Full text of Federal Reserve Bank of New York Circulars : Regulation E (and Official Staff Commentary), Regulation S, and Regulations G, T, U, and X, "Securities Credit Transactions"

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FEDERAL RESERVE BANK
OF NEW YORK

September 24, 1996

To All Depository Institutions in the Second Federal Reserve
District, and Others Maintaining Sets of Board Regulations:
Enclosed is a copy of:
--Regulation E, "Electronic Fund Transfers," effective May 1, 1996;
--Official Staff Commentary on Regulation E, effective May 2, 1996;
--Regulation S, "Reimbursement for Providing Financial Records; Recordkeeping
Requirements for Certain Financial Recordsk," effective July 12, 1996; and
-Regulations G, T, U, and X, "Securities Credit Transactions" (with various effective
dates).
The revised pamphlets supersede the previous printing of these regulations and any
subsequent amendments thereto.
These pamphlets have been punched with an additional hole so that they can be
inserted into our two-volume 8-1/2 x 11 size binders.

Circulars Division

Board of Governors of the Federal Reserve System

f *

Securities Credit Transactions
Regulation G
12 CFR 207; as revised effective October 11, 1991

Regulation T
12 CFR 220; as revised effective July 1, 1996

Regulation U
12 CFR 221; as revised effective October 11, 1991

Regulation X
12 CFR 224; as revised effective January 23, 1984

-FT

t o f r n f r

Any inquiry relating to Regulations G, U, and X should be addressed to the Federal Reserve
Bank of the Federal Reserve District in which the inquiry arises. Any inquiry relating to
Regulation T should be addressed to a national securities exchange or a national securities
association of which the person making the inquiry is a member or the facilities of which
are used for that person’s transactions, or, if this is not practicable, the inquiry should be
addressed to the Federal Reserve Bank of the District in which the inquiry arises.
The forms furnished with these regulations are reduced in size and are for information
only. Copies of these forms for actual use and other forms required by the regulations can
be obtained from any Federal Reserve Bank.
August 1996

Contents

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REGULATION G—SECURITIES
CREDIT BY PERSONS OTHER
THAN BANKS, BROKERS, OR
DEALERS
Section 207.1—Authority, purpose, and
sco p e............................................................
(a) Authority................................................
(b) Purpose and sc o p e..............................
Section 207.2—Definitions............................
Section 207.3—General requirements..........
(a) Registration; termination of
registration...........................................
(b) Limitation on extending purpose
credit....................................................
(c) Maintaining credit..............................
(d) Arranging cred it.................................
(e) Purpose statement..............................
(f) Purpose statement for revolving
credit or multiple-draw
agreements..........................................
(g) Single-credit rule.................................
(h) Mixed-collateral loans .......................
(i) Withdrawals and substitutions..........
(j) Exchange offers...................................
(k) Renewals and extensions of
maturity................................................
(/) Transfers of credit..............................
(m) Action for lender’s protection..........
(n) Mistakes in good faith.......................
(o) Annual report.....................................
(p) Where to register and file
applications and reports....................
(q) Lack of notice of NMS security
designation..........................................
Section 207.4— Credit to broker-dealers . .
(a) Emergency lo a n s.................................
(b) Capital-contribution loans....................
Section 207.5—Employee stock option,
purchase, and ownership plans..................
(a) Plan-lender; eligible plan....................
(b) Credit to exercise rights under or
finance an eligible plan.......................
(c) Credit to ESOPs .................................
Section 207.6—Requirements for the
list of OTC margin sto ck s.......................
(a) Requirements for inclusion on the
f is t .........................................................
(b) Requirements for continued
inclusion on the l i s t ............................

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(c) Removal from the list.....................
(d) Discretionary authorityof Board. . . .
(e) Unlawful representations.................
Section 207.7—Supplement: Maximum
loan value of stock and other
collateral..............................................
(a) Maximum loan value of a
margin stock..................................
(b) Maximum loan value of
nonmargin stock and all other
collateral........................................
(c) Maximum loan value of options . .
Form G -l................................................
Form G-2..............................................
Form G-3..............................................
Form G-4..............................................

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REGULATION T—CREDIT BY
BROKERS AND DEALERS
Section 220.1—Authority, purpose, and
sc o p e..........................................................
(a) Authority and purpose.......................
(b) S cop e..................................................
Section 220.2—Definitions.........................
Section 220.3— General provisions.............
(a) Records................................................
(b) Separation of accounts....................
(c) Maintenance of credit.......................
(d) Guarantee of accounts.......................
(e) Receipt of funds or securities . . . .
(f) Exchange of securities ....................
(g) Valuing securities..............................
(h) Innocent mistakes..............................
(i) Foreign currency ..............................
Section 220.4— Margin account..................
(a) Margin transactions............................
(b) Required margin.................................
(c) When additional margin is
required................................................
(d) Liquidation in lieu of deposit..........
(e) Withdrawals of cash or securities .
(f) Interest, service charges, etc..............
Section 220.5—Special memorandum
account.......................................................

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(a) ..................................................

(b) ............................................................
Section 220.6—Government securities
account.......................................................

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Contents
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Section 220.7—Arbitrage account.............
Section 220.8—Cash account....................
(a) Permissible transactions....................
(b) Time periods for payment;
cancellation or liquidation...............
(c) 90-day freeze......................................
(d) Extension of time periods;
transfers .............................................
Section 220.9—Nonsecurities credit and
employee stock ownership account. . . .
(a) ............................................................
(b) ............................................................
Section 220.10—Omnibus account.............
(a) ............................................................
(b) ............................................................
Section 220.11—Broker-dealer credit
account.......................................................
(a) Permissible transactions....................
(b) Affiliated corporations.......................
Section 220.12—Market functions
account.......................................................
(a) Requirements......................................
(b) Specialists..........................................
(c) Underwriters and distributors..........
(d) OTC market makers and thirdmarket makers...................................
(e) Odd-lot dealers...................................
Section 220.13— Arranging for loans by
others.........................................................
Section 220.14— Clearance of securities,
options and futures...................................
(a) Credit for clearance of securities .
(b) Deposit of securities with a
clearing a g en cy .................................
Section 220.15—Borrowing by creditors .
(a) Restrictions on borrowing...............
(b) Agreements of nonmember banks .
Section 220.16—Borrowing and lending
securities....................................................
(a) ............................................................
(b) ............................................................
Section 220.17—Requirements for the
list of marginable OTC stocks and
the list of foreign margin stock s..........
(a) Requirements for inclusion on the
list of marginable OTC stocks . . . .
(b) Requirements for continued
inclusion on the list of
marginable OTC stocks....................
(c) Requirements for inclusion on the
list of foreign margin sto ck s..........
(d) Requirements for continued
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inclusion on the list of foreign
margin stocks......................................
(e) Removal from the lis ts....................

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(f) Discretionary authority of Board. . .
(g) Unlawful representations..................
Section 220.18—Supplement: Margin
requirements.............................................

(a) Margin equity security, except for
an exempted security money
market mutual fund or exempted
securities mutual fund, warrant
on a securities index or foreign
currency, or a long position in
an option.............................................

(b) Exempted security, registered
nonconvertible debt security or
OTC margin bond, money
market mutual fund, or exempted
securities mutual fund.......................

(c) Short sale of a nonexempted
security, except for a registered
noncovertible debt security or
OTC margin b o n d ............................

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(d) Short sale of an exempted
security, registered noncovertible
debt security, or OTC margin
bond.....................................................
(e) Nonmargin, nonexempted security .
(f) Put or call on a security,
certificate of deposit, securities
index or foreign currency, or a
warrant on a securities index or
foreign currency.................................
Form T-l, T - 2 .............................................
Form T -4 .......................................................

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REGULATION U—CREDIT BY
BANKS FOR THE PURPOSE OF
PURCHASING OR CARRYING
MARGIN STOCKS

Section 221.1—Authority, purpose, and
sc o p e..........................................................

(a) Authority.............................................

(b) Purpose and sc o p e ............................
Section 221.2—Definitions.........................
Section 221.3— General requirements . . . .

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(a) Extending, maintaining, and
arranging cred it.................................

(b) Purpose statement..............................

Contents
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(c) Purpose statement for revolvingcredit or multiple-draw
agreements...........................................
(d) Single-credit r a l e ..............................
(e) Mixed-collateral loans.......................
(f) Withdrawals and substitutions..........
(g) Exchange offers.................................
(h) Renewals and extensions of
maturity .............................................
(i) Transfers of cred it............................
(j) Action for bank’s protection..........
(k) Mistakes in good fa ith ....................
(/) Lack of notice of NMS security
designation ........................................
Section 221.4— Agreements of
nonmember b an k s...................................
Section 221.5—Special-purpose loans to
brokers and d ealers.................................
(a) Special-purpose lo a n s.......................
(b) Written n o tic e ...................................
(c) Types of special-purposecredit . . .
Section 221.6—Exempted transactions . . .
Section 221.7—Requirements for the
list of OTC margin sto ck s....................
(a) Requirements for inclusion on the
l is t .......................................................
(b) Requirements for continued
inclusion on the l i s t .........................
(c) Removal from the list.......................
(d) Discretionary authority of Board. . .
(e) Unlawful representations..................
Section 221.8—Supplement: Maximum
loan value of stock and other
collateral....................................................
(a) Maximum loan value of margin
stock....................................................
(b) Maximum loan value of
nonmargin stock and all other
collateral.............................................
(c) Maximum loan value of options .
Form U - l .......................................................

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SECURITIES EXCHANGE ACT OF
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REGULATION X—BORROWERS OF
SECURITIES CREDIT
Section 224.1—Authority, purpose, and
scope................................................
(a) Authority and purpose...................

(b) Scope and exemptions................. 49
Section 224.2—Definitions..................... 49
Section 224.3—Margin regulations to
be applied by nonexempted
borrowers.......................................... 49
(a) Credit transactions outside the
United States................................ 49
(b) Credit transactions within the
United States................................ 50
(c) Inadvertent noncompliance............. 50

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Section 3— Definitions and Application .
Section 6—National Securities
Exchanges..................................................
(a) Registration; application..................
Section 7—Margin requirements...............
(a) Rules and regulations for
extension of credit; standard for
initial extension; undermargined
accounts.............................................
(b) Lower and higher margin
requirements ......................................
(c) Unlawful credit extension to
customers...........................................
(d) Unlawful credit extension in
violation of rales and regulations;
exception to application of rales,
etc.........................................................
(e) Effective date......................................
(f) Unlawful receipt of credit;
exemptions ........................................
(g) ............................................................
Section 8—Restrictions on borrowing
by members, brokers, and dealers . . . .
(a)
Section 17—Records and reports...............
(g) Persons extending cred it...............
Section 23— Rules, regulations, and
orders; annual reports..............................
(a) Power to make rales and
regulations; considerations; public
disclosure ...........................................
Section 29—Validity of contracts...............
(b) Contract provisions in violation
of title ................................................

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Regulation G
Securities Credit by Persons Other Than Banks, Brokers,
or Dealers
12 CFR 207; as revised effective October 11, 1991

SECTION 207.1— Authority, Purpose,
and Scope
(a) Authority. Regulation G (this part*) is is
sued by the Board of Governors of the Fed
eral Reserve System (the Board) pursuant to
the Securities Exchange Act of 1934 (the act)
(15 USC 78a et seq.).
(b) P u rpose a n d scope.
(1) This part applies to persons other than
banks, brokers or dealers, who extend or
maintain credit secured directly or indirectly
by margin stock and who are required to
register with the Board under section
207.3(a) of this part. Credit extended by
such persons is regulated by limiting the
loan value of the collateral securing the
credit, if the purpose of the credit is to buy
or carry margin stock.
(2) This part does not apply to clearing
agencies regulated by the Securities and Ex
change Commission or the Commodity Fu
tures Trading Commission that accept de
posits of margin stock in connection with—
(i) the issuance of, or guarantee of, or
the clearance of transactions in, any se
curity (including options on any security,
certificate of deposit, securities index or
foreign currency); or
(ii) the guarantee of contracts for the
purchase or sale of a commodity for fu
ture delivery or options on such
contracts.

SECTION 207.2—Definitions
The terms used in this part have the meanings
given them in section 3(a) of the act or as
defined in this section.
(a) “Affiliate” means any person who, di
rectly or indirectly, through one or more in
termediaries, controls, or is controlled by, or
is under common control with the lender.
* Code o f Federal Regulations, title 12, chapter II, part

207.

(b) “Carrying” credit is credit that enables a
customer to maintain, reduce, or retire indebt
edness originally incurred to purchase a stock
that is currently a margin stock.
(c) “Current market value” of—
(1) a security means:
(i) if quotations are available, the closing
sale price of the security on the preced
ing business day, as appearing in any
regularly published reporting or quotation
service; or
(ii) if there is no closing sale price, the
lender may use any reasonable estimate
of the market value of the security as of
the close of business on the preceding
business day; or
(iii) if the credit is used to finance the
purchase of the security, the total cost of
purchase, which may include any com
missions charged.
(2) any other collateral means a value de
termined by any reasonable method.
(d) “Customer” includes any person or per
sons acting jointly, to or for whom a lender
extends or maintains credit.
(e) “Good faith” with respect to—
(1) the loan value of collateral means that
amount (not exceeding 100 percent of the
current market value of the collateral)
which a lender, exercising sound credit
judgment, would lend without regard to the
customer’s other assets held as collateral in
connection with unrelated transactions;
(2) accepting a statement or notice from or
on behalf of a customer means that the
lender or its duly authorized representative
is alert to the circumstances surrounding the
credit, and if in possession of information
that would cause a prudent person not to
accept the notice or certification without in
quiry, investigates and is satisfied that it is
truthful.
(f) “Indirectly secured”
(1) includes any arrangement with the cus
tomer under which—

§ 207.2
(i) the customer’s right or ability to sell,
pledge, or otherwise dispose of margin
stock owned by the customer is in any
way restricted while the credit remains
outstanding; or
(ii) the exercise of such right is or may
be cause for accelerating the maturity of
the credit.
(2) does not include such an arrangement
if—
(i) after applying the proceeds of the
credit, not more than 25 percent of the
value of the assets subject to the arrange
ment, as determined by any reasonable
method, are margin securities;
(ii) it is a lending arrangement that per
mits accelerating the maturity of the
credit as a result of a default or renegoti
ation of another credit to the customer by
another creditor that is not an affiliate of
the lender;
(iii) the lender holds the margin stock
only in the capacity of custodian, deposi
tary, or trustee, or under similar circum
stances and, in good faith, has not relied
upon the margin stock as collateral; or
(iv) if the lender, in good faith, has not
relied upon the margin stock as collateral
in extending or maintaining the credit.
(g) “ In the ordinary course of business”
means occurring or reasonably expected to oc
cur in carrying out or furthering any business
purpose, or in the case of an individual, in the
course of any activity for profit or the man
agement or preservation of property.
(h) “Lender” means any person subject to the
registration requirements of this part.
(i) “Margin stock” means
(1) any equity security registered or having
unlisted trading privileges on a national se
curities exchange;
(2) any OTC margin stock;
(3) any OTC security designated as quali
fied for trading in the National Market Sys
tem under a designation plan approved by
the Securities and Exchange Commission
(NMS security);
(4) any debt security convertible into a
margin stock or carrying a warrant or right
to subscribe to or purchase a margin stock;
2

Regulation G
(5) any warrant or right to subscribe to or
purchase a margin stock; or
(6) any security issued by an investment
company registered under section 8 of the
Investment Company Act of 1940 (15 USC
80a-8), other than—
(i) a company licensed under the Small
Business Investment Company Act of
1958, as amended (15 USC 661); or
(ii) a company which has at least 95 per
cent of its assets continuously invested in
exempted securities (as defined in 15
USC 78c(a)(12)); or
(iii) a company which issues faceamount certificates as defined in 15 USC
80a-2(a)(15), but only with respect of
such securities.
(j) “Maximum loan value” is the percentage
of current market value assigned by the Board
under section 207.7 of this part to specified
types of collateral. The maximum loan value
of margin stock is stated as a percentage of
current market value. All other collateral has
good faith loan value except that puts, calls,
and combinations thereof have no loan value.
(k) “O T C m argin sto c k ’’ means any equity
security not traded on a national securities ex
change that the Board has determined has the
degree of national investor interest, the depth
and breadth of market, the availability of in
formation respecting the security and its is
suer, and the character and permanence of the
issuer to warrant being treated like an equity
security traded on a national securities ex
change. An OTC stock is not considered to be
an “OTC margin stock” unless it appears on
the Board’s periodically published list of OTC
margin stocks.
(/) “Purpose credit” is credit for the purpose,
whether immediate, incidental, or ultimate, of
buying or carrying a margin stock.

SECTION 207.3—General Requirements
(a) R egistration; term ination o f registration.
(1) Every person who, in the ordinary
course of business, extends or maintains
credit secured, directly or indirectly, by any
margin stock shall register on Federal Re
serve Form FR G -l (OMB No. 7100-0011)

Regulation G

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within 30 days after the end of any calen
dar quarter during which (i) the amount of
credit extended equals $200,000 or more, or
(ii) the amount of credit outstanding at any
time during that calendar quarter equals
$500,000 or more.
(2) A registered lender may apply to termi
nate its registration, by filing Federal Re
serve Form FR G-2 (OMB No. 7100-0011),
if the lender has not, during the preceding
six calendar months, had more than
$200,000 of such credit outstanding. Regis
tration shall be deemed terminated when the
application is approved by the Board.
(b) L im itation on extending p u rp o se credit.
No lender, except a plan-lender, as defined in
section 207.5(a)(1) of this part, shall extend
any purpose credit, secured directly or indi
rectly by margin stock in an amount that ex
ceeds the maximum loan value of the collat
eral securing the credit, as set forth in section
207.7 of this part.

§ 207.3
(f) P u rpose statem ent f o r revolving-credit o r
m ultiple-draw agreem ents.
(1) If a lender extends credit, secured di
rectly or indirectly by any margin stock,
under a revolving-credit or other multipledraw agreement, Form FR G-3 can either
be executed each time a disbursement is
made under the agreement, or at the time
the credit arrangement is originally
established.
(2) If a purpose statement executed at the
time the credit arrangement is initially made
indicates that the purpose is to purchase or
carry margin stock, the credit will be
deemed in compliance with this part if the
maximum loan value of the collateral at
least equals the aggregate amount of funds
actually disbursed. For any purpose credit
disbursed under the agreement, the lender
shall obtain and attach to the executed
Form FR G-3 a current list of collateral
which adequately supports all credit ex
tended under the agreement.

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(c) M aintaining credit. A lender may continue
to maintain any credit initially in compliance
with this part, regardless of—
(1) reduction in the customer’s equity re
sulting from change in market prices;
(2) change in the maximum loan value pre
scribed by this part; or
(3) change in the status of the security
(from nonmargin to margin) securing an ex
isting purpose credit.
(d) A rranging credit. No lender may arrange
for the extension or maintenance of any
credit, except upon the same terms and condi
tions under which the lender itself may extend
or maintain credit under this part except this
limitation shall not apply with respect to the
arranging by a lender for a bank to extend or
maintain credit on margin stock or exempted
securities.
(e) P urpose statem ent. Except for credit ex
tended under section 207.5 of this part, when
ever a lender extends credit secured directly
or indirectly by any margin stock, the lender
shall require its customer to execute Form FR
G-3 (OMB No. 7100-0018), which shall be
signed and accepted by a duly authorized rep
resentative of the lender acting in good faith.

(g) Single-credit rule.
(1) All purpose credit extended to a cus
tomer shall be treated as a single credit, and
all the collateral securing such credit shall
be considered in determining whether or not
the credit complies with this part.

(2) A lender that has extended purpose
credit secured by margin stock may not
subsequently extend unsecured purpose
credit to the same customer unless the com
bined credit does not exceed the maximum
loan value of the margin stock securing the
prior credit.
(3) If a lender extended unsecured purpose
credit to a customer prior to the extension
of purpose credit secured by margin securi
ties, the credits shall be combined and
treated as a single credit solely for the pur
poses of the withdrawal and substitution
provision of paragraph (i) of this section.
(4) If a lender extends purpose credit se
cured by any margin stock and nonpurpose
credit to the same customer, the lender shall
treat the credits as two separate loans and
may not rely upon the required collateral
securing the purpose credit for the nonpur
pose credit.
(h) M ixed-collateral loans. A purpose credit

§ 207.3

secured in part by margin stock, and in part
by other collateral shall be treated as two sep
arate loans, one secured by the margin stock
and one by all other collateral. A lender may
use a single credit agreement, if it maintains
records identifying each portion of the credit
and its collateral.
(i)

W ithdrawals an d substitutions.

(1) A lender may permit any withdrawal or
substitution of cash or collateral by the cus
tomer if the withdrawal or substitution
would not—
(i) cause the credit to exceed the maxi
mum loan value of the collateral; or
(ii) increase the amount by which the
credit exceeds the maximum loan value
of the collateral.
(2) For purposes of this section, the maxi
mum loan value of the collateral on the day
of the withdrawal or substitution shall be
used.
(j) Exchange offers. To enable a customer to
participate in a reorganization, recapitalization,
or exchange offer that is made to holders of
an issue of margin stock a lender may permit
substitution of the securities received. A
nonmargin nonexempted security acquired in
exchange for a margin stock shall be treated
as if it is margin stock for a period of 60 days
following the exchange.
(k) R enew als a n d extensions o f m aturity. A
renewal or extension of the maturity of a
credit need not be considered a new extension
of credit if the amount of the credit is in
creased only by the addition of interest, ser
vice charges, or taxes with respect to the
credit.
(/) Transfers o f credit.

(1) A transfer of a credit between custom
ers or lenders or between a lender and a
bank shall not be considered a new exten
sion of credit if—
(i) the original credit was extended by a
lender in compliance with this part or
was extended by a bank in a manner that
would have complied with this part;
(ii) the transfer is not made to evade this
part or part 221 of this chapter;
(iii) the amount of credit is not in
creased; and
4

Regulation G

(iv) the collateral for the credit is not
changed.
(2) Any transfer between customers at the
same lender shall be accompanied by a
statement by the transferor customer
describing the circumstances giving rise to
the transfer and shall be accepted and
signed by a duly authorized representative
of the lender acting in good faith. The
lender shall keep such statement with its
records of the transferee account.
(3) When a transfer is made between lend
ers or between a lender and a bank, the
transferee lender shall obtain a copy of the
Form FR G-3 or Form FR U-l originally
filed with the transferor lender and retain
the copy with its records of the transferee
account. If no form was originally filed
with the transferor, the transferee may ac
cept in good faith a statement from the
transferor describing the purpose of the loan
and the collateral securing it.
(m) A ction f o r le n d e r’s protection. Nothing in
this part shall require a lender to waive or
forego any lien, or prevent a lender from tak
ing any action it deems necessary for its

protection.
(n) M istakes in g o o d faith. A mistake in good
faith in connection with the extension or
maintenance of credit shall not be a violation
of this part.
(o) A nnual report. Every registered lender
shall, within 30 days following June 30 of
every year, file Form FR G-4 (OMB No.
7100-0011).
(p) Where to re g iste r a n d file a p p lica tio n s
an d reports. Registration statements, applica
tions to terminate registration, and annual re
ports shall be filed with the Federal Reserve
Bank of the District in which the principal
office of the lender is located.
(q)

Lack o f notice o f NM S security d esign a
tion. Failure to treat an NMS security as a

margin stock in connection with an extension
of credit shall not be deemed a violation of
this part if the designation is made between
quarterly publications of the Board’s list of
OTC margin stocks and the lender does not
have actual notice of the designation.

Regulation G

SECTION 207.4— Credit to BrokerDealers
No lender shall extend or maintain credit se
cured, directly or indirectly, by any margin
stock to a creditor who is subject to part 220
of this chapter except in the following
circumstances:
(a) Em ergency loans. Credit extended in good
faith reliance upon a certification from the
customer that the credit is essential to meet
emergency needs arising from exceptional cir
cumstances. Any collateral for such credit
shall have good faith loan value.
(b) C apital-contribution loans. Credit that the
Board has exempted by order upon a finding
that the exemption is necessary or appropriate
in the public interest or for the protection of
investors, provided the Securities Investor Pro
tection Corporation certifies to the Board that
the exemption is appropriate.
SECTION 207.5—Employee Stock
Option, Purchase, and Ownership Plans
(a) P lan-lender; eligible plan.
(1) Plan-lender means any corporation, (in
cluding a wholly owned subsidiary, or a
lender that is a thrift organization whose
membership is limited to employees and
former employees of the corporation, its
subsidiaries, or affiliates) that extends or
maintains credit to finance the acquisition
of margin stock of the corporation, its sub
sidiaries, or affiliates under an eligible plan.
(2) E ligible plan. An eligible plan means
any employee stock option, purchase, or
ownership plan adopted by a corporation
and approved by its stockholders that pro
vides for the purchase of margin stock of
the corporation, its subsidiaries, or affiliates.
(b) C redit to exercise rights under o r finance
an eligible plan.
(1) If a plan-lender extends or maintains
credit under an eligible plan, any margin
security that directly or indirectly secures
that credit shall have good faith loan value.
(2) Credit extended under this section shall
be treated separately from credit extended
under any other section of this part except
sections 207.3(a) and 207.3(o) of this part.

§ 207.6

(c) C redit to ESOPs. A lender may extend
and maintain purpose credit without regard to
the provisions of this part, except for sections
207.3(a) and 207.3(o), if such credit is ex
tended to an employee stock ownership plan
(ESOP) qualified under section 401 of the In
ternal Revenue Code, as amended (26 USC
401).

SECTION 207.6—Requirements for the
List of OTC Margin Stocks
(a) Requirem ents f o r inclusion on the list. Ex
cept as provided in paragraph (d) of this sec
tion, an OTC margin stock shall meet the fol
lowing requirements:
(1) Four or more dealers stand willing to,
and do in fact, make a market in such stock
and regularly submit bona fide bids and of
fers to an automated quotations system for
their own accounts;
(2) The minimum average bid price of such
stock, as determined by the Board, is at
least $5 per share;
(3) The stock is registered under section 12
of the act, is issued by an insurance com
pany subject to section 12(g)(2)(G) of the
act, is issued by a closed-end investment
management company subject to registra
tion pursuant to section 8 of the Investment
Company Act of 1940 (15 USC 80a-8), is
an American Depositary Receipt (ADR) of
a foreign issuer whose securities are regis
tered under section 12 of the act, or is a
stock of an issuer required to file reports
under section 15(d) of the act;
(4) Daily quotations for both bid and asked
prices for the stock are continuously avail
able to the general public;
(5) The stock has been publicly traded for
at least six months;
(6) The issuer has at least $4 million of
capital, surplus, and undivided profits;
(7) There are 400,000 or more shares of
such security outstanding in addition to
shares held beneficially by officers, direc
tors, or beneficial owners of more than 10
percent of the stock;
(8) There are 1,200 or more holders of re
cord, as defined in SEC Rule 12g5-l (17
CFR 240.12g5-l), of the stock who are not
5

§ 207.6

officers, directors, or beneficial owners of
10 percent or more of the stock, or the av
erage daily trading volume of such a stock,
as determined by the Board, is at least 500
shares; and
(9) The issuer or a predecessor in interest
has been in existence for at least three
years.
(b) Requirem ents f o r continued inclusion on
the list. Except as provided in paragraph (d)
of this section, an OTC margin stock shall
meet the following requirements:
(1) Three or more dealers stand willing to,
and do in fact, make a market in such stock
and regularly submit bona fide bids and of
fers to an automated quotations system for
their own accounts;
(2) The minimum average bid price of such
security, as determined by the Board, is at
least $2 per share;
(3) The security is registered as specified in
paragraph (a)(3) of this section;
(4) Daily quotations for both bid and asked
prices for the stock are continuously avail
able to the general public;
(5) The issuer has at least $1 million of
capital, surplus, and undivided profits;
(6) There are 300,000 or more shares of
such stock outstanding in addition to shares
held beneficially by officers, directors, or
beneficial owners of more than 10 percent
of the stock; and
(7) There continue to be 800 or more hold
ers of record, as defined in SEC Rule
12g5-l (17 CFR 240.12g5-l), of the stock
who are not officers, directors, or beneficial
owners of 10 percent or more of the stock,
or the average daily trading volume of such
stock, as determined by the Board, is at
least 300 shares.
(c)

R em oval fro m the list o f O T C m argin
stocks. The Board shall periodically remove

from the list any stock that—

Regulation G

(1) ceases to exist or of which the issuer
ceases to exist, or
(2) no longer substantially meets the provi
sions of paragraph (b) of this section or
section 207.2(k).
(d) D iscretion ary authority o f Board. Without
regard to the other paragraphs of this section,
the Board may add to, or omit or remove
from, the OTC margin stock list any equity
security, if in the judgment of the Board, such
action is necessary or appropriate in the public
interest.
(e) Unlawful representations. It shall be un
lawful for any lender to make, or cause to be
made, any representation to the effect that the
inclusion of a security on the list of OTC
margin stocks is evidence that the Board or
the SEC has in any way passed upon the mer
its of, or given approval to, such security or
any transactions therein. Any statement in an
advertisement or other similar communication
containing a reference to the Board in connec
tion with the list or securities on that list shall
be an unlawful representation.
SECTION 207.7—Supplement:
Maximum Loan Value of Margin Stock
and Other Collateral
(a) M aximum loan value o f a m argin stock.
The maximum loan value of any margin
stock, except options, is 50 percent of its cur
rent market value.
(b) M aximum loan value o f nonmargin stock
an d a ll oth er collateral. The maximum loan
value of a nonmargin stock and all other col
lateral except puts, calls, or combinations
thereof is their good faith loan value.
(c) M aximum loan value o f options. Whether
they are margin stock or not, puts, calls, and
combinations thereof have no loan value.

Regulation G (Form G-l)

FR 0 1
0M B No 7(0 0 -0 0 1 1
Approval oupmm Juty 31. IB M

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Registration Statement For Persons Who Extend Credit Secured by
Margin Stock (Other Than Banks, Brokers or Dealers)
(Federal Reserve Form G-1)
Ttvs wgiplrptaon statement is isqueed By taw MS U S C 7#g and 7Bw; 12
C.F.R. 2071.
The Federal Beaarva Beard retards the information provided By each respondent
so cenidentid N d should Bo dstermwsd subeeQuemty that any edormanon
coMet ed on tfoo term must Bo reN it ed. respondents w * Be noMtatf

Pubic roportng Burden for dot collection of edormotion is estunoted to svorsgo
2.5 hours per rsoponse. mchido«t die tens for ro ro o o f aistrucoone. ssorcfimt
ettstonf data sources, te thersip and mamtaaunt the date needed, and
retardate this Burden catenate or any other aspect of tfee codeclion of
odormotion, rd u d d f a u tf Hows for raduanp this Burden, to Secretary. Beard
of Governors of the Federal Reserve Bystem. 20th and C Streets d id .
Washington. D C 20SS1; and «e the Office of tb r n am m and Budget .
Paperwork deduction Protect 17100 0011). Washington. O C 20903

Name of rto*suont:________________________________________
Nam* under which business <t conducted, if different from ebove:
Addrett of principel piece of business:
IDo not ute P.O Box No.I

______________________
***"

c«»

State

TilCoe.

Moling eddreee. if different from above: __________________________________________________________________

ew
c*y

GENERAL INSTRUCTIONS

DEFINITIONS

Who must fib: Section 207.3(a) of Federal Reserve
Regulation G requires that FR Form G-1 be completed by
every person (other than commercial banka, broker* or
dealers) who during any calender quarter extends * total ol
1200,000 or mote, or has outstanding a total ol *5 0 0 ,0 0 0 or
more, in credit secured directly or indirectly, in whole or in
part, by codatarai that includes any margin stock.

Terms used in this form are explained below. Precis*
definitions may be found in Section 207.2 of Regualtion G.

Whan and where to Ha: The form should be fifed in d u p f e a t e
with the Federal Reserve Bank of the district in which the
principel office of subject person it located within 30 days
following the and of such quarter in which credit has bean
extended or is outstanding in accordance with Section
207.31a). Thie registration statement wik remain in effect
until a FR Form G-2 (deregistration statement) is approved by
the Board of Governor* of the Federal Reserve System.
Whet to He: All persons subject to the registration
requirement* of Section 207.3(a) should (i) supply the
background information specified below; la) complete
Schedule A; and IS) sumbit tw o copra* of a balance sheet,
certified by an independent public accountant, for the
registrant's latest fisc si year. If the registrant is subject to
supervision by a State ot Federal regulatory authority, a copy
of the latest balance sheet filed with such authority may be
used. If neither it avail*bit. the registrant should complete
Schedule B on page 4.
•A ngm vant who m an mWvidual m not raquiroO to taetota hat of bar Social
Sacmtey number.
R e g is tr a tio n

fo r m s

w it

r e tu r n e d

r e g is tr a n ts

fo r

c o r r e c t io n s i f aU ite m s h a v e n o t b e e n a n s w e r e d in th e m a n n e r
r e q u ir e d o r i t t h e fo r m s a r e o th e r w is e u n a c c e p ta b le f o r filin g .

Person: Any individual, corporation, partnership, association,
join* stock company, business trust, or unincorporated
organization.
Purpose credit: Credit extended for the purpoea ol purchasing
or carrying margin stock, or to reduce or retire indebtedness
previously incurred for that purpose.
In the ordinary course of business: Occuring or reasonably
expected to occur from time to time in the course of any
activity of a person for profit or the management and
preservation ot property or. in the case of a person other
than an indhridual, carrying out or in furtherance ol any
business purpose.
Margin stock: Includes II) stock* registered on a national
securities exchange, stocks on the Federal Res erve Board’s
List of Msrginable OTC Stocks, or any OTC security
designated for trading in the National Market System, (2)
debt securities that are convert ibis into, or carry a warrant or
right to subscribe to or purchase margin stock, (3) any such
warrant or right, and (4) share* of most mutual fundi.
indirectly secured: In general, credit is indirectly secured by
margin stock if there i* an understanding between the
borrower and the lender (1) which is designated to make the
margin stock more available to the lender in case of default
than to the borrower's other creditors, or (2) which limits tha
borrower from exercising fuR dominion over the margin stock
to sell, pledge, or donate them, or detarmining where they
shaR be pieced physically.

Regulation G (Form G-l)

FRG-1
Pagi 2 o l 4

Background Information
1. Principal lines of business:

2. Registrant is: (check one)
Sole proprietorship
□ Partnership
Q Corporation

Q Private investor
□ Other (specify)

a. If registrant ■ a safe proprietor, private investor, or other, state ful residence address:

b If registrant is a corporation, state date and place of incorporation:
Date-____________________

Place:_______________________________________________________________________

c. Person responsible for maintaining records in connection with Regulation G:
N am e:_____________________________________________

Title: _______________________________________________

Telephone Number (include area c o d e l:_______________________________________________________________________
3. If any of the accounts or records of registrent are kept or maintainad by anyone other than the person named in 21c), furnish
the name and address of the other individual, firm, or organization:

4. a. Dost any person not named in items 2 ( c ) o r 3 a b o v e e x e r c is e or h a v e power to e x e r c is e a coouoSing influence over t h e
management or pofccies of registrant directly or indasctty, through stock ownership, agreement, or otherwise?
□

Yes

□

b. If 'y e s*, state the name of such person and describe the agreement, arrangement, or nature of the controlling influence:

5. a. Does the registrant extend credit in connection with an employee stock option or stock purchase plan pursuant to the
special 'plan-lender* provision set forth in Section 207.5(a) of Regulation G? If so. submil two copies of documents
establishing the plan, a prospectus, and other information which supports adherence to plan-lender limitations.
□ Yes

□

6. b. Does the registrant extend credit to an employee stock ownership plan (ESOP) qualified under section 401 of the Internal
Revenue Code (26 U.S.C. 4 0 1 1, as set forth in Section 207.6(c) of Reg ti siton G? If so. submit two copras of documents
establishing the plan and any other pertinent supporting information.
□

Yes

□

Regulation G (Form G-l)

ft
)
Schedule A —Securities Credit
A s o l _____________________________ 1 9 .
r
C ra dit a x ia n d a d
d u rin g qu arter
td o la rs )

r
T o ta l e r a * sura tan din g
s ta n d e l quanar
IdoMaral
MS

Thau

| D o Bars

M ri

1 T ho u

| DoSar*

A. Credit to porehas* or cany margin stock {Purpose Loons):
1. Secured Oirectty by margin stock:
a. Listed stocks and OTC margin sto ck s......................
b. Debt securities convertible into margin sto c k .........
c. Mutual fands and other margin sto c k .......................
2. Secured indirectly by margin sto ck ..................................
3. TOTAL (Purpose Credrtl.....................................................

MM
i

f ill iliilllii?

B. Other credit (Nenpurpoee Loans):

vt ' l

1> Secured directly by margin stock:

a. Listed stocks and OTC margin sto c k s....................................
b. Debt securities convertible into margin sto c k .......................
c. Mutual funds and other margin sto c k .....................................

Secured indirectly by margin sto ck ...............................................

3. TOTAL (Nonpurpose Credit)........................................................................

'v.

I severed bv riba report and burins previous quarters, that baa not

bamaaSnpaakaSManrkeaesateramenucoxnredkveara
B i
aaraikamaneaebvOrarapameaiareSerabrainsrke r reevensbySrieresortCatueeri
I eriweweuek anrik »«eeaensui*a«a
ttheanri elOreeuana breaaasinasaalaknsroanianawi

)

Regulation G (Form G-l)

FRO 1
R a « t4 « f 4

Schedule B —Balance Sheet
As o f _____________________________ 19----------This schedule is (o b« computed only by landau not submitting corporate balance abaets certified by an independent public
accountant or used to meet reporting requirements of a State or Federal regulatory authority.

I* Thousands)
LIABILITIES AND NET WORTH

ASSETS
Cash and bank deposits

Short-term bank borrowings

Trade accounts and notes receivable
met allowance lor bad debts of
)

Other notes and accounts payable

Other accounts and notes receivable
lindude credit lo executives and
employees)

Ail other liabilities

Marketable securities

Capital stock

Inventories

Additional paid-in capital

Investments in non-consolidated
subsidiaries

Retained eamings/undivided profits

Long term debt

TOTAL LIABILITIES

Total Equity Capital'
Fixed assets (net ol depreciation)
All other assets
TOTAL LIABILITIES AND
EQUITY CAPITAL

TOTAL ASSETS

1. Regieewts

not reporting capital

Hock, additional paid-in-capital or ratainad aaminga/undivided pro tats must nsvart hslass indicate total iquMy capital.

Certification
The registrant fikng this registration form end any attachments thereto and the person by whom it is executed represent hereby
that aH information contained therein is true and complete.

Oats

Tataphona lum bar laduO ng araa codal

S gnaturt or M U praprutor, gsnaisl pannar. managing agars, ar pm opal on car

Print or typa nana

Tala

This mandatory report is needed to elicit certain background and financial information about a Regulation G lander and the
types and amount of credit activities engaged m that are secured by margin stock.
Honest, accurate, and timaiy statements are required by lew
(15 U.S .C. I7 8 H ; 18 U .S .C . 110011

Regulation G (Form G-2)

m ot

man*. ;ioo-«on
A t f i M l w n t J A *1. 1 « M

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Deregistration Statement For
Persons Registered Pursuant to Regulation G
(Federal Reserve Form G-2)
A. For

u sb

by None Ofpofits Registrants

Thta daitsistrerieri n aia uenr la rawnred ky ina 111 u.S.C. 7*e and 7Sw: 12
C J M . 2071

ngS'drs ms Sana daaamn arany asm aapact at due tmriiir of
iritarmaaaa.nteensaasssaeanaNrlarumfteakwdaa.taSaaraaary.Saara
at Oouetimra aJta NSM Raaarw SiMawi.20a andC Oaaaaa. NW.
Wtaiaaarta. OC 20SS1: and«
a ea ONaa atIknsrnid and b ftp at,
htawan Saaminnnonet<7100401II. Watm elon DC 20*02.

Certificate
I (Wo), doing business under iho noma

n s u m re a m n n a .*

horoby eortify that I (we) have not. during the preceding six
calender months, had a total of *2 0 0 .0 0 0 or more of credit
outstanding secured directly or indirectly by margin stock.
I (Ws) understand that if I (we), in the future, extend a total
of *2 0 0 ,0 0 0 or mote during any calender quarter, or have

outstanding at any time during a calendar quarter a total of
*5 0 0 ,0 0 0 or mors, in credit that is secured directly or
indirectly by coSatoral that includes any margin stock. I (we)
shall within 30 day* following the and of such calendar
quarter reregister and remain registered lor at least six
months with the Board of Governors of the Federal Reserve
System by fibng Federal Des erve Form G-1 with the Federal
Reserve Bank of the district in which my lour! principal office
is located.
This certikcrtion is given in connection with an application
for termination of registration pursuant to Section 207.3(e) of
Regulation G of the Board of Governors of the Federal
Reserve System.

Prim or tye * nameM and MUM

M m ■ ■> jndMduai is not lequred re dadoaa ha or ta r Social Security number.

Honest, accurate, and timely statements era required by leer
(I S U.S.C. I7 6ff; 18 U .S .C . >1001)

Regulation G (Form G-2)

mo-2
OMONa n o o - 0011
A p *raw l H p o a M y 11. I M l

BOARD OF GOVERNORS OF THE FEOERAl RESERVE SYSTEM

Deregistration Statement For
Persons Registered Pursuant to Regulation G
(Federal Reserve Form G-2)
B. For use by Corporate Registrants
TTw ism g ietoah en statement is tegw sd toe lew l i f t U .t.C . 79g and

7§m:

c.f n son.
informs toon, nctotm g e iM gse U w lo t mducetg tfas buden. to S tc tra ry . Boot*
a t Governors of Me Federsl Reserve System. 20te and C Streets. M W .
WaaRmgten. O-C 2 0 M 1 ; and to R e Oflet a t Management and dudget.
RaoerwosS Reducton *o«Bct (710040111. Weebrngton. D C 20SOI

O fficer's Certificate
Ihereby carlify that
Mams at cerpeishoe

•W ManahcaMon Me

('Corporation'| ha* not. during tht pracading six calandar
months, had s total of <200.000 or mom ol cradit
outstanding aacurad directly or indiractty by margin stock.
it is undarstood that if tha Corporation shad, in tha future,
extend a total of <200,000 or more during any calandar

quartar. or has outstanding at any lima during a calandar
quartar a total of *8 0 0 .0 0 0 or more, in credit that is sacured
directly or indirectly by coSataral that atcluda* any margin
stock, tha Corporation shad within 10 days foaowing tha and
ol such c alandar quartar reragistar and ramain ragiatared for
at laast six months with tha hoard ol Govomota of tha
Fadaral Rasarva Syatam by fling Fodaral Raaorve Form G-l
with tha Fadaral Rasarva Bank ef tha district in which tha
principal olfica of tha corporation it located.
Thia certification is ghran in connactron with an application
for tsrminotion e f rsgiatration pursuant to Section 207.31a) of
Regulation G ol tha Board of Governor* of the Fadaral
Rasarva System.

Hontsta le c uf t n . and tiim ly t titM im tt m b roQuirod by tow
(18 U S.C. «78ff; 1 8 U .S .C . 11001)

Regulation G (Form G-3)

FUG-3

owe no 710O-OOH
A p p m i n p ir n

11. m *

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Statement of Purpose for an Extension of Credit Secured by Margin
Stock by a Person Subject to Registration Under Regulation G
(Federal Reserve Form G-3)
Name
Thfc form » revived by b e (15 U S .C 7Bg an * 78w; D C . f .R 2071

Pubkc report rig burden ler tree toPBCfion of mtormatioft 4 estimated to average
10 rTNnucee per reepoeea. e d u f n g the time tor reviewing instruction*.
Marching a n tin g data sources, gathering and m a n u rin g the data needed.

Lender
and completing and reviewing the coBection of information. Send comment a
regarding this burden estimate or any other aspect of t h * collection of
information, mcfcdng ng^oatinoa for reducng thm bidden, to Secretary. Board
of Govomors of tho Fodorel Reserve System. 20th and C Street*. N.W.,
Washington. D C 20551: and to die Office of Management and BudgaL
Paperwork Reduction Project <7100-0011), Washington. D C. 20503.

Instructions
1. This form must ba completed when a lender subject to registration under Regulation G extends credit secured directly or
indirectly, in whole or in pan. by any margin stock.
2. The term ‘ margin stock’ it defined in Regulation G (12 CFR 2071 and includes, principally: (1) stocks that are registered on
e national securities exchange, stocks that are on the Federal Reserve Board's List of Marginable OTC Stocks, or any OTC
security designated for trading in the National Market System: (21 debt securities (bondsI that are convertible into margin stock:
and 131 shares of most mutusl funds.
3. Please print or typo lif specs is inadequate, attach separata sheet).

Part I To be completed by borrowerlsl
1. Whet is the amount of the credit being extended?_________________________________________________________________
2. Will any part of this credit ba used to purchase or carry margin securities?

□

Yes

□

If the answer is *no.‘ describe th# specific purpose of the credit _______________________________________________________

I (Wei have reed this form and certify that to the best of my lour) knowledge and belief the information given is true, accurate,
and complete.
Signed:

Signed:

This form should not be signed if blank.
A borrower who fefeefy certifies tho purpose of o crodU on this form os otherwise wMfuRy os IntentiorieSy ovodoo
tho psovMam of R oafsiios G wtt otao violato Federal Reserve Rogulotion X. "Borfowoss of kocuiltioo Credh*.

Regulation G (Form G-3)

FIM

r%g*2otl

Part II

To bo completed by londor only if the purpooo of the crocfit is to purchooo or cony margin securities (Part

H 2)

■ W M n d " y t i 'l

1. List the margin atock securing this credit, do not induda debt tacurttias convertible Into margin stock. The maximum loan
vakra of margin stock is SO par cant of its currant market value under the currant Supplement to Regulation G.

issue

M arket price

Data and aourca
o i vdustion
Wee n e ts b rio rri

Martel priot

Data and m ace
of vOuotion
Idee note batow)

Total m arket
value per toeue

3. list other ceketsral including non-margin securities aacurlng this credit.

Li a r m a m i com.aw -o mm ana u r a «r tv u rtw i' H « n a m
ckcoltam a i ou>o— ud a iffnXaw iia a a i.

nm k

Part III

M u waa aawinod fiam m irm

D m * * , tata«y

poaeohta Otronaoeon la a found of sanara

To be signed by an authorized representative of the lender In a * inetancas

I am a duly authorized representative of die lander and understand that this credit secured by margin stock may be subject to
the credit restrictions of Regulation G. I have read this farm and any attachments, and I have accepted the customer's
statement in Pert I in good faith a s required by Reputation G \- and I certify that to the best of my knowledge and baSef, a the
information given it true* accurate, and complete.
Signed:

n th» a w l or from a tiM party.

This form must be retained by th t lender for three years after the credit Is extinguished.

Regulation G (Form G-4)

FH04
hH9H4

A. Credit to purchase or cany margin Mock IPurpoaa Loans):
t. Socursd dirsctly by margin stock:

*•
Crtdft Mtsndsd during
rtporting poriod

1*
Tom orsdd outstanding
at of .luno 90. _ _
MoNon)
1

T " " jf

Schedule of Securities Credit

i Thou | Debars

a. Listed stocks and OTC margin M ocks.......................
b. Debt aecuritrea convert ibis into margin M ock.........
c. Mutual kinds and other margin sto c k .......................

*■----- «-

2. secured indirectly by m ify n stock ..................................
3. TOTAL (Purpose Credit)......................................................

I ll
I . Other credit (Nsnpurpoee Loans);
1. Secured directly by margin Mock:

§ !|||
H

e. Listed stocks and OTC margin sto ck s............
b. Debt securities convertible into margin Mock
c. Mutual funds and other margin M ock............
2. Secured indiraetty by margin M ock.......................
3. TOTAL INonpurpoes Credit)...................................

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Regulation G (Form G-4)

Regulation T
Credit by Brokers and Dealers
12 CFR 220; as amended effective July 1, 1996

SECTION 220.1—Authority, Purpose,
and Scope

I
A

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(a) A uthority an d purpose. Regulation T (this
part)* is issued by the Board of Governors of
the Federal Reserve System (the Board) pur
suant to the Securities Exchange Act of 1934
(the act) (15 USC 78a et seq.). Its principal
purpose is to regulate extensions of credit by
and to brokers and dealers; it also covers re
lated transactions within the Board’s authority
under the act. It imposes, among other obliga
tions, initial margin requirements and payment
rules on securities transactions.
(b) Scope.
(1) This part provides a margin account
and eight special-purpose accounts in which
to record all financial relations between a
customer and a creditor. Any transaction
not specifically permitted in a special ac
count shall be recorded in a margin
account.
(2) This part does not preclude any ex
change, national securities association, or
creditor from imposing additional require
ments or taking action for its own
protection.
(3) This part does not apply to transactions
between a customer and a broker or dealer
registered only under section 15C of the
act.

SECTION 220.2—Definitions
*

The terms used in this part have the meanings
given them in section 3(a) of the act or as
defined in this section.
means securities issued or
guaranteed by the United States or its agen
cies, negotiable bank certificates of deposit,
banker’s acceptances issued by banking insti
tutions in the United States and payable in the
United States, or money market mutual funds.

V /

C ash equ ivalen t

C overed option transaction

means—

*Code of Federal Regulations, title 12, chapter II, part
220.

(1) in the case of a short call, the underly
ing asset (or a security immediately con
vertible into the underlying asset, without
the payment of money) is held in or pur
chased for the account on the same day,
and the option premium is held in the ac
count until cash payment for the underlying
asset or convertible security is received; or
(2) in the case of a short put, the creditor
obtains cash in an amount equal to the ex
ercise price or holds in the account cash
equivalents with a current market value at
least equal to the exercise price and, except
in the case of money market mutual funds,
with one year or less to maturity; or
(3) in the case of a short put or short call,
the creditor verifies that the appropriate es
crow agreement will be delivered to the
creditor promptly and the option premium
is held in the account until such delivery is
made; or
(4) beginning June 1, 1997, any other
transaction involving options or warrants in
which the customer’s risk is limited and all
elements of the transaction are subject to
contemporaneous exercise if—
(i) the amount at risk is held in the ac
count in cash, cash equivalents, or via an
escrow receipt; and
(ii) the transaction is eligible for the cash
account by the rules of the registered na
tional securities exchange authorized to
trade the option or warrant or by the
rules of the creditor’s examining author
ity in the case of an unregistered option,
provided that all such rules have been ap
proved or amended by the SEC.
C redit balance means the cash amount due
the customer in a margin account after debit
ing amounts transferred to the special memo
randum account.
C reditor means any broker or dealer (as de
fined in sections 3(a)(4) and 3(a)(5) of the
act), any member of a national securities ex
change, or any person associated with a bro
ker or dealer (as defined in section 3(a)(18) of
the act), except for business entities control19

Regulation T

§ 2 2 0 .2

ling or under common control with the
creditor.
includes—
(1) any person or persons acting jointly—
(i) to or for whom a creditor extends, ar
ranges, or maintains any credit; or
(ii) who would be considered a customer
of the creditor according to the ordinary
usage of the trade;
(2) any partner in a firm who would be
considered a customer of the firm absent
the partnership relationship; and
(3) any joint venture in which a creditor
participates and which would be considered
a customer of the creditor if the creditor
were not a participant.

C ustom er

means the cash amount owed to
the creditor in a margin account after debiting
amounts transferred to the special memoran
dum account.

D e b it balance

D e liv e ry a g a in st paym ent, p a ym en t ag a in st
delivery, or a C O D transaction refers to an

arrangement under which a creditor and a cus
tomer agree that the creditor will deliver to, or
accept from, the customer, or the customer’s
agent, a security against full payment of the
purchase price.
means the total current market value of
security positions held in the margin account
plus any credit balance less the debit balance
in the margin account.
Equity

means any agreement is
sued in connection with a call or put option
under which a bank or any person designated
as a control location under paragraph (c) of
SEC Rule 15c3-3 (17 CFR 240.15c3-3(c)),
holding the underlying asset or required cash
or cash equivalents, is obligated to deliver to
the creditor (in the case of a call option) or
accept from the creditor (in the case of a put
option) the underlying asset or required cash
or cash equivalent against payment of the ex
ercise price upon exercise of the call or put.
E scrow agreem ent

(2) if a member of more than one self-reg
ulatory organization, the organization desig
nated by the SEC as the examining author
ity for the creditor.
means any
security issued by an investment company
registered under section 8 of the Investment
Company Act of 1940 (15 USC 80a-8), pro
vided the company has at least 95 percent of
its assets continuously invested in exempt se
curities (as defined in section 3(a)(12) of the
act).
E xem pted secu rities m utual fu n d

means a foreign security
that is an equity security and that appears on
the Board’s periodically published list of for
eign margin stocks.
Foreign m argin stock

means a person other than a
United States person as defined in section 7(f)
of the act.

Foreign person

Foreign secu rity means a security issued in a
jurisdiction other than the United States.

means the amount of mar
gin which a creditor, exercising sound credit
judgment, would customarily require for a
specified security position and which is estab
lished without regard to the customer’s other
assets or securities positions held in connec
tion with unrelated transactions.
G o o d fa ith m argin

In o r a t the m oney means, until June 1, 1997,
the current market price of the underlying se
curity is not more than one standard exercise
interval below (with respect to a call option)
or above (with respect to a put option) the
exercise price of the option.

means the current market price
of the underlying asset or index is not below
(with respect to a call option) or above (with
respect to a put option) the exercise price of
the option.

In the m oney

M argin c a ll means a demand by a creditor to
means—
(1) the national securities exchange or na a customer for a deposit of additional cash or
tional securities association of which a securities to eliminate or reduce a margin defi
ciency as required under this part.
creditor is a member; or

Examining authority

Regulation T

means the amount by which
the required margin exceeds the equity in the
margin account.

M argin deficiency

means the amount by which
the equity in the maigin account exceeds the
required margin. When the margin excess is
represented by securities, the current value of
the securities is subject to the percentages set
forth in section 220.18 (the supplement).

M argin excess

means—
(1) any registered security;
(2) any OTC margin stock;
(3) any OTC margin bond;
(4) any OTC security designated as quali
fied for trading in the national market sys
tem under a designation plan approved by
the Securities and Exchange Commission
(NMS security);
(5) any security issued by either an openend investment company or unit investment
trust which is registered under section 8 of
the Investment Company Act of 1940 (15
USC 80a-8);
(6) any foreign margin stock; or
(7) any debt security convertible into a
maigin security.

M argin secu rity

means any security
issued by an investment company registered
under section 8 of the Investment Companany
Act of 1940 (15 USC 80a-8) that is consid
ered a money market fund under SEC Rule
2a-7 (17 CFR 270.2a-7).
M oney m arket m utual fu n d

means any security
other than an exempted security (as defined in
section 3(a)(12) of the act).

N o n e x e m p te d se c u r ity

means a bank that is not a
member of the Federal Reserve System.

N onm em ber bank

means a for
eign security that is neither a registered secur
ity nor one listed on NASDAQ.

N on -U .S .-traded foreign secu rity

means—
(1) a debt security not traded on a national
securities exchange which meets all of the
following requirements;
(i) at the time of the original issue, a
principal amount of not less than
$25,000,000 of the issue was outstanding;
(ii) the issue was registered under section

O T C m argin b on d

§ 2 2 0 .2

5 of the Securities Act of 1933 (15 USC
77e) and the issuer either files periodic
reports pursuant to section 13(a) or 15(d)
of the act or is an insurance company
which meets all of the conditions speci
fied in section 12(g)(2)(G) of the act; and
(iii) at the time of the extension of
credit, the creditor has a reasonable basis
for believing that the issuer is not in de
fault on interest or principal payments; or
(2) a private pass-through security (not
guaranteed by an agency of the U.S. gov
ernment) meeting all of the following
requirements;
(i) an aggregate principal amount of not
less than $25,000,000 (which may be is
sued in series) was issued pursuant to a
registration statement filed with the SEC
under section 5 of the Securities Act of
1933 (15 USC 77e);
(ii) current reports relating to the issue
have been filed with the SEC; and
(iii) at the time of the credit extension,
the creditor has a reasonable basis for be
lieving that mortgage interest, principal
payments and other distributions are be
ing passed through as required and that
the servicing agent is meeting its material
obligations under the terms of the offer
ing; or
(3) a mortgage-related security as defined
in section 3(a)(41) of the act; or
(4) a debt security issued or guaranteed as
a general obligation by the government of a
foreign country, its provinces, states, or cit
ies, or a supranational entity, if at the time
of the extension of credit one of the follow
ing is rated in one of the two highest rating
categories by a nationally recognized statis
tical rating organization:
(i) the issue,
(ii) the issuer or guarantor (implicitly), or
(iii) other outstanding unsecured long
term debt securities issued or guaranteed
by the government or entity; or
(5) a foreign security that is a nonconvert
ible debt security that meets all of the fol
lowing requirements:
(i) at the time of original issue, a princi
pal amount of at least $100,000,000 was
outstanding;
(ii) at the time of the extension of credit,
21

Regulation T

§ 2 2 0 .2

the creditor has a reasonable basis for be
lieving that the issuer is not in default on
interest or principal payments; and
(iii) at the time of the extension of
credit, the issue is rated in one of the
two highest rating categories by a nation
ally recognized statistical rating organiza
tion; or
(6) any nonconvertible debt security that
meets all of the following requirements;
(i) at the time of the extension of credit,
the creditor has a reasonable basis for be
lieving that the issuer is not in default on
interest or principal payments; and
(ii) at the time of the extension of credit,
the issue is rated in one of the four high
est rating categories by a nationally rec
ognized statistical rating organization.
means any equity security
traded over the counter that the Board has de
termined has the degree of national investor
interest, the depth and breadth of market, the
availability of information respecting the se
curity and its issuer, and the character and
permanence of the issuer to warrant being
treated like an equity security traded on a na
tional securities exchange. An OTC stock is
not considered to be an OTC margin stock
unless it appears on the Board’s periodically
published list of OTC margin stocks.
O T C m argin stock

means—
(1) a put option purchased or a call option
written against a long position in an under
lying asset in the specialist record in sec
tion 220.12(b); or
(2) a call option purchased or a put option
written against a short position in an under
lying asset in the specialist record in sec
tion 220.12(b).

O verlying option

means the number of business
days in the standard securities settlement cycle
in the United States, as defined in paragraph
(a) of SEC Rule 15c6-l (17 CFR 240.15c61(a)), plus two business days.
P aym ent p e rio d

means, in the case of
an option in which a specialist makes a mar
ket, a position in the underlying asset or other
related assets, and in the case of other securi
ties in which a specialist makes a market, a
position in options overlying the securities in

P erm itted offset positio n

which a specialist makes a market, provided
the positions qualify as permitted offsets
under the rules of the national securities ex
change with which the specialist is registered,
and further provided all such rules have been
approved or amended by the SEC. Until June
1, 1997, permitted offsets are determined by
reference to section 220.12(b)(6).
Purpose credit means credit for the purpose
of—
(1) buying, carrying, or trading in securi
ties; or
(2) buying or carrying any part of an in
vestment contract security which shall be
deemed credit for the purpose of buying or
carrying the entire security.

means any security that—
(1) is registered on a national securities ex
change; or
(2) has unlisted trading privileges on a na
tional securities exchange.

R egistered secu rity

means a call option or
a put option that is issued, endorsed, or guar
anteed in or for an account.
(1) A short call that is not cash-settled ob
ligates the customer to sell the underlying
asset at the exercise price upon receipt of a
valid exercise notice or as otherwise re
quired by the option contract.
(2) A short put that is not cash-settled obli
gates the customer to purchase the underly
ing asset at the exercise price upon receipt
of a valid exercise notice or as otherwise
required by the option contract.
(3) A short call or a short put that is cashsettled obligates the customer to pay the
holder of an in-the-money long put or long
call who has, or has been deemed to have,
exercised the option the cash difference be
tween the exercise price and the current as
signed value of the option as established by
the option contract.

Short c a ll o r sh ort p u t

S p e c ia list jo in t a cco u n t means an account
which, by written agreement, provides for the
commingling of the security positions of the
participants and a sharing of profits and losses
from the account on some predetermined
ratio.
U nderlying a sse t

means—

0
\

Regulation T

(1) the security or other asset that will be
delivered upon exercise of an option; or
(2) in the case of a cash-settled option, the
securities or other assets which comprise
the index or other measure from which the
option’s value is derived.

SECTION 220.3—General Provisions
(a) Records. The creditor shall maintain a re
cord for each account showing the full details
of all transactions.

i
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*
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)

(b) Separation of accounts. Except as pro
vided for in the margin account and the spe
cial memorandum account, the requirements
of an account may not be met by considering
items in any other account. If withdrawals of
cash or securities are permitted under the reg
ulation, written entries shall be made when
cash or securities are used for purposes of
meeting requirements in another account.
(c) Maintenance of credit. Except as prohib
ited by this part, any credit initially extended
in compliance with this part may be main
tained regardless of—
(1) reductions in the customer’s equity re
sulting from changes in market prices;

(2) any security in an account ceasing to be
margin or exempted; or
(3) any change in the margin requirements
prescribed under this part.
(d) Guarantee of accounts. No guarantee of a
customer’s account shall be given any effect
for purposes of this part.
(e) R eceipt o f fu n ds o r securities.
(1) A creditor, acting in good faith, may
accept as immediate payment—
(i) cash or any check, draft, or order
payable on presentation; or
(ii) any security with sight draft attached.
(2) A creditor may treat a security, check,
or draft as received upon written notifica
tion from another creditor that the specified
security, check, or draft has been sent.
(3) Upon notification that a check, draft, or
order has been dishonored or when securi
ties have not been received within a reason
able time, the creditor shall take the action

§ 220.3

required by this part when payment or se
curities are not received on time.
(4) To temporarily finance a customer’s re
ceipt of securities pursuant to an employee
benefit plan registered on SEC Form S-8 or
the withholding taxes for an employee stock
award plan, a creditor may accept, in lieu
of securities, a properly executed exercise
notice, where applicable, and instructions to
the issuer to deliver the stock to the credi
tor. Prior to acceptance, the creditor must
verify that the issuer will deliver the securi
ties promptly and the customer must desig
nate the account into which the securities
are to be deposited.
(f) Exchange of securities.
(1) To enable a customer to participate in
an offer to exchange securities which is
made to all holders of an issue of securities,
a creditor may submit for exchange any se
curities held in a margin account, without
regard to the other provisions of this part,
provided the consideration received is de
posited into the account.
(2) If a nonmargin, nonexempted security is
acquired in exchange for a margin security,
its retention, withdrawal, or sale within 60
days following its acquisition shall be
treated as if the security is a margin
security.
(g) Valuing securities. The current market
value of a security shall be determined as fol
lows:
(1) Throughout the day of the purchase or
sale of a security, the creditor shall use the
security’s total cost of purchase or the net
proceeds of its sale including any commis
sions charged.
(2) At any other time, the creditor shall use
the closing sale price of the security on the
preceding business day, as shown by any
regularly published reporting or quotation
service. If there is no closing price, the
creditor may use any reasonable estimate of
the market value of the security as of the
close of business on the preceding business
day.
(h) Innocent mistakes. If any failure to com
ply with this part results from a mistake made
in good faith in executing a transaction or cal23

§ 220.3

culating the amount of margin, the creditor
shall not be deemed in violation of this part
if, promptly after the discovery of the mistake,
the creditor takes appropriate corrective
action.
(i) Foreign currency. Freely convertible for
eign currency may be treated at its U.S. dollar
equivalent, provided the currency is markedto-market daily.

SECTION 220.4— Margin Account
(a) Margin transactions.
(1) All transactions not specifically author
ized for inclusion in another account shall
be recorded in the margin account.
(2) A creditor may establish separate mar
gin accounts for the same person to—
(i) clear transactions for other creditors
where the transactions are introduced to
the clearing creditor by separate credi
tors; or
(ii) clear transactions through other cred
itors if the transactions are cleared by
separate creditors; or
(iii) provide one or more accounts over
which the creditor or a third-party invest
ment adviser has investment discretion.
(b) Required margin.
(1) Applicability. The required margin for
each long or short position in securities is
set forth in section 220.18 (the supplement)
and is subject to the following exceptions
and special provisions.
(2) Short sale against the box. A short sale
“against the box” shall be treated as a long
sale for the purpose of computing the eq
uity and the required margin.
(3) When-issued securities. The required
margin on a net long or net short commit
ment in a when-issued security is the mar
gin that would be required if the security
were an issued margin security, plus any
unrealized loss on the commitment or less
any unrealized gain.
(4) Stock used as cover.
(i) When a short position held in the ac
count serves in lieu of the required mar
gin for a short put, the amount prescribed
by paragraph (b)(1) of this section as the
24

Regulation T

amount to be added to the required mar
gin in respect of short sales shall be in
creased by any unrealized loss on the
position.
(ii) When a security held in the account
serves in lieu of the required margin for
a short call, the security shall be valued
at no greater than the exercise price of
the short call.
(5) Accounts of partners. If a partner of the
creditor has a margin account with the cred
itor, the creditor shall disregard the part
ner’s financial relations with the firm (as
shown in the partner’s capital and ordinary
drawing accounts) in calculating the margin
or equity of the partner’s margin account.
(6) Contribution to joint venture. If a mar
gin account is the account of a joint venture
in which the creditor participates, any inter
est of the creditor in the joint account in
excess of the interest which the creditor
would have on the basis of its right to share
in the profits shall be treated as an exten
sion of credit to the joint account and shall
be margined as such.
(7) Transfer of accounts.
(i) A margin account that is transferred
from one creditor to another may be
treated as if it had been maintained by
the transferee from the date of its origin,
if the transferee accepts, in good faith, a
signed statement of the transferor (or, if
that is not practicable, of the customer),
that any margin call issued under this
part has been satisfied.
(ii) A margin account that is transferred
from one customer to another as part of a
transaction, not undertaken to avoid the
requirements of this part, may be treated
as if it had been maintained for the trans
feree from the date of its origin, if the
creditor accepts in good faith and keeps
with the transferee account a signed
statement of the transferor describing the
circumstances for the transfer.
(8) Credit denominated in foreign currency.
A creditor may extend credit denominated
in any freely convertible foreign currency.
(9) Options. The following provisions are
in force until June 1, 1997.
(i) Margin or cover for options on ex
empted debt securities, certificates of

Regulation T

deposit, stock indices, or securities
exchange-traded options on foreign
currencies. The required margin for each
transaction involving any short put or
short call on an exempted debt security,
certificate of deposit, stock index, or
foreign currency (if the option is traded
on a securities exchange), shall be the
amount or position in lieu of margin set
forth in section 220.18 (the supplement).
(ii) Margin for options on equity securi
ties. The required margin for each trans
action involving any short put or short
call on an equity security shall be the
amount set forth in section 220.18 (the
supplement).
(iii) Cover or positions in lieu of margin.
No margin is required for an option writ
ten on an equity security position when
the account holds any of the following:
(A) the underlying asset in the case of
a short call, or a short position in the
underlying asset in the case of a short
put;
(B) securities immediately convertible
into or exchangeable for the underlying
asset without the payment of money in
the case of a short call, if the right to
convert or exchange does not expire on
or before the expiration date of the

short call;
(C) an escrow agreement for the un
derlying security or foreign exchange
(in the case of a short call) or cash (in
the case of a short put);
(D) a long call on the same number of
shares of the same underlying asset if
the long call does not expire before the
expiration date of the short call, and if
the amount (if any), by which the ex
ercise price of the long call exceeds
the exercise price of the short call is
deposited in the account;
(E) a long put on the same number of
shares of the same underlying asset if
the long put does not expire before the
expiration date of the short put, and if
the amount (if any), by which the ex
ercise price of the short put exceeds
the exercise price of the long put is
deposited in the account;
(F) a warrant to purchase the underly

§ 220.4

ing asset, in the case of a short call, if
the warrant does not expire on or
before the expiration date of the short
call, and if the amount (if any), by
which the exercise price of the short
call is deposited in the account. A war
rant used in lieu of the required margin
under this provision shall contribute no
equity to the account.
(iv) Straddles. When both a short put
and a short call are in a margin account
on the same number of shares of the
same underlying security, the required
margin shall be the margin on either the
short put or the short call, whichever is
greater, plus any unrealized loss on the
other option.
(v) Exclusive designation. The customer
may designate at the time the option or
der is entered which security position
held in the account is to serve in lieu of
the required margin, if such service is of
fered by the creditor; or the customer
may have a standing agreement with the
creditor as to the method to be used for
determining on any given day which se
curity position will be used in lieu of the
margin to support an option transaction.
Any security held in the account which
serves in lieu of the required margin for
a short put or a short call shall be un
available to support any other option
transaction in the account.
(c) When additional margin is required.
(1) Computing deficiency. All transactions
on the same day shall be combined to de
termine whether additional margin is re
quired by the creditor. For the purpose of
computing equity in an account, security
positions are established or eliminated and a
credit or debit created on the trade date of a
security transaction. Additional margin is
required on any day when the day’s trans
actions create or increase a margin defi
ciency in the account and shall be for the
amount of the margin deficiency so created
or increased.
(2) Satisfaction of deficiency. The addi
tional required margin may be satisfied by a
transfer from the special memorandum ac
count or by a deposit of cash, margin secur25

§ 220.4

ities, exempted securities, or any combina
tion thereof.
(3) Time limits.
(i) A margin call shall be satisfied within
one payment period after the margin defi
ciency was created or increased.
(ii) The payment period may be extended
for one or more limited periods upon ap
plication by the creditor to its examining
authority unless the examining authority
believes that the creditor is not acting in
good faith or that the creditor has not
sufficiently determined that exceptional
circumstances warrant such action. Appli
cations shall be filed and acted upon
prior to the end of the payment period or
the expiration of any subsequent
extension.
(4) Satisfaction restriction. Any transaction,
position, or deposit that is used to satisfy
one requirement under this part shall be un
available to satisfy any other requirement.
(d) Liquidation in lieu of deposit. If any mar
gin call is not met in full within the required
time, the creditor shall liquidate securities suf
ficient to meet the margin call or to eliminate
any margin deficiency existing on the day
such liquidation is required, whichever is less.
If the margin deficiency created or increased
is $1,000 or less, no action need be taken by
the creditor.
(e) Withdrawals of cash or securities.
(1) Cash or securities may be withdrawn
from an account, except if—
(i) additional cash or securities are re
quired to be deposited into the account
for a transaction on the same or a previ
ous day; or
(ii) the withdrawal, together with other
transactions, deposits, and withdrawals on
the same day, would create or increase a
margin deficiency.
(2) Margin excess may be withdrawn or
may be transferred to the special memoran
dum account (§ 220.5) by making a single
entry to that account which will represent a
debit to the margin account and a credit to
the special memorandum account!
(3) If a creditor does not receive a distribu
tion of cash or securities which is payable
with respect to any security in a margin ac
26

Regulation T

count on the day it is payable and with
drawal would not be permitted under para
graph (e) of this section, a withdrawal
transaction shall be deemed to have oc
curred on the day the distribution is
payable.
(f) Interest, service charges, etc.
(1) Without regard to the other provisions
of this section, the creditor, in its usual
practice, may debit the following items to a
margin account if they are considered in
calculating the balance of such account:
(i) interest charged on credit maintained
in the margin account;
(ii) premiums on securities borrowed in
connection with short sales or to effect
delivery;
(iii) dividends, interest, or other distribu
tions due on borrowed securities;
(iv) communication or shipping charges
with respect to transactions in the margin
account; and
(v) any other service charges which the
creditor may impose.
(2) A creditor may permit interest, divi
dends, or other distributions credited to a
margin account to be withdrawn from the
account if—
(i) the withdrawal does not create or in
crease a margin deficiency in the ac
count; or
(ii) the current market value of any se
curities withdrawn does not exceed 10
percent of the current market value of the
security with respect to which they were
distributed.
SECTION 220.5—Special Memorandum
Account
(a) A special memorandum account (SMA)
may be maintained in conjunction with a mar
gin account. A single entry amount may be
used to represent both a credit to the SMA
and a debit to the margin account. A transfer
between the two accounts may be effected by
an increase or reduction in the entry. When
computing the equity in a margin account, the
single entry amount shall be considered as a
debit in the margin account. A payment to the
customer or on the customer’s behalf or a

Regulation T

transfer to any of the customer’s other ac
counts from the SMA reduces the single entry
amount.

§ 2 2 0 .8

SECTION 220.8—Cash Account

(a) Permissible transactions. In a cash ac
count, a creditor may—
(1) buy for or sell to any customer any se
(b) The SMA may contain the following
curity or other asset if—
entries:
(1) dividend and interest payments;
(i) there are sufficient funds in the ac
count; or
(2) cash not required by this part, including
(ii) the creditor accepts in good faith the
cash deposited to meet a maintenance mar
gin call or to meet any requirement of a
customer’s agreement that the customer
self-regulatory organization that is not im
will promptly make full cash payment for
the security or asset before selling it and
posed by this part;
(3) proceeds of a sale of securities or cash
does not contemplate selling it prior to
making such payment;
no longer required on any expired or liqui
(2) buy from or sell for any customer any
dated security position that may be with
drawn under section 220.4(e); and
security or other asset if—
(4) margin excess transferred from the mar
(i) the security is held in the account; or
gin account under section 220.4(e)(2).
(ii) the creditor accepts in good faith the
customer’s statement that the security is
owned by the customer or the customer’s
principal, and that it will be promptly de
posited in the account;
SECTION 220.6—Government Securities
(3) issue, endorse, or guarantee, or sell an
Account
option for any customer as part of a cov
In a government securities account, a creditor
ered option transaction; and
may effect and finance transactions involving
(4) use an escrow agreement in lieu of the
government securities, provided the transac
cash, cash equivalents, or underlying asset
tion is not prohibited by section 15C of the
position if—
act or any rule thereunder.
(i) in the case of a short call or a short
put, the creditor is advised by the cus
tomer that the required securities, assets,

SECTION 220.7—Arbitrage Account
In an arbitrage account a creditor may effect
and finance for any customer bona fide arbi
trage transactions. For the purpose of this sec
tion, the term “bona fide arbitrage” means—
(a) a purchase or sale of a security in one
market together with an offsetting sale or
purchase of the same security in a different
market at as nearly the same time as practi
cable for the purpose of taking advantage of
a difference in prices in the two markets; or
(b) a purchase of a security which is, with
out restriction other than the payment of
money, exchangeable or convertible within
90 calendar days of the purchase into a sec
ond security together with an offsetting sale
of the second security at or about the same
time, for the purpose of taking advantage of
a concurrent disparity in the prices of the
two securities.

or cash are held by a person authorized
to issue an escrow agreement and the
creditor independently verifies that the
appropriate escrow agreement will be de
livered by the person promptly; or
(ii) in the case of a call issued, endorsed,
guaranteed, or sold on the same day the
underlying asset is purchased in the ac
count and the underlying asset is to be
delivered to a person authorized to issue
an escrow agreement, the creditor verifies
that the appropriate escrow agreement
will be delivered by the person promptly.
(b) Time periods for payment; cancellation or
liquidation.
(1) Full cash payment. A creditor shall ob
tain full cash payment for customer
purchases—
(i) within one payment period of the
date—
27

§ 220.8

Regulation T

(A ) any nonexempted security was
purchased;
(B ) any w hen-issued security was
made available by the issuer for deliv
ery to purchasers;
(C) any when-distributed security was
distributed under a published plan;
(D) a security owned by the customer
has matured or has been redeemed and
a new refunding security o f the same
issuer has been purchased by the cus
tomer, provided—
( / ) the customer purchased the new
security no more than 35 calendar
days prior to the date o f maturity or
redemption o f the old security;

disregard any sum due from the customer
not exceeding $1,000.

90-day freeze.

(c)

(1) If a nonexempted security in the ac
count is sold or delivered to another broker
or dealer without having been previously
paid for in full by the customer, the privi
lege o f delaying payment beyond the trade
date shall be withdrawn for 90 calendar
days following the date o f sale o f the secur
ity. Cancellation o f the transaction other
than to correct an error shall constitute a
sale.
(2) The 90-day freeze shall not apply if—
(i) within the period specified in para
graph (b)(1) o f this section, full payment
is received or any check or draft in pay
ment has cleared and the proceeds from
the sale are not withdrawn prior to such
payment or check clearance; or

(2) the customer is entitled to the
proceeds o f the redemption; and
(5) the delayed payment does not
exceed 103 percent o f the proceeds
o f the old security.

(ii) the purchased security was delivered
to another broker or dealer for deposit in
a cash account which holds sufficient
funds to pay for the security. The credi
tor may rely on a written statement ac
cepted in good faith from the other bro
ker or dealer that sufficient funds are
held in the other cash account.

(ii) In the case o f the purchase o f a for
eign security, within one payment period
o f the trade date or within one day after
the date on which settlement is required
to occur by the rules o f the foreign se
curities market, provided this period does
not exceed the maximum time permitted
by this part for delivery-against-payment
transactions.
(2) Delivery against payment. If a creditor
purchases for or sells to a customer a secur
ity in a delivery-against-payment transac
tion, the creditor shall have up to 35 calen
dar days to obtain payment if delivery o f
the security is delayed due to the mechanics
o f the transaction and is not related to the
customer’s willingness or ability to pay.
(3) Shipment of securities; extension. If any
shipment o f securities is incidental to con
summation o f a transaction, a creditor may
extend the payment period by the number
o f days required for shipment, but not by
more than one additional payment period.
(4) Cancellation; liquidation; minimum
amount. A creditor shall promptly cancel or
otherwise liquidate a transaction or any part
o f a transaction for which the customer has
not made full cash payment within the re
quired time. A creditor may, at its option,
28

(d)

Extension of time periods; transfers.

(1) Unless the creditor’s examining author
ity believes that the creditor is not acting in
good faith or that the creditor has not suffi
ciently determined that exceptional circum
stances warrant such action, it may, upon
application by the creditor—
(i) extend any period specified in para
graph (b) o f this section;
(ii) authorize transfer to another account
o f any transaction involving the purchase
o f a margin or exempted security; or
(iii) grant a waiver from the 90-day
freeze.
(2) Applications shall be filed and acted
upon prior to the end o f the payment pe
riod, or in the case o f the purchase o f a
foreign security within the period specified
in paragraph (b)(l)(ii) o f this section, or the
expiration o f any subsequent extension.

Regulation T
SE C T IO N 2 2 0 .9 — N on secu rities Credit
and E m p loyee S tock O w nership A ccou n t

SE C T IO N 2 2 0 .1 1 — B roker-D ealer Credit
A ccou n t

(a) In a nonsecurities credit account a creditor
may—

(a) P e rm issib le tra n sa c tio n s. In a brokerdealer credit account, a creditor may—

(1) e ffect and
commodities;

l
4

§ 220.11

carry

transactions

(2) effect and carry transactions in foreign
exchange;
(3) extend and maintain secured or un
secured nonpurpose credit, subject to the re
quirements o f paragraph (b) of this section;
and
(4) extend and maintain credit to employee
stock ownership plans without regard to the
other sections o f this part.

(2) effect or finance transactions o f any of
its owners if the creditor is a clearing and
servicing broker or dealer owned jointly or
individually by other creditors.

(3) extend and maintain credit to any part
ner or stockholder o f the creditor for the
purpose o f making a capital contribution to,
(b)
Every extension o f credit, except as proor purchasing stock of, the creditor, affili
ated corporation, or another creditor.
vided in paragraphs (a)(1) and (a)(2) o f this
section, shall be deemed to be purpose credit
(4) extend and maintain, with the approval
unless, prior to extending the credit, the credi
o f the appropriate examining authority—
tor accepts in good faith from the customer a
(i) credit to meet the emergency needs of
written statement that it is not purpose credit.
any creditor; or
The statement shall conform to the require
(ii) subordinated credit to another credi
ments established by the Board. To accept the
tor for capital purposes, if the other
customer’s statement in good faith, the credi
creditor—
tor shall be aware o f the circumstances sur
(A ) is an affiliated corporation or
rounding the extension o f credit and shall be
would not be considered a customer o f
satisfied that the statement is truthful.
the lender apart from the subordinated
loan; or

SE C T IO N 2 2 0 .1 0 — O m nibus A ccou n t
(a) In an omnibus account, a creditor may ef
fect and finance transactions for a broker or
dealer who is registered with the SEC under
section 15 o f the act and who gives the credi
tor written notice that—

(1) purchase any security from or sell any
security to another creditor or person regu
lated by a foreign securities authority under
a good faith agreement to promptly deliver
the security against full payment o f the
purchase price.

(1) all securities will be for the account o f
customers o f the broker or dealer; and
(2) any short sales effected will be short
sales made on behalf o f the customers o f
the broker or dealer other than partners.

(b) The written notice required by paragraph
(a) o f this section shall conform to any SEC
rule on the hypothecation o f customers’ secur
ities by brokers or dealers.

(B) will not use the proceeds o f the
loan to increase the amount o f dealing
in securities for the account o f the
creditor, its firm or corporation or an
affiliated corporation;
j
(5) effect transactions for a customer as
part o f a prime-broker arrangement in con
formity with SEC guidelines.
\

(b) A ffiliated corporation s. For purposes o f
paragraph (a)(3) and (aX4) o f this section “af
filiated corporation’’ means a corporation all
the common stock o f which is owned directly
or indirectly by the firm or general partners
and employees o f the firm, or by the corpora
tion or holders o f the controlling stock and
employees o f the corporation and the affilia
tion has been approved by the creditor’s ex
amining authority.

§ 220.12

SECTION 220.12—Market Functions
Account
(a) Requirem ents. In a market functions ac
count, a creditor may effect or finance the
transactions o f market participants in accor
dance with the following provisions. A sepa
rate record shall be kept for the transactions
specified for each category described in
paragraphs (b) through (e) o f this section. Any
position in a separate record shall not be used
to m eet the requirem ents o f any other
category.
(b) Specialists.
(1) A pplicability. A creditor may clear or
finance specialist transactions and permitted
offset positions for any specialist, or any
specialist joint account, in which all partici
pants, or all participants other than the
creditor, are registered as specialists on a
national securities exchange that requires
regular reports on the use o f specialist
credit from the registered specialists.
(2) R equired margin. The required margin
for a specialist’s transactions shall be—
(i) good faith margin for—
(A) any long or short position in a se
curity in which the specialist makes a
market;
(B) any wholly owned margin security
or exempted security; or
(C) any permitted offset position;
(ii) the margin prescribed by section
220.18 (the supplement) when a security
purchased or sold short in the account
does not qualify as a specialist or permit
ted offset position.
(3) A ddition al margin; restriction on “fr e e
riding. ”

(i) Except as required by paragraph
(b)(4) o f this section, the creditor shall
issue a margin call on any day when ad
ditional margin is required as a result of
specialist transactions. The creditor may
allow the specialist a maximum o f one
payment period to satisfy a margin call.
(ii) If a specialist fails to satisfy a mar
gin call within the period specified in
paragraph (b)(3) o f this section (and the
creditor is required to liquidate securities
to satisfy the call), the creditor shall be
prohibited for a 15-calendar-day period

Regulation T
from extending any further credit to the
specialist to finance transactions in non
specialty securities.
(iii) The restriction on “ free-riding”
shall not apply to—
(A) any specialist on a national securi
ties exch an ge that has an SECapproved rule on “free-riding” by spe
cialists; or
(B) the acquisition or liquidation o f a
permitted offset position.
(4) D eficit status. On any day when a spe
cialist’s separate record would liquidate to a
deficit, the creditor shall not extend any fur
ther specialist credit in the account and
shall issue a margin call at least as large as
the deficit. If the call is not met by noon of
the follow ing business day, the creditor
shall liquidate positions in the specialist’s
account.
(5) W ithdrawals. Withdrawals may be per
mitted to the extent that the equity exceeds
the margin requirements specified in para
graph (b)(2) o f this section.
(6) P erm itted offset positions. Until June 1,
1997, a specialist in options may establish,
on a share-for-share basis, a long or short
position in the securities underlying the op
tions in which the specialist makes a mar
ket, and a specialist in securities other than
options may purchase or write options overlying the securities in which the specialist
makes a market, if the account holds the
following permitted offset positions:
(i) a short option position which is “in
or at the money” and is not offset by a
long or short option position for an equal
or greater number of shares o f the same
underlying security which is “ in the
money” ;
(ii) a long option position which is “in
or at the money” and is not offset by a
long or short option position for an equal
or greater number of shares of the same
underlying security which is “ in the
money” ;
(iii) a short option position against which
an exercise notice was tendered;
(iv) a long option position which was
exercised;
(v) a net long position in a security

Regulation T
(other than an option) in which the spe
cialist makes a market; or
(vi) a net short position in a security
(other than an option) in which the spe
cialist makes a market.
(c) Underwriters and distributors. A creditor
may effect or finance for any dealer or group
o f dealers transactions for the purpose o f fa
cilitating the underwriting or distribution o f all
or a part o f an issue o f securities with a good
faith margin.
(d) OTC market makers and third-market
makers.
(1) A creditor may clear or finance with a
good faith margin, market-making transac
tions for a creditor who is a registered
N ASD AQ market maker or a qualified
third-market maker as defined in SEC Rule
3b-8 (17 CFR 240.3b-8).
(2) If the credit extended to a market
maker ceases to be for the purpose o f mar
ket making, or the dealer ceases to be a
market maker for an issue o f securities for
which credit was extended, the credit shall
be subject to the margin specified in section
220.18 (the supplement).
(e) Odd-lot dealers. A creditor may clear and
finance odd-lot transactions for any creditor
who is registered as an odd-lot dealer on a
national securities exchange with a good faith
margin.

§ 220.15
rectly between members o f a national securi
ties exchange or association or through any
clearing agency registered with the SEC.
(b) Deposit of securities with a clearing
agency. The provisions o f this part shall not
apply to the deposit o f securities with an op
tions or futures clearing agency for the pur
pose o f meeting the deposit requirements o f
the agency if—
(1) the clearing agency—
(i) issues, guarantees performance on, or
clears transactions in, any security (in
cluding options on any security, certifi
cate o f deposit, securities index, or for
eign currency); or
(ii) guarantees performance o f contracts
for the purchase or sale o f a commodity
for future delivery or options on such
contracts;
(2) the clearing agency is registered with
the Securities and Exchange Commission or
is the clearing agency for a contract market
regulated by the Commodity Futures Trad
ing Commission; and
(3) the deposit consists o f any margin se
curity and complies with the rules o f the
clearing agency that have been approved by
the Securities and Exchange Commission
or the C om m odity Futures Trading
Commission.

SECTION 220.15—Borrowing by
Creditors
SECTION 220.13—Arranging for Loans
by Others
A creditor may arrange for the extension or
maintenance o f credit to or for any customer
by any person, provided the creditor does not
willfully arrange credit that violates parts 207,
221, or 224 o f this chapter.

SECTION 220.14—Clearance of
Securities, Options, and Futures
(a) Credit for clearance of securities. The
provisions o f this part shall not apply to the
extension or maintenance o f any credit that is
not for more than one day if it is incidental to
the clearance o f transactions in securities di

(a) Restrictions on borrowing. A creditor may
not borrow in the ordinary course o f business
as a broker or dealer using as collateral any
registered nonexempted security, except—
(1) from or through a member bank o f the
Federal Reserve System; or
(2) from any nonmember bank that has
filed with the Board an agreement as pre
scribed in paragraph (b) o f this section,
which agreement is still in effect; or
(3) from another creditor if the loan is per
missible under this part.
(b)

Agreements of nonmember banks*

* Federal Reserve Report K.22, an annual list of non
member banks that have filed this agreement, and Report
Continued

§ 220.15
(1) A nonmember bank shall file an agree
ment that conforms to the requirements of
section 8(a) o f the act (see Form FR T -l,
T-2).
(2) Any nonmember bank may terminate its
agreement if it obtains the written consent
o f the Board.

SECTION 220.16—Borrowing and
Lending Securities
(a) Without regard to the other provisions of
this part, a creditor may borrow or lend secur
ities for the purpose o f making delivery o f the
securities in the case of short sales, failure to
receive securities required to be delivered, or
other similar situations. Each borrowing shall
be secured by a deposit o f one or more o f the
following: cash, cash equivalents, foreign sov
ereign nonconvertible debt securities that are
margin securities, collateral acceptable for
borrowings of securities pursuant to SEC Rule
15c3-3 (17 CFR 240.15c3-3), or irrevocable
letters o f credit issued by a bank insured by
the Federal Deposit Insurance Corporation or
a foreign bank that has filed an agreement
with the Board on Form FR T -l, T-2. Such
deposit made with the lender of the securities
shall have at all times a value at least equal to
100 percent of the market value o f the securi
ties borrowed, computed as of the close o f the
preceding business day. If a creditor reasona
bly anticipates a short sale, such borrowing
may be made up to one standard settlement
cycle in advance o f trade date.
(b) A creditor may lend non-U.S.-traded for
eign securities to a foreign person (or borrow
such securities for the purpose o f relending
them to a foreign person) for any purpose
lawful in the country in which they are to be
used. Each borrowing shall be secured with
collateral having at all times a value at least
equal to 100 percent of the market value of
the securities borrowed, computed as o f the
close of the preceding business day.
Continued
K.22A, a monthly update, are available from the Board’s
Publications Services (202-452-3245).

Regulation T

SECTION 220.17—Requirements for the
List of Marginable OTC Stocks and the
List of Foreign Margin Stocks
(a) Requirements for inclusion on the list of
marginable O T C stocks. Except as provided in
paragraph (f) o f this section, OTC margin
stock shall meet the following requirements:
(1) four or more dealers stand willing to,
and do in fact, make a market in such stock
and regularly submit bona fide bids and of
fers to an automated quotations system for
their own accounts;
(2) the minimum average bid price o f such
stock, as determined by the Board, is at
least $5 per share;
(3) the stock is registered under section 12
o f the act, is issued by an insurance com
pany subject to section 12(g)(2)(G) o f the
Act, is issued by a closed-end investment
management company subject to registra
tion pursuant to section 8 of the Investment
Company Act o f 1940 (15 USC 80a-8), is
an American Depository Receipt (ADR) of
a foreign issuer whose securities are regis
tered under section 12 o f the act, or is a
stock o f an issuer required to file reports
under section 15(d) o f the act;
(4) daily quotations for both bid and asked
prices for the stock are continuously avail
able to the general public;
(5) the stock has been publicly traded for at
least six months;
(6) the issuer has at least $4 million o f
capital, surplus, and undivided profits;
(7) there are 400,000 or more shares o f
such stock outstanding in addition to shares
held beneficially by officers, directors, or
beneficial owners o f more than 10 percent
o f the stock;
(8) there are 1,200 or more holders o f rec
ord, as defined in SEC Rule 12g5-l (17
CFR 240.12g5-l), of the stock who are not
officers, directors, or beneficial owners o f
10 percent or more o f the stock, or the av
erage daily trading volume o f such stock as
determined by the Board, is at least 500
shares; and
(9) the issuer or a predecessor-in-interest
has been in existence for at least three
years.
(b)

Requirements for continued inclusion on

§ 220.17

Regulation T

the list of marginable OTC stocks. Except as
provided in paragraph (f) of this section, OTC
margin stock shall m eet the fo llo w in g
requirements:
(1) three or more dealers stand willing to,
and do in fact, make a market in such stock
and regularly submit bona fide bids and o f
fers to an automated quotations system for
their own accounts;
(2) the minimum average bid price o f such
stocks, as determined by the Board, is at
least $2 per share;
(3) the stock is registered as specified in
paragraph (a)(3) o f this section;
(4) daily quotations for both bid and asked
prices for the stock are continuously avail
able to the general public;
(5) the issuer has at least $1 million of
capital, surplus, and undivided profits;
(6) there are 300,000 or more shares o f
such stock outstanding in addition to shares
held beneficially by officers, directors, or
beneficial owners of more than 10 percent
o f the stock; and
(7) there continue to be 800 or more hold
ers o f record, as defined in SEC Rule 12g51 (17 CFR 240.12g5-l), o f the stock who
are not officers, directors, or beneficial
owners of 10 percent or more o f the stock,
or the average daily trading volume o f such
stock, as determined by the Board, is at
least 300 shares.
(c) Requirements for inclusion on the list of
foreign margin stocks. Except as provided in

k
.

paragraph (f) o f this section, a foreign margin
stock shall be a foreign security deemed to
have a “ready market” for purposes o f SEC
Rule 15c3-l (17 CFR 240.15c3-l) or meet the
following requirements:
(1) the security is listed for trading on or
through the facilities o f a foreign securities
exchange or a recognized foreign securities
market and has been trading on such ex
change or market for at least six months;
(2) daily quotations for both bid and asked
or last sale prices for the security provided
by the foreign securities exchange or for
eign securities market on which the security
is traded are continuously available to cred
itors in the United States pursuant to an
electronic quotation system;

(3) the aggregate market value o f shares,
the ownership o f which is unrestricted, is
not less than $1 billion;
(4) the average weekly trading volume o f
such security during the preceding six
months is either at least 200,000 shares or
$1 million; and
(5) the issuer or a predecessor-in-interest
has been in existence for at least five years.

Requirements for continued inclusion on
the list of foreign margin stocks. Except as
(d)

provided in paragraph (f) o f this section, a
foreign margin stock shall be a foreign secur
ity deemed to have a “ready market” for pur
poses of SEC Rule 15c3-l (17 CFR 240.15c31) or meet the following requirements:
(1) the security continues to meet the re
quirements specified in paragraphs (c)(1)
and (2) of this section;
(2) the aggregate market value o f shares,
the ownership o f which is unrestricted, is
not less than $500 million; and
(3) the average weekly trading volume o f
such security during the preceding six
months is either at least 100,000 shares or
$500,000.
(e) Removal from the lists. The Board shall
periodically remove from the lists any stock
that—
(1) ceases to exist or o f which the issuer
ceases to exist; or
(2) no longer substantially meets the provi
sions o f paragraphs (b) or (d) o f this sec
tion or the definition o f OTC margin stock.
(f) Discretionary authority of Board. Without
regard to other paragraphs o f this section, the
Board may add to, or omit or remove from
the list o f marginable OTC stocks and the list
of foreign margin stocks any equity security,
if in the judgment o f the Board, such action is
necessary or appropriate in the public interest.
(g) Unlawful representations. It shall be un
lawful for any creditor to make, or cause to
be made, any representation to the effect that
the inclusion o f a security on the list of
marginable OTC stocks or the list o f foreign
margin stocks is evidence that the Board or
the SEC has in any way passed upon the mer
its of, or given approval to, such security or

§ 220.17
any transactions therein. Any statement in an
advertisement or other similar communication
containing a reference to the Board in connec
tion with the lists or stocks on those lists shall
be an unlawful representation.

SECTION 220.18—Supplement: Margin
Requirements
The required margin for each security position
held in a margin account shall be as follows:

Margin equity security, except for an ex
empted security money market mutual fund or
exempted securities mutual fund, warrant on a
securities index or foreign currency, or a long
position in an option: 50 percent o f the cur
(a)

rent market value o f the security or the per
centage set by the regulatory authority where
the trade occurs, whichever is greater.

Exempted security, registered nonconvert
ible debt security or OTC margin bond,
money market mutual fund, or exempted se
curities mutual fund: the margin required by
(b)

the creditor in good faith or the percentage set
by the regulatory authority where the trade oc
curs, whichever is greater.

Short sale of a nonexempted security, ex
cept for a registered nonconvertible debt se
curity or OTC margin bond: 150 percent of
(c)

the current market value o f the security, or
100 percent o f the current market value if a
security exchangeable or convertible within 90

Regulation T
calendar days without restriction other than
the payment o f money into the security sold
short is held in the account.
(d) Short sale of an exempted security, regis
tered nonconvertible debt security, or OTC
margin bond: 100 percent o f the current mar
ket value of the security plus the margin re
quired by the creditor in good faith.
(e) Nonmargin, nonexempted security: 100
percent o f the current market value.
(f) Put or call on a security, certificate of de
posit, securities index or foreign currency, or
a warrant on a securities index or foreign
currency:
(1) in the case o f puts and calls issued by a
registered clearing corporation and listed or
traded on a registered national securities ex
change or a registered securities association
and registered warrants on a securities in
dex or foreign currency, the amount, or
other position (except in the case o f an op
tion on an equity security until June 1,
1997), specified by the rules o f the regis
tered national securities exchange or the
registered securities association authorized
to trade the option or warrant, provided that
all such rules have been approved or
amended by the SEC; or
(2) in the case o f all other puts and calls,
the amount, or other position specified by
the maintenance rules o f the creditor’s ex
amining authority.

Regulation T (Form T-l, T-2)

Form T-l, T-2—Agreement of Domestic and Foreign Nonmember Banks

PRT-t. T-J
OMR No. 7100-01R1
Approve m p m i July 31. 1M R

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON. D C

Agreement of Domestic (T-1) and Foreign (T-2) Nonmember Banks
(Federal Reserve Form T -l, T-2)
Thte report « reoueed by mcttona 8 «nd 23 of tfw Secunoes Exctenga Act of
1834 (16 U.S.C. f I78h end 78*1.
Rupee reporting burden for dde codecdon of nfbrenenon is estimeled to ewerege
30 mmutee per roeponee. wc*m*n* the time for reviewing instructone.
■eerchmg eweting dele eouroee. pedtehng end maintainino die date needed, and

regardMig this burden eetimete or any odwr sapact of due codecdon of
wlowwwion, including euggeetione for reducing due burden, to Secretory, Board
of G ov.m o,, of I n Fader* Ib Ner-n S tilam . N, and C S trM Il. N W
WMtanglon. O.C 20651. and to Win O rica of ManaRNfoam and Budget.
PaoNrwwfc RNduction Protect 17100-0191). Waahingfon. O.C. 20603

AGREEMENT
In order 01 to qualify under (action 8(a) of the Securities
Exchange Act of 1934 at e bank from which it it lawful for
m y member of ■ national securities exchange, or m y broker
or dealer who transects a business in securities through the
madkan of m y such member, to borrow, in ordinary c o m e
of business a * a broker or dealer, on securities (in addition to
exempted securities as defined in such Act) registered on a
national securities exchange, or (2) in the case of a foreign
bank, to issue irrevocable tetters of credit as security for a
borrowing of securities pursuant to section 220.16 of
Regulation T (12 CFR 220.16) the undersigned represents
and agrees as fotows:
1. That it Is • ‘ bank* within the meaning of that term ss
defined in die Securities Exchange Act of 1934; that it is
organixsd under the lews of

in the United States, the Federal Reserve Bank of the
district in which such bank hot Ms principal piece of
business, and (2) in the case of a nonmember bank with
its principal piece of business outside the United States
and branches or agencies within the United States, to the
Federal Reserve Bank of New York or the Federal Reserve
Bank of San Francisco.
4. That this agreement she! be effective on the data of
issuance of the certificate issued by the appropriate
Federal Reserve Bank and shad thereafter be binding upon
the undersigned untl terminated as provided by law.
6. That upon the termination of this agreement it will
promptly surrender to the Board of Governors of the
Federal Reserve System every certificate which shall have
been issued by the said Board or tny agent thereof in
respect of such egrcement.

knOcala stats for danaatic bank ar cauisry for feraiea bankl

that It is not a member of the Federal Reserve System;
a n d t h a t i t h a s it s p r in c ip a l p ie c e o# h ite in n ie at

E x e c u te d i n d u p ic e tN th is

______________________ day o f _________________, 19____
2. That it wll henceforth comply with e l provisions of the
Securities Exchange Act of 1934. the Federal Reserve
Act, a s amended, end the Banking Act of 1933, which
ara sppticabis to banka having membership in the Federal
Raaarva System and which rotate to the use of credit to
finance transactions in securities. and with such rides and
regulations a s may ba prescribed pursuant to such
provisions of law or for the purpose of preventing
evasions thereof.

ISEALI
By

3. That this agreement aha! be submitted to; (1| in the case
of a non-member bank with its principal place of business

Regulation T (Form T-l, T-2)

Regulation T (Form T-4)

Form T-4— Purpose Statement

F it T-4
OMS No. 7100-0019
Approval expiree July 31. 1999
BO A R D O F G O V E R N O R S O F TH E FED ER A L RESERVE S Y S TE M

Statement of Purpose for an Extension of Credit by a Creditor
(Federal Reserve Form T-4)
N e m e o t C re d ito r

Th»o report « required by law (19 U-S-C- 79g and ?8w: 12 CFft 220}.

to fc ttfo ft. Sand comment!
this tMdan tatwnoto or any othat aapad
of true cotaction of M orim titn, including (u g g iito n i for o tic n f thia burton,
to SdCJOldtv. Board of Gooomora of lha Fadaral Boaorvt S yitoa. 20th and C
Streets, N.W.. Waafengto*. D C. 20991; and to tho O ffic* of Managow m and
Budget. Paperwork WaducHon Profact (7100-001B). Washington, O.C. 20902.

PubBe reporting burton for Ova oodacaon of information it eeumeted to average
10 manutea por rwaponoo, including the tune to gather and maintain data in the
roquwod form and to mvww m vuctione and complaio the adormtuon

Instructions
1.

T h is

torn

m u t t t o c o m p la ta d o n ly ii t t o p u r p o t t o f i t o c ro d it b e in g e x te n d e d i t

not to

p u rc h a s e , c a rry , o r tra d s in e ocuritioe

a n d t t o c re d it i t in e x c e s s o f th a t o t h e rw is e p e rm itte d u n d e r R e g u la tio n T . (S e e i 2 2 0 .9 (b ) ).

P lease p rin t o r t y p o (if s p a c e ia in a d e q u a te , a tta c h s e p a ra te s h e e t).

Part I

T o t o c o m p le te d b y c u s to m e r(s )

W h a t i t t t o a m o u n t o f t t o c re d it b e in g e x te n d e d ? _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

T h e b o r r o w e r a c k n o w le d g e s th a t n o p a rt o f th is c re d it w fll t o u s e d t o p u r c h a s e , c a rry , o r tra d e in s e c u ritie s . T t o p u rp o s e
o f t t o c re d it ia d e i c r it o d in d a t a i a s fo llo w s :

A m a n y o t t t o s ec urities listed in P a rt II to t o d s K v a rs d . o r h a v e a n y s u c h s e c u ritie s b e a n d e live re d f r o m e b a n k , b ro k e r,
d e a le r, o r o t h e r p e rs o n o n a 'd e liv e r y a g a in s t p a y m e n t " b a sis ?

□

Ysa

I (W e i h a v e re a d th is fo rm a n d c a rtif y th a t t o t t o t o s t o f m y (o u r) k n o w le d g e a n d t o iie l th e in fo rm a tio n g iv e n ia tru e , a c c u ra te ,
a n d c o m p le te .
S ig n e d :

Borrower*« tignotwM
Prim o f typo n o w

S ig n e d :

Borrower*! aignalure

P rint o r typo name

T h is fo rm s h o u ld n o t t o s ig n e d if b la n k .

A borrower who faiaeiy certifies the purpose of e credit on this form or otherwise w ilfully or intentionally evades
the provisions of Regulation T writ also violate Federal Reserve RegidatIon X , 'Borrow er* of Securities Credft*.

Regulation T (Form T-4)

FRT-4

Pass2of2
Part

T o b a c o m p le te d b y c re d ito r

T h e fo llo w in g is a listin g o f c o la ta ra l. if a n y . s e c u rin g th is c re d it.
1.

C o lla te ra l c o n s is tin g o l s ec urities w it h lo a n v a lu e u n d e r R e g u la tio n T (ra te r lo th e S u p p le m e n t to R e g u la tio n T ) .

No. o l shares
or other unit

Oats and sotace
o l valuation
ISaa nolo bolow )

Total m arket
vaiua pet issue

Ita m in soporatdty by issua

M arhat prten

Ddtd and soured
o f valuation
(Saa nota batow)

Total market
vaiua par taaua

lio m iie

C urrant
marfcat vaiua

Oats and souroa
o f valuation
(Saa nota below !

Good fa ith
loan value

C o lla te ra l c o n s is tin g o l se c u ritie s h a v in g n o lo a n v a lu e u n d e r R e g u la tio n T .

No. o l share*
or other unit

M arket pried

liam iza saparataiy by iM u f

O t h e r c o la ta ra l.

New CreditorneednotcompeteDm anduureaofvaluation'ifDamaifcetvaiuawaa obtainedIrenragulaftypuWiahadordi—emiretadinformationinafchara
journalofganaralcirculationoranautomata*Quotationsystem.

I a m a d u ly a u th o riz e d re p re s e n ta tive o f th e c re d ito r. I h a v e re a d th is fo rm a n d a n y a tt a c h m e n t s , a n d h a v e a c c e p te d th e
c u s t o m e r’s s ta te m e n t in P a rt I in g o o d fa ith a s d e fin e d b e lo w ,* a n d I c e rt if y th a t t o th e b e e t o f m y k n o w le d g e a n d b e lie !, e l V ie
in lo rm a tio n g iv e n Is tru e , a c c u ra te , a n d c o m p le te .

Tats

*Taaccapttaeuatomar’sitatamanim potla*k.ika<
IfInsoaasaaisaaianyinteniiauonthatwquM causaaanrOant
This form muait be retainad by the I

airoumnnw auwtuntibifUrn ciadkand.

ia extinguished.

Regulation U
Credit by Banks for the Purpose
o f Purchasing or Carrying Margin Stocks
12 CFR 221; as revised effective October 11, 1991

SECTION 221.1—Authority, Purpose,
and Scope
(a) Authority. Regulation U (this part*) is is
sued by the Board of Governors of the Fed
eral Reserve System (the Board) pursuant to
the Securities Exchange Act of 1934 (the act)
(15 USC 78a et seq.).
(b) Purpose and scope. This part imposes
credit restrictions upon “banks” (as defined in
section 221.2(b) of this part) that extend credit
for the purpose of buying or carrying margin
stock if the credit is secured directly or indi
rectly by margin stock. Banks may not extend
more than the maximum loan value of the
collateral securing such credit, as set by the
Board in section 221.8 (the supplement).

SECTION 221.2—Definitions
The terms used in this part have the meanings
given them in section 3(a) of the act or as
defined in this section.
(a) “Affiliate” means—
(1) any bank holding company of which a
bank is a subsidiary within the meaning of
the Bank Holding Company Act of 1956, as
amended (12 USC 1841(d));
(2) any other subsidiary of such bank hold
ing company; and
(3) any other corporation, business trust,
association, or other similar organization
that is an affiliate as defined in section 2(b)
of the Banking Act of 1933 (12 USC
221a(c)).
(b) (1) “Bank” has the meaning given to it in
section 3(a)(6) of the act (15 USC
78c(a)(6)) and includes—
(i) any subsidiary of a bank;
(ii) any corporation organized under sec
tion 25(a) of the Federal Reserve Act (12
USC 611); and
*Code of Federal Regulations, title 12, chapter II, part
221.

(iii) any agency or branch of a foreign
bank located within the United States.
(2) “Bank” does not include—
(i) any savings and loan association,
(ii) any credit union,
(iii) any lending institution that is an in
strumentality or agency of the United
States, or
(iv) any member of a national securities
exchange.
(c) “Carrying” credit is credit that enables a
customer to maintain, reduce, or retire indebt
edness originally incurred to purchase a secur
ity that is currently a margin stock.
(d) “Current market value” of—
(1) a security means—
(i) if quotations are available, the closing
sale price of the security on the preced
ing business day, as appearing on any
regularly published reporting or quotation
service; or
(ii) if there is no closing sale price, the
bank may use any reasonable estimate of
the market value of the security as of the
close of business on the preceding busi
ness day; or
(iii) if the credit is used to finance the
purchase of the security, the total cost of
purchase, which may include any com
missions charged.
(2) any other collateral means a value de
termined by any reasonable method in ac
cordance with sound banking practices.
(e) “Customer” includes any person or per
sons acting jointly, to or for whom a bank
extends or maintains credit.
(0 “Good faith” with respect to—
(1) the loan value of collateral, means that
amount (not exceeding 100 percent of the
current market value of the collateral)
which a bank, exercising sound banking
judgment, would lend, without regard to the
customer’s other assets held as collateral in
connection with unrelated transactions;
39

§ 221.2

(2) accepting notice or certification from or
on behalf of a customer means that the
bank or its duly authorized representative is
alert to the circumstances surrounding the
credit, and if in possession of information
that would cause a prudent person not to
accept the notice or certification without in
quiry, investigates and is satisfied that it is
truthful;
(g) “Indirectly secured”—
(1) includes any arrangement with the cus
tomer under which—
(i) the customer’s right or ability to sell,
pledge, or otherwise dispose of margin
stock owned by the customer is in any
way restricted while the credit remains
outstanding; or
(ii) the exercise of such right is or may
be cause for accelerating the maturity of
the credit.
(2) does not include such an arrangement
if—
(i) after applying the proceeds of the
credit, not more than 25 percent of the
value (as determined by any reasonable
method) of the assets subject to the ar
rangement is represented by margin
stock;
(ii) it is a lending arrangement that per
mits accelerating the maturity of the
credit as a result of a default or renegoti
ation of another credit to the customer by
another lender that is not an affiliate of
the bank;
(iii) the bank holds the margin stock
only in the capacity of custodian, deposi
tary, or trustee, or under similar circum
stances, and, in good faith, has not relied
upon the margin stock as collateral; or
(iv) the bank, in good faith, has not re
lied upon the margin stock as collateral
in extending or maintaining the particular
credit.
(h) “Margin stock” means—
(1) any equity security registered or having
unlisted trading privileges on a national se
curities exchange;
(2) any OTC margin stock;
(3) any OTC security designated as quali
40

Regulation U

fied for trading in the National Market Sys
tem under a designation plan approved by
the Securities and Exchange Commission
(NMS security);
(4) any debt security convertible into a
margin stock or carrying a warrant or right
to subscribe to or purchase a margin stock;
(5) any warrant or right to subscribe to or
purchase a margin stock; or
(6) any security issued by an investment
company registered under section 8 of the
Investment Company Act of 1940 (15 USC
80a-8), other than—
(i) a company licensed under the Small
Business Investment Act of 1958, as
amended (15 USC 661); or
(ii) a company which has at least 95 per
cent of its assets continuously invested in
exempted securities (as defined in 15
USC 78c(a)(12)); or
(iii) a company which issues faceamount certificates as defined in 15 USC
80a-2(a)(15), but only with respect of
such securities.
(i) “Maximum loan value” is the percentage
of current market value assigned by the Board
under section 221.8 of this part to specified
types of collateral. The maximum loan value
of margin stock is stated as a percentage of its
current market value. Puts, calls, and combi
nations thereof have no loan value except for
purposes of section 221.5(c)(10) of this part.
All other collateral has good faith loan value.
(j) “OTC margin stock” is any equity secur
ity not traded on a national security exchange
that the Board has determined has the degree
of national investor interest, the depth and
breadth of market, the availability of informa
tion respecting the security and its issuer, and
the character and permanence of the issuer to
warrant being treated like an equity security
traded on a national securities exchange. An
OTC stock is not considered to be an “OTC
margin stock” unless it appears on the
Board’s periodically published list of OTC
margin stocks.
(k) “Purpose credit” is any credit for the pur

Regulation U

pose, whether immediate, incidental, or ulti
mate, of buying or carrying margin stock.

SECTION 221.3—General Requirements
(a) Extending, maintaining, and arranging
credit.
(1) Extending credit. No bank shall extend
any purpose credit, secured directly or indi
rectly by margin stock, in an amount that
exceeds the maximum loan value of the
collateral securing the credit. The maximum
loan value of margin stock (set forth in sec
tion 221.8 of this part) is assigned by the
Board in terms of a percentage of the cur
rent market value of the margin stock. All
other collateral has “good faith” loan
value, as defined in section 221.2(f) of this
part.
(2) Maintaining credit. A bank may con
tinue to maintain any credit initially ex
tended in compliance with this part, regard
less of—
(i) reduction in the customer’s equity re
sulting from change in market prices;
(ii) change in the maximum loan value
prescribed by this part; or
(iii) change in the status of the security
(from nonmargin to margin) securing an
existing purpose credit.
(3) Arranging credit. No bank may arrange
for the extension or maintenance of any
purpose credit, except upon the same terms
and conditions under which the bank itself
may extend or maintain purpose credit
under this part.
(b) Purpose statement. Except for credit ex
tended under paragraph (c) of this section,
whenever a bank extends credit secured di
rectly or indirectly by any margin stock, in an
amount exceeding $100,000, the bank shall re
quire its customer to execute Form FR U-l
(OMB No. 7100-0115), which shall be signed
and accepted by a duly authorized officer of
the bank acting in good faith.
(c) Purpose statement for revolving-credit or
multiple-draw agreements.
(1) If a bank extends credit, secured di
rectly or indirectly by any margin stock, in
an amount exceeding $100,000, under a re

§ 221.3

volving-credit or other multiple-draw agree
ment, Form FR U-l can either be executed
each time a disbursement is made under the
agreement, or at the time the credit arrange
ment is originally established.
(2) If a purpose statement executed at the
time the credit arrangement is initially made
indicates that the purpose is to purchase or
carry margin stock, the credit will be
deemed in compliance with this part if the
maximum loan value of the collateral at
least equals the aggregate amount of funds
actually disbursed. For any purpose credit
disbursed under the agreement, the bank
shall obtain and attach to the executed
Form FR U-l a current list of collateral
which adequately supports all credit ex
tended under the agreement.
(d) Single-credit rule.
(1) All purpose credit extended to a cus
tomer shall be treated as a single credit, and
all the collateral securing such credit shall
be considered in determining whether or not
the credit complies with this part.
(2) A bank that has extended purpose credit
secured by margin stock may not subse
quently extend unsecured purpose credit to
the same customer unless the combined
credit does not exceed the maximum loan
value of the collateral securing the prior
credit.
(3) If a bank extended unsecured purpose
credit to a customer prior to the extension
of purpose credit secured by margin stock,
the credits shall be combined and treated as
a single credit solely for the purposes of the
withdrawal and substitution provision of
paragraph (f) of this section.
(4) If a bank extends purpose credit se
cured by any margin stock and nonpurpose
credit to the same customer, the bank shall
treat the credits as two separate loans and
may not rely upon the required collateral
securing the purpose credit for the nonpur
pose credit.
(e) Mixed-collateral loans. A purpose credit
secured in part by margin stock, and in part
by other collateral shall be treated as two sep
arate loans, one secured by margin stock and
one by all other collateral. A bank may use a
single credit agreement, if it maintains records
41

§ 221.3

identifying each portion of the credit and its
collateral.
(f) Withdrawals and substitutions.
(1) A bank may permit any withdrawal or
substitution of cash or collateral by the cus
tomer if the withdrawal or substitution
would not—
(i) cause the credit to exceed the maxi
mum loan value of the collateral; or
(ii) increase the amount by which the
credit exceeds the maximum loan value
of the collateral.
(2) For purposes of this section, the maxi
mum loan value of the collateral on the day
of the withdrawal or substitution shall be
used.
(g) Exchange offers. To enable a customer to
participate in a reorganization, recapitalization,
or exchange offer that is made to holders of
an issue of margin stock, a bank may permit
substitution of the securities received. A
nonmargin, nonexempted security acquired in
exchange for a margin stock shall be treated
as if it is margin stock for a period of 60 days
following the exchange.
(h) Renewals and extensions of maturity. A
renewal or extension of maturity of a credit
need not be considered a new extension of
credit if the amount of the credit is increased
only by the addition of interest, service
charges, or taxes with respect to the credit.
(i) Transfers of credit.
(1) A transfer of a credit between custom
ers or banks or between a bank and a
lender subject to part 207 of this chapter
shall not be considered a new extension of
credit if—
(i) the original credit was extended by a
bank in compliance with this part or by a
lender subject to part 207 of this chapter
in a manner that would have complied
with this part;
(ii) the transfer is not made to evade this
part or part 207 of this chapter;
(iii) the amount of credit is not in
creased; and
(iv) the collateral for the credit is not
changed.
(2) Any transfer between customers at the
42

Regulation U

same bank shall be accompanied by a state
ment by the transferor customer describing
the circumstances giving rise to the transfer
and shall be accepted and signed by an of
ficer of the bank acting in good faith. The
bank shall keep such statement with its
records of the transferee account.
(3) When a transfer is made between banks
or between a bank and a lender subject to
part 207 of tliis chapter, the transferee shall
obtain a copy of the Form FR U-l or Form
FR G-3 originally filed with the transferor
and retain the copy with its records of the
transferee account. If no form was origi
nally filed with the transferor, the transferee
may accept in good faith a statement from
the transferor describing the purpose of the
loan and the collateral securing it.
(j) Action for bank’s protection. Nothing in
this part shall require a bank to waive or
forgo any lien or prevent a bank from taking
any action it deems necessary in good faith
for its protection.
(k) Mistakes in good faith. A mistake in good
faith in connection with the extension or
maintenance of credit shall not be a violation
of this part.
(/) Lack of notice of NMS security designa
tion. Failure to treat an NMS security as a
margin stock in connection with an extension
of credit shall not be deemed a violation of
this part if the designation is made between
quarterly publications of the Board’s list of
OTC margin stocks and the bank does not
have actual notice of the designation.

SECTION 221.4—Agreements of
Nonmember Banks
(a) Banks that are not members of the Federal
Reserve System shall file an agreement that
conforms to the requirements of section 8(a)
of the act (see Form T-l for domestic non
member banks and Form T-2 for all other
nonmember banks) prior to extending any
credit secured by any nonexempt security reg
istered on a national securities exchange to
persons subject to part 220 of this chapter,

Regulation U

who are borrowing in the ordinary course of
business.*
(b) Any nonmember bank may terminate its
agreement upon written notification to the
Board.
SECTION 221.5—Special-Purpose Loans
to Brokers and Dealers
(a) Special-purpose loans. A member bank,
and a nonmember bank that is in compliance
with section 221.4 of this part, may extend
and maintain purpose credit to brokers and
dealers without regard to the limitations set
forth in sections 221.3 and 221.8 of this part,
if the credit is for any of the specific purposes
and meets the conditions set forth in para
graph (c) of this section.
(b) Written notice. Prior to extending credit
for more than a day under this section, the
bank shall obtain and accept in good faith a
written notice or certification from the bor
rower as to the purposes of the loan. The
written notice or certification shall be evi
dence of continued eligibility for the special
credit provisions until the borrower notifies
the bank that it is no longer eligible or the
bank has information that would cause a rea
sonable person to question whether the credit
is being used for the purpose specified.
(c) Types of special-purpose credit. The types
of credit that may be extended and maintained
on a good faith basis are as follows:
(1) Hypothecation loans. Credit secured by
hypothecated customer securities that, ac
cording to written notice received from the
broker or dealer, may be hypothecated by
the broker or dealer under Securities and
Exchange Commission (SEC) rules.
(2) Temporary advances in paymentagainst-delivery transactions. Credit to fi
nance the purchase or sale of securities for
prompt delivery, if the credit is to be repaid
upon completion of the transaction.
(3) Loans for securities in transit or trans
fer. Credit to finance securities in transit or
* Federal Reserve Report K.22, an annual list o f nonmember banks that have filed this agreement, and Report
K.22A, a monthly update, are available from the Board’s
Publications Services (202-452-3245).

§ 221.5

surrendered for transfer, if the credit is to
be repaid upon completion of the
transaction.
(4) Intraday loans. Credit to enable a bro
ker or dealer to pay for securities, if the
credit is to be repaid on the same day it is
extended.
(5) Arbitrage loans. Credit to finance pro
prietary or customer bona fide arbitrage
transactions. For the purpose of this section
“bona fide arbitrage” means—
(i) purchase or sale of a security in one
market, together with an offsetting sale or
purchase of the same security in a differ
ent market at nearly the same time as
practicable, for the purpose of taking ad
vantage of a difference in prices in the
two markets; or
(ii) purchase of a security that is, without
restriction other than the payment of
money, exchangeable or convertible
within 90 calendar days of the purchase
into a second security, together with an
offsetting sale of the second security at
or about the same time, for the purpose
of taking advantage of a concurrent dis
parity in the price of the two securities.
(6) Distribution loans. Credit to finance the
distribution of securities to customers.
(7) Odd-lot loans. Credit to finance the
odd-lot transactions of a person registered
as an odd-lot dealer on a national securities
exchange.
(8) Emergency loans. Credit that is essen
tial to meet emergency needs of the brokerdealer business arising from exceptional
circumstances.
(9) Capital-contribution loans.
(i) Credit that the Board has exempted
by order upon a finding that the exemp
tion is necessary or appropriate in the
public interest or for the protection of in
vestors, provided the Securities Investor
Protection Corporation certifies to the
Board that the exemption is appropriate;
or
(ii) credit to a customer for the purpose
of making a subordinated loan or capital
contribution to a broker or dealer in con
formity with the SEC’s net capital rules
and the rules of the broker’s or dealer’s
examining authority, provided—
43

§ 221.5

(A) the customer reduces the credit by
the amount of any reduction in the
loan or contribution to the broker or
dealer; and
(B) the credit is not used to purchase
securities issued by the broker or
dealer in a public distribution.
(10) Loans to specialists. Credit extended
to finance the specialty security and permit
ted offset positions of members of a na
tional securities exchange who are regis
tered and acting as specialists on the
exchange, provided the credit is extended
on a good faith loan value basis.
(11) OTC-market-maker credit. Credit to a
dealer who has given written notice to the
bank that it is a “qualified OTC market
maker” in an OTC margin security as de
fined in SEC Rule 3t>-8 (17 CFR 240.3b-8)
and that the credit will be used solely for
the purpose of financing the market-making
activity, provided the credit is extended on
a good faith loan value basis.
(12) Third-market maker loans. Credit to a
dealer who has given written notice to the
bank that it is a “qualified third-market
maker,” as defined in SEC Rule 3b-8 (17
CFR 240.3b-8), and that the credit will be
used solely for the purpose of financing po
sitions in securities assumed as a “qualified
third-market maker,” provided the credit is
extended on a good faith loan value basis.
(13) Block-positioner credit. Credit to a
dealer who has given written notice to the
bank that it is a “qualified block posi
tioner” for a block of securities, as defined
in SEC Rule 3b-8 (17 CFR 240.3b-8), and
that the credit will be used to finance a po
sition in that block, provided the credit is
extended on a good faith loan value basis.
SECTION 221.6—Exempted
Transactions
A bank may extend and maintain purpose
credit without regard to the provisions of this
part if such credit is extended—
(a) to any bank;
(b) to any foreign banking institution;
(c) outside the United States;
44

Regulation U

(d) to an employee stock ownership plan
(ESOP) qualified under section 401 of the In
ternal Revenue Code (26 USC 401);
(e) to any “plan lender” as defined in part
207 of this chapter to finance such a plan,
provided the bank has no recourse to any se
curities purchased pursuant to the plan;
(f) to any customer, other than a broker or
dealer, to temporarily finance the purchase or
sale of securities for prompt delivery, if the
credit is to be repaid in the ordinary course of
business upon completion of the transaction;
(g) against securities in transit, if the credit is
not extended to enable the customer to pay
for securities purchased in an account subject
to part 220 of this chapter; or
(h) to enable a customer to meet emergency
expenses not reasonably foreseeable, and if
the extension of credit is supported by a state
ment executed by the customer and accepted
and signed by an officer of the bank acting in
good faith. For this purpose, emergency ex
penses include expenses arising from circum
stances such as the death or disability of the
customer, or some other change in circum
stances involving extreme hardship, not rea
sonably foreseeable at the time the credit was
extended. The opportunity to realize monetary
gain or to avoid loss is not a “change in cir
cumstances” for this purpose.

SECTION 221.7—Requirements for the
List of OTC Margin Stocks
(a) Requirements for inclusion on the list. Ex
cept as provided in paragraph (d) of this sec
tion, an OTC margin stock shall meet the fol
lowing requirements:
(1) Four or more dealers stand willing to,
and do in fact, make a market in such stock
and regularly submit bona fide bids and of
fers to an automated quotations system for
their own accounts;
(2) The minimum average bid price of such
stock, as determined by the Board, is at
least $5 per share;
(3) The stock is registered under section 12
of the act, is issued by an insurance com
pany subject to section 12(g)(2)(G) of the

Regulation U

act, is issued by a closed-end investment
management company subject to registra
tion pursuant to section 8 of the Investment
Company Act of 1940 (15 USC 80a-8), is
an American Depository Receipt (ADR) of
a foreign issuer whose securities are regis
tered under section 12 of the act, or is a
stock of an issuer required to file reports
under section 15(d) of the act:
(4) Daily quotations for both bid and asked
prices for the stock are continuously avail
able to the general public;
(5) The stock has been publicly traded for
at least six months;
(6) The issuer had at least $4 million of
capital, surplus, and undivided profits;
(7) There are 400,000 or more shares of
such stock outstanding in addition to shares
held beneficially by officers, directors, or
beneficial owners of more than 10 percent
of the stock;
(8) There are 1,200 or more holders of re
cord, as defined in SEC Rule 12g5-l (17
CFR 240.12g5-l), of the stock who are not
officers, directors, or beneficial owners of
10 percent or more of the stock, or the av
erage daily trading volume of such a stock
as determined by the Board is at least 500
shares; and
(9) The issuer or a predecessor in interest
has been in existence for at least three
years.

§ 221.8

(6) There are 300,000 or more shares of
such stock outstanding in addition to shares
held beneficially by officers, directors, or
beneficial owners of more than 10 percent
of the stock; and
(7) There continue to be 800 or more hold
ers of record, as defined in SEC Rule
12g5-l (17 CFR 240.12g5-l), of the stock
who are not officers, directors, or beneficial
owners of 10 percent or more of the stock,
or the average daily trading volume of such
stock, as determined by the Board, is at
least 300 shares.
(c) Removal from the list. The Board shall pe
riodically remove from the list any stock
that—
(1) ceases to exist or of which the issuer
ceases to exist, or
(2) no longer substantially meets the provi
sions of paragraph (b) of this section or
section 221.2(j).
(d) Discretionary authority of Board. Without
regard to the other paragraphs of this section,
the Board may add to, or omit or remove
from, the OTC margin stock list any equity
security, if in the judgment of the Board such
action is necessary or appropriate in the public
interest.

(e) Unlawful representations. It shall be un
lawful for any bank to make, or cause to be
made, any representation to the effect that the
inclusion of a security on the list of OTC
(b) Requirements for continued inclusion on
margin stocks is evidence that the Board or
the list. Except as provided in paragraph (d)
the SEC has in any way passed upon the mer
of this section, an OTC margin stock shall
its of, or given approval to, such security or
meet the following requirements:
any transactions therein. Any statement in an
(1) Three or more dealers stand willing to,
advertisement or other similar communication
and do in fact make a market in such stock
containing a reference to the Board in connec
and regularly submit bona fide bids and of
tion with the list or stocks on that list shall be
fers to an automated quotations system for
an unlawful representation.
their own accounts;
(2) The minimum average bid price of such
stocks, as determined by the Board, is at
least $2 per share;
SECTION 221.8—Supplement;
(3) The stock is registered as specified in
Maximum Loan Value of Stock and
paragraph (a)(3) of this section;
Other Collateral
(4) Daily quotations for both bid and asked
prices for the stock are continuously avail (a) Maximum loan value of margin stock. The
maximum loan value of any margin stock, ex
able to the general public;
(5) The issuer has at least $1 million of cept options, is 50 percent of its current mar
ket value.
capital, surplus, and undivided profits.

§ 221.8

(b) Maximum loan value of nonmargin stock
and all other collateral. The maximum loan
value of nonmargin stock and all other collat
eral except puts, calls, or combinations thereof
is their good faith loan value.

Regulation U

(c) Maximum loan value of options. Except
for purposes of section 221.5(c)(10) of this
part, puts, calls, and combinations thereof
have no loan value.

Regulation U (Form U-l)

Form U-l—Purpose Statement

Regulation U (Form U-l)

F * IM

h u ld i

Part II To be completed by bank only if the purpota of the credit it to purchase or carry margin aacuriboa IPart 1(2)
answered "yea")
1. Uat the margin atock securing this credit; do not include debt securities convertible into margin stock. The maximum loan
value of margin atock ia SO par cant of ita currant market value under the currant Supplement to Regulation U.
N o ol

M a r k e t p ric e

Isa u e

p e r th e re

rfia re s

D a te a n d a o u rca
o i v a lu a tio n

(Sot

n o th batonrl

T o t a l m a rk e t
v a lu e p e r ieeue

2. List the debt securities convertible into margin atock securing this credit. The maximum loan value of auch debt securities
is 60 per cant of the current market value under the currant Supplement to Regulation U.
D a te e n d s o u rc e

Prin c ip a l

Ise u e

M a r k e t p ric e

•m ount

T o t a l m a rk e t

o l v a lu a tio n
(S e e n o te b e lo w )

v a tu # p a r is s u e

3. List other collsfsftl n d u d n g nonmargm atock securing this credit.
D a ta a n d a o u rc a
M a rk s! pnea

D e s c r ib e b rie fly

e l v a lu a tio n

ISoo n o te

b e lo w )

G o o d fa ith
lo o n v a tu e

Naas:SankesseearcomputemassandaasaasiiSuean*VtriemarketvWueweeoMnadkernrefUwlypildicdkdprmdlinninajotendofgananlckctSelron
srSdM annerS tereoonsystem.
Part III To ba signed by a bank officer in all irwtancaa.
I am a duly authorired repraaantative of the bank and understand that this credit aacured by margin atock may bo aubfect to the
credit restrictions of Regiristion U. I have rood this form and any attachments, and I havs accepted the customer's statement in
Part I in good faith a s required by Regulation U *; and I certify fia t to the boat of my knowledge and bakef. a t the information
given ia true, accurate, and complete. I also certify that if any securities that directly secure the credit are not or w il not bo
registered In the name of the borrower or its aominsa. t have or w d causa to have examined the written consent of tha
registered owner to pledge such securities . I further certify that any securities that have been or wil be physicsty detvered to
tha bank in cormaclxxi with this credit have bean or w il ba examined, that all validation procedures required by bank pokey and
tha Securities Exchange Act of 1934 (aacbon 17(f), a s amended) have bean or will ba performed, and that i am satisfied to the
best of my knowledge and beSef that auch securities are genuine and not stolon or forged and their facet have not boon altered.
Signed:

Otis

Bantofflean■algnahvs

*Toaccat*Siscustomer'snansisalInessefaMi,thaofficarolthabankmustbadanis Sisesevrreunesaturmundnaaumat and.H In asmini ofany
inlosirnucnam wouldauntaprududparsonnottooocaptthenaansniwithoutVapory,musthastsmssiiesudandbataUalltddm etastsnmamIttrudduL
AmongtoIsonwhichumtStfraqiaraaudislunkgadanartraoautolthattatsmsntthroughOtamadortramothirdpony.
TM s form must bo retained by tha lender for throe years sftar the credit is extinguished.

Regulation X
Borrowers of Securities Credit
12 CFR 224; as revised effective January 23, 1984

SECTION 224.1—Authority, Purpose,
and Scope
(a) Authority and purpose. Regulation X (this
part*) is issued by the Board of Governors of
the Federal Reserve System (the Board) under
the Securities Exchange Act of 1934, as
amended (the act) (15 USC 78a et seq.). This
part implements section 7(f) of the act (15
USC 78g(f)), the purpose of which is to re
quire that credit obtained within or outside the
United States complies with the limitations of
the Board’s Margin Regulations G, T, and U
(12 CFR 207, 220, and 221, respectively).

act, and in Regulations G, T, and U. Section
7(f) of the act contains the following
definitions:
(a) “United States person” includes a person
which is organized or exists under the laws of
any state or, in the case of a natural person, a
citizen or resident of the United States; a do
mestic estate; or a trust in which one or more
of the foregoing persons has a cumulative di
rect or indirect beneficial interest in excess of
50 per centum of the value of the trust.
(b) “United States security” means a security
(other than an exempted security) issued by a
person incorporated under the laws of any
state, or whose principal place of business is
within a state.

(b) Scope and exemptions. The act and this
part apply the Board’s margin regulations to
United States persons and foreign persons
controlled by or acting on behalf of or in con
junction with United States persons (hereinaf
ter borrowers), who obtain credit outside the
United States to purchase or carry United
States securities, or within the United States
to purchase or carry any securities (both types
of credit are hereinafter referred to as purpose
credit). The following borrowers are exempt

(c) “Foreign person controlled by a United
States person” includes any noncorporate en
tity in which United States persons directly or
indirectly have more than a 50 per centum
beneficial interest, and any corporation in
which one or more United States persons, di
rectly or indirectly, own stock possessing
more than 50 per centum of the total com

from the act and this part:

bined voting power of all classes of stock en

(1) any borrower who obtains purpose
credit within the United States, unless the
borrower willfully causes the credit to be
extended in contravention of Regulations G,
T, or U;
(2) any borrower whose permanent resi
dence is outside the United States and who
does not obtain or have outstanding, during
any calendar year, a total of more than
$100,000 in purpose credit obtained outside
the United States; and
(3) any borrower who is exempt by order
upon terms and conditions set by the Board.

SECTION 224.2—Definitions
The terms used in this part have the meanings
given to them in sections 3(a) and 7(f) of the
*Code of Federal Regulations, tide 12, chapter II, part
224.

titled to vote, or more than 50 per centum of
the total value of shares of all classes of
stock.

SECTION 224.3—Margin Regulations to
Be Applied by Nonexempted Borrowers
(a) Credit transactions outside the United
States. No borrower shall obtain purpose
credit from outside the United States unless it
conforms to the following margin regulations:
(1) Regulation T (12 CFR 220) if the credit
is obtained from a foreign branch of a bro
ker-dealer;
(2) Regulation U (12 CFR 221) if the
credit is obtained from a foreign branch of
a bank, except for the requirement of a pur
pose statement (12 CFR 221.3(b) and (c));
and
(3) Regulation G (12 CFR 207) if the
credit is obtained from any other lender
49

§ 224.3

Regulation X

outside the United States, except for the re
quirement of a purpose statement (12 CFR
207.3(e) and (f)).

exempted by section 224.1(b)(1) of this part,
must conform the credit to the margin regula
tion that applies to the lender.

(b) Credit transactions within the United
States. Any borrower who willfully causes
credit to be extended in contravention of Reg
ulations G, T, or U, and who, therefore, is not

(c) Inadvertent noncompliance. No borrower
who inadvertently violates this part and who
acts to remedy the violation as soon as practi
cable shall be deemed in violation of this part.

Securities Exchange Act of 1934
15 U S C 7 8 c -h h ; 4 8 Stat. 8 8 1 ; P u b. L . 7 3 -2 9 1 (Ju ne 6 , 1 9 3 4 )

SECTION 3—Definitions and
Application (15 USC 78c)
(a) Definitions. When used in this title, unless
the context otherwise requires—
(1) The term “exchange” means any or
ganization, association, or group of persons,
whether incorporated or unincorporated,
which constitutes, maintains, or provides a
market place or facilities for bringing to
gether purchasers and sellers of securities or
for otherwise performing with respect to se
curities the functions commonly performed
by a stock exchange as that term is gener
ally understood, and includes the market
place and the market facilities maintained
by such exchange.
*

(3) (A) The term “member” when used
with respect to a national securities ex
change means (i) any natural person per
mitted to effect transactions on the floor
of the exchange without the services of
another person acting as broker, (ii) any
registered broker or dealer with which
such a natural person is associated, (iii)
any registered broker or dealer permitted
to designate as a representative such a
natural person, and (iv) any other regis
tered broker or dealer which agrees to be
regulated by such exchange and with re
spect to which the exchange undertakes
to enforce compliance with the provisions
of this title, the rules and regulations
thereunder, and its own rules. For pur
poses of sections 6(b)(1), 6(b)(4), 6(b)(6),
6(b)(7), 6(d), 17(d), 19(d), 19(e), 19(g),
19(h), and 21 of this title, the term
“member” when used with respect to a
national securities exchange also means,
to the extent of the rules of the exchange
specified by the Commission, any person
required by the Commission to comply
with such rules pursuant to section 6(f)
of this title.
(B) The term “member” when used with
respect to a registered securities associa

tion means any broker or dealer who
agrees to be regulated by such associa
tion and with respect to whom the asso
ciation undertakes to enforce compliance
with the provisions of this title, the rules
and regulations thereunder, and its own
rules.
(4) The term “broker” means any person
engaged in the business of effecting trans
actions in securities for the account of
others, but does not include a bank.
(5) The term “dealer” means any person
engaged in the business of buying and sell
ing securities for his own account, through
a broker or otherwise, but does not include
a bank, or any person insofar as he buys or
sells securities for his own account, either
individual or in some fiduciary capacity, but
not as a part of a regular business.
(6) The term “bank” means (A) a banking
institution organized under the laws of the
United States, (B) a member bank of the
Federal Reserve System, (C) any other
banking institution, whether incorporated or
not, doing business under the laws of any
State or of the United States, a substantial
portion of the business of which consists of
receiving deposits or exercising fiduciary
powers similar to those permitted to na
tional banks under the authority of the
Comptroller of the Currency pursuant to the
first section of Public Law 87-722 (12
U.S.C. 92a), and which is supervised and
examined by State or Federal authority hav
ing supervision over banks, and which is
not operated for the purpose of evading the
provisions of this title, and (D) a receiver,
conservator, or other liquidating agent of
any institution or firm included in clauses
(A), (B), or (C) of this paragraph.
*

(8) The term “issuer” means any person
who issues or proposes to issue any secur
ity; except that with respect to certificates
of deposit for securities, voting-trust certifi
cates, or collateral-trust certificates, or with
respect to certificates of interest or shares in
51

§ 3

an unincorporated investment trust not hav
ing a board of directors or of the fixed, re
stricted management, or unit type, the term
“issuer” means the person or persons per
forming the acts and assuming the duties of
depositor or manager pursuant to the provi
sions of the trust or other agreement or in
strument under which such securities are is
sued; and except that with respect to
equipment-trust certificates or like securi
ties, the term “issuer” means the person by
whom the equipment or property is, or is to
be, used.
(9) The term “person” means a natural
person, company, government, or political
subdivision, agency, or instrumentality of a
government.
(10) The term “security” means any note,
stock, treasury stock, bond, debenture, cer
tificate of interest or participation in any
profit-sharing agreement or in any oil, gas,
or other mineral royalty or lease, any collat
eral-trust certificate, preorganization certifi
cate or subscription, transferable share, in
vestment contract, voting-trust certificate,
certificate of deposit, for a security, any
put, call, straddle, option, or privilege on
any security, certificate of deposit, or group
or index of securities (including any interest
therein or based on the value thereof), or
any put, call, straddle, option, or privilege
entered into on a national securities ex
change relating to foreign currency, or in
general, any instrument commonly known
as a “security”; or any certificate of inter
est or participation in, temporary or interim
certificate for, receipt for, or warrant or
right to subscribe to or purchase, any of the
foregoing; but shall not include currency or
any note, draft, bill of exchange, or
banker’s acceptance which has a maturity at
the time of issuance of not exceeding nine
months, exclusive of days of grace, or any
renewal thereof the maturity of which is
likewise limited.
(11) The term “equity security” means any
stock or similar security; or any security
convertible, with or without consideration,
into such a security, or carrying any war
rant or right to subscribe to or purchase
such a security; or any such warrant or
right; or any other security which the Com
52

Securities Exchange Act

mission shall deem to be of similar nature
and consider necessary or appropriate, by
such rules and regulations as it may pre
scribe in the public interest or for the pro
tection of investors, to treat as an equity
security.
(12) (A) The term “exempted security” or
“exempted securities” includes—
(i) government securities, as defined in
paragraph (42) of this subsection;
(ii) municipal securities, as defined in
paragraph (29) of this subsection;
(iii) any interest or participation in any
common trust fund or similar fund
maintained by a bank exclusively for
the collective investment and reinvest
ment of assets contributed thereto by
such bank in its capacity as trustee, ex
ecutor, administrator, or guardian;
(iv) any interest or participation in a
single trust fund, or a collective trust
fund maintained by a bank, or any se
curity arising out of a contract issued
by an insurance company, which inter
est, participation, or security is issued
in connection with a qualified plan as
defined in subparagraph (C) of this
paragraph; and
(v) such other securities (which may
include, among others, unregistered se
curities, the market in which is
predominantly intrastate) as the Com
mission may, by such rules and regula
tions as it deems consistent with the
public interest and the protection of in
vestors, either unconditionally or upon
specified terms and conditions or for
stated periods, exempt from the opera
tion of any one or more provisions of
this title which by their terms do not
apply to an “exempted security” or to
“exempted securities”.
(B) (i) Notwithstanding subparagraph
(A)(i) of this paragraph, government
securities shall not be deemed to be
“exempted securities” for the purposes
of section 17A of this title.
(ii) Notwithstanding subparagraph
(A)(ii) of this paragraph, municipal se
curities shall not be deemed to be “ex
empted securities” for the purposes of
sections 15 and 17A of this title.

Securities Exchange Act

§ 3

(C) For purposes of subparagraph (A)(iv)
of this paragraph, the term “qualified
plan” means (i) a stock bonus, pension,
or profit-sharing plan which meets the re
quirements for qualification under section
401 of the Internal Revenue Code of
1954, (ii) an annuity plan which meets
the requirements for the deduction of the
employer’s contribution under section
404(a)(2) of such Code, or (iii) a govern
mental plan as defined in section 414(d)
of such Code which has been established
by an employer for the exclusive benefit
of its employees or their beneficiaries for
the purpose of distributing to such em
ployees or their beneficiaries the corpus
and income of the funds accumulated
under such plan, if under such plan it is
impossible, prior to the satisfaction of all
liabilities with respect to such employees
and their beneficiaries, for any part of the
corpus or income to be used for, or di
verted to, purposes other than the exclu
sive benefit of such employees or their
beneficiaries, other than any plan de
scribed in clause (i), (ii), or (iii) of this
subparagraph which (I) covers employees
some or all of whom are employees
within the meaning of section 401(c) of
such Code, or (II) is a plan funded by an
annuity contract described in section
403(b) of such Code.
(13) The terms “buy” and “purchase”
each include any contract to buy, purchase,
or otherwise acquire.
(14) The term “sale” and “sell” each in
clude any contract to sell or otherwise dis
pose of.
*

(16) The term“State”means any State of
the United States, the District of Columbia,
Puerto Rico, the Virgin Islands, or any
other possession of the United States.
j|c

(18) The term “person associated with a
broker or dealer” or “associated person of
a broker or dealer” means any partner, of
ficer, director, or branch manager of such
broker or dealer (or any person occupying a

similar status or performing similar func
tions), any person directly or indirectly con
trolling, controlled by, or under common
control with such broker or dealer, or any
employee of such broker or dealer, except
that any person associated with a broker or
dealer whose functions are solely clerical or
ministerial shall not be included in the
meaning of such term for purposes of sec
tion 15(b) of this title (other than paragraph
(6) thereof).
(19) The terms “investment company”, af
filiated “person”, “insurance company”,
“separate account”, and “company” have
the same meanings as in the Investment
Company Act of 1940.
$

Jje

(21) The term “person associated with a
member” or “associated person of a mem
ber” when used with respect to a member
of a national securities exchange or regis
tered securities association means any part
ner, officer, director, or branch manager of
such member (or any person occupying a
similar status or performing similar func
tions), any person directly or indirectly con
trolling, controlled by, or under common
control with such member, or any employee
of such member.
*

(23) (A) The term “ clearing agency”
means any person who acts as an in
termediary in making payments or deliv
eries or both in connection with transac
tions in securities or who provides facili
ties comparison of data respecting the
terms of settlement of securities transac
tions, to reduce the number of settle
ments of securities transactions, or for
the allocation of securities settlement re
sponsibilities. Such term also means any
person, such as a securities depository,
who (i) acts as a custodian of securities
in connection with a system for the cen
tral handling of securities whereby all se
curities of a particular class or series of
any issuer deposited within the system
are treated as fungible and may be trans
ferred, loaned, or pledged by bookkeep
53

Securities Exchange Act

§ 3

ing entry without physical delivery of se
curities certificates, or (ii) otherwise
permits or facilitates the settlement of se
curities transactions or the hypothecation
or lending of securities without physical
delivery of securities certificates.
(B) The term “clearing agency” does not
include (i) any Federal Reserve bank,
Federal home loan bank, or Federal land
bank; (ii) any national securities ex
change or registered securities association
solely by reason of its providing facilities
for comparison of data respecting the
terms of settlement of securities transac
tions effected on such exchange or by
means of any electronic system operated
or controlled by such association; (iii)
any bank, broker, dealer, building and
loan, savings and loan, or homestead as
sociation, or cooperative bank if such
bank, broker, dealer, association, or coop
erative bank would be deemed to be a
clearing agency solely by reason of func
tions performed by such institution as
part of customary banking, brokerage,
dealing, association, or cooperative bank
ing activities, or solely by reason of act
ing on behalf of a clearing agency or a
participant therein in connection with the
furnishing by the clearing agency of ser
vices to its participants or the use of ser
vices of the clearing agency by its par
ticipants, unless the Commission, by rule,
otherwise provides as necessary or appro
priate to assure the prompt and accurate
clearance and settlement of securities
transactions or to prevent evasion of this
title; (iv) any life insurance company, its
registered separate accounts, or a subsidi
ary of such insurance company solely by
reason of functions commonly performed
by such entities in connection with varia
ble annuity contracts or variable life poli
cies issued by such insurance company or
its separate accounts; (v) any registered
open-end investment company or unit in
vestment trust solely by reason of func
tions commonly performed by it in con
nection with shares in such registered
open-end investment company or unit in
vestment trust, or (vi) any person solely
by reason of its performing functions de
54

scribed in paragraph 25(E) of this
subsection.
*

(26) The term “self-regulatory organiza
tion” means any national securities ex
change, registered securities association, or
registered clearing agency, or (solely for
purposes of sections 19(b), 19(c), and 23(b)
of this title) the Municipal Securities
Rulemaking Board established by section
15B of this title.
(27) The term “rules of an exchange”,
“rules of an association”, or “rules of a
clearing agency” means the constitution, ar
ticles of incorporation, bylaws, and rules, or
instruments corresponding to the foregoing,
of an exchange, association of brokers and
dealers, or clearing agency, respectively,
and such of the stated policies, practices,
and interpretations of such exchange, asso
ciation, or clearing agency as the Commis
sion, by rule, may determine to be neces
sary or appropriate in the public interest or
for the protection of investors to be deemed
to be rules of such exchange, association, or
clearing agency.
(28) The term “rules of a self-regulatory
organization” means the rules of an ex
change which is a national securities ex
change, the rules of an association of bro
kers and dealers which is a registered
securities association, the rules of a clearing
agency which is a registered clearing
agency, or the rules of the Municipal Secur
ities Rulemaking Board.
(29) The term “municipal securities”
means securities which are direct obliga
tions of, or obligations guaranteed as to
principal or interest by, a State or any polit
ical subdivision thereof, or any agency or
instrumentality of a State or any political
subdivision thereof, or any municipal corpo
rate instrumentality of one or more States,
or any security which is an industrial devel
opment bond (as defined in Section
103(c)(2) of the Internal Revenue Code of
1954) the interest on which is excludable
from gross income under section 103(a)(1)
of such Code if, by reason of the applica
tion of paragraph (4) or (6) of section 103

Securities Exchange Act

§ 3

(c) of such Code (determined as if
paragraphs (4)(A), (5), and (7) were not in
cluded in such section 103(c)), paragraph
(1) of such section 103(c) does not apply to
such security.
*

(35) A person exercises “investment discre
tion” with respect to an account if, directly
or indirectly, such person (A) is authorized
to determine what securities or other prop
erty shall be purchased or sold by or for the
account, (B) make decisions as to what se
curities or other property shall be purchased
or sold by or for the account even though
some other person may have responsibility
for such investment decisions, or (C) other
wise exercises such influence with respect
to the purchase and sale of securities or
other property by or for the account as the
Commission, by rule, determines, in the
public interest or for the protection of in
vestors, should be subject to the operation
of the provisions of this title and the rules
and regulations thereunder.
$

Jje

(41) The term “mortgage related security”
means a security that is rated in one of the
two highest rating categories by at least one
nationally recognized statistical rating or
ganization, and either:
(A) represents ownership of one or more
promissory notes or certificates of interest
or participation in such notes (including
any rights designed to assure servicing
of, or the receipt or timeliness of receipt
by the holders of such notes, certificates,
or participations of amounts payable
under, such notes, certificates, or partici
pations), which notes:
(i) are directly secured by a first lien
on a single parcel of real estate, in
cluding stock allocated to a dwelling
unit in a residential cooperative hous
ing corporation, upon which is located
a dwelling or mixed residential and
commercial structure, on a residential
manufactured home as defined in sec
tion 603(6) of the National Manufac
tured Housing Construction and Safety

Standards Act of 1974, whether such
manufactured home is considered real
or personal property under the laws of
the State in which it is to be located or
on one or more parcels of real estate
upon which is located one or more
commercial structures; and
(ii) were originated by a savings and
loan association, savings bank, com
mercial bank, credit union, insurance
company, or similar institution which
is supervised and examined by a Fed
eral or State authority, or by a mortga
gee approved by the Secretary of
Housing and Urban Development pur
suant to sections 203 and 211 of the
National Housing Act, or, where such
notes involve a lien on the manufac
tured home, by any such institution or
by any financial institution approved
for insurance by the Secretary of
Housing and Urban Development pur
suant to section 2 of the National
Housing Act; or
(B) is secured by one or more promis
sory notes or certificates of interest or
participations in such notes (with or with
out recourse to the issuer thereof) and, by
its terms, provides for payments of prin
cipal in relation to payments, or reasona
ble projections of payments, on notes
meeting the requirements of subpara
graphs (A)(i) and (ii) or certificates of in
terest or participations in promissory
notes meeting such requirements.
For the purpose of this paragraph, the term
“promissory note”, when used in connec
tion with a manufactured home, shall also
include a loan, advance, or credit sale as
evidence by a retail installment sales con
tract or other instrument.
(42) The term “government securities”
means—
(A) securities which are direct obliga
tions of, or obligations guaranteed as to
principal or interest by, the United States;
(B) securities which are issued or guar
anteed by corporations in which the
United States has a direct or indirect in
terest and which are designated by the
Secretary of the Treasury for exemption
55

Securities Exchange Act

§ 3

as necessary or appropriate in the public
interest or for the protection of investors;
(C) securities issued or guaranteed as to
principal or interest by any corporation
the securities of which are designated, by
statute specifically naming such corpora
tion, to constitute exempt securities
within the meaning of the laws adminis
tered by the Commission; or
(D) for purposes of sections 15C and
17A, any put, call, straddle, option, or
privilege on a security described in subparagraph (A), (B), or (C) other than a
put, call, straddle, option, or privilege—
(i) that is traded on one or more na
tional securities exchanges; or
(ii) for which quotations are dissemi
nated through an automated quotation
system operated by a registered securi
ties association.
*

(50) The term “foreign securities author
ity” means any foreign government, or any
governmental body or regulatory organiza
tion empowered by a foreign government to
administer or enforce its laws as they relate
to securities matters.
*

(b) Power to define technical, trade, account
ing, and other terms. The Commission and
the Board of Governors of the Federal Re
serve System, as to matters within their re
spective jurisdictions, shall have power by
rules and regulations to define technical, trade,
accounting, and other terms used in this title,
consistently with the provisions and purposes
of this title.
*

[15 USC 78c. Amended by acts of Aug. 23, 1935 (49 Stat.
704); Aug. 20, 1964 (78 Stat. 565); Dec. 14, 1970 (84 Stat.
1435); Dec. 22, 1970 (84 Stat. 1499); June 4, 1975 (89
Stat. 97); May 21, 1978 (92 Stat. 274); Oct. 13, 1982 (96
Stat. 1409); Aug 10, 1984 (98 Stat 1265); Oct 3, 1984 (98
Stat. 1689); Oct. 28, 1986 (100 Stat 3214-3216); Dec. 4,
1987 (101 Stat. 1253, 1254); Nov. 19, 1988 (102 Stat.
4681); Aug. 9, 1989 (103 Stat. 441); Oct. 15, 1990 (104
Stat. 952); Nov. 15, 1990 (104 Stat. 2717, 2718); Dec. 17,
1993 (107 Stat. 2350, 2352); and Sept. 23, 1994 (108 Stat.
2198, 2241). Acts o f June 25, 1959 (73 Stat. 142) and July
12, 1960 (74 Stat. 412) deleted the words “Alaska” and

“Hawaii,” respectively, from paragraph (16). The words
“Philippine Islands” were deleted from the definition of
“State” in paragraph (16) under authority of Proc. No.
2695, effective July 4, 1946, which recognized the
independence of the Philippine Islands. The proclamation is
set out as a note under 22 USC 1394.]

SECTION 6—National Securities
Exchanges (15 USC 78f)
(a) Registration; application. An exchange
may be registered as a national securities ex
change under the terms and conditions herein
after provided in this section and in accor
dance with the provisions of section 19(a) of
this title, by filing with the Commission an
application for registration in such form as the
Commission, by rule, may prescribe contain
ing the rules of the exchange and such other
information and documents as the Commis
sion, by rule, may prescribe as necessary or
appropriate in the public interest or for the
protection of investors.
*

[15 USC 78f. This section became effective Sept. 1, 1934.
As amended by acts of June 4, 1975 (89 Stat. 104); Dec. 4,
1987 (101 Stat. 1255, 1256); and Dec. 17, 1993 (107 Stat.
2365).]

SECTION 7—Margin Requirements
(15 USC 78g)
(a) Rules and regulations for extension of
credit; standard for initial extension; un
dermargined accounts. For the purpose of
preventing the excessive use of credit for the
purchase or carrying of securities, the Board
of Governors of the Federal Reserve System
shall, prior to the effective date of this section
and from time to time thereafter, prescribe
rules and regulations with respect to the
amount of credit that may be initially ex
tended and subsequently maintained on any
security (other than an exempted security).
For the initial extension of credit, such rules
and regulations shall be based upon the fol
lowing standard: An amount not greater than
whichever is the higher of—

Securities Exchange Act

(1) 55 per centum of the current market
price of the security, or
(2) 100 per centum of the lowest market
price of the security during the preceding
thirty-six calendar months, but not more
than 75 per centum of the current market
price.
Such rules and regulations may make appro
priate provision with respect to the carrying of
undermargined accounts for limited periods
and under specified conditions; the withdrawal
of funds or securities; the substitution or addi
tional purchases of securities; the transfer of
accounts from one lender to another; special
or different margin requirements for delayed
deliveries, short sales, arbitrage transactions,
and securities to which paragraph (2) of this
subsection does not apply; the bases and the
methods to be used in calculating loans, and
margins and market prices; and similar admin
istrative adjustments and details. For the pur
poses of paragraph (2) of this subsection, until
July 1, 1936, the lowest price at which a se
curity has sold on or after July 1, 1933, shall
be considered as the lowest price at which
such security has sold during the preceding
thirty-six calendar months.

§ 7

or maintenance of credit to or for any
customer—
(1) on any security (other than an exempted
security), in contravention of the rules and
regulations which the Board of Governors
of the Federal Reserve System shall pre
scribe under subsections (a) and (b) of this
section:
(2) without collateral or on any collateral
other than securities, except in accordance
with such rules and regulations as the
Board of Governors of the Federal Reserve
System may prescribe (A) to permit under
specified conditions and for a limited period
any such member, broker, or dealer to
maintain a credit initially extended in con
formity with the rules and regulations of
the Board of Governors of the Federal Re
serve System, and (B) to permit the exten
sion or maintenance of credit in cases
where the extension or maintenance of
credit is not for the purpose of purchasing
or carrying securities or of evading or cir
cumventing the provisions of paragraph (1)
of this subsection.

(d) Unlawful credit extension in violation of
rules and regulations; exception to application
(b) Lower and higher margin requirements. of rules, etc. It shall be unlawful for any per
Notwithstanding the provisions of subsection son not subject to subsection (c) to extend or
(a) of this section, the Board of Governors of maintain credit or to arrange for the extension
the Federal Reserve System, may, from time or maintenance of credit for the purpose of
to time, with respect to all or specified securi purchasing or carrying any security, in contra
ties or transactions, or classes of securities, or vention of such rules and regulations as the
classes of transactions, by such rules and reg Board of Governors of the Federal Reserve
ulations (1) prescribe such lower margin re System shall prescribe to prevent the exces
quirements for the initial extension or mainte sive use of credit for the purchasing or carry
nance of credit as it deems necessary or ing of or trading in securities in circumven
appropriate for the accommodation of com tion of the other provisions of this section.
merce and industry, having due regard to the Such rules and regulations may impose upon
general credit situation of the country, and (2) all loans made for the purpose of purchasing
prescribe such higher margin requirements for or carrying securities limitations similar to
the initial extension or maintenance of credit those imposed upon members, brokers, or
as it may deem necessary or appropriate to dealers by subsection (c) of this section and
prevent the excessive use of credit to finance the rules and regulations thereunder. This sub
section and the rules and regulations thereun
transactions in securities.
der shall not apply (A) to a loan made by a
(c) Unlawful credit extension to customers. It person not in the ordinary course of his busi
shall be unlawful for any member of a na ness, (B) to a loan on an exempted security,
tional securities exchange or any broker or (C) to a loan to a dealer to aid in the financ
dealer, directly or indirectly, to extend or ing of the distribution of securities to custom
maintain credit or arrange for the extension ers not through the medium of a national se

§ 7

curities exchange, (D) to a loan by a bank on
a security other than an equity security, or (E)
to such other loans as the Board of Governors
of the Federal Reserve System shall, by such
rules and regulations as it may deem neces
sary or appropriate in the public interest or for
the protection of investors, exempt, either un
conditionally or upon specified terms and con
ditions or for stated periods, from the opera
tion of this subsection and the rules and
regulations thereunder.
(e) Effective date of this section and rules
and regulations. The provisions of this section
or the rules and regulations thereunder shall
not apply on or before July 1, 1937, to any
loan or extension of credit made prior to the
enactment of this title or to the maintenance,
renewal, or extension of any such loan or
credit, except to the extent that the Board of
Governors of the Federal Reserve System may
by rules and regulations prescribe as necessary
to prevent the circumvention of the provisions
of this section or the rules and regulations
thereunder by means of withdrawals of funds
or securities, substitutions of securities, or ad
ditional purchases or by any other device.
(f) Unlawful receipt of credit; exemptions.
(1) It is unlawful for any United States per
son, or any foreign person controlled by a
United States person or acting on behalf of
or in conjunction with such person, to ob
tain, receive, or enjoy the beneficial use of
a loan or other extension of credit from any
lender (without regard to whether the
lender’s office or place of business is in a
State or the transaction occurred in whole
or in part within a State) for the purpose of
(A) purchasing or carrying United States se
curities, or (B) purchasing or carrying
within the United States of any other secur
ities, if, under this section or rules and reg
ulations prescribed thereunder, the loan or
other credit transaction is prohibited or
would be prohibited if it had been made or
the transaction had otherwise occurred in a
lender’s office or other place of business in
a State.
(2) For the purposes of this subsection—
(A) The term “United States person” in
cludes a person which is organized or ex
ists under the laws of any State or, in the
58

Securities Exchange Act

case of natural person, a citizen or resi
dent of the United States; a domestic es
tate; or a trust in which one or more of
the foregoing persons has a cumulative
direct or indirect beneficial interest in ex
cess of 50 per centum of the value of the
trust.
(B) The term “United States security”
means a security (other than an exempted
security) issued by a person incorporated
under the laws of any State, or whose
principal place of business is within a
State.
(C) The term “foreign person controlled
by a United States person” includes any
noncorporate entity in which United
States persons directly or indirectly have
more than a 50 per centum beneficial in
terest, and any corporation in which one
or more United States persons, directly or
indirectly, own stock possessing more
than 50 per centum of the total combined
voting power of all classes of stock enti
tled to vote, or more than 50 per centum
of the total value of shares of all classes
of stock.
(3) The Board of Governors of the Federal
Reserve System may, in its discretion and
with due regard for the purposes of this
section, by rule or regulation exempt any
class of United States persons or foreign
persons controlled by a United States per
son from the application of this subsection.
(g) Subject to such rules and regulations as
the Board of Governors of the Federal Re
serve System may adopt in the public interest
and for the protection of investors, no member
of a national securities exchange or broker or
dealer shall be deemed to have extended or
maintained credit or arranged for the exten
sion or maintenance of credit for the purpose
of purchasing a security, within the meaning
of this section, by reason of a bona fide
agreement for delayed delivery of a mortgage
related security or a small business related se
curity against full payment of the purchase
price thereof upon such delivery within one
hundred and eighty days after the purchase, or
within such shorter period as the Board of
Governors of the Federal Reserve System may
prescribe by rule or regulation.

Securities Exchange Act

§ 17

same manner as such provisions apply in the
case of proceedings and orders of the Com
mission. Subject to such rules and regulations
as the Board of Governors of the Federal Re
serve System may adopt in the public interest
and
for the protection of investors, no person
SECTION 8—Restrictions on Borrowing
shall be deemed to have borrowed within the
by Members, Brokers, and Dealers (15
ordinary course of business, within the mean
USC 78h)
ing of this subsection, by reason of a bona
It shall be unlawful for any registered broker fide agreement for delayed delivery of a mort
or dealer, member of a national securities ex gage related security or a small business re
change, or broker or dealer who transacts a lated security against full payment of the
business in securities through the medium of purchase price thereof upon such delivery
any member of a national securities exchange, within one hundred and eighty days after the
directly or indirectly—
purchase, or within such shorter period as the
(a) To borrow in the ordinary course of busi Board of Governors of the Federal Reserve
ness as a broker or dealer on any security System may prescribe by rule or regulation.
*
s|e
*
%
%
(other than an exempted security) registered
on a national securities exchange except (1)
from or through a member bank of the Fed [15 USC 78h. As amended by acts of June 4, 1975 (89
eral Reserve System, (2) from any nonmem Stat. 109); Oct. 3, 1984 (98 Stat. 1690); and Sept. 23, 1994
ber bank which shall have filed with the (108 Stat. 2199).]
Board of Governors of the Federal Reserve
*
*
*
*
*
System an agreement, which is still in force
and which is in the form prescribed by the
Board, undertaking to comply with all provi
sions of this Act, the Federal Reserve Act, as SECTION 17—Records and Reports (15
amended, and the Banking Act of 1933, which USC 78q)
are applicable to member banks and which re
late to the use of credit to finance transactions
*
*
*
*
*
in securities, and with such rules and regula
tions as may be prescribed pursuant to such
provisions of law or for the purpose of (g) Persons extending credit. Any broker,
preventing evasions thereof, or (3) in accor dealer, or other person extending credit who is
dance with such rules and regulations as the subject to the rules and regulations prescribed
Board of Governors of the Federal Reserve by the Board of Governors of the Federal Re
System may prescribe to permit loans between serve System pursuant to this title shall make
such members and/or brokers and/or dealers, such reports of the Board as it may require as
or to permit loans to meet emergency needs. necessary or appropriate to enable it to per
Any such agreement filed with the Board of form the functions conferred upon it by this
Governors of the Federal Reserve System title. If any such broker, dealer, or other per
shall be subject to termination at any time by son shall fail to make any such report or fail
order of the Board, after appropriate notice to furnish full information therein, or, if in the
and opportunity for hearing, because of any judgment of the Board it is otherwise neces
failure by such bank to comply with the pro sary, such broker, dealer, or other person shall
visions thereof or with such provisions of law permit such inspections to be made by the
or rules or regulations; and, for any willful Board with respect to the business operations
violation of such agreement, such bank shall of such broker, dealer, or other person as the
be subject to the penalties provided for viola Board may deem necessary to enable it to ob
tions of rules and regulations prescribed under tain the required information.
*
*
*
*
*
this title. The provisions of sections 21 and 25
of this title shall apply in the case of any such
proceeding or order of the Board of Gover [15 USC 78q. As amended by acts of Aug 23, 1935 (49
nors of the Federal Reserve System in the Stat. 704); May 27, 1936 (49 Stat. 1379); June 25, 1938
[15 USC 78g. As amended by acts of July 29, 1968 (82
Stat. 452); Oct. 26, 1970 (84 Stat. 1124); Oct. 3, 1984 (98
Stat. 1690); and Sept. 23, 1994 (108 Stat. 2199).]

Securities Exchange Act

§ 17

(b) Contract provisions in violation of title.
Every contract made in violation of any provi
sion of this title or of any rule or regulation
thereunder, and every contract (including any
*
*
*
*
*
contract for listing a security on an exchange)
heretofore or hereafter made the performance
of which involves the violation of, or the con
tinuance of any relationship or practice in vio
SECTION 23—Rules, Regulations, and
lation of, any provision of this title or any
Orders; Annual Reports (15 USC 78w)
rule or regulation thereunder, shall be void (1)
(a) Power to make rules and regulations; con as regards the rights of any person who, in
siderations; public disclosure.
violation of any such provision, rule, or regu
(1) The Commission, the Board of Gover lation, shall have made or engaged in the per
nors of the Federal Reserve System, and the formance of any such contract, and (2) as re
other agencies enumerated in section gards the rights of any person who, not being
3(a)(34) of this title shall each have power a party to such contract, shall have acquired
to make such rules and regulations as may any right thereunder with actual knowledge of
be necessary or appropriate to implement the facts by reason of which the making or
the provisions of this title for which they performance of such contract was in violation
are responsible or for the execution of the of any such provision, rule or regulation; Pro
functions vested in them by this title, and vided, (A) That no contract shall be void by
may for such purposes classify persons, se reason of this subsection because of any viola
curities, transactions, statements, applica tion of any rule or regulation prescribed pur
tions, reports, and other matters within their suant to paragraph (3) of subsection (c) of
respective jurisdictions, and prescribe section 15 of this title, and (B) that no con
greater, lesser, or different requirements for tract shall be deemed to be void by reason of
different classes thereof. No provision of this subsection in any action maintained in re
this title imposing any liability shall apply liance upon this subsection, by any person to
to any act done or omitted in good faith in or for whom any broker or dealer sells, or
conformity with a rule, regulation, or order from or for whom any broker or dealer
of the Commission, the Board of Governors purchases, a security in violation of any rule
of the Federal Reserve System, other or regulation prescribed pursuant to paragraph
agency enumerated in section 3(a)(34) of (1) or (2) of subsection (c) of section 15 of
this title, or any self-regulatory organiza this title, unless such action is brought within
tion, notwithstanding that such rule, regula one year after the discovery that such sale or
tion, or order may thereafter be amended or purchase involves such violation and within
rescinded or determined by judicial or other three years after such violation. The Commis
authority to be invalid for any reason.
sion may, in a rule or regulation prescribed
*
*
*
*
*
pursuant to such paragraph (2) of such section
15(c), designate such rule or regulation, or
portion
thereof, as a rule or regulation, or por
[15 USC 78w. As amended by acts of Aug 23, 1935 (49
Stat. 704); May 27, 1936 (49 Stat. 1379); Aug. 20, 1964
tion thereof, a contract in violation of which
(78 Stat. 580); June 4, 1975 (89 Stat. 155); Oct. 28, 1986
shall not be void by reason of this subsection.
(100 Stat. 3220); Dec. 4, 1987 (101 Stat. 1259); Oct. 15,
(52 Star 1076); June 4, 1975 (89 Stat. 137); Oct. 28, 1986
(100 Stat 3219); Dec. 4, 1987 (101 Stat. 1257); and Oct.
16, 1990 (104 Stat. 966).]

1990 (104 Stat. 940); and Dec. 17, 1993 (107 Stat. 2351).]

[15 USC 78cc. As amended by acts of June 25, 1938 (52
Stat. 1076) and Oct. 15, 1990 (104 Stat. 956).]

SECTION 29—Validity of Contracts
(15 USC 78cc)
*

W-i£8o6>
Board of Governors of the Federal Reserve System

Regulation E
Electronic Fund Transfers
12 CFR 205; as amended effective May 1, 1996

Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank of
the District in which the inquiry arises.
July 1996

Contents

Page

Section 205.1—Authority and purpose . . . .
(a) Authority ......................................
(b) Purpose ........................................
Section 205.2—Definitions.......................
Section 205.3—Coverage.........................
(a) General..........................................
(b) Electronic fund transfer...................
(c) Exclusions from coverage...............
Section 205.4—General disclosure
requirements; jointly offered services . .
(a) Form of disclosures.......................
(b) Additional information;
disclosures required by other
laws..............................................
(c) [Reserved]......................................
(d) Multiple accounts and account
holders..........................................
(e) Services offered jointly...................
Section 205.5—Issuance of access
devices................................................
(a) Solicited issuance...........................
(b) Unsolicited issuance.......................
Section 205.6—Liability of consumer
for unauthorized transfers....................
(a) Conditions for liability...................
(b) Limitations on amount of
liability..........................................
Section 205.7—Initial disclosures...............
(a) Timing of disclosures.....................
(b) Content of disclosures ...................
Section 205.8—Change-in-terms notice;
error-resolution notice...........................
(a) Change-in-terms notice...................
(b) Error-resolution notice ...................
Section 205.9—Receipts at electronic
terminals; periodic statements ...............
(a) Receipts at electronic terminals . . . .
(b) Periodic statements.........................
(c) Exceptions to the periodicstatement requirement for certain
accounts........................................
(d) Documentation for foreigninitiated transfers...........................
Section 205.10—Preauthorized transfers . .
(a) Preauthorized transfers to
consumer’s account.......................
(b) Written authorization for
preauthorized transfers from
consumer’s account.......................

1
1
1
1
2
2
2
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3
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(c) Consumer’s right to stop
payment........................................ 7
(d) Notice of transfers varying in
amount.......................................... 8
(e) Compulsory use............................. 8
Section 205.11—Procedures for
resolving errors.................................... 8
(a) Definition of error......................... 8
(b) Notice of error fromconsumer . . . . 8
(c) Time limits and extent of
investigation.................................. 9
(d) Procedures if financial institution
determines no error or different
error occurred................................ 9
(e) Reassertion of error................. 10
Section 205.12—Relation toother laws . 10
(a) Relation to truth in lending.......... 10
(b) Preemption of inconsistent state
laws........................................ 10
(c) State exemptions..................... 10
Section 205.13—Administrative
enforcement; record retention............... 11
(a) Enforcement by federal agencies . 11
(b) Record retention ......................... 11
Section 205.14—Electronic fund transfer
service provider not holding
consumer’s account........................... 11
(a) Provider of electronic fund
transfer service ........................... 11
(b) Compliance by service provider . . . 11
(c) Compliance by account-holding
institution................................ 12
Section 205.15—Electronic fund transfer
of government benefits....................... 12
(a) Government agency subject to
regulation................................ 12
(b) Issuance of access devices.......... 12
(c) Alternative to periodic statement . 12
(d) Modified requirements............. 13
Appendix A—Model disclosure clauses
and forms.......................................... 13
Appendix B—Federal enforcement
agencies............................................ 17
Appendix C—Issuance of staff
interpretations.................................... 18
Electronic Fund Transfer A c t................. 19
i

Regulation E
Electronic Fund Transfers
12 CFR 205; as amended effective May 1, 1996*

SECTION 205.1—Authority and Purpose
(a) Authority. The regulation in this part,
known as Regulation E, is issued by the
Board of Governors of the Federal Reserve
System pursuant to the Electronic Fund Trans
fer Act (15 USC 1693 et seq.). The informa
tion-collection requirements have been ap
proved by the Office of Management and
Budget under 44 USC 3501 et seq. and have
been assigned OMB No. 7100-0200.
(b) Purpose. This part carries out the pur
poses of the Electronic Fund Transfer Act,
which establishes the basic rights, liabilities,
and responsibilities of consumers who use
electronic fund transfer services and of finan
cial institutions that offer these services. The
primary objective of the act and this part is
the protection of individual consumers engag
ing in electronic fund transfers.

tution that initially issued the device or a
successor.
(b) (1) Account means a demand deposit
(checking), savings, or other consumer asset
account (other than an occasional or inci
dental credit balance in a credit plan) held
directly or indirectly by a financial institu
tion and established primarily for personal,
family, or household purposes.
(2) The term does not include an account
held by a financial institution under a bona
fide trust agreement.
(c) Act means the Electronic Fund Transfer
Act (title IX of the Consumer Credit Protec
tion Act, 15 USC 1693 et seq.).
(d) Business day means any day on which the
offices of the consumer’s financial institution
are open to the public for carrying on substan
tially all business functions.
(e) Consumer means a natural person.

SECTION 205.2—Definitions
For purposes of this regulation, the following
definitions apply;

(f) Credit means the right granted by a finan
cial institution to a consumer to defer pay
ment of debt, incur debt and defer its pay
ment, or purchase property or services and
defer payment therefor.

(a) (1) Access device means a card, code, or
other means of access to a consumer’s ac
count, or any combination thereof, that may
be used by the consumer to initiate elec
tronic fund transfers;
(2) An access device becomes an “ac
cepted access device’’ when the
consumer—
(i) requests and receives, or signs, or
uses (or authorizes another to use) the ac
cess device to transfer money between
accounts or to obtain money, property, or
services;
(ii) requests validation of an access de
vice issued on an unsolicited basis; or
(iii) receives an access device in renewal
of, or in substitution for, an accepted ac
cess device from either the financial insti

(i) Financial institution means a bank, savings
association, credit union, or any other person
that directly or indirectly holds an account be
longing to a consumer or that issues an access
device and agrees with a consumer to provide
electronic fund transfer services.

* Reliance on May 1, 1996, revisions optional until Janu
ary 1, 1997.

(j) Person means a natural person or an or
ganization, including a corporation, govem-

(g) Electronic fund transfer is defined in sec
tion 205.3.
(h) Electronic terminal means an electronic
device, other than a telephone operated by a
consumer, through which a consumer may ini
tiate an electronic fund transfer. The term in
cludes, but is not limited to, point-of-sale ter
minals, automated teller machines, and cash
dispensing machines.

§ 205.2

ment agency, estate, trust, partnership, propri
etorship, cooperative, or association.

Regulation E

(4) transfers initiated by telephone; and
(5) transfers resulting from debit card trans
actions, whether or not initiated through an
electronic terminal.

(k) Preauthorized electronic fund transfer
means an electronic fund transfer authorized
in advance to recur at substantially regular
(c) Exclusions from coverage. The term elec
intervals.
tronic fund transfer does not include:
(1) Checks. Any transfer of funds origi
(/) State means any state, territory, or posses
sion of the United States; the District of Co
nated by check, draft, or similar paper in
lumbia; the Commonwealth of Puerto Rico; or
strument; or any payment made by check,
any political subdivision of the above in this
draft, or similar paper instrument at an elec
tronic terminal.
paragraph (/).
(2) Check guarantee or authorization. Any
(m) Unauthorized electronic fund transfer
transfer of funds that guarantees payment or
means an electronic fund transfer from a con
authorizes acceptance of a check, draft, or
sumer’s account initiated by a person other
similar paper instrument but that does not
than the consumer without actual authority to
directly result in a debit or credit to a con
initiate the transfer and from which the con
sumer’s account.
sumer receives no benefit. The term does not
(3) Wire or other similar transfers. Any
include an electronic fund transfer initiated—
transfer of funds through Fedwire or
(1) by a person who was furnished the ac
through a similar wire transfer system that
cess device to the consumer’s account by
is used primarily for transfers between fi
the consumer, unless the consumer has noti
nancial institutions or between businesses.
fied the financial institution that transfers by
(4) Securities and commodities transfers.
that person are no longer authorized;
Any transfer of funds the primary purpose
(2) with fraudulent intent by the consumer
of which is the purchase or sale of a secur
or any person acting in concert with the
ity or commodity, if the security or com
consumer; or
modity is—
(3) by the financial institution or its
(i) regulated by the Securities and Ex
employee.
change Commission or the Commodity
Futures Trading Commission;
(ii) purchased or sold through a brokerdealer regulated by the Securities and Ex
SECTION 205.3—Coverage
change Commission or through a futures
(a) General. This part applies to any elec
commission merchant regulated by the
tronic fund transfer that authorizes a financial
Commodity Futures Trading Commission;
institution to debit or credit a consumer’s ac
or
count. Generally, this part applies to financial
(iii) held in book-entry form by a Fed
institutions. For purposes of sections
eral Reserve Bank or federal agency.
205.10(b), (d), and (e) and 205.13, this part
(5) Automatic transfers by account-holding
applies to any person.
institutions. Any transfer of funds under an
agreement between a consumer and a finan
(b) Electronic fund transfer. The term elec
cial institution which provides that the insti
tronic fund transfer means any transfer of
funds that is initiated through an electronic
tution will initiate individual transfers with
terminal, telephone, computer, or magnetic
out a specific request from the consumer:
(i) between a consumer’s accounts within
tape for the purpose of ordering, instructing,
or authorizing a financial institution to debit
the financial institution;
or credit an account. The term includes, but is
(ii) from a consumer’s account to an ac
count of a member of the consumer’s
not limited to—
family held in the same financial institu
(1) point-of-sale transfers;
tion; or
(2) automated teller machine transfers;
(iii) between a consumer’s account and
(3) direct deposits or withdrawals of funds;
2

Regulation E

an account of the financial institution, ex
cept that these transfers remain subject to
section 205.10(e) regarding compulsory
use and sections 915 and 916 of the act
regarding civil and criminal liability.
(6) Telephone-initiated transfers. Any trans
fer of funds that—
(i) is initiated by a telephone communi
cation between a consumer and a finan
cial institution making the transfer, and
(ii) does not take place under a telephone
bill-payment or other written plan in
which periodic or recurring transfers are
contemplated.
(7) Small institutions. Any preauthorized
transfer to or from an account if the assets
of the account-holding financial institution
were $100 million or less on the preceding
December 31. If assets of the account-hold
ing institution subsequently exceed $100
million, the institution’s exemption for
preauthorized transfers terminates one year
from the end of the calendar year in which
the assets exceed $100 million.
Preauthorized transfers exempt under this
paragraph (c)(7) remain subject to section
205.10(e) regarding compulsory use and
sections 915 and 916 of the act regarding
civil and criminal liability.
SECTION 205.4— General Disclosure
Requirements; Jointly Offered Services
(a) Form of disclosures. Disclosures required
under this part shall be clear and readily un
derstandable, in writing, and in a form the
consumer may keep. A financial institution
may use commonly accepted or readily under
standable abbreviations in complying with the
disclosure requirements of this part.
(b) Additional information; disclosures re
quired by other laws. A financial institution
may include additional information and may
combine disclosures required by other laws
(such as the Truth in Lending Act (15 USC
1601 et seq.) or the Truth in Savings Act (12
USC 4301 et seq.)) with the disclosures re
quired by this part.
(c) [Reserved]
(d) Multiple accounts and account holders.

§ 205.5

(1) Multiple accounts. A financial institu
tion may combine the required disclosures
into a single statement for a consumer who
holds more than one account at the
institution.
(2) Multiple account holders. For joint ac
counts held by two or more consumers, a
financial institution need provide only one
set of the required disclosures and may pro
vide them to any of the account holders.
(e) Services offered jointly. Financial institu
tions that provide electronic fund transfer ser
vices jointly may contract among themselves
to comply with the requirements that this part
imposes on any or all of them. An institution
need make only the disclosures required by
sections 205.7 and 205.8 that are within its
knowledge and within the purview of its rela
tionship with the consumer for whom it holds
an account.

SECTION 205.5—Issuance of Access
Devices
(a) Solicited issuance. Except as provided in
paragraph (b) of this section, a financial insti
tution may issue an access device to a con
sumer only—
(1) in response to an oral or written request
for the device; or
(2) as a renewal of, or in substitution for,
an accepted access device whether issued
by the institution or a successor.
(b) Unsolicited issuance. A financial institu
tion may distribute an access device to a con
sumer on an unsolicited basis if the access
device is—
(1) not validated, meaning that the institu
tion has not yet performed all the proce
dures that would enable a consumer to initi
ate an electronic fund transfer using the
access device;
(2) accompanied by a clear explanation that
the access device is not validated and how
the consumer may dispose of it if validation
is not desired;
(3) accompanied by the disclosures re
quired by section 205.7, of the consumer’s
rights and liabilities that will apply if the
access device is validated; and
3

§ 205.5

(4) validated only in response to the con
sumer’s oral or written request for valida
tion, after the institution has verified the
consumer’s identity by a reasonable means.

SECTION 205.6—Liability of Consumer
for Unauthorized Transfers
(a) Conditions for liability. A consumer may
be held liable, within the limitations described
in paragraph (b) of this section, for an unau
thorized electronic fund transfer involving the
consumer’s account only if the financial insti
tution has provided the disclosures required by
section 205.7(b)(1), (2), and (3). If the unau
thorized transfer involved an access device, it
must be an accepted access device and the
financial institution must have provided a
means to identify the consumer to whom it
was issued.
(b) Limitations on amount of liability. A con
sumer’s liability for an unauthorized electronic
fund transfer or a series of related unautho
rized transfers shall be determined as follows:
(1) Timely notice given. If the consumer
notifies the financial institution within two
business days after learning of the loss or
theft of the access device, the consumer’s
liability shall not exceed the lesser of $50
or the amount of unauthorized transfers that
occur before notice to the financial
institution.
(2) Timely notice not given. If the con
sumer fails to notify the financial institution
within two business days after learning of
the loss or theft of the access device, the
consumer’s liability shall not exceed the
lesser of $500 or the sum of—
(i) $50 or the amount of unauthorized
transfers that occur within the two busi
ness days, whichever is less; and
(ii) the amount of unauthorized transfers
that occur after the close of two business
days and before notice to the institution,
provided the institution establishes that
these transfers would not have occurred
had the consumer notified the institution
within that two-day period.
(3) Periodic statement; timely notice not
given. A consumer must report an unautho
4

Regulation E

rized electronic fund transfer that appears
on a periodic statement within 60 days of
the financial institution’s transmittal of the
statement to avoid liability for subsequent
transfers. If the consumer fails to do so, the
consumer’s liability shall not exceed the
amount of the unauthorized transfers that
occur after the close of the 60 days and
before notice to the institution, and that the
institution establishes would not have oc
curred had the consumer notified the institu
tion within the 60-day period. When an ac
cess device is involved in the unauthorized
transfer, the consumer may be liable for
other amounts set forth in paragraphs (b)(1)
or (b)(2) of this section, as applicable.
(4) Extension of time limits. If the con
sumer’s delay in notifying the financial in
stitution was due to extenuating circum
stances, the institution shall extend the
times specified above to a reasonable
period.
(5) Notice to financial institution.
(i) Notice to a financial institution is
given when a consumer takes steps rea
sonably necessary to provide the institu
tion with the pertinent information,
whether or not a particular employee or
agent of the institution actually receives
the information.
(ii) The consumer may notify the institu
tion in person, by telephone, or in
writing.
(iii) Written notice is considered given at
the time the consumer mails the notice or
delivers it for transmission to the institu
tion by any other usual means. Notice
may be considered constructively given
when the institution becomes aware of
circumstances leading to the reasonable
belief that an unauthorized transfer to or
from the consumer’s account has been or
may be made.
(6) Liability under state law or agreement.
If state law or an agreement between the
consumer and the financial institution im
poses less liability than is provided by this
section, the consumer’s liability shall not
exceed the amount imposed under the state
law or agreement.

Regulation E

SECTION 205.7—Initial Disclosures
(a) Timing of disclosures. A financial institu
tion shall make the disclosures required by
this section at the time a consumer contracts
for an electronic fund transfer service or
before the first electronic fund transfer is
made involving the consumer’s account.
(b) Content of disclosures. A financial institu
tion shall provide the following disclosures, as
applicable:
(1) Liability of consumer. A summary of
the consumer’s liability, under section 205.6
or under state or other applicable law or
agreement, for unauthorized electronic fund
transfers.
(2) Telephone number and address. 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) Business days. The financial institu
tion’s business days.
(4) Types of transfer; limitations. The type
of electronic fund transfers that the con
sumer may make and any limitations on the
frequency and dollar amount of transfers.
Details of the limitations need not be dis
closed if confidentiality is essential to main
tain the security of the electronic fund
transfer system.
(5) Fees. Any fees imposed by the financial
institution for electronic fund transfers or
for the right to make transfers.
(6) Documentation. A summary of the con
sumer’s right to receipts and periodic state
ments, as provided in section 205.9, and
notices regarding preauthorized transfers as
provided in sections 205.10(a) and
205.10(d).
(7) Stop payment. A summary of the con
sumer’s right to stop payment of a
preauthorized electronic fund transfer and
the procedure for placing a stop-payment
order, as provided in section 205.10(c).
(8) Liability of institution. A summary of
the financial institution’s liability to the
consumer under section 910 of the act for
failure to make or to stop certain transfers.
(9) Confidentiality. The circumstances
under which, in the ordinary course of busi

§ 205.8

ness, the financial institution may provide
information concerning the consumer’s ac
count to third parties.
(10) Error resolution. A notice that is sub
stantially similar to Model Form A-3 as set
out in appendix A of this part concerning
error resolution.

SECTION 205.8—Change-in-Terms
Notice; Error-Resolution Notice
(a) Change-in-terms notice.
(1) Prior notice required. A financial insti
tution shall mail or deliver a written notice
to the consumer at least 21 days before the
effective date of any change in a term or
condition required to be disclosed under
section 205.7(b) if the change would result
in—
(i) increased fees for the consumer;
(ii) increased liability for the consumer;
(iii) fewer types of available electronic
fund transfers; or
(iv) stricter limitations on the frequency
or dollar amount of transfers.
(2) Prior-notice exception. A financial insti
tution need not give prior notice if an im
mediate change in terms or conditions is
necessary to maintain or restore the security

of an account or an electronic fund transfer
system. If the institution makes such a
change permanent and disclosure would not
jeopardize the security of the account or
system, the institution shall notify the con
sumer in writing on or with the next regu
larly scheduled periodic statement or within
30 days of making the change permanent.
(b) Error-resolution notice. For accounts to or
from which electronic fund transfers can be
made, a financial institution shall mail or de
liver to the consumer, at least once each cal
endar year, an error-resolution notice substan
tially similar to the model form set forth in
appendix A of this part (Model Form A-3).
Alternatively, an institution may include an
abbreviated notice substantially similar to the
model form error-resolution notice set forth in
appendix A of this part (Model Form A-3), on
or with each periodic statement required by
section 205.9(b).
5

§ 205.9

SECTION 205.9—Receipts at Electronic
Terminals; Periodic Statements
(a) Receipts at electronic terminals. A finan
cial institution shall make a receipt available
to a consumer at the time the consumer initi
ates an electronic fund transfer at an elec
tronic terminal. The receipt shall set forth the
following information, as applicable:
(1) Amount. The amount of the transfer. A
transaction fee may be included in this
amount, provided the amount of the fee is
disclosed on the receipt and displayed on or
at the terminal.
(2) Date. The date the consumer initiates
the transfer.
(3) Type. The type of transfer and the type
of the consumer’s account(s) to or from
which funds are transfered. The type of ac
count may be omitted if the access device
used is able to access only one account at
that terminal.
(4) Identification. A number or code that
identifies the consumer’s account or ac
counts, or the access device used to initiate
the transfer. The number or code need not
exceed four digits or letters to comply with
the requirements of this paragraph (a)(4).
(5) Terminal location. The location of the
terminal where the transfer is initiated, or
an identification such as a code or terminal
number. Except in limited circumstances
where all terminals are located in the same
city or state, if the location is disclosed, it
shall include the city and state or foreign
country and one of the following:
(i) the street address; or
(ii) a generally accepted name for the
specific location; or
(iii) the name of the owner or operator
of the terminal if other than the account
holding institution.
(6) Third party transfer. The name of any
third party to or from whom funds are
transferred.
(b) Periodic statements. For an account to or
from which electronic fund transfers can be
made, a financial institution shall send a peri
odic statement for each monthly cycle in
which an electronic fund transfer has occurred
and shall send a periodic statement at least
quarterly if no transfer has occurred. The
6

Regulation E

statement shall set forth the following infor
mation, as applicable:
(1) Transaction information. For each
electronic fund transfer occurring during the
cycle—
(i) the amount of the transfer;
(ii) the date the transfer was credited or
debited to the consumer’s account;
(iii) the type of transfer and type of ac
count to or from which funds were
transferred;
(iv) for a transfer initiated by the con
sumer at an electronic terminal (except
for a deposit of cash or a check, draft, or
similar paper instrument), the terminal lo
cation described in paragraph (a)(5) of
this section; and
(v) the name of any third party to or
from whom funds were transferred.
(2) Account number. The number of the
account.
(3) Fees. The amount of any fees assessed
against the account during the statement pe
riod for electronic fund transfers, for the
right to make transfers, or for account
maintenance.
(4) Account balances. The balance in the
account at the beginning and at the close of
the statement period.
(5) Address and telephone number for in
quiries. The address and telephone number
to be used for inquiries or notice of errors,
preceded by “Direct inquiries to” or similar
language. The address and telephone num
ber provided on an error-resolution notice
under section 205.8(b) given on or with the
statement satisfies this requirement.
(6) Telephone number for preauthorized
transfers. A telephone number the consumer
may call to ascertain whether preauthorized
transfers to the consumer’s account have
occurred, if the financial institution uses the
telephone-notice option under section
205.10(a)( 1)(iii).
(c) Exceptions to the periodic-statement re
quirement for certain accounts—
(1) Preauthorized transfers to accounts. For
accounts that may be accessed only by
preauthorized transfers to the account the
following rules apply:
(i) Passbook accounts. For passbook ac-

Regulation E

counts, the financial institution need not
provide a periodic statement if the insti
tution updates the passbook upon presen
tation or enters on a separate document
the amount and date of each electronic
fund transfer since the passbook was last
presented.
(ii) Other accounts. For accounts other
than passbook accounts, the financial in
stitution must send a periodic statement
at least quarterly.
(2) Intra-institutional transfers. For an elec
tronic fund transfer initiated by the con
sumer between two accounts of the con
sumer in the same institution, documenting
the transfer on a periodic statement for one
of the two accounts satisfies the periodic
statement requirement.
(3) Relationship between paragraphs (c)(1)
and (c)(2) of this section. An account that
is accessed by preauthorized transfers to the
account described in paragraph (c)(1) of
this section and by intra-institutional trans
fers described in paragraph (c)(2) of this
section, but by no other type of electronic
fund transfers, qualifies for the exceptions
provided by paragraph (c)(1) of this section.

§ 205.10

(i) Positive notice. Providing oral or
written notice of the transfer within two
business days after the transfer occurs; or
(ii) Negative notice. Providing oral or
written notice, within two business days
after the date on which the transfer was
scheduled to occur, that the transfer did
not occur; or
(iii) Readily available telephone line.
Providing a readily available telephone
line that the consumer may call to deter
mine whether the transfer occurred and
disclosing the telephone number on the
initial disclosure of account terms and on
each periodic statement.
(2) Notice by payor. A financial institution
need not provide notice of a transfer if the
payor gives the consumer positive notice
that the transfer has been initiated.
(3) Crediting. A financial institution that re
ceives a preauthorized transfer of the type
described in paragraph (a)(1) of this section
shall credit the amount of the transfer as of
the date the funds for the transfer are
received.

(b) Written authorization for preauthorized
transfers from consumer’s account.
(d) Documentation for foreign-initiated trans
Preauthorized electronic fund transfers from a
fers. The failure by a financial institution to
provide a terminal receipt for an electronic consumer’s account may be authorized only
by a writing signed or similarly authenticated
fund transfer or to document the transfer on a
by the consumer. The person that obtains the
periodic statement does not violate this part
authorization shall provide a copy to the
if—
consumer.
(1) the transfer is not initiated within a
state; and
(c) Consumer’s right to stop payment.
(2) the financial institution treats an inquiry
(1) Notice. A consumer may stop payment
for clarification or documentation as a no
of a preauthorized electronic fund transfer
tice of error in accordance with section
from the consumer’s account by notifying
205.11.
the financial institution orally or in writing
at least three business days before the
scheduled date of the transfer.
SECTION 205.10—Preauthorized
(2) Written confirmation. The financial in
Transfers
stitution may require the consumer to give
written confirmation of a stop-payment or
(a) Preauthorized transfers to consumer’s
der within 14 days of an oral notification.
account.
(1) Notice by financial institution. When a
An institution that requires written confir
mation shall inform the consumer of the re
person initiates preauthorized electronic
quirement and provide the address where
fund transfers to a consumer’s account at
confirmation must be sent when the con
least once every 60 days, the account-hold
ing financial institution shall provide notice
sumer gives the oral notification. An oral
stop-payment order ceases to be binding af
to the consumer by—

§ 205.10

ter 14 days if the consumer fails to provide
the required written confirmation.
(d) Notice of transfers varying in amount.
(1) Notice. When a preauthorized electronic
fund transfer from the consumer’s account
will vary in amount from the previous
transfer under the same authorization or
from the preauthorized amount, the desig
nated payee or the financial institution shall
send the consumer written notice of the
amount and date of the transfer at least 10
days before the scheduled date of transfer.
(2) Range. The designated payee or the in
stitution shall inform the consumer of the
right to receive notice of all varying trans
fers, but may give the consumer the option
of receiving notice only when a transfer
falls outside a specified range of amounts or
only when a transfer differs from the most
recent transfer by more than an agreed-upon
amount.
(e) Compulsory use.
(1) Credit. No financial institution or other
person may condition an extension of credit
to a consumer on the consumer’s repayment
by preauthorized electronic fund transfers,
except for credit extended under an over
draft credit plan or extended to maintain a
specified minimum balance in the con
sumer’s account.
(2) Employment or government benefit. No
financial institution or other person may re
quire a consumer to establish an account for
receipt of electronic fund transfers with a
particular institution as a condition of em
ployment or receipt of a government
benefit.

SECTION 205.11—Procedures for
Resolving Errors
(a) Definition of error.
(1) Types of transfers or inquiries covered.
The term error means—
(i) an unauthorized electronic fund
transfer;
(ii) an incorrect electronic fund transfer
to or from the consumer’s account;
(iii) the omission of an electronic fund
transfer from a periodic statement;
8

Regulation E

(iv) a computational or bookkeeping er
ror made by the financial institution relat
ing to an electronic fund transfer;
(v) the consumer’s receipt of an incorrect
amount of money from an electronic
terminal;
(vi) an electronic fund transfer not iden
tified in accordance with section 205.9 or
205.10(a) of Regulation E; or
(vii) the consumer’s request for docu
mentation required by section 205.9 or
205.10(a) or for additional information or
clarification concerning an electronic
fund transfer, including a request the
consumer makes to determine whether an
error exists under paragraphs (a)(l)(i)
through (vi) of this section.
(2) Types of inquiries not covered. The
term error does not include—
(i) a routine inquiry about the con
sumer’s account balance;
(ii) a request for information for tax or
other recordkeeping purposes; or
(iii) a request for duplicate copies of
documentation.
(b) Notice of error from consumer.
(1) Timing; contents. A financial institution
shall comply with the requirements of this
section with respect to any oral or written
notice of error from the consumer that—
(i) is received by the institution no later
than 60 days after the institution sends
the periodic statement or provides the
passbook documentation, required by sec
tion 205.9, on which the alleged error is
first reflected;
(ii) enables the institution to identify the
consumer’s name and account number;
and
(iii) indicates why the consumer believes
an error exists and includes to the extent
possible the type, date, and amount of
the error, except for requests described in
paragraph (a)(l)(vii) of this section.
(2) Written confirmation. A financial insti
tution may require the consumer to give
written confirmation of an error within 10
business days of an oral notice. An institu
tion that requires written confirmation shall
inform the consumer of the requirement and
provide the address where confirmation

Regulation E

must be sent when the consumer gives the
oral notification.
(3) Request for documentation or clarifica
tions. When a notice of error is based on
documentation or clarification that the con
sumer requested under paragraph (a)(l)(vii)
of this section, the consumer’s notice of er
ror is timely if received by the financial in
stitution no later than 60 days after the in
stitution sends the information requested.
(c) Time limits and extent of investigation.
(1) Ten-day period. A financial institution
shall investigate promptly and, except as
otherwise provided in this paragraph (c),
shall determine whether an error occurred
within 10 business days of receiving a no
tice of error. The institution shall report the
results to the consumer within three busi
ness days after completing its investigation.
The institution shall correct the error within
one business day after determining that an
error occurred.
(2) Forty-five day period. If the financial
institution is unable to complete its investi
gation within 10 business days, the institu
tion may take up to 45 days from receipt of
a notice of error to investigate and deter
mine whether an error occurred, provided
the institution does the following:
(i) Provisionally credits the consumer’s
account in the amount of the alleged er
ror (including interest where applicable)
within 10 business days of receiving the
error notice. If the financial institution
has a reasonable basis for believing that
an unauthorized electronic fund transfer
has occurred and the institution has satis
fied the requirements of section 205.6(a),
the institution may withhold a maximum
of $50 from the amount credited. An in
stitution need not provisionally credit the
consumer’s account if—
(A) the institution requires but does
not receive written confirmation within
10 business days of an oral notice of
error; or
(B) the alleged error involves an ac
count that is subject to Regulation T
(Securities Credit by Brokers and
Dealers, 12 CFR 220);
(ii) Informs the consumer, within two

§ 205.11

business days after the provisional credit
ing, of the amount and date of the provi
sional crediting and gives the consumer
full use of the funds during the
investigation;
(iii) Corrects the error, if any, within one
business day after determining that an er
ror occurred; and
(iv) Reports the results to the consumer
within three business days after complet
ing its investigation (including, if applica
ble, notice that a provisonal credit has
been made final).
(3) Extension of time periods. The applica
ble time periods in this paragraph (c)(3) are
20 business days in place of 10 business
days, and 90 days in place of 45 days, if a
notice of error involves an electronic fund
transfer that—
(i) was not initiated within a state; or
(ii) resulted from a point-of-sale debit
card transaction.
(4) Investigation. With the exception of
transfers covered by section 205.14, a finan
cial institution’s review of its own records
regarding an alleged error satisfies the re
quirements of this section if—
(i) the alleged error concerns a transfer
to or from a third party; and
(ii) there is no agreement between the in
stitution and the third party for the type
of electronic fund transfer involved.
(d) Procedures if financial institution deter
mines no error or different error occurred. In
addition to following the procedures specified
in paragraph (c) of this section, the financial
institution shall follow the procedures set forth
in this paragraph (d) if it determines that no
error occurred or that an error occurred in a
manner or amount different from that de
scribed by the consumer.
(1) Written explanation. The institution’s
report of the results of its investigation
shall include a written explanation of the
institution’s findings and shall note the con
sumer’s right to request the documents that
the institution relied on in making its deter
mination. Upon request, the institution shall
promptly provide copies of the documents.
(2) Debiting provisional credit. Upon debit
9

§ 205.11

ing a provisionally credited amount, the fi
nancial institution shall—
(i) notify the consumer of the date and
amount of the debiting;
(ii) notify the consumer that the institu
tion will honor checks, drafts, or similar
instruments payable to third parties and
preauthorized transfers from the con
sumer’s account (without charge to the
consumer as a result of an overdraft) for
five business days after the notification.
The institution shall honor items as speci
fied in the notice, but need honor only
items that it would have paid if the pro
visionally credited funds had not been
debited.

Regulation E

(2) The Truth in Lending Act and Regula
tion Z (12 CFR 226), which prohibit the
unsolicited issuance of credit cards,
govern—
(i) the addition of a credit feature to an
accepted access device; and
(ii) Except as provided in paragraph
(a)(l)(ii) of this section, the issuance of a
credit card that is also an access device.

(b) Preemption of inconsistent state laws.
(1) Inconsistent requirements. The Board
shall determine, upon its own motion or
upon the request of a state, financial institu
tion, or other interested party, whether the
act and this part preempt state law relating
to electronic fund transfers. Only state laws
that are inconsistent with the act and this
(e) Reassertion of error. A financial institu
tion that has fully complied with the error res
part are preempted and then only to the ex
olution requirements has no further responsi
tent of the inconsistency. A state law is not
bilities under this section should the consumer
inconsistent with the act and this part if it
later reassert the same error, except in the
is more protective of consumers.
(2) Standards for determination. State law
case of an error asserted by the consumer fol
is inconsistent with the requirements of the
lowing receipt of information provided under
act and this part if it—
paragraph (a)(l)(vii) of this section.
(i) requires or permits a practice or act
prohibited by the federal law;

SECTION 205.12—Relation to Other
Laws
(a) Relation to truth in lending.
(1) The Electronic Fund Transfer Act and
this part govern—
(i) the addition to an accepted credit
card, as defined in Regulation Z (12 CFR
226.12(a)(2), footnote 21), of the capabil
ity to initiate electronic fund transfers;
(ii) the issuance of an access device that
permits credit extensions (under a preex
isting agreement between a consumer and
a financial institution) only when the con
sumer’s account is overdrawn or to main
tain a specified minimum balance in the
consumer’s account; and
(iii) a consumer’s liability for an unau
thorized electronic fund transfer and the
investigation of errors involving an ex
tension of credit that occurs under an
agreement between the 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.

(ii) provides for consumer liability for
unauthorized electronic fund transfers
that exceeds the limits imposed by the
federal law;
(iii) allows longer time periods than the
federal law for investigating and cor
recting alleged errors, or does not require
the financial institution to credit the con
sumer’s account during an error investi
gation in accordance with section
205.1 l(c)(2)(i); or
(iv) requires initial disclosures, periodic
statements, or receipts that are different
in content from those required by the
federal law except to the extent that the
disclosures relate to consumer rights
granted by the state law and not by the
federal law.
(c) State exemptions.
(1) General rule. Any state may apply for
an exemption from the requirements of the
act or this part for any class of electronic
fund transfers within the state. The Board
shall grant an exemption if it determines
that—

Regulation E

(i) under state law, the class of electronic
fund transfers is subject to requirements
substantially similar to those imposed by
the federal law; and
(ii) there is adequate provision for state
enforcement.
(2) Exception. To assure that the federal
and state courts continue to have concurrent
jurisdiction and to aid in implementing the
act—
(i) no exemption shall extend to the civil
liability provisions of section 915 of the
act; and
(ii) when the Board grants an exemption,
the state law requirements shall constitute
the requirements of the federal law for
purposes of section 915 of the act, except
for state law requirements not imposed
by the federal law.

SECTION 205.13—Administrative
Enforcement; Record Retention
(a) Enforcem ent b y fe d e ra l agencies. Compli
ance with this part is enforced by the agencies
listed in appendix B of this part.

(b)

R ecord retention.

(1) Any person subject to the act and this
part shall retain evidence of compliance
with the requirements imposed by the act
and this regulation for a period of not less
than two years from the date disclosures are
required to be made or action is required to
be taken.
(2) Any person subject to the act and this
part having actual notice that it is the sub
ject of an investigation or an enforcement
proceeding by its enforcement agency, or
having been served with notice of an action
filed under sections 910, 915, or 916(a) of
the act, shall retain the records that pertain
to the investigation, action, or proceeding
until final disposition of the matter unless
an earlier time is allowed by court or
agency order.

§ 205.14

SECTION 205.14—Electronic Fund
Transfer Service Provider Not Holding
Consumer’s Account
(a)

P rovider o f electron ic fu n d tran sfer se r
vice. A person that provides an electronic

fund transfer service to a consumer but that
does not hold the consumer’s account is sub
ject to all requirements of this part if the
person—
(1) issues a debit card (or other access de
vice) that the consumer can use to access
the consumer’s account held by a financial
institution; and
(2) has no agreement with the account
holding institution regarding such access.
(b) C om pliance b y service provider. In addi
tion to the requirements generally applicable
under this part, the service provider shall
comply with the following special rules:
(1) D isc lo su re s a n d docu m en tation . The
service provider shall give the disclosures
and documentation required by sections
205.7, 205.8, and 205.9 that are within the
purview of its relationship with the con
sumer. The service provider need not fur
nish the periodic statement required by sec
tion 205.9(b) if the following conditions are
met:
(i) the debit card (or other access device)
issued to the consumer bears the service
provider’s name and an address or tele
phone number for making inquiries or
giving notice of error;
(ii) the consumer receives a notice con
cerning use of the debit card that is sub
stantially similar to the notice contained
in appendix A of this part;
(iii) the consumer receives, on or with
the receipts required by section 205.9(a),
the address and telephone number to be
used for an inquiry, to give notice of an
error, or to report the loss or theft of the
debit card;
(iv) the service provider transmits to the
account-holding institution the informa
tion specified in section 205.9(bXl), in
the format prescribed by the automated
clearinghouse system used to clear the
fund transfers;
(v) The service provider extends the time
period for notice of loss or theft of a
11

§ 205.14

debit card, set forth in section 205.6(b)(1)
and (2), from two business days to four
business days after the consumer learns
of the loss or theft; and extends the time
periods for reporting unauthorized trans
fers or errors, set forth in sections
205.6(b)(3) and 205.1 l(b)(l)(i), from 60
days to 90 days following the transmittal
of a periodic statement by the account
holding institution.
(2) Error resolution.
(i) The service provider shall extend by a
reasonable time the period in which no
tice of an error must be received, speci
fied in section 205.1 l(b)(l)(i), if a delay
resulted from an initial attempt by the
consumer to notify the account-holding
institution.
(ii) The service provider shall disclose to
the consumer the date on which it initi
ates a transfer to effect a provisional
credit in accordance with section
205.1 l(c)(2)(ii).
(iii) If the service provider determines an
error occurred, it shall transfer funds to
or from the consumer’s account, in the
appropriate amount and within the appli
cable time period, in accordance with
section 205.1 l(c)(2)(i)
(iv) If funds were provisionally credited
and the service provider determines no
error occurred, it may reverse the credit.
The service provider shall notify the ac
count-holding institution of the period
during which the account-holding institu
tion must honor debits to the account in
accordance with section 205.1 l(d)(2)(ii).
If an overdraft results, the service pro
vider shall promptly reimburse the ac
count-holding institution in the amount of
the overdraft.
(c) Compliance by account-holding institution.
The account-holding institution need not com
ply with this part of the act and this regula
tion with respect to electronic fund transfers
initiated through the service provider except
as follows;
(1) Documentation. The account-holding in
stitution shall provide a periodic statement
that describes each electronic fund transfer
initiated by the consumer with the access
12

Regulation E

device issued by the service provider. The
account-holding institution has no liability
for the failure to comply with this require
ment if the service provider did not provide
the necessary information; and
(2) Error resolution. Upon request, the ac
count-holding institution shall provide infor
mation or copies of documents needed by
the service provider to investigate errors or
to furnish copies of documents to the con
sumer. The account-holding institution shall
also honor debits to the account in accor
dance with section 205.1 l(d)(2)(ii).

SECTION 205.15—Electronic Fund
Transfer of Government Benefits
(a) Government agency subject to regulation.
(1) A government agency is deemed to be
a financial institution for purposes of the
act and regulation if directly or indirectly it
issues an access device to a consumer for
use in initiating an electronic fund transfer
of government benefits from an account.
The agency shall comply with all applicable
requirements of the act and regulation ex
cept as provided in this section.
(2) For purposes of this section, the term
account means an account established by a
government agency for distributing govern
ment benefits to a consumer electronically,
such as through automated teller machines
or point-of-sale terminals.
(b) Issuance of access devices. For purposes
of this section, a consumer is deemed to re
quest an access device when the consumer ap
plies for government benefits that the agency
disburses or will disburse by means of an
electronic fund transfer. The agency shall ver
ify the identity of the consumer receiving the
device by reasonable means before the device
is activated.
(c) Alternative to periodic statement. A gov
ernment agency need not furnish the periodic
statement required by section 205.9(b) if the
agency makes available to the consumer—
(1) the consumer’s account balance,
through a readily available telephone line
and at a terminal (such as by providing bal
ance information at a balance-inquiry termi

Regulation E

nal or providing it, routinely or upon re
quest, on a terminal receipt at the time of
an electronic fund transfer); and
(2) A written history of the consumer’s ac
count transactions that is provided promptly
in response to an oral or written request
and that covers at least 60 days preceding
the date of a request by the consumer.
(d) Modified requirements. A government
agency that does not furnish periodic state
ments, in accordance with paragraph (c) of
this section, shall comply with the following
special rules:
(1) Initial disclosures. The agency shall
modify the disclosures under section
205.7(b) by disclosing—
(i) Account balance. The means by
which the consumer may obtain informa
tion concerning the account balance, in
cluding a telephone number. The agency
provides a notice substantially similar to
the notice contained in paragraph A-5 in
appendix A of this part.
(ii) Written account history. A summary
of the consumer’s right to receive a writ
ten account history upon request, in place
of the periodic statement required by sec
tion 205.7(b)(6), and the telephone num
ber to call to request an account history.
This disclosure may be made by provid
ing a notice substantially similar to the
notice contained in paragraph A-5 in ap
pendix A of this part.
(iii) Error resolution. A notice concern
ing error resolution that is substantially
similar to the notice contained in para
graph A-5 in appendix A of this part, in
place of the notice required by section
205.7(b)(10).
(2) Annual error-resolution notice. The
agency shall provide an annual notice con
cerning error resolution that is substantially
similar to the notice contained in paragraph
A-5 in appendix A of this part, in place of
the notice required by section 205.8(b).
(3) Limitations on liability. For purposes of
section 205.6(bX3), regarding a 60-day pe
riod for reporting any unauthorized transfer
that appears on a periodic statement, the
60-day period shall begin with transmittal

Appendix A

of a written account history or other ac
count information provided to the consumer
under paragraph (c) of this section.
(4) Error resolution. The agency shall com
ply with the requirements of section 205.11
in response to an oral or written notice of
an error from the consumer that is received
no later than 60 days after the consumer
obtains the written account history or other
account information, under paragraph (c) of
this section, in which the error is first
reflected.

APPENDIX A—Model Disclosure
Clauses and Forms
A-l Model Clauses for Unsolicited Issuance
(§ 205.5(b)(2))
A-2 Model Clauses for Initial Disclosures
(§ 205.7(b))
A-3 Model Forms for Error-Resolution No
tice (§§ 205.7(b)(10) and 205.8(b))
A-4 Model Form for Service-Providing Insti
tutions (§ 205.14(b)( 1)(ii))
A-5 Model Forms for Government Agencies
(§ 205.15(d)(1) and (2))

A-l—Model Clauses for Unsolicited
Issuance (§ 205.5(b)(2))
(a) Accounts using cards. YOU CANNOT
USE THE ENCLOSED CARD TO TRANS
FER MONEY INTO OR OUT OF YOUR
ACCOUNT UNTIL WE HAVE VALIDATED
IT. IF YOU DO NOT WANT TO USE THE
CARD, PLEASE (destroy it at once by cut
ting it in half).
[Financial institution may add validation in
structions here.]
(b) Accounts using codes. YOU CANNOT
USE THE ENCLOSED CODE TO TRANS
FER MONEY INTO OR OUT OF YOUR
ACCOUNT UNTIL WE HAVE VALIDATED
IT. IF YOU DO NOT WANT TO USE THE
CODE, PLEASE (destroy this notice at once)
[Financial institution may add validation in
structions here.]
13

Appendix A
A -2— M odel Clauses for Initial
Disclosures (§ 205.7(b))

(a) Consumer liability (§ 205.7(b)(1)). (Tell
us AT ONCE if you believe your (cardXcode)
has been lost or stolen. Telephoning is the
best way of keeping your possible losses
down. You could lose all the money in your
account (plus your maximum overdraft line of
credit). If you tell us within two business
days, you can lose no more than $50 if some
one used your (card)(code) without your per
mission.) (If you believe your (card)(code) has
been lost or stolen, and you tell us within two
business days after you learn of the loss or
theft, you can lose no more than $50 if some
one used your (card)(code) without your
permission.)
If you do NOT tell us within two business
days after you learn of the loss or theft of
your (card)(code), and we can prove we could
have stopped someone from using your
(card)(code) without your permission if you
had told us, you could lose as much as $500.
Also, if your statement shows transfers that
you did not make, tell us at once. If you do
not tell us within 60 days after the statement
was mailed to you, you may not get back any
money you lost after the 60 days if we can
prove that we could have stopped someone
from taking the money if you had told us in
time.
If a good reason (such as a long trip or a
hospital stay) kept you from telling us, we
will extend the time periods.
(b) Contact in event of unauthorized transfer
(§ 205.7(b)(2)). If you believe your [card]
[code] has been lost or stolen or that someone
has transferred or may transfer money from
your account without your permission, call:
[Telephone number]
or write:
[Name of person or office to be notified]
[Address]
(c) Business days (§ 205.7(b)(3)). For pur
poses of these disclosures, our business days
are (Monday through Friday) (Monday
through Saturday) (any day including Satur
days and Sundays). Holidays are (not)
included.
14

Regulation E

(d) Transfer types and limitations
(§ 205.7(b)(4)).
(1) Account access. You may use your
[card] [code] to:
(i) Withdraw cash from your [checking]
[or] [savings] account.
(ii) Make deposits to your [checking]
[or] [savings] account.
(iii) Transfer funds between your check
ing and savings accounts whenever you
request.
(iv) Pay for purchases at places that have
agreed to accept the [card] [code].
(v) Pay bills directly [by telephone] from
your [checking] [or] [savings] account in
the amounts and on the days you request.
Some of these services may not be avail
able at all terminals.
(2) Limitations on frequency of transfers.
(i) You may make only [insert number,
e.g., 3] cash withdrawals from our termi
nals each [insert time period, e.g., week].
(ii) You can use your telephone bill-pay
ment service to pay [insert number] bills
each [insert time period] [telephone call].
(iii) You can use our point-of-sale trans
fer service for [insert number] transac

tions each [insert time period].
(iv) For security reasons, there are limits
on the number of transfers you can make
using our [terminals] [telephone bill-pay
ment service] [point-of-sale transfer
service].
(3) Limitations on dollar amounts of
transfers.
(i) You may withdraw up to [insert dollar
amount] from our terminals each [insert
time period] time you use the [card]
[code].
(ii) You may buy up to [insert dollar
amount] worth of goods or services each
[insert time period] time you use the
[card] [code] in our point-of-sale transfer
service.
(e) Fees (§ 205.7(b)(5)).
(1) Per transfer charge. We will charge
you [insert dollar amount] for each transfer
you make using our [automated teller ma
chines] [telephone bill-payment service]
[point-of-sale transfer service].
(2) Fixed charge. We will charge you [in

Regulation E

sen dollar amount] each [insert time period]
for our [automated teller machine service]
[telephone bill-payment service] [point-ofsale transfer service].
(3) Average or minimum balance charge.
We will only charge you for using our [au
tomated teller machines] [telephone billpayment service] [point-of-sale transfer ser
vice] if the [average] [minimum] balance in
your [checking account] [savings account]
[accounts] falls below [insert dollar
amount]. If it does, we will charge you [in
sert dollar amount] each [transfer] [insert
time period].
(f) Confidentiality (§ 205.7(b)(9)). We will
disclose information to third parties about
your account or the transfers you make:
(i) Where it is necessary for completing
transfers, or
(ii) In order to verify the existence and
condition of your account for a third party,
such as a credit bureau or merchant, or
(iii) In order to comply with government
agency or court orders, or
(iv) If you give us your written permission.
(g) Documentation (§ 205.7(b)(6)).
(1) Terminal transfers. You can get a re
ceipt at the time you make any transfer to
or from your account using one of our [au
tomated teller machines] [or] [point-of-sale
terminals].
(2) Preauthorized credits. If you have ar
ranged to have direct deposits made to your
account at least once every 60 days from
the same person or company, (we will let
you know if the deposit is [not] made.) [the
person or company making the deposit will
tell you every time they send us the money]
[you can call us at (insert telephone num
ber) to find out whether or not the deposit
has been made].
(3) Periodic statements. You will get a
[monthly] [quarterly] account statement (un
less there are no transfers in a particular
month. In any case you will get the state
ment at least quarterly).
(4) Passbook account where the only possi
ble electronic fund transfers are
preauthorized credits. If you bring your
passbook to us, we will record any elec
tronic deposits that were made to your ac

Appendix A

count since the last time you brought in
your passbook.
(h) Preauthorized payments (§ 205.7(b)(6),
(7), and (8); § 205.10(d)).
(1) Right to stop payment and procedure
for doing so. If you have told us in advance
to make regular payments out of your ac
count, 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 three business days
or more before the payment is scheduled to
be made. If you call, we may also require
you to put your request in writing and get it
to us within 14 days after you call. (We
will charge you [insert amount] for each
stop-payment order you give.)
(2) Notice of varying amounts. If these reg
ular payments may vary in amount, [we]
[the person you are going to pay] will tell
you, 10 days before each payment, when it
will be made and how much it will be.
(You may choose instead to get this notice
only when the payment would differ by
more than a certain amount from the previ
ous payment, or when the amount would
fall outside certain limits that you set.)
(3) Liability for failure to stop payment of
preauthorized transfer. If you order us to
stop one of these payments three business
days or more before the transfer is sched
uled, and we do not do so, we will be lia
ble for your losses or damages.
(i) Financial
institution’s
liability
(§ 205.7(b)(8)). If we do not complete a trans
fer to or from your account on time or in the
correct amount according to our agreement
with you, we will be liable for your losses or
damages. However, there are some exceptions.
We will not be liable, for instance:
(1) If, through no fault of ours, you do not
have enough money in your account to
make the transfer.
(2) If the transfer would go over the credit
limit on your overdraft line.
(3) If the automated teller machine where
you are making the transfer does not have
enough cash.
(4) If the [terminal] [system] was not work
15

Appendix A

ing properly and you knew about the break
down when you started the transfer.
(5) If circumstances beyond our control
(such as fire or flood) prevent the transfer,
despite reasonable precautions that we have
taken.
(6) There may be other exceptions stated in
our agreement with you.

A-3— M odel Forms for Error-Resolution
N otice (§§ 205.7(b)(10) and 205.8(b)).

(a) Initial and annual error-resolution notice
(§§ 205.7(b)(10) and 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 state
ment or receipt is wrong or if you need more
information about a transfer listed on the
statement or receipt. We must hear from you
no later than 60 days after we sent the FIRST
statement on which the problem or error
appeared.
(1) Tell us your name and account number
(if any).
(2) Describe the error or the transfer you
are unsure about, and explain as clearly as
you can why you believe it is an error or
why you need more information.
(3) Tell us the dollar amount of the sus
pected 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 investi
gation within 10 business days after we hear
from you and will correct any error promptly.
If we need more time, however, we may take
up to 45 days to investigate your complaint or
question. If we decide to do this, we will
credit your account within 10 business days
for the amount you think is in error, so that
you will have the use of the money during the
time it takes us to complete our investigation.
If we ask you to put your complaint or ques
tion in writing and we do not receive it within
16

Regulation E

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
three business days after we finish our investi
gation. You may ask for copies of the docu
ments that we used in our investigation.
(b) Error-resolution notice on periodic state
ments (§ 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 state
ment or receipt is wrong or if you need more
information about a transfer on the statement
or receipt. We must hear from you no later
than 60 days after we sent you the FIRST
statement on which the error or problem
appeared.
(1) Tell us your name and account number
(if any).
(2) Describe the error or the transfer you
are unsure about, and explain as clearly as
you can why you believe it is an error or
why you need more information.
(3) Tell us the dollar amount of the sus
pected error.
We will investigate your complaint and will
correct any error promptly. If we take more
than 10 business days to do this, we will
credit your account for the amount you think
is in error, so that you will have the use of
the money during the time it takes us to com
plete our investigation.

A-4— M odel Form for Service-Providing
Institutions (§ 205.14(b)( 1)(ii»

ALL QUESTIONS ABOUT TRANSAC
TIONS MADE WITH YOUR (NAME OF
CARD) CARD MUST BE DIRECTED TO
US (NAME OF SERVICE PROVIDER) AND
NOT TO THE BANK OR OTHER FINAN
CIAL INSTITUTION WHERE YOU HAVE
YOUR ACCOUNT. We are responsible for
the [name of service] service and for resolving
any errors in transactions made with your
[name of card] card.

Regulation E

We will not send you a periodic statement
listing transactions that you make using your
[name of card] card. The transactions will ap
pear only on the statement issued by your
bank or other financial institution. SAVE THE
RECEIPTS YOU ARE GIVEN WHEN YOU
USE YOUR [NAME OF CARD] CARD,
AND CHECK THEM AGAINST THE AC
COUNT STATEMENT YOU RECEIVE
FROM YOUR BANK OR OTHER FINAN
CIAL INSTITUTION. If you have any ques
tions about one of these transactions, call or
write us at [telephone number and address]
[the telephone number and address indicated
below].
IF YOUR [NAME OF CARD] CARD IS
LOST OR STOLEN, NOTIFY US AT ONCE
by calling or writing to us at [telephone num
ber and address].

A-5— MODEL FORMS FOR
GOVERNM ENT AGENCIES
(§ 205.15(d)(I)(i) and (ii))

(1) Disclosure by government agencies of in
formation about obtaining account balances
and account histories § 205.15(d)(l)(i) and
(ii).
You may obtain information about the
amount of benefits you have remaining by
calling [telephone number]. That information
is also available [on the receipt you get when
you make a transfer with your card at (an
ATM)(a POS terminal)] [when you make a bal
ance inquiry at an ATM][when you make a
balance inquiry at specified locations].
You also have the right to receive a written
summary of transactions for the 60 days pre
ceding your request by calling [telephone
number]. [Optional: Or you may request the
summary by contacting your caseworker.]
(2) Disclosure of error-resolution procedures
for government agencies that do not provide
periodic statements (§ 205.15(d)(l)(iii) and
(d)(2)).
In Case of Errors or Questions About Your
Electronic Transfers
Telephone us at [telephone number]
or
Write us at [address]

Appendix B

as soon as you can, if you think an error has
occurred in your [EBT] [agency’s name for
program] account. We must hear from you no
later than 60 days after you learn of the error.
You will need to tell us:
Your name and [case] [file] number.
Why you believe there is an error, and the
dollar amount involved.
Approximately when the error took place.
If you tell us orally, we may require that
you send us your complaint or question in
writing within 10 business days. We will gen
erally complete our investigation within 10
business days and correct any error promptly.
In some cases, an investigation may take
longer, but you will have the use of the funds
in question after the 10 business days. 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
during the investigation.
For errors involving transactions at pointof-sale terminals in food stores, the periods
referred to above 20 business days instead of
10 business days.
If we decide that there was no error, we
will send you a written explanation within
three business days after we finish our investi
gation. You may ask for copies of the docu
ments that we used in our investigation.
If you need more information about our er
ror-resolution procedures, call us at [telephone
number][the telephone number shown above].

APPENDIX B— Federal Enforcement
A gencies

The following list indicates which federal
agency enforces Regulation E for particular
classes of institutions. Any questions concern
ing compliance by a particular institution
should be directed to the appropriate enforcing
agency. Terms that are not defined in the Fed
eral Deposit Insurance Act (12 USC 1813(s»
shall have the meaning given to them in the
International Banking Act of 1978 (12 USC
3101).
17

Appendix B

Regulation E

National banks, and federal branches and
federal agencies of foreign banks

400 Seventh Street, S.W.
Washington, D.C. 20590

District office of the Office of the Comptrol
ler of the Currency where the institution is
located

Brokers and dealers

State member banks, branches and agencies
of foreign banks (other than federal branch
es, federal agencies, and insured state
branches of foreign banks), commercial lend
ing companies owned or controlled by for
eign banks, and organizations operating
under section 25 or 25A of the Federal Re
serve Act
Federal Reserve Bank serving the District in
which the institution is located
Nonmember insured banks and insured state
branches of foreign banks
Federal Deposit Insurance Corporation re
gional director for the region in which the
institution is located
Savings institutions insured under the Sav
ings Association Insurance Fund of the
FDIC and federally chartered savings banks
insured under the Bank Insurance Fund of
the FDIC (but not including state-chartered
savings banks insured under the Bank Insur
ance Fund).
Office of Thrift Supervision regional director
for the region in which the institution is lo
cated

Federal credit unions
Division of Consumer Affairs
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428

Division of Market Regulation
Securities and Exchange Commission
Washington, D.C. 20549
Retailers, consumer finance companies, cer
tain other financial institutions, and all
others not covered above
Federal Trade Commission
Electronic Fund Transfers
Washington, D.C. 20580
APPENDIX C— Issuance o f Staff
Interpretations

Official Staff Interpretations
Pursuant to section 915(d) of the act, the
Board has designated the director and other
officials of the Division of Consumer and
Community Affairs as officials “duly author
ized” to issue, at their discretion, official staff
interpretations of this part. Except in unusual
circumstances, such interpretations will not be
issued separately but will be incorporated in
an official commentary to this part, which will
be amended periodically.
Requests for Issuance of Official Staff
Interpretations
A request for an official staff interpretation
shall be in writing and addressed to the Direc
tor, Division of Consumer and Community
Affairs, Board of Governors of the Federal
Reserve System, Washington, D.C. 20551.
The request shall contain a complete statement
of all relevant facts concerning the issue, in
cluding copies of all pertinent documents.
Scope of Interpretations

Air carriers
Assistant General Counsel for
Aviation Enforcement and Proceedings
Department of Transportation
18

No staff interpretations will be issued approv
ing financial institutions’ forms or statements.
This restriction does not apply to forms or
statements whose use is required or sanctioned
by a government agency.

Electronic Fund Transfer Act
15 USC 1693 et seq.; 92 Stat. 3728; Pub. L. 95-630, Financial Institutions
Regulatory and Interest Rate Control Act, Title XX (November 10, 1978)

SECTION 901— Short Title

This title may be cited as the “Electronic
Fund Transfer Act”.

[15 USC 1693 note.]
SECTION 902— Findings and Purpose

(a) The Congress finds that the use of elec
tronic systems to transfer funds provides the
potential for substantial benefits to consumers.
However, due to the unique characteristics of
such systems, the application of existing con
sumer protection legislation is unclear, leaving
the rights and liabilities of consumers, finan
cial institutions, and intermediaries in elec
tronic fund transfers undefined.
(b) It is the purpose of this title to provide a
basic framework establishing the rights, liabil
ities, and responsibilities of participants in
electronic fund transfer systems. The primary
objective of this title, however, is the provi
sion of individual consumer rights.

[15 USC 1693.]
SECTION 903— Definitions

As used in this title—
(1) the term “accepted card or other means
of access” means a card, code, or other
means of access to a consumer’s account
for the purpose of initiating electronic fund
transfers when the person to whom such
card or other means of access was issued
has requested and received or has signed or
has used, or authorized another to use, such
card or other means of access for the pur
pose of transferring money between ac
counts or obtaining money, property, labor,
or services;
(2) the term “account” means a demand
deposit, savings deposit, or other asset ac
count (other than an occasional or inciden
tal credit balance in an open end credit plan
as defined in section 103(i) of this Act), as
described in regulations of the Board, estab

lished primarily for personal, family, or
household purposes, but such term does not
include an account held by a financial insti
tution pursuant to a bona fide trust
agreement;
(3) the term “Board” means the Board of
Governors of the Federal Reserve System:
(4) the term “business day” means any day
on which the offices of the consumer’s fi
nancial institution involved in an electronic
fund transfer are open to the public for car
rying on substantially all of its business
functions;
(5) the term “consumer” means a natural
person;
(6) the term “electronic fund transfer”
means any transfer of funds, other than a
transaction originated by check, draft, or
similar paper instrument, which is initiated
through an electronic terminal, telephonic
instrument, or computer or magnetic tape so
as to order, instruct, or authorize a financial
institution to debit or credit an account.
Such term includes, but is not limited to,
point-of-sale transfers, automated teller ma
chine transactions, direct deposits or with
drawals of funds, and transfers initiated by
telephone. Such term does not include—
(A) any check guarantee or authorization
service which does not directly result in a
debit or credit to a consumer’s account;
(B) any transfer of funds, other than
those processed by automated clearing
house, made by a financial institution on
behalf of a consumer by means of a ser
vice that transfers funds held at either
Federal Reserve banks or other deposi
tory institutions and which is not de
signed primarily to transfer funds on be
half of a consumer;
(C) any transaction the primary purpose
of which is the purchase or sale of secur
ities or commodities through a brokerdealer registered with or regulated by the
Securities and Exchange Commission;
(D) any automatic transfer from a sav
ings account to a demand deposit account
pursuant to an agreement between a con
19

§ 903

sumer and a financial institution for the
purpose of covering an overdraft or
maintaining an agreed upon minimum
balance in the consumer’s demand de
posit account; or
(E) any transfer of funds which is initi
ated by a telephone conversation between
a consumer and an officer or employee of
a financial institution which is not pursu
ant to a prearranged plan and under
which periodic or recurring transfers are
not contemplated; as determined under
regulations of the Board;
(7) the term “electronic terminal” means
an electronic device, other than a telephone
operated by a consumer, through which a
consumer may initiate an electronic fund
transfer. Such term includes but is not lim
ited to, point-of-sale terminals, automated
teller machines, and cash dispensing
machines;
(8) the term “financial institution” means a
State or National bank, a State or Federal
savings and loan association, a mutual sav
ings bank, a State or Federal credit union,
or any other person who, directly or indi
rectly, holds an account belonging to a
consumer;
(9) the term “preauthorized electronic fund
transfer” means an electronic fund transfer
authorized in advance to recur at substan
tially regular intervals;
(10) the term “State” means any State, ter
ritory, or possession of the United States,
the District of Columbia, the Common
wealth of Puerto Rico, or any political sub
division of any of the foregoing; and
(11) the term “unauthorized electronic fund
transfer” means an electronic fund transfer
from a consumer’s account initiated by a
person other than the consumer without ac
tual authority to initiate such transfer and
from which the consumer receives no bene
fit, but the term does not include any elec
tronic fund transfer (A) initiated by a per
son other than the consumer who was
furnished with the card, code, or other
means of access to such consumer’s ac
count by such consumer, unless the con
sumer has notified the financial institution
involved that transfers by such other person
are no longer authorized, (B) initiated with
20

Electronic Fund Transfer Act

fraudulent intent by the consumer or any
person acting in concert with the consumer,
or (C) which constitutes an error committed
by a financial institution.
[15

use 1693a.]

SECTION 904— Regulations

(a) The Board shall prescribe regulations to
carry out the purposes of this title. In pre
scribing such regulations, the Board shall:
(1) consult with the other agencies referred
to in section 917 and take into account, and
allow for, the continuing evolution of elec
tronic banking services and the technology
utilized in such services,
(2) prepare an analysis of economic impact
which considers the cost and benefits to fi
nancial institutions, consumers, and other
users of electronic fund transfers, including
the extent to which additional documenta
tion, reports, records, or other paper work
would be required, and the effects upon
competition in the provision of electronic
banking services among large and small fi
nancial institutions and the availability of
such services to different classes of con
sumers, particularly low income consumers,
(3) to the extent practicable, the Board
shall demonstrate that the consumer protec
tions of the proposed regulations outweigh
the compliance costs imposed upon con
sumers and financial institutions, and
(4) any proposed regulations and accompa
nying analyses shall be sent promptly to
Congress by the Board.
(b) The Board shall issue model clauses for
optional use by financial institutions to facili
tate compliance with the disclosure require
ments of section 905 and to aid consumers in
understanding the rights and responsibilities of
participants in electronic fund transfers by
utilizing readily understandable language.
Such model clauses shall be adopted after no
tice duly given in the Federal Register and
opportunity for public comment in accordance
with section 553 of title 5, United States
Code. With respect to the disclosures required
by section 905(a)(3) and (4), the Board shall
take account of variations in the services and

Electronic Fund Transfer Act

charges under different electronic fund transfer
systems and, as appropriate, shall issue alter
native model clauses for disclosure of these
differing account terms.
(c) Regulations prescribed hereunder may
contain such classifications, differentiations, or
other provisions, and may provide for such
adjustments and exceptions for any class of
electronic fund transfers, as in the judgment
of the Board are necessary or proper to effec
tuate the purposes of this title, to prevent cir
cumvention or evasion thereof, or to facilitate
compliance therewith. The Board shall by reg
ulation modify the requirements imposed by
this title on small financial institutions if the
Board determines that such modifications are
necessary to alleviate any undue compliance
burden on small financial institutions and such
modifications are consistent with the purpose
and objective of this title.
(d) In the event that electronic fund transfer
services are made available to consumers by a
person other than a financial institution hold
ing a consumer’s account, the Board shall by
regulation assure that the disclosures, protec
tions, responsibilities, and remedies created by
this title are made applicable to such persons
and services.

[15 USC 1693b.]
SECTION 905—Terms and Conditions
of Transfers
(a) The terms and conditions of electronic
fund transfers involving a consumer’s account
shall be disclosed at the time the consumer
contracts for an electronic fund transfer ser
vice, in accordance with regulations of the
Board. Such disclosures shall be in readily un
derstandable language and shall include, to the
extent applicable—
(1) the consumer’s liability for unautho
rized electronic fund transfers and, at the
financial institution’s option, notice of the
advisability of prompt reporting of any loss,
theft, or unauthorized use of a card, code,
or other means of access;
(2) the telephone number and address of
the person or office to be notified in the
event the consumer believes that an unau

§ 905

thorized electronic fund transfer has been or
may be effected;
(3) the type and nature of electronic fund
transfers which the consumer may initiate,
including any limitations on the frequency
or dollar amount of such transfers, except
that the details of such limitations need not
be disclosed if their confidentiality is neces
sary to maintain the security of an elec
tronic fund transfer system, as determined
by the Board;
(4) any charges for electronic fund transfers
or for the right to make such transfers;
(5) the consumer’s right to stop payment of
a preauthorized electronic fund transfer and
the procedure to initiate such a stop pay
ment order;
(6) the consumer’s right to receive docu
mentation of electronic fund transfers under
section 906;
(7) a summary, in a form prescribed by
regulations of the Board, of the error reso
lution provisions of section 908 and the
consumer’s rights thereunder. The financial
institution shall thereafter transmit such
summary at least once per calendar year;
(8) the financial institution’s liability to the
consumer under section 910; and
(9) under what circumstances the financial
institution will in the ordinary course of
business disclose information concerning
the consumer’s account to third persons.
(b) A financial institution shall notify a con
sumer in writing at least twenty-one days
prior to the effective date of any change in
any term or condition of the consumer’s ac
count required to be disclosed under subsec
tion (a) if such change would result in greater
cost or liability for such consumer or de
creased access to the consumer’s account. A
financial institution may, however, implement
a change in the terms or conditions of an ac
count without prior notice when such change
is immediately necessary to maintain or re
store the security of an electronic fund trans
fer system or a consumer’s account. Subject
to subsection (a)(3), the Board shall require
subsequent notification if such a change is
made permanent.
(c) For any account of a consumer made ac
cessible to electronic fund transfers prior to
21

§ 905

the effective date of this title, the information
required to be disclosed to the consumer
under subsection (a) shall be disclosed not
later than the earlier of—
(1) the first periodic statement required by
section 906(c) after the effective date of
this title; or
(2) thirty days after the effective date of
this title.

[15 use 1693c.]
SECTION 906—Documentation of
Transfers; Periodic Statements
(a) For each electronic fund transfer initiated
by a consumer from an electronic terminal,
the financial institution holding such con
sumer’s account shall, directly or indirectly, at
the time the transfer is initiated, make avail
able to the consumer written documentation of
such transfer. The documentation shall clearly
set forth to the extent applicable—
(1) the amount involved and date the trans
fer is initiated;
(2) the type of transfer;
(3) the identity of the consumer’s account
with the financial institution from which or
to which funds are transferred;
(4) the identity of any third party to whom
or from whom funds are transferred; and
(5) the location or identification of the elec
tronic terminal involved.
(b) For a consumer’s account which is sched
uled to be credited by a preauthorized elec
tronic fund transfer from the same payor at
least once in each successive sixty-day period,
except where the payor provides positive no
tice of the transfer to the consumer, the finan
cial institution shall elect to provide promptly
either positive notice to the consumer when
the credit is made as scheduled, or negative
notice to the consumer when the credit is not
made as scheduled, in accordance with regula
tions of the Board. The means of notice
elected shall be disclosed to the consumer in
accordance with section 905.
(c) A financial institution shall provide each
consumer with a periodic statement for each
account of such consumer that may be ac
cessed by means of an electronic fund trans22

Electronic Fund Transfer Act

fer. Except as provided in subsections (d) and
(e), such statement shall be provided at least
monthly for each monthly or shorter cycle in
which an electronic fund transfer affecting the
account has occurred, or every three months,
whichever is more frequent. The statement,
which may include information regarding
transactions other than electronic fund trans
fers, shall clearly set forth—
(1) with regard to each electronic fund
transfer during the period, the information
described in subsection (a), which may be
provided on an accompanying document;
(2) the amount of any fee or charge as
sessed by the financial institution during the
period for electronic fund transfers or for
account maintenance;
(3) the balances in the consumer’s account
at the beginning of the period and at the
close of the period; and
(4) the address and telephone number to be
used by the financial institution for the pur
pose of receiving any statement inquiry or
notice of account error from the consumer.
Such address and telephone number shall be
preceded by the caption “Direct Inquiries
To:” or other similar language indicating
that the address and number are to be used
for such inquiries or notices.
(d) In the case of a consumer’s passbook ac
count which may not be accessed by elec
tronic fund transfers other than preauthorized
electronic fund transfers crediting the account,
a financial institution may, in lieu of comply
ing with the requirements of subsection (c),
upon presentation of the passbook provide the
consumer in writing with the amount and date
of each such transfer involving the account
since the passbook was last presented.
(e) In the case of a consumer’s account other
than a passbook account, which may not be
accessed by electronic fund transfers other
than preauthorized electronic fund transfers
crediting the account, the financial institution
may provide a periodic statement on a quar
terly basis which otherwise complies with the
requirements of subsection (c).
(f) In any action involving a consumer, any
documentation required by this section to be
given to the consumer which indicates that an

Electronic Fund Transfer Act

electronic fund transfer was made to another
person shall be admissible as evidence of such
transfer and shall constitute prima facie proof
that such transfer was made.
[15 u s e 1693d.]

SECTION 907—Preauthorized Transfers
(a) A preauthorized electronic fund transfer
from a consumer’s account may be authorized
by the consumer only in writing, and a copy
of such authorization shall be provided to the
consumer when made. A consumer may stop
payment of a preauthorized electronic fund
transfer by notifying the financial institution
orally or in writing at any time up to three
business days preceding the scheduled date of
such transfer. The financial institution may re
quire written confirmation to be provided to it
within fourteen days of an oral notification if,
when the oral notification is made, the con
sumer is advised of such requirement and the
address to which such confirmation should be
sent.
(b) In the case of preauthorized transfers from
a consumer’s account to the same person
which may vary in amount, the financial insti
tution or designated payee shall, prior to each

transfer, provide reasonable advance notice to
the consumer, in accordance with regulations
of the Board, of the amount to be transferred
and the scheduled date of the transfer.

§ 908

sumer’s account, contains an error and the
amount of such error; and
(3) sets forth the reasons for the con
sumer’s belief (where applicable) that an er
ror has occurred, the financial institution
shall investigate the alleged error, determine
whether an error has occurred, and report or
mail the results of such investigation and
determination to the consumer within ten
business days. The financial institution may
require written confirmation to be provided
to it within ten business days of an oral
notification of error if, when the oral notifi
cation is made, the consumer is advised of
such requirement and the address to which
such confirmation should be sent. A finan
cial institution which requires written con
firmation in accordance with the previous
sentence need not provisionally recredit a
consumer’s account in accordance with sub
section (c), nor shall the financial institution
be liable under subsection (e) if the written
confirmation is not received within the tenday period referred to in the previous
sentence.
(b) If the financial institution determines that
an error did occur, it shall promptly, but in no
event more than one business day after such
determination, correct the error, subject to sec
tion 909, including the crediting of interest
where applicable.

(c) If a financial institution receives notice of
an error in the manner and within the time
period specified in subsection (a), it may, in
[15 USC 1693e.]
lieu of the requirements of subsections (a) and
(b) , within ten business days after receiving
such notice provisionally recredit the con
sumer’s account for the amount alleged to be
SECTION 908—Error Resolution
in error, subject to section 909, including in
(a) If a financial institution, within sixty days terest where applicable, pending the conclu
after having transmitted to a consumer docu sion of its investigation and its determination
mentation pursuant to section 906 (a), (c), or of whether an error has occurred. Such inves
(d) or notification pursuant to section 906(b), tigation shall be concluded not later than
receives oral or written notice in which the forty-five days after receipt of notice of the
consumer—
error. During the pendency of the investiga
(1) sets forth or otherwise enables the fi tion, the consumer shall have full use of the
nancial institution to identify the name and funds provisionally recredited.
account number of the consumer;
(2) indicates the consumer’s belief that the (d) If the financial institution determines after
documentation, or, in the case of notifica its investigation pursuant to subsection (a) or
tion pursuant to section 906(b), the con (c) that an error did not occur, it shall deliver

§ 908

or mail to the consumer an explanation of its
findings within 3 business days after the con
clusion of its investigation, and upon request
of the consumer promptly deliver or mail to
the consumer reproductions of all documents
which the financial institution relied on to
conclude that such error did not occur. The
financial institution shall include notice of the
right to request reproductions with the expla
nation of its findings.
(e) If in any action under section 915, the
court finds that—
(1) the financial institution did not provi
sionally recredit a consumer’s account
within the ten-day period specified in sub
section (c), and the financial institution (A)
did not make a good faith investigation of
the alleged error, or (B) did not have a rea
sonable basis for believing that the con
sumer’s account was not in error; or
(2) the financial institution knowingly and
willfully concluded that the consumer’s ac
count was not in error when such conclu
sion could not reasonably have been drawn
from the evidence available to the financial
institution at the time of its investigation,
then the consumer shall be entitled to treble
damages determined under section
915(a)(1).
(f) For the purpose of this section, an error
consists of—
(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 which should have
been included;
(4) a computational error 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 in
formation or clarification concerning an
electronic fund transfer or any documenta
tion required by this title; or
(7) any other error described in regulations
of the Board.
24

Electronic Fund Transfer Act

[15 USC 1693f.]

SECTION 909—Consumer Liability for
Unauthorized Transfers
(a) A consumer shall be liable for any unau
thorized electronic fund transfer involving the
account of such consumer only if the card or
other means of access utilized for such trans
fer was an accepted card or other means of
access and if the issuer of such card, code, or
other means of access has provided a means
whereby the user of such card, code, or other
means of access can be identified as the per
son authorized to use it, such as by signature,
photograph, or fingerprint or by electronic or
mechanical confirmation. In no event, how
ever, shall a consumer’s liability for an unau
thorized transfer exceed the lesser of—
(1) $50; or
(2) the amount of money or value of prop
erty or services obtained in such unautho
rized electronic fund transfer prior to the
time the financial institution is notified of,
or otherwise becomes aware of, circum
stances which lead to the reasonable belief
that an unauthorized electronic fund transfer
involving the consumer’s account has been
or may be effected. Notice under this para
graph is sufficient when such steps have
been taken as may be reasonably required
in the ordinary course of business to pro
vide the financial institution with the perti
nent information, whether or not any partic
ular officer, employee, or agent of the
financial institution does in fact receive
such information.
Notwithstanding the foregoing, reimbursement
need not be made to the consumer for losses
the financial institution establishes would not
have occurred but for the failure of the con
sumer to report within sixty days of transmit
tal of the statement (or in extenuating circum
stances such as extended travel or
hospitalization, within a reasonable time under
the circumstances) any unauthorized electronic
fund transfer or account error which appears
on the periodic statement provided to the con
sumer under section 906. In addition, reim
bursement need not be made to the consumer
for losses which the financial institution estab

Electronic Fund Transfer Act

lishes would not have occurred but for the
failure of the consumer to report any loss or
theft of a card or other means of access
within two business days after the consumer
learns of the loss or theft (or in extenuating
circumstances such as extended travel or hos
pitalization, within a longer period which is
reasonable under the circumstances), but the
consumer’s liability under this subsection in
any such case may not exceed a total of $500,
or the amount of unauthorized electronic fund
transfers which occur following the close of
two business days (or such longer period) af
ter the consumer learns of the loss or theft but
prior to notice to the financial institution
under this subsection, whichever is less.
(b) In any action which involves a con
sumer’s liability for an unauthorized electronic
fund transfer, the burden of proof is upon the
financial institution to show that the electronic
fund transfer was authorized or, if the elec
tronic fund transfer was unauthorized, then the
burden of proof is upon the financial institu
tion to establish that the conditions of liability
set forth in subsection (a) have been met, and,
if the transfer was initiated after the effective
date of section 905, that the disclosures re
quired to be made to the consumer under sec
tion 905(a) (1) and (2) were in fact made in
accordance with such section.
(c) In the event of a transaction which in
volves both an unauthorized electronic fund
transfer and an extension of credit as defined
in section 103(e) of this Act pursuant to an
agreement between the consumer and the fi
nancial institution to extend such credit to the
consumer in the event the consumer’s account
is overdrawn, the limitation on the consumer’s
liability for such transaction shall be deter
mined solely in accordance with this section.
(d) Nothing in this section imposes liability
upon a consumer for an unauthorized elec
tronic fund transfer in excess of his liability
for such a transfer under other applicable law
or under any agreement with the consumer’s
financial institution.
(e) Except as provided in this section, a con
sumer incurs no liability from an unauthorized
electronic fund transfer.

§ 910

[15 USC 1693g.]
SECTION 910—Liability of Financial
Institutions
(a) Subject to subsections (b) and (c), a finan
cial institution shall be liable to a consumer
for all damages proximately caused by—
(1) the financial institution’s failure to
make an electronic fund transfer, in accor
dance with the terms and conditions of an
account, in the correct amount or in a
timely manner when properly instructed to
do so by the consumer, except where—
(A) the consumer’s account has insuffi
cient funds;
(B) the funds are subject to legal process
or other encumbrance restricting such
transfer;
(C) such transfer would exceed an estab
lished credit limit;
(D) an electronic terminal has insufficient
cash to complete the transaction; or
(E) as otherwise provided in regulations
of the Board;
(2) the financial institution’s failure to
make an electronic fund transfer due to in
sufficient funds when the financial institu
tion failed to credit, in accordance with the
terms and conditions of an account, a de
posit of funds to the consumer’s account
which would have provided sufficient funds
to make the transfer, and
(3) the financial institution’s failure to stop
payment of a preauthorized transfer from a
consumer’s account when instructed to do
so in accordance with the terms and condi
tions of the account.
(b) A financial institution shall not be liable
under subsection (a)(1) or (2) if the financial
institution shows by a preponderance of the
evidence that its action or failure to act re
sulted from—
(1) an act of God or other circumstance be
yond its control, that it exercised reasonable
care to prevent such an occurrence, and that
it exercised such diligence as the circum
stances required; or
(2) a technical malfunction which was
known to the consumer at the time he at
tempted to initiate an electronic fund trans
25

§ 910

fer or, in the case of a preauthorized trans
fer, at the time such transfer should have
occurred.

Electronic Fund Transfer Act

(c) For the purpose of subsection (b), a card,
code, or other means of access is validated
when it may be used to initiate an electronic
fund transfer.

(c) In the case of a failure described in sub
section (a) which was not intentional and [15 USC 1693i.]
which resulted from a bona fide error, not
withstanding the maintenance of procedures
reasonably adapted to avoid any such error, SECTION 912—Suspension of
the financial institution shall be liable for ac Obligations
tual damages proved.
If a system malfunction prevents the effectua
tion of an electronic fund transfer initiated by
[15 USC 1693h.]
a consumer to another person, and such other
person has agreed to accept payment by such
means, the consumer’s obligation to the other
person shall be suspended until the malfunc
SECTION 911—Issuance of Cards or
tion is corrected and the electronic fund trans
Other Means of Access
fer may be completed, unless such other per
(a) No person may issue to a consumer any
son has subsequently, by written request,
card, code, or other means of access to such
demanded payment by means other than an
consumer’s account for the purpose of initiat
electronic fund transfer.
ing an electronic fund transfer other than—
(1) in response to a request or application [15 USC 1693j.]
therefor; or
(2) as a renewal of, or in substitution for,
an accepted card, code, or other means of SECTION 913—Compulsory Use of
Electronic Fund Transfers
a c c e ss, w h eth er issu ed by the in itial issu er
or a successor.
No person may—
(1) condition the extension of credit to a
(b) Notwithstanding the provisions of subsec
consumer on such consumer’s repayment by
tion (a), a person may distribute to a con
means of preauthorized electronic fund
sumer on an unsolicited basis a card, code, or
transfers; or
other means of access for use in initiating an
(2) require a consumer to establish an ac
electronic fund transfer from such consumer’s
count for receipt of electronic fund transfers
account, if—
with a particular financial institution as a
(1) such card, code, or other means of ac
condition of employment or receipt of a
cess is not validated;
government benefit.
(2) such distribution is accompanied by a
complete disclosure, in accordance with
[15 USC 1693k.]
section 905, of the consumer’s rights and
liabilities which will apply if such card,
code, or other means of access is validated;
SECTION 914— Waiver of Rights
(3) such distribution is accompanied by a
clear explanation, in accordance with regu No writing or other agreement between a con
lations of the Board, that such card, code, sumer and any other person may contain any
or other means of access is not validated provision which constitutes a waiver of any
and how the consumer may dispose of such right conferred or cause of action created by
code, card, or other means of access if vali this title. Nothing in this section prohibits,
however, any writing or other agreement
dation is not desired; and
(4) such card, code, or other means of ac which grants to a consumer a more extensive
cess is validated only in response to a re right or remedy or greater protection than con
quest or application from the consumer, tained in this title or a waiver given in settle
upon verification of the consumer’s identity. ment of a dispute or action.
26

(

Electronic Fund Transfer Act
[15 USC 1693 /.]

SECTION 915—Civil Liability
(a) Except as otherwise provided by this sec
tion and section 910, any person who fails to
comply with any provision of this title with
respect to any consumer, except for an error
resolved in accordance with section 908, is li
able to such consumer in an amount equal to
the sum of—
(1) any actual damage sustained by such
consumer as a result of such failure;
(2) (A) in the case of an individual action,
an amount not less than $100 nor greater
than $1,000; or
(B) in the case of a class action, such
amount as the court may allow, except
that (i) as to each member of the class no
minimum recovery shall be applicable,
and (ii) the total recovery under this subparagraph in any class action or series of
class actions arising out of the same fail
ure to comply by the same person shall
not be more than the lesser of $500,000
or 1 per centum of the net worth of the
defendant; and
(3) in the case of any successful action to
enforce the foregoing liability, the costs of
the action, together with a reasonable attor
ney’s fee as determined by the court,
(b) In determining the amount of liability in
any action under subsection (a), the court
shall consider, among other relevant factors—
(1) in any individual action under subsec
tion (a)(2)(A), the frequency and persistence
of noncompliance, the nature of such noncompliance, and the extent to which the
noncompliance was intentional; or
(2) in any class action under subsection
(a)(2)(B), the frequency and persistence of
noncompliance, the nature of such compli
ance, the resources of the defendant, the
number of persons adversely affected, and
the extent to which the noncompliance was
intentional.
(c) Except as provided in section 910, a per
son may not be held liable in any action
brought under this section for a violation of
this title if the person shows by a preponder

§ 915

ance of evidence that the violation was not
intentional and resulted from a bona fide error
notwithstanding the maintenance of proce
dures reasonably adapted to avoid any such
error.
(d) No provision of this section or section
916 imposing any liability shall apply to—
(1) any act done or omitted in good faith in
conformity with any rule, regulation, or in
terpretation thereof by the Board or in con
formity with any interpretation or approval
by an official or employee of the Federal
Reserve System duly authorized by the
Board to issue such interpretations or ap
provals under such procedures as the Board
may prescribe therefor; or
(2) any failure to make disclosure in proper
form if a financial institution utilized an ap
propriate model clause issued by the Board,
notwithstanding that after such act, omission,
or failure has occurred, such rule, regulation,
approval, or model clause is amended, re
scinded, or determined by judicial or other au
thority to be invalid for any reason.
(e) A person has no liability under this sec
tion for any failure to comply with any re
quirement under this title if, prior to the insti
tution of an action under this section, the
person notifies the consumer concerned of the
failure, complies with the requirements of this
title, and makes an appropriate adjustment to
the consumer’s account and pays actual dam
ages or, where applicable, damages in accor
dance with section 910.
(f) On a finding by the court that an unsuc
cessful action under this section was brought
in bad faith or for purposes of harassment, the
court shall award to the defendant attorney’s
fees reasonable in relation to the work ex
pended and costs.
(g) Without regard to the amount in contro
versy, any action under this section may be
brought in any United States district court, or
in any other court of competent jurisdiction,
within one year from the date of the occur
rence of the violation.
[15 USC 1693m.]
27

Electronic Fund Transfer Act

§ 916

SECTION 916—Criminal Liability
(a) Whoever knowingly and willfully—
(1) gives false or inaccurate information or
fails to provide information which he is re
quired to disclose by this title or any regu
lation issued thereunder; or
(2) otherwise fails to comply with any pro
vision of this title; shall be fined not more
than $5,000 or imprisoned not more than
one year, or both.
(b) Whoever—
(1) knowingly, in a transaction affecting in
terstate or foreign commerce, uses or at
tempts or conspires to use any counterfeit,
fictitious, altered, forged, lost, stolen, or
fraudulently obtained debit instrument to
obtain money, goods, services, or anything
else of value which within any one-year pe
riod has a value aggregating $1,000 or
more; or
(2) with unlawful or fraudulent intent,
transports or attempts or conspires to trans
port in interstate or foreign commerce a
counterfeit, fictitious, altered, forged, lost,
stolen, or fraudulently obtained debit instru
ment knowing the same to be counterfeit,
fictitious, altered, forged, lost, stolen, or
fraudulently obtained; or
(3) with unlawful or fraudulent intent, uses
any instrumentality of interstate or foreign
commerce to sell or transport a counterfeit,
fictitious, altered, forged, lost, stolen, or
fraudulently obtained debit instrument
knowing the same to be counterfeit, ficti
tious, altered, forged, lost, stolen, or fraudu
lently obtained; or
(4) knowingly receives, conceals, uses, or
transports money, goods, services, or any
thing else of value (except tickets for inter
state or foreign transportation) which (A)
within any one-year period has a value ag
gregating $1,000 or more, (B) has moved in
or is part of, or which constitutes interstate
or foreign commerce and (C) has been ob
tained with a counterfeit, fictitious, altered,
forged, lost, stolen, or fraudulently obtained
debit instrument; or
(5) knowingly receives, conceals, uses,
sells, or transports in interstate or foreign
commerce one or more tickets for interstate
or foreign transportation, which (A) within
28

any one-year period have a value aggregat
ing $500 or more, and (B) have been pur
chased or obtained with one or more coun
terfeit, fictitious, altered, forged, lost, stolen,
or fraudulently obtained debit instrument; or
(6)
in a transaction affecting interstate or
foreign commerce, furnishes money, prop
erty, services, or anything else of value,
which within any one-year period has a
value aggregating $1,000 or more, through
the use of any counterfeit, fictitious, altered,
forged, lost, stolen, or fraudulently obtained
debit instrument knowing the same to be
counterfeit, fictitious, altered, forged, lost,
stolen, or fraudulently obtained—
shall be fined not more than $10,000 or im
prisoned not more than ten years, or both.
(c) As used in this section, the term “debit
instrument” means a card, code, or other de
vice, other than a check, draft, or similar pa
per instrument, by the use of which a person
may initiate an electronic fund transfer.
[15 USC 1693n.]

SECTION 917—Administrative
Enforcement
(a) Compliance with the requirements im
posed under this title shall be enforced
under—
(1) section 8 of the Federal Deposit Insur
ance Act, in the case of—
(A) national banks, and Federal branches
and Federal agencies of foreign banks, by
the Office of the Comptroller of the
Currency;
(B) member banks of the Federal Re
serve System (other than national banks),
branches and agencies of foreign banks
(other than Federal branches, Federal
agencies, and insured State branches of
foreign banks), commercial lending com
panies owned or controlled by foreign
banks, and organizations operating under
section 25 or 25A of the Federal Reserve
Act, by the Board; and
(C) banks insured by the Federal Deposit
Insurance Corporation (other than mem
bers of the Federal Reserve System) and
insured State branches of foreign banks,

Electronic Fund Transfer Act

by the Board of Directors of the Federal
Deposit Insurance Corporation;
(2) section 8 of the Federal Deposit Insur
ance Act, by the Director of the Office of
Thrift Supervision, in the case of a savings
association the deposits of which are in
sured by the Federal Deposit Insurance Cor
poration;
(3) the Federal Credit Union Act, by the
Administrator of the National Credit Union
Administration with respect to any Federal
credit union.
(4) the Federal Aviation Act of 1958, by
the Civil Aeronautics Board, with respect to
any air carrier or foreign air carrier subject
to that Act; and
(5) the Securities Exchange Act of 1934,
by the Securities and Exchange Commis
sion, with respect to any broker or dealer
subject to that Act.
The terms used in paragraph (1) that are not
defined in this title or otherwise defined in
section 3(s) of the Federal Deposit Insurance
Act (12 U.S.C. 1813(s)) shall have the mean
ing given to them in section 1(b) of the Inter
national Banking Act of 1978 (12 U.S.C.
3101).
(b) For the purpose of the exercise by any
agency referred to in subsection (a) of its
powers under any Act referred to in that sub
section, a violation of any requirement im
posed under this title shall be deemed to be a
violation of a requirement imposed under that
Act. In addition to its powers under any pro
vision of law specifically referred to in sub
section (a), each of the agencies referred to in
that subsection may exercise, for the purpose
of enforcing compliance with any requirement
imposed under this title, any other authority
conferred on it by law.
(c) Except to the extent that enforcement of
the requirements imposed under this title is
specifically committed to some other Govern
ment agency under subsection (a), the Federal
Trade Commission shall enforce such require
ments. For the purpose of the exercise by the
Federal Trade Commission of its functions
and powers under the Federal Trade Commis
sion Act, a violation of any requirement im
posed under this title shall be deemed a viola
tion of a requirement imposed under that Act.

§ 919

All of the functions and powers of the Federal
Trade Commission under the Federal Trade
Commission Act are available to the Commis
sion to enforce compliance by any person sub
ject to the jurisdiction of the Commission
with the requirements imposed under this title,
irrespective of whether that person is engaged
in commerce or meets any other jurisdictional
tests in the Federal Trade Commission Act.
[15 USC 1693o. As amended by acts of Aug. 9, 1989 (103
Stat. 440) and Dec. 19, 1991 (105 Stat. 2301).]

SECTION 918—Reports to Congress
(a) Not later than twelve months after the ef
fective date of this title and at one-year inter
vals thereafter, the Board shall make reports
to the Congress concerning the administration
of its functions under this title, including such
recommendations as the Board deems neces
sary or appropriate. In addition, each report of
the Board shall include its assessment of the
extent to which compliance with this title is
being achieved, and a summary of the en
forcement actions taken under section 917 of
this title. In such report, the Board shall par
ticularly address the effects of this title on the
costs and benefits to financial institutions and
consumers, on competition, on the introduc
tion of new technology, on the operations of
financial institutions, and on the adequacy of
consumer protection.
(b) In the exercise of its functions under this
title, the Board may obtain upon request the
views of any other Federal agency which, in
the judgment of the Board, exercises regula
tory or supervisory functions with respect to
any class of persons subject to this title.
[15 USC 1693p. As amended by act of Dec. 21, 1982 (96
Stat. 1825). ]

SECTION 919—Relation to State Laws
This title does not annul, alter, or affect the
laws of any State relating to electronic fund
transfers, except to the extent that those laws
are inconsistent with the provisions of this ti
tle, and then only to the extent of the incon
sistency. A State law is not inconsistent with
this title if the protection such law affords any
29

Electronic Fund Transfer Act

§ 919

consumer is greater than the protection af
forded by this title. The Board shall, upon its
own motion or upon the request of any finan
cial institution, State, or other interested party,
submitted in accordance with procedures pre
scribed in regulations of the Board, determine
whether a State requirement is inconsistent or
affords greater protection. If the Board deter
mines that a State requirement is inconsistent,
financial institutions shall incur no liability
under the law of that State for a good faith
failure to comply with that law, notwithstand
ing that such determination is subsequently
amended, rescinded, or determined by judicial
or other authority to be invalid for any reason.
This title does not extend the applicability of
any such law to any class of persons or trans
actions to which it would not otherwise apply.
[15 USC 1693q.]

SECTION 920—Exemption for State
Regulation
The Board shall by regulation exempt from

the requirements of this title any class of elec
tronic fund transfers within any State if the
Board determines that under the law of that
State that class of electronic fund transfers is
subject to requirements substantially similar to
those imposed by this title, and that there is
adequate provision for enforcement.
[15 USC 1693r.]

SECTION 921—Effective Date
This title takes effect upon the expiration of
eighteen months from the date of its enact
ment, except that sections 909 and 911 take
effect upon the expiration of ninety days after
the date of enactment.
[15 USC 1693 note.]

flr T -

Board of Governors of the Federal ffeserve System

h Regulation S
Reimbursement for Providing
' Financial Records;
Recordkeeping Requirements
for Certain Financial Records
12 CFR 219; as amended, effective July 12, 1996

\bZl(o

Any inquiry relating to Regulation S should be addressed to the Federal Reserve Bank of the
District in which the inquiry arises.
July 1996

Contents

Subpart A—Reimbursement to
Financial Institutions for Providing
Financial Records

Page

Section 219.1—Authority, purpose, and
scope..................................................
Section 219.2—Definitions.......................
Section 219.3—Cost reimbursement...........
(a) Fees payable..................................
(b) Search and processing costs.............
(c) Reproduction costs.........................
(d) Transportation costs .......................
Appendix A to section 219.3—
Reimbursement schedule.......................
Section 219.4—Exceptions.......................
(a) Security interests, bankruptcy
claims, debt collection.....................
(b) Government loan programs.............
(c) Nonidentifiable information.............
(d) Financial supervisory agencies........
(e) Internal Revenue summons.............
(f) Federally required reports...............
(g) Government civil or criminal
litigation........................................
(h) Administrative agency subpoenas . .
(i) Investigation of financial
institution or its noncustomer...........
(j) General Accounting Office
requests..........................................
(k) Federal Housing Finance Board
requests..........................................
(/) Department of Veterans Affairs . . . .
Section 219.5—Conditions for payment . .
(a) Direct costs....................................

Page
(b) Compliance with legal process,
request, or authorization................. 3
(c) Itemized bill or invoice................. 3
Section 219.6—Payment procedures.......... 3
(a) Notice to submit invoice................. 3
(b) Special notice ............................... 3

1
1
1
1 Subpart B—Recordkeeping and Reporting
1 Requirements for Funds Transfers and
2 Transmittals of Funds
2 Section 219.21—Authority, purpose, and
scope..................................................
2 Section 219.22—Definitions.....................
2 Section 219.23—Recordkeeping and
reporting requirements .........................
2
(a) Domestic and international funds
2
transfers by insured depository
2
institutions......................................
2
(b) International transmittals of funds
2
by financial institutions other than
2
insured depository institutions...........
Section 219.24—Retention period.............
2
2
2

3
3
4

4
4
4

STATUTORY AUTHORITY
Right to Financial Privacy Act of 1978

2
2
3
3
3

Section 1115—Cost reimbursement........... 5
Federal Deposit Insurance Act
Section 21—Retention of records by
insured depository institutions............... 5

Regulation S
Reimbursement for Providing Financial Records;
Recordkeeping Requirements for Certain Financial Records
12 CFR 219; as amended effective July 12, 19%

SUBPART A—REIMBURSEMENT TO
FINANCIAL INSTITUTIONS FOR
PROVIDING FINANCIAL RECORDS

SECTION 219.1—Authority, Purpose
and Scope
This subpart of Regulation S is issued by the
Board of Governors of the Federal Reserve
System (the Board) under section 1115 of the
Right to Financial Privacy Act (the act) (12
USC 3415). It establishes the rates and condi
tions for reimbursement of reasonably neces
sary costs directly incurred by financial insti
tutions in assembling or providing customer
financial records to a government authority
pursuant to the act.

SECTION 219.2—Definitions
For the purposes of this subpart, the following
definitions shall apply:
Customer means any person or authorized rep
resentative of that person who uses any ser
vice of a financial institution, or for whom a
financial institution acts or has acted as a fidu
ciary in relation to an account maintained in
the person’s name. Customer does not include
corporations or partnerships comprised of
more than five persons.
Financial institution means any office of a
bank, savings bank, card issuer as defined in
section 103 of the Consumer Credit Protection
Act (15 USC 1602(n)), industrial loan com
pany, trust company, savings association,
building and loan, or homestead association
(including cooperative banks), credit union, or
consumer finance institution, located in any
state or territory of the United States, the Dis
trict of Columbia, Puerto Rico, Guam, Ameri
can Samoa, or the Virgin Islands.
Financial record means an original or copy
of, or information known to have been de
rived from, any record held by a financial in

stitution pertaining to a customer’s relation
ship with the financial institution.
Government authority means any agency or
department of the United States, or any of
ficer, employee, or agent thereof.
Person means an individual or a partnership
of five or fewer individuals.

SECTION 219.3—Cost Reimbursement
(a) Fees payable. Except as provided in sec
tion 219.4, a government authority, or a court
issuing an order or subpoena in connection
with grand jury proceedings, seeking access to
financial records pertaining to a customer shall
reimburse the financial institution for reasona
bly necessary costs directly incurred in search
ing for, reproducing or transporting books, pa
pers, records, or other data as set forth in this
section. The reimbursement schedule for a fi
nancial institution is set forth in appendix A
to this section. If a financial institution has
financial records that are stored at an indepen
dent storage facility that charges a fee to
search for, reproduce, or transport particular
records requested, these costs are considered
to be directly incurred by the financial institu
tion and may be included in the
reimbursement.
(b) Search and processing costs. (1) Reim
bursement of search and processing costs shall
cover the total amount of personnel time spent
in locating, retrieving, reproducing, and
preparing financial records for shipment.
Search and processing costs shall not cover
analysis of material or legal advice.
(2) If itemized separately, search and
processing costs may include the actual cost
of extracting information stored by com
puter in the format in which it is normally
produced, based on computer time and nec
essary supplies; however, personnel time for
computer search may be paid for only at
the rates specified in appendix A to this
section.

§ 219.3

Regulation S

(c) Repmduction costs. The reimbursement
rates for reproduction costs for requested doc
uments are set forth in appendix A to this
section. Copies of photographs, films, com
puter tapes, and other materials not listed in
appendix A to this section are reimbursed at
actual cost.
(d) Transportation costs. Reimbursement for
transportation costs shall be for the reasonably
necessary costs directly incurred to transport
personnel to locate and retrieve the requested
information, and to convey such material to
the place of examination.
Appendix A to Section
219.3—Reimbursement Schedule
Reproduction:
Photocopy, per page
Paper copies of microfiche, per
frame
Duplicate microfiche, per
microfiche
Computer diskette
Search and Processing:
Clerical/Technical, hourly rate

Manager/Supervisory, hourly rate

$ .25
$ .25
$ .50
$ 5.00
$111.00
$17.00

SECTION 219.4—Exceptions
A financial institution is not entitled to reim
bursement under this subpart for costs in
curred in assembling or providing financial
records or information related to:
(a) Security interests, bankruptcy claims, debt
collection. Any financial records provided as
an incident to perfecting a security interest,
proving a claim in bankruptcy, or otherwise
collecting on a debt owing either to the finan
cial institution itself or in its role as a
fiduciary.
(b) Government loan programs. Financial
records that are necessary to permit the appro
priate government authority to carry out its re
sponsibilities under a government loan, loan
guaranty, or loan insurance program.
(c) Nonidentifiable information. Financial
records that are not identified with or identifi
2

able as being derived from the financial
records of a particular customer.
(d) Financial supervisory agencies. Financial
records disclosed to a financial supervisory
agency in the exercise of its supervisory, reg
ulatory, or monetary functions with respect to
a financial institution.
(e) Internal Revenue summons. Financial
records disclosed in accordance with proce
dures authorized by the Internal Revenue
Code.
(f) Federally required reports. Financial
records required to be reported in accordance
with any federal statute or rule promulgated
thereunder.
(g) Government civil or criminal litigation.
Financial records sought by a government au
thority under the Federal Rules of Civil or
Criminal Procedure or comparable rules of
other courts in connection with litigation to
which the government authority and the cus
tomer are parties.
(h) Administrative agency subpoenas. Finan
cial records sought by a government authority
pursuant to an administrative subpoena issued
by an administrative law judge in an adjudica
tory proceeding subject to 5 USC 554, and to
which the government authority and the cus
tomer are parties.
(i) Investigation of financial institution or its
noncustomer. Financial records sought by a
government authority in connection with a
lawful proceeding, investigation, examination,
or inspection directed at the financial institu
tion in possession of such records, or at an
entity that is not a customer as defined in sec
tion 219.2 of this part.
(j) General Accounting Office requests. Finan
cial records sought by the General Accounting
Office pursuant to an authorized proceeding,
investigation, examination, or audit directed at
a government authority.
(k) Federal Housing Finance Board requests.
Financial records or information sought by the
Federal Housing Finance Board (FHFB) or
any of the Federal Home Loan Banks in the
exercise of the FHFB’s authority to extend
credit to financial institutions or others.

Regulation S

(/) Department of Veterans Affairs. The dis
closure of the name and address of any cus
tomer to the Department of Veterans Affairs
where such disclosure is necessary to, and
used solely for, the proper administration of
benefits programs under laws administered by
that department.

SECTION 219.5—Conditions for
Payment
(a) Direct costs. Payment shall be made only
for costs that are both directly incurred and
reasonably necessary to provide requested ma
terial. Search and processing, reproduction,
and transportation costs shall be considered
separately when determining whether the costs
are reasonably necessary.
(b) Compliance with legal process, request, or
authorization. No payment may be made to a
financial institution until it satisfactorily com
plies with the legal process, the formal written
request, or the customer authorization. When
the legal process or formal written request is
withdrawn, or the customer authorization is
revoked, or where the customer successfully
challenges disclosure to a grand jury or gov
ernment authority, the financial institution
shall be reimbursed for the reasonably neces

sary costs incurred in assembling the re
quested financial records prior to the time the
financial institution is notified of such event.
(c) Itemized bill or invoice. No reimbursement
is required unless a financial institution sub
mits an itemized bill or invoice specifically
detailing its search and processing, reproduc
tion, and transportation costs. Search and
processing time should be billed in 15-minute
increments.

SECTION 219.6—Payment Procedures
(a) Notice to submit invoice. Promptly follow
ing a service of legal process or request, the
court or government authority shall notify the
financial institution that it must submit an
itemized bill or invoice in order to obtain pay
ment and shall furnish an address for this
purpose.

§ 219.22

(b) Special notice. If a grand jury or govern
ment authority withdraws the legal process or
formal written request, or if the customer re
vokes the authorization, or if the legal process
or request has been successfully challenged by
the customer, the grand jury or government
authority shall promptly notify the financial
institution of these facts, and shall also notify
the financial institution that it must submit an
itemized bill or invoice in order to obtain pay
ment of costs incurred prior to the time the
financial institution receives this notice.

SUBPART B—RECORDKEEPING
AND REPORTING REQUIREMENTS
FOR FUNDS TRANSFERS AND
TRANSMITTALS OF FUNDS
SECTION 219.21—Authority, Purpose
and Scope
This subpart of Regulation S is issued by the
Board under the authority of section 21(b) of
the Federal Deposit Insurance Act (12 USC
1829b), as amended by the Annunzio-Wylie
Anti-Money Laundering Act of 1992 (Pub.L.
102-550, title XV), which authorizes the
Board and the secretary of the Treasury
jointly to prescribe recordkeeping and report
ing requirements for domestic wire transfers
by insured depository institutions; and which
also required the Board and the Treasury
jointly to prescribe recordkeeping and report
ing requirements for international wire trans
fers by insured depository institutions and by
nonbank financial institutions. The definitions
and recordkeeping and reporting requirements
referenced in this subpart are promulgated and
administered jointly by the Board and the
Treasury and are codified in 31 CFR 103.11
and 103.33(e) and (f). Such recordkeeping and
reporting requirements will assist in the prose
cution of money-laundering activities and are
determined to have a high degree of useful
ness in criminal, tax, or regulatory investiga
tions or proceedings.

SECTION 219.22—Definitions
The following terms are defined in 31 CFR
3

§ 219.22

Regulation S

103.11 under the joint authority of the Board tions are codified at 31 CFR 103.33(e). For
and the Treasury:
the purposes of this subpart, the provisions of
31 CFR 103.33(e) apply only to funds trans
Accept.
fers by insured depository institutions.
Beneficiary.
(b) International transmittals of funds by fi
Beneficiary’s bank.
nancial institutions other than insured deposi
Established customer.
tory institutions. The Board and the Treasury
Execution date.
are required to promulgate jointly reporting
Funds transfer.
and recordkeeping requirements for interna
Intermediary bank.
tional transmittals of funds by financial
Intermediary financial institution.
institutions, including brokers and dealers in
Originator.
securities and businesses that provide moneyOriginator’s bank.
transmitting services. In prescribing these re
Payment date.
quirements, the Board and the Treasury take
Payment order.
into account the usefulness of these records in
Receiving bank.
criminal, tax, or regulatory investigations or
Receiving financial institution.
proceedings and the effect the recordkeeping
Recipient.
will have on the cost and efficiency of the
Recipient’s financial institution.
payment system. These regulations are codi
Sender.
fied at 31 CFR 103.33(f). For the purposes of
Transmittal of funds.
this subpart, the provisions of 31 CFR
Transmittal order.
103.33(f) apply only to international transmit
Transmitter.
tals of funds.
Transmitter’s financial institution.
SECTION 219.23—Recordkeeping and
Reporting Requirements

SECTION 219.24— Retention Period

(a) Domestic and international funds transfers
by insured depository institutions. The Board
and the Treasury are authorized to promulgate
jointly recordkeeping and reporting require
ments for domestic and international funds
transfers by insured depository institutions
whenever the agencies determine that the
maintenance of such records has a high degree
of usefulness in criminal, tax, or regulatory
investigations or proceedings. These regula

All records that are required to be retained by
this subpart shall be retained for a period of
five years. All these records shall be filed or
stored in such a way as to be accessible
within a reasonable period of time, taking into
consideration the nature of the record and the
amount of time that has expired since the re
cord was made. Any records required to be
retained by this subpart shall be made avail
able to the Board upon request.

Statutory Authority for Regulation S

RIGHT TO FINANCIAL PRIVACY
ACT OF 1978
SECTION 1115—Cost Reimbursement
(a) Except for records obtained pursuant to
section 1103(d) or 1113 (a) through (h), or as
otherwise provided by law, a Government au
thority shall pay to the financial institution as
sembling or providing finanial records pertain
ing to a customer and in accordance with
procedures established by this title a fee for
reimbursement for such costs as are reasona
bly necessary and which have been directly
incurred in searching for, reproducing, or
transporting books, papers, records, or other
data required or requested to be produced.
The Board of Governors of the Federal Re
serve System shall, by regulation, establish the
rates and conditions under which such pay
ment may be made.
(b) This section shall take effect on October
1, 1979.
[12 use 3415.]

FEDERAL DEPOSIT INSURANCE
ACT
SECTION 21—Retention of Records by
Insured Depository Institutions
(a) Congressional findings and declaration of
purpose.
(1) The Congress finds that adequate
records maintained by insured depository
institutions have a high degree of usefulness
in criminal, tax, and regulatory investiga
tions and proceedings. The Congress further
finds that microfilm or other reproductions
and other records made by banks of checks,
as well as records kept by banks of the
identity of persons maintaining or author
ized to act with respect to accounts therein,
have been of particular value in this
respect.
(2) It is the purpose of this section to re
quire the maintenance of appropriate types

of records by insured depository institutions
in the United States where such records
have a high degree of usefulness in crimi
nal, tax, or regulatory investigations or
proceedings.
(b) Recordkeeping regulations.
(1) Where the Secretary of the Treasury
(referred to in this section as the “Secre
tary”) determines that the maintenance of
appropriate types of records and other evi
dence by insured depository institutions has
a high degree of usefulness in criminal, tax,
or regulatory investigations or proceedings,
he shall prescribe regulations to carry out
the purposes of this section.
(2) Whenever the Secretary and the Board
of Governors of the Federal Reserve Sys
tem (hereafter in this section referred to as
the ‘Board’) determine that the maintenance
of records, by insured depository institu
tions, of payment orders which direct trans
fers of funds over wholesale funds transfer
systems has a high degree of usefulness in
criminal, tax, or regulatory investigations or
proceedings, the Secretary and the Board
shall jointly prescribe regulations to carry
out the purposes of this section with respect
to the maintenance of such records.
(3) (A) The Secretary and the Board shall
jointly prescribe, after consultation with
State banking supervisors, final regula
tions requiring that insured depository in
stitutions, businesses that provide check
cashing services, money transmitting
businesses, and businesses that issue or
redeem money orders, travelers’ checks
or other similar instruments maintain
such records of payment orders which—
(i) involve international transactions;
and
(ii) direct transfers of funds over
wholesale funds transfer systems or on
the books of any insured depository in
stitution, or on the books of any busi
ness that provides check cashing ser
vices, any money transmitting
business, and any business that issues
5

Statutory Authority

or redeems money orders, travelers’
checks or similar instruments,
that will have a high degree of usefulness
in criminal, tax, or regulatory investiga
tions or proceedings.
(B) In prescribing the regulations re
quired under subparagraph (A), the Sec
retary and the Board shall consider—
(i) the usefulness in criminal, tax, or
regulatory investigations or proceed
ings of any record required to be main
tained pursuant to the proposed regula
tions; and
(ii) the effect the recordkeeping re
quired pursuant to such proposed regu
lations will have on the cost and effi
ciency of the payment system.
(C) Any records required to be main
tained pursuant to the regulations pre
scribed under subparagraph (A) shall be
submitted or made available to the Secre
tary or the Board upon request.
(c) Identity of persons having accounts and
persons authorized to act with respect to such
accounts; exemptions. Subject to the require
ments of any regulations prescribed jointly by
the Secretary and the Board under paragraph
(2) or (3) of subsection (b), each insured de
pository institution shall maintain such records
and other evidence, in such form as the Secre
tary shall require, of the identity of each per
son having an account in the United States
with the insured depository institution and of
each individual authorized to sign checks,
make withdrawals, or otherwise act with re
spect to any such account. The Secretary may
make such exemptions from any requirement
otherwise imposed under this subsection as
are consistent with the purposes of this
section.
(d) Reproduction of checks, drafts, and other
instruments; record of transactions; identity of
party. Each insured depository institution shall
make, to the extent that the regulations of the
Secretary so require—
(1) a microfilm or other reproduction of
each check, draft, or similar instrument
drawn on it and presented to it for pay
ment; and
(2) a record of each check, draft, or similar
instrument received by it for deposit or col
6

Regulation S

lection, together with an identification of
the party for whose account it is to be de
posited or collected, unless the insured de
pository institution has already made a re
cord of the party’s identity pursuant to
subsection (c) of this section.
(e) Identity of persons making reportable cur
rency and foreign transactions. Subject to the
requirements of any regulations prescribed
jointly by the Secretary and the Board under
paragraph (2) or (3) of subsection (b), when
ever any individual engages (whether as prin
cipal, agent, or bailee) in any transaction with
an insured depository institution which is re
quired to be reported or recorded under subchapter II of chapter 53 of Title 31, the in
sured depository institution shall require and
retain such evidence of the identity of that in
dividual as the Secretary may prescribe as ap
propriate under the circumstances.
(f) Additions to or substitutes for required
records. Subject to the requirements of any
regulations prescribed jointly by the Secretary
and the Board under paragraph (2) or (3) of
subsection (b), in addition to or in lieu of the
records and evidence otherwise referred to in
this section, each insured depository institution
shall maintain such records and evidence as
the Secretary may prescribe to carry out the
purposes of this section.
(g) Retention period. Any type of record or
evidence required under this section shall be
retained for such period as the Secretary may
prescribe for the type in question. Any period
so prescribed shall not exceed six years unless
the Secretary determines, having regard for
the purposes of this section, that a longer pe
riod is necessary in the case of a particular
type of record or evidence.
(h) Report to Congress by Secretary of the
Treasury. The Secretary shall include in his
annual report to the Congress information on
his implementation of the authority conferred
by this section and any similar authority with
respect to recordkeeping or reporting require
ments conferred by other provisions of law.
(i) Application of provisions to foreign banks.
The provisions of this section shall not apply
to any foreign bank except with respect to the

Regulation S

transactions and records of any insured branch
of such a bank.
(j)

Civil penalties.
(1) Any insured depository institution and
any director, officer, or employee of an in
sured depository institution who willfully or
through gross negligence violates or any
person who willfully causes such a viola
tion, any regulation prescribed under sub
section (b) of this section shall be liable to
the United States for a civil penalty of not
more than $10,000.
(2) A separate violation of any regulation

Statutory Authority

prescribed under subsection (b) of this sec
tion occurs for each day the violation con
tinues and at each office, branch, or place
of business at which such violation occurs.
(3) Any penalty imposed under paragraph
(1) shall be assessed, mitigated, and col
lected in the manner provided in subsec
tions (b) and (c) of section 5321 of Title
31.
[12 USC 1829b. As added by act of Oct. 26, 1970 (84 Stat.
1114) and amended by acts of Sept. 17, 1978 (92 Stat.
620); Nov. 18, 1988 (102 Stat. 4356); Aug. 9, 1989 (103
Stat. 187); Oct. 28, 1992 (106 Stat. 4058, 4059, 4066); and
Sept. 23, 1994 (108 Stat. 2290).]

Board of Governors of the Federal Reserve System

Official Staff Commentary
on Regulation E
Electronic Fund Transfers
As amended effective May 2, 1996

f ir - i

t> n

Any inquiry relating to Regulation E should be addressed to the Federal Reserve Bank of the
Federal Reserve District in which the inquiry arises.
August 1996

Contents

Page
Section 205.2—Definitions....................... 1
Section 205.3—Coverage......................... 2
Section 205.4—General disclosure
requirements; jointly offered services . . 5
Section 205.5—Issuance of access
devices................................................ 5
Section 205.6—Liability of consumer
for unauthorized transfers..................... 6
Section 205.7—Initial disclosures............... 7
Section 205.8—Change-in-terms notice;
error-resolution notice......................... 10
Section 205.9—Receipts at electronic
terminals; periodic statements ............. 10

Page
Section 205.10—Preauthorized transfers . 14
Section 205.11—Procedures for
resolving errors.................................. 16
Section 205.12—Relation to other laws . 19
Section 205.13—Administrative
enforcement; record retention............... 20
Section 205.14—Electronic fund transfer
service provider not holding
consumer’s account........................... 20
Appendix A—Model disclosure clauses
and forms.......................................... 21

Official Staff Commentary
on Regulation E
As amended effective May 2, 1996*

SECTION 205.2—Definitions

Paragraph 2(b)(2)

1. Bona fide trust agreements. The term
“bona fide trust agreement” is not defined by
2(a) Access Device
the act or regulation; therefore, financial insti
1. Examples. The term “access device” in tutions must look to state or other applicable
cludes debit cards, personal identification law for interpretation.
numbers (PINs), telephone transfer and tele 2. Custodial agreements. An account held
phone bill payment codes, and other means under a custodial agreement that qualifies as a
that may be used by a consumer to initiate an trust under the Internal Revenue Code, such
electronic fund transfer (EFT) to or from a as an individual retirement account, is consid
consumer account. The term does not include ered to be held under a trust agreement for
magnetic tape or other devices used internally purposes of Regulation E.
by a financial institution to initiate electronic
transfers.
2(d) Business Day
1. Duration. A business day includes the en
tire 24-hour period ending at midnight, and a
notice required by the regulation is effective
1. Consumer asset account. The term “con
even if given outside normal business hours.
sumer asset account” includes:
The regulation does not require, however, that
1. Club accounts, such as vacation clubs. In a financial institution make telephone lines
many cases, however, these accounts are available on a 24-hour basis.
exempt from the regulation under section
2. Substantially all business functions. “Sub
205.3(c)(5) because all electronic transfers
stantially all business functions” include both
to or from the account have been
the public and the back-office operations of
preauthorized by the consumer and in the institution. For example, if the offices of
volve another account of the consumer at an institution are open on Saturdays for han
the same institution.
dling some consumer transactions (such as de
ii. A retail repurchase agreement (repo),
posits, withdrawals, and other teller transac
which is a loan made to a financial institu
tions), but not for performing internal
tion by a consumer that is collateralized
functions (such as investigating account er
by government or government-insured se
rors), then Saturday is not a business day for
curities.
that institution. In this case, Saturday does not
2. Examples of accounts not covered by Reg count toward the business-day standard set by
the regulation for reporting lost or stolen ac
ulation E (12 CFR 205) include:
cess devices, resolving errors, etc.
i. Profit-sharing and pension accounts estab
lished under a trust agreement, which are 3. Short hours. A financial institution may de
termine, at its election, whether an abbreviated
exempt under section 205.2(b)(2).
ii. Escrow accounts, such as those established day is a business day. For example, if an in
to ensure payment of items such as real stitution engages in substantially all business
estate taxes, insurance premiums, or com functions until noon on Saturdays instead of
its usual 3:00 p.m. closing, it may consider
pletion of repairs or improvements.
iii. Accounts for accumulating funds to Saturday a business day.
purchase U.S. savings bonds.
4. Telephone line. If a financial institution
makes a telephone line available on Sundays
* Reliance on May 2, 1996, revisions optional until Janu
ary 1, 1997.
for reporting the loss or theft of an access
2(b) Account

§ 205.2

device, but performs no other business func
tions, Sunday is not a business day under the
“ substantially all business functions”
standard.
2(h) Electronic Terminal

Regulation E (Official Staff Commentary)

3. Access device obtained through robbery or
fraud. An unauthorized EFT includes a trans
fer initiated by a person who obtained the ac
cess device from the consumer through fraud
or robbery.

4. Forced initiation. An EFT at an automated
1. Point-of-sale (POS) payments initiated by teller machine (ATM) is an unauthorized
telephone. Because the term electronic termi transfer if the consumer has been induced by
nal excludes a telephone operated by a con force to initiate the transfer.
sumer, a financial institution need not provide
a terminal receipt when—
1. a consumer uses a debit card at a public SECTION 205.3—Coverage
telephone to pay for the call;
ii. a consumer initiates a transfer by a means 3(a) General
analogous in function to a telephone, such
1. Accounts covered. The requirements of the
as by home banking equipment or a fac
regulation apply only to an account for which
simile machine.
an agreement for EFT services to or from the
2. POS terminals. A POS terminal that cap account has been entered into between—
tures data electronically, for debiting or credit
1. the consumer and the financial institution
ing to a consumer’s asset account, is an elec
(including an account for which an access
tronic terminal for purposes of Regulation E if
device has been issued to the consumer,
a debit card is used to initiate the transaction.
for example):
3. Teller-operated terminals. A terminal or ii. the consumer and a third party (for
other computer equipment operated by an em
preauthorized debits or credits, for exam
ple), when the account-holding institution
ployee of a financial institution is not an elec
tronic terminal for purposes of the regulation.
has received notice of the agreement and
However, transfers initiated at such terminals
the fund transfers have begun.
by means of a consumer’s access device (us
2. Automated clearinghouse (ACH) member
ing the consumer’s PIN, for example) are
ship. The fact that membership in an ACH
EFTs and are subject to other requirements of
requires a financial institution to accept EFTs
the regulation. If an access device is used
to accounts at the institution does not make
only for identification purposes or for deter
every account of that institution subject to the
mining the account balance, the transfers are
regulation.
not EFTs for purposes of the regulation.
3. Foreign applicability. Regulation E applies
2(m) Unauthorized Electronic Fund
to all persons (including branches and other
Transfer
offices of foreign banks located in the United
States) that offer EFT services to residents of
1. Transfer by institution’s employee. A con
any state, including resident aliens. It covers
sumer has no liability for erroneous or fraudu
any account located in the United States
lent transfers initiated by an employee of a
through which EFTs are offered to a resident
financial institution.
of a state. This is the case whether or not a
2. Authority. If a consumer furnishes an ac particular transfer takes place in the United
cess device and grants authority to make States and whether or not the financial institu
transfers to a person (such as a family mem tion is chartered in the United States or a for
ber or co-worker) who exceeds the authority eign country. The regulation does not apply to
given, the consumer is fully liable for the a foreign branch of a U.S. bank unless the
transfers unless the consumer has notified the EFT services are offered in connection with
financial institution that transfers by that per an account in a state as defined in section
son are no longer authorized.
205.2(/).
2

Regulation E (Official Staff Commentary)

§ 205.3

check-authorization service, debiting of the
consumer’s account occurs when the check or
1. Fund transfers covered. The term “elec draft is presented for payment. These services
tronic fund transfer” includes:
are exempt from coverage, even when a tem
1. A deposit made at an ATM or other elec porary hold on the account is memo-posted
tronic terminal (including a deposit in electronically at the time of authorization.
cash or by check) provided a specific
agreement exists between the financial in Paragraph 3(c)(3)—Wire or Other Similar
stitution and the consumer for EFTs to or Transfers
from the account to which the deposit is 1. Fedwire and ACH. If a financial institution
made.
makes a fund transfer to a consumer’s account
ii. A transfer sent via ACH. For example, after receiving funds through Fedwire or a
Social Security benefits under the U.S. similar network, the transfer by ACH is cov
Treasury’s direct-deposit program are cov ered by the regulation even though the
ered, even if the listing of payees and Fedwire or network transfer is exempt.
payment amounts reaches the account 2. Article 4A. Financial institutions that offer
holding institution by means of a comput telephone-initiated Fedwire payments are sub
er printout from a correspondent bank.
ject to the requirements of UCC section 4Aiii. A preauthorized transfer credited or debit 202, which encourages verification of Fedwire
ed to an account in accordance with in payment orders pursuant to a security proce
structions contained on magnetic tape, dure established by agreement between the
even if the financial institution holding the consumer and the receiving bank. These trans
account sends or receives a composite fers are not subject to Regulation E and the
check.
agreement is not considered a telephone plan
iv. A transfer from the consumer’s account if the service is offered separately from a tele
resulting from a debit-card transaction at a phone bill-payment or other prearranged plan
merchant location, even if no electronic subject to Regulation E. The Board’s Regula
terminal is involved at the time of the tion J (12 CFR 210) specifies the rules appli
transaction, if the consumer’s asset ac cable to funds handled by Federal Reserve
count is subsequently debited for the Banks. To ensure that the rules for all fund
transfers through Fedwire are consistent, the
amount of the transfer.
Board used its preemptive authority under
2. Fund transfers not covered. The term
UCC section 4A-107 to determine that subpart
“electronic fund transfer” does not include—
B of Regulation J (12 CFR 210), including
i. a payment that does not debit or credit a the provisions of article 4A, applies to all
consumer asset account, such as a payroll fund transfers through Fedwire, even if a por
allotment to a creditor to repay a credit tion of the fund transfer is governed by the
extension (which is deducted from salary); EFTA. The portion of the fund transfer that is
ii. a payment made in currency by a consum governed by the EFTA is not governed by
er to another person at an electronic termi subpart B of Regulation J (12 CFR 210).
nal;
3. Similar fund transfer systems. Fund transfer
iii. a preauthorized check drawn by the finan systems that are similar to Fedwire include
cial institution on the consumer’s account the Clearing House Interbank Payments Sys
(such as an interest or other recurring pay tem (CHIPS), Society for Worldwide In
ment to the consumer or another party), terbank Financial Telecommunication
even if the check is computer-generated.
(SWIFT), Telex, and transfers made on the
books of correspondent banks.
3(c) Exclusions from Coverage
Paragraph 3(c)(4)—Securities and
Paragraph 3(c)(2)—Check Guarantee or
Commodities Transfers
Authorization
1. Coverage. The securities exemption applies
1. Memo posting. Under a check-guarantee or to securities and commodities that may be
3(b) Electronic Fund Transfer

§ 205.3

Regulation E (Official Staff Commentary)

sold by a registered broker-dealer or futures
commission merchant, even when the security
or commodity itself is not regulated by the
Securities and Exchange Commission or the
Commodity Futures Trading Commission.

fers between accounts of the consumer at af
filiated institutions (such as between a bank
and its subsidiary or within a holding com
pany) are not intra-institutional transfers and
thus do not qualify for the exemption.

2. Example of exempt transfer. The exemption
applies to a transfer involving a transfer initi
ated by a telephone order to a stockbroker to
buy or sell securities or to exercise a margin
call.

Paragraph 3(c)(6)—Telephone-Initiated
Transfers

3. Examples of nonexempt transfers. The ex
emption does not apply to a transfer
involving:
i. A debit card or other access device that
accesses a securities or commodities ac
count such as a money market mutual
fund and that the consumer uses for
purchasing goods or services or for ob
taining cash.
ii. A payment of interest or dividends into
the consumer’s account (for example,
from a brokerage firm or from a Federal
Reserve Bank for government securities).
Paragraph 3(c)(5)—Automatic Transfers by
Account-Holding Institution

1. Written plan or agreement. A transfer that
the consumer initiates by telephone is covered
only if the transfer is made under a written
plan or agreement between the consumer and
the financial institution making the transfer.
The following do not, by themselves, consti
tute a written plan or agreement:
1. a hold-harmless agreement on a signature
card that protects the institution if the con
sumer requests a transfer
ii. a legend on a signature card, periodic
statement, or passbook that limits the
number of telephone-initiated transfers the
consumer can make from a savings ac
count because of reserve requirements
under Regulation D (12 CFR 204)
iii. an agreement permitting the consumer to
approve by telephone the rollover of funds
at the maturity of an instrument

1. Automatic transfers exempted. The exemp
2. Examples of covered transfers. When a
tion applies to—
written plan or agreement has been entered
1. electronic debits or credits to consumer into, a transfer initiated by a telephone call
accounts for check charges, stop-payment from a consumer is covered even though—
charges, NSF charges, overdraft charges,
provisional credits, error adjustments, and i. an employee of the financial institution
completes the transfer manually (for ex
similar items that are initiated automatical
ample, by means of a debit memo or de
ly on the occurrence of certain events;
posit slip);
ii. debits to consumer accounts for group in
surance available only through the finan ii. the consumer is required to make a sepa
rate request for each transfer;
cial institution and payable only by means
of an aggregate payment from the institu iii. the consumer uses the plan infrequently;
tion to the insurer;
iv. the consumer initiates the transfer via a
iii. EFTs between a thrift institution and its
facsimile machine.
paired commercial bank in the state of
Rhode Island, which are deemed under Paragraph 3(c)(7)—Small Institutions
state law to be intra-institutional;
1. Coverage. This exemption is limited to
iv. automatic transfers between a consumer’s
preauthorized transfers; institutions that offer
accounts within the same financial institu
other EFTs must comply with the applicable
tion, even if the account holders on the
sections of the regulation as to such services.
two accounts are not identical.
The preauthorized transfers remain subject to
2. Automatic transfers not exempted. Trans sections 913, 915, and 916 of the act and sec
4

Regulation E (Official Staff Commentary)

tion 205.10(e), and are therefore exempt from
UCC article 4A.
SECTION 205.4— General Disclosure
Requirements; Jointly Offered Services
4(a) Form of Disclosures
1. General. Although no particular rules gov
ern type size, number of pages, or the relative
conspicuousness of various terms, the disclo
sures must be in a clear and readily under
standable written form that the consumer may
retain. Numbers or codes are considered read
ily understandable if explained elsewhere on
the disclosure form.
2. Foreign language disclosures. Disclosures
may be made in languages other than English,
provided they are available in English upon
request.
SECTION 205.5—Issuance of Access
Devices
1. Coverage. The provisions of this section
limit the circumstances under which a finan
cial institution may issue an access device to
a consumer. Making an additional account ac
cessible through an existing access device is
equivalent to issuing an access device and is
subject to the limitations of this section.
5(a) Solicited Issuance
Paragraph 5(a)(1)
1. Joint account. For a joint account, a finan
cial institution may issue an access device to
each account holder if the requesting holder
specifically authorizes the issuance.

§ 205.5

a card and PIN previously issued. If the re
placement device permits either additional or
fewer types of electronic fund transfer ser
vices, a change-in-terms notice or new disclo
sures are required.
2. Renewal or substitution by a successor in
stitution. A successor institution is an entity
that replaces the original financial institution
(for example, following a corporate merger or
acquisition) or that acquires accounts or as
sumes the operation of an EFT system.
5(b) Unsolicited Issuance
1. Compliance. A financial institution may is
sue an unsolicited access device (such as the
combination of a debit card and PIN) if the
institution’s ATM system has been program
med not to accept the access device until after
the consumer requests and the institution vali
dates the device. Merely instructing a con
sumer not to use an unsolicited debit card and
PIN until after the institution verifies the con
sumer’s identity does not comply with the
regulation.
2. PINS. A financial institution may impose
no liability on a consumer for unauthorized
transfers involving an unsolicited access de
vice until the device becomes an “accepted
access device” under the regulation. A card
and PIN combination may be treated as an
accepted access device once the consumer has
used it to make a transfer.
3. Functions of PIN. If an institution issues a
PIN at the consumer’s request, the issuance
may constitute both a way of validating the
debit card and the means to identify the con
sumer (required as a condition of imposing li
ability for unauthorized transfers).

4. Verification of identity. To verify the con
sumer’s identity, a financial institution may
use any reasonable means, such as a photo
graph, fingerprint, personal visit, signature
comparison, or personal information about the
consumer. However, even if reasonable means
Paragraph (5)(a)(2)
were used, if an institution fails to verify cor
1. One-for-one rule. In issuing a renewal or rectly the consumer’s identity and an imposter
substitute access device, a financial institution succeeds in having the device validated, the
may not provide additional devices. For exam consumer is not liable for any unauthorized
ple, only one new card and PIN may replace transfers from the account.
2. Permissible forms of request. The request
for an access device may be written or oral
(for example, in response to a telephone solic
itation by a card issuer).

§ 205.6

SECTION 205.6—Liability of Consumer
for Unauthorized Transfers
6(a) Conditions for Liability
1. Means of identification. A financial institu
tion may use various means for identifying
the consumer to whom the access device is
issued, including but not limited to—
1. electronic or mechanical confirmation
(such as a PIN);
ii. comparison of the consumer’s signature,
fingerprint, or photograph.
2. Multiple users. When more than one access
device is issued for an account, the financial
institution may, but need not, provide a sepa
rate means to identify each user of the
account.
6(b) Limitations on Amount of Liability
1. Application of liability provisions. There
are three possible tiers of consumer liability
for unauthorized EFTs, depending on the situ
ation. A consumer may be liable for (1) up to
$50; (2) up to $500; or (3) an unlimited
amount depending on when the unauthorized
EFT occurs. More than one tier may apply to
a given situation because each corresponds to
a different (sometimes overlapping) time pe
riod or set of conditions.
2. Consumer negligence. Negligence by the
consumer cannot be used as the basis for im
posing greater liability than is permissible
under Regulation E. Thus, consumer behavior
that may constitute negligence under state
law, such as writing the PIN on a debit card
or on a piece of paper kept with the card,
does not affect the consumer’s liability for un
authorized transfers. (However, refer to com
ment 2(m)-2 regarding termination of the au
thority given by the consumer to another
person.)
3. Limits on liability. The extent of the con
sumer’s liability is determined solely by the
consumer’s promptness in reporting the loss
or theft of an access device. Similarly, no
agreement between the consumer and an insti
tution may impose greater liability on the con6

Regulation E (Official Staff Commentary)

sumer for an unauthorized transfer than the
limits provided in Regulation E.
Paragraph 6(b)(1)—Timely Notice Given
1. $50 limit applies. The basic liability limit
is $50. For example, the consumer’s card is
lost or stolen on Monday and the consumer
learns of the loss or theft on Wednesday. If
the consumer notifies the financial institution
within two business days of learning of the
loss or theft (by midnight Friday), the con
sumer’s liability is limited to $50 or the
amount of the unauthorized transfers that oc
curred before notification, whichever is less.
2. Knowledge of loss or theft of access de
vice. The fact that a consumer has received a
periodic statement that reflects unauthorized
transfers may be a factor in determining
whether the consumer had knowledge of the
loss or theft, but cannot be deemed to re
present conclusive evidence that the consumer
had such knowledge.
Paragraph 6(b)(2)—Timely Notice Not Given
1. $500 limit applies. The second tier of lia
bility is $500. For example, the consumer’s
card is stolen on Monday and the consumer
learns of the theft that same day. The con
sumer reports the theft on Friday. The $500
limit applies because the consumer failed to
notify the financial institution within two busi
ness days of learning of the theft (which
would have been by midnight Wednesday).
How much the consumer is actually liable for,
however, depends on when the unauthorized
transfers take place. In this example, assume a
$100 unauthorized transfer was made on Tues
day and a $600 unauthorized transfer on
Thursday. Because the consumer is liable for
the amount of the loss that occurs within the
first two business days (but no more than
$50), plus the amount of the unauthorized
transfers that occurs after the first two busi
ness days and before the consumer gives no
tice, the consumer’s total liability is $500
($50 of the $100 transfer plus $450 of the
$600 transfer, in this example). But if $600
was taken on Tuesday and $100 on Thursday,
the consumer’s maximum liability would be
$150 ($50 of the $600 plus $100).

Regulation E (Official Staff Commentary)

Paragraph 6(b)(3)—Periodic Statement;
Timely Notice Not Given
1. Unlimited liability applies. The standard of
unlimited liability applies if unauthorized
transfers appear on a periodic statement, and
may apply in conjunction with the first two
tiers of liability. If a periodic statement shows
an unauthorized transfer made with a lost or
stolen debit card, the consumer must notify
the financial institution within 60 calendar
days after the periodic statement was sent;
otherwise, the consumer faces unlimited liabil
ity for all unauthorized transfers made after
the 60-day period. The consumer’s liability
for unauthorized transfers before the statement
is sent, and up to 60 days following, is deter
mined based on the first two tiers of liability:
up to $50 if the consumer notifies the finan
cial institution within two business days of
learning of the loss or theft of the card and up
to $500 if the consumer notifies the institution
after two business days of learning of the loss
or theft.
2. Transfers not involving access device. The
first two tiers of liability do not apply to un
authorized transfers from a consumer’s ac
count made without an access device. If, how
ever, the consumer fails to report such
unauthorized transfers within 60 calendar days
of the financial institution’s transmittal of the
periodic statement, the consumer may be lia
ble for any transfers occurring after the close
of the 60 days and before notice is given to
the institution. For example, a consumer’s ac
count is electronically debited for $200 with
out the consumer’s authorization and by
means other than the consumer’s access de
vice. If the consumer notifies the institution
within 60 days of the transmittal of the peri
odic statement that shows the unauthorized
transfer, the consumer has no liability. How
ever, if in addition to the $200, the con
sumer’s account is debited for a $400 unau
thorized transfer on the 61st day and the
consumer fails to notify the institution of the
first unauthorized transfer until the 62nd day,
the consumer may be liable for the full $400.

§ 205.7

circumstances that require extension of the no
tification periods under this section include the
consumer’s extended travel or hospitalization.
Paragraph 6(b)(5)—Notice to Financial
Institution
1. Receipt of notice. A financial institution is
considered to have received notice for pur
poses of limiting the consumer’s liability if
notice is given in a reasonable manner, even
if the consumer notifies the institution but
uses an address or telephone number other
than the one specified by the institution.
2. Notice by third party. Notice to a financial
institution by a person acting on the con
sumer’s behalf is considered valid under this
section. For example, if a consumer is hospi
talized and unable to report the loss or theft
of an access device, notice is considered given
when someone acting on the consumer’s be
half notifies the bank of the loss or theft. A
financial institution may require appropriate
documentation from the person representing
the consumer to establish that the person is
acting on the consumer’s behalf.
3. Content of notice. Notice to a financial in
stitution is considered given when a consumer
takes reasonable steps to provide the institu
tion with the pertinent account information.

Even when the consumer is unable to provide
the account number or the card number in re
porting a lost or stolen access device or an
unauthorized transfer, the notice effectively
limits the consumer’s liability if the consumer
otherwise identifies sufficiently the account in
question. For example, the consumer may
identify the account by the name on the ac
count and the type of account in question.
SECTION 205.7—Initial Disclosures
7(a) Timing of Disclosures

1. Early disclosures. Disclosures given by a
financial institution earlier than the regulation
requires (for example, when the consumer
opens a checking account) need not be re
peated when the consumer later enters into an
Paragraph 6(b)(4)—Extension of Time Limits
agreement with a third party who will initiate
1. Extenuating circumstances. Examples of preauthorized transfers to or from the con

§ 205.7

sumer’s account, unless the terms and condi
tions differ from those that the institution pre
viously disclosed. On the other hand, if an
agreement is directly between the consumer
and the account-holding institution, disclosures
must be given in close proximity to the event
requiring disclosure, for example, when the
consumer contracts for a new service.
2. Lack of prenotification of direct deposit. In
some instances, before direct deposit of gov
ernment payments such as Social Security
takes place, the consumer and the financial in
stitution both will complete Form 1199A (or a
comparable form providing notice to the insti
tution) and the institution can make disclo
sures at that time. If an institution has not
received advance notice that direct deposits
are to be made to a consumer’s account, the
institution must provide the required disclo
sures as soon as reasonably possible after the
first direct deposit is made, unless the institu
tion has previously given disclosures.
3. Addition of new accounts. If a consumer
opens a new account permitting EFTs at a fi
nancial institution, and the consumer already
has received Regulation E disclosures for an
other account at that institution, the institution
need only disclose terms and conditions that
differ from those previously given.
4. Addition of EFT services. If an EFT ser
vice is added to a consumer’s account and is
subject to terms and conditions different from
those described in the initial disclosures, dis
closures for the new service are required. The
disclosures must be provided when the con
sumer contracts for the new service or before
the first EFT is made using the new service.
5. Addition of service in interchange systems.
If a financial institution joins an interchange
or shared network system (which provides ac
cess to terminals operated by other institu
tions), disclosures are required for additional
EFT services not previously available to con
sumers if the terms and conditions differ from
those previously disclosed.
6. Disclosures covering all EFT services of
fered. An institution may provide disclosures
covering all EFT services that it offers, even
8

Regulation E (Official Staff Commentary)

if some consumers have not arranged to use
all services.
7(b) Content of Disclosures
Paragraph 7(b)(1)—Liability of Consumer
1. No liability imposed by financial institu
tion. If a financial institution chooses to im
pose zero liability for unauthorized EFTs, it
need not provide the liability disclosures. If
the institution later decides to impose liability,
however, it must first provide the disclosures.
2. Preauthorized transfers. If the only EFTs
from an account are preauthorized transfers,
liability could arise if the consumer fails to
report unauthorized transfers reflected on a pe
riodic statement. To impose such liability on
the consumer, the institution must have dis
closed the potential liability and the telephone
number and address for reporting unauthorized
transfers.
3. Additional information. At the institution’s
option, the summary of the consumer’s liabil
ity may include advice on promptly reporting
unauthorized tranfers or the loss or theft of
the access device.
Paragraph 7(b)(2)—Telephone Number and
Address
1. Disclosure of telephone numbers. An insti
tution may use the same or different telephone
numbers in the disclosures for the purpose
of—
1. reporting the loss or theft of an access de
vice or possible unauthorized transfers;
ii. inquiring about the receipt of a
preauthorized credit;
iii. stopping payment of a preauthorized debit;
iv. giving notice of an error.
2. Location of telephone number. The tele
phone number need not be incorporated into
the text of the disclosure; for example, the
institution may instead insert a reference to a
telephone number that is readily available to
the consumer, such as “Call your branch of
fice. The number is shown on your periodic
statement.” However, an institution must pro
vide a specific telephone number and address,
on or with the disclosure statement, for report-

§ 205.7

Regulation E (Official Staff Commentary)

ing a lost or stolen access device or a possible
unauthorized transfer.
Paragraph 7(b)(4)—Types of Transfers;
Limitations
1. Security limitations. Information about lim
itations on the frequency and dollar amount of
transfers generally must be disclosed in detail,
even if related to security aspects of the sys
tem. If the confidentiality of certain details is
essential to the security of an account or sys
tem, these details may be withheld (but the
fact that limitations exist must still be dis
closed). For example, an institution limits cash
ATM withdrawals to $100 per day. The insti
tution may disclose that daily withdrawal limi
tations apply and need not disclose that the
limitations may not always be in force (such
as during periods when its ATMs are off-line).
2. Restrictions on certain deposit accounts. A
limitation on account activity that restricts the
consumer’s ability to make EFTs must be dis
closed even if the restriction also applies to
transfers made by nonelectronic means. For
example, Regulation D (12 CFR 204) restricts
the number of payments to third parties that
may be made from a money market deposit
account; an institution that does not execute
fund transfers in excess of those limits must
disclose the restriction as a limitation on the
frequency of EFTs.
3. Preauthorized transfers. Financial institu
tions are not required to list preauthorized
transfers among the types of transfers that a
consumer can make.
Paragraph 7(b)(5)—Fees
1. Disclosure of EFT fees. An institution is
required to disclose all fees for EFTs or the
right to make them. Other fees (for example,
minimum-balance fees, stop-payment fees, or
account overdrafts) may, but need not, be dis
closed (but see Regulation DD, 12 CFR 230).
An institution is not required to disclose fees
for inquiries made at an ATM since no trans
fer of funds is involved.
2. Fees also applicable to non-EFT. A peritem fee for EFTs must be disclosed even if
the same fee is imposed on nonelectronic

transfers. If a per-item fee is imposed only
under certain conditions, such as when the
transactions in the cycle exceed a certain
number, those conditions must be disclosed.
Itemization of the various fees may be pro
vided on the disclosure statement or on an ac
companying document that is referenced in
the statement.
3. Interchange system fees. Fees paid by the
account-holding institution to the operator of a
shared or interchange ATM system need not
be disclosed, unless they are imposed on the
consumer by the account-holding institution.
Fees for use of an ATM that are debited di
rectly to the consumer’s account by an institu
tion other than the account-holding institution
(for example, fees included in the transfer
amount) need not be disclosed.
Paragraph 7(b)(9)—Confidentiality
1. Information provided to third parties. An
institution must describe the circumstances
under which any information relating to an ac
count to or from which EFTs are permitted
will be made available to third parties, not
just information concerning those EFTs. The
term “third parties” includes affiliates such as
other subsidiaries of the same holding
company.
Paragraph 7(b)(10)—Error Resolution
1. Substantially similar. The error-resolution
notice must be substantially similar to the
model form in appendix A of part 205. An
institution may use different wording so long
as the substance of the notice remains the
same, may delete inapplicable provisions (for
example, the requirement for written confirma
tion of an oral notification), and may substi
tute substantive state law requirements afford
ing greater consumer protection than
Regulation E.
2. Exception from provisional crediting. To
take advantage of the longer time periods for
resolving errors under section 205.11(c)(3)
(for transfers initiated outside the United
States, or resulting from POS debit-card trans
actions), a financial institution must have dis
closed these longer time periods. Similarly, an
institution that relies on the exception from
9

§ 205.7

provisional crediting in section 205.11(c)(2)
for accounts subject to Regulation T (12 CFR
220) must disclose accordingly.

Regulation E (Official Staff Commentary)

SECTION 205.9—Receipts at Electronic
Terminals; Periodic Statements
9(a) Receipts at Electronic Terminals

SECTION 205.8—Change-in-Terms
Notice; Error-Resolution Notice
8(a) Change-in-Terms Notice
1. Form of notice. No specific form or word
ing is required for a change-in-terms notice.
The notice may appear on a periodic state
ment, or may be given by sending a copy of a
revised disclosure statement, provided atten
tion is directed to the change (for example, in
a cover letter referencing the changed term).
2. Changes not requiring notice. The follow
ing changes do not require disclosure:
i.
ii.

closing some of an institution’s ATMs
cancellation of an access device

3. Limitations on transfers. When the initial
disclosures omit details about limitations be
cause secrecy is essential to the security of
the account or system, a subsequent increase
in those limitations need not be disclosed if
secrecy is still essential. If, however, an insti
tution had no limits in place when the initial
disclosures were given and now wishes to im
pose limits for the first time, it must disclose
at least the fact that limits have been adopted.
(See also section 205.7(b)(4) and the related
commentary.)
4. Change in telephone number or address.
When a financial institution changes the tele
phone number or address used for reporting
possible unauthorized transfers, a change-in
terms notice is required only if the institution
will impose liability on the consumer for un
authorized transfers under section 205.6. (See
also section 205.6(a) and the related
commentary.)

1. Receipts furnished only on request. The
regulation requires that a receipt be “made
available.” A financial institution may pro
gram its electronic terminals to provide a re
ceipt only to consumers who elect to receive
one.
2. Third party providing receipt. An account
holding institution may make terminal receipts
available through third parties such as
merchants or other financial institutions.
3. Inclusion of promotional material. A finan
cial institution may include promotional mate
rial on receipts if the required information is
set forth clearly (for example, by separating it
from the promotional material). In addition, a
consumer may not be required to surrender
the receipt or that portion containing the re
quired disclosures in order to take advantage
of a promotion.
4. Transfer not completed. The receipt re
quirement does not apply to a transfer that is
initiated but not completed (for example, if
the ATM is out of currency or the consumer
decides not to complete the transfer).
5. Receipts not furnished due to inadvertent
error. If a receipt is not provided to the con
sumer because of a bona fide unintentional er
ror, such as when a terminal runs out of paper
or the mechanism jams, no violation results if
the financial institution maintains procedures
reasonably adapted to avoid such occurrences.
6. Multiple transfers. If the consumer makes
multiple transfers at the same time, the finan
cial institution may document them on a sin
gle or on separate receipts.
Paragraph 9(a)(1)—Amount

8(b) Error-Resolution Notice
1. Change between annual and periodic no
tice. If an institution switches from an annual
to a periodic notice, or vice versa, the first
notice under the new method must be sent no
later than 12 months after the last notice sent
under the old method.
10

1. Disclosure of transaction fee. The required
display of a fee amount on or at the terminal
may be accomplished by displaying the fee on
a sign at the terminal or on the terminal
screen for a reasonable duration. Displaying
the fee on a screen provides adequate notice,
as long as consumers are given the option to

Regulation E (Official Staff Commentary)

cancel the transaction after receiving notice of
a fee.

§ 205.9

1. Calendar date. The receipt must disclose
the calendar date on which the consumer uses
the electronic terminal. An accounting or busi
ness date may be disclosed in addition if the
dates are clearly distinguished.

5. Point-of-sale transactions. There is no pre
scribed terminology for identifying a transfer
at a merchant’s POS terminal. A transfer may
be identified, for example, as a purchase, a
sale of goods or services, or a payment to a
third party. When a consumer obtains cash
from a POS terminal in addition to purchasing
goods, or obtains cash only, the documenta
tion need not differentiate the transaction from
one involving the purchase of goods.

Paragraph 9(a)(3)—Type

Paragraph 9(a)(5)—Terminal Location

1. Identifying transfer and account. Examples
identifying the type of transfer and the type of
the consumer’s account include “withdrawal
from checking,” “transfer from savings to
checking,” or “payment from savings.”

1. Location code. A code or terminal number
identifying the terminal where the transfer is
initiated may be given as part of a transaction
code.

Paragraph 9(a)(2)—Date

2. Exception. Identification of an account is
not required when the consumer can access
only one asset account at a particular time or
terminal, even if the access device can nor
mally be used to access more than one ac
count. For example, the consumer may be
able to access only one particular account at
terminals not operated by the account-holding
institution, or may be able to access only one
particular account when the terminal is off
line. The exception is available even if, in ad
dition to accessing one asset account, the con
sumer also can access a credit line.
3. Access to multiple accounts. If the con
sumer can use an access device to make trans
fers to or from different accounts of the same
type, the terminal receipt must specify which
account was accessed, such as “withdrawal
from checking I” or “withdrawal from check
ing II.” If only one account besides the pri
mary checking account can be debited, the re
ceipt can identify the account as “withdrawal
from other account.”
4. Generic descriptions. Generic descriptions
may be used for accounts that are similar in
function, such as share draft or NOW ac
counts and checking accounts. In a shared
system, for example, when a credit union
member initiates transfers to or from a share
draft account at a terminal owned or operated
by a bank, the receipt may identify a with
drawal from the account as a “withdrawal
from checking.”

2. Omission of city name. The city may be
omitted if the generally accepted name (such
as a branch name) contains the city name.
Paragraph 9(a)(5)(i)
1. Street address. The address should include
number and street (or intersection); the num
ber (or intersecting street) may be omitted if
the street alone uniquely identifies the termi
nal location.
Paragraph 9(a)(5)(ii)
1. Generally accepted name. Examples of a
generally accepted name for a specific loca
tion include a branch of the financial institu
tion, a shopping center, or an airport.
Paragraph 9(a)(5)(iii)
1. Name of owner or operator of terminal.
Examples of an owner or operator of a termi
nal are a financial institution or a retail
merchant.
Paragraph 9(a)(5)(iv)
1. Omission of a state. A state may be omit
ted from the location information on the re
ceipt if—
i. all the terminals owned or operated by the
financial institution providing the state
ment (or by the system in which it partici
pates) are located in that state or
ii. all transfers occur at terminals located
11

§ 205.9

Regulation E (Official Staff Commentary)

within 50 miles of the financial institu
tion’s main office.

or rate information, the institution must com
ply with Regulation DD, 12 CFR 230.6.

2. Omission of a city and state. A city and
state may be omitted if all the terminals
owned or operated by the financial institution
providing the statement (or by the system in
which it participates) are located in the same
city.

3. Inactive accounts. A financial institution
need not send statements to consumers whose
accounts are inactive as defined by the
institution.

Paragraph 9(a)(6)—Third-Party Transfer
1. Omission of third-party name. The receipt
need not disclose the third-party name if the
name is provided by the consumer in a form
that is not machine readable (for example, if
the consumer indicates the payee by deposit
ing a payment stub into the ATM). If, on the
other hand, the consumer keys in the identity
of the payee, the receipt must identify the
payee by name or by using a code that is
explained elsewhere on the receipt.
2. Receipt as proof of payment. Documenta
tion required under the regulation constitutes
prima facie proof of a payment to another
person, except in the case of a terminal re
ceipt documenting a deposit.
9(b) Periodic Statements
1. Periodic cycles. Periodic statements may
be sent on a cycle that is shorter than
monthly. The statements must correspond to
periodic cycles that are reasonably equal, that
is, do not vary by more than four days from
the regular cycle. The requirement of reasona
bly equal cycles does not apply when an insti
tution changes cycles for operational or other
reasons, such as to establish a new statement
day or date.
2. Interim statements. Generally, a financial
institution must provide periodic statements
for each monthly cycle in which an EFT oc
curs, and at least quarterly if a transfer has
not occurred. Where EFTs occur between reg
ularly scheduled cycles, interim statements
must be provided. For example, if an institu
tion issues quarterly statements at the end of
March, June, September, and December, and
the consumer initiates an EFT in February, an
interim statement for February must be pro
vided. If an interim statement contains interest
12

4. Customer pickup. A financial institution
may permit, but may not require, consumers
to call for their periodic statements.
5. Periodic statements limited to EFT activity.
A financial institution that uses a passbook as
the primary means for displaying account ac
tivity, but also allows the account to be deb
ited electronically, may provide a periodic
statement requirement that reflects only the
EFTs and other required disclosures (such as
charges, account balances, and address and
telephone number for inquiries). (See section
205.9(c)(l)(i) for the exception applicable to
preauthorized transfers for passbook accounts.)
6. Codes and accompanying documents. To
meet the documentation requirements for peri
odic statements, a financial institution may—
i. include copies of terminal receipts to re
flect transfers initiated by the consumer at
electronic terminals;
ii. enclose posting memos, deposit slips, and
other documents that, together with the
statement, disclose all the required infor
mation;
iii. use codes for names of third parties or
terminal locations and explain the infor
mation to which the codes relate on an
accompanying document.
Paragraph 9(b)(1)—Transaction Information
1. Information obtained from others. While fi
nancial institutions must maintain reasonable
procedures to ensure the integrity of data ob
tained from another institution, a merchant, or
other third parties, verification of each transfer
that appears on the periodic statement is not
required.
Paragraph 9(b)(l)(i)
1. Incorrect deposit amount. If a financial in
stitution determines that the amount actually
deposited at an ATM is different from the

§ 205.9

Regulation E (Official Staff Commentary)

amount entered by the consumer, the institu
tion need not immediately notify the consumer
of the discrepancy. The periodic statement re
flecting the deposit may show either the cor
rect amount of the deposit or the amount en
tered by the consumer along with the
institution’s adjustment.

4. Account-holding institution as third party.
Transfers to the account-holding institution
(by ATM, for example) must show the institu
tion as the recipient, unless other information
on the statement (such as, ‘‘loan payment
from checking”) clearly indicates that the
payment was to the account-holding
institution.

Paragraph 9(b)(l)(iii)
1. Type of transfer. There is no prescribed ter
minology for describing a type of transfer.
Placement of the amount of the transfer in the
debit or the credit column is sufficient if other
information on the statement, such as a termi
nal location or third-party name, enables the
consumer to identify the type of transfer.
Paragraph 9(b)(l)(iv)
1. Nonproprietary terminal in network An in
stitution need not reflect on the periodic state
ment the street addresses, identification codes,
or terminal numbers for transfers initiated in a
shared or interchange system at a terminal op
erated by an institution other than the account
holding institution. The statement must, how
ever, specify the entity that owns or operates
the terminal, plus the city and state.
Paragraph 9(b)(J)(v)
1. Recurring payments by government agency.
The third-party name for recurring payments
from federal, state, or local governments need
not list the particular agency. For example,
“U.S. gov’t” or “N.Y. sal” will suffice.
2. Consumer as third-party payee. If a con
sumer makes an electronic fund transfer to an
other consumer, the financial institution must
identify the recipient by name (not just by an
account number, for example).
3. Terminal location/third party. A single en
try may be used to identify both the terminal
location and the name of the third party to or
from whom funds are transferred. For exam
ple, if a consumer purchases goods from a
merchant, the name of the party to whom
funds are transferred (the merchant) and the
location of the terminal where the transfer is
initiated will be satisfied by a disclosure such
as “XYZ Store, Anytown, Ohio.”

5. Consistency in third-party identity. The pe
riodic statement must disclose a third-party
name as it appeared on the receipt, whether it
was, for example, the “dba” (doing business
as) name of the third party or the parent cor
poration’s name.
6. Third-party identity on deposits at elec
tronic terminal. A financial institution need
not identify third parties whose names appear
on checks, drafts, or similar paper instruments
deposited to the consumer’s account at an
electronic terminal.
Paragraph 9(b)(3)—Fees
1. Disclosure of fees. The fees disclosed may
include fees for EFTs and for other non-electronic services, and both fixed fees and peritem fees; they may be given as a total or
may be itemized in part or in full.
2. Fees in interchange system. An account
holding institution must disclose any fees it
imposes on the consumer for EFTs, including
fees for ATM transactions in an interchange or
shared ATM system. Fees for use of an ATM
imposed on the consumer by an institution
other than the account-holding institution and
included in the amount of the transfer by the
terminal-operating institution need not be sep
arately disclosed on the periodic statement.
3. Finance charges. The requirement to dis
close any fees assessed against the account
does not include a finance charge imposed on
the account during the statement period.
Paragraph 9(b)(4)—Account Balances
1. Opening and closing balances. The open
ing and closing balances must reflect both
EFTs and other account activity.
13

§ 205.9

Paragraph 9(b)(5)—Address and Telephone
Number for Inquiries
1. Telephone number. A single telephone
number, preceded by the “direct inquiries to”
language, will satisfy the requirements of sec
tion 205.9(b)(5) and (6).
Paragraph 9(b)(6)—Telephone Number for
Preauthorized Transfers
1. Telephone number. See comment 9(b)(5)-1.
9(c) Exceptions to the Periodic
Statement Requirements for Certain
Accounts
1. Transfers between accounts. The regulation
provides an exception from the periodic state
ment requirement for certain intra-institutional
transfers between a consumer’s accounts. The
financial institution must still comply with the
applicable periodic-statement requirements for
any other EFTs to or from the account. For
example, a Regulation E statement must be
provided quarterly for an account that also re
ceives payroll deposits electronically, or for
any month in which an account is also ac
cessed by a withdrawal at an ATM.
9(d) Documentation for Foreign-Initiated
Transfers
1. Foreign-initiated transfers. An institution
must make a good faith effort to provide all
required information for foreign-initiated
transfers. For example, even if the institution
is not able to provide a specific terminal loca
tion, it should identify the country and city in
which the transfer was initiated.

SECTION 205.10—Preauthorized
Transfers
10(a)—Preauthorized Transfers to
Consumer’s Account
Paragraph 10(a)(1)—Notice by Financial
Institution
1. Content. No specific language is required
14

Regulation E (Official Staff Commentary)

for notice regarding receipt of a preauthorized
transfer. Identifying the deposit is sufficient;
however, simply providing the current account
balance is not.
2. Notice of credit. A financial institution may
use different methods of notice for various
types or series of preauthorized transfers, and
the institution need not offer consumers a
choice of notice methods.
3. Positive notice. A periodic statement sent
within two business days of the scheduled
transfer, showing the transfer, can serve as no
tice of receipt.
4. Negative notice. The absence of a deposit
entry (on a periodic statement sent within two
business days of the scheduled transfer date)
will serve as negative notice.
5. Telephone notice. If a financial institution
uses the telephone-notice option, it should be
able in most instances to verify during a con
sumer’s initial call whether a transfer was re
ceived. The institution must respond within
two business days to any inquiry not an
swered immediately.
6. Phone number for passbook accounts. The
financial institution may use any reasonable
means necessary to provide the telephone
number to consumers with passbook accounts
that can only be accessed by preauthorized
credits and that do not receive periodic state
ments. For example, it may print the tele
phone number in the passbook or include the
number with the annual error-resolution
notice.
7. Telephone line availability. To satisfy the
readily available standard, the financial institu
tion must provide enough telephone lines so
that consumers get a reasonably prompt re
sponse. The institution need only provide tele
phone service during normal business hours.
Within its primary service area, an institution
must provide a local or toll-free telephone
number. It need not provide a toll-free number
or accept collect long-distance calls from
outside the area where it normally conducts
business.

§ 205.10

Regulation E (Official Staff Commentary)

10(b) Written Authorization for
Preauthorized Transfers from
Consumer’s Account
1. Preexisting authorizations. The financial in
stitution need not require a new authorization
before changing from paper-based to elec
tronic debiting when the existing authorization
does not specify that debiting is to occur elec
tronically or specifies that the debiting will
occur by paper means. A new authorization
also is not required when a successor institu
tion begins collecting payments.
2. Authorization obtained by third party. The
account-holding financial institution does not
violate the regulation when a third-party payee
fails to obtain the authorization in writing or
fails to give a copy to the consumer; rather, it
is the third-party payee that is in violation of
the regulation.
3. Written authorization for preauthorized
transfers. The requirement that preauthorized
EFTs be authorized by the consumer “only by
a writing” cannot be met by a payee’s signing
a written authorization on the consumer’s be
half with only an oral authorization from the
consumer. A tape recording of a telephone
conversation with a consumer who agrees to
preauthorized debits also does not constitute
written authorization for purposes of this
provision.
4. Use of confirmation form. A financial insti
tution or designated payee may comply with
the requirements of this section in various
ways. For example, a payee may provide the
consumer with two copies of a preauthoriza
tion form and ask the consumer to sign and
return one and to retain the second copy.
5. Similarly authenticated. An example of a
consumer’s authorization that is not in the
form of a signed writing but is instead “simi
larly authenticated” is a consumer’s authoriza
tion via a home banking system. To satisfy
the requirements of this section, there must be
some means to identify the consumer (such as
a security code) and to make available a paper
copy of the authorization (automatically or
upon request). The text of the electronic au
thorization would have to be displayed on a
computer screen or other visual display which

enables the consumer to read the communica
tion. Only the consumer may authorize the
transfer and not, for example, a third-party
merchant on behalf of the consumer.
6. Requirements of an authorization. An au
thorization is valid if it is readily indentifiable
as such and the terms of the preauthorized
transfer are clear and readily understandable.
10(c) Consumer’s Right to Stop
Payment
1. Stop-payment order. The financial institu
tion must honor an oral stop-payment order
made at least three business days before a
scheduled debit. If the debit item is resubmit
ted, the institution must continue to honor the
stop-payment order (for example, by sus
pending all subsequent payments to the payeeoriginator until the consumer notifies the insti
tution that payments should resume).
2. Revocation of authorization. Once a finan
cial institution has been notified that the con
sumer’s authorization is no longer valid, it
must block all future payments for the particu
lar debit transmitted by the designated payeeoriginator. The institution may not wait for
the payee-originator to terminate the automatic
debits. The institution may confirm that the
consumer has informed the payee-originator of
the revocation (for example, by requiring a
copy of the consumer’s revocation as written
confirmation to be provided within 14 days of
an oral notification). If the institution does not
receive the required written confirmation
within the 14-day period, it may honor subse
quent debits to the account.
10(d) Notice of Transfers Varying in
Amount
Paragraph 10(d)(l)—Notice
1. Preexisting authorizations. A financial in
stitution holding the consumer’s account does
not violate the regulation if the designated
payee fails to provide notice of varying
amounts.
Paragraph 10(d)(2)—Range
1. Range. A financial institution or designated
15

§ 205.10

Regulation E (Official Staff Commentary)

payee that elects to offer the consumer a spec
ified range of amounts for debiting (in lieu of
providing the notice of transfers varying in
amount) must provide an acceptable range that
could be anticipated by the consumer. For ex
ample, if the transfer is for payment of a gas
bill, an appropriate range might be based on
the highest bill in winter and the lowest bill in
summer.

of having their salary deposited at a particular
institution, or receiving their salary by check
or cash.

10(e) Compulsory Use

1. Terminal location. With regard to deposits
at an ATM, a consumer’s request for the ter
minal location or other information triggers
the error-resolution procedures, but the finan
cial institution need only provide the ATM lo
cation if it has captured that information.

Paragraph 10(e)(l)—Credit
1. Loan payments. Creditors may not require
repayment of loans by electronic means on a
preauthorized, recurring basis. A creditor may
offer a program with a reduced annual per
centage rate or other cost-related incentive for
an automatic repayment feature, provided the
program with the automatic payment feature is
not the only loan program offered by the cred
itor for the type of credit involved. Examples
include—
1. mortgages with graduated payments in
which a pledged savings account is auto
matically debited during an initial period
to supplement the monthly payments made
by the borrower;
ii. mortgage plans calling for preauthorized
biweekly payments that are debited elec
tronically to the consumer’s account and
produce a lower total finance charge.
2. Overdraft. A financial institution may re
quire the automatic repayment of an overdraft
credit plan even if the overdraft extension is
charged to an open-end account that may be
accessed by the consumer in ways other than
by overdrafts.
Paragraph 10(e)(2)—Employment or
Government Benefit
1. Payroll. A financial institution (as an em
ployer) may not require its employees to re
ceive their salary by direct deposit to that
same institution or to any other particular in
stitution. An employer may require direct de
posit of salary by electronic means if employ
ees are allowed to choose the institution that
will receive the direct deposit. Alternatively,
an employer may give employees the choice
16

SECTION 205.11—Procedures for
Resolving Errors
11(a) Definition of Error

2. Verifying account deposit. If the consumer
merely calls to ascertain whether a deposit
made via ATM, preauthorized transfer, or any
other type of EFT was credited to the account,
without asserting an error, the error-resolution
procedures do not apply.
3. Loss or theft of access device. A financial
institution is required to comply with the er
ror-resolution procedures when a consumer re
ports the loss or theft of an access device if
the consumer also alleges possible unautho
rized use as a consequence of the loss or
theft.
4. Error asserted after account closed. The fi
nancial institution must comply with the errorresolution procedures when a consumer prop
erly asserts an error, even if the account has
been closed.
5. Request for documentation or information.
A request for documentation or other informa
tion must be treated as an error unless it is
clear that the consumer is requesting a dupli
cate copy for tax or other recordkeeping
purposes.
11(b) Notice of Error from Consumer
Paragraph 11(b)(1)—Timing; Contents
1. Content of error notice. The notice of error
is effective even if it does not contain the
consumer’s account number, so long as the
financial institution is able to identify the ac
count in question. For example, the consumer

Regulation E (Official Staff Commentary)

§ 205.11

could provide a Social Security number or
other unique means of identification.

11(c) Time Limits and Extent of
Investigation

2. Investigation pending receipt of informa
tion. While a financial institution may request
a written, signed statement from the consumer
relating to a notice of error, it may not delay
initiating or completing an investigation pend
ing receipt of the statement.

1. Notice to consumer. Unless otherwise indi
cated in this section, the financial institution
may provide the required notices to the con
sumer either orally or in writing.

3. Statement held for consumer. When a con
sumer has arranged for periodic statements to
be held until picked up, the statement for a
particular cycle is deemed to have been trans
mitted on the date the financial institution first
makes the statement available to the
consumer.
4. Failure to provide statement. When a fi
nancial institution fails to provide the con
sumer with a periodic statement, a request for
a copy is governed by this section if the con
sumer gives notice within 60 days from the
date on which the statement should have been
transmitted.
5. Discovery of error by institution. The errorresolution procedures of this section apply
when a notice of error is received from the
consumer, and not when the financial institu
tion itself discovers and corrects an error.
6. Notice at particular phone number or ad
dress. A financial institution may require the
consumer to give notice only at the telephone
number or address disclosed by the institution,
provided the institution maintains reasonable
procedures to refer the consumer to the speci
fied telephone number or address if the con
sumer attempts to give notice to the institution
in a different manner.

2. Written confirmation of oral notice. A fi
nancial institution must begin its investigation
promptly upon receipt of an oral notice. It
may not delay until it has received a written
confirmation.
3. Charges for error resolution. If a billing
error occurred, whether as alleged or in a dif
ferent amount or manner, the financial institu
tion may not impose a charge related to any
aspect of the error-resolution process (includ
ing charges for documentation or investiga
tion). Since the act grants the consumer errorresolution rights, the institution should avoid
any chilling effect on the good-faith assertion
of errors that might result if charges are as
sessed when no billing error has occurred.
4. Correction without investigation. A finan
cial institution may make, without investiga
tion, a final correction to a consumer’s ac
count in the amount or manner alleged by the
consumer to be in error, but must comply
with all other applicable requirements of sec
tion 205.11.

Paragraph 11(b)(2)—Written Confirmation

5. Correction notice. A financial institution
may include the notice of correction on a pe
riodic statement that is mailed or delivered
within the 10-business-day or 45-calendar-day
time limits and that clearly identifies the cor
rection to the consumer’s account. The institu
tion must determine whether such a mailing
will be prompt enough to satisfy the require
ments of this section, taking into account the
specific facts involved.

1. Written confirmation-of-error notice. If the
consumer sends a written confirmation of er
ror to the wrong address, the financial institu
tion must process the confirmation through
normal procedures. But the institution need
not provisionally credit the consumer’s ac
count if the written confirmation is delayed
beyond 10 business days in getting to the
right place because it was sent to the wrong
address.

6. Correction of an error. If the financial in
stitution determines an error occurred, within
either the 10-day or 45-day period, it must
correct the error (subject to the liability provi
sions of sections 205.6(a) and (b)) including,
where applicable, the crediting of interest and
the refunding of any fees imposed by the in
stitution. In a combined credit/EFT transac
tion, for example, the institution must refund
any finance charges incurred as a result of the

§ 205.11

error. The institution need not refund fees that
would have been imposed whether or not the
error occurred.
7. Extent of required investigation. A financial
institution complies with its duty to investi
gate, correct, and report its determination re
garding an error described in section
205.11 (a)( 1)(vii) by transmitting the requested
information, clarification, or documentation
within the time limits set forth in section
205.11(c). If the institution has provisionally
credited the consumer’s account in accordance
with section 205.11(c)(2), it may debit the
amount upon transmitting the requested infor
mation, clarification, or documentation.
Paragraph ll(c)(2)(i)
1. Compliance with all requirements. Finan
cial institutions exempted from provisionally
crediting a consumer’s account under section
205.11(c)(2)(i)(A) and (B) must still comply
with all other requirements of section 205.11.
Paragraph 11(c)(3)—Extension of Time
Periods
1. POS debit card transactions. The extended
deadlines for investigating errors resulting
from POS debit card transactions apply to all
debit card transactions, including those for
cash only, at merchants’ POS terminals, and
also including mail and telephone orders. The
deadlines do not apply to transactions at an
ATM, however, even though the ATM may be
in a merchant location.

Regulation E (Official Staff Commentary)

exists between the institution and the third
party concerning the bill-payment service.
3. POS transfers. When a consumer alleges
an error involving a transfer to a merchant via
a POS terminal, the institution must verify the
information previously transmitted when exe
cuting the transfer. For example, the financial
institution may request a copy of the sales re
ceipt to verify that the amount of the transfer
correctly corresponds to the amount of the
consumer’s purchase.
4. Agreement. An agreement that a third party
will honor an access device is an agreement
for purposes of this paragraph. A financial in
stitution does not have an agreement for pur
poses of section 205.1 l(c)(4)(ii) solely be
cause it participates in transactions that occur
under the federal recurring payments pro
grams, or that are cleared through an ACH or
similar arrangement for the clearing and set
tlement of fund transfers generally, or because
it agrees to be bound by the rules of such an
arrangement.
11(d) Procedures If Financial Institution
D eterm ines N o Error or D ifferen t Error
Occurred

1. Error different from that alleged. When a
financial institution determines that an error
occurred in a manner or amount different
from that described by the consumer, it must
comply with the requirements of both section
205.11(c) and (d), as relevant. The institution
may give the notice of correction and the ex
planation separately or in a combined form.

Paragraph ll(c)(4)—Investigation

Paragraph 11(d)(1)—Written Explanation

1. Third parties. When information or docu
mentation requested by the consumer is in the
possession of a third party with whom the fi
nancial institution does not have an agree
ment, the institution satisfies the error-resolu
tion requirement by so advising the consumer
within the specified time period.

1. Request for documentation. When a con
sumer requests copies of documents, the fi
nancial institution must provide the copies in
an understandable form. If an institution relied
on magnetic tape it must convert the applica
ble data into readable form, for example, by
printing it and explaining any codes.

2. Scope of investigation. When an alleged er
ror involves a payment to a third party under
the financial institution’s telephone bill-pay
ment plan, a review of the institution’s own
records is sufficient, assuming no agreement
18

Paragraph 11(d)(2)—Debiting Provisional
Credit
1. Alternative procedure for debiting of
credited funds. The financial institution may

§ 205.12

Regulation E (Official Staff Commentary)

comply with the requirements of this section
by notifying the consumer that the consumer’s
account will be debited five business days
from the transmittal of the notification, speci
fying the calendar date on which the debiting
will occur.

provisions apply, as well as sections 226.13(d)
and (g) of Regulation Z. In such a transaction,
the consumer might be liable for up to $50
under Regulation Z (12 CFR 226) and, in ad
dition, for $50, $500, or an unlimited amount
under Regulation E.

2. Fees for overdrafts. The financial institu
tion may not impose fees for items it is re
quired to honor under section 205.11 of this
section. It may, however, impose any normal
transaction or item fee that is unrelated to an
overdraft resulting from the debiting. If the
account is still overdrawn after five business
days, the institution may impose the fees or
finance charges to which it is entitled, if any,
under an overdraft credit plan.

2. Issuance rules. For access devices that also
constitute credit cards, the issuance rules of
Regulation E apply if the only credit feature
is a preexisting credit line attached to the as
set account to cover overdrafts (or to maintain
a specified minimum balance). Regulation Z
(12 CFR 226) rules apply if there is another
type of credit feature, for example, one per
mitting direct extensions of credit that do not
involve the asset account.

11(e) R eassertion o f Error

12(b) Preem ption o f Inconsistent State
L aw s

1. Withdrawal of error; right to reassert. The
financial institution has no further error-reso
lution responsibilities if the consumer volunta
rily withdraws the notice alleging an error. A
consumer who has withdrawn an allegation of
error has the right to reassert the allegation
unless the financial institution had already
complied with all of the error-resolution re
quirements before the allegation was with
drawn. The consumer must do so, however,
within the original 60-day period.

SE C T IO N 2 0 5 .1 2 — R elation to Other
L aw s
12(a) R elation to Truth in L ending

;

1. Determining applicable regulation. For
transactions involving access devices that also
constitute credit cards, whether Regulation E
or Regulation Z (12 CFR 226) applies, de
pends on the nature of the transaction. For
example, if the transaction is purely an exten
sion of credit, and does not include a debit to
a checking account (or other consumer asset
account), the liability limitations and error-res
olution requirements of Regulation Z apply. If
the transaction only debits a checking account
(with no credit extended), the provisions of
Regulation E apply. Finally, if the transaction
debits a checking account but also draws on
an overdraft line of credit, the Regulation E

1. Specific determinations. The regulation
prescribes standards for determining whether
state laws that govern EFTs are preempted by
the act and the regulation. A state law that is
inconsistent may be preempted even if the
Board has not issued a determination. How
ever, nothing in section 205.12(b) provides a
financial institution with immunity for viola
tions of state law if the institution chooses not
to make state disclosures and the Board later
determines that the state law is not preempted.
2. Preemption determination. The Board de
termined that certain provisions in the state
law of Michigan are preempted by the federal
law, effective March 30, 1981:
i. Definition of unauthorized use. Section
5(4) is preempted to the extent that it re
lates to the section of state law governing
consumer liability for unauthorized use of
an access device.
ii. Consumer liability for unauthorized use of
an account. Section 14 is inconsistent with
section 205.6 and is less protective of the
consumer than the federal law. The state
law places liability on the consumer for
the unauthorized use of an account in
cases involving the consumer’s negli
gence. Under the federal law, a consum
er’s liability for unauthorized use is not
related to the consumer’s negligence and
depends instead on the consumer’s
19
\

§ 205.12

promptness in reporting the loss or theft
of the access device.
iii. Error resolution. Section 15 is preempted
because it is inconsistent with section
205.11 and is less protective of the con
sumer than the federal law. The state law
allows financial institutions up to 70 days
to resolve errors, whereas the federal law
generally requires errors to be resolved
within 45 days.
iv. Receipts and periodic statements. Sections
17 and 18 are preempted because they are
inconsistent with section 205.9. The state
provisions require a different disclosure of
information than does the federal law. The
receipt provision is also preempted be
cause it allows the consumer to be
charged for receiving a receipt if a ma
chine cannot furnish one at the time of a
transfer.

SE C T IO N 2 0 5 .1 3 — A dm inistrative
E nforcem ent; R ecord R etention

Regulation E (Official Staff Commentary)

another institution, it does not qualify for the
treatment accorded by section 205.14. For ex
ample, this section does not apply to an insti
tution that initiates preauthorized payroll de
posits to consumer accounts on behalf of an
employer. By contrast, section 205.14 can ap
ply to an institution that issues a code for ini
tiating telephone transfers to be carried out
through the ACH from a consumer’s account
at another institution. This is the case even if
the consumer has accounts at both institutions.
2. ACH agreements. The ACH rules generally
do not constitute an agreement for purposes of
this section. However, an ACH agreement
under which members specifically agree to
honor each other’s debit cards is an “agree
ment,” and thus this section does not apply.

14(b) C om p lian ce by E lectronic Fund
Transfer S erv ice Provider

1. Liability. The service provider is liable for
unauthorized EFTs that exceed limits on the
consumer’s liability under section 205.6.

13(b) R ecord R etention

1. Requirements. A financial institution need
not retain records that it has given disclosures
and documentation to each consumer; it need
only retain evidence demonstrating that its
procedures reasonably ensure the consumers’
receipt of required disclosures and
documentation.

SE C T IO N 205.14— Electronic Fund
Transfer Service Provider N o t H old in g
C onsum er’s A ccou n t
14(a) E lectronic Fund Transfer S ervice
Providers Subject to R egulation

1. Applicability. This section applies only
when a service provider issues an access de
vice to a consumer for initiating transfers to
or from the consumer’s account at a financial
institution and the two entities have no agree
ment regarding this EFT service. If the service
provider does not issue an access device to
the consumer for accessing an account held by
20

Paragraph 14(b)(1)—Disclosures and
Documentation
1. Periodic statements from electronic fund
transfer service provider. A service provider
that meets the conditions set forth in this
paragraph does not have to issue periodic
statements. A service provider that does not
meet the conditions need only include on peri
odic statements information about transfers in
itiated with the access device it has issued.
Paragraph 14(b)(2)—Error Resolution
1. Error resolution. When a consumer notifies
the service provider of an error, the EFT ser
vice provider must investigate and resolve the
error in compliance with section 205.11 as
modified by section 205.14(b)(2). If an error
occurred, any fees or charges imposed as a
result of the error, either by the service pro
vider or by the account-holding institution (for
example, overdraft or dishonor fees) must be
reimbursed to the consumer by the service
provider.

Regulation E (Official Staff Commentary)
14(c) C om pliance by A ccou n t-H old in g
Institution

Paragraph 14(c)(1)
1. Periodic statements from account-holding
institution. The periodic statement provided by
the account-holding institution need only con
tain the information required by section
205.9(b)(1).

A P P E N D IX A — M od el D isclosu re
C lauses and Form s

1. Review of forms. The Board will not re
view or approve disclosure forms or state
ments for financial institutions. However, the
Board has issued model clauses for institu
tions to use in designing their disclosures. If
an institution uses these clauses accurately to
reflect its service, the institution is protected
from liability for failure to make disclosures
in proper form.
2. Use of the forms. The appendix contains
model disclosure clauses for optional use by
financial institutions to facilitate compliance

Appendix A

with the disclosure requirements of sections
205.5(b)(2) and (b)(3), 205.6(a), 205.7,
205.8(b), 205.14(b)(l)(ii) and 205.15(d)(7)
and (d)(2). The use of appropriate clauses in
making disclosures will protect a financial in
stitution from liability under sections 915 and
916 of the act provided the clauses accurately
reflect the institution’s EFT services.
3. Altering the clauses. Financial institutions
may use clauses of their own design in con
junction with the Board’s model clauses. The
inapplicable words or portions of phrases in
parentheses should be deleted. The catchlines
are not part of the clauses and need not be
used. Financial institutions may make altera
tions, substitutions, or additions in the clauses
to reflect the services offered, such as techni
cal changes (including the substitution of a
trade name for the word “card,” deletion of
inapplicable services, or substitution of lesser
liability limits). Several of the model clauses
include references to a telephone number and
address. Where two or more of these clauses
are used in a disclosure, the telephone number
and address may be referenced and need not
be repeated.

Full text of Federal Reserve Bank of New York Circulars : Regulation E (and Official Staff Commentary), Regulation S, and Regulations G, T, U, and X, "Securities Credit Transactions"

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