[Federal Register Volume 72, Number 82 (Monday, April 30, 2007)]
[Proposed Rules]
[Pages 21125-21131]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-7875]


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FEDERAL RESERVE SYSTEM

12 CFR Part 202

[Regulation B; Docket No. R-1281]


Equal Credit Opportunity

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule; request for comments.

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SUMMARY: The Board is proposing to amend Regulation B, which implements 
the Equal Credit Opportunity Act, to withdraw portions of the interim 
final rules for the electronic delivery of disclosures issued March 30, 
2001. The interim final rules address the timing and delivery of 
electronic disclosures, consistent with the requirements of the 
Electronic Signatures in Global and National Commerce Act (E-Sign Act). 
Compliance with the 2001 interim final rules is not mandatory. Thus, 
removing the interim rules from the Code of Federal Regulations would 
reduce confusion about the status of the provisions and simplify the 
regulation. The Board is also proposing to amend

[[Page 21126]]

Regulation B to provide that when an application is accessed by an 
applicant in electronic form, certain disclosures must be provided to 
the applicant in electronic form on or with the application, and that 
in these circumstances the consumer consent and other provisions of the 
E-Sign Act do not apply. Similar rules are being proposed under other 
consumer financial services regulations administered by the Board.

DATES: Comments must be received on or before June 29, 2007.

ADDRESSES: You may submit comments, identified by Docket No. R-1281, by 
any of the following methods:
    <bullet> Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#05776062762b666a6868606b71764563606160776469776076607773602b626a73"><span class="__cf_email__" data-cfemail="26544341550845494b4b43485255664043424354474a5443554354504308414950">[email protected]</span></a>. Include the 
docket number in the subject line of the message.
    <bullet> FAX: (202) 452-3819 or (202) 452-3102.
    <bullet> Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, 
unless modified for technical reasons. Accordingly, your comments will 
not be edited to remove any identifying or contact information. Public 
comments may also be viewed electronically or in paper in Room MP-500 
of the Board's Martin Building (20th and C Streets, NW.) between 9 a.m. 
and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: John C. Wood or David A. Stein, 
Counsels, Division of Consumer and Community Affairs, at (202) 452-2412 
or (202) 452-3667. For users of Telecommunications Device for the Deaf 
(TDD) only, contact (202) 263-4869.

SUPPLEMENTARY INFORMATION:

I. Background

    The Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691 et seq., 
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, or age (provided the applicant has the capacity 
to contract), because all or part of an applicant's income derives from 
public assistance, or because an applicant has in good faith exercised 
any right under the Consumer Credit Protection Act. The Board's 
Regulation B (12 CFR part 202) implements the ECOA. The ECOA and 
Regulation B require certain disclosures to be provided to applicants, 
and some of those disclosures must be provided in writing.

Board Proposals Regarding Electronic Disclosures

    On May 2, 1996, the Board proposed to amend Regulation E 
(Electronic Fund Transfers) to permit financial institutions to provide 
disclosures by sending them electronically (61 FR 19,696). Based on 
comments received, in 1998 the Board published an interim rule 
permitting the electronic delivery of disclosures under Regulation E 
(63 FR 14,528, March 25, 1998) and similar proposals under Regulations 
B (Equal Credit Opportunity), M (Consumer Leasing), Z (Truth in 
Lending), and DD (Truth in Savings)(63 FR 14,552, 14,538, 14,548, and 
14,533, respectively, March 25, 1998).
    Based on comments received on the 1998 proposals, in September 1999 
the Board published revised proposals under Regulations B, E, M, Z, and 
DD (64 FR 49,688, 49,699, 49,713, 49,722 and 49,740, respectively, 
September 14, 1999). At the same time, the Board published an interim 
rule under Regulation DD allowing depository institutions to deliver 
disclosures on periodic statements in electronic form if the consumer 
agreed (64 FR 49,846, September 14, 1999). While these rulemakings were 
pending, federal legislation was enacted addressing the use of 
electronic documents and records, including consumer disclosures.

Federal Legislation Addressing Electronic Commerce

    On June 30, 2000, the President signed into law the Electronic 
Signatures in Global and National Commerce Act (the E-Sign Act) (15 
U.S.C. 7001 et seq.). The E-Sign Act provides that electronic documents 
and electronic signatures have the same validity as paper documents and 
handwritten signatures. The E-Sign Act contains special rules for the 
use of electronic disclosures in consumer transactions. Consumer 
disclosures required by other laws or regulations to be provided or 
made available in writing may be provided or made available, as 
applicable, in electronic form if the consumer affirmatively consents 
after receiving a notice that contains certain information specified in 
the statute, and if certain other conditions are met.
    The E-Sign Act, including the special consumer notice provisions, 
became effective October 1, 2000, and did not require implementing 
regulations. Thus, financial institutions are currently permitted to 
provide in electronic form any disclosures that are required to be 
provided or made available to the consumer in writing under Regulations 
B, E, M, Z and DD if the consumer affirmatively consents to receipt of 
electronic disclosures in the manner required by section 101(c) of the 
E-Sign Act.

The Interim Final Rules

    On April 4, 2001, the Board published interim final rules to 
establish uniform standards for the electronic delivery of disclosures 
required under Regulation B (66 FR 17,779). Similar interim final rules 
for Regulations E, M, Z, and DD were published on March 30, 2001 (66 FR 
17,322 (M) and 17,329 (Z)), and April 4, 2001 (66 FR 17,786 (E) and 
17,795 (DD)). The interim final rules incorporated most of the 
provisions that were part of the 1999 proposals.
    Each of the interim final rules incorporated, but did not 
interpret, the requirements of the E-Sign Act. Creditors and other 
persons, as applicable, generally were required to obtain applicants' 
affirmative consent to provide disclosures electronically, consistent 
with the requirements of the E-Sign Act.
    The 2001 interim final rule for Regulation B established uniform 
requirements for the timing and delivery of electronic disclosures. 
Under the interim rule, disclosures could be sent to an e-mail address 
designated by the applicant, or could be made available at another 
location, such as an Internet web site. If the disclosures were not 
sent by e-mail, creditors would have to provide a notice to applicants 
alerting them to the availability of the disclosures. Disclosures 
posted on a web site would have to be available for at least 90 days to 
allow applicants adequate time to access and retain the information. 
Creditors also would be required to make a good faith attempt to 
redeliver electronic disclosures that were returned undelivered, using 
the address information available in their files. Similar provisions 
were included in the interim final rules adopted under Regulations E, 
M, Z, and DD.
    Commenters on the interim final rules identified significant 
operational and security concerns with respect to the requirement to 
send the disclosure or an alert notice to an e-mail address designated 
by the consumer. For

[[Page 21127]]

example, commenters stated that some consumers do not have e-mail 
addresses or may not want personal financial information sent to them 
by e-mail. Commenters also noted that e-mail is not a secure medium for 
delivering confidential information and that consumers' e-mail 
addresses frequently change. The commenters also opposed the 
requirement for redelivery in the event a disclosure was returned 
undelivered. In addition, many commenters asserted that making the 
disclosures available for at least 90 days, as required by the interim 
final rule, would increase costs and would not be necessary for 
consumer protection.
    In August 2001, in response to comments received, the Board lifted 
the previously established October 1, 2001 mandatory compliance date 
for all of the interim final rules. (66 FR 41,439, August 8, 2001.) 
Thus, institutions are not required to comply with the interim final 
rules. Since that time, the Board has not taken further action with 
respect to the interim final rules on electronic disclosures in order 
to allow electronic commerce, including electronic disclosure 
practices, to continue to develop without regulatory intervention and 
to allow the Board to gather further information about such practices.

II. The Proposed Rules

    The Board is proposing to amend Regulation B and the official staff 
commentary by (1) withdrawing portions of the 2001 interim final rule 
on electronic disclosures that restate or cross-reference provisions of 
the E-Sign Act and accordingly are unnecessary; (2) withdrawing other 
portions of the interim final rule that the Board now believes may 
impose undue burdens on electronic banking and commerce and may be 
unnecessary for consumer protection; and (3) retaining the substance of 
certain provisions of the interim final rule that provide regulatory 
relief or guidance regarding electronic disclosures. (Similar 
amendments are also being proposed by the Board, in today's issue of 
the Federal Register, under Regulations E, M, Z, and DD.)
    Because compliance with the 2001 interim final rules is not 
mandatory, removing most portions of the interim rules from the Code of 
Federal Regulations, while finalizing other provisions, would reduce 
confusion about the status of the electronic disclosure provisions and 
simplify the regulation. Certain provisions in the interim final rules, 
including provisions addressing foreign language disclosures, were not 
affected by the lifting of the mandatory compliance date and 
accordingly are now in final form; these provisions would not be 
deleted. The Board is also proposing to adopt certain provisions that 
are identical or similar to provisions in the 2001 interim final rules 
in order to enhance the ability of consumers to apply for credit online 
and provide guidance or eliminate a substantial burden on electronic 
commerce, as discussed further below.
    Since 2001, industry and consumers have gained considerable 
experience with electronic disclosures. During that period, there has 
been no indication that consumers have been harmed by the fact that 
compliance with the interim final rules is not mandatory. The Board 
also has reconsidered certain aspects of the interim final rules, such 
as sending disclosures by e-mail, in light of increased concerns about 
data security, identity theft, and ``phishing'' (i.e., prompting 
consumers to reveal confidential personal or financial information 
through fraudulent e-mail requests that appear to originate from a 
financial institution, government agency, or other trusted entity) that 
have become more pronounced since 2001. Finally, the Board is proposing 
to eliminate certain aspects of the 2001 interim final rule, such as 
provisions regarding the availability and retention of electronic 
disclosures, as unnecessary in light of current industry practices.
    Pursuant to the Board's authority under section 703(a)(1) of the 
ECOA, as well as under section 104(d) of the E-Sign Act,\1\ the Board 
is also proposing to specify the circumstances under which certain 
disclosures may be provided to an applicant in electronic form, rather 
than in writing as required by Regulation B, without obtaining the 
applicant's consent under section 101(c) of the E-Sign Act. The 
proposed rule would also amend Sec.  202.4(d) of Regulation B to 
clarify that certain disclosures must be provided to the applicant in 
electronic form on or with an application that is provided to and 
accessed by the applicant in electronic form.
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    \1\ Section 703(a)(1) of ECOA provides that regulations 
prescribed by the Board under ECOA ``may provide for such 
adjustments and exceptions * * * as in the judgment of the Board are 
necessary or proper to effectuate the purposes of [ECOA], * * * or 
to facilitate or substantiate compliance [with the requirements of 
ECOA].'' Section 104(d) of the E-Sign Act authorizes federal 
agencies to adopt exemptions for specified categories of disclosures 
from the E-Sign notice and consent requirements, ``if such exemption 
is necessary to eliminate a substantial burden on electronic 
commerce and will not increase the material risk of harm to 
consumers.'' For the reasons stated in this Federal Register notice, 
the Board believes that these criteria are met in the case of the 
application disclosures. In addition, the Board believes ECOA 
section 703(a)(1) authorizes the Board to permit institutions to 
provide disclosures electronically, rather than in paper form, 
independent of the E-Sign Act.
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    The interim final rule allowed creditors to provide certain 
disclosures to applicants in electronic form without obtaining E-Sign 
consent if the disclosures were provided on or with an application. The 
Board continues to believe that creditors should not be required to 
obtain the consumer's consent in order to provide application-related 
disclosures if the applicant accesses the application containing these 
disclosures in electronic form, such as at an Internet Web site. The 
Board believes consumers would not be harmed, and in fact would 
benefit, by having timely access to these application-related 
disclosures in electronic form. Consumers who choose to apply for 
credit online would be unduly burdened if they had to consent in 
accordance with the E-Sign Act in order to access application forms 
that are accompanied by disclosures. Applying the consumer consent 
provisions of the E-Sign Act to these disclosures could impose 
substantial burdens on electronic commerce and make it more difficult 
for consumers to apply for credit.
    At the same time, the Board recognizes that consumers who apply for 
credit online may not want to receive other disclosures electronically. 
Therefore, with respect to, for example, adverse action notices or 
copies of appraisal reports, creditors would be required to provide 
written disclosures or obtain the consumer's consent in accordance with 
the E-Sign Act to provide such disclosures in electronic form.
    Finally, the Board is proposing to delete, as unnecessary, certain 
provisions that restate or cross-reference the E-Sign Act's general 
rules regarding electronic disclosures (including the consumer consent 
provisions) and electronic signatures because the E-Sign Act is a self-
effectuating statute. The proposed revisions to Regulation B and the 
official staff commentary are described more fully below in the 
Section-by-Section Analysis.
    The Board solicits comment on all aspects of this proposal. 
Specifically, the Board seeks comment on the appropriateness of 
eliminating certain provisions and retaining other provisions contained 
in the 2001 interim final rule.

[[Page 21128]]

III. Section-by-Section Analysis

12 CFR Part 202 (Regulation B)

Section 202.4 General rules

Introduction
    Section 202.4(d) prescribes the form of disclosures, and 
specifically provides that a creditor that provides in writing any 
disclosures or information required by the regulation must provide the 
disclosures in a clear and conspicuous manner and, except for the 
disclosures required by Sec. Sec.  202.5 and 202.13, in a form that the 
applicant may keep. The Board proposes to redesignate this provision as 
the general rule in Sec.  202.4(d)(1).
    The Board also proposes to add a new Sec.  202.4(d)(2) to clarify 
that, with regard to disclosures that the regulation requires to be 
given in writing, creditors may provide such disclosures in electronic 
form, subject to compliance with the consumer consent and other 
applicable sections of the E-Sign Act. Some creditors may provide 
disclosures to applicants both in paper and electronic form and rely on 
the paper form of the disclosures to satisfy their compliance 
obligations. For those creditors, the duplicate electronic form of the 
disclosures may be provided to applicants without regard to the 
consumer consent or other provisions of the E-Sign Act because the 
electronic form of the disclosure is not used to satisfy the 
regulation's disclosure requirements.
    Section 202.4(d)(2) would also provide that certain disclosures, 
when included on or with an application, must be provided to the 
applicant in electronic form if the applicant accesses the application 
electronically. Under those circumstances, these disclosures may be 
provided in electronic form without regard to the consumer consent or 
other provisions of the E-Sign Act. The Board believes that, for an 
application accessed by the consumer in electronic form, permitting 
creditors to provide application-related disclosures in electronic form 
without regard to the consumer consent and other provisions of the E-
Sign Act will eliminate a potential significant burden on electronic 
commerce without increasing the risk of harm to consumers. This 
approach will facilitate applications for credit by enabling consumers 
to receive important disclosures at the same time they access an 
application without first having to provide consent in accordance with 
the requirements of the E-Sign Act. Requiring consumers to follow the 
consent procedures set forth in the E-Sign Act in order to complete an 
online application is potentially burdensome and could discourage 
consumers from shopping for credit online. Moreover, because these 
consumers are viewing the application online, there appears to be 
little, if any, risk that the consumer will be unable to view the 
disclosures online as well.
    The following disclosures would be provided electronically without 
obtaining the consumer's consent under E-Sign, as set forth in Sec.  
202.4(d)(2):
    Section 202.5(b)(1). Section 202.5(b)(1) provides that if a 
creditor inquires about an applicant's race, color, religion, national 
origin, or sex for the purpose of conducting a self-test, the creditor 
must disclose that providing the information is optional for the 
applicant, that the information is requested to monitor compliance with 
the ECOA, and that the creditor may not discriminate either on the 
basis of the information or whether the applicant chooses to furnish 
it.
    Section 202.5(b)(2). Section 202.5(b)(2) provides that when a 
creditor requests an applicant to designate a title on an application 
form, the application form must disclose that the designation of a 
title is optional.
    Section 202.5(d)(1). Section 202.5(d)(1) provides that if an 
application is for other than individual unsecured credit, a creditor 
may inquire about the applicant's marital status, but must use only the 
terms married, unmarried, and separated. The creditor may also explain 
that the unmarried category includes single, divorced, and widowed 
persons.
    Section 202.5(d)(2). Section 202.5(d)(2) prohibits a creditor from 
inquiring whether income stated in an application is derived from 
alimony, child support, or separate maintenance payments, unless the 
creditor discloses to the applicant that such income need not be 
revealed if the applicant does not want the creditor to consider it in 
determining the applicant's creditworthiness.
    Section 202.13. Section 202.13(a) requires a creditor to request 
information regarding an applicant's ethnicity, race, sex, marital 
status, and age as part of an application for dwelling-secured credit 
primarily for the purchase or refinancing of a dwelling occupied or to 
be occupied by the applicant as a principal residence. Section 
202.13(b) provides that questions about ethnicity, race, sex, marital 
status and age may be listed, at the creditor's option, on the 
application form or on a separate form that refers to the application.
    Section 202.13(c) requires the creditor to disclose to the 
applicant that the information about ethnicity, race, sex, marital, 
status and age is being requested by the federal government to monitor 
compliance with federal statutes that prohibit creditors from 
discriminating against applicants. The creditor must also disclose that 
if the applicant chooses not to provide the information, the creditor 
is required to note the ethnicity, race, and sex on the basis of visual 
observation or surname.
    Section 202.14(a)(2)(i). Section 202.14(a)(2)(i) requires a 
creditor that provides copies of appraisal reports only upon request 
(rather than routinely) to notify the applicant of the right to obtain 
a copy of the report.
Discussion
    Under Regulation B, an application generally is not required to be 
in writing.\2\ Section 202.2(f) of the regulation defines the term 
``application'' to include ``an oral or written request for an 
extension of credit that is made in accordance with procedures used by 
a creditor for the type of credit requested.'' Since an application 
does not have to be in writing, the disclosures that are provided on or 
with an application in certain circumstances do not have to be provided 
in writing. These disclosures include those required under Sec. Sec.  
202.5(b)(1), 202.5(b)(2), 202.5(d)(1), 202.5(d)(2), and 202.13. 
(Section 202.14(a)(2)(i) specifies that the notice of the right to a 
copy of the appraisal report must be provided in writing.) As a 
practical matter, however, most creditors use written or electronic 
application forms and typically make these disclosures, where 
applicable, on the written or electronic application form or a separate 
accompanying form. The Board's Model Application Forms in Appendix B to 
the regulation include some of these disclosures on the application 
forms.
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    \2\ Under Sec.  202.4(c), a creditor must take written 
applications for dwelling-related credit for which monitoring 
information (under Sec.  202.13) must be collected. However, use of 
a printed form is not required. A creditor may accept telephone or 
other oral applications and either write down or enter into a 
computer the pertinent information provided orally by the applicant. 
See Comments 202.4(c)-1 and 2.
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    Therefore, the Board proposes to amend Sec.  202.4(d) to provide 
that each of the disclosures noted above, where given on or with the 
application and where the application is accessed by the applicant in 
electronic form, must be provided to the applicant in electronic form 
on or with the application. The proposed revision would also clarify 
that under those circumstances, those disclosures may be provided in 
electronic form without regard to the

[[Page 21129]]

consumer consent or other provisions of the E-Sign Act.
    The Board also proposes to add new comment 4(d)(2)-1 to clarify 
that if an applicant accesses an application in electronic form, the 
disclosures required to accompany the application must be provided to 
the applicant in electronic form on or with the application. An 
applicant accesses an application in electronic form when, for example, 
the applicant views the application on his or her home computer. On the 
other hand, if an applicant receives an application in the mail, the 
creditor would not satisfy its obligation to provide the disclosures at 
that time by including a reference in the application to the web site 
where the disclosures are located.

Section 202.9 Notifications

    Section 202.9(g) provides that when an application for credit is 
submitted through a third party to more than one creditor and no credit 
is offered (or the applicant does not expressly accept or use any 
credit offered), each creditor taking adverse action must provide the 
notice required by Sec.  202.9(a), but may do so through a third party. 
The 2001 interim final rule added a new Sec.  202.9(h) to clarify that 
such third parties may use electronic disclosures to provide the 
required adverse action notice. The Board is proposing to remove this 
provision as unnecessary because the E-Sign Act is a self-effectuating 
statute and permits any person to use electronic records subject to the 
conditions set forth in the Act.

Section 202.16 Requirements for electronic communication

    Section 202.16 was added by the 2001 interim final rule to address 
the general requirements for electronic communications.\3\ The Board 
proposes to remove Sec.  202.16 from Regulation B and the accompanying 
sections of the staff commentary.
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    \3\ The requirements for electronic communication were initially 
adopted in Sec.  202.17. In the Board's comprehensive review of 
Regulation B, this provision was renumbered as Sec.  202.16. (68 FR 
13144, March 18, 2003.)
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    In the interim rule, Sec.  202.16(a) defines the term ``electronic 
communication'' to mean a message transmitted electronically that can 
be displayed on equipment as visual text, such as a message displayed 
on a personal computer monitor screen. The deletion of Sec.  202.16(a) 
would not change applicable legal requirements under the E-Sign Act.
    Sections 202.16(b), (c) and (f) incorporate by reference provisions 
of the E-Sign Act, such as the provision allowing disclosures to be 
provided in electronic form, the requirement to obtain the applicant's 
affirmative consent before providing disclosures in electronic form, 
and the provision allowing electronic signatures. The deletion of these 
provisions will have no impact on the general applicability of the E-
Sign Act to Regulation B disclosures.
    The special rule in Sec.  202.16(c) exempting from the disclosures 
relating to adverse action in connection with business credit, 
appraisal reports, and the collection of monitoring information has 
been eliminated. The special rule for disclosures relating to adverse 
action notices provided in connection with business credit has been 
removed because the E-Sign Act's consumer consent requirements do not 
apply to business credit. The special rules for disclosures relating to 
appraisal reports and the collection of monitoring information are 
addressed in Sec.  202.4(d)(2) of the proposed rule.
    Sections 202.16(d) and (e) of the interim final rule address 
specific timing and delivery requirements for electronic disclosures 
under Regulation B, such as the requirement to send disclosures to an 
applicant's e-mail address (or post the disclosures on a Web site and 
send a notice alerting the applicant to the disclosures). The Board no 
longer believes that these additional provisions are necessary or 
appropriate. Electronic disclosures have evolved since 2001, as 
industry and consumers have gained experience with them. Although many 
institutions offer e-mail alert notices to consumers in connection with 
online services, some consumers may choose not to receive notifications 
by e-mail and the Board sees no reason to require e-mail alert notices 
in all cases. In addition, the Board has reconsidered certain aspects 
of the interim final rules, such as sending disclosures by e-mail, in 
light of concerns about data security, identity theft, and phishing 
that have become more pronounced since 2001.
    With regard to the requirement to attempt to redeliver returned 
electronic disclosures, as the commenters noted, creditors would be 
required to search their files for an additional e-mail address to use, 
and might be required to use a postal mail address for redelivery if no 
additional e-mail address was available. The Board believes that both 
requirements would likely be unduly burdensome. In addition, the 
concerns that have been raised about the requirement to use e-mail for 
the initial delivery of a disclosure or notice apply equally to the use 
of e-mail for an attempted redelivery.
    Under the proposed rule, the Board would not require creditors to 
maintain disclosures posted on a Web site for at least 90 days as 
provided in the 2001 interim final rule for several reasons. The Board 
believes that an appropriate time period consumers may want electronic 
disclosures to be available may vary depending upon the type of 
disclosure, and is reluctant to establish specific time periods 
depending on the disclosures. Nevertheless, while the Board is not 
proposing to require disclosures to be maintained on an Internet Web 
site for any specific time period, the general requirements of 
Regulation B continue to apply to electronic disclosures, such as the 
requirement to provide certain disclosures to consumers at specified 
times and in a form that the consumer may keep. Although these general 
requirements apply to electronic disclosures, the Board does not 
believe that the 90-day time period set out in Sec.  202.16(d) of the 
2001 interim final rule is needed to ensure that creditors satisfy 
these requirements when they provide electronic disclosures. The Board, 
however, will monitor creditors' electronic disclosure practices with 
regard to the ability of applicants to retain certain Regulation B 
disclosures and will consider further regulatory action if it appears 
necessary.
    The official staff commentary to Sec.  202.16 of the interim final 
rule provides guidance on the provisions set forth in Sec.  202.16 such 
as delivery of disclosures or alert notices by e-mail, redelivery if 
disclosures or a notice is returned undelivered, and retention of 
disclosures on a Web site for 90 days. As noted above, because the 
Board is proposing to delete Sec.  202.16 of the regulation, the Board 
also proposes to delete the accompanying provisions of the official 
staff commentary.

Section 202.17 Enforcement, penalties, and liabilities

    The Board proposes to redesignate Sec.  202.17 as Sec.  202.16 
concurrent with the deletion of current Sec.  202.16, as discussed 
above. No changes would be made to the substance of the provision. The 
Board is also proposing to redesignate the provisions of Sec.  202.17 
of the official staff commentary as Sec.  202.16, with a conforming, 
non-substantive revision.

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

[[Page 21130]]

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

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
generally requires an agency to perform an assessment of the impact a 
rule is expected to have on small entities.
    However, under section 605(b) of the RFA, 5 U.S.C. 605(b), the 
regulatory flexibility analysis otherwise required under section 604 of 
the RFA is not required if an agency certifies, along with a statement 
providing the factual basis for such certification, that the rule will 
not have a significant economic impact on a substantial number of small 
entities. Based on its analysis and for the reasons stated below, the 
Board believes that this proposed rule will not have a significant 
economic impact on a substantial number of small entities. A final 
regulatory flexibility analysis will be conducted after consideration 
of comments received during the public comment period.
    1. Statement of the objectives of the proposal. The Board is 
proposing revisions to Regulation B to withdraw the 2001 interim final 
rule on electronic communication and to allow creditors to provide 
certain disclosures to applicants in electronic form on or with an 
application that is accessed by the applicant in electronic form 
without regard to the consumer consent and other provisions of the E-
Sign Act. The Board is also proposing to clarify that other Regulation 
B disclosures may be provided to applicants in electronic form in 
accordance with the consumer consent and other applicable provisions of 
the E-Sign Act.
    ECOA was enacted to promote the availability of credit to all 
creditworthy applicants without regard to race, color, religion, 
national origin, sex, marital status, age, the fact that all or part of 
the applicant's income derives form a public assistance program, or the 
fact that the applicant has in good faith exercised any right under the 
Consumer Credit Protection Act. The primary objective of ECOA is to 
prohibit creditors from discriminating against any applicant on any of 
these grounds with respect to any aspect of a credit transaction. 15 
U.S.C. 1691(a). ECOA authorizes the Board to prescribe regulations to 
carry out the purposes of the statute. 15 U.S.C. 1691b(a)(1). The Act 
expressly states that the Board's regulations may contain ``such 
classifications, differentiations, or other provisions, * * * as, in 
the judgment of the Board, are necessary or proper to carry out the 
purposes of [the Act], to prevent circumvention or evasion [of the 
Act], or to facilitate compliance [with the Act].'' 15 U.S.C. 
1691b(a)(1). The Board believes that the proposed revisions to 
Regulation B discussed above are within the Congress' broad grant of 
authority to the Board to adopt provisions that carry out the purposes 
of the statute.
    2. Small entities affected by the proposal. The ability to provide 
application-related disclosures in electronic form on or with an 
application that is accessed by the applicant in electronic form 
applies to all creditors, regardless of their size. Accordingly, the 
proposed revisions would reduce burden and compliance costs for small 
entities by providing relief, to the extent the E-Sign Act applies in 
these circumstances. The number of small entities affected by this 
proposal is unknown.
    3. Other federal rules. The Board believes no federal rules 
duplicate, overlap, or conflict with the proposed revisions to 
Regulation B.
    4. Significant alternatives to the proposed revisions. The Board 
solicits comment on any significant alternatives that may provide 
additional ways to reduce regulatory burden associated with this 
proposed rule.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (PRA) (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 (OMB). The collection of information that is required by 
this proposed rule is found in 12 CFR 202. 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 7100-0201.
    Section 703(a)(1) of the Equal Credit Opportunity Act (15 U.S.C. 
1691b(a)(1)) authorizes the Board to issue regulations to carry out the 
provisions of the Act. This information collection is mandatory. The 
purpose of the Act is to ensure that credit is made available to all 
creditworthy customers without discrimination on the basis of race, 
color, religion, national origin, sex, marital status, age (provided 
the applicant has the capacity to contract), receipt of public 
assistance income, or the fact that the applicant has in good faith 
exercised any right under the Consumer Credit Protection Act (15 U.S.C. 
1600 et seq.). The adverse action disclosure is confidential between 
the institution and the consumer involved. Since the Federal Reserve 
does not collect any information, no issue of confidentiality normally 
arises. However, the information may be protected from disclosure under 
the exemptions (b)(4), (6), and (8) of the Freedom of Information Act 
(5 U.S.C. 522(b)).
    Regulation B applies to all types of creditors, not just State 
member banks. However, under the Paperwork Reduction Act, the Federal 
Reserve accounts for the burden of the paperwork associated with the 
regulation only for entities that are supervised by the Federal 
Reserve. Appendix A of Regulation B defines these creditors as State 
member banks, branches and agencies of foreign banks (other than 
federal branches, federal agencies, and insured state branches of 
foreign banks), commercial lending companies owned or controlled by 
foreign banks, and organizations operating under section 25 or 25A of 
the Federal Reserve Act. Other federal agencies account for the 
paperwork burden for the institutions they supervise. Creditors are 
required to retain records for 12 to 25 months as evidence of 
compliance. The annual burden is estimated to be 165,630 hours for the 
1,172 Federal Reserve-regulated creditors that are respondents for 
purposes of the PRA.
    As mentioned in the Preamble, new Sec.  202.4(d)(2) would be added 
to clarify the disclosure requirements in Sec. Sec.  202.5(b)(1), 
202.5(b)(2), 202.5(d)(1), 202.5(d)(2), 202.13, and 202.14. The Federal 
Reserve estimates that 200 respondents would take approximately 1 
minute per transaction to comply with the existing disclosures 
requirements in Sec. Sec.  202.5(b)(1), 202.5(b)(2), 202.5(d)(1), 
202.5(d)(2), and estimates the annual burden to be 8,350 hours; 1,172 
respondents would take approximately .50 minutes per transaction to 
comply with the existing disclosures requirements in Sec.  202.13 and 
estimates the annual burden to be 3,502 hours. 1,172 respondents would 
take approximately 5.25 minutes per transaction to comply with the 
existing disclosures requirements in Sec.  202.14 and estimates the 
annual burden to be 26,613 hours. The Federal Reserve requests specific 
comment on whether the revisions in this proposed rule would change the 
burden on respondents.
    Comments are invited on: a. whether the collection of information 
is necessary for the proper performance of the Federal Reserve's 
functions; including whether the information has

[[Page 21131]]

practical utility; b. the accuracy of the Federal Reserve's estimate of 
the burden of the information collection, including the cost of 
compliance; c. ways to enhance the quality, utility, and clarity of the 
information to be collected; and d. ways to minimize the burden of 
information collection on respondents, including through the use of 
automated collection techniques or other forms of information 
technology. Comments on the collections of information should be sent 
to Secretary, Board of Governors of the Federal Reserve System, 
Washington, DC 20551, with copies of such comments to be sent to the 
Office of Management and Budget, Paperwork Reduction Project (7100-
0201), Washington, DC 20503.

List of Subjects in 12 CFR Part 202

    Aged, Banks, banking, Civil rights, Credit, Federal Reserve System, 
Marital status discrimination, Penalties, Religious discrimination, 
Reporting and recordkeeping requirements, Sex discrimination.

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
changes to Regulation B. New language is shown inside bold-faced 
arrows, while language that would be removed is set off with bold-faced 
brackets.

    For the reasons set forth in the preamble, the Board proposes to 
amend Regulation B, 12 CFR part 202, as set forth below:

PART 202--EQUAL CREDIT OPPORTUNITY (REGULATION B)

    1. The authority citation for part 202 continues to read as 
follows:

    Authority: 15 U.S.C. 1691-1691f.

    2. Section 202.4 would be amended by revising paragraph (d) to read 
as follows:


Sec.  202.4  General rules.

* * * * *
    (d) Form of disclosures[.][rtrif]--(1) General rule.[ltrif] A 
creditor that provides in writing any disclosures or information 
required by this regulation must provide the disclosures in a clear and 
conspicuous manner and, except for the disclosures required by 
Sec. Sec.  202.5 and 202.13, in a form the applicant may retain.
    [rtrif](2) Disclosures in electronic form. The disclosures required 
by this part that are required to be given in writing may be provided 
to the applicant in electronic form, subject to compliance with the 
consumer consent and other applicable provisions of the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 
7001 et seq.). Where the disclosures under Sec. Sec.  202.5(b)(1), 
202.5(b)(2), 202.5(d)(1), 202.5(d)(2), 202.13, and 202.14(a)(2)(i) 
accompany an application accessed by the applicant in electronic form, 
these disclosures must be provided to the applicant in electronic form 
on or with the application form. These disclosures may be made in 
electronic form without regard to the consumer consent or other 
provisions of the E-Sign Act.[ltrif]
* * * * *
    3. Section 202.9 would be amended by removing paragraph (h), to 
read as follows:


Sec.  202.9  Notifications.

* * * * *
    [(h) Duties of third parties. A third party may use electronic 
communication in accordance with the requirements of Sec.  202.16, as 
applicable, to comply with the requirements of paragraph (g) of this 
section on behalf of a creditor.]
    4. Section 202.16 would be removed.
    5. Section 202.17 would be redesignated as Sec.  202.16.
    6. In Supplement I to Part 202, the following amendments would be 
made:
    a. In Section 202.4--General Rules, under (4)(d) Form of 
Disclosures, new paragraph 2. would be added.
    b. Section 202.16 would be removed;
    c. Section 202.17 would be redesignated as Sec.  202.16.
    The amendments to read as follows:
* * * * *

Supplement I to Part 202--Official Staff Interpretations

* * * * *

Section 202.4--General Rules

* * * * *

(4)(d) Form of Disclosures

* * * * *
    [rtrif]2. Electronic form of disclosures. If a consumer accesses 
an application in electronic form, the disclosures required to 
accompany the application must be provided to the consumer in 
electronic form on or with the application; providing the 
disclosures at a different time or place, or in paper form, would 
not comply. Conversely, if a consumer is provided with a paper 
application, the disclosures must be provided in paper form on or 
with the application. For example, if a consumer receives an 
application in the mail, the creditor would not satisfy its 
obligation to provide the disclosures at that time by including a 
reference in the application to the web site where the disclosures 
are located.[ltrif]
* * * * *

Section 202.[17] [rtrif]16[ltrif]--Enforcement, Penalties, and 
Liabilities

    [17][rtrif]16[ltrif](c) Failure of compliance.
    1. Inadvertent errors. Inadvertent errors include, but are not 
limited to, clerical mistake, calculation error, computer 
malfunction, and printing error. An error of legal judgment is not 
an inadvertent error under the regulation.
    2. Correction of error. For inadvertent errors that occur under 
Sec. Sec.  202.12 and 202.13, this section requires that they be 
corrected prospectively.

    By order of the Board of Governors of the Federal Reserve 
System.

    Dated: April 20, 2007.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E7-7875 Filed 4-27-07; 8:45 am]
BILLING CODE 6210-01-P


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