[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Rules and Regulations]
[Pages 19678-19695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10180]



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FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R-0831]


Electronic Fund Transfers

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Official Staff Interpretation.

-----------------------------------------------------------------------

SUMMARY: The Board is publishing final revisions to its official staff 
commentary to Regulation E (which implements the Electronic Fund 
Transfer Act), as part of the Board's review of the regulation. The 
commentary applies and interprets the requirements of Regulation E to 
facilitate compliance by financial institutions that offer electronic 
fund transfer services to consumers. The revisions change the question-
and-answer format to a narrative one to make the commentary easier to 
use and to conform it with the format of the Board's other staff 
commentaries. In conjunction with revisions to Regulation E adopted by 
the Board and published elsewhere in today's Federal Register, the 
revised commentary also includes interpretative provisions previously 
contained in the regulation that were more explanatory in nature and 
additional interpretations on matters not previously addressed.

DATES: Effective date. May 2, 1996.
    Compliance date. Mandatory compliance January 1, 1997.

FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Kyung Cho-Miller, 
Michael Hentrel, or Natalie E. Taylor, Staff Attorneys, Division of 
Consumer and Community Affairs, Board of Governors of the Federal 
Reserve System, Washington, D.C. 20551, at (202) 452-2412 or (202) 452-
3667. For the hearing impaired only, contact Dorothea Thompson, 
Telecommunications Device for the Deaf (TDD), at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

    The Electronic Fund Transfer Act (EFTA) (15 U.S.C. 1693), 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). The Board has revised Regulation E 
under its Regulatory Planning and Review Program, which calls for the 
periodic review of all Board regulations. In 1981, the Board published 
an official staff commentary to Regulation E. The commentary 
substitutes for individual staff interpretations and is designed to 
facilitate compliance and provide protection from civil liability, 
under section 915(d)(1) of the act, for financial institutions that act 
in conformity with it.
    The question-and-answer format of the former commentary was 
designed to make compliance easier by providing specific answers, in 
nontechnical language, to frequently asked questions. However, that 
format usually relied on specific factual situations and often 
restricted the scope of an interpretation. The Board has adopted a 
narrative format, similar to other commentaries issued by the Board, to 
provide more general applicability.
    The order of comments in the final commentary corresponds with the 
new sections in the revised regulation. Throughout the commentary, 
reference to ``this section'' or ``this paragraph'' means the section 
or paragraph in the regulation that is the subject of the comment. Each 
comment in the commentary is identified by a number and the regulatory 
section or paragraph that it interprets. The commentary incorporates 
text that was moved from the regulation because it is more explanatory 
than regulatory in nature. A number of comments have been deleted as 
obsolete.

II. Section-by-Section Analysis

    The section-by-section descriptions highlight certain provisions 
that differ from the former commentary and certain portions of the 
former regulation that have been moved to the commentary. Comments in 
the former commentary are referred to as ``questions'' and are cited by 
the section number and the number of the question. For example, Q2-11 
is the citation for question number 11 in the commentary to Sec. 205.2. 
As the substance of many questions does not change in the new format, 
those comments are not specifically discussed. A summary at the 
beginning of the section-by-section analysis matches the old question 
to the new commentary provisions. The summary also lists questions that 
have been deleted from the commentary, comments that are new, and 
comments that have been moved to other sections.

Section 205.2--Definitions

------------------------------------------------------------------------
                    New                                  Old            
------------------------------------------------------------------------
(a)-1.....................................  Q2-1                        
(b)(1)-1..................................  Q2-2, Q2-3, Q2-4, Q2-5, Q2- 
                                             5.5                        
(b)(2)-1..................................  Q3-21                       
(b)(2)-2..................................  Q3-20                       
(d)-1.....................................  Q2-8                        
(d)-2.....................................  Q2-6                        
(d)-3.....................................  Q2-9                        

[[Page 19679]]

                                                                        
(d)-4.....................................  Q2-7                        
(h)-1.....................................  Q2-25.5, Q2-23              
(h)-2.....................................  Q2-24                       
(h)-3.....................................  Q2-25                       
(m)-1.....................................  Q2-26                       
(m)-2.....................................  Q2-27                       
(m)-3.....................................  Q2-27                       
(m)-4.....................................  Q2-28                       
------------------------------------------------------------------------



Comment deleted
    Q2-22: Electronic terminal--telephone bill payment
Comments moved
    Comments relating to the definition of an EFT have been moved to 
the commentary to Sec. 205.3

Paragraph 2(b)(2)

    In the regulation, the exemption for trust accounts has been 
incorporated into the definition of account. The substance of Q3-20 
(custodial agreements) and Q3-21 (trust accounts) is included in this 
section as comments (b)(2)-2 and (b)(2)-1. The change mirrors the 
statutory definition of account.

2(d) Business Day

    The regulatory proposal included a new definition of business day. 
The Board has retained the current definition of business day; 
accordingly, comments Q2-6, Q2-7, and Q2-9, which provide guidance on 
interpreting ``substantially all business functions,'' have been 
retained and included in comments (d)(2)-(d)(4).

2(m) Unauthorized Electronic Fund Transfer

    Comment (m)-2, which incorporates Q2-27, provides that when the 
consumer furnishes an access device and grants actual authority to make 
transfers to another person (a family member or co-worker, for example) 
who then exceeds that authority, the consumer is liable for the 
transfers unless the consumer has notified the financial institution 
that transfers by that person are no longer authorized. While 
institutions are required to provide a summary of the consumer's 
liability under Sec. 205.6 in the initial disclosures, the model 
clauses do not require financial institutions to disclose this 
potential liability as part of the initial disclosures of Sec. 205.7.

Section 205.3--Coverage

    Section 205.3 of the regulation is a new section on the 
regulation's coverage, including the scope of Regulation E, the 
definition of an EFT, and the exemptions from the regulation. To 
correspond with these regulatory amendments, the commentary 
consolidates existing and new comments on the regulation's coverage.

------------------------------------------------------------------------
                    New                                  Old            
------------------------------------------------------------------------
(a)-1.....................................  Q9-15 in part               
(a)-2.....................................  Q9-15 in part               
(a)-2.....................................  new                         
(b)-1.....................................  Q2-11, broadens and reverses
                                             Q2-16, Q2-18, Q2-19, Q2-   
                                             21.5                       
(b)-2.....................................  Q2-10, Q2-12, Q2-21         
(c)(2)-1..................................  Q3-1                        
(c)(3)-1..................................  Q3-3                        
(c)(3)-2..................................  new                         
(c)(3)-3..................................  new                         
(c)(4)-1..................................  new                         
(c)(4)-2..................................  new                         
(c)(4)-3..................................  Q3-3.5, Q3-3.6              
(c)(5)-1..................................  Q3-8, Q3-9, Q3-10, Q3-11, Q3-
                                             12                         
(c)(5)-2..................................  Q3-13                       
(c)(6)-1..................................  Q3-14, Q3-15, Q3-16, Q3-19.5
(c)(6)-2..................................  Q3-17, Q3-18, Q3-19, new    
                                             (facsimile machine)        
(c)(7)-1..................................  new                         
------------------------------------------------------------------------

Comments deleted
    Q2-12.5: Fund transfer--withholding of income tax on interest
    Q2-12.6: Fund transfer--EBT
    Q2-13: Fund transfer--withdrawal at another institution
    Q2-14: Fund transfer--check truncation
    Q2-15: Fund transfer--payee information, non-electronic form
    Q2-17: Fund transfer--ACH
    Q2-20: Fund transfer--preauthorized debits by paper drafts, ACH
    Q3-2: Wire transfer--instructions on magnetic tape
    Q3-4: Telephone transfer plans--applicability of 
intrainstitutional exemption
    Q3-5: Compulsory use--preauthorized loan payments
Comments moved
    Q3-6, Q3-7, and Q3-7.5 (see commentary to Sec. 205.10(e))
    Q3-20 and Q3-21 (see commentary to Sec. 205.2)

3(a) General

    Comments 3(a)-1 and -2 incorporate the part of Q9-15 that details 
the types of accounts subject to the requirements of the regulation.
    Comment 3(a)-2 is new. Language for this comment is modeled on the 
commentary to Regulation Z on foreign applicability (12 CFR part 226, 
Supp. I, comment 1(c)-1).

3(b) Electronic Fund Transfer

    In the revised regulation, the definition of ``electronic fund 
transfer'' is referenced in Sec. 205.2(g) but is included in Sec. 205.3 
as the definition is central to determining coverage. The commentary 
consolidates in this section the questions pertaining to EFTs. A number 
of comments were deleted because of a change in Board interpretations. 
For example, Q2-12.6 dealt with the electronic payment of government 
benefits, stating that such transfers were not subject to Regulation E. 
As the Board has adopted amendments to Regulation E extending coverage 
to electronic benefit transfer programs established by federal, state, 
or local government agencies, the substance of Q2-12.6 has been 
deleted.
    Comment 3(b)-1(iii) broadens and reverses Q2-16 to achieve 
consistency with other sections of Regulation E. The comment states 
that debits or credits to a consumer's account according to billing 
information contained on magnetic tape are EFTs even if the financial 
institution receives or sends a composite check. Previously, credits to 
consumers' accounts made by a composite check accompanied by a magnetic 
tape containing payee information were not EFTs for purposes of 
Regulation E.

3(c) Exclusions From Coverage

    The regulation's exemptions are incorporated in Sec. 205.3.

Paragraph 3(c)(3)--Wire or Other Similar Transfers

    Comment 3(c)(3)-2 addresses the relationship of Regulation E to 
Article 4A of the Uniform Commercial Code (UCC). Article 4A provides 
comprehensive rules governing rights and responsibilities arising from 
wire transfers. It applies primarily to large-dollar, commercial wire 
transfers made via Fedwire, Clearing House Interbank Payments Systems 
(CHIPS), Society for Worldwide Interbank Payments Systems (SWIFT), and 
Telex.
    UCC Sec. 4A-108 provides that Article 4A does not cover a fund 
transfer any part of which is governed by the EFTA. In drafting Article 
4A, the National Conference of Commissioners on Uniform State Laws 
stated that if a fund transfer is made in part by Fedwire and in part 
via an automated clearinghouse (ACH), because the EFTA applies to the 
ACH part of the transfer, Article 4A does not apply to any part of the 
transfer. Institutions that offer Fedwire services expressed concern 
that these transfers would lose the legal certainty offered by 
complying with the requirements of Article 4A if some part of the 
transfer is subject to the EFTA. This concern must be balanced with the 
potential of subjecting consumers to full liability for unauthorized 
transfers merely because some part of the transfer, which would 
ordinarily be

[[Page 19680]]

covered by Regulation E, is made via Fedwire.
    In 1990, the Board adopted a comprehensive revision of subpart B to 
Regulation J (55 FR 40791, October 5, 1990). Regulation J (12 CFR Part 
210) specifies the rules applicable to funds transfers handled by 
Federal Reserve Banks. To ensure that the rules for all funds transfers 
through Fedwire are consistent, the Board used its preemptive authority 
under UCC Sec. 4A-107 to determine that subpart B, including the 
provisions of Article 4A, applies to all fund transfers through 
Fedwire, even if a portion of the fund transfer is governed by the 
EFTA. Even so, the Board has continued to receive questions about the 
effect of dual coverage. For example, if an institution offers 
consumers the ability to initiate Fedwire transfers pursuant to a 
telephone transfer agreement, the transfer could be covered by both 
Regulation E and Article 4A. UCC Sec. 4A-202 encourages verification of 
the authenticity of a Fedwire payment order pursuant to a ``security 
procedure'' established by agreement between a customer and a receiving 
bank. Putting such an agreement in writing could be deemed to 
constitute a telephone transfer plan for purposes of Regulation E. The 
Board believes that if an institution makes Fedwire payments available 
to consumers, but does not make the service available in conjunction 
with a telephone plan that is subject to Regulation E, then the 
protections of Article 4A are applicable to the transfer.
    The wire transfer exemption extends to any transfer of funds 
through Fedwire or through a similar fund transfer system. Comment 
3(c)(3)-3 provides examples of such systems. The Board was asked also 
to exempt transfers made on the books or ``in book-entry form'' by the 
financial institution. The commentary clarifies that such transfers are 
exempt from Regulation E.

Paragraph 3(c)(4)--Securities and Commodities Transfers

    The Board has revised the exemption for certain securities and 
commodities transfers contained in Sec. 205.3(c). The exemption applies 
to a transfer for the purchase or sale of securities or commodities, 
even if the security or commodity is not regulated by the Securities 
and Exchange Commission or the Commodity Futures Trading Commission, so 
long as the security or commodity is sold by a registered broker-dealer 
or futures commission merchant (for example, municipal securities). 
Comment 3(c)(4)-1 provides added clarification on this point.
    Comments 3(c)(4)-2 and -3 provide examples of covered and exempt 
securities transfers. Comment 3(c)(4)-2 also contains a new example of 
an exempt transfer, that of a telephone order to exercise a margin 
call. The Board believes that the exercise of a margin call is so 
closely linked to the purchase or sale of securities as to come within 
the purview of the exemption.
    Several commenters requested clarification on Q3-3.5, which stated 
that the exemption applied only if a transfer's primary purpose is the 
purchase or sale of securities and which provided an example of a money 
market mutual fund transfer. The Board believes that all securities 
transfers must meet the primary purpose test-- transfers must be to 
purchase or sell securities--set forth in Q3-3.5 to qualify for the 
exemption. If a transfer results from the use of a debit card to access 
any securities account (including a money market mutual fund account) 
for the purchase of goods or services or to obtain cash, the transfer 
is not exempt from Regulation E.

Paragraph 3(c)(6)--Telephone-Initiated Transfers

    Comment 3(c)(6)-2 incorporates examples contained in the former 
commentary of covered transfers under a written plan (see Q3-17, Q3-18, 
and Q3-19). The comment also contains a new example regarding the use 
of a facsimile machine to initiate a transfer. The Board has received 
questions about plans in which the consumer uses facsimile paper 
designed to look like a paper ``draft'' to initiate a transfer sent via 
facsimile machine. The EFTA's definition of EFT includes any transfer 
through a ``telephonic instrument.'' The Board considers a facsimile 
machine to be the functional equivalent of a telephone; it is 
inconsequential whether information about the transfer is transmitted 
orally or by facsimile.

Paragraph 3(c)(7)--Small Institutions

    Comment 3(c)(7)-1 makes clear the Board's view that Article 4A is 
not applicable to transfers exempt from Regulation E under the small-
institution exemption. As noted above, the drafters of Article 4A 
considered the EFTA and Regulation E to be mutually exclusive. The 
Board has been asked whether preauthorized transfers by small 
institutions (now, institutions with assets under $100 million), which 
are largely exempt from Regulations E, are subject to the requirements 
of Article 4A by virtue of that exemption (for example, a direct 
deposit to a consumer's account at a small bank). The Board regards the 
transfers as generally subject to the EFTA, and therefore not subject 
to Article 4A.

Section 205.4--General Disclosure Requirements; Jointly Offered 
Services

    Section 205.4 of the revised regulation sets forth general and 
special requirements for the various disclosures. Corresponding changes 
have been made in the commentary.

------------------------------------------------------------------------
                    New                                  Old            
------------------------------------------------------------------------
(a)-1.....................................  Q7-3, Q9-4 in part          
(a)-2.....................................  new (revises and broadens Q7-
                                             4)                         
------------------------------------------------------------------------

Comments deleted
    Q4-3: Multiple accounts and account holders (clarified in 
Sec. 205.4(d)(1) of the regulation)

Section 205.5--Issuance of Access Devices

------------------------------------------------------------------------
                    New                                  Old            
------------------------------------------------------------------------
5-1.......................................  Q5-1.5                      
(a)(1)-1..................................  new (footnote 1b to former  
                                             Sec.  205.5(a)(1))         
(a)(1)-2..................................  new                         
(a)(2)-1..................................  Q5-1, Q5-2                  
(a)(2)-2..................................  Q5-3                        
(b)-1.....................................  Q5-6, Q5-7                  
(b)-2.....................................  Q5-4.5                      
(b)-3.....................................  Q5-5                        
(b)-4.....................................  Q5-8 (including examples    
                                             from former Sec.  205.5(b) 
------------------------------------------------------------------------

Comment deleted
    Q5-4: Renewal or substitution--pre-February 8, 1979 device
Comments moved
    Q5-9, Q5-10 (see commentary to Sec. 205.12)

5(a) Solicited Issuance

Paragraph 5(a)(1)

    Comment (a)(1)-2 has been added to clarify the permissible forms of 
a consumer's request for an access device. Section 205.6--Liability of 
Consumer for Unauthorized Transfers

------------------------------------------------------------------------
                    New                                  Old            
------------------------------------------------------------------------
(a)-1.....................................  Q6-4, new (former Sec.      
                                             205.6(a)(2))               
(a)-2.....................................  Q6-3                        
(b)-1.....................................  Q6-5 (revised)              
(b)-2.....................................  Q6-6.5 (with cross-reference
                                             to comment 2(k)-2 added)   
(b)-3.....................................  Q6-6.5                      
(b)(1)-1..................................  Q6-5 (revised)              
(b)(1)-2..................................  Q6-6 (revised)              
(b)(2)-1..................................  Q6-5 (revised)              
(b)(3)-1..................................  Q6-5 (revised)              
(b)(3)-2..................................  Q6-5 (revised)              
(b)(4)-1..................................  new (former Sec.            
                                             205.6(b)(4))               
(b)(5)-1..................................  Q6-7                        
(b)(5)-2..................................  new                         

[[Page 19681]]

                                                                        
(b)(5)-3..................................  Q6-8                        
------------------------------------------------------------------------



Comments deleted
    Q6-1: Unauthorized transfers--access device not involved
    Q6-2: Failure to disclose business days
Comments moved
    Q6-9, Q6-10, and Q6-11 (see commentary to Sec. 205.12)

6(a) Conditions for Liability

    The Board had proposed amending the regulation to require that a 
financial institution provide all of the initial disclosures required 
by Sec. 205.7 in order to impose liability on the consumer. Based on 
comment and further analysis, the Board has instead retained the 
current rule.
    The former regulation implicitly conditioned consumer liability on 
the issuance of an accepted access device (Sec. 205.6(a)). The 
commentary, on the other hand, stated that if the consumer failed to 
report an unauthorized EFT within 60 days of transmittal of the 
periodic statement reflecting the transfer, the consumer could be 
subject to liability for subsequent transfers, even if the unauthorized 
EFT did not involve an access device. This commentary position was 
based on the Board's interpretation of section 909 of the EFTA as 
precluding consumer liability for unauthorized transfers not involving 
an access device until 60 days after transmittal of the periodic 
statement reflecting the transfer. The Board has incorporated that 
clarification into the Sec. 205.6(a)(3) of the regulation.
    Commenters generally supported the revision, although some believed 
that a 60-day period is unreasonable. The latter suggested an 
alternative time period ranging from 30 to 45 days; this change, 
however, would require a statutory amendment. Upon further analysis, 
the Board adopted the regulatory revision as proposed and has 
incorporated Q6-1 into Sec. 205.6(b)(3). Comment 6(b)(3)-2 provides 
further clarification.

6(b) Limitations on Amount of Liability

    Q6-5 provided examples of when the liability rules apply. Material 
from Q6-5, in revised form, has been incorporated into the commentary 
to paragraph (b).

Paragraph 6(b)(4)--Extension of Time Limits

    Former Sec. 205.6(b)(4) provided examples of extenuating 
circumstances when a consumer delays notification to the institution 
that an access device has been lost or stolen. The examples have been 
deleted from the revised regulation and moved to comment (b)(4)-1.

Paragraph 6(b)(5)--Notice to Financial Institution

    The Board has received questions about whether notice from a third 
party is sufficient to limit a consumer's liability under Sec. 205.6. 
Proposed comment (b)(5)-2 indicated that such notice is valid if it is 
communicated by a third party on the consumer's behalf. Commenters 
generally supported this interpretation. Several commenters asked the 
Board to clarify that a financial institution may require adequate 
documentation of the authority of the person who claims to represent 
the consumer. Others requested that the Board address the potential 
liability of financial institutions arising from reliance on the claims 
of a third party. In response, the Board has clarified that a financial 
institution should have a reasonable belief that a third party is 
acting on the consumer's behalf.

Section 205.7--Initial Disclosures

------------------------------------------------------------------------
                    New                                  Old            
------------------------------------------------------------------------
(a)-1.....................................  Q7-1                        
(a)-2.....................................  Q7-2                        
(a)-3.....................................  Q7-5.5                      
(a)-4.....................................  Q7-6, new (timing of        
                                             disclosures)               
(a)-5.....................................  Q7-6.5                      
(a)-6.....................................  Q7-5                        
(b)(1)-1..................................  Q7-8                        
(b)(1)-2..................................  Q7-7                        
(b)(1)-3..................................  new (former Sec.            
                                             205.7(a)(1))               
(b)(2)-1..................................  Q7-19                       
(b)(2)-2..................................  Q7-20                       
(b)(4)-1..................................  Q7-11                       
(b)(4)-2..................................  Q7-11.5                     
(b)(4)-3..................................  Q7-10                       
(b)(5)-1..................................  Q7-14, 7-15                 
(b)(5)-2..................................  Q7-12, 7-13                 
(b)(5)-3..................................  Q7-15.5                     
(b)(9)-1..................................  Q7-16, 7-17                 
(b)(10)-1.................................  Q7-18                       
(b)(10)-2.................................  Q7-18.5                     
------------------------------------------------------------------------

Comment deleted
    Q7-9: Summary disclosure of rights
Comments moved
    Q7-3, Q7-4 (see commentary to Sec. 205.4)

7(a) Timing of Disclosures

    Comment (a)-4 expands on Q7-6, which discussed the addition of new 
EFT services and required financial institutions to provide disclosures 
for the additional service if it was subject to terms and conditions 
different from those previously described in the initial disclosures; 
the commentary was silent, however, as to when such disclosures should 
be provided. Comment (a)-4 provides that the disclosures be given 
either when the consumer contracts for the new service or before the 
first EFT is made using the new service.

7(b) Content of Disclosures

    Former Sec. 205.7(a)(1) gave financial institutions the option of 
including advice about promptly reporting the loss or theft of the 
access device or other unauthorized transfers in the summary of the 
consumer's liability. This language has been deleted from the 
regulation and moved to comment (b)(1)-3.

Section 205.8--Change-in-Terms Notice; Error Resolution Notice

------------------------------------------------------------------------
                    New                                  Old            
------------------------------------------------------------------------
(a)-1.....................................  Q8-6                        
(a)-2.....................................  Q8-3, Q8-5                  
(a)-3.....................................  Q8-4                        
(a)-4.....................................  Q8-2                        
(b)-1.....................................  Q8-8                        
------------------------------------------------------------------------

Comments deleted
    Q8-1: Terms requiring change in terms notice
    Q8-7: Error resolution notice--no periodic statements sent

8(a) Change-in-Terms Notice

Paragraph 8(a)(2)--Prior Notice Exception

    Proposed comment (a)(2)-1, which addressed circumstances when 
financial institutions include with the periodic statement a subsequent 
notice upon making a permanent change in terms related to security has 
not been adopted, as the Board did not adopt its proposal revising the 
regulation to extend to 45 days the time period in which financial 
institutions must send such notice.

Section 205.9--Receipts at Electric Terminals; Periodic Statements

------------------------------------------------------------------------
                  New                                  Old              
------------------------------------------------------------------------
(a)-1..................................  Q9-1                           
(a)-2..................................  new (footnote 2 to former Sec. 
                                          205.9(a)), Q9-2               
(a)-3..................................  Q9-3.5                         
(a)-4..................................  Q9-5                           
(a)-5..................................  Q9-6                           
(a)-6..................................  Q9-4 in part                   
(a)(1)-1...............................  new                            
(a)(2)-1...............................  Q9-7                           
(a)(3)-1...............................  new (former Sec.  205.9(a)(3)) 
(a)(3)-2...............................  new (footnote 3 to former Sec. 
                                          205.9(a)(3)), Q-9, 9-10       
(a)(3)-3...............................  Q9-8                           
(a)(3)-4...............................  new (former Sec.  205.9(a)(3)),
                                          Q9-37                         
(a)(3)-5...............................  Q9-36, Q9-27                   
(a)(5)-1...............................  Q9-38                          
(a)(5)-2...............................  Q9-40                          
(a)(5)(i)-1............................  new (former Sec.               
                                          205.9(b)(1)(iv)(A))           
(a)(5)(ii)-1...........................  new (former Sec.               
                                          205.9(b)(1)(iv)(B))           
(a)(5)(iii)-1..........................  new (former Sec.               
                                          205.9(b)(1)(iv)(C))           

[[Page 19682]]

                                                                        
(a)(5)(iv)-1...........................  new (former Sec.               
                                          205.9(b)(1)(iv) footnote 5    
(a)(5)(iv)-2...........................  new (former Sec.               
                                          205.9(b)(1)(iv) footnote 5    
(a)(6)-1...............................  Q9-13, new (former Sec.        
                                          205.9(a)(6))                  
(a)(6)-2...............................  Q9-14                          
(b)-1..................................  Q9-19, 9-20                    
(b)-2..................................  new                            
(b)-3..................................  Q9-17                          
(b)-4..................................  Q9-18                          
(b)-5..................................  Q9-21                          
(b)-6..................................  Q9-23, new (footnote 4 to Sec. 
                                          205.9(b)(1))                  
(b)(1)-1...............................  Q9-25                          
(b)(1)(i)-1............................  Q9-35                          
(b)(1)(iii)-1..........................  Q9-36                          
(b)(1)(iv)-1...........................  Q9-40.5                        
(b)(1)(v)-1............................  Q9-28                          
(b)(1)(v)-2............................  Q9-30                          
(b)(1)(v)-3............................  Q9-41                          
(b)(1)(v)-4............................  Q9-43                          
(b)(1)(v)-5............................  Q9-44                          
(b)(1)(v)-6............................  new (footnote 9 to former Sec. 
                                          205.9(b)(1)(v))               
(b)(3)-1...............................  Q9-31                          
(b)(3)-2...............................  Q9-31.5                        
(b)(3)-3...............................  new (former Sec.  205.9(b)(3)) 
(b)(4)-1...............................  Q9-32                          
(b)(5)-1...............................  Q9-33                          
(b)(6)-1...............................  Q9-33                          
(c)-1..................................  Q9-50                          
(d)-1..................................  Q9-51                          
------------------------------------------------------------------------



Comments deleted
    Q9-3: Receipts--information displayed on screen
    Q9-10.5: Receipts--type of account, interchange system
    Q9-11: Receipts--unique identifier
    Q9-12: Receipts--terminal location
    Q9-16: Periodic statements--frequency
    Q9-24: Periodic statements--accompanying documents
    Q9-29: Periodic statements--multiple transferee
    Q9-34: Periodic statements--telephone numbers
    Q9-39: Receipts/periodic statements--location code
    Q9-42: Receipts/periodic statements--intermediate party
    Q9-45: Passbook updates--when required
    Q9-46: Passbook accounts--telephone notice alternative
    Q9-47: Passbook updates--discarding of data
    Q9-48: Passbook updates--periodic transmittals
    Q9-49: Quarterly statements--compliance with regular 
requirements
Comments moved
    Q9-4 in part (see commentary to Sec. 205.4)
    Q9-15 (see commentary to Sec. 205.2)
    Q9-26 (see commentary to Sec. 205.11)

    A number of comments have been deleted because they were obsolete 
or very fact specific and not of general applicability. Proposed 
comment (a)(4)-1 has been omitted because the Board deleted the 
regulatory requirement that a financial institution ``uniquely'' 
identify the consumer on a terminal receipt (see 55 FR 15032, March 22, 
1995).

9(a) Receipts at Electronic Terminals

    Footnote 2 to former Sec. 205.9(a) allowed an account-holding 
institution to make terminal receipts available through third parties. 
The footnote has been deleted from the regulation and moved to comment 
9(a)-2.

Paragraph 9(a)(1)--Amount

    Former Sec. 205.9(a)(1) provided that financial institutions other 
than the account-holding institution may include a fee for a transfer 
in the amount of the transfer if the fee is disclosed on the receipt 
and on a sign posted on or at the terminal. The revised regulation 
modifies these requirements and allows the account-holding institution 
also to take advantage of the exception. In addition, proposed comment 
9(a)(1)-1 provided that the requirement to display the amount of a 
transaction fee ``on or at the terminal'' could be met by displaying 
the fee on the terminal screen before the consumer has initiated the 
transfer if displayed for a reasonable duration. Commenters generally 
believed that displaying the fee on a screen provided adequate notice, 
as long as consumers were given the option to cancel the transaction 
after receiving notice. The Board has adopted the comment as proposed. 
The Board believes that providing consumers with the option to cancel 
the transaction after receiving notice helps ensure compliance with the 
notice requirements of this paragraph.

Paragraph 9(a)(3)--Type

    Former Sec. 205.9(a)(3) required disclosure of the type of transfer 
and the type of consumer's account to or from which funds are 
transferred. It also provided examples of descriptions for such 
accounts. The examples have been deleted from the regulation and moved 
to comment 9(a)(3)-1. In addition, Sec. 205.9(a)(3) provided generic 
descriptions for accounts that are similar in function. These examples 
have been deleted from the regulation and incorporated with the 
substance of Q9-37 in comment 9(a)(3)-4.
    Footnote 3 to former Sec. 205.9(a)(3) provided an exception to the 
requirement to disclose the type of transfer and account if the 
consumer can access only one account at a particular time or terminal. 
The exception has been deleted from the regulation and the substance 
moved to comment 9(a)(3)-2.

Paragraph 9(a)(5)--Terminal Location

    Footnotes 5, 6, and 8 have been deleted from the regulation. 
Footnote 5 allowed institutions to omit the name of the state on 
terminal receipts for transfers occurring at terminals within 50 miles 
of the institution's main office. Footnotes 6 and 8 referred back to 
the text of footnote 5. Based upon comments and further analysis the 
Board has retained the substance of footnote 5, incorporating it in 
comment 9(a)(5)(iv)-1.
    The former regulation included detailed guidance for specifying the 
terminal location on both the receipt and periodic statement (see 
former Sec. 205.9(b)(1)(iv)). While the substantive requirement to 
disclose the location remains unchanged, the illustrative text has been 
moved to comments 9(a)(5)(i)-1, 9(a)(5)(ii)-1, and 9(a)(5)(iii)-1.

Paragraph 9(a)(6)--Third Party Transfer

    Former Sec. 205.9(a)(6) required that the name of any third party 
to or from whom funds are transferred be disclosed on the receipt. It 
also provided guidance on the use of codes and an exception to the 
disclosure requirement when the name of the payee cannot be provided in 
a machine-readable form at the terminal. This guidance has been deleted 
from the regulation and moved to comment 9(a)(6)-1.

9(b) Periodic Statements

    Former Sec. 205.9(b) provided that periodic statements must be sent 
for each monthly or shorter cycle in which an EFT has occurred, but at 
least quarterly if no transfer has occurred. As the Board believes that 
few institutions send a statement (for Regulation E purposes) for a 
cycle shorter than one month, the final regulation has deleted 
reference to a ``shorter cycle.'' The reference has been moved to 
comment 9(b)-1.
    Proposed comment 9(b)-2 provided guidance on what is considered a 
cycle for purposes of Regulation E. The comment required that financial 
institutions provide relevant information for the cycle or period since 
the last statement was issued. The Board adopted a similar approach in 
the proposed commentary to Regulation DD (see 59 FR 5536, February 7, 
1994). For example, if an institution may issue quarterly statements in 
March, June, September, and December and the

[[Page 19683]]

consumer initiates an EFT in February, an interim statement would be 
provided. The comment indicates that the statement should provide 
information for the months of January and February. The regularly 
scheduled March statement would provide information only about the 
month of March. The Regulation DD commentary states that disclosures 
given on the interim statement cannot be repeated on the regularly 
scheduled statement. In the example above, the March statement could 
not repeat information disclosed on the February statement.
    Commenters requested clarification on whether an interim Regulation 
E statement should repeat the information on a regularly scheduled 
quarterly statement. The Board believes that if Regulation DD is 
triggered (because the interim statement contains interest or rate 
information) institutions should comply with Regulation DD and should 
not repeat information on the quarterly statement. If Regulation DD is 
not triggered, however, institutions should continue to comply with 
Regulation E.
    Footnote 4 to former Sec. 205.9(b)(1) permitted financial 
institutions to provide certain periodic statement disclosures on 
documents that accompany the statement. It also permitted institutions 
to use codes for the disclosures if they are explained either on the 
statement or accompanying documents. The footnote has been deleted from 
the regulation and the substance moved to comment 9(b)-6.

Paragraph 9(b)(1)(v)

    Footnote 9 to former Sec. 205.9(b)(1)(v) provided that a financial 
institution need not identify on the periodic statement third parties 
whose names appear on checks, drafts, or similar paper instruments 
deposited to the consumer's account at an electronic terminal. The 
footnote has been deleted from the regulation and the substance moved 
to comment 9(b)(1)(v)-6.

Paragraph 9(b)(3)--Fees

    Section 205.9(b)(3) provides that financial institutions must 
disclose the amount of any fees (other than a finance charge imposed 
under Regulation Z, 12 CFR Sec. 226.7(f)) that were assessed against 
the account during the statement period for EFTs. The reference to 
finance charges in former Sec. 205.9(b)(3) has been deleted from the 
regulation and moved to comment (b)(3)-3.

Section 205.10--Preauthorized Transfers

    Section 205.10 sets forth the substantive and disclosure 
requirements for authorizing preauthorized transfers to and from a 
consumer's account. The Board has expanded this section to include 
guidance on the prohibitions against compulsory use, and corresponding 
commentary has been added.

------------------------------------------------------------------------
                    New                                  Old            
------------------------------------------------------------------------
(a)(1)-1..................................  Q10-5, Q10-6                
(a)(1)-2..................................  Q10-1                       
(a)(1)-3..................................  Q10-7                       
(a)(1)-4..................................  Q10-7                       
(a)(1)-5..................................  Q10-10                      
(a)(1)-6..................................  Q10-12                      
(a)(1)-7..................................  Q10-11                      
(b)-1.....................................  Q10-17                      
(b)-2.....................................  Q10-18                      
(b)-3.....................................  Q10-18.6                    
(b)-4.....................................  Q10-18.5                    
(b)-5.....................................  new                         
(b)-6.....................................  new                         
(c)-1.....................................  Q10-19                      
(c)-2.....................................  Q10-19.5                    
(d)(1)-1..................................  Q10-21                      
(d)(2)-1..................................  new (range)                 
(e)(1)-1..................................  Q3-7, Q3-7.5                
(e)(1)-2..................................  new                         
(e)(2)-1..................................  Q3-6                        
------------------------------------------------------------------------

Comments deleted
    Q10-2: Notice of credit--when receipt guaranteed
    Q10-3: Notice provided by payor
    Q10-4: Notice provided by payor--form
    Q10-8: Negative notice--timing
    Q10-9: Negative notice--cessation of transfers
    Q10-13: Preauthorized credits--availability of funds
    Q10-14: Preauthorized credits--posting schedule
    Q10-15: Preauthorized credits--funds received prior to agreed 
crediting date
    Q10-16: Preauthorized debits--preexisting authorizations
    Q10-20: Ten-day notice of varying debits--preexisting 
authorizations

Paragraph 10(a)(1)--Notice by Financial Institution

    Section 906(b) of the EFTA and former Sec. 205.10(a)(1) of the 
regulation provide that when a payor credits a consumer's account by 
preauthorized EFT at least once every 60 days, the account-holding 
institution must inform the consumer that the transfer has or has not 
occurred or provide a phone number for the consumer to use to verify 
the transfer. Q10-7 provided that the absence of a deposit entry on a 
periodic statement can serve as notice that a preauthorized transfer 
has not occurred. The Board's proposed comment 10(a)(1)-4 would have 
reversed that position, stating that the absence of a deposit entry is 
not negative notice.
    Of the commenters addressing this issue, the majority opposed 
placing an affirmative duty on the account-holding institution to 
provide notice either positively or negatively. Based on the comments 
and further analysis resulting from comment 10(a)(1)-4, the Board 
believes that the regulatory burden on the receiving bank outweighs the 
potential benefit to the consumer. Therefore, the Board is retaining 
the substance of Q10-7 in comment 10(a)(1)-4, allowing the absence of 
the deposit entry (on a periodic statement sent within two business 
days of the scheduled transfer date) to serve as negative notice.

10(b) Written Authorization for Preauthorized Transfers From Consumer's 
Account

    Proposed comment 10(b)-1, which incorporates Q10-17, provided that 
a financial institution or designated payee does not need to obtain new 
authorizations before shifting from a paper-based to an electronic 
debiting system. The proposed comment also provided that a successor 
payee or institution may rely on a preexisting authorization to debit 
payments from the consumer's account (for example, when an institution 
purchases the mortgage servicing rights from a party that previously 
obtained the consumer's authorization).
    Commenters generally supported the proposed language but sought 
clarification on how broadly the term ``successor institution'' could 
be construed in this context. One suggested some minimal requirement 
for an authorization since it would be difficult for successor 
financial institutions to ensure that all required disclosures were 
provided when relying on pre-existing authorizations. The Board 
believes that ``successor institution'' should be interpreted broadly 
to include any successor payee. To do otherwise could be extremely 
disruptive to consumers who have entered into agreements for automatic 
debiting and could lead to missed payments and adverse consequences.
    The requirement in former Sec. 205.10(b) of the regulation that 
preauthorized EFTs from a consumer's account be authorized by the 
consumer only in writing has been revised. The requirement for the 
authorization to be a signed writing has been expanded to include 
authorizations which are ``similarly authenticated'' by the consumer. 
This enhancement addresses developments in electronic services, such as 
home banking.
    Proposed comment 10(b)-5 provided an example of a consumer's 
authorization that is ``similarly authenticated.'' The comment provided 
that for a home banking system to satisfy the requirement, there must 
be

[[Page 19684]]

some means to identify the consumer (such as a security code), and the 
consumer must have the ability to obtain a printed copy of the 
authorization (either by printing a copy or obtaining one from the 
payee). The Board solicited comment on whether additional safeguards 
are necessary to protect consumers in this situation and on other 
issues related to the requirements of a written authorization under 
this section.
    The majority of commenters supported the Board's proposal that an 
electronic system that has some means to identify the consumer such as 
by a security code satisfies the ``similarly authenticated'' standard 
adopted in Sec. 205.10(b). Preauthorized transfers in an electronic 
system should be authenticated by a method that provides the same 
assurance as a signature in a paper-based system. Commenters believed 
that these methods of preauthorizing transfers would benefit consumers 
by enabling payments to be handled expeditiously.
    Several commenters raised concerns about unauthorized transfers 
that might result because a consumer has written down codes and kept 
them adjacent to a personal computer, and about the potential for 
increased liability for institutions arising from unauthorized use.
    The Board believes that these concerns are not sufficient to change 
the liability standard currently in effect. The Board believes that 
institutions may reduce exposure to liability by reviewing security 
procedures with the consumer when establishing the home banking 
relationship. However, for home banking systems, the Board is limiting 
the use of a code as a means to similarly authenticate an authorization 
to those where the code originates with the paying institution. The 
Board believes that this limitation will preserve the ``unique status'' 
of a code or PIN similar to a signature. This condition also would not 
allow the use of a code issued by a third party that the paying 
institution could not verify.
    The majority of commenters opposed the requirement in proposed 
comment 10(b)-5 that the consumer must have the ability to obtain a 
printed copy of the authorization (either from the consumer's printer 
or from the payee). There was concern that such a requirement could 
inhibit the development of home banking products. Other commenters 
found the requirement placed unrealistic burdens on the institution to 
determine whether the consumer possessed a printer and whether it was 
used to print out a copy. Several commenters urged the Board to make 
this requirement an option available to the consumer.
    Based on comment and upon further analysis, the comment has been 
revised. If an authorization is initiated electronically, a copy must 
be made available to the consumer. The text of an electronic 
authorization would have to be displayed on a computer screen or other 
visual display. A consumer is entitled to a hard copy upon request.
    The Board solicited comment on two issues that have not been 
discussed previously in the commentary--telephone-initiated transfers 
and the appropriate means for obtaining a consumer's authorization for 
preauthorized transfers.
    Regarding the first issue, the Board has received inquiries about 
one-time transfers usually initiated by telephone when the consumer 
provides an account number to the caller and authorizes a draft or an 
ACH debit to be submitted against the consumer's account. Such 
transfers are EFTs where the consumer's account is debited through the 
ACH.
    The one-time transfers are not ``preauthorized transfers,'' 
however, and the rules regarding written authorization by the consumer 
thus are not applicable. The Board solicited comment on whether this 
type of transfer warranted written authorization. A few commenters 
believed that telephone-initiated transfers posed sufficient risk to 
mandate written authorization. Most commenters believed that for such 
nonrecurring transfers, NACHA rules and the UCC provided the consumers 
with sufficient protections. At this time, the Board has maintained the 
current position that written authorizations are not required for non-
recurring transfers.
    The second issue concerns the appropriate means for obtaining a 
consumer's authorization for preauthorized transfers. A few commenters 
discouraged regulation of the format of authorizations. The majority of 
commenters acknowledged that the Board could not compile a 
comprehensive list of authorization methods and suggested that an 
outline of the general requirements, like those under the NACHA rules, 
would be helpful.
    The Board is adding a new comment 10(b)-6, which generally 
incorporates the requirements of an authorization under NACHA rules. An 
authorization is valid if it is readily identifiable as such and the 
terms of the preauthorized transfer are clear and readily 
understandable.
    The Board was asked whether sending the consumer a check that 
incorporates in the endorsement an authorization for the financial 
institution to automatically debit the consumer's account on a monthly 
basis is a legitimate method for obtaining the consumer's 
authorization. The Board believes that if the authorization meets the 
requirements under comment 10(b)-6, an endorsement on a check could 
satisfy the written authorization requirement of Sec. 10(b).

10(d) Notice of Transfers Varying in Amount

Paragraph 10(d)(2)--Range

    Proposed comment 10(d)(2)-1 provided guidance on what is an 
acceptable range for purposes of this section, stating that an 
acceptable range is one that could plausibly be anticipated by the 
consumer. For example, if the consumer's monthly payment is 
approximately $50, providing a range between zero and $10,000 is not 
acceptable.
    The majority of commenters suggested that the range should not be 
so broad as to create uncertainty for consumers about their ability to 
maintain sufficient balances to avoid overdrafts.
    The Board believes that comment (d)(2)-1 does not increase the 
compliance burden given that it is an option. The language ``or 
designated payee'' has been added after ``financial institutions'' in 
the first sentence since this option is also available to a designated 
payee. The Board believes that the example of an acceptable range in 
the comment provides adequate guidance, and is not adding other 
examples at this time.

10(e) Compulsory Use

Paragraph 10(e)(1)--Credit

    The revised regulation incorporates the statutory restrictions 
against compulsory use of EFTs (as a condition of credit, employment, 
or receipt of government benefits) into Sec. 205.10(e).
    Comment 10(e)(1)-2 would allow an institution to use the exception 
in Sec. 205.10(e)(1) even if the overdraft extension is charged to an 
open-end account that may be accessed by the consumer in ways other 
than by overdrafts. For example, in addition to overdraft protection, a 
consumer may be able to obtain cash advances directly from the credit 
line without going through a checking account. The Board believes that 
it is not practicable for an institution to distinguish between 
extensions of credit triggered under such plans because of the 
overdraft mechanism and those advanced to the consumer by some other 
means.
    Several consumers requested clarification on whether the 
prohibition in comment 10(e)(2)-1 preempted state

[[Page 19685]]

laws. A reference to Sec. 205.12, which discusses preemption of state 
laws and the standards for preemption, has been added.

Section 205.11--Procedures for Resolving Errors

    Section 205.11 sets forth the regulation's procedures for error 
resolution. The revised regulation reformats the section to facilitate 
compliance and the commentary provisions have been revised accordingly. 
Several new comments incorporate provisions that have been removed from 
the regulation.

------------------------------------------------------------------------
                    New                                  Old            
------------------------------------------------------------------------
(a)-1.....................................  Q9-26                       
(a)-2.....................................  Q9-26                       
(a)-3.....................................  Q11-2                       
(a)-4.....................................  Q11-3                       
(a)-5.....................................  Q11-4                       
(b)(1)-1..................................  Q11-8, new (example added)  
(b)(1)-2..................................  new                         
(b)(1)-3..................................  Q11-5                       
(b)(1)-4..................................  Q11-6                       
(b)(1)-5..................................  Q11-7                       
(b)(1)-6..................................  new (footnote 10 to former  
                                             Sec.  205.11(b)(1)(i))     
(b)(2)-1..................................  Q11-9                       
(c)-1.....................................  new                         
(c)-2.....................................  Q11-10                      
(c)-3.....................................  new (revised Q11-31)        
(c)-4.....................................  new (former Sec.            
                                             205.11(d)(3))              
(c)-5.....................................  Q11-20, new (footnote 12 to 
                                             former Sec.  205.11(e)(2)) 
(c)-6.....................................  Q11-19, new (former Sec.    
                                             205.11(e)(1))              
(c)-7.....................................  new former Sec.             
                                             205.11(d)(1)               
(c)(2)(i)-1...............................  new (former Sec.            
                                             205.11(c)(3))              
(c)(3)-1..................................  Q11-11.5                    
(c)(4)-1..................................  Q11-13                      
(c)(4)-2..................................  Q11-14                      
(c)(4)-3..................................  Q11-16                      
(c)(4)-4..................................  new (footnote 11 to former  
                                             Sec.  205.11(d)(1))        
(d)-1.....................................  Q11-17                      
(d)(1)-1..................................  Q11-25                      
(d)(2)-1..................................  Q11-23                      
(d)(2)-1..................................  Q11-24                      
(e)-1.....................................  Q11-30                      
------------------------------------------------------------------------

Comments deleted
    Q11-1: Transfers--initiated by institution
    Q11-11: Deadlines for investigation of error
    Q11-12: Request for documentation--facsimile or photocopy
    Q11-15: Scope of investigation--preauthorized credits
    Q11-18: Crediting of interest
    Q11-21: Written explanation--timing
    Q11-22: Debiting of recredited funds--items to be honored
    Q11-26: Documents relied on--privacy issue
    Q11-27: Documents relied on--no information on relevant tapes
    Q11-28: Withdrawal of error notice
    Q11-29: Withdrawal of error notice
Comments moved
    Q11-32, Q11-33 (see commentary to Sec. 205.12)

11(b) Notice of Error From Consumer

Paragraph 11(b)(1)--Timing; Contents

    Section 205.11 requires institutions to investigate and make a 
final determination as to a consumer's allegation of an error within 
either 10 business days or 45 calendar days. Financial institutions 
have asked whether they can delay initiating or completing an 
investigation pending receipt of an affidavit related to the alleged 
error. Comment (b)(1)-2 prohibits institutions from delaying their 
investigation until a consumer has produced a written, signed statement 
relating to an error. The Board believes that permitting delay would 
allow institutions to circumvent the investigation procedures currently 
mandated by the act and regulation. The language of the comment has 
been revised to more closely parallel Regulation Z, substituting 
``written, signed statement'' for ``affidavit.''
    Footnote 10 to former Sec. 205.11(b)(1)(i), which permits a 
financial institution to prescribe procedures for giving notice of an 
error, has been deleted from the regulation and the substance moved to 
comment (b)(1)-6.

Paragraph 11(b)(2)--Written Confirmation

    Comment 11(b)(2)-1 incorporates Q11-9 and further provides that 
institutions operating under the 45-calendar-day rule need not 
provisionally credit the consumer's account when the written 
confirmation is delayed beyond 10 business days because it was sent to 
the wrong address.

11(c) Time Limits and Extent of Investigation

    Q11-31 articulated the Board's concern that charging consumers for 
the financial institution's compliance with the regulation's error 
resolution procedures might have a chilling effect on the good-faith 
assertion of errors. Proposed comment (c)-3, based on Q11-31, 
explicitly prohibited institutions from charging consumers for error 
resolution. The Board solicited comment on the impact of such a 
prohibition on institutions and consumers. Based on comment and further 
analysis, the comment has been revised; it parallels a similar 
provision in the commentary to Regulation Z.
    Former Sec. 205.11(d)(3) provided that a financial institution may 
correct an error in the amount or manner alleged by the consumer 
without complying with the investigation requirements of this section 
if it complies with all other requirements of Sec. 205.11. The 
provision has been deleted from the regulation and moved to comment 
(c)-4.
    Footnote 12 to former Sec. 205.11(e)(2) allowed financial 
institutions to provide the notice of correction on the periodic 
statement that is mailed or delivered within the time limits specified 
in the section. The footnote has been deleted from the regulation and 
moved to comment (c)-5.
    Former Sec. 205.11(e)(1) provided that in correcting an error, a 
financial institution must, where applicable, credit interest and 
refund any fees or charges imposed. This language has been deleted from 
the regulation and combined with the substance of Q11-19 in comment 
(c)-6. The comment also clarifies that the requirement only applies to 
fees imposed by the institution and not to those imposed by third 
parties.

Paragraph 11(c)(2)(i)

    Former Sec. 205.11(c)(3) provided examples of when a financial 
institution must comply with all requirements of Sec. 205.11 except the 
provisional crediting requirements. While the examples have been 
retained in the final regulation, the language requiring compliance 
with other requirements of the section has been deleted and moved to 
comment (c)(2)(i)-1.

Paragraph 11(c)(4)--Investigation

    Footnote 11 to former Sec. 205.11(d)(1) provided examples of what 
does and does not constitute an agreement for purposes of this section. 
The explanatory language has been deleted from the regulation and moved 
to comment (c)(4)-4.

Section 205.12--Relation to Other Laws

    The revised regulation consolidates the references to a number of 
provisions dealing with the relationship of Regulation E and the Truth 
in Lending Act and Regulation Z formerly in Secs. 205.5, 205.6, and 
205.11, in Sec. 205.12. The section also contains the rules the Board 
applies in determining the preemption of inconsistent state laws or in 
granting a state exemption. The commentary provisions for these rules 
and references are similarly consolidated in this section.

[[Page 19686]]



------------------------------------------------------------------------
                    New                                  Old            
------------------------------------------------------------------------
(a)-1.....................................  Q6-9, Q6-10, Q6-11, Q11-32, 
                                             Q11-33                     
(a)-2.....................................  Q5-9, Q5-10                 
(b)-1.....................................  Q12-1, new                  
(b)-2.....................................  new                         
------------------------------------------------------------------------

12(b) Preemption of Inconsistent State Laws

    Comment 12(b)-1 incorporates Q12-1, which provides that state law 
may be preempted even if the Board has not issued a determination. The 
comment also notes that financial institutions are not protected from 
liability for failing to comply with state law in the absence of a 
preemption determination by the Board.
    Comment 12(b)-2 incorporates into the commentary an official staff 
interpretation preempting certain provisions of Michigan's EFT statute. 
Future preemption determinations will also be included in the 
commentary.

Section 205.13--Administrative Enforcement; Record Retention

------------------------------------------------------------------------
                    New                                  Old            
------------------------------------------------------------------------
13(b)-1...................................  Q13-2                       
------------------------------------------------------------------------

Comments moved
    Q13-1 (see commentary to appendix A)

    Proposed comment 13(b)-1 has been revised, based on public comment, 
to indicate that records of disclosures and documentation given to 
individual consumers need not be retained.

Section 205.14--Electronic Fund Transfer Service Provider Not Holding 
Consumer's Account

------------------------------------------------------------------------
                    New                                  Old            
------------------------------------------------------------------------
14(a)-1...................................  Q14-1, Q14-2                
14(a)-2...................................  Q14-3                       
14(b)-1...................................  new (formerly Sec.          
                                             205.14(a)(1)               
14(b)(1)-1................................  Q14-4                       
14(b)(2)-1................................  Q14-6                       
14(c)(1)-1................................  Q14-7                       
------------------------------------------------------------------------

Comment deleted
    Q14-5: Periodic statement--issuance of card

14(a) Provider of Electronic Fund Transfer Service

    Proposed comments 14(a)-1 and 14(a)-2 have been revised to make 
clear that transactions cleared and settled through the ACH are not 
excluded from coverage by this section on the basis of an ``agreement'' 
between the two institutions involved.

14(b) Compliance by Service Provider

    Former Sec. 205.14(a)(1) provided that the service-providing 
institution must reimburse the consumer for unauthorized EFTs in excess 
of the limits set by Sec. 205.6. This provision has been deleted from 
the regulation and moved to comment 14(b)-1.

Appendix A--Model Disclosure Clauses and Forms

------------------------------------------------------------------------
                    New                                  Old            
------------------------------------------------------------------------
App. A-1..................................  Q13-1                       
App. A-2..................................  new (former introductory    
                                             language in Appendix A)    
App. A-3..................................  new (former introductory    
                                             language in Appendix A)    
------------------------------------------------------------------------

List of Subjects in 12 CFR Part 205

    Consumer protection, Electronic fund transfers, Federal Reserve 
System, Reporting and recordkeeping requirements.

Text of Revisions

    For the reasons set forth in the preamble, the Board amends 12 CFR 
part 205, as follows:

PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)

    1. The authority citation for part 205 continues to read as 
follows:

    Authority: 15 U.S.C. 1693.

    2. In part 205, Supplement I is revised to read as follows:

SUPPLEMENT I TO PART 205--OFFICIAL STAFF INTERPRETATIONS

Section 205.2--Definitions.

2(a) Access Device

    1. Examples. The term access device includes debit cards, 
personal identification numbers (PINs), telephone transfer and 
telephone bill payment codes, and other means that may be used by a 
consumer to initiate an electronic fund transfer (EFT) to or from a 
consumer account. The term does not include magnetic tape or other 
devices used internally by a financial institution to initiate 
electronic transfers.

2(b) Account

    1. Consumer asset account. The term consumer asset account 
includes:
    i. Club accounts, such as vacation clubs. In many cases, 
however, these accounts are exempt from the regulation under 
Sec. 205.3(c)(5) because all electronic transfers to or from the 
account have been preauthorized by the consumer and involve another 
account of the consumer at the same institution.
    ii. A retail repurchase agreement (repo), which is a loan made 
to a financial institution by a consumer that is collateralized by 
government or government-insured securities.
    2. Examples of accounts not covered by Regulation E (12 CFR part 
205) include:
    i. Profit-sharing and pension accounts established under a trust 
agreement, which are exempt under Sec. 205.2(b)(2).
    ii. Escrow accounts, such as those established to ensure payment 
of items such as real estate taxes, insurance premiums, or 
completion of repairs or improvements.
    iii. Accounts for accumulating funds to purchase U.S. savings 
bonds.

Paragraph 2(b)(2)

    1. Bona fide trust agreements. The term bona fide trust 
agreement is not defined by the act or regulation; therefore, 
financial institutions must look to state or other applicable law 
for interpretation.
    2. Custodial agreements. An account held under a custodial 
agreement that qualifies as a trust under the Internal Revenue Code, 
such as an individual retirement account, is considered to be held 
under a trust agreement for purposes of Regulation E.

2(d) Business Day

    1. Duration. A business day includes the entire 24-hour period 
ending at midnight, and a notice required by the regulation is 
effective even if given outside normal business hours. The 
regulation does not require, however, that a financial institution 
make telephone lines available on a 24-hour basis.
    2. Substantially all business functions. ``Substantially all 
business functions'' include both the public and the back-office 
operations of the institution. For example, if the offices of an 
institution are open on Saturdays for handling some consumer 
transactions (such as deposits, withdrawals, and other teller 
transactions), but not for performing internal functions (such as 
investigating account errors), then Saturday is not a business day 
for that institution. In this case, Saturday does not count toward 
the business-day standard set by the regulation for reporting lost 
or stolen access devices, resolving errors, etc.
    3. Short hours. A financial institution may determine, at its 
election, whether an abbreviated day is a business day. For example, 
if an institution engages in substantially all business functions 
until noon on Saturdays instead of its usual 3:00 p.m. closing, it 
may consider Saturday a business day.
    4. Telephone line. If a financial institution makes a telephone 
line available on Sundays for reporting the loss or theft of an 
access device, but performs no other business functions, Sunday is 
not a business day under the ``substantially all business 
functions'' standard.

2(h) Electronic Terminal

    1. Point-of-sale (POS) payments initiated by telephone. Because 
the term electronic terminal excludes a telephone operated by a 
consumer, a financial institution need not provide a terminal 
receipt when:
    i. A consumer uses a debit card at a public telephone to pay for 
the call.
    ii. A consumer initiates a transfer by a means analogous in 
function to a telephone,

[[Page 19687]]

such as by home banking equipment or a facsimile machine.
    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 if a 
debit card is used to initiate the transaction.
    3. Teller-operated terminals. A terminal or other computer 
equipment operated by an employee of a financial institution is not 
an electronic terminal for purposes of the regulation. However, 
transfers initiated at such terminals by means of a consumer's 
access device (using the consumer's PIN, for example) are EFTs and 
are subject to other requirements of the regulation. If an access 
device is used only for identification purposes or for determining 
the account balance, the transfers are not EFTs for purposes of the 
regulation.

2(m) Unauthorized Electronic Fund Transfer

    1. Transfer by institution's employee. A consumer has no 
liability for erroneous or fraudulent transfers initiated by an 
employee of a financial institution.
    2. Authority. If a consumer furnishes an access device and 
grants authority to make transfers to a person (such as a family 
member or co-worker) who exceeds the authority given, the consumer 
is fully liable for the transfers unless the consumer has notified 
the financial institution that transfers by that person are no 
longer authorized.
    3. Access device obtained through robbery or fraud. An 
unauthorized EFT includes a transfer initiated by a person who 
obtained the access device from the consumer through fraud or 
robbery.
    4. Forced initiation. An EFT at an automated teller machine 
(ATM) is an unauthorized transfer if the consumer has been induced 
by force to initiate the transfer.

Section 205.3--Coverage

3(a) General

    1. Accounts covered. The requirements of the regulation apply 
only to an account for which an agreement for EFT services to or 
from the account has been entered into between:
    i. The consumer and the financial institution (including an 
account for which an access device has been issued to the consumer, 
for example);
    ii. The consumer and a third party (for preauthorized debits or 
credits, for example), when the account-holding institution has 
received notice of the agreement and the fund transfers have begun.
    2. Automated clearing house (ACH) membership. The fact that 
membership in an ACH requires a financial institution to accept EFTs 
to accounts at the institution does not make every account of that 
institution subject to the regulation.
    3. Foreign applicability. Regulation E applies to all persons 
(including branches and other offices of foreign banks located in 
the United States) that offer EFT services to residents of any 
state, including resident aliens. It covers any account located in 
the United States through which EFTs are offered to a resident of a 
state. This is the case whether or not a particular transfer takes 
place in the United States and whether or not the financial 
institution is chartered in the United States or a foreign country. 
The regulation does not apply to a foreign branch of a U.S. bank 
unless the EFT services are offered in connection with an account in 
a state as defined in Sec. 205.2(l).

3(b) Electronic Fund Transfer

    1. Fund transfers covered. The term electronic fund transfer 
includes:
    i. A deposit made at an ATM or other electronic terminal 
(including a deposit in cash or by check) provided a specific 
agreement exists between the financial institution and the consumer 
for EFTs to or from the account to which the deposit is made.
    ii. A transfer sent via ACH. For example, social security 
benefits under the U.S. Treasury's direct-deposit program are 
covered, even if the listing of payees and payment amounts reaches 
the account-holding institution by means of a computer printout from 
a correspondent bank.
    iii. A preauthorized transfer credited or debited to an account 
in accordance with instructions contained on magnetic tape, even if 
the financial institution holding the account sends or receives a 
composite check.
    iv. A transfer from the consumer's account resulting from a 
debit-card transaction at a merchant location, even if no electronic 
terminal is involved at the time of the transaction, if the 
consumer's asset account is subsequently debited for the amount of 
the transfer.
    2. Fund transfers not covered. The term electronic fund transfer 
does not include:
    i. A payment that does not debit or credit a consumer asset 
account, such as a payroll allotment to a creditor to repay a credit 
extension (which is deducted from salary).
    ii. A payment made in currency by a consumer to another person 
at an electronic terminal.
    iii. A preauthorized check drawn by the financial institution on 
the consumer's account (such as an interest or other recurring 
payment to the consumer or another party), even if the check is 
computer-generated.

3(c) Exclusions From Coverage

Paragraph 3(c)(2)--Check Guarantee or Authorization

    1. Memo posting. Under a check guarantee or check authorization 
service, debiting of the consumer's account occurs when the check or 
draft is presented for payment. These services are exempt from 
coverage, even when a temporary hold on the account is memo-posted 
electronically at the time of authorization.

Paragraph 3(c)(3)--Wire or Other Similar Transfers

    1. Fedwire and ACH. If a financial institution makes a fund 
transfer to a consumer's account after receiving funds through 
Fedwire or a similar network, the transfer by ACH is covered by the 
regulation even though the Fedwire or network transfer is exempt.
    2. Article 4A. Financial institutions that offer telephone-
initiated Fedwire payments are subject to the requirements of UCC 
section 4A-202, which encourages verification of Fedwire payment 
orders pursuant to a security procedure established by agreement 
between the consumer and the receiving bank. These transfers are not 
subject to Regulation E and the agreement is not considered a 
telephone plan if the service is offered separately from a telephone 
bill-payment or other prearranged plan subject to Regulation E. The 
Board's Regulation J (12 CFR part 210) specifies the rules 
applicable to funds handled by Federal Reserve Banks. To ensure that 
the rules for all fund transfers through Fedwire are consistent, the 
Board used its preemptive authority under UCC section 4A-107 to 
determine that subpart B of Regulation J (12 CFR part 210), 
including the provisions of Article 4A, applies to all fund 
transfers through Fedwire, even if a portion of the fund transfer is 
governed by the EFTA. The portion of the fund transfer that is 
governed by the EFTA is not governed by subpart B of Regulation J 
(12 CFR part 210).
    3. Similar fund transfer systems. Fund transfer systems that are 
similar to Fedwire include the Clearing House Interbank Payments 
System (CHIPS), Society for Worldwide Interbank Financial 
Telecommunication (SWIFT), Telex, and transfers made on the books of 
correspondent banks.

Paragraph 3(c)(4)--Securities and Commodities Transfers

    1. Coverage. The securities exemption applies to securities and 
commodities that may be sold by a registered broker-dealer or 
futures commission merchant, even when the security or commodity 
itself is not regulated by the Securities and Exchange Commission or 
the Commodity Futures Trading Commission.
    2. Example of exempt transfer. The exemption applies to a 
transfer involving a transfer initiated by a telephone order to a 
stockbroker to buy or sell securities or to exercise a margin call.
    3. Examples of nonexempt transfers. The exemption does not apply 
to a transfer involving:
    i. A debit card or other access device that accesses a 
securities or commodities account such as a money market mutual fund 
and that the consumer uses for purchasing goods or services or for 
obtaining cash.
    ii. A payment of interest or dividends into the consumer's 
account (for example, from a brokerage firm or from a Federal 
Reserve Bank for government securities).

Paragraph 3(c)(5)--Automatic Transfers by Account-Holding Institution

    1. Automatic transfers exempted. The exemption applies to:
    i. Electronic debits or credits to consumer accounts for check 
charges, stop-payment charges, NSF charges, overdraft charges, 
provisional credits, error adjustments, and similar items that are 
initiated automatically on the occurrence of certain events.
    ii. Debits to consumer accounts for group insurance available 
only through the financial institution and payable only by means of 
an aggregate payment from the institution to the insurer.

[[Page 19688]]

    iii. EFTs between a thrift institution and its paired commercial 
bank in the state of Rhode Island, which are deemed under state law 
to be intra-institutional.
    iv. Automatic transfers between a consumer's accounts within the 
same financial institution, even if the account holders on the two 
accounts are not identical.
    2. Automatic transfers not exempted. Transfers between accounts 
of the consumer at affiliated institutions (such as between a bank 
and its subsidiary or within a holding company) are not intra-
institutional transfers, and thus do not qualify for the exemption.

Paragraph 3(c)(6)--Telephone-Initiated Transfers

    1. Written plan or agreement. A transfer that the consumer 
initiates by telephone is covered only if the transfer is made under 
a written plan or agreement between the consumer and the financial 
institution making the transfer. The 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. When a written plan or 
agreement has been entered into, a transfer initiated by a telephone 
call from a consumer is covered even though:
    i. An employee of the financial institution completes the 
transfer manually (for example, by means of a debit memo or deposit 
slip).
    ii. The consumer is required to make a separate request for each 
transfer.
    iii. The consumer uses the plan infrequently.
    iv. The consumer initiates the transfer via a facsimile machine.

Paragraph 3(c)(7)--Small Institutions

    1. Coverage. This exemption is limited to preauthorized 
transfers; institutions that offer other EFTs must comply with the 
applicable sections of the regulation as to such services. The 
preauthorized transfers remain subject to sections 913, 915, and 916 
of the act and Sec. 205.10(e), and are therefore exempt from UCC 
Article 4A.

Section 205.4--General Disclosure Requirements; Jointly Offered 
Services

4(a) Form of Disclosures

    1. General. Although no particular rules govern type size, 
number of pages, or the relative conspicuousness of various terms, 
the disclosures must be in a clear and readily understandable 
written form that the consumer may retain. Numbers or codes are 
considered readily understandable if explained elsewhere on the 
disclosure form.
    2. Foreign language disclosures. Disclosures may be made in 
languages other than English, provided they are available in English 
upon request.

Section 205.5--Issuance of Access Devices

    1. Coverage. The provisions of this section limit the 
circumstances under which a financial institution may issue an 
access device to a consumer. Making an additional account accessible 
through an existing access device is equivalent to issuing an access 
device and is subject to the limitations of this section.

5(a) Solicited Issuance

Paragraph 5(a)(1)

    1. Joint account. For a joint account, a financial institution 
may issue an access device to each account holder if the requesting 
holder specifically authorizes the issuance.
    2. Permissible forms of request. The request for an access 
device may be written or oral (for example, in response to a 
telephone solicitation by a card issuer).

Paragraph 5(a)(2)

    1. One-for-one rule. In issuing a renewal or substitute access 
device, a financial institution may not provide additional devices. 
For example, only one new card and PIN may replace a card and PIN 
previously issued. If the replacement device permits either 
additional or fewer types of electronic fund transfer services, a 
change-in-terms notice or new disclosures are required.
    2. Renewal or substitution by a successor institution. A 
successor institution is an entity that replaces the original 
financial institution (for example, following a corporate merger or 
acquisition) or that acquires accounts or assumes the operation of 
an EFT system.

5(b) Unsolicited Issuance

    1. Compliance. A financial institution may issue an unsolicited 
access device (such as the combination of a debit card and PIN) if 
the institution's ATM system has been programmed not to accept the 
access device until after the consumer requests and the institution 
validates the device. Merely instructing a consumer not to use an 
unsolicited debit card and PIN until after the institution verifies 
the consumer's identity does not comply with the regulation.
    2. PINS. A financial institution may impose no liability on a 
consumer for unauthorized transfers involving an unsolicited access 
device until the device becomes an ``accepted access device'' under 
the regulation. A card and PIN combination may be treated as an 
accepted access device once the consumer has used it to make a 
transfer.
    3. Functions of PIN. If an institution issues a PIN at the 
consumer's request, the issuance may constitute both a way of 
validating the debit card and the means to identify the consumer 
(required as a condition of imposing liability for unauthorized 
transfers).
    4. Verification of identity. To verify the consumer's identity, 
a financial institution may use any reasonable means, such as a 
photograph, fingerprint, personal visit, signature comparison, or 
personal information about the consumer. However, even if reasonable 
means were used, if an institution fails to verify correctly the 
consumer's identity and an imposter succeeds in having the device 
validated, the consumer is not liable for any unauthorized transfers 
from the account.

Section 205.6--Liability of Consumer for Unauthorized Transfers

6(a) Conditions for Liability

    1. Means of identification. A financial institution may use 
various means for identifying the consumer to whom the access device 
is issued, including but not limited to:
    i. Electronic or mechanical confirmation (such as a PIN).
    ii. Comparison of the consumer's signature, fingerprint, or 
photograph.
    2. Multiple users. When more than one access device is issued 
for an account, the financial institution may, but need not, provide 
a separate means to identify each user of the account.

6(b) Limitations on Amount of Liability

    1. Application of liability provisions. There are three possible 
tiers of consumer liability for unauthorized EFTs depending on the 
situation. A consumer may be liable for (1) up to $50; (2) up to 
$500; or (3) an unlimited amount depending on when the unauthorized 
EFT occurs. More than one tier may apply to a given situation 
because each corresponds to a different (sometimes overlapping) time 
period or set of conditions.
    2. Consumer negligence. Negligence by the consumer cannot be 
used as the basis for imposing greater liability than is permissible 
under Regulation E. Thus, consumer behavior that may constitute 
negligence under state law, such as writing the PIN on a debit card 
or on a piece of paper kept with the card, does not affect the 
consumer's liability for unauthorized transfers. (However, refer to 
comment 2(m)-2 regarding termination of the authority of given by 
the consumer to another person.)
    3. Limits on liability. The extent of the consumer's liability 
is determined solely by the consumer's promptness in reporting the 
loss or theft of an access device. Similarly, no agreement between 
the consumer and an institution may impose greater liability on the 
consumer for an unauthorized transfer than the limits provided in 
Regulation E.

Paragraph 6(b)(1)--Timely Notice Given

    1. $50 limit applies. The basic liability limit is $50. For 
example, the consumer's card is lost or stolen on Monday and the 
consumer learns of the loss or theft on Wednesday. If the consumer 
notifies the financial institution within two business days of 
learning of the loss or theft (by midnight Friday), the consumer's 
liability is limited to $50 or the amount of the unauthorized 
transfers that occurred before notification, whichever is less.
    2. Knowledge of loss or theft of access device. The fact that a 
consumer has received a periodic statement that reflects 
unauthorized transfers may be a factor in determining whether the 
consumer had knowledge of the loss or theft, but cannot be deemed to 
represent conclusive evidence that the consumer had such knowledge.

Paragraph 6(b)(2)--Timely Notice Not Given

    1. $500 limit applies. The second tier of liability is $500. For 
example, the consumer's

[[Page 19689]]

card is stolen on Monday and the consumer learns of the theft that 
same day. The consumer reports the theft on Friday. The $500 limit 
applies because the consumer failed to notify the financial 
institution within two business days of learning of the theft (which 
would have been by midnight Wednesday). How much the consumer is 
actually liable for, however, depends on when the unauthorized 
transfers take place. In this example, assume a $100 unauthorized 
transfer was made on Tuesday and a $600 unauthorized transfer on 
Thursday. Because the consumer is liable for the amount of the loss 
that occurs within the first two business days (but no more than 
$50), plus the amount of the unauthorized transfers that occurs 
after the first two business days and before the consumer gives 
notice, the consumer's total liability is $500 ($50 of the $100 
transfer plus $450 of the $600 transfer, in this example). But if 
$600 was taken on Tuesday and $100 on Thursday, the consumer's 
maximum liability would be $150 ($50 of the $600 plus $100).

Paragraph 6(b)(3)--Periodic Statement; Timely Notice Not Given

    1. Unlimited liability applies. The standard of unlimited 
liability applies if unauthorized transfers appear on a periodic 
statement, and may apply in conjunction with the first two tiers of 
liability. If a periodic statement shows an unauthorized transfer 
made with a lost or stolen debit card, the consumer must notify the 
financial institution within 60 calendar days after the periodic 
statement was sent; otherwise, the consumer faces unlimited 
liability for all unauthorized transfers made after the 60-day 
period. The consumer's liability for unauthorized transfers before 
the statement is sent, and up to 60 days following, is determined 
based on the first two tiers of liability: up to $50 if the consumer 
notifies the financial institution within two business days of 
learning of the loss or theft of the card and up to $500 if the 
consumer notifies the institution after two business days of 
learning of the loss or theft.
    2. Transfers not involving access device. The first two tiers of 
liability do not apply to unauthorized transfers from a consumer's 
account made without an access device. If, however, the consumer 
fails to report such unauthorized transfers within 60 calendar days 
of the financial institution's transmittal of the periodic 
statement, the consumer may be liable for any transfers occurring 
after the close of the 60 days and before notice is given to the 
institution. For example, a consumer's account is electronically 
debited for $200 without the consumer's authorization and by means 
other than the consumer's access device. If the consumer notifies 
the institution within 60 days of the transmittal of the periodic 
statement that shows the unauthorized transfer, the consumer has no 
liability. However, if in addition to the $200, the consumer's 
account is debited for a $400 unauthorized transfer on the 61st day 
and the consumer fails to notify the institution of the first 
unauthorized transfer until the 62nd day, the consumer may be liable 
for the full $400.

Paragraph 6(b)(4)--Extension of Time Limits

    1. Extenuating circumstances. Examples of circumstances that 
require extension of the notification periods under this section 
include the consumer's extended travel or hospitalization.

Paragraph 6(b)(5)--Notice to Financial Institution

    1. Receipt of notice. A financial institution is considered to 
have received notice for purposes of limiting the consumer's 
liability if notice is given in a reasonable manner, even if the 
consumer notifies the institution but uses an address or telephone 
number other than the one specified by the institution.
    2. Notice by third party. Notice to a financial institution by a 
person acting on the consumer's behalf is considered valid under 
this section. For example, if a consumer is hospitalized and unable 
to report the loss or theft of an access device, notice is 
considered given when someone acting on the consumer's behalf 
notifies the bank of the loss or theft. A financial institution may 
require appropriate documentation from the person representing the 
consumer to establish that the person is acting on the consumer's 
behalf.
    3. Content of notice. Notice to a financial institution is 
considered given when a consumer takes reasonable steps to provide 
the institution with the pertinent account information. Even when 
the consumer is unable to provide the account number or the card 
number in reporting a lost or stolen access device or an 
unauthorized transfer, the notice effectively limits the consumer's 
liability if the consumer otherwise identifies sufficiently the 
account in question. For example, the consumer may identify the 
account by the name on the account and the type of account in 
question.

Section 205.7--Initial Disclosures

7(a) Timing of Disclosures

    1. Early disclosures. Disclosures given by a financial 
institution earlier than the regulation requires (for example, when 
the consumer opens a checking account) need not be repeated when the 
consumer later enters into an agreement with a third party who will 
initiate preauthorized transfers to or from the consumer's account, 
unless the terms and conditions differ from those that the 
institution previously disclosed. On the other hand, if an agreement 
is directly between the consumer and the account-holding 
institution, disclosures must be given in close proximity to the 
event requiring disclosure, for example, when the consumer contracts 
for a new service.
    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.
    3. Addition of new accounts. If a consumer opens a new account 
permitting EFTs at a financial institution, and the consumer already 
has received Regulation E disclosures for another account at that 
institution, the institution need only disclose terms and conditions 
that differ from those previously given.
    4. Addition of EFT services. If an EFT service is added to a 
consumer's account and is subject to terms and conditions different 
from those described in the initial disclosures, disclosures for the 
new service are required. The disclosures must be provided when the 
consumer contracts for the new service or before the first EFT is 
made using the new service.
    5. Addition of service in interchange systems. If a financial 
institution joins an interchange or shared network system (which 
provides access to terminals operated by other institutions), 
disclosures are required for additional EFT services not previously 
available to consumers if the terms and conditions differ from those 
previously disclosed.
    6. Disclosures covering all EFT services offered. An institution 
may provide disclosures covering all EFT services that it offers, 
even if some consumers have not arranged to use all services.

7(b) Content of Disclosures

Paragraph 7(b)(1)--Liability of Consumer

    1. No liability imposed by financial institution. If a financial 
institution chooses to impose zero liability for unauthorized EFTs, 
it need not provide the liability disclosures. If the institution 
later decides to impose liability, however, it must first provide 
the disclosures.
    2. Preauthorized transfers. If the only EFTs from an account are 
preauthorized transfers, liability could arise if the consumer fails 
to report unauthorized transfers reflected on a periodic statement. 
To impose such liability on the consumer, the institution must have 
disclosed the potential liability and the telephone number and 
address for reporting unauthorized transfers.
    3. Additional information. At the institution's option, the 
summary of the consumer's liability may include advice on promptly 
reporting unauthorized transfers or the loss or theft of the access 
device.

Paragraph 7(b)(2)--Telephone Number and Address

    1. Disclosure of telephone numbers. An institution may use the 
same or different telephone numbers in the disclosures for the 
purpose of:
    i. Reporting the loss or theft of an access device or possible 
unauthorized transfers;
    ii. Inquiring about the receipt of a preauthorized credit;
    iii. Stopping payment of a preauthorized debit;
    iv. Giving notice of an error.
    2. Location of telephone number. The telephone number need not 
be incorporated into the text of the disclosure; for example, the 
institution may instead insert a reference to a telephone number 
that is readily available to the consumer, such as ``Call your 
branch office. The number is shown on your periodic statement.'' 
However, an institution must provide a specific telephone number

[[Page 19690]]

and address, on or with the disclosure statement, for reporting a 
lost or stolen access device or a possible unauthorized transfer.

Paragraph 7(b)(4)--Types of Transfers; Limitations

    1. Security limitations. Information about limitations on the 
frequency and dollar amount of transfers generally must be disclosed 
in detail, even if related to security aspects of the system. If the 
confidentiality of certain details is essential to the security of 
an account or system, these details may be withheld (but the fact 
that limitations exist must still be disclosed). For example, an 
institution limits cash ATM withdrawals to $100 per day. The 
institution may disclose that daily withdrawal limitations apply and 
need not disclose that the limitations may not always be in force 
(such as during periods when its ATMs are off-line).
    2. Restrictions on certain deposit accounts. A limitation on 
account activity that restricts the consumer's ability to make EFTs 
must be disclosed even if the restriction also applies to transfers 
made by nonelectronic means. For example, Regulation D (12 CFR Part 
204) restricts the number of payments to third parties that may be 
made from a money market deposit account; an institution that does 
not execute fund transfers in excess of those limits must disclose 
the restriction as a limitation on the frequency of EFTs.
    3. Preauthorized transfers. Financial institutions are not 
required to list preauthorized transfers among the types of 
transfers that a consumer can make.

Paragraph 7(b)(5)--Fees

    1. Disclosure of EFT fees. An institution is required to 
disclose all fees for EFTs or the right to make them. Others fees 
(for example, minimum-balance fees, stop-payment fees, or account 
overdrafts) may, but need not, be disclosed (but see Regulation DD, 
12 CFR Part 230. An institution is not required to disclose fees for 
inquiries made at an ATM since no transfer of funds is involved.
    2. Fees also applicable to non-EFT. A per-item fee for EFTs must 
be disclosed even if the same fee is imposed on nonelectronic 
transfers. If a per-item fee is imposed only under certain 
conditions, such as when the transactions in the cycle exceed a 
certain number, those conditions must be disclosed. Itemization of 
the various fees may be provided on the disclosure statement or on 
an accompanying document that is referenced in the statement.
    3. Interchange system fees. Fees paid by the account-holding 
institution to the operator of a shared or interchange ATM system 
need not be disclosed, unless they are imposed on the consumer by 
the account-holding institution. Fees for use of an ATM that are 
debited directly to the consumer's account by an institution other 
than the account-holding institution (for example, fees included in 
the transfer amount) need not be disclosed.

Paragraph 7(b)(9)--Confidentiality

    1. Information provided to third parties. An institution must 
describe the circumstances under which any information relating to 
an account to or from which EFTs are permitted will be made 
available to third parties, not just information concerning those 
EFTs. The term ``third parties'' includes affiliates such as other 
subsidiaries of the same holding company.

Paragraph 7(b)(10)--Error Resolution

    1. Substantially similar. The error resolution notice must be 
substantially similar to the model form in appendix A of part 205. 
An institution may use different wording so long as the substance of 
the notice remains the same, may delete inapplicable provisions (for 
example, the requirement for written confirmation of an oral 
notification), and may substitute substantive state law requirements 
affording greater consumer protection than Regulation E.
    2. Exception from provisional crediting. To take advantage of 
the longer time periods for resolving errors under Sec. 205.11(c)(3) 
(for 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 
Sec. 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(a) Change-in-Terms Notice

    1. Form of notice. No specific form or wording is required for a 
change-in-terms notice. The notice may appear on a periodic 
statement, or may be given by sending a copy of a revised disclosure 
statement, provided attention is directed to the change (for 
example, in a cover letter referencing the changed term).
    2. Changes not requiring notice. The following changes do not 
require disclosure:
    i. Closing some of an institution's ATMs;
    ii. Cancellation of an access device.
    3. Limitations on transfers. When the initial disclosures omit 
details about limitations because secrecy is essential to the 
security of the account or system, a subsequent increase in those 
limitations need not be disclosed if secrecy is still essential. If, 
however, an institution had no limits in place when the initial 
disclosures were given and now wishes to impose limits for the first 
time, it must disclose at least the fact that limits have been 
adopted. (See also Sec. 205.7(b)(4) and the related commentary.)
    4. Change in telephone number or address. When a financial 
institution changes the telephone number or address used for 
reporting possible unauthorized transfers, a change-in-terms notice 
is required only if the institution will impose liability on the 
consumer for unauthorized transfers under Sec. 205.6. (See also 
Sec. 205.6(a) and the related commentary.)

8(b) Error Resolution Notice

    1. Change between annual and periodic notice. If an institution 
switches from an annual to a periodic notice, or vice versa, the 
first notice under the new method must be sent no later than 12 
months after the last notice sent under the old method.

Section 205.9--Receipts at Electronic Terminals; Periodic Statements

9(a) Receipts at Electronic Terminals

    1. Receipts furnished only on request. The regulation requires 
that a receipt be ``made available.'' A financial institution may 
program its electronic terminals to provide a receipt only to 
consumers who elect to receive one.
    2. Third party providing receipt. An account-holding institution 
may make terminal receipts available through third parties such as 
merchants or other financial institutions.
    3. Inclusion of promotional material. A financial institution 
may include promotional material on receipts if the required 
information is set forth clearly (for example, by separating it from 
the promotional material). In addition, a consumer may not be 
required to surrender the receipt or that portion containing the 
required disclosures in order to take advantage of a promotion.
    4. Transfer not completed. The receipt requirement does not 
apply to a transfer that is initiated but not completed (for 
example, if the ATM is out of currency or the consumer decides not 
to complete the transfer).
    5. Receipts not furnished due to inadvertent error. If a receipt 
is not provided to the consumer because of a bona fide unintentional 
error, such as when a terminal runs out of paper or the mechanism 
jams, no violation results if the financial institution maintains 
procedures reasonably adapted to avoid such occurrences.
    6. Multiple transfers. If the consumer makes multiple transfers 
at the same time, the financial institution may document them on a 
single or on separate receipts.

Paragraph 9(a)(1)--Amount

    1. Disclosure of transaction fee. The required display of a fee 
amount on or at the terminal may be accomplished by displaying the 
fee on a sign at the terminal or on the terminal screen for a 
reasonable duration. Displaying the fee on a screen provides 
adequate notice, as long as consumers are given the option to cancel 
the transaction after receiving notice of a fee.

Paragraph 9(a)(2)--Date

    1. Calendar date. The receipt must disclose the calendar date on 
which the consumer uses the electronic terminal. An accounting or 
business date may be disclosed in addition if the dates are clearly 
distinguished.

Paragraph 9(a)(3)--Type

    1. Identifying transfer and account. Examples identifying the 
type of transfer and the type of the consumer's account include 
``withdrawal from checking,'' ``transfer from savings to checking,'' 
or ``payment from savings.''
    2. Exception. Identification of an account is not required when 
the consumer can access only one asset account at a particular time 
or terminal, even if the access device can normally be used to 
access more than one account. For example, the consumer may be able 
to access only one particular account at terminals not operated by 
the account-

[[Page 19691]]

holding institution, or may be able to access only one particular 
account when the terminal is off-line. The exception is available 
even if, in addition to accessing one asset account, the consumer 
also can access a credit line.
    3. Access to multiple accounts. If the consumer can use an 
access device to make transfers to or from different accounts of the 
same type, the terminal receipt must specify which account was 
accessed, such as ``withdrawal from checking I'' or ``withdrawal 
from checking II.'' If only one account besides the primary checking 
account can be debited, the receipt can identify the account as 
``withdrawal from other account.''
    4. Generic descriptions. Generic descriptions may be used for 
accounts that are similar in function, such as share draft or NOW 
accounts and checking accounts. In a shared system, for example, 
when a credit union member initiates transfers to or from a share 
draft account at a terminal owned or operated by a bank, the receipt 
may identify a withdrawal from the account as a ``withdrawal from 
checking.''
    5. Point-of-sale transactions. There is no prescribed 
terminology for identifying a transfer at a merchant's POS terminal. 
A transfer may be identified, for example, as a purchase, a sale of 
goods or services, or a payment to a third party. When a consumer 
obtains cash from a POS terminal in addition to purchasing goods, or 
obtains cash only, the documentation need not differentiate the 
transaction from one involving the purchase of goods.

Paragraph 9(a)(5)--Terminal Location

    1. Location code. A code or terminal number identifying the 
terminal where the transfer is initiated may be given as part of a 
transaction code.
    2. Omission of city name. The city may be omitted if the 
generally accepted name (such as a branch name) contains the city 
name.

Paragraph 9(a)(5)(i)

    1. Street address. The address should include number and street 
(or intersection); the number (or intersecting street) may be 
omitted if the street alone uniquely identifies the terminal 
location.

Paragraph 9(a)(5)(ii)

    1. Generally accepted name. Examples of a generally accepted 
name for a specific location include a branch of the financial 
institution, a shopping center, or an airport.

Paragraph 9(a)(5)(iii)

    1. Name of owner or operator of terminal. Examples of an owner 
or operator of a terminal are a financial institution or a retail 
merchant.

Paragraph 9(a)(5)(iv)

    1. 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 institutions's main office.
    2. 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.

Paragraph 9(a)(6)--Third Party Transfer

    1. Omission of third-party name. The receipt need not disclose 
the third-party name if the name is provided by the consumer in a 
form that is not machine readable (for example, if the consumer 
indicates the payee by depositing a payment stub into the ATM). If, 
on the other hand, the consumer keys in the identity of the payee, 
the receipt must identify the payee by name or by using a code that 
is explained elsewhere on the receipt.
    2. Receipt as proof of payment. Documentation required under the 
regulation constitutes prima facie proof of a payment to another 
person, except in the case of a terminal receipt documenting a 
deposit.

9(b) Periodic Statements

    1. Periodic cycles. Periodic statements may be sent on a cycle 
that is shorter than monthly. The statements must correspond to 
periodic cycles that are reasonably equal, that is, do not vary by 
more than four days from the regular cycle. The requirement of 
reasonably equal cycles does not apply when an institution changes 
cycles for operational or other reasons, such as to establish a new 
statement day or date.
    2. Interim statements. Generally, a financial institution must 
provide periodic statements for each monthly cycle in which an EFT 
occurs, and at least quarterly if a transfer has not occurred. Where 
EFTs occur between regularly-scheduled cycles, interim statements 
must be provided. For example, if an institution issues quarterly 
statements at the end of March, June, September and December, and 
the consumer initiates an EFT in February, an interim statement for 
February must be provided. If an interim statement contains interest 
or rate information, the institution must comply with Regulation DD, 
12 CFR 230.6.
    3. Inactive accounts. A financial institution need not send 
statements to consumers whose accounts are inactive as defined by 
the institution.
    4. Customer pickup. A financial institution may permit, but may 
not require, consumers to call for their periodic statements.
    5. Periodic statements limited to EFT activity. A financial 
institution that uses a passbook as the primary means for displaying 
account activity, but also allows the account to be debited 
electronically, may provide a periodic statement requirement that 
reflects only the EFTs and other required disclosures (such as 
charges, account balances, and address and telephone number for 
inquiries). (See Sec. 205.9(c)(1)(i) for the exception applicable to 
preauthorized transfers for passbook accounts.)
    6. Codes and accompanying documents. To meet the documentation 
requirements for periodic statements, a financial institution may:
    i. Include copies of terminal receipts to reflect transfers 
initiated by the consumer at electronic terminals;
    ii. Enclose posting memos, deposit slips, and other documents 
that, together with the statement, disclose all the required 
information;
    iii. Use codes for names of third parties or terminal locations 
and explain the information to which the codes relate on an 
accompanying document.

Paragraph 9(b)(1)--Transaction Information

    1. Information obtained from others. While financial 
institutions must maintain reasonable procedures to ensure the 
integrity of data obtained from another institution, a merchant, or 
other third parties, verification of each transfer that appears on 
the periodic statement is not required.

Paragraph 9(b)(1)(i)

    1. Incorrect deposit amount. If a financial institution 
determines that the amount actually deposited at an ATM is different 
from the amount entered by the consumer, the institution need not 
immediately notify the consumer of the discrepancy. The periodic 
statement reflecting the deposit may show either the correct amount 
of the deposit or the amount entered by the consumer along with the 
institution's adjustment.

Paragraph 9(b)(1)(iii)

    1. Type of transfer. There is no prescribed terminology for 
describing a type of transfer. Placement of the amount of the 
transfer in the debit or the credit column is sufficient if other 
information on the statement, such as a terminal location or third-
party name, enables the consumer to identify the type of transfer.

Paragraph 9(b)(1)(iv)

    1. Nonproprietary terminal in network. An institution need not 
reflect on the periodic statement the street addresses, 
identification codes, or terminal numbers for transfers initiated in 
a shared or interchange system at a terminal operated by an 
institution other than the account-holding institution. The 
statement must, however, specify the entity that owns or operates 
the terminal, plus the city and state.

Paragraph 9(b)(1)(v)

    1. Recurring payments by government agency. The third-party name 
for recurring payments from federal, state, or local governments 
need not list the particular agency. For example, ``U.S. gov't'' or 
``N.Y. sal'' will suffice.
    2. Consumer as third-party payee. If a consumer makes an 
electronic fund transfer to another consumer, the financial 
institution must identify the recipient by name (not just by an 
account number, for example).
    3. Terminal location/third party. A single entry may be used to 
identify both the terminal location and the name of the third party 
to or from whom funds are transferred. For example, if a consumer 
purchases goods from a merchant, the name of the party to whom funds 
are transferred (the merchant) and the location of the terminal 
where the transfer is initiated will be satisfied by a disclosure 
such as ``XYZ Store, Anytown, Ohio.''
    4. Account-holding institution as third party. Transfers to the 
account-holding institution (by ATM, for example) must show

[[Page 19692]]

the institution as the recipient, unless other information on the 
statement (such as, ``loan payment from checking'') clearly 
indicates that the payment was to the account-holding institution.
    5. Consistency in third-party identity. The periodic statement must 
disclose a third-party name as it appeared on the receipt, whether it 
was, for example, the ``dba'' (doing business as) name of the third 
party or the parent corporation's name.
    6. Third-party identity on deposits at electronic terminal. A 
financial institution need not identify third parties whose names 
appear on checks, drafts, or similar paper instruments deposited to 
the consumer's account at an electronic terminal.

Paragraph 9(b)(3)--Fees

    1. Disclosure of fees. The fees disclosed may include fees for 
EFTs and for other nonelectronic services, and both fixed fees and 
per-item fees; they may be given as a total or may be itemized in 
part or in full.
    2. Fees in interchange system. An account-holding institution 
must disclose any fees it imposes on the consumer for EFTs, 
including fees for ATM transactions in an interchange or shared ATM 
system. Fees for use of an ATM imposed on the consumer by an 
institution other than the account-holding institution and included 
in the amount of the transfer by the terminal-operating institution 
need not be separately disclosed on the periodic statement.
    3. Finance charges. The requirement to disclose any fees 
assessed against the account does not include a finance charge 
imposed on the account during the statement period.

Paragraph 9(b)(4)--Account Balances

    1. Opening and closing balances. The opening and closing 
balances must reflect both EFTs and other account activity.

Paragraph 9(b)(5)--Address and Telephone Number for Inquiries

    1. Telephone number. A single telephone number, preceded by the 
``direct inquiries to'' language, will satisfy the requirements of 
Sec. 205.9(b)(5) and (6).

Paragraph 9(b)(6)--Telephone Number for Preauthorized Transfers

    1. Telephone number. See comment 9(b)(5)-1.

9(c) Exceptions to the Periodic Statement Requirements for Certain 
Accounts

    1. Transfers between accounts. The regulation provides an 
exception from the periodic statement requirement for certain intra-
institutional transfers between a consumer's accounts. The financial 
institution must still comply with the applicable periodic statement 
requirements for any other EFTs to or from the account. For example, 
a Regulation E statement must be provided quarterly for an account 
that also receives payroll deposits electronically, or for any month 
in which an account is also accessed by a withdrawal at an ATM.

9(d) Documentation for Foreign-Initiated Transfers

    1. Foreign-initiated transfers. An institution must make a good 
faith effort to provide all required information for foreign-
initiated transfers. For example, even if the institution is not 
able to provide a specific terminal location, it should identify the 
country and city in which the transfer was initiated.

Section 205.10--Preauthorized Transfers

10(a) Preauthorized Transfers to Consumer's Account

Paragraph 10(a)(1)--Notice by Financial Institution

    1. Content. No specific language is required for notice 
regarding receipt of a preauthorized transfer. Identifying the 
deposit is sufficient; however, simply providing the current account 
balance is not.
    2. Notice of credit. A financial institution may use different 
methods of notice for various types or series of preauthorized 
transfers, and the institution need not offer consumers a choice of 
notice methods.
    3. Positive notice. A periodic statement sent within two 
business days of the scheduled transfer, showing the transfer, can 
serve as notice of receipt.
    4. Negative notice. The absence of a deposit entry (on a 
periodic statement sent within two business days of the scheduled 
transfer date) will serve as negative notice.
    5. Telephone notice. If a financial institution uses the 
telephone notice option, it should be able in most instances to 
verify during a consumer's initial call whether a transfer was 
received. The institution must respond within two business days to 
any inquiry not answered immediately.
    6. Phone number for passbook accounts. The financial institution 
may use any reasonable means necessary to provide the telephone 
number to consumers with passbook accounts that can only be accessed 
by preauthorized credits and that do not receive periodic 
statements. For example, it may print the telephone number in the 
passbook, or include the number with the annual error resolution 
notice.
    7. Telephone line availability. To satisfy the readily-available 
standard, the financial institution must provide enough telephone 
lines so that consumers get a reasonably prompt response. The 
institution need only provide telephone service during normal 
business hours. Within its primary service area, an institution must 
provide a local or toll-free telephone number. It need not provide a 
toll-free number or accept collect long-distance calls from outside 
the area where it normally conducts business.

10(b) Written Authorization for Preauthorized Transfers From 
Consumer's Account

    1. Preexisting authorizations. The financial institution need 
not require a new authorization before changing from paper-based to 
electronic debiting when the existing authorization does not specify 
that debiting is to occur electronically or specifies that the 
debiting will occur by paper means. A new authorization also is not 
required when a successor institution begins collecting payments.
    2. Authorization obtained by third party. The account-holding 
financial institution does not violate the regulation when a third-
party payee fails to obtain the authorization in writing or fails to 
give a copy to the consumer; rather, it is the third-party payee 
that is in violation of the regulation.
    3. Written authorization for preauthorized transfers. The 
requirement that preauthorized EFTs be authorized by the consumer 
``only by a writing'' cannot be met by a payee's signing a written 
authorization on the consumer's behalf with only an oral 
authorization from the consumer. A tape recording of a telephone 
conversation with a consumer who agrees to preauthorized debits also 
does not constitute written authorization for purposes of this 
provision.
    4. Use of a confirmation form. A financial institution or 
designated payee may comply with the requirements of this section in 
various ways. For example, a payee may provide the consumer with two 
copies of a preauthorization form, and ask the consumer to sign and 
return one and to retain the second copy.
    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. 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 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. Only the consumer may authorize the transfer and 
not, for example, a third-party merchant on behalf of the consumer.
    6. Requirements of an authorization. An authorization is valid 
if it is readily identifiable as such and the terms of the 
preauthorized transfer are clear and readily understandable.

10(c) Consumer's Right To Stop Payment

    1. Stop-payment order. The financial institution must honor an 
oral stop-payment order made at least three business days before a 
scheduled debit. If the debit item is resubmitted, the institution 
must continue to honor the stop-payment order (for example, by 
suspending all subsequent payments to the payee-originator until the 
consumer notifies the institution that payments should resume).
    2. Revocation of authorization. Once a financial institution has 
been notified that the consumer's authorization is no longer valid, 
it must block all future payments for the particular debit 
transmitted by the designated payee-originator. The institution may 
not wait for the payee-originator to terminate the automatic debits. 
The institution may confirm that the consumer has informed the 
payee-originator of the revocation (for example, by requiring a copy 
of the consumer's revocation as written confirmation to be provided 
within fourteen days of an oral notification). If the institution 
does not receive the required written confirmation within the 
fourteen-day period, it may honor subsequent debits to the account.

[[Page 19693]]

10(d) Notice of Transfers Varying in Amount

Paragraph 10(d)(1)--Notice

    1. Preexisting authorizations. A financial institution holding 
the consumer's account does not violate the regulation if the 
designated payee fails to provide notice of varying amounts.

Paragraph 10(d)(2)--Range

    1. Range. A financial institution or designated payee that 
elects to offer the consumer a specified range of amounts for 
debiting (in lieu of providing the notice of transfers varying in 
amount) must provide an acceptable range that could be anticipated 
by the consumer. For example, if the transfer is for payment of a 
gas bill, an appropriate range might be based on the highest bill in 
winter and the lowest bill in summer.

10(e) Compulsory Use

Paragraph 10(e)(1)--Credit

    1. Loan payments. Creditors may not require repayment of loans 
by electronic means on a preauthorized, recurring basis. A creditor 
may offer a program with a reduced annual percentage rate or other 
cost-related incentive for an automatic repayment feature, provided 
the program with the automatic payment feature is not the only loan 
program offered by the creditor for the type of credit involved. 
Examples include:
    i. Mortgages with graduated payments in which a pledged savings 
account is automatically debited during an initial period to 
supplement the monthly payments made by the borrower.
    ii. Mortgage plans calling for preauthorized biweekly payments 
that are debited electronically to the consumer's account and 
produce a lower total finance charge.
    2. Overdraft. A financial institution may require the automatic 
repayment of an overdraft credit plan even if the overdraft 
extension is charged to an open-end account that may be accessed by 
the consumer in ways other than by overdrafts.

Paragraph 10(e)(2)--Employment or Government Benefit

    1. Payroll. A financial institution (as an employer) 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, or receiving their salary by check or cash.

Section 205.11--Procedures for Resolving Errors

11(a) Definition of Error

    1. Terminal location. With regard to deposits at an ATM, a 
consumer's request for the terminal location or other information 
triggers the error resolution procedures, but the financial 
institution need only provide the ATM location if it has captured 
that information.
    2. Verifying account deposit. If the consumer merely calls to 
ascertain whether 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.
    3. Loss or theft of access device. A financial institution is 
required to comply with the error resolution procedures when a 
consumer reports the loss or theft of an access device if the 
consumer also alleges possible unauthorized use as a consequence of 
the loss or theft.
    4. Error asserted after account closed. The financial 
institution must comply with the error resolution procedures when a 
consumer properly asserts an error, even if the account has been 
closed.
    5. Request for documentation or information. A request for 
documentation or other information must be treated as an error 
unless it is clear that the consumer is requesting a duplicate copy 
for tax or other record-keeping purposes.

11(b) Notice of Error From Consumer

Paragraph 11(b)(1)--Timing; Contents

    1. Content of error notice. The notice of error is effective 
even if it does not contain the consumer's account number, so long 
as the financial institution is able to identify the account in 
question. For example, the consumer could provide a Social Security 
number or other unique means of identification.
    2. Investigation pending receipt of information. While a 
financial institution may request a written, signed statement from 
the consumer relating to a notice of error, it may not delay 
initiating or completing an investigation pending receipt of the 
statement.
    3. Statement held for consumer. When a consumer has arranged for 
periodic statements to be held until picked up, the statement for a 
particular cycle is deemed to have been transmitted on the date the 
financial institution first makes the statement available to the 
consumer.
    4. Failure to provide statement. When a financial institution 
fails to provide the consumer with a periodic statement, a request 
for a copy is governed by this section if the consumer gives notice 
within 60 days from the date on which the statement should have been 
transmitted.
    5. Discovery of error by institution. The error resolution 
procedures of this section apply when a notice of error is received 
from the consumer, and not when the financial institution itself 
discovers and corrects an error.
    6. Notice at particular phone number or address. A financial 
institution may require the consumer to give notice only at the 
telephone number or address disclosed by the institution, provided 
the institution maintains reasonable procedures to refer the 
consumer to the specified telephone number or address if the 
consumer attempts to give notice to the institution in a different 
manner.

Paragraph 11(b)(2)--Written Confirmation

    1. Written confirmation-of-error notice. If the consumer sends a 
written confirmation of error to the wrong address, the financial 
institution must process the confirmation through normal procedures. 
But the institution need not provisionally credit the consumer's 
account if the written confirmation is delayed beyond 10 business 
days in getting to the right place because it was sent to the wrong 
address.

11(c) Time Limits and Extent of Investigation

    1. Notice to consumer. Unless otherwise indicated in this 
section, the financial institution may provide the required notices 
to the consumer either orally or in writing.
    2. Written confirmation of oral notice. A financial institution 
must begin its investigation promptly upon receipt of an oral 
notice. It may not delay until it has received a written 
confirmation.
    3. Charges for error resolution. If a billing error occurred, 
whether as alleged or in a different amount or manner, the financial 
institution may not impose a charge related to any aspect of the 
error-resolution process (including charges for documentation or 
investigation). Since the act grants the consumer error-resolution 
rights, the institution should avoid any chilling effect on the 
good-faith assertion of errors that might result if charges are 
assessed when no billing error has occurred.
    4. Correction without investigation. A financial institution may 
make, without investigation, a final correction to a consumer's 
account in the amount or manner alleged by the consumer to be in 
error, but must comply with all other applicable requirements of 
Sec. 205.11.
    5. Correction notice. A financial institution may include the 
notice of correction on a periodic statement that is mailed or 
delivered within the 10-business-day or 45-calendar-day time limits 
and that clearly identifies the correction to the consumer's 
account. The institution must determine whether such a mailing will 
be prompt enough to satisfy the requirements of this section, taking 
into account the specific facts involved.
    6. Correction of an error. If the financial institution 
determines an error occurred, within either the 10-day or 45-day 
period, it must correct the error (subject to the liability 
provisions of Secs. 205.6 (a) and (b)) including, where applicable, 
the crediting of interest and the refunding of any fees imposed by 
the institution. In a combined credit/EFT transaction, for example, 
the institution must refund any finance charges incurred as a result 
of the error. The institution need not refund fees that would have 
been imposed whether or not the error occurred.
    7. Extent of required investigation. A financial institution 
complies with its duty to investigate, correct, and report its 
determination regarding an error described in Sec. 205.11(a)(1)(vii) 
by transmitting the requested information, clarification, or 
documentation within the time limits set forth in Sec. 205.11(c). If 
the institution has provisionally credited the consumer's account in 
accordance with Sec. 205.11(c)(2), it may debit the amount upon 
transmitting the requested information, clarification, or 
documentation.

Paragraph 11(c)(2)(i)

    1. Compliance with all requirements. Financial institutions 
exempted from provisionally crediting a consumer's account

[[Page 19694]]

under Sec. 205.11(c)(2)(i) (A) and (B) must still comply with all 
other requirements of Sec. 205.11.

Paragraph 11(c)(3)--Extension of Time Periods

    1. POS debit card transactions. The extended deadlines for 
investigating errors resulting from POS debit card transactions 
apply to all debit card transactions, including those for cash only, 
at merchants' POS terminals, and also including mail and telephone 
orders. The deadlines do not apply to transactions at an ATM, 
however, even though the ATM may be in a merchant location.

Paragraph 11(c)(4)--Investigation

    1. Third parties. When information or documentation requested by 
the consumer is in the possession of a third party with whom the 
financial institution does not have an agreement, the institution 
satisfies the error resolution requirement by so advising the 
consumer within the specified time period.
    2. Scope of investigation. When an alleged error involves a 
payment to a third party under the financial institution's telephone 
bill-payment plan, a review of the institution's own records is 
sufficient, assuming no agreement exists between the institution and 
the third party concerning the bill-payment service.
    3. POS transfers. When a consumer alleges an error involving a 
transfer to a merchant via a POS terminal, the institution must 
verify the information previously transmitted when executing the 
transfer. For example, the financial institution may request a copy 
of the sales receipt to verify that the amount of the transfer 
correctly corresponds to the amount of the consumer's purchase.
    4. Agreement. An agreement that a third party will honor an 
access device is an agreement for purposes of this paragraph. A 
financial institution does not have an agreement for purposes of 
Sec. 205.11(c)(4)(ii) solely because it participates in transactions 
that occur under the federal recurring payments programs, or that 
are cleared through an ACH or similar arrangement for the clearing 
and settlement of fund transfers generally, or because it agrees to 
be bound by the rules of such an arrangement.

11(d) Procedures if Financial Institution Determines No Error or 
Different Error Occurred

    1. Error different from that alleged. When a financial 
institution determines that an error occurred in a manner or amount 
different from that described by the consumer, it must comply with 
the requirements of both Sec. 205.11 (c) and (d), as relevant. The 
institution may give the notice of correction and the explanation 
separately or in a combined form.

Paragraph 11(d)(1)--Written Explanation

    1. Request for documentation. When a consumer requests copies of 
documents, the financial institution must provide the copies in an 
understandable form. If an institution relied on magnetic tape it 
must convert the applicable data into readable form, for example, by 
printing it and explaining any codes.

Paragraph 11(d)(2)--Debiting Provisional Credit

    1. Alternative procedure for debiting of credited funds. The 
financial institution may comply with the requirements of this 
section by notifying the consumer that the consumer's account will 
be debited five business days from the transmittal of the 
notification, specifying the calendar date on which the debiting 
will occur.
    2. Fees for overdrafts. The financial institution may not impose 
fees for items it is required to honor under Sec. 205.11. It may, 
however, impose any normal transaction or item fee that is unrelated 
to an overdraft resulting from the debiting. If the account is still 
overdrawn after five business days, the institution may impose the 
fees or finance charges to which it is entitled, if any, under an 
overdraft credit plan.

11(e) Reassertion of Error

    1. Withdrawal of error; right to reassert. The financial 
institution has no further error resolution responsibilities if the 
consumer voluntarily withdraws the notice alleging an error. A 
consumer who has withdrawn an allegation of error has the right to 
reassert the allegation unless the financial institution had already 
complied with all of the error resolution requirements before the 
allegation was withdrawn. The consumer must do so, however, within 
the original 60-day period.

Section 205.12--Relation to Other Laws

12(a) Relation to Truth in Lending

    1. Determining applicable regulation. For transactions involving 
access devices 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 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 
the transaction debits a checking account but also draws on an 
overdraft line of credit, the Regulation E provisions apply, as well 
as Secs. 226.13 (d) and (g) of Regulation Z. In such a transaction, 
the consumer might be liable for up to $50 under Regulation Z (12 
CFR part 226) and, in addition, for $50, $500, or an unlimited 
amount under Regulation E.
    2. Issuance rules. For access devices that also constitute 
credit cards, the issuance rules of Regulation E apply if the only 
credit feature is a preexisting credit line attached to the asset 
account to cover overdrafts (or to maintain a specified minimum 
balance). Regulation Z (12 CFR part 226) rules apply if there is 
another type of credit feature, for example, one permitting direct 
extensions of credit that do not involve the asset account.

12(b) Preemption of Inconsistent State Laws

    1. Specific determinations. The regulation prescribes standards 
for determining whether state laws that govern EFTs are preempted by 
the act and the regulation. A state law that is inconsistent may be 
preempted even if the Board has not issued a determination. However, 
nothing in Sec. 205.12(b) provides a financial institution with 
immunity for violations of state law if the institution chooses not 
to make state disclosures and the Board later determines that the 
state law is not preempted.
    2. Preemption determination. The Board determined that certain 
provisions in the state law of Michigan are preempted by the federal 
law, effective March 30, 1981:
    i. Definition of unauthorized use. Section 5(4) is preempted to 
the extent that it relates to the section of state law governing 
consumer liability for unauthorized use of an access device.
    ii. Consumer liability for unauthorized use of an account. 
Section 14 is inconsistent with Sec. 205.6 and is less protective of 
the consumer than the federal law. The state law places liability on 
the consumer for the unauthorized use of an account in cases 
involving the consumer's negligence. Under the federal law, a 
consumer's liability for unauthorized use is not related to the 
consumer's negligence and depends instead on the consumer's 
promptness in reporting the loss or theft of the access device.
    iii. Error resolution. Section 15 is preempted because it is 
inconsistent with Sec. 205.11 and is less protective of the consumer 
than the federal law. The state law allows financial institutions up 
to 70 days to resolve errors, whereas the federal law generally 
requires errors to be resolved within 45 days.
    iv. Receipts and periodic statements. Sections 17 and 18 are 
preempted because they are inconsistent with Sec. 205.9. The state 
provisions require a different disclosure of information than does 
the federal law. The receipt provision is also preempted because it 
allows the consumer to be charged for receiving a receipt if a 
machine cannot furnish one at the time of a transfer.

Section 205.13--Administrative Enforcement; Record Retention

13(b) Record Retention

    1. Requirements. A financial institution need not retain records 
that it has given disclosures and documentation to each consumer; it 
need only retain evidence demonstrating that its procedures 
reasonably ensure the consumers' receipt of required disclosures and 
documentation.

Section 205.14--Electronic Fund Transfer Service Provider Not Holding 
Consumer's Account

14(a) Electronic Fund Transfer Service Providers Subject to 
Regulation

    1. Applicability. This section applies only when a service 
provider issues an access device to a consumer for initiating 
transfers to or from the consumer's account at a financial 
institution and the two entities have no agreement regarding this 
EFT service. If the service provider does not issue an access device 
to the consumer for accessing an account held by another 
institution, it does not qualify for the treatment accorded by 
Sec. 205.14. For example, this section does not apply to an 
institution that initiates preauthorized payroll deposits to 
consumer accounts on behalf of an employer. By

[[Page 19695]]

contrast, Sec. 205.14 can apply to an institution that issues a code 
for initiating telephone transfers to be carried out through the ACH 
from a consumer's account at another institution. This is the case 
even if the consumer has accounts at both institutions.
    2. ACH agreements. The ACH rules generally do not constitute an 
agreement for purposes of this section. However, an ACH agreement 
under which members specifically agree to honor each other's debit 
cards is an ``agreement,'' and thus this section does not apply.

14(b) Compliance by Electronic Fund Transfer Service Provider

    1. Liability. The service provider is liable for unauthorized 
EFTs that exceed limits on the consumer's liability under 
Sec. 205.6.
    Paragraph 14(b)(1)--Disclosures and Documentation
    1. Periodic statements from electronic fund transfer service 
provider. A service provider that meets the conditions set forth in 
this paragraph does not have to issue periodic statements. A service 
provider that does not meet the conditions need only include on 
periodic statements information about transfers initiated with the 
access device it has issued.

Paragraph 14(b)(2)--Error Resolution

    1. Error resolution. When a consumer notifies the service 
provider of an error, the EFT service provider must investigate and 
resolve the error in compliance with Sec. 205.11 as modified by 
Sec. 205.14(b)(2). If an error occurred, any fees or charges imposed 
as a result of the error, either by the service provider or by the 
account-holding institution (for example, overdraft or dishonor 
fees) must be reimbursed to the consumer by the service provider.

14(c) Compliance by Account-Holding Institution

Paragraph 14(c)(1)

    1. Periodic statements from account-holding institution. The 
periodic statement provided by the account-holding institution need 
only contain the information required by Sec. 205.9(b)(1).

Appendix A--Model Disclosure Clauses and Forms

    1. Review of forms. The Board will not review or approve 
disclosure forms or statements for financial institutions. However, 
the Board has issued model clauses for institutions to use in 
designing their disclosures. If an institution uses these clauses 
accurately to reflect its service, the institution is protected from 
liability for failure to make disclosures in proper form.
    2. Use of the forms. The appendix contains model disclosure 
clauses for optional use by financial institutions to facilitate 
compliance with the disclosure requirements of Secs. 205.5(b)(2) and 
(b)(3), 205.6(a), 205.7, 205.8(b), 205.14(b)(1)(ii) and 205.15(d)(7) 
and (d)(2). The use of appropriate clauses in making disclosures 
will protect a financial institution from liability under sections 
915 and 916 of the act provided the clauses accurately reflect the 
institution's EFT services.
    3. Altering the clauses. Financial institutions may use clauses 
of their own design in conjunction with the Board's model clauses. 
The inapplicable words or portions of phrases in parentheses should 
be deleted. The catchlines are not part of the clauses and need not 
be used. Financial institutions may make alterations, substitutions, 
or additions in the clauses to reflect the services offered, such as 
technical changes (including the substitution of a trade name for 
the word ``card,'' deletion of inapplicable services, or 
substitution of lesser liability limits). Several of the model 
clauses include references to a telephone number and address. Where 
two or more of these clauses are used in a disclosure, the telephone 
number and address may be referenced and need not be repeated.

Supplement II to Part 205 [Removed]

    3. Supplement II to Part 205 is removed.

    By order of the Board of Governors of the Federal Reserve 
System, acting through the Secretary of the Board under delegated 
authority, April 19, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-10180 Filed 5-1-96; 8:45 am]
BILLING CODE 6210-01-P