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FEDERAL RESERVE BANK
OF NEW YORK
fans'!/
May 10, 1979
To Institutions Subject to Regulation E
in the Second Federal Reserve District:
As indicated in our Circular No. 8568 , dated May 1+, 1979»
the Board of Governors of the Federal Reserve System has invited
comment on proposals to amend its Regulation E, and has scheduled
a public hearing for June 18 and 19 on the regulation.
Enclosed is a copy of the full text of the proposals and
of the notice.
Circulars Division
FEDERAL RESERVE SYSTEM
[12 CFR Part 205]
[Reg. E; Docket No. R-0221]
ELECTRONIC FUND TRANSFERS
Proposals and Hearing
Board of Governors of the
Federal Reserve System.
a c t i o n : Proposed rule and notice of
hearing.
AGENCY:
The Board is publishing for
comment sections of Regulation E,
electronic fund transfer regulations
(including model disclosures) to
implement those provisions of the
Electronic Fund Transfer Act that
become effective on May 10,1980. The
sections of Regulation E that implement
sections 909 and 911 of the Act were
issued by the Board on March 21,1979.
The Board is also proposing to amend
§ 205.3 (to expand the exemptions) and
§ 205.5—Liability of Consumer for
unauthorized transfer, of the existing
regulations (to make a clarifying
amendment). The Board is publishing for
comment an economic impact analysis,
as required by section 904 of the Act. A
public hearing will be held on the
Board’s proposal on June 18 and 19,
1979.
DATES: Comments must be received on
or before July 2,1979. Hearings will be
held on June 18 and 19,1979. Requests to
appear at the hearing must be received
on or before June 8,1979.
a d d r e s s e s : Send comments and
requests to appear at the hearing to:
Secretary, Board of Governors of the
Federal Reserve System, Washington,
D C. 20551. All material submitted and
all requests to appear at the hearing
should refer to docket number R-0221.
The hearing will be held before
available members of the Board on the
Terrace level of the Martin Building at
20th and C Streets, N.W., Washington,
D.C., to begin at 9:30 a.m. each day.
summary:
FOR FURTHER INFO RM A TIO N CONTACT:
Regarding the regulations: Dolores S.
Smith, Section Chief, Division of
Consumer Affairs, Board of Governors
of the Federal Reserve System,
Washington, D.C. 20551 (202-452-2412).
Regarding the economic impact analysis:
Frederick J. Schroeder, Economist,
Division of Research and Statistics,
Board of Governors of the Federal
Reserve System, Washington, D.C. 20551
(202-452-2584).
s u p p l e m e n t a r y in f o r m a t io n
: (l)
In tro d u c tio n ; G e n e r a l M a tte r s ; H e a rin g .
The Board recently issued sections of
Regulation E (44 FR 18468, March 28,
1979) implementing sections 909 and 911
of the Electronic Fund Transfer Act
(Title XX, Pub. L. 95-630), which became
effective on February 8,1979. The Board
is now publishing for comment
regulatory provisions to implement the
remainder of the Act that will go into
effect on May 10,1980. No implementing
regulations are being proposed for the
sections of the Act that deal with civil
and criminal liability (sections 910, 915,
and 916), or for those sections that are
straightforward and need no regulatory
clarification (sections 912, 913, and 914).
Section 910(a)(1)(E) of the Act does
authorize the Board to specify
circumstances under which a financial
insitution would not be liable for
damages arising from the institution's
failure to make an electronic fund
transfer authorized by a consumer.
Commenters are invited to specify
circumstances not already contained in
section 910(a)(1) that the Board may
wish to particularize in implementing
regulations.
Section 904(a)(1) of the Act requires
the Board, when prescribing regulations,
to consult with the other Federal
agencies that have enforcement
responsibilities under the Act. Members
of the Board’s staff have met with staff
members from the enforcement
agencies.
Federal savings and loan associations
should note that they are subject to the
provisions of Regulation E and that
there may be some inconsistency
between this regulation and the Federal
Home Loan Bank Board's regulation
governing remote service units (12 CFR
545.4-2). The Board of Governors has
been advised by the Bank Board that
§ 545.4-2 will be promptly 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 electronic fund transfer
services among large and small financial
1
institutions, and the availability of such
services to different classes of
consumers, particularly low-income
consumers. Section 904(a)(3) requires
the Board, to the extent practicable, to
demonstrate that the consumer
protections provided by the proposed
regulation outweigh the compliance
costs imposed upon consumers and
financial institutions. The Board's
preliminary statement on these issues is
published in section (5) below. The
statement and the proposed regulation
have been transmitted to Congress, as
required by section 904(a)(4).
Section 904(b) requires the Board to
isue model disclosure clauses, writen in
readily understandable language, that
will make it easier for financial
institutions to comply with the
disclosure requirements of section 905
and that will aid consumer
understanding of their rights and
responsibilities. The proposed model
clauses are discussed in section (4) of
this material.
Section 904(c) permits the Board to
modify the requirements of the Act as
they affect small financial institutions if
the Board determines that modifications
are necessary to alleviate any undue
compliance burden. The Board solicits
comment on the extent to which
compliance with the proposed regulation
would impose undue cost and
administrative or other burdens upon
small financial institutions and what
criteria should be use in determining
what constitutes "small financial
institutions" for purposes of section
904(c).
Section 904(d) requires the Board to
assure that the requirements of the Act
are imposed upon all persons that offer
electronic fund transfer services to
consumers. The Board previously
solicited information regarding the
offering of such services by nonfinancial institutions, a description of
the services, and whether specific
provision should be made in the
regulation to insure that such persons
are subject to the Act's requirements.
Any further information or opinions
would be welcome.
The Board also gives notice of a
public hearing to be held on its proposed
regulation on June 18 and 19,1979. The
hearing will be held before available
members of the Board on the Terrace
level of the Martin Building at 20th and
C Streets, N.W., Washington, D.C. to
begin at 9:30 a.m. each day.
The proceeding will consist of
presentation of written or oral
statements. Any person wishing to
testify at the hearing should file with the
Secretary, Board of Governors of the
Federal Reserve System, Washington,
D.C. 20551, on or before June 8,1979, a
written request containing a statement
of the nature of the person’s interest in
the proceeding, a summary of the
matters concerning which the person
desires to give testimony, and the names
and identity of witnesses who propose
to appear. A request to appear at the
hearing should include the docket
number set forth above. The Board
reserves the right to limit participation
should time constraints so require.
(2)
Amendments to Existing Sections
o f Regulation. The Board proposes to
amend certain sections of Regulation E
that are already in effect. The existing
sections that would be amended are
§§ 205.2 (Definitions), 205.3
(Exemptions), and 205.5 (Liability of
Consumer for Unauthorized Transfers).
Section 205.2—Definitions. The Board
proposes to amend two definitions that
appear in existing Regulation E, and to
add two new ones, in order to avoid
relettering many of the existing
definitions at this time, the new
definitions appear as §§ 205.2(1) and
(m), following the existing definitions.
(i) “Financial institution." The Board
proposes to delete the last sentence,
concerning agreements among financial
institutions that share compliance
responsibilities. The substance of this
provision has been incorporated in
proposed § 205.13(a).
. (k) "Unauthorized electronic fund
transfer.” The definition would be
revised by deleting, after “error," the
phrase “committed by the financial
institution,” and inserting instead
“except as defined in § 205.2(1 )(!).”
The existing definition poses a
technical problem in that it excludes
errors, yet the definition of “error"
includes unauthorized electronic fund
transfers. The proposed amendment
would eliminate the inconsistency.
(1) “Error." The proposed definition is
similar to the corresponding definition in
the Act. The Board wishes to point out
that § 205.2(1)(1), which defines an
unauthorized electronic fund transfer as
an error, would include a consumer's
notifying a financial institution of the
loss or theft of an access device. Such a
notification would alert the financial
institution to the possibility that
unauthorized transfers have occurred or
may ocur. By interpreting § 205.2(1)(1) to
include notification of loss or theft of an
access device, the protections of the
error resolution procedures will be
triggered upon notification of loss or
theft (which may involve possible
unauthorized use), rather than upon the
consumer’s awareness and notification
of an actual occurrence of unauthorized
use.
In addition, the Board proposed, in
§§ 205.2(1)(7) and (8), to include two
other types of errors in the definition.
Section 205.2(1)(7) defines as an "error"
any failure to provide a consumer with
documentation required by the
regulation, this would insure that a
consumer would be able to receive
promptly a copy of any required
documentation that was not provided.
The Board anticipates that this
additional type of error will be of
particular importance where a consumer
did not receive a receipt at a terminal
either because of terminal malfunction
or because the terminal is out of paper.
Section 205.2(1)(8) would define as an
error any misidentified or insufficiently
identified transfer or any transfer that
was not in the amount or on the date
indicated on or with any required
documentation. This addition would
cover types of errors that may not be
covered by § 205.2(1)(2). For example,
§ 205.2(1)(2) would cover the instance in
which a transfer should not have been
made at all, while § 205.2(1)(8) would
cover the instance in which a transfer
was properly made, but incorrectly
identified on the periodic statement.
(m) “Preauthorized electronic fund
transfer.” The proposed definition is
identical to the one contained in section
903(9) of the Act.
Section 205.3—Exemptions. The Board
is proposing amendment of two
paragraphs of § 205.3, Exemptions.
First, it proposes to delete the words
“through a broker-dealer registered
with," in paragraph (c) as adopted. This
proposal would exempt electronic fund
transfers occurring under mutual funds,
pension and profit-sharing plans. It may
be appropriate to exempt them because
such transfers are regulated under other
Federal laws even when the transfer is
not with a registered broker-dealer and
such laws require written
preauthorization and documentation of
transfers.
This exemption, if adopted as
proposed, would not exclude all
electronic transfers involving the
purchase or sale of securities or
2
commodities, but only those in which
the primary purpose of the transfer is
such a purchase or sale. If the purchase
or sale is incidental to the primary
purpose of the transfer (e.g., the
payment of a third party from a money
market account), the regulation’s
requirements would apply.
The Board solicits comment on the
proposed exemption, particularly on the
costs and compliance burdens that
would be incurred by mutual funds and
pension and profit-sharing plans if such
transfers were not exempted, the
consumer protections to be gained from
covering such transfers, and whether the
disclosure requirements of Regulation E
would be duplicative (and the extent of
the duplication) of requirements
imposed under other applicable Federal
or State law.
The Board is also proposing
amendment of § 205.3(d) of the
regulation. The Board had solicited
comment in the original proposal on
whether the exemption should be
expanded. A large number of
commenters suggested expansion of the
exemption in various ways, but the
Board decided to defer action on the
issue until public comment could be
elicited on specified means of
broadening the exemption.
The following table shows the
automatic transfers that the proposal
would exempt from the regulation’s
scope and gives examples of the types of
transfers that would be exempted. Note
that to has exempted, the transfers would
have to be automatic (without an
individual request from the consumer)
under an agreement between the
consumer and the financial institution.
A u to m a tic transfers
Example
(1) Between a consumer’s
accounts at a financial
institution
Savings or share
accounts to checking.
NOW or share draft
accounts; checking,
NOW or share draft
accounts to savings or
share accounts.
Crediting of interest to
interest-bearing
accounts.
Debiting of service
charges; automatic
loan payments where
the institution is the
creditor; payroll
deductions for
institution employees
(2) To a consumer's
account by a financial
institution
(3) From a consumer’s
account to the financial
institution
The Board solicits comment on
whether some or all of the enumerated
types of transfers should be exempted,
the costs that would be incurred by
financial institutions (e.g., major
programming or statement system
changes, administrative costs) if such
transfers were not exempted, and the
consumer benefits that would result if
such transfers were covered.
Section 205.3(d)(3) would exempt
transfers from a consumer’s account to
the financial institution (such as
automatic loan payments) from all the
regulation’s requirements, except the
periodic statement requirements of
§ 205.8(b). With respect to § 205.3(d)(3),
the Board proposes and solicits
comment on the following alternatives:
(a) consideration of a complete
exemption of such transfers and (b)
consideration of a partial exemption (by
addition of the parenthetical phrase).
Comment on (b) above should focus on
whether or not documentation of such
transfers is already provided to the
consumer, whether consumers would
gain any additional protection from a
periodic statement requirement, and
whether, if adopted by the Board in the
proposed form, related sections of the
regulation should also apply (for
example, § 205.10 on error resolution).
The Board also solicits comment on
whether other automatic transfers
should be exempted. Comment on this
question should specifically address the
costs, compliance burdens and loss of
consumer protections that would result
from exemption of such other transfers.
S e c tio n 205.5—L ia b i li ty o f C o n su m e r
f o r U n a u th o r iz e d T ra n sfe rs. The
introductory language of § 205.5(b)
would be amended by changing the
phrase “series of transfers arising from a
single loss or theft of the access device”
to “series of related transfers.” Since
unauthorized transfers can occur in
circumstances other than those
involving loss or theft of an access
device, the liability limitations should
apply to a series of unauthorized
transfers occurring under any
circumstances. The amended language
would make clear, however, that the
transfers in the series must be related.
For example, the transfers could arise
from a single loss or theft of the access
device; where the access device is not
lost or stolen, they could all be
effectuated by the same person (or by a
group of persons acting together).
(3)
A d d itio n o f N e w S e c tio n s to
R e g u la tio n . The Board proposes to add
to Regulation E eight new sections,
number § 205.6 through § 205.13.
S e c tio n 205.6— I n itia l D is c lo s u r e o f
T e rm s a n d C o n d itio n s. Section 205.6(a)
implements section 905(a) of the Act and
provides for disclosure to consumers of
terms and conditions of electronic fund
transfer services. The disclosures need
be made by the financial institution only
to the extent that they apply to the
offered services. The Board proposes to
require that the disclosures be made in a
written statement that the consumer
may retain. Aside from the requirement
that the disclosures be made in readily
understandable language, the regulation
would not contain any requirements
with respect to number of pages, size of
type, front or reverse pages, or relative
prominence.
The Act provides that the disclosures
must be made “at the time the consumer
contracts for an electronic fund transfer
service," while the proposal would
permit the disclosures to be made at the
time the consumer contracts for the
service or before the first electronic fund
transfer is made involving a consumer’s
account. The Board believes early
disclosure of the terms and conditions of
EFT services is desirable, but is
proposing this change because of the
difficulty of determining when the
consumer has contracted for the service,
particularly when there is an oral
application or a preexisting account
relationship between the consumer and
the institution. Consumers would have
the right to cancel the EFT service after
receiving the disclosures. Comment is
solicited on whether disclosure at the
later time should be permitted.
Sections 205.6(a) (1) and (2) provide
for disclosure of the consumer’s liability
for unauthorized transfers, optional
disclosure of the advisability of prompt
reporting of unauthorized transfers, and
the name and address for notification of
such transfers. These disclosures are
virtually unchanged from the Act.
Section 205.6(a)(3) would require
disclosure of the institution’s business
days. The Board is proposing this
additional disclosure (which has been
adopted as a transitional disclosure to
accompany unsolicited distribution of
access devices under § 205.4) because
the term “business day” is used
throughout the disclosure and
substantive requirements of the
regulation (e.g., consumer liability for
unauthorized transfers, error resolution
procedures). It is thus important for
consumers to be aware of the
institution’s business days.
Section 205.6(a)(4) would be virtually
identical to the Act, except that the
Board proposes to delete the words
“and nature” as unnecessary after
"type." It is the Board’s opinion that the
exception from the disclosure of the
limitations on transfers if their
confidentiality is necessary to maintain
security of the system only obviates
disclosure of the details of the
limitations; the fact that such limitations
exist must be disclosed.
The disclosure required by
§ 205.6(a)(5) is identical to the Act. It
appears that this disclosure need only
3
include those charges that relate to
electronic fund transfers or to EFT
capability on an account and would not
include account maintenance charges
(which must be disclosed on periodic
statements under section 906(c)(2) of the
Act and § 205.8(c)) or check charges.
The disclosure under § 205.6(a)(6) is
identical to the Act. The Board’s
preliminary opinion is that the financial
institution need disclose only that
documentation at terminals will be
made available, that the consumer will
receive periodic statements on a
monthly or quarterly basis, and that the
consumer will receive notice of
preauthorized credits or the means by
which the consumer can determine
whether the transfer has been
completed. The disclosure would not
have to include a description of the
information that is required to be
disclosed on the documentation or
periodic statement. (See the model
disclosure clause for an example of the
type of disclosure envisioned.)
Sections 205.6(a) (7) and (8) are
proposed in virtually the same form as
in the Act. It should be noted that under
the Board’s proposal, § 910 of the Act
would not be implemented in the
regulation. The Board solicits comment
on whether this section should be
incorporated in the regulation,
particularly as to whether the Board
should add other instances where the
institutions should not be liable for
failure to make transfers, as permitted
by Section 910(a)(1)(E).
Section 205.6(a)(9) is proposed in
virtually the same form as it appears in
the Act. The Board believes that this
disclosure should include conditions
under which the financial institution will
in the ordinary course of business
disclose any account information to
third parties, and would not be limited
to disclosure of information concerning
electronic fund transfers.
The Board is proposing, in
§ 205.6(a)(10), a notice of the error
resolution procedures of the Act as a
required initial disclosure, to comply
with Section 905(a)(7) of the Act. This
notice will also be required as a
subsequent disclosure under § 205.7.
The notice has been drafted in what the
Board believes is “readily
understandable” language; comment is
solicited on ways in which the notice
could be redrafted to improve the format
and style. Certain provisions of Section
908 of the Act have been summarized
where it appears that the details of the
statutory requirements would not be
particularly useful (and might be
somewhat confusing) to the consumer.
The Board solicits comment on whether
greater or lesser detail should be
provided in the notice.
The Board's intention is that this
notice must be substantially similar to
the form in which it appears in the
regulation in order for the institution to
be assured of compliance with the
statutory requirements. Deletion of
inapplicable provisions (e.g.,
requirement of written confirmation of
oral notification) and substitutions (.e.g.,
of trade names) may be made by the
financial institution.
Section 205.6(b) implements Section
905(c) of the Act and would require that
the disclosures contained in paragraph
(a) of | 205.6 must be given to
consumers who hold accounts from or to
which electronic fund transfers could be
made before May 10,1980. The
disclosures would have to be given
within 30 days of the effective date of
the statute or with the first required
periodic statement after the effective
date, whichever is earlier.
S e c tio n 2 0 5 .7—S u b s e q u e n t
D is c lo s u r e s . Section 205.7(a) implements
Section 905(b) of the Act and requires
advance disclosure to the consumer of
any unfavorable change in the account
terms affecting the cost, liability for, or
availability of electronic fund transfers.
Paragraph (1) of § 205.7(a) requires that
the financial institution mail or deliver a
written notice to the consumer at least
21 days before the effective date of the
change in terms. The changes that
would be required to be disclosed are
(a) increased fees or charges, (b)
increased liability for the consumer, (c)
fewer types of available EFTs, and (d)
stricter limitations on the dollar or
frequency amounts of transfers. The
Board solicits comment on whether
there are other types of unfavorable
changes in terms or conditions of the
account for which advance disclosure to
the consumer should be made.
Paragraph (2) of § 205.7(a) provides an
exception to the requirement of advance
notice of changes in terms and
conditions of the account, if an adverse
change is immediately necessary to
maintain or restore the security of the
EFT system or a particular account, for
example, when the security of an
institution's EFT system has been
breached by a thief. The paragraph
would further provide that if an
immediate change is later made
permanent by the institution and
disclosure will not jeopardize the
security of the system or the account,
the financial institution must provide
written notice to the consumer within 30
days after the change has been made
permanent. The Board proposes to
specify 30 days as a reasonable time
within which the subsequent notice
must be given. The 30-day period would
permit institutions, in most instances, to
provide the notice with the next periodic
statement after the change has been
made permanent.
Section 205.7(b) implements
§ 905(a)(7) of the Act and would require
that the financial institution mail or
deliver the error resolution notice
prescribed in § 205.6(a)(10) annually to
the consumer.
Paragraph (2) of § 205.7(b) would
permit an alternative method of
compliance with the annual error
resolution notice requirement. The
proposed method is similar to that
permitted under Regulation Z (12 CFR
§ 226.7(d)(5)). It would permit
institutions to include a “short-form”
notice on or with each periodic
statement required by § 205.8(b) instead
of sending the longer notice annually.
The short notice is prescribed in the
regulation and the limitations on
amendment of the long notice
referenced above would also apply to
this shorter version. Comment is
solicited on ways in which the style and
format of the notice can be improved
and whether it would convey sufficient
information to the consumer to enable
the consumer to notify the institution of
an error or question.
It appears to the Board that a
significant consumer benefit may accrue
from permitting the alternative method
of disclosure. Although the form of the
notice is much abbreviated, the
consumer will be able to know
immediately how to assert an error in
the periodic statement and where to call
or write simply by looking at the back of
the statement (or another piece of paper
included with the periodic statement).
Comment is solicited on whether such
latitude should be permitted and
whether institutions will take advantage
of this alternative requirement.
The provision would also require
institutions to send the consumer the
long notice prescribed in § 205.6(a)(10)
within 10 business days of receiving
notice of an error from the consumer.
S e c tio n 205.0—D o c u m e n ta tio n o f
T ra n sfe rs. Section 205.8(a) implements
section 906(a) of the Act, which requires
institutions to provide documentation to
a consumer who initiates an electronic
fund transfer from an electronic
terminal. The documentation must
include up to six items of information, to
the extent the items are applicable to
the transfer. These items correspond to
the information set forth in section
906(a) (1) through (5) of the Act.
The introductory paragraph requires
that the documentation be made
4
“available” to the consumer. For
example, the institution could instruct
the customer to press a particular key at
the time of the transfer, if he or she
wishes to receive the documentation.
Footnote 1 relates to the phrase
"directly or indirectly," which is taken
from the statutory language. The Board
believes that the use of the term
“indirectly" simply permits an
institution to fulfill its obligations under
§ 205.8(a) through a third party, most
commonly a merchant at whose place of
business the institution’s point-of-sale
terminal is located.
While the proposed regulation
requires documentation to be in a
written form retainable by the
consumer, it does not impose any
particular requirement regarding type
size, the length of the document or
similar factors. The section would
require, however, that the information
be "clearly” set forth. An institution
would be obligated to adequately label
the items of information on the
documentation as to the type of
information being conveyed. For
example, the use of a series of numbers
or codes for the various types of
information, if unrelated to a category
such as “terminal location" or "amount
of transfer,” would not be “clearly" set
forth, within the meaning of the
proposal.
The legislative history regarding
section 906(a) indicates that the “type"
of transfer referred to in § 205.8(a)(3) is
intended to include transfers such as
those listed. As proposed, this
paragraph would permit financial
institutions to use simple abbreviations
or codes, such as “P” or “1.” However, if
an abbreviation or code is used, it must
be explained elsewhere on the
documentation—by a preprinted list on
the back of the documentation, for
example.
Section 906(a)(3) requires an
identification of the consumer’s account
from or to which funds are transferred.
The Board draws attention to two issues
in § 205.8(a)(4), which implements this
requirememt. First, the Board envisions
that the means of identification chosen
will usually be an account number, since
this appears to be a unique and
universal means of identification.
However, the Board solicits comment on
how financial institutions propose to
identify the accounts, if not by account
number. Second, the language would
require, in cases where the consumer is
transferring funds between accounts
(from checking to savings, for example),
that both accounts be identified on the
terminal documentation. The Board
solicits comment on any operational
problems which would arise from this
requirement, and on any alternative
means of identification which might be
provided for transfers between a
consumer’s accounts.
Section 205.8(a)(5), which implements
section 906(a)(5), requires an
identification of the terminal at which
the consumer initiated the electronic
fund transfer. The Board wishes to focus
special attention on two issues. First, the
Board believes that the statutory
language calling for the "location or
identification" of the terminal is best
served by providing the consumer with
the location. The word "identification”
is believed to be unnecessary in this
provision since the proposal would
permit use of a code, which is a type of
identification. The location given should
be specific enough to permit the
consumer at a later time to recall the
transfer. The Board envisions that in
most cases a street address would be
the most meaningful identification. In
other cases, the name of the business
establishment or the shopping center
where the terminal is located may have
greater meaning for the consumer than
the street address. Where there is more
than one terminal at a particular
location, such as a department store or a
bank, this paragraph would not require
a more specific identification such as
"housewares department" or “second
floor.”
The second issue relates to the use of
a terminal code in place of a readily
understandable location. The
Congressional history of the Act
indicates that Congress envisioned such
an alternative. In addition, at the time of
the transfer, the location of the terminal
may not be an essential item of
information to the consumer. It is only
when the consumer later receives the
periodic statement under § 205.8(c) that
the location of the terminal, in readily
understandable language, becomes
important in assisting the consumer to
identify that transfer. The Board
proposes to require institutions using a
code to show, on the periodic statement
which reflects the transfer, the code
given on the initial documentation and,
in close proximity, the terminal location
to which it relates. The Board believes
that this alternative would provide
consumers with needed information at
the time when it is most useful to them.
It would also take account of the present
limitations of terminals, which may not
be capable of generating a complete
alphabetic description of location on the
terminal documentation.
Section 205.8(a)(6) implements section
906(a)(4) of the Act and requires an
institution to identify any third party to
or from whom funds are transferred.
Such transfers most often will involve a
point-of-sale terminal in which a
merchant is the third party. The
merchant would also constitute the third
party in transactions involving credits
for returned goods, with the funds
transferred from the merchant’s account
to that of the consumer.
As both the Act and the proposed
regulation are written, however, the
identification requirement is not limited
to cases in which the third party is a
seller of goods or services. This
paragraph may apply as well to other
types of transfers such as bill-paying
services, in which consumers use a
terminal to transfer funds from their
accounts to, for example, a utility
company. The operational limitations
which warrant the use of codes in
identifying a terminal location may also
apply here. For this reason, paragraph
(a)(6), as proposed, would permit a
financial institution to use a code on the
initial documentation in identifying the
third party. If this option is used,
however, the portion of the periodic
statement which describes the transfer
must provide both the code and the third
party’s name in a readily
understandable form.
The exception for non-machinereadable documents in paragraph (a)(6)
is intended to apply particularly to bill
paying services that use an automated
teller machine. It is the Board’s
understanding that such systems may
call for the consumer to key in
information regarding the amount, date,
and type of transfer (all of which are
immediately captured by the terminal)
but to provide information on the
identity of the third-party payees by
means of a written or other non
machine-readable document. This
document is collected from the terminal
and translated into a computer-readable
form by the institution at a later time.
The Board is particularly interested in
comments relating to the availability of
these services, operational problems
which may prevent immediate
identification of the third party in such
systems, and the extent to which the
exception for non-machine-readable
documents proposed in paragraph (A)(6)
would alleviate these problems. The
Board wishes to emphasize that, if
adopted, this exception would not
relieve the institution of responsibility
for identifying the third party, in readily
understandable language, on the
periodic statement which reflects the
transfer.
Section 205.8(b) requires financial
institutions, subject to certain
exceptions, to provide consumers with
5
periodic statements which summarize
the electronic fund transfer activity
occurring in the consumer’s account
during the period covered by the
statement.
Section 205.8(b)(1) sets forth the
timing requirements for the delivery of
periodic statements. Together with
§ 205.8(b)(2), it implements § 906(c) of
the Act and requires financial
institutions to provide a written
statement to the consumer for each
month in which there was activity in the
consumer's account. If no activity has
occurred, the statement must be
provided on at least a quarterly basis.
Section 205.8(b)(2) specifies the
information which must be provided on
the periodic statement. It should be
noted that the statement containing
electronic fund transfer information may
be combined with information regarding
other types of activity in the account.
For example, the statement (which may
encompass more than one page) may
include information regarding electronic
fund transfers, checking account
transactions, and credit transactions
subject to the Truth in Lending Act.
Section 205.8(b)(2)(i) requires that the
periodic statement include, as
applicable, the six items of information
described in § 205.8(a). Although the
content of the periodic statement is
defined, in part, in terms of the initial
documentation under paragraph (a), it
should be emphasized that the transfers
to be reflected on the periodic statement
are not limited to transfers subject to
that paragraph. For example,
preauthorized electronic fund transfers
credited to the consumer’s account must
also be described on the periodic
statement. In such cases, the
information described in paragraph (a)
need only be shown on the periodic
statement “as applicable.” Thus, no
terminal location would be shown on
the periodic statement regarding a
preauthorized credit. However, the
“type of transfer” required by
§ 205.8(a)(3) must be stated with enough
specificity to inform the consumer that
the transfer shown was a preauthorized
credit. In a transfer subject to paragraph
(a) of this section, if the financial
institution used a code to identify the
terminal location or a third party on the
initial documentation, the periodic
statement must include both the code
used originally and the location or name
to which it relates. In all cases, the
information shown under this paragraph
must be sufficient to enable the
consumer to identify the transfer to
which it relates.
The Board recognizes that disclosure
of the date of the transfer, as required
by this section, may present special
difficulties. In certain cases, the date on
which a consumer authorized or
initiated a transfer of funds may not be
the same date on which the funds were
debited. This could occur, for example,
in electronic bill payment systems in
which the consumer instructs an
automated teller machine to make a
payment to a utility at a later date.
Under § 205.8(a)(2), the date of the
transfer would be the date of the
consumer’s instruction to the terminal.
However, if this date is used on the
periodic statement, the consumer may
not know when the account was debited
for the amount of the transfer. The
Board solicits comment on whether this
fact warrants the imposition of special
requirements, such as disclosure of both
the initiation date and the debiting date.
Section 205.8(b)(2)(ii) requires
disclosure of the amount of any fees or
charges related to electronic fund
transfers. It specifically excludes any
charges which constitute a finance
charge pursuant to § 226.7(b) of
Regulation Z (Truth in Lending), even
though such fees or charges may also be
related to an electronic fund transfer.
Since finance charges will be reflected
on the periodic statement required by
Regulation Z or on the Truth in Lending
portion of a combined periodic
statement, it may be unnecessary and
possibly confusing to disclose them
twice. Under this paragraph, the
financial institution must also disclose
any charges which are imposed for
“account maintenance." The Board
notes that there is a discrepancy
between this term and the term “right to
make such transfers,” which is used to
describe one of the initial disclosures
made under § 205.6. This variation
reflects the statutory language.
Section 205.8(b)(2)(iv) requires
disclosure of an address and telephone
number to be used by the consumer for
making inquiries or reporting errors
regarding electronic fund transfers. This
information must be labeled in some
manner to indicate to the consumer that
the address and number are to be used
for these purposes. If the financial
institution, utilizing the provisions of
§ 205.7(b)(2)(i), sends the error
resolution notice containing the address
and telephone number along with the
periodic statement, the institution need
not repeat that information elsewhere
on the statement.
Section 205.8(b)(3) implements section
906(d) of the Act. If the consumer
maintains a passbook account which
cannot be accessed electronically
except by preauthorized electronic
credits, the financial institution need not
provide a periodic statement for that
account. Instead, whenever the
consumer presents the passbook, the
institution may at that time update the
passbook or provide a separate written
statement to the consumer setting forth
the amount and date of each
preauthorized credit occurring since the
passbook was last presented.
Section 205.8(b)(4) implements section
906(e) of the Act and provides a limited
exception to the timing requirements of
§ 205.8(b). Where a nonpassbook
account cannot be accessed
electronically except by preauthorized
credits, the financial institution need
only send the statement on a quarterly
basis, although the statement must
otherwise comply with the requirements
of § 205.8(b).
Section 205.8(c) implements section
906(b) of the Act. The Act requires
financial institutions, as a general rule,
to inform consumers, by either a positive
or a negative form of notice, whether a
regularly scheduled preauthorized credit
to the consumer’s account has occurred.
This section would apply only where the
credit is from the same payor and is
scheduled to take place at least every 60
days. Transfers such as direct deposits
of payroll checks and Social Security
payments would be subject to this
provision. The Act and regulation
provide an exception to the institution’s
responsibility to provide notice of the
transfer, where the payor initiating the
transfer provides positive notice to the
consumer that the transfer has been
initiated.
Section 906(b) gives the Board wide
discretion in implementing this
provision. As proposed by the Board,
§ 205.8(c) provides five methods of
notifying consumers of preauthorized
credits, any one of which may be chosen
by the financial institution, subject to
one exception discussed below. An
institution utilizing paragraph (l)(i)
would supply a notice whenever the
transfer occurs as scheduled. If no
transfer occurs, no notice need be given.
If the institution elects to provide
negative notice pursuant to paragraph
(l)(ii), it would notify the consumer only
in those instances in which a
preauthorized credit is not made as
expected. The two-business day period
would permit the institution to wait a
short time before sending the negative
notice, to ascertain whether the
payment has merely been delayed.
Paragraph (l)(iii) would permit the
financial institution to utilize the
periodic statement required by
paragraph (b) as the notice, in those
cases where the statement, reflecting the
credit, is due'to be mailed to the
6
consumer within two business days
after the credit is made.
Under paragraph (l)(iv), the financial
institution may provide a telephone
number which the consumer may call in
order to find out whether the transfer
took place. If the institution choose this
option, it must inform the consumer, on
either the initial disclosures or the
periodic statement, that this service is
available.
A financial institution which chooses
to utilize paragraph (l)(v) would be
required to notify a consumer only in
those cases in which the institution’s
nonreceipt of a preauthorized credit
results in an overdraft of the consumer’s
account or triggers an extension of
credit to prevent an overdraft, provided
that the institution pays any items
presented for payment and imposes no
overdraft or other charges.
Paragraph (2) would require financial
institutions that accept preauthorized
transfers of the type subject to this
subsection to credit the amount of the
transfers and make the funds available
to consumers as of the date of receipt.
While this requirement is not
specifically mandated by the Act itself,
the Board believes that such a provision
may be considered a logical extension of
the Act’s requirements and that it could
assist in carrying out the legislative
purpose of section 906(b). The proposal
would require institutions to credit
direct deposits as of the opening of
business on the transfer date; those
institutions that receive direct deposits
after the opening of business on the
transfer date would be required to credit
the transfer by the opening of business
on the next business day. The Board
specifically requests comment on this
requirement.
S e c tio n 205.9—P r e a u th o r iz e d
T ra n sfe rs fr o m a C o n s u m e r ’s A c c o u n t.
This section implements section 907 of
the Act. Section 205.9(a) states the
general rule that preauthorized transfers
from an account must be authorized by
the consumer in writing, and a copy of
the authorization must be given to the
consumer. Section 205.9(b) provides for
the consumer’s stopping payment of a
preauthorized transfer by giving notice
up to three business days before the
transfer is scheduled to occur. Notice
may be either oral or written. If it is
given orally the financial institution may
require written confirmation within
fourteen days if the consumer, when
giving notice, is advised of that
requirement and of the address to which
confirmation should be sent.
Section 205.9(c) requires the financial
institution or designated payee of a
preauthorized transfer to notify the
consumer when that transfer varies from
the preauthorized amount. The notice
must be in writing, contain the date and
amount of the varying transfer, and must
be mailed or delivered no later than 10
days before the scheduled transfer date.
This pre-transfer notification is intended
to give the consumer enough time to
insure that there are sufficient funds in
the account to cover the transfer, and to
enable the consumer to stop payment of
the transfer should circumstances
warrant. Comment is solicited on the
form that authorizations of varying
transfers may take. For example, are
such authorizations generally openended as to amount, or do they
customarily require consumers to
initially specify an amount as part of the
authorization?
Section 205.9(c) would also provide
that under certain circumstances a
consumer may waiver the right to notice
of preauthorized transfers that vary in
amount. It permits consumers to
establish an acceptable amount of
variance, or a particular range of
amounts. For transfers varying within
these tolerances consumers can elect to
forego notice so long as the election is
made in writing and with the knowledge
that the consumer is otherwise entitled
to receive notice of all varying transfers.
The proposal would be consistent with
the rules of the National Automated
Clearing House Association, which
permit consumers and payors to agree to
vary the NACHA advance notice
requirement.
This proposal stems from concern
about the cost of requiring notice of
varying transfers in all cases, and about
the effect that cost may have in
discouraging a preauthorized debit
service. The Board solicits comment
about the desirability of providing
consumers with this option.
Section 205.10—Error Resolution
Procedure. Section 205.10(a) implements,
in part, section 908(a) of the Act. Since
sections 908(a) (1)—
(3) describes
procedures that the consumer must
follow to trigger a financial institution's
error resolution responsibilities, the
Board proposes that the regulatory
language implementing sections 908(a)
(l)-(3) be included in § 205.10, rather
than in the definitional section. In so
structuring the regulation, the Board has
placed the requirements imposed on
both the consumer and the financial
institution with regard to error
resolution in one section of the
regulation.
The language and structure of sections
205.10(a) (1) and (2) differ in several
respects from that of sections 908(a) (1)—
(3). While section 908(a)(1) requires that
the financial institution be able to
identify the name and account number
of the consumer, § 205.10(a)(l)(i) would
only require identification of the
consumer’s account number. The Board
invites comment on whether
identification of the consumer’s name is
in fact necessary and, if so, examples of
instances in which such information
would prove necessary. The Board also
invites the opinions of commenters as to
whether other common identifying
means, other than account number, are
in use.
Since the requirements of sections
908(a) (2) and (3) are closely related,
they have been combined in
§ 205.10(a)(l)(ii). This section proposes
to clarify what information is expected
to be provided by the consumer in
alleging an error, so as to minimize the
possibility that a consumer could be
denied the protections of § 205.10 simply
by not understanding the error or
knowing its amount. Consequently, the
proposed regulation states that the
reasons for the consumer’s belief that an
error has occurred and a description of
the type and amount of the suspected
error need only be provided to the
extent possible. While the regulation
contemplates that the consumer
articulate at least a general assertion or
description of the suspected error, a
financial institution would not be
relieved of error resolution
responsibilities where a consumer is
unable to describe the error or articulate
the amount of or the reasons for the
error.
The language of § 205.10(a)(l)(ii)
contemplates that the error resolution
procedures can be triggered by a
notification of an error in a consumer’s
account even where the error is
discovered by the consumer prior to its
appearing on a periodic statement. This
interpretation is supported by the
definition of "error” in § 205.2(1) in that
errors are not limited to information
appearing on documentation.
It should be noted that the proposed
regulation would permit a consumer to
assert an error reflected on any
documentation required by the
regulation, including notices provided
under § 205.9 for preauthorized debits.
This interpretation would differ from the
statutory provision that refers only to
errors appearing on documentation
required by § 906.
In order to simplify the calculation of
the 60-day time period within which the
consumer must notify the financial
institution about a possible error,
§ 205.10(a)(2) provides that the
consumer will have 60 days from the
periodic statement that first reflects the
7
suspected error to allege the error,
rather than, as the statute provides, 60
days from documentation or notice
provided pursuant to § 906. By including
the word "first" in this provision, the
Board intends to define precisely the
time within which a consumer must
allege a possible error.
Section 205.10(b)(1) implements the
general rule in § 908(a) requiring the
financial institution to investigate the
alleged error, determine whether an
error occurred, and report or mail the
results of the investigation and
determination to the consumer within 10
business days of receiving a notification
of an error. The regulatory language is
identical to that of the statute. However,
the Board proposes to add language in
the introduction to § 205.10(b) relieving
a financial institution of its duty to
comply with the error resolution
procedures should the consumer agree,
after having notified the financial
institution of a suspected error, that no
error in fact occurred.
Section 205.10(b)(2) implements
section 908(c) of the Act which permits a
creditor to take up to 45 days to resolve
an alleged error, provided the financial
institution provisionally recredits a
consumer’s account for the amount of
the alleged error pending its resolution.
Since section 908(c) of the Act requires
that the consumer have full use of
recredited funds, the Board proposes, in
§ 205.10(b)(2)(iii), to require a
notification of the recrediting to insure
that the consumer know of the
availablility of the funds and that the
funds will not be debited without further
notice to the consumer.
A portion of the final paragraph of
§ 205.10(b)(2) implements language in
Section 908(a) waiving the provisional
recrediting requirement when a financial
institution requires but does not timely
receive written confirmation of an error.
The Board proposes to add language to
the final paragraph indicating that a
financial institution is not relieved of its
duty to comply with the error resolution
procedures if written confirmation is not
timely received. The proposal would
also permit a financial institution to use
the 45-day time limit in those instances
in which written confirmation was
required but not timely received. The
Board is particularly interested in
soliciting comments regarding these two
interpretations of the Act. The Board
also requests comment on whether a
financial institution should have less
than 45 days to resolve the alleged error
in those cases in which written
confirmation was required but not
timely received.
In addition, the Board intends that the
reference in § 205.10(b)(2)(i) to
§ 205.5(b), which states that any
recrediting is subject to the liability
limitations set forth in that paragraph,
would permit financial institutions,
when recrediting amounts allegedly
resulting from unauthorized transfers, to
withhold a maximum of $50 of the
amount to be recredited pending the
resolution cf the investigation. This
same interpretation would apply in
correcting a consumer’s account under
§ 205.10(c)(l){i).
The Board is particularly interested in
receiving comments on the investigation
procedures that financial institutions
anticipate conducting for alleged errors
concerning preauthorized transfers and
the documentation required for such
transfers. The Board wishes to solicit
comment on an interpretation that
would require a financial institution’s inhouse investigation, in such cases, to be
completed within 10 days. The financial
institution, however, would be required
to investigate the alleged error with the
third-party payor where necessary to
resolve the possible error, but the
interpretation would give the financial
institution more time to investigate
without having to provisionally recredit
the consumer’s account.
Section 205.10(c) deals with correcting
a consumer’s account and providing a
consumer with a notice of its findings
after completion of its investigation and
determination of whether an error has
occurred. This section implements
language in Sections 908 (a), (b), and (d)
of the Act.
The Board proposes to add language
in § 205.10(c)(l)(i) that would require the
financial institution, in correcting a
consumer's account, to refund any fees
or charges imposed as a result of the
error.
Section 205.10(c)(l)(ii) implements the
general rule of Section 908(a) that the
financial institution report or mail the
results of the investigation and
determination to the consumer within 10
business days. Where the financial
institution agrees with the consumer, the
Board proposes to require no more than
a notice of the correction in the account,
or if applicable, notice that a provisional
recredit has been made final.
Section 205.10(c)(2) details the
financial institution’s responsibilities
where it determines that no error
occurred or that an error occurred in a
manner differing from that described by
the consumer. The regulatory language
of § 205.10(c)(2)(i) regarding the
financial institution's providing the
consumer with an explanation of its
findings is almost identical to the
statute. However, the Board would
interpret the language “deliver or mail”
as requiring a w r itte n explanation.
The Board proposes to require in
§ 205.10(c)(2)(h) that the financial
institution notify the consumer prior to
debiting a provisionally recredited
amount in order to insure that
consumers know they can use
provisionally recredited funds.
Section 205.10(c)(2)(iii) deals with
information that must be provided to the
consumer in those instances where the
financial institution does not agree with
the consumer. The Board requests
commenters to describe the types of
documents or other data that may be
used and relied upon in investigating
and reaching conclusions about alleged
errors.
The proposed language of § 205.10(d)
explains the relationship between the
error resolution provisions of the Truth
in Lending and the Electronic Fund
Transfer Acts where electronic fund
transfers also involve credit extentions
made 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. For example, an
error may occur when a consumer uses
an ATM to withdraw cash from an
account and accessess an overdraft. An
error in that transfer would be subject to
the error resolution procedures of the
EFT Act. An error in a cash advance
loan obtained at an ATM or a credit
purchase made at a merchant POS
terminal with a combined EFT-credit
card would be subject to the error
resolution procedures of the TIL Act
because, although the transaction is
initiated electronically, no electronic
fund transfer from a consumer’s account
has occurred.
The Board proposes and solicits
comments on the addition of § 205.10(d)
to provide that the Act and its
corresponding regulatory provisions
govern where an overdraft occurs in
conjunction with an electronic fund
transfer. This proposal would not only
afford greater protection to the
consumer, but would also simplify
procedures for financial institutions
where an electronic fund transfer results
in both a debit to a consumer’s account
and a credit extension.
S e c tio n 205.11— R e la tio n to S ta te L a w .
Section 205.11(a) implements §§ 919 and
920 of the Act. Paragraph (a) states the
general rule that State laws inconsistent
with the Act and regulation are
preempted, and explains that laws more
protective of the consumer or identical
8
to Federal law are not considered to be
inconsistent.
Section 205.11(b) specifies some
differences between State and Federal
law that are deemed inconsistencies,
states the right of appropriate parties to
ask for Board review of State laws, and
provides minimal requirements for
requests for review. Examples of State
laws that are deemed to be inconsistent
include those that provide for greater
consumer liability for unauthorized
transfers, longer periods of time or
different provisions for investigating
errors alleged by consumers, or
disclosure, documentation, or
notification different in form from that
required by the Act and regulation,
except where the disclosure or
information relates to substantive rights
granted by State, but not Federal law.
The Board requests comment on
whether these and other areas of
potential inconsistency should be
specifically addressed in the regulation.
Section 205.11(c) states the general
rule on exemption of classes of
electronic fund transfers from the
substantive requirements of the Act and
regulation. Any State may apply for an
exemption; it must show that a class of
electronic fund transfers is subject to
requirements that are substantially
similar to those of Federal law, and that
there is adequate provision for
enforcement of the State law. As is the
case in Regulations B and Z, concurrent
jurisdiction of Federal and State courts
over civil actions is specifically
preserved when a class of transfers is
exempted from the substantive
provisions of Federal law. Once an
exemption has been granted, however,
the criminal penalty provisions
contained in section 916(a) of the Act
would not apply to violations of the
State law. The Board solicits comment
on its construction of the inapplicability
of Federal criminal sanctions to State
law violations.
S e c tio n 205.12—A d m in is tr a tiv e
E n fo rc e m e n t. This section implements
sections 915(d) and 917 of the Act.
Section 205.12(a) lists the Federal
agencies that are charged with
responsibility for enforcing the Act and
regulation. Section 205.12(b) prescribes
procedures and criteria for issuance of
staff interpretations.
Section 205.12(c) sets forth a general
requirement that records evidencing
compliance with the Act and regulation
must be kept by all persons subject to
the Act and regulation for a period of
two years. In addition, if those persons
are aware that they are the subject of an
administrative, civil, or criminal
enforcement action or investigation.
they must retain required records during
the pendency of the action or
investigation unless otherwise permitted
by the appropriate agency or court.
These record retention requirements are
similar to those contained in Regulations
B and Z, and the Board solicits comment
as to any justification for varying them
with respect to this regulation.
S e c tio n 205.13— G e n e r a l D is c lo s u r e
R e q u ir e m e n ts . This section states some
general rules that would apply in
connection with many of the specific
requirements of other sections of the
regulation. Section 205.13(a) permits
financial institutions to agree among
themselves as to which one will carry
out the duties imposed by the Act and
regulation. This provision is now
contained in § 205.2(i) of existing
Regulation E.
Section 205.13(b)(1) would allow
combined disclosures to be given to any
consumer holding two or more accounts
at a financial institution. For example, a
single periodic statement could be used
to cover all accounts. Section
205.13(b)(2) would permit Financial
institutions to give one copy of the
disclosures required by the regulation to
joint account holders.
Section 205.13(c) would parallel
§ 228.6(c) of Regulation Z. Financial
institutions would be permitted to give
additional information or other required
disclosures, such as those required by
Regulation Z, along with the Regulation
F. disclosures.
The Board solicits comment on the
usefulness of these proposed general
rides, as well as on whether other
general provisions should be added to
this section.
(4)
M o d e l D is c lo s u r e C la u se s.
Appendix A to the portions of
Regulation E that took effect on March
30. 1979, contains seven model
disclosure clauses. Those clauses may
be used, at the option of financial
institutions, to satisfy the requirements
of §§ 205.4(b)(2), (b)(3), and (d)(1)
through (d)(6) of Regulation E. In
addition, use of sections A(2), A(3), and
A(4) will fully comply with § 205.4(a)(3).
On May 10,1980, the requirements of
the Act concerning disclosures to be
made upon the opening of an EFT
ac count will become effective. The
model clauses already adopted in final
form are suitable for making some of the
required initial disclosures. Sections
A; 2) through A(7), respectively, may be
used at an institution’s option to comply
with proposed §§ 205.6(a)(1) through (5)
and 205.6(a)(9).
There remain certain initial disclosure
requirements for which no model
clauses have previously been issued.
Therefore, the Board proposes to add to
Appendix A three new model disclosure
clauses. Proposed § A(8) may be used to
satisfy § 205.6(a)(6);proposed § A(9), to
satisfy § 205.6(a)(7), part of § 205.6(a)(8),
and § 205.9(c); and proposed § A(10), to
satisfy the remainder of § 205.6(a)(8).
Use of clauses that apropriately
reflect an institution’s EFT program, in
conjunction with other requirements of
the regulation, will protect the
institution from civil and criminal
liability under § § 915 and 916 of the Act.
Again, however, the Board emphasizes
that use of these clauses is optional.
Financial institutions may choose
appropriate clauses from the
alternatives available, may make
changes such as deleting inapplicable
words, phrases, and clauses, and
inserting trade names. They may also
change the order in which the model
clauses appear, and may use some of
the model clauses, while drafting others
themselves.
The Board solicits comment on
whether these clauses are readily
understandable to consumers and
whether other clauses are needed.
(5)
E c o n o m ic I m p a c t A n a ly s is .
In tro d u c tio n . Section 904(a)(2) of the Act
requires the Board to prepare an
analysis of the economic impact of the
regulation that the Board issues to
implement the Act. The following
economic analysis accompanies
proposed § § 205.6 through 205.13 and
proposed amendments to certain parts
of § § 205.1 through 205.5 of the
regulation.1
The analysis must consider the costs
and benefits of the regulation to
suppliers and users of EFT services, the
effects of the regulation on competition
in the provision of electronic fund
transfer services among large and small
financial institutions, and the effects of
the regulation on the availability of EFT
services to different classes of
consumers, particularly low-income
consumers.
The regulation in part reiterates
provisions of the statute and in part
amplifies the statute. Therefore, the
economic analysis considers impacts of
both the regulation and the statute, and
throughout the analysis a distinction
will be made between costs and benefits
of the regulation and those of the
statute. It is a ls o im p o r ta n t to n o te th a t
th e fo llo w in g a n a ly s is a s s u m e s th a t th e
r e g u la tio n a n d th e A c t h a v e no r e le v a n t
e c o n o m ic im p a c t i f t h e y a r e le s s
r e s tr i c ti v e th a n c u r r e n t in d u s tr y
1Sections 205.1 through 205.5 o f the regulation
took effect on March 30,1929. The analysis
presented here is to be read in conjuction w ith the
economic impact analysis that accompanies those
sections at 44 FR 18474, March 28, 1979.
9
p r a c t ic e s o r S ta te la w . In th is c a s e , th e
r e g u la tio n w il l n o t a f f e c t c o s ts , b e n e fits ,
c o m p e titio n , o r a v a il a b il it y a n d w il l n o t
in h ib it th e m a r k e t m e c h a n ism . T h e
fo llo w in g a n a ly s is o f th e r e g u la tio n a n d
th e A c t is r e le v a n t o n ly i f th e ir
p r o v is io n s a r e m o r e c o n s tr a in in g th a n
th o s e p r o v is io n s u n d e r w h ic h
in s titu tio n s w o u ld o th e r w is e o p e r a te .
I m p a c t o f th e A c t a n d re g u la tio n on
c o s t s a n d b e n e fits to in s titu tio n s ,
c o n s u m e r s a n d o th e r u se rs. The Act
requires that consumers using electronic
fund transfer (EFT) services receive
disclosures of the terms and conditions
of those services. Section 205.6 of the
regulation changes the Act's provision
requiring initial disclosures at the time
the consumer contracts for EFT services,
so that the financial institution must
make the disclosures to the consumer
before the first electronic transfer is
made (or by June 9,1980, in the case of
accounts in existence on May 10,1980).
This regulatory provision eliminates
none of the Act’s protection and
obviates the need to make a
determination under State law when a
contract for such services is created.
The initial disclosures will benefit
consumers by providing them with more
information than otherwise may have
been readily available. With the
disclosures consumers will be better
able to assess the risks and benefits
associated with EFT, to plan their
financial transactions, and to compare
EFT services offered by different
institutions By fostering greater
awareness of the risks of liability
associated with EFT use, the disclosures
may encourage consumers to exercise
greater care in the use of access devices.
The required listing of offered services
may have some marketing effect,
leading to greater use of EFT services
and, to the extent that scale economies
are possible, to lower average cost of
fund transfers. Finally, the disclosures
benefit consumers by describing the
steps they must take to guarantee the
investigation and resolution of errors;
proper use of the error resolution
procedure will lead to greater recovery
of consumer losses resulting from errors.
Financial institutions will benefit from
their mandatory disclosures to the
extent that consumer understanding of
the terms and conditions leads to more
widespread, careful use of EFT sendees.
Consumers will know the correct
channels through which to notify an
institution of loss, theft, or suspected
error. The Act and regulation do not
preclude financial institutions from
realizing cost savings by routinizing
notification procedures and by
establishing shared or centralized
reporting channels.
Financial institutions will incur
drafting, legal advice, printing,
distribution, and administrative costs in
complying with the disclosure
requirements of the Act. The regulation
sets forth a mandatory disclosure
statement regarding error resolution
procedures, and the Board provides
model disclosure clauses, but disclosure
statements must be drafted by the
institution to reflect its unique terms and
conditions. The 1980 disclosure
deadlines themselves will probably
allow adequate time for all institutions
to be able to include disclosure
statements for existing accounts in
regularly scheduled periodic statements.
The deadlines are not likely to impose
significant additional cost burdens on
institutions by necessitating rushed
compliance efforts or special mailings.
The Board solicits estimates of the cost
of sending the required disclosures.
Section 205.7 of the regulation
reiterates the Act's requirements that
financial institutions make subsequent
disclosures of the error resolution
procedures and prompt disclosure of
any changes in their terms and
conditions that increase consumer costs
or restrict available services. The
regulation permits financial institutions
to choose either to send the full error
resolution procedure disclosure, as
given in § 205.6(a)(10), every year; or to
send the abridged disclosure, as given in
§ 205.7(b)(2)(i), with every periodic
statement, and to send the full
disclosure within 10 business days of
receiving an error notification from the
consumer. These disclosures, which may
be timed for distribution with periodic
statements to avoid extra distribution
costs, will benefit consumers by making
useful information promptly available.
At the same time, the requirements for
subsequent disclosures will impose
additional cost burdens on institutions.
The Board solicits estimates of the costs
of making these subsequent disclosures.
Section 205.8 of the regulation restates
the Act’s provisions for documentation
of transfers. By requiring that written
documentation be made available to the
consumer for every transfer at every
terminal, the Act forces every terminal
to have a printing device; this provision
may impose costs on society by
restricting innovation in, or availability
of, financial services. On the other hand,
consumers and financial institutions can
benefit from the record-keeping and
error-detection opportunities inherent in
such documentation. These benefits
could outweigh the at-terminal
documentation costs and encourage
the regulation also allows financial
more widespread acceptance of EFT as
institutions to pass on to the consumer
a payments mechanism. The Board
the cost savings from automation of
solicits information on the number of
transfers. For example, institutions, in
terminals that cannot provide the
anticipation of cost savings, may offer
proposed documentation and the costs
lower mortgage interest rates or longer
of modification or replacement of such
mortgage payment grace periods to
terminals.
consumers who choose automatic
The Act, in requiring that a
notification system be established for all transfer of mortage payments.
The Act imposes certain notice
recurring preauthorized credits to a
requirements, as set forth in § 205.9 of
consumer’s account, allows three
the regulation, for all preauthorized
alternative methods of notification. The
transfers from a consumer’s account. A
regulation allows six methods of
written authorization must be provided
notification, thereby expanding the
to the financial institution only once to
range of choice for financial institutions
assure continuing automatic transfer
and consumers and adding certain
service, and the consumer may specify
lower-cost alternative methods, such as
that the transfers can be in variable
a consumer-initiated telephone inquiry
amounts within set limits, so that
service. The notice alternatives that
payment services for variable-amount
allow the institution to contact the
bills are not ruled out and benefits
consumer either after scheduled
associated with these EFT services are
transfers have occurred or if scheduled
transfers fail to occur would require that not precluded.
the institution know and monitor
Section 205.10 of the regulation
individual payment schedules. The costs reiterates the Act’s error resolution
of the monitoring and communication
provisions, adding specific deadlines
required by the alternative methods will
and clarifying the definition of error for
offset some of the savings in transfer
purposes of resolution. Fhompt
costs and document handling afforded
resolution of errors, as encouraged by
by EFT. Telephone notification may be a the Act and regulation, benefits both
less-costly means than written
consumers and institutions by reducing
notification for some payors or
delays and errors in payments, thereby
institutions. The Board solicits estimates increasing efficiency in the payments
of the relative costs of telephone and
mechanism. However, a consumer may
written notifications and of the costs per lose rights to error resolution, including
typical account for each of these
the provisional recrediting of disputed
alternatives.
funds, by failing to comply with any of
the Act’s several error resolution
The Act requires that a periodic
statement be delivered to the consumer
procedure requirements. The provisional
recrediting clause benefits consumers by
not later than one month after any EFT,
protecting them from lengthy periods of
and at least quarterly if no EFT has
illiquidity with respect to disputed
occurred. This requirement may impose
amounts, while at the same time
substantial cost burdens on those
encouraging institutions through cost
financial institutions that otherwise
incentives to resolve error claims within
would issue periodic statements less
frequently than monthly. The Act further 10 days. If an institution elects to take
requires that periodic statements, or
more than 10 days to investigate and
documents accompanying them, present
resolve an alleged error, the institution
all the information required for
may be required to generate as many as
atterminal documentation. Longer
four different notices to a consumer,
statements and costly changes in
although the notices need not be written.
statement generation procedures may
Current industry practices regarding the
result. Estimates of additional costs
reversibility of transfers that pass
imposed by these provisions are
through automated clearing houses may
solicited by the Board.
provide more favorable error resolution
opportunities to the consumer than the
Certain preauthorized transfers
involving the consumer and his or her
Act and regulation provide. The Board
financial institutions would be
invites comments on the adequacy and
exempted from the regulation by
cost of current industry error resolution
§ 205.3(d), except that transfers from a
practices and solicits estimates of the
consumer’s account to the financial
costs of the proposed error resolution
institution at which the account is held
procedure.
must be fully documented in the periodic
In addition, the instituition is required
statement according to § 205.8(b). This
to furnish to the consumer, at his or her
regulatory provision would ensure that
request, the information upon which its
the consumer would obtain adequate
decision was based. Documents that are
documentation of intrainstitutional
stored electronically or that contain
transfers. In exempting such transfers,
confidential information on other
10
persons may be costly to duplicate.
Consolidating the information into a
report to the consumer may be costly for
the institution. Another potential
problem is that an allegation of an error,
which triggers a costly investigation
process, is almost a free good for
consumers even though investigation
costs may eventually be reflected in
charges for EFT services or in other
ways. The Board solicits estimates of
error resolution procedure costs and of
the costs of supplying to the consumer,
in document copies or in a report, the
information used to investigate an
alleged error.
Sections 205.11 and 205.12 of the
regulation determine under what
circumstances the provisions of other
sections are binding and which agencies
shall enforce them. They impose no
costs or benefits directly, except in the
§ 205.12(c) requirement that evidence of
compliance be preserved for at least two
years by any person subject to the Act
and regulation. This requirement, which
is not an explicit provision of the
statute, may impose document storage
and handling costs on financial
institutions or their agents to the extent
that these records would not otherwise
be retained in the normal course of
business.
Finally, § 205.13 modifies that Act’s
requirements so that financial
institutions jointly providing EFT
services may contract among
themselves to comply with the Act. The
regulation also specifies that an
institution need send no more than one
set of disclosures per customer or per
joint account. These provisions
encourage cost savings by institutions
as they comply with the disclosure
requirements of the Act.
E ffects o f the A c t a n d regu lation upon
co m p etitio n am ong large a n d sm a ll
fin a n c ia l in stitu tio n s in th e p ro v isio n o f
elec tro n ic tra n sfer se rvic e s. The
proposed regulatory provisions probably
will have less effect than the existing
issuance and liability provisions on the
ability of small financial institutions to
compete with'larger institutions.2Small
institutions must spread fixed costs for
the preparation and distribution of
required disclosures over a smaller
account and card base. Documentation
printing requirements, if they make it
necessary to modify existing terminals
or statement generation procedures,
could disadvantage small institutions,
partly because they would be less able
to get quantity discounts from vendors
and partly because fixed costs would
aSee the econom ic im pact an aly sis accom panying
IS 205.1 through 205.5 a t 44 FR 18474. M arch 28.
1979.
have to be spread over smaller bases. If
smaller institutions tend to issue
periodic statements less frequently, then
a disproportionate cost burden may be
placed on them by the Act’s requirement
that a periodic statement must be issued
no later than one month after an EFT.
Sharing arrangements might overcome
these disadvantages. A recent survey of
EFT services at depository institutions
disclosed that small institutions may use
correspondent bank or interstate
interchange systems, and that 15 percent
of all United States commercial banks
offering non-shared EFT programs in
1978 had deposits of less than $50
million.3
Larger financial institutions might
enjoy scale and specialization
economies in error resolution,
particularly if they were able to devote
some staff members exclusively to it.
Toll-free or 24-hour reporting services
would be more costly relative to
transaction volume for smaller
institutions. On the other hand, if the
disclosure, documentation, and error
resolution provisions lead to greater
consumer acceptance of EFT, small
institutions can more easily build up an
adequate card base for a given customer
population.
The Board solicits comments on these
or other size effects and on whether or
not the regulation should have
exceptions or special provisions for
small financial institutions.
E ffects o f th e A c t a n d regulation on
a v a ila b ility o f e le c tro n ic tra n sfer
s e r v ic e s to d ifferen t c la s s e s o f
con su m ers, e s p e c ia lly low -in com e. The
availability of EFT services to lowincome consumers depends mainly on
the already-adopted issuance and
liability provisions of the regulations.4
The provisions currently proposed
would also affect availability to the
extent that consumers receiving
disclosures or other information about
EFT services would not have known
about or used them otherwise. The
disclosures required by §§ 205.6 and
205.7 serve to convey information on the
terms and conditions associated with
other sections of the regulation. Because
low-income consumers hold relatively
fewer accounts at financial institutions
than consumers with higher incomes,
low-income consumers as a group will
receive relatively less information
through the disclosure statements about
the availability and conditions of EFT
3RoseM ary Butkovik, Consum er Use o f E le c tro n ic
Paym ents in the U n ite d States, Brookfield. Illinois:
N ovem ber 1978, a s quoted in A m e ric a n Banker,
A pril 5.1979. p. 2.
‘ T hese provisions becam e effective M arch 30.
1979, a s 12 CFR § §205.4 an d 205.5.
li
services.5 On the other hand, all
consumers will benefit from more
disclosure of information in that they
will be better able to shop for financial
services.
For low-income consumers who use
EFT services, provisions of the Act and
proposed regulation could provide the
following benefits. First, by summarizing
time and place information about
financial transactions, the mandatory
periodic statements could help all
consumers organize, plan, and control
their financialIBctivities better. Second,
because a transaction of a given size
would likely represent a relatively larger
share of his or her liquid assets, a lowerincome consumer would benefit
relatively more from the provisional
recrediting of disputed amounts, as
required by the error resolution
procedures of § 2'05.10. Third,
preauthorized transfers, especially bill
payments, will benefit low-income
consumers by eliminating postage costs,
promoting promptness and regularity of
payment and thereby serving to improve
credit ratings, providing a safer means
of payment, consolidating records of
payments, and possibly encouraging
saving. Finally, under the Act and
§ 205.11 of the regulation, State law
provisions that are more protective of
low-income consumers will not be
preempted.
The Act and regulation, in requiring
disclosures, documentation, and error
resolution procedures that otherwise
would not be offered, increase direct
costs to financial institutions of
providing EFT services. If institutions
adopt cost-based user-charge pricing
schemes, then low—income consumers
may be priced out of the market. The
Board invites comment on these and
other aspects of the Act and regulation’s
probable impact on low-income
consumers.
(6)
Pursuant to the authority granted
in Pub. L. 95-630 (to be codified in 15
U.S.C. 1693b), the Board proposes to
amend Regulation E, 12 CFR Part 205, as
follows:
1. Section 205.2 would be amended by
deleting the last sentence of paragraph
(i), by revised paragraph (k)(3), and by
adding new paragraphs [1) a n d (m), to
r e a d a s fo llo w s:
§205.2 Definitions.
*
* * * *
(k)
* * * (3) that constitutes an error,
except as defined in § 205.2(1){1).
5 For evidence of the distribution of consum er
accounts by incom e class, see T hom as A. Durkin
and G regory E. E lliehausen 1977 Consum er Credit
Su rvey (W ashington. D.C.: Board of G overnors of
the F ederal R eserve System , 1977), ta b le s 21-7, 21-6,
a n d 21-9.
(1) "Error" means
(1) An unauthorized electronic fund
transfer.
(2) An incorrect electronic fund
transfer from or to the consumer’s
account;
(3) The omission from a periodic
statement of an electronic fund transfer
affecting the consumer's account that
should have been included;
(4) A computational error or similar
error of an accounting nature made by
the financial institution;
(5) The consumer's receipt of an
incorrect amount of money from an
electronic terminal;
(6) A consumer's request for
additional information or clarification
concerning an electronic fund transfer or
any documentation required by this
regulation;
(7) Any failure to provide a consumer
with documentation required by this
regulation; or
(8) Any transfer that was
misidentified, insufficiently identified, or
was not in the amount indicated or on
the date specified on or with any
documentation required by this
regulation.
(m)
"Preauthorized electronic fund
transfer" means an electronic fund
transfer authorized in advance to recur
at substantially regular intervals.
2. Section 205.3 would be amended, by
revising paragraphs (c) and (d) to read
as follows:
§ 205.3 Exemptions.
*
*
*
*
*
(c) C ertain se cu ritie s o r co m m o d ities
transfers. Any transfer the primary
purpose of which is the purchase or sale
of securities or commodities regulated
by the Securities and Exchange
Commission or the Commodity Futures
Trading Commission.
(d) Automatic transfers. Any transfer
under an agreement between a
consumer and a financial institution
which provides that the financial
institution will initiate individual
transfers without a request from the
consumer
(1) Between a consumer's accounts
within a financial institution;
(2) Into a consumer’s accounts by a
financial institution; or
(3) From a consumer's accounts to the
financial institution (except that the
financial institution must comply with
the requirements of § 205.8(b)).
3. Section 205.5 would be amended by
revising paragraph (b) to read as
follows:
§ 205.5 Liability of consumer for
unauthorized transfers.
*
* * * *
(b) Limitations on amount o f liability.
The amount of a consumer's liability for
an unauthorized transfer or a series of
related transfers shall not exceed $50 or
the amount of unauthorized transfers
that occur before notice to the financial
institution under paragraph (c) of this
section, unless one or both of the
following exceptions apply;
* * * * *
4.
Sections 205.6 through 205.13 would
be added, to read as follows:
§ 205.6 Initial disclosure of terms and
conditions.
information to third parties concerning
the consumer’s account.
(10)
A notice that is substantially
similar to the following notice
concerning error resolution procedures
and the consumer’s rights under them:
In Case of Errors or Questions About Your
Electronic Transfers
Telephone us at [insert telephone number)
or Write us at (insert addressj as soon as you
can if you think your statement or receipt is
wrong or if you need more information about
a transfer listed on the statement or receipt.
You must tell us no later than 60 days after
the statement was sent to you.
(1) Tell us your name and account number
(if any).
(2) Describe the error or the transfer you
are unsure about, and explain (if you can)
why you believe it is an error or why you
need more information.
(3) Tell us the dollar amount of the
suspected error.
If you tell us orally, we may require that
you send us your complaint or question in
writing within 10 business days.
We will tell you the results of our
investigation within 10 business days and
will correct any error promptly. However, we
may instead take 45 days to investigate your
complaint or question. If we decide to do this,
we will recredit your account within 10
business days for the amount you think is in
error, so that you will have the use of the
money. If we ask you to put your complaint
or question in writing and we do not receive
it within 10 business days, we may not credit
your account.
If we decide that there was no error, we
will send you a written explanation within 3
business days after we finish our
investigation. You may ask for copies of the
documents that we used in our investigation.
(а) 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 statement that the consumer
may retain, the following terms and
conditions of the electronic fund transfer
service, as applicable;
(1) The consumer’s liability for
unauthorized electronic fund transfers
and, at the financial institution’s option,
the advisability of promptly reporting
loss or theft of the access device or
unauthorized transfers.
(2) The telephone number and address
of the person or office to be notified
when the consumer believes that an
unauthorized electronic fund transfer
has been or may be made.
(3) The financial institution’s business
days, as determined under § 205.2(d).
(b)
Timing o f disclosures for accounts
in existence on May 10, 1980. For any
(4) The type of electronic fund
account from or to which electronic fund
transfers that the consumer may make
transfers could be made before May 10,
and any limitations on the frequency
1980, a financial institution shall mail or
and dollar amount of transfers. The
deliver the information required by
details of the limitations need not be
disclosed if their confidentiality is
paragraph (a) of this section by June 9,
necessary to maintain the security of the 1980, or with the first periodic statement
required by § 205.8(b) after May 10,
electronic fund transfer system.
1980, whichever is earlier.
(5) Any charges for electronic fund
transfers or for the right to make
§ 205.7 Subsequent disclosures.
transfers.
(a) Change in terms. (1) A financial
(б) The consumer’s right to receive
institution shall mail or deliver a written
documentation of electronic fund
notice to the consumer at least 21 days
transfers, as provided in § 205.8.
before the effective date of any change
(7) The consumer's right to stop
in a term or condition required to be
payment of a preauthorized electronic
disclosed under § 205.6(a) if the change
fund transfer and the procedure for
would result in increased fees or
initiating a stop-payment order, as
charges, increased liability for the
provided in § 205.9.
consumer, fewer types of available
(8) The financial institution's liability
to the consumer for its failure to make or electronic fund transfers, or stricter
limitations on the frequency or dollar
to stop certain transfers under § 910 of
amounts of transfers.
the Act.
(9) The conditions under which a
(2) A financial institution may change
financial institution in the ordinary
the terms and conditions disclosed
course of business will disclose
under § 205.6(a) without prior notice if
12
an immediate change is necessary to
maintain or restore the security of an
electronic fund transfer system or an
account. If the change is to be made
permanent and disclosure will not
jeopardize the security of the system or
account, the financial institution shall
provide written notice of the change to
the consumer within 30 days after the
change has been made permanent.
(b) A n n u a l e r r o r re s o lu tio n p r o c e d u r e
n o tic e . (1) For each account from or to
which electronic fund transfers can be
made, a financial institution shall mail
or deliver to the consumer, at least once
each calendar year, the notice set forth
in § 205.6(a)(10).
(2)(i) As an alternative to the
requirement of paragraph (b)(1) of this
section, a financial institution may mail
or deliver a notice that is substantially
similar to the following notice on or with
each periodic statement required by
§ 205.8(b):
In Case of Errors or Questions About Your
Electronic Transfers
Telephone us at (insert telephone number)
or write us at [insert address] as soon as you
can if you think your statement or receipt is
wrong or if you need more information about
a transfer on the statement or receipt. You
must tell us no later than 60 days after the
statement w as sent to you.
(1) Tell us you name and account number
(if any).
(2) Describe the error or the transfer you
are unsure about, and explain (if you can)
why you believe there is an error or why you
need more information.
(3) Tell us the dollar amount of the
suspected error.
W e will investigate your complaint and
will correct any error promptly. W e will also
send you a complete explanation of your
rights and obligations.
(ii)
A financial institution that uses
the alternative notice set forth in
paragraph (b)(2)(i) of this section shall
mail or deliver the notice set forth in
§ 205.6{a)(10) within 10 days of receiving
an error notification.
§ 205.8 Documentation of transfers.
(a) T ra n sfe rs in i t i a t e d b y c o n su m e rs
a t e le c tr o n ic te r m in a ls. At the time an
electronic fund transfer is initiated at an
electronic terminal by a consumer, the
financial institution shall, directly or
indirectly,1make available to the
consumer written documentation of the
transfer that the consumer may retain
and that clearly sets forth the following
information, as applicable:
(1) The amount of the transfer.
(2) The date the transfer was initiated.
(3) The type of transfer, such as a
purchase, payment, deposit or
' A financial institu tio n m ay arran g e to h ave a
third party, such a s a m erchant, provide the
docum entation required by this paragraph.
withdrawal. A code may be used if it is
explained elsewhere on the
documentation.
(4) The identification of the
consumer’s account(s) from or to which
funds are transferred.
(5) The location of the terminal at
which the transfer was initiated. A code
may be used if it is explained on that
portion of the periodic statement on
which the transfer is reflected.
(6) The identification of any third
party from or to whom funds are
transferred, unless the information is
provided by the consumer in a form that
the electronic terminal cannot duplicate
on the documentation. A code may be
used if it is explained on that portion of
the periodic statement on which the
transfer is reflected.
(b) P e r io d ic s ta te m e n ts . (1) For each
account that may be accessed by an
electronic fund transfer, the financial
institution shall mail or deliver a
statement that the consumer may retain
for each monthly cycle in which an
electronic fund transfer has occurred,
but at least quarterly if no transfer has
occurred.
(2) The statement shall include the
following, as applicable:
(i) For each electronic fund transfer
occurring during the cycle, the
information described in paragraphs
(a)(1) through (6) of this section. This
information may be provided on an
accompanying document. If a code was
used on the documentation required by
paragraph (a) of this section to identify
the terminal under paragraph (a)(5) or
any third party under paragraph (a)(6),
the code must be explained in readily
understandable language on that portion
of the periodic statement which reflects
the transfer.
(ii) The amount of any fee or charge,
other than a finance charge under 12
CFR 226.7(b)(l)(iv), assessed against the
account for electronic fund transfers or
for the right to make such transfers
during the statement period.
(iii) The balances in the consumer's
account at the beginning and the close
of the statement period.
(iv) The address and telephone
number to be used for inquiries or errors
on the statement or other documentation
preceded by “Direct Inquiries To:" or
similar language. The address and
telephone number may be provided on
the notice of error resolution procedures
set forth in § 205.7(b)(2)(i).
(3) If a consumer's passbook account
may not be accessed by any electronic
fund transfers other than preauthorized
transfers crediting the account, the
financial institution may satisfy the
requirements of paragraph (b) of this
13
section, upon presentation of the
consumer’s passbook, by entering in the
passbok or providing on a separate
document the amount and date of each
electronic fund transfer since the
passbook was last presented.
(4)
If a consumer’s account, other than
a passbook account, may not be
accessed by any electronic fund
transfers other than preauthorized
transfers crediting the account, the
financial institution need only provide
the periodic statement quarterly.
(c)
P r e a u th o r iz e d tr a n s fe r s to a
c o n s u m e r ’s a c c o u n t. (1) 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, except where
the payor provides positive notice of the
transfer, the financial institution shall
notify the consumer as to whether the
transfer occurred, by one of the
following means:
(1) By providing oral or written notice
to the consumer, within 2 business days
after the transfer, that the transfer
occurred.
(ii) By providing 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.
(iii) By mailing or delivering a periodic
statement that reflects the transfer and
that is mailed or delivered to the
consumer within 2 business days after
the transfer occurred or was scheduled
to occur.
(iv) By providing a telephone number
that the consumer may call to ascertain
whether a transfer occurred, if the
financial institution has previously
advised the consumer of this procedure
and of the number to be used, on the
initial disclosures required by § 205.6 or
on the periodic statement required by
paragraph (b) of this section.
(v) By providing oral or written notice
to the consumer that the consumer's
account is overdrawn, or that a line of
credit has been accessed or an
automatic transfer from a savings
account to a checking account has
occured to cover an overdraft, because a
scheduled transfer did not occur,
provided that the institution pays any
items presented and imposes no
overdraft or other charges.
(2) A financial institution that receives
a preauthorized transfer of the type
described in paragraph (c)(1) of this
section shall credit the amount of the
transfer and make the amount available
for withdrawal or other use by the
consumer no later than the opening of
business on the day the transfer is
received, or, if the transfer is not
received by the opening of business on
the day the transfer is scheduled to
occur, by the opening of business on the
next business day.
§ 205.9 Preauthorized transfers from a
consumer's account
(a) Authorization. Preauthorized
electronic fund transfers from a
consumer’s account may be authorized
by the consumer only in writing, and a
copy of the authorization shall be
provided to the consumer by the
financial institution or the designated
payee.
(b) Stopping payment. A consumer
may stop payment of a preauthorized
electronic fund transfer by notifying the
financial insitution orally or in writing at
any time up to 3 business days before
the scheduled date of the transfer. The
financial institution may require written
confirmation of the stop-payment order
to be made within 14 days of an oral
notification if, when the oral notification
is made, the consumer is advised of the
requirement and of the address to which
confirmation should be sent.
(c) Notice o f varying amounts. Where
a preauthorized electronic fund transfer
varies in amount from the preauthorized
amount, the financial institution or the
designated payee shall mail or deliver,
at least 10 days before the scheduled
transfer date, a written notice of the
amount and scheduled date of the
transfer. The consumer may modify this
notice requirement if the financial
institution or designated payee informs
the consumer of the right to receive
notice of all varying transfers and the
consumer elects to receive notice only
when a transfer does not fall within a
specified range of amounts or,
alternatively, only when a transfer
differs from the most recent transfer by
more than an agreed-upon amount.
§ 205.10 Error resolution procedure.
(a) Notification of an error. (1) A
notification of an error is an oral or
written notification that
(1) Enables the financial institution to
identify the consumer's account, and
(ii) Indicates the consumer’s belief,
and the reasons for that belief, that the
consumer’s account is in error or that
any documentation required by this
regulation reflects an error, including the
type and the amount of the error, to the
extent possible.
(2) Notification of an error must be
received by the financial institution no
later than 60 days from transmitting to
the consumer the periodic statement
that first reflects the alleged error.
(3) The financial institution may
require that written confirmation be
(c) Correction of account and notice of
received within 10 business days of an
findings. (1) If the financial institution
oral notification of error if, when the
determines that an error occurred, it
oral notification is made, the consumer
shall
is advised of the requirement and the
(1) Promptly, but in no event more
address to which the confirmation
than 1 business day after determining
should be sent.
that an error occurred, correct the error
(b) Investigation of errors. After the
(subject to the liability provisions of
financial institution receives a
§ 205.5) including the crediting of
notification of an error and unless the
interest where applicable, and the
consumer subsequently agrees that no
refunding of any fees or charges
error has occurred
imposed as a result of the error, and
(1) The financial institution shall
(ii) Promptly, but in no event later
promptly investigate the alleged error,
than the time set forth in paragraph
determine whether an error has
(b)(1) or (b)(2) of this section, report or
occurred, and, in accordance with
mail to the consumer notice of the
paragraph (c)(l)(ii) or (c)(2) of this
correction in the account or, if
section, report or mail the results of the
applicable, notice that a provisional
investigation and determination to the
credit has been made final.
consumer within 10 business days of
(2) If the financial institution
receipt of a notification of an error.
determines that no error occurred or
(2) As an alternative to the
that the error occurred in a manner
requirements of paragraph (b)(1) of this
differing from that described by the
section, the financial institution shall
promptly investigate the alleged error,
consumer, it shall
determine whether an error has
(i) Deliver or mail to the consumer
occurred, and, in accordance with
within 3 business days after concluding
paragraph (c)(1)(h) or (c)(2) of this
its investigation, but in no event later
section, report or mail the results of the
than the time set forth in paragraph
investigation and determination to the
(b)(1) or (b)(2) of this section, a written
consumer within 45 days after receipt of explanation of its findings;
a notification of an error provided that
(ii) If the consumer’s account has been
(i) The financial institution, pending
provisionally recredited under
its investigation and determination of
paragraph (b)(2) of this section, notify
whether an error occurred, provisionally the consumer, no later than 3 business
recredits the consumer’s account for the
days before debiting the account, of the
amount of the alleged error, including
date and the amount of debiting the
interest where applicable, but subject to
account by an amount provisionally
the liability provisions of § 205.5(b),
recredited; and
within 10 business days after receiving a
(iii) Upon the consumer’s request,
notification of an error;
promptly mail or deliver to the consumer
(ii) The consumer has full use of the
copies of the documents, if possible, or a
funds provisionally recredited; and
report containing the data that the
(iii) The financial institution, promptly financial institution relied on in reaching
but no later than 2 business days after
its conclusion. The explanation of the
the recrediting, reports or mails notice to financial institution’s findings provided
the consumer of
under paragraph (c)(2)(i) of this section
(A) The amount and date of the
shall include notice of the right to
recrediting; and
request such information.
(B) The fact that the consumer will be
(d) Relation to Truth in Lending. The
notified no later than 3 business days
provisions of the Act and this regulation
before debiting the consumer’s account
concerning error resolution, rather than
by an amount provisionally recredited,
those of the Truth in Lending Act and 12
should the financial institution
CFR Part 226, shall govern those
determine that an error did not occur as
instances in which electronic fund
alleged by the consumer.
transfers also involve extensions of
A financial institution that requires
credit under an agreement between a
but does not timely receive written
consumer and a financial institution to
confirmation of an error as provided by
extend credit when the consumer’s
paragraph (a) of this section need not
account is overdrawn or to maintain a
provisionally recredit the consumer's
specified minimum balance in the
account, but must nevertheless
consumer’s account.
investigate the alleged error, determine
whether an error occurred, and report or § 205.11 Relation to State law.
mail its findings to the consumer in
(a) Inconsistent State laws. Except as
accordance with paragraph (c)(1)(h) or
otherwise provided in this section, the
(c)(2) of this section, promptly but no
Act and this regulation preempt only
later than 45 days after receipt of a
those State laws that are inconsistent
notification of an error.
with the Act and this regulation and
14
then only to the extent of the
inconsistency. A State law is not
inconsistent with the Act and this
regulation if it is more protective of a
consumer.
(b) Preempted provisions o f State law.
(1) A State law is deemed to be
inconsistent with the Act and this
regulation and less protective of a
consumer within the meaning of section
919 of the Act to the extent that the
State law:
(1) Requires or permits a practice or
act prohibited by the Act or this
regulation:
(ii) Provides for consumer liability for
unauthorized electronic fund transfers
which exceeds that imposed by the Act
and this regulation:
fiii) Provides for longer time periods
than does the Act and this regulation
with respect to a financial institution's
obligation to investigate and correct
errors alleged by a consumer, or fails to
provide for the financial institution’s
recrediting of an account during its
investigation of account errors as set
forth in § 205.10(b); or
(iv)
Provides for initial disclosure,
periodic statement disclosure, transfer
documentation or notification that is
different in content from that required
by the Act and this regulation except to
the extent that the disclosures or
information relate to substantive rights
granted to consumers by the State law
and not by the Act or this regulation.
(2) Any State, financial institution, or
other interested party, may apply to the
Board for a determination of whether
the State law offers greater protection to
consumers than the comparable
provisions of the Act and this regulation,
or for a determination with respect to
any issues not clearly covered by
paragraph (b)(1) of this section as to the
consistency or inconsistency of a State
law with the Act or this regulation. All
requests for such determinations shall
include the following:
(i) A copy of the full text of the State
law in question, including any
regulatory implementation or judicial
interpretation of that law;
(ii) A comparison of the provisions of
State law to the corresponding
provisions in the Act and this regulation,
together with a discussion of reasons
why specific provisions of State law are
either consistent or inconsistent with
corresponding sections of the Act and
this regulation: and
(iii) A comparison of the civil and
criminal liability for violation of State
law with the provisions of sections 915
and 916(a) of the Act.
(c) Exemption fur State-regulated
transfers. (1) Any State may apply to the
Board for an exemption from the
requirements of the Act and the
corresponding provisions of this
regulation for any class of electronic
fund transfers within the State. The
Board will grant such an exemption if
the Board determines that:
(1) Under the law of the State that
class of electronic fund transfers is
subject to requirements substantially
similar to those imposed by the Act and
the corresponding provisions of this
regulation, and
(ii) There is adequate provision for
State enforcement.
(2) To assure that the Federal and
State courts will continue to have
concurrent jurisdiction, and to aid in
implementing the Act:
(1) No exemption shall extend to the
civil liability provisions of section 915 of
the Act; and
(ii) After an exemption has been
granted, for the purposes of § 915 of the
Act. the requirements of the applicable
State law shall constitute the
requirements of the Act and this
regulation, except to the extent the State
law imposes requirements not imposed
by the Act or this regulation.
§ 205.12 Administrative enforcement.
(a) Enforcement by Federal agencies.
(1) Administrative enforcement of the
Act and this regulation for certain
financial institutions is assigned to the
Comptroller of the Currency, Board of
Governors of the Federal Reserve
System. Board of Directors of the
Federal Deposit Insurance Corporation,
Federal Home Loan Bank Board (acting
directly or through the Federal Savings
and Loan Insurance Corporation),
National Credit Union Administration,
Civil Aeronautics Board and Securities
and Exchange Commission.
(2) Except to the extent that
administrative enforcement is
specifically committed to other
authorities, compliance with the
requirements imposed under the Act and
this regulation will be enforced by the
Federal Trade Commission.
(b) Issuance o f staff interpretations.
(1) Unofficial staff interpretations will
be issued at the staffs discretion where
the protection of section 915(d) of the
Act is either not requested or not
required, or where a rapid response is
necessary.
(2)(i) Official staff interpretations will
be issued at the discretion of designated
officials. No interpretations will be
issued approving financial institutions'
forms or statements. Any request for an
official staff interpretation of this
regulation shall be in writing and
addressed to the Director of the Division
15
—
of Consumer Affairs, Board of
Governors of the Federal Reserve
System. Washington, D.C. 20551. The
request shall contain a complete
staement of all relevant facts concerning
the transfer or service, and shall include
copies of all pertinent documents.
(ii) Within 5 business days of receipt
of a request, an acknowledgement will
be sent to the person making the
request. If the designated officials deem
issuance of an official staff
interpretation to be appropriate, the
interpretation will be published in the
Federal Register to become effective 30
days after the publication date. If a
request for public comment is received,
the effective date will be suspended.
The interpretation will then be
republished in the Federal Register and
the public given an opportunity to
comment. Any official staff
interpretation issued after opportunity
for public comment shall become
effective upon publication in the Federal
Register.
(3) Any request for public comment on
an official staff interpretation of this
regulation shall be in writing and
addressed to the Secretary, Board of
Governors of the Federal Reserve
System. Washington, D.C. 20551. It must
be postmarked or received by the
Secretary’s office within 30 days of the
interpretation’s publication in the
Federal Register. The request shall
contain a statement setting forth the
reasons why the person making the
request belifeves that public comment
would be appropriate.
(4) Pursuant to section 915(d) of the
Act, the Board has designated the
Director and other officials of the
Division of Consumer Affairs as officials
"duly authorized” to issue, at their
discretion, official staff interpretations
of this regulation.
(c) Record retention. (1) Evidence of
compliance with the requirements
imposed by the Act and this regulation
shall be preserved by any person
subject to the Act and this regulation for
a period of not less than 2 years.
(2) Any person subject to the Act and
this regulation which has actual notice
that it is under investigation or is
subject to an enforcement proceeding
for an alleged violation of the Act or this
regulation by an enforcement 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 §§ 915 or
916(a) of the Act, shall retain the
information required in paragraph (c)(1)
of this section until final disposition of
the matter, unless an earlier time is
allowed by order of the agency or court.
§ 205.13 General disclosure requirements.
(a) Services offered by multiple
financial institutions. Two or more
financial institutions that jointly provide
electronic fund transfer services may
contract among themselves to fulfill the
requirements that the Act and this
regulation impose on any or all of them.
(b) Multiple accounts and account
holders. (1) If a consumer holds two or
more accounts at a financial institution,
the financial institution may combine
the disclosures required by the
regulation into one statement (for
example, mail or deliver a single
periodic statement or annual error
resolution notice to a consumer for
multiple accounts held by that
consumer).
(2) If two or more consumers hold a
joint account from or to which electronic
fund transfers can be made, the
financial institution need provide only
one set of the disclosures required by
the regulation for each account.
(c) Additional information;
disclosures required by other laws. At
the financial institution’s option,
additional information or disclosures
required by other laws (for example,
Truth in Lending disclosures) may be
given to the consumer with the
disclosures required by this regulation.
5.
Appendix A would be amended by
revising the first two paragraphs, and by
adding a new Sections A(8), A(9) and
A(10l to read as follows:
Appendix A—Model Disclosure Clauses
This appendix contains model disclosure
clauses for optional use by financial
institutions to facilitate compliance with the
disclosure requirements of § § 205.4(a)(3),
(b)(2), and (b)(3), 205.6(a), and 205.9(c).
Section 915(d)(2) of the Act provides that use
of these clauses in conjunction with other
requirements of the regulation w ill protect
financial institutions from liability under
sections 915 and 916 of the Act to the extent
that the clauses accurately reflect the
institutions’ electronic fund transfer services.
Financial institutions need not use any of
the provided clauses, but may use clauses of
their own design in conjunction with the
model clauses. The inapplicable portions of
words or phrases in parentheses should be
deleted. The underscored catchlines are not
part of the clauses and should not be used as
such. Financial institutions may make
alterations, substitutions, or additions in the
clauses in order to reflect the services
offered, such as technical changes (e.g.,
substitution of a trade name for the word
“card," deletion of inapplicable services), or
substitution of lesser liability limits in section
A(2).
*
*
*
*
*
Section A(8)—D isclosure o f Right To R eceive
D ocumentation o f Transfers f§§ 205.4(b)(2),
205.6(a)(6))
(a) Term inal transfers. You can get a
receipt for each transfer to or from your
account that w as made at our (automated
teller machines) (or) (point-of-sale terminals).
You can get the receipt when the transfer is
made.
(b) P reauthorized credits. If you have
arranged to have direct deposits made to
your account,
(we w ill tel! you when the deposit is (not)
made as scheduled.)
(the person who sends the money will tell
you when that has been done.)
(your periodic statement will be sent soon
after the deposit is scheduled and will show
whether or not it has been made.)
(you can call us at [insert telephone
number] to find out whether or not the
deposit has been made.)
(and if a deposit is not made as scheduled,
resulting in an overdraft to your account) of
(use of your overdraft line of credit) (an
automatic transfer from you savings to your
checking account), w e w ill tell you. W e will
pay any (checks) ([insert other appropriate
description]) drawn on your account that
would have been paid if the deposit had been
made as scheduled.
(c) P eriodic statem ents. You will get a
(monthly) (quarterly) account statement
(unless there are no transfers in a particular
month. In any case you will get the statement
at least quarterly).
(d) P assbook account w here only p ossib le
electron ic fund tran sfers are preau thorized
credits. If you bring your passbook to us. w e
will record any electronic deposits that were
made to your account since the last time you
brought in your passbook.
(a) Right to stop paym ent an d procedu re
fo r doing so. If you have told us in advance to
'make regular payments out of your account,
you can stop any of these payments. Here’s
how:
Call us at [insert telephone number], or
write us at [insert address], in time for us to
receive your request 3 business days or more
before the payment is scheduled to be made.
If you call, w e may require you to put your
request in writing and get it to us within 14
days after you call.
(b) N otice o f varying amounts. (We)
([insert name of designated payee]) will tell
you. 10 days in advance, the scheduled
amount and date of the payment. (You may
choose instead to get this notice only when
the payment would differ by more than a
certain amount from the previous payment, or
when the amount would fall outside certain
limits that you set.)
(c) L iability fo r failu re to stop paym ent o f
preau thorized transfer. If you order us to stop
one of these payments, and w e do not do so,
w e will be liable for your losses or damages.
Section AflO)—D isclosure o f Financial
Institution's L iability fo r Failure to M ake
Transfers (11205.4(b)(2), 205.6(a)(8))
(a) L iability fo r failu re to m ake transfers. If
w e do not properly complete a transfer to or
from your account as you have directed, we
will be liable for your losses or damages.
However, there are some exceptions. W e will
not be liable:
If your account does not contain enough
money to make the transfer (unless w e
previously did not complete a deposit to your
account which would have provided enough
money):
Or if your account is frozen because of a
court order or some similar reason:
Or if the transfer would go over the credit
limit on your overdraft line;
Or if the automated teller machine where
you are making the transfer does not have
enough cash;
Or if the electronic fund transfer system is
not working properly and you know this at
the time of the transfer:
Or if circumstances beyond our control
(such as fire or flood) prevent the transfer.
By order of the Board of Governors. April
26.1979.
Theodore E. Allison,
Section A(9)—D isclosure o f right to stop
paym ent o f preau thorized transfers,
procedu re fo r doing so. right to receiv e n otice
o f varying amounts an d fin an cial institution's
liability fo r failu re to stop paym ent
f§§ 205.4(b)(2), 205.6(a)(7) an d (8). 205.9(c))
16
Secretary of the Board.
(Reg. E; Docket No. R-0221)
|FR Doc. 79-13893 Filed 5-2-79: 8:45 am|
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