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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- Authority. Purpose, and Scope.
(b ) “Account” means a demand de­
205.1
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
1 In the case of a joint account, a financial
5
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