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Inactive Financial Institution Letters



[Federal Register: September 29, 1998 (Volume 63, Number 188)]
[Rules and Regulations]               
[Page 52105-52107]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29se98-36]


[[Page 52105]]

_______________________________________________________________________

Part V





Federal Reserve System





_______________________________________________________________________



12 CFR Parts 205, 213 and 230



Truth in Savings; Consumer Leasing; Electronic Fund Transfers; Final 
Rules


[[Page 52106]]



FEDERAL RESERVE SYSTEM

12 CFR Part 230

[Regulation DD; Docket No. R-1003]

 
Truth in Savings

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: The Board is publishing a final rule amending Regulation DD, 
which implements the Truth in Savings Act. The rule implements 
amendments to the Truth in Savings Act enacted as part of the Economic 
Growth and Regulatory Paperwork Reduction Act of 1996. The law modifies 
the rules for indoor lobby signs, eliminates subsequent disclosure 
requirements for automatically renewable time accounts with terms of 
one month or less, and repeals the civil liability provisions as of 
September 30, 2001.

DATES: This rule is effective September 24, 1998.

FOR FURTHER INFORMATION CONTACT: Kyung Cho-Miller, Staff Attorney, 
Division of Consumer and Community Affairs, at (202) 452-3667 or 452-
2412. For the hearing impaired only, Telecommunications Device for the 
Deaf (TDD), contact Diane Jenkins, at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

    The Truth in Savings Act (TISA) is implemented by the Board's 
Regulation DD (12 CFR Part 230). The act and regulation require 
depository institutions to disclose yields, fees, and other terms 
concerning deposit accounts to consumers at account opening. The 
regulation also includes rules about advertising of deposit accounts. 
Credit unions are governed by a substantially similar regulation issued 
by the National Credit Union Administration. The act was amended by the 
Economic Growth and Regulatory Paperwork Reduction Act of 1996 (1996 
Act).

II. Regulatory Revisions

    On March 25, 1998, the Board published proposed amendments to 
Regulation DD to implement statutory amendments that eliminate the 
requirement that institutions provide disclosures in advance of 
maturity for automatically renewable (rollover) time accounts with a 
term of 30 days or less, expand an exemption from certain advertising 
provisions for signs on the premises of a depository institution, and 
repeal TISA's civil liability provisions, effective September 30, 2001 
(63 FR 14533). Commenters on the proposal--all financial institutions 
or their trade associations--unanimously supported the proposed 
amendments.
    In March 1998, the Board also published a proposal to allow 
institutions to provide Regulation DD disclosures electronically (63 FR 
14533, March 25, 1998). Similar proposals were made under Regulations B 
(Equal Credit Opportunity), M (Consumer Leasing), and Z (Truth in 
Lending); an interim rule was issued under Regulation E. The Board 
anticipates further action on these proposals by year-end.

III. Section-by-Section Analysis

Section 230.5  Subsequent Disclosures

5(c) Notice for Time Accounts One Month or Less That Renew 
Automatically
    Section 266(a)(3) of TISA requires institutions to provide certain 
disclosures for rollover time accounts at least 30 days before 
maturity. In implementing this provision, the Board determined in 1992 
that the purposes of the legislation would not be served by requiring 
advance disclosures for rollover time accounts with maturities of one 
month or less. Regulation DD therefore does not require disclosures to 
be provided in advance of maturity for such time accounts. However, 
under Sec. 230.5(c) of the regulation, if a term disclosed when the 
account was opened is changed at renewal, institutions were required to 
send a notice describing the change within a reasonable time after the 
renewal of the account.
    The 1996 Act eliminates the requirement that institutions provide 
subsequent disclosures (that is, disclosures in advance of maturity) 
for automatically renewable time accounts with a term of 30 days or 
less. (Institutions will continue to provide disclosures when these 
accounts are opened.) Accordingly, Sec. 230.5(c) and the corresponding 
provision in the official staff commentary, comment 5(c)-1, are 
deleted.
    Technically, the statute could be read to require subsequent 
disclosures for rollover time accounts with a maturity of 31 days. For 
ease of compliance, the Board has eliminated these disclosures for 
rollover time accounts with a maturity of ``one month or less.'' 
Subsequent disclosures for accounts with a maturity of 31 days are not 
required under this approach, which is consistent with other provisions 
of Regulation DD that interpret one month to include 31 days.

Section 230.8  Advertising

8(e) Exemption for Certain Advertisements
8(e)(2) Indoor Signs
    Section 263(a) of TISA provides that a reference to a specific 
interest rate, yield, or rate of earnings in an advertisement triggers 
a duty to state certain additional information, including the annual 
percentage yield. In 1994, the Congress amended section 263(c) of the 
advertising rules to provide that if a rate is displayed on a sign 
(including a rate board) designed to be viewed only from the interior 
of an institution, the disclosure requirements of section 263 do not 
apply.
    A further amendment to section 263(c) contained in the 1996 Act 
expands the exemption for signs on the premises of the depository 
institution. All signs inside the premises of an institution are now 
exempt from certain advertising disclosures (including signs that are 
intended to be viewed from outside the premises). Accordingly, the 
reference in Sec. 230.8(e) to signs that face outside the premises and 
the corresponding provision in the official staff commentary, comment 
8(e)(2)(I)-2, are deleted. Any sign posted outside a depository 
institution remains covered by the advertising provisions unless the 
sign qualifies for some other exemption, such as the exemption for 
electronic media.

Section 230.9  Enforcement and Record Retention

9(b) Civil Liability
    Section 271 of TISA, which provides for civil liability for 
violations of the act's provisions, was repealed by the 1996 Act, 
effective September 30, 2001. The regulation refers to TISA's civil 
liability provisions in Sec. 230.9(b), and has been revised to reflect 
the effective date of the repeal of Section 271.

IV. Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act 
(5 U.S.C. 604), the Board has reviewed the final amendments to 
Regulation DD. Two of the three requirements of a final regulatory 
flexibility analysis under this section are (1) a succinct statement of 
the need for and the objectives of the rule and (2) a summary of the 
issues raised by the public comments, the agency's assessment of the 
issues, and a statement of the changes made in the final rule in 
response to the comments. These two areas are discussed above.
    The third requirement of the analysis calls for a description of 
significant alternatives to the rule that would

[[Page 52107]]

minimize the rule's economic impact on small entities and reasons why 
the alternatives were rejected. The final amendments will apply to all 
financial institutions subject to Regulation DD, including small 
institutions. The amendments represent minor changes to the existing 
regulation; in some cases, the amendments reduce economic burden. 
Accordingly, the amendments should not have a negative economic impact 
on small institutions, and, therefore, there were no significant 
alternatives that would have further minimized the economic impact on 
those institutions.

V. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 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. The Federal Reserve may not conduct or sponsor, and an 
organization is not required to respond to, this information collection 
unless it displays a currently valid OMB control number. The OMB 
control number is 7100-0271.
    The collection of information that is revised by this rulemaking is 
found in 12 CFR 230--Regulation DD, including Appendices A and B and 
Supplement I. This information collection is mandatory under the Truth 
in Savings Act (12 U.S.C. 4308) and the Board's Regulation DD, which 
requires that consumers be given certain account disclosures. The 
disclosures assist consumers in comparing deposit accounts offered by 
depository institutions, principally through the disclosure of fees, 
APY, interest rates, and other account terms whenever a consumer 
requests the information and before an account is opened. The 
regulation also requires that fees and other information be provided on 
any periodic statement the institution sends to the consumer. The 
respondents are for-profit financial institutions, including small 
businesses. Institutions are also required to retain records for 
twenty-four months as evidence of compliance. No comments specifically 
addressing the burden estimate were received.
    The Board also extended the recordkeeping and disclosure 
requirements in connection with Regulation DD for three years. The 
current total annual burden for this information collection is an 
estimated 1,478,395 hours. This amount reflects the burden estimate of 
the Federal Reserve System for the 996 state member banks under its 
supervision. The modified rules for indoor lobby signs and elimination 
of subsequent disclosure requirements for automatically renewable time 
accounts with terms less than one month will decrease the frequency of 
response slightly. The estimated total annual burden after the 
revisions will be about 1,476,071 hours, a decrease of 2,324 hours. 
There is estimated to be no associated capital or start up cost and no 
annual cost burden.
    Because the records would be maintained at state member banks and 
the notices are not provided to the Federal Reserve, no issue of 
confidentiality arises under the Freedom of Information Act.
    The Board has a continuing interest in the public's opinions of 
Federal Reserve collections of information. At any time, comments 
regarding the burden estimate, or any other aspect of this collection 
of information, including suggestions for reducing the burden, may be 
sent to: Secretary, Board of Governors of the Federal Reserve System, 
20th and C Streets, N.W., Washington, DC 20551; and to the Office of 
Management and Budget, Paperwork Reduction Project (7100-0271), 
Washington, DC 20503.

List of Subjects in 12 CFR Part 230

    Advertising, Banks, banking, Consumer protection, Federal Reserve 
System, Reporting and recordkeeping requirements, Truth in savings.

Text of Revisions

    For the reasons set forth in the preamble, the Board amends 12 CFR 
part 230, as set forth below:

PART 230--TRUTH IN SAVINGS (REGULATION DD)

    1. The authority citation for part 230 continues to read as 
follows:

    Authority: 12 U.S.C. 4301 et seq.


Sec. 230.5   [Amended]

    2. Section 230.5 is amended by removing paragraph (c) and 
redesignating paragraph (d) as new paragraph (c).
    3. Section 230.8 is amended by revising paragraph (e)(2)(i) to read 
as follows:


Sec. 230.8  Advertising.

* * * * *
    (e) Exemption for certain advertisements. * * *
    (2) Indoor signs. (i) Signs inside the premises of a depository 
institution (or the premises of a deposit broker) are not subject to 
paragraphs (b), (c), (d) or (e)(1) of this section.
* * * * *
    4. Section 230.9 is amended by revising paragraph (b) to read as 
follows:


Sec. 230.9  Enforcement and record retention.

* * * * *
    (b) Civil liability. Section 271 of the Act contains the provisions 
relating to civil liability for failure to comply with the requirements 
of the act and this part; Section 271 is repealed effective September 
30, 2001.
* * * * *

SUPPLEMENT I to PART 230--OFFICIAL STAFF INTERPRETATION

PART 230--SUPPLEMENT I  [AMENDED]

    5. In Supplement I to Part 230, in Section 230.5--Subsequent 
disclosures, under paragraph (c), paragraph 1. is removed.
    6. In Supplement I to Part 230, in Section 230.8--Advertising, 
under paragraph (e)(2)(i), paragraph 2. is removed.

    By order of the Board of Governors of the Federal Reserve 
System, September 23, 1998.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 98-26010 Filed 9-28-98; 8:45 am]
BILLING CODE 6210-01-P

[Federal Register: September 29, 1998 (Volume 63, Number 188)]
[Rules and Regulations]               
[Page 52107-52115]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29se98-37]

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FEDERAL RESERVE SYSTEM

12 CFR Part 213

[Regulation M; Docket No. R-1004]

 
Consumer Leasing

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: The Board is publishing a final rule amending Regulation M, 
which implements the Consumer Leasing Act. The act requires lessors to 
provide consumers with uniform cost and other disclosures about 
consumer lease transactions. The final rule adopts several technical 
amendments to the regulation and commentary concerning lease payments, 
advertisements, and the treatment of taxes.

DATES: This rule is effective September 24, 1998. Compliance is 
optional until October 1, 1999.

FOR FURTHER INFORMATION CONTACT: Kyung Cho-Miller, Staff Attorney, 
Division of Consumer and Community Affairs, Board of Governors of the 
Federal Reserve System, at (202) 452-3667. For users of 
Telecommunications Device for the Deaf (TDD) only, Diane Jenkins at 
(202) 452-3544.

SUPPLEMENTARY INFORMATION:

[[Page 52108]]

I. Background

    The Consumer Leasing Act (CLA), 15 U.S.C. 1667-1667e, is 
implemented by the Board's Regulation M (12 CFR 213). The CLA requires 
lessors to provide consumers with uniform cost and other disclosures 
about consumer lease transactions. The act generally applies to 
consumer leases of personal property in which the contractual 
obligation does not exceed $25,000 and has a term of more than four 
months. An automobile lease is the most common type of consumer lease 
covered by the act.

II. Regulatory Revisions

    On March 25, 1998, the Board published several technical amendments 
to Regulation M (63 FR 14538). Seventeen commenters, representing major 
leasing companies and a consumer representative, submitted comments on 
the proposed amendments; most generally supported the revisions.
    In the same rulemaking, the Board proposed to allow lessors to 
provide Regulation M disclosures electronically. Similar proposals were 
made under Regulations B (Equal Credit Opportunity), DD (Truth in 
Savings), and Z (Truth in Lending); an interim rule was issued under 
Regulation E. The Board anticipates further action on these proposals 
by year-end.

III. Section-by-Section Analysis

Section 213.4--Content of Disclosures

4(f)(8) Lease term
    In September 1996, Regulation M was revised to require, among other 
things, that lessors show consumers a mathematical progression of how a 
scheduled payment is derived in a motor vehicle lease. In deriving a 
scheduled payment, the ``total of base periodic payments'' is divided 
by the number of lease payments. The caption in the regulation and on 
the model forms refers to the number of lease payments as the ``lease 
term.''
    To avoid confusion, references to the ``lease term'' in 
Sec. 213.4(f)(8) have been changed to ``lease payments'' with 
corresponding changes to the model forms in appendix A of Regulation M. 
For example, in reflecting the consumer's legal obligation to make one 
payment under a single-payment lease, the figure disclosed under 
Sec. 213.4(f)(8) should be one (not the lease term such as 24 months or 
36 months).
    Despite the revision to the model forms, lessors may continue to 
use the existing form until supplies are exhausted. If properly 
completed, those forms comply with the requirements of the act and 
regulation, protecting lessors from civil liability under sections 130 
of the Truth in Lending Act and 185 of the Consumer Leasing Act.
    The term of the lease (such as 24 months or 36 months) is not a 
required disclosure. Lessors may, however, disclose the lease term 
among the segregated disclosures if they choose. This guidance, 
included in the preamble to the proposed change, has been incorporated 
into the commentary, replacing existing comment 4(f)(8)-1. Lessors 
should note, however, that the calculation under Sec. 213.4(f)(8) calls 
for the number of payments.

Section 213.7--Advertising

    On April 1, 1997, the Board revised Regulation M to implement 
amendments to the act contained in the Economic Growth and Regulatory 
Paperwork Reduction Act of 1996, which streamlined the advertising 
disclosures for lease transactions (62 FR 15364). Under the act, 
certain terms in an advertisement will trigger the disclosure of 
additional information. A statement in a lease advertisement that no 
initial payment is required is a ``triggering'' term that has been 
added to Sec. 213.7(d)(1)(ii). It had been inadvertently omitted 
previously.

Appendix A--Model Forms

    Several technical changes have been made to the model forms in 
appendix A. The model forms for open- and closed-end leases in appendix 
A-1 and A-2 have been revised to change the reference under the payment 
calculation (from ``Lease term. The number of months in your lease.'' 
to ``Lease payments. The number of payments in your lease''). Page 2 of 
the open-end model form has been revised; in the ``end of term 
liability,'' the second line of the paragraph following item 3 has been 
corrected by changing ``actual'' to read ``actual value.'' Model form 
A-3 for a furniture lease has been revised by adding ``or delivery `` 
in the heading ``Amount due at lease signing.''

IV. Commentary Provisions

Section 213.4--Content of Disclosures

4(f) Payment Calculation
4(f)(7) Total of Base Periodic Payments
    For motor vehicle leases, lessors are required under Sec. 213.4(f) 
to provide a mathematical progression of how scheduled lease payments 
are derived. Some lessors have expressed concern about exposure to 
civil liability if one divides the total of the base periodic payments 
disclosed under Sec. 213.4(f)(7) by the number of payments in the lease 
disclosed under Sec. 213.4(f)(8) and then multiplies the base periodic 
payment disclosed under Sec. 213.4(f)(9) by the number of payments in 
the lease disclosed under Sec. 213.4(f)(8); the results are different 
because of rounding.
    Comment 4(f)(7)-1 has been added to respond to this concern. The 
comment has been revised from the proposed language for clarity, 
without substantive change. The anomaly also could be avoided by making 
adjustments to the rent charge.
4(f)(8) Lease Payment.
    Current comment 4(f)(8)-1 has been deleted as unnecessary, and has 
been replaced by a new comment 4(f)(8)-1 that allows lessors to include 
the lease term among the segregated disclosures. (Generally, lessors 
may not add information to the segregated disclosures unless required 
by regulation in Sec. 213.3(a)(2) or permitted to be included among the 
segregated disclosures. See comment 3(a)(2)-2 and comments 1 and 2 to 
appendix A.)
4(n) Fees and Taxes
    Several examples are provided in comment 4(n)-1 to illustrate when 
taxes are disclosed under this section. This comment has been revised 
to clarify that taxes which are part of the scheduled payments are 
required to be disclosed under Sec. 213.4(n).

Appendix A--Model Forms

    Comment 2 to appendix A provides examples of acceptable changes 
that may be made to the model forms. At the request of commenters, the 
comment has been revised to clarify that inapplicable disclosures may 
be deleted.

V. Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act 
(5 U.S.C. 604), the Board has reviewed the final amendments to 
Regulation M. Two of the three requirements of a final regulatory 
flexibility analysis under this section are (1) a succinct statement of 
the need for and the objectives of the rule and (2) a summary of the 
issues raised by the public comments, the agency's assessment of the 
issues, and a statement of the changes made in the final rule in 
response to the comments. These two areas are discussed above.
    The third requirement of the analysis calls for a description of 
significant alternatives to the rule that would minimize the rule's 
economic impact on small entities and reasons why the alternatives were 
rejected. The final amendments will apply to all lessors subject to 
Regulation M, including small entities. The amendments represent 
relatively small changes to the existing

[[Page 52109]]

regulation; in some cases, the amendments clarify rights and duties of 
covered lessors or reduce economic burden. Accordingly, the amendments 
should not have a negative economic impact on small entities, and, 
therefore, there were no significant alternatives that would have 
minimized further the economic impact on those entities.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the final rule under 
the authority delegated to the Board by the Office of Management and 
Budget. The Federal Reserve may not conduct or sponsor, and an 
organization is not required to respond to, this information collection 
unless it displays a currently valid OMB control number. The OMB 
control number is 7100-0202.
    The collection of information that is revised by this rulemaking is 
found in 12 CFR 213-- Regulation M, including Appendices A, B, C, and D 
and Supplement I. This information collection is mandatory under the 
Consumer Leasing Act (CLA) (15 U.S.C. 1667 et seq.) and the Board's 
Regulation M. The purpose of the disclosures associated with Regulation 
M is to ensure that lessees of personal property receive meaningful 
information that enables them to compare lease terms with other leases 
and, where appropriate, with credit transactions. The respondents/
recordkeepers are individuals or businesses that regularly lease, offer 
to lease, or arrange for the lease of personal property under a 
consumer lease, including small businesses. Institutions are also 
required to retain records for twenty-four months as evidence of 
compliance. No comments specifically addressing the burden estimate 
were received.
    The Board also extended the recordkeeping and disclosure 
requirements in connection with Regulation M for three years. The 
current estimated annual burden for this information collection is 
11,179 hours. It is estimated that there are 310 disclosure respondents 
and 15 advertising respondents with an average frequency of 120 and 3 
responses per respondent each year, respectively. The technical 
amendments clarifying the rules on lease payments, advertisements and 
rounding calculations are estimated to have no effect on burden. There 
is estimated to be no annual cost burden and no associated capital or 
start up cost.
    Consumer lease information in or referred to by advertisements is 
available to the public. Disclosures of the costs, liabilities, and 
terms of consumer lease transactions relating to specific leases are 
not publicly available. Because the Federal Reserve does not collect 
any of the information, no issue of confidentiality under the Freedom 
of Information Act normally arises. However, the information may be 
protected from disclosure under the exemptions (b)(4), (6), and (8) of 
the Freedom of Information Act (5 U.S.C. 522 (b)(4), (6), and (8)).
    The Board has a continued interest in the public's opinions of 
Federal Reserve collections of information. At any time, comments 
regarding the burden estimate, or any other aspect of this collection 
of information, including suggestions for reducing the burden, may be 
sent to: Secretary, Board of Governors of the Federal Reserve System, 
20th and C Streets, N.W., Washington DC 20551; and to the Office of 
Management and Budget, Paperwork Reduction Project (7100-0202), 
Washington, DC 20503.

List of Subjects in 12 CFR Part 213

    Advertising, Federal Reserve System, Reporting and recordkeeping 
requirements, Truth in lending.
    For the reasons set forth in the preamble, the Board amends 
Regulation M, 12 CFR Part 213, as set forth below:

PART 213--CONSUMER LEASING (REGULATION M)

    1. The authority citation for part 213 is revised to read as 
follows:

    Authority: 15 U.S.C. 1604; 1667f.

    2. Section 213.4 is amended by revising paragraph (f)(8) to read as 
follows:


Sec. 213.4  Content of disclosures.

* * * * *
    (f) Payment calculation. * * *
    (8) Lease payments. The lease payments with a description such as 
``the number of payments in your lease.''
* * * * *
    3. Section 213.7 is amended by revising paragraph (d)(1)(ii) to 
read as follows:


Sec. 213.7  Advertising.

* * * * *
    (d) Advertising of terms that require additional disclosure.--(1) 
Triggering terms. * * *
    (ii) A statement of any capitalized cost reduction or other payment 
(or that no payment is required) prior to or at consummation or by 
delivery, if delivery occurs after consummation.
* * * * *
    4. Appendix A to part 213 is amended by revising Appendix A-1, 
Appendix A-2, and Appendix A-3 to read as follows:

BILLING CODE 6210-01-P

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BILLING CODE 6210-01-C
    5. In Supplement I to Part 213--Official Staff Commentary to 
Regulation M, under Section 213.4--Content of Disclosures, the 
following amendments are made:
    a. A new paragraph 4(f)(7) Total of Base Periodic Payments is added 
in numerical order.
    b. The heading to paragraph 4(f)(8) and paragraph 1. are revised.
    c. Under paragraph 4(n) Fees and taxes, paragraph 1.ii. is revised.
    d. Under Appendix A--Model Forms, paragraph 2.v. is revised.
    The addition and revisions read as follows:

Supplement I to Part 213--Official Staff Commentary to Regulation M

* * * * *

Section 213.4--Content of Disclosures

* * * * *
4(f)(7) Total of Base Periodic Payment
    1. Accuracy of disclosure. If the periodic payment calculation 
under Sec. 213.4(f) has been calculated correctly, the amount disclosed 
under Sec. 213.4(f)(7)--the total of base periodic payments--is correct 
for disclosure purposes even if that amount differs from the base 
periodic payment disclosed under Sec. 213.4(f)(9) multiplied by the 
number of lease payments disclosed under Sec. 213.4(f)(8), when the 
difference is due to rounding.
* * * * *
4(f)(8) Lease Payment
    1. Lease Term. The lease term may be disclosed among the segregated 
disclosures.
* * * * *
4(n) Fees and taxes.
    1. Treatment of certain taxes. * * *
    ii. Taxes that are part of the scheduled payments are reflected in 
the disclosure under Sec. 213.4(c), (f), and (n).
* * * * *

Appendix A--Model Forms

* * * * *
    2. Examples of acceptable changes. * * *
    v. Deleting or blocking out inapplicable disclosures, filling in 
``N/A'' (not applicable) or ``0,'' crossing out, leaving blanks, 
checking a box for applicable items, or circling applicable items (this 
should facilitate use of multipurpose standard forms).
* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, September 23, 1998.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 98-26011 Filed 9-28-98; 8:45 am]
BILLING CODE 6210-01-P

[Federal Register: September 29, 1998 (Volume 63, Number 188)]
[Rules and Regulations]               
[Page 52115-52118]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29se98-38]

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FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R-1007]

 
Electronic Fund Transfers

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule; technical amendments.

-----------------------------------------------------------------------

SUMMARY: The Board is publishing a final rule under Regulation E 
revising the time periods for investigating alleged errors involving 
point-of-sale and foreign-initiated transactions. The former rule 
extended the statutory time periods for these transactions to allow 
financial institutions a longer period to investigate before they must 
provisionally credit an account and a longer period to complete an 
investigation. The final rule requires financial institutions to 
provisionally credit an account within 10 business days (rather than 
20) and leaves in place the 90 calendar day period to complete the 
investigation of an alleged error.
    At the same time, the Board is extending the time periods to 
provisionally credit funds and investigate claims involving new 
accounts. The rule applies to claims made within 30 calendar days after 
an account is opened. The rule allows 20 business days for resolving an 
alleged error and up to 90 calendar days for completing the 
investigation.

DATES: This rule is effective September 24, 1998. Compliance is 
optional until April 1, 1999.

FOR FURTHER INFORMATION CONTACT: John C. Wood or Jane Jensen Gell, 
Senior Attorneys, Division of Consumer and Community Affairs, Board of 
Governors of the Federal Reserve System, at (202) 452-2412 or (202) 
452-3667. For users of Telecommunications Device for the Deaf (TDD) 
only, contact Diane Jenkins at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

    The Electronic Fund Transfer Act (EFTA), 15 U.S.C. 1693-1693r, 
provides a basic framework establishing the rights, liabilities, and 
responsibilities of participants in electronic fund transfer (EFT) 
systems. The Board's Regulation E (12 CFR Part 205) implements the act. 
Types of transfers covered by the act and regulation include transfers 
initiated through an automated teller machine (ATM), point-of-sale 
(POS) terminal, automated clearinghouse, telephone bill-payment system, 
or home banking program. The rules prescribe restrictions on the 
unsolicited issuance of ATM cards and other access devices;

[[Page 52116]]

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.

II. Regulatory Revisions

Error Resolution--POS and Foreign Transactions

    The EFTA requires a financial institution to investigate and 
resolve a consumer's claim of error--for an unauthorized EFT, for 
example--within specified time limits. Within 10 business days after 
receiving notice of an alleged error, an institution must either 
resolve the claim or provisionally credit the consumer's account while 
continuing to investigate. In the latter case, the institution must 
resolve the claim no later than 45 calendar days after receiving 
notice.
    For foreign-initiated and POS transactions, Regulation E provides 
longer time periods adopted in 1982 and 1984, respectively. The 
regulation allows 20 business days to resolve a claim of error (or to 
provisionally credit an account if additional time is needed to 
investigate), and up to 90 calendar days to complete the investigation. 
The longer time periods generally allow issuers to avoid provisionally 
crediting an account before the investigation is complete.
    In March 1998, the Board proposed to eliminate the extended time 
periods for investigating and resolving alleged errors in foreign-
initiated transactions and POS transactions (63 FR 14555, March 25, 
1998). The impetus for the proposal was the increased use of off-line 
debit cards that can be used without a personal identification number 
(PIN), often referred to as ``check cards.'' The cards are used by 
signing a sales slip (much like a credit card), and may increase the 
risk of unauthorized access to a consumer's asset account.
    In September 1997, a House Banking Subcommittee held a hearing on 
whether additional consumer protections are needed for off-line debit 
cards. At that hearing, the Board testified that it would reexamine its 
extended timing rules for resolving claims of errors for POS 
transactions. The Board noted that the importance of more prompt 
recrediting of consumers' funds pending investigation may outweigh any 
related compliance burden, especially in the case of an account that 
can be accessed without PIN protection. The Board noted that 
technological advances allow financial institutions to investigate 
claims of error more quickly than in the past, and thus the extended 
time periods may no longer be needed.
    The Board received 55 comments on the proposal to reduce the 
extended time periods for POS and foreign transactions, primarily from 
financial institutions and their trade associations. About 45 
commenters addressed the proposed reduction from 90 to 45 days in the 
time allowed for completing an investigation; the majority opposed the 
reduction. Those commenters stated that financial institutions still 
need the additional time to research claims, get information from the 
consumer, and obtain documentation such as receipts from the merchant. 
Commenters noted that institutions may need additional time to 
investigate foreign-initiated transactions because of differences in 
technological capabilities, business customs, and language barriers. 
Several commenters believed that reducing the time to complete the 
investigation from 90 to 45 days would result in losses where financial 
institutions provide final credit only to later discover that the claim 
was not valid.
    Many of those commenters did not object, however, to reducing the 
time period for providing provisional credit to 10 days. They 
recognized that in some situations it may be a hardship for a consumer 
to wait 20 business days before receiving credit for the amount of the 
alleged error. These commenters suggested that the Board consider 
reducing the time period for provisional crediting while retaining the 
extended time period for completing the investigation.
    In response to comments and upon further analysis, the Board is 
revising the time periods for claims involving POS and foreign-
initiated transactions to require institutions to provide provisional 
credit within 10, rather than 20 business days. The Board believes that 
the change will benefit consumers because they now will have access to 
their funds through provisional crediting sooner. The 90-day time 
period to complete the investigation remains unchanged. By leaving in 
place the 90-day time period, financial institutions will continue to 
have adequate time to complete the investigation and resolve the 
alleged error. Because POS and foreign transactions are more likely to 
involve occasional difficulty and delay in obtaining necessary 
information for the reasons discussed above, the Board believes that 
this extended time frame remains appropriate.
    To take advantage of the longer time period (90 days) for resolving 
claims involving POS and foreign-initiated transactions, a financial 
institution must have disclosed these longer time periods. Financial 
institutions may disclose the time periods by making appropriate 
alterations to the error resolution notice in appendix A.

Error Resolution--New Accounts

    In May 1996, the Board proposed to amend Regulation E to extend the 
error resolution time periods for new accounts, to address concerns of 
financial institutions (61 FR 19696, May 2, 1996). The problem arises 
when an individual opens an account with the intent to defraud. Such 
individuals may open an account, withdraw all or a large portion of the 
deposited funds through ATMs, and file a claim with the financial 
institution disputing the ATM transactions. Often the individual 
receives provisional credit because the financial institution is unable 
to conclude research of the claim (such as by obtaining photographic 
evidence from a nonproprietary ATM) within 10 business days of a claim. 
Once provisional credit is provided, the individual immediately 
withdraws those funds and abandons the account. Institutions believe 
that having more time to investigate errors involving new accounts 
would enable them to limit their losses and better control this type of 
fraud.
    The Board proposed to allow 20 business days (rather than 10) for 
investigating an error before an institution must provisionally credit, 
and up to 90 calendar days (rather than 45) for resolving the claim. 
The Board solicited comment on the proposed extensions of time and on 
whether consumer protections relating to error resolution would be 
adversely affected. The Board also proposed a definition of a new 
account, consistent with the definition in Regulation CC, which 
implements the Expedited Funds Availability Act. Under Regulation CC, 
an account is considered a new account during the first 30 calendar 
days after the account is established.
    Comments on the proposed rule, primarily from financial 
institutions and their trade associations, were generally favorable. 
But in light of the Board's commitment to reconsider the time periods 
applicable to POS and foreign-initiated transactions, the Board 
deferred final action on the new-account proposal.
    The majority of commenters supported the extension of time for 
resolving errors involving new accounts. They believed that the 
additional time

[[Page 52117]]

would not adversely affect consumers and would help financial 
institutions limit fraud.
    Several commenters expressed concern with the proposed time frame. 
Commenters suggested that the Board allow an institution up to 30 
business days to provide provisional credit so that financial 
institutions have enough time to obtain information from nonlocal 
banks. Some commenters urged the Board to revise the definition of a 
new account to apply to EFTs that occur 45 or up to 120 calendar days 
after the account is opened (instead of 30). These commenters believed 
that financial institutions need the longer time to establish the 
consumer's transaction pattern.
    Other commenters believed that the outside limit for resolving 
claims should be between 45 and 60 days rather than 90 days. They 
believed it should not take financial institutions 90 days to receive 
the information necessary to resolve a claim.
    Upon further analysis, the Board believes the time frames that were 
proposed are appropriate. Therefore, Regulation E is amended, pursuant 
to the Board's section 904(c) authority under the EFTA to provide for 
adjustments and exceptions in the regulation, to extend the time 
periods for resolving errors that involve new accounts. An institution 
must provisionally credit a new account if it takes longer than 20 
business days to resolve an error, and it has up to 90 calendar days to 
complete the investigation and resolve the claim.
    To provide consistency and ease regulatory compliance, the rule 
tracks the definition of ``new account'' in Regulation CC (12 CFR 
229.13(a)(2)). Thus, the rule applies to EFTs made during the first 30 
calendar days after the first deposit to the account is made. The rules 
in Regulation E also parallel the interpretations of ``new account'' in 
Regulation CC. For example, an account is not considered a new account 
if a customer had another account at the financial institution for at 
least 30 calendar days.
    The extended time periods apply to all EFTs that occur within this 
30-day time period, including those for POS or foreign transactions. 
Therefore, if an alleged error concerns a POS or foreign EFT to or from 
a new account, financial institutions may take up to 20 business days 
to resolve the claim (or to provisionally credit an account if 
additional time is needed to investigate), and up to 90 calendar days 
to complete the investigation. The Board believes these time periods 
strike the appropriate balance between the need for consumers to have 
access to their funds and the need of financial institutions to combat 
fraud.
    To use the longer time periods for resolving errors for new 
accounts, a financial institution must disclose these longer time 
periods. Financial institutions may disclose the time periods by making 
appropriate alterations to the error resolution notice in appendix A.

Technical Amendment to Error Resolution Notice

    In 1996, the Board amended the error resolution procedures 
(Sec. 205.11) to allow institutions three days to notify the consumer 
about the outcome of its investigation in all cases. Before that time, 
the three-day rule applied only if the institution found that an error 
had not occurred. The Board has revised the text of the model error 
resolution notice (Appendix A, paragraph A-3) to conform the notice to 
Sec. 205.11 as amended.

III. Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act 
(5 U.S.C. 604), the Board has reviewed the final amendments to 
Regulation E. Two of the three requirements of a final regulatory 
flexibility analysis under this section are (1) a succinct statement of 
the need for and the objectives of the rule and (2) a summary of the 
issues raised by the public comments, the agency's assessment of the 
issues, and a statement of the changes made in the final rule in 
response to the comments. These two areas are discussed above.
    The third requirement of the analysis is a description of 
significant alternatives to the rule that would minimize the rule's 
economic impact on small entities and reasons why the alternatives were 
rejected. The final amendments will apply to all financial institutions 
subject to Regulation E, including small institutions. The amendments 
represent relatively minor changes to the existing regulation; in some 
cases, the amendments clarify rights and duties of covered institutions 
or reduce economic burden. Accordingly, the amendments should not have 
a negative economic impact on small institutions, and, therefore, there 
were no significant alternatives that would have further minimized the 
economic impact on those institutions.

IV. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the final rule under 
the authority delegated to the Board by the Office of Management and 
Budget. The Federal Reserve may not conduct or sponsor, and an 
organization is not required or respond to, this information collection 
unless it displays a currently valid OMB control number. The OMB 
control number is 7100-0200.
    The collection of information that is revised by this rulemaking is 
found in 12 CFR Part 205 and in Appendix A. This information is 
mandatory (15 U.S.C. 1693 et seq.) to evidence compliance with the 
requirements of the Regulation E, Electronic Funds Transfer (EFT). The 
information is used to ensure adequate disclosure of basic terms, costs 
and rights relating to EFT services provided to consumers. The 
respondents and recordkeepers are for-profit financial institutions, 
including small businesses. Institutions are also required to retain 
records for twenty-four months as evidence of compliance. No comments 
specifically addressing the burden estimate were received.
    The Board also extended the recordkeeping and disclosure 
requirements in connection with Regulation E for three years. It is 
estimated that there are 851 respondent/recordkeepers with an annual 
burden of 462,839 hours, as shown in the table below. The final rule 
will reduce the time periods allowed for investigating alleged errors 
involving point-of-sale (POS) and foreign-initiated transactions. The 
Board is also amending its rule to permit longer time periods to 
investigate claims involving new accounts. These changes are estimated 
to have no effect, on average, on reporting burden.

----------------------------------------------------------------------------------------------------------------
                                                                                           Estimated   Estimated
                                                                  Number of    Estimated   response     annual
                                                                 respondents    annual       time       burden
                                                                               frequency   (minutes)     hours
----------------------------------------------------------------------------------------------------------------
Initial Disclosure:
    Initial terms..............................................          851         250        2.50       8,865
    Change in terms............................................          851         340        1.00       4,822

[[Page 52118]]

Transaction disclosures:
    Terminal receipts..........................................          851      71,990        0.25     255,265
    Deposit verifications......................................          851         420        1.50       8,936
    Periodic disclosures.......................................          851      12,800        1.00     181,547
    Error resolution rules.....................................          851           8       30.00       3,404
                                                                ------------------------------------------------
        Total..................................................  ...........  ..........  ..........     462,839
----------------------------------------------------------------------------------------------------------------

    Since the Federal Reserve does not collect any of the information, 
no issue of confidentiality normally arises. However, the information 
may be protected from disclosure under the exemptions (b)(4), (6), and 
(8) of the Freedom of Information Act (5 U.S.C. 522 (b)(4), (6), and 
(8)). The disclosures and information about error allegations are 
confidential between the institutions and the consumer.
    The Board has a continuing interest in the public's opinions of 
Federal Reserve collections of information. At any time, comments 
regarding the burden estimate, or any other aspect of this collection 
of information, including suggestions for reducing the burden, may be 
sent to: Secretary, Board of Governors of the Federal Reserve System, 
20th and C Streets, N.W., Washington, DC 20551; and to the Office of 
Management and Budget, Paperwork Reduction Project (7100-0200), 
Washington, DC 20503.

List of Subjects in 12 CFR Part 205

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

Text of Final Rule

    Pursuant to the authority granted in sections 904 (a) and (c) of 
the Electronic Fund Transfer Act, 15 U.S.C. 1693b (a) and (c), and for 
the reasons set forth in the preamble, the Board amends Regulation E, 
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. 1693-1693r.

    2. Section 205.11 is amended by revising paragraph (c)(3) as 
follows:


Sec. 205.11  Procedures for resolving errors.

* * * * *
    (c) * * *
    (3) Extension of time periods. The time periods in paragraphs 
(c)(1) and (c)(2) of this section are extended as follows:
    (i) The applicable time is 20 business days in place of 10 business 
days under paragraphs (c)(1) and (c)(2) of this section if the notice 
of error involves an electronic fund transfer to or from the account 
within 30 days after the first deposit to the account was made.
    (ii) The applicable time is 90 days in place of 45 days under 
paragraph (c)(2) of this section, for completing an investigation, if a 
notice of error involves an electronic fund transfer that:
    (A) Was not initiated within a state;
    (B) Resulted from a point-of-sale debit card transaction; or
    (C) Occurred within 30 days after the first deposit to the account 
was made.
* * * * *
    3. In Appendix A to Part 205, in A-3 MODEL FORMS FOR ERROR 
RESOLUTION NOTICE (Secs. 205.7(b)(10) and 205.8(b)), the undesignated 
second and third paragraphs following paragraph (a)(3) are revised to 
read as follows:

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

* * * * *

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)).
* * * * *
    We will determine whether an error occurred 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.
    We will tell you the results within three business days after 
completing our investigation. If we decide that there was no error, we 
will send you a written explanation.
    You may ask for copies of the documents that we used in our 
investigation.
* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, September 23, 1998.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 98-26012 Filed 9-28-98; 8:45 am]
BILLING CODE 6210-01-P


Last Updated 07/17/1999 communications@fdic.gov