Full text of Federal Reserve Bank of New York Circulars : 8657. Regulation E - Electronic Fund Transfers

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FEDERAL RESERVE BANK
OF NEW YORK
r Circular No. 8 6 5 7 "1
L October 15, 1979 J

REGULATION E — ELECTRONIC FUND TRANSFERS
—Amendments Implementing the Electronic Fund Transfer Act
— Comments Invited on Additional Proposals
\

To All Banking Institutions, and Others Concerned,
in the Second Federal Reserve District:

The Board of Governors of the Federal Reserve System has adopted a number of additional
amendments to its Regulation E, “ Electronic Fund T ra n sfe rs/’ to implement the provisions of the
Electronic Fund T ransfer Act. In addition, the Board of Governors is also requesting comment
on changes in several proposed amendments to Regulation E.
Following is the text of the statement issued by the Board in this m atter:
The Federal Reserve Board has adopted a number of additional provisions of its Regulation E implement­
ing the Electronic Fund Transfer Act. The Board is also publishing for further public comment revisions of
several previously proposed provisions of Regulation E.
The additions adopted deal with
— requirements for disclosures to consumers who use E F T services;
—exemptions for transfers made to buy or sell securities and for transfers of funds within an institution;
— record retention;
— the relation of the Federal Electronic Fund Transfer Act to State law on this subject, and
— requirements for compliance with certain provisions of the Act by those offering electronic fund transfer
services.
The exemptions become effective November 15. The remainder of the new Regulation E rules will be­
come effective upon the effective date of the sections of the Act upon which the rules are based: May 10, 1980.
The Board’s proposals, which are substantial revisions of previous proposals, deal with
— requirements for documentation of electronic fund transfers by operators of E F T services (designed to
give consumers a record comparable to the record resulting from the transfer of funds by check) ;
— notification requirements — including a modified telephone notice proposal — in connection with pre­
authorized electronic crediting of funds;
— the allocation of responsibility for compliance when E F T services are performed by a financial institu­
tion in which the consumer does not have an account;
— requirements for prompt crediting of funds received electronically by a financial institution for a con­
sumer’s account;
—procedures for resolving errors;
—charges by financial institutions for actions and services (such as documentation and error resolution)
required by the Act or Regulation E.
The Board requested comment on its proposals by November 15.
The Electronic Fund Transfer A ct1 protects consumers in their use of E F T services. E F T services
permit consumers and others to transfer funds without the use of checks. One means by which funds can be
transferred is the use of an E F T card. Consumers can use E F T cards to make payments (for example, by
use of the card at the point of sale to authorize debit of the consumer’s account at a financial institution in
payment for the purchase of goods or services). This differs from the use of a credit card in that such use of
the E F T card authorizes funds to be taken directly out of the consumer’s account, while use of the credit card
1 Title X X of the Financial Institutions Regulatory and Interest Rate Control Act of 1978.




creates a debt that the consumer pays at a later time. The E F T card may also be used at automated tellers
to withdraw cash from the consumer’s account.
Another E F T service is the preauthorization of financial institutions to make payments for the consumer
(such as mortgage or automobile loan payments, utility bills and like repetitive payments). Consumers may use
other E F T services to authorize the electronic deposit of payments due to them (such as electronic deposit of
wages, Social Security benefits, dividends and like repetitive deposits).
rules

Several provisions of Regulation E were adopted by the Board earlier this year. They include
1.

That limit a consumer’s liability for unauthorized use of an E F T card;

2.

Specify the conditions under which E F T cards may be issued;

3. Exempting certain electronic transfers, including transfers within an institution from a consumer’s
savings account to a checking account;
4. Exempting consumers from any financial responsibility for unauthorized use of E F T cards if the
card issuer has not disclosed what liability the consumer will have for unauthorized use of the card, the tele­
phone number and address for reporting a lost or stolen card and the institution’s business days, and
5. Providing that written notice of loss or theft of an E F T card is effective when the consumer mails
or otherwise transmits the notice to the card issuer.
On April 30, the Board published proposals for the completion of rules to implement the remainder of
the E F T Act, which becomes effective May 10, 1980. The final rules and the further proposals published by
the Board today reflect the Board’s consideration of comment received from the public.
In outline, the principal additional Regulation E provisions announced by the Board today, to be ef­
fective May 10, 1980, a r e :
1.
Disclosures— When a consumer opens an E F T service account, or before the first use of the account,
the financial institution offering the service must make a number of disclosures, in a readily understandable
written statement, including:
a. The consumer’s liability for unauthorized use of the consumer’s E F T card.
b. The telephone number and address of the person or office of the card issuer to be notified in case
of suspected unauthorized transfers.
c. The financial institution’s business days.
d. The type and limitations on the E F T transfers the consumer may make.
e. Any charges involved.
f. A summary of the consumer’s right to receive documentation of electronic transfers of funds involv­
ing the consumer’s account.
g. The consumer’s right to stop preauthorized payments and how to do so.
h. A summary of the financial institution’s liability to the consumer for failing to make or stop certain
transfers.
i. Circumstances under which the financial institution will disclose information about the consumer’s
account to others.
j. A summary of the error resolution procedures and the telephone number or address the consumer
may use concerning error resolution.
The financial institution is generally required to mail or deliver these disclosures by June 9, 1980, or
with the first periodic statement after May 10, 1980.
The financial institution is also required to give at least 21 days’ notice of any adverse change in any
terms of the E F T service of which the consumer must be notified.
2.
Exemptions—The Board amended the exemptions provisions of Regulation E to include not only
automatic transfers from savings to checking accounts but also
—other transfers between a consumer’s accounts at the same financial institution (including NOW and
share draft account transfers) ;
—transfers from the financial institution to the consumer’s account (such as crediting of interest on sav­
ings accounts), and
—transfers from the consumer’s account to the financial institution’s account (such as automobile loan
payments).



2

The Board felt that such transfers parallel already permitted transfers in non-electronic form. Further,
there do not appear to be abuses of such services.
Financial institutions may not however condition extensions of credit on the consumer’s promise to re­
pay by electronic means, or require candidates for employment to agree to establish an account at the insti­
tution for electronic deposit of pay.
3. Preauthorised debits—The Board adopted its April proposal providing that consumers could, in
writing, waive their right to advance notice of varying preauthorized debits, when the consumer had been
notified of this right and had preauthorized a range of amounts within which payments could vary without
notice (as, varying monthly utility bills).
4. Relation to State law—With respect to the relation of the Federal E F T Act to similar State laws,
Regulation E as adopted provides that the Board will determine—only upon receipt of a request for a de­
termination— whether a particular State E F T law is, or is not, pre-empted by the Federal law.
5. Record retention—The Board adopted a requirement that financial institutions retain evidence of
compliance with the E F T Act and Regulation E for two years. The Board adopted this provision although
the statute of limitations runs only for one year since the agencies do not examine financial institutions uni­
formly on an annual basis. Institutions may make use of microfilm, magnetic tape or other such material for
preserving records and must retain evidence of compliance, such as making required disclosures and the send­
ing of periodic statements of account to consumers, but need not retain evidence of every transaction.

PROPOSALS
The Board revised and issued for further comment six proposals for final provisions of Regulation E.
These a r e :
1. Preauthorized credits—The Act requires that financial institutions give either positive notice of re­
ceipt of preauthorized electronic deposits to the account of a consumer (such as sending the consumer notice of
receipt of the deposit) or negative notice (sending a notice that a scheduled deposit had not been received)
unless the payor has given the consumer notice that the transfer has been started (such as notice that a wage
deposit has been initiated).
The Board, which in its earlier proposals had asked for comment on alternative procedures, proposed
that Regulation E should track these positive or negative requirements of the Act.
At the same time, the Board proposed a modification of one of its earlier proposed alternatives: that
institutions provide the consumer with a telephone number to be used to verify whether a transfer has or has
not been made. As modified, the institution would be permitted to use this alternative if it obtained the
consent of the consumer. Institutions would not have the right to require consumers to telephone for infor­
mation about preauthorized credit.
2. Services offered by a financial institution not holding the consumer’s account—
The Board requested comment on a proposal that when a consumer receives E F T services from a finan­
cial institution where the consumer does not have an account, the institution where the consumer does have
an account that would be used for E F T transfers would be absolved from virtually all the responsibilities to
the consumer under the E F T Act and Regulation E. The institution offering the services would be respon­
sible for compliance, with limited exceptions for disclosures having to do with the relationship of the institu­
tion holding the consumer’s account to that consumer.
3. Documentation of transfers—The Act requires that financial institutions document electronic transfers
by providing receipts and sending periodic statements. With the objective of making documentation for E F T
transactions essentially parallel to documentation of transfers by checks the Board proposed a revised section
on documentation in Regulation E that would require:
a. Date of the transfer— For transfer initiated at a terminal (such as point of sale and automated teller
terminals) the financial institution would have to show on the periodic statement provided to the consumer the
date the transfer was initiated and the date it was credited or charged (posted) to the consumer’s account.
— For other transactions, the periodic statement would be required to show the date the transaction was
credited or charged to the consumer’s account.
The Board noted that comment on its earlier proposal (that would have required the date the transaction
was initiated for all transfers) pointed out that in many instances (such as payroll deposit and preauthorized
payments) the date the transfer was initiated is often irrelevant and that the important date for the con­
sumer and the financial institution is the date the transaction is credited or charged to the consumer’s account.



3

b. Location of terminals—-The Board proposed that financial institutions could show on periodic state­
ments the location of the terminal used in any of three w ays: street address; name of an organization, such as
a store or financial institution, where the terminal is located or, name of a readily identifiable location (such
as O ’Hare Airport).
4.
Availability of funds— The Board proposed that financial institutions make electronically deposited
funds available to consumers promptly, as it had earlier, but with certain added specifications.
5 Procedures for processing errors—The Act requires generally that financial institutions resolve as­
serted errors in electronic transfers within 10 business days of notification by the consumer. This notification
may be in writing or oral. Alternatively, institutions may take up to 45 calendar days to investigate and re­
solve a complaint, if they provisionally recredit the consumer’s account for the amount in dispute. The Act
permits institutions to require written confirmation of an oral report of error within 10 business days of the
report, and provides that recrediting need not take place if this written confirmation is not received within
10 business days.
4 he earlier proposal would have required a notice to the consumer of recrediting, and a second notice
three days before any final recrediting, or redebiting (if no error is found). The new proposal changes the tim­
ing and procedure for the second notice. Institutions would have to tell the consumer that the account is
being debited and would be required to honor any checks written before the consumer was so notified.
The new proposal adds provisions allowing the financial institution to rely, in an investigation, on in­
formation received from any third party to the transaction and to limit the investigation to the “ four walls”
of the institution when a third party is involved with whom the institution has no agreement (such as the
Social Security Administration).
6.
Charges— Financial institutions have asked the Board whether they could charge for certain actions
and services required under Regulation E, such as documentation and error resolution.
4 he Board requested comment on two alternative proposals :
That the Board might set ceilings on charges by requiring that they be reasonable and cost-related.
—4 hat the Board prohibit charges for error resolution.

Enclosed for commercial banks, mutual savings banks, savings and loan associations, and
credit unions in this District— is a copy of the complete text of the proposals described in the Board’s
statement. It will also be made available to others upon request to the Circulars Division of this
Bank. Comments on the proposals should be submitted by November 15, and may be sent to our
Consumer A ffairs Division.
The amendments to Regulation E will be sent to you shortly. Questions regarding these mat­
ters should be directed to the Consumer A ffairs Division (Tel. No. 212-791-5919).




T homas M. T imlen ,
First Vice President.

4

■

■

■

■

■

FEDERAL RESERVE SYSTEM
[12 CFR Part 205]
[Reg. E; Docket No. R-0251]
ELECTRONIC FUND TRANSFERS
Special Requirements
Documentation of Transfers
Preauthorized Transfers
Procedures for Resolving Errors
Model Disclosure Clauses

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Proposed rule.

SUMMARY: The Board is republishing for further comment certain proposed
additional sections of Regulation E to implement certain provisions of the
Electronic Fund Transfer Act that take effect May 10, 1980. These sec­
tions were previously published for comment at 44 FR 25850 (May 3, 1979).
The Board is also separately publishing in final form other sections of
Regulation E to implement other provisions of the Act becoming effective in
May 1980. The Board is publishing for further comment a revised economic
impact analysis, as required by § 904 of the Act.
DATE:

Comments must be received on or before November 15, 1979.

ADDRESS: Comments may be mailed to the Secretary, Board of Governors of the
Federal Reserve System, Washington, D.C. 20551, or delivered to Room B2223,
20th and Constitution Avenue, N.W., Washington, D.C. between 8:45 a.m. and
5:15 p.m. Comments may also be inspected at Room B1122 between 8:45 a.m.
and 5:15 p.m. All material submitted should refer to docket number R-0251.
FOR FURTHER INFORMATION CONTACT: Regarding the regulation: Anne Geary,
Assistant Director (202—452—2761), or Lynne B. Barr, Senior Attorney
(202-452-2412), Division of Consumer Affairs, Board of Governors of the
Federal Reserve System, Washington, D.C. 20551. Regarding the economic
impact analysis: Frederick J. Schroeder, Economist, Division of Research
and Statistics, Board of Governors of the Federal Reserve System,
Washington, D.C. 20551 (202-452-2584).
SUPPLEMENTARY INFORMATION:
(1) Introduction; General Matters. The provi­
sions of Regulation E currently in effect (44 FR 18468, March 28, 1979)
implement §§ 909 and 911 of the Electronic Fund Transfer Act (Title XX, Pub.
L. 95-630), which took effect February 8, 1979. The remainder of the Act
takes effect May 10, 1980; on May 3, 1979, the Board published for comment
(44 FR 25850) additional sections of Regulation E to implement those portions
of the Act. The Board also held public hearings on the proposal on June 18
and 19, 1979.

[Enc. Cir. No. 8657]



- 2 -

The Board received 202 written comments on the proposed additional
sections. Based on the comments, the testimony at the public hearings, and
its own analysis, the Board has revised certain of the proposed sections and
is republishing them for further comment. Section 205.8 (Documentation of
Transfers) and § 205.10 (Error Resolution Procedure) have been redesignated
§§ 205.9 and 205.11, respectively. Proposed § 205.4(b) is a new provision.
The Board is also republishing § 205.10(a) (preauthorized transfers to a
consumer's account) and its corresponding model disclosure clause for com­
ment. This provision was designated § 205.8(c) in the first proposal.
These are discussed in detail in section (2) below.
Other sections are being published separately today in final form.
See the final rules document affecting Regulation E in this issue.
Section 904(a)(1) of the Act requires the Board, when prescribing
regulations, to consult with the other federal agencies that have enforcement
responsibilities under the Act. Members of the Board's staff have met with
staff members from the enforcement agencies both before and after the pro­
posed additional sections were first issued.
Federal savings and loan associations should note that they are
subject to the provisions of Regulation E and that there may be some incon­
sistency between this regulation and the Federal Home Loan Bank Board's
regulation governing remote service units (12 CFR 545.4-2). The Board of
Governors has been advised by the Bank Board that § 545.4-2 will be amended
to conform to the Act and Regulation E.
Section 904(a)(2) requires the Board to prepare an analysis of
the economic impact of the regulation on the various participants in elec­
tronic fund transfer systems, the effects upon competition in the provision
of electronic fund transfer services among large and small financial insti­
tutions, and the availability of such services to different classes of
consumers, particularly low-income consumers. Section 904(a)(3) requires
the Board to demonstrate, to the extent practicable, that the consumer pro­
tections provided by the proposed regulation outweigh the compliance costs
imposed upon consumers and financial institutions. A preliminary economic
impact statement was published with the proposed additional sections, and
a revised statement (applicable to the sections republished for further
comment) appears in section (3) below. The statement and the proposed
regulation have been transmitted to Congress, as required by § 904(a)(4).
Section 904(c) permits the Board to modify the requirements of
the Act as they affect small financial institutions if the Board determines
that modifications are necessary to alleviate any undue compliance burden.
Section 904(d) requires the Board to insure that the requirements of the Act
are imposed upon all persons that offer electronic fund transfer services to
consumers. The Board previously solicited comment on how the proposed regu­
lation would affect small financial institutions and on the extent to which
EFT services are offered by non-financial institutions. Any further comments
on this issue are welcome.




- 3 -

Because the public has already had an opportunity to comment on
the subject matter of this proposal, and because it is desirable to complete
Regulation E in final form as much in advance of the May 1980 effective date
as possible, the Board believes that an expedited rulemaking procedure is in
the public interest. Accordingly, the expanded procedures set forth in the
Board’s policy statement of January 15, 1979 (44 FR 3957), will not be fol­
lowed in connection with this proceeding.

(2)
Regulatory Provisions. Section 205.4 — Special Requirements.
Sections 205.4(a), (c), and (d) were adopted today in final form. Section
205.4(b) had no counterpart in the first proposal. It addresses an issue
which at the present time is probably quite rare, but which may in the future
be more common. Specifically, the issue is how to apportion responsibility
for compliance with the regulation where (a) one institution holds the con­
sumer’s account and a second institution provides an EFT service and (b)
there is no agreement between the institutions as to the service.
A description of a program offered by a particular financial
institution illustrates the type of program to which this provision would
apply.
A financial institution ("Bank A") now issues EFT cards to con­
sumers with whom it does not have an account relationship; the consumer’s
deposit account is held by another financial institution ("Bank B"). The
EFT card issued by Bank A can be used at automated teller machines (ATMs) and
point-of-sale (POS) terminals throughout Bank A's EFT system by the consumer
to receive cash (or make other electronic transfers) and make purchases at
merchant locations. Bank A, through the automated clearing house or by other
means, orders the consumer’s account at Bank B to be debited or credited,
depending on the transaction. The consumer has authorized Bank B to permit
the debits or credits to the consumer’s account, but there is no agreement
between Bank A (the service-providing bank) and Bank B (the account-holding
bank). The Act and regulation impose a number of requirements on Bank B,
absent a provision in the regulation to the contrary. Bank B may not offer
any EFT services of its own to its account holders, and does not have con­
trol over, or even knowledge of, many aspects of the agreement between the
consumer and Bank A.
Commenters asked the Board to clarify the respective duties of the
two institutions under such a program. Many of the comments suggested that
both banks have some responsibilities. However, since there is no agreement
regarding the service between the institutions, assigning some disclosure
responsibilities to one bank and some responsibilities to the other does not
appear to be feasible and, in addition, would be confusing to consumers using
the service. Furthermore, the Board questions the equity of imposing any
responsibility under the regulation upon Bank B, which is not offering this
service to the consumer. Therefore, the proposal would absolve Bank B from
all responsibilities and would require Bank A to undertake all of them.




- 4 -

Bank A would be required to comply with § 205.7, but the disclosures would
only relate to the EFT service it provides. For example, under § 205.7(a)(9),
Bank A would disclose the circumstances under which it will provide informa­
tion to third parties about the electronic fund transfers made by the con­
sumer under the agreement. Under § 205.7(b), Bank A would have to make
disclosures only to those consumers who had contracted for the EFT service.
Under § 205.8(b), it would only have to give the error resolution notices to
the consumers for whom it provides electronic fund transfer services. The
documentation requirements of § 205.9 would apply, except that the service­
providing institution would not have to disclose charges imposed by the
account-holding institution and would only have to give the account balance
disclosures, required by § 205.9(b)(4), if such disclosures are applicable
to the program offered by it to consumers. It would not have to give the
account balances in the consumer's account at the account-holding institu­
tion.
The service-providing institution, under the proposal, would have
to correct any errors in the electronic fund transfers made under its ser­
vice.
If the error was not corrected within 10 business days, the service­
providing institution would have to order provisional recrediting of the
consumer's account at the account-holding institution by initiating a
recrediting and giving notice of the recrediting to the consumer. Finally,
the financial institution providing the EFT service need only retain records
(under § 205.13(c)) for those transfers made by the consumer pursuant to
their agreement.
The Board understands that certain items of information may be
unavailable to the service-providing financial institution. In addition,
it is possible that the account-holding institution may make an error in
posting to the consumer's account transfers made under this service. The
account-holding institution would not have to comply with the Act's resolu­
tion procedures. The Board believes, however, that the service-providing
institution can and should be able to correct errors committed either by
itself or by the account-holding institution within the prescribed time
periods.
The Board solicits comment on the proposal's approach to alloca­
tion of responsibility and on any operational difficulties that may be
encountered by the service-providing institution in making disclosures or
correcting errors.

Section 205.9 — Documentation of Transfers. Section 205.9(a),
implementing § 906(a) of the Act, requires institutions to make a receipt
available to consumers at the time they initiate an electronic fund transfer
from an electronic terminal. The receipt must include 6 items of informa­
tion, to the extent they are applicable to the transfer. The introductory
language in § 205.9(a) remains essentially unchanged from the earlier
proposal.




Section 205.9(a)(1) requires institutions to disclose the amount
of the transfer. Comments on the first proposal indicate that, particularly
in interchange and shared electronic fund transfer systems, the financial
institution at whose terminal the transfer is made may add a transfer fee to
the amount requested or authorized by the consumer. For example, a customer
of Bank. A withdraws $50 from an automated teller machine operated by Bank B,
which imposes a charge of $0.25 on the transfer. The Board proposes to per­
mit the combined amount ($50.25 in the example) to be disclosed as the amount
of the transfer, but requests comment on this issue.
Section 205.9(a)(2) requires disclosure of the date on which the
transfer was initiated. Several commenters raised the issue of whether the
date disclosed should be the date on which the consumer uses the terminal
or the date on which the transaction is posted, if different. The Board
believes that the date of initiation is the most meaningful to the consumer
and that providing it creates the fewest operational problems. For these
reasons, the Board proposes to require disclosure of the initiation date on
the terminal receipt.
The first proposal would have required financial institutions to
indicate the type of transfer and the consumer’s account from or to which
funds were transferred. Many comments indicated that requiring the finan­
cial institution to generate the account identification, which the Board
envisioned would normally consist of the account number, would create oper­
ational, privacy, and security problems. For these reasons, the Board has
substantially revised §§ 205.9(a)(3) and (4). As now proposed, paragraph
(4) would require identification of the access device, such as the card
number, rather than a specific identification of the consumer’s account.
This identification is not intended to include a personal identification
number or other security code.
Because nearly all such devices access only one savings account
and one checking account, the Board believes that identification of the
device, combined with the type of account, would provide full identifica­
tion of the affected account. Therefore, the Board proposes to require not
only the type of transfer, such as a payment or withdrawal, but a generic
identification of the account, such as checking or savings. The example
in § 205.9(a)(3) illustrates the level of information required. Section
205.9(a)(3) also continues to permit the institution to convey the informa­
tion by a code, but has been redrafted to make it clear that the code
explanation must appear on the receipt itself.
The first proposal would have required a disclosure of the loca­
tion" of the terminal, although the statutory language called for location
or identification." The current proposal would permit the financial insti­
tution to provide either a location or an identification, such as a terminal
number. If a location is shown on the receipt, the format requirement of
§ 205.9(b)(l)(iv) must be met. If the institution chooses to use an ident­
ification, such as a terminal number or code, that identification need not




- 6 -

be explained elsewhere on the receipt. However, on the later statement
which reflects that transfer, the location to which the number or code
relates must be disclosed.
Section 205.9(a)(6) requires an institution to identify any third
party to or from whom funds are transferred by means of an electronic term­
inal. As in the first proposal, where the consumer provides information on
the identity of the third party by means of a handwritten or other non­
machine-readable document placed in the terminal, the institution would not
be required to capture the identity of that third party on the receipt. The
Board wishes to emphasize, however, that the periodic statement reflecting
that transaction must include the identity of that third party. Paragraph
(6) also permits the use of a code to identify the third party, but the code
must be explained elsewhere on the receipt. For example, a financial insti­
tution which permits payments to certain utilities to be made through its
automated teller machines may wish to preprint, on the back of the documen­
tation, a series of codes and the specific utilities to which they relate.
A consumer using this service would key in the code relating to the utility
for which payment is being authorized and the receipt would generate that
code.
Section 205.9(b), implementing § 906(c) of the Act, requires
institutions to provide consumers with periodic statements summarizing the
electronic fund transfer activity occurring in the consumer's account dur­
ing the statement cycle. Institutions subject to § 205.9(b) must provide
a written statement to the consumer for each month in which there was elec­
tronic activity in the account. Where no activity occurs, the statement
must be provided on at least a quarterly basis. Many commenters requested
a longer statement cycle, but the Board believes that the language of
§ 906(c) of the Act is clear.
Set forth below is an example of a periodic statement illustrat­
ing the requirements of proposed § 205.9(b). The Board wishes to emphasize
that, while information must be provided for each account accessible by
electronic fund transfers, a financial institution may furnish a single
periodic statement that combines information on more than one account.
A sentence has been added to the introductory language to make
it clear that the information required by paragraph (b)(1) may be shown on
accompanying documents, rather than on the periodic statement itself. This
is in accord with the language of the Act, which specifically authorizes
the use of accompanying documents. For example, the institution may furnish
copies of terminal documentation to reflect transfers initiated by the con­
sumer through electronic terminals. This would be analogous to the "country
club" billing procedures permissible under Regulation Z and the Truth in
Lending Act.
(The example shown below is more similar to "descriptive"
billing statements.)
Section 205.9(b)(1)(i) would require the financial institution
to show the amount of the transfer. The Board is aware that, in a shared or




7

interchange system, the account-holding institution may be unable to deter­
mine which portion, if any, of the transfer represents a transaction charge
imposed by the institution at whose terminal the transfer was initiated.
The Board’s proposal would permit the account-holding institution to dis­
close the entire amount as the amount of the transfer. For example, the
$100.25 debit shown in the periodic statement represents a $100 withdrawal
authorized by the consumer, together with a $0.25 charge imposed by the bank
which operates the terminal at LaGuardia Airport.
The date disclosure required by § 205.9(b)(l)(ii) depends on the
type of transfer involved. Transfers initiated by a consumer at an elec­
tronic terminal require the disclosure of the date of initiation in all
cases, as well as the date that the amount is posted to the consumer's
account, if different from the initiation date. In proposing this require­
ment, the Board believes that disclosure of both dates is essential to the
consumer for purposes of account reconciliation and recollection of transfers
made through a terminal. However, in preauthorized and telephone-initiated
transfers, the Board believes that the initiation date may be irrelevant to
the consumer and § 205.9(b)(1)(ii)(B) requires disclosure only of the posting
date for such transfers. The first two columns in the example below reflect
the date disclosures required for the three types of transfers.
Section 205.9(b)(1)(iii) requires the institution to indicate the
type of transfer and the type of account affected by the transfer. This
requirement would be satisfied by the same type of information as provided
under § 205.9(a)(3), such as "withdrawal from checking" or "payment from sav­
ings." The Board specifically requests comment on any operational problems
which may prevent an institution from describing the type of transfer.
For example, several commenters indicated that, in a shared or interchange
system, an account-holding institution may be unable to determine the nature
of a debit, such as a payment or withdrawal, received from another institu­
tion.
The information required by paragraph (l)(iii) may be provided by
a code that is explained elsewhere on the periodic statement or in accom­
panying material. For example, in disclosing a transfer initiated through a
terminal, the institution may provide an explanation of the code on a copy
of the terminal receipt provided with the periodic statement. In the illus­
tration below, the transfer codes are preprinted on the periodic statement
itself. Because the statement reflects only checking account transfers, a
generic identification of the account is unnecessary in the list of transfer
codes. The sole exception is transfer code 61, which affects the customer’s
savings account, as well as the checking account for which the statement is
issued. In a combined statement, a further identification of the type of
account would be necessary.
Section 205.9(b)(1)(iv) sets forth the disclosure requirements for
terminal location. The Board proposes to limit this requirement to transfers
initiated by the consumer at electronic terminals because it appears to be




8

relevant only in these cases. In the statement below, transfer types 01,
03, 05, 21, and 61 represent terminal transfers which would be subject to
this requirement.
In implementing this provision, the Board seeks to provide enough
specificity to assure the consumer of a complete description, while at the
same time allowing institutions the flexibility to devise a meaningful
identification. Therefore, paragraphs (A) through (C) provide three differ­
ent ways of describing the location of the terminal. The institution may
choose any one of these methods in making this disclosure.
Paragraph (A) refers to a street address such as "500 Main St.,
Anytown, OH" or "Chestnut/Oak Sts., Anytown, OH." Paragraph (B) permits the
institution to describe the location with a term, such as "LaGuardia Airport,
N.Y., N.Y.," which has public recognition and conveys a particular location
to the consumer. Paragraph (C) permits disclosure of the name of a merchant
or financial institution on whose premises a terminal is placed. The Board
envisions that this alternative would be used primarily to describe pointof-sale terminals at a seller’s place of business. In the example below,
the descriptions of those transfers designated as type 21 illustrate para­
graph (C).
Footnote 2 to this paragraph is intended to prevent the account­
holding institution from describing the location of its own terminals simply
by the name of the institution, rather than a more specific geographic loca­
tion. For example, if a customer of XYZ Bank withdraws funds through an
automated teller machine located at a branch of that bank, the terminal loca­
tion may not be described merely as "XYZ Bank, Anytown, OH."
If, on the terminal documentation provided under § 205.9(a), the
institution used a terminal number or other identification, rather than a
location, the institution must repeat that identification on the periodic
statement along with one of the required descriptions of the terminal's loca­
tion. The institution may describe the location on material accompanying
the periodic statement, such as a master list of terminal numbers and the
locations to which they relate.
Section 205.9(b)(l)(v) requires the institution to disclose the
name of any third party to or from whom funds are transferred. Footnote 3
exempts from that provision the deposit of checks or similar negotiable
instruments in an electronic terminal for later manual processing. In such
cases, the institution would not be required to capture manually the names
of third parties on the instruments for later disclosure on the periodic
statements.
The second sentence of § 205.9(b)(1)(v) sets forth special re­
quirements regarding disclosure of the name of any third party for transfers
initiated by a consumer at an electronic terminal. In such cases, the insti­
tution must repeat on or with the periodic statement the name or code used




- 9 -

on the terminal documentation to identify the third party. For example,
where the terminal documentation in a point-of-sale transaction showed the
merchant1s "doing business" name, the periodic statement must reflect that
name and not the name of any parent corporation. If the institution used a
code on the terminal documentation, the periodic statement or accompanying
material must also provide the name of the third party to which the code
relates.
The Board wishes to emphasize that the proposed location and
third-party requirements may in some cases be satisfied by a single disclo­
sure. For example, for the purchases (transfers labeled ”21") shown below,
the information contained in the column headed "Description of Transfer
represents both the third party merchants to whom funds were transferred
and the locations of the point-of-sale terminals involved.
Section 205.9(b)(2) requires the institution to disclose the
number of the consumer's account or accounts to which the periodic statement
relates. As illustrated in the statement below, the account number need be
shown only once on the periodic statement, rather than repeated with each
description of a transfer.
Section 205.9(b)(3) requires disclosure of the total amount of any
fees or charges assessed for electronic fund transfers or services. Only
those charges which are specifically related to electronic fund transfer
services must be disclosed. For example, if the institution imposes a fixed
fee for use of an account whether or not the consumer utilizes the electronic
fund transfer services associated with that account, no disclosure need be
made. The amount shown must be an aggregate of all charges imposed. The
institution need not itemize the various types of charges it imposes.
The Board is aware that in a shared or interchange electronic
fund transfer system, the account-holding institution may have difficulty
in segregating the amount of the transfer from any charge imposed by another
institution at the point of origination. This proposal would permit insti­
tutions to disclose these amounts simply as the amount of the transfer under
§ 205.9(b)(1)(i), with no portion of that amount allocated to the fees or
charges to be disclosed under paragraph (3). Comment is specifically
requested on this issue.
Proposed §§ 205.9(b)(4) and (5), which require the statement to
show beginning and ending account balances and the address and telephone
number to be used for inquiries or error notifications, are essentially
unchanged from the first proposal.
Section 205.9(b)(6) applies to institutions which utilize the tele­
phone alternative set forth in proposed § 205.10(a)(1)(iii) for providing
to consumers regarding preauthorized transfers to consumers accounts.
Under paragraph (6), the institutions must inform consumers, on each periodic
statement, of the telephone number to be used for that purpose.




- 10 -

XYZ BANK
Statement of Account

Direct Inquiries to:
Mary and John Doe
421 Elm Street
Anytown, OH 44000

Posting
Date

08
08
08
08
08
08
08

13
13
15
17
20
22
22

Initiation
Date
08 7
08 10
08 12

CHECKING ACCOUNT

44-66-8800

Beginning Balance

794.65

Credits

Debits

25.00
114.13
72.34
278.49
438.73
23.86
52.50
100.25
88.00

08 20
08 21

08 24
08 27
08 27

(216) 111-1111
P. 0. Box 1234
Anytown, OH 44000

704.65
08
08
08
08




25
25
29
27

59.64
65.00
43.42
300.00
Ending Balance

Type of
Transfer
01
03
21
51
31
41
41
01
21
31
05
03
21
61

Description of Transfer

#123 - 500 Main St., Anytown, OH
#568 - Chestnut/Oak St., Anytown, (
ABC Dept. Store, Anytown, OH
Anytown Savings & Loan
ACME Steel Corp.
1st Bank of Anytown
ABC Dept. Store
#24A - LaGuardia Airport, NY, NY
Metropolis Dept. Store, NY, NY
Anytown Hospital
#456 - E-Z Shopping Mall, Anytown,
Ohio Electric Power Co.
#456 - E-Z Shopping Mall, Anytown,
A-l Food Store, Anytown, OH
#123 - 500 Main St., Anytown, OH
1,073.90

Transfers
01
03
05
21
31
41
51
61

-

Withdrawal
Deposit
Utility payment
Purchase
Direct deposit of payroll
Telephone bill payment service
Preauthorized debit
Transfer from checking to savings

11

Sections 205.9(c) and (d) provide limited exceptions to the
general periodic statement requirements set forth in § 205.9(b). Under
§ 205.9(c), a financial institution need not provide a periodic statement
for passbook accounts which cannot be accessed electronically except by pre­
authorized electronic credits. Instead, the institution may simply update
the passbook information whenever the passbook is presented by the customer.
Section 205.9(d) permits institutions to send periodic statements on a
quarterly rather than a monthly basis on non-passbook accounts which cannot
be accessed electronically except by preauthorized credits. It should be
noted that the format and content of the quarterly statement must satisfy
§ 205.9(b). These provisions have been redesignated, but are otherwise
unchanged from the first proposal.

Section 205.10 — Preauthorized Transfers. Section 205.10(a)(1),
which was designated § 205.8(c) in the first proposal, implements § 906(b)
of the Act. The Act requires an institution to provide a consumer whose
account is scheduled to be credited with a preauthorized transfer from the
same payor at least once every 60 days with either positive or negative
notice of whether the transfer occurred, except where the payor provides
positive notice of the transfer to the consumer.
The Board had proposed three additional ways in which
financial institutions could satisfy the statutory requirement. Proposed
§ 205.8(c)(l)(iii) provided that notice would be considered given if the
institution transmitted a periodic statement within 2 business days after
the transfer was scheduled to occur. A number of commenters pointed out, and
the Board agrees, that a periodic statement is simply one permissible means
of providing positive or negative notice and is therefore implicit in para­
graphs (a)(1)(i) and (a)(l)(ii). Section 205.8(c)(1)(v) of the proposal
would have required the institution to notify the consumer only where the
failure to receive the transfer resulted in an overdraft or a credit exten­
sion or an automatic transfer to cover an overdraft. This alternative would
have been available only if the institution paid all items presented and
imposed no overdraft or related charges. Comments characterized this altern­
ative as extremely burdensome to institutions and unfavorable to consumers.
The Board has therefore eliminated this alternative.
The Board has decided to publish for comment a modified version of
a provision that appeared in the first proposal. Section 205.8(c)(1)(iv) of
the first proposal would have permitted a financial institution to establish
a telephone line that the consumer could call to ascertain whether an
expected preauthorized credit had arrived. The new proposal would also
permit use of a telephone number but the financial institution would have
to inform the consumer of the right to receive notice. The consumer would
then have a choice as to the form of notice. The proposal would not prohibit
an institution from charging for paper notice but the Board expects any
charge imposed to be reasonable. If the consumer elects to use the tele­
phone number, the proposal would require the institution to disclose the
number at the time of the election and on each periodic statement.




12

Two other changes have been made in the proposal. The introduc­
tory language has been changed to clarify the type of notice the payor must
provide in order for the exception to apply. The institution need not pro­
vide notice where the payor informs the consumer that the transfer has been
"initiated." For example, a pay slip furnished by an employer would constitute
sufficient notice by the payor in a direct payroll deposit program. Second,
the word "transmitting" has been substituted for the word "providing" to
make clear that where the institution provides written notice, it need only
be sent by the institution, not received by the consumer, within 2 business
days.
The Board has postponed final action on § 205.10(a)(2) until after
its consideration of Subpart C of Regulation J. This provision would require
institutions that accept preauthorized credits subject to paragraph (a) to
credit the transfer as of the business day on which the institution receives
value. The proposal has been modified to address an operational problem
with the first proposal, namely, that the funds be available to the consumer
at the opening of business on the date the transfer is scheduled to be made.
In addition, the institution need not take action under this paragraph until
it is actually in receipt of the funds.

Section 205.11 — Procedures for Resolving Errors. Before dis­
cussing the specific provisions of § 205.11, the Board wishes to invite
comment on the question of charging for complying with the error resolution
procedures. Comments on the first proposal and the Board's experience with
the Fair Credit Billing Act indicate that a number of financial institutions
contemplate imposing charges when a consumer seeks copies of documents (which
is an error under proposed § 205.11(a)(1)(vii)) and possibly for investigat­
ing other notices of error as well. A consumer would not know in advance
how a notice of error would be resolved. The Board is concerned that, fear­
ing the imposition of charges should an error not be resolved in their favor,
consumers will be reluctant to exercise their rights under the statute.
On the other hand, a financial institution probably should be permitted to
impose a charge when a consumer requests copies of documents for business
or tax purposes.
The Board solicits comment on whether any charges for complying
with the error resolution procedures should be prohibited. Alternatively,
the Board invites comment on (1) permitting reasonable charges for copies of
documentation requested under this section but prohibiting all other charges
(such as investigation fees) for complying with the error resolution pro­
cedures; or (2) permitting the financial institution to impose reasonable
charges for error resolution as long as the charges do not violate § 914 by
constituting a waiver of the consumer's rights.
This section corresponds to § 205.10 of the first proposal. Sec­
tion 205.11(a) now contains the definition of "error," which in the first
proposal appeared as § 205.2(1). Section 205.11(a)(1)(i), which provides




- 13 -

that an unauthorized electronic fund transfer constitutes an error, remains
unchanged from § 205.2(1)(1) of the first proposal. The first proposal’s
commentary, however, stated that a consumer’s notifying a financial institu­
tion of the loss or theft of an access device would be considered an error.
Such an interpretation would have required a financial institution to follow
the error resolution procedures where unauthorized use was a possibility
rather than an actual occurrence. Numerous commenters argued that, since
the consumer’s liability for unauthorized use terminates upon the consumer’s
notifying the financial institution of the loss or theft of the access
device, treating such notice as an error would not grant the consumer greater
protection. Furthermore, many commenters were concerned that they would be
unable to undertake a meaningful investigation since a notification of loss
or theft would not necessarily focus on any particular transfer or group of
transfers that might be unauthorized. The Board believes that notification
to the financial institution of the loss or theft of the access device,
absent an allegation of unauthorized use, would not require the institution
to comply with the requirements of § 205.11. An institution must, however,
treat allegations of possible unauthorized use as errors.
Sections 205.11(a)(1)(ii), (iii), and (v), which correspond to
§§ 205.2(1)(2), (3), and (5) of the first proposal, remain unchanged.
Section 205.ll(a)(l)(iv), which corresponds to § 205.2(1)(4) of
the first proposal, has been changed in two respects. The first proposal
defined as an error "a computational error or similar error of an accounting
nature made by the financial institution.” The language has been changed
in response to several comments to make clear that this paragraph applies
only to errors relating to electronic fund transfers. In addition, the word
"bookkeeping" has been substituted for "accounting" to avoid any implication
that the Board intends to include errors of judgment that may occur in mak­
ing accounting decisions. The provision, as presently written, would include
arithmetical errors, posting errors, errors in printing figures, and figures
that were jumbled due to mechanical or electronic malfunction.
Section 205.11(a)(1)(vi) corresponds to § 205.2(1)(8) of the
first proposal. The previous draft treated as an error any misidentified
or insufficiently identified transfer, or any transfer not in the amount or
on the date indicated on or with any required documentation. This proposal
specifically indicates that the financial institution must treat as an error
an inquiry about a transfer that the consumer does not recognize. In addi­
tion, any failure to identify the transfer in accordance with § 205.9 (which
would include the correct amount and date) is an error.
Section 205.11(a)(l)(vii) provides that error resolution proce­
dures are activated by a consumer's request for any documentation required
by §§ 205.9 and 205.10(a) or for any additional information or clarification
concerning an electronic fund transfer. In § 205.2(1)(7) of the previous




14 -

proposal, the failure to provide required documentation was considered an
error, whereas the current proposal regards only consumers’ requests for such
documentation to be errors. These requests for documentation, however, would
be considered errors whether or not the documentation had been previously
provided. The current provision specifically indicates that an error
includes any request for information or copies of documents that the consumer
wants in order to find out whether a mistake exists in the consumer's account
regarding an electronic fund transfer. Thus, if a consumer requests docu­
mentation or information regarding a particular transfer without alleging a
mistake, that documentation or information must be provided to the consumer
in accordance with § 205.11.
Section 205.11(a)(2), which is new, provides that certain routine
requests for information and copies of documents are not considered errors.
Under this paragraph, a financial institution has no error resolution
responsibilities when a consumer makes a routine inquiry regarding the bal­
ance in the consumer's account. This would include, for example, an inquiry
made under proposed § 205.10(a)(l)(iii) to find out whether a preauthorized
transfer has occurred. This section also exempts from the error definition
any request for information or documentation for tax or business purposes.
The Board solicits comment on this provision, and is particularly interested
in knowing whether there are other types of inquiries that should not be
considered errors under § 205.11.
Section 205.11(b) corresponds to § 205.10(a) of the previous pro­
posal. In response to several comments, clarifying language has been added
to indicate that a financial institution has error resolution responsibili­
ties only when the consumer notifies the financial institution of an error.
The financial institution need not comply with the error resolution procedures
if it or its auditor, for example, discovers an error, or if any other"party,
other than an agent of the consumer, notifies the financial institution con­
cerning an error.
Section 205.11(b)(1) corresponds to § 205.10(a)(2) of the first
proposal. That proposal, like the current proposal, provides that the error
notification must be received no later than 60 days from transmittal of the
periodic statement first reflecting the alleged error.
Some commenters stated that this 60-day period should begin when
the consumer receives the terminal receipt. The Board still believes, how­
ever, that the 60-day period is more precisely and simply calculated (with
two minor exceptions noted below) from transmittal of the periodic statement.
Other commenters objected to limiting the consumer's notice period by using
the periodic statement that first reflects the error, claiming that the con­
sumer may not have the necessary information at that point to assert an
error. The Board has responded to this concern by providing the consumer
with an additional 60 days to assert an error after the consumer receives
the additional documentation or information needed to assert an error.




15

Additional language has been added to address the application
of the 60-day time limit in two specific cases. First, under § 205.9(c)
(involving passbook accounts that may not be accessed by any electronic
fund transfers other than preauthorized credits), if the financial institu­
tion chooses to update the consumer's account with the amount(s) and date(s)
of each transfer upon presenting the passbook rather than to provide periodic
statements, the 60-day period runs from the updating (in the manner required
by § 205.9(c)) that first reflects the alleged error. Second, as noted
above, where the consumer requests additional information, clarification, or
documentation so that he or she can determine whether to assert an error
within the meaning of paragraphs (a)(l)(i) through (vi), a second 60-day
time period runs from the financial institution's transmitting to the con­
sumer the additional information, clarification, or documentation requested.
The second sentence of § 205.11(b)(1) corresponds to
§§ 205.10(a)(l)(i) and (ii) of the first proposal. Section 205.10(a)(l)(i)
of the first proposal provided that the notification of an error (referred
to in the present proposal as a "notice of an error") should enable the
financial institution to identify the consumer's account. A number of the
comments received from both consumer groups and financial institutions
objected to the omission of the statutory language of § 908(a)(1) that the
notice should enable the financial institution to identify the consumer's
name as well as the account number. The present proposal reflects the
statutory language.
Section 205.10(a)(1)(ii) of the first proposal set forth the
information that the consumer should provide in notifying the financial
institution of an alleged error. Language has been added to the present
§ 205.11(b)(1) to indicate clearly that this provision does not apply to
errors asserted under paragraph (a)(l)(vii). Section 205.10(a)(1)(ii) of the
first proposal also referred to "any documentation required by this regula­
tion." As a result of several comments, the current proposal specifically
identifies the documentation intended to be covered in this provision. The
Act refers to the documentation required by §§ 906(a) (terminal receipts),
906(b) (positive or negative notice of preauthorized credits), 906(c) (peri­
odic statements) and 906(d) (updating of passbook accounts). This proposal
specifically refers to §§ 205.9 and 205.10(a), the regulatory counterparts
to these sections, and in doing so, includes the documentation required by
§ 906(e) and § 205.9(d) (quarterly statements for certain non-passbook
accounts). This paragraph also reflects a change suggested by some commenters, namely, that the consumer would be required to provide the financial
institution with the date of the alleged error, if possible, together with
the type and the amount of the alleged error. For example, if the periodic
statement shows ten $25 transfers, identification of the date(s) of the
transfer(s) questioned would prove helpful and possibly necessary.
Section 205.11(b)(1) of the present proposal also retains the pro­
vision that the reasons for the consumer's belief that an error has occurred
and a description of the suspected error need only be provided to the extent




16 -

possible. The commentary to the first proposal suggested that a financial
institution would not be relieved of error resolution responsibilities where
a consumer is unable to describe the error or articulate the amount of or
the reasons for the error. A number of the comments objected to both the
language of the provision and the interpretation suggested in the commentary
as permitting vague assertions (that may be difficult to investigate) to
trigger error resolution procedures.
The Board still believes that its
position is proper and necessary in order to minimize the possibility that
a consumer could be denied the protections of § 205.11 by not being able to
understand the cause or nature of the error or articulate the reasons for
the error. Consequently, where a consumer’s notification is somewhat vague
or imprecise, a financial institution is expected to make a good faith effort
to identify and resolve the alleged error.
Section 205.11(b)(2), which corresponds to § 205.10(a)(3) of the
first proposal, remains unchanged.
The introductory language to the previously designated § 205.10(b)
has been combined with § 205.10(b)(1) and the alternate time limit provision of
§ 205.10(b)(2) and is now reflected with one modification as §§ 205.11(c)(l)(i)
and (ii) in the current proposal. The concept of relieving a financial
institution of its error resolution responsibilities when a consumer subse­
quently agrees that no error has occurred is reflected in § 205.11(g) of the
current proposal. To make clear that the term "report" contemplates oral
rather than written communication, the word "orally" has been inserted.
This change is also reflected in §§ 205.11(e)(2) and (f)(2).
Section 205.11(c)(l)(ii)(A), which corresponds to § 205.10(b)(2)(i),
has been changed to reflect explicitly the Board’s position regarding the
amount that can be withheld by the financial institution when provisionally
recrediting a consumer's account. The Board suggested in the commentary to
the first proposal that $50 was the maximum that could be withheld. The
Board continues to believe that this is the appropriate interpretation of
the Act. Under § 909(a), in order to impose liability greater than $50, the
financial institution must prove that the consumer failed to report loss or
theft of the access device within two business days of learning of it and
that the institution could have prevented the loss had timely notice been
given. Permitting the institution to withhold up to $500 under error reso­
lution would relieve it of the burden of proof imposed by the statute. The
provision has been further clarified to indicate that a financial institution
may withhold up to $50 only when an unauthorized electronic fund transfer is
suspected. The Board believes that to allow the financial institution to
withhold more than $50 or to permit the financial institution to withhold
any amount without suspecting an unauthorized electronic fund transfer would
undermine the purpose of the recrediting provision.
Section 205.ll(c)(l)(ii)(B), formerly designated § 205.10(b)(2)(ii),
deals with the consumer's having full use of provisionally recredited funds.
The first proposal required notification of the consumer 3 business days
before debiting a provisionally recredited amount. The current proposal




17

requires notice upon debiting a provisionally recredited amount. Therefore,
the Board proposes in § 205.11(c)(l)(ii)(B), in order to ensure the full use
of recredited funds, to require that the financial institution honor any
items drawn on the provisionally recredited funds prior to the time that the
consumer either receives the notice required by § 205.11(f)(2), or can be
expected to have received the notice, whichever is earlier.
Section 205.ll(c)(l)(ii)(C), which requires that the consumer be pro­
vided with a notice of provisional recrediting, corresponds to § 205.10(b)(2)(iii) .
Since the current proposal no longer requires notification of the consumer
3 business days before debiting a provisionally recredited amount, the notice
has been modified accordingly. The current proposal requires that the consumer
be notified of the amount and the date of the recrediting and of the fact that
the consumer will have the use of the recredited funds while the financial
institution investigates the alleged error and determines whether an error
occurred. Comment is invited on whether the financial institution should
notify the consumer that the financial institution is required to pay checks
written against the recredited funds until the consumer receives the notice
of debiting.
A number of commenters asked for clarification on whether the
recrediting provisions apply where a consumer merely requests additional
information or documentation under § 205.11(a)(1)(vii). The Board believes
that resolution in these cases consists of providing the requested informa­
tion or documentation, and that the financial institution should be able
to do this within 10 business days. If the institution takes more than 10
business days, however, the recrediting procedures will then apply. The
amount recredited would be the amount of the transfer(s) about which the
consumer requested information or documentation.
Section 205.11(c)(2), which corresponds to the final sentence of
§ 205.10(b)(2), remains unchanged except for the deletion of unnecessary
explanatory language.
Section 205.11(d) is new. Paragraph (d)(1) makes clear that the
regulation does not require an investigation of an alleged error where the
financial institution would prefer to make a final correction to the con­
sumer's account in the amount or in the manner alleged by the consumer to
be in error. This course of action should not involve more than 10 business
days since the decision to correct without investigating would probably be
made almost immediately after a financial institution receives a notice of
an error. This proposal in no way relieves the financial institution from
complying with any other applicable requirements of the section (for example,
the correction provisions of §§ 205.11(e)(1) and (2)).
Many comments indicated that financial institutions cannot, within
the 10-business-day provision of § 205.11(c)(1)(i), investigate alleged
errors arising out of transfers that involve third parties with whom finan­
cial institutions do not have agreements (for example, payroll deposits from




- 18 -

a third party or utility payments to a third party) if the financial institu­
tion is required to investigate the alleged error with the third party. The
commenters also argued that if they must carry the investigation to a third
party, they will be forced to provisionally recredit a consumer's account in
order to take advantage of the alternative 45-day time period.
Consequently, in § 205.11(d)(2) the Board proposes to address this
issue by limiting the scope of investigation that must be undertaken by the
financial institution where a third party is involved. The proposal provides
that a financial institution need only review its own records when investi­
gating an alleged error concerning transfers to or from a third party with
whom the financial institution does not have an agreement. The Board expects
that limiting the extent of investigation required will alleviate the con­
cerns regarding provisional recrediting. Section 205.11(d)(2) would also
apply to a consumer's request for information or documentation that is not
in the institution's possession, such as a copy of a utility bill that was
paid by means of an electronic transfer. In such a case, resolution would
consist of a timely response to the consumer that the institution does not
have copies of utility bills.
Numerous commenters asked whether an independent verification of
information was required when a financial institution, in investigating an
alleged error involving a third party (including a third party with whom
the financial institution has an agreement), receives information from that
third party. Section 205.11(d)(3) responds to this issue and provides that
a financial institution may rely upon information supplied by third parties
and is not obliged to verify the accuracy of such information.
Sections 205.11(e) and (f) correspond to § 205.10(c) of the first
proposal. Section 205.11(e)(1) is identical to the first proposal except for
the addition of clarifying language regarding the correction of the account
in the case of an unauthorized electronic fund transfer. The regulation
reflects the fact that the financial institution, at this point in the reso­
lution process, must have satisfied the requirements of § 205.6(a) in order
to impose any liability on the consumer for an unauthorized electronic fund
transfer.
In order to impose liability on the consumer in an amount greater
than $50, however, the financial institution must satisfy the additional
requirements detailed in § 205.6(b). The Board invites comment on the man­
ner in which financial institutions anticipate satisfying the requirements
of § 205.6(b) in those instances in which financial institutions seek to
impose liability in excess of $50.
In an effort to ease compliance with the notification of correc­
tions requirement, a provision has been added to paragraph (e)(2) (formerly
paragraph (c)(1)(ii)) expressly permitting a financial institution to notify
the consumer of a correction by clearly reflecting the correction on a peri­
odic statement as long as the periodic statement is mailed or delivered
within the 10-business-day or 45-day time limits of §§ 205.11(c)(1)(i) or
(ii).




- 19 -

Paragraphs (f)(1) and (3), formerly (c)(2)(i) and (iii), remain
the same as the earlier proposal, except that the last sentence of the first
proposal's paragraph (c)(2)(iii) is now contained in the current proposal's
paragraph (f)(1). Paragraph (f)(2), however, as previously mentioned, no
longer requires that a financial institution notify the consumer 3 business
days before debiting a provisionally recredited amount. Many commenters
objected to the first proposal, claiming that notifying the consumer 3 busi­
ness days in advance would encourage the withdrawal of recredited funds to
which the consumer might not be entitled. In response to the comments, the
current proposal requires in § 205.11(f)(2) that, upon debiting a provision­
ally recredited amount, the financial institution must notify the consumer of
the date and amount of any such debiting and of the fact that the financial
institution will honor any items that have been drawn on the provisionally
recredited funds prior to the time the consumer received or should have
received the notice, whichever is earlier. It is hoped that notice at the
time of debiting, rather than prior to debiting, will reduce substantially
the potential for fraud.
Section 205.11(g) replaces and clarifies the introductory language
in § 205.10(b) of the first proposal which would have relieved a financial
institution of its duty to comply with the error resolution procedures should
the consumer agree, after having properly alleged an error, that no error in
fact occurred. Consumer comments objected that the language in the first
proposal was too broad and might have the effect of allowing an oral explana­
tion by the financial institution to replace the written explanation required
by § 205.11(f)(1). The Board contemplates that this provision would only
apply where the consumer discovers that no error occurred (for example, that
a questioned transfer was in fact authorized and in the amount and on the
date indicated) and voluntarily withdraws the notice.
In § 205.11(h) the Board proposes to make clear that a financial
institution has no further responsibility under § 205.11 after complying with
that section's provisions if the consumer continues to make substantially
the same allegation with respect to the alleged error. This provision would
also preclude a consumer from reasserting the same error that appears in a
different form (e.g., if the consumer alleges that a certain $20 transfer
was erroneous, the consumer cannot reassert the same error by claiming that
a subsequent periodic statement should reflect an account balance of $500
instead of $480).
Section 205.11(i) corresponds to § 205.10(d) of the first proposal
which provided that the error resolution procedures of the Electronic Fund
Transfer Act and Regulation E, rather than those of the Truth in Lending Act
and Regulation Z, govern electronic fund transfers that also involve credit
extensions made under an agreement between a consumer and a financial insti­
tution to extend credit when the consumer's account is overdrawn or to main­
tain a specified minimum balance in the consumer's account. Many commenters
requested the Board to specify which provisions of Regulation Z were super­
seded by Regulation E. In response to these requests, the current proposal




- 20 -

indicates that, in these combined EFT-credit transactions, the financial
institution must comply with the error resolution procedures of § 205.11
and that the billing error definition of § 226.2(j), the error notification
requirements contained in § 226.2(cc), and the error resolution procedures
of § 226.14(a) do not apply. The Board contemplates that other provisions
of Regulation Z, such as § 226.14(e) (which governs credit reports on amounts
in dispute) will still apply to the credit extension portion of the combined
transaction. The Board, in soliciting comment on this section, is particu­
larly interested in receiving comment on operational problems that financial
institutions foresee in satisfying their error resolution responsibilities
in combined EFT-credit transactions.

(3)
Economic Impact Analysis. Introduction. Section 904(a)(2)
of the Act requires the Board to prepare an analysis of the economic impact
of the regulation that the Board issues to implement the Act. The following
economic analysis accompanies sections of the regulation that are being
reissued in proposed form for public comment. JL/
The analysis must consider the costs and benefits of the regu­
lation to suppliers and users of electronic fund transfer (EFT) services,
the effects of the regulation on competition in the provision of electronic
fund transfer services among large and small financial institutions, and
the effects of the regulation on the availability of EFT services to dif­
ferent classes of consumers, particularly low-income consumers.
The regulation in part reiterates provisions of the statute and
in part amplifies the statute. Therefore, the economic analysis considers
impacts of both the regulation and the statute, and throughout the analysis
a distinction will be made between costs and benefits of the regulation and
those of the statute. It is also important to note that the following anal­
ysis assumes that the regulation and the Act have no relevant economic impact
if they are less restrictive than current industry practices or state law.
In this case, the regulation will not affect costs, benefits, competition,
or availability and will not inhibit the market mechanism. The following
analysis of the regulation and the Act is relevant only if their provisions
are more constraining than those provisions under which institutions would
otherwise operate.

Analysis of regulatory and statutory provisions. Section 205.4(b)
proposes rules for compliance when the service-providing financial institu­
tion effects an electronic transfer to a consumer’s account at another insti­
tution. The service provider must perform all applicable duties imposed by

1/
The analysis presented here is to be read in conjunction with the
economic impact analyses that accompany the Board’s final rules in this
issue and at 44 FR 18474, March 28, 1979. The sections of the regulation
have been redesignated.




- 21 -

the Act in accordance with its agreement with the consumer. The financial
institution receiving the electronic transfer on behalf of a consumer is
relieved of the responsibility to issue disclosures, resolve errors, or
otherwise comply with the Act. Institutions, especially small institutions,
not offering electronic transfer services may have no choice about accepting
externally initiated electronic debits and credits to their consumer
accounts; these institutions are therefore not burdened with regulatory com­
pliance costs, wnile consumers are assured of the Act’s protection through
the service provider.
Under the proposal, however, a consumer may be subjected to cer­
tain risks. An error may occur at the transfer-receiving institution that
is not reflected in the documentation furnished by the service provider.
For example, an electronic transfer of $100 initiated by the consumer
through the service provider may, through some error, be reflected as a
$1,000 debit to the consumer's account at the receiving institution. Under
the proposal, the receiving institution will not be required to furnish
periodic statements or follow the statutory error resolution procedures.
The Board requests comment on whether consumer protections are likely to
be lost as a result of this regulatory provision. The Board also solicits
comment on the relative costs and benefits of the following alternatives:
requiring full compliance by both institutions; the current proposal requir­
ing no compliance by an institution that merely receives externally initiated
electronic debits and credits to consumer accounts; and requiring that the
institutions jointly provide full documentation and error resolution for the
consumer's account at the transfer-receiving institution.

Section 205.9 sets out the Act's transfer documentation require­
ments. Comment is invited on costs likely to be associated with this
proposed revision of the section.
The Act requires that written documentation be made available
to the consumer for every transfer at every terminal. Almost all existing
terminals are equipped with printing devices. Commenters pointed out, how­
ever, that most devices can print only numerals. Replacement of existing
devices with devices capable of printing alphabetic information would
require large hardware and software expenditures by institutions. For this
reason, the regulatory language was drafted to allow transfers at terminals
to be documented by means of numeric codes, with the provision that codes
must be explained on the document. This provision is expected to reduce the
compliance cost burden.
The Act further requires identification of the type of account
from or to which funds are transferred. This would be a problem in a shared
system if the institution operating the terminal did not know the type of
account being accessed at the institution holding the account, but it is
expected that the consumer will be able to enter the required information
at the terminal, so that compliance with this statutory provision will be




- 22 -

possible. The Board solicits information on whether consumer entry of
account type is a problem and on the costs of interchanging information
regarding the type of account.
The Act requires that a periodic statement be delivered to the
consumer at least monthly for each monthly or shorter cycle in which an EFT
has occurred, and at least quarterly if no EFT has occurred. 2/ This timing
requirement will impose substantial cost burdens on many financial institu­
tions that otherwise would issue periodic statements less frequently than
monthly (or, in the case of § 205.9(d) exempted accounts, on institutions
that issue statements less frequently than quarterly). The costs of
increased statement frequency will be passed on to consumers to some degree
in the form of higher EFT prices or reduced availability of EFT services.
The costs cannot be avoided because financial institutions must send state­
ments even if consumers do not want them.
Another substantial cost burden will result from the lack of any
statutory exception for inactive accounts. One commenter estimated that
costs would average $0.25 per quarterly statement to an inactive account,
implying a probable yearly nationwide cost from inactive account statements
of $2.2 million in 1980. 3/ Another commenter estimated that each statement
will cost $0.52 to prepare and deliver. The Board solicits comments on the
reasonableness of these estimates. This statutory provision may encourage
financial institutions to close inactive EFT accounts or assess large inac­
tivity fees, thereby restricting the availability, and increasing the costs,
of electronic transfers to consumers.
The Act will impose another substantial cost on participants in
the payments system by requiring statement documentation of the items of
information listed in § 205.9(b) of the regulation. The costs of the Act's
periodic statement requirements are likely to result mainly from initial
fixed costs for conversion to new statement forms and for new computer hard­
ware and software.
It may be especially costly to document the names of third parties
involved in transfers. In many cases, the names of third parties will have
to be added to the data stream manually by the consumer's financial institu­
tion. This may require the alteration or re-pricing of many well-established
payment mechanisms which allow consumers to pay utility and other bills at
electronic terminals but do not now result in a listing of the payee's name
on the periodic statement. On the other hand, consumers may be able to
identify payee names at terminals by the use of codes. Most terminals are
not now equipped with alphabetic keyboards. Transfers to third parties may

2/
Exceptions to the monthly statement requirement are given in §§ 205.9(c)
and (d).
3/
This assumes that 10 percent of an estimated 22 million consumer EFT
accounts are inactive in any quarter.




F-------- ■

-

\

«

■

- 23 -

be facilitated if third-party creditors provide machine-readable payment
coupons. The Board solicits comment on the feasibility and cost of alterna­
tive means of identifying names of payees, including individual consumers
who are payees. Would individuals be precluded from receiving electronic
payments from other consumers because of the Act's requirement that payee
names be documented? The Board also solicits estimates of the cost of
interchanging payee and terminal location names among institutions.
The Act requires that the periodic statement document the initia­
tion date of each electronic transfer. The regulation relaxes that require­
ment for preauthorized and telephone transfers by requiring documentation of
the posting or value date; many such transfers are initiated in advance of
the dates on which value is to be transferred. This provision of the regu­
lation assures that actual transfer dates are disclosed to consumers and
that institutions need not incur costs in documenting initiation dates for
these transfers. For transfers initiated by a consumer at a terminal, how­
ever, both the initiation date and the transfer date must be disclosed on
the periodic statement. The Board requests comment on the costs and benefits
associated with this regulatory provision.
The Act's requirement for descriptive periodic statements after
May 10, 1980, will probably have a relatively greater adverse cost effect on
small institutions than on larger institutions. Timely statement redesign
and computer software changes will require fixed costs that larger institu­
tions will be able to spread over their larger account bases. In any case,
the Act's descriptive statement requirements will impose substantial adjust­
ment costs on the financial institution industry.
Small-balance account holders, including many low-income con­
sumers, will be adversely affected by the Act's documentation requirements
because financial institutions will find more of their accounts too costly
to service. Some institutions have recently offered semi-annual or annual
statement accounts as a cost—saving alternative to closing many low-balance
accounts. Some of these accounts that are eligible to receive electronic
credits, such as Social Security payments, may be charged higher fees, or
they may be closed rather than converted to quarterly statement accounts•

Section 205.10(a) implements the Act's requirement that a noti­
fication system be established for all recurring preauthorized credits to
a consumer's account. The regulation provides that institutions furnish
positive or negative notice to a consumer unless the consumer, having been
informed of the right to receive positive or negative notice, elects to
receive confirmation by telephone in accordance with § 205.10(a)(l)(iii) ,
or unless the payor furnishes positive notice to the consumer. Institutions
are not prohibited from charging fees for notices of preauthorized credits.
The Board requests comment on the costs and current relative extent of each
means of notification, and whether institutions presently charge consumers
for notification. Under what circumstances would financial institutions
find it least costly to arrange for notification by payors?




- 24 -

This subsection would also require a financial institution to
credit a preauthorized electronic transfer to a consumer’s account on the
business day the transfer is received by the institution. The Act makes no
comparable provision. The Board proposes this rule to ensure prompt avail­
ability of electronically transferred funds to consumers. Comment is
solicited on the operational cost burdens and consequent consumer benefits
of this proposal.

Section 205.11 of the regulation reiterates the Act's error
resolution provisions, adding specific deadlines, increasing the number
of procedural options, and clarifying the definition of error for purposes
of resolution. The Act and regulation encourage prompt resolution of EFT
errors. Prompt resolution benefits both consumers and financial institu­
tions by reducing payment delays, lessening uncertainty, and increasing the
effectiveness of the EFT payments mechanism.
Consumers receive a number of specific protections from the error
resolution procedure. Consumers are entitled to prompt investigation of
their error claims, prompt correction of errors, provisional recrediting of
disputed amounts should the financial institution take longer than 10 days
to investigate, documentation of evidence used to resolve errors, and prompt,
formal notice from the financial institution of various procedural steps it
has taken. It is not possible to predict the magnitude of financial and
psychic benefits consumers will enjoy from these protections. In particular,
the provisional recrediting rule will benefit low-income consumers relatively
more by protecting them from "catastrophic" losses of the use of their funds.
These consumer protections depend critically, however, on the con­
sumer’s compliance with a number of the Act and regulation's provisions. The
consumer must act in a timely manner to allege that an error has occurred
and, if requested by the institution, must provide written confirmation of
an oral allegation. Furthermore, the allegation must be complete according
to § 205.11(b)(1). Without timely action and an actual allegation of error,
the consumer may forfeit certain rights to error resolution.
Financial institutions are likely to incur substantial costs in
complying with error resolution provisions of the Act and regulation. Pro­
visional recrediting of disputed amounts may prove to be the biggest cost;
the provisional recrediting requirement will give institutions an incentive
to resolve error allegations within 10 business days. Institutions that
recredit disputed amounts expose themselves to the possible withdrawal and
loss of those funds by persons acting fraudulently or in a financially
irresponsible manner. In particular, § 205.11(c)(1)(ii)(B) requires that
institutions honor certain items (including other electronic debit transfers)
that the consumer has drawn on provisionally recredited funds, even if the
institution has discovered no error occurred. There is no statutory limit
on the amount that may be disputed and, hence, that may have to be provi­
sionally recredited by the institution. The Board solicits suggestions of




- 25 -

alternative, less costly means to implement the statutory requirement that
consumers have full use of their funds if the error investigation exceeds
10 business days.
An institution is not required to investigate error claims beyond
the information available to it directly, except where the institution has
an agreement with a third party, as in the case of point-of-sale terminals
operated under agreement with a merchant. This provision of the regulation
encourages rapid response to error allegations.
Investigating alleged errors and providing the required notices,
explanations, and documentation of evidence used will be costly to insti­
tutions. Section 205.11(e)(1) requires institutions to provide written
explanations of findings for every error allegation that is discovered to
be wholly or partially without merit. Commenters made estimates of average
error resolution costs that ranged from $3.50 to $10.00 per error allegation.
One financial institution with relatively extensive EFT experience commented
that 96 percent of allegations of error were discovered not to be errors;
yet written explanations are required for these allegations. Legal, cler­
ical, and administrative costs of furnishing written explanations are likely
to be substantial.
Commenters made estimates of the average cost of providing docu­
mentation pursuant to § 205.11(e)(3) that ranged from $3 to $12 per request.
One commenter, estimating an average cost of $12 per request, predicted a
nationwide cost of $26 million in 1980 for providing requested error resolu­
tion documentation alone. 4/ Substantial costs may result from institutions’
uncertainty as to what constitutes an error allegation and institutions’ con­
sequent formal investigation of a wide range of consumer inquiries. 5/ On
the other hand, the regulation will limit costs by specifically excluding
certain inquiries from the error resolution procedure, freeing institutions
from compliance responsibility if a consumer withdraws an error claim, and
freeing institutions from the responsibility to investigate reasserted errors.
The regulation as proposed does not prevent financial institutions
from imposing charges for the investigation of consumer error claims. The
Board solicits comment on the costs and present levels of charges for error
investigations by institutions, on the probable costs to consumers under the
proposal, and on the desirability of amending the proposal to permit only
reasonable charges for error investigation.
4/
This assumes that 2.2 million requests for such documentation are made
in 1980, or an average of one request per year for every 10 consumer EFT
accounts.
5/
Failure to comply with the prescribed error resolution procedure can
result in liability to the institution for actual damages, a penalty of
from $100 to $1,000, court costs, and attorney's fees, as provided by § 915
of the Act.




- 26 -

Uncertainties and possible costs associated with the error reso­
lution provisions may give financial institutions an incentive to restrict
EFT services to consumers who have demonstrated a high degree of financial
responsibility. This may result in higher costs for all EFT users if system
costs must be spread over fewer users, and it may lead to reduced availabil­
ity of EFT services to low-income consumers, to the extent that low-income
consumers are less likely to have had accounts at institutions and therefore
to have established records of financial responsibility.
Small financial institutions may find the costs of error investi­
gation to be proportionately greater drains on EFT profitability than larger
institutions. Small institutions may also find error resolution aids such
as terminal surveillance cameras to be relatively too costly. The error
resolution provisions thus appear to place small financial institutions at
some competitive disadvantage in the provision of EFT services.
The Board solicits estimates of the costs and benefits to consumers
and financial institutions of the proposed error resolution provisions.
(4)
Pursuant to the authority granted in Pub. L. 95-630 (to be
codified in 15 U.S.C. 1693b), the Board proposes to amend Regulation E,
12 CFR Part 205, by adding §§ 205.4(b), 205.9, 205.10(a), 205.11, and
§ A(8)(b) of Appendix A, to read as follows:
205.4 —

SPECIAL REQUIREMENTS
*

*

*

*

*

(b)
Services offered by financial institutions not holding a con­
sumer^ account. Where a financial institution provides an electronic fund
transfer service to or from a consumer's account held by another financial
institution and the service-providing institution does not have an agreement
with the account-holding institution regarding the service, the account­
holding institution need not comply with the requirements of this regulation
with respect to that service. The service-providing institution must comply
with all requirements of this regulation, to the extent that the requirements
relate to the service it provides to the consumer or the electronic fund
transfers made by the consumer under the service. The service-providing
institution shall comply with the requirements of § 205.ll(c)(l)(ii)(A)
(provisional recrediting) by ordering funds to be recredited to the con­
sumer's account at the account-holding institution and, when complying with
§ 205.11(c)(l)(ii)(C), shall disclose the date the recrediting was initiated.
*

SECTION 205.9 —

*

*

*

*

DOCUMENTATION OF TRANSFERS

(a)
Receipts at electronic terminals. At the time an electronic
fund transfer is initiated at an electronic terminal by a consumer, the




- 27 -

financial institution shall make available 1/ to the consumer a written
receipt of the transfer which clearly sets forth the following information,
as applicable:
(1)

The amount of the transfer.

(2)

The date the transfer was initiated.

(3) The type of transfer and the type of the consumer’s account(s)
from or to which funds are transferred, such as "withdrawal from checking,"
"transfer from savings to checking," or "payment from savings." A code may
be used only if it is explained elsewhere on the receipt.
(4) The number or other identification of the access device used
to initiate the transfer.
(3)
The identification, such as a terminal number, or location
(in a form prescribed by paragraph (b)(1)(iv) of this section) of the term­
inal at which the transfer was initiated.
(6)
The name of any third party from or to whom funds are trans­
ferred, unless the name is provided by the consumer in a form that the
electronic terminal cannot duplicate on the receipt. A code may be used
only if it is explained elsewhere on the receipt.
(b)
Periodic statements. For each account from or to which
electronic fund transfers can be made, the financial institution shall mail
or deliver a statement for each monthly cycle in which an electronic fund
transfer has occurred, but at least quarterly if no transfer has occurred.
The information required by paragraph (b)(1) of this section may be provided
on accompanying documents. The statement shall include the following, as
applicable:
(1)

For each electronic fund transfer occurring during the cycle,

(i)

The amount of the transfer.

(ii)
(A) For each transfer initiated by a consumer at an electronic
terminal, the date the transfer was initiated and the date the transfer was
debited or credited to the account, if different; or
(B)
For each preauthorized electronic fund transfer or transfer
initiated by telephone, the date the transfer was debited or credited to the
account.

A financial institution may arrange to have a third party, such as a
merchant, provide the receipt.




- 28 -

(iii) The type of transfer and the type of the consumer's account(s)
from or to which funds were transferred. A code may be used only if it is
explained elsewhere on or with the statement.
(iv) For each transfer initiated by a consumer at an electronic
terminal, the location that appeared on the receipt or, if an identification
(such as a terminal number) was used, that identification and one of the
following descriptions of the terminal's location:
(A) The address, including number and street or intersection,
city, and state or foreign country;
(B) A generally accepted name that refers to a specific location,
such as a shopping center, airport, or railroad terminal, and the city, and
state or foreign country; or
(C) The name of the entity, such as the financial institution 2J
or seller of goods or services, at whose place of business the terminal is
located, and the city, and state or foreign country.
(v) The name of any third party from or to whom funds are trans­
ferred. 3/ If the transfer was initiated by a consumer at an electronic
terminal, the statement shall include the name by which the third party was
identified on the receipt, or the code, if one was used on the receipt, and
the name of the third party.
(2) The number(s) of the consumer's account(s) for which the
statement is issued.
(3) The total amount of any fees or charges, other than a finance
charge under 12 CFR 226.7(b)(1)(iv), assessed against the account for elec­
tronic fund transfers or for the right to make such transfers during the
statement period.
(4) The balances in the consumer's account at the beginning and
at the close of the statement period.
(5) The address and telephone number to be used for inquiries
or notice of errors preceded by "Direct Inquiries To:" or similar language.
Alternatively, the address and telephone number may be provided on the
notice of error resolution procedures set forth in § 205.8(b).
2/
A financial institution holding the consumer's account must describe the
location of electronic terminals located at its place of business by use
of paragraphs (b)(l)(iv)(A) or (B) of this section.

3/
A financial institution need not identify third parties whose names appear
only on checks, drafts, or similar paper instruments deposited to the con­
sumer's account at an electronic terminal.




- 29 -

(6) If the financial institution uses the notice procedure set
forth in § 205.10(a)(l)(iii), the telephone number the consumer may call to
ascertain whether a preauthorized transfer to the consumer's account has
occurred.

|
|
§

(c) Documentation requirements for certain passbook accounts. In
the case of a consumer's passbook account which may not be accessed by any
electronic fund transfers other than preauthorized transfers to a consumer's
account, the financial institution may, in lieu of complying with paragraph
(b) of this section, upon presentation of the consumer's passbook, provide
the consumer with documentation by entering in the passbook or providing on
a separate document the amount and date of each electronic fund transfer
since the passbook was last presented.

f
t

(d) Periodic statements for certain non-passbook accounts. If
a consumer's account, other than a passbook account, may not be accessed by
any electronic fund transfers other than preauthorized transfers to a consumer's account, the financial institution need only provide the periodic
statement required by paragraph (b) of this section quarterly.

|
|
|

SECTION 205.10 —

%

|

-

PREAUTHORIZED TRANSFERS

(a)
Preauthorized transfers to a consumer's account. (1) Where a
consumer's account is scheduled to be credited by a preauthorized electronic
i
fund transfer from the same payor at lease once every 60 days, except where
|
the payor provides positive notice to the consumer that the transfer has
been initiated, the financial institution shall notify the consumer, by one
of the following means:
(i) By transmitting oral or written notice to the consumer, within
2 business days after the transfer, that the transfer occurred;
(ii) By transmitting oral or written notice to the consumer,
within 2 business days after the date on which the transfer was scheduled to
occur, that the transfer did not occur; or
(iii) By furnishing a telephone number that the consumer may
call to ascertain whether or not a transfer has occurred, provided that
(A) the financial institution informs the consumer, before the
first preauthorized electronic fund transfer to the consumer’s account, of
the right to receive positive or negative notice under this section,
(B) the consumer elects to receive notice by means of telephone
inquiries, and
(C) the financial institution discloses, at that time and on each
periodic statement required by § 205.9(b), the telephone number to be used
by the consumer for this purpose.




-

30 -

(2)
A financial institution that receives a preauthorized transf
of the type described in paragraph (a)(1) of this section shall credit the
amount of the transfer no later than the business day on which the financial
institution receives the funds from the payor.
*

*

SECTION 205.11 —

(ii)
er’s account;

*

*

PROCEDURES FOR RESOLVING ERRORS

(a)
term "error” means:
(1)

*

Definition of error.

(1)

For purposes of this section, the

An unauthorized electronic fund transfer;
An incorrect electronic fund transfer from or to the consum­

(iii) The omission from a periodic statement of an electronic fund
transfer affecting the consumer’s account that should have been included;
(iv) A computational or bookkeeping error made by the financial
institution relating to an electronic fund transfer;
(v) The consumer's receipt of an incorrect amount of money from
an electronic terminal;
(vi) Any transfer not identified in accordance with the require­
ments of § 205.9 or not recognized by the consumer as it is identified on
any documentation required by §§ 205.9 and 205.10(a); or
(vii) A consumer's request for any documentation required by
§§ 205.9 and 205.10(a) or additional information or clarification concerning
an electronic fund transfer including any request for information, clarifi­
cation, or copies of documents in order to assert an error within the meaning
of paragraphs (i) through (vi) of this section.
(2) For purposes of this section, the term "error" does not
include a routine inquiry about the balance in the consumer's account or a
request for copies of documentation or other information for tax or business
purposes.

(b)
Notice of an error. (1) A notice of an error is an oral or
written notice from the consumer received by the financial institution no
later than 60 days from transmittal of a periodic statement, or documentation
under § 205.9(c), that first reflects the alleged error, or transmittal of
additional information, clarification, or documentation as requested by the
consumer under paragraph (a)(l)(vii) of this section. The notice must enable
the financial institution to identify the consumer's name and account number
and, except for errors asserted under paragraph (a)(l)(vii) of this section,
must indicate the consumer's belief, and the reasons for that belief, that an




- 31 -

error exists in the consumer's account, or that any documentation required by
§§ 205.9 or 205.10(a) reflects an error, including the type, the date, and
the amount of the error, to the extent possible.
(2)
The financial institution may require that written confirma­
tion be received within 10 business days of an oral notice of error if, when
the oral notice is made, the consumer is advised of the requirement and the
address to which the confirmation should be sent.
(c)
Investigation of errors. (1) After the financial institution
receives a notice of an error, the institution shall promptly investigate the
alleged error, determine whether an error has occurred, and orally report or
mail or deliver the results of the investigation and determination to the
consumer
(1)

Within 10 business days after receipt of a notice of an error,

or
(ii) Within 45 days after receipt of a notice of an error provided
that:
(A)
The financial institution, pending its investigation and
determination of whether an error occurred, and within 10 business days after
receiving notice of an error, provisionally recredits the consumer's account
for the amount of the alleged error, including interest where applicable, but
subject to the $50 liability provision of § 205.6(b) where an unauthorized
electronic fund transfer may have occurred;
(B)
The financial institution gives the consumer the full use of
funds provisionally recredited, including honoring any items drawn on those
funds by the consumer prior to the time that the consumer receives the notice
under paragraph (f)(2) of this section or, whether or not received, prior to
the expiration of the time ordinarily required for transmission of the notice,
whichever is earlier; and
(C)
The financial institution, promptly but no later than 2 business
days after the recrediting, orally reports or mails or delivers notice to
the consumer of the amount and the date of the recrediting and of the fact
that the consumer will have use of the funds pending the financial institu­
tion's determination of whether any error occurred.
(2) A financial institution that requires but does not timely
receive written confirmation of an error need not provisionally recredit the
consumer's account, but must comply with all other applicable requirements
of this section, promptly but no later than 45 days after receipt of the
oral notice of an error.
(d)
Special rules for investigation. (1) The financial insti­
tution may finally correct the consumer's account in the amount or manner
alleged by the consumer to be in error without investigation, but must
comply with all other applicable requirements of this section.




- 32

(2) With regard to alleged errors concerning transfers to or from
a third party with whom the financial institution does not have an agreement,
a financial institution’s review of its own records regarding the alleged
error will satisfy the financial institution’s investigation responsibilities
under paragraph (c) of this section.
(3) A financial institution, in investigating an alleged error,
may rely upon information supplied by third parties without the financial
institution conducting its own independent investigation to verify the
accuracy of such information.
(e)
Procedures where financial institution determines that an
error occurred. If the financial institution determines that an error
occurred, it shall
(1) Promptly, but in no event more than 1 business day after
determining that an error occurred, correct the error (subject to the liabil­
ity provisions of §§ 205.6(a) and (b)), including the crediting of interest
where applicable, and the refunding of any fees or charges imposed as a
result of the error, and
(2) Promptly, but in no event later than the 10-business-day or
45-day time limits, orally report or mail or deliver to the consumer notice
of the correction or, if applicable, notice that a provisional credit has
been made final. This requirement may be satisfied by a notice on a periodic
statement that is mailed or delivered within the 10-business-day or 45-day
time limits and that clearly identifies the correction to the consumer's
account.

(f)
Procedures where financial institution determines that no e
occurred. If the financial institution determines that no error occurred or
that the error occurred in a manner or amount differing from that described
by the consumer, it shall
(1) Deliver or mail to the consumer within 3 business days after
concluding its investigation, but in no event later than the 10-business-day
or 45-day time limits, a written explanation of its findings, which must
include notice of the consumer's right to request the documents upon which
the institution relied in reaching its conclusion;
(2) If the consumer's account has been provisionally recredited,
orally report or mail or deliver to the consumer, upon debiting a provision­
ally recredited amount, notice of the date and amount of any such debiting
and of the fact that the financial institution will honor any items that
have been drawn on the provisionally recredited funds prior to the time that
the consumer received the notice or prior to the expiration of the time
ordinarily required for transmission of the notice, whichever is earlier; and
(3)
Upon the consumer's request, promptly mail or deliver to the
consumer copies of the documents, if possible, or a report containing the
data upon which the financial institution relied in reaching its conclusion.




- 33 -

(g) Withdrawal of a notice of an error. The financial insti­
tution need not comply with the requirements of paragraphs (c), (d), (e),
and (f) of this section if the consumer discovers that no error occurred
and voluntarily withdraws the notice of the error.
(h) Reassertion of an error. A financial institution need not
comply again with the requirements of this section if the consumer reasserts
an error previously alleged regardless of the manner in which it is subse­
quently reasserted.
(i) Relation to Truth in Lending. Where an electronic fund
transfer also involves an extension of credit under an agreement between a
consumer and a financial institution to extend credit when the consumer’s
account is overdrawn or to maintain a specified minimum balance in the con­
sumer's account, the financial institution must comply with the requirements
of this section rather than with those of 12 CFR 226.2(j), 226.2(cc), and
226.14(a) governing error resolution.
APPENDIX A -- MODEL DISCLOSURE CLAUSES
*

*

*

*

*

SECTION A(8) — DISCLOSURE OF RIGHT TO RECEIVE
DOCUMENTATION OF TRANSFERS (§§ 205.5(b)(2),
205.7(a)(6))
*

*

*

*

*

(b)
Preauthorized credits.
deposits made to your account,

If you have arranged to have direct

(we will let you know if the deposit is (not) made as scheduled.)
(the person or company making the payment will tell you every time
they send us the money.)
*

*

*

*

*

By order of the Board of Governors, October 5, 1979.

Theodore E. Allison
Secretary of the Board
[SEAL]