[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:
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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.
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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
