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FEDERAL RESERVE BANK
OF NEW YORK
r C ircu lar No. 8 7 4 8
1*
F e b ru a ry 5, 1980
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REGULATION E — ELECTRONIC FUND TRANSFERS
— Amendments Implementing Provisions of the Electronic Fund Transfer Act
— Comments Invited on Additional Proposals
T o A ll B a n k in g I n s titu tio n s , a n d O t h e r s C o n c e r n e d ,
in t h e S e c o n d F e d e r a l R e s e r v e D is t r i c t :
The Board of Governors of the Federal Reserve System has adopted additional amendments,
effective May 10, 1980, to its Regulation E, “Electronic Fund Transfers,” to implement provisions
of the Electronic Fund Transfer Act. In addition, the Board of Governors is requesting comment
by March 7 on two proposals relating to the regulation.
The following is quoted from the text of the statement issued by the Board in this matter:
The Board previously adopted regulatory rules to carry out sections of the Act that became
effective last February and for some of the sections of the Act that will become effective May 10, 19S0.
The rules adopted today [January 23], as well as the proposals on which the Board seeks further
public comment, concern other provisions of the Act becoming effective in May.
The additional final rules adopted as part of the Board’s Regulation E are revisions of proposals
published by the Board in October.
In general, they deal with:
— Requirements for documentation of electronic fund transfers by financial institutions;
— Notification requirements in connection with preauthorized electronic receipt of funds;
— Requirements for prompt crediting of funds received electronically;
— Procedures for resolving errors;
— Responsibility for compliance when an EFT card or similar device is issued to a consumer
by an EFT service provider who does not hold the consumer’s account.
The Board decided to take no action at this time on a proposal made in October concerning
charges made by financial institutions in connection with error resolution. The Board said it will
monitor industry practice regarding such charges and will take action if it becomes evident that
consumers need protection in this area.
The Electronic Fund Transfer Act1 protects consumers in their use of EFT services. EFT 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 EFT card. Consumers can use EFT cards to make payments — for
example, by use of the card at the point of sale to authorize a 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 EFT card authorizes funds to be taken directli/ out of the consumer’s
account while use of the credit card creates a debt that the consumer pays at a later time. The EFT
card may also be used at automated tellers to withdraw cash from the consumer’s account.
Consumers may use other EFT services to authorize the electronic deposit of payments clue to
them (such as electronic deposit of wages. Social Security benefits, dividends and similar repetitive
deposits) or for payment of their bills.
1 Title XX of the Financial Institutions Regulatory and Interest Rate Control Act of 1978.
1. D ocum entation of transfers — The Act requires that financial institutions document electronic
transfers by making receipts available at automated teller machines or point of sale terminals, and
by sending consumers of EFT services periodic statements. Regulation E includes the following
requirements:
— Financial institutions must show on periodic statements the date a transfer was debited or
credited to the consumer’s account. (An earlier proposal to require the date the transfer was
initiated was not adopted.)
— A financial institution may show the location of an automated teller terminal in any of three
ways: street address; name of an organization (such as the name of a store); or, name of a
readily identifiable location (such as O’Hare Airport), where the terminal is located.
In order to facilitate compliance with the documentation provisions of the Act and Regulation E,
the Board proposed delayed effective dates for the following requirements. Comment on the proposals
was requested through March 7.
— In the case of institutions using cash dispensing equipment unable to provide receipts, the
Board proposed a delay until January 1, 1981, in the effective date of the requirement for
receipts. Such institutions would, however, be obliged to mail receipts to consumers using
the cash dispensers not later than the business day after the terminal is used.
— In response to the Board’s October proposals, some financial institutions said their equipment
would have to be modified in order to provide on periodic statements the address, or other
description of a terminal’s location, and name of the third parties to or from whom transfers
were made. The Board proposed a three-month delay for these two requirements, until
August 10, 1980.
2. Preauthorized credits — The Act requires that financial institutions give either positive notice
of receipt of preauthorized deposits to a consumer’s account (such as sending the consumer notice of
receipt of a deposit, for instance, of a direct electronic deposit of Social Security benefits) 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 an employer has initiated
a payroll deposit).
The Board adopted provisions in Regulation E to implement these requirements. As an alternative,
the Board provided, as it had suggested in a proposal made in April, that institutions may provide con
sumers with a telephone number to be used to verify whether a transfer has or has not been made.
Institutions that adopt this alternative are required to provide readily available telephone service, and
to inform the consumer of the telephone number as an initial disclosure of terms of the institution’s
EFT service, and on periodic statements.
3. Availability of fu n d s — Financial institutions must make electronically deposited funds available
to consumers promptly.
4. Procedures for processing errors — The Act — and Regulation E as adopted — require gen
erally that financial institutions resolve asserted errors in electronic fund transfers within 10 business
days of notification by the consumer, given orally or in writing. Alternatively, institutions may taka' up
to 45 calendar days to resolve a complaint, if the account is provisionally rccreditcd within 10 business
days for the amount in dispute. Recrediting need not take place unless written confirmation of an oral
report of error is received within 10 business days of the oral report, by an institution that has advised
the consumer that it requires a written report and has provided an address.
Where an institution determines that no error was committed, it must notify the consumer that the
account is being debited again for the amount that was credited. It must honor, for the period of
investigation and for five business days after mailing of a redebiting notice, checks that are payable
to third parties up to the amount in dispute.
The institution may limit its investigation to the “four walls” of the institution, when a third party —
with which the institution has no agreement— is involved (including the Social Security Administra
tion).
2
A
The new rules adopted as part of Regulation E include these details:
*7
5. E F T card issued by a financial institution not holding the consum er s account.
The institution offering the services w ould be responsible for com pliance, w ith lim ited exceptions,
for disclosures having to do with the relationship of the institution holding the consum er’s account to
th at consumer.
T he B oard’s rules for consum er protection under the Act and R egulation E, previously adopted,
include the following, effective M ay 10, 1980:
— R equirem ents for disclosures to consum ers who use E F T services;
— Exem ptions for transfers of funds w ithin an institution;
— Record retention;
— T he relation of the Federal Electronic F und Transfer Act to State law.
T he following previously adopted final rules are already in effect:
— Lim itations on a consum er’s liability for unauthorized use of an E F T card, including:
— Provision th at consumers cannot be held liable for unauthorized use of E F T cards if the
card issuer has not disclosed w hat liability the consum er will have for unauthorized use of
the card, the telephone num ber and address for reporting a lost or stolen card and the
institution’s business days, and
— Provision th a t w ritten notice of loss or theft of an E F T card is effective w hen the consum er
mails or otherw ise transm its the notice to the card issuer.
— Conditions under which E F T cards may be issued.
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 newly adopted amendments to
Regulation E. Copies will be made available to others, upon request to our Circulars Division. The
amendments also will be incorporated in a revised pamphlet containing Regulation E. The revised
pamphlet is expected to be printed about mid-March and will be sent to you as soon as available.
Printed on the following pages is the text of the Board’s notice regarding the Regulation E
proposals. Comments on the proposals may be sent to our Regulations Division and should be
submitted by March 7. Questions regarding the proposals or the newly adopted Regulation E
amendments may also be directed to the Regulations Division (Tel No. 212-791-5919)
T homas
M. T im l e n ,
First Vice President.
3
• W
\
FEDERAL RESERVE SYSTEM
[12 CFR Part 205]
i
[Reg. E., Docket No. R-0272]
i
ELECTRONIC FUND TRANSFERS
Documentation of Transfers
SUPPLEMENTARY INFORMATION:
AGENCY:
(1 )
Introduction. The Board has ad o p ted in
final form the provisions of R egulation E to im ple
m ent the Electronic F und T ransfer Act (15
U.S.C.A. 1693b). Portions of the regulation w ere
published earlier at 44 FR 18468 (M arch 28, 1979)
and 44 FR 59464 (O cto b er 15. 1979). The rem ain
ing portions are being published today. (S ee the
final rules docum ent on R egulation E in this issue.)
The regulation will becom e effective M ay 10, 1980.
B oard of Governors of th e F ed eral Reserve
System.
ACTION:
Proposed rule.
SUMMARY:
T he Board is proposing to delay beyond M ay 10
the effective date of certain portions of § 205.9 re
garding docum entation icquirem ents. T here are
tw o proposals. T he first proposal w ould perm it
financial institutions operating cash dispensers th at
do not generate term inal receipts to mail or deliver
receipts to consum ers on the business day follow
ing the transfer.
T he Board is publishing for com m ent a proposal
to delay the effective d ate of certain portions of
the docum entation requirem ents (§ 205.9) of R eg
ulation E beyond M ay 10, 1980, the effective date
of the E lectronic F u n d T ransfer Act. T he Board
is publishing separately the final provisions of the
regulation, including those sections th a t w ould be
afFected by this proposal.
As proposed, this provision would rem ain in ef
fect until January 1, 1981. T he second proposal
relates to periodic statem ents, and w ould provide
th at the failure of a financial institution to disclose
the term inal location and nam e of any third party
to or from whom funds w ere transferred would
constitute a violation of the Act or regulation only
after A ugust 10, 1980. The specific proposals are
discussed in g reater detail in section (2 ) below.
DATE:
C om m ents m ust be received on or before M arch
7,1980.
ADDRESS:
Com m ents m ay be m ailed to the Secretary,
B oard of Governors of the F ederal Reserve System,
W ashington, D.C. 20551, or delivered to Room
B2223, 20th and C onstitution Avenue, N.W ., W ash
ington, D.C. betw een 8:45 a.m. and 5:15 p.m.
C om m ents m ay also be inspected at Room B1122
betw een 8:45 a.m. and 5:15 p.m. All m aterial sub
m itted should refer to docket num ber R-0272.
Section 9 0 4 (a )(2 ) of the Act requires the Board
to prepare an analysis of the economic im pact of
the regulation th at considers, am ong other things,
the im pact of the regulation on the various p ar
ticipants in electronic fund transfer systems, the
effects upon com petition in the provision of elec
tronic fund transfer services am ong large and small
financial institutions, and the availability of such
services to different classes of consum ers, particu
larly low-income consumers. A lthough this pro
posal does not contain a separate economic im pact
analysis, these issues are discussed below. This
statem ent and the proposed am endm ents have
been transm itted to Congress, as required bv
§ 9 0 4 (a ) (4 ).
FOR FURTHER INFORMATION CONTACT:
R egarding the regulation: Dolores S. Smith, Sec
tion Chief, or Lynne B. Barr, Senior A ttorney (202452-2412), Division of C onsum er and C om m unity
Affairs, Board of Governors of the F ederal Reserve
System, W ashington, D.C. 20551. R egarding the
economic im pact analysis: F rederick J. Schroeder,
Econom ist, Division of R esearch and Statistics,
Board of Governors of the F ederal Reserve System,
W ashington, D.C. 20551 (202-452-2584).
Because a prom pt resolution of the issues addiessed in the proposed am endm ents is necessary
in view of the tim e rem aining until M ay 10, the
4
B oard believes th at an expedited rulem aking pro
cedure is in the public interest. Accordingly, the
expanded procedures set forth in the B oard’s policy
statem ent of January 15, 1979 (44 FR 3957), will
not be followed in connection w ith this proceeding.
(2)
R egulatory Provisions. Section 205.9(f) —
Transitional term inal receipt requirem ents. Sec
tion 205.9(a) requires th at a financial institution
m ake a receipt available to the consum er a t the
time an electronic fund transfer is initiated a t an
electronic term inal. It has come to the B oard’s
attention th at some term inals do not have th e capa
bility to comply w ith this requirem ent. It is the
B oard’s understanding th a t these term inals, w hich
are cash dispensers and do not perform any other
transfer functions, cannot be modified to provide
the consum er w ith a receipt a t time of initiation.
The Board is concerned th a t financial institutions
m ay be unable to procure replacem ents for the
num ber of m achines currently in operation by May
10, and th at a useful service to consumers m ay
be elim inated if the m achines are w ithdraw n from
use on th at date.
Com m enters on the proposed regulation sug
gested th at the Board provide a com plete excep
tion, for financial institutions operating such te r
minals, from the requirem ent th at the receipt be
m ade available at the tim e of initiation. T he Board
believes th at a com plete exception from this re
q uirem ent is not justified, and proposes instead to
set a new com pliance deadline. The Board is pro
posing to delay the effective date of this require
m ent until January 1, 1981, for institutions operat
ing such m achines, provided th a t in the interim
the institutions mail or deliver a w ritten receipt
to the consum er on the next business day after
the transfer was initiated. T h at receipt m ust com
ply w ith th e other requirem ents of § 205.9(a).
T he Board solicits com m ent on the intention of
institutions operating such cash dispensers regard
ing the continuation of this service, if the effective
date rem ains M ay 10. Com m ent is solicited on the
costs th at would be incurred by financial institu
tions if these m achines m ust be replaced by May
10. W hat losses would be incurred by institutions
and consumers if such services w ere discontinued?
T he Board also solicits com m ent on the costs of
such replacem ent bv the January 1 date, as well as
on the costs th at will be associated w ith the trans
m ittal of the receipt to the consum er on the next
business day. In addition, the Board solicits com
m ent on any adverse im pact the proposed am end
m ent w ould have on consumers.
Section 205.9(g) — Delat/ed effective date for
periodic statem ent requirem ents. Sections 205.9( b ) ( l ) ( i v ) and (v) require, respectively, that the
term inal location for term inal transfers and the
nam e of any third party to or from whom funds
w ere transferred be reproduced on or w ith the
periodic statem ent. Com m ents on the B oard’s
O ctober proposal indicated that some financial
institutions would find it difficult and perhaps im
possible to com ply w ith these periodic statem ent
requirem ents by M ay 10. The Board is concerned
th at rushed com pliance efforts to m eet the May 10
effective d ate and substantial noncom pliance w ith
the regulatory requirem ents after that d ate w ould
im pose significant costs on financial institutions in
the form of increased expenses and exposure to
civil liability for violations. Section 90 4 (c) of the
Act perm its the Board to provide in th e regulation
“for such classifications, differentiations, and other
provisions . . . as in the judgm ent of the Board are
necessary or proper to effectuate the purposes of
this title . . . or to facilitate com pliance th ere
w ith.” T he Board is proposing to am end the regu
lation to provide th at a failure to com plv w ith the
requirem ents of § § 205.9(b) (1 ) (iv ) and (v_) shall
not constitute a violation of the Act or the regula
tion until August 10, 19S0, three m onths after the
effective date of the Act and the other provisions
of Regulation E.
Inform ation is requested on the costs and specific
operational problem s that would be faced by finan
cial institutions if com pliance had to be achieved
by M ay 10, including costs to modify current
equipm ent, statem ent form ats, and other system
com ponents to bring them into com pliance. By
how much could costs be reduced if the com pliance
deadline were extended for the proposed threem onth period? C om m enters should b e as specific
as possible. T he Board also solicits com m ent on
any adverse effects for consum ers th at w ould be
occasioned by adoption of the am endm ent.
Section 906(f) of the Act, w hich provides that
any docum entation provided to the consum er shall
constitute prima facie proof of paym ent to another
person, becomes effective M ay 10. The Board
intends that, if the proposed am endm ent is adopted,
financial institutions w ould be req u ired to supply
the consum er w ith the necessary identification of
the third party transferee during the interim period,
should the consum er request it for use as proof of
paym ent.
F urther, any request by the consum er for ad d i
tional inform ation concerning a transfer incom
pletely identified on the periodic statem ent w ould
constitute an error under § 205.11(a) (7) of the
regulation. T he financial institution w ould have to
com ply w ith the procedures for resolving errors
set forth in § 205.11, if the request is m ade by the
consum er in accordance w ith th at section.
(3 )
Pursuant to the authority granted in 15
U.S.C.A. 1693b, the Board proposes to am end R eg
ulation E (12 C FR P art 205), by adding two para
graphs at the end of § 205.9, to read as follows:
Section 205.9 — D ocum entation of Transfers
*
o
T he transfer occurs at an electronic term inal
(ii) C annot m ake a receipt available to the
consum er at the tim e the transfer is initiated; and
o
(f) Transitional term inal receipt requirem ents.
T he failure of a financial institution to com ply with
the req u irem en t of p aragraph ( a ) of this section
th at a receipt be m ade available to the consum er
a t the tim e an electronic fund transfer is initiated
at an electronic term inal shall not constitute a vio
lation of the Act or this regulation unless the failure
to com ply occurs on or after January 1, 1981,
provided 1
1)
th at
(1) Does not perm it transfers other than cash
w ithdraw als by the consum er, and
(2 ) T he financial institution mails or delivers a
w ritten receipt to the consum er that complies with
the other requirem ents of paragraph ( a ) of this
section on the next business day following the
transfer.
(g)
D elayed effective date for periodic statem ent
requirem ents. T he failure of a financial institution
to com ply w ith the requirem ents of paragraphs
( b ) ( l ) ( i v ) and ( v) of this section shall not con
stitute a violation of the Act or this regulation
unless the failure to com ply occurs on or after
August 10, 1980.
FEDERAL RESERVE SYSTEM
[12 CFR Part 205]
[Reg. E; Docket No. R-0251]
ELECTRONIC FUND TRANSFERS
Definitions
Special Requirements
Issuance of Access Devices
Initial Disclosure of Terras and Conditions
Change in Terms; Error Resolution Notice
Documentation of Transfers
Preauthorized Transfers
Procedures for Resolving Errors
Administrative Enforcement
Services Offered by Financial Institutions Not Holding Consumer's Account
Model Disclosure Clauses
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Final rule.
SUMMARY: The Board is adopting in final form (1) additional sections of
Regulation E to implement certain provisions of the Electronic Fund Transfer
Act that take effect May 10, 1980, and (2) amendments to existing sections of
Regulation E. The regulatory proposals were published for comment at 44 FR
25850 (May 3, 1979) and 44 FR 59464 (October 15, 1979). The Board is sepa
rately publishing today a proposal to delay the effective date of certain
provisions of § 205.9. The Board is also issuing an analysis of the economic
impact of the portions of the regulation adopted at this time.
EFFECTIVE DATE:
May 10, 1980.
FOR FURTHER INFORMATION CONTACT: Regarding the regulation: Dolores S. Smith,
Section Chief, or Lynne B. Barr, Senior Attorney (202-452-2412), Division of
Consumer and Community Affairs, Board of Governors of the Federal Reserve Sys
tem, Washington, D.C. 20551. Regarding the economic impact analysis: Frederick
J. Schroeder, Economist (202-452-2584), Division of Research and Statistics,
Board of Governors of the Federal Reserve System, Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION: (1) Introduction; General Matters. The Board is
adopting in final form additional sections of Regulation E to implement pro
visions of the Electronic Fund Transfer Act that become effective May 10, 1980.
The sections are §§ 205.9, 205.10(a), 205.11, and 205.14.
205.8,
cussed
arisen
form.
The Board is also adopting amendments to §§ 205.2, 205.5, 205.7,
and 205.13, and to the model disclosures in Appendix A. They are dis
in greater detail in section (2) below. A number of questions have
with respect to the portions of the regulation already adopted in final
Those questions are discussed in section (4) below.
2
The Board is also publishing for comment proposed amendments to
§ 205.9 that would delay the effective date of portions of that section.
(See
the proposed rules document affecting Regulation E in this issue.)
The Board received 142 written comments on the October proposal
(44 FR 59464). Based on the comments and its own analysis, the Board has
revised the proposed sections and adopted them in final form. The amendments
are effective May 10, 1980.
The Board solicited comment on whether the requirements of the Act
and regulation should be modified, as permitted by § 904(c) of the Act, for
small financial institutions, as necessary to alleviate undue compliance
burdens for such institutions. The Board has determined that such modifica
tions are not necessary at this time.
Federal savings and loan associations should note that they are
subject to the provisions of Regulation E and that there may be some inconsis
tency between this regulation and the Federal Horae 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 electronic
fund transfer systems, the effects upon competition in the provision of elec
tronic fund transfer services among large and small financial institutions,
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 protections provided
by the regulation outweigh the compliance costs imposed upon consumers and
financial institutions. The Board's analysis of the economic impact of the
provisions adopted today is published in section (3) below. The final regu
latory amendments and the economic impact statement have been transmitted to
Congress.
(2)
Regulatory Provisions. Section 205.2 — Definitions.
inition of "electronic fund transfer" (§ 205.2(g)) has been amended to exclude
payments made by check, draft, or similar paper instrument at electronic ter
minals. The Board believes that such payments are not covered by the Act and
regulation, and is specifically excluding them in response to comments. Pay
ments made at electronic terminals by other than paper means (e.g., a direct
debit of an account by a consumer at an automated teller machine (ATM) to pay
a utility bill) are covered by the Act, and are subject to the relevant
requirements of the regulation.
The Board wishes to point out that deposits of cash, checks, drafts,
or similar paper instruments at electronic terminals are, in its opinion,
encompassed within the definition of "electronic fund transfer" and the
requirements of the Act and regulation apply to such transfers.
Section 205.4 — Special Requirements. The Board has redesignated
§ 205.4(c), Multiple accounts and account holders, as § 205.4(b), and
The def
3
§ 205.4(d), Additional information; disclosures required by other laws,
as § 205.4(c). This change has been made because the paragraph proposed
as § 205.4(b), Services offered by financial institutions not holding a
consumer's account, has been moved to a separate section of the regulation,
§ 205.14.
Section 205.5 — Issuance of Access Devices. The Board has adopted
a technical amendment to § 205.5(a)(3). References to §§ 205.5(d)(1), (2),
and (3) in that paragraph have been deleted and replaced by references to
§§ 205.7(a)(1), (2), and (3), because paragraph (d) sets forth transitional
disclosures and will be deleted effective May 10, 1980.
Section 205.7 — Initial Disclosure of Terms and Conditions. The
Board has adopted an amendment to this section to make clear that the initial
disclosures given to the consumer should be in a form that the consumer may
retain. It has come to the Board's attention that some financial institu
tions now provide disclosure statements to consumers on the reverse side of
the agreement for electronic fund transfer services that the consumer signs
and returns to the institution. The Board believes that it is essential for
consumers to be able to retain the information contained in the disclosures,
particularly the telephone numbers and addresses for notice of loss or theft
of an access device and error resolution.
Section 205.8 — Change in Terms; Error Resolution Notice. A tech
nical amendment has been made to § 205.8(a) by deleting the reference in the
last sentence to "a change required to be disclosed under this paragraph," and
replacing it with "such a change." The time periods for notifying consumers
of an adverse change in terras under this sentence only apply to those changes
that were immediately necessary to protect the security of the system or an
account.
Section 205.9 — Documentation of Transfers. Section 205.9(a),
implementing § 906(a) of the Act,requires financial institutions to make a
receipt available to the consumer at the time of any electronic fund transfer
at an electronic terminal. The receipt must include six items of information,
to the extent they are applicable to the transfer. An "s" in parentheses has
been added to the word "transfer" in the introductory sentence to clarify
that multiple electronic fund transfers may be shown on a single receipt. The
Board wishes to emphasize that the written receipt should be in a form that
the consumer may retain. A financial institution will not comply with the
requirements of the regulation if it simply prints the receipt information on
a display screen and does not make a "hard copy" receipt available to the
consumer.
Financial institutions raised two related concerns with the intro
ductory portion of this paragraph, regarding the requirement that a receipt be
made available at the time the transfer is initiated. Comraenters asked the
Board to provide specific exceptions from the regulatory requirements (a) when
a transfer is initiated but not completed for any reason, e.g., when an ATM is
out of cash, and (b) when the terminal runs out of paper and a receipt is not
made available. As to the first, it is the Board's understanding that most
- 4 -
terminals do in fact generate a receipt when a transfer is initiated but not
completed, because of terminal malfunction or because the consumer has
decided not to complete the transfer. The Board believes that the provision
of receipts in these instances protects consumers and should be encouraged,
although it is not necessarily required by the regulation.
As to a machine's running out of paper, the Board believes that the
failure of the terminal to provide a receipt is not a violation of the regula
tion if the financial institution maintains procedures reasonably adapted to
provide receipts. See § 915(c) of the Act for the exception from liability
for bona fide and unintentional errors.
Section 205.9(a)(1) requires institutions to disclose the amount of
the transfer. In response to comments on the proposals, the final regulation
provides that a charge imposed by an owner or operator of an electronic terminal
(other than the financial institution providing the statement) may be included
in the amount of the transfer shown on the terminal receipt. The amount of the
transfer and the charge for the transfer may be combined, however, only if the
amount of the charge is disclosed separately on the terminal receipt (by pre
printing it on the receipts, for example) and on a sign posted on or near the
terminal. The Board is requiring separate disclosure of the amount of the
charge because of concern that consumers would not otherwise know that a
charge is being imposed by the owner or operator of the terminal.
Section 205.9(a)(2) requires disclosure of the calendar date on
which the transfer was initiated. The Board has added the word "calendar"
to indicate that the date that must be printed on the terminal receipt is the
date on which the consumer uses the electronic terminal to order an electronic
fund transfer and not the date on which the transfer is debited or credited
to the account nor an accounting or business day. The Board believes that
the actual calendar date is necessary in order to give consumers an easy means
of reconciling the terminal receipt with their activities on a given day, par
ticularly since the disclosure of the initiation date of terminal transfers
has been deleted from the periodic statement requirements under § 205.9(b).
A financial institution may disclose either calendar date on the terminal
receipt for those transfers that are initiated very late in one day (e.g., at
11:59 p.m.) and completed on the next calendar day (at 12:01 a.ra.).
Section 205.9(a)(3) requires disclosure of the type of transfer and
the type of the consumer's account(s) to or from which funds are transferred.
A footnote makes clear that if more than one account of the same type may be
accessed by a single access device, each account must be uniquely identified.
If a financial institution has issued an access device that permits a consumer
to make transfers to or from two checking accounts, the disclosure of the con
sumer's account on the terminal receipt must indicate which of the two checking
accounts has been accessed. For example, a financial institution could dis
close a cash withdrawal from an ATM with a device that accesses two accounts of
the same type as "withdrawal from checking I," "withdrawal from checking II,"
or, if only one other account of any type can be accessed by the same device,
"withdrawal from other account." These descriptions may be encoded on the face
of the receipt if the code is explained elsewhere on the receipt itself.
5
Some institutions, particularly those operating in shared and inter
change environments, asked how they could adequately describe transfers made at
one type of financial institution to or from consumers' accounts at other types
of institutions. For example, a member of a credit union whose access device
permits EFT transfers to or from a share draft account may be able, in a shared
system, to use that access device at a terminal owned or operated by a bank.
That bank's terminals may describe accounts only as "checking" or "savings"
accounts, and may not have the capability of generating a receipt that describes
a transfer as "withdrawal from share draft." These coramenters asked the Board
to delete the requirement that the type of account be identified, or exempt
transfers made at terminals not owned or operated by the account-holding insti
tution from this requirement. The Board believes that an exemption would not
be justified.
It has, however, added a provision to this paragraph permitting
generic description of accounts. Thus, the consumer whose share draft account
at a credit union is being accessed by an access device used at a bank's ATM
may be given a receipt that identifies the transfer as a withdrawal from check
ing rather than as a withdrawal from share draft.
Section 205.9(a)(4) in the October proposal required disclosure of
the number or other identification of the access device used to initiate the
transfer. Comments expressed concern that compliance with this requirement
would be difficult, particularly for systems that do not have the capability
to print an access device number on the terminal receipt.
The regulation as adopted provides that the financial institution
must disclose a number or other code on the terminal receipt that uniquely
identifies one of the following: the consumer initiating the transfer, the
consumer's account(s), or the access device used to initiate the transfer. It
is the Board's opinion that any unique identification that can tie the consumer
to the particular transfer will be sufficient to comply with the requirement
and will permit the consumer to use that terminal receipt for error resolution
or as proof to a third party. Any identification of the access device should,
of course, exclude the personal identification number (PIN).
Section 205.9(a)(5) requires a disclosure of the location of the
terminal at which the transfer was initiated. This provision remains basically
unchanged from the October proposal. The institution may, at its option, pro
vide the terminal location in one of two ways. First, it may put the actual
description of the location of the terminal on the receipt, in one of the forms
prescribed by § 205.9(b)(1)(iv). Abbreviations may be used. Or, the financial
institution may use an identification (such as a code or terminal number) with
out explaining that identification on the receipt. The statement which reflects
that transfer, however, must disclose both the identification and the location
to which it relates.
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 terminal.
Only the ultimate transferee or transferor need be identified. An entity such
as a merchant or another financial institution that is processing a transfer
to or from another entity does not have to be identified either on the receipt
or the periodic statement.
6
The information required by paragraphs (a)(5) and (6) of this
section may be combined. Thus, if a consumer is using an access device to
purchase goods from a merchant, both the name of the third party to whom funds
are being transferred (the merchant) and the location of the terminal at which
the transfer is initiated will be satisfied by a disclosure such as "XYZ Store,
Anytown, Ohio."
Institutions may use a code to name the third party to or from whom
funds are tranferred, but only if the name of the third party is explained
elsewhere on the receipt. Thus, if payments to certain utilities can be made
at an ATM, preprinting a series of codes and the specific utilities to which
they relate on the back of the terminal receipt, and disclosing the correct
code on the face of the receipt, would comply with the regulation. The Board
again emphasizes, however, that the periodic statement reflecting this transfer
will have to include the name of the third party. The Board also envisions
that most transfers to or from third parties at point-of-sale (POS) terminals
would comply with this requirement by actually naming the third party (normally
a merchant) to or from whom funds are tranferred.
The Board has revised the language to clarify that paragraph (a)(6)
does not apply at all if the name of the third-party transferor or transferee
is provided by the consumer in a form that the electronic terminal cannot
reproduce on the receipt. For example, if a consumer makes a utility payment
at an ATM and provides the name of the third-party payee by inserting a payment
stub into the ATM, the ATM need not generate a terminal receipt that names the
utility company. A disclosure under § 205.9(a)(3) that a "payment from check
ing" has been made is all that would be required in this instance.
It should be noted that third-party payments made by check, draft,
or similar paper means have been excluded from the definition of "electronic
fund transfer" under § 205.2(g) and compliance with these requirements for
those types of transactions is not required.
Section 205.9(b), which implements § 906(c) of the Act, requires
institutions to provide periodic statements summarizing the electronic fund
transfer activity occurring in the consumer's account during the statement
cycle. A written statement must be provided to the consumer for any account
capable of transfers other than preauthorized credits, for each month in which
there is electronic activity in the account. Where no activity occurs in
such an account, the statement must be provided on at least a quarterly basis.
Some commenters again requested the Board to permit longer statement cycles
for certain types of EFT-accessible accounts. The Board believes that the
language of § 906(c) of the Act is clear in requiring monthly statements for
any active account from which electronic debits can be made.
A great many commenters asked for clarification of what is meant by
the phrase "for any account to or from which electronic fund transfers can be
made" in § 205.9(b). These commenters were concerned that accounts for which
there is no specific electronic fund transfer agreement are in fact accessible
to electronic fund transfers, since membership in an automated clearing house
(ACH) association requires participating financial institutions to accept
7
electronic fund transfers to the account. The Board interprets the language
of the regulation quoted above to apply only to those accounts for which
(1) an agreement has been entered into between the consumer and the financial
institution to provide electronic fund transfer services to or from the
account (including accounts for which an access device has been issued to the
consumer), or (2) an agreement has been entered into between the consumer and
a third party (such as for preauthorized debits or credits) and for which the
financial institution has received notice of the agreement.
Some financial institutions asked whether they could continue the
practice of permitting consumers to "call for" their statements rather than
having to mail out a statement to all consumers. The Board believes that the
language of the regulation saying that institutions must "mail or deliver" the
statement permits continuance of this practice.
Finally, the regulation has been amended to provide that a state
ment must be mailed or delivered "for each monthly or shorter cycle" (emphasis
added) in which an EFT has occurred. This change was made to comport with the
statutory language and in response to comments of financial institutions which
asked that they be permitted to have a shorter than monthly cycle. Some finan
cial institutions asked whether they could send a "periodic statement" each
time an electronic fund transfer occurred for certain types of accounts, and
not have an actual periodic cycle under which statements would be sent. The
Board believes that such a procedure would not comply with the statute or
regulation. The Board believes that Congress intended periodic statements to
be sent to consumers on regular cycles so that consumers would have an orderly
means of reconciling their accounts.
The regulation (in footnote 4) provides that the detailed information
about each transfer, required by paragraph (1), may be given on accompanying
documents, and that codes may be used on the periodic statements, as long as
the codes are explained on accompanying documents or elsewhere on the statement.
This provision comports with the statutory language specifically authorizing
the use of accompanying documents. For example, an institution may include
copies of terminal receipts to reflect transfers initiated by the consumer
through electronic terminals, so long as those terminal receipts and other
documents together comply with the requirements of § 205.9(b). This would be
analogous to the "country club" billing procedures used by certain card Issuers
under Regulation Z and the Truth in Lending Act.
Set forth below is an example of a periodic statement illustrating
the requirements of § 205.9(b). The Board again emphasizes that, while infor
mation complying with § 205.9(b) must be provided for each account from or to
which electronic fund transfers can be made, § 205.4(c) expressly permits a
financial institution to furnish a single periodic statement combining infor
mation on more than one account. When a financial institution provides a
combined periodic statement (for example, for a demand deposit account and a
savings account, both of which can be accessed electronically), all the rele
vant electronic fund transfers affecting these accounts must be shown on that
portion of the periodic statement reflecting the transfers. If a consumer has
transferred money from a checking to a savings account at an ATM, the peri
odic statement must reflect the transfer from checking on the checking account
portion of the statement and the transfer to savings on the savings account
portion.
Several coramenters asked whether the requirements of § 205.9(b)
had to be met for all transfers reflected on periodic statements issued after
May 10, 1980, or whether the requirements apply only to transfers occurring
after the effective date of the Act. The Board believes that only transfers
occurring after May 10 must be reflected on periodic statements in accordance
with the requirements of the Act and regulation.
Section 205.9(b)(1)(i) requires disclosure on the periodic statement
of the amount of each transfer. The amount of a transfer charge may be included
in the amount of the transfer on the periodic statement if the requirements of
§ 205.9(a)(1) have been met by the owner or operator of the terminal at which
the transfer took place.
Section 205.9(b)(1)(ii) requires disclosure on the periodic statement
of the day each transfer was debited or credited to the account. The October
proposal would have required both the initiation date and the posting date for
terminal transfers to be disclosed on the periodic statement, if they differed.
Financial institution coramenters raised a number of concerns with this proposal.
It was brought to the Board's attention that a great many terminals do not
capture the initiation date for each transfer, and that significant redesign
and reprogramming costs would be incurred if both dates were required on the
periodic statement for terminal transfers.
It was also noted that consumers
are generally aware that terminal transfers made on a certain date may not in
fact be posted until a later date, and that the date the transfer is debited
or credited to the account is of paramount importance to the consumer.
While this change in the requirement results in less information
being transmitted on the periodic statement, the Board believes that the
periodic statement requirements generally will give the consumer sufficient
information to reconcile the terminal receipt with the statement and to recol
lect those transfers made at terminals. The Board has attempted to balance the
needs of the consumer for information to reconcile and remember transfers with
the inherent space limitations in statement formats and the costs associated
with redesigning periodic statements and reprogramming terminals to comply with
the Act.
(See the accompanying economic impact analysis for further discussion
of those costs.)
Section 205.9(b)(1)(iii) requires the institution to indicate the
type of transfer and the type of account affected by the transfers. This
requirement will be satisfied by the same type of information provided under
§ 205.9(a)(3), such as "withdrawal from checking" or "payment from savings."
While there may be certain operational problems associated with describing the
types of transfer, particularly in a shared or interchange system, the Board
feels that financial institutions can adjust their systems to provide for the
transmittal of such data. This information may be provided by a code that is
explained elsewhere on the periodic statement or in accompanying material.
- 9 -
In the illustration below, the transfer codes are preprinted on the periodic
statement. 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 consumer's
savings account as well as the checking account for which the statement is
issued.
Section 205.9(b)(1)(iv) sets forth the disclosure requirements for
terminal location. This requirement is limited to those tranfers initiated
at an electronic terminal. In the statement below, transfer types 01, 03, 05,
21, and 61 represent terminal transfers that are subject to this requirement.
The final regulation also requires disclosure of an identification (such as a
terminal number or code) if one was used on the receipt. Although financial
institution commenters were generally opposed to reprinting the code from the
receipt on the periodic statement, the Board feels it is necessary (particu
larly given the deletion of the initiation date from the periodic statement)
to include the code so that consumers can reconcile the terminal receipt with
the periodic statement. The terminal number or other code will be particularly
significant for consumers where more than one terminal is located at a single
location, such as in a department store or ATM facility with more than one
terminal.
Institutions operating in a shared or interchange environment were
concerned that certain codes may be the same for different terminals and that
it would be a source of confusion to the consumer if identical terminal numbers
appeared on the periodic statement. The Board does not interpret the regula
tion to require that all numbers be unique, particularly since the descriptions
of the terminal location will be different in every case.
Paragraphs (b)(1)(iv)(A), (B), and (C) provide three different
methods for describing the terminal location. The institution need not adopt
a single method consistently for all terminal locations. For example, an
institution may describe a terminal located at one branch by its address under
paragraph (A), and an ATM located at another branch of the institution by the
branch name under paragraph (B). If the financial institution actually des
cribed the terminal location on the receipt, the description on the periodic
statement must be disclosed under the same method. Note that the institution
may abbreviate the descriptions.
Under paragraph (A), the requirement that the number and street or
intersection always be given has been modified to permit financial institutions
to omit the number portion of the address if the street name alone uniquely
identifies the terminal location. For example, if a transfer takes place at
an ATM located on Main Street, the financial institution may omit the street
number if it has only one terminal on Main Street. Thus, financial institutions
using paragraph A to describe the terminal location could use "500 Main Street,"
or "Main Street," or "Main/Oak Streets."
Paragraph (B) permits an institution to describe the location with
a term, such as "LaGuardia Airport, NY, NY," which has public recognition and
conveys a particular location to the consumer. The Board has made clear in
the regulation that the financial institution may use a branch name as a gener
ally accepted name referring to a specific location under paragraph (B). For
10
example, a financial institution might describe its ATM location as "Main
Street Branch."
Paragraph (C) permits disclosure of the name of a merchant or finan
cial institution on whose premises a terminal is placed or that owns or operates
the terminal. Footnote 7 to this paragraph is intended to prevent a statementproviding institution from describing the location of its own terminal simply
by the name of the institution, rather than the more specific geographic loca
tion. This footnote has been revised, however, to permit financial institutions
that own or operate terminals at only one location to describe that terminal by
using its name under paragraph (C) of this provision.
Footnote 5 and references to it in footnotes 6 and 8 have been pro
vided to permit financial institutions to drop the city and/or the state desig
nation when all the terminals owned or operated by the financial institution
providing the statement, or by the system in which it participates, are located
in that city or in that state. The Board believes that no reduction in consumer
protection results from this exception, as the consumer will be aware that all
the transfers reflected on the periodic statement which occurred within the
system took place in the city or state in which the financial institution is
operating. If, however, the consumer made transfers at terminals located out
side the city or state in which the system is located, the periodic statement
would have to reflect the city and state in which those transfers took place.
The institution may describe the location of the terminals on mate
rial accompanying the periodic statement, such as a master list of terminal
numbers and the locations to which they relate.
Section 205.9(b)(1)(v) requires the institution to disclose the
name of any third party to or from whom funds were transferred. Footnote 9
provides an exemption from this provision for checks or similar negotiable
instruments deposited in an electronic terminal for later manual processing.
In such cases, the institution is not required to capture the names of third
parties on the instruments for disclosure on the periodic statement. Insti
tutions should note that payments made by check, draft, or similar paper
instrument at electronic terminals have been excluded from the definition
of electronic fund transfer and that no disclosure will be required on the
periodic statement under Regulation E for those payments. Although comments
from financial institutions suggested that significant costs will be incurred
in printing the names of third parties on the periodic statements, the Board
believes that the statutory language is clear and that the intent of Congress
was that the name of the third party to or from whom funds were transferred
be given on the periodic statement for purposes of account reconciliation and
for proof of payment under § 906(f) of the Act. This requirement applies to
all types of transfers, not just to those made at a terminal.
A financial institution constitutes a third party to or from whom
funds were transferred for purposes of this requirement, so that a payment
made at an ATM to the financial institution holding the consumer's account
would have to reflect the name of the institution as the third-party payee.
11
The second sentence of § 205.9(b)(1) (v) sets forth special require
ments regarding disclosure of the name of any third party for transfers initi
ated by a consumer at an electronic terminal. If the institution has used a
name or code to identify the third party, that name or code must be repeated
on the periodic statement. The example given in the October proposal was a
merchant's name appearing on a terminal receipt for a POS transfer. The Board
reiterates its position that if the merchant's "doing business" name was used
on the terminal receipt, 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 location and third-party requirements on periodic statements may
in some cases be satisfied by a single disclosure. For example, for purchases
(transfers labeled "21" below), the information contained in the column headed
"Description of Transfer" represents both the third-party merchants to whom
funds were tranferred and the locations of the POS terminals involved.
Section 205.9(b)(2) requires an institution to disclose the number
of the consumer's account(s) 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 that are specifically related to electronic fund transfer ser
vices should be disclosed, and they should be disclosed as an aggregate amount.
The institution need not itemize the various types of charges it imposes. For
example, if the institution imposes a fixed fee for use of an account whether
or not the consumer utilizes the electronic transfer services associated with
the account, no disclosure need be made under this paragraph.
Financial institution coramenters asked that they be permitted to
total all fees and charges, whether for electronic fund transfer services or
for other services provided under the account (such as check charges). The
Board is of the opinion that the Act envisions a discrete disclosure of the
charges for electronic fund transfer services. It should be noted that if a
transfer charge was added to the amount of the transfer under §§ 205.9(a)(1)
and 205.9(b)(1) (i), the institution providing the periodic statement does not
have to include the amount of that charge in its disclosure of EFT charges
under paragraph (b)(3).
Sections 205.9(b)(4) and (5), which require the statement to show
the beginning and ending account balances and the address and telephone number
to be used for inquiries or error notification, are unchanged from the October
proposal. With respect to § 205.9(b)(5), a number of commenters asked that the
Board provide a separate notice to be placed on combined Truth in Lending/EFT
account statements to alert consumers to the fact that they must write to
preserve their rights under the Fair Credit Billing Act. Although the Board
recognizes that consumers may be confused by the conflicting requirements of
the Fair Credit Billing and Electronic Fund Transfer Acts, it feels that adding
such a legend to the requirements of the regulation would simply cause greater
12
confusion on the part of consumers. Many consumers would be unable to tell,
merely by looking at a statement, whether Regulation E or Z applies to a
particular alleged error.
Section 205.9(b)(6) applies to institutions that utilize the tele
phone notice alternative set forth in § 205.10(a)(1)(iii)
. Under paragraph
(b)(6), the institution must inform consumers, on each periodic statement, of
the telephone number to be used for that purpose.
A number of financial institutions wanted the Board to provide in
the regulation that when a financial institution sends a consumer a periodic
statement containing data transmitted to it by another financial institution
or third party (such as a merchant), it may rely on that data without verifying
its accuracy and without violating the regulation. The Board believes that
such an exception is not warranted. Financial institutions must generally
maintain reasonable procedures to avoid violations of the regulation, whether
as a result of faulty data transmittal or errors of third parties. Again, the
.
exception to liability under § 915(c) of the Act protects financial institu
tions that maintain such procedures if an unintentional error occurs.
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 preauthorized
credits. Instead, the institution may simply update the passbook whenever
it i3 presented by the consumer by entering, in the passbook or on a separate
document, the amount and date of each electronic fund transfer since the pass
book was last presented. A number of financial institution commenters asked
that the Board provide a reasonable cut-off period beyond which a financial
institution would not have to update the passbook information upon presenta
tion. The Board believes that under the provisions of the Act and regulation,
the financial institution does not have to update the passbook immediately
upon presentation and can provide the information later, by mailing or other
wise returning the passbook or separate documentation to the consumer.
Section 205.9(d) permits institutions to send periodic statements on
a quarterly rather than a monthly basis for non-passbook accounts which cannot
be accessed electronically except by preauthorized credits. The Board wishes
to emphasize that the format and content of the quarterly statement must comply
with § 205.9(b).
In connection with these two paragraphs, the Board was asked by a
number of financial institution commenters to provide further exceptions from
the periodic statement requirements for low-activity accounts, other types of
passbook accounts with access device capability, and for dormant accounts. The
Board believes that the exceptions would not comport with the statute.
A new section, 205.9(e), has been added to the regulation. It per
mits the use of commonly accepted or readily understandable abbreviations on
terminal receipts, periodic statements, or other documentation. The Board
emphasizes that these abbreviations must still permit the consumer to readily
understand the content of the documentation.
CHECKING ACCOUNT
Beginning Balance
Posting 1
Date
T
08
08
08
08
08
08
08
08
08
08
08
08
08
08
08
07
07
13
13
15
17
20
22
22
23
24
27
27
29
29
|
1
|
|
|
|
|
|
|
|
|
44-66-8800
794.65
Credits I Debits! Type of |
1
! Transfer |
1
1
"T
1 50.00 |
01
1
I 25.00 |
01
114.13 i
03
r
1 72.34 |
21
1278.49 |
51
438.73
31
!
1
1
I 23.86 i
41
i
1 52.50 |
41
1100.25
01
I 88.00 I
21
704.65 i
31
r
1 59.64 |
05
65.00 1
03
|
1
1 43.42 |
21
1
1300.00 |
61
1
Terminali Description of Transfer
Number |
~
T
#985
#876
#568
1000 S. Elm St.
Main St.
| Chestnut/Oak St.
T ABC Dept. Store
T Anytown Savings & Loan
" T ACME Steel Corp.
T 1st Bk. of Anytown
T ABC Dept. St.
# 24A
| LaGuardia Airport, NY NY
T Metropolis Dept. St., NY NY
~T Anytown Hospital
#456
E-Z Mall-OH Elec. Pr. Co.
#456
E-Z Mall
~T A-l Food Store
#123
| S. Anytown Br.
Ending Balance
|
1023.66
Transfers
01
03
05
21
31
41
51
61
-
Withdrawal
Deposit
Payment
Purchase
Direct deposit
Telephone bill payment
Preauthorized debit
Transfer to savings
L
14
Sect ion 205.10(a) — Preauthorized Transfers to a Consumer's Account.
Section 205.10(a)(1), which implements § 906(b) of the Act, requires that where
a consumer's account is scheduled to be credited by a preauthorized electronic
fund transfer from the same payor at least once every 60 days, some form of
notice must be provided to the consumer so that the consumer can ascertain
whether or not the transfer occurred.
The introductory language provides that notification by the payor to
the consumer that the transfer has been initiated satisfies this requirement.
This notification can be made, for example, by providing payroll data to the
consumer, and need not take the form of a separate notice. If the payor does
not provide this notice, the institution holding the consumer's account must
adopt one of three alternative procedures for furnishing notice. The Board
notes that the institution need not use the same procedure for all accounts
receiving preauthorized electronic transfers or for all types or series of
transfers.
Paragraphs (a)(l)(i) and (ii) set forth two of the alternative notice
procedures, and are virtually unchanged from the October proposal. These two
procedures are oral or written notice every time a preauthorized transfer
occurs, and oral or written notice every time a transfer fails to occur.
Notice must be given within 2 business days after the transfer occurs, or if
the institution has chosen to give negative notice, within 2 business days
after the transfer was scheduled to occur.
Commenters on the October proposal suggested that the 2-business-day
period in paragraph (a)(l)(ii) be expanded, perhaps to 5 business days. It
was argued that a preauthorized transfer often fails to arrive when scheduled
or even within 2 business days of that time, but does arrive within a slightly
longer period. Changing the time period in this provision would allow an
institution using the paragraph (a)(l)(ii) procedure to avoid sending a notice
on such occasions. The Board believes that it is important for the notice to
the consumer to be given as soon as reasonably possible after the scheduled
date, so that the consumer will know that the funds have not been received as
expected. For this reason, the Board has not changed the time period.
On the other hand, the Board believes that if an institution is
using this procedure, and a transfer arrives late but within the 2-businessday period, then no notice need be sent.
Paragraph (a)(l)(iii) provides a third alternative, and permits an
institution to establish a telephone line that a consumer may call to find out
whether a preauthorized electronic fund transfer to the account has occurred.
The telephone number to be used must be disclosed in the initial disclosures
and on each periodic statement. In addition, the final rule requires that the
telephone line be "readily available." The Board intends that institutions
using this alternative establish systems with sufficient lines, equipment, and
personnel so that consumers calling to inquire about transfers are able to
have calls answered with little difficulty. A 24-hour line is not required,
but the lines should be available at least during normal business hours.
15
Another aspect of availability is cost. Consumers should not
have to make long-distance calls to inquire about their transfers. The Board
expects telephone notice systems to be designed so as to avoid such a result.
An institution with branches and customers located throughout a particular
state could designate a telephone number that consumers could call free of
charge from anywhere in the state. Alternatively, the institution could des
ignate local numbers for the different communities in the state.
Section 205.10(a)(1)(iii) of the October proposal would have given
the consumer the option to accept or reject use of this alternative procedure.
The final version leaves the choice of whether to use this procedure up to the
institution.
As the costs of developing and operating a system of notification are
significant, many commenters indicated that a financial institution would want
to develop only one system of notice for its customers. A large number of
financial institutions pointed out that under the October proposal, even if
only a few consumers elected notice under paragraphs (a)(l)(i) or (ii), an
institution that adopted the paragraph (a)(1)(iii) procedure would also have
to develop and operate a system to provide one of the other forms of notice.
As discussed in the Board's economic impact statement in section (3) below,
the costs associated with either of these alternatives are expected to be
considerable. Although some costs would be saved because certain consumers
would elect notice under paragraph (a)(l)(iii), the institution would still
incur the entire cost of developing the alternative notice system. The para
graph (a)(l)(i) alternative would involve, in addition to system development
costs, costs for generating notices and for postage. These latter costs would
be less under paragraph (a)(l)(ii), but system development and maintenance
costs would be greater, due to the need to continually update what would likely
be a very complex schedule of expected preauthorized credits. In addition,
the Board has determined that from an operational standpoint notice is not
feasible under paragraph (a)(l)(ii) as preauthorized credits do not occur on
identical schedules, and therefore many financial institutions would not be
able to provide notice in this manner.
Because of the costs of providing notice under paragraphs (a)(l)(i)
or (ii), it was claimed that many institutions would not find it economically
feasible to continue accepting electronic deposits to consumers' accounts.
This might be particularly true with respect to preauthorized credits for which
no payor notice is provided, principally Social Security and other government
benefit payments. The Board believes that the federal recurring payments pro
gram (31 CFR 210) is beneficial both to the government and to consumers, and
is concerned about the viability of the program in the event many institutions
elect to withdraw from participation.
Commenters also pointed out that the paragraph (a)(l)(iii) procedure
has benefits for consumers, in that consumers can find out whether a particular
transfer occurred much more quickly than when written notice is mailed by the
institution. Other benefits to consumers are discussed in the economic impact
statement below.
16
Some coramenters suggested requiring institutions that use the para
graph (a)(l)(iii) alternative to establish systems whereby the information
available by telephone would also be available at teller windows or electronic
terminals, or both. The Board decided not to include these requirements, since
most consumers would probably use the telephone rather than these other means.
Section 205.10(a)(2) applies to the same types of preauthorized
transfers as § 205.10(a)(1).
It requires a financial institution that receives
such a transfer to credit the amount of the transfer to the consumer's account
as of the day funds for the transfer are received. As noted in the October
proposal, final action on this provision was postponed until Board considera
tion of Subpart C of Regulation J. Subpart C was issued in proposed form
(44 FR 67995, November 28, 1979); therefore, final action on § 205.10(a)(2) is
appropriate.
The October proposal would have required an institution to credit
the amount of a transfer "no later than the business day on which the finan
cial institution receives the funds from the payor." The provision as adopted
requires crediting "as of the day the funds for the transfer are received."
The substitution of the phrase "as of the day" for "no later than the
business day” addresses an operational problem. While in many instances finan
cial institutions receive automated clearing house tapes in advance of the
settlement date for items contained on the tapes, in other instances the tapes
are received on the settlement date.
Since the date funds are received is the
settlement date, the October proposal would have required institutions in these
circumstances to post transfers to consumers' accounts on the same day the
tapes are received. Yet some institutions follow procedures under which items
received on a given day are not posted until the next day, and these procedures
may be very difficult to change. The change in regulatory language mentioned
above permits institutions to follow their usual posting schedules, provided
that consumers' accounts are credited as of the day funds are received.
Finally, although an institution must credit the consumer's account
as of the date specified, it need not make the funds available for withdrawal
or other use by the consumer by the same deadline. Thus, while an institution
receiving a transfer on a particular day may honor checks presented that day
drawing on the funds so transferred, it can refuse to allow cash withdrawals
against those funds (via teller windows or ATMs) until the opening of business
the following day.
Section 205.11 — Procedures for Resolving Errors. Section 205.11
implements § 908 of the Act. The section sets forth the definition of "error,"
the steps the consumer must take to allege an error in order to receive the
protection of the Act and regulation, and the procedures that an institution
must follow to resolve the alleged error.
It also includes a provision on the
relationship of this section to the billing error procedures of Truth in Lend
ing (12 CFR Part 226).
Section 205.11(a), implementing § 908(f) of the Act, defines an
"error" for purposes of the regulation. Except as noted below, it is sub
stantially unchanged from the October proposal.
In the previous proposal,
"
- 17 -
paragraph (a)(6) defined as an error any transfer not identified in accordance
with the requirements of § 205.9 or ’
'not recognized" by the consumer from the
identification given on documentation required by §§ 205.9 or 205.10(a).
A
number of commenters objected to the latter provision.
Some commenters stated
that a consumer who indicates that a particular transfer is not recognizable
is in fact saying the transfer is unauthorized, incorrect, or that additional
information is needed. These types of errors are already covered under other
paragraphs of the definition.
The Board agrees that where a consumer does not recognize a partic
ular transfer, the consumer is likely to allege an error under one of the other
paragraphs. Therefore, to eliminate confusion, the non-recognition language
has been deleted from paragraph (a)(6).
Section 205.11(a)(7) defines as an error a consumer's request for
required documentation, additional information, or clarification. Many comraenters objected to defining such requests as errors. Financial institutions
had two major concerns: (1) that every request about the consumer's account
would activate the error resolution procedures, and (2) that it is unclear
what steps would be necessary to investigate and correct this type of error.
The Board believes that the statute requires treatment of these consumer
requests as errors. The final rule contains two provisions, the last sentence
of § 205.11(a)(7) and § 205.11(d)(1), intended to alleviate financial institu
tions' concerns.
Section 205.11(a)(7) also provides that routine balance inquiries
and requests for documentation or information for tax or other record-keeping
purposes are not errors. The October proposal used the terra "business" rather
than "record-keeping" purposes.
Some commenters believed that use of the term
"business" might be inappropriate, as the regulation deals only with transfers
to and from consumers' accounts. Also, the term may be too narrow, as the docu
raents could be requested for other purposes clearly unrelated to verifying the
transfer, such as furnishing evidence in a domestic dispute. Other commenters
were concerned that financial institutions would use this exception to avoid
compliance with the error resolution procedures any time a consumer requested
documentation or information. The Board intends this exception to apply only
when there is a clear indication that the request is for purposes unrelated to
determining whether an error has occurred.
Section 205.11(b)(1) contains the requirements for a notice of an
error. The principal change from the October proposal is in format. The pro
visions on proper notice reflect two time periods.
The first runs from the
time that a financial institution transmits a periodic statement or updates a
passbook. The second is available after an institution transmits additional
information, clarification, or documentation in response to the type of error
defined in § 205.11(a)(7).
Some commenters were concerned that the October
proposal did not make sufficiently clear that the consumer is entitled to a
second 60-day period only where the documentation or information was requested
in a timely manner. The final rule clarifies this point.
The October proposal required that the consumer provide "the type,
the date, and the amount of the error, to the extent possible." Some comment-
18
e r s were concerned Chat a consumer who is unable to state the type or the date
of an error would lose important rights under the Act and regulation. To make
clear that all such identifying information need be provided by the consumer
only to the extent possible, the modifying phrase now precedes the listing of
the type, the date, and the amount.
A number of financial institutions asked whether they might require
that, to be effective, notice be directed only to the disclosed telephone num
ber or address.
Footnote 10 states that a financial institution may impose
such a requirement, provided the institution maintains reasonable procedures
to refer the consumer to the proper number or address if the consumer uses
other means.
For example, if the consumer calls another number of the insti
tution or contacts a teller with an error allegation, the person answering the
phone or the teller must give the consumer the correct number and address.
The substance of § 205.11(b)(2), regarding the written confirmation
requirement, remains unchanged.
In the October proposal, § 205.11(c)(1) required that the financial
institution investigate the allegation, determine whether an error occurred,
and transmit the results of the investigation to the consumer within 10 busi
ness days after receiving notice of an error, or within 45 days after receipt
if the institution followed the recrediting procedures.
Some commenters
argued that § 908(c) of the Act allows an institution proceeding under that
section 45 days to investigate without specifically addressing when the results
must be transmitted, whereas § 908(a) requires both investigation and trans
mittal within 10 business days. Therefore, the commenters argued, under the
45-day alternative a financial institution that determines no error occurred
has an additional 3 business days, under § 908(d), to transmit an explanation
to the consumer.
After reconsideration, the Board agrees with this statutory interpre
tation. The regulation delineates the time limits in two separate paragraphs.
Section 205.11(c)(1) contains the requirement that the institution investigate,
determine whether an error occurred, and transmit the results to the consumer
within 10 business days to avoid provisional recrediting.
Section 205.11(c)(2)
now provides that, as an alternative, the financial institution may take up to
45 calendar days after receipt of a notice of error to investigate and deter
mine whether an error occurred, provided the financial institution recredits
the amount, notifies the consumer of the recrediting, and gives the consumer
full use of the provisionally recredited funds. This alternative does not
grant the institution an absolute right to take 45 days in every case; the
institution must investigate and make its determination promptly, but has an
outside limit of 45 days in which to finish these steps.
Section 205.11(c)(2)(i) corresponds to § 205.11(c)(1)(ii)(A) of
the October proposal.
This section requires the institution to provisionally
recredit the consumer's account in the amount of the alleged error.
Some com
menters requested clarification of the amount that should be recredited if only
part of the transfer is questioned.
If the statement reflects a $100 transfer
- 19
and Che consumer claims Co have made a $10 Cransfer, for example, Che instituCion would have Co recredic $90, noC $100.
I
The proposal also provided ChaC Che amounC recrediced would be
subjecC Co Che $50 liabilicy provisions of § 205.6(b), when an unauchorized
electronic fund transfer may have occurred. A number of consumer represen
tatives objected on the grounds that, in order to withhold any amount, the
institution should meet the requirements for imposing such liability— that it
had provided a means to identify the consumer to whom Che device was issued,
made the required disclosures, and established that the access device was
accepted. The Board agrees that the financial institution must have a reason
able basis for believing both that an unauthorized electronic fund transfer may
have been involved and that the requirements of § 205.6(a) have been satisfied.
The final rule reflects this interpretation.
Section 205.11(c)(2)(ii) corresponds to § 205.11(c)(1)(i)(C ) of the
October proposal; §§ 205.11(c)(2)(iii) and (iv) replace § 205.11(c)(1) (ii)(B ).
The proposal required the institution to give the consumer full use of the
provisionally recredited funds, including honoring any items drawn on those
funds prior to the time that the consumer received Che notice of debiting or
could be expected to have received the notice, whichever was earlier.
Since
the treatment of items after debiting a provisionally recredited amount only
arises where the institution determines that no error occurred, the provision
requiring the honoring of certain items after debiting has been moved to para
graph (f)(2) of this section, and is discussed below.
Section 205.11(c)(2)(iii)
requires the institution to give the consumer full use of provisionally recred
ited funds during the investigation, and § 205.11(c)(2)(iv) incorporates the
notice and other requirements of § 205.11(f)(2).
Section 205.11(c)(3) corresponds to § 205.11(c)(2) of the October
proposal; the substance of this provision is unchanged.
Section 205.11(d)(1), regarding a financial institution's duties
when a consumer requests documentation, information, or clarification, is a
new provision. As previously discussed, a number of financial institutions
requested guidance on how to deal with errors of the type described in
§ 205.11(a)(7). The Board believes that the financial institution may comply
with its duty to investigate, correct, and report by transmitting the requested
documentation, information, or clarification. The institution must transmit
this information or documentation in accordance with the 10-business-day or
45-calender-day time limits of § 205.11(c). The Board contemplates that in
most cases the institution will be able to comply within 10 business days from
receipt of the notice. An institution could, for example, print a facsimile
draft of a receipt; it need not provide an actual copy of the documentation.
If the institution needs more than 10 business days to resolve the error, it
would have to provisionally recredit the amount of the transfer about which
documentation or information is requested. This provision specifically allows
the institution to debit the provisionally recredited amount upon transmittal
of the requested documentation or information, provided it complies with the
requirements of § 205.11(f).
20
Proposed § 205.11(d)(2) would have allowed a financial institution
to limit its investigation to a review of its own records regarding a transfer
to or from a third party with whom the institution does not have an agreement.
A number of coramenters wanted clarification of the types of agreements covered
by this paragraph.
A footnote to the final rule makes clear that participa
tion in transactions under the federal recurring payments program (31 CFR 210),
common membership in an ACH, or an agreement to be bound by the rules of an
ACH or similar arrangement, is not an agreement within the meaning of this
paragraph. This means, for example, that an institution receiving preautho
rized transfers to a consumer's account over the ACH need not go beyond its
"four walls" to determine whether the credit was in the proper amount. An
agreement that a third party will honor an access device, on the other hand,
would preclude a financial institution from limiting its investigation to its
"four walls." If a merchant honors an access device in a shared system and a
consumer asserts an error involving that transfer, for example, the financial
institution must check with the merchant.
The provision also makes clear that the agreement with the third
party must relate to the type of electronic fund transfer service in question
to preclude the institution from using the exception. For example, two insti
tutions may have an agreement to honor each other's access devices, but one
may also be the originating financial institution for a payroll payment, while
the other is the account-holding institution for a particular consumer.
If
the consumer alleges an error regarding the payroll (as opposed to a transfer
using the access device, for example), the account-holding institution need
not go back to the originating financial institution to investigate the error.
The provision also makes clear that an institution that issues an access device
to a consumer whose account is held by another financial institution, for
making transfers to or from that account, may not use this limited exception.
Some commenters were concerned that consumers would be left with no
means to resolve certain errors if the "four walls" rule were adopted, since
institutions would not have to go back to the ACH or to the third party to
investigate an alleged error. They felt that a financial institution would
be in a better position than a consumer to deal with these organizations, and
should be required to do so.
It appears that most errors occur either with the consumer's finan
cial institution or with the originator of the transfer, so that in these cases
it may be more efficient for the consumer to go from the financial institution
to the originating party if the financial institution's in-house investigation
reveals no error. The Board will monitor any problems that occur for consumers
where errors take place between the originating third party and the account
holding institution if the consumer is unable to have the error promptly
resolved, and it will consider further action to remedy any problems should
they arise.
Section 205.11(d)(3) of the October proposal would have permitted
the financial institution to rely upon information supplied by third parties,
without having to conduct an independent investigation to verify its a c c u r a c y .
After considering the comments on this proposal, the Board has decided to
omit it from the final regulation. Where there is no agreement with the
21
third parties as to the type of electronic fund transfer service alleged in
the error, the financial institution need only review the information in its
own records in any case. Where there is an agreement between the financial
institution and the third party, the Board contemplates that the financial
institution will contact the third party and conduct a reasonable investigation
with that third party. The Board does not, however, intend for the financial
institution to undertake an independent investigation external to its own
records and third parties. For example, if a consumer has purchased a coat
using a POS terminal, the financial institution need not send an employee to
the store to ascertain the correct cost of the coat.
Section 205.11(d)(3) corresponds to § 205.11(d)(1) of the October
proposal; the substance is unchanged.
Sections 205.11(e)(1) and (2) are substantially unchanged from the
October proposal, except for one clarification. The proposal provided that
the financial institution must transmit notice of the correction or, if appli
cable, notice that a provisional credit has been made final. The final rule
has been clarified to show that the institution must transmit notice of the
correction and, if applicable, notice that a provisional credit has been made
final. This change has been made to indicate that a notice saying that a cre
dit was made final, without saying that the account was corrected, would be
insufficient.
Section 205.11(f)(1) sets forth the time limit within which a finan
cial institution must send a written explanation after determining that no
error occurred, or that an error occurred in a different manner from that des
cribed by the consumer. The general rule is that the explanation must be sent
within 3 business days after the investigation is concluded.
If the investi
gation is concluded on day 4, the explanation must be sent within 3 business
days from day 4. An institution does not get 3 business days in which to send
an explanation, however, in cases where it concludes the investigation on the
tenth business day and has not provisionally recredited the consumer's account.
The explanation must be sent that same day. The institution may take an addi
tional 3 business days in which to transmit the explanation if it uses the
45-day alternative.
Section 205.11(f)(2)(i) requires the institution to give notice to
the consumer upon debiting a provisionally recredited amount. The notice must
contain the date and amount of debiting and-the fact that the consumer will
have use of the funds prior to being informed of debiting. As discussed below,
the final rule modifies the use the consumer will have of the funds after debit
ing, and the notice provision in the final rules reflects that substantive
change.
Section 205.11(f)(2)(ii) sets forth the institution's duty after
debiting to honor certain items that overdraw the account, up to the amount
of the debit.
As previously noted, the comparable proposed provision was
§ 205.11(c)(1)(ii)(B), which required insti tutions to honor any items using
the debited funds drawn prior to the time that the consumer received or was
presumed to have received the debiting notice. A number of financial institu
tions were concerned with the fraud potential where, for example, the consumer
22
learns that the funds have been debited and withdraws cash at a teller or an
ATM. To help alleviate concerns about fraud, while still assuring the consumer
full use of the funds, particularly with third parties, the final rule imposes
the duty to honor only with respect to third-party items, such as checks drawn
to third parties and preauthorized debits, excluding items such as cash with
drawals .
Some commenters also asked that the Board specify a cut-off period
for an institution's honoring items that were drawn using provisionally recred
ited funds that were later debited. Without a cut-off of some kind, an insti
tution would have to monitor the consumer's account indefinitely. The final
rule provides that an institution must honor the items for at least 5 business
days after transmittal of the debiting notice. This provision enables an
institution to avoid indefinite monitoring, while permitting consumers to have
both full use of provisionally recredited funds until notice and a reasonable
time period for replacing funds in the account, if necessary, to protect their
position with third parties.
The final rule also makes clear that an institution may not impose
charges for the overdraft. The institution could not, for example, impose any
overdraft fee in connection with items honored under this provision.
Similarly,
an institution may not impose a finance charge on the amount of the overdraft
until after 5 business days have elapsed. The rule would not preclude an insti
tution from imposing any transaction or item charge (such as $.25 per check)
that would be made if no overdraft had occurred.
Section 205.11(f)(3) of the final rule corresponds to § 205.11(f)(3)
of the October proposal. That proposal provided for the consumer's right to
receive copies of documents, if possible, or a report containing the data
upon which the financial institution relied in reaching its conclusion. Many
commenters were confused about the type of report they would have to give the
consumer. As this option caused concern, and as Congress had evidenced a
preference for the actual documentation upon which the institution relied, the
Board has returned to the statutory language.
The Board contemplates that the
documentation will be in a readily understandable form. For example, an insti
tution that relies on magnetic tape in making its determination should trans
late and reproduce the data in a readable form.
Section 205.11(g) has been rewritten to clarify that an institution
is relieved from further error resolution responsibility as to a particular
assertion of error only if the consumer, after concluding that no error actu
ally occurred, voluntarily withdraws the notice. A number of institutions
objected to the limited nature of this provision, because they wanted to give
oral explanations to consumers after determining that no error occurred. They
wanted to be able to use this section to avoid a written explanation if the con
sumer agreed with the institution's conclusion. The Board believes that such
an interpretation would undermine the statutory intent that consumers receive
a written explanation when the institution determines that no error occurred.
Section 205.11(h), regarding reassertion of an error, is substantially
unchanged.
The first sentence has been modified to make clear that an insti
tution must have fully complied with the requirements of the error resolution
procedures with respect to that error to avoid further responsibilities as to
the same error. A sentence has been added to avoid any implication that a
consumer is precluded from asserting an error as defined in §§ 205.11(a)(1)
through (6) after having asserted an error as defined in § 205.11(a)(7) regard
ing the same electronic fund transfer.
Section 205.11(i) sets forth the relation of this section to the
billing error resolution procedures of 12 CFR Part 226 where a transfer also
involves a credit extension under an overdraft agreement. The proposal provided
that, as to the credit extension portion, Regulation E would supersede the
Regulation Z error definition (§ 226.2(j)), notice requirements (§ 226.2(cc)),
and general resolution section (§ 226.14(a)).
Commenters asked for clarification as to the proper adaptation of
certain Regulation E provisions (such as provisional recrediting) to the credit
extension, and as to which provisions of § 226.14 would still apply. Where a
consumer alleges an error regarding a transfer that also involves a credit
extension under an overdraft agreement, the type of error alleged, the notice
from the consumer, and the investigation by the institution would be difficult
to separate into the respective debit and credit components.
So that a con
sumer need not provide separate notices and so that an institution may consoli
date its error resolution procedures for this type of account, a notice that
is sufficient under Regulation E will activate all billing error protections,
and the time frames of Regulation E will apply.
If the institution follows
the 45-day alternative, it need not send the consumer an acknowledgment within
30 days as otherwise required by § 226.14(a).
Furthermore, provisional recred
iting has no applicability to the credit extension portion of the transaction.
Other provisions of § 226.14 still apply to the credit extension portion, such
as the temporary prohibition on action to collect the disputed amount; the
consumer's right to withhold that portion of the minimum payment related to
the amount in dispute; the limitation on adverse credit reports; and the right
to reverse an automatic debit of disputed amounts.
In the supplementary information to the October proposal, the Board
solicited comment regarding charges to the consumer for an institution's
complying with the error resolution procedures. After due consideration of
the comments, as well as the recommendation of its Consumer Advisory Council,
the Board has decided not to address the question in the regulation for the
present.
While the Board is refraining from action at this time, the Board
is concerned with any chilling effect on the good faith assertion of errors
(particularly errors involving small amounts) that might result from the impo
sition of charges.
Furthermore, a charge for compliance may also violate
§ 914 of the Act by constituting a waiver of a consumer's rights conferred by
the Act. For these reasons, the Board will carefully monitor the situation
to ascertain whether and in what circumstances charges are imposed, and will
reexamine the issue if it becomes aware of abuses or of a chilling effect on
the exercise of rights.
24
-
Section 205.13 — Administrative Enforcement. Technical changes
have been made to §§ 205.13(b) and (c). In paragraphs (b)(2)(i) and (b)(4),
references to the Division of Consumer Affairs have been changed to the
Division of Consumer and Community Affairs.
Paragraph (c)(2) has been amended to require that any person that
has been served with notice of an action filed under §§ 910, 915, or 916(a) of
the Act must retain records of compliance with the Act and regulation for the
prescribed time period. The regulation previously referred only to actions
under §§ 915 and 916(a) of the Act and had omitted reference to actions under
§ 910, which may be brought separately.
Section 205.14 — Services Offered by Financial Institutions Not
Holding Consumer1s A c c o u n ~ This section corresponds to § 205.4(b) of the
October proposal.
It has been redesignated as a separate section to emphasize
that it has limited and narrowly defined applicability, unlike the remainder
of § 205.4 which may affect many financial institutions.
The subject matter is the same as that of § 205.4(b) of the October
proposal, namely, certain situations where one institution provides an EFT
service and issues an access device to a consumer whose account is held at a
second institution, and where no agreement exists between the institutions con
cerning the service. For example, Bank A issues an access device to a consumer
with whom it does not have an account relationship, and makes terminals avail
able through which the consumer can initiate electronic fund transfers. The
consumer's account is held at Bank B. Bank A has no agreement with Bank B
concerning this service. Transfers initiated via Bank A will be cleared
through the ACH or by other means.
As noted in the October proposal, the Act and the regulation
would impose various requirements on Bank B in the described situation absent
a provision to the contrary. This is so despite the fact that Bank B has no
control over or knowledge of many facets of the relationship between the con
sumer and Bank A. In addition, Bank B may not offer any EFT services of its
own, and thus would have few or no Regulation E compliance responsibilities
except for those arising from transfers made under Bank A 1s service.
In these circumstances, it appears both impracticable and inequitable
to impose responsibility on Bank B for complying with Regulation E regarding
transfers initiated through Bank A's service. For these reasons, the October
proposal would have placed all compliance duties on Bank A and would have
exempted Bank B entirely. The provision adopted by the Board retains the same
general approach and places the major responsibility on Bank A, but does not
completely eliminate compliance duties for Bank B. Before discussing this
allocation, however, the Board wishes to clarify what the section applies to,
since the comments on the October proposal indicated some misunderstanding
on this point.
First, the only type of electronic fund transfer service covered by
§ 205.14 is one in which an institution issues an access device to a consumer
(a debit card or a code to be used for accessing bill-payment services, for
example). This is made clear by the addition of appropriate language to the
-
25
-
introductory portion of § 205.14(a). The section does not deal, for example,
with an institution whose "service" to a consumer consists of initiating pre
authorized electronic payroll deposits on behalf of the consumer's employer,
to the consumer's account at another financial institution. The same is true
of an institution initiating preauthorized transfers out of an account, for
example, to pay insurance premiums.
In such cases compliance responsibilities
would lie with the account-holding institution.
Second, many commenters were uncertain about what would constitute
an agreement between the account-holding institution and the service-providing
institution for purposes of this section. The Board intends an agreement for
these purposes to mean a specific agreement in which two or more institutions
agree to provide customers of some or all of them with an EFT service involv
ing an access device, and agree as to their rights and obligations with respect
to this service. A definition of "agreement," as used in § 205.14(a), has
been added as § 205.14(c) to clarify this matter. The fact that two institu
tions both participate in ACH transactions, or have agreed to be bound by ACH
rules, does not constitute an agreement within the meaning of this section.
Similarly, any implied agreement that may arise from the fact that one insti
tution accepts a series of electronic fund transfers originated by another
institution is not an agreement for § 205.14 purposes.
On the other hand, note that if an ACH establishes arrangements in
which ACH members agree to honor each other's EFT cards, for example, an agree
ment as defined by § 205.14(b) does exist.
In that instance, the participating
institutions may not rely on § 205.14 to allocate compliance duties, and would
instead have to make that allocation part of their agreement concerning the
EFT card service.
Note also that, as stated in § 205.14(c), an agreement need not run
directly between financial institutions.
It may consist of a set of individual
agreements between each of a number of institutions and a corporation that
participates in the operation of the service.
Details of compliance responsibilities are set forth in § 205.14(a)
as to the service-providing institution and in § 205.14(b) as to the account
holding institution. The general rule on compliance by the service-providing
institution in § 205.14(a) makes clear that the service-providing institution
must comply with all requirements not only of the regulation but also of the
Act, to the extent they relate to the service or transfers made via the service.
Sections 205.14(a)(1) through (6) set forth particular rules
applicable to the obligations of the service-providing institution.
Section
205.14(a)(1) deals with the situation in which unauthorized electronic fund
transfers are made from a consumer's account.
Since the account-holding
institution is not, in general, required to comply with Regulation E, that
institution may seek to hold the consumer responsible for the full amount of
the unauthorized transfers.
If this occurs, the service-providing institution
must, under § 205.14(a)(1), reimburse the consumer for any amount in excess of
the amount for which the consumer can be held liable under § 205.6.
26 -
Section 205.14(a)(2) permits the service-providing institution to
limit information furnished in the initial disclosures under § 205.7, the
subsequent disclosures under § 205.8, and documentation under § 205.9 to that
within its knowledge and the purview of its relationship with the consumer.
For example, the service-providing institution would not have to include in
documentation under § 205.9 any charges imposed by the account-holding insti
tution or account balances in the account at that institution.
The remaining portions of § 205.14(a) deal with the error resolution
requirements.
Section 205.14(a)(3) provides that if the consumer initially
seeks to have an error resolved by the account-holding institution, any result
ing delay in notifying the service-providing institution will not nullify the
consumer's right to trigger the error resolution process. This protection is
necessary since the consumer may not realize that notification to the service
providing institution is required to start the error resolution process, and
may believe that notification to the account-holding institution is another
means or the only means.
Section 205.14(a)(4) requires that, if provisional recrediting of
the consumer's account is necessary because an alleged error cannot be resolved
within 10 business days, the service-providing institution shall comply by
effectuating a provisional recredit to the consumer's account at the account
holding institution. As adopted, this provision makes clear that the service
providing institution must do this by transferring funds to the consumer's
account, and that the time limit and amount specified in § 205.11(c)(2)(i) are
applicable.
Section 205.14(a)(4) also requires that the service-providing
institution comply with § 205.11(e)(1), final correction of an account, in the
same manner— that is, by transferring funds to the consumer's account.
Section 205.14(a)(5) provides that the service-providing institution
shall comply with the requirement to disclose the "date of the recrediting"
under § 205.11(c)(2)(ii) by disclosing the date it initiated the transfer to
the consumer's account.
Section 205.14(a)(6) is new.
It is necessitated by the requirement,
to be discussed further below, that the account-holding institution honor
certain debits to the consumer's account after debiting provisionally recred
ited funds.
Since the account-holding institution needs to know the relevant
date regarding this requirement, the service-providing institution must notify
the account-holding institution of that date. This provision requires the
service-providing institution to reimburse the account-holding institution
promptly for any overdrafts that may occur. The service-providing institution
is the one that will have to arrange for appropriate reimbursement from the
consumer.
Section 205.14(b) deals with the duties of the account-holding
institution. The introductory language provides that, in general, the
account-holding institution need not comply with the requirements of the Act
or regulation.
Exceptions to this general rule appear in § 205.14(b)(1) and
(2). Many of the comments on the October proposal urged that the account
holding institution have fairly extensive duties under Regulation E. The
Board believes that imposing substantial compliance responsibilities on the
account-holding institution would be impracticable and inequitable. However,
the Board also believes that it is important to assure that consumers will be
able to have account errors completely investigated and resolved, and that
participation in the process by both institutions is necessary. Therefore,
§ 205.14(b)(1) and (2) impose limited error resolution duties on the account
holding institution.
Section 205.14(b)(1) requires the account-holding institution to
provide promptly, upon request of the service-providing institution, informa
tion or copies of documents needed in the investigation process or that the
consumer is entitled to receive. This provision enables the investigation
to encompass anything that might have occurred at either institution.
Section 205.14(b)(2) requires the account-holding institution to
honor debits to the account as specified in § 205.11(f)(2). This obligation
must be imposed on that institution since, when a provisional recredit has
occurred and then it is determined that there was no error, the regulation
allows the consumer's account to be debited and yet requires that certain
items be honored even after the consumer has received the notice of debiting.
Since these items will be presented for payment at the account-holding
institution, that institution must honor them as required by § 205.11(f)(2).
However, to lessen the burden this requirement imposes on the account-holding
institution, § 205.14(a)(6) requires the service-providing institution to
reimburse the account-holding institution promptly in the amount of any such
overdraft.
Appendix A — Model Disclosure Clauses. The Board is adopting tech
nical amendments to the headings of the sections and is issuing an additional
model disclosure clause, § A(8)(b), that institutions may use in complying
with the disclosure requirements of §§ 205.5(b)(2) and 205.7(a)(6) as to docu
mentation of preauthorized transfers to a consumer's account.
In addition,
the Board is adopting technical amendments to § A(10)(a), previously issued
in final form.
(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 eco
nomic analysis accompanies sections of the regulation that are being reissued
in final form. 1/
The analysis must consider the costs and benefits of the regulation
to suppliers and users of electronic fund transfer (EFT) services, the extent
1/ The analysis presented here is to be read in conjunction with the economic
impact analyses that accompany the Board's final rules at 44 FR 18474
(March 28, 1979), at 44 FR 33838 (June 13, 1979), at 44 FR 46433 (August 8,
1979), and at 44 FR 59468 (October 15, 1979).
_______________________________
28
to which additional documentation, reports, records, or other paperwork would
be required, 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 distinc
tion will be made between costs and benefits of the regulation and those of
the statute. The following analysis 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.
Section 205.2(g) redefines the terra "electronic fund transfer"
specifically to exclude payments to third parties made at an automated teller
machine (ATM) or other electronic terminal by check, draft, or similar instru
ment. Deposits to accounts at financial institutions, when made by check,
draft, or similar instrument at an electronic terminal, are not excluded by
the regulation, however. The exclusion allows ATMs to be used like traditional
depositories for payments but not for deposits. Therefore, deposits will be
subject to all the documentation and error resolution provisions of the Act.
Probably the greatest cost implication arises in that financial institutions
will be subject to the Act's error resolution requirements for deposits made
at ATMs.
Financial institutions could realize cost economies by offering a
depository service at ATMs; institutions would not have to install and maintain
separate depository facilities.
Consumers would be able to enjoy the benefits
of greater convenience and security for their deposits.
An additional benefit
would be that consumers would obtain deposit receipts from ATMs; receipts are
not available from other depositories.
But because the regulation does not
exempt institutions from compliance responsibilities for non-electronic depos
its at ATMs, the associated costs may deter institutions from offering deposit
service at terminals.
The regulatory coverage of non-electronic deposits at terminals is
likely to confer greater relative cost on small financial institutions than on
larger institutions to the extent that deposits make up a greater share of ATM
activity at small institutions. One survey of 177 commercial banks with ATMs
revealed that the ratio of dollars deposited to dollars withdrawn was 2.5 for
the 52 banks with deposits of less than $100 million and was 2.0 for the 125
banks with deposits of $100 million or more. 2/ Financial institutions seek-
2/ Linda Fenner Zimmer, Cash Dispensers and Automated Tellers, Fourth Status
Report. Park Ridge, N.J.: August 1977, p. 105.
f
—
- 29 -
ing to enter the market for EFT services might be deterred from offering ATM
services because deposits at ATMs are subject to the Act's provisions and,
therefore, more costly to provide.
Small institutions would be more likely to
be deterred than large institutions.
The regulatory coverage of non-electronic deposits at terminals is
not expected to affect low-income consumers differently from other consumers.
Section 205.7(a) is amended to make clear that consumers must be
able to retain the written initial disclosure statement.
Some institutions
currently make required disclosures on account agreement forms that consumers
sign and return to the institutions. Costs of creating and distributing
disclosure statements in a form that consumers may retain will be passed on
to consumers to some degree. This amendment is not expected to affect small
financial institutions differently from larger institutions or low-income
consumers differently from other consumers.
Section 205.9 implements the statutory requirements for EFT documen
tation. The Act requires that a written receipt be made available for every
transfer at every electronic terminal.
Since almost all existing terminals
are equipped with printing devices, the Act's receipt requirement will impose
little cost burden in rendering terminals obsolete.
Institutions with printer
less terminals can be expected to withdraw those terminals from service; how
ever, this could result in a substantial cost burden for the institutions and
a loss of service to consumers.
Because most existing devices can print only numerals, any require
ment to print information in alphabetic characters would force financial
institutions to replace existing devices and incur substantial costs for new
printers and related software. These costs would be reflected in higher costs
or reduced availability of EFT to consumers.
To avoid these costs, the regulation specifically allows terminal
transfers to be documented by numeric characters.
Codes may be used, although
in some cases use of codes is conditioned on their being explained on the
receipt. These regulatory provisions are expected to assure that all required
information is disclosed to the consumer at the terminal, without imposing
unnecessary compliance costs on financial institutions.
The Act requires financial institutions to deliver periodic state
ments to the holders of most accounts accessible by EFT.
Statements must be
delivered at least monthly for each monthly or shorter cycle in which an EFT
has occurred, or every three months if no electronic transfer has occurred. 3/
This timing requirement will impose considerable cost burdens on many insti
tutions that would otherwise issue periodic statements less frequently.
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.
These costs cannot be avoided because the Act sets the frequency for sending
the statements.
3/ Statutory exceptions to the monthly statement requirement are reiterated in
§§ 205 .9(c) and (d).
30 -
Some small-balance account holders, including many low-income con
sumers, will be adversely affected by the Act's documentation requirements if,
because their accounts will cost more to service, their accounts are closed or
higher maintenance fees are charged.
Some financial institutions have recently
offered semi-annual or annual statement accounts as a lower-cost alternative
to closing many low-balance accounts.
Some of these accounts may be affected.
Another substantial cost burden may arise because the Act does not
exempt inactive accounts from the periodic statement requirements.
A financial
institution would have to provide at least quarterly statements for nonpass
book inactive accounts that can be accessed electronically.
A recent survey
of a sample of Federal Reserve System member banks found the average cost of
maintaining personal checking accounts to be $2.71 per account per month in
1978. 4/ The cost of producing periodic statements for inactive accounts is
embedded in this estimate and cannot be disaggregated.
One commenter estimated
an average cost of $0.25 for sending a statement to an inactive account, imply
ing an approximate aggregate cost of $2.2 million in 1980. 5/ Another commenter
estimated that each statement would cost $0.52 to prepare and deliver. Lack of
an exemption may encourage financial institutions to close inactive accounts,
bar them from electronic access, or increase maintenance charges, thereby
restricting the availability of electronic transfer accounts to consumers and
increasing the cost of such accounts.
By requiring disclosure of the kinds of information categorized in
§ 205.9(b), the Act will impose data collection and handling costs on finan
cial institutions.
Institutions will be forced to employ additional resources
for computer services. Periodic statement formats will have to be changed to
accommodate the required disclosures of transfer data. Automated clearing
houses and shared EFT systems will have to alter their data collection and
transmission methods; more data will have to be interchanged to document
transfers adequately.
These factors will increase the cost of EFT services
to consumers. The Act's requirement for^descriptive periodic statements may,
however, confer benefits indirectly by promoting the adoption of check trunca
tion. Truncation, which reduces the volume and cost of paper check handling,
is likely to be more readily accepted by consumers when descriptive periodic
statements are available.
Periodic statements must disclose any fees or charges assessed
by the financial institution for EFT services rendered during the statement
period. The regulation reiterates this statutory requirement.
The regulation
adds the following provision.
If a transfer is made at an electronic terminal,
and if the terminal owner or operator is not providing the statement, then
the transfer amount documented on the terminal receipt may include any fees
4J
Federal Reserve Bank of New York, Functional Cost Analysis.
Federal Reserve Bank of New York, 1979, p. 7.7.
New York:
5/ This assumes that 10 percent of an estimated 22 million consumer EFT
accounts are inactive in any quarter and that the statements required by
the Act would not otherwise be sent.
31
0
or charges assessed for Che transfer, provided the amount of the charge is dis
closed either on the receipt itself or on a sign posted on or near the terminal
Furthermore, the aggregate amount documented on the receipt may be reproduced
on the consumer's periodic statement by the account-holding institution.
While this regulatory provision may reduce the amount of record keep
ing and paperwork necessary to comply with the Act, it may give rise to three
kinds of cost burden.
First, consumers may find the aggregation of transfer
amounts with transfer fees confusing, particularly if different terminal opera
tors charge different fees. Second, the aggregation of transfer amounts with
transfer fees may make terminal receipts and periodic statements more diffi
cult to use as proof of payment because the exact amounts of transfers may be
disguised. Third, financial institutions may experience an increase in error
claims or requests for further information as consumers write or call to have
aggregated amounts explained.
Institutions can be expected to weigh this cost
against the costs of additional data capture and handling necessary for report
ing terminal usage fees separately on periodic statements.
The Act requires financial institutions to identify on periodic state
ments the location of any terminal used to transfer funds and to identify all
third parties to or from whom funds are transferred. Three alternative methods
for identifying terminal location are provided by the regulation.
Furthermore,
the regulation specifies that third parties must be identified by name. Names
are likely to be among the most costly information to provide on the periodic
statement because they are non-numeric, in some cases must be entered into the
data stream manually, and must be linked with the numeric data associated with
electronic transfers. The ultimate cost of documenting third-party names will
depend on how electronic transfers are made.
Recurring payments, especially
for large-volume payors or payees, are likely to be less costly to document
because names can be kept on file, readily transmitted with other payment data,
and readily reproduced on periodic statements. Non-recurring payments will
require that third-party names be added manually to the data stream.
The statute requires that initiation dates for all transfers be set
forth on terminal receipts and on periodic statements.
The regulation modifies
this requirement for periodic statements by providing that they need set forth
only the date each transfer was debited or credited to the consumer's account.
This provision will spare institutions from capturing and reporting the initi
ation date, thereby reducing recordkeeping and the costs of compliance. Dates
of value transfer, however, are necessary information for the consumer to
determine when payments actually occurred.
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
changes in computer hardware and software will lead to fixed costs that larger
institutions can spread over larger account bases. The effective date of the
final rule allows relatively little time for institutions to make necessary
changes to comply, and many institutions are likely to incur adjustment costs
because of rushed compliance efforts.
32 -
Documentation requirements of the Act and regulation are not expected
to confer extraordinary costs or benefits on low-income consumers, except for
the potential impact on small-balance account holders noted above.
Section 205.10(a) regulates the documentation of preauthorized
credits to consumer accounts.
The Act requires that financial institutions
provide notice that preauthorized credits have or have not been made. An
exception exists only for cases in which the payor provides positive notice
that the transfer has been initiated. This statutory notice requirement is
intended to assure that consumers have current information regarding the
availability of funds scheduled to be received. 6/
The regulation specifies alternative means by which institutions may
provide notice.
First, the regulation provides that notice may be transmitted
orally or in writing.
Institutions can choose the telephone system, the mails,
or other means of communication, so that compliance can be achieved at least
cost. Notice must be transmitted within 2 business days after the electronic
transfer or, in the case of negative notice, within 2 business days after the
scheduled transfer date. Under the positive and negative notice alternatives,
consumers are ensured that notification will occur promptly.
The cost to a financial institution of generating a positive notice
can be assumed to be at least $0.17, which is the Treasury Department's esti
mated cost of producing and mailing a paper check. This estimate assumes a
cost of $0.04 to generate a written notice using a highly automated high-volume
information handling system and a cost of $0.13 for pre-sorted first-class
postage. Only the largest institutions could attain processing volumes high
enough to realize the scale economies inherent in the Treasury estimate of
$0.17 per item. A cost of $0.20 per item is therefore considered to be a more
representative minimum estimate for financial institutions.
Direct payments of Social Security and federal employee pension
benefits comprise the largest class of preauthorized electronic credits sub
ject to the Act. The Treasury Department, as payor, does not c'^rently provide
any form of notice to payees. At the present rate of approximately 12 million
electronic transfers per month, assuming no further expansion in the direct
deposit program, and using the estimated cost of $0.17 per notice, the Treasury
would incur costs of about $25 million annually by sending positive notices.
Financial institutions, assuming a cost of $0.20 per notice, would incur an
annual cost of about $29 million if they had to provide positive notice to
recipients of Treasury electronic transfers. They might reduce these costs by
including notices with periodic statements and by cycling statements for some
consumers to fall within the 2-day notice limit.
6/ A further provision of § 205.10(a) requires financial institutions to credit
preauthorized transfers to consumer accounts no later than the day the
transfers are received. This ensures the consumer benefit of prompt avail
ability of preauthorized credits.
33
The cost of providing negative notices is likely to exceed positive
notice costs because financial institutions would have to maintain and update
a schedule for all expected preauthorized credits.
It would be difficult and
costly for institutions to monitor the payment schedules set by numerous
payors. Moreover, mailed negative notices would likely take at least 2 days,
on average, to reach consumers, so that their information value would be dimin
ished .
The cost of providing positive or negative notice would substanti
ally eliminate the benefits of automatic direct deposit systems because the
cost of the notices would exceed the savings from not producing and mailing
paper checks. Together with the following regulatory alternative, however,
the positive and negative notice provisions confer the benefit of offering a
choice of compliance methods.
The regulation further specifies that an institution may furnish
notice by responding to consumer-initiated telephone inquiries about particular
preauthorized credits.
If an institution chooses this method, it must make a
telephone line readily available for these consumer inquiries. The telephone
alternative is likely to be the least-cost method of compliance for most finan
cial institutions.
It will cause the least increase in record keeping and
paperwork of the alternatives available. Consumers as a group would receive
less information from financial institutions regarding preauthorized credits,
but, on request, the same information would be available that would be automat
ically provided under the positive or negative notice alternatives. Therefore,
consumers as a group are unlikely to be disadvantaged by receiving less informa
tion, while they may benefit from reduced notice costs, more rapidly available
notice than with the positive or negative notice alternatives, and a reduction
in unwanted information.
Finally, to implement the Act's exception for cases in which the
payor gives notice of preauthorized credits, the regulation provides that
payors may inform consumers that credits have been initiated. That is, the
notices from payors do not have to guarantee that electronic transfers have
actually been completed, only that they have been initiated. The Act and
regulation therefore eliminate the need for costly duplication of the notices
that are provided by payors. Many employees receive payroll slips that indi
cate the dates and amounts of preauthorized electronic credits. The benefit
to these employees of receiving additional notice is likely to be outweighed
by the cost to financial institutions and ultimately to consumers of providing
the additional notice. The Board will continue to assess costs and benefits
associated with the notice provisions for preauthorized credits.
Small financial institutions are expected to benefit from the greater
flexibility of the regulatory provisions relative to the statutory provisions.
Under the regulation, all institutions have a wider range of compliance methods
from which to choose.
Small institutions will be less constrained by the
regulation than by the Act and therefore more likely to be able to offer EFT
services to consumers. Low-income consumers are not expected to experience
extraordinary costs or benefits relative to other consumers as a result of the
regulatory provisions for preauthorized credits.
34 -
Section 205.11 of the regulation reiterates the Act's error resolu
tion provisions, adding specific deadlines in some cases, increasing the number
of procedural options, and clarifying the definition of error for purposes of
resolution. The Act and regulation are designed to encourage prompt resolution
of alleged EFT errors. Prompt resolution benefits both consumers and financial
institutions 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 business days to
investigate, copies of documents upon which the institution relied, and prompt
notice from the institution of various procedural steps it has taken.
It is
not possible to predict the magnitude of financial benefits consumers will
enjoy from these protections. The provisional recrediting rule is a consumer
protection that will benefit low-income consumers relatively more by protecting
them from "catastrophic" loss of the use of their funds.
These consumer protections are not guaranteed, however, if the con
sumer, in alleging an error, fails to comply with a number of provisions of
the Act and the regulation.
First, the consumer must act in a timely manner
to allege that an error has occurred— that is, within 60 days after the finan
cial institution has transmitted documentation reflecting the alleged error.
Second, the consumer must provide information that enables the institution to
identify the consumer's account and the nature of the problem.
Third, if the
consumer fails to comply with the financial institution's request for a written
confirmation of error within 10 business days after an oral assertion, the con
sumer loses the right to provisional recrediting of disputed amounts; while the
aggregate economic impact of this provision is not likely to be significantly
large, some consumers may suffer from the unavailability of disputed amounts
during more prolonged error investigations.
The Act will impose substantial compliance costs on financial insti
tutions for error resolution. Potentially one of the largest costs of the Act
could result from forced recrediting of disputed amounts.
Institutions that
recredit disputed amounts expose themselves to the possible withdrawal and loss
of those funds to persons acting fraudulently or in a financially irresponsible
manner. The provisional recrediting rule will serve as an incentive for finan
cial institutions to resolve errors speedily so that provisional recrediting
will not be necessary.
Allocating staff and other resources to error investigation and pro
viding the required notices, explanations, and documents will prove costly to
financial institutions.
The Act and regulation require an institution to
deliver written explanations of findings in cases where it determines that no
error occurred or that an error occurred in a different manner or amount from
that alleged by the consumer.
One institution with relatively extensive EFT
experience commented that 96 percent of alleged errors turn out not to be
errors; under the Act, written explanations will be required for all such
allegations.
35
-
Because of the broad definition of error and of notice of error in
the Act and regulation, financial institutions may have to regard a large pro
portion of consumer inquiries and questions as error allegations. The legal,
clerical, and administrative costs of furnishing written explanations for
cases in which no error occurred are likely to be great. Substantial costs
may result because institutions may feel safer formally investigating inquiries
they are not certain are error claims. The liability provisions of § 915 and
the treble damages provision of § 908 of the Act give institutions an incentive
to conduct investigations for a larger class of consumer inquiries and allega
tions in order to reduce liability exposure.
Commenters made estimates of average error resolution costs that
ranged from $3.50 to $12.00 per error allegation. One commenter estimated
an aggregate national cost of more than $75 million to resolve errors in 1980
were the statute to apply for the full year. 7/ Commenters' estimates of the
average cost of providing documentation pursuant to § 205.11(f)(3) 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 resolution documentation alone. 8/
On the other hand, the regulation will limit costs by specifically
excluding certain inquiries from the error resolution procedure, freeing insti
tutions from compliance responsibility if a consumer withdraws an error claim,
and freeing institutions from the responsibility to investigate reasserted
errors.
In addition, the regulation provides that an institution need not
investigate error allegations beyond using 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 will limit the costs of investigation.
Uncertainties and possible costs associated with error resolution 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 availability of EFT services to lowincome 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
U
This assumes 1.5 billion consumer EFT transactions in 1980, of which 1
percent result in some kind of error allegation as defined by the Act and
regulation.
It further assumes an average cost per resolution of $5.00.
8J 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.
- 36 -
terminal surveillance cameras to be relatively too costly. The error resolu
tion rules thus appear to place small financial institutions at some competitive
disadvantage in the provision of EFT services.
Section 205.14 allocates statutory compliance responsibilities for
cases in which a consumer accesses an account at one financial institution
("account-holding institution") using an access device issued by another finan
cial institution ("service-providing institution") at which the consumer has
no account. This provision applies only when there is no agreement, direct or
indirect, between the institutions regarding the service.
In the absence of any regulatory provision to the contrary, account
holding institutions would be forced into a duplication of disclosures, docu
mentation, notices, and error resolution efforts that would greatly increase
the compliance costs for transfers of this type. Consumers may be confused
or misled by the duplications.
Moreover, account-holding institutions would
be forced to bear a heavy compliance burden for services they do not directly
offer to their customers and over which they have little or no control.
The regulation explicitly exempts account-holding institutions from
all compliance responsibilities for such transfers, except for two provisions.
First, account-holding institutions must cooperate with service-providing
institutions by promptly furnishing them with any relevant information or
documentation they request.
Second, account-holding institutions must give
consumers full use of funds provisionally recredited by the service provider
pursuant to § 205.11(c)(2)(iii). These requirements further assure the pro
tection of consumers and are not likely to impose significant compliance cost
burdens on account-holding institutions. The regulatory provision as a whole
will greatly reduce the documentation, record keeping, and paperwork necessary
for compliance with the Act.
Consumers may be subject to less protection and greater potential
economic losses under this regulatory provision than under the Act, however.
If a consumer alleges an error to the account-holding institution, the insti
tution has no duty under the regulation to comply with the statutory error
resolution procedures. While § 205.14 allows a "reasonable" extension of the
§ 205.11(b)(1)(i) notice deadline if a delay in notifying the service-providing
institution occurred because a consumer first notified the account-holding
institution, the consumer has no other recourse under the regulation. Even
though it is unlikely, it is possible that the consumer could suffer illiquidity,
inconvenience, or embarrassment from dishonored items because the account-holding
institution is excluded from coverage by the regulation.
It is expected that the benefits will outweigh the costs of this
allocation scheme and that no significant loss of consumer protection will
result. The Board, in carrying out its monitoring and reporting obligations
under the Act, will continue to assess the effects of this provision. Modify
ing amendments can be made as appropriate and necessary.
This regulatory provision is likely to benefit small financial insti
tutions more because they are more likely to be account holders than service
37
providers. _9/ This provision is not expected to affect low-income consumers
differently from other consumers.
(4) Comments on Previously Adopted Sections. Section 205.7(b).
A number of inquiries have been received regarding delivery of disclosures
required under § 205.7(b) for accounts in existence on May 10, 1980. The
Board notes that a financial institution may comply by enclosing disclosures
with a statement mailing that goes to all its customers. Distribution need
not be restricted to those customers who have contracted for EFT services (or
for a specific EFT service).
It is permissible, for example, to send disclo
sures about an ATM service to all account-holders and not just to those who
have received an access device.
Section 205.10(b). Sections 205.10(b), (c), and (d) were adopted
in final form in October. A number of comments were received concerning
§ 205.10(b), which provides that preauthorized electronic fund transfers from
an account may be authorized by the consumer only in writing, and that a copy
of the authorization must be given to the consumer.
Commenters asked whether § 205.10(b) applies to authorization agree
ments entered into before May 10, the effective date of this section. The
Board interprets § 205.10(b) as applying only prospectively. Thus, no new
authorization need to be obtained as to preexisting agreements.
Commenters also asked whether it is necessary to obtain new authori
zations from consumers expressly authorizing electronic debits, if the exist
ing authorizations merely authorize the payee (or the financial institution)
to debit the consumer's account, without specifying whether the debiting is
to occur electronically or by paper means.
It is the Board's position that
if the authorization from the consumer is broad enough to encompass electronic
transfers, the regulation does not require that a new form be obtained.
(5) Pursuant to the authority granted in 15 U.S.C.A. 1693b, the
Board hereby amends Regulation E, 12 CFR Part 205, effective May 10, 1980,
as follows:
1.
Section 205.2 is amended by revising the heading, adding a
sentence at the end of paragraph (g), and by adding paragraph (in), to read
as follows:
9/ A recent survey of all U.S. commercial banks showed that 12 percent of
banks with assets of less than $100 million had retail banking machines, while
54 percent of banks with assets of $100 million or more had retail banking
machines.
See David A. Walker, "An Analysis of Financial and Structural
Characteristics of Banks with Retail EFT Machines," Working Paper No. 79-1.
Washington, D.C.:
Federal Deposit Insurance Corporation, 1979, p. 5a.
http://fraser.stlouisfed.org/
Federal Reserve Bank of St._________
Louis
38
SECTION 205.2 -- DEFINITIONS AND RULES OF CONSTRUCTION
*
it
it
it
it
(g) "Electronic fund transfer" *** The terra does not include pay
ments made by check, draft, or similar paper instrument at an electronic
terminal.
*
*
(m)
regulation.
*
it
Footnotes have the same legal effect as the text of the
2 . Section 205.4 is amended by redesignating paragraph (c) as
paragraph (b) and paragraph (d) as paragraph (c).
3.
Section 205.5(a) is amended, to read as follows:
SECTION 205.5 —
ISSUANCE OF ACCESS DEVICES
(a)
General rule. *** (3) As a renewal of, or in substitution
for, an access device issued before February 8, 1979 (other than an accepted
access device, which can be renewed or substituted under paragraph (a)(2)
of this section), provided that the disclosures set forth in §§ 205.7(a)(1),
(2), and (3) accompany the renewal or substitute device; except that for a
renewal or substitution that occurs before July 1, 1979, the disclosures may
be sent within a reasonable time after the renewal or substitute device is
issued.
*
*
4.
*
*
*
Section 205.7(a) is amended, to read as follows:
SECTION 205.7 -- INITIAL DISCLOSURE OF TERMS AND CONDITIONS
(a)
Content of disclosures. At the time a consumer contracts
for an electronic fund transfer service or before the first electronic fund
transfer is made involving a consumer's account, a financial institution
shall disclose to the consumer, in a readily understandable written state
ment that the consumer may retain, the following terms and conditions of
the electronic fund transfer service, as applicable:
*
5.
*
*
*
*
The final sentence of § 205.8(a) is amended, to read as follows
SECTION 205.8 —
CHANGE IN TERMS; ERROR RESOLUTION NOTICE
(a) Change in terms. *** However, if such a change is to be
made permanent, the financial institution shall provide written notice
of the change to the consumer on or with the next regularly scheduled peri
39
odic statement or within 30 days, unless disclosure would jeopardize the
security of the system or account.
k
6.
'k
~
k
-k
k
Sections 205.9, 205.10(a), and 205.11 are added, to read as
follows:
SECTION 205.9 —
DOCUMENTATION OF TRANSFERS
(а) Receipts at electronic terminals. At the time an elec
tronic fund transfer is initiated at an electronic terminal by a consumer,
the financial institution shall make available 2/ to the consumer a written
receipt of the transfer(s) that clearly sets forth the following informa
tion, as applicable:
(1) The amount of the transfer. A charge for the transfer may
be included in this amount if the terminal is owned or operated by a person
other than the financial institution holding the consumer's account, provided
the amount of the charge is disclosed on the receipt and on a sign posted on
or at the terminal.
(2)
The calendar date the consumer initiated the transfer.
(3) The type of transfer and the type of the consumer's account(s) ZJ
to or from which funds are transferred, such as "withdrawal from checking,"
"transfer from savings to checking," or "payment from savings." These descrip
tions may be used for transfers to or from accounts that are similar in func
tion to checking accounts (such as share draft or negotiable order of with
drawal accounts) or to savings accounts (such as share accounts).
Codes may
be used only if they are explained elsewhere on the receipt.
(4) A number or code that uniquely identifies the consumer initi
ating the transfer, the consumer's account(s), or the access device used to
initiate the transfer.
(5) The location (in a form prescribed by paragraph (b)(l)(iv)
of this section) of the terminal at which the transfer was initiated or an
identification (such as a code or terminal number).
(б) The name of any third party to or from whom funds are trans
ferred; a code may be used only if it is explained elsewhere on the receipt.
This requirement does not apply if the name is provided by the consumer in a
form that the electronic terminal cannot duplicate on the receipt.
2/ A finane ial institution may arrange for a third party, such as a merchant,
to make the receipt available.
_ / If more than one account of the same type may be accessed by a single
3
access device, the accounts must be uniquely identified.
-
40
(b)
Periodic statements. For any account to or from which elec
tronic fund transfers can be made, the financial institution shall mail or
deliver a statement for each monthly or shorter cycle in which an electronic
fund transfer has occurred, but at least a quarterly statement if no transfer
has occurred. The statement shall include the following, as applicable:
(1)
For each electronic fund transfer occurring during the cycle, 4/
(i) The amount of the transfer.
If a transfer charge was added
at the time of initiation by the owner or operator of an electronic terminal
in accordance with paragraph (a)(1) of this section, that charge may be
included in the amount of the transfer.
(ii) The date the transfer was credited or debited to the con
sumer's account.
(iii) The type of transfer and the type of the consumer's
account(s) to or from which funds were transferred.
(iv) For each transfer initiated by the consumer at an electronic
terminal, the location that appeared on the receipt or, if an identification
(such as a code or terminal number) was used, that identification and one of
the following descriptions of the terminal's location:
(A) The address, including number and street (the number may be
omitted if the street alone uniquely identifies the terminal location) or
intersection, city, and state or foreign country; 5/
(B) A generally accepted name for a specific location (such as
a branch of the financial institution, a shopping center, or an airport),
city, and state or foreign country; 6/ or
(C) The name of the entity at whose place of business the term
inal is located or which owns or operates the terminal (such as the financial
4V
The information required by paragraph (b)(1) of this section may be provided
on accompanying documents.
Codes explained on the statement or on accompany
ing documents are acceptable.
5/
The city and state may be omitted if all the terminals owned or operated
by the financial institution providing the statement (or by the system in
which it participates) are located in the same city. The state may be om
itted if all the terminals owned or operated by the financial institution
providing the statement (or by the system in which it participates) are
located in that state.
6/
See footnote 5.
- 41
institution _7/ or the seller of goods or services), city, and state or foreign
country. 8/
(v)
The name of any third party to or from whom funds were trans
ferred. 9J
If the transfer was initiated by the consumer at an electronic
terminal and a code was used on the receipt to identify the third party, the
statement shall include the code 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 during the
statement period for electronic fund tranfers or for the right to make such
transfers.
(4) The balances in the consumer's account(s) at the beginning
and at the close of the statement period.
(5) The address and telephone number to be used for inquiry 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).
(6) If the financial institution uses the notice procedure set
forth in § 205.10(a)(1)(iii), the telephone number the consumer may call to
ascertain whether a preauthorized transfer to the consumer's account has
occurred.
(c)
Documentation 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 the account, the finan
cial institution may, in lieu of complying with paragraph (b) of this sec
tion, upon presentation of the consumer's passbook, provide the consumer
with documentation by entering in the passbook or on a separate document the
amount and date of each electronic fund transfer made since the passbook was
last presented.
77
If the financial institution providing the statement owns or operates
terminals at more than one location, it shall describe the location of
its electronic terminals by use of paragraphs (b)(1)(iv)(A) or (B) of
this section.
8/
See footnote 5.
9/
A financial institution need not identify third parties whose names appear
on checks, drafts, or similar paper instruments deposited to the con
sumer's account at an electronic terminal.
- 42
(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 the account,
the financial institution need provide the periodic statement required by
paragraph (b) of this section only quarterly.
(e) Use of abbreviations. A financial institution may use com
monly accepted or readily understandable abbreviations in complying with the
documentation requirements of this section.
SECTION 205.10 —
PREAUTHORIZED TRANSFERS
(a)
Preauthorized transfers to a consumer's account. (1)
a consumer's account is scheduled to be credited by a preauthorized elec
tronic fund transfer from the same payor at least once every 60 days, except
where the payor provides positive notice to the consumer that the transfer
has been initiated, the financial institution shall provide notice by one
of the following means:
Where
(i)
The institution shall transmit oral or written notice to
the consumer, within 2 business days after the transfer, that the transfer
occurred;
(ii) The institution shall transmit 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) The institution shall provide a readily available tele
phone line that the consumer may call to ascertain whether or not the transfer
occurred, and shall disclose the telephone number on the initial disclosures
required by § 205.7 and on each periodic statement.
(2)
A financial institution that receives a preauthorized transfer
of the type described in paragraph (a)(1) of this section shall credit the
amount of the transfer as of the day the funds for the transfer are received.
*
*
SECTION 205.11 —
(a)
"error" means:
(1)
*
*
*
PROCEDURES FOR RESOLVING ERRORS
Definition of error.
For purposes of this section, the terra
An unauthorized electronic fund transfer;
(2) An incorrect electronic fund transfer to or from the con
sumer's account;
(3) The omission from a periodic statement of an electronic fund
transfer to or from the consumer's account that should have been included;
-
43
(4)
A computational or bookkeeping error made by the financial
institution relating to an electronic fund transfer;
(3)
an electronic terminal;
The consumer's receipt of an incorrect amount of money from
(6) An electronic fund transfer not identified in accordance
with the requirements of §§ 205.9 or 205.10(a); or
(7) A consumer's request for any documentation required by
§§ 205.9 or 205.10(a), or for additional information or clarification con
cerning an electronic fund transfer. This includes any request for documen
tation, information, or clarification in order to assert an error within the
meaning of paragraphs (a)(1) through (6) of this section.
It does not include
a routine inquiry about the balance in the consumer's account or a request
for duplicate copies of documentation or other information that is made only
for tax or other record-keeping purposes.
(b)
Notice of error from consumer.
oral or written notice from the consumer that
(1)
A notice of an error is an
(1) Is received by the financial institution 10/ no later than
60 days after the institution
(A) Transmitted a periodic statement or provided documentation
under § 205.9(c) on which the alleged error is first reflected; or
(B) Transmitted additional information, clarification, or docu
mentation described in paragraph (a)(7) of this section that was initially
requested in accordance with paragraph (b)(l)(i)(A) of this section;
(ii) Enables the financial institution to identify the consumer's
name and account number; and
(iii) Except for errors described in paragraph (a)(7) of this
section, indicates the consumer's belief, and the reasons for that belief,
that an error exists in the consumer's account or is reflected on documenta
tion required by §§ 205.9 or 205.10(a), and indicates to the extent possible
the type, the date, and the amount of the error.
(2) A financial institution may require a written confirmation
to be received within 10 business days of an oral notice if, when the oral
notice is given, the consumer is advised of the requirement and of the address
to which confirmation must be sent.
10/ A financial institution may require the consumer to give notice only at
the telephone number or address disclosed by the institution, provided
the institution maintains reasonable procedures to refer the consumer to
the specified telephone number or address if the consumer attempts to
give notice to the institution in a different manner.
- 44 -
(c) Investigation of errors. (1) After receiving a notice of an
error, the financial institution shall promptly investigate the alleged
error, determine whether an error occurred, and transmit the results of its
investigation and determination to the consumer within 10 business days.
(2) As an alternative to the 10-business-day requirement of para
graph (c)(1) of this section, the financial institution shall investigate
the alleged error and determine whether an error occurred, promptly but in no
event later than 45 calendar days after receiving a notice of an error, and
shall transmit the results of its investigation and determination to the
consumer, provided
(1) The financial institution provisionally recredits the con
sumer's account in the amount of the alleged error (including interest where
applicable) within 10 business days after receiving the notice of error.
If the financial institution has a reasonable basis for believing that an
unauthorized electronic fund transfer may have occurred and that it has sat
isfied the requirements of § 205.6(a), it may withhold a maximum of $50 from
the amount recredited;
(ii) The financial institution, promptly but no later than 2
business days after the provisional recrediting, orally reports or mails or
delivers notice to the consumer of the amount and date of the recrediting
and of the fact that the consumer will have full use of the funds pending
the determination of whether an error occurred;
(iii) The financial institution gives the consumer full use of
the funds provisionally recredited during the investigation; and
(iv) If the financial institution determines that no error
occurred and debits the account, the institution gives notice of the debit
ing and continues to honor certain items as required by paragraph (f)(2) of
this section.
(3) A financial institution that requires but does not receive
timely written confirmation of oral notice of an error shall comply with all
requirements of this section except that it need not provisionally recredit
the consumer's account.
(d) Extent of required investigation. (1) A financial institu
tion complies with its duty to investigate, correct, and report its deter
mination regarding an error described in paragraph (a)(7) of this section
by transmitting the requested information, clarification, or documentation
within the time limits set forth in paragraph (c) of this section.
If the
institution has provisionally recredited the consumer's account in accordance
with paragraph (c)(2) of this section, it may debit the amount upon trans
mitting the requested information, clarification, or documentation.2
(2) Except in the case of services covered by § 205.14, a finan
cial institution's review of Its own records regarding an alleged error will
satisfy its investigation responsibilities under paragraph (c) of this sec-
-
45
cion if the alleged error concerns a transfer to or from a third party and
there is no agreement between the financial institution and the third party 11/
regarding the type of electronic fund transfer alleged in the error.
(3)
A financial institution may make, without investigation, a
final correction to a consumer's account in the amount or manner alleged by
the consumer to be in error, but must comply with all other applicable
requirements of this section.
occurred.
it shall
(e) Procedures after financial institution determines that error
If the financial institution determines that an error occurred,
(1) Promptly, but no later than 1 business day after its determin
ation, correct the error (subject to the liability provisions of §§ 205.6(a)
and (b)), including, where applicable, the crediting of interest and the
refunding of any fees or charges imposed, and
(2) Promptly, but in any event within the 10-business-day or
45-day time limits, orally report or mail or deliver to the consumer notice
of the correction and, if applicable, notice that a provisional credit has
been made final. 12/
(f) Procedures after financial institution determines that no
error occurred. If the financial institution determines that no error
occurred or that an error occurred in a different manner or amount from
that described by the consumer,
(1)
The financial institution shall mail or deliver to the con
sumer a written explanation of its findings within 3 business days after
concluding its investigation, but in no event later than 10 business days
after receiving notice of the error if the institution is proceeding under
paragraph (c)(1) of this section. The explanation shall include notice
of the consumer's right to request the documents upon which the institution
relied in making its determination.
Institutions do not have an agreement for purposes of paragraph (d)(2)
of this section solely because they participate in transactions under the
federal recurring payments program, or that are cleared through an automated
or other clearing house or similar arrangement for the clearing and
settlement of fund transfers generally, or because they agree to be bound
by the rules of such arrangements. An agreement that a third party will
honor an access device is an agreement for purposes of this paragraph.
This notice 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.
-
(2)
institution
46
-
Upon debiting a provisionally recredited amount, the financia
(i)
Shall orally report or mail or deliver notice to the consumer
of the date and amount of the debiting and the fact that the financial insti
tution will honor checks, drafts, or similar paper instruments payable to
third parties and preauthorized transfers from the consumer's account (using
the provisionally recredited funds) for 5 business days after transmittal of
the notice.
(ii)
Shall honor checks, drafts, or similar paper instruments pay
able to third parties and preauthorized transfers from the consumer's account
(without charge to the consumer as a result of an overdraft) for 5 business
days after transmittal of the notice. The institution need only honor items
that it would have paid if the provisionally recredited funds had not been
debited.
(3)
Upon the consumer's request, the financial institution
shall promptly mail or deliver to the consumer copies of the documents on
which it relied in making its determination.
(g) Withdrawal of notice of error. The financial institution
has no further error resolution responsibilities as to a consumer's assertion
of an error if the consumer concludes that no error did in fact occur and
voluntarily withdraws the notice.
(h) Reassertion of error. A financial institution that has fully
complied with the requirements of this section with respect to an error has
no further responsibilities under this section if the consumer subsequently
reasserts the same error, regardless of the manner in which it is reasserted.
This paragraph does not preclude the assertion of an error defined in para
graphs (a)(1) through (6) of this section following the assertion of an error
described in paragraph (a)(7) of this section regarding the same electronic
fund transfer.
(i)
Relation to Truth in Lending. Where an electronic fund tran
fer 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 consumer's account,
the financial institution shall comply with the requirements of this section
rather than those of 12 CFR 226.2(j), 226.2(cc), and 226.14(a) governing error
resolution.
7.
Section 205.13 is amended, to read as follows:
SECTION 205.13 —
ADMINISTRATIVE ENFORCEMENT
*
(b)
*
*
*
*
*
Issuance of staff interpretations.
*
*
*
*
-
47
-
(2)(i) *** Any request for an official staff interpretation of
this regulation shall be made in writing and addressed to the Director of
the Division of Consumer and Community Affairs, Board of Governors of the
Federal Reserve System, Washington, D.C. 20551.
*
*
*
*
*
(4)
Pursuant to § 915(d) of the Act, the Board has designated the
Director and other officials of the Division of Consumer and Community
Affairs as officials "duly authorized" to issue, at their discretion, offi
cial staff interpretations of this regulation.
(c)
Record retention.
*
*
*
*
*
(2)
Any person subject to the Act and this regulation that has
actual notice that it is being investigated or is subject to an enforcement
proceeding by an agency charged with monitoring that person's compliance with
the Act and this regulation, or that has been served with notice of an action
filed under §§ 910, 915, or 916(a) of the Act, shall retain the information
required in paragraph (c)(1) of this section that pertains to the action or
proceeding until final disposition of the matter, unless an earlier time is
allowed by order of the agency or court.
8.
Section 205.14 is added, to read as follows:
SECTION 205.14 —
SERVICES OFFERED BY FINANCIAL INSTITUTIONS NOT HOLDING
CONSUMER'S ACCOUNT
(a)
Compliance by service-providing institution. Except as
provided in this section, where a financial institution issues an access
device to a consumer to be used for initiating electronic fund transfers to
or from the 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 service-providing institution
shall comply with all requirements of the Act and this regulation that relate
to the service or the electronic fund transfers made by the consumer under
the service.
For this purpose, the following special rules shall apply:
(1) Section 205.6 shall require the service-providing institution
to reimburse the consumer for unauthorized electronic fund transfers in
excess of the limits set by that section.
(2) Sections 205.7, 205.8, and 205.9 shall require the service
providing institution to provide those disclosures and documentation that are
within its knowledge and the purview of its relationship with the consumer.
(3) Section 205.11(b)(1)(i) shall require the service-providing
institution to extend by a reasonable time the time periods within which
notice of an error must be received if a delay in notifying the service
providing institution was due to the fact that the consumer initially noti
fied or attempted to notify the account-holding institution.
http://fraser.stlouisfed.org/
____________________ _
Federal Reserve Bank of St. Louis
- 48 -
(4) Sections 205.11(c)(2)(i) and (e)(1) shall require the service
providing institution to transfer funds, in the appropriate amount and within
the applicable time period, to the consumer's account at the account-holding
institution.
(5) Section 205.11(c)(2)(ii) shall require the service-providing
institution to disclose the date on which it initiates a transfer to effect
the provisional recredit.
(6) Section 205.11(f)(2) shall require the service-providing insti
tution to notify the account-holding institution of the date until which the
account-holding institution must honor any debit to the account as required
by § 205.11(f)(2).
If an overdraft results, the service-providing institu
tion shall promptly reimburse the account-holding institution in the amount
of the overdraft.
(b) Compliance by account-holding institution. An account-holding
institution described in paragraph ( a ) o f this section need not comply with
the requirements of the Act and this regulation with respect to electronic
fund transfers to or from the consumer's account made by the service-providing
institution, except that the account-holding institution shall comply with
§ 205.11 by
(1) Promptly providing, upon the request of the service
providing institution, information or copies of documents required for the
purpose of investigating alleged errors or furnishing copies of documents
to the consumer; and
(2) Honoring debits to the account in accordance with
§ 205.11(f)(2).
(c) Definition of agreement. For purposes of this section, an
agreement between the service-providing and the account-holding institutions
regarding the electronic fund transfer service refers to a specific agree
m e n t ^ ) among institutions (or among institutions and another person that
participates in the operation of the service) which sets forth the rights
and obligations of the institutions with respect to a service involving the
issuance of an access device to the consumer.
Institutions do not have such
an agreement solely because they participate in transactions that are cleared
through an automated or other clearing house or similar arrangement for the
clearing and settlement of fund transfers generally, or because they agree
to be bound by the rules of such an arrangement.
9.
Appendix A is amended by deleting the material enclosed in
parentheses in each section caption, and substituting therefor the following:
in § A(1), "§ 205.5(b)(3)"; in § A(2), "§ 205.7(a)(1)"; in § A(3),
"§ 205.7(a)(2)"; in § A(4), "§ 205.7(a)(3)"; in § A(5), "§ 205.7(a)(4)";
in § A(6 ) , "§ 205.7(a)(5)"; in § A(7), § 205.7(a)(9)"; in § A ( 8 ) ,
"§ 205.7(a)(6)"; in § A(9), "§ 205.7(a)(6),(7), and (8)"; and in § A(10),
"§ 205.7(a)(8)".
-
49-
10.
Appendix A is further amended by adding § A(8)(b) and by revising
§ A(10)(a), to read as follows:
APPENDIX A —
*
*
MODEL DISCLOSURE CLAUSES
*
*
*
SECTION A(8) — DISCLOSURE OF RIGHT TO RECEIVE
DOCUMENTATION OF TRANSFERS (§ 205.7(a)(6))
*
*
*
*
*
(b) Preauthorized credits. If you have arranged to have direct
deposits made to your account at least once every 60 days from the same per
son or company,
(we will let you know if the deposit is (not) made.)
(the person or company making the deposit will tell you every time
they send us the money.)
(you can call us at [insert telephone number] to find out whether
or not the deposit has been made.)
*
*
*
*
*
SECTION A(10) — DISCLOSURE OF FINANCIAL INSTITUTION'S LIABILITY
FOR FAILURE TO MAKE TRANSFERS (§ 205.7(a)(8))
(a) Liability for failure to make transfers. If we do not com
plete a transfer to or from your account on time or in the correct amount
according to our agreement with you, we will be liable for your losses or
damages. However, there are some exceptions. We will not be liable, for
instance:
•
If, through no fault of ours, you do not have enough money in
your account to make the transfer.
•
If the transfer would go over the credit limit on your over
draft line.
•
If the automated teller machine where you are making the trans
fer does not have enough cash.
•
If the (terminal)(systern) was not working properly and you knew
about the breakdown when you started the transfer.
•
If circumstances beyond our control (such as fire or flood)
prevent the transfer, despite reasonable precautions that we
have taken.
•
*
There may be other exceptions stated in our agreement with you.
*
*
*
*
By order of the Board of Governors, January 30, 1980.
(signed) Theodore E. Allison
Theodore E. Allison
Secretary of the Board
[SEAL]
FE D E R A L R ESER VE BAN K O F N EW YORK
Fiscal Agent of the United States
C ircular No. 8 7 5 8 1
F e b ru a ry 20, 1980 J
[
OFFERING OF TWO SERIES OF TREASURY BILLS
$3,300,000,000 of 91-Day Bills, Additional Amount, Series Dated November 29,1979, Due May 29,1980
(To Be Issued February 28, 1980)
$3,300,000,000 of 182-Day Bills, Dated February 28, 1980, Due August 28, 1980
T o A l l I n c o r p o r a te d B a n k s a n d T r u s t C o m p a n ie s , a n d O t h e r s
C o n c e r n e d , in th e S e c o n d F e d e r a l R e s e r v e D i s t r i c t :
Following is the text of a notice issued by the Treasury D epartm ent:
The Department of the Treasury, by this public notice, invites
tenders for two series of Treasury bills totaling approximately
$6,600 million, to be issued February 28, 1980. This offering will
provide $400 million new cash for the Treasury as the maturing
bills are outstanding in the amount of $6,226 million, including
$1,212 million currently held by Federal Reserve Banks as agents
for foreign and international monetary authorities and $1,697 million
currently held by Federal Reserve Banks for their own account.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $3,300
million, representing an additional amount of bills dated
November 29, 1979, and to mature May 29, 1980 (C U SIP
No. 912793 4G8), originally issued in the amount of
$3,225 million, the additional and original bills to be
freely interchangeable.
182-day bills for approximately $3,300 million to be dated
February 28, 1980, and to mature August 28, 1980
(C U SIP No. 912793 5C6).
Both series of bills will be issued for cash and in exchange for
Treasury bills maturing February 28, 1980. Tenders from Federal
Reserve Banks for themselves and as agents of foreign and inter
national monetary authorities will be accepted at the weighted
average prices of accepted competitive tenders. Additional amounts
of the bills may be issued to Federal Reserve Banks, as agents of
foreign and international monetary authorities, to the extent that
the aggregate amount of tenders for such accounts exceeds the
aggregate amount of maturing bills held by them.
The bills will be issued on a discount basis under competitive and
noncompetitive bidding, and at maturity their par amount will be
payable without interest. Both series of bills will be issued entirely
in book-entry form in a minimum amount of $10,000 and in any
higher $5,000 multiple, on the records either of the Federal Reserve
Banks and Branches, or of the Department of the Treasury.
Tenders will be received at Federal Reserve Banks and Branches
and at the Bureau of the Public Debt, Washington, D.C. 20226, up
to 1 :30 p.m., Eastern Standard time, Monday, February 25, 1980.
Form PD 4632-2 (for 26-week series) or Form PD 4632-3 (for
13-week series) should be used to submit tenders for bills to be
maintained on the book-entry records of the Department of the
T reasury.
Each tender must be for a minimum of $10,000. Tenders over
$10,000 must be in multiples of $5,000. In the case of competitive
tenders the price offered must be expressed on the basis of 100-,
with not more than three decimals, e.g., 99.925. Fractions may not
be used.
Banking institutions and dealers who make primary markets in
Government securities and report daily to the Federal Reserve
Bank of New York their positions in and borrowings on such
securities may submit tenders for account of customers, if the
names of the customers and the amount for each customer are
furnished. Others are only permitted to submit tenders for their
own account. Each tender must state the amount of any net long
position in the bills being offered if such position is in excess of $200
million. This information should reflect positions held at the close of
business on the day prior to the auction. Such positions would in-
elude bills acquired through “when issued” trading, and futures and
forward transactions as well as holdings of outstanding bills with
the same maturity date as the new offering, e.g., bills with three
months to maturity previously offered as six month bills. Dealers
who make primary markets in Government securities and report
daily to the Federal Reserve Bank of New York their positions in
and borrowings on such securities, when submitting tenders for cus
tomers, must submit a separate tender for each customer whose net
long position in the bill being offered exceeds $200 million.
Payment for the full par amount of the bills applied for must
accompany all tenders submitted for bills to be maintained on the
book-entry records of the Department of the Treasury. A cash
adjustment will be made on all accepted tenders for the difference
between the par payment submitted and the actual issue price as
determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the book-entry
records of Federal Reserve Banks and Branches. A deposit of
2 percent of the par amount of the bills applied for must accom
pany tenders for such bills from others, unless an express guaranty
of payment by an incorporated bank or trust company accompanies
the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids. Competitive bidders will be advised of the acceptance or rejection of their
tenders. The Secretary of the Treasury expressly reserves the right
to accept or reject any or all tenders, in whole or in part, and the
Secretary’s action shall be final. Subject to these reservations,
noncompetitive tenders for each issue for $500,000 or less without
stated price from any one bidder will be accepted in full at the
weighted average price (in three decimals) of accepted competitive
bids for the respective issues.
Settlement for accepted tenders for bills to be maintained on the
book-entry records of Federal Reserve Banks and Branches must
be made or completed at the Federal Reserve Bank or Branch on
February 28, 1980, in cash or other immediately available funds or
in Treasury bills maturing February 28, 1980. Cash adjustments
will be made for differences between the par value of the matur
ing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue
Code of 1954 the amount of discount at which these bills are sold
is considered to accrue when the bills are sold, redeemed or other
wise disposed of, and the bills are excluded from consideration as
capital assets. Accordingly, the owner of these bills (other than
life insurance companies) must include in his or her Federal in
come tax return, as ordinary gain or loss, the difference between
the price paid for the bills, whether on original issue or on sub
sequent purchase, and the amount actually received either upon sale
or redemption at maturity during the taxable year for which the
return is made.
Department of the Treasury Circulars, Public Debt Series—Nos.
26-76 and 27-76, and this notice, prescribe the terms of these Treas
ury bills and govern the conditions of their issue. Copies of the
circulars and tender forms may be obtained from any Federal Re
serve Bank or Branch, or from the Bureau of the Public Debt.
^
This Bank will receive tenders for both series up to 1 :30 p.m., Eastern Standard time, Monday, February 25,
1980, at the Securities Department of its Head Office and at its Buffalo Branch. Tender forms for the respective series
are enclosed. Please use the appropriate forms to submit tenders and return them in the enclosed envelope marked “T en
der for Treasury Bills.” Forms for submitting tenders directly to the Treasury are available from the Government
Bond Division of this Bank. Tenders not requiring a deposit may be submitted by telegraph, subject to w rit
ten confirmation; no tenders may be submitted by telephone. Paym ent for Treasury bills cannot be made by credit
through the Treasury Tax and Loan Account. Settlem ent must be made in cash or other immediately available funds
or in maturing Treasury bills.
Results of the last weekly offering of Treasury bills are shown on the reverse side of this circular.
T h o m a s M . T im l e n ,
First Vice President.
(
o v e r
)
RESULTS OF LAST WEEKLY OFFERING OF TREASURY BILLS
(TWO SERIES TO BE ISSUED FEBRUARY 21, 1980)
Range of Accepted Competitive Bids
9 1 -Day Treasury Bills
M aturing M ay 2 2 , 19 80
P r ic e
H igh........................ ....................
Low ......................... .....................
Average................... ....................
96.689a
96.651
96.673
1 8 2 -Day Treasury Bills
Maturing A ugust 2 1 , 1980
D is c o u n t
R a te
I n v e s tm e n t
R a te 1
13.098%
13.249%
13.162%
13.77%
13.94%
13.84%
P r ic e
93.453
93.403
93.421
D is c o u n t
R a te
I n v e s tm e n t
R a te 1
12.950%
13.049%
13.013%
14.09%
14.20%
14.16%
1 Equivalent coupon-issue yield.
a Excepting two tenders totaling $1,600,000.
(20 percent of the amount of 91-day bills
bid for at the low price was accepted.)
(74 percent of the amount of 182-day bills
bid for at the low price was accepted.)
Total Tenders Received and Accepted
18 2 -Day Treasury Bills
M aturing A ugust 2 i, 1980
9 1 -Day Treasury Bills
M aturing M ay 2 2 , 1980
B y F .R . D i s t r i c t ( a n d U S . T r e a s u r y )
B oston.......................... ..............
New Y o rk ................... ..............
P hiladelphia................ ..............
Cleveland..................... ...............
R ichm ond................... ...............
A tla n ta ......................... ...............
C hicago........................ ...............
St. L o u is...................... ...............
M inneapolis................ ...............
Kansas C ity ................ ...............
D allas........................... ...............
San F ran cisco ............. ...............
R e c e iv e d
$
57,075,000
4,423,785,000
22,155,000
31,010,000
34,920,000
38,580,000
289,520,000
21,090,000
12,590,000
30,525,000
27,635,000
339,655,000
37,075,000
2,729,785,000
22,155,000
31,010,000
32,920,000
38,580,000
51,375,000
21,090,000
12,590,000
30,525,000
22,635,000
116,655,000
A c c e p te d
R e c e iv e d
A c c e p te d
$
$
42,895,000
5,030,105,000
12,840,000
36,115,000
27,400,000
22,570,000
338,530,000
23,390,000
13,925,000
23,495,000
14,205,000
292,515,000
$
22,895,000
2,776,545,000
12,775,000
23,515,000
22,400,000
22,570,000
120,330,000
19,390,000
13,925,000
21,495,000
14,205,000
57,515,000
U.S. T re a s u ry ............. ...............
55,490,000
55,490,000
72,800,000
72,800,000
................ ...............
$5,384,030,000
$3,201,885,000
$5,950,785,000
$3,200,360,000
$3,613,050,000
544.285.000
$1,530,905,000
544.285.000
4,210,995,000
370.590.000
$1,560,570,000
370.590.000
$4,157,335,000
S u b t o t a l s ................................
966.745.000
Federal Reserve.......................
259.950.000
Foreign Official Institutions ....
$5,384,030,000
T o t a l s ...............................................
$2,075,190,000
866.745.000
259.950.000
$4,581,585,000
960,000,000
409.200.000
$1,931,160,000
860,000,000
409.200.000
$3,201,885,000
$5,950,785,000
$3,200,360,000
T
otals
B y c la s s o f b id d e r
Public
Competitive .........................
Noncompetitive ..................
@FedFRASER