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FEDERAL R ESER V E BANK OF DALLAS Station K, Dallas, Texas 7 5 2 2 2 Ci r cu la r No. 84-124 December 26, 1984 TO: All member banks and others concerned in the Eleventh Federal Reserve D i s t r i c t ATTENTION: Chief Executive Of fi ce r SUBJECT: Official Staff Commentary Electronic Funds Transfer SUMMARY: The Board of Governors of the Federal Reserve System has requested comments on proposed changes to the o f f i c i a l s t a f f commentary to Regulation E. The com mentary is designed to provide guidance to f i n a n c i a l i n s t i t u t i o n s in applying the r e g u la t i o n to s p e c i f i c s i t u a t i o n s . The proposed r ev is io n s address a v a r i e t y of questions t h a t have a r i s e n about the r e g u l a t i o n , and include new i n t e r p r e t a t i o n s and changes in existing interpretations. I n t e r e s t e d p a r t i e s are in vi te d to submit t h e i r views to Mr. William W Wiles, . S ec r e t a ry , Board of Governors of the Federal Reserve System, Washington, D.C., 20551. Comments should i n clude a r ef er enc e to EFT-2 and are due by January 31, 1985. ATTACHMENTS: Board's press r e l e a s e and material as p ub l i c a t i o n in the Federal Register MORE INFORMATION: Legal Department, Extension 6171 ADDITIONAL COPIES: Public A f f a i r s Department, Extension 6289 to Regulation submitted E f or Banks and others are encouraged to use the follow ing incom ing W A TS numbers in contacting this Bank: 1-800-442-7140 (in trastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the extension referred to above. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) FEDERAL RESERVE press release ' ■ f %AL * November 29, 1984 For immediate r e l e a s e The Federal Reserve Board today published f o r comment proposed changes t o the o f f i c i a l s t a f f commentary to Regulation E — E le c t ro n i c Fund T r a n s f e r s . The changes p e r t a i n to ques tions t h a t have a r i s e n about the r e g u l a t i o n , and include new i n t e r p r e t a t i o n s and changes t o e x i s t i n g i n t e r p r e t a t i o n s . by January 31, 1985. The Board's no t i c e i s a t t a c h e d . - Attachment 0 - Comment i s requested FEDERAL RESERVE SYSTEM 12 CFR Part 205 [Reg. E; EFT-2] ELECTRONIC FUND TRANSFERS Proposed Update to O f f i c i a l S t a f f Commentary AGENCY: Board of Governors of the Federal Reserve System, ACTION: Proposed o f f i c i a l s t a f f i n t e r p r e t a t i o n . SU M RY MA : The Board is publishing f o r comment proposed changes t o the o f f i c i a l s t a f f commentary t o Regulation E (El ect ro ni c Fund T r a n s f e r s ) . The commentary ap pl ies and i n t e r p r e t s the requirements of Regulation E and i s a s u b s t i t u t e f o r individual s t a f f i n t e r p r e t a t i o n s of the r e g u l a t i o n . The proposed re v is i o n s address a v a r i e t y of questions t h a t have a r i s e n about the r e g u l a t i o n , include new material and changes in existing material. DATE: and Comments must be received on or before January 31, 1985. ADDRESS: Comments should be mailed t o William W Wiles, S e c r e t a r y , Board of . Governors of the Federal Reserve System, Washington, D.C. 20551, or de li ve re d t o Room B-2223, 20th and C S t r e e t s , N.W., Washington, D.C., between 8:45 a.m. and 5:15 p.m. weekdays. Comments should include a re fe re n ce t o EFT-2. Comments may be in spected in Room B-1122 between 8:45 a.m. and 5:15 p.m. weekdays. FOR FURTHER INFORMATION: Contact Gerald P. Hurst or John C. Wood, Senior Attorneys, or Richard S. Garabedian, S t a f f Attorney, Division of Consumer and Community A f f a i r s , Board of Governors of the Federal Reserve System, Washington, D.C. 20551, (202) 452-3667 or (202) 452-2412. SUPPLEM ENTARY INFORMATION: (1) General. The E le c t ro n ic Fund Tran sfer Act (15 U.S.C. 1693 et s e q . ) governs any t r a n s f e r of funds t h a t i s e l e c t r o n i c a l l y i n i t i a t e d and t h a t d e b i t s or c r e d i t s a consumer's account. This s t a t u t e is implemented by th e Board's Regulation E (12 CFR Part 205). E ff e c t i v e September 24, - 2 - 1981, an o f f i c i a l s t a f f commentary (EFT-2, Supp. II t o 12 CFR Pa rt 205) was published t o i n t e r p r e t the r e g u l a t i o n . The commentary is designed to provide guidance t o f i n a n c ia l i n s t i t u t i o n s in applying the r e g ul at io n t o specific situations. The commentary is updated p e r i o d i c a l l y t o address s i g n i f i c a n t questions t h a t a r i s e . There have been two updates so f a r , the f i r s t on April 6, 1983 (48 FR 14880), and the second on October 18, 1984 (49 FR 40794). This n ot ic e contains the proposed t h i r d update. I t i s expected t h a t i t w il l be adopted in f i n a l form in March 1985. Certain conventions have been used t o h ig h l i g h t the proposed r e v i s i o n s . New language i s shown i n s i d e bold-faced arrows and underlined, while language t o be del et ed is s e t o f f with br ac k et s. (2) Proposed r e v i s i o n s . i s la r g e l y s e l f - e x p l a n a t o r y . The material t h a t has been added or revised Questions 7-18.5 and 11-11.5 r e l a t e t o amendments t o Regulation E adopted by the Board on October 11, 1984 (49 FR 40794), which cover a l l d eb i t card t r a n s a c t i o n s whether or not an e l e c t r o n i c terminal i s involved. The amendments also extend th e time periods f o r r e s o l u t i o n of e r r o r s involving p o i n t - o f - s a l e (POS) d eb it card t r a n s a c t i o n s ; the longer periods p a r a l l e l those ap p l i ca b le t o f o r e i g n - i n i t i a t e d t r a n s f e r s . The proposed re vi sio n of ques tio n 7-18.5 reverses the pre sen t i n t e r p r e t a t i o n ; c u r r e n t l y , d i s c lo s u r e of t h e longer e r r o r r e s o l u t i o n time periods in the case of f o r e i g n - i n i t i a t e d t r a n s f e r s i s not r e q u i re d . Transfers r e s u l t i n g from POS d e b i t card t r a n s a c t i o n s (unlike f o r e i g n - i n i t i a t e d t r a n s f e r s ) are q u i t e common, however, and t o assure ac cur ate d i s c lo s u r e s and avoid confusion on the p a r t of consumers, proposed question 7-18.5 r e q u i re s f i n a n c i a l i n s t i t u t i o n s to d i s c l o s e the longer e r r o r r e s o l u t i o n p e r i o d s . Since most i n s t i t u t i o n s would be re quired t o r e v i s e t h e i r e r r o r r e s o l u t i o n d i s c l o s u r e s f o r POS d e b i t card t r a n s a c t i o n s , i t seems l i k e l y t h a t making the f u r t h e r re v i si o n f o r f o r e i g n - - 3 - i n i t i a t e d t r a n s f e r s would r e s u l t in l i t t l e or no a d d it io n al expense. Consequently, revised question 7-18.5 would r eq ui re t h a t the e r r o r r e s o l u t i o n d is c lo s u r e s f o r accounts su b j e ct t o f o r e i g n - i n i t i a t e d or POS de bi t card t r a n s a c t i o n s s t a t e the extended time p e r i o d s . The o t h e r proposal r e l a t i n g t o the October amendments (new question 11-11.5) discu sse s the meaning of POS de b it card t r a n s a c t i o n f o r purposes of t he longer e r r o r r e s o l u t i o n p er io ds . Other proposed changes t o t h e commentary respond t o i n q u i r i e s received by th e s t a f f . New question 2-28 addresses unauthorized t r a n s f e r s . New question 5-4.5 s t a t e s t h a t an i n s t i t u t i o n may not i s s u e , without a request from the consumer, a va l i d a t e d personal i d e n t i f i c a t i o n number (PIN) t o permit a debit card previ ou sly issued f o r POS t r a n s a c t i o n s t o be used at ATMs. This i n t e r p r e t a t i o n d i f f e r s from a proposed i n t e r p r e t a t i o n under Regulation Z t h a t permits such PIN iss ua n ce . The d i f f e r e n t treatment i s based on the d e f i n i t i o n of an access device in Regulation E. Under Regulation E a PIN i s an access device in a l l c a s e s, even when i t cannot be used alone t o i n i t i a t e an EFT; in c o n t r a s t , a PIN issued t o e x i s t i n g cardholders t h a t cannot be used by i t s e l f to obtain c r e d i t is not a c r e d i t card under Regulation Z. (See t h e proposed update to the o f f i c i a l s t a f f commentary to Regulation Z, Truth in Lending, published elsewhere in t h i s Federal R e gi s te r i s s u e . ) The r u l e regarding access devices i s more r e s t r i c t i v e in p a r t because of t h e consumer's p o t e n t i a l l y g r e a t e r r i s k ; f or example, the consumer may be l i a b l e f o r as much as $500 (or even an unlimited amount) r a t h e r than only $50 as under Regulation Z. Moreover, unauthorized use of an access device e n t a i l s th e lo ss of u se , and perhaps even permanent l o s s , of the consumer's own funds in an a s s e t account; in t he case of unauthorized c r e d i t card u se , only extensions of c r e d i t are in volved. In a d d i t i o n , when the - 4 - debi t card was o r i g i n a l l y issued without a PIN, th e consumer may not have contemplated t h a t th e card could l a t e r be used at ATM t o obtain cash. s (3) T r a n s i t i o n is s u es r e l a t i n g t o amendments. The s t a f f has received ot her i n q u i r i e s de ali ng with the i n t e r i m period between th e adoption of the POS de bi t card amendments in October 1984 (discussed above) and the April 16, 1985, effective date. Since guidance on th es e matters i s needed now and will cease t o be re le va nt a f t e r the t r a n s i t i o n p e r i o d , the s t a f f b eli ev es i t i s a p p r o pr ia te t o address them s e p a r a t e l y from the proposed commentary. Industry r e p r e s e n t a t i v e s have asked whether re vised d i sc lo s u r e s must be provided t o e x i s t i n g customers who have alrea dy been given Regulation E d i s c l o s u r e s f o r c e r t a i n d eb i t card t r a n s a c t i o n s , or t o customers who co n t r a c t for EFT s e rv i ce s before April 16, 1985. Revised d i s c l o s u r e s may but need not be provided p r i o r to April 16, 1985; however, beginning on t h a t d a t e , any d i s c l o s u r e given ( e . g . , i n i t i a l d i s c l o s u r e s t o a new customer, or the long-form or short-form e r r o r r e s o l u t i o n n o t i c e to an e x i s t i n g customer) must ac cu r at el y r e f l e c t t h e terms and cond ition s of th e EFT se rvi ces (including d eb it card t r a n s a c t i o n s ) o f f e r e d by t he i n s t i t u t i o n . For example, i n i t i a l d i s c l o s u r e s to new customers wi ll have t o r e f l e c t t h a t a l l t r a n s f e r s r e s u l t i n g from de b i t card t r a n s a c t i o n s are e l e c t r o n i c fund t r a n s f e r s , and t h a t the e r r o r r e so lu ti o n periods f o r POS d eb i t card t r a n s a c t i o n s are 20 business days and 90 calendar days ( i f th e i n s t i t u t i o n wishes t o tak e advantage of the longer p e r i o d s ) . After April 16, e r r o r r e s o l u t i o n n o t i c e s , whether given annually or on p e r i o d i c sta te m e n t s, al s o must r e f l e c t t h e longer p er i o d s. Similarly, i n i t i a l d i s c l o s u r e s and e r r o r r e s o l u t i o n n o t i c e s must r e f l e c t th e exception from p r o v i sional r e c r e d i t i n g in cases where accounts are su b je ct t o the Board's Regulation T (Credit by Brokers and D e a l e r s ) . I n s t i t u t i o n s may comply by modifying appro p r i a t e l y the e r r o r n o t i c e forms t h a t appear in §§ 205.7(a)(10) and 205.8(b). - 5 - An i n s t i t u t i o n t h a t wishes to use e x i s t i n g forms u n ti l i t s supplies are exhausted may r e f l e c t the changed terms and co nd it io ns by any appro pri ate means such as by use of an i n s e r t , attachment, or computer-generated notic e on per iodic statements (in the case of a sho rt-form not ice on the st a te m e n t ). I n s t i t u t i o n s are not required to make a special mailing of revised e r r o r r e s o l u t i o n notices or of other d i s c lo s u r e s . L is t of Subjects in 12 CFR Part 205 Banks, banking; Consumer p r o t e c t i o n ; E le c t r o n ic fund t r a n s f e r s ; Federal Reserve System; P e n a l t i e s . (4) Text of r e v i s i o n s . Theproposed Commentary on Regulation E (EFT-2, Supp. * * II * re v is io n s to the O f fi ci al S t a f f to 12 CFRPar t 205) * read as follows: * SECTION 205.2 — DEFINITIONS A D RULES O CONSTRUCTION N F * ► Q 2-28: * * * * Unauthorized t r a n s f e r s - - forced i n i t i a t i o n . robber, a t gunpoint, to withdraw cash at an ATM . A consumer i s forced by a Do the l i a b i l i t y l i m i t s f o r unauthorized t r a n s f e r s apply? A: Yes. The t r a n s f e r i s unauthorized f o r purposes of Regulation E. Under those circumstances, the ac ti o n s of the robber are tantamount t o use of a st o l en access device. (§$ 205.2(1) and 205.6)4 * * * * * SECTION 205.5 — ISSUANCE O ACCESS DEVICES F * ►Q 5- 4. 5: * * Uns olicite d issuance - - PINs. * * May a f i n a n c i a l i n s t i t u t i o n i s s u e , without a s p e c i f i c r e q u e s t, va l i d a te d personal i d e n t i f i c a t i o n numbers (PINs), thus allowing consumers to use t h e i r e x i s t i n g d e b i t cards at automated t e l l e r machines? - A: No. 6 - Issuance of a v al i d at ed PIN fo r an e x i s t i n g d eb i t card does not meet the r e g u l a t i o n ' s requirement t h a t an u n s o l i c i t e d access device be unvalidated when is s u ed . (The issuance of PINs for e x i s t i n g c r e d i t cards i s , however, pe rmissible under the Truth in Lending Act and Regulation Z; see Comment 1 2 ( a ) ( l ) - 8 of the O f fi c i a l S t a f f Commentary to Regulation Z.) (§§ 205.5(a) and (b) and 205.2 ( a ) )* * * * * * SECTION 205.7 — INITIAL DISCLOSURE O TERM A D CONDITIONS F S N * Q 7-18.5: * * * * Error r e s o l u t i o n d i s c l o s u r e — [ f o r e i g n - i n i t i a t e d t r a n s f e r s ] ►extended time p e r i o d s * . The re gu la ti on expands the time periods f o r resolving e r r o r s t h a t involve t r a n s f e r s i n i t i a t e d ou tsi de th e United S ta t e s »or t r a n s f e r s r e s u l t i n g from POS d e b i t card t r a n s a c t i o n s * , from 10 t o 20 business days and from 45 to 90 cal endar days. Must the e r r o r - r e s o l u t i o n d i s c lo s u r e r e f l e c t the longer time periods with respect to accounts on which [ t r a n s f e r s may be i n i t i a t e d ou tside th e United S t a t e s ] K h es e types of t r a n s f e r s can be made*? A: A f i n a n c i a l i n s t i t u t i o n [may but need not r e f e r to the longer time periods in the e r r o r - r e s o l u t i o n d i s c l o s u r e . ] ► must give e r r o r - r e s o l u t i o n d i s c l o s u r e s t h a t r e f l e c t i t s actual procedures. An i n s t i t u t i o n t h a t t ake s advantage of the longer time periods a p p l i c a b l e t o POS and f o r e i g n - i n i t i a t e d t r a n s f e r s must, t h e r e f o r e , s t a t e them in i t s e r r o r - r e s o l u t i o n d i s c l o s u r e s . S i m i l a r l y , an i n s t i t u t i o n t h a t r e l i e s on the exception from pro vision al r e c r e d i t i n g ( f o r accounts s u b j e c t t o Regulation T) must phrase i t s d i s c l o s u r e s a p p r o p r i a t e l y . * (§§ 2 0 5 . 7 ( a ) ( 1 0 ) , 20 5 . 8 (b ) , and 205.11»( c ) (3) and* ( c ) ( 4 ) ) * * * * * SECTION 205.11 — PROCEDURES FO RESOLVING ERRORS R * * * * * 7 - ► Q 11-11.5: POS d e b i t card t r a n s a c t i o n s . - The deadlin es f or i n v e s t i g a t i n g e r r o r s are extended f o r a l l t r a n s f e r s r e s u l t i n g from POS d eb i t card t r a n s a c t i o n s , r eg ar d l es s of whether an e l e c t r o n i c terminal i s involved. For purposes of th es e d ea d l i n es , what types of t r a n s a c t i o n s can be viewed as POS d eb i t card t r a n s a c t i o n s ? A: POS d e b i t card t r a n s a c t i o n s ge ner all y take place a t merchant l o c a t i o n s , but al so include mail and telephone orders of goods or se rv i ce s involving a debi t card. Transactions at ATMs, however, are not POS even though the A may be in TM a merchant l o c a t i o n . ($ 2 0 5 . 1 1 ( c ) ( 4 ) « * * * * * Board of Governors of t h e Federal Reserve System, November 28, 1984. (signed) William W Wiles . Willi am W Wiles . Secretary of the Board
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