[Federal Register: December 10, 2003 (Volume 68, Number 237)]
[Proposed Rules]
[Page 68788-68791]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10de03-15]
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FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-1169]
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule.
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SUMMARY: The Board is proposing to amend Regulation E, which implements
the Electronic Fund Transfers Act, and the staff commentary to the
regulation. Regulation E would be revised to require disclosures to be
``clear and conspicuous'' and to define more specifically the standard
to provide a more uniform standard among the Board's regulations. The
staff commentary would be revised to include examples of how to meet
this standard. Similar proposed revisions to Regulations B, M, Z and DD
appear elsewhere in today's Federal Register. These revisions are
intended to help ensure that consumers receive noticeable and
understandable information that is required by law in connection with
obtaining consumer financial products and services. In addition,
consistency among the regulations should facilitate compliance by
institutions.
DATES: Comments must be received on or before January 30, 2004.
ADDRESSES: Comments should refer to Docket No. R-1169 and should be
mailed to Jennifer J. Johnson, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, NW.,
Washington, DC 20551. However, because paper mail in the Washington
area and at the Board of Governors is subject to delay, please consider submitting your comments by e-mail to regs.comments@federalreserve.gov,
or faxing them to the Office of the Secretary at (202) 452-3819 or 452-
3102. Members of the public may inspect comments in Room MP-500 of the
Martin Building between 9 a.m. and 5 p.m. on weekdays pursuant to Sec.
261.12, except as provided in Sec. 261.14, of the Board's Rules
Regarding Availability of Information, 12 CFR 261.12 and 261.14.
FOR FURTHER INFORMATION CONTACT: Daniel Lonergan, Counsel, and Ky Tran-
Trong, Senior Attorney, Division of Consumer and Community Affairs,
Board of Governors of the Federal Reserve System, at (202) 452-3667 or
452-2412; for users of Telecommunications Device for the Deaf (``TDD'')
only, contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
The purpose of the Electronic Fund Transfers Act (EFTA), 15 U.S.C.
1693 et seq., is to provide a basic framework for establishing the
rights, liabilities, and responsibilities of participants in electronic
fund transfer (EFT) systems. The types of transfers covered by the act
and regulation include transfers initiated through an automated teller
machine (ATM), point-of-sale (POS) terminal, automated clearinghouse
(ACH), telephone bill-payment plan, or remote banking program. The act
and regulation require disclosure of terms and conditions of an EFT
service; documentation of electronic transfers by means of terminal
receipts and periodic account statements; limitations on consumer
liability for unauthorized transfers; procedures for error resolution;
and certain rights related to preauthorized EFTs. Further, the act and
regulation prescribe restrictions on the unsolicited issuance of ATM
cards and other access devices. The EFTA is implemented by the Board's
Regulation E (12 CFR part 205). An Official Staff
[[Page 68789]]
Commentary interprets the requirements of Regulation E (12 CFR part 205
(Supp. I)).
II. Proposed Revisions
Section 205.2--Definitions
2(n) Clear and Conspicuous
Section 905(a) of the EFTA requires that disclosures be provided to
consumers in readily understandable language. See 15 U.S.C. 1693c(a).
The EFTA also requires that certain information about EFTs be
``clearly'' set forth on periodic statements and receipts from an
electronic terminal. See 15 U.S.C. 1693d(a) and (c). This standard is
implemented as ``clear and readily understandable'' in Regulation E.
See Sec. 205.4(a)(1).
Consumer financial services and fair lending laws and the Board
regulations that implement them contain similar but not identical
standards for providing disclosures that consumers will notice and
understand. Generally, disclosures must be ``clear and conspicuous''
under Regulations B (Equal Credit Opportunity), M (Consumer Leasing),
Regulation P (Privacy of Consumer Financial Information), Z (Truth in
Lending) and DD (Truth in Savings), and ``clear and readily
understandable'' under Regulation E (Electronic Fund Transfers). In
interpreting the ``clear and conspicuous'' standard, the staff
commentaries to Regulations B, M and Z provide that disclosures must be
``in a reasonably understandable'' form; similarly, under Regulation DD
disclosures must be in a format that allows consumers ``to readily
understand the terms of their account.'' For purposes of the
disclosures provided with credit card solicitations and applications,
the commentary to Regulation Z provides more specifically that those
disclosures must also be ``readily noticeable to the consumer.'' In
contrast, the Board's Regulation P (Privacy of Consumer Financial
Information) defines the ``clear and conspicuous'' standard to mean
that a disclosure is ``reasonably understandable and designed to call
attention to the nature and significance of the information'' in the
disclosure. 12 CFR 216.3(b)(1). Regulation P also provides a series of
examples of how to satisfy the standard. 12 CFR 216.3(b)(2).
For the reasons set forth below and pursuant to its authority under
sections 904(a) and 904(c) of the EFTA, the Board proposes to conform
the general disclosure standard under Regulation E to ``clear and
conspicuous.'' Further, to provide consistent guidance on the clear and
conspicuous standard among its regulations, the Board is proposing to
amend Regulation E by adding a definition for clear and conspicuous in
Sec. 205.2(n), consistent with the ``clear and conspicuous''
definition in Regulation P. The Board believes that the recently
implemented standard in Regulation P (65 FR 35162, June 1, 2000),
articulates with greater precision than the other regulations the
concepts underlying the duty to provide disclosures that consumers will
notice and understand. The staff commentary to Regulation E also would
be revised to add comments 2(n)-1 and -2, consistent with Regulation
P's examples of how to meet the clear and conspicuous standard. Similar
proposed revisions to Regulations B, M, Z and DD appear elsewhere in
today's Federal Register. These revisions are intended to help ensure
that consumers receive noticeable and understandable information that
is required by law in connection with obtaining consumer financial
products and services. In addition, consistency among the regulations
should facilitate compliance by institutions.
Additional information may accompany disclosures required under
Regulation E. See Sec. 205.4(b). Comment 2(n)-3 further clarifies that
the ``clear and conspicuous'' standard does not prohibit adding other
items to the federally required disclosures (such as contractual
provisions or state-required disclosures); nor does it prohibit sending
promotional material with the disclosures. Proposed comment 2(n)-3
would clarify, however, that the presence of other information may be a
factor in determining whether the ``clear and conspicuous'' standard is
met. Generally, segregating federally mandated disclosures from other
information is more likely to satisfy the clear and conspicuous
standard. A new comment 4(b)-1 would be added to cross reference
guidance in proposed comment 2(n)-3.
The Board also proposes to adopt for Regulations B, E, M, Z and DD,
guidance concerning type-sizes that are deemed to meet the ``clear and
conspicuous'' standard and those that would likely be too small (this
guidance currently applies only to credit card solicitations and
applications under Regulation Z). See proposed comment 2(n)-2(ii).
The proposal does not add special format requirements to the
regulation where none currently exist. Accordingly, even though the
revisions clarify that type size can be one factor to consider in
determining whether a disclosure is conspicuous, the proposal would not
add a specific type-size requirement.
Section 205.4--General Disclosure Requirements; Jointly Offered
Services
4(a)(1) Form of Disclosures
Under Section 905(a) of the EFTA, the terms and conditions of
electronic fund transfers (EFTs) involving a consumer's account must be
disclosed in ``readily understandable'' language. See 15 U.S.C.
1693c(a). The EFTA also requires that certain information about EFTs be
``clearly'' set forth on periodic statements and receipts from an
electronic terminal. See 15 U.S.C. 1693d(a) and (c). These standards
have been implemented as a general disclosure standard of ``clear and
readily understandable.'' See Sec. 205.4(a)(1). The Board proposes to
revise that standard to ``clear and conspicuous.''
Regarding the standard of ``clear'' disclosures, the Board believes
there is not a significant distinction between the term ``readily
understandable'' as currently contained in section 905(a) of the EFTA
and Sec. 205.4(a)(1) of Regulation E and the term ``reasonably
understandable'' as found in the guidance on the ``clear'' standard in
other consumer protection regulations and in proposed Sec. 205.2(n),
and with the proposed revision, no substantive difference is intended.
Regarding the standard of ``conspicuous'' disclosures, the Board
believes that disclosures provided under the EFTA, like those provided
under the other consumer financial services laws administered by the
Board, should not only be clear, but also conspicuous, that is,
noticeable to consumers to be effective.
The Board is authorized to prescribe regulations that contain
provisions that in the judgment of the Board are necessary or proper to
effectuate the purposes of the EFTA. See 15 U.S.C. 1693b(a) and (c).
Thus, the proposed revisions would ensure that consumers receive
disclosures of the terms and conditions of EFTs involving their account
in a form that allows them to effectively exercise their rights under
the EFTA and Regulation E. The Board proposes to exercise its authority
under sections 904(a) and 904(c) of the EFTA to amend Sec. 205.4(a)(1)
to provide that disclosures required under Regulation E must be ``clear
and conspicuous'' and consistent with the standard contained in other
consumer protection regulations. Comment 4(a)-1 would be revised to
conform to the amended disclosure standard. Guidance regarding the
``clear and conspicuous'' standard for disclosures transmitted by
electronic communication will be considered in the context of
rulemakings dealing
[[Page 68790]]
specifically with electronic delivery of disclosures.
III. Form of Comment Letters
Comment letters should refer to Docket No. R-1169 and, when
possible, should use a standard typeface with a font size of 10 or 12;
this will enable the Board to convert text submitted in paper form to
machine-readable form through electronic scanning, and will facilitate
automated retrieval of comments for review. Comments may be mailed electronically to regs.comments@federalreserve.gov.
IV. 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 comments on whether
the proposed rules are clearly stated and effectively organized, and
how the Board might make the proposed text easier to understand.
V. Initial Regulatory Flexibility Analysis
In accordance with section 3(a) of the Regulatory Flexibility Act,
the Board has reviewed the proposed amendments to Regulation E. The
proposed amendments are not expected to have any significant impact on
small entities. A final regulatory flexibility analysis will be
conducted after consideration of comments received during the public
comment period.
VI. 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 7100-0200.
The collection of information that is revised by this rulemaking is
found in 12 CFR part 205. This collection is mandatory (15 U.S.C. 1693
et seq.) to evidence compliance with the requirements of Regulation E
and the Electronic Fund Transfer Act (EFTA). The respondents and
recordkeepers are financial institutions. Institutions are required to
retain records for twenty-four months. Regulation E applies to all
types of financial institutions, not just state member banks; however,
under Paperwork Reduction Act regulations, the Federal Reserve accounts
for the burden of paperwork associated with the regulation only for the
financial institutions it regulates and that meet the criteria set
forth in the regulation. Other agencies account for the paperwork
burden on their respective constituencies under this regulation.
The proposed revisions would require disclosures to be provided
``clearly and conspicuously.'' The proposed revisions would provide
financial institutions with a more uniform definition for ``clear and
conspicuous'' disclosures and provide examples of how to satisfy the
clear and conspicuous standard. While the proposal would amend
Regulation E and the staff commentary, it is expected that these
revisions would not increase the paperwork burden of financial
institutions. With respect to state member banks, it is estimated that
there are 1,289 respondents and recordkeepers. Current annual burden is
estimated to be 48,868 hours.
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.
Comments on the collection of information should be sent to the
Office of Management and Budget, Paperwork Reduction Project (7100-
0200), Washington, DC 20503, with copies of such comments sent to
Cynthia Ayouch, Federal Reserve Board Clearance Officer, Division of
Research and Statistics, Mail Stop 41, Board of Governors of the
Federal Reserve System, Washington, DC 20551.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
revisions. New language is shown inside bold-faced arrows while
language that would be deleted is set off with bold-faced brackets.
List of Subjects in 12 CFR Part 205
Consumer protection, Electronic fund transfers, Federal Reserve
System, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Board proposes to
amend Regulation E, 12 CFR part 205, as set forth below:
PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)
1. The authority citation for part 205 continues to read as
follows:
Authority: 15 U.S.C. 1693 et seq.
2. Section 205.2 is amended by adding a new paragraph (n) to read
as follows:
Sec. 205.2 Definitions
For purposes of this part, the following definitions apply:
* * * * *
(n) Clear and conspicuous means that a disclosure is reasonably
understandable and designed to call attention to the nature and
significance of the information in the disclosure.
* * * * *
3. Section 205.4 is amended by revising paragraph (a)(1) to read as
follows:
Sec. 205.4 General disclosure requirements; jointly offered services
(a)(1) Form of disclosures. Disclosures required under this part
shall be [clear and readily understandable] clear and conspicuous , in
writing, and in a form the consumer may keep. A financial institution
may use commonly accepted or [readily understandable] clear and
conspicuous abbreviations in complying with the disclosure requirements
of this part.
* * * * *
4. In Supplement I to Part 205:
a. Under Section 205.2--Definitions, a new paragraph title 2(n)
Clear and conspicuous is added, and new paragraphs (n) 1. through (n)
3. are added.
b. Under Section 205.4--General Disclosure Requirements; Jointly
Offered Services, under 4(a) Form of Disclosures, paragraph 1. is
revised.
c. Under Section 205.4--General Disclosure Requirements; Jointly
Offered Services, a new paragraph title 4(b) Additional information;
disclosures required by other laws is added, and a new paragraph 1. is
added.
Supplement I to Part 205--Official Staff Interpretations
* * * * *
Section 205.2--Definitions
* * * * *
2(n) Clear and Conspicuous
1. Reasonably understandable. Examples of disclosures that are
reasonably understandable include disclosures that:
i. Present the information in the disclosure in clear, concise
sentences, paragraphs, and sections;
ii. Use short explanatory sentences or bullet lists whenever
possible;
iii. Use definite, concrete, everyday words and active voice
whenever possible;
iv. Avoid multiple negatives;
v. Avoid legal and highly technical business terminology
whenever possible; and
vi. Avoid explanations that are imprecise and readily subject to
different interpretations.
2. Designed to call attention. Examples of disclosures that are
designed to call attention to the nature and significance of the
information include disclosures that:
[[Page 68791]]
i. Use a plain-language heading to call attention to the
disclosure;
ii. Use a typeface and type size that are easy to read.
Disclosures in 12-point type generally meet this standard.
Disclosures printed in less than 12-point type do not automatically
violate the standard; however, disclosures in less than 8-point type
would likely be too small to satisfy the standard;
iii. Provide wide margins and ample line spacing;
iv. Use boldface or italics for key words; and
v. In a document that combines disclosures with other
information, use distinctive type size, style, and graphic devices,
such as shading or sidebars, to call attention to the disclosures.
3. Other information. Except as otherwise provided, the clear
and conspicuous standard does not prohibit adding to the required
disclosures such items as contractual provisions, explanations of
contract terms, state disclosures, and translations; or sending
promotional material with the required disclosures. However, the
presence of this other information may be a factor in determining
whether the clear and conspicuous standard is met.
* * * * *
Section 205.4--General Disclosure Requirements; Jointly Offered
Services
4(a) Form of Disclosures
1. General. See Sec. 205.2(n) and accompanying comments.
[Although no particular rules govern type size, number of pages, or
the relative conspicuousness of various terms,] The disclosures must
be in a [clear and readily understandable] clear and conspicuous
written form that the consumer may retain. Numbers or codes are
permissible [are considered readily understandable] if explained
elsewhere on the disclosure form.
* * * * *
4(b) Additional Information; Disclosures Required by Other Laws
1. Clear and conspicuous. See comment 2(n)-3.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, November 25, 2003.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 03-29943 Filed 12-9-03; 8:45 am]
BILLING CODE 6210-01-P