19678 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

Federal Credit Unions

Division of Consumer Affairs, National

Credit Union Administration, 1775 Duke

Street, Alexandria, Virginia 22314–3428

Air Carriers

Assistant General Counsel for Aviation

Enforcement and Proceedings, Department of

Transportation, 400 Seventh Street, S.W.,

Washington, D.C. 20590.

Brokers and Dealers

Division of Market Regulation, Securities

and Exchange Commission, Washington, D.C.

20549.

Retailers, Consumer Finance Companies,

Certain Other Financial Institutions, and all

others not covered above

Federal Trade Commission, Electronic

Fund Transfers, Washington, D.C. 20580.

Appendix C to Part 205—Issuance of

Staff Interpretations

Official Staff Interpretations

Pursuant to section 915(d) of the act,

the Board has designated the director

and other officials of the Division of

Consumer and Community Affairs as

officials ‘‘duly authorized’’ to issue, at

their discretion, official staff

interpretations of this part. Except in

unusual circumstances, such

interpretations will not be issued

separately but will be incorporated in an

official commentary to this part, which

will be amended periodically.

Requests for Issuance of Official Staff

Interpretations

A request for an official staff

interpretation shall be in writing and

addressed to the Director, Division of

Consumer and Community Affairs,

Board of Governors of the Federal

Reserve System, Washington, D.C.

20551. The request shall contain a

complete statement of all relevant facts

concerning the issue, including copies

of all pertinent documents.

Scope of Interpretations

No staff interpretations will be issued

approving financial institutions’ forms

or statements. This restriction does not

apply to forms or statements whose use

is required or sanctioned by a

government agency.

By order of the Board of Governors of the

Federal Reserve System, April 19, 1996.

William W. Wiles,

Secretary of the Board.

[FR Doc. 96–10179 Filed 5–1–96; 8:45 am]

BILLING CODE 6210–01–P

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-andanswer 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

§ 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
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19679

New Old

(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 § 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 § 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 § 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 § 205.10(e))

Q3–20 and Q3–21 (see commentary to

§ 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 § 205.2(g) but is

included in § 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 § 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 largedollar, commercial wire transfers made

via Fedwire, Clearing House Interbank

Payments Systems (CHIPS), Society for

Worldwide Interbank Payments Systems

(SWIFT), and Telex.

UCC § 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
19680 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

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 § 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 § 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 § 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 § 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

§ 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

§ 205.5(b)

Comment deleted

Q5–4: Renewal or substitution—preFebruary 8, 1979 device

Comments moved

Q5–9, Q5–10 (see commentary to § 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

§ 205.6(a)(2))

(a)–2 .......................... Q6–3

(b)–1 .......................... Q6–5 (revised)

(b)–2 .......................... Q6–6.5 (with crossreference 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

§ 205.6(b)(4))

(b)(5)–1 ...................... Q6–7

(b)(5)–2 ...................... new
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19681

New Old

(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 § 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 § 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

(§ 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 § 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 § 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 § 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 § 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

§ 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 § 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 § 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

§ 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 § 205.9(a)(3))

(a)(3)–2 ..... new (footnote 3 to former

§ 205.9(a)(3)), Q–9, 9–10

(a)(3)–3 ..... Q9–8

(a)(3)–4 ..... new (former § 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 § 205.9(b)(1)(iv)(A))

(a)(5)(ii)–1 new (former § 205.9(b)(1)(iv)(B))

(a)(5)(iii)–1 new (former § 205.9(b)(1)(iv)(C))
19682 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

New Old

(a)(5)(iv)–1 new (former § 205.9(b)(1)(iv)

footnote 5

(a)(5)(iv)–2 new (former § 205.9(b)(1)(iv)

footnote 5

(a)(6)–1 ..... Q9–13, new (former

§ 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

§ 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

§ 205.9(b)(1)(v))

(b)(3)–1 ..... Q9–31

(b)(3)–2 ..... Q9–31.5

(b)(3)–3 ..... new (former § 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 § 205.4)

Q9–15 (see commentary to § 205.2)

Q9–26 (see commentary to § 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 § 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 § 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 § 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,

§ 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 § 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

§ 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 § 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 § 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
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 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 § 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 § 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 § 226.7(f)) that were assessed

against the account during the statement

period for EFTs. The reference to

finance charges in former § 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 § 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 § 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
19684 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

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

§ 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 telephoneinitiated 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

§ 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 § 205.10(e).

Comment 10(e)(1)–2 would allow an

institution to use the exception in

§ 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
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19685

laws. A reference to § 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

§ 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

§ 205.11(d)(3))

(c)–5 .......................... Q11–20, new (footnote 12 to former

§ 205.11(e)(2))

(c)–6 .......................... Q11–19, new (former

§ 205.11(e)(1))

(c)–7 .......................... new former

§ 205.11(d)(1)

(c)(2)(i)–1 ................... new (former

§ 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

§ 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

§ 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

§ 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 § 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 § 205.11. The provision

has been deleted from the regulation

and moved to comment (c)–4.

Footnote 12 to former § 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 § 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 § 205.11(c)(3) provided

examples of when a financial institution

must comply with all requirements of

§ 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 § 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

§§ 205.5, 205.6, and 205.11, in § 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.
19686 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

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

§ 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 § 205.14(a)(1) provided that

the service-providing institution must

reimburse the consumer for

unauthorized EFTs in excess of the

limits set by § 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

§ 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 governmentinsured 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 § 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,
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 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 § 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 accountholding 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 computergenerated.

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 billpayment 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.
19688 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

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

§ 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
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 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 accountholding 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
19690 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

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 peritem 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 accountholding 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 § 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

§ 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

§ 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

§ 205.6. (See also § 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-
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 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 § 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
19692 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

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 accountholding 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

§ 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 foreigninitiated 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 paperbased 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 thirdparty 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.
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 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 § 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-calendarday 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 §§ 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

§ 205.11(a)(1)(vii) by transmitting the

requested information, clarification, or

documentation within the time limits set

forth in § 205.11(c). If the institution has

provisionally credited the consumer’s

account in accordance with § 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
19694 Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations

under § 205.11(c)(2)(i) (A) and (B) must still

comply with all other requirements of

§ 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 § 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 § 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 § 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

§§ 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 § 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

§ 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

§ 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 § 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

§ 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
Federal Register / Vol. 61, No. 86 / Thursday, May 2, 1996 / Rules and Regulations 19695

contrast, § 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 § 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 § 205.11

as modified by § 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 accountholding institution. The periodic statement

provided by the account-holding institution

need only contain the information required

by § 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

§§ 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