club accounts, such as vacation clubs. In many cases,
however, these accounts are exempt from the regulation under
Sec. 205.3(c)(5) because all electronic transfers to or from the
account have been preauthorized by the consumer and involve another
account of the consumer at the same institution.
ii. A retail repurchase agreement (repo), which is a loan made
to a financial institution by a consumer that is collateralized by
government or government-insured securities.
2. Examples of accounts not covered by Regulation E (12 CFR part
205) include:
i. Profit-sharing and pension accounts established under a trust
agreement, which are exempt under Sec. 205.2(b)(2).
ii. Escrow accounts, such as those established to ensure payment
of items such as real estate taxes, insurance premiums, or
completion of repairs or improvements.
iii. Accounts for accumulating funds to purchase U.S. savings
bonds.
Paragraph 2(b)(2)
1. Bona fide trust agreements. The term bona fide trust
agreement is not defined by the act or regulation; therefore,
financial institutions must look to state or other applicable law
for interpretation.
2. Custodial agreements. An account held under a custodial
agreement that qualifies as a trust under the Internal Revenue Code,
such as an individual retirement account, is considered to be held
under a trust agreement for purposes of Regulation E.
2(d) Business Day
1. Duration. A business day includes the entire 24-hour period
ending at midnight, and a notice required by the regulation is
effective even if given outside normal business hours. The
regulation does not require, however, that a financial institution
make telephone lines available on a 24-hour basis.
2. Substantially all business functions. ``Substantially all
business functions'' include both the public and the back-office
operations of the institution. For example, if the offices of an
institution are open on Saturdays for handling some consumer
transactions (such as deposits, withdrawals, and other teller
transactions), but not for performing internal functions (such as
investigating account errors), then Saturday is not a business day
for that institution. In this case, Saturday does not count toward
the business-day standard set by the regulation for reporting lost
or stolen access devices, resolving errors, etc.
3. Short hours. A financial institution may determine, at its
election, whether an abbreviated day is a business day. For example,
if an institution engages in substantially all business functions
until noon on Saturdays instead of its usual 3:00 p.m. closing, it
may consider Saturday a business day.
4. Telephone line. If a financial institution makes a telephone
line available on Sundays for reporting the loss or theft of an
access device, but performs no other business functions, Sunday is
not a business day under the ``substantially all business
functions'' standard.
2(h) Electronic Terminal
1. Point-of-sale (POS) payments initiated by telephone. Because
the term electronic terminal excludes a telephone operated by a
consumer, a financial institution need not provide a terminal
receipt when:
i. A consumer uses a debit card at a public telephone to pay for
the call.
ii. A consumer initiates a transfer by a means analogous in
function to a telephone,
[[Page 19687]]
such as by home banking equipment or a facsimile machine.
2. POS terminals. A POS terminal that captures data
electronically, for debiting or crediting to a consumer's asset
account, is an electronic terminal for purposes of Regulation E if a
debit card is used to initiate the transaction.
3. Teller-operated terminals. A terminal or other computer
equipment operated by an employee of a financial institution is not
an electronic terminal for purposes of the regulation. However,
transfers initiated at such terminals by means of a consumer's
access device (using the consumer's PIN, for example) are EFTs and
are subject to other requirements of the regulation. If an access
device is used only for identification purposes or for determining
the account balance, the transfers are not EFTs for purposes of the
regulation.
2(m) Unauthorized Electronic Fund Transfer
1. Transfer by institution's employee. A consumer has no
liability for erroneous or fraudulent transfers initiated by an
employee of a financial institution.
2. Authority. If a consumer furnishes an access device and
grants authority to make transfers to a person (such as a family
member or co-worker) who exceeds the authority given, the consumer
is fully liable for the transfers unless the consumer has notified
the financial institution that transfers by that person are no
longer authorized.
3. Access device obtained through robbery or fraud. An
unauthorized EFT includes a transfer initiated by a person who
obtained the access device from the consumer through fraud or
robbery.
4. Forced initiation. An EFT at an automated teller machine
(ATM) is an unauthorized transfer if the consumer has been induced
by force to initiate the transfer.
Section 205.3--Coverage
3(a) General
1. Accounts covered. The requirements of the regulation apply
only to an account for which an agreement for EFT services to or
from the account has been entered into between:
i. The consumer and the financial institution (including an
account for which an access device has been issued to the consumer,
for example);
ii. The consumer and a third party (for preauthorized debits or
credits, for example), when the account-holding institution has
received notice of the agreement and the fund transfers have begun.
2. Automated clearing house (ACH) membership. The fact that
membership in an ACH requires a financial institution to accept EFTs
to accounts at the institution does not make every account of that
institution subject to the regulation.
3. Foreign applicability. Regulation E applies to all persons
(including branches and other offices of foreign banks located in
the United States) that offer EFT services to residents of any
state, including resident aliens. It covers any account located in
the United States through which EFTs are offered to a resident of a
state. This is the case whether or not a particular transfer takes
place in the United States and whether or not the financial
institution is chartered in the United States or a foreign country.
The regulation does not apply to a foreign branch of a U.S. bank
unless the EFT services are offered in connection with an account in
a state as defined in Sec. 205.2(l).
3(b) Electronic Fund Transfer
1. Fund transfers covered. The term electronic fund transfer
includes:
i. A deposit made at an ATM or other electronic terminal
(including a deposit in cash or by check) provided a specific
agreement exists between the financial institution and the consumer
for EFTs to or from the account to which the deposit is made.
ii. A transfer sent via ACH. For example, social security
benefits under the U.S. Treasury's direct-deposit program are
covered, even if the listing of payees and payment amounts reaches
the account-holding institution by means of a computer printout from
a correspondent bank.
iii. A preauthorized transfer credited or debited to an account
in accordance with instructions contained on magnetic tape, even if
the financial institution holding the account sends or receives a
composite check.
iv. A transfer from the consumer's account resulting from a
debit-card transaction at a merchant location, even if no electronic
terminal is involved at the time of the transaction, if the
consumer's asset account is subsequently debited for the amount of
the transfer.
2. Fund transfers not covered. The term electronic fund transfer
does not include:
i. A payment that does not debit or credit a consumer asset
account, such as a payroll allotment to a creditor to repay a credit
extension (which is deducted from salary).
ii. A payment made in currency by a consumer to another person
at an electronic terminal.
iii. A preauthorized check drawn by the financial institution on
the consumer's account (such as an interest or other recurring
payment to the consumer or another party), even if the check is
computer-generated.
3(c) Exclusions From Coverage
Paragraph 3(c)(2)--Check Guarantee or Authorization
1. Memo posting. Under a check guarantee or check authorization
service, debiting of the consumer's account occurs when the check or
draft is presented for payment. These services are exempt from
coverage, even when a temporary hold on the account is memo-posted
electronically at the time of authorization.
Paragraph 3(c)(3)--Wire or Other Similar Transfers
1. Fedwire and ACH. If a financial institution makes a fund
transfer to a consumer's account after receiving funds through
Fedwire or a similar network, the transfer by ACH is covered by the
regulation even though the Fedwire or network transfer is exempt.
2. Article 4A. Financial institutions that offer telephone-
initiated Fedwire payments are subject to the requirements of UCC
section 4A-202, which encourages verification of Fedwire payment
orders pursuant to a security procedure established by agreement
between the consumer and the receiving bank. These transfers are not
subject to Regulation E and the agreement is not considered a
telephone plan if the service is offered separately from a telephone
bill-payment or other prearranged plan subject to Regulation E. The
Board's Regulation J (12 CFR part 210) specifies the rules
applicable to funds handled by Federal Reserve Banks. To ensure that
the rules for all fund transfers through Fedwire are consistent, the
Board used its preemptive authority under UCC section 4A-107 to
determine that subpart B of Regulation J (12 CFR part 210),
including the provisions of Article 4A, applies to all fund
transfers through Fedwire, even if a portion of the fund transfer is
governed by the EFTA. The portion of the fund transfer that is
governed by the EFTA is not governed by subpart B of Regulation J
(12 CFR part 210).
3. Similar fund transfer systems. Fund transfer systems that are
similar to Fedwire include the Clearing House Interbank Payments
System (CHIPS), Society for Worldwide Interbank Financial
Telecommunication (SWIFT), Telex, and transfers made on the books of
correspondent banks.
Paragraph 3(c)(4)--Securities and Commodities Transfers
1. Coverage. The securities exemption applies to securities and
commodities that may be sold by a registered broker-dealer or
futures commission merchant, even when the security or commodity
itself is not regulated by the Securities and Exchange Commission or
the Commodity Futures Trading Commission.
2. Example of exempt transfer. The exemption applies to a
transfer involving a transfer initiated by a telephone order to a
stockbroker to buy or sell securities or to exercise a margin call.
3. Examples of nonexempt transfers. The exemption does not apply
to a transfer involving:
i. A debit card or other access device that accesses a
securities or commodities account such as a money market mutual fund
and that the consumer uses for purchasing goods or services or for
obtaining cash.
ii. A payment of interest or dividends into the consumer's
account (for example, from a brokerage firm or from a Federal
Reserve Bank for government securities).
Paragraph 3(c)(5)--Automatic Transfers by Account-Holding Institution
1. Automatic transfers exempted. The exemption applies to:
i. Electronic debits or credits to consumer accounts for check
charges, stop-payment charges, NSF charges, overdraft charges,
provisional credits, error adjustments, and similar items that are
initiated automatically on the occurrence of certain events.
ii. Debits to consumer accounts for group insurance available
only through the financial institution and payable only by means of
an aggregate payment from the institution to the insurer.
[[Page 19688]]
iii. EFTs between a thrift institution and its paired commercial
bank in the state of Rhode Island, which are deemed under state law
to be intra-institutional.
iv. Automatic transfers between a consumer's accounts within the
same financial institution, even if the account holders on the two
accounts are not identical.
2. Automatic transfers not exempted. Transfers between accounts
of the consumer at affiliated institutions (such as between a bank
and its subsidiary or within a holding company) are not intra-
institutional transfers, and thus do not qualify for the exemption.
Paragraph 3(c)(6)--Telephone-Initiated Transfers
1. Written plan or agreement. A transfer that the consumer
initiates by telephone is covered only if the transfer is made under
a written plan or agreement between the consumer and the financial
institution making the transfer. The following do not, by
themselves, constitute a written plan or agreement:
i. A hold-harmless agreement on a signature card that protects
the institution if the consumer requests a transfer.
ii. A legend on a signature card, periodic statement, or
passbook that limits the number of telephone-initiated transfers the
consumer can make from a savings account because of reserve
requirements under Regulation D (12 CFR part 204).
iii. An agreement permitting the consumer to approve by
telephone the rollover of funds at the maturity of an instrument.
2. Examples of covered transfers. When a written plan or
agreement has been entered into, a transfer initiated by a telephone
call from a consumer is covered even though:
i. An employee of the financial institution completes the
transfer manually (for example, by means of a debit memo or deposit
slip).
ii. The consumer is required to make a separate request for each
transfer.
iii. The consumer uses the plan infrequently.
iv. The consumer initiates the transfer via a facsimile machine.
Paragraph 3(c)(7)--Small Institutions
1. Coverage. This exemption is limited to preauthorized
transfers; institutions that offer other EFTs must comply with the
applicable sections of the regulation as to such services. The
preauthorized transfers remain subject to sections 913, 915, and 916
of the act and Sec. 205.10(e), and are therefore exempt from UCC
Article 4A.
Section 205.4--General Disclosure Requirements; Jointly Offered
Services
4(a) Form of Disclosures
1. General. Although no particular rules govern type size,
number of pages, or the relative conspicuousness of various terms,
the disclosures must be in a clear and readily understandable
written form that the consumer may retain. Numbers or codes are
considered readily understandable if explained elsewhere on the
disclosure form.
2. Foreign language disclosures. Disclosures may be made in
languages other than English, provided they are available in English
upon request.
Section 205.5--Issuance of Access Devices
1. Coverage. The provisions of this section limit the
circumstances under which a financial institution may issue an
access device to a consumer. Making an additional account accessible
through an existing access device is equivalent to issuing an access
device and is subject to the limitations of this section.
5(a) Solicited Issuance
Paragraph 5(a)(1)
1. Joint account. For a joint account, a financial institution
may issue an access device to each account holder if the requesting
holder specifically authorizes the issuance.
2. Permissible forms of request. The request for an access
device may be written or oral (for example, in response to a
telephone solicitation by a card issuer).
Paragraph 5(a)(2)
1. One-for-one rule. In issuing a renewal or substitute access
device, a financial institution may not provide additional devices.
For example, only one new card and PIN may replace a card and PIN
previously issued. If the replacement device permits either
additional or fewer types of electronic fund transfer services, a
change-in-terms notice or new disclosures are required.
2. Renewal or substitution by a successor institution. A
successor institution is an entity that replaces the original
financial institution (for example, following a corporate merger or
acquisition) or that acquires accounts or assumes the operation of
an EFT system.
5(b) Unsolicited Issuance
1. Compliance. A financial institution may issue an unsolicited
access device (such as the combination of a debit card and PIN) if
the institution's ATM system has been programmed not to accept the
access device until after the consumer requests and the institution
validates the device. Merely instructing a consumer not to use an
unsolicited debit card and PIN until after the institution verifies
the consumer's identity does not comply with the regulation.
2. PINS. A financial institution may impose no liability on a
consumer for unauthorized transfers involving an unsolicited access
device until the device becomes an ``accepted access device'' under
the regulation. A card and PIN combination may be treated as an
accepted access device once the consumer has used it to make a
transfer.
3. Functions of PIN. If an institution issues a PIN at the
consumer's request, the issuance may constitute both a way of
validating the debit card and the means to identify the consumer
(required as a condition of imposing liability for unauthorized
transfers).
4. Verification of identity. To verify the consumer's identity,
a financial institution may use any reasonable means, such as a
photograph, fingerprint, personal visit, signature comparison, or
personal information about the consumer. However, even if reasonable
means were used, if an institution fails to verify correctly the
consumer's identity and an imposter succeeds in having the device
validated, the consumer is not liable for any unauthorized transfers
from the account.
Section 205.6--Liability of Consumer for Unauthorized Transfers
6(a) Conditions for Liability
1. Means of identification. A financial institution may use
various means for identifying the consumer to whom the access device
is issued, including but not limited to:
i. Electronic or mechanical confirmation (such as a PIN).
ii. Comparison of the consumer's signature, fingerprint, or
photograph.
2. Multiple users. When more than one access device is issued
for an account, the financial institution may, but need not, provide
a separate means to identify each user of the account.
6(b) Limitations on Amount of Liability
1. Application of liability provisions. There are three possible
tiers of consumer liability for unauthorized EFTs depending on the
situation. A consumer may be liable for (1) up to $50; (2) up to
$500; or (3) an unlimited amount depending on when the unauthorized
EFT occurs. More than one tier may apply to a given situation
because each corresponds to a different (sometimes overlapping) time
period or set of conditions.
2. Consumer negligence. Negligence by the consumer cannot be
used as the basis for imposing greater liability than is permissible
under Regulation E. Thus, consumer behavior that may constitute
negligence under state law, such as writing the PIN on a debit card
or on a piece of paper kept with the card, does not affect the
consumer's liability for unauthorized transfers. (However, refer to
comment 2(m)-2 regarding termination of the authority of given by
the consumer to another person.)
3. Limits on liability. The extent of the consumer's liability
is determined solely by the consumer's promptness in reporting the
loss or theft of an access device. Similarly, no agreement between
the consumer and an institution may impose greater liability on the
consumer for an unauthorized transfer than the limits provided in
Regulation E.
Paragraph 6(b)(1)--Timely Notice Given
1. $50 limit applies. The basic liability limit is $50. For
example, the consumer's card is lost or stolen on Monday and the
consumer learns of the loss or theft on Wednesday. If the consumer
notifies the financial institution within two business days of
learning of the loss or theft (by midnight Friday), the consumer's
liability is limited to $50 or the amount of the unauthorized
transfers that occurred before notification, whichever is less.
2. Knowledge of loss or theft of access device. The fact that a
consumer has received a periodic statement that reflects
unauthorized transfers may be a factor in determining whether the
consumer had knowledge of the loss or theft, but cannot be deemed to
represent conclusive evidence that the consumer had such knowledge.
Paragraph 6(b)(2)--Timely Notice Not Given
1. $500 limit applies. The second tier of liability is $500. For
example, the consumer's
[[Page 19689]]
card is stolen on Monday and the consumer learns of the theft that
same day. The consumer reports the theft on Friday. The $500 limit
applies because the consumer failed to notify the financial
institution within two business days of learning of the theft (which
would have been by midnight Wednesday). How much the consumer is
actually liable for, however, depends on when the unauthorized
transfers take place. In this example, assume a $100 unauthorized
transfer was made on Tuesday and a $600 unauthorized transfer on
Thursday. Because the consumer is liable for the amount of the loss
that occurs within the first two business days (but no more than
$50), plus the amount of the unauthorized transfers that occurs
after the first two business days and before the consumer gives
notice, the consumer's total liability is $500 ($50 of the $100
transfer plus $450 of the $600 transfer, in this example). But if
$600 was taken on Tuesday and $100 on Thursday, the consumer's
maximum liability would be $150 ($50 of the $600 plus $100).
Paragraph 6(b)(3)--Periodic Statement; Timely Notice Not Given
1. Unlimited liability applies. The standard of unlimited
liability applies if unauthorized transfers appear on a periodic
statement, and may apply in conjunction with the first two tiers of
liability. If a periodic statement shows an unauthorized transfer
made with a lost or stolen debit card, the consumer must notify the
financial institution within 60 calendar days after the periodic
statement was sent; otherwise, the consumer faces unlimited
liability for all unauthorized transfers made after the 60-day
period. The consumer's liability for unauthorized transfers before
the statement is sent, and up to 60 days following, is determined
based on the first two tiers of liability: up to $50 if the consumer
notifies the financial institution within two business days of
learning of the loss or theft of the card and up to $500 if the
consumer notifies the institution after two business days of
learning of the loss or theft.
2. Transfers not involving access device. The first two tiers of
liability do not apply to unauthorized transfers from a consumer's
account made without an access device. If, however, the consumer
fails to report such unauthorized transfers within 60 calendar days
of the financial institution's transmittal of the periodic
statement, the consumer may be liable for any transfers occurring
after the close of the 60 days and before notice is given to the
institution. For example, a consumer's account is electronically
debited for $200 without the consumer's authorization and by means
other than the consumer's access device. If the consumer notifies
the institution within 60 days of the transmittal of the periodic
statement that shows the unauthorized transfer, the consumer has no
liability. However, if in addition to the $200, the consumer's
account is debited for a $400 unauthorized transfer on the 61st day
and the consumer fails to notify the institution of the first
unauthorized transfer until the 62nd day, the consumer may be liable
for the full $400.
Paragraph 6(b)(4)--Extension of Time Limits
1. Extenuating circumstances. Examples of circumstances that
require extension of the notification periods under this section
include the consumer's extended travel or hospitalization.
Paragraph 6(b)(5)--Notice to Financial Institution
1. Receipt of notice. A financial institution is considered to
have received notice for purposes of limiting the consumer's
liability if notice is given in a reasonable manner, even if the
consumer notifies the institution but uses an address or telephone
number other than the one specified by the institution.
2. Notice by third party. Notice to a financial institution by a
person acting on the consumer's behalf is considered valid under
this section. For example, if a consumer is hospitalized and unable
to report the loss or theft of an access device, notice is
considered given when someone acting on the consumer's behalf
notifies the bank of the loss or theft. A financial institution may
require appropriate documentation from the person representing the
consumer to establish that the person is acting on the consumer's
behalf.
3. Content of notice. Notice to a financial institution is
considered given when a consumer takes reasonable steps to provide
the institution with the pertinent account information. Even when
the consumer is unable to provide the account number or the card
number in reporting a lost or stolen access device or an
unauthorized transfer, the notice effectively limits the consumer's
liability if the consumer otherwise identifies sufficiently the
account in question. For example, the consumer may identify the
account by the name on the account and the type of account in
question.
Section 205.7--Initial Disclosures
7(a) Timing of Disclosures
1. Early disclosures. Disclosures given by a financial
institution earlier than the regulation requires (for example, when
the consumer opens a checking account) need not be repeated when the
consumer later enters into an agreement with a third party who will
initiate preauthorized transfers to or from the consumer's account,
unless the terms and conditions differ from those that the
institution previously disclosed. On the other hand, if an agreement
is directly between the consumer and the account-holding
institution, disclosures must be given in close proximity to the
event requiring disclosure, for example, when the consumer contracts
for a new service.
2. Lack of prenotification of direct deposit. In some instances,
before direct deposit of government payments such as Social Security
takes place, the consumer and the financial institution both will
complete Form 1199A (or a comparable form providing notice to the
institution) and the institution can make disclosures at that time.
If an institution has not received advance notice that direct
deposits are to be made to a consumer's account, the institution
must provide the required disclosures as soon as reasonably possible
after the first direct deposit is made, unless the institution has
previously given disclosures.
3. Addition of new accounts. If a consumer opens a new account
permitting EFTs at a financial institution, and the consumer already
has received Regulation E disclosures for another account at that
institution, the institution need only disclose terms and conditions
that differ from those previously given.
4. Addition of EFT services. If an EFT service is added to a
consumer's account and is subject to terms and conditions different
from those described in the initial disclosures, disclosures for the
new service are required. The disclosures must be provided when the
consumer contracts for the new service or before the first EFT is
made using the new service.
5. Addition of service in interchange systems. If a financial
institution joins an interchange or shared network system (which
provides access to terminals operated by other institutions),
disclosures are required for additional EFT services not previously
available to consumers if the terms and conditions differ from those
previously disclosed.
6. Disclosures covering all EFT services offered. An institution
may provide disclosures covering all EFT services that it offers,
even if some consumers have not arranged to use all services.
7(b) Content of Disclosures
Paragraph 7(b)(1)--Liability of Consumer
1. No liability imposed by financial institution. If a financial
institution chooses to impose zero liability for unauthorized EFTs,
it need not provide the liability disclosures. If the institution
later decides to impose liability, however, it must first provide
the disclosures.
2. Preauthorized transfers. If the only EFTs from an account are
preauthorized transfers, liability could arise if the consumer fails
to report unauthorized transfers reflected on a periodic statement.
To impose such liability on the consumer, the institution must have
disclosed the potential liability and the telephone number and
address for reporting unauthorized transfers.
3. Additional information. At the institution's option, the
summary of the consumer's liability may include advice on promptly
reporting unauthorized transfers or the loss or theft of the access
device.
Paragraph 7(b)(2)--Telephone Number and Address
1. Disclosure of telephone numbers. An institution may use the
same or different telephone numbers in the disclosures for the
purpose of:
i. Reporting the loss or theft of an access device or possible
unauthorized transfers;
ii. Inquiring about the receipt of a preauthorized credit;
iii. Stopping payment of a preauthorized debit;
iv. Giving notice of an error.
2. Location of telephone number. The telephone number need not
be incorporated into the text of the disclosure; for example, the
institution may instead insert a reference to a telephone number
that is readily available to the consumer, such as ``Call your
branch office. The number is shown on your periodic statement.''
However, an institution must provide a specific telephone number
[[Page 19690]]
and address, on or with the disclosure statement, for reporting a
lost or stolen access device or a possible unauthorized transfer.
Paragraph 7(b)(4)--Types of Transfers; Limitations
1. Security limitations. Information about limitations on the
frequency and dollar amount of transfers generally must be disclosed
in detail, even if related to security aspects of the system. If the
confidentiality of certain details is essential to the security of
an account or system, these details may be withheld (but the fact
that limitations exist must still be disclosed). For example, an
institution limits cash ATM withdrawals to $100 per day. The
institution may disclose that daily withdrawal limitations apply and
need not disclose that the limitations may not always be in force
(such as during periods when its ATMs are off-line).
2. Restrictions on certain deposit accounts. A limitation on
account activity that restricts the consumer's ability to make EFTs
must be disclosed even if the restriction also applies to transfers
made by nonelectronic means. For example, Regulation D (12 CFR Part
204) restricts the number of payments to third parties that may be
made from a money market deposit account; an institution that does
not execute fund transfers in excess of those limits must disclose
the restriction as a limitation on the frequency of EFTs.
3. Preauthorized transfers. Financial institutions are not
required to list preauthorized transfers among the types of
transfers that a consumer can make.
Paragraph 7(b)(5)--Fees
1. Disclosure of EFT fees. An institution is required to
disclose all fees for EFTs or the right to make them. Others fees
(for example, minimum-balance fees, stop-payment fees, or account
overdrafts) may, but need not, be disclosed (but see Regulation DD,
12 CFR Part 230. An institution is not required to disclose fees for
inquiries made at an ATM since no transfer of funds is involved.
2. Fees also applicable to non-EFT. A per-item fee for EFTs must
be disclosed even if the same fee is imposed on nonelectronic
transfers. If a per-item fee is imposed only under certain
conditions, such as when the transactions in the cycle exceed a
certain number, those conditions must be disclosed. Itemization of
the various fees may be provided on the disclosure statement or on
an accompanying document that is referenced in the statement.
3. Interchange system fees. Fees paid by the account-holding
institution to the operator of a shared or interchange ATM system
need not be disclosed, unless they are imposed on the consumer by
the account-holding institution. Fees for use of an ATM that are
debited directly to the consumer's account by an institution other
than the account-holding institution (for example, fees included in
the transfer amount) need not be disclosed.
Paragraph 7(b)(9)--Confidentiality
1. Information provided to third parties. An institution must
describe the circumstances under which any information relating to
an account to or from which EFTs are permitted will be made
available to third parties, not just information concerning those
EFTs. The term ``third parties'' includes affiliates such as other
subsidiaries of the same holding company.
Paragraph 7(b)(10)--Error Resolution
1. Substantially similar. The error resolution notice must be
substantially similar to the model form in appendix A of part 205.
An institution may use different wording so long as the substance of
the notice remains the same, may delete inapplicable provisions (for
example, the requirement for written confirmation of an oral
notification), and may substitute substantive state law requirements
affording greater consumer protection than Regulation E.
2. Exception from provisional crediting. To take advantage of
the longer time periods for resolving errors under Sec. 205.11(c)(3)
(for transfers initiated outside the United States, or resulting
from POS debit-card transactions), a financial institution must have
disclosed these longer time periods. Similarly, an institution that
relies on the exception from provisional crediting in
Sec. 205.11(c)(2) for accounts subject to Regulation T (12 CFR part
220) must disclose accordingly.
Section 205.8--Change-in-Terms Notice; Error Resolution Notice
8(a) Change-in-Terms Notice
1. Form of notice. No specific form or wording is required for a
change-in-terms notice. The notice may appear on a periodic
statement, or may be given by sending a copy of a revised disclosure
statement, provided attention is directed to the change (for
example, in a cover letter referencing the changed term).
2. Changes not requiring notice. The following changes do not
require disclosure:
i. Closing some of an institution's ATMs;
ii. Cancellation of an access device.
3. Limitations on transfers. When the initial disclosures omit
details about limitations because secrecy is essential to the
security of the account or system, a subsequent increase in those
limitations need not be disclosed if secrecy is still essential. If,
however, an institution had no limits in place when the initial
disclosures were given and now wishes to impose limits for the first
time, it must disclose at least the fact that limits have been
adopted. (See also Sec. 205.7(b)(4) and the related commentary.)
4. Change in telephone number or address. When a financial
institution changes the telephone number or address used for
reporting possible unauthorized transfers, a change-in-terms notice
is required only if the institution will impose liability on the
consumer for unauthorized transfers under Sec. 205.6. (See also
Sec. 205.6(a) and the related commentary.)
8(b) Error Resolution Notice
1. Change between annual and periodic notice. If an institution
switches from an annual to a periodic notice, or vice versa, the
first notice under the new method must be sent no later than 12
months after the last notice sent under the old method.
Section 205.9--Receipts at Electronic Terminals; Periodic Statements
9(a) Receipts at Electronic Terminals
1. Receipts furnished only on request. The regulation requires
that a receipt be ``made available.'' A financial institution may
program its electronic terminals to provide a receipt only to
consumers who elect to receive one.
2. Third party providing receipt. An account-holding institution
may make terminal receipts available through third parties such as
merchants or other financial institutions.
3. Inclusion of promotional material. A financial institution
may include promotional material on receipts if the required
information is set forth clearly (for example, by separating it from
the promotional material). In addition, a consumer may not be
required to surrender the receipt or that portion containing the
required disclosures in order to take advantage of a promotion.
4. Transfer not completed. The receipt requirement does not
apply to a transfer that is initiated but not completed (for
example, if the ATM is out of currency or the consumer decides not
to complete the transfer).
5. Receipts not furnished due to inadvertent error. If a receipt
is not provided to the consumer because of a bona fide unintentional
error, such as when a terminal runs out of paper or the mechanism
jams, no violation results if the financial institution maintains
procedures reasonably adapted to avoid such occurrences.
6. Multiple transfers. If the consumer makes multiple transfers
at the same time, the financial institution may document them on a
single or on separate receipts.
Paragraph 9(a)(1)--Amount
1. Disclosure of transaction fee. The required display of a fee
amount on or at the terminal may be accomplished by displaying the
fee on a sign at the terminal or on the terminal screen for a
reasonable duration. Displaying the fee on a screen provides
adequate notice, as long as consumers are given the option to cancel
the transaction after receiving notice of a fee.
Paragraph 9(a)(2)--Date
1. Calendar date. The receipt must disclose the calendar date on
which the consumer uses the electronic terminal. An accounting or
business date may be disclosed in addition if the dates are clearly
distinguished.
Paragraph 9(a)(3)--Type
1. Identifying transfer and account. Examples identifying the
type of transfer and the type of the consumer's account include
``withdrawal from checking,'' ``transfer from savings to checking,''
or ``payment from savings.''
2. Exception. Identification of an account is not required when
the consumer can access only one asset account at a particular time
or terminal, even if the access device can normally be used to
access more than one account. For example, the consumer may be able
to access only one particular account at terminals not operated by
the account-
[[Page 19691]]
holding institution, or may be able to access only one particular
account when the terminal is off-line. The exception is available
even if, in addition to accessing one asset account, the consumer
also can access a credit line.
3. Access to multiple accounts. If the consumer can use an
access device to make transfers to or from different accounts of the
same type, the terminal receipt must specify which account was
accessed, such as ``withdrawal from checking I'' or ``withdrawal
from checking II.'' If only one account besides the primary checking
account can be debited, the receipt can identify the account as
``withdrawal from other account.''
4. Generic descriptions. Generic descriptions may be used for
accounts that are similar in function, such as share draft or NOW
accounts and checking accounts. In a shared system, for example,
when a credit union member initiates transfers to or from a share
draft account at a terminal owned or operated by a bank, the receipt
may identify a withdrawal from the account as a ``withdrawal from
checking.''
5. Point-of-sale transactions. There is no prescribed
terminology for identifying a transfer at a merchant's POS terminal.
A transfer may be identified, for example, as a purchase, a sale of
goods or services, or a payment to a third party. When a consumer
obtains cash from a POS terminal in addition to purchasing goods, or
obtains cash only, the documentation need not differentiate the
transaction from one involving the purchase of goods.
Paragraph 9(a)(5)--Terminal Location
1. Location code. A code or terminal number identifying the
terminal where the transfer is initiated may be given as part of a
transaction code.
2. Omission of city name. The city may be omitted if the
generally accepted name (such as a branch name) contains the city
name.
Paragraph 9(a)(5)(i)
1. Street address. The address should include number and street
(or intersection); the number (or intersecting street) may be
omitted if the street alone uniquely identifies the terminal
location.
Paragraph 9(a)(5)(ii)
1. Generally accepted name. Examples of a generally accepted
name for a specific location include a branch of the financial
institution, a shopping center, or an airport.
Paragraph 9(a)(5)(iii)
1. Name of owner or operator of terminal. Examples of an owner
or operator of a terminal are a financial institution or a retail
merchant.
Paragraph 9(a)(5)(iv)
1. Omission of a state. A state may be omitted from the location
information on the receipt if:
i. All the terminals owned or operated by the financial
institution providing the statement (or by the system in which it
participates) are located in that state, or
ii. All transfers occur at terminals located within 50 miles of
the financial institutions's main office.
2. Omission of a city and state. A city and state may be omitted
if all the terminals owned or operated by the financial institution
providing the statement (or by the system in which it participates)
are located in the same city.
Paragraph 9(a)(6)--Third Party Transfer
1. Omission of third-party name. The receipt need not disclose
the third-party name if the name is provided by the consumer in a
form that is not machine readable (for example, if the consumer
indicates the payee by depositing a payment stub into the ATM). If,
on the other hand, the consumer keys in the identity of the payee,
the receipt must identify the payee by name or by using a code that
is explained elsewhere on the receipt.
2. Receipt as proof of payment. Documentation required under the
regulation constitutes prima facie proof of a payment to another
person, except in the case of a terminal receipt documenting a
deposit.
9(b) Periodic Statements
1. Periodic cycles. Periodic statements may be sent on a cycle
that is shorter than monthly. The statements must correspond to
periodic cycles that are reasonably equal, that is, do not vary by
more than four days from the regular cycle. The requirement of
reasonably equal cycles does not apply when an institution changes
cycles for operational or other reasons, such as to establish a new
statement day or date.
2. Interim statements. Generally, a financial institution must
provide periodic statements for each monthly cycle in which an EFT
occurs, and at least quarterly if a transfer has not occurred. Where
EFTs occur between regularly-scheduled cycles, interim statements
must be provided. For example, if an institution issues quarterly
statements at the end of March, June, September and December, and
the consumer initiates an EFT in February, an interim statement for
February must be provided. If an interim statement contains interest
or rate information, the institution must comply with Regulation DD,
12 CFR 230.6.
3. Inactive accounts. A financial institution need not send
statements to consumers whose accounts are inactive as defined by
the institution.
4. Customer pickup. A financial institution may permit, but may
not require, consumers to call for their periodic statements.
5. Periodic statements limited to EFT activity. A financial
institution that uses a passbook as the primary means for displaying
account activity, but also allows the account to be debited
electronically, may provide a periodic statement requirement that
reflects only the EFTs and other required disclosures (such as
charges, account balances, and address and telephone number for
inquiries). (See Sec. 205.9(c)(1)(i) for the exception applicable to
preauthorized transfers for passbook accounts.)
6. Codes and accompanying documents. To meet the documentation
requirements for periodic statements, a financial institution may:
i. Include copies of terminal receipts to reflect transfers
initiated by the consumer at electronic terminals;
ii. Enclose posting memos, deposit slips, and other documents
that, together with the statement, disclose all the required
information;
iii. Use codes for names of third parties or terminal locations
and explain the information to which the codes relate on an
accompanying document.
Paragraph 9(b)(1)--Transaction Information
1. Information obtained from others. While financial
institutions must maintain reasonable procedures to ensure the
integrity of data obtained from another institution, a merchant, or
other third parties, verification of each transfer that appears on
the periodic statement is not required.
Paragraph 9(b)(1)(i)
1. Incorrect deposit amount. If a financial institution
determines that the amount actually deposited at an ATM is different
from the amount entered by the consumer, the institution need not
immediately notify the consumer of the discrepancy. The periodic
statement reflecting the deposit may show either the correct amount
of the deposit or the amount entered by the consumer along with the
institution's adjustment.
Paragraph 9(b)(1)(iii)
1. Type of transfer. There is no prescribed terminology for
describing a type of transfer. Placement of the amount of the
transfer in the debit or the credit column is sufficient if other
information on the statement, such as a terminal location or third-
party name, enables the consumer to identify the type of transfer.
Paragraph 9(b)(1)(iv)
1. Nonproprietary terminal in network. An institution need not
reflect on the periodic statement the street addresses,
identification codes, or terminal numbers for transfers initiated in
a shared or interchange system at a terminal operated by an
institution other than the account-holding institution. The
statement must, however, specify the entity that owns or operates
the terminal, plus the city and state.
Paragraph 9(b)(1)(v)
1. Recurring payments by government agency. The third-party name
for recurring payments from federal, state, or local governments
need not list the particular agency. For example, ``U.S. gov't'' or
``N.Y. sal'' will suffice.
2. Consumer as third-party payee. If a consumer makes an
electronic fund transfer to another consumer, the financial
institution must identify the recipient by name (not just by an
account number, for example).
3. Terminal location/third party. A single entry may be used to
identify both the terminal location and the name of the third party
to or from whom funds are transferred. For example, if a consumer
purchases goods from a merchant, the name of the party to whom funds
are transferred (the merchant) and the location of the terminal
where the transfer is initiated will be satisfied by a disclosure
such as ``XYZ Store, Anytown, Ohio.''
4. Account-holding institution as third party. Transfers to the
account-holding institution (by ATM, for example) must show
[[Page 19692]]
the institution as the recipient, unless other information on the
statement (such as, ``loan payment from checking'') clearly
indicates that the payment was to the account-holding institution.
5. Consistency in third-party identity. The periodic statement must
disclose a third-party name as it appeared on the receipt, whether it
was, for example, the ``dba'' (doing business as) name of the third
party or the parent corporation's name.
6. Third-party identity on deposits at electronic terminal. A
financial institution need not identify third parties whose names
appear on checks, drafts, or similar paper instruments deposited to
the consumer's account at an electronic terminal.
Paragraph 9(b)(3)--Fees
1. Disclosure of fees. The fees disclosed may include fees for
EFTs and for other nonelectronic services, and both fixed fees and
per-item fees; they may be given as a total or may be itemized in
part or in full.
2. Fees in interchange system. An account-holding institution
must disclose any fees it imposes on the consumer for EFTs,
including fees for ATM transactions in an interchange or shared ATM
system. Fees for use of an ATM imposed on the consumer by an
institution other than the account-holding institution and included
in the amount of the transfer by the terminal-operating institution
need not be separately disclosed on the periodic statement.
3. Finance charges. The requirement to disclose any fees
assessed against the account does not include a finance charge
imposed on the account during the statement period.
Paragraph 9(b)(4)--Account Balances
1. Opening and closing balances. The opening and closing
balances must reflect both EFTs and other account activity.
Paragraph 9(b)(5)--Address and Telephone Number for Inquiries
1. Telephone number. A single telephone number, preceded by the
``direct inquiries to'' language, will satisfy the requirements of
Sec. 205.9(b)(5) and (6).
Paragraph 9(b)(6)--Telephone Number for Preauthorized Transfers
1. Telephone number. See comment 9(b)(5)-1.
9(c) Exceptions to the Periodic Statement Requirements for Certain
Accounts
1. Transfers between accounts. The regulation provides an
exception from the periodic statement requirement for certain intra-
institutional transfers between a consumer's accounts. The financial
institution must still comply with the applicable periodic statement
requirements for any other EFTs to or from the account. For example,
a Regulation E statement must be provided quarterly for an account
that also receives payroll deposits electronically, or for any month
in which an account is also accessed by a withdrawal at an ATM.
9(d) Documentation for Foreign-Initiated Transfers
1. Foreign-initiated transfers. An institution must make a good
faith effort to provide all required information for foreign-
initiated transfers. For example, even if the institution is not
able to provide a specific terminal location, it should identify the
country and city in which the transfer was initiated.
Section 205.10--Preauthorized Transfers
10(a) Preauthorized Transfers to Consumer's Account
Paragraph 10(a)(1)--Notice by Financial Institution
1. Content. No specific language is required for notice
regarding receipt of a preauthorized transfer. Identifying the
deposit is sufficient; however, simply providing the current account
balance is not.
2. Notice of credit. A financial institution may use different
methods of notice for various types or series of preauthorized
transfers, and the institution need not offer consumers a choice of
notice methods.
3. Positive notice. A periodic statement sent within two
business days of the scheduled transfer, showing the transfer, can
serve as notice of receipt.
4. Negative notice. The absence of a deposit entry (on a
periodic statement sent within two business days of the scheduled
transfer date) will serve as negative notice.
5. Telephone notice. If a financial institution uses the
telephone notice option, it should be able in most instances to
verify during a consumer's initial call whether a transfer was
received. The institution must respond within two business days to
any inquiry not answered immediately.
6. Phone number for passbook accounts. The financial institution
may use any reasonable means necessary to provide the telephone
number to consumers with passbook accounts that can only be accessed
by preauthorized credits and that do not receive periodic
statements. For example, it may print the telephone number in the
passbook, or include the number with the annual error resolution
notice.
7. Telephone line availability. To satisfy the readily-available
standard, the financial institution must provide enough telephone
lines so that consumers get a reasonably prompt response. The
institution need only provide telephone service during normal
business hours. Within its primary service area, an institution must
provide a local or toll-free telephone number. It need not provide a
toll-free number or accept collect long-distance calls from outside
the area where it normally conducts business.
10(b) Written Authorization for Preauthorized Transfers From
Consumer's Account
1. Preexisting authorizations. The financial institution need
not require a new authorization before changing from paper-based to
electronic debiting when the existing authorization does not specify
that debiting is to occur electronically or specifies that the
debiting will occur by paper means. A new authorization also is not
required when a successor institution begins collecting payments.
2. Authorization obtained by third party. The account-holding
financial institution does not violate the regulation when a third-
party payee fails to obtain the authorization in writing or fails to
give a copy to the consumer; rather, it is the third-party payee
that is in violation of the regulation.
3. Written authorization for preauthorized transfers. The
requirement that preauthorized EFTs be authorized by the consumer
``only by a writing'' cannot be met by a payee's signing a written
authorization on the consumer's behalf with only an oral
authorization from the consumer. A tape recording of a telephone
conversation with a consumer who agrees to preauthorized debits also
does not constitute written authorization for purposes of this
provision.
4. Use of a confirmation form. A financial institution or
designated payee may comply with the requirements of this section in
various ways. For example, a payee may provide the consumer with two
copies of a preauthorization form, and ask the consumer to sign and
return one and to retain the second copy.
5. Similarly authenticated. An example of a consumer's
authorization that is not in the form of a signed writing but is
instead ``similarly authenticated'' is a consumer's authorization
via a home banking system. To satisfy the requirements of this
section, there must be some means to identify the consumer (such as
a security code) and to make available a paper copy of the
authorization (automatically or upon request). The text of the
electronic authorization would have to be displayed on a computer
screen or other visual display which enables the consumer to read
the communication. Only the consumer may authorize the transfer and
not, for example, a third-party merchant on behalf of the consumer.
6. Requirements of an authorization. An authorization is valid
if it is readily identifiable as such and the terms of the
preauthorized transfer are clear and readily understandable.
10(c) Consumer's Right To Stop Payment
1. Stop-payment order. The financial institution must honor an
oral stop-payment order made at least three business days before a
scheduled debit. If the debit item is resubmitted, the institution
must continue to honor the stop-payment order (for example, by
suspending all subsequent payments to the payee-originator until the
consumer notifies the institution that payments should resume).
2. Revocation of authorization. Once a financial institution has
been notified that the consumer's authorization is no longer valid,
it must block all future payments for the particular debit
transmitted by the designated payee-originator. The institution may
not wait for the payee-originator to terminate the automatic debits.
The institution may confirm that the consumer has informed the
payee-originator of the revocation (for example, by requiring a copy
of the consumer's revocation as written confirmation to be provided
within fourteen days of an oral notification). If the institution
does not receive the required written confirmation within the
fourteen-day period, it may honor subsequent debits to the account.
[[Page 19693]]
10(d) Notice of Transfers Varying in Amount
Paragraph 10(d)(1)--Notice
1. Preexisting authorizations. A financial institution holding
the consumer's account does not violate the regulation if the
designated payee fails to provide notice of varying amounts.
Paragraph 10(d)(2)--Range
1. Range. A financial institution or designated payee that
elects to offer the consumer a specified range of amounts for
debiting (in lieu of providing the notice of transfers varying in
amount) must provide an acceptable range that could be anticipated
by the consumer. For example, if the transfer is for payment of a
gas bill, an appropriate range might be based on the highest bill in
winter and the lowest bill in summer.
10(e) Compulsory Use
Paragraph 10(e)(1)--Credit
1. Loan payments. Creditors may not require repayment of loans
by electronic means on a preauthorized, recurring basis. A creditor
may offer a program with a reduced annual percentage rate or other
cost-related incentive for an automatic repayment feature, provided
the program with the automatic payment feature is not the only loan
program offered by the creditor for the type of credit involved.
Examples include:
i. Mortgages with graduated payments in which a pledged savings
account is automatically debited during an initial period to
supplement the monthly payments made by the borrower.
ii. Mortgage plans calling for preauthorized biweekly payments
that are debited electronically to the consumer's account and
produce a lower total finance charge.
2. Overdraft. A financial institution may require the automatic
repayment of an overdraft credit plan even if the overdraft
extension is charged to an open-end account that may be accessed by
the consumer in ways other than by overdrafts.
Paragraph 10(e)(2)--Employment or Government Benefit
1. Payroll. A financial institution (as an employer) may not
require its employees to receive their salary by direct deposit to
that same institution or to any other particular institution. An
employer may require direct deposit of salary by electronic means if
employees are allowed to choose the institution that will receive
the direct deposit. Alternatively, an employer may give employees
the choice of having their salary deposited at a particular
institution, or receiving their salary by check or cash.
Section 205.11--Procedures for Resolving Errors
11(a) Definition of Error
1. Terminal location. With regard to deposits at an ATM, a
consumer's request for the terminal location or other information
triggers the error resolution procedures, but the financial
institution need only provide the ATM location if it has captured
that information.
2. Verifying account deposit. If the consumer merely calls to
ascertain whether a deposit made via ATM, preauthorized transfer, or
any other type of EFT was credited to the account, without asserting
an error, the error resolution procedures do not apply.
3. Loss or theft of access device. A financial institution is
required to comply with the error resolution procedures when a
consumer reports the loss or theft of an access device if the
consumer also alleges possible unauthorized use as a consequence of
the loss or theft.
4. Error asserted after account closed. The financial
institution must comply with the error resolution procedures when a
consumer properly asserts an error, even if the account has been
closed.
5. Request for documentation or information. A request for
documentation or other information must be treated as an error
unless it is clear that the consumer is requesting a duplicate copy
for tax or other record-keeping purposes.
11(b) Notice of Error From Consumer
Paragraph 11(b)(1)--Timing; Contents
1. Content of error notice. The notice of error is effective
even if it does not contain the consumer's account number, so long
as the financial institution is able to identify the account in
question. For example, the consumer could provide a Social Security
number or other unique means of identification.
2. Investigation pending receipt of information. While a
financial institution may request a written, signed statement from
the consumer relating to a notice of error, it may not delay
initiating or completing an investigation pending receipt of the
statement.
3. Statement held for consumer. When a consumer has arranged for
periodic statements to be held until picked up, the statement for a
particular cycle is deemed to have been transmitted on the date the
financial institution first makes the statement available to the
consumer.
4. Failure to provide statement. When a financial institution
fails to provide the consumer with a periodic statement, a request
for a copy is governed by this section if the consumer gives notice
within 60 days from the date on which the statement should have been
transmitted.
5. Discovery of error by institution. The error resolution
procedures of this section apply when a notice of error is received
from the consumer, and not when the financial institution itself
discovers and corrects an error.
6. Notice at particular phone number or address. A financial
institution may require the consumer to give notice only at the
telephone number or address disclosed by the institution, provided
the institution maintains reasonable procedures to refer the
consumer to the specified telephone number or address if the
consumer attempts to give notice to the institution in a different
manner.
Paragraph 11(b)(2)--Written Confirmation
1. Written confirmation-of-error notice. If the consumer sends a
written confirmation of error to the wrong address, the financial
institution must process the confirmation through normal procedures.
But the institution need not provisionally credit the consumer's
account if the written confirmation is delayed beyond 10 business
days in getting to the right place because it was sent to the wrong
address.
11(c) Time Limits and Extent of Investigation
1. Notice to consumer. Unless otherwise indicated in this
section, the financial institution may provide the required notices
to the consumer either orally or in writing.
2. Written confirmation of oral notice. A financial institution
must begin its investigation promptly upon receipt of an oral
notice. It may not delay until it has received a written
confirmation.
3. Charges for error resolution. If a billing error occurred,
whether as alleged or in a different amount or manner, the financial
institution may not impose a charge related to any aspect of the
error-resolution process (including charges for documentation or
investigation). Since the act grants the consumer error-resolution
rights, the institution should avoid any chilling effect on the
good-faith assertion of errors that might result if charges are
assessed when no billing error has occurred.
4. Correction without investigation. A financial institution may
make, without investigation, a final correction to a consumer's
account in the amount or manner alleged by the consumer to be in
error, but must comply with all other applicable requirements of
Sec. 205.11.
5. Correction notice. A financial institution may include the
notice of correction on a periodic statement that is mailed or
delivered within the 10-business-day or 45-calendar-day time limits
and that clearly identifies the correction to the consumer's
account. The institution must determine whether such a mailing will
be prompt enough to satisfy the requirements of this section, taking
into account the specific facts involved.
6. Correction of an error. If the financial institution
determines an error occurred, within either the 10-day or 45-day
period, it must correct the error (subject to the liability
provisions of Secs. 205.6 (a) and (b)) including, where applicable,
the crediting of interest and the refunding of any fees imposed by
the institution. In a combined credit/EFT transaction, for example,
the institution must refund any finance charges incurred as a result
of the error. The institution need not refund fees that would have
been imposed whether or not the error occurred.
7. Extent of required investigation. A financial institution
complies with its duty to investigate, correct, and report its
determination regarding an error described in Sec. 205.11(a)(1)(vii)
by transmitting the requested information, clarification, or
documentation within the time limits set forth in Sec. 205.11(c). If
the institution has provisionally credited the consumer's account in
accordance with Sec. 205.11(c)(2), it may debit the amount upon
transmitting the requested information, clarification, or
documentation.
Paragraph 11(c)(2)(i)
1. Compliance with all requirements. Financial institutions
exempted from provisionally crediting a consumer's account
[[Page 19694]]
under Sec. 205.11(c)(2)(i) (A) and (B) must still comply with all
other requirements of Sec. 205.11.
Paragraph 11(c)(3)--Extension of Time Periods
1. POS debit card transactions. The extended deadlines for
investigating errors resulting from POS debit card transactions
apply to all debit card transactions, including those for cash only,
at merchants' POS terminals, and also including mail and telephone
orders. The deadlines do not apply to transactions at an ATM,
however, even though the ATM may be in a merchant location.
Paragraph 11(c)(4)--Investigation
1. Third parties. When information or documentation requested by
the consumer is in the possession of a third party with whom the
financial institution does not have an agreement, the institution
satisfies the error resolution requirement by so advising the
consumer within the specified time period.
2. Scope of investigation. When an alleged error involves a
payment to a third party under the financial institution's telephone
bill-payment plan, a review of the institution's own records is
sufficient, assuming no agreement exists between the institution and
the third party concerning the bill-payment service.
3. POS transfers. When a consumer alleges an error involving a
transfer to a merchant via a POS terminal, the institution must
verify the information previously transmitted when executing the
transfer. For example, the financial institution may request a copy
of the sales receipt to verify that the amount of the transfer
correctly corresponds to the amount of the consumer's purchase.
4. Agreement. An agreement that a third party will honor an
access device is an agreement for purposes of this paragraph. A
financial institution does not have an agreement for purposes of
Sec. 205.11(c)(4)(ii) solely because it participates in transactions
that occur under the federal recurring payments programs, or that
are cleared through an ACH or similar arrangement for the clearing
and settlement of fund transfers generally, or because it agrees to
be bound by the rules of such an arrangement.
11(d) Procedures if Financial Institution Determines No Error or
Different Error Occurred
1. Error different from that alleged. When a financial
institution determines that an error occurred in a manner or amount
different from that described by the consumer, it must comply with
the requirements of both Sec. 205.11 (c) and (d), as relevant. The
institution may give the notice of correction and the explanation
separately or in a combined form.
Paragraph 11(d)(1)--Written Explanation
1. Request for documentation. When a consumer requests copies of
documents, the financial institution must provide the copies in an
understandable form. If an institution relied on magnetic tape it
must convert the applicable data into readable form, for example, by
printing it and explaining any codes.
Paragraph 11(d)(2)--Debiting Provisional Credit
1. Alternative procedure for debiting of credited funds. The
financial institution may comply with the requirements of this
section by notifying the consumer that the consumer's account will
be debited five business days from the transmittal of the
notification, specifying the calendar date on which the debiting
will occur.
2. Fees for overdrafts. The financial institution may not impose
fees for items it is required to honor under Sec. 205.11. It may,
however, impose any normal transaction or item fee that is unrelated
to an overdraft resulting from the debiting. If the account is still
overdrawn after five business days, the institution may impose the
fees or finance charges to which it is entitled, if any, under an
overdraft credit plan.
11(e) Reassertion of Error
1. Withdrawal of error; right to reassert. The financial
institution has no further error resolution responsibilities if the
consumer voluntarily withdraws the notice alleging an error. A
consumer who has withdrawn an allegation of error has the right to
reassert the allegation unless the financial institution had already
complied with all of the error resolution requirements before the
allegation was withdrawn. The consumer must do so, however, within
the original 60-day period.
Section 205.12--Relation to Other Laws
12(a) Relation to Truth in Lending
1. Determining applicable regulation. For transactions involving
access devices that also constitute credit cards, whether Regulation
E or Regulation Z (12 CFR part 226) applies, depends on the nature
of the transaction. For example, if the transaction is purely an
extension of credit, and does not include a debit to a checking
account (or other consumer asset account), the liability limitations
and error resolution requirements of Regulation Z (12 CFR part 226)
apply. If the transaction only debits a checking account (with no
credit extended), the provisions of Regulation E apply. Finally, if
the transaction debits a checking account but also draws on an
overdraft line of credit, the Regulation E provisions apply, as well
as Secs. 226.13 (d) and (g) of Regulation Z. In such a transaction,
the consumer might be liable for up to $50 under Regulation Z (12
CFR part 226) and, in addition, for $50, $500, or an unlimited
amount under Regulation E.
2. Issuance rules. For access devices that also constitute
credit cards, the issuance rules of Regulation E apply if the only
credit feature is a preexisting credit line attached to the asset
account to cover overdrafts (or to maintain a specified minimum
balance). Regulation Z (12 CFR part 226) rules apply if there is
another type of credit feature, for example, one permitting direct
extensions of credit that do not involve the asset account.
12(b) Preemption of Inconsistent State Laws
1. Specific determinations. The regulation prescribes standards
for determining whether state laws that govern EFTs are preempted by
the act and the regulation. A state law that is inconsistent may be
preempted even if the Board has not issued a determination. However,
nothing in Sec. 205.12(b) provides a financial institution with
immunity for violations of state law if the institution chooses not
to make state disclosures and the Board later determines that the
state law is not preempted.
2. Preemption determination. The Board determined that certain
provisions in the state law of Michigan are preempted by the federal
law, effective March 30, 1981:
i. Definition of unauthorized use. Section 5(4) is preempted to
the extent that it relates to the section of state law governing
consumer liability for unauthorized use of an access device.
ii. Consumer liability for unauthorized use of an account.
Section 14 is inconsistent with Sec. 205.6 and is less protective of
the consumer than the federal law. The state law places liability on
the consumer for the unauthorized use of an account in cases
involving the consumer's negligence. Under the federal law, a
consumer's liability for unauthorized use is not related to the
consumer's negligence and depends instead on the consumer's
promptness in reporting the loss or theft of the access device.
iii. Error resolution. Section 15 is preempted because it is
inconsistent with Sec. 205.11 and is less protective of the consumer
than the federal law. The state law allows financial institutions up
to 70 days to resolve errors, whereas the federal law generally
requires errors to be resolved within 45 days.
iv. Receipts and periodic statements. Sections 17 and 18 are
preempted because they are inconsistent with Sec. 205.9. The state
provisions require a different disclosure of information than does
the federal law. The receipt provision is also preempted because it
allows the consumer to be charged for receiving a receipt if a
machine cannot furnish one at the time of a transfer.
Section 205.13--Administrative Enforcement; Record Retention
13(b) Record Retention
1. Requirements. A financial institution need not retain records
that it has given disclosures and documentation to each consumer; it
need only retain evidence demonstrating that its procedures
reasonably ensure the consumers' receipt of required disclosures and
documentation.
Section 205.14--Electronic Fund Transfer Service Provider Not Holding
Consumer's Account
14(a) Electronic Fund Transfer Service Providers Subject to
Regulation
1. Applicability. This section applies only when a service
provider issues an access device to a consumer for initiating
transfers to or from the consumer's account at a financial
institution and the two entities have no agreement regarding this
EFT service. If the service provider does not issue an access device
to the consumer for accessing an account held by another
institution, it does not qualify for the treatment accorded by
Sec. 205.14. For example, this section does not apply to an
institution that initiates preauthorized payroll deposits to
consumer accounts on behalf of an employer. By
[[Page 19695]]
contrast, Sec. 205.14 can apply to an institution that issues a code
for initiating telephone transfers to be carried out through the ACH
from a consumer's account at another institution. This is the case
even if the consumer has accounts at both institutions.
2. ACH agreements. The ACH rules generally do not constitute an
agreement for purposes of this section. However, an ACH agreement
under which members specifically agree to honor each other's debit
cards is an ``agreement,'' and thus this section does not apply.
14(b) Compliance by Electronic Fund Transfer Service Provider
1. Liability. The service provider is liable for unauthorized
EFTs that exceed limits on the consumer's liability under
Sec. 205.6.
Paragraph 14(b)(1)--Disclosures and Documentation
1. Periodic statements from electronic fund transfer service
provider. A service provider that meets the conditions set forth in
this paragraph does not have to issue periodic statements. A service
provider that does not meet the conditions need only include on
periodic statements information about transfers initiated with the
access device it has issued.
Paragraph 14(b)(2)--Error Resolution
1. Error resolution. When a consumer notifies the service
provider of an error, the EFT service provider must investigate and
resolve the error in compliance with Sec. 205.11 as modified by
Sec. 205.14(b)(2). If an error occurred, any fees or charges imposed
as a result of the error, either by the service provider or by the
account-holding institution (for example, overdraft or dishonor
fees) must be reimbursed to the consumer by the service provider.
14(c) Compliance by Account-Holding Institution
Paragraph 14(c)(1)
1. Periodic statements from account-holding institution. The
periodic statement provided by the account-holding institution need
only contain the information required by Sec. 205.9(b)(1).
Appendix A--Model Disclosure Clauses and Forms
1. Review of forms. The Board will not review or approve
disclosure forms or statements for financial institutions. However,
the Board has issued model clauses for institutions to use in
designing their disclosures. If an institution uses these clauses
accurately to reflect its service, the institution is protected from
liability for failure to make disclosures in proper form.
2. Use of the forms. The appendix contains model disclosure
clauses for optional use by financial institutions to facilitate
compliance with the disclosure requirements of Secs. 205.5(b)(2) and
(b)(3), 205.6(a), 205.7, 205.8(b), 205.14(b)(1)(ii) and 205.15(d)(7)
and (d)(2). The use of appropriate clauses in making disclosures
will protect a financial institution from liability under sections
915 and 916 of the act provided the clauses accurately reflect the
institution's EFT services.
3. Altering the clauses. Financial institutions may use clauses
of their own design in conjunction with the Board's model clauses.
The inapplicable words or portions of phrases in parentheses should
be deleted. The catchlines are not part of the clauses and need not
be used. Financial institutions may make alterations, substitutions,
or additions in the clauses to reflect the services offered, such as
technical changes (including the substitution of a trade name for
the word ``card,'' deletion of inapplicable services, or
substitution of lesser liability limits). Several of the model
clauses include references to a telephone number and address. Where
two or more of these clauses are used in a disclosure, the telephone
number and address may be referenced and need not be repeated.
Supplement II to Part 205 [Removed]
3. Supplement II to Part 205 is removed.
By order of the Board of Governors of the Federal Reserve
System, acting through the Secretary of the Board under delegated
authority, April 19, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-10180 Filed 5-1-96; 8:45 am]
BILLING CODE 6210-01-P