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FDIC Federal Register Citations

By Hand Delivery September 21, 2001

Mr. Robert E. Feldman
Executive Secretary 
Attention: Comments/OES 
Federal Deposit Insurance Corporation 
550  17th Street, NW
Washington, DC 20429

Dear Mr. Feldman:

This letter is submitted by MasterCard International Incorporated ("MasterCard")1 in response to the request for comment issued by the Federal Deposit Insurance Corporation ("FDIC") in connection with its review of banking regulations regarding the on-line delivery of financial services ("Review"). MasterCard appreciates the opportunity to submit these comments.

We commend the FDIC for its efforts in recent years to ensure that financial institutions have the clear authority to deliver the electronic banking services that consumers increasingly demand. We believe that the strong consumer demand for these services is a direct result of the significant benefits they provide to consumers. For example, as a result of electronic banking, consumers are able to shop among and establish relationships with financial institutions throughout the country without ever leaving the privacy of their own homes. In addition, many consumers and financial institutions find that a wide variety of financial programs, services, and products can be provided more inexpensively and efficiently when they are delivered electronically rather than through more traditional means.

The 106th Congress clearly recognized the importance of these and other consumer benefits when it enacted the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. §§ 7001 et seq. (the "E-Sign Act" or the "Act"). The E-Sign Act evidences a clear federal policy of promoting electronic commerce by ensuring that electronic documents are accorded the same treatment as those in paper form. Indeed, Congress plainly intended that electronic commerce should not be unduly hindered by prejudices or preconceived notions about electronic documents, and that no method of electronic communication be preferred over another method. Thus, for example, the E-Sign Act expressly states that any interpretations of the Act by federal regulatory agencies must, among other things: (i) not add to the requirements of the E-Sign Act; (ii) result in substantially equivalent requirements being imposed on non-electronic disclosures as on electronic ones; (iii) not impose unreasonable costs on acceptance and use of electronic disclosures; and (iv) not require, or accord greater legal status to, the implementation or application of specific technology. 15 U.S.C. § 7004(b). MasterCard fully supports these principles, and we believe that, as the FDIC conducts its Review, it should give careful consideration to the implementation of these principles and the specific provisions of the E-Sign Act.

Delivering Disclosures Electronically

One of the key elements of the E-Sign Act is Section 101(c), which allows for the electronic delivery of federal- and state-mandated consumer disclosures. Section 101 (c) allows a financial institution to deliver mandated disclosures electronically if the institution first makes certain disclosures to the consumer, including disclosures regarding the hardware and software requirements for accessing and retaining the electronic disclosures, and the consumer affirmatively consents to receive the disclosures electronically. Section 101 (c) also provides that disclosures may be delivered electronically only to those consumers who have reasonably demonstrated that they are able to access the disclosure information in electronic form.

Most financial services that a financial institution offers to consumers are subject to a wide variety of federal and/or state disclosure requirements. For example, the following are just some of the disclosure requirements a credit card issuer is subject to under the federal Truth In Lending Act ("TILA"): (i) advertising disclosures; (ii) disclosures in connection with applications and solicitations; (iii) "initial disclosures" provided when the account is established; (iv) periodic statement disclosures; (v) change-in-terms notices; and (vi) billing rights notices. Other products, programs, and services are subject to a similar array of disclosure requirements. As a result, the provisions of Section 101 (c) are of special importance to financial institutions that offer these services electronically. For those institutions, it is imperative that the E-Sign Act requirements for delivering electronic disclosures be implemented in a way that does not undermine the objectives of the E-Sign Act. In particular, financial institutions must be permitted to deliver electronic disclosures in a way that is both efficient and inexpensive for the financial institution and that does not undermine the convenience that drives the consumer to select the electronic product in the first place. It is possible, however, that because of recent regulatory developments in this area, the objectives and benefits of the E-Sign Act will not be fully realized.

Some of the difficulties in this regard stem from the requirement in Section 101 (c) that a consumer may receive electronic disclosures only if the consumer "reasonably demonstrates" that he or she can access the disclosure information electronically. This provision arguably could require that a consumer who has consented to receiving electronic disclosures after full notice of the technological and other requirements of doing so must nevertheless affirmatively demonstrate that he or she has the ability to access the disclosures. This provision runs directly counter to the general policy that electronic and paper documents should be treated the same. In a paper-based transaction, where disclosures are furnished to a consumer by mail, the consumer simply must furnish an address at which the consumer will receive the disclosures. In at least some cases, the consumer may elect to pick up the paper disclosures rather than have them delivered to a particular address. We believe that the same should be true for electronic disclosures. Specifically, in our view, consumers should be permitted to consent to receive disclosures in a specified electronic manner and should not be required to take additional steps, such as logging on to a web site or engaging in other electronic communication to effectuate their clear intent. As a result, we urge the FDIC to include in the final Review results a recommendation that the "reasonable demonstration" requirement of Section 101 (c) be repealed.

Other impediments to fully implementing the benefits of the E-Sign Act have resulted from interpretations of how electronic disclosures must be delivered. For example, in the Federal Reserve Board's interim final rules on electronic disclosures ("Interim Rules") there is a requirement that consumers who have consented to receiving electronic disclosures on a web site must nonetheless be notified by e-mail of the availability of those disclosures. Once again, this type of provision runs counter to the intent that electronic and paper disclosures be treated equally. For example, under Regulation Z, which implements the TILA, consumers are permitted to pick up their periodic statements and there is no requirement that any notice of the availability of those statements be mailed to the consumers. We believe that there should not be any notice of availability requirements for electronic disclosures, either. If a consumer has agreed to receive disclosures in a particular fashion, such as at a web site, then he or she should be permitted to do so without any additional burdens being imposed on either party.

Another area of concern that arises from the Interim Rules is the length of time the disclosures must be available when they are presented to a consumer at a web site. The Interim Rules state that the disclosures must remain available for at least 90 days. This requirement would be costly in that it would require the storage of literally millions of different, outdated disclosures. For example, the initial disclosures of every consumer who opens an account on-line, and receives the initial disclosures electronically, or the periodic disclosures of every consumer who elects to pick up the periodic statement on-line must be stored separately for 90 days. Similarly, any other type of disclosure that consumers have consented to receive at the web site must remain available for at least 90 days.

Once a consumer accesses a particular disclosure, the financial institution should no longer be required to store that disclosure for subsequent access by the consumer. For example, continued availability should not be required when a consumer obtains disclosures that are provided during an on-line transaction, or where the consumer otherwise already has obtained that disclosure electronically. At the very least, even if it is necessary to allow consumers some amount of time to obtain the disclosures, 90 days appears to be excessive. We urge that the FDIC recommend in its Review a more workable approach to the record availability requirement.

In addition, we urge that the FDIC confirm that financial institutions may offer certain products, programs, or services exclusively by electronic means and may also vary the price or other terms of products, programs, or services that are offered electronically. The E-Sign Act contemplates that financial institutions may choose to do business solely electronically. See 15 U.S.C. § 7001(c)(1)(B)(i)(II). Thus, for example, a financial institution may determine to make loans solely over the Internet and only offer electronic Regulation Z disclosures to its customers. In addition, financial institutions should, at their own discretion, be able to vary the consideration charged to a consumer for a financial product, program, or service depending on whether the consumer chooses paper or electronic disclosures. Many financial institutions may wish to offer pricing incentives for consumers to engage in electronic commerce, thereby passing along savings resulting from less expensive and more efficient electronic procedures, including potentially significant cost savings by not paying for envelopes, paper, and postage.

Relationship to State Law

Another important consideration is the relationship between state and federal law with respect to the on-line delivery of financial services. We encourage the FDIC to clarify the interplay between state and federal law with respect to these issues by expressly confirming that financial institutions that comply with the provisions of the E-Sign Act do not need to comply with additional or different requirements under state law with respect to electronic disclosures or signatures. The requirements of providing electronic disclosures or signatures under the E-Sign Act and Interim Rules, which are federal laws, should be governed by federal and not state law. The E-Sign Act recognizes a federal interest in not unduly burdening electronic commerce with state law requirements that are substantially different than requirements imposed by the federal statute. Importantly, the "negative federal preemption" applies only with respect to requirements imposed under state law and thus has no application to disclosures required under federal law, including under the Interim Rules. See 15 U.S.C. § 7002(a). Thus, in this area federal law evidences a strong desire for uniformity and promoting electronic commerce. Moreover, adopting a rule of simply complying with the E-Sign Act relieves financial institutions of the potentially onerous requirements of determining when various state statutes are consistent with the E-Sign Act. Finally, the nature of electronic commerce may make it difficult to determine which state's laws should apply to a given situation.


The FDIC has requested comment on marketing arrangements that provide consumers with access to products offered by multiple entities through hypertext links on a financial institution's web site. These links enable a consumer to transfer between the financial institution's web site and another entity's web site. The FDIC has indicated that such an arrangement may be confusing to consumers. Therefore, the FDIC has specifically inquired whether it should promulgate a regulation or publish guidance establishing standards for state nonmember banks concerning the use of hyperlinks.

The ability to enter into these weblinking arrangements is extremely important to financial institutions who have chosen to offer products, programs, and services electronically. Weblinking enables a financial institution to compete with larger or more diversified entities by offering consumers, on the financial institution's web site, the opportunity to access a wider array of products, programs, and services than the financial institution could offer by itself. We believe that these weblinking arrangements can be, and in fact are being, offered in a way that avoids customer confusion as to the sponsorship of the web site at which the consumer is transacting business. For instance, entities often use a web site border and brand location to indicate to consumers that they have accessed a different web site. Additional approaches include pop-up boxes or other methods of communication that notify consumers that they are exiting the site of a financial institution and are transferring to an external web site.

In our experience, we do not believe that it is necessary for the FDIC to establish additional specific guidelines on this issue. In the event that the FDIC decides to do so, however, we urge that any such guidance allow each financial institution the flexibility to design and implement its own methods for ensuring that consumers understand the arrangement between the financial institution and its weblink partner.

Location Considerations

The FDIC expressly requested comment on the interpretation of federal statutes and regulations applicable to a financial institution on the basis of the "location" of the financial institution. Financial institutions that issue credit cards are authorized under section 27 of the Federal Deposit Insurance Act, 12 U.S.C. 1831d, to charge interest allowed by the laws of the state in which the institution is located and to "export" such interest charges on loans made to borrowers that reside in other states. MasterCard believes that the FDIC should not attempt to provide guidance on the application of this federal interest statute in connection with electronic banking services as part of the FDIC's current proceedings. If additional guidance would be appropriate at a later time, MasterCard believes that the particular issues and considerations relating to the location of a financial institution for purposes of exportation should be considered fully and carefully in the context of that particular issue. Simply stated, the application of the usury laws is such an important issue that it deserves individualized attention if additional guidance is going to be provided.

Once again, MasterCard greatly appreciates the opportunity to submit these comments regarding the Review. If you have any questions concerning this comment letter, or if we may otherwise be of assistance in connection with this issue, please do not hesitate to call me, at the number indicated above, or Michael McEneney at Sidley Austin Brown & Wood at (202) 736-8368, our counsel in connection with this matter.

Sincerely yours,

Joshua L. Peirez
Vice President and 
Legislative/Regulatory Counsel

cc: Michael F. McEneney, Esq.

1 MasterCard is a global membership organization comprised of financial institutions that are licensed to use the MasterCard service marks in connection with a variety of payments systems.

Last Updated 09/27/2001

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