[Federal Register: April 4, 2001 (Volume 66, Number 65)]
[Rules and Regulations]
[Page 17779-17786]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04ap01-2]
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FEDERAL RESERVE SYSTEM
12 CFR Part 202
[Regulation B; Docket No. R-1040]
Equal Credit Opportunity
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Interim rule; request for comments.
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SUMMARY: The Board is adopting an interim final rule amending
Regulation B, which implements the Equal Credit Opportunity Act, to
establish uniform standards for the electronic delivery of disclosures
required by the act and regulation. The rule provides guidance on the
timing and delivery of electronic disclosures to ensure that applicants
have adequate opportunity to access and retain required information.
(Similar rules are being adopted under other consumer financial
services regulations administered by the Board.) Under the rule,
creditors may deliver disclosures electronically if they obtain
applicants' affirmative consent in accordance with the Electronic
Signatures in Global and National Commerce Act. In addition, the
regulation is revised to allow creditors to provide disclosures in
foreign languages. The rule is being adopted as an interim rule to
allow for additional public comment.
DATES: The interim rule is effective March 30, 2001; however, to allow
time for any necessary operational changes, the mandatory compliance
date is October 1, 2001. Comments must be received by June 1, 2001.
ADDRESSES: Comments, which should refer to Docket No. R-1040, may be
mailed to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, D.C. 20551 or mailed electronically to
regs.comments@federalreserve.gov. Comments addressed to Ms. Johnson may
also be delivered to the Board's mail room between 8:45 a.m. and 5:15
p.m. weekdays, and to the security control room at all other times. The
mail room and the security control room, both in the Board's Eccles
Building, are accessible from the courtyard entrance on 20th Street
between Constitution Avenue and C Street, N.W. Comments may be
inspected in room MP-500 in the Board's Martin Building between 9:00
a.m. and 5:00 p.m., pursuant to the Board's Rules Regarding the
Availability of Information, 12 CFR part 261.
FOR FURTHER INFORMATION CONTACT: Natalie E. Taylor or John C. Wood,
Counsel, or Minh-Duc Le, Attorney, Division of Consumer and Community
Affairs, at (202) 452-2412 or (202) 452-3667.
SUPPLEMENTARY INFORMATION:
I. Background
The Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691 et seq.,
makes it unlawful for creditors to discriminate in any aspect of a
credit transaction on the basis of sex, race, color, religion, national
origin, marital status, age (provided the applicant has the capacity to
contract), because all or part of an applicant's income derives from
public assistance, or because an applicant has in good faith exercised
any right under the Consumer Credit Protection Act. The Board's
Regulation B (12 CFR part 202) implements the act.
The ECOA and Regulation B require that some disclosures be provided
in writing, presuming that creditors provide paper documents. Under the
Electronic Signatures in Global and National Commerce Act (E-Sign Act),
however, electronic documents and signatures have the same validity as
paper documents and handwritten signatures.
Board Proposals Regarding Electronic Disclosures
Over the past few years, the Board has published several interim
rules and proposals regarding the electronic delivery of disclosures.
In 1996, after a comprehensive review of Regulation E (Electronic Fund
Transfers), the Board proposed to amend the regulation to permit
financial institutions to provide disclosures by sending them
electronically (61 FR 19696, May 2, 1996). Based on comments received
on the 1996 proposal, on March 25, 1998, the Board published an interim
rule permitting the electronic delivery of disclosures under Regulation
E (63 FR 14528) and similar proposals under Regulation B (63 FR 14552)
and other financial services regulations administered by the Board. The
1998 interim rule and proposed rules were similar to the 1996 proposed
rule under Regulation E.
The 1998 proposals and interim rule allowed depository
institutions, creditors, lessors, and others to provide disclosures
electronically if the consumer agreed, with few other requirements. For
ease of reference, this background section uses the terms
``institutions'' and ``consumers.''
Industry commenters generally supported the Board's 1998 proposals
and interim rule, but many of them sought specific revisions and
additional guidance on how to comply with the disclosure requirements
in certain transactions and circumstances. In particular, they
expressed concern that the rule did not specify a uniform method for
establishing that an ``agreement'' was reached for sending disclosures
electronically. Consumer advocates, on the other hand, generally
opposed the 1998 proposals and the interim rule. They believed that
consumer protections in the proposals were inadequate, especially in
connection with transactions that are typically consummated in person
(such as automobile loans and leases, home-secured loans, and door-to-
door credit sales).
September 1999 Proposals
In response to comments received on the 1998 proposals, the Board
published revised regulatory proposals in September 1999 under
Regulations B, E, M, Z, and DD (64 FR 49688, 49699, 49713, 49722 and
49740, respectively, September 14, 1999) (collectively, the ``1999
proposals''), and an interim rule under Regulation DD (64 FR 49846).
The interim rule under Regulation DD allowed depository institutions to
deliver disclosures on periodic statements electronically if the
consumer agrees.
Generally, the 1999 proposals required institutions to use a
standardized form containing specific information about the electronic
delivery of disclosures so that consumers could make informed decisions
about whether to receive disclosures electronically. If the
[[Page 17780]]
consumer affirmatively consented, most disclosures could be provided
electronically. To address concerns about potential abuses, the 1999
proposals generally would have required disclosures to be given in
paper form when consumers transacted business in person. The proposals
contained rules for disclosures that are made available to consumers at
an institution's Internet web site (governing, for example, how long
disclosures must remain posted at a web site).
Comments on the September 1999 proposals--The Board received
letters representing 115 commenters expressing views on the revised
proposals. Industry commenters generally supported the Board s approach
of establishing federal rules for a uniform method of obtaining
consumers consent to the receipt of electronic disclosures instead of
deferring to state law. Still, many sought specific additional guidance
and in some cases wanted more flexibility. They were concerned about
the length of time the proposals would have required electronic
disclosures to remain available to a consumer at an institution's
Internet web site or upon request. In addition, they believed the
proposed rule requiring paper disclosures for mortgage loans closed in
person was not sufficiently flexible. Consumer advocates believed the
1999 proposals addressed many of their concerns about the 1998
proposals. Nevertheless, they urged the Board to incorporate greater
protections for consumers, such as restricting the delivery of
electronic disclosures to only those consumers who initiate
transactions electronically.
The Board also obtained views through four focus groups with
individual consumers, conducted in the Washington-Baltimore
metropolitan area. Participants reviewed and commented on the format
and content of the proposed sample consent forms, as well as on
alternative revised forms.
Federal Legislation Addressing Electronic Commerce
On June 30, 2000, the President signed the E-Sign Act, which was
enacted to encourage the continued expansion of electronic commerce.
The E-Sign Act generally provides that electronic documents and
signatures have the same validity as paper documents and handwritten
signatures. The act contains special rules for the use of electronic
disclosures in consumer transactions. Consumer disclosures may be
provided in electronic form only if the consumer affirmatively consents
after receiving certain information specified in the statute.
The Board and other government agencies are permitted to interpret
the E-Sign Act's consumer consent requirements within prescribed
limits, but may not impose additional requirements for consumer
consent. In addition, agencies generally may not re-impose a
requirement for using paper disclosures in particular transactions,
such as those conducted in person.
The consumer consent provisions in the E-Sign Act became effective
October 1, 2000, and did not require implementing regulations. Thus,
financial institutions are currently permitted to use electronic
disclosures under Regulations B, E, M, Z and DD if the consumer
affirmatively consents in the manner required by section 101(c) of the
E-Sign Act. Under section 101(c)(5) of the E-Sign Act, consumers who
consented prior to the effective date of the act to receive electronic
disclosures as permitted by any law or regulation, are not subject to
the consent requirements.
II. The Interim Rule
The Board is adopting an interim final rule to establish uniform
standards for the electronic delivery of disclosures required under
Regulation B. Consistent with the requirements of the E-Sign Act,
creditors generally must obtain applicants' affirmative consent to
provide disclosures electronically.
The interim rules also establish uniform requirements for the
timing and delivery of electronic disclosures. Disclosures may be sent
by e-mail to an electronic address designated by the applicant, or they
may be made available at another location, such as an Internet web
site. If the disclosures are not sent by e-mail, applicants must
receive a notice alerting them to the availability of the disclosures.
Disclosures posted on a web site must be available for at least 90
days, to allow applicants adequate time to access and retain the
information. With regard to the timing of electronic disclosures, for
disclosures that must be provided at application, applicants are
required to access the disclosures before submitting the application.
Under the interim rule, creditors must make a good faith attempt to
redeliver electronic disclosures that are returned undelivered, using
the address information available in their files. Similar rules are
being adopted under Regulations E, M, Z, and DD.
III. Request for Comment
The interim rules include most of the revisions that were part of
the 1999 proposals and were not affected by the E-Sign Act. The Board
is adopting these rules with some minor changes discussed below. The
rules are adopted as interim rules, to allow commenters to present new
information or views not previously considered in the context of the
1998 and 1999 proposals. Since the Board's 1999 proposals were issued,
more institutions have gained experience in offering financial services
electronically. The Board believes that additional comments, beyond
those previously considered in connection with the Board's earlier
proposals, might inform the Board whether any developments in
technology or industry practices have occurred that warrant further
changes in the rules. The comment period ends on June 1, 2001. The
Board expects to adopt final rules on a permanent basis prior to
October 1, 2001.
Interpreting E-Sign Provisions
Under section 104(b) of the E-Sign Act, the Board and other
government agencies are permitted to interpret the act, within
prescribed limits. The Board may issue rules that interpret how the E-
Sign Act's consumer consent requirements apply for purposes of the laws
administered by the Board. Also, the Board may, by regulation, exempt a
particular category of disclosures from the E-Sign Act's consumer
consent requirements if it will eliminate a substantial burden on
electronic commerce without creating material risk for consumers.
The Board requests comment on whether the Board should exercise its
authority under the E-Sign Act in future rulemakings to interpret the
consumer consent provisions or other provisions of the act, as they
affect the Board's consumer protection regulations. Comment is
requested on whether the statutory provisions relating to consumer
consent are sufficient, or whether additional guidance is needed. For
example, is interpretative guidance needed concerning the statutory
requirement that applicants confirm their consent electronically in a
manner that reasonably demonstrates they can access information in the
form to be used by the creditor? Is clarification needed on the effect
of applicants withdrawing their consent, or on requesting paper copies
of electronic disclosures? Creditors must also inform applicants of
changes in hardware or software requirements if the change creates a
material risk that the applicant
[[Page 17781]]
will not be able to access or retain the disclosure. The Board solicits
comment on whether regulatory standards are needed for determining a
``material risk'' for purposes of Regulation B and financial services
laws administered by the Board, and if so what standards should apply.
Under section 104(d) of the E-Sign Act, the Board is authorized to
exempt specific disclosures from the consumer consent requirements of
section 101(c) of the E-Sign Act, if the exemption is necessary to
eliminate a substantial burden on electronic commerce and will not
increase the material risk of harm to consumers. The Board requests
comment on whether it should consider exercising this exemption
authority.
Study on Adapting Requirements to Online Banking and Lending
The E-Sign Act eliminated legal impediments to the use of
electronic records and signatures. The Board requests comment on
whether other legislative or regulatory changes are needed to adapt
current requirements to online banking and lending and facilitate
electronic delivery of consumer financial services.
The comments may assist the Board in future efforts to update the
regulations. The comments may also be used in connection with a study
required under the Gramm-Leach-Bliley Act of 1999. That act requires
the federal bank supervisory agencies to conduct a study of banking
regulations that affect the electronic delivery of financial services
and to submit to the Congress a report recommending any legislative
changes that are needed to facilitate online banking and lending.
IV. Section-by-Section Analysis
Pursuant to its authority under section 703 of the ECOA, the Board
amends Regulation B to establish uniform standards for the use of
electronic communication to provide disclosures required by this
regulation. Electronic disclosures can effectively reduce compliance
costs without adversely affecting consumer protections. To the extent
that a creditor may make electronic disclosures available at its
Internet web site instead of providing the disclosures directly to the
applicant, the Board finds that such an exception is warranted, acting
pursuant to its authority under section 703(a)(1) of the ECOA. Below is
a section-by-section analysis of the rules for providing disclosures by
electronic communication, including references to changes in the
official staff commentary.
Section 202.4 General Rules
4(b) Foreign Language Disclosures
To provide consistency among the regulations, as proposed,
Sec. 202.4(b) permits creditors to provide disclosures in languages
other than English as long as disclosures in English are available to
applicants who request them.
Section 202.9 Notifications
9(h) Duties of Third Parties
Under Sec. 202.9(g), when an application for credit is submitted
through a third party to more than one creditor and no credit is
offered (or the applicant does not expressly accept or use any credit
offered) each creditor taking adverse action must provide the notice
required by Sec. 202.9(a), but may do so through a third party. Third
parties may use electronic communication to provide required
disclosures, provided the requirements of Sec. 202.17 are satisfied.
This guidance is provided in new Sec. 202.9(h).
Section 202.17 Requirements for Electronic Communication
17(a) Definition
As adopted, the definition of the term ``electronic communication''
remains substantially unchanged from the 1999 proposals. Section
202.17(a) limits the term to a message transmitted electronically that
can be displayed on equipment as visual text; an example is a message
displayed on a personal computer monitor screen. Thus, audio-and voice-
response telephone systems are not included. Creditors that accommodate
vision-impaired applicants by providing disclosures that do not use
visual text must also provide disclosures using visual text.
Some commenters asked for clarification that the definition was not
intended to preclude the use of devices other than personal computers,
which also can display visual text. The equipment on which the text
message is received is not limited to a personal computer, provided the
visual display used to deliver the disclosures meets the ``clear and
conspicuous'' format requirement, discussed below.
17(b) General Rule
Effective October 1, 2000, the E-Sign Act permits creditors to
provide disclosures using electronic communication, if the creditor
complies with the consumer consent requirements in section 101(c).
Under section 101(c) of the E-Sign Act, creditors must provide specific
information about the electronic delivery of disclosures before
obtaining the consumer's affirmative consent to receive electronic
disclosures. The consent requirements in the E-Sign Act are similar but
not identical to the Board's 1999 proposal. Section 202.17(b) sets
forth the general rule that creditors subject to Regulation B may
provide disclosures electronically if the creditor complies with
section 101(c) of the E-Sign Act. Pursuant to the Board's authority
under section 703(a) of the ECOA, Sec. 202.17(b) applies to consumer
and business credit applicants.
The E-Sign Act authorizes the use of electronic disclosures. It
does not affect any requirement imposed under the ECOA other than a
requirement that disclosures be in paper form, and it does not affect
the content or timing of disclosures. Electronic disclosures are
subject to the regulation's format, timing and retainability rules and
the clear and conspicuous standard. Comment 17(b)-1 contains this
guidance.
Presenting Disclosures in a Clear and Conspicuous Format
The interim final rule imposes a new clear and conspicuous standard
for electronic disclosures under Regulation B. See Sec. 202.17(b). (As
part of a comprehensive review of Regulation B, the Board proposed in
August 1999 to apply the standard to all disclosures required to be in
writing (64 FR 44581, August 16, 1999).) Commenters generally supported
the standard; most believed a consistent standard should apply to all
of the regulations.
A creditor must provide electronic disclosures using a clear and
conspicuous format. Also, in accordance with the E-Sign Act: (1) The
creditor must disclose the requirements for accessing and retaining
disclosures in that format; (2) the applicant must demonstrate the
ability to access the information electronically and affirmatively
consent to electronic delivery; and (3) the applicant must provide the
disclosures in accordance with the specified requirements. Comment
17(b)-2 contains this guidance.
Commenters posed a few questions about the applicability of the
clear and conspicuous standard to particular situations. Some asked
whether electronic advertisements or other unrelated promotional
information may appear on the same screen as mandatory disclosures that
are posted on an Internet web site. Except to the extent required by
the regulation, disclosures do not have to be provided separately from
other information. Advertisements should not be integrated into the
text of the disclosure in a manner that violates the clear and
conspicuous standard.
[[Page 17782]]
Commenters also had questions about the use of navigational tools
with electronic disclosures. For example, some believed that such tools
might be helpful in directing consumers to related information that
explains the terminology used in the disclosures. Many Internet web
sites use navigational tools that are conspicuous through the use of
bold text, larger fonts, different colors, underlining, or other
methods of highlighting. Such tools are not per se prohibited so long
as they are not used in a manner that would violate the clear and
conspicuous standard.
Providing Timely Disclosures
Disclosures delivered electronically must comply with existing
timing requirements under the ECOA and Regulation B. See, for example,
Secs. 202.5a, 202.9, and 202.13. Commenters on the Board's 1999
proposals requested specific guidance that an electronic disclosure
would be considered timely based on the time it is sent by e-mail or
posted on an Internet web site, regardless of when the consumer
receives or reads the disclosure.
Under the interim final rule, consistent with rules for disclosures
that are sent by postal mail, disclosures provided by e-mail are timely
when they are sent by the required time. Disclosures posted at an
Internet web site are timely if, by the required time, the creditor
both makes the disclosures available at that location and, in
accordance with Sec. 202.17(d)(2), sends a notice alerting the
applicant that the disclosures have been posted. For example, under
Sec. 202.9, a creditor must provide a notice of action taken within 30
days of receiving a completed application. For an adverse action notice
posted on the Internet, a creditor must both post the notice and notify
the applicant of its availability within 30 days of receiving the
completed application. Comment 17(b)-3(ii) contains this guidance.
Certain disclosures must be provided at the time of application.
For example, if the creditor's procedures permit the applicant to apply
for a mortgage loan on-line, the applicant must be required to access
the disclosures required under Sec. 202.13 before submitting the
application. A link to the disclosures satisfies the timing rule if the
applicant cannot bypass the disclosures before submitting the
application. Or, the disclosures in this example must automatically
appear on the screen, even if multiple screens are required to view the
entire disclosure. Comment 17(b)-3 contains this guidance, as proposed,
but has been expanded.
The on-line mortgage loan example was used in the supplementary
information of the September 1999 proposed rule to illustrate the
timing requirements. Some commenters expressed concern that the example
required creditors to provide in writing--on the application--the
information required by Sec. 202.13. These commenters asked the Board
to clarify that the information required by Sec. 202.13(a) may be
requested separately after the creditor begins processing the
application.
Regulation B currently requires a creditor that receives an
application for a mortgage loan, where the credit will be secured by
the dwelling, to request ``as part of the application'' certain
applicant characteristic information. See Sec. 202.13(a). The official
staff commentary further provides that a creditor may collect the
Sec. 202.13(a) information on the application form itself or on a
separate form that refers to the application. See comment 13(b)-1.
Thus, while Sec. 202.13(a) requires creditors to collect the required
information prior to submission of an application, a creditor need not
request the information on the application itself. Accordingly, for a
dwelling-secured mortgage loan taken over the Internet, the creditor
need not include the request on the actual application. A link to the
disclosure satisfies the rule if the applicant cannot bypass the
disclosure before submitting the application. Or, the information must
automatically appear on the screen. In addition, while the disclosure
required by Sec. 202.13(c) may be provided orally or in writing, for a
mortgage loan taken over the Internet the disclosure would have to
appear on the screen--although not on the application form itself--or
be accessed before the application is submitted to the creditor.
Some commenters asked the Board to clarify whether there is a
requirement to request monitoring information for mortgage loan
applications taken over the Internet. The Regulation B commentary
currently provides that for purposes of the requirements of
Sec. 202.13(a), a creditor may treat an application taken through an
electronic medium without video capability as a telephone or mail
application. Where applications are taken by telephone, a creditor is
not required to request applicant characteristic information; where
taken by mail, the information must be requested, but the creditor is
not required to make a special request if the applicant did not provide
the information. See comment 13(b)-3(i)(A), (B). (Creditors should
note, however, that in the August 1999 review of Regulation B, the
Board proposed to require creditors to treat applications taken through
an electronic medium without video capability as taken by mail (64 FR
44581).)
Some industry commenters believed that requiring disclosures to
automatically appear or be accessed by the applicant is cumbersome and
unnecessary. Some commenters suggested that the Board allow the
required disclosures to be accessible via a clearly marked navigational
tool; they believe that once the tool is provided, the disclosure
should be deemed to have been provided to the applicant.
The ECOA and Regulation B require that disclosures be provided to
applicants. It is not sufficient for creditors to provide a bypassable
navigational tool that merely gives applicants the option of receiving
the disclosures. Such an approach reduces the likelihood that
applicants will notice and receive the disclosures. The interim final
rule ensures that applicants actually see disclosures provided
electronically so that they have the opportunity to read the
disclosures in a timely fashion.
Commenters on the various proposals requested guidance regarding
the creditor's duty in cases where a creditor cannot provide timely
disclosures because an automated loan machine or other automated
equipment controlled by the creditor malfunctions or otherwise fails to
operate properly. Where the creditor controls the equipment and
disclosures are required at that time, a creditor might not be liable
for failing to provide timely disclosures if the defense in
Sec. 202.14(c) of Regulation B is available.
Providing Disclosures in a Form the Consumer May Keep
With one exception (Sec. 202.9(a)(3)(i)(B), regarding business
credit), retainability is a new standard for disclosures under
Regulation B. (In August 1999, the Board requested comment on whether a
retainability standard should apply to all disclosures and information
required by Regulation B to be in writing (64 FR 44581).) Electronic
disclosures required to be in writing are subject to this requirement.
Comment 17(b)-4 contains guidance on this requirement.
Applicants may communicate electronically with creditors through a
variety of means and from various locations. Depending on the location
(at home, at work, in a public place such as a library), an applicant
may not have the ability at a given time to preserve ECOA disclosures
presented on-screen. To ensure that applicants have an
[[Page 17783]]
adequate opportunity to access and retain the disclosures, the creditor
also must send them to the applicant's designated e-mail address or
make them available at another location, for example, on the creditor's
Internet web site, where the information may be retrieved at a later
date.
Where the creditor controls the equipment providing the electronic
disclosures (for example, an automated loan machine or computer
terminal located in the creditor's lobby), the creditor must ensure
that the applicant has the opportunity to retain the required
information. Comment 17(b)-5 contains guidance on this requirement.
17(c) When Consent Is Required
Under the E-Sign Act, consumers must affirmatively consent before
they receive electronic disclosures ``relating to a transaction'' if
the disclosures are required by law or regulation to be in writing.
Under Regulation B, the consent requirement has been expanded to
include both consumer and business applicants. Some disclosures
required to be in writing may be included on or with an application
provided to applicants for certain credit regardless of whether the
applicant applies for the loan (Secs. 202.5a(a)(2)(i) (notice of right
to copy of appraisal), 202.9(a)(3)(i)(B) (notice of right to a
statement of reasons), and 202.13(a) (request for monitoring
information)). Section 202.17(c) is added to make clear that an
applicant's affirmative consent is not required before creditors use
electronic communication to provide these disclosures on or with an
application.
17(d) Address or Location To Receive Electronic Communication
Consistent with the 1999 proposals, the interim rule provides that
creditors may deliver electronic disclosures by sending them to an
applicant's e-mail address. Alternatively, the rule provides that
creditors may make the disclosures available at another location such
as an Internet web site. If the creditor makes a disclosure available
at such a location, the creditor effectively delivers the disclosure by
sending a notice alerting the applicant when the disclosure can be
accessed and making the disclosure available for at least 90 days. The
time period for keeping disclosures available at a location such as a
creditor's Internet web site under the interim rule differs from the
1999 proposals, based on commenters' concerns as discussed below.
17(d)(1)
For purposes of Sec. 202.17(d), an applicant's electronic address
is an e-mail address that is not limited to receiving communication
transmitted solely by the creditor, as proposed. This guidance is
contained in comment 17(d)(1)-1.
An electronic address would not include systems that permit
communication only between the consumer and the creditor, for example,
home-banking programs that allow consumers to communicate directly with
a creditor on-line with the use of a computer and modem. Thus,
disclosures provided using systems such as home-banking programs are
treated in the same manner as disclosures made available at an Internet
web site, and a notice alerting the applicant when disclosures are
posted must be sent by e-mail, or to a postal address, at the
creditor's option.
17(d)(2)
Under Sec. 202.17(d)(2)(i) of the interim rule, for disclosures
made available at an Internet web site, a notice alerting the applicant
when disclosures are posted must be sent by e-mail (or to a postal
address, at the creditor's option). Section 202.17(d)(2)(i) requires
that the alert notice identify the account involved and the address or
other location where the disclosure is available. Comment 17(d)(2)-1
provides guidance on the level of detail required in identifying the
account.
As proposed, under Sec. 202.17(d)(2)(ii) of the interim rule,
disclosures provided at an Internet web site must remain available for
at least 90 days. The requirement seeks to ensure that applicants have
adequate time to access and retain a disclosure under a variety of
circumstances, such as when an applicant may not be able for an
extended period of time to access the information due to computer
malfunctions, travel, or illness. The 90-day period is uniform for all
disclosures, for ease of compliance. Comment 17(d)(2)-2 is added to
provide that during this period, the actual disclosures must be
available to the applicant, but the creditor has discretion to
determine whether they should be available at the same location for the
entire period.
Some industry commenters believed the 90-day time period is
reasonable and feasible. About an equal number of commenters believed
it was too burdensome and costly; some of these commenters suggested
periods that ranged from 30 to 60 days.
The Regulation B proposal provided that after the 90-day time
period, disclosures would be available upon applicants' request, for 25
months, in the same format as initially provided to the applicant. The
25-month period is consistent with a creditor's duty to retain records
that evidence their compliance. Consumer advocates supported the
proposed retention period; some recommended that disclosures should be
available upon request for the length of the contractual relationship
with the applicant.
Industry commenters strongly opposed the 25-month period. Many
believed that keeping copies of electronic disclosures actually
provided to applicants for that period of time would be costly and
burdensome. Moreover, industry commenters believed that once an
applicant has accessed the disclosures, the applicant rather than the
creditor should have the duty to retain them for future reference. They
also noted that under existing record retention requirements applicable
to paper disclosures, a creditor need only demonstrate compliance with
the rules, but need not retain copies of the actual disclosures
provided to applicants.
The requirement for creditors to provide duplicate disclosures upon
request for 25 months has not been adopted. A creditor's duty to retain
evidence of compliance for 25 months remains unchanged.
17(d)(3) Exceptions
Section 202.17(d)(3) is added to make clear that the requirements
of paragraphs (i) and (ii) of Sec. 202.17(d)(2) do not apply to the
disclosure required under Sec. 202.13(a).
17(e) Redelivery
Industry commenters on the 1998 proposal asked for clarification
that sending the electronic disclosures complies with the regulation,
and that institutions are not required to confirm that the consumer
actually received them. Consumer advocates asked that institutions be
required to verify the delivery of disclosures by return receipt, in
the case of e-mail. In the 1999 proposals, the Board solicited comment
on the need for and the feasibility of such a requirement.
Consumer advocates believe that e-mail systems are not yet
sufficiently reliable, and that safeguards are necessary to ensure that
consumers actually receive disclosures. Industry commenters stated that
a return receipt requirement would be costly and burdensome, and would
require creditors to monitor return receipts in every case to determine
that individual consumers received the disclosures.
Section 101(c) of the E-Sign Act requires that consumers consent
electronically, or confirm their consent
[[Page 17784]]
electronically, in a manner that reasonably demonstrates that the
consumer can access the information that the creditor will be
providing. This requirement seeks to verify at the outset that the
consumer is actually capable of receiving the information in the
electronic format being used by the creditor. After the consumer
consents, the E-Sign Act also requires creditors to notify consumers of
changes that materially affect consumers' ability to access electronic
disclosures.
The interim rule does not impose a verification requirement because
the cost and burden associated with verifying delivery of disclosures
would not be warranted. When electronic disclosures are returned
undelivered, however, Sec. 202.17(e) imposes a duty to attempt
redelivery (either electronically or to a postal address) based on
address information in the creditor's own files. Unlike paper
disclosures delivered by postal service, there generally is no
commonly-accepted mechanism for reporting a change in electronic
address or for forwarding e-mail. Where a creditor actually knows that
the delivery of an electronic disclosure did not take place, the
creditor should take reasonable steps to effectuate delivery in some
way. For example, if an e-mail message to the applicant (containing an
alert notice or other disclosure) is returned as undeliverable, the
redelivery requirement is satisfied if the creditor sends the
disclosure to a different e-mail address or postal address that the
creditor has on file. Sending the disclosures a second time to the same
electronic address would not be sufficient if the creditor has a
different address for the applicant on file. Comment 17(e)-1 provides
this guidance.
This redelivery requirement is limited to situations where the
electronic communication cannot be delivered and does not apply to
situations where the disclosure is delivered but, for example, cannot
be read by the applicant due to technical problems with the applicant's
software. A creditor's duty to redeliver a disclosure under
Sec. 202.17(e) does not affect the timeliness of the disclosure.
Creditors comply with the timing requirements of the regulation when a
disclosure is initially sent in a timely manner, even though the
disclosure is returned undelivered and the creditor is required under
Sec. 202.17(e) to take reasonable steps to attempt redelivery.
17(f) Electronic Signatures
The E-Sign Act provides that electronic signatures have the same
validity as handwritten signatures. Section 106 of the act defines an
electronic signature. Section 202.17(f) is added to incorporate the E-
Sign Act's definition of electronic signature into the regulation. To
comply with the E-Sign Act, an electronic signature must be executed or
adopted by an applicant with the intent to sign the record.
Accordingly, regardless of the technology used to meet this
requirement, the process must evidence the applicant's identity.
Comment 17(f)-1 provides this guidance.
Additional Issues
Document Integrity
The interim rule does not impose document integrity standards.
Consumer advocates and others expressed concerns that electronic
documents can be altered more easily than paper documents. They say
that consumers' ability to enforce rights under the consumer protection
laws could be impaired, in some cases, if the authenticity of
disclosures they retain cannot be demonstrated.
Institutions are generally required to retain evidence of
compliance with the Board's consumer regulations. Accordingly, the
Board requested comment on the feasibility of requiring institutions to
have systems in place capable of detecting whether or not information
has been altered, or to use independent certification authorities to
verify disclosure documents.
Consumer advocates strongly supported document integrity
requirements (including the use of certification authorities) that
would apply to all-electronic disclosures. Signatures, notary seals,
and verification procedures such as recordation are used to protect
against alterations for transactions memorialized in paper form.
Consumer advocates believe that comparable verification procedures are
needed for electronic disclosures as well.
Industry commenters opposed mandatory document integrity standards
for electronic disclosures. Because the technology in this area is
still evolving, they believe that mandatory standards would be
premature. Others believe that imposing document integrity standards or
requiring the use of certification authorities would be costly to
implement.
The Board recognizes the concerns about document integrity, but
believes it is not practicable at this time to impose document
integrity standards for consumer disclosures or mandate the use of
independent certification authorities. Effective methods may be too
costly. Other less costly methods may deter alterations in some cases,
but would not necessarily ensure document integrity.
Moreover, the issue of document integrity affects electronic
commerce generally and is not unique to the written disclosures
required under the consumer protection laws administered by the Board.
Section 104(b)(3) of the E-Sign Act authorizes federal or state
regulatory agencies to specify performance standards to assure the
accuracy, record integrity, and accessibility of records that are
required to be retained, but prohibits the agencies from requiring the
use of a particular type of software or hardware in order to comply
with record retention requirements. Technology is likely to develop to
protect electronic contracts and other legal documents. Thus, it seems
premature for the Board to specify any particular standards or methods
for consumer disclosure at this time.
V. Form of Comment Letters
Comment letters should refer to Docket No. R-1040, and, when
possible, should use a standard typeface with a font size of 10 or 12.
This will enable the Board to convert the text to machine-readable form
through electronic scanning, and will facilitate automated retrieval of
comments for review. Also, if accompanied by an original document in
paper form, comments may be submitted on 3\1/2\ inch computer diskettes
in any IBM-compatible DOS- or Windows-based format.
VI. Regulatory Flexibility Analysis
The Board has reviewed these interim amendments to Regulation B, in
accordance with section 3(a) of the Regulatory Flexibility Act (5 U.SC.
604). Two of the three requirements of a final regulatory flexibility
analysis under the Act 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 those 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. This interim final rule is designed to provide creditors with
an alternative method of providing disclosures; the rule will relieve
compliance burden by giving creditors flexibility in providing
disclosures required by the regulation.
[[Page 17785]]
Overall, the costs of providing electronic disclosures are not expected
to have significant impact on small entities. The expectation is that
providing electronic disclosures may ultimately reduce the costs
associated with providing disclosures.
VII. 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 7100-0201.
The collection of information that is revised by this rulemaking is
found in 12 CFR Part 202. This information is mandatory (15 U.S.C. 1691
et seq.) to evidence compliance with the requirements of Regulation B
and the Equal Credit Opportunity Act (ECOA). The respondents/
recordkeepers are creditors. Creditors are required to retain records
for twenty-five months (12 months for business credit). This regulation
applies to all types of creditors, not just state member banks.
However, under Paperwork Reduction Act regulations, the Federal Reserve
accounts for the burden of the paperwork associated with the regulation
only for state member banks. Other agencies account for the paperwork
burden on their respective constituencies under this regulation.
The revisions provide that creditors may deliver disclosures
electronically upon obtaining applicants' affirmative consent in
accordance with the E-Sign Act. The revisions also provide guidance to
creditors on the timing and delivery of electronic disclosures, to
ensure that applicants have adequate opportunity to access and retain
the information.
With respect to state member banks, it is estimated that there are
1000 respondent/recordkeepers and an average frequency of 4,767
responses per respondent each year. The current annual burden is
estimated to be 125,678 hours. No comments specifically addressing the
burden estimate were received, therefore, the numbers remain unchanged.
There is estimated to be no additional cost burden and no capital or
start up cost associated with the interim final rule.
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 the
Federal Reserve's 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.
VIII. Solicitation of Comments Regarding the Use of ``Plain
Language''
Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the
Board to use ``plain language'' in all proposed and final rules
published after January 1, 2000. The Board invites comment on whether
the interim rule is clearly stated and effectively organized, and how
the Board might make the rule easier to understand.
List of Subjects in 12 CFR Part 202
Aged, Banks, banking, Civil rights, Credit, Federal Reserve System,
Marital status discrimination, Penalties, Religious discrimination,
Reporting and recordkeeping requirements, Sex discrimination.
For the reasons set forth in the preamble, the Board amends
Regulation B, 12 CFR part 202, as set forth below:
PART 202--EQUAL CREDIT OPPORTUNITY (REGULATION B)
1. The authority citation for part 202 continues to read as
follows:
Authority: 15 U.S.C. 1691-1691f.
2. Section 202.4 is revised as follows:
Sec. 202.4 General rules.
(a) Rule prohibiting discrimination. A creditor shall not
discriminate against an applicant on a prohibited basis regarding any
aspect of a credit transaction.
(b) Foreign language disclosures. Disclosures may be made in
languages other than English, provided they are available in English
upon request.
3. Section 202.9 is amended by adding a new paragraph (h) to read
as follows:
Sec. 202.9 Notifications.
* * * * *
(h) Duties of third parties. A third party may use electronic
communication in accordance with the requirements of Sec. 202.17, as
applicable, to comply with the requirements of paragraph (g) of this
section on behalf of a creditor.
Sec. 202.16 [Added and reserved]
4. Add and reserve Sec. 202.16.
5. Add a new Sec. 202.17 to read as follows:
Sec. 202.17 Requirements for electronic communication.
(a) Definition. Electronic communication means a message
transmitted electronically between a creditor and an applicant in a
format that allows visual text to be displayed on equipment, for
example, a personal computer monitor.
(b) General rule. In accordance with the Electronic Signatures in
Global and National Commerce Act (the E-Sign Act) (15 U.S.C. 7001 et
seq.) and the rules of this part, a creditor may provide by electronic
communication any disclosure required by this part to be in writing.
Disclosures provided by electronic communication must be provided in a
clear and conspicuous manner and in a form the applicant may retain.
(c) When consent is required. For disclosures required by this part
to be in writing, a creditor shall obtain an applicant's affirmative
consent in accordance with the requirements of the E-Sign Act.
Disclosures under Secs. 202.5a(a)(2)(i), 202.9(a)(3)(i)(B), and
202.13(a) are not subject to this requirement if provided on or with
the application.
(d) Address or location to receive electronic communication. A
creditor that uses electronic communication to provide disclosures
required by this part shall:
(1) Send the disclosure to the applicant's electronic address; or
(2) Make the disclosure available at another location such as an
Internet web site; and
(i) Alert the applicant of the disclosure's availability by sending
a notice to the applicant's electronic address (or to a postal address,
at the creditor's option). The notice shall identify the account
involved and the address of the Internet web site or other location
where the disclosure is available; and
(ii) Make the disclosure available for at least 90 days from the
date the disclosure first becomes available or from the date of the
notice alerting the applicant of the disclosure, whichever comes later.
(3) Exceptions. A creditor need not comply with paragraph (d)(2)(i)
and (ii) of this section for the disclosure required by Sec. 202.13(a).
[[Page 17786]]
(e) Redelivery. When a disclosure provided by electronic
communication is returned to a creditor undelivered, the creditor shall
take reasonable steps to attempt redelivery using information in its
files.
(f) Electronic signatures. An electronic signature as defined under
the E-Sign Act satisfies any requirement under this part for an
applicant's signature or initials.
6. In Supplement I to Part 202, a new Section 202.16 is added and
reserved and a new Section 202.17 is added to read as follows:
* * * * *
Supplement I to Part 202--Official Staff Interpretations
* * * * *
Section 202.16--[Reserved]
Section 202.17--Electronic Communication
(b) General Rule
1. Relationship to the E-Sign Act. The E-Sign Act authorizes the
use of electronic disclosures. It does not affect any requirement
imposed under this part other than a provision that requires
disclosures to be in paper form, and it does not affect the content
or timing of disclosures. Electronic disclosures are subject to the
regulation's format, timing, and retainability rules and the clear
and conspicuous standard. For example, to satisfy the clear and
conspicuous standard for disclosures, electronic disclosures must
use visual text. The clear and conspicuous and retainability
requirements apply to all disclosures provided electronically--those
expressly required by the act and regulation to be in writing, and
those provided in writing where the creditor has the option to give
the disclosure orally or in writing.
2. Clear and conspicuous standard. A creditor must provide
electronic disclosures using a clear and conspicuous format. Also,
in accordance with the E-Sign Act:
i. The creditor must disclose the requirements for accessing and
retaining disclosures in that format;
ii. The applicant must demonstrate the ability to access the
information electronically and affirmatively consent to electronic
delivery; and
iii. The creditor must provide the disclosures in accordance
with the specified requirements.
3. Timing and effective delivery.
i. When an applicant applies for credit on-line. When a creditor
permits an applicant to apply for credit on-line, the applicant must
be required to access the disclosures required at application before
submitting the application. A link to the disclosures satisfies the
timing rule if the applicant cannot bypass the disclosures before
submitting the application. Or the disclosures must automatically
appear on the screen, even if multiple screens are required to view
all of the information. The creditor is not required to confirm that
the applicant has read the disclosures.
ii. Appraisals and adverse action. Disclosures provided by e-
mail are timely based on when the disclosures are sent. Disclosures
posted at an Internet web site, such as adverse action notices or
copies of appraisals, are timely when the creditor has both made the
disclosures available and sent a notice alerting the applicant that
the disclosures have been posted. For example, under Sec. 202.9, a
creditor must provide a notice of action taken within 30 days of
receiving a completed application. For an adverse action notice
posted on the Internet, a creditor must post the notice and notify
the applicant of its availability within 30 days of receiving the
applicant's completed application.
4. Retainability of disclosures. Creditors satisfy the
requirement that disclosures be in a form that the applicant may
keep if electronic disclosures are delivered in a format that is
capable of being retained (such as by printing or storing
electronically). The format must also be consistent with the
information required to be provided under section 101(c)(1)(C)(i) of
the E-Sign Act (15 U.S.C. 7001(c)(1)(C)(i)) about the hardware and
software requirements for accessing and retaining electronic
disclosures.
5. Disclosures provided on creditor's equipment. A creditor that
controls the equipment providing electronic disclosures to
applicants (for example, a computer terminal in a creditor's lobby
or an automated loan machine at a public kiosk) must ensure that the
equipment satisfies the regulation's requirements to provide timely
disclosures in a clear and conspicuous format and in a form that the
applicant may keep. For example, if disclosures are required at the
time of an on-line application, the disclosures must be sent to the
applicant's e-mail address or must be made available at another
location such as the creditor's Internet web site, unless the
creditor provides a printer that automatically prints the
disclosures.
17(d) Address or Location To Receive Electronic Communication
Paragraph 17(d)(1)
1. Electronic address. An applicant's electronic address is an
e-mail address that is not limited to receiving communication
transmitted solely by the creditor.
Paragraph 17(d)(2)
1. Identifying account involved. A creditor may identify a
specific account in a variety of ways and is not required to
identify an account by reference to the account number. For example,
where the applicant has only one credit card account, and no
confusion would result, the creditor may refer to ``your credit card
account.'' If the applicant has two credit card accounts, the
creditor may, for example, differentiate accounts based on the card
program or by using a truncated account number.
2. 90-day rule. The actual disclosures provided to an applicant
must be available for at least 90 days, but the creditor has
discretion to determine whether they should be available at the same
location for the entire period.
17(e) Redelivery
1. E-mail returned as undeliverable. If an e-mail to the
applicant (containing an alert notice or other disclosure) is
returned as undeliverable, the redelivery requirement is satisfied
if, for example, the creditor sends the disclosure to a different e-
mail address or postal address that the creditor has on file for the
applicant. Sending the disclosures a second time to the same
electronic address is not sufficient if the creditor has a different
address for the applicant on file.
17(f) Electronic Signatures
1. Relationship to the E-Sign Act. The E-Sign Act provides that
electronic signatures have the same validity as handwritten
signatures. Section 106 of the E-Sign Act (15 U.S.C. 7006) defines
an electronic signature. To comply with the E-Sign Act, an
electronic signature must be executed or adopted by an applicant
with the intent to sign the record. Accordingly, regardless of the
technology used to meet this requirement, the process must evidence
the applicant's identity.
By order of the Board of Governors of the Federal Reserve
System, March 29, 2001.
Robert deV. Frierson,
Associate Secretary of the Board.
[FR Doc. 01-8150 Filed 4-3-01; 8:45 am]
BILLING CODE 6210-01-P
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