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F e d er a l R ese r v e Ba n k DALLAS. TEXAS of Dallas 75222 C irc u la r No. 79-66 A p ril 3, 1979 REGULATION E— FINAL REGULATION FOR TWO SECTIONS OF THE ELECTRONIC FUNDS TRANSFER ACT AND PROPOSALS REGARDING CONSUMER DISCLOSURES TO ALL BANKS, OTHER CREDITORS, AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: On March 21, 1979, the Board of Governors of the Federal Reserve System issued final regulations for consumer protection under two sections of the Electronic Funds T ra n s fe r A ct. The Act is designed to protect consumers in th eir use of auto mated te lle r machines, point of sale debiting, and other electronic fund transfer services. The rules issued as part of Regulation E, Electronic Funds T ra n s fe r (EFT) relate to sections of the Act which lim it a consumer's liab ility for unauthorized use of an EFT c a rd , and specify the conditions under which EFT cards may be issued. At the same tim e, the Board of Governors asked for public comment on proposals that would require certain disclosures to a ll consumers with EFT cards regarding th e ir financial responsibility for the use of lost or stolen EFT card s, and that would make these disclosures a precondition of imposing any liab ility on a consumer. Comments should be directed to the Secretary, Board of Governors of the Federal Reserve System, Washington, D . C . 20551. Any comments should refer to Docket No. R -0212, and they should be received on or before A pril 30, 1979. Printed on the following pages is a copy of the new Regulation E which was effective March 30, 1979. The Board's announcement regarding the two pro posals for comment also appears as it was published in the Federal Register. Questions regarding the new proposal or the new Regulation should be directed to our Consumer A ffairs Section of the Bank Supervision and Regulations Depart ment, E xt. 6171. Sincerely yours, Robert H . Boykin First Vice President Banks and others are encouraged to use the follow ing incoming W A T S numbers in contacting this Bank: 1-8 0 0 -4 9 2 -4 4 0 3 (intrastate) and 1-8 0 0 -5 2 7 -4 9 7 0 (interstate). F o r 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) 16480 Extract from Federal Register VOL. 44, NO. 61 Wednesday, March 28, 1979 pp. 18480 - 18483 (ii) Requests validation o f an access device issued on an unsolicited basis; or (iii) Receives an access device issued in renewal of, or in substitution for, an accepted acoess device, whether such PART 205—ELECTRONIC FUND access device is issued by the initial fi TRANSFERS nancial institution or a successor. Sec(b ) “Account” means a demand de 205.1 Authority. Purpose, and Scope. posit (checking), savings, or other con 205.2 Definitions. sumer asset account (other than an oc 205.3 Exemptions. 205.4 Issuance of Access Devices. casional o r incidental credit balance in 205.5 Liability of Consumer for Unauthor a credit plan) held either directly or ized Transfers. indirectly by a financial institution and established primarily fo r personal, Appendix A—Model Disclosure Clauses. family, or household purposes. A u t h o r it y : Pub. L. 95-630, 92 Stat. 3730 (c ) “Act” means the Electronic Fund <15 U.S.C. 1693b). Transfer Act (Title I X of the Consum R e g u l a t io n E er Credit Protection Act, 15 U.S.C. PART 205— ELECTRONIC FUND 1601 etseq.). TRANSFERS (d ) “Business day” means any day on which the offices o f the consumer’s § 205.1 Authority, Purpose, and Scope. financial Institution are open to the (a ) Authority. This regulation, issued public for carrying on substantially all by the Board of Governors o f the Fed business functions. eral Reserve System, implements Title (e ) “Consumer” means a natural I X (Electronic Fund Transfer A ct) of person. the Consumer Credit Protection Act, ( f ) “Credit” means the right granted as amended (15 U.S.C. 1601 et seq.). by a financial institution to a consum (b ) purpose and Scope. In Novem ber er to defer payment o f debt, incur debt 1978, the Congress enacted the Elec and defer its payment, or purchase tronic Fund Transfer Act. T h e Con property or services and defer pay gress found that the use of electronic ment therefor. systems to transfer funds provides the (g ) “Electronic fund transfer” means potential for substantial benefits to any transfer of funds, other than a consumers, but that the unique char transaction originated by check, draft, acteristics of these systems make the or similar paper instrument, that is application of existing consumer pro initiated through an electronic termi tection laws unclear, leaving the rights nal, telephone, or computer or mag and liabilities of users of electronic netic tape for the purpose o f ordering, fund transfer systems undefined. The instructing, or authorizing a financial Act establishes the basic rights, liabil institution to debit or credit an ac ities, and responsibilities o f consumers count. T h e term includes, but is not who use electronic money transfer limited to, point-of-sale transfers, services and of financial institutions automated teller machine transfers, that offer these services. This regula direct deposits or withdrawals of tion is intended to carry out the pur funds, and transfers initiated by tele poses of the Act, Including, primarily, phone. the protection o f individual consumers (h ) “Electronic terminal” means an engaging in electronic transfers. electronic device, other than a tele Except as otherwise provided, this reg phone operated by a consumer, ulation applies to all persons who are through which a consumer m ay initi financial institutions as defined in ate an electronic fund transfer. The S 205.2(i). term includes, but is not limited to, 5 205.2 Definitions. point-of-sale terminals, automated teller machines, and cash dispensing F or the purposes o f this regulation, machines. the following definitions apply, unless the context indicates otherwise: (i) “Financial institution" means a (a )(1 ) “Access device” means a card, State or National bank, a State or Fed code, or other means o f access to a eral savings and loan association, a consumer’s account, or any combina State or Federal mutual savings bank, tion thereof, that may be used by the a State or Federal credit union, or any consumer for the purpose o f initiating other person who, directly or indirect electronic fund transfers. ly, holds an account belonging to a (2 ) An access device becomes an “ac consumer. T h e term also includes any cepted access device" when the con person who issues an access device and sumer to whom the access device was agrees with a consumer to provide issued: electronic fund transfer services. (i) Requests and receives, or signs, orTw o or more financial institutions uses, or authorizes another to use, the that jointly provide electronic fund access device for the purpose of trans transfer services may contract among ferring money between accounts or ob themselves to fulfill the requirements taining money, property, labor or serv that the Act and this regulation ices; impose on any or ail o f them. 18481 (J) “State” means any State, terri tory or possession o f the United States, the District o f Columbia, the Commonwealth o f Puerto Rico, o r any political subdivision of any o f the above. (k ) “Unauthorized electronic fund transfer” means an electronic fund transfer from a consumer’s account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit. The term does not include any electronic fund transfer (1) initiated by a person who was furnished with the access device to the consumer’s account by the consumer, unless the consumer has notified the financial institution involved that transfers by that person are no longer authorized, (2 ) initiated with fraudulent intent by the consum er or any person acting in concert with the consumer, or (3 ) that constitutes an error committed by the financial institution. {205.3 Exemptions. This regulation does not apply to the following: (a ) Check guarantee o r authoriza tio n services. Any service that guaran tees payment or authorizes acceptance of a check, draft, or similar paper in strument and that does not directly result in a debit or credit to a consum er’s account. (b ) Wire transfers. A n y wire transfer of funds for a consumer through the Federal Reserve Communications System or other similar network that is used primarily for transfers between financial institutions or between busi nesses. (c) Certain securities o r com m odities transfers. A n y transfer the primary purpose of which is the purchase or sale o f securities or commodities through a broker-dealer registered with, or regulated by, the Securities and Exchange Commission or the Commodity Futures Trading Commis sion. (d ) A utom atic transfers fro m savings to demand deposit accounts. Any auto matic transfer from a savings account to a demand deposit (checking) ac count under an agreement between a consumer and a financial institution for the purpose of covering an over draft or maintaining a specified mini mum balance in the consumer's check ing account as permitted by 12 C F R Part 217 (Regulation Q ) and 12 C F R Part 329. (e ) Certain telephone-initiated trans fers. A ny transfer o f funds that (1 ) is initiated by a telephone conversation between a consumer and an officer or employee of a financial institution and (2) is not under a telephone bill-pay ment or other prearranged plan or agreement in which periodic or recur ring transfers are contemplated. (f) Trust acoounts. A n y trust ao- sumer a n d a financial institution to extend the credit when the consumer’s count held by a financial institution account is overdrawn or to maintain a under a bona fide trust agreement. S 205.4 Issuance o f access devices. (a ) General rule. A financial institu tion may issue an access device to a consumer only: (1) In response to an oral or written request o r application fo r the device;1* or (2) As a renewal pf, or in substitu tion for, an accepted access device, whether issued by the initial financial institution or a successor. (3) As a renewal of, or in substitu tion for, an access device issued before February 8, 1979 (oth er than an ac cepted access device, which can be re newed or substituted under paragraph (a )(2 ) o f this section), provided that the disclosures set fo rth in paragraphs (d)(1), (2), and (3 ) o f this section ac company the renewal or substitute device; except that fo r a renewal or substitution that occurs before July 1, 1979, the disclosures m ay be sent within a reasonable time after the re newal or substitute device is issued. (b ) Exception. Notwithstanding the provisions o f paragraph (a )(1 ) o f this section, a financial institution may dis tribute an access device to a consumer on an unsolicited basis if: (1) T h e access device is not validat ed; (2) T h e distribution is accompanied by a complete disclosure, in accord ance with paragraph (d ) o f this sec tion, o f the consumer’s rights and li abilities that w ill apply if the access device is validated; (3) T h e distribution is accompanied by a clear explanation that the access device is not validated and how the consumer m ay dispose o f the access device if validation is not desired; and (4) T h e access device is validated only in response to the consumer's oral or written request or- application fo r validation and after verification o f the consumer’s identity by any reason able means, such as by photograph, fingerprint, personal visit, or signature comparison. A n access device is consid ered validated when a financial insti tution has performed all procedures necessary to enable a consumer to use it to initiate an electronic fund trans fer. (c ) R ela tion to Truth in Lending. (1) T h e A ct and this regulation govern ( i ) Issuance o f access devices; (ii) Addition to an accepted credit card, as defined in 12 C F R 226.2(a) (Regulation Z), o f the capability to ini tiate electronic fund transfers; and (iii) Issuance o f access devices that permit credit extensions only under a preexisting agreement between a con 15In the case of a joint account, a financial institution may issue an access device to each account holder for whom the request ing holder specifically requests an access device. specified minimum balance in the con sumer’s account. (2 ) T h e T ru th In Lending Act (15 UJS.C. 1601 et seq.) and 12 C F R Part 226 (Regulation Z ), which prohibit the unsolicited issuance o f credit cards, govern (i) Issuance o f credit cards as de fined in 12 C F R 226.2(r); (ii) Addition o f a credit feature to an accepted access device; and (iii) Issuance of credit cards that are also access devices, except as provided in paragraph (c K lX iii) o f this section. (d ) Transitional disclosure require ments. Until M a y 10, 1980, a financial institution may satisfy the disclosure requirements of paragraph (b )(2 ) of this section by disclosing to the con sumer, in a written statement that the consumer may retain, the following terms in readily understandable lan guage: (1) The consumer’s liability under { 205.5, or under other applicable law or agreement, fo r unauthorized elec tronic fund transfers and, at the finan cial institution’s option, notice of the advisability of prompt reporting o f any loss, theft, or unauthorized trans fers. (2) T h e telephone number and ad dress o f the person or office to be noti fied in the event the consumer be lieves that an unauthorized electronic fund transfer has been or m ay be made. (3) T h e financial institution’s busi ness days, as determined under 1205.2(d). (4 ) T h e type o f electronic fund transfers that the consumer may initi ate, including any limitations on the frequency or dollar amount o f the transfers. T h e details of the limita tions need not be disclosed if their confidentiality is necessary to main tain the security o f the electronic fund transfer system. (5 ) A n y charges for electronic fund transfers or fo r the right to make transfers. (6 ) T h e conditions under which the financial institution in the ordinary course of business will disclose infor mation about the consumer’s account to third parties. (7) W h eth er or not the financiaal in stitution will provide documentation o f electronic fund transfers, such as receipts or periodic statements, to the consumer. (8) W h eth er or not the financial in stitution has error resolution proce dures, and, if so, a summary of those procedures. (9 ) T h e conditions under which the financial institution will assume liabil ity for the Institution’s failure to make electronic fund transfers. 18482 S 205.5— Liability o f Consumer for Unau thorized Transfers. occur before the close of the 60-day period, and paragraph (bX 2 )(ii) shall determine liability for transfers that (a ) General rule. A consumer is occur after the close of the 60-day liable, within the limitations described period. in paragraph (b ) o f this section, for (4 ) I f a delay in notifying the finan unauthorized electronic fund transfers cial institution was due to extenuating involving the consumer’s account only circumstances, such as extended travel if the access device used for the trans or hospitalization, the time periods fers is an accepted access device and specified above shall be extended to a the financial institution has provided reasonable time. a means (such as by signature, photo (5 ) I f applicable State law or an graph, fingerprint, or electronic or me agreement between the consumer and chanical confirmation) to identify the financial institution imposes lesser lia consumer to whom the access device bility than that provided in paragraph was issued. (b ) o f this section, the consumer’s lia (b ) Limitations on amount of liabili ty. T h e amount o f a consumer’s liabili bility shall not exceed that imposed under that law or agreement. ty for an unauthorized electronic fund (c ) Notice to financial institution. transfer or a series of transfers arising F or purposes of this section, notice to from a single loss or theft o f the a financial institution is given when a access device shall not exceed $50 or consumer takes such steps as are rea the amount o f unauthorized electronic sonably necessary to provide the fi fund transfers that occur before notice nancial institution with the pertinent to the financial institution under para information., whether or not any par graph (c ) o f this section, whichever is ticular officer, employee, or agent of less, unless one or both of the follow the financial institution does in fact ing exceptions apply: receive the information. Notice may be (1 ) I f the consumer fails to notify given to the financial institution, at the financial institution within 2 busi the consumer’s option, In person, by ness days after learning of the loss or telephone, or in writing. Notice in theft o f the access device, the consum writing is considered given at the time er’s liability shall not exceed the lesser o f receipt or, whether or not received, o f $500 or the sum of at the expiration of the time ordinari (1) $50 or the amount of unauthor ly required fo r transmission, which ized electronic fund transfers that ever is earlier. Notice is also consid occur before the close of the 2 busi ered given when the financial institu ness days, whichever is less, and (ii) the amount o f unauthorized elec tion becomes aware of circumstancesthat lead to the reasonable belief that tronic fund transfers that the finan an unauthorized electronic fund trans cial institution establishes would not fer involving the consumer’s account have occurred but for the failure of has been or may be made. the consumer to noflty the institution (d ) Relation to Truth in Lending. (1 ) within 2 business days after the con A consumer’s liability fo r an unau sumer learns o f the loss or theft of the thorized electronic fund transfer shall access device, and that occur after the be determined solely In accordance close o f 2 business days and before w ith this section if the electronic fund notice to the financial institution. transfer (2 ) I f the consumer falls to report (1) W as initiated by use o f an access within 60 days of transmittal of the device that is also a credit card as de periodic statement any unauthorized fined in 12 C F R 226.2(r), or electronic fund transfer that appears (ii) Involves an extension o f credit on the statement, the consumer’s lia under an agreement between a con bility shall not exceed the sum of sumer and a financial institution to (i) T h e lesser of $50 or the amount extend the credit when the consumer’s o f unauthorized electronic fund trans account is overdrawn or to maintain a fers that appear on the periodic state specified minimum balance in the con ment or that occur during the 60-day sumer’s account. period, and (2 ) A consumer’s liability for unau (ii) T h e amount of unauthorized thorized use o f a credit card that is electronic fund transfers that occur also an access device but that does not after the close o f the 60 days and involve an electronic fund transfer before notice to the finanical institu shall be determined solely in accord tion and that the financial Institution ance with the Truth in Lending Act establishes would not have occurred and 12 C F R Part 226 (Regulation Z). but fo r the failure o f the consumer to notify the financial Institution within A p p e n d ix A — M o d e l D is c l o s u r e C l a u s e s that time. This appendix contains model disclosure (3 ) Paragraphs ( b X l ) and (2 ) of this clauses for optional use by financial institu section m ay both apply in some cir tions to facilitate compliance with the dis cumstances. Paragraph ( b X l ) shall de closure requirements of }§ 205.4(a)(3), (b) termine the consumer’s liability for and (d). Section 915(d)(2) of the Act pro any unauthorized transfers that vides that use of these clauses in conjunc tion with other requirements of the regula appear on the periodic statement and tion will protect financial institutions from liability under 915 and 916 of the Act to the extent that the clauses accurately re flect the institutions’ electronic fund trans fer services. Financial institutions need not use any of the provided clauses, but may use clauses of their own design in conjunction with the model clauses. The inapplicable portions of words or phrases in parentheses should be deleted. Financial institutions may make al terations, substitutions or additions in the clauses in order to reflect the services of fered, such as technical changes (e.g., substi tution of a trade name for the word "card,” deletion of inapplicable services), or substi tution of lesser liability limits in SA(2). S e c t io n A ( 1 )— D is c l o s u r e T hat A c cess D e v ic e I s N o t V a l id a t e d a n d H o w To D is p o s e o f D e v ic e I t V a l id a t io n I s N o t D a - ($ 205.4(b)(3)) (a) Accounts using cards. Tou cannot use the enclosed card to transfer money into or out of your account until we have validated it. I f you do not want to use the card, please (destroy it at once by cutting it In half). s is e d FINANCIAL INSTITUTION MAT ADD VALIDATION INSTRUCTIONS HERE (b) Accounts using codes. You cannot use the enclosed code to transfer money into or out of your account until we have validated it. I f you do not want to use the code, please (destroy this notice at once). FINANCIAL INSTITUTION MAT ADD VALIDATION INSTRUCTIONS HERE S e c t io n A ( 2 )— D is c l o s u r e o f C o n s u m e r ’ s L ia b il it y f o r U n a u t h o r iz e d T r a n s f e r s a n d O p t io n a l D is c l o s u r e o f A d v is a b il it y o f P r o m p t R e p o r t in g <} 205.4(d)(1)) (a) Liability disclosure. (Tell us A T ONCE if you believe your (card) (code) has been lost or stolen. Telephoning is the best way of keeping your possible losses down. You could lose all the money in your account (plus your maximum overdraft line of credit). If you tell us within 2 business days, you can lose, no more the $50 If someone used your (card) (code) without your per mission.) (If you believe your (card) (code) has been lost or stolen, and you tell us within 2 business days after you learn of the loss or theft, you can lose no more than $50 If someone used your (card) (code) without your permission.) If you donot tell us within 2 business days after you learn of the loss or theft of your (card) (code), and we can prove we could have stopped someone from using your (card) (code) without your permission if you had told us, you could lose as much as $500. Also, if .your statement shows transfers that you did not make, tell us at once. If you do not tell us within 60 days after the statement was mailed to you, you may not get back any money you lost after the 60 days if we can prove that we could have stopped someone from taking the money if you had told us in time. If a good reason (such as a long trip or a hospital stay) kept you from telling us. we will extend the time periods. S e c t io n M 3>—D is c lo s u r e of T e le p h o n e N u m b e r a n d A d d r e s s T o B e N o t if ie d in E vent of U n a u t h o r iz e d T ran sfer (J 206.4(d)(2)) (a) Address and telephone number. I f you believe your (card) (code) has been lost or stolen or that someone has transferred or may transfer money from your account without your permission, call: {Telephone number] or write: [Name of person or office to be notified] [Address] S e c t io n tutes A(4>—D is c l o s u r e o f B u s in e s s D ay or W h a t C o n s t i I n s t it u t io n (b ) Fixed charge. W e will charge you [insert dollar amount] each [insert time period] for our (automated teller machine service) (telephone bill-payment service) (point-of-sale transfer service). (c) Average or minimum balance charge. W e will only charge you for using our (auto mated teller machines) (telephone bill-pay ment service) (point-of-sale transfer service) if the (average) (minimum) balance in your (checking account) (savings account) (ac counts) falls below [Insert dollar amount]. If It does, we will charge you [insert dollar amount] each (transfer) ([insert time period]). (f 205.4<dX3)> S e c t io n A ( 7 ) — D is c l o s u r e o f A c c o u n t I n f o r m a t io n t o T h ir d P a r t ie s (a) Business day disclosure. Our business ( { 2 0 5 .4 < d X 6 )> days are (Monday through Friday) (Monday (a ) Account information disclosure. W e through Saturday) (any day including Sat urdays and Sundays). Holidays are (not) in will disclose information to third parties about your account or the transfers you cluded. S e c t io n A ( 5 >— D is c l o s u r e of T ypes A v a il a b l e T r an sfers and L im it s T r a n s f e r s ($ 205.4(d)(4)) of on (a) Account access. You may use your (card) (code) to (1) withdraw cash from your (checking) (or) (savings) account. (2) Make deposits to your (checking) (or) (savings) account. (3) Transfer funds between your checking and savings accounts whenever you request. (4) Pay for purchases at places that have agreed to accept the (card) (code). (5) Pay bills directly (by telephone) from your (checking) (or) (savings) account in the amounts and on the days'you request. Some of these services may not be availa ble at all terminals. (b) Limitations on frequency of transfers. (1) You may make only [insert number, e.g., 3] cash withdrawals from our terminals each [insert time period, e.g„ week]. (2) You can use your telephone bill-payment service to pay [insert number] bills each ([insert time period]) (telephone call). (3) You can use our point-of-sale transfer service for [insert number] transactions each [insert time period], (4) For security reasons, there are (other) limits on the number of transfers you can make using our (terminals) (telephone billpayment service) (point-of-sale transfer servicer. (c) Limitations on dollar amounts of transfers. (1) You may withdraw up to [insert dollar amount] from our terminals each ([insert time period]) (time you use the (card) (code)). (2) You may buy up to [insert dollar amount] worth of goods or services each ([insert time period]) (time you use the (card) (code)) in our point-of-sale transfer service. S e c t io n A ( 6 )— D is c l o s u h e o f C h a r g e s f o r T r a n s f e r s o r R ig h t T o M a k e T r a n s f e r s (J 205.4(d)(5)) (a) Per transfer charge. We win charge you [insert dollar amount] for each transfer you make using our (automated teller machines) (telephone bill-payment service) (point-ofsale transfer service). make: (1) Where it is necessary for complet ing transfers, or (2) In order to verify the existence and condition of your account for a third party, such as a credit bureau or merchant, or (3) In order to comply with government agency or court orders, or (4) I f you give us your written permission. B y order of the Board of Governors, M arch 21, 1979. G r i f f i t h L. G a h w o o d , Deputy Secretary. [F R Doc. 79-9261 Filed 3-27-79; 8:45 am] 18514 A D D R E S S : Secretary, B o a rd o f G o v ernors o f th e F ed e ra l R eserv e System , W a sh in g to n , D .C . 20551. A ll m aterial subm itted sh o u ld re fe r to docket n u m b e r R-0212. Extract from Federal Register VO L. 44, NO. 61 Wednesday, March 28, 1979 pp. 18514 - 18515 FOR FURTHER CONTACT: IN F O R M A T IO N R e g a rd in g th e regulation: D o lo res S. Sm ith, Section C h ief, D ivision o f C on su m er A ffa irs , B o a rd o f G o v e r nors o f th e F e d e ra l R eserve System , W a sh in g to n , D .C . 20551 (202/452 2412). R e g a rd in g th e econom ic im pact analysis: Frederick J. Schroeder, Econom ist, D ivision o f R esea rch an d Statistics, B o a rd o f G o v e rn o rs o f th e F e d e ra l R eserve System , W ash in g to n , D .C . 20551 (202/452-2584). [6210-01-M ] FEDERAL RESERVE SYSTEM [12 CFR Port 205] [Reg. E; Docket No. R-0212] ELECTRONIC FUND TRANSFERS Diicloiurw o f Comumari' Liability for Unauthorized Tramfers A G E N C Y : B o a rd o f G o v ern o rs o f th e F ed e ra l R eserve System . A C T I O N : P ro p o sed rule. S U M M A R Y : Section 909 o f th e E lec tronic F u n d T ra n s fe r Act, w h ich re lates to a consum er’s liability fo r u n au thorized transfers, becam e effective on F e b ru a ry 8,1979. T h e B o a rd is p u b lish in g fo r com m ent tw o proposals th a t re late to disclosing th e consum e r ’s liability fo r un authorized use o f an access device. P ro p o sal A w o u ld re q u ire fin an cial institutions to give con sum ers certain disclosures re gard in g th eir p oten tial liability. P ro p o sal B w o u ld m ak e com pliance w ith th e dis closure requ irem ent a precondition to th e Institution's im posing an y liability o n th e consum er. D A T E : C om m ents m ust be received on o r b efo re A p r il 30,1979. ’ Defined In Paragraph II.A. of Appendix O to 10 C FR Part 50. S U P P L E M E N T A R Y IN F O R M A T IO N : (1 ) T h e B o a rd h as adopted regulations p u blish ed in th e R u le s section o f this issue to im plem ent Sections 909 an d 911 o f th e Electronic Fufed T ra n s fe r A ct, th e tw o sections th a t becam e e f fective o n F e b ru a ry 8, 1979. U n d e r those regulations, som e consum ers w ill receive notice o f th eir potential liab ili ty fo r un authorized tran sfers b efo re M a y 1980, b u t th e vast m ajo rity o f users o f E F T devices w ill not le a rn o f th eir liability un til a fte r th e rem ain d er o f th e A c t an d regu latio n go into effect. T h e B o a rd believes th a t all con sum ers sh o u ld be in form ed o f th eir p o tential liability an d o f th e need fo r p ro m pt reporting. C onsum ers should b e aw are th a t unless th ey re p o rt th e loss o r th e ft o f an access device w ith in tw o days o f learn in g o f th e loss o r th eft, th e ir liability m ay increase fro m $50 to $500. Sim ilarly, th ey need to k n ow th a t th ey m ust re p o rt an u n au thorized tra n sfe r a p p e arin g on a p eri odic statem ent w ith in 60 days; an d th a t if th ey fa il to re po rt it, th eir lia bility fo r la te r tran sfers could be un limited. T h e B o a rd is p u blish in g tw o propos als fo r p ublic com m ent. P ro p o sa l A w o u ld requ ire fin an cial institutions to disclose t a consum ers w h o n o w h o ld E F T access devices (a s w ell as consum ers w h o ap p ly fo r access devices p rio r to M a y 1980): (1 ) w h a t th eir liability fo r un authorized tran sfers w o u ld be; (2 ) h o w to re p o rt th e loss o f th e ft o f th e access device; an d (3 ) th e institu tio n ’s business days. T h e s e disclosures w o u ld h ave to be m ad e b y A u g u s t 1, 1979, as to a ll accounts n o w in exist ence o r established betw een n o w an d J u ly 31, 1979. A ft e r A u g u s t 1, 1979, an d b e fo re M a y 1980, institutions w o u ld b e requ ired to m ake th e disclo sures b e fo re th e first electronic fu n d tran sfer is m ad e on an account. T h e B o a rd ’s P ro p o s a l B w o u ld m ake d elivery o f these interim disclosures a p recondition to im posing liability. (S ec tio n 909(b) o f th e A c t w ill m ake d elivery o f th e disclosures a precondi 18515 tion o f Im posing liability a ft e r M a y 1980.) U n d e r e ith er proposal, if a fin an cial institution assum es a ll risk an d im poses n o liab ility on a consum er fo r un authorized transfers, th en th e insti tu tion w o u ld n o t be re q u ired to p ro vide disclosures. (2 ) Section 9 0 4 (a)(2 ) o f th e A c t re quires th e B o a rd to p re p a re a n a n a ly sis o f th e econom ic im pact o f th e re gu lation s th a t th e B o a rd issues to im ple m ent th e A ct. T h e fo llo w in g economic analysis accom panies proposed §S 205.4(e) an d 205.5(a) o f th e re gu la tion, w h ich are designed to im plem ent, in part, section 909 o f th e Act.* T w o p roposals are o ffe re d f o r com m ent. P ro p o sal A requ ires th a t fin a n cial institutions m ake liability disclo sures b e fo re A u g u s t 1, 1979, to h olders o f a ll accounts th a t can be accessed b y a n electronic fu n d tra n s fe r ( E F T ) access device unless th ey im pose n o li ability o n a consum er fo r u n au th o r ized transfers. P ro p o s a l A does n ot ch an ge th e consum er’s liability lim its as set fo r t h in § 205.5(b). P ro p o s a l B , on th e o th e r hand, in effect allo w s a fin an cial institution to choose w h e th e r o r not to m ake interim liability disclo sures to consum ers, given th a t con sum ers can b e h eld liab le only i f th e institution m akes th e disclosures. In terim liab ility disclosures u n d er b o th Pro p o sals A an d B w o u ld provide consum ers w ith in fo rm atio n th a t m ig h t im prove th e ir ability to p la n fi n an cial activities an d m ig h t encourage th em to exercise greate r care in th e use o f E F T access devices an d ac counts. G r e a te r consum er care m ay b en e fit fin an cial institutions b y reduc in g u n au th o rized use o f E F T systems. A n o th e r p oten tial b en e fit to institu tions is greater consum er acceptance o f E F T stem m ing fro m Increased cer tainty a b o u t th e liability ru les ap plica b le to u n auth o rized transfers. P ro p o sal A w o u ld force fin an cial in stitutions to in cur disclosure costs if th ey im pose liability fo r un authorized use. Costs fo r disclosure statem ent draftin g, le g a l advice, prin tin g, an d distribution m ay b e h igh , even i f th e R eg u latio n E m odel disclosure clauses are used. T h e p ro xim ity o f th e A u g u st 1, 1979, disclosure deadline m ay impose addition al costs. F in an cial in stitutions, p articu larly th ose th a t 'T h e analysis must consider the costs and benefits of the proposed regulation to sup pliers and users of E FT services, the effects of the proposed regulation of competition in the provision of eletronlc fund transfer serv ices among large and small financial institu tions, and the effects of the proposed regu lation on the availability of E FT services to different classes of consumers, particularly low-income consumers. The analysis pre sented here is to be read in conjunction with the economic impact analysis that ac companied the Board's Regulation E, pub lished in the Rules section of this issue. issue p eriodic statem ents in a cycle less fre q u e n t th a n m o n th ly , m ay h ave to m ake special disclosure m ailin gs to account holders. S p ecial m ailings to h o lders o f inactive accounts w o u ld be requ ired in a n y case. Costs associated w ith th e disclosure p ro g ra m w o u ld b e passed o n to consum ers to som e degree. P ro p o sa l B w o u ld perm it fin an cial institutions to choose optim al disclo su re p ro gram s a fte r w eigh in g th e e x pected costs a n d ben efits associated w ith m ak in g th e interim liability dis closures to a ll o r som e o f th e ir account holders. A m o re efficient allocation o f resources w o u ld resu lt w ith n o loss o f consum er protection relative to th e li ability provisions established b y th e A ct. T h e provision conditioning con su m er liability o n w h e th e r in terim dis closures w ere m ad e w o u ld protect con sum ers not covered b y o th e r disclosure provisions o f th e A c t an d w o u ld g u a r antee th a t a consum er w o u ld not be h e ld liable fo r an y loss fr o m u n au th o r ized use unless disclosures w ere m ade. I t is n o t ap p a re n t w h e th e r sm all fi nan cial institutions are lik e ly to b e placed at a cost disadvantage relative to la rg e r institutions u n d er eith er P r o p osal A o r B . P ro p o s a l B , how ever, w o u ld a llo w institutions m o re fle x ib il ity to ad ap t to th e u ltim ate disclosure requ irem ent m an d ated b y th e A c t f o r M a y 1980, so th a t sm all institutions w o u ld b e be tte r a b le to schedule th e relatively la rg e r fixed-cost exp end i tures associated w ith th e ir disclosure program s. It is also n o t a p p a ren t w h e th e r low -incom e consum ers w o u ld be affecte d d iffe re n tly fr o m h lgh erincom e consum ers u n d e r th e d iffe re n t proposals. T h e B o a rd solicits com m ents an d in fo rm a tio n o n th e possible costs, ben e fits, an d significance o f th e effects dis cussed above. (3 ) P u rs u a n t to th e a u th o rity gra n t ed in P u b . L. 95-630, T it le X X , section 904 (N o v e m b e r 10, 1978), 92 Stat, 3730 (15 U .S .C . 1693b) th e B o a rd p ro poses to am en d R e g u la tio n E , 12 C F R P a r t 205, as follow s: tronic fu n d tran sfers and, a t th e fin a n cial Institution’s option, notice o f th e advisability o f p ro m p t re p o rtin g o f an y loss, th eft, o r un authorized tran s fers. (11) T h e telep h o n e n u m b er an d ad dress o f th e p erson o r o ffice to b e n o ti fied in th e event th e consum er b e lieves th a t a n un authorized electronic fu n d tra n s fe r h a s been o r m a y b e m ade. (iii) T h e fin an cial institution’s busi ness days, as determ ined under S 205.2(d). (2 ) T h e disclosures set fo rt h in p a ra g r a p h ( e X l ) o f th is section sh a ll b e m ad e b e fo re A u g u s t 1, 1979, fo r an y account accessible b y an access device a n d in existence o n F e b ru a ry 8, 1979, o r establish ed a ft e r F e b ru a ry 8, 1979. F o r a n y su ch account establish ed on o r a fte r A u g u s t 1, 1979, an d b e fo re M a y 10, 1980, these disclosures sh all b e m ad e th e first electronic fu n d tra n s fe r is m ad e in volvin g th e consum e r’s account. (3 ) T h e disclosure set fo rth in p arag a p h (e )(1 ) o f this section need not b e m ad e b y a n y fin an cial Institution th a t im poses u p o n th e consum er n o lia b ili ty fo r u n au th o rized transfers. P ro posal B 1. T h e B o a rd proposes to ad d a n ew p a ra g ra p h ( e ) to {20 5.4 as set fo rt h u n d e r P ro p o s a l A . 2. T h e B o a rd proposes, in addition, to am en d 5 205.5(a) to re a d as follow s: $205.5 Liability o f Consumer for Unau thorized Transfers. (a ) G enera l rule. A consum er is liable, w ith in th e lim itations described in p a ra g ra p h ( b ) o f th is section, fo r u n au th o rized electronic fu n d transfers involving th e consum er’s account only if: (1 ) th e access device used fo r such tran sfers is a n accepted access device; (2 ) th e fin an cial institution h as p ro vided a m ean s (su ch as b y signature, P roposal A p h o to g ra p h , fin gerprin t, o r electronic T h e B o a rd p roposes to ad d a new o r m echanical co n firm atio n ) to Identi p a ra g ra p h ( e ) to S 205.4 as follow s: f y th e consum er to w h o m th e access device w a s issued; and § 205.4 Issuance o f Access Devices. (3 ) th e fin an cial institution discloses to th e consum er, in accordance w ith • • • • • th e requ irem ents o f $ 205.4(e), th e (e ) In te rim disclosure o f con su m er’s term s specified in § 205.4(e)(1). liability. (1 ) F o r a n y account accessi b ly be an access device, th e fin an cial • • « • * institution s h a ll disclose to th e con B y o rd er o f th e B o a rd o f G o vern o rs, sum er, in a w ritten statem ent th a t th e consum er m a y retain, th e fo llo w in g M a r c h 21,1979. term s in re a d ily un derstan dable lan G r i f f i t h L. G a r w o o d , guage: D e p u ty Secretary o f the Board. (i) T h e consum er’s liability u n d e r [F R Doc. 79-9302 Filed 3-27-79; 8:45 am] §205.5, o r u n d e r o th e r ap p lic able la w o r agreem en t, fo r u n au th o rized elec