CUNA Regulatory Comment Call

May 3, 2007

EXECUTIVE SUMMARY

• The Federal Reserve Board (Fed) has issued proposed 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).
• In 2001, the Fed issued interim final rules regarding electronic disclosures. These were intended 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.
• The mandatory compliance date for the 2001 rules was to have been October 1, 2001. However, as a result of concerns from credit unions and others, the Fed rescinded the compliance date, and the 2001 rules were never finalized. Since then, creditors have been able to provide electronic disclosures, as long as they complied with the E-Sign Act, which does not require implementing regulations.
• The proposed rules that have now been issued will: 1) withdraw those portions of the 2001 rules that merely restate or cross-reference the E-Sign Act; 2) withdraw other portions of the 2001 rules that impose undue burdens, the most important of which are the specific timing and delivery requirements regarding the sending of emails and the redelivery requirements; and 3) adopt other portions of those rules that provide guidance on the use of electronic disclosures.
• These rules also contain changes to the official staff commentary that provide further guidance regarding electronic disclosures.
• Separate Regulatory Comment Calls will be issued for the proposed rules that that will amend Regulations E, M, Z, and DD, although these rules are generally consistent.
• 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 DD rule, the comment letter should refer to Docket No. R-1281.

Comments on the proposed rules will be due by June 29, 2007. Please submit your comments to CUNA by June 18, 2007. Please feel free to fax your responses to CUNA at 202-371-8240; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com and to Senior Assistant General Counsel Jeffrey Bloch at jbloch@cuna.com; or mail them to Mary or Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us if you would like a copy of the proposed rules or you may access the rules here.

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 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.

In 2001, the Fed issued interim final rules regarding electronic disclosures. These were intended to ensure consistency with the 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.

The mandatory compliance date for the 2001 rules was to be October 1, 2001. However, as a result of concerns from credit unions and others, the Fed rescinded the compliance date, and the 2001 rules were never finalized. Since then, financial institutions have been able to provide electronic disclosures, as long as they complied with the E-Sign Act. These proposed rules will replace the 2001 interim final rules, although they do incorporate some of the provisions of those interim rules.

DESCRIPTION OF THE PROPOSED RULES AND CHANGES TO THE OFFICIAL STAFF COMMENTARY

General Disclosure Requirements

The general rule will be that creditors may provide these disclosures in electronic form, as long as the creditor with the consumer consent and the other applicable provisions of the E-Sign Act, which has been in effect since October 1, 2000. If these disclosures are provided in both paper and in electronic form, consent would not be required as the paper form could be used to satisfy the disclosure requirements.

However, if an applicant accesses an application electronically, the following disclosures must be provided to consumers in electronic form without the need to comply with the consumer consent or other requirements under the E-Sign Act:

• The creditor notification that information collected regarding the applicant’s race, color, religion, national origin, and gender is optional and used to monitor compliance with the ECOA and that the creditor may not discriminate based on this information or on whether the applicant chooses to provide the information.
• That the designation of a title on an application form is optional.
• For credit other than individual secured credit, a creditor may inquire about marital status, but must use the terms married, unmarried, or separated. The creditor must explain that unmarried includes single, divorced, and widowed individuals.
• That the applicant does not need to reveal income from alimony, child support, or separate maintenance payments if the applicant does not want that information to be considered in determining creditworthiness.
• Creditors must request information regarding ethnicity, race, gender, marital status, and age as part of an application for home secured credit for the purchase or refinancing of a home that will serve as the primary residence. Creditors must disclose to the applicant that this is being requested by the federal government to monitor federal law that prohibits discrimination and must disclose that the creditor must note this information based on visual observation or surname if the applicant refuses to provide the information.
• Notification to the applicant that the applicant has the right to obtain a copy of the appraisal if the creditor does not provide this information routinely.

If a consumer receives an application in paper form, such as through the mail, a creditor may not comply with these disclosure requirements by providing these disclosures in electronic form without the consumer’s consent, such as including a reference in these materials to a website in which these disclosures would be available.

The 2001 interim rules indicated that 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 rules. This has now been deleted as this is already permitted under the E-Sign Act.

Withdrawal of the 2001 Interim Final Rules Regarding Timing and Delivery Requirements

The proposed rules will delete the general provisions regarding electronic communications that were included in the 2001 interim final rules. This includes the following timing and delivery requirements that were included in the 2001 rules:

• The requirement to send disclosures to a consumer’s email address, or post the disclosures on a website and then send a notice alerting the consumer that the disclosures have been posted. CUNA strongly opposed the inclusion of these provisions.
• The requirement that if a disclosure is returned undelivered, the creditor must then attempt redelivery, based on the address information that is on file.
• The requirement that the disclosures must be made available on the creditor’s website, or other location, for at least 90 days.

The other general provisions will also be deleted, but this should have no impact on creditors as these other provisions generally outline the requirements that are already included in the E- Sign Act.

• For a number of disclosures, as described above, creditors must provide the electronic disclosures if a consumer accesses an application electronically and consumer consent will not be required. Consumer consent will be required if the information is provided in paper form, but the disclosures are only available electronically. Do you agree with this approach?
  

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• The proposed rules will eliminate a number of the timing and delivery requirements that were included in the 2001 interim final rules. This includes the following:
  • The requirement to send disclosures to a consumer’s email address, or post the disclosures on a website and then send a notice alerting the consumer that the disclosures have been posted.
  • The requirement that if a disclosure is returned undelivered, the creditor must then attempt redelivery, based on the address information that is on file.
  • The requirement that the disclosures must be made available on the creditor’s website, or other location, for at least 90 days.
  Do you agree that these should be eliminated? Do you believe guidance is needed with regard to the delivery or redelivery of electronic disclosures and how long they should be available on the website?
  

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• Other comments?
  

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