19696 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules

FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R–0919]

Electronic Fund Transfers

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Proposed rule.

SUMMARY: The Board is publishing for

comment proposed amendments to

Regulation E, which implements the

Electronic Fund Transfer Act. The

proposed amendments relate to: the use

of electronic communication in homebanking services for providing

disclosures and other documentation;

error resolution requirements for new

accounts; and the treatment of storedvalue cards (imposing modified

Regulation E requirements on storedvalue products in systems that track

individual transactions, cards, or

consumers; providing an exemption for

cards on which a maximum value of

$100 can be stored; and providing that

other stored-value cards are not covered

by Regulation E).

DATES: Comments must be received on

or before August 1, 1996.

ADDRESSES: Comments should refer to

Docket No. R–0919 and be mailed to

William W. Wiles, Secretary, Board of

Governors of the Federal Reserve

System, Washington, DC 20551. They

may also be delivered to the guard

station in the Eccles Building Courtyard

on 20th Street, NW (between

Constitution Avenue and C Street)

between 8:45 a.m. and 5:15 p.m.

weekdays. Except as provided in the

Board’s rules regarding the availability

of information (12 CFR 261.8),

comments will be available for

inspection and copying by members of

the public in the Freedom of

Information Office, Room MP–500 of the

Martin Building, between 9:00 a.m. and

5:00 p.m. weekdays.

FOR FURTHER INFORMATION CONTACT:

Regarding the proposed amendments on

electronic communication, Michael

Hentrel, Staff Attorney, and regarding

the other proposed amendments, Jane

Gell, Natalie Taylor, or Kyung ChoMiller, Staff Attorneys, Division of

Consumer and Community Affairs, at

(202) 452–2412 or (202) 452–3667. For

the hearing impaired only,

Telecommunications Device for the Deaf

(TDD), Dorothea Thompson, 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 Federal Reserve Board was given

rulewriting authority to issue

implementing regulations. Types of

transfers covered by the act and

regulation include transfers initiated

through an automated teller machine

(ATM), point-of-sale (POS) terminal,

automated clearinghouse, telephone

bill-payment system, or home banking

program. The act and Regulation E (12

CFR Part 205) provide rules that govern

these and other EFTs. The rules

prescribe restrictions on the unsolicited

issuance of ATM cards and other access

devices; disclosure of terms and

conditions of an EFT service;

documentation of EFTs by means of

terminal receipts and periodic

statements; limitations on consumer

liability for unauthorized transfers;

procedures for error resolution; and

certain rights related to preauthorized

EFTs.

In 1994 the Board issued for public

comment a proposed revision of

Regulation E under the Board’s

Regulatory Planning and Review

program. (The Board has taken final

action on the proposal; a revised

regulation and revised staff commentary

are published in today’s Federal

Register.) As part of that process, and

based in part on the public comments

received, the Board identified areas that

offer an opportunity for further burden

reduction without undercutting

consumer protection. One such area

involves the use of electronic

communication between consumers and

financial institutions—for example, by

personal computer and modem—in

place of paper documents. The

proposed revision published in 1994

included a provision that allowed

electronic communication in place of

paper for authorization of recurring

electronic debits. The Board now

proposes to permit electronic text

messages to substitute for paper under

Regulation E generally. The proposed

revision also solicited comment

generally on coverage of prepaid cards

and other stored-value products under

Regulation E. To resolve issues raised

during and following the public

comment period, the Board undertook

an analysis of stored-value products and

their treatment under Regulation E. The

Board now proposes amendments under

which many stored-value products

would be exempt, and others would be

covered under limited requirements.

II. Proposed Regulatory Revisions

The following discussion covers the

proposed amendments to Regulation E

in the order of the sections of the

regulation that would be affected—first

addressing electronic communication,

then error resolution for new accounts,

and finally stored-value products.

Electronic Communication—Section

205.4(c)

Financial institutions offer a wide

variety of ‘‘home banking’’ services

ranging from account inquiries,

verifications, and fund transfers

between accounts, to bill payment and

full account management; and they are

using various forms of electronic

communication to deliver these

services. Telephones and personal

computers are the most common means

of access to home banking services.

Telephones with digital screens

(‘‘screen phones’’), equipped with bar

code or magnetic stripe readers, allow

consumers to enter transactions off-line,

then send the information to the

financial institution on-line. Financial

institutions may offer consumers

specialized software that allows the user

to access bank information via personal

computer; oftentimes this software is

integrated with other on-line services.

These EFT services use electronic

communication as a fast, convenient,

and sometimes less costly means of

communication with the consumer.

Electronic communication, for purposes

of this discussion, means an

electronically transmitted text message

between a financial institution and a

consumer’s home computer or other

electronic device possessed by the

consumer.

Under Regulation E, certain

disclosures (such as initial disclosures

and periodic statements) must be

provided to consumers (1) in writing, (2)

in a clear and readily understandable

form, and (3) in a form that the

consumer may keep. In the context of

home banking and similar services,

financial institutions have asked

whether they may satisfy these

requirements by providing the

information electronically, for example,

through a consumer’s personal

computer.

Are Electronic Communications

‘‘Writings’’

Many Regulation E disclosures must

be provided to consumers in writing. A

writing, up to the present, has typically

been presumed to mean a paper

document. Information that is produced,
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules 19697

stored, or communicated by computer

too is generally considered to be a

writing, at least where text is involved.

Indeed, in many office environments in

the United States today, documents are

produced, edited, revised, and

communicated to others within the

organization by the use of computers

and electronic mail, and these

documents are considered written

documents when kept in electronic form

as well as when printed on paper.

Similarly, under other laws that call for

information to be in writing,

information in electronic form is

considered to be ‘‘written.’’

Communications by telephone

(including voicemail systems) are

typically characterized as oral

communication as they do not have the

feature generally associated with a

writing—visual text. Therefore,

pursuant to its authority under section

904(c) of the EFTA, the Board proposes

to permit financial institutions to use an

electronic communication where the

regulation calls for information to be

provided in writing, but to limit the

scope of the term ‘‘electronic

communication’’ to a communication in

a form that can be displayed as visual

text. An example would be an electronic

message that the receiver could display

on a screen (including a computer

monitor or a screen phone).

Clear and Readily Understandable Form

Regulation E requires financial

institutions to provide required

information in a clear and readily

understandable form. Some means of

displaying an electronic communication

appear to meet this standard; for

example, a personal computer monitor

should allow the consumer to read the

text of a disclosure. Others may not

have this capability; a screen phone, for

example, may display only a few lines

of text at a time, making it difficult for

a consumer to review initial disclosures

or a periodic statement, where it may be

necessary to move back and forth

between various parts of the document.

The Board believes that the requirement

for clear and readily understandable

disclosures applies fully to electronic

communications. The Board requests

specific comments on the likelihood

and extent of compliance problems that

could be caused by this requirement, as

well as suggestions for resolving such

problems.

Retainability

The act and regulation establish a

retainability requirement. In general, if

information must be provided in

writing, Regulation E requires that the

information must be in a form that the

consumer may retain.

Consumers with home banking

systems will most likely have the ability

to download information, print it out,

and store it on a computer disk for later

retrieval. The responsibility to provide

EFTA information in a retainable form

belongs to the financial institution. Still,

the Board recognizes that to satisfy the

retainability requirement for electronic

communications, financial institutions

will have to rely on the consumer’s

having the capability to download data.

The Board believes that where a

consumer has agreed to receive

information electronically, the financial

institution should be deemed to satisfy

the retention requirement by making

information available for downloading,

provided some consumer safeguards are

established. In the event of printer

malfunctions and other unforeseen

computer problems, for instance, the

consumer may be precluded from

effectively retaining an electronic

message received from a financial

institution.

The Board proposes to amend

Regulation E to provide that if a

financial institution uses electronic

communication to send information that

is required to be in writing, the

consumer may request a paper copy of

the information within one year after

receipt of the electronic communication.

Commenters are asked to address

whether this is an appropriate time

period, and if not, to offer suggestions

for an alternative.

The Board also solicits comment on

possible alternatives to providing a

paper copy upon request to consumers.

One such means might be for a financial

institution to maintain the information

in data storage and re-send the

information electronically to a

consumer whose computer facilities

were temporarily inoperable.

Some electronic messages from a

consumer to an institution trigger the

need for a response from the institution.

For example, an oral or written notice

of error from a consumer requires the

institution to investigate and resolve the

error within a specified period. Some

financial institutions have indicated

that in accepting electronic

communications from consumers, they

may want to require paper verifications,

for their own and the consumer’s

protection. For example, Regulation E

provides that a consumer may stop

payment of a preauthorized electronic

fund transfer by notifying the institution

orally or in writing, and that the

institution may require written

confirmation of an oral stop-payment

order. If an institution accepts an

electronic stop-payment order, the

institution might want to require

confirmation of the order in paper form,

to make sure that a preauthorized

payment is not dishonored by mistake.

The Board believes that (as in the case

of an oral communication) if the

consumer sends an electronic

communication to the institution, the

institution could require a confirmation

from the consumer in paper form.

Comment is requested, however, on

whether and how the regulation should

address this point.

Electronic communication between

financial institutions and consumers

could also be used in contexts other

than home banking. For example, a

consumer who possesses a modemequipped personal computer may wish

to send and receive information

required by Regulation E about an EFT

service used by the consumer, such as

debit card access to the consumer’s

account. The proposal covers this

situation. The Board solicits comment

on whether the regulation should, as

proposed, permit electronic

communication to substitute for paper

disclosures and other required paper

messages for EFT services other than

home banking, or should limit

electronic communication to homebanking services.

Error Resolution for New Accounts—

Section 205.11

Regulation E requires a financial

institution to investigate and resolve a

consumer’s claim of error within

specified time limits. An institution

generally is expected to resolve the

alleged error within ten business days

after receiving a notice of error. If the

institution needs more time, it must

provisionally credit the consumer’s

account and resolve the error no later

than 45 calendar days after receiving the

notice.

In the course of commenting on the

Board’s 1994 proposal to revise

Regulation E, some institutions

requested that the Board use its

exception authority under the statute

either (1) to exempt new accounts from

the requirement to provisionally credit

the account by the tenth business day or

(2) to extend the time period for

resolving errors.

Commenters expressed concern about

individuals who open a new account

with the intent to defraud. Such

individuals may open an account,

immediately withdraw all or a large

amount of the funds through ATMs, and

file a claim with the financial institution

disputing the ATM transactions. Often

they receive provisional credit because

of the financial institution’s inability to
19698 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules

research the claim (such as by obtaining

photographic evidence from ATM

cameras) within ten business days. At

that point, the individual immediately

withdraws the funds that were

provisionally credited and abandons the

account. Commenters believe that

having more time to investigate errors

involving new accounts would enable

institutions to limit their losses and

control this type of fraud.

Some commenters pointed to the

Board’s exception for new accounts

under Regulation CC, which

implements the Expedited Funds

Availability Act. There, the regulation

extends the time within which an

institution is required to make funds

available to a customer for new

accounts. Regulation CC defines a new

account as an account during the first 30

calendar days after the first deposit to

the account is made.

The Board proposes to amend

Regulation E, pursuant to its section

904(c) authority to provide for

adjustments and exceptions in the

regulation, to extend the time periods

for resolving errors that involve new

accounts. The proposal would allow 20

business days for resolving an error

before an institution is required to

provisionally credit, and an outside

limit of 90 calendar days for resolving

the claim. Comment is solicited on the

proposed extensions of time, on the 30-

day definition for new accounts, and on

whether consumer protections relating

to error resolution would be adversely

affected.

Stored-Value Systems—Section 205.16

Over the past few years the financial

services industry has shown increasing

interest in providing ‘‘stored-value

cards’’ (also referred to as prepaid or

value-added cards) to consumers. These

cards maintain, typically in a computer

chip or magnetic stripe, a ‘‘stored value’’

of funds available to the consumer for

access primarily at retail locations. The

balance recorded on the card is debited

at a merchant’s POS terminal when the

consumer makes a purchase.

Products that could be characterized

broadly as ‘‘stored-value’’ cover a wide

range. In their simplest form, storedvalue systems are targeted at low-value

uses (public transit, pay telephones, or

photocopiers, for example); the amount

that can be stored on the card is limited;

and the card is disposed of once its

value has been used up. These cards

typically have a single type of use, and

only one card issuer and one entity

(likely to be the same as the issuer) that

accepts the card as payment for goods

or services.

More sophisticated systems can

involve large transactions and permit

consumers to store value in the

hundreds of dollars on a card. The cards

may have multiple uses, and there may

be multiple card issuers and multiple

card-accepting merchants. The cards

may allow the consumer to obtain cash

from ATMs instead of, or in addition to,

making purchases. At least one system

(now in the pilot stage) would enable

the consumer to transfer stored-value

balances to another person’s card. Some

systems would provide access to funds

in foreign currencies. Cards tend to be

reloadable, allowing the consumer to

load value onto the card, for example,

by withdrawing funds from an account

at a depository institution through a

teller, via an ATM, or, potentially, via

a specially-equipped telephone. Some

systems are designed as stand-alone

products. In other cases, stored-value

features may be added to debit or credit

cards. Some of these more sophisticated

stored-value systems are in operation as

pilot programs or are under

development by financial institutions or

associations of institutions.

Colleges and universities are

increasingly adding a stored-value

feature to student identification cards,

so that students can make purchases at

campus locations such as cafeterias,

bookstores, and vending machines. In

some cases, the educational institution

is both the issuer and the only cardaccepting entity; in others, the card is

also accepted by off-campus merchants.

In addition to the stored-value features

that some student card systems may

have, these systems may operate with

student asset accounts maintained by

the university or by a depository

institution on behalf of the university;

these accounts are covered by

Regulation E.

There are significant differences

among proposed systems in the manner

that they handle balances and

transaction data. Some systems operate

off-line, with transaction approval and

data retention occurring only at the

merchant level. The balance of available

funds may be stored only on the card

itself as transactions occur, and

transactions neither require nor receive

authorization from a central database.

The data for a given transaction are kept

at the merchant location, and are not

forwarded to the central data facility.

Only the aggregate amount for a batch

of transactions is transmitted by the

merchant (usually daily) so that the

merchant can receive appropriate credit

from a financial institution. In other offline systems, the dollar value remaining

on the card is stored both on the card

and in a central data facility. Data for

individual transactions are transmitted

to the central data facility, typically at

the end of each business day, and

maintained there. Still other systems

operate on-line, and transactions are

authorized by communication between

a terminal and a central database.

Status of Stored-Value Cards Under the

EFTA

In 1994, the Board issued proposed

revisions to Regulation E under the

Board’s Regulatory Planning and

Review program. At that time, the Board

generally requested comment on

whether, and the extent to which, the

regulation should apply to stored-value

cards. The Board made clear that a

transaction involving such cards is

covered by Regulation E when the

transaction accesses a consumer’s

account (such as when value is

‘‘loaded’’ onto the card from the

consumer’s deposit account via an

ATM). Among the commenters that

addressed this issue, many asked the

Board to provide an exemption from

Regulation E for stored-value cards and

other stored-value products so as not to

hinder their development or,

alternatively, to modify the

requirements applicable to them.

Legislation introduced and still

pending in the Congress would exempt

stored-value cards and other storedvalue products from the EFTA and

Regulation E. (H.R. 2520, 104th Cong.,

1st Sess., § 443; S. 650, 104th Cong., 1st

Sess., § 601 (1995).) The Board has

suggested in congressional testimony

that, while certain provisions of

Regulation E should not apply, it would

be appropriate to first examine basic

issues raised by these new payments

systems before legislating a blanket

exemption from the EFTA. The Board

mentioned terminal receipts and

periodic statements as examples of

requirements that should not apply, but

suggested that consumers might benefit

from receiving initial disclosures (such

as disclosure of a consumer’s risk for

unauthorized transactions), a

requirement that would likely entail

minimal added expense for card issuers.

Coverage Issue

Coverage of stored-value systems

under the EFTA and Regulation E

depends on whether a stored-value

transaction involves an EFT from a

consumer’s asset account. The act

defines an ‘‘electronic fund transfer’’ as

a transfer of funds initiated through

electronic means (such as an electronic

terminal or a computer) that results in

a debit or credit to an account. Storedvalue transactions involve a transfer of

funds and are carried out through
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules 19699

electronic means—namely, terminals in

retail locations that read the magnetic

strip or chip embedded in the card.

The act defines ‘‘account’’ as a

demand deposit, savings, or other ‘‘asset

account’’—as described in regulations of

the Board—that is established primarily

for personal, family, or household

purposes. Asset accounts are not limited

to traditional checking and other

deposit accounts. For example, the term

includes a consumer’s money market

mutual fund or other securities account

held by a broker-dealer. The Board also

interprets the term ‘‘account’’ to include

accounts established by government

agencies under electronic benefit

transfer (EBT) programs (59 FR 10678,

March 7, 1994).

The legislative history of the act

provides guidance as to the Board’s

regulatory authority under the EFTA for

determining issues of coverage. Senate

Banking Committee reports noted that

the ‘‘definitions of ‘financial institution’

and ‘account’ are deliberately broad so

as to assure that all persons who offer

equivalent EFT services involving any

type of asset account are subject to the

same standards and consumers owning

such accounts are assured of uniform

protection.’’ (S. Rep. No. 915, 95th

Cong., 2d Sess. 9 (1978).) This concept

is captured in section 904(d) of the

EFTA, which provides that if EFT

services ‘‘are made available to

consumers by a person other than a

financial institution holding a

consumer’s account, the Board shall by

regulation assure that the disclosures,

protections, responsibilities, and

remedies created by this title are made

applicable to such persons and

services.’’

Further, section 904(c) provides that

the rules issued by the Board ‘‘may

contain such classifications,

differentiations, or other provisions

* * * as in the judgment of the Board

are necessary or proper to effectuate the

purposes of this title, [or] to prevent

circumvention or evasion thereof.

* * *’’ Senate Banking Committee

reports on two separate bills, in

discussing section 904(c), stated that

‘‘since no one can foresee EFT

developments in the future, regulations

would keep pace with new services and

assure that the act’s basic protections

continue to apply.’’ (S. Rep. No. 915,

95th Cong., 2d Sess. 10 (1978).)

Types of Stored-Value Systems

In some stored-value systems, the

balance of funds available is recorded

on the card, but is also maintained at a

central data facility at a bank or

elsewhere. The systems operate off-line;

there is no authorization of transactions

by communication with a database at a

financial institution or elsewhere.

Transaction data are periodically

transmitted to and maintained by a data

facility. As in the case of the traditional

consumer deposit account accessed by a

debit card, in these stored-value card

systems a consumer has the right to

draw upon funds held by an institution.

The maintenance of a record of value

and of transactions for a given card

apart from the card itself—so that

transactions are traceable to the

individual card—strongly parallels the

functioning of a deposit account. The

Board believes that the facts support a

finding that such systems involve an

account for purposes of the EFTA.

These systems are referred to below as

‘‘off-line accountable stored-value

systems.’’

In another type of stored-value system

that also operates off-line, the record of

value is maintained only on the card

itself, and not in a central database.

Transaction data for debits to the card’s

‘‘stored value’’ are recorded on the card

and captured at merchant terminals

(where they are maintained for a limited

period of time). Only the aggregate

amount of transactions for a given

period is transmitted by the merchant to

a financial institution or other entity so

that the merchant can receive credit.

Given the lack of a centrally maintained,

ongoing record of individual card

balances or of transaction data in these

systems, it is more difficult to conclude

that an ‘‘account’’ exists for purposes of

Regulation E. These systems will be

referred to below as ‘‘off-line

unaccountable stored-value systems.’’

A third type of stored-value system

operates in a manner that is the

functional equivalent of using a debit

card to access a traditional deposit

account. Notably, this type of system

involves on-line access to a database for

purposes of transaction authorization

and data capture. That is, when the card

is used at an ATM or a POS terminal,

the transaction is authorized by means

of on-line communication with the data

facility, where the transaction data are

stored (including information such as

merchant identification, amount, date,

and card number). The balance of funds

available to the consumer is not

recorded on the card itself, as in off-line

stored-value systems; instead, the

balance information is maintained in

the data facility. Two distinctions

between these systems and traditional

deposit accounts accessed by debit card

are (1) the value associated with a card

is limited to the amount that the

cardholder has chosen to make

accessible through the card (as opposed

to a deposit account accessed by debit

card, where the entire account is

accessible and funds available may

fluctuate); and (2) the value associated

with the card is accessible only through

use of the card itself (in contrast to

deposit accounts accessible by debit

card, which typically may be accessed

through various means, including

check, withdrawal slip, ACH, or

telephone bill payment).

The Board believes these systems—

which are referred to as ‘‘on-line storedvalue systems’’—meet the definition of

a consumer asset account, and thus are

covered by Regulation E, based on their

on-line operation and extensive data

capture and retention. As discussed

below, however, the Board also believes

it is appropriate to propose modifying

the rules applicable to these systems.

Modifications and Exceptions for

Various Types of Stored-Value Systems

The discussion that follows is

organized to address separately each of

the three types of systems described

above—off-line accountable storedvalue systems, off-line unaccountable

stored-value systems, and on-line

stored-value systems. The Board notes

that, in all three types of systems, a

transaction in which a stored-value card

is used to access a consumer’s deposit

account, such as ‘‘reloading’’ the card by

drawing on the consumer’s checking

account at an ATM, is covered by

Regulation E and subject to all

Regulation E requirements. The

discussion below, therefore, relates to

transactions in which value stored on a

card is drawn down to obtain cash or

purchase goods or services.

A. Off-line ‘‘Accountable’’ Stored-Value

Systems

To the extent that off-line accountable

stored-value systems are similar to

systems involving debit cards and

traditional deposit accounts, parallel

consumer protections under Regulation

E may be appropriate. If these storedvalue systems were to be covered by all

requirements of Regulation E, however,

their further development could be

seriously slowed or even halted in some

cases. The following discussion presents

an analysis of the major provisions of

Regulation E, including the compliance

burdens to financial institutions and the

benefits to consumers associated with

each.

1. Restrictions on unsolicited issuance

of access devices. Generally Regulation

E prohibits issuing a debit card,

personal identification number (PIN), or

other ‘‘access device’’ to a consumer (for

example, by mail) unless the consumer

has requested the device, orally or in

writing. The purpose is to avoid making
19700 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules

consumers’ accounts accessible by a

means that consumers may not want

and that may subject them to added risk,

and to reduce the likelihood of

unauthorized transactions from

interception of cards. There is a

qualified exception, for an access device

that is not ‘‘validated’’ (meaning usable)

at the time of issuance and that the

issuer will validate only upon request

by the consumer and verification of the

consumer’s identity.

As a practical matter, most providers

of stored-value products will likely

issue stored-value cards only to

consumers who request them. Some

may choose to promote their product by

targeting populations and sending

unsolicited cards with small amounts of

‘‘free money’’ on the card. Such a

practice would not appear to harm

consumers, since there would be no

access to the consumer’s own depositaccount funds.

Application of the unsolicited

issuance rules to off-line accountable

stored-value cards (aside from those that

could access a consumer’s existing

deposit account, where the rules already

apply) appears unnecessary for

consumer protection. The Board

proposes to exclude off-line accountable

stored-value cards from the Regulation E

rules on unsolicited issuance, but

solicits specific comment on whether

there is any practical need for the rules

to apply.

2. Initial disclosures. Regulation E

requires that at the time a financial

institution and a consumer enter into an

agreement for an EFT service, the

institution must disclose certain terms

and conditions. Items to be disclosed

include a summary of the consumer’s

liability for unauthorized transfers,

error-resolution procedures, any limits

on the frequency or dollar amount of

transfers, and any fees or charges for

individual transfers or for the service.

Without the disclosure of terms and

conditions, consumers might regard offline accountable stored-value products

as comparable to debit or credit cards,

and thus might expect similar rights and

remedies to apply. This could be

particularly likely if the stored-value

feature were made part of the

consumer’s debit or credit card, or if a

consumer could use the card for

transactions in the same locations where

debit or credit card transactions take

place.

Financial institutions that provide

stored-value products may disclose

certain information voluntarily;

however, the disclosures that they opt to

give could vary considerably. Requiring

disclosures under Regulation E would

ensure that uniform information is given

to consumers. Such disclosures would

be useful in alerting consumers to

important features of these new

services, such as transaction charges

and risk of loss for lost or stolen cards.

Providing initial disclosures would

probably not impose significant

compliance costs. The disclosures can

be given along with the card or other

account-opening material in a

preprinted format; they need not be

individually customized for each

account. Accordingly, the Board

proposes to amend Regulation E to

require initial disclosures for off-line

accountable stored-value systems.

The proposed amendment would not

include all the items generally required

to be disclosed under Regulation E, but

only those that appear relevant to offline accountable stored-value systems.

These include the disclosures of

consumer liability for unauthorized

transactions; the types of transfers

available; transaction charges, if any;

and error resolution procedures

available to the consumer, if any. The

disclosure of consumer liability for

unauthorized transactions would

expressly state that the consumer bears

the full risk of loss (if such is the case),

or would state any limits on liability

that might be adopted by agreement

with the consumer.

3. Change-in-terms notices. Under

Regulation E, if terms or conditions

required to be disclosed (such as limits

on transfers, or transaction fees) were to

change from those initially in effect, the

institution must generally notify the

consumer at least 21 days before the

effective date of the change.

Whether change-in-terms notices are

relevant for off-line accountable storedvalue products depends on whether

contract terms applicable to the card are

likely to change. If there are increases in

transaction charges, for instance, it is

reasonable for consumers to be informed

of the increase before it takes effect. (It

appears that, currently at least, charges

are not imposed on stored-value

transactions.) But issuers of some of

these products may not expect to have

an ongoing relationship with the

consumer, and thus may not typically

obtain an address at the time the

consumer purchases the card. In some

cases, stored-value cards are freely

transferrable; even if the card issuer has

the address of the original cardholder,

the issuer may not have the address of

a subsequent holder. If the value stored

on the card is likely to be used within

a short period, it is also probable that

new transaction charges would not be

imposed or charges increased during its

lifetime.

The Board believes that the potential

costs of having to comply with the

change-in-terms notice requirement

outweighs the consumer protections

that would be afforded by such notices

and proposes to exempt off-line

accountable stored-value systems from

this requirement. The Board specifically

solicits comment on whether there

might be circumstances in which the

notice requirement should apply.

4. Transaction receipts and periodic

statements. For an EFT initiated at an

ATM or a POS terminal, Regulation E

requires that a transaction receipt be

made available to a consumer. The

receipt must show the date, amount,

type of transaction and account, card or

account number, terminal location, and

name of any third party (such as a

merchant) involved in the transfer. The

regulation also requires periodic

account statements, generally monthly,

that detail largely the same information

as on terminal receipts and provide

other information such as opening and

closing account balances and fees or

charges assessed during the statement

period. These receipts and periodic

statements allow consumers to verify

account activity and to detect

unauthorized transactions and errors, so

that they can be reported and resolved.

For off-line accountable stored-value

products, documentation requirements

could present compliance difficulties

and considerable costs, while providing

only limited benefits to consumers. In

some cases, receipts may be given

whether or not required by Regulation

E. A retailer that accepts debit cards

must provide receipts under Regulation

E for debit card transactions, and

therefore might provide receipts for

stored-value card transactions as well.

But if the card can be used at places not

equipped with printers (such as vending

machines), to require receipts would

necessitate a retrofitting of terminals

and would impose ongoing compliance

costs. Moreover, for small or commonlymade transactions, many consumers

may not want or need a receipt.

The requirement for periodic

statements too may present compliance

problems for some off-line accountable

stored-value systems. In some of these

systems, transaction data are collected

in centralized data facilities, not by the

card-issuing financial institutions.

Given that lack of data, providing

periodic statements would be costly and

could impede the development of

stored-value products. Moreover, as in

the case of receipts, for small or

commonly-made transactions on these

cards, consumers may not need or want

documentation on a periodic statement.
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules 19701

The Board believes that the consumer

benefits of terminal receipts and

periodic statements—in the context of

stored-value transactions—may be

somewhat limited and be outweighed by

the compliance costs. Consequently, the

Board proposes to exempt off-line

accountable stored-value systems from

these requirements.

5. Limitations on consumer liability

for unauthorized transfers. Regulation E

generally limits a consumer’s losses for

unauthorized EFT debits to a maximum

of $50. If the consumer fails to notify the

financial institution of the loss or theft

of a debit card or other ‘‘access device’’

within two business days of learning of

the loss or theft, the consumer’s

potential liability rises to $500. If the

consumer fails to notify the institution

of unauthorized transfers appearing on

a periodic statement within 60 days

after the institution sent the statement,

the consumer’s liability for any further

unauthorized transfers is unlimited.

Absent Regulation E’s limits on

liability, stored-value cardholders bear

the entire risk unless the issuer opts to

assume some part of it (or offers

insurance to consumers against losses).

If the regulatory liability limits applied,

the risk would be imposed on the issuer,

because these systems operate off-line

and will not typically require PINprotection or any other means of

identifying the consumer. Without PINprotection there is an almost certain

likelihood that lost or stolen cards could

and would be used.

Some off-line accountable systems

could conceivably store negative files at

merchant POS terminals for blocking

unauthorized transactions. Thus, they

might be able to prevent unauthorized

use, assuming a consumer promptly

reported loss or theft of the card. But

many systems do not have this

capability. In addition, even for those

that could, the cost of transmitting

negative files to terminals frequently

enough to effectively block

unauthorized transactions could be

prohibitive.

Arguably, the lack of PIN-protection

in these systems may lead consumers to

be more careful in handling the cards.

Consumers might act more prudently if

initial disclosures were provided,

explaining the risk. In addition, if loss

does occur, the amount stored on the

card may be substantially less than

would typically be at risk with the loss

or theft of a traditional debit card, where

the deposit account may serve several

purposes (as a repository for savings or

for paying bills, for instance), and thus

may tend to have a larger account

balance.

In light of these factors, the Board

proposes to exempt off-line accountable

stored-value cards from the liability

provisions. Under the proposal, the

initial disclosures given to consumers

would summarize the full extent of their

risk.

6. Error resolution procedures.

Regulation E requires financial

institutions to investigate and resolve

claims of error made by consumers

within specified times—generally, no

later than ten business days after

receiving the consumer’s notice of error;

or 45 days after the notice if the

institution provisionally credits the

consumer’s account, in the amount of

the claimed error, within ten business

days. A summary of these procedures is

given to consumers with the initial

disclosures, and consumers also receive

an annual notice as a reminder. ‘‘Error’’

includes an unauthorized electronic

debit, a transaction in an incorrect

amount, and failure to provide required

identification of transactions.

Prompt resolution of errors is an

important consumer protection, but the

detailed procedures prescribed by the

act and regulation pose a potentially

difficult compliance problem for off-line

accountable stored-value systems.

Investigation and resolution of errors in

accordance with Regulation E would be

complicated and costly.

After weighing the potential costs

against the consumer’s need for these

protections, the Board proposes to

exempt off-line accountable storedvalue systems from application of the

error resolution procedures and also

from the related requirement to mail an

annual notice describing them. Initial

disclosures would inform consumers

that they bear the full risk of loss in case

of lost or stolen cards, if that is the case,

and would summarize any error

resolution procedures available.

The Board requests specific comment

on whether, alternatively, some minimal

error resolution procedures should be

required. For example, an error within

the financial institution’s control, such

as one resulting from a malfunctioning

card, may not be unduly difficult to

correct. Commenters are also asked to

address whether, if no error resolution

requirements are imposed, the initial

disclosures should include a statement

that there are no error resolution

procedures available to the consumer.

7. De minimis exclusion. In addition

to the modifications presented above,

the Board proposes a de minimis

exclusion for off-line accountable

stored-value systems based on the

maximum balance that can be stored on

the card or other device. For a storedvalue product limited to a relatively

small amount of funds, the amount at

risk would be sufficiently minimal that

application of even modified Regulation

E protections appears unnecessary. This

provision would apply to off-line

accountable devices that are limited to

a maximum of $100 at a given time;

such devices would be completely

exempt from Regulation E.

B. Off-line ‘‘Unaccountable’’ StoredValue Systems

As described above, off-line

unaccountable stored-value systems are

those in which the card balances and

transaction data are maintained only on

the card itself. Transaction data may be

maintained for a limited time at

merchant terminals, but are not

captured or maintained by the issuer or

a central database. Photocopier cards

and farecards for the mass transit

systems in some cities are examples of

such cards. Under the proposed

amendments, off-line unaccountable

stored-value systems would not be

covered by Regulation E. The proposed

amendments do not provide an explicit

exemption; instead, the definitions of

systems that would be covered under

the proposal do not capture off-line

unaccountable systems.

Most off-line unaccountable systems

currently involve small dollar amounts

and a single use, such as paying transit

fares. Other proposed systems, however,

could involve substantially larger

transaction amounts and maximum card

values, and could have multiple uses.

These features may make such a system

more comparable to traditional debit

cards than the small-value cards, in

terms of potential uses by consumers.

This being the case, the Board could

consider whether to exercise its

authority under the EFTA (to provide

uniform protections for all equivalent

consumer EFT services) by proposing to

bring off-line unaccountable systems

within the coverage of the act. If the

requirements applicable to off-line

unaccountable stored-value systems

were the same as those that the Board

is proposing with regard to off-line

accountable systems—initial

disclosures, with an exemption for card

values of $100 or less—compliance

would not be particularly costly or

difficult. Since the concern about

consumer protection would exist

primarily for systems that store

substantial amounts on a card, any

proposal could be framed in terms of

covering only those cards with a

maximum value of more than a certain

amount.

Although some off-line stored-value

systems that permit larger maximum

card values may fall within the
19702 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules

unaccountable category, it is not clear

that such systems would operate in this

manner at all times and with respect to

all transactions. As systems are further

developed, they could evolve into

systems that capture and maintain some

transactions in a location other than on

cards and at merchant terminals. If so,

the Board believes such systems could

be characterized as off-line accountable,

rather than off-line unaccountable,

systems, and thus would be subject to

the same set of rules.

There is some risk that the application

of Regulation E to off-line accountable

stored-value systems, but not to off-line

unaccountable systems, could act as an

incentive for developers of stored-value

systems to structure systems as

unaccountable in order to avoid being

covered under the regulation. It is not

desirable to have system design be

guided by regulatory rather than

economic considerations. However, the

requirements applicable to off-line

accountable systems—initial

disclosures—are so minimal when

compared to other factors that could

affect system design (for example, the

transaction data collected in

accountable systems may be useful for

various purposes including fraud

detection and marketing) that it seems

unlikely the potential for coverage by

Regulation E would have much impact.

On balance, the Board believes that it

is preferable to state that off-line

unaccountable cards are not covered by

Regulation E. The Board solicits specific

comment, however, on whether the

distinction between off-line accountable

and off-line unaccountable systems

(especially high-value ones) reaches the

right result, in light of the

considerations discussed above, and

accordingly on whether the Board

should consider coverage of off-line

unaccountable systems, under very

limited requirements such as initial

disclosures. The Board also solicits

comment on whether, if Regulation E

coverage were extended to off-line

unaccountable systems, it would be

preferable in defining the scope of

coverage to focus on the value capable

of being stored, on whether the system

has multiple uses, or on both of these

features.

C. ‘‘On-line’’ Stored-Value Systems

The third type of stored-value system

in some respects resembles off-line

accountable stored-value systems, and

in others resembles traditional deposit

accounts accessed by debit cards. As in

off-line accountable stored-value

systems, data about individual card

balances and transactions (including

merchant identification, amount, date,

and card number) are collected and

maintained at centralized locations; and

the value associated with a card is

limited to an amount that the consumer

chooses, not a fluctuating balance in the

consumer’s checking or savings account.

As in traditional deposit accounts

accessed by debit cards, these storedvalue systems operate on-line. When a

card is used at an ATM or a POS

terminal, the transaction is authorized

by means of on-line communication

with a financial institution or central

data facility. The balance of funds

available to the consumer is not

recorded on the card itself, as in off-line

stored-value systems; instead, the

balance information is maintained only

at the data facility. In this respect too,

an on-line stored-value system is the

functional equivalent of a deposit

account accessed by a debit card, and

thus can be viewed as representing a

consumer asset account for Regulation E

purposes, subject to coverage by the

regulation.

In general, compliance with

Regulation E requirements does not

appear to be a significant problem. For

example, because these systems operate

on-line, they are designed to block

unauthorized access, and compliance

with the limitations on consumer

liability for unauthorized transactions

should not be more burdensome than

for a traditional deposit account

accessed by debit card. However, a few

exceptions from particular provisions of

Regulation E may be appropriate, as

presented below.

1. Exceptions for periodic statements

and annual error resolution notices.

Regulation E requires statements that

detail account activity. In some on-line

stored-value systems, cards are not

reloadable, but instead are meant to be

discarded after the funds associated

with the card are drawn down to zero.

For example, a consumer may purchase

a card for use on a trip of a few weeks,

and draw down all value tied to the card

within that time. In such cases, the

potentially short-term nature of the

product and the lack of an ongoing

account relationship may make periodic

statements unnecessary.

As an alternative to the periodic

statement requirement, an issuer could

provide account balances and account

histories upon request, for the preceding

one or two months. This treatment

would parallel the exception adopted by

the Board under the rules applicable to

EBT systems. (See 59 FR 10678, March

7, 1994, codified at 12 CFR § 205.15.)

This alternative documentation would

not appear to be unduly burdensome,

because cardholders who have used up

the value associated with the card will

presumably not request an account

history. For similar reasons, the Board

believes that it would be appropriate to

propose exempting these systems from

the requirement to send annual notices

summarizing error resolution

procedures. Again, if the card is used

and discarded within a year, this annual

notice would serve little purpose.

It may also be appropriate to propose

an exemption from the periodic

statement requirement for on-line

stored-value systems involving cards

that are reloadable. Since the stored

value is accessible only through use of

the card itself (not, for example, by

check), then periodic statements may be

unnecessary. If a consumer receives a

receipt for each transaction, periodic

statements may not be needed even if

the relationship between the consumer

and the issuer is ongoing. If the

consumer needed to check on recent

account transactions, the consumer

could request the issuer to provide an

account history.

There may be less reason to exempt

reloadable on-line cards from the annual

error resolution notice requirement. If a

card issuer has an ongoing relationship

with the consumer, sending the annual

notice does not seem burdensome.

However, extending the exemption to

both requirements—periodic statements

and the annual error notice—regardless

of whether a card is reloadable, would

avoid making the proposed rule overly

complex.

Accordingly, the Board proposes to

provide that on-line stored-value

systems are not subject to (1) the

periodic statement requirement, but

may instead provide the account

balance and transaction history to the

cardholder upon request; or (2) the

requirement for an annual reminder of

error resolution procedures. The Board

solicits comment on whether the

proposed modifications should be

different for on-line stored-value cards

that are reloadable.

2. Change-in-terms notices. Under

Regulation E, if terms or conditions

required to be disclosed (such as limits

on transfers, or transaction fees) were to

change from those initially in effect, the

institution must generally notify the

consumer at least 21 days before the

effective date of the change.

For the reasons discussed in

connection with off-line accountable

stored-value products, the Board

believes that the change-in-terms notice

requirements need not apply to on-line

accountable stored-value products and,

accordingly, proposes to exempt them

from this requirement. Specific

comment is solicited on whether there
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules 19703

might be circumstances in which the

notice requirement should apply.

3. De minimis exclusion. Some online stored-value systems may make

relatively small amounts accessible

through use of the card. For example, a

number of prepaid telephone card

systems apparently operate on-line. As

in the case of off-line accountable

stored-value systems, if the amount

associated with a consumer’s card is

limited to a relatively small amount,

application of Regulation E protections

such as the limitation on the consumer’s

liability for unauthorized transactions

seems less important. And if transaction

amounts are on average quite small (as

is likely to be true if the maximum

amount on a card is low), the cost

impact of Regulation E compliance

would be proportionately greater than

for systems involving large transactions.

For these reasons, the Board proposes to

exempt on-line stored-value systems

completely from coverage under

Regulation E if the maximum amount

that can be associated with a card is

limited to $100.

Computer Network Payment Products

Parallel to the development of storedvalue card products, there has been an

increasing interest in other products

that might adopt stored-value concepts.

Systems are being proposed, for

example, for making payments over

computer networks, such as the

Internet. In these cases, a balance of

funds could be accessed via a

consumer’s personal computer, and

transferred or used in purchases via a

computer network. As in the case of

card-based products, there is a range of

network payment products in operation

or under development.

Some of these network payment

products involve on-line access to a

consumer account in a financial

institution, and thus are fully subject to

Regulation E. Other products may

involve various procedures for

authorizing and carrying out

transactions, and may or may not be

subject to the regulation. The Board

requests specific comment on the extent

to which the Board should consider

proposing that Regulation E apply to

various types of network payment

products. In general, the Board believes

that the same principles should apply to

network payment products as to storedvalue card products in analyzing

coverage under Regulation E. For

example, the Board might consider

applying a de minimis exemption to

network payment products in the same

way the Board is proposing for storedvalue card products.

Summary of Proposed Amendments for

Stored-Value Systems

To summarize, with respect to storedvalue systems, the Board proposes to

amend Regulation E to:

(1) Exempt completely from

Regulation E off-line unaccountable

stored-value systems;

(2) Exempt completely from

Regulation E both off-line accountable

stored-value systems and on-line storedvalue systems if the maximum amount

that can be stored on or associated with

a card at any given time is $100 or less;

(3) Establish modified requirements

for coverage of off-line accountable

stored-value systems, applying only the

requirements relating to initial

disclosures; and

(4) Modify the requirements

applicable to on-line stored-value

systems, under which such systems

would not be subject to (a) the periodic

statement requirement, if an account

balance and a summary of recent

transactions is provided upon request;

(b) the annual error resolution notice

requirement; or (c) change-in-terms

notices.

III. Form of Comment Letters

Comment letters should refer to

Docket No. R–0919. The Board requests

that, when possible, comments be

prepared using a standard courier

typeface with a type size of 10 or 12

characters per inch. This will enable the

Board to convert the text into machinereadable form through electronic

scanning, and will facilitate automated

retrieval of comments for review.

Comments may also be submitted on

computer diskettes, using either the 3.5’’

or 5.25’’ size, in any DOS-compatible

format. Comments on computer

diskettes must be accompanied by a

paper version.

IV. Regulatory Flexibility Analysis

In accordance with section 603 of the

Regulatory Flexibility Act and section

904(a)(2) of the EFTA, the Board’s

Division of Research and Statistics has

prepared an economic impact statement

on the proposed regulation. A copy of

the analysis may be requested from

Publications Services, Board of

Governors of the Federal Reserve

System, Washington, DC 20551, or by

telephone at (202) 452–3245.

V. Paperwork Reduction Act

In accordance with section 3506 of

the Paperwork Reduction Act of 1995

(44 U.S.C. Ch. 35; 5 CFR 1320 Appendix

A.1), the Board reviewed the proposed

rule under the authority delegated to the

Board by the Office of Management and

Budget. Comments on the collection of

information should be sent to the Office

of Management and Budget, Paperwork

Reduction Project (7100–0200),

Washington, DC 20503, with copies of

such comments to be sent to Mary M.

McLaughlin, Federal Reserve Board

Clearance Officer, Division of Research

and Statistics, Mail Stop 97, Board of

Governors of the Federal Reserve

System, Washington, DC 20551.

The collection of information

requirements in this proposed

regulation are found in 12 CFR Part 205.

This information would be mandatory

(15 USC 1693 et seq.) to ensure adequate

disclosure of basic terms, costs, and

rights relating to electronic fund transfer

(EFT) services affecting consumers

using certain stored-value cards or

home-banking services and consumers

exercising their error resolution rights

under Regulation E. The respondents/

recordkeepers are for-profit financial

institutions, including small businesses.

Regulation E applies to all types of

financial institutions, not just state

member banks. However, under

Paperwork Reduction Act regulations,

the Federal Reserve accounts for the

burden of the paperwork associated

with the regulation only for state

member banks. Other agencies account

for the Regulation E paperwork burden

on their respective constituencies.

The Federal Reserve has no data on

which to estimate the burden the

proposed requirements would impose

on state member banks. With regard to

stored-value cards, there are as yet no

such systems in full operation in the

United States, and only a few storedvalue card pilot projects. It is difficult

to predict how many state member

banks will choose to offer these

products and how many cards will be

issued to consumers. However, because

the proposed amendments include a

number of exemptions for stored-value

products from Regulation E

requirements, the proposed

amendments could have the effect of

reducing paperwork burden, compared

to what the burden would be without

the amendments in place.

The proposed amendments on the use

of electronic communication in home

banking would likely reduce the

paperwork burden of financial

institutions. Institutions offering home

banking programs would be able to use

electronic communication to provide

disclosures, periodic statements, and

other information required by

Regulation E rather than having to print

and mail the information in paper form.

The proposed amendment relating to

error resolution for new accounts may

reduce paperwork burden, because

institutions may be able to complete
19704 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules

error investigations within the longer

time allowed under the proposal (20

business days), rather than have to

provisionally credit consumer’s

accounts within ten business days and

provide related notices to the consumer,

as is required currently under

Regulation E.

The Federal Reserve requests

comments from issuers, especially state

member banks, that will help to

estimate the number and burden of the

various disclosures that would be made

in the first year this regulation is

effective. Comments are invited on: (a)

the cost of compliance; (b) ways to

enhance the quality, utility, and clarity

of the information to be disclosed; and

(c) ways to minimize the burden of

disclosure on respondents, including

through the use of automated disclosure

techniques or other forms of information

technology.

List of Subjects in 12 CFR Part 205

Consumer protection, Electronic fund

transfers, Federal Reserve System,

Reporting and recordkeeping

requirements.

Text of Proposed Revisions

Certain conventions have been used

to highlight the proposed changes to

Regulation E. New language is shown

inside bold-faced arrows, while

language that would be removed is set

off with brackets.

Pursuant to the authority granted in

sections 904 (a), (c), and (d) of the

Electronic Fund Transfer Act, 15 U.S.C.

1693b (a), (c), and (d), and for the

reasons set forth in the preamble, the

Board proposes to amend 12 CFR Part

205 as set forth below:

PART 205—ELECTRONIC FUND

TRANSFERS (REGULATION E)

1. The authority citation for Part 205

would be revised to read as follows:

Authority: 15 U.S.C. 1693–1693r.

2. Section 205.4 would be amended

by adding paragraph (c) to read as

follows:

§ 205.4 General disclosure requirements;

jointly offered services.

* * * * *

fl(c) Electronic communication. (1)

Definition. For purposes of this part, the

term electronic communication means

an electronically transmitted text

message between a consumer and a

financial institution; in the case of a

communication to the consumer, the

message shall allow text to be displayed

on equipment in the consumer’s

possession such as a modem-equipped

personal computer or screen telephone.

(2) Communication between financial

institution and consumer. (i) By

agreement between a financial

institution and a consumer, either may

send to the other by electronic

communication any information

required by this part to be provided

orally or in writing. Information

required by this part to be in writing

and sent to a consumer by electronic

communication shall be clear and

readily understandable and shall be

provided in a manner that would allow

a consumer to retain the information.

(ii) If this part specifies that

information be provided to the

consumer in writing, the consumer may

request a paper copy of the information

up to one year after receiving the

electronic communication.fi

* * * * *

3. Section 205.11 would be amended

by revising paragraph (c)(3), to read as

follows:

§ 205.11 Procedures for resolving errors.

* * * * *

(c) Time limits and extent of

investigation. * * *

* * * * *

(3) Extension of time periods. The

applicable time periods in this

paragraph (c)(3) are 20 business days in

place of 10 business days, and 90 days

in place of 45 days, if a notice of error

involves an electronic fund transfer that:

(i) Was not initiated within a state;

[or]

(ii) Resulted from a point-of-sale debit

card transaction; flor

(iii) Involves a new account during

the first 30 calendar days after the first

deposit to the account is made.fi

* * * * *

4. A new section 205.16 would be

added, to read as follows:

fl§ 205.16 Certain stored-value services.

(a) General. The rules in this section

apply to stored-value accounts as

defined in paragraph (b) of this section.

(b) Definitions. For purposes of this

section, the following definitions apply:

(1) Off-line stored-value account

means a balance of funds recorded on a

card that a consumer may use at

electronic terminals to obtain cash or

purchase goods or services, where the

record of such balance is also

maintained on a separate database, apart

from the card, and where on-line

authorization of transactions is not

required to access the funds. Off-line

stored-value accounts are subject to the

requirements in paragraph (d) of this

section.

(2) On-line stored-value account

means a balance of funds that may be

accessed only through the use of a card

that a consumer may use at electronic

terminals to obtain cash or purchase

goods or services, where the record of

such balance is maintained on a

separate database, and not on the card,

and where on-line authorization of

transactions is required to access the

funds. On-line stored-value accounts are

subject to the requirements in paragraph

(e) of this section.

(3) Financial institution includes any

person that, directly or indirectly, holds

an on-line or off-line stored-value

account, or that issues a card to a

consumer for use in obtaining cash or

purchasing goods or services by

accessing such an account.

(c) $100 exemption. A stored-value

account, as defined in paragraphs (b) (1)

and (2) of this section, is exempt from

the requirements of this part if the

maximum amount that may be in the

account at any given time is $100 or

less.

(d) Modified requirements for off-line

stored-value accounts; initial

disclosures. Stored-value accounts as

defined in paragraph (b)(1) of this

section are subject only to the following

initial disclosure requirements of this

part, as applicable:

(1) Liability of consumer. A summary

of the consumer’s liability, under state

or other applicable law or agreement, for

unauthorized transfers.

(2) Types of transfers; limitations. The

type of electronic fund transfers that the

consumer may make and any limitations

on the frequency and the dollar amount

of transfers.

(3) Fees. Any fees imposed by the

financial institution for electronic fund

transfers or for the right to make

transfers.

(4) Error resolution. A summary of the

financial institution’s procedures for

resolving errors concerning electronic

fund transfers, including the telephone

number and address of the person or

office to be notified in the event of an

error.

(e) Modified requirements for on-line

stored-value accounts. Stored-value

accounts as defined in paragraph (b)(2)

of this section are subject to the

requirements of this part, with the

following modifications:

(1) Exceptions; change-in-terms

notice; error resolution notice. The

account is exempt from the

requirements of § 205.8.

(2) Alternative to periodic statement.

A financial institution need not furnish

the periodic statement required by

§ 205.9(b) if the financial institution

makes available to the consumer:
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Proposed Rules 19705

(i) The consumer’s account balance,

through a readily available telephone

line and at a terminal; and

(ii) A written history of the

consumer’s account transactions that is

provided promptly in response to an

oral or written request and that covers

at least 60 days preceding the date of a

request by the consumer.

(3) Additional modifications. A

financial institution that does not

furnish periodic statements, in

accordance with paragraph (e)(2) of this

section, shall comply with the following

special rules:

(i) Initial disclosures. The financial

institution shall modify the disclosures

under § 205.7 by disclosing:

(A) Account balance. The means by

which the consumer may obtain

information concerning the account

balance, including a telephone number.

This disclosure may be made by

providing a notice substantially similar

to the notice in paragraph A–6 of

Appendix A of this part.

(B) Written account history. A

summary of the consumer’s right to

receive a written account history upon

request, in place of the periodicstatement disclosure required by section

205.7(b)(6), and the telephone number

to call to request an account history.

This disclosure may be made by

providing a notice substantially similar

to the notice in paragraph A–6 of

Appendix A of this part.

(C) Error resolution. A notice

concerning error resolution that is

substantially similar to the notice

contained in paragraph A–6 of

Appendix A of this part.

(ii) Limitations on liability. For

purposes of § 205.6(b)(3), regarding a 60-

day period for reporting any

unauthorized transfer that appears on a

periodic statement, the 60-day period

shall begin with the transmittal of a

written account history provided to the

consumer under paragraph (e)(2) of this

section.

(iii) Error resolution. The financial

institution shall comply with the

requirements of section 205.11 in

response to an oral or written notice of

an error from the consumer that is

received no later than 60 days after the

consumer obtains the written account

history, under paragraph (e)(2) of this

section, in which the error is first

reflected.fi

5. Appendix A would be amended by

adding an entry to the table of contents

at the beginning of the appendix and by

adding a new paragraph A–6, to read as

follows:

Appendix A to Part 205—Model

Disclosure Clauses and Forms

Table of Contents

* * * * *

flA–6—Model Forms for On-Line StoredValue Card Services (§ 205.16(e)(3))fi

* * * * *

flA–6—Model Forms for On-Line StoredValue Card Services (§ 205.16(e)(3))

(1) Disclosure of information about

obtaining account balances and account

histories in on-line stored-value card

service (§ 205.16(e)(3)(i) (A) and (B))

You may find out about the balance

remaining on your card by calling [telephone

number]. You can also learn your remaining

balance [by making a balance inquiry at an

ATM] [on the receipt you get when

withdrawing cash from an ATM] [on the

receipt you get when making a purchase].

You also have the right to get a written

summary of transactions made with your

card for the 60 days preceding your request

by calling [telephone number].

(2) Disclosure of error resolution

procedures in on-line stored-value card

service (§ 205.16(e)(3)(i)(C))

In Case of Errors of Questions About Your

Card Transactions Telephone us at

[telephone number] or Write us at [address]

as soon as you can, if you think an error has

occurred involving a transaction made with

your card. We must hear from you no later

than 60 days after you receive a written

summary of transactions (which you can

request from us), showing the error. You will

need to tell us:

• Your name and card number.

• Why you believe there is an error, and

the dollar amount involved.

• Approximately when the error took

place.

If you tell us orally, we may require that

you send us your complaint or question in

writing within 10 business days. We will

generally complete our investigation within

10 business days and correct any error

promptly. In some cases, an investigation

may take longer, but you will have the use

of the funds in question after the 10 business

days. However, if we ask you to put your

complaint or question in writing and we do

not receive it within 10 business days, we

may not credit the funds in question back to

the card during the investigation.

If we decide that there was no error, we

will send you a written explanation within

three business days after we finish our

investigation. You may ask for copies of the

documents that we used in our investigation.

If you need more information about our

error resolution procedures, call us at

[telephone number] [the telephone number

shown above]. fi

By order of the Board of Governors of the

Federal Reserve System, April 19, 1996.

William W. Wiles,

Secretary of the Board.

[FR Doc. 96–10181 Filed 5–1–96; 8:45 a.m.]

BILLING CODE 6210–01–P