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FEDERAL RESERVE BANK OF NEW YORK C ircu la r N o. [ 10750 ~| D ecem b er 2 1 , 1994 J ELECTRONIC FUND TRANSFERS — REGULATION E Interim Rule Removing Certain Identifying Information on ATM Receipts With Request for Comments by February 1, 1995 To A l l D e p o s i t o r y I n s t i t u t i o n s in th e S e c o n d F e d e r a l R e s e r v e D is tr ic t, a n d O th e r s C o n c e r n e d : T h e f o llo w in g is fr o m th e tex t o f a sta te m e n t is s u e d b y th e B o a rd o f G o v e r n o r s o f th e F e d era l R e s e r v e S y ste m : The Federal Reserve Board has adopted an interim rule to its Regulation E, Electronic Fund Transfers, that will give financial institutions more flexibility in identifying consumer accounts on receipts at automated teller machines (ATMs). As amended by the interim rule, 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 withdrawals. In some fraud schemes, criminals are manufacturing counterfeit ATM cards using valid account numbers from receipts discarded by consumers at ATMs. They then withdraw funds by using the personal identification number that, without the consumer’s knowledge, they have observed the consumer enter at the ATM. P r in te d o n th e fo llo w in g p a g e s is th e te x t o f th e in te r im r u le , a s p u b lis h e d in th e Register. C o m m e n ts Federal th e r e o n sh o u ld b e su b m itte d b y F e b r u a r y 1, 1 9 9 5 , a n d m a y b e se n t to th e B oard o f G o v e r n o r s , a s in d ic a te d in th e n o tic e , or to o u r C o m p lia n c e E x a m in a tio n s D e p a r tm e n t. Q u e s tio n s on th is m a tter m a y be a d d r e sse d to o u r C o m p lia n c e E x a m in a tio n s D e p a r tm e n t (T el. 2 1 2 -7 2 0 -5 9 1 4 ). W il l ia m J. M c D o n o u g h , President. N o. Federal Register / Vol. 59, No. 231 / Friday, December 2, 1994 / Rules and Regulations 61787 FOR FURTHER INFORMATION CONTACT: Jane Jensen G ell or Kyung C ho-M iller, Staff A ttorneys, D iv isio n o f C onsum er and C om m unity Affairs, Board o f Governors o f the Federal R eserve System , W ashington, DC 20551, at (202) 4 5 2 2412 or (202) 4 5 2 -3 6 6 7 . For th e hearing im p aired o n l y , contact D orothea T h o m p so n , T eleco m m u n ication s D evice for th e D eaf (TDD), at (202) 4 5 2 -3 5 4 4 . SUPPLEMENTARY INFORMATION: I. B ackground FEDERAL RESERVE SYSTEM 12CFR Part 205 [Regulation E; Docket No. R-0859] Electronic Fund Transfers AGENCY: Board o f Governors o f the Federal R eserve System . ACTION: Interim rule w ith request for com m en ts. SUMMARY: T h e Board is p u b lish in g an interim rule am ending R egulation E (E lectronic Fund Transfers). T he am en d m en t elim in a tes the requirem ent that an electro n ic term inal receipt d isc lo se a num ber or cod e that u n i q u e l y id e n tifie s the consum er, the co n su m er’s accou n t, or the access d evice. T h is requirem ent currently p o ses a sig n ifica n t security risk for con su m ers and fin an cial in stitu tio n s by m aking inform ation a ccessib le to crim in als that th ey th en u se to w ith d raw fu n d s from c o n su m ers’ accounts. T he Board has ad op ted an interim rule that d eletes the requirem ent for a uniq u e id en tification , th u s en ab lin g in stitu tio n s to truncate card or a ccou n t num bers. T he Board seek s p u b lic com m en t on the interim rule, w h ic h th e Board w ill adopt in final fo llo w in g the c lo se of the com m en t period. DATES: Interim rule effective D ecem ber 1 ,1 9 9 4 ; com m en ts m ust be received on or before February 1, 1995. ADDRESSES: C om m ents sh o u ld refer to D ocket No. R -0 8 5 9 and be sen t to W illiam W. W iles, Secretary, Board of G overnors of the Federal R eserve System , W ashington, D.C. 20551. They m ay also be d elivered to Room B -2 2 2 2 o f the E ccles B u ild in g b etw een 8:45 a.m. and 5:15 p.m . w eek d ays, or to the guard station in the E ccles B u ild in g courtyard on 20th Street, N.W . (betw een C onstitution A v en u e and C Street) at any tim e. C om m ents received w ill be availab le for in sp ectio n in Room M P 500 o f the M artin B u ild in g b etw een 9:00 a.m. and 5:00 p.m . w eek d ays, excep t as p ro v id ed in 12 CFR 261.8 o f the Board’s rules regarding availability of inform ation. T he B oard’s R egulation E im p lem en ts th e E lectronic Fund Transfer A ct (EFTA). T h e EFTA p rovid es a basic fram ework estab lish in g the rights, lia b ilities, and resp o n sib ilities o f participants in electronic fund transfer (EFT) system s. T ypes o f transfers covered b y the act and regulation in c lu d e transfers in itiated through an autom ated teller m ach ine (ATM), pointof-sale term inal, autom ated clearin gh ou se, telep h o n e bill-p aym en t sy stem , or h om e banking program. R egulation E estab lish es restrictions on th e u n so lic ite d issu a n ce o f ATM cards and other a ccess devices; requires d isclo su re o f term s and co n d itio n s of an EFT service; calls for d ocu m en tation of EFTs through term inal receipts and p erio d ic accou n t statem ents; p rovides lim ita tio n s o n con su m er liab ility for u n au th orized transfers; and establishes proced u res for error resolution. II. S u m m ary o f A m en dm ent S e c tio n 2 0 5 .9 — D o c u m e n ta tio n o f T ra n sfe rs Paragraph (a)— R eceipts at E lectronic T erm in als U nder the EFTA, w h en a consum er in itia tes an EFT at an electron ic term inal, th e financial in stitu tion m ust m ake a w ritten receipt available to the con su m er. T he receipt m ust id en tify in so m e w ay the con su m er’s accou n t w ith th e fin an cial in stitu tion from or to w h ic h fu n d s are transferred. U nder th e Board’s R egulation E, in stitu tio n s can com p ly w ith th is id en tifica tio n requirem ent by in clu d in g a num ber or cod e on the receipt that id e n tifie s th e a ccess d ev ice u sed to in itia te the transfer, the consum er in itia tin g the transaction, or the c o n su m er’s accouhts. To ensure adequate id en tifica tio n , the B oard’s regu lation sp e c ifie s that the num ber or co d e sh o u ld be “u n iq u e.” T h is id en tifica tio n requirem ent w as ad op ted in 1 979, and over the years m an y fin an cial in stitu tion s have m et the requirem ent by d isc lo sin g co n su m ers’ card or accou n t num bers on the receipt; u n til recen tly, d oing so d id not appear /G 7 o O 61788 F e d e r a l R e g is te r / V o l. 5 9 , N o . 2 3 1 / F r id a y , D e c e m b e r 2 , 1 9 9 4 / R u le s a n d R e g u la tio n s to represent a security risk for fin an cial institutions. N o w , a large num ber o f in stitu tion s are reporting that the requirem ent for a u n iq u e id en tifica tio n p oses a significan t security risk for consum ers and fin an cial in stitu tion s. T hese in stitu tion s, together w ith trade association s, have asked that th e Board revise the rule to prevent ATM fraud by persons w h o observe— and often videotape— a con su m er entering a personal id en tification num ber (PIN) on the ATM keypad. T hese p ersons retrieve term inal receip ts that have b een discarded at ATM location s to obtain the con su m er’s account or ATM card number. T hey th en m anufacture a counterfeit ATM card and u se the com b in ation o f PIN and card w ith d raw funds from the con su m er’s account. One estim ate p la ces the industry lo sse s at an annual cost b etw een 25 and 40 m illio n dollars, and clim bing; others b eliev e th is estim ate is understated. Data verifying the exten t o f in stitu tion s' fraud lo sses d ue to th is problem are p u b licly unavailable b ecau se the data are proprietary in nature. But several large financial in stitu tio n s in d icate th ey have su stain ed lo sses o f as m uch as a m illio n dollars in one w eek. Institutions say that truncating the co n su m er’s accou n t or card num ber on the receipt w o u ld h elp to counter the problem . U nder the current receipt p rovision in R egulation E, how ever, they cannot readily do so b ecau se o f the lik elih o o d that the id en tification num ber on the receip t no longer w o u ld be “u n iq u e” am ong the in stitu tio n ’s custom ers. Institutions have con sid ered other w ays to reduce risk, in clu d in g retrofitting term inals to u n iq u ely id en tify a con su m er by a m eans other than a card or account number. A nother approach w o u ld be for the term inal to give custom ers the option not to receive a receipt, for custom ers w h o m ight otherw ise tend to discard their receipts at the ATM. W hile th ese approaches cou ld h elp reduce fraud, th ey w o u ld be extrem ely costly to im plem ent. E ducational efforts to encourage consum ers not to discard their receipts at the ATM site generally have been u n su ccessfu l. The interim rule elim in ates the requirem ent for a un iq u e num ber or code, and thus a llo w s in stitu tio n s to truncate th e account or card num ber d isclo sed on ATM receipts. With a truncated num ber, it b ecom es less feasible for a crim inal to d u p licate a card w ith an account num ber that m atches the con su m er’s PIN. For the con su m er’s purposes, the printed num ber w o u ld con tin u e to p rovide enough inform ation for the consum er (and the fin an cial in stitu tion ) to id en tify the transaction. T he Board b e lie v e s that the change w ill not su b stan tially d im in ish con su m er p rotections. T he p u rp ose o f the receip t requirem ent is to a llo w consum ers to verify transactions. U nder the am en d m en t, th e receipt w ill still provide su fficien t inform ation to a llow the con su m er to id en tify transfers: the date o f the transfer; the am ount o f the transfer; th e typ e o f transfer and typ e o f account; the lo cation o f the term inal; and id en tifica tio n o f any third party to or from w h ic h fu n d s are transferred. U sing th is inform ation, a con su m er co u ld m atch each transaction on the p eriod ic statem ent w ith the receip t received at the tim e the transaction took place. In ad d ition , a consum er w o u ld have the n ecessary inform ation to id en tify and resolve errors in docum entation. O rdinarily the Board p u b lish es proposed ru les for a p u b lic com m ent period before their adoption. In the present case, the Board b elie v e s the situation represents a seriou s fraud problem for con su m ers and financial in stitu tion s, and that it is im portant to act ex p e d itio u sly in am ending the current rule. T he Board b e lie v e s also that the a m en d m en t bein g ad op ted w ill reduce fraud w ith o u t com p rom isin g co n su m ers’ a b ility to id en tify their EFT transactions at ATM s. D elay in the adoption o f th is am endm ent w o u ld cause co n tin u ed lo sse s to con su m ers and fin a n cia l in stitu tio n s, w h ic h is contrary to the p u b lic interest. Furtherm ore, th e am endm ent reliev es the restriction that the accou n t num ber be “u n iq u e ,” and d oes not require in stitu tion s to take any action to im p lem en t the am en d ed regulation. M odification o f the id en tification num ber on the receip t is discretionary to the in stitu tio n . T hus, the Board finds that good cau se e x ists for the adoption o f an interim rule w ith o u t prior com m ent, pursuant to the A dm inistrative Procedure A ct (5 U.S.C. 553(b)(3)(B)). A ccord in gly, the Board is adopting an interim rule that takes effect im m ed iately, and p u b lish in g that interim rule fcr p u b lic com m en t for a 60-day period, after w h ic h the Board w ill adopt a final rule that takes into account any com m en t that may bo received. The am en d m en t to Regulation E sot forth b elo w d o es not exp ressly refer to truncation of the accou n t num ber. T he Board n otes, h ow ever, that it p lan s to cod ify the p erm issib ility o f truncation in the O fficial Staff Commentary to R egulation E, fo llo w in g the B oard’s final action on this interim rule. (This am endm ent o f Regulation E su p ersed es a p rop osed ch an ge under the regulatory review project that w as p u b lish ed for com m en t earlier this year (59 FR 10684, M arch 7, 19G4).) III. Form o f C om m ent Letter's C om m ent letters sh ou ld refer to Docket No. R -0 8 5 9 . T he Board requests that, w h e n p o ssib le, com m en ts be prepared u sin g a standard “C ourier” typeface w ith a type size o f 10 or 12 characters per in ch . T his w ill enable the Board to convert the text into m achinereadable form through electronic scanning, and w ill facilitate autom ated retrieval o f co m m en ts for review . C om m ents m ay also be subm itted on com puter d isk ettes, u sing either the 3 .5 “ or 5 .2 5 “ size, in any IBM -com patible DOS-based format. C om m ents on com puter d isk ettes m ust be accom p an ied by a hard copy version. IV. R egulatory F lexib ility A n a ly sis and P ap erw ork R ed u ction A ct The am en d m en t to R egulation E w ill p rovide m ore flex ib ility to financial in stitu tio n s in co m p ly in g w ith the EFT Act requirem ents for id en tifyin g a transaction on receipts provided at electron ic term inals. In accordance w ith section 3507 of the Paperwork R eduction A ct o f 1930 (44 U.S.C. 35; 5 CFR 1320.13), the rev isio n w ill be review ed by the Board under the authority delegated to the Board by the O ffice o f M anagem ent and B udget after con sid eration o f com m ent received during the p u b lic com m ent period. N everth eless, given that the am en d m en t p rovid es for more flexibility in c o m p ly in g w ith the law , the Board b elie v e s there is a n egligible im pact o n the paperw ork burden for state m em ber hanks and in stitu tio n s su p ervised by other agencies. List o f Subjects in 12 CFR Part 205 C onsum er protection. E lectronic fund transfers, Federal R eserve System , Reporting and recordkeeping requirem ents. For the reason s set forth in the pream ble, the Board am ends 12 CFR part 205 os set forth below : PART 205— ELECTRONIC FUND TRANSFERS (REGULATION E) 1. The authority citation for part 205 co n tin u es to read as follow s; Authority: 12 U.S.C. 1693. 2. S ection 205.9 is am ended by revisin g paragraph (a)(4), to read as follow s: §205.9 Documentation of transfers. (a) * * * Federal Register / Vol. 59, No. 231 / Friday, December 2, 1994 / Rules and Regulations (4) A n um ber or co d e that id en tifies th e con su m er in itiatin g th e transfer, the co n su m er’s accoun t(s), or th e access d ev ic e u sed to in itiate th e transfer. * * * * * By order of the Board of Governors of the Federal Reserve System, November 28,1994. William W. Wiles, S e c r e ta r y ' o f t h e B o a r d . [FR D o c . 9 4 - 2 9 6 2 5 F ile d 1 2 - 1 - 9 4 ; 8 :4 5 am ) BILLING CODE 6210-01-$» 61789
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