[Federal Register: March 30, 2001 (Volume 66, Number 62)]
[Rules and Regulations]
[Page 17322-17329]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30mr01-2]
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FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Regulation M; Docket No. R-1042]
Consumer Leasing
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 rule amending Regulation M,
which implements the Consumer Leasing Act, to establish a uniform
standard for the timing of 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 lessees have
adequate opportunity to access and retain cost information when
shopping for a lease or becoming obligated for a lease. (Similar rules
are being adopted under other consumer financial services and fair
lending regulations administered by the Board.) Under the rule, lessors
may deliver disclosures electronically if they obtain lessees'
affirmative consent in accordance with the Electronic Signatures in
Global and National Commerce Act. 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-1042, may be
mailed to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, NW.,
Washington, DC 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, NW. Comments may be inspected
in room MP-500 in the Board's Martin Building between 9 a.m. and 5
p.m., pursuant to the Board's Rules Regarding the Availability of
Information, 12 CFR part 261.
FOR FURTHER INFORMATION CONTACT: Jane E. Ahrens, Senior Counsel, or
David A. Stein, Attorney, Division of Consumer and Community Affairs,
at (202) 452-2412 or (202) 452-3667.
SUPPLEMENTARY INFORMATION:
I. Background
The Consumer Leasing Act (CLA), 15 U.S.C. 1667-1667e, was enacted
into law in 1976 as an amendment to the Truth in Lending Act (TILA), 15
U.S.C. 1601 et seq. The CLA requires lessors to provide lessees 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. The Board's Regulation M (12 CFR
part 213) implements the act.
The CLA and Regulation M require disclosures to be provided in
writing, presuming that lessors provide paper documents. Under the
Electronic Signatures in Global and National Commerce Act (E-Sign Act)
(15 U.S.C. 7001 et seq.), 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
[[Page 17323]]
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 M (63 FR 14538), and other financial services and fair
lending 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 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' consumer 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 the E-Sign Act.
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 M. Consistent with the requirements of the E-Sign Act,
lessors must obtain lessee's 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 lessee, or they
may be made available at another location, such as an Internet web
site. If the disclosures are not sent by e-mail, lessees 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 lessees adequate time to access and retain the
information. With regard to the timing of electronic disclosures,
lessees are required to access the disclosures before becoming
obligated on a lease. Under the interim rule, lessors 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 B, E, Z, and DD.
III. Request for Comment
Interim Rules
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
[[Page 17324]]
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 lessees confirm their consent electronically in a
manner that reasonably demonstrates they can access information in the
form to be used by the lessor? Is clarification needed on the effect of
lessees withdrawing their consent, or on requesting paper copies of
electronic disclosures? Lessors must also inform lessees of changes in
hardware and software requirements if the change creates a material
risk that the lessee 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 M and other financial services and fair lending 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 187 of the CLA, the Board
amends Regulation M 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. Leasing
disclosures are typically provided in the lease contract, but
disclosures can be provided in a separate statement or in the lease
contract or other document evidencing the lease. Leases are not
typically be consummated on-line, but consumers are able to shop and
apply for leases on-line. The purpose of the Regulation M disclosures
is to ensure that consumers have meaningful information about lease
terms and to promote comparison shopping. The use of electronic
communication may allow lessors to provide Regulation M disclosures to
consumers earlier in the leasing process. To the extent that a lessor
may make electronic disclosures available at its Internet web site
instead of providing the disclosures directly to the lessee, the Board
finds that such an exception is warranted, acting pursuant to its
authority under section 105(a) of TILA. 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 213.3 General Disclosure Requirements
3(a) General Requirements
Section 213.3(a)(5) is added to provide a cross reference to rules
governing the electronic delivery of disclosures in Sec. 213.6.
Section 213.6 Electronic Communication
6(a) Definition
As adopted, the definition of the term ``electronic communication''
remains substantially unchanged from the 1999 proposals. Section
213.6(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. Because the rule permits
the use of electronic communication to satisfy the statutory
requirement for written disclosures that must be clear and conspicuous,
the Board believes visual text is an essential element of the
definition.
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.
6(b) General Rule
Effective October 1, 2000, the E-Sign Act permits lessors to
provide disclosures using electronic communication, if the lessor
complies with consumer consent requirements in section 101(c). Under
section 101(c) of the E-Sign Act, lessors must provide specific
information about the electronic delivery of disclosures before
obtaining the lessee'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. Accordingly, Sec. 213.6(b)
sets forth the general rule that lessors subject to Regulation M may
provide disclosures electronically if the lessor complies with section
101(c) of the E-Sign Act.
[[Page 17325]]
The E-Sign Act authorizes the use of electronic disclosures. It
does not affect any requirement imposed under the CLA 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 6(b)-1 contains this
guidance.
Presenting Disclosures in a Clear and Conspicuous Format
Electronic disclosures must be clear and conspicuous as is the case
for all written disclosures under the CLA and Regulation M. See
Sec. 213.3(a). A lessor must provide electronic disclosures using a
clear and conspicuous format. Also in accordance with the E-Sign Act:
(1) The lessor must disclose the requirements for accessing and
retaining disclosures in that format; (2) the lessee must demonstrate
the ability to access the information electronically and affirmatively
consent to electronic delivery; and (3) the lessor must provide the
disclosures in accordance with the specified requirements. Comment
6(b)-2 contains this guidance.
Commenters asked 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 CLA and Regulation M. See
Sec. 213.3(a)(3). Disclosures generally must be provided before the
lessee becomes obligated. For example, if a lessor permits the lessee
to lease a vehicle on-line, the lessee must be required to access the
disclosures required under Sec. 213.4 before becoming obligated. A link
to the disclosures satisfies the timing rule if the lessee cannot
bypass the disclosures before becoming obligated. Or the disclosures in
this example must automatically appear on the screen, even if multiple
screens are required to view the entire disclosure. Comment 6(b)-3
contains this guidance.
The CLA and Regulation M require that disclosures be given to
lessees. It is not sufficient for lessors to provide a bypassable
navigational tool that merely gives lessees the option of receiving
disclosures. Such an approach reduces the likelihood that lessees will
notice and receive the disclosures. The final rule ensures that lessees
see cost disclosures provided electronically so that they have the
opportunity to read them when shopping for a lease or before becoming
obligated for a lease.
Commenters on the various proposals requested guidance regarding an
institution's duty in cases where the institution cannot provide timely
disclosures because automated equipment controlled by the institution
malfunctions or otherwise fails to operate properly. To the extent
applicable in connection with a lease transaction, if a lessor controls
the equipment and disclosures are required at that time, a lessor might
not be liable for failing to provide timely disclosures if the defense
in section 130(c) of TILA is available.
Providing Disclosures in a Form the Consumer May Keep
Under the CLA and Regulation M, disclosures required to be in
writing also must be in a form the consumer can retain. (See
Sec. 213.3(a).) Electronic disclosures are subject to this
requirements. Comment 6(b)-4 contains guidance on this requirement.
Lessees may communicate electronically with lessors 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), a lessee may
not have the ability at a given time to preserve CLA disclosures
presented on-screen. To ensure that lessees have an adequate
opportunity to access and retain the disclosures, the lessor also must
send them to the lessee's designated e-mail address or make them
available at another location, for example, on the lessor's Internet
web site, where the information may be retrieved at a later date.
To the extent applicable in connection with a lease transaction, if
a lessor controls the equipment providing the electronic disclosures
(for example, a computer terminal located in the lessor's place of
business) the lessor must ensure that the lessee has the opportunity to
retain the required information. Comment 6(b)-5 contains guidance on
this requirement.
6(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.
Section 213.6(c) is added to provide that disclosures required in
advertisements are not deemed to be related to a transaction for
purposes of the E-Sign Act's consumer consent provision.
6(d) Address or Location to Receive Electronic Communication
Consistent with the 1999 proposals, the interim rule provides that
lessors may deliver electronic disclosures by sending them to a
lessee's e-mail address. Alternatively, the rule provides that lessors
may make the disclosures available at another location such as an
Internet web site. If the lessor makes a disclosure available at such a
location, the lessor effectively delivers the disclosure by sending a
notice alerting the lessee when the disclosure can be accessed and
preserving the disclosure at the location for at least 90 days. The
time period for keeping disclosures available at a location such as a
lessor's Internet web site under the interim rule differs from the 1999
proposals, based on commenters' concerns as discussed below.
6(d)(1)
For purposes of Sec. 213.6(d), a lessee's electronic address is an
e-mail address that is not limited to receiving communications
transmitted solely by the lessor. This guidance is contained in comment
6(d)(1)-1.
6(d)(2)
As proposed, under Sec. 226.36(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 lessees have
adequate time to access and retain a disclosure under a variety of
circumstances, such as when a lessee may not be able for an extended
period of time to access the information due to computer malfunctions,
travel, or illness. Comment 6(d)(2)-1 is added to provide that during
this period, the actual disclosures must be available to the lessee,
but the lessor has discretion to determine whether they should be
available at the same location for the entire period.
Some commenters on the various proposals 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 1999 proposals provided that after the 90-day time period,
disclosures would be available upon consumers'
[[Page 17326]]
request, generally for 24 months, in the same format as initially
provided to the consumer. The 24-month period is consistent with a
lessor's duty to retain records that evidence 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 consumer.
Industry commenters strongly opposed the 24-month period. Many
believed that keeping copies of electronic disclosures actually
provided to consumers for that period of time would be costly and
burdensome. Moreover, industry commenters believed that once a consumer
has accessed the disclosures, the consumer rather than the lessor
should have the duty to retain them for future reference. They also
noted that under existing record retention requirements applicable to
paper disclosures, a lessor need only demonstrate compliance with the
rules, but need not retain copies of the actual disclosure provided to
consumers.
The requirement for lessors to provide duplicate disclosures upon
request for 24 months has not been adopted. A lessor's duty to retain
evidence of compliance for 24 months remains unchanged.
6(d)(3) Exception
Section 213.6(d)(3) is added to make clear that the requirements of
paragraphs (i) and (ii) of Sec. 213.6(d)(2) do not apply to disclosures
in lease advertisements (Sec. 213.7).
6(e) Redelivery
Industry commenters on the 1998 proposal asked for clarification
that sending the electronic disclosures complies with the regulation,
and the 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 lessors to monitor return receipts in every case to determine
that an individual consumer received the disclosures.
Section 101(c) of the E-Sign Act requires that consumers consent
electronically, or confirm their consents electronically, in a manner
that reasonably demonstrates that the consumer can access the
information that the lessor 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
lessor. After the consumer consents, the E-Sign Act also requires
lessors to notify consumers of changes that materially affect
consumer's ability to access electronic disclosures.
The interim rule does not impose a verification requirement because
the cost and burden associated with verifying delivery of all
disclosures would not be warranted. When electronic disclosures are
returned undelivered, however, Sec. 213.6(e) imposes a duty to attempt
redelivery (either electronically or to a postal address) based on
address information in the lessor's own files. Unlike paper disclosures
delivered by the postal service, there generally is no commonly-
accepted mechanism for reporting a change in e-mail or for forwarding
e-mail. Where a lessor actually knows that the delivery of an
electronic disclosure did not take place, the lessor should take
reasonable steps to effectuate delivery in some way. For example, if an
e-mail message to the lessee (containing an alert notice or other
disclosure) is returned as undeliverable, the redelivery requirement is
satisfied if the lessor sends the disclosure to a different e-mail
address or postal address that the lessor has on file for the lessee.
Sending the disclosures a second time to the same electronic address
would not be sufficient if the lessor has a different address for the
lessee on file. Comment 6(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 lessee due to technical problems with the lessee's
software. A lessor's duty to redeliver a disclosure under Sec. 213.6(e)
does not affect the timeliness of the disclosure. Lessors comply with
the timing requirements of the regulation when a disclosure is sent in
a timely manner, even though the disclosure is returned undelivered and
the lessor is required under Sec. 213.6(e) to take reasonable steps to
attempt redelivery.
Section 213.7 Advertising
7(b) Clear and Conspicuous Standard
7(b)(1) Amount Due at Lease Signing or Delivery
Under Sec. 213.7(b)(1), a lease advertisement cannot refer to a
component of the total amount due prior to or at consummation or by
delivery (except for the periodic payment amount) more prominently than
the total amount due. In addition, with the exception of the notice
required by Sec. 213.4(s), the rate cannot be more prominent than any
other Sec. 213.4 disclosure stated in the advertisement. Comment
7(b)(1)-3 contains guidance on how this rule applies in an electronic
advertisement.
7(b)(2) Advertisement of a Lease Rate
Under Sec. 213.7(b)(2), a lessor that advertises a percentage rate
must include a statement about the limitations of the rate in close
proximity to the rate without any other intervening language or
symbols. Comment 7(b)(2)-1 is revised to provide guidance on how this
rules applies in an electronic advertisement.
7(c) Catalogs and Other Multi-Page Advertisements; Electronic
Advertisements
Stating certain credit terms in an advertisement for a lease
triggers the disclosure of additional terms. Section 213.7(c) permits
lessors using a multiple-page advertisement to state the additional
disclosures in a table or schedule as long as the triggering lease
terms appearing anywhere else in the advertisement refer to the page
where the table or schedule is printed. The Board proposed to extend
the multiple-page advertisement provisions to electronic advertisements
and provided that lessors complied with Sec. 213.7(c) if the table or
schedule with the additional information is set forth clearly and
conspicuously and the triggering lease terms appearing anywhere else in
the advertisement clearly refer to the page or location where the table
or schedule begins. Comment 7(c)-2 is revised to reflect 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
[[Page 17327]]
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-1042, 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 M, in
accordance with section 3(a) of the Regulatory Flexibility Act (5
U.S.C. 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 lessors with
an alternative method of providing disclosures; the rule will relieve
compliance burden by giving lessors flexibility in providing
disclosures required by the regulation. 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 7100-0202.
The collection of information that is revised by this rulemaking is
found in 12 CFR Part 213.3, 213.4, 213.5, 213.7, 213.8 and in Appendix
A. This information is mandatory (15 U.S.C. 1667 et seq.) to evidence
compliance with the requirements of the Regulation M and the Consumer
Leasing Act (CLA). The respondents/recordkeepers are for-profit
financial institutions, including small businesses. Institutions are
required to retain records for twenty-four months. This regulation
applies to all types of depository institutions, not just state member
banks. However, under Paperwork Reduction Act regulations, the Federal
Reserve accounts for the burden of the paperwork associated with the
regulation only for state member banks. Other agencies account for the
paperwork burden on their respective constituencies under this
regulation.
The revisions provide that lessors may deliver disclosures
electronically upon obtaining consumers' affirmative consent in
accordance with the E-Sign Act. The revisions provide guidance to
institutions on the timing and delivery of electronic disclosures, to
ensure that consumers have adequate opportunity to access and retain
the information. With respect to state member banks, it is estimated
that there are 310 respondent/recordkeepers and an average frequency of
6,200 responses per respondent each year. The current annual burden is
estimated to be 11,179 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 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, NW., Washington, DC 20551; and to the Office of
Management and Budget, Paperwork Reduction Project (7100-0202),
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
[[Page 17328]]
1, 2000. The Board invites comments 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 213
Advertising, Federal Reserve System, Reporting and record keeping
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 continues to read as
follows:
Authority: 15 U.S.C. 1604; 1667f.
2. Section 213.3 is amended by adding a new paragraph (a)(5) to
read as follows:
Sec. 213.3 General disclosure requirements.
(a) General requirements. * * *
(5) Electronic communication. For rules governing the electronic
delivery of disclosures, including a definition of electronic
communication, see Sec. 213.6.
3. Section 213.6 is added to read as follows:
Sec. 213.6 Electronic communication.
(a) Definition. ``Electronic communication'' means a message
transmitted electronically between a lessor and a lessee 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 lessor may provide by electronic
communication any disclosure required by this part to be in writing.
(c) When consent is required. Under the E-Sign Act, a lessor is
required to obtain a lessee's affirmative consent when providing
disclosures related to a transaction. For purposes of this requirement,
the disclosures required under Sec. 213.7 are deemed not to be related
to a transaction.
(d) Address or location to receive electronic communication. A
lessor that uses electronic communication to provide disclosures
required by this part shall:
(1) Send the disclosure to the consumer's electronic address; or
(2) Make the disclosure available at another location such as a web
site; and
(i) Alert the lessee of the disclosure's availability by sending a
notice to the consumer's electronic address (or to a postal address, at
the lessor's option). The notice shall identify the transaction
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 lessee of the disclosure, whichever comes later.
(3) Exceptions. A lessor need not comply with paragraph (d)(2)(i)
and (ii) of this section for the disclosures required under Sec. 213.7.
(e) Redelivery. When a disclosure provided by electronic
communication is returned to a lessor undelivered, the lessor shall
take reasonable steps to attempt redelivery using information in its
files.
4. In Supplement I to Part 213, the following amendments are made:
a. A new Section 213.6--Electronic Communication is added.
b. In Section 213.7--Advertising, under 7(b)(1) Amount due at Lease
Signing or Delivery, a new paragraph 3. is added.
c. In Section 213.7--Advertising, under 7(b)(2) Advertisement of a
Lease Rate, paragraph 1. is revised.
d. In Section 213.7--Advertising, the heading 7(c) Catalogs and
Multi-Page advertisements is revised and paragraph 12 is redesignated
as paragraph 2 and revised.
The amendments read as follows:
Supplement I to Part 213 Official Staff Commentary to Regulation M
* * * * *
Section 213.6--Electronic Communication
6(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 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. For example, to satisfy the clear and
conspicuous standard for disclosures, electronic disclosures must
use visual text.
2. Clear and conspicuous standard. A lessor must provide
electronic disclosures using a clear and conspicuous format. Also in
accordance with the E-Sign Act:
i. The lessor must disclose the requirements for accessing and
retaining disclosures in that format;
ii. The lessee must demonstrate the ability to access the
information electronically and affirmatively consent to electronic
delivery; and
iii. The lessor must provide the disclosures in accordance with
the specified requirements.
3. Timing and effective delivery. When a lessor permits the
lessee to consummate a lease transaction on-line, the lessee must be
required to access the required disclosures before becoming
obligated. A link to the disclosures satisfies the timing rule if
the lessee cannot bypass the disclosures before becoming obligated.
Or the disclosures in this example must automatically appear on
screen, even if multiple screens are required to view the entire
disclosure. The lessor is not required to confirm that the lessee
has read the disclosures.
4. Retainability of disclosures. A lessor satisfies the
requirement that disclosures be in a form that the lessee 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 lessor's equipment. To the extent
applicable in connection with a lease transaction, a lessor that
controls the equipment providing electronic disclosures to lessees
(for example, a computer terminal in a lessor's place of business)
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 lessee may keep. For
example, if disclosures are required at the time of an on-line
transaction, the disclosures must be sent to the lessee's e-mail
address or must be made available at another location such as the
lessor's Internet web site, unless the lessor provides a printer
that automatically prints the disclosures.
6(d) Address or Location to Receive Electronic Communication
Paragraph 6(d)(1)
1. Electronic address. A lessee's electronic address is an e-
mail address that is not limited to receiving communications
transmitted solely by the lessor.
Paragraph 6(d)(2)
1. 90-day rule. The actual disclosures provided to a lessee must
be available for at least 90-days, but the lessor had discretion to
determine whether they should be available at the same location for
the entire period.
6(e) Redelivery.
1. E-mail message returned as undeliverable. If an e-mail
message to the lessee (containing an alert notice or other
disclosure) is returned as undeliverable, the redelivery requirement
is satisfied if, for example, the lessor sends the disclosure to a
different e-mail address or postal address that the lessor has on
file for the lessee. Sending the disclosures a second time to the
same electronic address is not sufficient if the lessor has a
different address for the lessee on file.
Section 213.7--Advertising
* * * * *
[[Page 17329]]
7(b)(1) Amount Due at Lease Signing or Delivery
* * * * *
3. Electronic advertisements. For advertisements using
electronic communication, to satisfy the prominence rule in
Sec. 213.7(b)(1), both the triggering terms and the required
disclosures must appear in the same location so that they can be
viewed simultaneously.
7(b)(2) Advertisement of a Lease Rate
1. Location of statement. The notice required to accompany a
percentage rate stated in an advertisement must be placed in close
proximity to the rate without any other intervening language or
symbols. For example, a lessor may not place an asterisk next to the
rate and place the notice elsewhere in the advertisement. In
addition, with the exception of the notice required by
Sec. 213.4(s), the rate cannot be more prominent than any other
Sec. 213.4 disclosure stated in the advertisement. For
advertisements using electronic communication, to comply with
proximity rule in, both the rate and the accompanying notice must
appear in the same location so that they can be viewed
simultaneously. The prominent rule in Sec. 213.7(b)(2) is not met if
the disclosures can be viewed only by use of a link that connects
the consumer to the information appearing at another location.
7(c) Catalogs or Other Multipage Advertisements; Electronic
Advertisements
* * * * *
2. Cross references. A catalog or other multiple-page
advertisement or an electronic advertisement is a single
advertisement (requiring only one set of lease disclosures) if it
contains a table, chart, or schedule with the disclosures required
under Sec. 213.7(d)(2)(i) through (v). If one of the triggering
terms listed in Sec. 213.7(d)(1) appears in a catalog, or in a
multiple-page or electronic advertisement, it must clearly direct
the consumer to the page or location where the table, chart, or
schedule begins. For example, in an electronic advertisement, a term
triggering additional disclosures may be accompanied by a link that
directly connects the consumer to the additional information (but
see comments under Sec. 213.7(b) about rules regarding the
prominence of disclosures).
* * * * *
By order of the Board of Governors of the Federal Reserve
System, March 23, 2001.
Robert deV. Frierson,
Associate Secretary of the Board.
[FR Doc. 01-7726 Filed 3-29-01; 8:45 am]
BILLING CODE 6210-01-P
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