CUNA Regulatory Comment Call
April 10, 2001
Fed Interim Rule Allows Regulation B Electronic Disclosures
(MAJOR RULE)
EXECUTIVE SUMMARY
- The Federal Reserve Board (Fed) issued interim final rules on how financial institutions and others can provide electronically the disclosures that are required to be given in writing under Regulation Z (the Truth in Lending Act), Regulation B (the Equal Credit Opportunity Act), Regulation E (the Electronic Fund Transfer Act), Regulation M (the Consumer Leasing Act), and Regulation DD (the Truth in Savings Act).
- These rules revise the proposed rules that were issued in 1999 to ensure consistency with the Electronic Signatures in Global and National Commerce Act (E-Sign Act), which became effective on October 1, 2000. The E-Sign Act permits the use of electronic signatures and disclosures, as long as appropriate consent is received from the consumer.
- These rules also contain changes to the official staff commentary that provide further guidance regarding electronic disclosures.
- The rules are effective as of March 30, 2001. The mandatory compliance date was originally October 1, 2001, but this has been delayed. Click here for more information about this delay.
- Here are the significant provisions that are similar among the interim rules:
- Consumers must provide affirmative consent to receive the disclosures electronically.
- Disclosures may be sent by e-mail or made available at another location, such as an Internet website. If the disclosures are not sent by e-mail, consumers must receive notice alerting them to the availability of these disclosures.
- Disclosures posted at a location, such as an Internet website, must be available for 90 days.
- The disclosures must be provided at the time of application and consumers must be required to access these disclosures before submitting the application.
- Creditors must make a reasonable attempt to redeliver electronic disclosures that are returned undelivered, using information that is on file.
- Separate Regulatory Comment Calls will be issued for each of these five interim rules.
- If you are submitting comments directly to the Fed, separate comment letters should be submitted for each of the five interim final rules. Each letter should refer to the appropriate docket number. For the Regulation B rule, the comment letter should refer to Docket No. R-1040.
Comments on the interim final rules are due by June 1, 2001. Please submit your comments to CUNA by May 24, 2001. Please feel
free to fax your responses to CUNA at 202-371-8240; e-mail them to Associate General Counsel Mary Dunn at
mdunn@cuna.com or to Assistant
General Counsel Jeffrey Bloch at jbloch@cuna.com; or mail them to Mary or Jeff in c/o CUNA’s Regulatory Advocacy Department, 805 15th
Street, NW, Suite 300, Washington, DC 20005. You may also contact us if you would like a copy of the interim rules or you may access the
rules on the Internet at the following address:
http://www.federalreserve.gov/boarddocs/press/boardacts/2001/20010329/attachment.pdf
BACKGROUND
The Equal Credit Opportunity Act (ECOA) 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, or because the applicant receives public assistance. Regulation B implements the ECOA, which contains official staff commentary that interprets the regulation and provides guidance in applying the regulation to specific transactions. The ECOA and Regulation B require that a number of disclosures be provided in writing.
In August 1999, the Fed issued proposed rules to permit financial institutions, creditors, lessors, and others to use electronic communication to provide federally mandated disclosures to consumers. Click here for CUNA’s comment letter, which generally supported the use of electronic disclosures while offering specific suggestions for improvement.
In October 2000, the E-Sign Act became effective and allows electronic documents and signatures to have the same validity as paper documents and handwritten signatures. There are also special rules for the use of electronic disclosures in consumer transactions. Such disclosures may be provided in electronic form only if the consumer specifically consents after receiving certain information.
The E-Sign Act currently permits the use of electronic disclosures and does not require implementing rules, as long as the appropriate consent is obtained. This generally requires that the consumers be informed as to the hardware and software requirements for accessing the information. Consumers must also give the consent electronically and must “reasonably demonstrate” that they are able to obtain the information electronically. The term “reasonably demonstrate” is currently the subject of significant controversy within the financial services industry.
The Fed’s interim rules are designed to establish uniform requirements for the timing and delivery of electronic disclosures. They include most of the provisions that were included in the 1999 proposed rules to the extent that they were not affected by the E-Sign Act. The requirements are generally consistent among the five interim final rules that have now been issued.
DESCRIPTION OF THE INTERIM FINAL RULE AND CHANGES TO THE OFFICIAL STAFF COMMENTARY
I. General Provisions Regarding Electronic Communications
(All five interim rules regarding electronic disclosures contain similar provisions.)
Definition
The interim final rules provide for the delivery of disclosures by means of “electronic communication.” This is limited to information that can be displayed as visual text. This would not include other means, such as audio and video voice response systems. Alternative means may be provided to visually-impaired consumers, as long as visual text is also used.
General Rule
Other than any requirements that disclosures be in paper form, the interim rules do not affect any other substantive provision of the ECOA or Regulation B. The current format, timing, and retainability rules still apply, as well as the “clear and conspicuous” standard for disclosures.
Clear and Conspicuous Format
Electronic disclosures must be in a format that is “clear and conspicuous.” The E-Sign Act also requires the following:
- The creditor must disclose to the consumer the requirements for accessing and retaining the disclosures in the clear and conspicuous format.
- The consumer must demonstrate the ability to access the information electronically and affirmatively consent to the electronic delivery.
- The creditor must provide the disclosures in accordance with the requirements that were provided to the consumer.
The disclosures do not have to be provided separately from other information. However, advertisements should not be integrated into the text to the extent that the clear and conspicuous standard would be violated. Navigational tools that direct the consumer to related information are also acceptable to the extent that they do not violate the clear and conspicuous standard.
Timing
Electronic disclosures must comply with the existing timing requirements under the ECOA and Regulation B. E-mail disclosures are timely when sent by the required time. Disclosures posted on an Internet website are timely if, by the required time, they are posted on the website and a notice is sent to the consumer alerting him or her that the disclosures have been posted.
Certain disclosures must be provided before the consumer is obligated to fulfill the terms of a transaction. The creditor does not have to confirm that the consumer read the disclosures. For on-line transactions, the disclosures may be accessible by an electronic link, as long as the consumer is not able to bypass this link. Another alternative is for the disclosures to appear on the screen automatically. This also applies to disclosures that are interspersed into the text of another document. An example would be when a consumer opens a credit card account and then makes an immediate purchase.
Many of the disclosures provided under the ECOA and Regulation B must be in a form that the consumer may retain. Electronic disclosures are subject to this same requirement and must generally be provided in a form that may be printed or stored electronically. To ensure that consumers may retain and access the information, these disclosures must either be sent to the consumer’s designated e-mail address or must be available on the creditor’s Internet website.
Consumers must have the ability to receive and retain the information when they use equipment that is controlled by the creditor, such as an automated loan machine or a computer terminal located in the lobby. This requirement may be satisfied if the disclosures are sent to the consumer’s e-mail address, available on the creditor’s website, or printed automatically from the creditor’s equipment.
Consent
Under Regulation B, both consumer and business applicants must provide consent in order to receive disclosures electronically. However, certain disclosures do not require that the consumer consent to the delivery in electronic form if they are included with an application. This includes notice of the right to an appraisal, notice of the right of the reasons for an adverse action, and the request for information in order to monitor certain characteristics of borrowers who apply for mortgage loans.
Address or Location to Receive Electronic Communication
Creditors may deliver the electronic disclosures to the consumer’s e-mail address. The disclosures may also be made available at another location, such as an Internet website, as long as the consumer receives notices that the disclosures have been posted. This notice may be sent by e-mail or regular mail and must identify the account and the website address or other location where the disclosures are available. The disclosures must be made available for at least 90 days. The requirements for this notice do not apply to disclosures in connection with requests for information in order to monitor certain characteristics of borrowers who apply for mortgage loans.
The consumer’s e-mail address is defined as one that is not limited to receiving communications solely from the creditor. This would, for example, exclude home-banking programs that allow communications by means of a computer and modem. Under these circumstances, the creditor must send a separate notice, either by e-mail or regular mail.
Although the notice must identify the account, this does not require the account number. If the notice refers to one account, the notice may, for example, just refer to “your credit card account.” If more than one account is involved, the notice could differentiate the accounts based on the card program or by use of a shortened account number.
Although the disclosures must be made available for at least 90 days, creditors have discretion to determine if they should be available at the same location for the entire period.
Redelivery
Creditors do not have to verify delivery of electronic disclosures. If a disclosure is returned undelivered, the creditor must then attempt redelivery, based on the address information that is on file. This may be delivery to a different e-mail address or to the postal address that is on file. Sending the notice electronically to the same address would not be sufficient if the creditor has a different address on file.
These redelivery requirements do not apply when a disclosure is delivered but cannot be read by the consumer because of technical problems. Creditors will be considered to be in compliance with the timing requirements if they send the initial notice in a timely manner, even if it is later returned as undeliverable.
Electronic Signatures
Any requirement for a signature is satisfied if it meets the definition of an electronic signature under the E-Sign Act. This includes any electronic sound, symbol, or process that is associated with a record and is executed or adopted by a person that has the intent to sign the record.
II. Miscellaneous
- The interim final rules do not impose any document integrity standards. The Fed believes it is premature at this time to specify such standards.
- Disclosures may be provided in languages other than in English, as long as disclosures in English are provided upon request.
- When an application for credit is submitted through a third party to more than one creditor, each creditor may provide an adverse action notice through the third party. In these situations, the third party may provide the notice electronically in accordance with the interim rule.
QUESTIONS TO CONSIDER REGARDING THE FED’S
PROPOSAL TO ALLOW ELECTRONIC DISCLOSURES
(The Fed is Specifically Interested in Receiving Comments on Most of the Issues Raised by the Following Questions.)
- Many provisions of these rules were developed in 1998 and 1999. Have there been any developments since then or recent industry practices that warrant changes in these rules?
- Should the Fed provide more regulatory guidance regarding consumer consent? For example, what guidance, if any, is needed regarding the requirement that consumers confirm consent electronically and in a manner that “reasonably demonstrates” that they can access the information? What guidance, if any, is needed regarding the effect of withdrawing consent or on requesting paper copies? (The E-Sign Act permits the withdraw of consent.)
- Creditors must inform consumers about changes in hardware or software requirements if there is a “material risk” that the consumer will no longer be able to access and retain the information. Is more guidance needed regarding the term “material risk?”
- The E-Sign Act allows the Fed to eliminate disclosures from the consumer consent requirements if necessary to eliminate a substantial burden on electronic commerce and if it will not result in an increased risk of harm to consumers. Should this exemption authority be exercised? If so, which disclosures should the exemption apply?
- Are other regulatory or legislative changes needed to take into account online banking and lending or would otherwise facilitate electronic delivery of financial services?
- An e-mail address is defined as one that is not limited to receiving communications transmitted solely by the creditor. This is intended to exclude systems, such as home-banking programs, that allow communications solely between the creditor and consumer. The Fed is concerned that in such situations, the creditor controls the access to the information and decides how long the information is available. This is in contrast to e-mail addresses where the consumer chooses when to review, and for how long to maintain, the information. The Fed also wants to ensure that the consumer is alerted as to when the information is available at the creditor’s home-banking site. Do you agree with the Fed on this definition of “e-mail address?” How can we address the concerns that the Fed has raised?
- Are the interim rules clearly written and easily organized? How can the rules be written to make them easier to understand?
- Other comments?
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Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com |
