This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

40061

Vol. 65, No. 126

Thursday, June 29, 2000

FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R–1074]

Electronic Fund Transfers

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Proposed rule; official staff

interpretation.

SUMMARY: The Board is publishing for

comment a proposal to revise the

Official Staff Commentary to Regulation

E (Electronic Fund Transfers). The

commentary interprets the requirements

of Regulation E to facilitate compliance

by financial institutions that offer

electronic fund transfer services to

consumers. The proposed revisions

provide guidance on electronic

authorization of recurring debits from a

consumer’s account, Regulation E

coverage of electronic check conversion

transactions, telephone-initiated fund

transfers, and other issues.

DATES: Comments must be received on

or before August 31, 2000.

ADDRESSES: Comments, which should

refer to Docket No. R–1074, may be

mailed to 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

9:00 a.m. and 5:00 p.m., pursuant to the

Board’s Rules Regarding the Availability

of Information, 12 CFR part 261.

FOR FURTHER INFORMATION CONTACT:

Kyung Cho-Miller, Natalie E. Taylor, or

John C. Wood, Counsels, Division of

Consumer and Community Affairs,

Board of Governors of the Federal

Reserve System, Washington, DC 20551,

at (202) 452–2412 or (202) 452–3667.

For the hearing impaired only, contact

Janice Simms, Telecommunications

Device for the Deaf (TDD), at (202) 872–

4984.

SUPPLEMENTARY INFORMATION:

I. Background

The Electronic Fund Transfer Act

(EFTA) (15 U.S.C. 1693 et seq.), enacted

in 1978, provides a basic framework

establishing the rights, liabilities, and

responsibilities of participants in

electronic fund transfer (EFT) systems.

The EFTA is implemented by the

Board’s Regulation E (12 CFR part 205).

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 electronic transfers. The

act and regulation also prescribe

restrictions on the unsolicited issuance

of ATM cards and other access devices.

The Official Staff Commentary (12

CFR part 205 (Supp. I)) is designed to

facilitate compliance and provide

protection from civil liability, under

§ 915(d)(1) of the act, for financial

institutions. The commentary is

updated periodically, as necessary, to

address significant questions that arise.

II. Proposed Revisions

Supplement I—Official Staff

Interpretations

Section 205.2—Definitions

2(a) Access Device

Several issues under Regulation E are

raised by check conversion programs

that allow a merchant to use a

consumer’s check as a source document

to provide the routing, serial, and

account numbers used to initiate an

EFT. The Board has been asked whether

the type of transaction described herein

is covered by Regulation E and whether

the check is an access device under

Regulation E. Such a transaction is

generally covered by Regulation E, but

proposed comment 2(a)–2 would be

added to clarify that a check used as a

source document to initiate an EFT is

not an access device. Proposed

comment 3(b)–1(v) also addresses check

conversion programs.

2(h) Electronic Terminal

Comment 2(h)–2 states that a POS

terminal that captures data

electronically is an electronic terminal if

a debit card is used to initiate an EFT.

Some have interpreted the provision

narrowly to apply only when a debit

card is used to initiate an EFT.

Comment 2(h)–2 would be revised to

reflect that a POS terminal that captures

data electronically to initiate electronic

transfers is an electronic terminal even

if no access device is used to initiate an

EFT such as when a check is used as a

source document. Thus, the receipt

requirements of § 205.9 would apply.

2(k) Preauthorized Electronic Fund

Transfer

Section 205.2(k) defines a

‘‘preauthorized electronic fund transfer’’

as ‘‘an EFT authorized in advance to

recur at substantially regular intervals.’’

Beyond that authorization, no further

action by the consumer is required to

initiate the transfer. Proposed comment

2(k)–1 would be added to clarify the

definition.

2(m) Unauthorized Electronic Fund

Transfer

Payments such as payroll or

government benefits often are made by

direct deposit to a consumer’s account

through the ACH. Rules of the National

Automated Clearing House Association

(NACHA) permit reversal of payments

made in error in limited circumstances.

Proposed comment 2(m)–5 would be

added to clarify that reversals of certain

direct deposits that were made in error

are not unauthorized electronic

transfers.

Section 205.3—Coverage

3(b) Electronic Fund Transfer

NACHA has established rules for a

program in which a merchant may

obtain information from a consumer’s

check to initiate a one-time ACH debit

from the consumer’s account for

40062 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Proposed Rules

purchases or payments made in person

by the consumer. The merchant uses

electronic equipment to scan the MICR

(Magnetic Ink Character Recognition)

encoding on the check for the routing,

account, and serial numbers of the

check, and enters the amount to be

debited from the consumer’s account.

Other entities have or are planning

similar programs. Proposed comment

3(b)–1(v) would be added to clarify that

where a check is provided at POS as a

source document to initiate an EFT, the

resulting transfer is covered by the

regulation (see also proposed comment

2(a)–2).

NACHA has also considered rules for

a variation on the electronic check

conversion program described above in

which the consumer provides a check,

and the merchant or the merchant’s

financial institution would retain the

check after it had been scanned.

NACHA has solicited comment on this

‘‘merchant or financial institution-askeeper’’ type of program, but has not yet

approved its use. Some merchants,

however, may be conducting electronic

check programs of this type.

Regulation E applies where the

consumer provides a blank or partially

completed check as a source document

that is scanned and retained by the

merchant or the merchant’s financial

institution. To clarify the rights and

responsibilities of the parties to a

transaction where the check used as a

source document is completed and

signed by the consumer and is scanned

and retained by the merchant, the

transaction is an EFT and thus subject

to Regulation E if the consumer

authorizes it as such. (See cf. comment

3b–1(i).) Specific comment is solicited

on this position and the extent to which

merchants are currently carrying out

transactions of the sort described.

NACHA has established rules for a

pilot referred to as the ‘‘lock-box’’

program in which a merchant converts

completed and signed checks received

by mail to ACH debits. Consumers are

informed of how the check payment

will be processed. These transactions

would not be covered by Regulation E

since transfers originated by check are

excluded from coverage. See

§ 205.3(c)(1).

Proposed comment 3(b)–1(vi) would

be added to provide guidance on the

regulation’s coverage of bill-payment

services where a consumer initiates

payments via computer and the

financial institution carries out the

payment by check or draft. The

definition of ‘‘electronic fund transfer’’

in § 205.3(b) covers these payments

unless the terms of the bill-payment

service explicitly state that payment by

the bill payer will be made solely via

check, draft or similar paper instrument.

3(c) Exclusions from Coverage

3(c)(1)—Checks

Proposed comment 3(c)(1)–1 would

be added to provide guidance on

NACHA’s re-presented check entry

(RCK) program, in which merchant

payees (or their financial institutions or

agents) re-present returned checks

electronically. Written authorization

from the consumer for the RCK debit is

not obtained, although, the merchant

payee usually has provided notice to the

consumer that any returned item may be

collected electronically if returned for

insufficient or uncollected funds. The

comment would clarify that an RCK

transaction is not covered by Regulation

E because the transfer is originated by

check.

In some cases, a payee may impose a

fee on the consumer, such as a

collection or NSF fee, because the

consumer’s check was returned. The

NACHA rules provide that the RCK

debit must be in the amount of the

original check. Therefore, the amount of

the RCK debit may not be increased to

include a fee, and the payee would have

to initiate a separate debit to collect the

fee electronically. Because an

electronically debited fee would not be

a part of the RCK debit, and appears to

meet the definition of an EFT under

Regulation E, it would be covered by the

regulation and must be authorized by

the consumer.

Proposed comment 3(c)(1)–2 would

be added to provide a cross reference to

proposed comment 3(b)–1(v), which

provides guidance on the regulation’s

coverage of an EFT at POS where a

consumer provides a check as a source

document.

3(c)(6)—Telephone-Initiated Transfers

A transfer initiated by telephone is

covered by Regulation E if it occurs

pursuant to a telephone bill-payment or

other written plan. Comment 3(c)(6)–1

would be revised to provide additional

guidance on what constitutes a written

plan. Proposed comment 3(c)(6)–2(v)

would be added to clarify coverage of

transfers initiated by audio or voice

response telephone systems.

Section 205.6—Liability of Consumer

for Unauthorized Transfers

6(b) Limitations on Amount of Liability

6(b)(1)—Timely Notice Given

Section 205.6 provides rules for a

consumer’s liability for an unauthorized

transfer. The limitation on the

consumer’s liability depends, in part, on

whether the unauthorized transfer takes

place within or after two business days

of the consumer’s learning of the loss or

theft of the access device. Proposed

comment 6(b)(1)–3 would be added to

clarify the timing on the two-businessday period.

Section 205.7—Initial Disclosures

7(a) Timing of Disclosures

The regulation generally requires that

disclosures be provided at the time the

consumer contracts for an EFT service

or before the first transfer is made to or

from the consumer’s account. Comment

7(a)–2 currently provides an exception

to the disclosure timing rules when the

first EFT is a direct deposit. If the

account-holding institution does not

have prior notice of a direct deposit

arrangement between the consumer and

a third party, the institution must

provide the Regulation E disclosures as

soon as reasonably possible after the

first direct deposit.

Comment 7(a)–2 would be revised to

clarify that the special timing rules

apply both to single and to recurring

debits or credits. The account-holding

institution may not always receive prior

notice of a one-time or recurring credit

to or debit from the consumer’s account.

For example, the consumer may

authorize a third party to debit the

account (without notifying the

institution), and the third party’s

financial institution may fail to send

prior notice to the consumer’s

institution.

7(b) Content of Disclosures

7(b)(10) Error Resolution

An error resolution notice must be

provided as a part of a financial

institution’s initial disclosures under

§ 205.7 and annually under § 205.8.

Comment 7(b)(10)–2 provides that a

financial institution must have

disclosed the longer error resolution

time periods for resolving errors under

§ 205.11(c)(3) in order to use the longer

times. In September 1998, § 205.11(c)(3)

was amended to extend the error

resolution time periods for new

accounts (63 FR 5211, September 29,

1998). Comment 7(b)(10)–2 would be

revised to reflect the amendment to

§ 205.11(c)(3).

Section 205.8—Change-in-terms Notice;

Error Resolution Notice

8(b) Error Resolution Notice

If an institution seeks to use the

longer error resolution time periods in

§ 205.11(c)(3), it must disclose them in

the annual error resolution notice.

Comment 8(b)–2 would be added to

cross reference comment 7(b)(10)–2,

which provides this guidance.

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Proposed Rules 40063

Section 205.9—Receipts at Electronic

Terminals; Periodic Statements

9(a) Receipts at Electronic Terminals

9(a)(5) Terminal Location

Section 205.9(a)(5) requires that an

ATM or POS terminal receipt contain

the location of the terminal where the

transfer is initiated, or an identification

such as a code or terminal number. This

section has been interpreted by some

institutions to require a full description

of the location (such as the street

address) rather than simply a code.

Comment 9(a)(5)–1 would be revised to

clarify that a code may be disclosed.

Comments 9(a)(5)(iv)–1 and –2 would

be redesignated as comments 9(a)(5)–3

and –4.

9(b) Periodic Statements

Comment 9(b)–4 provides that an

institution may permit, but not require,

consumers to ‘‘call for’’ periodic

statements. For clarity, the comment

would be revised by changing the

reference ‘‘call for’’ to ‘‘pick up;’’ no

substantive change is intended.

9(c) Exceptions to the Periodic

Statement Requirements for Certain

Accounts

9(c)(1)—Preauthorized Transfers to

Accounts

Section 205.9(c) lists the

circumstances in which a periodic

statement for EFT transactions is not

required. Proposed comment 9(c)(1)–1

would be added to provide further

guidance on the exceptions to the

periodic statement requirements.

Proposed comment 9(c)(1)–2 would

be added to clarify that the exceptions

in § 205.9(c) apply to reversals of

deposits made in error. (See also

proposed comment 2(m)–5.)

Section 205.10—Preauthorized

Transfers

10(b) Written Authorization for

Preauthorized Transfers from

Consumer’s Account

Section 205.10(b) provides that

recurring electronic debits from a

consumer’s account ‘‘may be authorized

only by a writing signed or similarly

authenticated by the consumer.’’ The

phrase ‘‘similarly authenticated’’ was

added to Regulation E in 1996 (61 FR

19678, May 2, 1996), and was intended

to permit electronic authorizations. The

supplemental information indicated that

the authentication method should

provide the same assurance as a

signature in a paper-based system, and

cited security codes and digital

signatures as examples of authentication

devices that could meet the

requirements of § 205.10(b); and

comment 10(b)–5 was added to the staff

commentary to provide guidance on

electronic authorizations.

The issue of electronic authentication

methods has been further discussed in

two Regulation E rulemakings in the

past two years—first, in a March 1998

rulemaking in which the Board issued

an interim rule permitting financial

institutions to deliver electronically

disclosures that are required to be given

in writing (63 FR 14528); and second, in

a September 1999 rulemaking in which

the Board proposed more

comprehensive rules for providing

electronic disclosures under Regulation

E (64 FR 49699) and certain other Board

regulations. In these rulemakings, the

Board again gave examples of

authentication devices and expressed

interest in learning about other

electronic authentication methods.

Industry commenters suggested

various alternatives for verifying a

consumer’s identity such as

alphanumeric codes (combination of

letters and numbers) or combination of

unique identifiers (such as account

numbers combined with a number

representing algorithms of the account

numbers). Some commenters requested

additional examples of appropriate

electronic authentication devices; many

stated their concern that limiting the

examples to security codes and digital

signatures could be viewed as the

Board’s endorsement of particular

methods, which could hinder the

development of alternative

authentication mechanisms. Other

commenters disfavored examples of

particular authentication mechanisms;

they recommended that the Board defer

to general principles set forth in various

state and federal laws and legislative

proposals. Consumer advocates, on the

other hand, suggested that the Board

should limit authentication methods to

those that prevent documents from

being altered without detection after the

authentication is affixed, such as digital

signatures.

The Congress has passed electronic

commerce legislation that addresses,

among other things, the use and

acceptance of electronic signatures

(broadly defined in the legislation) and

records for electronic commerce in

general. If the legislation becomes law,

the ‘‘similarly authenticated’’ standard

in Regulation E may become

unnecessary. In the meantime, to ensure

that institutions have flexibility in

establishing authentication methods for

purposes of § 205.10(b), comment 10(b)–

5 would be revised. Any authentication

mechanism that provides similar

assurance to a paper-based signature

(such as a mechanism that identifies the

consumer and evidences the consumer’s

assent to the authorization) will satisfy

the ‘‘similarly authenticated’’ standard.

The word ‘‘text’’ is also substituted by

‘‘term,’’ no substantive change is

intended.

The comment currently states that the

person obtaining an electronic

authorization from a consumer must

make a paper copy of the authorization

available to the consumer, either

automatically or upon request. For

consistency with Board rulemakings

permitting the electronic delivery of

disclosures, comment 10(b)–5 would

also be revised to permit the person

obtaining the authorization to provide a

copy of the authorization to the

consumer either in paper form or

electronically.

The supplementary information to the

Official Staff Commentary, discussing

comment 10(b)–5 at the time of its

adoption in 1996, stated that for homebanking systems, a security code used to

‘‘similarly authenticate’’ preauthorized

transfers pursuant to § 205.10(b) must

originate with the paying (accountholding) institution. The Board’s

position reflected concerns about the

potential for increased liability for

account-holding institutions associated

with unauthorized use when a party

other than the institution issued the

code. Under NACHA operating rules,

however (as well as operating rules of

debit card networks), an accountholding institution is permitted to

charge back to the payee’s financial

institution any transaction that was not

properly authorized; thus, the payee’s

institution (or the payee) would bear the

liability for unauthorized transfers.

Accordingly, it seems unnecessary to

require that a security code originate

with the paying institution, provided

the code meets the general standards for

similar authentication discussed above.

Proposed comment 10(b)–7 would be

added to address a situation where a

consumer authorizes recurring charges

against a credit card but in fact provides

information for the consumer’s debit

card, for example, in an on-line

transaction or in a telephone

conversation with a merchant. Unlike

Regulation E, Regulation Z and the

Truth in Lending Act (12 CFR part 226)

do not require a written, signed or

‘‘similarly authenticated’’ authorization

for recurring charges to a consumer’s

credit card account. The proposed

comment would clarify that when the

consumer’s account in fact involves a

debit card, the payee is required to

obtain an authorization in accordance

with § 205.10(b), but may rely on the

bona fide error provision in section

40064 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Proposed Rules

915(c) of the EFTA, provided

procedures are in place to prevent such

errors from occurring.

10(e) Compulsory Use

Section 205.10(e) prohibits a person

from requiring a consumer to establish

an account with a particular institution

to receive electronic transfers, as a

condition of employment. Comment

10(e)(2)–1 would be revised to clarify

that an employer (including a financial

institution) may specify an institution to

receive direct deposits provided the

employer also gives employees the

option to receive their salary by check

or cash.

Section 205.11—Procedures for

Resolving Errors

11(a) Exception to the Periodic

Statement Requirements for Certain

Accounts

Comment 11(a)–2 would be revised to

provide additional examples of when

the error resolution rules are

inapplicable because the consumer has

not asserted an error.

Section 205.12—Relation to Other Laws

12(a) Relation to Truth in Lending

Comment 12(a)–1 would be revised to

distinguish between two types of

unauthorized transfers: those where a

consumer’s access device is used to

withdraw funds from a checking

account with an overdraft protection

feature, and those where the consumer’s

access device is also a credit card

separately used to obtain cash advances.

Examples would illustrate how these

rules apply in various situations.

Aggregation of Consumer Financial

Information

The Board has been asked about the

possible application of Regulation E to

a service sometimes referred to as

‘‘aggregation’’ or ‘‘screen-scraping.’’

Aggregation is a service made available

to consumers through an Internet web

site, in which consumers are able to

view their financial information from

multiple sources, such as credit card,

securities, and deposit accounts at a

number of institutions. To enable the

service provider (the ‘‘aggregator’’) to

obtain the information and make it

available to the consumer at the

aggregator’s web site, the consumer may

provide the aggregator with account

numbers and passwords to access the

consumer’s accounts. In addition to

allowing consumers to view accounts in

one location, aggregators may offer

consumers EFT services such as billpayment.

To assist the Board in providing any

needed guidance on Regulation E’s

potential coverage, comment is solicited

on how these services that aggregate

consumer financial information operate

or plan to operate. Are aggregators

providing or planning to provide billpayment or other EFT services (in

addition to information services)? To

what extent do agreements exist

between aggregators and accountholding institutions, governing matters

such as procedures for access to

information and for electronic transfers?

In addition, comment is solicited on

the implications of a determination that

aggregators are or are not financial

institutions for purposes of Regulation E

generally or under § 205.14. Typically,

only one access device is contemplated

to initiate an EFT to or from a

consumer’s account. Nevertheless, if a

consumer enters a security code issued

by the aggregator to access information

on the aggregator’s web site and the

consumer initiates an EFT using a

security code provided by the accountholding institution, the security code

issued by the aggregator arguably meets

the definition of an ‘‘access device.’’

Two access codes (the one provided by

the aggregator and the other by the

account-holding institution) are needed

to initiate electronic transfers from the

consumer’s account from the

aggregator’s web site. Thus, the

aggregator would be a financial

institution for purposes of Regulation E.

If the aggregator is not a financial

institution and an unauthorized EFT

occurs through an aggregator’s service,

comment 2(m)–2 could be read to

suggest that a consumer who has given

the aggregator access to the consumer’s

account assumes liability for the

transfers. The guidance in the comment,

however, was not originally provided to

address this situation.

III. Form of Comment Letters

Comment letters should refer to

Docket No. R–1074, and when possible,

should use a standard typeface with a

type size of 10 or 12 characters per inch.

This will enable the Board to convert

the text into 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 31⁄2 inch computer

diskettes in any IBM-compatible DOSor Windows-based format.

Alternatively, comments may be mailed

electronically to

regs.comments@federalreserve.gov.

List of Subjects in 12 CFR Part 205

Consumer protection, Electronic fund

transfers, Federal Reserve System,

Reporting and recordkeeping

requirements.

Text of Proposed Revisions

For the reasons set forth in the

preamble, the Board proposes to amend

the Official Staff Commentary, 12 CFR

part 205, as set forth below. Certain

conventions have been used to highlight

the proposed changes to the

commentary. New language is shown

inside bold-faced arrows, while

language that would be deleted is set off

with bold-faced brackets.

PART 205—ELECTRONIC FUND

TRANSFERS (REGULATION E)

1. The authority citation for part 205

would be revised to read as follows:

Authority: 15 U.S.C. 1693b.

2. In Supplement I to Part 205, the

following amendments would be made:

a. Under Section 205.2—Definitions,

under 2(a) Access Device, a new

paragraph 2. would be added;

b. Under Section 205.2—Definitions,

under 2(h) Electronic Terminal,

paragraph 2. would be revised;

c. Under Section 205.2—Definitions, a

new heading 2(k) Preauthorized

Electronic Fund Transfer, and a new

paragraph 1. would be added;

d. Under Section 205.2—Definitions,

under 2(m) Unauthorized Electronic

Fund Transfer, a new paragraph 5.

would be added;

e. Under Section 205.3—Coverage,

under 3(b) Electronic Fund Transfer,

new paragraphs 1.v. and 1.vi. would be

added;

f. Under Section 205.3—Coverage,

under 3(c) Exclusions from Coverage, a

new heading ‘‘Paragraph 3(c)(1)—

Checks’’ would be added;

g. Under Section 205.3—Coverage,

under 3(c) Exclusions from Coverage,

under newly added heading Paragraph

3(c)(1)—Checks, paragraphs 1. and 2.

would be added;

h. Under Section 205.3—Coverage,

under 3(c) Exclusions from Coverage,

under Paragraph 3(c)(6)—Telephone—

Initiated Transfers, paragraph 1. would

be revised and paragraph 2.v. would be

added;

i. Under Section 205.6—Liability of

Consumer for Unauthorized Transfers,

under Paragraph 6(b)(1)—Timely Notice

Given, new paragraph 3. would be

added;

j. Under Section 205.7—Initial

Disclosures, under 7(a) Timing of

Disclosures, paragraph 2. would be

revised;

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Proposed Rules 40065

k. Under Section 205.7—Initial

Disclosures, under Paragraph 7(b)(10)

Error Resolution, paragraph 2. would be

revised;

l. Under Section 205.8—Change-inTerms Notice; Error Resolution Notice,

under 8(b) Error Resolution Notice, a

new paragraph 2. would be added;

m. Under Section 205.9—Receipts at

Electronic Terminals; Periodic

Statements, under Paragraph 9(a)(5)—

Terminal Location, paragraph 1. would

be revised;

n. Under Section 205.9—Receipts at

Electronic Terminals; Periodic

Statements, under Paragraph 9(a)(5)(iv),

paragraphs 1. and 2. are redesignated as

paragraphs 3. and 4. under paragraph

9(a)(5) and republished;

o. Under Section 205.9—Receipts at

Electronic Terminals; Periodic

Statements, Paragraph 9(a)(5)(iv) would

be removed;

p. Under Section 205.9—Receipts at

Electronic Terminals; Periodic

Statements, under 9(b) Periodic

Statements, paragraph 4. would be

revised;

q. Under Section 205.9—Receipts at

Electronic Terminals; Periodic

Statements, under 9(c) Exceptions to the

Periodic Statement Requirements for

Certain Accounts, a new heading,

Paragraph 9(c)(1)—Preauthorized

Transfers to Accounts would be added

and new paragraphs 1. and 2. would be

added to the newly designated heading;

r. Under Section 205.10—

Preauthorized Transfers, under 10(b)

Written Authorization for Preauthorized

Transfers from Consumer’s Account,

paragraph 5. would be revised, and new

paragraph 7 would be added;

s. Under Section 205.10—

Preauthorized Transfers, under

Paragraph 10(e)(2)—Employment or

Government Benefit, paragraph 1. would

be revised;

t. Under Section 205.11—Procedures

for Resolving Errors, under 11(a)

Definition of Error, paragraph 2. would

be revised; and

u. Under Section 205.12—Relation to

Other Laws, under 12(a) Relation to

Truth in Lending, paragraph 1. would be

revised.

SUPPLEMENT I TO PART 205—OFFICIAL

STAFF INTERPRETATIONS

Section 205.2—Definitions

2(a) Access Device

* * * * *

fl2. Check used as a source document.

The term ‘‘access device’’ does not include a

check or draft used as a source document to

initiate an EFT. For example, a merchant may

use equipment to scan the MICR (Magnetic

Ink Character Recognition) encoding on a

check (for the serial, account, and routing

numbers) to initiate a one-time ACH debit

from a consumer’s account. The check is not

an access device under Regulation E (12 CFR

part 205), although the transaction is covered

by the regulation (see comment 3(b)–1(v)).fi

* * * * *

2(h) Electronic Terminal

* * * * *

2. POS terminals. A POS terminal that

captures data electronically, for debiting or

crediting to a consumer’s asset account, is an

electronic terminal for purposes of

Regulation E øif a debit card¿ fleven if no

access devicefi is used to initiate the

transaction. fl(See § 205.9 for receipt

requirements.)fi

* * * * *

fl(2(k) Preauthorized Electronic Fund

Transfer

1. Advance authorization. A

‘‘preauthorized electronic fund transfer’’

under Regulation E is one authorized by the

consumer in advance of a transfer which will

take place on a recurring basis, at

substantially regular intervals, and require no

further action by the consumer to initiate the

transfer. In a bill-payment system, for

example, if the consumer authorizes a

financial institution to make monthly

payments to a payee, and the payments take

place without further action by the

consumer, the payments are preauthorized

EFTs. In contrast, if the consumer must take

action each month to initiate a payment

(such as by entering instructions on a touchtone telephone or home computer), the

payments are not preauthorized EFTs.fi

* * * * *

2(m) Unauthorized Electronic Fund Transfer

* * * * *

fl5. Reversal of direct deposits. A reversal

of a direct deposit made in error is not an

unauthorized EFT when it involves:

i. A credit made to the wrong consumer’s

account;

ii. A duplicate credit made to a consumer’s

account; or

iii. A credit in the wrong amount made to

a consumer’s account (for example, when the

amount credited differs from the amount in

the transmittal instructions). If, however,

there is a dispute whether the account holder

is entitled to a certain amount (for example,

a salary or a government benefit payment) the

reversal may be an unauthorized EFT,

depending on the facts and circumstances.fi

* * * * *

Section 205.3—Coverage

* * * * *

3(b) Electronic Fund Transfer

1. Fund transfers covered.***

flv. A transfer from the consumer’s

account at POS where the merchant uses a

consumer’s check or draft as a source

document to obtain the serial, account, and

routing numbers.

vi. A payment made by a bill payer under

a bill-payment service available to a

consumer via computer or other electronic

means, unless the terms of the bill-payment

service explicitly state that payment will be

solely by check, draft, or similar paper

instrument.fi

* * * * *

3(c) Exclusions from Coverage

flParagraph 3(c)(1)—Checks

1. Re-presented checks. Electronic representment of a returned check is not

covered by Regulation E because the transfer

originated by check. Regulation E does apply,

however, to any fee debited electronically

from the consumer’s account for representing the check electronically.

2. Check used as a source document. See

comment 3(b)–1(v) regarding coverage of

certain EFTs at POS where a consumer

provides a check as a source document.fi

* * * * *

Paragraph 3(c)(6)—Telephone-Initiated

Transfers

1. Written plan or agreement. A transfer

that the consumer initiates by telephone is

covered flby Regulation Efiøonly¿ if the

transfer is made under a written plan or

agreement between the consumer and the

financial institution making the transfer. flA

written statement available to the public or

to account holders that describes a service

allowing a consumer to initiate transfers by

telephone constitutes a plan—for example, a

brochure, or material included with periodic

statements. However, tfi [T]he following do

not, by themselves, constitute a written plan

or agreement:

i. A hold-harmless agreement on a

signature card that protects the institution if

the consumer requests a transfer.

ii. A legend on a signature card, periodic

statement, or passbook that limits the number

of telephone-initiated transfers the consumer

can make from a savings account because of

reserve requirements under Regulation D (12

CFR part 204).

iii. An agreement permitting the consumer

to approve by telephone the rollover of funds

at the maturity of an instrument.

2. Examples of covered transfers. ***

flv. The consumer initiates the transfer

using a financial institution’s audio response

or voice response telephone system.fi

* * * * *

Section 205.6—Liability of Consumer for

Unauthorized Transfers

* * * * *

6(b) Limitations on Amount of Liability

* * * * *

Paragraph 6(b)(1)—Timely Notice Given

* * * * *

fl3. Two-business-day rule. The twobusiness-day period runs from midnight of

the first business day after the consumer

learns of the loss or theft and ends at

midnight two business days later. The

financial institution’s business hours or the

hour the consumer learns of the loss or theft

does not govern the two-business-day period.

For example, a consumer learns of the loss

or theft at 6 p.m. on Friday. Assuming that

the following Saturday is a business day and

Sunday is not, the two-business-day period

expires at midnight on Monday.fi

40066 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Proposed Rules

Section 205.7—Initial Disclosures

7(a) Timing of Disclosures

* * * * *

2. [Lack of prenotification of direct deposit.

In some instances, before direct deposit of

government payments such as Social

Security takes place, the consumer and the

financial institution both will complete Form

1199A (or a comparable form providing

notice to the institution) and the institution

can make disclosures at that time. If an

institution has not received advance notice

that direct deposits are to be made to a

consumer’s account, the institution must

provide the required disclosures as soon as

reasonably possible after the first direct

deposit is made, unless the institution has

previously given disclosures.]flLack of

advance notice of a transfer. Where a

consumer authorizes a third party to debit or

credit the consumer’s account, an accountholding institution that has not received

advance notice of a transfer or transfers must

provide the required disclosures as soon as

reasonably possible after the first debit or

credit is made, unless the institution has

previously given the disclosures.fi

* * * * *

Paragraph 7(b)(10)—Error Resolution

* * * * *

2. Exception from provisional crediting. To

take advantage of the longer time periods for

resolving errors under § 205.11(c)(3) (for fl

new accounts,fi transfers initiated outside

the United States, or resulting from POS

debit-card transactions), a financial

institution must have disclosed these longer

time periods. Similarly, an institution that

relies on the exception from provisional

crediting in § 205.11(c)(2) for accounts

subject to Regulation T (12 CFR part 220)

must disclose accordingly.

Section 205.8—Change-in-Terms Notice;

Error Resolution Notice

8(b) Error Resolution Notice

* * * * *

fl2. Exception from provisional crediting.

See comment 7(b)(10)–2.fi

Section 205.9—Receipts at Electronic

Terminals; Periodic Statements

9(a) Receipts at Electronic Terminals

* * * * *

Paragraph 9(a)(5)—Terminal Location

1. [Location code]flOptions for identifying

terminal. The institution may provide either:

(i) The city, state or foreign country, and

the information in §§ 205.9(a)(5)(i), (ii), or

(iii), or

(ii) A number or a code identifying the

terminal. If the institution chooses the

second option, thefi [A] code or terminal

number identifying the terminal where the

transfer is initiated may be given as part of

a transaction code.

* * * * *

fl3. Omission of a state. A state may be

omitted from the location information on the

receipt if:

i. All the terminals owned or operated by

the financial institution providing the

statement (or by the system in which it

participates) are located in that state, or

ii. All transfers occur at terminals located

within 50 miles of the financial institution’s

main office.

4. Omission of a city and state. A city and

state may be omitted if all the terminals

owned or operated by the financial

institution providing the statement (or by the

system in which it participates) are located

in the same city.fi

* * * * *

9(b) Periodic Statements

* * * * *

4. flStatementfi[Customer] pickup. A

financial institution may permit, but may not

require, consumers to flpick upfi[call for]

their periodic statements flat the financial

institutionfi.

* * * * *

9(c) Exceptions to the Periodic Statement

Requirements for Certain Accounts

* * * * *

flParagraph 9(c)(1)—Preauthorized Transfers

to Accountsfi

fl1. Accounts that may be accessed only

by preauthorized transfers to the account.

The exception for ‘‘accounts that may be

accessed only by preauthorized transfers to

the account’’ includes accounts that can be

accessed by means other than EFTs, such as

checks. If, however, an account may be

accessed by any EFT other than

preauthorized credits to the account, such as

preauthorized debits or ATM transactions,

the account does not qualify for the

exception.

2. Reversal of direct deposits. For directdeposit-only accounts, a financial institution

must send a periodic statement at least

quarterly. A reversal of a direct deposit to

correct an error does not trigger the monthly

statement requirement when the error

represented a credit to the wrong consumer’s

account, a duplicate credit to a consumer’s

account, or a credit in the wrong amount to

a consumer’s account. (See comment 2(m)–5

for guidance on the reversal of direct deposits

and the rules for unauthorized EFTs.)fi

* * * * *

Section 205.10—Preauthorized Transfers

* * * * *

10(b) Written Authorization for

Preauthorized Transfers from Consumer’s

Account

* * * * *

5. Similarly authenticated. An example of

a consumer’s authorization that is not in the

form of a signed writing but is instead

‘‘similarly authenticated’’ is a consumer’s

authorization via a home banking system[.]

flor other electronic communication

system. An authentication device or

procedure satisfies the ‘‘similarly

authenticated’’ requirement if it provides

similar assurance to a written signature (such

as a device or procedure that verifies the

consumer’s identity and evidences the

consumer’s assent to the authorization).

Examples include, but are not limited to,

digital signatures and security codes.fi [To

satisfy the requirements of this section, there

must be some means to identify the

consumer (such as a security code) and to

make available a paper copy of the

authorization (automatically or upon

request).] The [text] fltermsfi of the

electronic authorization would have to be

displayed on a computer screen or other

visual display which enables the consumer to

read the communication. flThe person that

obtains the authorization must provide a

copy of the terms of the authorization to the

consumer.fi Only the consumer may

authorize the transfer and not, for example,

a third-party merchant on behalf of the

consumer.

* * * * *

fl7. Bona fide error. Consumers sometimes

authorize, by telephone or on-line, thirdparty payees to submit recurring charges

against a credit card account. If the consumer

indicates use of a credit card when in fact a

debit card is being used, the payee is not in

violation of the requirement to obtain a

written authorization if the failure to obtain

written authorization was not intentional and

resulted from a bona fide error, and the payee

maintains procedures reasonably adapted to

avoid any such error. If the payee is unable

to determine whether a credit or debit card

number is involved, at the time of the

authorization, but later finds that the card

used was a debit card, the payee must obtain

a written and signed or (where appropriate)

a similarly authenticated authorization as

soon as reasonably possible, or cease debiting

the consumer’s account.fi

* * * * *

10(e) Compulsory Use

* * * * *

Paragraph 10(e)(2)-Employment or

Government Benefit

1. Payroll. [A financial institution (as an

employer)] flAn employer (including a

financial institution)fi may not require its

employees to receive their salary by direct

deposit [to that same institution or] to any

[other] particular institution. An employer

may require direct deposit of salary by

electronic means if employees are allowed to

choose the institution that will receive the

direct deposit. Alternatively, an employer

may give employees the choice of having

their salary deposited at a particular

institution fl(designated by the employer)fi

(, or receiving their salary by another means,

such as by check or cash.

Section 205.11—Procedures for Resolving

Errors

11(a) Definition of Error

* * * * *

2. Verifying fla payment or anfi account

deposit. If the consumer [merely] calls to

ascertain flwhether a payment (for example,

in a home-banking or bill-payment program)

was made electronically or fiwhether a

deposit made via ATM, preauthorized

transfer, or any other type of EFT was

credited to the account, without asserting an

error, the error resolution procedures do not

apply.

* * * * *

Section 205.12—Relation to Other Laws

12(a) Relation to Truth in Lending

1. Determining applicable regulation. fli.

fiFor transactions involving access devices

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Proposed Rules 40067

that also constitute credit cards, whether

Regulation E or Regulation Z (12 CFR part

226) applies, depends on the nature of the

transaction. For example, if the transaction

[is purely] fl solely involves fi an extension

of credit, and does not include a debit to a

checking account (or other consumer asset

account), the liability limitations and error

resolution requirements of Regulation Z [(12

CFR part 226)] apply. If the transaction only

debits a checking account (with no credit

extended), the provisions of Regulation E

apply. [Finally, if] fl If fi the transaction

debits a checking account but also draws on

an overdraft line of credit fl attached to

the account fi, [the Regulation E provisions

apply, as well as] §§ 226.13(d) and (g) of

Regulation

Z[.] flapply, as well as the Regulation E

provisions, because there was an extension of

credit associated with the overdraft feature

on the checking account.

In such a transaction, the liability provisions

under Regulation E apply. Finally, if a

consumer’s access device is also a credit card

and the device is used to make unauthorized

withdrawals from a checking account, but

also is used to obtain unauthorized cash

advances directly from a separate line of

credit unattached to the checking account,

the liability limitations under both

Regulation E and Regulation Z apply. In such

a transaction, the consumer is potentially

liable under Regulation Z for the

unauthorized use of the credit card and, in

addition, up to $50, $500, or an unlimited

amount (not to exceed the amount of the

unauthorized transfer) under Regulation E for

the unauthorized use of the debit cardfi [In

such a transaction, the consumer might be

liable for up to $50 under Regulation Z (12

CFR 226) and, in addition, for $50, $500, or

an unlimited amount under Regulation E].

fl ii. The following examples

illustrate these principles:

A. A consumer has a card that can be used

either as a credit card or a debit card. When

used as a debit card, the card draws on the

consumer’s checking account. When used as

a credit card, the card draws only on a

separate line of credit. If the card is stolen

and used as a credit card to make purchases

or to get cash advances from ATMs, the

liability limits and error resolution

provisions of Regulation Z apply; Regulation

E does not apply.

B. In the same situation, if the card is

stolen and is instead used as a debit card to

make purchases or to get cash withdrawals

from ATMs, the liability limits and error

resolution provisions of Regulation E apply;

Regulation Z does not apply.

C. In the same situation, the card is stolen

and used both as a debit card and as a credit

card; for example, the thief makes some

purchases using the card as a debit card, and

other purchases using the card as a credit

card. Here, the liability limits and error

resolution provisions of Regulation E apply

to the unauthorized transactions in which the

card was used as a debit card, and the

corresponding provisions of Regulation Z

apply to the unauthorized transactions in

which the card was used as a credit card.

D. Assume a somewhat different type of

card, one that draws on the consumer’s

checking account and can also draw on an

overdraft line of credit attached to the

checking account. There is no separate line

of credit, other than the overdraft line,

associated with the card. In this situation, if

the card is stolen and used, the liability

limits and the error resolution provisions of

Regulation E apply. In addition, if the use of

the card has resulted in accessing the

overdraft line of credit, the error resolution

provisions of § 226.13(d) and (g) of

Regulation Z also apply; however, the other

error resolution provisions of Regulation Z

do not apply. fi

* * * * *

By order of the Board of Governors of the

Federal Reserve System, acting through the

Director of the Division of Consumer and

Community Affairs under delegated

authority, June 22, 2000.

Jennifer J. Johnson,

Secretary of the Board.

[FR Doc. 00–16303 Filed 6–28–00; 8:45 am]

BILLING CODE 6210–01–P

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 10

RIN 1515–AC59

Civil Aircraft

AGENCY: Customs Service, Department

of the Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document proposes to

amend the Customs Regulations

concerning the duty-free entry of civil

aircraft merchandise to reflect

amendments to General Note 6 of the

Harmonized Tariff Schedule of the

United States made by the

Miscellaneous Trade and Technical

Corrections Act of 1996. This document

invites the public to comment on the

proposed changes.

DATES: Comments must be received on

or before August 28, 2000.

ADDRESSES: Written comments

(preferably in triplicate), regarding both

the substantive aspects of the proposed

rule and how it may be made easier to

understand, may be submitted to and

inspected at the Regulations Branch,

Office of Regulations and Rulings, U.S.

Customs Service, 1300 Pennsylvania

Avenue, NW., 3rd Floor, Washington,

DC 20229.

FOR FURTHER INFORMATION CONTACT: Ms.

Dixie Staple, Office of Field Operations,

at (202) 927–1131.

SUPPLEMENTARY INFORMATION:

Background

This document proposes to amend

§ 10.183 of the Customs Regulations (19

CFR 10.183), which concerns Customs

duty-free treatment of civil aircraft

merchandise. Section 10.183

implements General Note 6 of the

Harmonized Tariff Schedule of the

United States (HTSUS) (19 U.S.C. 1202),

which implements the Agreement on

Trade in Civil Aircraft (Title VI of the

Trade Agreements Act of 1979, Pub. L.

96–39, 93 Stat. 144, July 26, 1979), to

provide duty-free treatment for

qualifying civil aircraft merchandise

upon compliance with certain

requirements.

General Note 6 of the HTSUS was

amended by section 12 of the

Miscellaneous Trade and Technical

Corrections Act of 1996 (the Act), Pub.

L. 104–295, 110 Stat. 3514 (October 11,

1996). Prior to the amendment, General

Note 6, HTSUS, required that an

importer entering merchandise duty-free

thereunder must file with Customs a

written statement certifying that the

merchandise (i) Is civil aircraft or has

been imported for use in civil aircraft,

(ii) will be so used, and (iii) has been

approved for civil aircraft use by, or an

application for approval has been

submitted to, the Administrator of the

Federal Aviation Administration (FAA)

(or has been approved by an

airworthiness authority in the country

of exportation if such approval is

recognized by the FAA). General Note 6

defined the term ‘‘civil aircraft’’ as all

aircraft other than aircraft purchased for

use by the Department of Defense or the

United States Coast Guard.

Prior to the amendment of General

Note 6, HTSUS, § 10.183 of the Customs

Regulations (19 CFR 10.183) provided

that the written statement required

under General Note 6, HTSUS (referred

to in the regulation as a certificate or

certification), must be filed with each

entry summary or be on file with

Customs at the time of entry as a blanket

statement at the port where the entry is

filed (19 CFR 10.183(c)). The regulation

also provided that the statement could

not be treated as a missing document for

which a bond could be posted pending

its later production (under 19 CFR

141.66), and that failure to timely file

the statement or to have a valid blanket

statement on file at the port would

result in a dutiable entry (19 CFR

10.183(c)(2)).

The Act amended General Note 6,

HTSUS, to eliminate the statement

(certification) filing requirement and to

provide that an importer makes a claim

for duty-free treatment under the

General Note by entering the

merchandise under a tariff provision for

which the program indicator ‘‘Free (C)’’

appears in the ‘‘Special’’ subcolumn of

the tariff. This is accomplished by