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Home > News & Events > Inactive Financial Institution Letters




Inactive Financial Institution Letters


[Federal Register: May 2, 1996 (Volume 61, Number 86)]
[Rules and Regulations]               
[Page 19661-19678]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[[Page 19661]]

______________________________________________________________________

Part II


Federal Reserve System

_______________________________________________________________________

12 CFR Part 205

Electronic Fund Transfers; Final Rules and Proposed Rule

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FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R-0830]

Electronic Fund Transfers

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: The Board is publishing a final rule to amend Regulation E, 
which implements the Electronic Fund Transfer Act. The amendments are a 
result of the Board's review of Regulation E under its Regulatory 
Planning and Review Program, which calls for the periodic review of all 
Board regulations. The final rule contains some substantive amendments, 
including changes to the existing exemptions for securities or 
commodities transfers. Primarily, the final amendments simplify the 
language and format of the regulation, and delete obsolete provisions. 
Commenters generally supported the Board's proposed amendments and 
offered suggestions for additional changes, some of which were adopted 
in the final rule. In conjunction with the amendments to the 
regulation, the Board also has made amendments to the staff commentary, 
published elsewhere in today's Federal Register.

DATES: Effective date. May 2, 1996. Compliance date. Mandatory 
compliance January 1, 1997.

FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Kyung Cho-Miller, 
Natalie Taylor, or Michael Hentrel, Staff Attorneys, Division of 
Consumer and Community Affairs, at (202) 452-2412 or (202) 452-3667. 
For users of Telecommunications Device for the Deaf only, contact 
Dorothea Thompson, at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

    The Electronic Fund Transfer Act (EFTA) (15 U.S.C. 1693), enacted 
in 1978, provides a basic framework establishing the rights, 
liabilities, and responsibilities of participants in electronic fund 
transfer (EFT) systems. The Federal Reserve Board was given rulewriting 
authority to issue implementing regulations. Types of transfers covered 
by the act and regulation include transfers initiated through an 
automated teller machine (ATM), point-of-sale terminal, automated 
clearinghouse, telephone bill-payment system, or home banking program. 
The act and Regulation E (12 CFR part 205) provide rules that govern 
these and other EFTs. The rules prescribe restrictions on the 
unsolicited issuance of ATM cards and other access devices; disclosure 
of terms and conditions of an EFT service; documentation of EFTs by 
means of terminal receipts and periodic account statements; limitations 
on consumer liability for unauthorized transfers; procedures for error 
resolution; and certain rights related to preauthorized EFTs.
    Board policy under its Regulatory Planning and Review (RPR) program 
calls for the periodic review of each Board regulation. The RPR program 
has four goals: to clarify and simplify regulatory language; to amend 
regulations to reflect technological and other developments; to reduce 
undue regulatory burden on the industry; and to delete obsolete 
provisions. In keeping with that policy, the Board conducted a detailed 
review of Regulation E to determine whether it can be simplified to 
ease compliance burdens for financial institutions, while meeting the 
Board's responsibility for implementing the consumer protections of the 
EFTA. The Board issued a proposed rule on March 7, 1994 (59 FR 10684).
    Based on the comments received on the proposal and on its own 
further analysis, the Board has adopted a revised Regulation E. While 
certain substantive revisions have been made (see the section-by-
section discussion below), the final rule leaves most of the regulatory 
provisions substantively unchanged. The regulation closely follows the 
statute, which contains detailed requirements in most areas; major 
changes to the regulation are not possible unless the act itself is 
amended. The Board solicited comment on whether specific legislative 
revisions to the EFTA are necessary and achievable without imposing a 
significant adverse impact on consumer protections. A number of 
commenters provided recommendations. The Board plans to convey these 
recommendations to the Congress, as appropriate, as part of a report 
that the Board will make pursuant to section 303 of the Community 
Development and Regulatory Improvement Act of 1994.
    The final rule simplifies the language and format of each section 
of the regulation to state the requirements more clearly. All footnotes 
are either integrated into the text of the regulation or moved to the 
staff commentary, making the regulation itself less cumbersome to use. 
The final regulation is shorter than current Regulation E by about 
fifteen percent, a reduction largely attributable to the deletion of 
obsolete provisions and to the transfer of explanatory material to the 
commentary. Commenters offered specific suggestions, as well as 
rationale, for changes to the regulation (beyond those proposed by the 
Board) that would facilitate compliance. A number of these suggestions 
have been incorporated in the final rule. Also, unless otherwise 
indicated below, the revisions that were proposed in March 1994 have 
been adopted in the final rule.

II. Regulatory Revisions

    The following discussion covers the revisions to Regulation E 
section-by-section. In many cases, the changes simplify or clarify the 
current text, with no substantive change in the regulatory 
requirements; where the meaning of these changes is evident from 
reading the text itself, they are not discussed.

Section 205.1--Authority and purpose

    This section has been simplified without substantive change. The 
discussion of congressional findings in former paragraph (b) and 
contained in Sec. 902(a) of the act has been deleted as unnecessary. 
The paragraph relating to the coverage of the act and regulation has 
been moved to Sec. 205.3.

Section 205.2--Definitions

2(b) Account

    This paragraph incorporates in paragraph (b)(2) the exemption for 
trust accounts (former Sec. 205.3(f)) to track more closely the 
statutory language contained in section 903(2) of the EFTA.

2(d) Business day

    This paragraph defining business day is unchanged.
    The act and regulation define business day as any day on which the 
offices of the consumer's financial institution are open to the public 
for carrying on substantially all business functions. This requires 
that each financial institution determine when its offices are 
``carrying on substantially all business functions.'' The Board 
proposed to use its authority under section 904(c) of the EFTA to 
change the definition to mirror the definitions used in Regulations CC 
(12 CFR part 229) and DD (12 CFR part 230). Those regulations define a 
business day as a calendar day other than a Saturday, Sunday, or any 
legal public holiday specified in 5 U.S.C. 6103(a).
    Some commenters supported the proposed change; they believed that 
the change would simplify compliance by conforming the regulations 
governing deposit accounts. Among these commenters, however, several 
qualified their support. Some believed that a financial institution 
should not be

[[Page 19663]]

required to investigate and resolve errors on a day that the 
institution is not open for business. These commenters were concerned 
that they could have fewer days to investigate and resolve errors; they 
suggested using the definition of ``banking day'' in Regulation CC (the 
current definition of ``business day'' in Regulation E) to compute the 
time period for resolving disputes. Using multiple definitions--
including the existing definition for certain purposes--would seem to 
further complicate the regulation. Other commenters opposed changing 
the definition, mentioning the burden and cost associated with changing 
disclosures without corresponding benefit. After further analysis, the 
Board has retained the current definition.

2(f) Credit

    The definition of credit, inadvertently deleted from the proposal, 
has been retained.

2(i) Financial institution

    The definition of financial institution (former Sec. 205.2(i)) has 
been simplified by eliminating references to both state and federal 
institutions.

2(j) Person

    A definition of ``person'' has been added, incorporating language 
similar to that in Regulation B (Equal Credit Opportunity, 12 CFR 
202.2(x)) and Regulation Z (Truth in Lending, 12 CFR 226.2(a)(22)). The 
term is used in several places in the regulation, including 
Sec. 205.3(a), which defines the regulation's coverage, Sec. 205.10(e) 
on compulsory use, and Sec. 205.13(b) on record retention.

Section 205.3--Coverage

    This section (formerly captioned Exemptions) incorporates the 
definition of an EFT (formerly in Sec. 205.2) and consolidates in one 
place all the rules dealing with coverage to facilitate compliance. A 
proposal regarding Regulation E coverage of stored-value products and 
other emerging EFT payment systems is published separately in today's 
Federal Register.

3(b) Electronic fund transfer

    The definition of ``electronic fund transfer'', which is central to 
determining coverage under the regulation, has been moved to paragraph 
3(b). The definitions of ``preauthorized electronic fund transfer'' and 
``unauthorized electronic fund transfer'' remain in the definitions 
section.

3(c)(3) Wire or other similar transfers

    The exemption for wire transfers in former Sec. 205.3(b) has been 
revised to clarify that it exempts transfers through Fedwire (or 
similar wire transfer systems, such as CHIPS or S.W.I.F.T.) and not all 
transfers through the Federal Reserve Communications System such as the 
automated clearinghouse. No substantive change in the scope of the 
exemption is intended.
    Commenters generally favored the proposed revision. One commenter 
requested examples of transfers similar to those through the Federal 
Reserve Communications System that are exempt from Regulation E. The 
commentary addresses this issue. (See comment 205.3(c)(3)-3.)

3(c)(4) Securities and commodities transfers

    The exemption for certain securities and commodities transfers 
(formerly Sec. 205.3(c)) is revised to more closely parallel the 
statute. As revised, transfers involving unregulated securities are 
exempt from the EFTA if the purchase or sale is transacted by a broker-
dealer regulated by the Securities and Exchange Commission (SEC) or a 
futures commission merchant regulated by the Commodity Futures Trading 
Commission (CFTC). The Board believes that the regulation of broker-
dealers and futures commission merchants offers sufficient protection 
of payment transfers for consumers and that the application of the 
protections in Regulation E would only duplicate available safeguards.
    Paragraph (c)(4)(iii) extends the exemption to all securities or 
commodities held in book-entry form by Federal Reserve Banks on behalf 
of the Treasury Department and other federal agencies (for example, 
Treasury Direct issues). Previously a transfer to purchase Treasury 
securities was technically covered by Regulation E because the 
securities were not regulated by the SEC or the CFTC and, when 
purchased from the Federal Reserve Banks, were not purchased or sold by 
a registered broker-dealer. The Board believes there is adequate 
regulation of transfers that involve Federal Reserve Banks and federal 
agencies, offering sufficient consumer protection (see 31 CFR part 370, 
regulations governing payments by the automated clearing house method 
on account of United States securities).

3(c)(6) Telephone initiated transfers

    Former Sec. 205.3(e) exempted any transfer of funds initiated by a 
telephone conversation between a consumer and an officer or an employee 
of a financial institution if the transfer is not under a prearranged 
plan. To accommodate telephone transfers initiated by facsimile or 
through telephone response machines, this paragraph has been revised to 
replace ``conversation'' with the broader term ``communications.'' Also 
the phrase ``officer and employee'' has been deleted as unnecessary.

3(c)(7) Small institutions

    The asset-size cutoff for the small institution exemption (formerly 
contained in Sec. 205.3(g)) has been increased from $25 million to $100 
million. Section 904(c) of the EFT gives the Board authority to modify 
the requirements imposed by the regulation on small financial 
institutions if the Board determines that such modifications are 
necessary to alleviate any undue compliance burden on small 
institutions and that such modifications are consistent with the 
purposes and objective of the act. In 1982, the Board exempted 
preauthorized transfers to or from accounts at financial institutions 
with assets of less than $25 million to reduce compliance burdens for 
small institutions that did not offer any other EFT services.
    The regulation exempts the preauthorized transfers as a class of 
EFTs, and not the financial institutions themselves. A small financial 
institution that provides EFT services besides preauthorized transfers 
must comply with the regulation for those other services. For example, 
a small financial institution that offers ATM services must comply with 
Regulation E in regard to the issuance of debit cards, terminal 
receipts, periodic statements, and other requirements. In addition, the 
institution must comply with provisions of the act that apply to the 
financial institution's conduct rather than to the exempted transfers. 
For example, the prohibition against compulsory use of EFTs in section 
913 of the act, in regard to credit or employment, remains applicable.
    When the Board adopted the $25 million exemption in 1982, many 
small institutions that did not offer EFT services such as ATM access 
benefited from the exemption. Given the growth in assets of financial 
institutions in the past ten years, increasing the asset-size cutoff of 
the exemption to $100 million could reduce burden without lessening the 
extent of consumer protection originally provided. Because many small 
institutions now offer a variety of EFT services, it appears that only 
a limited number of institutions would be

[[Page 19664]]

exempted from Regulation E under the increase.
    The Board solicited comment on the proposed increase in the 
exemption level and on other ways the burden on small institutions 
could be reduced without sacrificing the consumer protections intended 
by the act. The majority of the commenters agreed that increasing the 
asset-size of the exemption would reduce burden and supported the 
proposal. Most commenters supporting the proposal are credit unions 
which do not offer EFTs other than preauthorized transfers such as 
payroll deductions. Other commenters opposed the proposal, stating that 
consumers should receive the same treatment from all institutions 
regardless of asset size.
    Based on comments and further analysis, the Board has increased the 
asset-size cutoff to $100 million. In light of current concerns about 
regulatory burden, the Board believes that increasing the asset-size 
cutoff will provide relief to small institutions offering limited EFT 
services, consistent with the principles under which the original 
exemption was granted.
    Questions have been raised about the impact of Article 4A of the 
Uniform Commercial Code (UCC) on the small institution exemption. The 
revised commentary to Regulation E clarifies that Article 4A is not 
applicable to the preauthorized transfers that qualify for the small 
institution exemption. (See comment 3(c)(7)-1.) Article 4A applies 
primarily to large-dollar commercial wire transfers made, for example, 
via Fedwire, CHIPs, SWIFT, and Telex. Section 4A-108 excludes any 
transaction that is subject to the EFT from coverage under Article 4A. 
The question is whether the transfers initiated by small financial 
institutions that take advantage of the regulatory exemption (such as 
for direct deposits) may be subject to the requirements of Article 4A 
as a consequence. The Board regards these preauthorized transfers as 
remaining subject to certain requirements of the EFT, and therefore not 
covered by Article 4A.
    Footnote 1a which refers to sections 913, 915, and 916 of the EFT 
has been deleted. Section 913 places restrictions on the compulsory use 
of EFTs. For example, an institution may not condition the extension of 
credit on repayment by preauthorized debit. The statutory language from 
section 913 has been incorporated in Sec. 205.10(e). References to 
sections 915 and 916 (concerning civil and criminal liability for 
violations of the EFTA) are contained in Sec. 205.3(c)(5)(ii). The 
Board has added cross-references to Sec. 205.10 and sections 915 and 
916 in the appropriate paragraphs to replace footnote 1a.

Section 205.4--General disclosure requirements; jointly offered 
services

    This section consolidates the general disclosure requirements 
currently dispersed throughout the regulation in this section. In 
addition to adding paragraph (a), the final rule contains various 
editorial changes including a reordering of the section; no substantive 
change is intended.

4(a) Form of disclosures

    The format requirements for disclosures formerly found in 
Secs. 205.7(a) and 205.9 are incorporated into this section. The Board 
interprets these requirements as generally applying to all disclosures 
and notices.
    With the continuing emergence of EFT payment technologies, the 
Board has received inquiries about providing disclosures required under 
the EFTA and Regulation E to consumers in an electronic form, in lieu 
of paper documentation. The Board has addressed this issue in the 
proposed rulemaking on Regulation E published elsewhere in today's 
Federal Register.

4(e) Services offered jointly

    This paragraph incorporates the substance of former paragraph 4(a). 
The Board has retained text concerning disclosures within an 
institution's knowledge, which had been omitted in the proposal as 
unnecessary. The Board did not intend to make a substantive change by 
omitting this language.

Section 205.5--Issuance of access devices

    The final rule makes editorial changes to this section. The 
substance of footnote 1b, which provided guidance on issuance of an 
access device for a joint account, has been moved to the commentary.
    The final rule deletes as obsolete former Sec. 205.5(a)(3), which 
grandfathered renewals of pre-1979 access devices from the requirements 
of the section. The explanatory language from former Sec. 202.5(b)(4)--
providing examples of the methods a financial institution may use to 
verify a consumer's identity when validating an access device--has been 
moved to the commentary. (See comment 205.5(b)-4.)
    The Board has moved the provisions relating to the Truth in Lending 
Act (TILA) from former Sec. 205.5(c) to Sec. 205.12, to simplify the 
regulation by placing all references to TILA in the same section.

Section 205.6--Liability of Consumer for Unauthorized Transfers

    Section 205.6 specifies the rules governing consumer liability for 
unauthorized use. To simplify the text and make it easier to 
understand, the Board has moved explanatory or illustrative material to 
the commentary. This includes examples of means of identification that 
an institution may provide to the consumer to whom an access device is 
issued; part of former Sec. 205.6(b)(3), on the relationship between 
the various tiers of liability; and former Sec. 205.6(b)(4), about 
extenuating circumstances that would permit delayed notification by 
consumers. The provisions in former Sec. 205.6(d) concerning the 
relation to the TILA now appear in Sec. 205.12.

6(a) Conditions for liability

    The former regulation appeared to condition consumer liability for 
unauthorized EFTs in all cases on the issuance of an accepted access 
device (Sec. 205.6(a)). The former commentary, on the other hand, 
stated that if the consumer failed to report an unauthorized EFT within 
sixty days of transmittal of the periodic statement reflecting the 
transfer, the consumer could be subject to liability for subsequent 
transfers, even if the unauthorized transfer did not involve an access 
device.
    Paragraph 6(a) is revised to clarify that a consumer can be held 
liable for unauthorized EFTs that do not involve an access device, but 
only those that occur sixty days after transmittal of the periodic 
statement reflecting an unauthorized transfer. Some commenters believed 
that a sixty-day period was unreasonable and suggested an alternative 
time period ranging from thirty to forty-five days; such a revision, 
however, would require a statutory change.
    Section 205.6(a)(3) requires that only three of the disclosures 
from Sec. 205.7 to be provided before a consumer can be held liable for 
unauthorized transfers. The Board proposed to require that a financial 
institution provide all of the disclosures required by Sec. 205.7 in 
order to impose liability, given that institutions must initially 
provide all of the disclosures to comply with Sec. 205.7(b).
    Commenters were split on whether this change would increase the 
risk of liability for institutions. Some agreed with the Board that the 
proposed requirement would not increase compliance burden. Others 
believed that the requirement could have adverse consequences due to 
inadvertent

[[Page 19665]]

disclosure errors unrelated to consumers' liability. Upon further 
analysis, the Board has retained the current rule.

6(b) Limitations on amount of liability

    Paragraph (b) incorporates the substance of former paragraphs (b) 
(limitations on amount of liability) and (c) (notice to financial 
institution). The final rule more clearly sets forth each of the three 
tiers of a consumer's liability ($50, $500, or unlimited).

Section 205.7--Initial disclosures

    The final rule includes format and editorial changes to this 
section to provide greater clarity. No substantive changes are 
intended. The format requirements in former paragraph (a) have been 
moved to Sec. 205.4(a).
    The provision in former Sec. 205.7(a)(1), giving financial 
institutions the option of informing the consumer about the 
advisability of promptly reporting lost or stolen access devices, has 
been moved to comment 7(b)(1)-3 of the commentary.
    The Board has moved the error resolution notice from former 
Sec. 205.7(a)(10) to appendix A (Model Form A-3), to streamline the 
regulation and place all model disclosures together. The final rule 
deletes as obsolete former Sec. 205.7(b) regarding disclosures for 
accounts that predate the statute.

7(a)(3) Business days

    Because the Board did not adopted the proposed definition of 
business day, as discussed under Sec. 205.2(d), the disclosure 
requirement has been retained.

Section 205.8--Change in terms notice; error resolution notice

    The Board has restructured Sec. 205.8 and added subheadings to make 
it easier to follow.

8(a)(1) Prior notice required

    Section 905(b) of the EFTA requires a financial institution to 
notify a consumer in writing at least 21 days before the effective date 
of an adverse change in certain terms or conditions contained in the 
initial disclosures. The Truth in Savings Act (TISA) (12 U.S.C. 4301) 
also requires institutions to provide a change-in-terms notice for 
deposit accounts. Section 266(c) of TISA requires a notice 30 days 
before the effective date of any adverse change in terms or conditions. 
The official staff commentary of Regulation DD (Truth in Savings) 
provides that if a changed term also triggers a change in terms notice 
under Regulation E, the institution may use the timing rules of 
Regulation E for sending the notice to affected consumers (see 59 FR 
5543, February 7, 1994).
    The Board proposed to use its exception authority under the EFTA to 
extend the timing of the change-in-terms notice in Regulation E from 21 
to 30 days to parallel Regulation DD and facilitate compliance with 
both regulations. The Board solicited comment on whether it is 
preferable to retain the flexibility offered by the two different 
timing requirements. Most commenters opposed extending the timing 
requirement to 30 days because the extension would in many cases double 
the period of notice before a change in terms could be implemented 
without a special mailing. The Board believes the proposed change might 
unnecessarily increase regulatory burden and, accordingly, has retained 
the 21-day notice requirement.

8(a)(2) Prior notice exception

    Prior notice is not required when an immediate change in terms is 
needed to maintain or restore the security of an EFT system or account. 
If a change is made permanent, however, a financial institution must 
notify the consumer ``on or with the next regularly scheduled periodic 
statement or within 30 days'' of the change if disclosure would not 
raise security concerns. In certain circumstances, periodic statements 
are sent on a quarterly basis, and thus the consumer might not receive 
notification of a change for up to ninety days after the change occurs.
    The Board proposed to require written notice within 45 days of the 
change. Most commenters opposed the proposal. The majority believe the 
revision would result in increased costs and regulatory burden. Where 
financial institutions send quarterly periodic statements, or where no 
EFT has been made during a statement cycle, notice of the change in 
terms would have to be provided in a separate mailing. Some commenters 
asked the Board to clarify whether the notice is triggered by the date 
of the initial change or the date the change becomes permanent; it is 
the latter.
    Based on the comments and upon further analysis, the Board has 
retained the current rule. The notice provided to consumers reflects a 
change in terms that has already been made. Since many institutions 
send statements monthly, in many cases consumers will obtain notice in 
or around 45 days after the change. In all instances, notice will be 
provided within 90 days. Given the likelihood that a section 8(a)(2) 
change is rare, and that most notices will be provided within 45 days 
(and all no later than 90 days), the minimal consumer benefit 
associated with the change is outweighed by the potential compliance 
cost to financial institutions.

8(b) Error resolution notice

    To streamline the regulation and place all model disclosure forms 
in one location, the abbreviated error resolution notice in former 
Sec. 205.8(b)--which an institution may give with each periodic 
statement in place of the longer annual notice--has been moved to 
appendix A (Model Form A-3). Language has been added to clarify that 
financial institutions may use a form substantially similar to the 
model form.

Section 205.9--Receipts at electronic terminals; periodic statements

    This section contains a number of editorial revisions and several 
substantive changes. New paragraphs and headings have been added to 
better organize the text concerning the content of disclosures.
    Disclosure format requirements, and former paragraph (e) concerning 
use of abbreviations, have been moved to Sec. 205.4. Former footnote 2, 
which permits a financial institution to make receipts available 
through a third party, has been moved to the commentary. Two obsolete 
paragraphs, (f) and (g), which dealt with receipts from terminals 
purchased prior to 1980 and delayed effective dates for certain 
periodic statements have been deleted.

9(a)(1)--Amount

    The former regulation allowed financial institutions other than the 
account-holding institution to include a charge for the transfer in the 
total amount of the transfer, provided the amount of the charge is 
disclosed on the receipt and on a sign posted on or at the terminal. 
The final rule permits all financial institutions (including the 
account-holding institution) to include the charge in the total amount 
of the transfer, if the appropriate disclosures are made; and permits 
institutions to display the fee on or at the terminal--meaning either 
on a sign posted at the terminal or on the terminal screen itself.
    Some commenters requested clarification as to whether disclosure of 
a transaction fee on the receipt or at the terminal would substitute 
for disclosure of the fee under Sec. 205.7(a)(5), initial disclosures. 
Institutions holding a consumer's account must continue to disclose 
transaction fees under Sec. 205.7(a)(5), as well as on the receipt and 
at the terminal.
    The Board solicited comment on whether consumers would need

[[Page 19666]]

protections if the fee is displayed on the screen, for example, 
allowing the consumer to cancel the transaction after the fee is 
disclosed. Commenters generally believed that displaying the fee on a 
screen provided adequate notice, as long as consumers are provided with 
the option to cancel the transaction after receiving notice. This 
interpretation is reflected in comment 9(a)(1)-1 of the staff 
commentary.

9(a)(3)--Type

    The examples included in former paragraph (a)(3) have been moved to 
the commentary.

9(a)(4)--Identification

    In a previous rulemaking, the Board deleted the requirement that a 
financial institution ``uniquely'' identify the consumer. See 55 FR 
15032 (March 22, 1995). The final rule, effective April 24, 1995, no 
longer requires that terminal receipts uniquely identify the consumer, 
the consumer's account, or the consumer's card. The change allows 
institutions to truncate the number on the receipt and helps protect 
consumers and financial institutions against fraudulent withdrawals.

9(a)(5)--Terminal location

    This paragraph incorporates the substance of former 
Sec. 205.9(b)(1)(iv), the rules regarding terminal identification on 
receipts; former footnote 5 and much of the explanatory material on 
describing locations has been moved to the commentary.
    The Board had proposed to delete the exception in footnote 5 
allowing institutions (1) to omit the name of the city and state if all 
of the terminals owned or operated by the financial institution 
providing the statement are located in the same city, or if the system 
in which the financial institution's terminal participates is located 
in the same city and (2) to omit the state if all of the terminals are 
located in the same state. Since most institutions that offer ATM 
access belong to networks operating on an interstate basis, the Board 
believed that few, if any, financial institutions would be able to take 
advantage of the exception provided by the footnote. The Board 
solicited comment on whether the exception is still used by 
institutions. Many commenters stated that credit unions and ``closed 
systems'' frequently used at universities continue to benefit from this 
exception because such institutions do not belong to interstate 
networks. Thus, the Board has retained the exception but moved it to 
the commentary. (See comment 205.9(a)(5)(iv)-1.)
    The rules regarding terminal identification on the receipt have 
been slightly modified. Former Sec. 205.9(b)(1)(iv)(C) allowed 
financial institutions to identify the terminal location by using the 
name of the entity at whose place of business the terminal is located 
or the entity that owns or operates the terminal (such as the financial 
institution). Footnote 7 required, however, that if the financial 
institution owns or operates terminals at more than one location, the 
terminal location must be identified on the periodic statement in 
accordance with former 9(b)(1)(iv) (A) or (B) and had to provide either 
a street address or a generally accepted name for the location. If an 
institution owned only one terminal (and did not belong to a network), 
however, it could identify the terminal using its own name under 
paragraph 9(b)(1)(iv)(C). The final rule omits the footnote, removing 
the limitation so that the receipt and the periodic statement may 
provide the terminal location by giving the name of the institution if 
it is other than the account-holding institution. The Board believes 
this change makes the provision available to more institutions, since 
very few institutions own and operate only one terminal and do not 
belong to a network. Commenters generally believed this change would 
not adversely reduce consumer information.

9(a)(6) Third party transfer

    Paragraph (a)(6), which requires disclosure of the name of any 
third party to or from whom funds are transferred, has been revised; 
guidance on the use of codes as identification or the exception to the 
requirement when the name of the payee cannot be duplicated by the 
terminal has been incorporated into the commentary. (See comment 
205.9(a)(6)-1.)

9(b) Periodic statements

9(b)(1)--Transaction information

    For each transfer initiated at an electronic terminal, paragraph 
(b)(1)(iv) requires financial institutions to disclose on the periodic 
statement the location of the terminal as it appeared on the receipt 
provided under Sec. 205.9(a). Under the former rule, if a code or 
terminal number on the receipt was used to identify the location, both 
the code and a description of the location, as specified in 
Sec. 205.9(b)(1)(iv) had to be disclosed on the periodic statement. The 
final rule does not require a restatement of the code in addition to 
the location description. Commenters generally supported this revision, 
noting that the code was of little use and that rules of the National 
Association of Automated Clearing Houses already require codes to be 
retained by the institution which would allow consumers to get the code 
upon request. The substance of footnote 4a, which provided that a 
financial institution need not identify the terminal location for 
transactions that involve the deposit of cash, checks, drafts, or 
similar paper instruments at electronic terminals, has been 
incorporated into paragraph (b)(1)(iv).
    Former footnote 4 permitted financial institutions to provide 
transaction information on documents that accompany the periodic 
statement; and permits the use of codes, if explained on either the 
statement or the accompanying documents. Former footnote 9 allowed an 
institution to omit the identification of third parties from periodic 
statements if their names appear on checks, drafts, or similar paper 
instruments deposited to the consumer's account at an electronic 
terminal. The substance of former footnotes 4 and 9 has been moved to 
the commentary. (See comments 205.9(b)-6 and 205.9(b)(1)(v)-6.)

9(b)(3)--Fees

    The reference in former Sec. 205.9(b)(3) that a periodic statement 
required by Regulation E need not disclose any finance charge imposed 
under 12 CFR 226.7(f) has been moved to the commentary. (See comment 
205.9(b)(3)-3.)
    The Board solicited comment on whether regulatory compliance burden 
would be eased if the fee disclosure requirements in Regulations E and 
DD were identical. Many commenters preferred having the option of 
complying with Regulation E or Regulation DD. The Board has retained 
the existing fee disclosure requirements.

9(c) Exceptions to the periodic statement requirements for certain 
accounts

    The final rule incorporates current paragraphs (c), (d), (h), and 
footnote 9a in Sec. 205.9(c), pertaining to intra-institutional 
transfers and the circumstances in which a periodic statement for EFT 
transactions is not required (for example, for a passbook account that 
can be accessed electronically only by preauthorized transfers to the 
account) or is not required on a monthly cycle. Some editorial changes 
have been made in the final rule that differ slightly from the proposal 
but no substantive change is intended.

[[Page 19667]]

9(d)--Documentation for foreign-initiated transfers

    Paragraph (d) incorporates the substance of former paragraph (i) 
without substantive change.

Section 205.10--Preauthorized transfers

    Section 205.10 sets forth general requirements for preauthorized 
transfers. The Board has reformatted and made editorial changes to this 
section. Substantive changes are discussed below.

10(a) Preauthorized transfers to consumer's account

10(a)(3)--Crediting

    This paragraph (formerly paragraph 10(a)(2)) provides that when a 
consumer's account will be credited by a preauthorized EFT from the 
same payor at least once every 60 days, an institution must credit the 
funds to the account as of the day the funds for the transfer are 
received. The Board believed that this provision was not necessary 
since other regulations address both when funds must be made available 
to the consumer and when interest must be paid on the deposit (see 
Regulation CC, 12 CFR part 229; Treasury regulations, 31 CFR part 210; 
and ACH association rules). The Board solicited comment on its proposed 
deletion of paragraph 10(a)(2).
    Most commenters agreed that Regulation CC, NACHA rules governing 
automated clearing house transactions, and Treasury direct-deposit 
rules adequately covered this issue and supported the Board's proposal 
to delete the requirement. Several commenters requested that a 
reference to the other rules and regulations be added to the paragraph 
10(a)(2). One commenter distinguished the requirements under paragraph 
10(a)(2) from those under other rules and regulations, noting that 
paragraph 10(a)(2) addressed crediting and that the NACHA rules, for 
example, address the availability of funds for withdrawal. The 
commenter recommended retaining the current language.
    Upon further analysis, the Board believes that the requirement 
under current paragraph 10(a)(2) is, in fact, different from those 
required by other regulations and has retained the current rule in 
paragraph 10(a)(3).

10(b) Written authorization for preauthorized transfers from consumer's 
account

    Under the former rule, preauthorized EFTs from a consumer's account 
may be authorized by the consumer only in writing (typically a signed 
paper document); a copy of the authorization must be given to the 
consumer. To address developments in electronic services such as home 
banking, the Board has more broadly interpreted a written authorization 
to include electronic authorizations which are ``similarly 
authenticated'' by the consumer. The Board believes this broader 
interpretation is consistent with the requirement in section 907 of the 
EFTA that the authorization be in writing.
    This change would, for example, allow preauthorized transfers in an 
electronic payment system to be authenticated by a ``digital 
signature'' or a security code. The Board believes that these are 
options that may provide the same assurance as a signature in a paper-
based system. To meet the requirement that an authorization be in 
writing, the electronic agreement would have to be displayed on a 
computer screen (or other visual display) that enables the consumer to 
read the communication. The person that obtains the authorization must 
provide an electronic or hard copy to the consumer. These 
interpretations are codified in the commentary.

10(e) Compulsory use

    This paragraph incorporates section 913 of the EFTA, which places 
certain restrictions on compulsory use of EFTs as a condition of 
credit, employment, or receipt of government benefits. This paragraph 
also clarifies that the provision applies to persons such as employers, 
and not just to financial institutions. In the former regulation, the 
prohibition against compulsory use was referenced in footnote 1a.

Section 205.11--Procedures for resolving errors

    The Board has reformatted this section and made editorial revisions 
to simplify the language and facilitate compliance. The one substantive 
change, discussed below, allows a financial institution three business 
days to provide notice after it has determined that an error has 
occurred.
    The substance of three footnotes has been moved to the commentary: 
footnote 10, permitting an institution to prescribe procedures for 
giving an error notice; footnote 11, defining an agreement for purposes 
of Sec. 205.14; and footnote 12, allowing institutions to use a 
periodic statement to inform consumers that no error has occurred.
    The substance of former paragraphs (d)(1), (3); (e)(1); and (g) has 
been moved to the commentary. Paragraph (e) on reasserting errors 
replaces former paragraph (h). Former paragraph (i), rules relating to 
the TILA, has been moved to Sec. 205.12.

11(c) Time limits and extent of investigation

    Paragraph 11(c) combines former paragraphs 11(c) and 11(d)(2) 
concerning investigation of errors. The regulation requires a financial 
institution to provide the consumer with a written explanation, within 
the prescribed time period (either 10 business days or 45 calendar 
days), if an error occurred. If an error did not occur and the 
financial institution is operating under the 45-day rule, the 
institution has three additional days to notify the consumer of its 
findings. Section 908 of the EFTA makes clear the extra time is 
available when no error occurred, but is silent on the availability of 
extra time when an error is found.
    To facilitate compliance, the Board has used its exception 
authority under section 904(c) to permit institutions to give notice 
within three business days of concluding its investigation regardless 
of the procedure being followed and whether or not an error has been 
found. The statutory language contained in section 908(d) lends itself 
to such an interpretation, and the Board believes the change will 
facilitate compliance with the section without any significant loss of 
consumer protection.
    Commenters requested that the Board consider extending the time 
periods for investigations of errors on new accounts based on concerns 
about fraud and misrepresentation. The Board has published a proposed 
rule elsewhere in today's Federal Register that would change the timing 
for error resolution on new accounts.

11(d) Procedures if financial institution determines no error or 
different error occurred

    This paragraph simplifies and replaces former paragraph 11(f).

Section 205.12--Relation to other laws

    This section contains the various references to the Truth in 
Lending Act (TILA) and Regulation Z formerly dispersed throughout 
Regulation E. The section also includes the standards applied by the 
Board in granting a state law preemption or in making an exemption 
determination.

12(a) Relation to Truth in Lending

    All references from Secs. 205.5, 205.6, and 205.11 to compliance 
with both the TILA and the EFTA are consolidated in this paragraph to 
facilitate compliance.

[[Page 19668]]

12(b) Preemption of inconsistent state laws

    Former Sec. 205.12 (a) and (b) are incorporated in paragraph (b). 
Former Sec. 205.12(c), which establishes procedures for preemption, has 
been deleted from the regulation. The procedures for requesting a 
preemption determination are available from the Board upon request.

12(c) State exemptions

    Paragraph (c) (formerly (d)) contains the rules the Board applies 
in granting a state exemption.

Section 205.13--Administrative enforcement; record retention

    Former Sec. 205.13 contained information about administrative 
enforcement, issuance of staff interpretations, and record retention. 
Much of this information has been moved to the appendices, with the 
exception of the provision on record retention. Specifically, former 
paragraph (a) listed the federal agencies charged with administrative 
enforcement of the act and regulation; revised paragraph (a) merely 
cross-references Appendix B, which lists the federal enforcement 
agencies in greater detail. Former paragraph (b) dealt with issuance of 
staff interpretations; this material has been updated to describe the 
staff commentary process that replaced the old interpretation letters, 
and has been moved to new Appendix C. Former paragraph (c), record 
retention, has been redesignated paragraph (b).

13(b) Record retention

    Only certain provisions of the act and regulation apply to persons 
other than financial institutions (for example, the compulsory use 
provisions of section 913, which apply to employers, creditors, and 
government agencies). The proposal would have limited the record 
retention requirements to financial institutions, rather than covering 
``any person subject to the act and regulation.'' The majority of the 
commenters addressing this issue opposed the proposed change, arguing 
that the same record retention requirement should apply to all persons 
subject to the regulation, and that the proposed change could adversely 
affect enforcement. The Board has retained the current rule; the record 
retention requirements continue to apply to all persons subject to the 
act and regulation.

Section 205.14--Electronic fund transfer service provider not holding 
consumer's account

    Substantial editorial revisions have been made to this section to 
simplify the text.

14(a) Electronic fund transfer service providers subject to regulation

    Revised paragraph (a) deals expressly with the entities subject to 
section 205.14, and identifies entities more clearly by setting forth 
the conditions for coverage under section 205.14 in separate 
subparagraphs.

14(b) Compliance by electronic fund transfer service provider

    This paragraph contains much of the material that appeared in 
former paragraph (a), and sets forth the compliance responsibilities of 
a non-account-holding service provider. The material has been revised 
and reorganized for greater clarity, without substantive change.

14(c) Compliance by account-holding institution

    This paragraph sets forth the compliance responsibilities of the 
account-holding institution, and is substantively unchanged from former 
paragraph (b). Former footnote 13, regarding delayed effective dates, 
has been deleted as obsolete. The substance of former paragraph (c), 
providing guidance on when there is an agreement between a service 
provider and an account-holding institution, has been moved to the 
commentary.

Section 205.15--Electronic fund transfer of government benefits

    In March 1994, the Board issued a final rule relating to the 
coverage by the EFTA and Regulation E of government benefits that 
federal, state, and local governments disburse to recipients by means 
of electronic benefit transfer (EBT) programs, adding a new section 
205.15 to Regulation E (59 FR 10678, March 7, 1994). This section is 
unchanged from the one originally issued.

Appendix A--Model Disclosure Clauses and Forms

    The model forms contained in the former regulation have been 
consolidated in Appendix A. As noted earlier, the error resolution 
notices in former Secs. 205.7(a)(10) and 205.8(b) have been moved from 
the regulation to Appendix A to streamline the regulation (see Model 
Form A-3).

Appendix B--Administrative enforcement

    Appendix B lists the federal enforcement agencies responsible for 
enforcing Regulation E for particular classes of institutions.

Appendix C--Issuance of staff interpretations

    The final rule adds a new appendix C to replace former 
Sec. 205.13(b) pertaining to staff interpretations of Regulation E. The 
Board will continue to rely on the publication of interpretations in 
the official staff commentary as the primary means of interpreting the 
regulation. In keeping with the practice that has been in place for 
years, the final rule deletes any reference to unofficial staff 
interpretations that are in writing, limiting written interpretations 
to those that appear in the staff commentary, as revised. The Board 
believes this to be the most efficient and useful way to facilitate 
compliance.

III. Regulatory Flexibility Analysis

    The Board's Office of the Secretary has prepared an economic impact 
statement on the amendment to Regulation E. A copy of the analysis may 
be obtained from Publications Services, Board of Governors of the 
Federal Reserve System, Washington, D.C. 20551, at (202) 452-3245.

IV. Paperwork Reduction Act

    In accordance with section 3506 of the Paperwork Reduction Act of 
1995 (44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board reviewed 
the rule under the authority delegated to the Board by the Office of 
Management and Budget. No comments specifically addressing the burden 
estimate were received.
    The collection of information requirements in this regulation are 
found in 12 CFR Part 205. This information is mandatory (15 U.S.C. 1693 
et seq.) to ensure adequate disclosure of basic terms, costs, and 
rights relating to electronic fund transfer (EFT) services provided to 
consumers. The respondents/recordkeepers are for-profit financial 
institutions, including small businesses. Records must be retained for 
twenty-four months. Regulation E applies to all types of financial 
institutions, not just state member banks. However, under Paperwork 
Reduction Act regulations, the Federal Reserve accounts for the burden 
of the paperwork associated with the regulation only for state member 
banks. Other agencies account for the Regulation E paperwork burden on 
their respective constituencies. Please contact the appropriate agency

[[Page 19669]]

for an estimate of this proposed regulation's affect on other 
institutions.
    The revisions are expected to decrease the associated paperwork 
burden on state member banks. It is estimated that 25 percent of small 
state member banks have no covered activities other than preauthorized 
transfers. Thus the Federal Reserve estimates that raising the asset-
size cutoff from $25 million to $100 million will decrease the number 
of covered state member banks from 1,000 to 873. The estimated burden 
per response ranges from fifteen seconds (for an ATM receipt) to 30 
minutes (for notice of revised error resolution rules). The Federal 
Reserve estimates the average frequency of response to be 85,800 
responses per respondent each year. Thus, the total amount of annual 
burden is estimated to be 474,804 hours, a decrease of 13 percent from 
543,447 hours.

List of Subjects in 12 CFR Part 205

    Consumer protection, Electronic fund transfers, Federal Reserve 
System, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Board amends 12 CFR 
part 205 as set forth below:

PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)

    1. The authority citation for part 205 continues to read as 
follows:

    Authority: 15 U.S.C. 1693.

    2. The table of contents for part 205 is revised to read as 
follows:

Sec.
205.1  Authority and purpose.
205.2  Definitions.
205.3  Coverage.
205.4  General disclosure requirements; jointly offered services.
205.5  Issuance of access devices.
205.6  Liability of consumer for unauthorized transfers.
205.7  Initial disclosures.
205.8  Change in terms notice; error resolution notice.
205.9  Receipts at electronic terminals; periodic statements.
205.10  Preauthorized transfers.
205.11  Procedures for resolving errors.
205.12  Relation to other laws.
205.13  Administrative enforcement; record retention.
205.14  Electronic fund transfer service provider not holding 
consumer's account.
205.15  Electronic fund transfer of government benefits.
Appendix A to Part 205--Model Disclosure Clauses and Forms
Appendix B to Part 205--Federal Enforcement Agencies
Appendix C to Part 205--Issuance of Staff Interpretations
Supplement 1 to Part 205--Official Staff Interpretations

    3. Sections 205.1 through 205.15 are revised to read as follows:


Sec. 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 Transfer Act (15 U.S.C. 1693 et seq.). 
The information-collection requirements have been approved by the 
Office of Management and Budget under 44 U.S.C. 3501 et seq. and have 
been assigned OMB No. 7100-0200.
    (b) Purpose. This part carries out the purposes of the Electronic 
Fund Transfer Act, which establishes the basic rights, liabilities, and 
responsibilities of consumers who use electronic fund transfer services 
and of financial institutions that offer these services. The primary 
objective of the act and this part is the protection of individual 
consumers engaging in electronic fund transfers.


Sec. 205.2  Definitions.

    For purposes of this part, the following definitions apply:
    (a)(1) Access device means a card, code, or other means of access 
to a consumer's account, or any combination thereof, that may be used 
by the consumer to initiate electronic fund transfers.
    (2) An access device becomes an accepted access device when the 
consumer:
    (i) Requests and receives, or signs, or uses (or authorizes another 
to use) the access device to transfer money between accounts or to 
obtain money, property, or services;
    (ii) Requests validation of an access device issued on an 
unsolicited basis; or
    (iii) Receives an access device in renewal of, or in substitution 
for, an accepted access device from either the financial institution 
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 incidental credit 
balance in a credit plan) held directly or indirectly by a financial 
institution 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 Protection Act, 15 U.S.C. 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 
substantially all business functions.
    (e) Consumer means a natural person.
    (f) Credit means the right granted by a financial institution to a 
consumer to defer payment of debt, incur debt and defer its payment, or 
purchase property or services and defer payment therefor.
    (g) Electronic fund transfer is defined in Sec. 205.3.
    (h) Electronic terminal means an electronic device, other than a 
telephone operated by a consumer, through which a consumer may initiate 
an electronic fund transfer. The term includes, but is not limited to, 
point-of-sale terminals, automated teller machines, and cash dispensing 
machines.
    (i) Financial institution means a bank, savings association, credit 
union, or any other person that directly or indirectly holds an account 
belonging to a consumer, or that issues an access device and agrees 
with a consumer to provide electronic fund transfer services.
    (j) Person means a natural person or an organization, including a 
corporation, government agency, estate, trust, partnership, 
proprietorship, cooperative, or association.
    (k) Preauthorized electronic fund transfer means an electronic fund 
transfer authorized in advance to recur at substantially regular 
intervals.
    (l) State means any state, territory, or possession of the United 
States; the District of Columbia; the Commonwealth of Puerto Rico; or 
any political subdivision of the above in this paragraph (l).
    (m) Unauthorized electronic fund transfer means an electronic fund 
transfer from a consumer's account initiated by a person other than the 
consumer without actual authority to initiate the transfer and from 
which the consumer receives no benefit. The term does not include an 
electronic fund transfer initiated:
    (1) By a person who was furnished the access device to the 
consumer's account by the consumer, unless the consumer has notified 
the financial institution that transfers by that person are no longer 
authorized;
    (2) With fraudulent intent by the consumer or any person acting in 
concert with the consumer; or
    (3) By the financial institution or its employee.


Sec. 205.3  Coverage.

    (a) General. This part applies to any electronic fund transfer that 
authorizes a financial institution to debit or credit a consumer's 
account. Generally, this

[[Page 19670]]

part applies to financial institutions. For purposes of Secs. 205.10 
(b), (d), and (e) and 205.13, this part applies to any person.
    (b) Electronic fund transfer. The term electronic fund transfer 
means any transfer of funds that is initiated through an electronic 
terminal, telephone, computer, or magnetic tape for the purpose of 
ordering, instructing, or authorizing a financial institution to debit 
or credit an account. The term includes, but is not limited to:
    (1) Point-of-sale transfers;
    (2) Automated teller machine transfers;
    (3) Direct deposits or withdrawals of funds;
    (4) Transfers initiated by telephone; and
    (5) Transfers resulting from debit card transactions, whether or 
not initiated through an electronic terminal.
    (c) Exclusions from coverage. The term electronic fund transfer 
does not include:
    (1) Checks. Any transfer of funds originated by check, draft, or 
similar paper instrument; or any payment made by check, draft, or 
similar paper instrument at an electronic terminal.
    (2) Check guarantee or authorization. Any transfer of funds that 
guarantees payment or authorizes acceptance of a check, draft, or 
similar paper instrument but that does not directly result in a debit 
or credit to a consumer's account.
    (3) Wire or other similar transfers. Any transfer of funds through 
Fedwire or through a similar wire transfer system that is used 
primarily for transfers between financial institutions or between 
businesses.
    (4) Securities and commodities transfers. Any transfer of funds the 
primary purpose of which is the purchase or sale of a security or 
commodity, if the security or commodity is:
    (i) Regulated by the Securities and Exchange Commission or the 
Commodity Futures Trading Commission;
    (ii) Purchased or sold through a broker-dealer regulated by the 
Securities and Exchange Commission or through a futures commission 
merchant regulated by the Commodity Futures Trading Commission; or
    (iii) Held in book-entry form by a Federal Reserve Bank or federal 
agency.
    (5) Automatic transfers by account-holding institution. Any 
transfer of funds under an agreement between a consumer and a financial 
institution which provides that the institution will initiate 
individual transfers without a specific request from the consumer:
    (i) Between a consumer's accounts within the financial institution;
    (ii) From a consumer's account to an account of a member of the 
consumer's family held in the same financial institution; or
    (iii) Between a consumer's account and an account of the financial 
institution, except that these transfers remain subject to 
Sec. 205.10(e) regarding compulsory use and sections 915 and 916 of the 
act regarding civil and criminal liability.
    (6) Telephone-initiated transfers. Any transfer of funds that:
    (i) Is initiated by a telephone communication between a consumer 
and a financial 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-holding 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 Sec. 205.10(e) regarding compulsory use and sections 
915 and 916 of the act regarding civil and criminal liability.


Sec. 205.4  General disclosure requirements; jointly offered services.

    (a) Form of disclosures. Disclosures required under this part shall 
be clear and readily understandable, in writing, and in a form the 
consumer may keep. A financial institution may use commonly accepted or 
readily understandable abbreviations in complying with the disclosure 
requirements of this part.
    (b) Additional information; disclosures required 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 U.S.C. 1601 et seq.) or the Truth in Savings Act (12 
U.S.C. 4301 et seq.)) with the disclosures required by this part.
    (c) [Reserved]
    (d) Multiple accounts and account holders--(1) Multiple accounts. A 
financial institution 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 accounts held by two or 
more consumers, a financial institution need provide only one set of 
the required disclosures and may provide them to any of the account 
holders.
    (e) Services offered jointly. Financial institutions that provide 
electronic fund transfer services 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 
Secs. 205.7 and 205.8 that are within its knowledge and within the 
purview of its relationship with the consumer for whom it holds an 
account.


Sec. 205.5  Issuance of access devices.

    (a) Solicited issuance. Except as provided in paragraph (b) of this 
section, a financial institution may issue an access device to a 
consumer 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 institution may distribute an 
access device to a consumer on an unsolicited basis if the access 
device is:
    (1) Not validated, meaning that the institution has not yet 
performed all the procedures that would enable a consumer to initiate 
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 required by Sec. 205.7, of the 
consumer's rights and liabilities that will apply if the access device 
is validated; and
    (4) Validated only in response to the consumer's oral or written 
request for validation, after the institution has verified the 
consumer's identity by a reasonable means.


Sec. 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 
unauthorized electronic fund transfer involving the consumer's account 
only if the financial institution has provided the disclosures required 
by Sec. 205.7(b)(1), (2), and (3). If the unauthorized 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 consumer's liability for 
an

[[Page 19671]]

unauthorized electronic fund transfer or a series of related 
unauthorized 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 consumer 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 business 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 unauthorized 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 occurred had the 
consumer notified the institution within the 60-day period. When an 
access 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 consumer's delay in notifying 
the financial institution was due to extenuating circumstances, 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 reasonably necessary 
to provide the institution 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 institution 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 institution 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 imposes 
less liability than is provided by this section, the consumer's 
liability shall not exceed the amount imposed under the state law or 
agreement.


Sec. 205.7  Initial disclosures.

    (a) Timing of disclosures. A financial institution 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 institution shall provide 
the following disclosures, as applicable:
    (1) Liability of consumer. A summary of the consumer's liability, 
under Sec. 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 institution's business days.
    (4) Types of transfers; limitations. The type of electronic fund 
transfers that the consumer may make and any limitations on the 
frequency and dollar amount of transfers. Details of the limitations 
need not be disclosed if confidentiality is essential to maintain 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 consumer's right to receipts 
and periodic statements, as provided in Sec. 205.9, and notices 
regarding preauthorized transfers as provided in Secs. 205.10(a), and 
205.10(d).
    (7) Stop payment. A summary of the consumer's right to stop payment 
of a preauthorized electronic fund transfer and the procedure for 
placing a stop-payment order, as provided in Sec. 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 business, the financial institution may provide information 
concerning the consumer's account to third parties.
    (10) Error resolution. A notice that is substantially similar to 
Model Form A-3 as set out in Appendix A of this part concerning error 
resolution.


Sec. 205.8  Change in terms notice; error resolution notice.

    (a) Change in terms notice--(1) Prior notice required. A financial 
institution 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 Sec. 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 institution need not give 
prior notice if an immediate 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 consumer in writing on or with the 
next regularly 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 deliver to the consumer, at least once each calendar year, an 
error resolution notice substantially 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 
Sec. 205.9(b).


Sec. 205.9  Receipts at electronic terminals; periodic statements.

    (a) Receipts at electronic terminals. A financial institution shall 
make a receipt available to a consumer at the time the consumer 
initiates an electronic fund transfer at an electronic terminal. The

[[Page 19672]]

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 transferred. The type of account 
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 accounts, 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 
periodic 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 statement shall set forth 
the following information, 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 account to or from which 
funds were transferred;
    (iv) For a transfer initiated by the consumer at an electronic 
terminal (except for a deposit of cash or a check, draft, or similar 
paper instrument), the terminal location 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 count;
    (iii) The type of transfer and type of account to or from which
funds were transferred;
    (iv) For a transfer initiated by the consumer at an electronic
terminal (except for a deposit of cash or a check, draft, or similar
paper instrument), the terminal location 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 period 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 inquiries. 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 number provided on an error resolution notice under
Sec. 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
    Sec. 205.10(a)(1)(iii).
    (c) Exceptions to the periodic statement requirement 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 accounts, the financial
institution need not provide a periodic statement if the institution
updates the passbook upon presentation 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 institution must send a periodic statement at least
quarterly.
    (2) Intra-institutional transfers. For an electronic fund transfer
initiated by the consumer between two accounts of the consumer 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 transfers 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 .
    (d) Documentation for foreign-initiated transfers. The failure by a
financial institution to provide a terminal receipt for an electronic
fund transfer or to document the transfer on a periodic statement does
not violate this part if:
    (1) The transfer is not initiated within a state; and
    (2) The financial institution treats an inquiry for clarification
or documentation as a notice of error in accordance with Sec. 205.11.

Sec. 205.10  Preauthorized transfers.

    (a) Preauthorized transfers to consumer's account--(1) Notice by
financial institution. When a person initiates preauthorized electronic
fund transfers to a consumer's account at least once every 60 days, the
account-holding financial institution shall provide notice to the
consumer by:
    (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 determine
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 receives a
preauthorized transfer of the type described in paragraph (a)(1) of
this section shall credit the amount of the transfer as of the date the
funds for the transfer are received.
    (b) Written authorization for preauthorized transfers from
consumer's account. Preauthorized electronic fund transfers from a
consumer's account may be authorized only by a writing signed or
similarly authenticated by the consumer. The person that obtains the
authorization shall provide a copy to the consumer.
    (c) Consumer's right to stop payment--(1) Notice. A consumer may
stop payment of a preauthorized electronic fund transfer from the
consumer's account by notifying the financial institution orally or in
writing at least three business days before the scheduled date of the
transfer.
    (2) Written confirmation. The financial institution may require the
consumer to give written confirmation of a stop-payment order within 14
days of an oral notification. An institution that requires written
confirmation shall inform the consumer of the requirement

[[Page 19673]]

and provide the address where confirmation must be sent when the
consumer gives the oral notification. An oral stop-payment order ceases
to be binding after 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 designated 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 institution shall inform the
consumer of the right to receive notice of all varying transfers, 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 overdraft credit plan or extended to
maintain a specified minimum balance in the consumer's account.
    (2) Employment or government benefit. No financial institution or
other person may require a consumer to establish an account for receipt
of electronic fund transfers with a particular institution as a
condition of employment or receipt of a government benefit.

Sec. 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;
    (iv) A computational or bookkeeping error made by the financial
institution relating to an electronic fund transfer;
    (v) The consumer's receipt of an incorrect amount of money from an
electronic terminal;
    (vi) An electronic fund transfer not identified in accordance with
Secs. 205.9 or 205.10(a); or
    (vii) The consumer's request for documentation required by
Secs. 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)(1) (i) through (vi) of this section.
    (2) Types of inquiries not covered. The term error does not
include:
    (i) A routine inquiry about the consumer'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. 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)(1)(vii) of this
section.
    (2) Written confirmation. A financial institution may require the
consumer to give written confirmation of an error within 10 business
days of an oral notice. An institution that requires written
confirmation shall inform the consumer of the requirement and provide
the address where confirmation must be sent when the consumer gives the
oral notification.
    (3) Request for documentation or clarifications. When a notice of
error is based on documentation or clarification that the consumer
requested under paragraph (a)(1)(vii) of this section, the consumer's
notice of error is timely if received by the financial institution no
later than 60 days after the institution 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 notice of error.
The institution shall report the results to the consumer within three
business 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 investigation within 10 business days, the institution
may take up to 45 days from receipt of a notice of error to investigate
and determine whether an error occurred, provided the institution does
the following:
    (i) Provisionally credits the consumer's account in the amount of
the alleged error (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 satisfied
the requirements of Sec. 205.6(a), the institution may withhold a
maximum of $50 from the amount credited. An institution 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 account that is subject to
Regulation T (Securities Credit by Brokers and Dealers, 12 CFR part
220);
    (ii) Informs the consumer, within two business days after the
provisional crediting, of the amount and date of the provisional
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 error occurred; and
    (iv) Reports the results to the consumer within three business days
after completing its investigation (including, if applicable, notice
that a provisional credit has been made final).
    (3) Extension of time periods. The applicable 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
Sec. 205.14, a financial institution's review of its own records
regarding an alleged error satisfies the requirements 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 institution and the third
party for the type of electronic fund transfer involved.
    (d) Procedures if financial institution determines no error or
different error

[[Page 19674]]

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 described 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 consumer's right to request
the documents that the institution relied on in making its
determination. Upon request, the institution shall promptly provide
copies of the documents.
    (2) Debiting provisional credit. Upon debiting a provisionally
credited amount, the financial institution shall:
    (i) Notify the consumer of the date and amount of the debiting;
    (ii) Notify the consumer that the institution will honor checks,
drafts, or similar instruments payable to third parties and
preauthorized transfers from the consumer'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 specified in the
notice, but need honor only items that it would have paid if the
provisionally credited funds had not been debited.
    (e) Reassertion of error. A financial institution that has fully
complied with the error resolution requirements has no further
responsibilities under this section should the consumer later reassert
the same error, except in the case of an error asserted by the consumer
following receipt of information provided under paragraph (a)(1)(vii)
of this section.

Sec. 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 capability to
initiate electronic fund transfers;
    (ii) The issuance of an access device that permits credit
extensions (under a preexisting agreement between a consumer and a
financial institution) only when the consumer's account is overdrawn or
to maintain a specified minimum balance in the consumer's account; and
    (iii) A consumer's liability for an unauthorized electronic fund
transfer and the investigation of errors involving an extension 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.
    (2) The Truth in Lending Act and Regulation Z (12 CFR part 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)(1)(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 institution, 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 part are preempted and then only to the extent of the
inconsistency. A state law is not inconsistent with the act and this
part if it is more protective of consumers.
    (2) Standards for determination. State law is inconsistent with the
requirements of the act and this part if it:
    (i) Requires or permits a practice or act prohibited by the federal
law;
    (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 correcting alleged errors, or does not require the
financial institution to credit the consumer's account during an error
investigation in accordance with Sec. 205.11(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:
    (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.

Sec. 205.13  Administrative enforcement; record retention.

    (a) Enforcement by federal agencies. Compliance with this part is
enforced by the agencies listed in Appendix B of this part.
    (b) Record 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 part 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 subject 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.

Sec. 205.14  Electronic fund transfer service provider not holding
consumer's account.

    (a) Provider of electronic fund transfer service. A person that
provides an electronic fund transfer service to a consumer but that
does not hold the consumer's account is subject to all requirements of
this part if the person:
    (1) Issues a debit card (or other access device) 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) Compliance by service provider. In addition to the requirements
generally applicable under this part, the service provider shall comply
with the following special rules:
    (1) Disclosures and documentation. The service provider shall give
the disclosures and documentation required by Secs. 205.7, 205.8, and
205.9 that are within the purview of its relationship with the
consumer. The service provider need not furnish the periodic statement
required by Sec. 205.9(b) if the following conditions are met:

[[Page 19675]]

    (i) The debit card (or other access device) issued to the consumer
bears the service provider's name and an address or telephone number
for making inquiries or giving notice of error;
    (ii) The consumer receives a notice concerning use of the debit
card that is substantially similar to the notice contained in Appendix
A of this part;
    (iii) The consumer receives, on or with the receipts required by
Sec. 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 information specified in Sec. 205.9(b)(1), 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 debit card, set forth in Sec. 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 transfers or errors, set forth in Secs. 205.6(b)(3) and
205.11(b)(1)(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 notice of an error must be
received, specified in Sec. 205.11(b)(1)(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 initiates a transfer to effect a provisional credit in
accordance with Sec. 205.11(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 applicable time period, in accordance
with Sec. 205.11(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 account-holding institution of the period
during which the account-holding institution must honor debits to the
account in accordance with Sec. 205.11(d)(2)(ii). If an overdraft
results, the service provider shall promptly reimburse the account-
holding institution in the amount of the overdraft.
    (c) Compliance by account-holding institution. The account-holding
institution need not comply with the requirements of the act and this
part with respect to electronic fund transfers initiated through the
service provider except as follows:
    (1) Documentation. The account-holding institution shall provide a
periodic statement that describes each electronic fund transfer
initiated by the consumer with the access device issued by the service
provider. The account-holding institution has no liability for the
failure to comply with this requirement if the service provider did not
provide the necessary information; and
    (2) Error resolution. Upon request, the account-holding institution
shall provide information or copies of documents needed by the service
provider to investigate errors or to furnish copies of doc section.
    (2) For purposes of this section, the term account means an account 
established by a government agency for distributing government 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 request an access device when the consumer 
applies for government benefits that the agency disburses or will 
disburse by means of an electronic fund transfer. The agency shall 
verify the identity of the consumer receiving the device by reasonable 
means before the device is activated.
    (c) Alternative to periodic statement. A government agency need not 
furnish the periodic statement required by Sec. 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 balance 
information at a balance-inquiry terminal or providing it, routinely or 
upon request, on a terminal receipt at the time of an electronic fund 
transfer); and
    (2) A written history of the consumer's account 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 statements, 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 Sec. 205.7(b) by disclosing:
    (i) Account balance. The means by which the consumer may obtain 
information concerning the account balance, including 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 written account history upon request, in place of the 
periodic statement required by Sec. 205.7(b)(6), and the telephone 
number to call to request an account history. This disclosure may be 
made by providing a notice substantially similar to the notice 
contained in paragraph A-5 in Appendix A of this part.
    (iii) Error resolution. A notice concerning 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 
Sec. 205.7(b)(10).
    (2) Annual error resolution notice. The agency shall provide an 
annual notice concerning error resolution that is substantially similar 
to the notice contained in paragraph A-5 in appendix A, in place of the 
notice required by Sec. 205.8(b).
    (3) Limitations on liability. For purposes of Sec. 205.6(b)(3), 
regarding a 60-day period for reporting any unauthorized transfer that 
appears on a periodic statement, the 60-day period shall begin with 
transmittal of a written account history or other account information 
provided to the consumer under paragraph (c) of this section.
    (4) Error resolution. The agency shall comply with the requirements 
of Sec. 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.
    4. Appendices A and B are revised and Appendix C is added to read 
as follows:

[[Page 19676]]

Appendix A to Part 205--Model Disclosure Clauses and Forms

Table of Contents

A-1--MODEL CLAUSES FOR UNSOLICITED ISSUANCE (Sec. 205.5(b)(2))
A-2--MODEL CLAUSES FOR INITIAL DISCLOSURES (Sec. 205.7(b))
A-3--MODEL FORMS FOR ERROR RESOLUTION NOTICE (Secs. 205.7(b)(10) and 
205.8(b))
A-4--MODEL FORM FOR SERVICE-PROVIDING INSTITUTIONS 
(Sec. 205.14(b)(1)(ii))
A-5--MODEL FORMS FOR GOVERNMENT AGENCIES (Sec. 205.15(d) (1) and 
(2))

A-1--MODEL CLAUSES FOR UNSOLICITED ISSUANCE (Sec. 205.5(b)(2))

    (a) Accounts using cards. You cannot use the enclosed card to 
transfer 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 cutting it in half).
    [Financial institution may add validation instructions here.]
    (b) Accounts using codes. You cannot use the enclosed code to 
transfer 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 instructions here.]

A-2--MODEL CLAUSES FOR INITIAL DISCLOSURES (Sec. 205.7(b))

    (a) Consumer Liability (Sec. 205.7(b)(1)). (Tell us AT ONCE if 
you believe your [card] [code] 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 2 business days, you can lose no more 
than $50 if someone used your [card][code] without your permission. 
(If you believe your [card] [code] has been lost or stolen, and you 
tell us within 2 business days after you learn of the loss or theft, 
you can lose no more than $50 if someone used your [card] [code] 
without your permission.)
    If you do NOT tell us within 2 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 
(Sec. 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 (Sec. 205.7(b)(3)). For purposes of these 
disclosures, our business days are (Monday through Friday) (Monday 
through Saturday) (any day including Saturdays and Sundays). 
Holidays are (not) included.
    (d) Transfer types and limitations (Sec. 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 checking 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 available at all terminals.
    (2) Limitations on frequency of transfers.--(i) You may make 
only [insert number, e.g., 3] cash withdrawals from our terminals 
each [insert time period, e.g., week].
    (ii) You can use your telephone bill-payment service to pay 
[insert number] bills each [insert time period] [telephone call].
    (iii) You can use our point-of-sale transfer service for [insert 
number] transactions each [insert time period].
    (iv) For security reasons, there are limits on the number of 
transfers you can make using our [terminals] [telephone bill-payment 
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 (Sec. 205.7(b)(5))--(1) Per transfer charge. We will 
charge you [insert dollar amount] for each transfer you make using 
our [automated teller machines] [telephone bill-payment service] 
[point-of-sale transfer service].
    (2) Fixed charge. We will charge you [insert dollar amount] each 
[insert time period] for our [automated teller machine service] 
[telephone bill-payment service] [point-of-sale transfer service].
    (3) Average or minimum balance charge. We will only charge you 
for using our [automated teller machines] [telephone bill-payment 
service] [point-of-sale transfer service] if the [average] [minimum] 
balance in your [checking account] [savings account] [accounts] 
falls below [insert dollar amount]. If it does, we will charge you 
[insert dollar amount] each [transfer] [insert time period].
    (f) Confidentiality (Sec. 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 (Sec. 205.7(b)(6))--(1) Terminal transfers. 
You can get a receipt at the time you make any transfer to or from 
your account using one of our [automated teller machines] [or] 
[point-of-sale terminals].
    (2) Preauthorized credits. If you have arranged 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 number) to find out whether or not the deposit has been 
made].
    (3) Periodic statements. You will get a [monthly] [quarterly] 
account statement (unless there are no transfers in a particular 
month. In any case you will get the statement at least quarterly).
    (4) Passbook account where the only possible electronic fund 
transfers are preauthorized credits. If you bring your passbook to 
us, we will record any electronic deposits that were made to your 
account since the last time you brought in your passbook.
    (h) Preauthorized payments (Sec. 205.7(b) (6), (7) and (8); 
Sec. 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 account, you can stop any of these payments. Here's how:
    Call us at [insert telephone number], or write us at [insert 
address], in time for us to receive your request 3 business days or 
more before the payment is scheduled to be made. If you call, 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 regular 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 previous 
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 3 business 
days or more before the transfer is scheduled, and we do not do so, 
we will be liable for your losses or damages.
    (i) Financial institution's liability (Sec. 205.7(b)(8)). If we 
do not complete a transfer to or from your account on time or in the 
correct amount according to our agreement with you, we will be 
liable for your losses or damages. However, there are some 
exceptions. We will not be liable, for instance:
    (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.

[[Page 19677]]

    (4) If the [terminal] [system] was not working properly and you 
knew about the breakdown 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--MODEL FORMS FOR ERROR RESOLUTION NOTICE (Secs. 205.7(b)(10) and 
205.8(b))

(a) Initial and annual error resolution notice (Secs. 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 statement 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 suspected error.
    If you tell us orally, we may require that you send us your 
complaint or question in writing within 10 business days.
    We will tell you the results of our investigation within 10 
business days 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 question in writing and we do not 
receive it within 10 business days, we may not credit your account.
    If we decide that there was no error, we will send you a written 
explanation within three business days after we finish our 
investigation. You may ask for copies of the documents that we used 
in our investigation.

(b) Error resolution notice on periodic statements Sec. 205.8(b)

    In Case of Errors or Questions About Your Electronic Transfers, 
Telephone us at [insert telephone number] or Write us at [insert 
address] as soon as you can, if you think your statement or receipt 
is wrong or if you need more information about a transfer on the 
statement or receipt. 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 suspected 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 
complete our investigation.

A-4--MODEL FORM FOR SERVICE-PROVIDING INSTITUTIONS 
(Sec. 205.14(b)(1)(ii))

    ALL QUESTIONS ABOUT TRANSACTIONS MADE WITH YOUR (NAME OF CARD) 
CARD MUST BE DIRECTED TO US (NAME OF SERVICE PROVIDER), AND NOT TO 
THE BANK OR OTHER FINANCIAL 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.
    We will not send you a periodic statement listing transactions 
that you make using your [name of card] card. The transactions will 
appear 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 ACCOUNT STATEMENT YOU 
RECEIVE FROM YOUR BANK OR OTHER FINANCIAL INSTITUTION. If you have 
any questions 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 number and address].

A-5--MODEL FORMS FOR GOVERNMENT AGENCIES (Sec. 205.15(d) (1) and (2))

(1) Disclosure by government agencies of information about 
obtaining account balances and account histories Sec. 205.15(d)(1) 
(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 balance 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 preceding 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 (Sec. 205.15 
(d)(1)(iii) and (d)(2))

    In Case of Errors or Questions About Your Electronic Transfers 
Telephone us at [telephone number] or Write us at [address] 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 
generally 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 point-of-sale terminals in 
food stores, the periods referred to above are 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 
investigation. You may ask for copies of the documents that we used 
in our investigation.
    If you need more information about our error resolution 
procedures, call us at [telephone number][the telephone number shown 
above].

Appendix B to Part 205--Federal Enforcement Agencies

    The following list indicates which Federal agency enforces 
Regulation E (12 CFR part 205) for particular classes of 
institutions. Any questions concerning compliance by a particular 
institution should be directed to the appropriate enforcing agency. 
Terms that are not defined in the Federal Deposit Insurance Act (12 
U.S.C. 1813(s)) shall have the meaning given to them in the 
International Banking Act of 1978 (12 U.S.C. 3101).

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

    District office of the Office of the Comptroller of the Currency 
where the institution is located.

State member banks, branches and agencies of foreign banks (other 
than Federal branches, Federal agencies, and insured state branches 
of foreign banks), commercial lending companies owned or controlled 
by foreign banks, and organizations operating under section 25 or 
25(a) of the Federal Reserve 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 regional director for the 
region in which the institution is located.

Savings institutions insured under the Savings 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 
Insurance Fund)

    Office of Thrift Supervision Regional Director for the region in 
which the institution is located.

[[Page 19678]]

Federal Credit Unions

    Division of Consumer Affairs, National Credit Union 
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428

Air Carriers

    Assistant General Counsel for Aviation Enforcement and 
Proceedings, Department of Transportation, 400 Seventh Street, S.W., 
Washington, D.C. 20590.

Brokers and Dealers

    Division of Market Regulation, Securities and Exchange 
Commission, Washington, D.C. 20549.

Retailers, Consumer Finance Companies, Certain Other Financial 
Institutions, and all others not covered above

    Federal Trade Commission, Electronic Fund Transfers, Washington, 
D.C. 20580.

Appendix C to Part 205--Issuance of 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 authorized'' 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 Director, 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, including copies of all pertinent 
documents.

Scope of Interpretations

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

    By order of the Board of Governors of the Federal Reserve 
System, April 19, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-10179 Filed 5-1-96; 8:45 am]
BILLING CODE 6210-01-P

Last Updated 11/9/2011 communications@fdic.gov