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Federal Reserve Bank

D. M C T E E R , J R .



Decem ber 28 1994

7 5 2 6 5 -5 9 0 6

Notice 94-118


The Chief Executive Officer of each
m em ber bank and others concerned in
the Eleventh Federal Reserve District

Interim Rule and Request for Public Comment on
Final Amendments to Regulation E
(Electronic Fund Transfers)
The Board of Governors of the Federal Reserve System has adopted an
interim rule to Regulation E (Electronic Fund Transfers) that will give financial
institutions more flexibility in identifying consumer accounts on receipts at autom ated
teller machines (ATMs).
As am ended by the interim rule, which took effect Decem ber 1, 1994, the
regulation will no longer require that terminal receipts uniquely identify the consumer’s
account or card. This change will allow institutions to truncate the number on the
receipt and help protect consumers and financial institutions against fraudulent fund
Comment is solicited on the interim rule, which the Board will adopt in final
form following the close of the comment period. The Board must receive comments by
January 31, 1995. Comments should be addressed to William W. Wiles, Secretary, Board
of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, D.C. 20551. All comments should refer to Docket No. R-0859.
A copy of the Board’s notice (Federal Reserve System Docket No. R-0859) is

For additional copies, bankers and others are encouraged to use one o f the following toll-free numbers in contacting the Federal
Reserve Bank o f Dallas: Dallas O ffice (800) 333 -4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; H ouston
Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San A ntonio Branch Intrastate (800) 292-5810.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (

F or more information, please contact Eugene Coy at (214) 922-6201. For
additional copies of this Bank’s notice, please contact the Public Affairs D epartm ent at
(214) 922-5254.
Sincerely yours,

12 CFR Part 205
[Regulation E; Docket No. R-0859]
Electronic Fund Transfers

Board o f Governors of the Federal Reserve System.
Interim rule with request for comments.

SU M M A R Y : The Board is publishing for public comment an interim rule amending
Regulation E (Electronic Fund Transfers). The amendment eliminates the requirement that an
electronic terminal receipt disclose a number or code that uniquely identifies the consumer,
the consum er's account, or the access device. This requirement currently poses a significant
security risk for consumers and financial institutions by making information accessible to
criminals that they then use to withdraw funds from consumers' accounts. The Board has
adopted an interim rule that deletes the requirement for a unique identification, thus enabling
institutions to truncate card or account numbers. The Board seeks public comment on the
interim rule, which the Board will adopt in final following the close of the comment period.
D ATES: The interim rule effective on December 1, 1994; comments must be received on or
before February 1, 1995.
A D D R ESSES: Comments should refer to Docket No. R-0859 and be sent to William W.
Wiles, Secretary, Board of Governors of the Federal Reserve System, Washington, D .C .
20551. They may also be delivered to Room B-2222 of the Eccles Building between 8:45
a.m . and 5:15 p.m . weekdays, or to the guard station in the Eccles Building courtyard on
20th Street, N .W . (between Constitution Avenue and C Street) at any time. Comments
received will be available for inspection in Room MP-500 of the Martin Building between
9:00 a.m . and 5:00 p.m . weekdays, except as provided in 12 CFR 261.8 o f the B oard's rules
regarding availability o f information.
F O R F U R T H E R IN F O R M A T IO N C O N T A C T : Jane Jensen Gell or Kyung Cho-Miller,
Staff Attorneys, Division o f Consumer and Community Affairs, Board o f Governors o f the
Federal Reserve System, Washington, DC 20551, at (202) 452-2412 or (202) 452-3667. For
the hearing impaired only, contact Dorothea Thompson, Telecommunications Device for the
D eaf (TDD), at (202) 452-3544.

I. Background
The B oard’s Regulation E implements the Electronic Fund Transfer Act (EFTA).
The EFTA provides a basic framework establishing the rights, liabilities, and responsibilities
o f participants in electronic fund transfer (EFT) systems. Types o f transfers covered by the
act and regulation include transfers initiated through an automated teller machine (ATM),
point-of-sale terminal, automated clearinghouse, telephone bill-payment system, or home
banking program. Regulation E establishes restrictions on the unsolicited issuance o f ATM
cards and other access devices; requires disclosure o f terms and conditions o f an EFT
service; calls for documentation of EFTs through terminal receipts and periodic account
statements; provides limitations on consumer liability for unauthorized transfers; and
establishes procedures for error resolution.

II. Summary of Amendment
Section 205.9 -- Documentation of Transfers
Paragraph (a) -- Receipts at electronic terminals
Under the EFTA , when a consumer initiates an E FT at an electronic terminal, the
financial institution must make a written receipt available to the consumer. The receipt must
identify in some way the consum er's account with the financial institution from or to which
funds are transferred.
U nder the Board's Regulation E, institutions can comply with this identification
requirement by including a number or code on the receipt that identifies the access device
used to initiate the transfer, the consumer initiating the transaction, or the consum er's
accounts. To ensure adequate identification, the Board's regulation specifies that the number
or code should be "unique."
This identification requirement was adopted in 1979, and over the years many
financial institutions have met the requirement by disclosing consumers' card or account
numbers on the receipt; until recently, doing so did not appear to represent a security risk for
financial institutions. Now, a large number of institutions are reporting that the requirement
for a unique identification poses a significant security risk for consumers and financial
institutions. These institutions, together with trade associations, have asked that the Board
revise the rule to prevent ATM fraud by persons who observe—
and often videotape—
consumer entering a personal identification number (PIN) on the ATM keypad. These
persons retrieve terminal receipts that have been discarded at ATM locations to obtain the
consum er's account or ATM card number. They then manufacture a counterfeit ATM card
and use the combination o f PIN and card withdraw funds from the consum er's account. One
estimate places the industry losses at an annual cost between 25 and 40 million dollars, and
climbing; others believe this estimate is understated. Data verifying the extent o f institutions'

fraud losses due to this problem are publicly unavailable because the data are proprietary in
nature. But several large financial institutions indicate they have sustained losses o f as much
as a million dollars in one week.
Institutions say that truncating the consum er's account or card number on the receipt
would help to counter the problem. Under the current receipt provision in Regulation E,
however, they cannot readily do so because o f the likelihood that the identification number on
the receipt no longer would be "unique" among the institution's customers. Institutions have
considered other ways to reduce risk, including retrofitting terminals to uniquely identify a
consumer by a means other than a card or account number. Another approach would be for
the terminal to give customers the option not to receive a receipt, for customers who might
otherwise tend to discard their receipts at the ATM. While these approaches could help
reduce fraud, they would be extremely costly to implement. Educational efforts to encourage
consumers not to discard their receipts at the ATM site generally have been unsuccessful.
The interim rule eliminates the requirement for a unique number or code, and thus
allows institutions to truncate the account or card number disclosed on ATM receipts. With a
truncated number, it becomes less feasible for a criminal to duplicate a card with an account
number that matches the consumer's PIN. For the consum er's purposes, the printed number
would continue to provide enough information for the consumer (and the financial institution)
to identify the transaction.
The Board believes that the change will not substantially diminish consumer
protections. The purpose o f the receipt requirement is to allow consumers to verify
transactions. Under the amendment, the receipt will still provide sufficient information to
allow the consumer to identify transfers: the date o f the transfer; the amount o f the transfer;
the type o f transfer and type o f account; the location of the terminal; and identification o f any
third party to or from which funds are transferred. Using this information, a consumer could
match each transaction on the periodic statement with the receipt received at the time the
transaction took place. In addition, a consumer would have the necessary information to
identify and resolve errors in documentation.
Ordinarily the Board publishes proposed rules for a public comment period before
their adoption. In the present case, the Board believes the situation represents a serious fraud
problem for consumers and financial institutions, and that it is important to act expeditiously
in amending the current rule. The Board believes also that the amendment being adopted will
reduce fraud without compromising consumers' ability to identify their EF T transactions at
ATMs. Delay in the adoption o f this amendment would cause continued losses to consumers
and financial institutions, which is contrary to the public interest. Furtherm ore, the
amendment relieves the restriction that the account number be "unique," and does not require
institutions to take any action to implement the amended regulation. Modification o f the
identification number on the receipt is discretionary to the institution. Thus, the Board finds
that good cause exists for the adoption of an interim rule without prior comment, pursuant to



the Administrative Procedure Act (5 U .S .C . 553(b)(3)(B)). Accordingly, the Board is
adopting an interim rule that takes effect immediately, and publishing that interim rule for
public comment for a 60-day period, after which the Board will adopt a final rule that takes
into account any comment that may be received.
The revision to Regulation E set forth below does not expressly refer to truncation
o f the account number. The Board notes, however, that it plans to codify the permissibility
o f truncation in the Official Staff Commentary to Regulation E, following the Board's final
action on this interim rule. (This revision of Regulation E supersedes a proposed change
under the regulatory review project that was published for comment earlier this year (59 FR
10684, M arch 7, 1994).)


Form of Comment Letters

Comment letters should refer to Docket No. R- 0859. The Board requests that,
when possible, comments be prepared using a standard ’’Courier" typeface with a type size of
10 or 12 characters per inch. This will enable the Board to convert the text into machinereadable form through electronic scanning, and will facilitate automated retrieval o f comments
for review. Comments may also be submitted on computer diskettes, using either the 3.5" or
5.25" size, in any IBM-compatible DOS-based format. Comments on computer diskettes
must be accompanied by a hard copy version.


Regulatory Flexibility Analysis and Paperwork Reduction Act

The amendment to Regulation E will provide more flexibility to financial institutions
in complying with the E F T Act requirements for identifying a transaction on receipts provided
at electronic terminals.
In accordance with section 3507 o f the Paperwork Reduction Ac o f 1980 (44
U .S .C .35; 5 CFR 1320.13), the revision will be reviewed by the Board under the authority
delegated to the Board by the Office o f Management and Budget after consideration o f
com ment received during the public comment period. Nevertheless, given that the
amendment provides for more flexibility in complying with the law, the Board believes there
is a negligible impact on the paperwork burden for state member banks and institutions
supervised by other agencies.

List of Subjects in 12 CFR Part 205
Consumer protection, Electronic fund transfers, Federal Reserve System, Reporting
and recordkeeping requirements.

F o r the reasons set forth in the preamble, the Board proposes to amend 12 C FR part
205 as set forth below: (Certain conventions have been used to highlight the proposed
changes to the regulation. Language that would be removed is set off with brackets.)

1. The authority citation for part 205 continues to read as follows:
AUTHORITY: 12 U .S .C . 1693.
2. Section 205.9 is amended by revising paragraph (a)(4), to read as follows:

§ 205.9 Documentation of transfers



(4) A number or code that [uniquely] identifies the consumer initiating the
transfer, the consumer's account(s), or the access device used to initiate the



By order o f the Board of Governors of the Federal Reserve System, November 28, 1994.

(signed) W i l li am W. Wiles

William W. Wiles
Secretary o f the Board

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102